J. Kumar Infraprojects Limited (JKIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to J. Kumar Infraprojects Limited Q2 FY '21 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] I now hand the conference over to Mr. Viral Shah from Prabhudas Lilladher Private Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. I welcome all the participants to the 2Q FY '21 Results Conference Call of J. Kumar Infraprojects Limited. We have with us Mr. Kamal Gupta, Managing Director; Mr. Nalin Gupta, Managing Director; and Mr. Arvind Gupta, CFO of the company. We will commence the call with some opening remarks from Mr. Kamal Gupta to give an overview on the company's performance. This should be followed by a Q&A. Now I would request Mr. Kamal Gupta to begin with his opening months. Over to you, sir, and thank you.

A very good afternoon, everyone. A very warm welcome to our quarter 2 FY '21 earnings conference call. I hope you all are safe and healthy through these unusual and challenging times. Along with me, I have Mr. Nalin Gupta, MD; Mr. Arvind Gupta, CFO and our IR team. I hope everyone has an opportunity to go through our results. The presentation and press release has already been uploaded on the stock exchanges and our website. Some of our key developments are the current manpower availability is nearing pre-COVID level now. We have received appointed date for Dwarka Package 1 on 24th of September 2020. We were awarded INR 91 crores of projects in this Q2 by MMRDA and DMRC. We are also awarded a project by MMRDA worth INR 1,052 crores. This is for Worli-Sewri connector in Q3. This has come in this month. Now allow me to give you an overview of the operational performance during the quarter. The total income for Q2 FY '21 is INR 474 crores as compared to INR 632 crores for Q2 of the preceding year, that is FY '20. The operating margin for Q2 FY '21 stood at INR 63 crores as compared to INR 108 crores for Q2 of the preceding year. With the unlock pace starting in Q2 and gradual improvement in availability of work force, we were able to substantially improve our execution as compared to Q1. I believe the performance of this quarter, therefore, cannot be compared with figures of year-on-year or quarter-on-quarter basis. We expect substantial uptick in execution pace considering availability of workforce and improvement in supply chain. At J. Kumar, our strategy is to improve pace of execution while remaining focused on collection and improving working capital utilization, cost rationalization measures and maintaining debt levels within the Board parameters. Even during the pandemic, our focus approach helps us in achieving a near 0 debt level things. So our net debt level improved from 0.1x as on March 31, 2020 to 0.05x as on September 2020. Our order book position as on 30 September 2020 stood at INR 10,642 crores, wherein metro accounts for 57% while flyovers, bridges and roads accounts for 41% of the order book. With now -- with this, now I will leave the floor open for questions. Thank you so much.

[Operator Instructions] The first question is from the line of Mahendrapal Rathore from Wood.

First of all, congratulations to giving some good result in this challenging time. My question is, how do we see the future? This challenging time may be there for, say, another 6 months, 9 months. And we hear the news of vaccines, but vaccination at ground level will take time. So how do we plan to sustain and improve operability and profit margins going ahead? And what are the new projects for which we are bidding? So -- and my third question is related to bullet train projects. So we bid for Ahmedabad-Mumbai bullet train, but unfortunately, we were not selected for that. So what are the other future aspects of this bullet train projects, what are our plans for this?

Yes. So Mahendrapalji, the first point, HSR, we were selected, but we could not be L1 because of overaggressive bidding by L&T. So that's 1 part of it. And there are further projects coming up for HSR for which we'll be bidding. And so let's -- the time will decide if we can back that or not. But we will surely bid for that project. That is as far as HSR is concerned. With respect to profitability, maintaining or the challenging times, I would say, of course, we all would agree that it's really a challenging time for all of us. Even the second wave of COVID is still in line. But now I guess people have learned to stay with this fact. And the rate of COVID is also falling down from -- it has fallen down to 36,000 from 1 lakh. So there is a positive thing and people are quite, means everybody has taken this fact and the works have resumed to pre-COVID levels. So we don't see any problem in the top lines or executions or profitability of the company. And going forward, there are a lot of -- your third question about business opportunities. I think right now, also contractors are being very selective because there are n number of projects which are there. So all companies are basically trying to be very selective and bid contracts at very rational prices. And right now, also there are projects in Surat Metro, Bombay Metro, Ahmedabad, Delhi works are coming up. So projects, I don't see any amount of shortfall. Thank you.

[Operator Instructions] The next question is from the line of Shivang Joshi from Prabhudas Lilladher.

Congratulations on a decent set of numbers. Sir, I wanted to understand, previously, even right now, we have spoken about Ahmedabad Metro, Surat Metro. I believe we have already -- we had bidded even before the previous con call. So any projects specifically where we are currently L1?

Yes. Hi, Shivani. So we are -- Shivang. Yes. We are L1 as I told you before also in this project of Worli-Sewri connected by MMRDA, which is an extension of and MTHL, which is costing INR 1,052 crores. So we had already being awarded this order last year.

Yes, yes, exactly. Apart from that, sir, any other projects where we are L1?

No, no, no, nothing as on. The bids are yet to open. We have submitted bids for Surat Metro, we have submitted bid for Bombay Metro Line 2B. So those bids are yet to open.

Okay. And sir, what is the execution? I mean what is the operational efficiency at which where projects are currently operating? What is the approximate labor force?

So labor force is -- reached to the record levels. Efficiency is not 100%, now, it is around 80%, 90%. So I think going forward in Q3, this thing it would be 100%.

Okay. Okay, sir. And sir, on the debt level, sir, where do we expect our debt to be by the end of the year?

It will be around INR 600 crores to INR 650 crores.

Okay. Okay. And sir, if you can give based on the fact that you already reached pre-COVID levels as far as labor is concerned, and we have a strong percent what is the revenue guidance. I mean do we have any change in the revenue guidance compared to what you have given last time?

So we have given last time, I think, around INR 2,000 crores for this FY '21. But it is expected to be around INR 2,200 crores now.

[Operator Instructions] The next question is from the line of Shravan Shah from Dolat Capital Market.

Yes. Sir, as now we have operating revenue guidance from INR 2,000 crores to INR 2,200 crores. So broadly around INR 1,400-plus crores kind of a revenue in the second half that we are expecting. So in the third quarter itself, we can see kind of a INR 700 crores kind of execution or it would be towards -- more towards fourth quarter where we can see a sizable revenue?

You always -- Shravan, you would appreciate that fourth quarter is always the strongest quarter of the year. And so we can say INR 600 crores and INR 800 crores is the approximate breakup is what we can say.

Okay. And the next year -- I think last time, we said around INR 3,500 crores revenue in FY '22.

We will be able to maintain that INR 3,500 crores figure. Because we -- as we have mentioned, we are already at an order book of INR 10,500 crores plus INR 1,000 crores. So INR 11,500 crores. And so we should be able to achieve that.

Okay. Okay. And in terms of the margin levels, now definitely, we have improved from 9.9% in the first quarter to 13.2%. And we were expecting around 15% kind of a margin in the second half. So are we on track that?

Yes, we are on track with that. We should be able to maintain around 14% by the year-end. And it's only FY '22 is -- as we should be maintaining the same 15% to 17% EBITDA margins that the company has been making.

Okay. So you're saying the 14% for the entire second half or by fourth quarter, we will be seeing -- we can see a 14%?

Average 14% is what we should see 13% to 14% somewhere we should be able to maintain as an average for the whole financial year '21.

Okay. Okay. Got it. Got it. And in terms of, sir, if you can expand on in terms of the bidding that you said that you bid it for Surat Metro and Line 2B in Mumbai, if you can elaborate in terms of the size and when the bids likely to be open? And what are the further bids that we are planning to bid in next 3, 4 months?

So basically, the Surat Metro is an underground metro job and also an elevated metro job, so which is costing around, estimated cost is close to like INR 2,000 crores or INR 2,500 crores put together. And for Bombay Metro, it is a project worth around INR 1,100 cores, INR 1,200 crores. Both these -- and Bombay Metro is an elevated metro. So these metros, we have already submitted. And we have also submitted a bid for Delhi-Saharanpur flyover project costing around INR 2,800 crores.

INR 2,000 crores?

INR 2,800 crores.

INR 2,800 crores. So that is -- on the stand-alone, we have we bidded and not any of the JV that we have done for this flyover?

Yes, this is a stand-alone project of NHAI.

Okay. Okay. And then all these Surat Metro, Mumbai and this, when the bid likely to be open?

These are 2 projects. It's not 1 project. Delhi- Saharanpur are 2 packages, around INR 1,000 crores, INR 1,500 crores each.

All these projects should be opened in a month's time or so is what we expect.

Okay. And then after that, any more -- in MMR region, any more bidding likely to happen in by March?

Of course, there are new projects which are going to come up, and we would like to be little -- will not like to disclose all these things as of this stage. But there are good opportunities coming up in this next 6 months.

Okay. Okay. And sir, sir, on the working capital front, particularly payable days, which has came down sizably. So just trying to get a broader view, how we see because I think payable days from 57 days has came down to 44 days. So how do we see the working capital days by end of year?

So it's good, if you see despite this pandemic also, we were able to maintain the net working capital at similar levels to last year. So like in fact, your this thing, creditors, as you say, credit has gone down. So it's good --

It's basically the government has been -- it's also a reply to the point that's concerned that Mr. Mahendra was saying about. It's like when the government, always when there has been a recession or slowdown in the economy, infrastructure is the only backbone of the entire country where you see the chain effect happening. So government has been pumping money time and again for new projects and for existing projects also in the COVID period, we were being paid off time to time. So the outflows were comparatively less. So whatever monies were coming in, we were trying to pay off the -- our creditors and clear them off.

Okay. And some data points, sir, what is the mobilization advance and retention money as on September? And on the fund base and non fund base limit.

Okay. So mobilization advance as on 30th September tends to INR 420 crores. We have been -- we received INR 43 crores of advance in this Q2 from guidelines. What was the other point, Shravan?

Retention money.

Retention money is INR 230 crores.

INR 230 crores. Okay. And fund base and non fund base limit and how much is utilized?

So INR 2,700 crores is non fund base limit, which is utilized and fund-based is some loan and this put together INR 585 crores.

That has been utilized. And what's the total lifetime, you said that fund base was INR 700 crores and nonfund base was INR 3,400 crores. So that prefix is same.

Total sanctioned is INR 4,200 crores fund and nonfund base together and utilized is INR 3,300 crores. So we still have sufficient leverage going forward because of some big projects.

Okay. And lastly, sir, on CapEx now, how much we want to do for the -- this and next year, can we see an increase in the CapEx sizably as we are getting more projects?

So this year, we are expecting a CapEx of around INR 50 crores as on an year-end. And going forward, this year, we have completed -- till H1 we have done the INR 1,300 crores of CapEx, and we expect around INR 50 crores till the year-end. And going forward, also coming years, we are not sure, but like it's maybe around INR 50 crores to INR 80 crores of CapEx not more.

And our net block is around INR 798 crores, say INR 800 crores.

The next question is from the line of Rakesh Vyas from HDFC Mutual Fund.

So 2 questions from my side. One is if you can just talk about as to what is the kind of sustainable cost optimization measures that we have taken? And going forward, in FY '22, would that actually improve our margin profile incrementally from here on?

So about cost optimization, I would say that more and more mechanized way of operation is what the company is trying for. So even we have put like, for example, I would say, for a steel cutting, bending we used to require, say, 100 levers. So that has been brought down to 50 because of the COVID issues. So we are trying to put automated plants on all the major site locations. So wherein -- with the mechanized systems with less labor and more efficiencies in this output is what can be achieved. And also, it enables to maintain the wastages also in terms of wastage control and all these factors, it supports. Again, all the shuttering jobs, we try to do more and more by mechanical means, by self-standing shutterings and all. So that is the type of optimization we are trying to do. Also for staff, we are trying to see by talking to the other people how we can work with the minimum number of people at site. So that's the reason you will see also there is a reduction in the staff cost. Also, the interest cost and all, you will see that we have been trying to maintain the cash flows by reducing our debt levels. Our debt has also come down this quarter. So all these factors put together, we are trying to optimize in the best possible way. And also because of the COVID, I think it's a blessing in disguise where people have started doing more of videoconferencing, where in efficiency and time, and time management has become much better.

Sure. Fair point, I agree. Second, sir, essentially, so as we move from this year to next year where our revenue is expected to move from INR 2,200 crores to INR 3,500 crores. How should we look at working capital utilization going forward, where we should see these debt levels incrementally for us given that. And there is going to be a sharp ramp-up on major projects?

See we will be able to maintain a working capital cycle of 120 days. And means it would not be a jump actually from INR 2,200 crores to INR 3,500 because we have already executed a top line of INR 3,000 crores, and we could be able to maintain our working capital and our cash flows, which you can see from the FY '20's revenue generated. So for J. Kumar, we are a very disciplined financial company and maintaining our working capital to 120 days. And with no major increase in debt is what we foresee.

Sure. Two quick questions after this. Sir, 1 is in the HSR project, so what would had been our scope of work in the consortium and incrementally from here on are packages still going to be in larger sizes and we'll continue to be in consortium or we are looking at stand-alone projects as well, which could come in HSR?

So you are very consortium of Tata, Nagarjuna and J. Kumar and it was a vertical split bifurcation where J. Kumar would have executed certain kilometers. And similarly, other partners would have executed certain percentage. So it was a vertical cut from foundation to superstructure, entire thing with casting yards were to be done by individual partners. And coming to the second point about the size of the projects, there are still around 3 to 4 projects, which are of larger size, ranging from INR 5,000 crores to around INR 14,000 crores, which are in pipeline and should be here -- 1 project is already out. And 2 more projects should come within a period of 6 months, and we are in touch with them. And we are trying to add some strategy towards, going forward for these jobs.

Got it, sir. And 1 last question, rather a suggestion, I would say, which I thought I'll just put across, even that we had done a very good job on financial discipline in terms of our execution, our cash flows. And incrementally, you are saying our CapEx requirement will be reasonably low. So I'm just trying to understand, today, the market cap of company is closer to what your net block is, and this is very, very surprising. Would you suggest that Board can look at utilizing some amount of free cash that you are generating for buyback and that will also improve promoter shareholding. I'm just trying to understand, I mean, in terms of the overall value that company is creating is reasonably high, but market is not recognizing that, unfortunately. But in this current time, we are seeing a lot of companies actually going for buybacks in this environment. Is that a thought process that you would carry out?

See, with regards to this buyback, already the company has done a buyback some time back. I'm sorry, the promoters have bought some share in that. And the company right now is in need of money to run the organization in a much stable way rather than -- and the stock market is under nobody's control. And I don't think the company plays -- our main objective always at J. Kumar from the time of inception is to look at our performance. And we believe that our performance, our order book, our margins and the specialized area of operation. This will eventually pay off and the market will do this big correction, which is needed.

Sure. I was just trying to understand from the aspect that our current net debt-to-equity or net debt-to-EBITDA is very, very controlled.

We will try to look - we'll try to put this proposal in front of the board. And as per the comfort and cash flow of the company, we'll take this call, sir.

[Operator Instructions] The next question is from the line of Parvez Akhtar from Edelweiss Securities.

Congratulations on the...

Sorry to interrupt, Mr. Akhtar, we're not able to hear you.

Yes. Congratulations for a good performance...

Sir, your sounding very soft.

Yes. Is it better now?

A little better.

Yes. It's better now.

Yes. Yes. Congratulations for a good performance. Couple of questions from my side. First, if you could give -- help us with the status of the CIDCO Coastal Road project, I mean where exactly is that project today?

So CIDCO Coastal Road has yet not started because there's some mangrove issues and forest clearance issues, it's still, like be it another 5, 6 months to start that project.

So are we L1 or will again go for bidding or any such thing?

No, no. We are still L1. So it should not go for bidding again.

Okay. Sure. Second thing, in terms of order intake, what is it that we are targeting for the current year? I mean you said, obviously, the various bridge that we have put, but broadly, what kind of number that we are looking for order intake?

We are looking for around INR 2,000 crores to INR 3,000 crores of order inflow going forward in Q3, Q4. Taking our order book, we'll be able to maintain around INR 12,000-plus crores by year-end.

Sure. And lastly, if you could help us with the status of some of our major projects like those in Mumbai Metro, the 2 packages in Dwarka Expressway and so on.

So Dwarka Expressway 1 package we got appointed just last month. So it's just starting. And the second package, package 2, we have already started. So we have generated a billing of around INR 1,100 crores, INR 1,150 crores in that. And for Line 3 underground metro Bombay, we have completed around 63% of the project. Line 2, we have completed around 80%. And the JNPT around 86%. SCLR, Santa Cruz–Chembur Link Road around 56%. And yes, this is what are the major projects survey.

The next question is from the line of Rachit Kamath from Anand Rathi Share & Stock Brokers.

I have a few what pertains to so what additional mobilization losses can we draw during the year?

So additional mob advance is yet to come now is INR 430 crores.

And do you expect any of this over H2 only? Or it will take some more time, sir?

Pardon?

We'll be expecting this over H2? Or will it take some more time?

Major of it should come in H2. So part of it is interest bearing also. So like we'll decide whether to take how much out of it. So like INR 430 crores majorly should come in H2 only.

Only INR 150 crores is interest-bearing, and balance INR 300 crores is from interest free accounts.

Okay. Okay. So that is interesting. INR 130 crores -- INR 150 crores is interest bearing. So that debt this quarter gross, it was almost INR 585 crores. Am I right in my understanding?