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

Ladies and gentlemen, good day, and welcome to the J. Kumar Infraprojects Q1 FY '23 Earnings Conference Call, hosted by Anand Rathi Shares & Stock Brokers. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Meet Parikh. Thank you, and over to you, sir.

Thank you, Sima. On behalf of Anand Rathi Shares & Stock Brokers, I welcome everyone to the Q1 FY '23 Earnings Call for J. Kumar Infraprojects Limited. From the management side, we have Mr. Kamal Gupta, Managing Director; Dr. Nalin Gupta, Managing Director; Mr. Madan Biyani, CFO; and Mr. Arvind Gupta, VP Taxation. We will start with the opening remarks from the management regarding the industry results post which we will open up for an interactive Q&A. Over to you, sir.

Yes. Good afternoon, everyone. This is Kamal Gupta. On behalf of J. Kumar, I welcome everyone to the Q1 FY '23 earnings call of the company. Joining me on this is Mr. Nalin Gupta, MD; Mr. Madan Biyani, CFO; Mr. Arvind Gupta, VP Taxation and our IR team. I hope everyone had an opportunity to look at our results. The presentation and press release have been uploaded on the stock exchanges and our company's website. Before I begin the overview, a brief disclaimer, the presentation which we have uploaded on the stock exchange and our website, including the discussion during this call contain or may contain certain forward-looking statements concerning J. Kumar Infraprojects business prospects and profitability, which are subject to several risks and uncertainties and the actual results could materially differ from those in such forward-looking statements. Well, we are expecting to deliver another quarter of healthy performance of J. Kumar with stable operating margins and debt level. We are witnessing strong execution momentum across all our projects and our focus to create value for all of our stakeholders. We are witnessing pickup in new projects already. FY '23 has started on a positive note with projects awarded to [indiscernible] INR 1,374 crores this fiscal year. Some key updates. We're awarded project from lrcon amounting to INR 1,068 crores, excluding GST in Q1 of FY '23. This is part of the Delhi-Mumbai corridor. It starts from Vadodara to JNPT, Package 17. The total project length is 9.8 kilometers, wherein 4.2 kilometer is a tunnel portion. It's a 4 plus 4, 8-lane access-controlled highway with twin tube like tunnels. The second project, which was awarded to us is a sewage tunnel project in Mumbai by BMP -- BMC from Don Bosco to Malad, amounting to INR 510 crores, excluding GST, which is in JV wherein J. Kumar share is INR 306 crores in Q2 of FY '23, this year. Coming to the financial highlights of Q1 FY '23. The revenue from operations for Q1 FY '23 grew by 47% to INR 994 crores as compared to INR 675 crores in the preceding year of Q1 FY '22. The operating margin EBITDA for Q1 FY '23 stood at INR 140 crores as compared to INR 97 crores in Q1 of the preceding year. EBITDA margin stands at 14.1%. The PAT for Q1 FY '23 has gone up by 93% to INR 62 crores as compared to INR 32 crores of Q1 FY '22. PAT margin for Q1 stood at 6.2% as compared to 4.8% in the preceding year. The company continued its focus on working capital management and good quality of work and good order book. Our total order book as on 30th June '22 stands at INR 12,095 crores. The order book in the area includes metro projects contributing almost 57%, while flyover projects and road projects contributes to around 35%. We remain optimistic on Indian recovery amidst the continuing global geopolitical uncertainty. Before taking the question/answers, I would like to repeat the vision of the company. J. Kumar's vision is to be a $1 billion revenue company by year '27, and we expect our order book to go about INR 20,000 crores by '27. With strong financial and technical merits, we envisage becoming [ one revenue ] company by '27 of course. Our endeavor is to reduce gross debt level in medium term. Objective is to continuously improve shareholders' return ratio by investing in people, technology and process. Thank you so much. Now I leave it for the question and answers, please.

[Operator Instructions] We take the first question from the line of Mohit Kumar from DAM Capital.

Congratulations on a fantastic set of numbers. Sir, my first question is, given the stupendous revenue given the high -- given the high growth in the first quarter, is there an upside just to our guidance in the sense you have given 15% guidance, it's come to INR 40 billion for the entire year. Do you think the numbers can be revised upwards?

So of course, we always believe in giving a conservative figure. But like Q2, of course, is sluggish because of rain, as you know. And we feel like in July, we had very good rains. So our figure was INR 2,000 crores as on -- for the coming fiscal year, like '23, thanks to be good. And if you are able to get a better update, we are ready for that. And like this year -- quarter, we could do better than any will say. So we believe giving a conservative figure.

Understood, sir. So in the upside, but yes. Sir, my second question is on the -- of course, clearly the EBITDA margin were steady at 14.3%. Do you think -- what was the impact of inflation during this quarter? And do you think using inflation scenario environment to make it easier for us to have a better margin in the next 3 quarters? Or do you think our margins are neutral to the inflation?

So if you are aware, Mohit, like last couple of quarters, the rate of all commodities have really gone up, shot up to the sky, okay? So because of that also, there was no impact on the bottom line. And there's like some drop also, there won't be any impact on the bottom line since all of our projects are covered with price escalation variation clause. So we are a full line like sure that we'll be able to maintain this 14%, 15% EBITDA margin, what we have given guidance of.

Understood, sir. Lastly, sir, how is the order environment outlook, especially in metro and in Mumbai area, [indiscernible] area for the next 8 months? Where is GMLR, the project right now? Do you think you can get awarded in the system?

On metro sector, hi, Mohit, this is Nalin here. So metro, there is huge opportunity that we are seeing all across the country. And currently also in Bombay, also package 10, 11, 12 and also package 13, there are 3 to 4 packages, which has been already approved in [indiscernible] and also the GC tenders have been -- the price feed has been opened. So it is very likely that in next 3 to 4 months, we should be seeing new Bombay Metro tenders coming up. Again, if you talk of Chennai, there are 6 packages. Again, Kanpur is coming up with new packages. Delhi is coming up with new packages. So -- and again, these are the 13 cities where metro is operating as of now, but there would be -- we could shoot up to 25 cities. So metro has been accepted as one of the most economic and the fastest, smooth of transport as the mass transport system. The government has understood the importance of it, and that's the only way how traffic can be controlled. So this has been taken up in all the cities, and there is a huge opportunity for metro projects all across the country in coming next 5 years more to go. And with regard to GMLR, we have already submitted the RFQ for [indiscernible] packages. And we expect that in the next couple of months, we should be able to submit the RFQ. So because of the change in government and all certain things have been kept on hold, but it should be moving fast now I think.

We take the next question from the line of Krishna Agarwal from Niveshaay.

Sir, my first question is regarding -- as we mentioned that we are the only company has in the market a number of events. Sir, I wanted to understand what kind of cost advantage we have because of our [indiscernible] as in percentage terms?

Sorry, Krishna, we are not able to get you. Can you be more clear, please. You are not properly audible.

Hello?

Yes, yes. Please go ahead.

Yes. Am I audible now?

Yes, very much.

So my first question is that we mentioned that we have the largest fleet of CBN. So I wanted to understand what kind of cost advantage do we have over there in percentage terms? And what are -- who are the next players who have the maximum number of TBMs out there, like you have 7 TBMs so who are next players who have [indiscernible] TBMs. Secondly, I wanted to understand that what is the demand scenario in other that is road and expressway projects, these are my second question -- 2 questions.

Okay. So Krishna, as you know, I will be rightly told, we have 7 TBMs of our own, and we feel we are ready to 1 more. So we hopefully will be the only contractors in India who has an extra number of TBMs. And also, [indiscernible] they also have these number of machines, but our machines are mainly new machines that we have bought. So J. Kumar and [indiscernible] we are 2 people in the country who have such number of fleets with tunnel boring machines. And coming to the competency, like, of course, when you have your own equipment, like and once you have utilized it in a previous project, so that comes like a very nominal cost for the other projects. So you have a niche over others in bidding and as well as maintaining your bottom line because the machine has already been amortized on the earlier projects. So the refurbishment cost is the main cost that we incur on it. So that's how we have an upper end over winning the space. Anything else, Krishna?

[Operator Instructions] We'll take the next question from the line of Vignesh Iyer from Sequent Investments.

Congratulations on good set of numbers. I just wanted to ask [indiscernible] in case of Mumbai Metro, after the metro [indiscernible] for construction, what is the movement when it comes to the new tenders in terms of the other metros and what is our participation ratio when it comes to the standards.

Sir, if you talk of [indiscernible] metro station, that was a specific depot only dedicated to line 3. And all the other packages related to line 3 has already been floated and the work is on advanced stage of completion like J. Kumar, we have 2 packages and 85% work has already been completed of our 2 packages. So by December '23 is what we expect that we -- all the civil work should be over, and this would be only related to metro line 3. And when you talk of other packages, they all have their different depots in different vicinities. So most like 2 and 7 we have a different depot at [indiscernible]. Again, Line 2B has a depot at [indiscernible] so on. There are different issues. So [indiscernible] has nothing to do with the other metro lines. And as we already mentioned that there are around 4 metro lines, metro line 5, there is underground section, which is coming up. Metro Line 10, 11 12, 13, so there are altogether 5 lines, which we will be seeing the pending process to happen in a couple of months from now.

Okay. It's like after the current government coming up, is there any escalation when it comes to the metro project. That was my point of view to ask, I mean [indiscernible] around?

As we discussed, like metro line 3, as soon as the government -- new government came in, you can see the acceleration at [indiscernible] depot and also the other metro lines have been told to be given full pay and whatever clearances are there, they have been given a good push. So the clearances are happening better. The government is pro to metro. So we are seeing that the operations are getting more smoother.

Also coming to the margin part of our letter. So if you could see the pre-COVID level, we were consistently reaching around 16% margins for few years, even 18% at times. And so I just wanted to know what is the company's outlook on it? Can we get back to those levels because we are seeing good amount of traction when it comes to top line. So just if you could give us an idea because we had pre-COVID consistently maintained around 16% for [indiscernible] years.

We have been giving a guidance of around 14% to 15% for our EBITDA margins. And if you look at the EBITDA that the company has been making for the last couple of years, it has been in the band of 14% to 15% only. So we have never given a guidance for 18%. And as we baseline -- as the base increases, then the company keeps growing, still to maintain EBITDA of 14% to 15%, I think it's a good kind of numbers that the company is targeting and we are able to achieve. So I would say that 14% to 15% is the guidance that we should be looking at. So the scope for improvement, and we always thrive for achieving the same. But to have a fair idea and to give the fair guidance, we would say 14% to 15%, the fair number.

And coming to this project like a non-metro projects [indiscernible] just wondering how it can go and what is -- is there a price variation as part of the contract because the prices of raw material has been fluctuating a lot in the past one year. So just wondering how -- what is the idea there?

Vignesh, like whether it's metro or nonmetro, the situation is same. So all of our projects, 100% of our projects are covered with price escalation and variation clause, okay? And these are linked with the RBI index rate so if the commodity price goes up, the RBI indexes goes up. If the commodity prices goes down, the RBI indexes goes down. So whether it's cement, steel, fuel, labor, PNM or other commodities, all are linked with our price escalation clause. So any increase or decrease, does not hit our bottom line. So that is metro or nonmetro projects.

We take the next question from the...

Sir, I just wanted to understand the margins of the few orders that we have received. The expressway project and sewage projects. Look, how is it different from one another? Which one have better margins?

[ Naresh ], of course, like we don't work without bottom line. So our focus is always on profitable growth. They're not on the top line as you might be looking into previous history also. So both these projects have been secured 14% to 15% operating margin. And we are sure like till the time has come, we go a percent up or down, but these are secured at 14%, 15% margin, both the projects. And both our [indiscernible] jobs of specialized operations, let it be [indiscernible] segment lining. So both are specialized jobs.

We'll take the next question from the line of Alok Deora from Motilal Oswal.

Just a couple of questions. Sir, what's the order inflow target we have for this year? Actually, I missed that number in case we...

So Alok, we have -- like last year, we had order inflow of INR 4,000 -- sorry, INR 3,670 crores. And this year, the fiscal itself we had an inflow of INR 1,375 crores. And we are targeting around INR 5,000 crores inflow for this current fiscal '23. We are maintaining our INR 1,200 crores, INR 1,300 crores of order book always.

Right. And also, sir, this project -- expressway project of -- which you have won in 1Q, this has been won by [indiscernible] HAM basis, right?

You're right, Alok. This project has been taken by [indiscernible] basis.

We are the main contractor for it. They are the developer and we are the main contractor.

Got it. Got it. So does that mean this will start after like 8, 10 months because typically -- because it's -- I think it's awarded to them in May or sometime that time. So it will take its own financial closure and appointed date and all those 8, 10 months will go in that so...

So you're right as the initial 6 months are usually taken for that. So we are expecting the appointed from 1st of October. But we have already started the work there. We have started our survey mobilization and all have already started. So we saved that much time and probably we are looking for bonus in that project. So we wanted to come out before the appointed date.

Sure. And this would -- what's the time line for this?

This is for 36 months. The project timeline is 36 months.

And also -- just also wanted to understand. So these projects, if we look at some other players, they are making [indiscernible] EPC project, the margins are typically in the range of 10% to 12% at best. So just wanted to understand what kind of margins we are looking at from this particular project?

We have the secure margins and we bid for 14% to 15% operating margin of this, Mr. Alok.

Okay. So in this also, we will be able to make that number?

Nothing less. Nothing less. Yes.

Okay. Yes, I think that's all my side. And just one last question, if I may. So any more kind -- these kind of projects you are looking to back in the near to medium term. I mean the ordering for which we are giving that's primarily targeted in any -- apart from metro, are we targeting any other key segments like growth?

So this -- if you see both orders are from 2 different verticals, what we have been usually doing apart from metro business, flyovers and building. So these are big tunnel projects signed at the end. This is a new vertical what we have entered. Even the second project of sewage treatment -- a sewage water tunnel. So like these are the new segments, and we are -- going forward also, we are of course focused on these segments as well, whereby adding up our order book and revenue. And also, we are back the order of [indiscernible]. That's again a new vertical which the company has started. So there are a lot of investment development work that's happening in Gujarat and in Maharashtra, and there are other similar [indiscernible] work, which are going to come up in [indiscernible] first. So these are the new verticals. So we do not intend to basically project -- to divert majorly from our sector of transportation which is itself initially of expertise of elevated underground metros and bigger size of flyovers and more projects of NHs.

Sorry to interrupt, sir. It seems that the line from [indiscernible] has just got dropped. So we'll take the next question from the line of [indiscernible] from Sumangal Investments.

Congratulations for a good set of numbers. My question is on the strength of our balance sheet to what can be the maximum size of our order book? Can we reach INR 20,000 crores of order book on this balance sheet size? Or our balance sheet is preventing us from bidding higher quantity projects?

So [ Mr. Atul ] right now, the balance sheet and the capacity -- the financial status of J. Kumar entitles us to go up to INR 20,000 crores also without any limitations. However, it totally depends upon the nature of what type of CapEx or what type of -- new type of works [indiscernible] with geography are picking up a bit. But with the given scenario, shooting up the order book up to INR 20,000 crores without the -- with the same balance sheet, we should be very much comfortable.

Okay, sir. And sir, are the margins different for road and flyover segments and metro segments? Or margins are almost same across all the segments?

To let you know, we don't take much of road work alone. So roads are part of the major structure work like we're doing the Dwarka Expressway, which is almost INR 3,000 crores of project and [indiscernible] road component is only 10% or 12%. So of course, road is there, but we don't do only, only road, right? So as coming to JNPT, road is also similar. If you look at our JNPT, which is a project of more than INR 1,500 crores where also it's a combination of concrete with [indiscernible]. Again, it's not a normal PTC, but this is [indiscernible] and along this big interchange [indiscernible] flyover, so those product works are not everyone to be to execute this. All the agencies who are doing road work cannot do such type of flyovers. So whenever structure is involved, we try to pick up bridge type of work.

So coming to the margins, sir, whether it's a metro or flyover or tunnel, the margin like what we quote is basically what you quote and get the works at, like what is your working. So we don't quote anything -- any projects without a 14% or 15% of EBITDA margin. So all our projects of this mix is -- all are secured 14% to 15% margin.

We take the next question from the line of [indiscernible] Agarwal from Green Portfolio Private Limited.

There is a reduction of around 55% in administrative and other expenses in this quarter compared to previous quarters. So could you please throw some light on the reasons?

One sec, please. Mr. Madan [indiscernible].

Yes. This is because in this quarter, we have regrouped our expenses into construction expenses and other expenses. So now other expenses become just administrative nature and construction expenses mainly services, which are required to -- for our construction business. So this is for better presentation of our P&L.

Sir, I do understand. I'm talking about the numbers presented, like you've also restated the numbers for the previous quarter. So in comparison to that...

Yes. We have regrouped all the quarters to make them comparable.

[indiscernible] INR 200 lakh to INR 995 lakh in this quarter?

Which number are you talking about INR 995 lakh?

[indiscernible], you're referring the results?

Yes.

Just take INR 995 lakh -- that is INR 9.95 crores administrative and other expenses. Yes. So earlier that was INR 104 crores of construction expenses plus INR 9 crore expenses, earlier it was INR 115 crores. Now it has been split into 2 items, construction expenses and other expenses. And similarly, for all the previous quarters and years.

Yes, sir. So what I'm saying is if you compare the administrative and other expenses, for quarter ending 31st March, it is around INR 2,200 lakh and for quarter ending 30th June, it is INR 995 lakh. So there is a drop of 55%. That is quite substantial?

Yes. So if you look at, there is one important thing that I would like to highlight here, that this is also -- there is a total cost of INR 100 crores. So out of INR 100 crores, if you see, the material component has gone up a little bit higher as compared to the administrative and other expenses. So in certain quarters, we can see the material going up and the administrative cost and other expenses going down depending upon whether no material is consumed or it is more of less material related or less -- more material related. So that percentage changes and still -- the 100 percentage still remains the same. So here, the material component has gone up and the other component has still remained on the lower side.

So if you see like the quarter ending 30th June '21, the administrative expenses were only INR 12 crores. So on a quarter-on-quarter, there is slight changes and overall, it's around INR 60 crores for the year end. .

Okay. And just, sir, could you please [indiscernible] mobilization advanced retention money and [ unbilled ] revenue for this quarter?

Yes, man. You want mobilization advance, [ unbilled ] revenue?

So this is INR 557 crores in the mobilization advance.

INR 557 crores is the mobilization as of today.

And [ unbilled ] revenue is INR 545 crores.

INR 545 crores is the [ unbilled ] revenue, madam. Is that good?

Hello?

Yes, [ Sanju ] can you hear?

Sir, I can hear you. Sir, the retention amount? .

It is INR 220 crores.

INR 220 crores.

Okay, sir. One last question. Could you please share me the details of some slow moving projects like which are there for like over 4 years now?

Come back, sorry. Can you come back, madam?

Sir, any slow moving projects which are ongoing for over 4 years now? .

No, none of the projects which are going from 4 years. Like, of course, it's metro line 3 which is 85% completed. The contract period was only 4.5 years. So it's, of course, more than 4 years, and we are planning to complete it by next year. So there is no project which is slow going apart from 1 project of CIDCO Coastal Road, of course, we've been just awaiting this environmental clearance. So that's like INR 480 crores on it. So that is a project which is yet to start. Rest all projects are going in full swing.

So there is -- the tenure maybe more than 4 years for execution because we are working in urban areas, but that's not slow moving.