Kalpataru Projects International Limited (KPIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kalpataru Power Transmission Limited and JMC Projects Limited Q3 FY '20 Earnings Conference call hosted by IDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from IDFC Securities. Thank you, and over to you.

Thanks, Sanford. Good morning, everyone. On behalf of IDFC Securities, I would like to welcome you to the Q3 FY '20 Earnings Call of Kalpataru Power Transmission Limited and JMC Projects. We have the management today being represented by Mr. Manish Mohnot, Managing Director and CEO; Mr. Ram Patodia, President, Finance and CFO; Mr. Kamal Jain, Director; and Mr. S.K. Tripathi, Deputy Managing Director and CEO, JMC Projects; and Mr. Vardhan Dharkar, President, Finance and Accounts, JMC Projects. I'll now hand over the call to Mr. Mohnot for his opening remarks, post which we'll open up the floor for Q&A. Over to you, sir.

Thank you, Bhoomika. Good morning, everyone. I'm thankful to you for your continued interest in attending this earnings call of KPTL and JMC. Before proceeding for Q&A session, I would like to take you through the key highlights of the results and recent developments. We have successfully completed sale and transfer of the Kalpataru Satpura Transmission asset to CLP within the agreed time lines. We have realized the gains of the same in our Q3 financial year 2018 financial results. We've achieved CoD of both Element 1 and 2 of the Alipurduar Transmission asset. The process of getting necessary approvals for transfer of assets to CLP has started. We received preliminary offers to monetize the Jhajjar Transmission asset and expect the deal to be finalized soon in Q4 itself. We have achieved sale of 25% of our units in the Indore real estate project, balance units will be sold in the next 6 to 8 months. Coming to numbers, I'm happy to inform you that we have delivered a good quarter of decent growth in profitability numbers for both KPTL and JMC in a challenging environment. At KPTL, on a stand-alone basis, revenue was INR 1,979 crores, a growth of 15% on a Y-o-Y basis. For 9 months, revenue grew by 21% Y-o-Y to INR 5,601 crores. Our T&D business grew by 5%, and our other business grew by over 20% in Q3 financial year '20. Our growth in T&D business, including Linjemontage, has been close to 17% in Q3 financial year '20. At a stand-alone level, we expect KPTL to deliver revenue growth of around 18% to 20% as projected earlier. Our core EBITDA has reached INR 208 crores in Q3, with 10.5% EBITDA margin. For 9 months, our EBITDA margin was 10.8%. Our EBITDA margin for Q3 and 9 months has marginally dropped given the change in job mix and higher turnover from non-T&D businesses. We are confident of maintaining our EBITDA margins between 10.5% to 11% for full year '20. Our net borrowing at the end of December was INR 996 crores. Our finance cost has increased in Q3 because of rising debt and higher utilization of working capital limits. However, we are confident to maintain our debt levels between INR 800 crores to INR 1,000 crores for financial year '20, as guided during the start of the year. Our PBT for Q3 is INR 178 crores, a growth of 25% on Y-o-Y basis and PAT of INR 137 crores, a growth of 49% on Y-o-Y basis. Similarly, for 9 months, PBT grew by 19% to INR 481 crores, and PAT grew by 34% to INR 356 crores. Our order book as on December 31, 2019 is INR 14,867 crores. This is excluding the new orders of INR 550 crores received in Jan and Feb and declared yesterday. Our order inflow in financial year '20 till date is INR 6,500 crores. Incrementally, we have L1 position of approx INR 1,500 crores as on date. At JMC, revenue for Q3 is INR 929 crores, a Y-o-Y growth of 4%. For 9 months, revenue growth was 20% Y-o-Y to INR 2,774 crores. Our revenue growth for the full year is expected to be around 18% to 20%, as guided earlier. Our core EBITDA for Q3 is INR 103 crores, and our EBITDA margin improved by 90 basis points to reach 11.1%. For 9 months financial year '20, EBITDA was INR 305 crores, with a margin of 11%, a growth of 70 basis points. JMC will continue to maintain EBITDA margins in the range of 10.5% to 11% for the current year. Our PAT is INR 39 crores, a growth of 5% Y-o-Y. And PAT for 9-month financial year '20 is INR 113 crores, a growth of 21% on Y-o-Y basis. Our stand-alone debt at JMC has increased to INR 861 crores at the end of December 2019, largely on account of higher working capital. Similarly, the finance cost increased commensurate with the rise in debt levels. At JMC, our debt levels will be around INR 800 crores to INR 900 crores by the end of the year, a slight revision in the guidance as given at the beginning of the year. At JMC, our order book is INR 10,492 crores at the end of December, and our order inflow till date is over INR 3,300 crores, largely driven by B&F projects. Additionally, we have a L1 position of over INR 950 crores at JMC. On Road BOOT projects, our average daily revenue was INR 52.5 lakhs per day in Q3 financial year '20 as compared to INR 56 lakhs per day achieved in Q3 '19. On a consol basis, our KPTL consol revenue for Q3 was INR 3,162 crores, a growth of 15% over the corresponding quarter of previous year. For 9 months, our consol revenues have reached INR 9,149 crores with a Y-o-Y growth of 25%. Our consol core EBITDA was INR 388 crores with a margin of 12.3%. Similarly, for 9 months, our core EBITDA has grown by 26% to reach INR 1,172 crores with a margin of 12.8%. Excluding the impact of one-off gains from sale of Thane and Indore assets, our PBT has grown by 7% in Q3 '20 compared to the previous quarter of same year, and 20% in 9 months financial year '20. Our PAT for Q3 was INR 133 crores, a growth of 17% compared to corresponding quarter of last year. For 9 months, PAT grew by 17% Y-o-Y to INR 377 crores. Our consol order book is INR 25,359 crores, which is well diversified across T&D, B&F and other infra business. At consol level, in financial year '20, we have achieved order inflow of around INR 9,800 crores, and we have L1 of around INR 2,500 crores. At Shubham Logistics, revenue in Q3 was INR 26 crores with EBITDA of INR 7.2 crores. Thank you once again, and I'm happy to take your questions now.

[Operator Instructions] The first question is from the line of Renjith Sivaram from ICICI Securities.

Congrats on a good set of numbers. Yes, so just wanted -- if you can highlight, like, for this quarter and for the 9 months, how has been the breakup between pipeline, railway, T&D and if possible, domestic and overseas?

Sure. If you look at on the T&D total basis, for the quarter our revenue grew by around 6%, right? So our revenue for T&D, excluding Linjemontage, is INR 1,200 crores; including Linjemontage is INR 1,350 crores. So we just -- if you -- so I'll just give you both the numbers. Excluding Linjemontage, the T&D growth is 6% for Q3 and 5% for 9 months. On an absolute number, third quarter T&D was around INR 1,200 crores and 9 months was around INR 3,400 crores. Our Railways business grew by more than 100%, right, in the current year. That's what was guided. So it was around INR 450 crores in third quarter and around INR 1,300 crores in 9 months. Oil & Gas business has been around 3% to 5%, around INR 320 crores in Q3 and around INR 850 crores in 9 months. Linjemontage was INR 157 crores in Q3 and 9 months is INR 403 crores.

Okay. And in terms of -- if you look at the order intake, which -- the prospective order intake which is there in the pipeline, so a couple of things. Green Energy Corridor used to be one of the big opportunity, which we -- all of us were looking at. So is there any delay in terms of finalization? Or you see some slowdown in that? And -- that is one thing. And in the Railways, in the current budget in the rail -- for the Railways, the outlay towards electrification has been reduced. So do you feel that the overall -- that high growth rates of Railways will be normalized from here on?

So on the Green Energy Corridor, we got 2 orders -- 2 big orders, 1 from the private sector and 1 from Power Grid in Q3, right? And out of -- I think we got around 15% to 16% of the market share in terms of the T&D order of Green Energy. So those orders have already come and we're working on it, and those are projects which need to be completed in 12 to 15 months, and we're confident we'll do that. As far as Railways is concerned, obviously we can't continue to grow at that same 50% to 100% which we have grown for the last 2 years. And that's what we said, a couple of years we will see huge growth and then it will come back to 15% to 20%, and that's visible today. If I look at my order book, I think growing at 20% plus at least for the next couple of years will not be a problem. On the third aspect of railway electrification reduction, I think it is exactly what has been planned. See, last 2 years, it was significantly higher because it started this journey. And now as electrification happens next 5 years, but still it's big enough for us to grow at 15% to 20%. So it should not be a challenge if our Railways instead are growing 15% to 20% over the next couple of years, at least.

Okay. And lastly, that 1 of the projects, which you have sold and we have got some consideration, so can you tell us how much we have got from that project because it was a net of some impairment of 1 of your subsidiaries? So how much we have gained?

Sure. So our equity inflow on that project, including our subordinated debt was around INR 80 crores, and the debt reduction was around INR 200 crores. Our profit on that project is approximately INR 30 crores at a stand-alone level, and we took an impairment on one of our subsidiaries of around INR 7-odd crores, so the net impact one-off, which has come is around INR 23 crores, INR 24 crores.

Okay. So this is after factoring in the gains what we have got from this sale and then considering for that environment, right?

Yes, yes.

Okay. And the subsequent payments, when can we expect from this transmission sales?

So the Alipurduar assets, as we have declared, is already commissioned. The process is started of getting all the approvals. We believe that all these approvals should come in this month, and we're confident that in Q4 the entire cash flow should come in and the ATL should be done. As far as the third asset, KMTL, is concerned, that was scheduled anyway for Q2, Q3 of next year, and we are on track on that because the commissioning is scheduled for July only. On the fourth asset, Jhajjar, as I mentioned earlier, we've got all the offers. We are just evaluating it. And before the end of the year, we should be concluding that deal with any of the prospective buyers.

[Operator Instructions] The next question is from the line of Ashutosh Mehta from Edelweiss.

This is Swarnim here. Sir, 2 questions. First, you mentioned that there is some hit on the working capital side. So just wanted to understand, is this on account of vendor support to the railways? Or is it like some overdue on the data side?

So it's a mix of, actually, 3 things, right? And the first one, as you rightly said, vendor support across the entire businesses, not only Railways, right? But vendor support across all businesses, whether Railways, Oil & Gas, T&D or even at JMC. So our actual creditor days have come down in 9 months across all group companies, which would have gone up and has come down by 10 to 12 days. So that's the first thing. Second, actually is also delay in receivables at a few specific clients, a few SEBs for KPTL, a few private sector clients for JMC. While some of that has come in January, but that's been some delay which happened in Q3. And third is the order book mix. Typically, if you look at Railways and Oil & Gas, we have back-ended projects and T&D has a lot more front-ended in terms of cash flow. So given that mix, slightly has changed. But with all of this also -- we had already budgeted all of this at the beginning of the year. With all of this also, we believe that we should be at net debt levels of around INR 1,000 crores in KPTL. So this is all budgeted, but it's not a surprise. Maybe INR 50-odd crores we've got with surprise, but nothing significant, nothing beyond that.

Got it, sir. Got it. Sir, secondly, on Jhajjar. If I recollect, this was not the -- in the initial tranche when we had sold it to CLP. This was not the bouquet. So this is -- now we are actually trying to sell this out, and -- is the buyer already identified over there?

So you're right, Jhajjar was not a part of the earlier deal. And we have said clearly that we would be doing this in due course. So we have got 3 prospective buyers who've shown keen interest in this. We are evaluating their offers. And we should be able to give you a conclusion, hopefully, in the month of March.

Got it, sir. Got it. And sir, lastly, at the consolidated level, now we are at almost about INR 3,600-odd crores of debt. And Alipurduar should also throw another INR 300 crores, INR 400 crores of cash and also the debt should reduce from there. So just wanted to understand how are we looking to use this cash flow? Is it like just to repay the debt? Or there is something else also over here? For acquisition or something else?

So significant portion, if not majority or if not all, sorry I'm using 3 English words, it should go for debt reduction, right? Some small amounts here and there, but a significant portion will go for debt reduction. You know our planned vision of becoming a debt-free company as a stand-alone and also a big focus of becoming a debt-free consol on 31st March '21, and that's what we're working towards. So a significant portion would go into debt reduction.

The next question is from the line of Jonas Bhutta from PhillipCapital.

Sir, I just wanted your views on, if you were to look forward towards FY '21 and project how the order inflow mix, would it be -- would you still put your money on T&D growing? Or you would expect the 2 verticals, Railways and Oil & Gas to contribute more, given that we've seen some bit of slowness in the GC order, which are not moving as per the original time line of the whole work? That's my first question.

Yes. So if I have to divide the entire TLPs into TLD and TLI, right, I think TLI, including our Sweden subsidiary, is an exceptional event, and [ here ] a strategic move. Should continue to grow at 15% to 20% as far as TLI is concerned, getting into the next 2 years because we have a good visibility, and this entire L1 of INR 1,500 crores is only T&D. As far as domestic is concerned, I will stick to the stand that earlier I used to be at 6% to 8%, and I came up to around 10%. I think a 10% growth for domestic, including the neighboring countries, should not be challenged for the next couple of years. For Railways, obviously we will not continue to grow at the same levels what we have done in the past. But growing at 20%, 25%, given a INR 4,000 crores clear order book, is something which is easily achievable. And also, we're looking at the international markets on Railways, which can effect upside from whatever we are projecting today. As far as Oil & Gas is concerned, a lot of orders have come in. The budget also has focused a lot, including the National Gas Grid. So I think that business growing at 15%, 20% should not be a challenge, given that, that business had some peculiar challenges and had PQ, which is very stringent and has minimal competition, one of those businesses where we still find 5, 6 players only, compared to the other businesses where we find 10 to 12 players. I think that also growing 15%, 20% should not be a challenge. So from my perspective, 3 of our businesses growing at 15%, 20% should not be a challenge. TLD, yes, clearly it would not be at the same speed as the other 3 businesses.

Got it. As far as JMC is concerned, sir, as far as I recollect, the guidance was -- were to go at least flat order inflows, which is roughly INR 5,500 crores to INR 5,600 crores. Given that we are L1 now in INR 950 crores, the asking rate to get to INR 5,500 crores is almost INR 2,000-plus crores. So would you -- what would your revised guidance be? Or you would still stick with that flattish for the inflow guidance, sir? And if you've cut it before, I'm sorry, I might have missed it, so just wanted your view on that?

Yes. So today, we are at INR 3,364 crores, and we have -- L1 positions is about INR 950 crores. So the year, we should end to the level of about INR 4,500 crores to INR 5,000 crores in terms of the order booking.

All right. And lastly, sir, on the Shubham Logistics, there again we had plans of turning PBT positive this year, sir? And whether that is still on track?

So on the projections what we have done, we still believe there's a 90% plus chance of being PBT positive. Q3 was a one-off because of the crops which got destroyed in Q2 in 3 out of the 4 states where we have a significant presence because of unseasonal monsoon. But on Q4, we still are hoping with a 90% plus probability to end PBT at -- zero-zero if not positive business. That's what we have projected, and we're all looking towards it.

The next question is from the line of Prem Khurana from Anand Rathi.

My question was with respect to JMC. So 2 questions, eventually. Sir -- I mean if I look at your order backlog over the last 2 years, what we've seen is our share of infra business has gone up substantially. I think in 3Q FY '18 was almost around 17% and now it stands around 33%. But given the fact that we've seen our infra exposure doubling and -- when I compare with the kind of growth that we've been able to deliver in terms of top line around 4%, is it fair to assume that a large part of your growth would have come because of infra and building is going a little slow for us now?

So this 4% growth of this quarter, if you look on the year-to-year basis, we are at about 18% to 20%. This quarter was specifically slow because of the payment from the customers, and we had purposely slowed down the projects in order to manage the cash flows. Now you are right that revenues from the infra, if you look at -- they have grown up in the last 2 years. And going forward, if this trend is going to continue, even at the year-end we will be at the same ratio in terms of the revenue coming from the infra and B&F. Certain areas of B&F are slow, but certain -- particularly the Southern India, that is maintaining a good growth. And similarly, certain parts of infra, particularly water, is maintaining good growth. So these 2 drivers will carry forward the momentum of growth even the next year.

Sure. And sir, just want to understand this a little better. I mean would you be able to break this 4% growth down into 2 segments, essentially Buildings and Infra? How much did Building grow in this quarter and how about Infra, on a Y-o-Y basis if possible, if you have that number available with you?

Yes, yes. So Infra has grown by almost 27%.

Sorry, how much?

27%.

Okay. Sure. And on -- so and I think in your opening remarks, you said there's been some elongation in terms of working capital cycle for us. Is it because of Infra and -- I mean if I were -- let's say, I mean -- assume that it is because of Infra, this is the new normal that we need to work with? Or do you get to see this number coming down? And third one was eventually on your toll collection. The number is down 6% Y-o-Y in terms of average daily collection. So what is the breakeven level now in terms of cash, PAT or, let's say, I mean in terms of -- I mean wherein you would be able to meet your expenses on your own and JMC won't be required then to support the SPV? That's it from my end.

So in terms of the growth, just to answer your first question. So Infra, last year, we did about INR 650 crores. And this year -- year-to-year basis -- year-to-month basis. And this year, we have done about INR 986 crores, right? So there is a substantial growth of about INR 325 crores. If I look at on a year-to-year basis, 49% growth, it comes from the Infra.

For 9 months?

For 9 months. So -- and overall growth is 20%. So the building part is giving a growth of almost, say, 15% to 16% for the overall growth of 20%, right? Now this -- as I said, this same ratio will continue going forward for the Q4 as well as the -- even the next year.

I think you had 2 more questions. One on debt levels. And second was breakeven at -- on a growth basis?

Yes, sir.

So debt level, currently, we are at, say,

INR 850 crores.

INR 850 crores. We will be maintaining the same debt level going forward, right, though there is a lot of stress because of the outstanding with the customers. And that is why in the beginning, we said that our focus this year will be to look at the whole business from the cash flow perspective rather than from the top line growth perspective. And we will moderate it depending on the -- because there is a big shift in the environment, even the government side, the uncertainty has built up, which you -- never used to be there. So we will be very cautious in terms of the going forward order booking as well as the -- doing the revenues, which will be in tandem with the cash flow. So we'll -- our sole aim will be there to maintain this debt level of INR 850 crores. Now your next question was on the BOOT, right? Now BOOT, if you look at the last whole year, there has been -- because of the economic downturn, there has been a revenue degrowth even -- so we have come down to the level of almost INR 52 lakhs per day revenue as against INR 56 lakhs of last year, right? We are seeing some shift happening in January, February. But I think this is the trend this year we'll see. And in terms of the support from JMC, till now we have done almost INR 69 crores, we have infused in BOT. Q4, again, in the similar ratio, that support will continue.

The next question is from the line of Ankit Babel from Subhkam Ventures.

Sir, my first question is, in the last conference call, Mr. Tulsian did mention that by March, there will be some positive development on your BOT projects in JMC, either selling a couple of them or restructuring them. So just wanted to get an update from you.

So yes, the process is continuing. So we are looking at the 2 assets. Restructuring proposal has moved on, right? By the end of the quarter or the Q1 of the next year, we will definitely have some concrete things on the table. But yes, 2 projects, which are particularly KEPL and WPL, they are in the restructuring mode. Proposal with the banks have moved up.

And what about the other 2? Are you selling them?

Other 2, we are exploring, but still we are yet to firm up the deal somewhere. Exploration is on, where -- by a few buyers.

So just to add to this point. Basically, what Manoj has said last time, we have appointed advisers, right, and they have a different strategy for each of that. Some have been looked at for existing, some has been looked at for restructuring. So it's a combination of different strategies for each of the assets. But the advisers are working with us, and we are working on that proposal.

So sir, once you -- the 2 projects get restructured, how much your outlook will get reduced, if it happens in, say, Q1 of next year? On an annualized basis?

So if 2 assets get restructured currently -- so we are doing about INR 20 cr per quarter. That is what we are -- that outflow should come down to almost INR 8 crores to INR 10 crore. It will reduce by almost 50%.

Okay, okay. And my second question. You already mentioned on the debt that INR 850 crores in JMC you will maintain?

Yes.

Right?

Yes.

That next question is from the line of Kunal Sheth from B&K Securities.

I just wanted to get some sense in terms of our international T&D. Can you give us some more sense in terms of which are the key markets that are looking up? And what are we targeting in terms of what is the bid pipeline in the international market, essentially? And where is it coming from?

So Kunal, our focus continues to be on 2 critical markets. One is the entire African market, which today constitutes more than 50% of our international order book. And second is the Nordic region, driven by the growth of our subsidiary which we have acquired there. We believe that those 2 markets will constitute a significant percent of the growth in order book in the next, at least, 3 to 6 months and also the revenue resulting from there.

But are we seeing meaningful pipeline? Or are we seeing some slowdown there also, like we are seeing in India or -- there because we have a number of countries that we are servicing is much larger that can compensate?

So I think we're seeing a good pipeline coming out in that part of the world. And today, out of our INR 1,500 crores L1, more than INR 1,000 crores is international order books, which are in the L1. So that part of the world is seeing some good traction. It's taking some time, right, given that all the changes which are happening all across the globe and whatever global factors, but still a lot of traction in Africa as well as the Nordic countries. And Nordic, you can see the Linjemontage growth in order book. I think that's visible. So if you look at the way that entire 6 -- 9 months, the way that the business has grown, whatever we had projected we will do in year 3 or year 4 will happen in year 1 and 2 itself.

Okay. That's great, sir. And sir, for the KPTL order inflow, I don't know if you've already mentioned this, but we were looking at INR 9,000 crores to INR 10,000 crores of order inflow this year. Are we maintaining that? Or we are revising that number?

So we are at around -- if you include L1, we are at around INR 8,000 crores, INR 6,500 crores we have declared and INR 1,500 crores we are L1. So I don't see a challenge in being in that range of INR 9,000 crores to INR 10,000 crores, right? More towards INR 9,000 crores than towards INR 10,000 crores.

Okay. Okay. And sir, on JMC, out of our current order book, how much does the water project contribute?

Water project contributes about INR 2,700 crores. And we are also L1 in about INR 600 crores worth water projects as of now when I'm talking to you.

So approximately 30% of the order book.

Yes. Yes.

Okay. And this INR 600 crores is -- the INR 950 crores number that you talked about includes this INR 600 crores, right?

Right, right. That includes.

Okay. And just 1 clarification on JMC. We mentioned that about half of the inflows are -- we will -- Infra and B&F will be 50-50. So we were talking about the sales number or inflow next year likely to be in that proportion?

So we were not saying 50-50. See today, also, if you see about 35%, 36% turnover comes from the Infra and the rest comes from the B&F. The same proportion will continue in Q4, and maybe the next year also. That's what we have said.