KNR Constructions Limited (532942) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to KNR Constructions Limited Q4 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the 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] Please note that this conference is being recorded. I now hand the conference over to Mr. K. Venkata Ram Rao, GM Finance and Accounts, KNR Construction Limited. Thank you, and over to you, sir.

Good afternoon. Thank you for joining us today on the call to discuss the financial results for the Q4 FY '24 and for the year 2024. Along with me, I have Mr. K. Jalandhar Reddy, Executive Director; and Strategic Growth Advisors, our Investor Relations advisers. We have uploaded results in the investor presentation on the stock exchanges as well as on our company website. I hope everyone got an opportunity to go through it. We would like to touch upon a few key company updates and industry events, post which we will have a question-and-answer session. I would now like to share our perspective on significant industry development. In the fiscal year 2023-'24, the Ministry of Road Transport and Highways achieved our milestone by constructing 12,349 kilometers of national highways, marking the second highest achievement in its history. For the upcoming years, the momentum is likely to continue with MoRTH commitment to project completion and number of projects in the pipeline, and increased government funding. This is corrugated by the MoRTH's spend of around INR 545 billion on highway construction in April 2024, which is 20% of its annual allocated CapEx. For the year 2024-'25, an industry research report predicts a 5% to 8% increase in road construction activity, which translates to an estimated 13,000 kilometers of the new roads to be built. This is further backed by the 100-days plan shared by the MoRTH. This plan is to be implemented after the incoming of the new government. The plan also includes construction of over 1,700 kilometers of the highway in the first 3 months post-election and award contract for the over 3,000 kilometers of the project highways. This is indeed very motivating for the industry. For FY '24 NHAI spent 99.98% of the revised capital expenditure allocation of INR 2.6 trillion, whereas on the award from the -- Ministry was able to award a total of 8,551 kilometer at FY '23-'24. The road construction is one of the country's priority. India's Road Secretary has unveiled plan to integrate an additional 6,000 kilometers of the high-speed highways into the country's road network. This ambitious endeavor aims to enhance connectivity and improve transportation if you can see across the nation, benefiting both urban and remote areas. Monetization continues to be important for both NHAI and MoRTH. Both the agencies have progressed well on this parameter. NHAI has exceeded expectation in FY '24 by raising INR 40,314 crores through various asset monetization channels, surpassing the target of INR 28,868 crores. Notably, NHAI assets monetization endeavors have now crossed INR 1 trillion mark. Further, NHAI identified 33 highways stretch of a total of 2,741 kilometers for monetization in the fiscal year 2025. And MoRTH has set a target of INR 600 billion from the assets monetization in FY '25. Now coming to the key updates of the company. The percentage of fiscal progress as of March 31, 2024, for the HAM project is as under: Magadi to Somwarpet around 83%, Oddanchatram to Madathukulam around 99%, Ramanattukara to Valanchery approximately 73%, Valanchery to Kappirikkad approx 75% and Chittor to Thatchur is 51%. As of March 31, 2024, the company had already invested INR 488 crores, out of INR 999 crores, the revised equity requirement for the 8 existing HAM assets. The additional equity requirement of INR 504 crores to be infused as INR 350 crores, INR 90 crores and INR 64 crores for FY '25, '26, '27, respectively. You can refer to the Slide #28 of the investor presentation for the detail on each HAM project. During the Q4 FY '24, the company received a claim amount of INR 135 crores towards principal and INR 109 crores towards interest, which were shown in the revenue and other income, respectively. And the expenses related to such claim of INR 27 crores and tax up around INR 54 crores also accounted as other expenses and current tax. During Q4 FY '24, the company has made a provision towards impairment of equity of around INR 55 crores and towards doubtful advance of INR 32 crores and towards doubtful trade receivables of around INR 10 crores, for one of its subsidiary company that is KNR Muzaffarpur Barauni Tollway Private Limited as the toll collection of the project is not sufficient to recover the cost of the maintenance and the debt obligation, which were included in other expenses. And the above two items are included in results Q4 and the impacted results to that extent. In Q4 FY '24, INR 9.6 crores collected as a toll for Bihar project for that Muzaffarpur-Barauni. And for FY '24, the total toll collection is INR 41.3 crores. The company received 10th February 2024, as the appointed date for the 6-laning of Marripudi to Somvarappadu, which is a part of Bangalore-Vijayawada economic corridor. This project is a Greenfield Highway awarded by the NHAI and HAM model under Bharatmala Pariyojana Phase 1 in the State of Andhra Pradesh. We are still awaiting the appointed date for NHAI for 2 HAM project in the State of Karnataka, namely KNR Sriranganatha and KNR Kaveri Limited. The appointed date is yet to be declared. Now coming to the order book position. As of March 31, 2024, the company has a total order book position of INR 5,305 crores. This can be bifurcated at 60% for the EPC road project, HAM project and 19%, the total order book is for irrigation project and balance 21% is a pipeline project. The client-wise bifurcation is 61% is order book from the third party and the balance 39% from the captive consumption. Out of 61% of order book of third party is skewed between the State Government contract of 50%, where 9% from Central Government and balanced 2% from other private players. The order book includes the water supply project in 26 ULBs and sewerage project in 4 ULBs under AMRUT 2.0 awarded by the Government of Telangana amounting to approximately INR 1,105 crores, which is awarded during Q4 FY '24. Keynote that this order book does not include contract aggregating to INR 1,200 crores as on -- as we have not received the appointed date for 2 HAM project. If we include this, the order book will increase to INR 6,505 crores. The current order book position remains stable and provides visibility of execution of over around 1.5 years. We are optimistic of our new project awarding activities after the results are out and the new government takes chair. The company is targeting an order inflow of INR 2,000 crores to INR 3,000 crores during the next quarter. And however, the total order inflow for FY '24 is targeting around INR 5,000 crores to INR 6,000 crores. The sustainable growth remains our priority and derisking an essential part of our strategy. This provides us shield against potential downturn and unstructured events. We continue to explore new geographical and undertake unconventional projects like irrigation, metro, tunneling, railway, mining, solar, et cetera. This move is not only to safeguard against any uncertainty, but also ensure a more stable and sustainable growth trajectory in the dynamic business landscape. As of now, the receivables from the Telangana Government amounted to roughly INR 800 crores, which includes portion awaiting certification. Now let me take you through the Q4 FY '24 and FY '24 standalone financial performance first, followed by the consolidated financial highlights. I will start with quarterly highlights first. The revenue for the quarter had growth of around 12% year-on-year to INR 1,315 crores. EBITDA for Q4 FY '24 is stable at year-on-year growth to INR 212 crores -- sorry, INR 214 crores as compared to INR 212 crores in Q4 FY '23. EBITDA remain in Q4 FY '24 is at 16.3%. Net profit for the quarter was INR 198 crores, vis-a-vis to INR 129 crores for -- in Q1 FY '23. Now coming to FY '24 highlights. The revenue for FY '24 is INR 4,900 crores with a growth by 9% year-on-year. EBITDA for FY '24 witnessed degrowth of 3% to INR 701 crores as compared to INR 722 crores in FY '23. EBITDA margin in the FY '24 stood at 17.1%. Net profit for FY '24 was INR 494 crores as compared to INR 499 crores in FY '23, which includes INR 138 crores of exceptional profit booked during FY '23 on account of sale of our 3 HAM projects. Now coming to the consolidated financial performance. I will start with the quarterly highlights, first. The company recorded a year-on-year growth of 14% in total revenue for INR 1,245 crores in Q4 FY '23 to INR 1,410 crores in Q4 FY '24. EBITDA came at INR 375 crores in Q4 FY '24, vis-a-vis INR 246 crores in Q4 FY '23. EBITDA remain in the current quarter stood at 26.5%. Profit after tax stood at INR 341 crores in Q4 FY '24 vis-a-vis INR 142 crores in Q4 FY '23, a growth of around 140%. Moving on FY '24 highlights. The revenue for FY '24 grew by 9% year-on-year to INR 4,430 crores. EBITDA for FY '24 was INR 1,048 crores as compared to INR 917 crores in FY '23 registering 14% growth. EBITDA margin for FY '24 stood at 23.7%. Net profit include the external profit grew by 71% year-on-year to INR 752 crores. Now moving on the standalone balance sheet. The company continues to maintain a strong balance sheet. The working capital days stood at 89 days as on 31st March 2024 and 67 days as on 31st March '23 due to higher irrigation receivables in March '24. The consolidated debt as of March '24 is INR 1,220 crores as compared to INR 610 crores as of March '23. The net debt-to-equity on a consolidated basis as of March 31, 2024, stand at 0.34x. With this, we open the floor for question and answers. You can add the Jalandhar sir.

[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities. The next question is from the line of Alok Deora from Motilal Oswal.

Am I audible?

Yes, yes, you're audible.

Sir, just had a few questions. First, on the order inflow, which has been pretty subdued and your order book is nearly at around INR 6,500 crores. So what's the thought on the order inflow for -- I mean, how are we seeing the order inflow for FY '25? And what could be the execution now or any guidance on the execution for FY '25 and '26 based on the current order backlog because even within this 1,200 projects -- INR 1,200 crores worth of projects are not under execution, I mean, not issued the appointed date. So just if you could throw some color on that.

Jalandhar sir, is there? Yes, definitely, in respect of -- right now, we have order book of around INR 6,500 crores. And the visibility is -- actually how now we are looking in order book is that, definitely for next quarter, actually, we target to achieved between INR 2,000 crores to INR 3,000 crores of order book definitely. And year end, our target is around INR 5,000 crores to INR 6,000 crores is order book. So that's for now. Jalandhar sir, also has joined. He will also give the order book guidance.

Yes. I think you are in discussion about order book issues. So I think after election, I think there will be a lot of tenders which are going to come, which we are also eagerly waiting for highway sector concerned. We are also started partners to participate into BOT toll projects so that our -- we will be the minor partner and developer proportion we'll be giving the biggest stake. And EPC, we will take as a major part. So in that way, we are cutting out the things. So there, the BOT toll is where we are preferring, BOT toll is, there could be some good price, which could come up. And later, we'll exit our minor portion also. So that is the strategy for going forward for this. And apart from that HAM projects, anyhow we will be bidding them. Apart from that said, we have already started MoUs with the Nagarjuna Constructions Limited, NCC for metro, participation of Metro, and major irrigation projects also, we have started 1 MoU with NCC. So these 2 areas, now we are proceeding, sir. I think first bid we are going to facing Bhubaneswar. Bhubaneswar Metro we are facing along with NCC. And most of other also online, sir. And railway bits also we are considering, even mining bits also we are considering. So going forward, the target is about, say, INR 5, 000 crores to INR 6,000 crores. Immediately, we need to recoup the order, which we are trying to do it. Apart from that, I think we are starting some sort of -- we are adding some of the discussions with the MSRDC main contractors who have got. So we will take some, 1 project at least from that portion. That's what we are now in discussion with. Once we get on to that, I think we will also be comfortable to announce that.

Sure, sir. So this year, based on the orders which we have, what kind of growth we are looking at for FY '25? What revenue numbers you're looking at?

Sir, actually, FY '25 is going to be a little bit dull, I believe. I'm also not a bit confident because all these orders we take and then when they get started and all then there'll be a big issues. But however, that Mysore project has not started up as of now. Only that Ongolu project is started from out of that. And again, then the INR 1,200 crores which we backed out of is that micro-irrigation project, public health department, that is also -- is going to start now. So with all that, I think really, if we go -- that's the last year figure, that is the greatest thing what we can do with this. We will try our best in this case. And again, the Kerala projects and all in the May and May month only it is started, 1st of May, the rain is stated. So it's going on as of now. Then, unseasonal rains also a little bit bothering us. So a little bit challenging on this year is there, sir. There will be some ifs and buts, but I think we'll be able to deliver the last year figure only. So going forward, I think [ 16 ] and all, 2026 would be, touchwood, we'll do great, that's what I'm thinking.

Sure. And sir, in terms of margins, we expect it to be in the 16%, 17% range.

So actually, it depends on the quality of the orders which we intake. Definitely, I should always focus on such results. After bagging the orders, then we will try to again come back on this, sir.

[Operator Instructions] The next question is from the line of Jiten Rushi from Axis Capital.

My first question is on the partnership which you are talking about with NCC, railway bid, Metro projects and irrigation projects. So what kind of -- and also on BOT toll where you will be a small minor partner and then you will do 100% EPC and probably you will sell your stake on the projects which are operational. So in the BOT toll, you are looking for a partner. So who will be your major partner there, sir?

So one way -- a few projects we have discussed with this Cube. And the second one is under discussions, sir. It's not yet concluded. I think Cube has started now. I think after election, we will be depending on the bid size and all then we'll go for MoUs. We are also getting qualification up to INR 2,500 crores direct participation to toll projects. Sir, another version is there that around 74% will be held with Cubes.

Large part, the major part.

Our Cube is offering one more method, that they wanted us to give the EPC bid and they want to be the entire developer for that actually. So even that is being sorted out.

So what -- sir, can you please pardon, I missed...

More clarity, we're going to achieve in another couple of 10, 15 days, we'll get more clarity on this, sir. And this is the method which we are sorting. The partners, I think Cube is now almost discussed and it is in conclusion and the rest, all of the parties, it's under discussion.

So basically, one project you are going to -- trying to bid on this Cube. And another couple of projects through other partners.

Yes. Yes. Like that, sir.

And sir, with NCC, what would be your portion? So NCC is already a major player in the micro segment.

See, it's all back-to-back kind of arrangements only, sir. I think 51 -- if I do the project, I'll take 51. If you take my strength and he will do his project, he will take 51, like that we have sorted the MoUs between us.

So EPC also would be done in equal share.

We will take back-to-back entire thing and we'll do ourselves. And if there is any project win by them, they want from us, they will take from us and they'll do it peacefully.

It's more of a JV, where 100% EPC you will do in 1 project and probably another 100% they will do that way.

They will do kind of that way.

And sir, in terms of the other sectors in the opening remarks...

Patel Engineering also we have spoken with for some tunneling projects and all. I think MoU is yet to do. We are under discussions. Almost -- he said, okay, one bid he has offered also, 1 bid, we have done, but we were not successful. But upcoming we will participate.

So sir, in irrigation, you already qualified. What I understand you are already qualified. Why you need to go for a partnership with NCC for irrigation?

There are certain irrigation projects, sir, wherein we'll be requiring some expertise. Minor portions, I'll be requiring a partner. Some portions actually. There is -- I think we have dams and powerhouse. Powerhouse, we have not completed. Once we complete 90%, that certificate is useful for us.

Dams and lift irrigation you said, right?

Yes, lift irrigation and everything.

Lift irrigation which we'll be completed in due course, sir. And sir, on the tender pipeline...

See, there this certificate is valid. That is a problem. Until such time, you have to depend on.

Sir, on the tender pipelines, can you highlight what is the current outstanding tender pipeline, which we have bidded for and when it will open? And any targeting -- targeted tender pipeline which you're planning to bid for?

Sir, I think [Foreign Language]. Some irrigation tenders were there in Telangana, but I think the government is changed, so what view they will take, I don't know really.

Sir, anything...

Two projects are there in irrigation sector, which we give the bids and they are not opened, and it is kept pending almost 5, 6 months onwards. So once they open only, we will know, but whether they will open or they will go for retendering, which we don't know yet. In fact, they've asked for extension, we have given an extension, bid extension. We'll have to see that.

Are there any other -- so right now, there is no outstanding tender pipeline. We'll be bidding everything afresh now going forward?

Yes, sir, going forward only. Actually, if you have observed there is a lot of gap that has come up in the last year's order inflows and aggression was there so winning was a bit challenging. So I think going forward, that's why we are not completely depending on highways. We are starting to tunneling projects in...

Solar also you mentioned, mining and -- solar EPC also you mentioned. Any joint venture with any partners for solar EPC?

Solar EPC, sir, I don't require a partner, I'm qualifying directly.

Okay. So you are qualified directly. And mining also you are qualified directly, what I understand?

For NTPC kind of big projects, we may need a partner. For other areas, I am qualifying myself.

The next question is from the line of Shravan Shah from Dolat Capital.

Sir, just to dwell on the same thing in terms of the order inflow and the kind of execution that we are looking at for FY '25 and '26. So broadly trying to understand first the INR 6,500-odd crores. So obviously, 2 HAM projects, we haven't received the appointed date. So also help me when we are likely to get the appointed date. And out of that, how much execution we can look at in FY '25. So that is one aspect. So removing that the remaining INR 5,300 crores order book, out of that, how much we can do execution in FY '25.

Sir, actually, FY '25 concerned, I think most of the order books should be executed by this time because I think Kerala projects and all other projects, they are like to be completed in the current year only. In fact, I think after June, July, I think they are on extension also because of some excessive rains and there were some school issues and all that. So a little bit extension we have taken. So I think those all need to be completed in this year end only, most of them, except in that, that payments not received in the irrigation portions. So we have put a court case on it to get the payments because we cannot wait for a long time that the government could resolve and we will not be -- if they don't pay and all again, we'll have issues. So that's why we have even gone to the court for that payment. So I think they don't continue to pay us or they don't show any concern to pay us, then we'll have to stop that project also. So they're a little bit ifs and buts are there, that's why I am a little bit -- not comfortable on giving the right figures in this year execution.

So -- but this irrigation when we are saying we are going to court is for package 4 we are talking about?

Yes, sir, package 4. And yes, package 5, I think partially we are receiving the payments. See, in 3, there outstanding is not much. So we are doing it. There's no problem.

Okay. Okay. And for the 2 HAM projects, when we are likely to get the appointed date and how much execution we can look at in FY '25?

Mysuru 2 packages, sir, I think because of these elections and all, I mean there is only 50% land is acquired, 45% land in another project. So I think they said after election code is completing, I think all the officers will be put on job and in 1, 1.5 month, they will clear on that. So expecting somewhere July end or August second week kind of that.

The participant got disconnected. The next question is from the line of Parvez Qazi from Nuvama Group.

A couple of questions from my side. Sorry, I joined a bit late, so I apologize if these questions have been answered. What is our total pending receivables from the Telangana irrigation projects?

Sir, total pending receivables is INR 600 crores -- certified receivables is INR 600 crores. And with all uncertified put together is around INR 800 crores.

Got it. Secondly, in terms of how much equity we still need to put in our HAM projects and if you could give us how much do we need to improve in FY '25 and '26?

Sir, we have to put around INR 500 crores actually further equity in our HAM project. So out of that, around INR 350 crores in this year actually, FY '25 and around INR 90 crores in FY '26 and balance INR 64 crores in FY '27.

Got it. And lastly, I mean, in this quarter results, there were a lot of claims, et cetera. And in your results, we have given detailed notes on accounts regarding what proportion or what has been accounted in terms of revenues, taxes, other expenses, et cetera. I mean if we adjust for all those one-offs in terms of revenues, other expenses, et cetera, then our EBITDA margin seems to be quite low, I mean, in single digits. Is that a fair understanding?

No, no, no. It is not like, if you exclude all these things actually, one-off, even then our EBITDA for this quarter is 17.24%, and for the year is 17.4%. So I think there is some miscalculation in the working that we can discuss separately, and I will clarify you.

The next question is from the line of Shubham Shelar from IDBI Capital.

In terms of order inflow, we mentioned two things, that for FY '25, INR 5,000 crores to INR 6,000-odd crores. And further, we mentioned in -- 2 to 3 months, we are expecting -- targeting INR 2,000 to INR 3,000-odd crores of orders. So is this the initial 2, 3 months order inflow target is linked with 100 days plan of MoRTH?

Yes, total year, we have planned from INR 5,000 crores to INR 6,000 crores. And immediately, we are targeting in INR 2,000 crores to INR 3,000 crores. So that is our target actually.

It's not that the entire is INR 5,000 crores to INR 6,000 crores has to be achieved in this year. And whichever is possible, we are trying to flow in and get done.

Okay. So actually, I mean my purpose of asking this question is this INR 2,000 crores to INR 3,000 crores, the target is heavy like zeroed down to particular sectors where exactly it will be coming? Or it is open as of now?

It is open as of now but we are exploring in all the sectors like our sir told that Metro, BOT toll, HAM, railway, mining, solar. So all these sectors are there. That's why we have achieved that -- we are planning to achieve that target.

Okay. Okay. Right, sir. And then this -- the MoRTH target of 100 days, the 3,000-odd kilometers, which you mentioned to be awarded in 100 days in your initial commentary, so are the tenders out in the market or this will start fresh after the new government formation happen, the ministerial allocation happens after that, things will move?

Definitely, they have targeted actually 2,700 kilometers, but that has to yet to commence. This new government will form and they have already made a 100 days plan of around 1,700 kilometers of the highways actually. So that definitely, plans are there. So post elections, we expect that this should be materialized.

We'll have to see only whether they come with HAM or -- as I heard, mostly I'm hearing that they will go with toll. Only that we should notice that's it. Jobs are going to come, there's no problem with that.

[Operator Instructions] The next question is from the line of Prem Khurana from Anand Rathi.

Sir, I want to understand a little better on this transaction or the arrangement that you want to have with the Cube highways. So I think, I mean, at least in last quarter, the thought process was we would go as a preferred construction partner. We don't intend to kind of invest in these assets. And I mean if I heard you right...

First preference is given for that. And even in that case, if it is required, 20%, 25% of the portion, we can participate right now. And later, we can close it up. That's what we are thinking. So if I open for that also because to open up more opportunities for the company only. That's it. It will only give us more play area.

Sure. But I mean -- so just to clarify, if Cube is open to give it to you without any equity commitment, does that mean, I mean, the margins could be a little lower because obviously, then you are a pure subcontractor versus, I mean, if you will commit money, they'll let you make some more money? Is it the thought process or which is why I mean you're open to kind of consider that investment? Or I mean...

Sir, actually, what it is that Cube has an understanding was -- they made a first understanding that let me give the EPC contract for that and as in that price is fix for me and we shall do the project in time and give them. That's the understanding. But we are also -- certain -- with few partners which are -- they are not getting qualifications, there are new developers, who have come. So they are not getting qualification. So what they want us to do is that they want to take ourselves and bid. So there, I'm taking 26% partnership and complimenting the bids.

And exact commitment would be decided even before we get into -- I mean, even before the...

Yes, according to the bidding criteria only because the eligibility criteria [Foreign Language] how much ever have to contribute, I have to contribute at this stage. Later, I may quit on that kind of thing.

No, no, no. So I want to understand, I mean, let's say, whenever you decide to kind of exit, the 26% that is with you and you want to sell it to the other partner, right? The exit value would be decided beforehand or it will be done at the time when the project is complete, you have COD in place?

We are discussing that only. We want them that way. What I'm saying, I'll come as a partner, but I may not be able to do major portion. If equity also, you may give in my name and I mean, I can give at the time of giving it, but later after my completion of the project, final completion of projects, I may offer to get back my equity and then quit. So which -- with a fixed interest rate, which they are offering or at the time of that valuations, they'll do and realistic valuations they'll do and then they will do some sort of NPA calculations to get out of it.

And sir, on the NCC...

Both options are there, sir. Whichever is safe for the company, which we would like to close upon. The major thing is that, if you get the EPC business, that is the only target which I'm looking at now.

True. True. Sure. And sir, second was on this NCC arrangement that you have, how would we decide, I mean, who would get to keep the EPC parcel? Let's say, I mean if there's a project in the market and you both want to have that project. I mean, there could be a situation wherein NCC would say, I want to keep it and you could also -- I mean, there could be a situation with you wherein you say, I mean, I want to keep it. So how would you decide because you said we'll decide beforehand and which is now accordingly being structured wherein I'll own majority and I'll get to keep and wherever NCC decides to -- decide it wants to have the EPC, they will take the majority. But there could be some sort of disagreement, some projects wherein I mean, if you move are interested, how would the arrangement work there?