Larsen & Toubro Limited (LT.NS) Earnings Call Transcript & Summary

Very good morning, ladies and gentlemen. I hope all of you and your near and dear are safe in these very difficult times. The format that we will follow for this conference call is the usual format, whereby initially, my colleague, Mr. Hari Barai, will make a presentation. He'll walk you through the presentation. The presentation was uploaded on our website last night, and I hope that all of you have downloaded it from the website because he'll keep on referring to slide number so and so, slide number so and so. After the presentation is over, we will open the session to question-and-answer. And with that, I would like to hand it over to Harish. Harish, please go ahead.

Thank you, Mr. Mondal, and good morning, ladies and gentlemen. Once again, a very warm welcome to all of you into the Q1 FY '21 earnings call of Larsen & Toubro Limited. I will move on to the next slide, which is Slide #2, on disclaimer. Essentially, this presentation contains certain forward-looking statements concerning L&T's future business prospects and business profitability, which are subject to a number of risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. Disclaimers assume special importance in times like these. The remaining portion of the statement, I will take it as read and move on to the next slide, which is Slide #4. Q1 FY '21, an unprecedented quarter. There will be rare instances in history where you start the financial year with a lockdown. Our group's performance, therefore, in Q1 FY '21, has to be seen in the context of the macroeconomic environment we operate in. Since FY '21 started with the lockdown on account of the pandemic, it disrupted economic activities in the quarter. More than 2/3 of India's economic activity was shut or working at reduced capacities during April, with progressive improvements witnessed during May and June. Happy to report that group has secured orders of INR 236 billion in Q1 FY '21 in an otherwise very challenging quarter. And our order book at INR 3051 billion is stable. Coming to revenues. The operations gradually resumed with requisite precautions during the quarter, given limited availability of workforce and disrupted supply chain. There have been sequential improvements in execution in each month of the quarter. During the quarter, we have tried to prioritize those jobs that can ramp up faster. Negative operating leverage kicks in due to muted revenues in Q1. And the consequences of negative operating leverage have impacted EBITDA and PAT for the quarter. Surprisingly, due to ample liquidity in the system and the fact that both the central and the state governments have front-loaded their borrowing programs for the year, our collections, therefore, in Q1 has been robust. We have not had to draw down on the cash results on our balance sheet to fund the operations. This is also evident when you glance through the cash flow statement. If we were to summarize our performance, we could just say noteworthy performance in an unprecedented quarter. With those comments, I will move on to the slide on key financial indicators. Q1 FY '20 numbers are on the left part of the slide and Q1 FY '21 numbers are on the right portion of the slide. Our order inflows for Q1 FY '21, as I said, at INR 236 billion, has registered a decline of 39% over Q1 FY '20. Our order book as on 30th June '20, at INR 3051 billion, is up 4% over June '19. Revenue for Q1 FY '21 at INR 213 billion has registered a decline of 28% over Q1 FY '20. Our EBITDA and PAT at INR 16 billion and INR 3 billion, respectively, have registered a decline of 47% and 79%, respectively. For the reasons mentioned in the previous slide, the results of this quarter is not comparable with the previous quarters presented. Some comments on working capital. Our net working capital to sales have moved up from 23.9% in June '19 to 26.8% in June '20. As I mentioned in the previous slide, our cash flow management for the quarter has been good, thanks to the payments that have been regularly flowing from the public space. Consequently, our operations have predominantly been funded from collections, and our absolute levels of net working capital has marginally moved up from March '20 to June '20. NWC to sales at 26.8% as on June '20 is largely on account of the fall in the denominator. The trailing 12-month sales, as you know, has moved lower because of our Q1 FY '21 performance. Coming to return on net worth. Consequences of negative operating leverage impacts EBITDA and flows into PAT as well, which impacts our return on network. Our return on network on a trailing 12-month basis stood at 12.7% for the June quarter. With those comments, I will move on to the next slide, which is Q1 FY '21 order inflow/order book. Order inflow numbers, again, on the left; order book on the right. Although order inflows for Q1 FY '21 at INR 236 billion is down 39%, it is good to note that ordering activity has continued despite pandemic concerns, though with some time delays. Our Q1 FY '21 domestic order inflow of INR 147 billion has largely been contributed by the Infrastructure segment in areas like water, heavy civil and power transmission and distribution. Our Q1 FY '21 international order inflow of INR 89 billion, almost flat compared to Q1 FY '20, largely due to Mindtree consolidation. Having said that, we have seen some international order inflows in Infrastructure, Hydrocarbon and Heavy Engineering segment during this quarter. To conclude, it is heartening to note that order inflows, both domestic and international, have continued to flow in Q1 despite pandemic and lockdown. At the end of June '20 and for the remaining 9 months of this financial year FY '21, we see total bottoms-up project pipeline of around INR 6.32 trillion in our core businesses, of which about INR 5.07 trillion is domestic and INR 1.24 trillion is international. So far, the government has ensured that project execution continues and payments to contractors are released. Now hopefully, the government may turn its focus on new awards, which will aid economic recovery and generate employment. Coming to order book, portfolio diversity as well as our dependence on government and PSU investments definitely mitigates cyclicality. Today, we have 6 business verticals where each of their order book is between 9% to 15% of the overall company order book. They are buildings and factories, water, power transmission and distribution, heavy civil infra, transportation infra and Hydrocarbon. Diversity of order book helps and future revenue growth is not dependent on the fortunes of any single vertical. Again, 82% of our domestic order book of INR 2306 billion as on June '20 is dominated by central and state government as well as PSUs. In times like these, it is good to have government risk on the balance sheet. With those comments, I will move on to the next slide, which is group performance, sales and costs, the Slide #8. Now pandemic shadows Q1 revenues across verticals. On the other hand, IT&TS businesses smoothly transitioned to a work-from-home model. Consequently, our revenues for Q1 FY '21 at INR 212.6 billion has registered a decline of 28%. Favorable MCO expense variation is largely due to higher proportion of IT&TS businesses, including Mindtree consolidation, and secondly, due to cost control initiatives within the group. Large part of the cost of IT&TS businesses, MCO -- a large part of the cost of IT&TS businesses reside in staff costs and sales and administration expenses, which are given below. Finance charge OpEx largely represents borrowing costs of the Financial Services business. Staff cost at INR 61.5 billion for Q1 FY '21 is up 35% over Q1 FY '20, largely due to Mindtree consolidation and resource augmentation in our service businesses. Staff cost of 21,955 minds of Mindtree amounting to INR 1,277 crore have been consolidated in the Q1 staff cost. Excluding Mindtree, the staff cost is up 7% for the quarter. Sales and administration cost at INR 21.5 billion, up 8% for Q1 FY '21 is mainly on account of credit provisions in the Financial Services business. Secondly, Mindtree consolidation also contributed to increase in sales and administration costs, partly mitigated by overhead expense savings at a good level. Consequently, our total OpEx at INR 196.4 billion for Q1 FY '21 registered a decline of 26% over Q1 FY '20. With those comments, I will move on to the next slide, group performance, profit parameters. For reasons explained in the previous slide, our EBITDA for Q1 FY '21 at INR 16.2 billion, as I said, has registered a decline of 47% over Q1 FY '20. Finance cost at INR 10.6 billion for Q1 FY '21 is commensurate with increased borrowings and interest costs on full commissioning of Hyderabad Metro. Higher depreciation charge at INR 6.7 billion for Q1 FY '21 is mainly on account of Mindtree consolidation. Other income of INR 7.8 billion for Q1 FY '21 is reflective of the level of treasury investments and higher returns earned during the quarter. As we are all aware, both the long-term and short-term yields have moved lower during Q1. Share of JV/associate PAT largely comprises results of IDPL, power equipment and forging JVs. NCI variation is largely due to lower finserv profits, partly offset by Mindtree consolidation. E&A business, as you are aware, is classified as discontinued operations. Exceptional item of INR 1.1 billion represent gain on divestment of wealth management business by the Financial Services group. Consequently, for reasons explained above, our PAT for Q1 FY '21 at INR 3 billion has registered a decline of 79% over the comparable quarter of the previous year. With those comments, I'll move on to the next slide, which is Slide #11, segment composition. This slide on segment composition is essentially for reference purposes. Based on the progress of the divestment process, the company continues to classify Electrical & Automation business as discontinued operations and disclose the financial results thereof separately for the previous periods presented. Information Technology mentioned within the IT&TS segment includes Mindtree as well. Effective from 1st April 2020, smart world and communications business has been transferred from infrastructure segment to the other segment. Concurrently, military communication business has been transferred from Defense Engineering to smart world and communications. Figures for the previous periods have been regrouped, reclassified to confirm to the classification for the current period. With those comments, we will move on to the slide on Q1 FY '21 order inflow composition. Again, this slide is for reference purposes only. In a lockdown quarter, it is encouraging to see 48% our total order inflows being contributed by Infrastructure. Hydrocarbon and Heavy Engineering have also contributed 5% and 2%, respectively. For obvious reasons, the share of services as a percentage of total order inflow stood at 42% for the quarter. Moving on to the split between domestic and international, 62% of our order inflows are domestic and 38% international. A healthy chunk of domestic order inflows in Q1 is from Infrastructure. Coming to international, a significant portion of international order inflows is from IT&TS businesses. Having said that, as I mentioned earlier as well, Infra, Hydrocarbon and Heavy Engineering have also contributed to international order wins during this quarter. With those comments, I will move on to the next slide, which is Q1 FY '21 order book composition. As you can see, 72% of our total order book of INR 3,051 billion is from Infrastructure and 14% from Hydrocarbon. Within Infra, as I mentioned earlier, the order book is very well diversified across the 5 large verticals. Coming to geographical split of the order book, since we are predominantly an India-centric company, 76% of our total order book is India based. And within that, 82% is from central government, state government and PSUs combined and the remaining 18% is from the private sector. Our international order book is 24% of the total order book. As you are aware, over the last couple of years, we have consciously moved away from the Middle East. These efforts have borne fruit, and about 42% of our international order book today is non-Middle East. With those comments, we will move on to the next slide, which is Q1 FY '21 revenue composition. This is an interesting slide in a way because services business, as you know, we have been mentioning for quite long that it acts as a good hedge in a portfolio of businesses which is dominated by core E&C business. In a quarter like this, where pandemic shadows revenues across core businesses, services portfolio comes to the rescue. Of the total revenues of INR 213 billion for Q1 FY '21, services and Infra contribute 47% and 30%, respectively. Moving on to the geographical split of revenues, 55% of our total revenues are domestic and 45% of our total revenues are international. These percentages as we are a little skewed towards international, primarily because of the contribution of the IT&TS businesses. With those comments, I will move on to the next slide, which is the Infrastructure segment, Slide #15. The Infrastructure segment, as you are aware, is the largest segment within the group. And obviously, the financial fortunes of this segment impacts group performance. Quick comment on order inflows before we move on to other parameters. As I mentioned earlier, we have seen early signs of ordering activity pick up within this segment in both domestic and international space during this quarter. Areas like heavy civil, water, power T&D has done well, whereas we are yet to see pickup in other areas. Healthy list of order prospects exist at a ground level. Hopefully, the ordering activity should pick up once the government has a reasonable fix on its finances, which, again, is to a large extent, dependent on the progressive pickup in economic activity. Revenues for Q1 FY '21 at INR 63.9 billion has registered a decline of 53% over Q1 FY '20. Execution was hindered by lockdown across all verticals. During the quarter, we have witnessed a graded resumption with limited workforce and a disrupted supply chain. Good news, as I said earlier, is that client collections have continued during the quarter. And we did not have to finance this execution from our own balance sheet. Margins for Q1 FY '21 at 6.3% have broadly remained stable as compared to Q1 FY '20, mainly attributable to the favorable input cost and expense control. With those comments, we will move on to the next segment, which is the Power segment. Now no prospects were being targeted for award in the Power business in Q1 of FY '21. You would recollect that in Q1 of last financial year, this business had secured a large order for an ultra-supercritical thermal power plant. Order book of this segment is that around 5% of the company's total order book and a couple of quarters of low order wins would not impact this business segment. Revenues at INR 3.7 billion for Q1 FY '21 registered a decline of 33%, largely reflective of graded resumption of operations during the quarter. The high-value order won last year, as I mentioned, is yet to cross the margin recognition threshold. This explains the margin variation from 3.3% in Q1 FY '20 to 1% in Q1 FY '21. Finally, as you are aware, Power business margins appear optically low because boiler and turbine JVs as well as other power JV companies are consolidated at the PAT level under the equity method. We'll move on to the next slide, which is Heavy Engineering segment. Quick comment on order inflow before we move on to other financial parameters. Surprisingly, the segment secured orders in -- during Q1 FY '21, despite pandemic and lockdown. International orders constitute 70% of the total order inflow of this segment during the quarter. Phased ramp-up constricts revenues for the quarter. The decline in revenues was mainly in the refinery business, which in the previous year includes simultaneous execution of multiple high-value reactor orders as well as due to lower manufacturing activity during the current lockdown period. Revenues for Q1 FY '21 at INR 3.8 billion, registered a decline of 57% over Q1 FY '20. Coming to margins. Margin variation between Q1 FY '21 and the corresponding quarter of the previous financial year is largely explained by low capacity utilization and under-recoveries. We'll move on to the next slide, Defense Engineering segment. Policy bottlenecks, fiscal constraints and lengthy MOD procurement procedures have continued to beset investment momentum in this sector for many years now. Consequently, large order inflows are missing, and order inflows in the current quarter comprises of multiple small value orders. Having said that, the recent government announcement on time-bound defense procurement procedures and faster decision-making awakens hope for the future. Announcements around separate budget provisioning for domestic capital procurement is also a positive. Not sure at the moment if the recent skirmishes around the border areas results in an immediate benefit to domestic manufacturers. Having said that, I would like to mention here that for the first time in the history of defense, online remote inspection was initiated, enabling milestone clearances at our end. Revenues for Q1 FY '21 at INR 4.7 billion registered a decline of 49% over Q1 FY '20, largely due to delay in procurement of materials on account of nationwide lockdown. Margin variation is largely explained by job mix and under-recoveries. We move on to the next slide, which is Slide #19, the Hydrocarbon segment. Slowdown in order inflows in Q1 is largely due to muted tendering activity in a low oil price scenario. Order inflows during this quarter is driven by international wins. This business today is sitting on an order book, which is around 2.5 years of revenue. Revenue for Q1 FY '21 at INR 30.6 billion registered a decline of 19% over Q1 FY '20, mainly due to low utilization at yards and constraints on execution at job sites. Cost provisions and under-recovery of overheads in a restricted execution environment has impacted margins for the quarter. If we move on to the next segment, which is the Developmental Projects segment. As you know, this Developmental Projects segment comprises of Power Development business and Hyderabad Metro. There, again, roads and transmission line concessions, which are housed in L&T IDPL, are consolidated at a PAT level under the equity method. So obviously, the numbers presented in this slide do not include roads as well as transmission lines. During Q1 FY '21, the revenue of this business segment at INR 5.5 billion registered a decline of 53% over Q1 FY '20. The revenue decline in this segment is largely attributable to the Power Development business. Lower power demand during the lockdown leads to revenue decline in the Power Development business. As far as metro is concerned, you are aware, we fully commissioned the metro in February of 2020. Operations of the metro have remained under lockdown for the entire quarter. There has been under-recovery of fixed OpEx, depreciation and interest expenses during Q1 FY '21. We'll move on to the next slide, which is the IT and Technology Services segment. As Mindtree was consolidated from second quarter of FY '19/'20, the previous period Q1 FY '19/'20 does not include the performance of Mindtree Limited. Hence, the current period is not comparable with the previous period on a like-to-like basis. Therefore, the revenues of this segment at INR 60.3 billion for Q1 FY '21 has registered a growth of 58% over Q1 FY '20. However, we would like to mention here that even excluding Mindtree, this segment has recorded positive growth in Q1 FY '21 over the comparable quarter of the previous year during this challenging -- these challenging times. All the 3 companies in the IT&TS segment are listed companies, and they had their earnings call as well. So all the numbers in detail are available in public domain. An array of business verticals have contributed to the growth within each of the companies during Q1, the details are mentioned in the slide. It is important to note that each of the listed IT subsidiaries have smoothly transitioned to a work-from-home environment right at the onset of the pandemic with encouragement and support from customers. Margin variation is an outcome of some headwinds in pricing and staff furloughs. With those comments, I will move on to the next slide, which is the Others segment. Others segment now comprises of construction and mining equipment, rubber processing machinery, industrial valves, realty business and smart world and communications. Q1 FY '21 revenues of this segment at INR 7.1 billion has registered a decline of 51% over the corresponding quarter of the previous year. Q1 revenues have been impacted by significantly lower handovers in our realty business, low-demand environment impacts industrial valves as well as construction and mining equipment revenues. And smart world and communications revenue have -- has been affected by lockdown. Margin drop is largely explained by under-recovery of overheads on low volumes. We'll move on to the next slide, which is the L&T Finance Holdings Group. L&T Finance Holdings, again, is a listed company, and they had their earnings call as well. So all numbers are available in the public domain. Income from operations for Q1 FY '21 at INR 32.8 billion has registered a decline of 5% over Q1 of FY '20. Now the strategy for the group during these challenging times has revolved around recommencement of on ground operations, further tightening of credit measures, steady resumption of disbursements and maintenance of adequate liquidity on the balance sheet. The group over the last couple of years has demonstrated tremendous resilience despite the challenges surrounding the NBFC space. L&T Finance Holdings and all its lending subsidiaries have been reaffirmed AAA from all the 4 rating agencies. The business continues to focus on retailization of the loan book, prudent asset liability management, improving asset quality and increasing diversity of the funding sources. Profit after tax for Q1 FY '21 has largely been impacted by increased statutory and macro prudential provisions, partly offset by gains on divestment of wealth management business. We move on to the next slide, which is Electrical & Automation, Slide #24. As mentioned earlier, E&A business has been classified as discontinued operations in FY '20. You would have observed in the earlier slides that PAT from E&A business is being aggregated as a separate line item in our profit and loss account. Q1 FY '21 revenues at INR 7.1 billion registered a decline of 48% over Q1 FY '20, largely reflective of lockdown conditions. Secondly, fixed overheads of the manufacturing units charged to the profit amidst low capacity utilization impacts margins for the quarter. I will now hand over the presentation to my senior colleague, Mr. Arnob Mondal, to take you through the slide on environment and outlook, post which, we will take the Q&A. Thank you.

Thank you, Harish. Before getting into the actual slide on the environment and outlook, I'd just like to give a few comments. As Harish said, of course, it is a very unusual quarter. And it's not to be construed as representative of any normal quarter or extrapolated for the year. I think all of you realize that. And considering the uncertainty that is still prevailing in the environment, we have again decided not to give any guidance on either order inflows or revenues or margins. One thing which I think I would specifically like to mention, which is a defining feature of this particular quarter is a significant headway that we made on liquidity management. We managed to keep ourselves fairly liquid. We managed to raise resources. Of course, we have not used those resources, those -- the funds used in funding working capital because that is one area where we have focused in great detail. Our philosophy was, as far as possible, we will try to restrict our working capital outflows to the extent that we collect. And I think we have done a very decent job on that front. So that, I think, is the defining feature of the current quarter. I think everybody realizes the impact that COVID has had on both revenues and PAT. As far as everybody, of course, has been asking -- many people have been asking about labor availability and operational sites, primarily because the issue of migrant labor was highlighted in so many different forms of both mainstream as well as social media. Yes, some time during May, the availability of -- after sites -- a large number of sites became operational, availability of labor became a question. The labor workforce plummeted significantly, but we have seen a steady increase thereafter. It fell to around 70,000 labor at one point of time from a peak of 220,000-odd labor. So obviously, we were -- had been stung by that. But fortunately, we have seen a steady increase in labor, and we have been adding -- we've still been adding labor at around 1,500 additions a day or so. Currently, we are at a total strength of around 190,000 labor, which is a reasonable sense to work for, particularly in Q2, which is normally defect by monsoon in any case. Another small thing which I would like to amplify on something that Harish touched upon. If you see the total order book of INR 3,05,000 crores, and you take out the INR 79,000 crores or so which is order book attributable to international projects, in the domestic market, we are -- our total unexecuted order book is INR 230,000 crores, approximately, of which 82% he mentioned was public sector. Yes, that's correct. Now within this 82%, around 50% is by center and state and 32% is from PSUs. As you would all be aware, the PSU revenue models are different. They are not directly dependent on tax collections and things like that. So they have their own revenue generation models. 50% of the domestic order book, which is -- on which we are dependent on central and state, obviously, it will depend upon, to some extent, the physical resources, the liquidity resource, and I won't say fiscal as such. Another thing that needs to be considered is that out of this 50%, close to half are multilaterally funded. So there again that gives us a measure of comfort. Harish also mentioned the contribution of IT and Technology Services business, and this is something that we've been talking about for a long time. And at least in the last 5 years, we have been reiterating that this business lends a lot of stability to the cyclicality of our core business in addition to the fact that it has much healthier bottom line and return profile. And that has clearly been borne out by the current quarter where even if you take out Mindtree, IT and Technology Services businesses group decently, and along with Mindtree, it has, to a large extent, contributed significantly to the revenues, close to 49% odd. Now one other thing which he also mentioned is that in Financial Services, we got some exceptional income from sale of the wealth management business, which is one of the exceptional item. However, for those of you who would have attended the call on L&T Financial Services earnings call, would also realize that over and above the COVID provisions that they did, the COVID provision is of course centered around increased statutory provisions mandated by RBI as well as increased macro prudential provisions that they did because of the COVID environment. But over and above that, the gains that they got from sale of wealth management business were used to put in further provisions of a similar amount. And those further provisions are sitting in the sales and admin expenses and not in exceptionals. We have also had fairly significant savings in overhead expense control, and that has obviously contributed to a better bottom line than what many people originally expected. Now coming to the slide. Again, it's a bit of a complicated slide if we go to read the fine print. I would urge you not to depend on the fine print. Essentially, what we have tried to do is that we have tried to -- in this slide, we have tried to put out in different buckets, the various external and internal factors that affect our -- that have been affecting our operations, particularly in this quarter. Obviously, the global pandemic is well-known and countries like U.S., Brazil, India and Russia are the most affected. And while the pandemic has been tapering in many countries, in India, it is yet to -- the curve, it is called, is yet to show signs of flattening. Hopefully, that will happen. I think the lockdown -- everybody realizes that the lockdown administered of both demand and supply shocks to the economy, and that is why we have had a phased reopening apart from the multi-phased lockdown itself. And we are yet to completely normalize because there are still many containment zones across the country, including some facilities. For example, Tamil Nadu has a large number of containment zones, including. For example, our Hydrocarbon Kattupalli facility is also struggling there, obviously, because of lockdown conditions. Labor migration, I briefly referred to on what we saw. And this, of course, was the largest constraint that we faced in Q1 and I -- from what I understand, this is a constraint that all construction companies and engineering and construction companies face. We are seeing steady normalization. And hopefully, within the next few quarters, it should normalize. Supply chain disruption was not as severe as the labor availability issues. And that, of course, is steadily normalizing. Even though some imports and growth transport bottlenecks will persist here and there. As far as input costs are concerned, it is a fact that we have been seeing lower commodity prices, particularly in areas of construction and steel. However, we are seeing a trend of increasing cost of labor migration, like labor cost of migrating labor who are coming back. And we do think that, that will lead to an increase in labor costs overall. However, a fair bit of the contracts that we have from the public sector, particularly, have labor cost inflation built in into the contract. So we should hopefully be able to pass on some portion of the increased cost as well. And in case of commodity price decline, even though cement has gone up, but steel has gone -- come down a bit, maybe around 5%, 6% or so. In the case of commodity price decline, we obviously stand to benefit on our fixed price projects. We have seen strong liquidity support from the government. I think everybody is aware of the extremely large stimulus measures, of which the major -- small part was fiscal and a major part was monetary. But be that as it may, the government also realizes that this year is going to be a year when tax collections will fall short of not only what we have projected, but is likely to fall short by -- I have no idea, but maybe around INR 5,00,000 crores to INR 7,00,000 crores, INR 8,00,000 crores or so from even last year. Now what the government is doing is that because they have decent headroom on the debt to GDP ratio, they have increased originally budgeted borrowings program by around -- going by reports which various economies have brought out in the past, the increased borrowing program would be around INR 9,00,000 crores around -- of which INR 5,00,000 crores would be on center and INR 4,00,000 crores would be additionally raised by states. And these would be front-ended. For example, around 70% of the total borrowing program is expected to be complete by -- in the first half itself. So that ensures that the government, at least, center and state has adequate liquidity, and we are -- that is one of the reasons why we also see payments, collections coming from both center and state in a reasonably decent manner. Obviously, the government is focusing on infrastructure. I think during the lockdown, they released a 300-page report on the national infrastructure plan, which is a significantly large investment plan, even though parts of the -- and they've also given some ideas of the funding. And even though 20-odd percent, which they're envisaging from the private sector, which is up to 2025, may fall a bit short if private sector does not see a bump up in investor momentum. But at least the center, state and PSU spend should be, by and large, in line with the plan. So the plan doesn't appear to be wishful thinking. Lastly, I think we realize that we have an economic moat. Our organization has an economic moat. We have a healthy balance sheet. We've got a very large unexecuted order book, which gives us multiyear revenue visibility. Our portfolio diversity, to a large extent, has been mitigating the impact of cyclicality. As Harish also mentioned, dependence on public CapEx at this point of time is not a bad thing to have. If we are largely dependent on private CapEx, we may have been more badly affected. And of course, our execution and track record is well proven. And apart from that, we carry strong liquidity on the balance sheet. With that, I would like to open the session to question-and-answer. Over to you, Janice.

[Operator Instructions] We take the first question from the line of Subhadip Mitra from JM Financial.

Arnob, I have 2 questions. Firstly, you did mention about the labor situation improving. So my understanding, as per the last quarter's call, was that you were expecting to reach about 2 lakh, 2.2 lakh kind of labor by end of July, they're currently at 1.9 lakh is what you mentioned. So by when do you see labor reaching an optimal level? And how do you see probably execution picking up in second and third quarter?

Subhadip, I think there was a small misinterpretation on your part. What we said was that during peak period, some time in Q4, January, February, when typically execution obviously ramps up in Q4, our total peak labor workforce was around 2,25,000. And at the end of the year or some time in the middle of -- some time during the quarter when we talked, at that point of time, our labor force was around 1,40,000. So it has come to 1,90,000. Of course, that would be probably around 70% of peak requirement. But one thing you must also keep in mind is that during monsoon season, labor requirement may be down a bit. But yes, we -- the -- what we said was that it will take some time for us to come back to a normal operating requirement, not come back to peak. So that could still be a couple of quarters away.

Understood. Understood. Secondly, I was just referring to the slide on the balance sheet. And just looking at the borrowings part of it, the Others borrowings, which is ex of Financial Services and Development Projects. So there's a sharp spike there, I believe, in the borrowings part. So just wanted to understand that this is business borrowing that we've taken anticipating working capital pressure in future or -- if you can throw some light on that?

Yes, it was essentially to -- the additional borrowings was essentially to -- for 2 things. One was to sort of tank up on liquidity because we had -- in the month of April, it was -- entire world was in turmoil and India was completely locked down, and nobody had any idea of how long it would remain and how long the depressed economic conditions would pan out. So we raised a fair bit of borrowings during that period. Of course, around INR 4,000 crores to INR 5,000 crores or so is earmarked for repayment of the earlier borrowings, which are due -- which will fall due for repayment some time during the course of the year. Normally, we tend to raise resources just before repayment. But in this particular case, we raised that money in advance. So it was essentially for 2 things. One is to raise money in advance to earmark for repayment of borrowings and the other was to increase liquidity on the balance sheet.

Understood. Lastly, by when do you see the proceeds of the E&A sale coming in?

See, I think we are very clear, both Schneider and L&T are committed to the deal. The deal is still on. But the only problem is that in India, unfortunately, some of the documentation that needs to be completed has to be done in a physical form and cannot be done electronically. For example, transfer of land to the new entity. They require signed documents. So we are all waiting for international travel to open up, after which people can come to India and sign whatever documents are required for registration because without -- that's an essential part of the deal, transfer of the existing businesses and assets to the new entity. So till that happens, we are sort of keeping everything in the bins. Everything else is in a state of readiness, but we'll have to wait to see when that happens. And going by recent news reports where the government has said that they'll try to create air bubbles between different countries for dedicated flights to and fro, hopefully, that will alleviate the international travel things. So once that -- international travel gets opened up in a limited or full manner, I think we should see this deal getting concluded.

We take the next question from the line of Mohit Kumar from IDFC Securities.

Congratulations, sir, on a decent performance in a very, very challenging environment. Sir, 2 questions, first on order inflow. Of course, it is difficult to paint a picture, but if you can throw some light on the international side and on the domestic side? And are you seeing any kind of deferral of execution, especially on the international side, given the low oil prices? And second -- okay, I'll come back to second question later.

Yes. Okay. See, as far as order inflow is concerned, we have seen bit of a pickup in ordering activity. But obviously, till things stabilize, I don't think you will see a rush of orders coming through, and particularly since we are largely dependent on center, state and public sector undertakings. And many of the people in the -- senior people in these organizations are not so -- maybe not so tech savvy, they would not like to approve everything electronically. So I think we'll have to wait for things to stabilize. Even though the pipeline appears very recently. In fact, Harish mentioned around INR 6.3 trillion of prospect pipeline, and he is correct, 600 -- INR 6,30,000 crores, of which around INR 500 crores is in our Infra segment, Power and MMH is another INR 50,000 crores, Hydrocarbon is around INR 70,000 crore and Heavy Engineering and Defense is around approximately INR 10,000 crores or so. Oil prices, obviously, low oil prices have put cost concern on ordering of international ordering, particularly in Hydrocarbon space. However, please to understand that if oil remains at around $40 a barrel, of course, it's been moving up quite a bit, that is not a very good price point for oil-producing countries to put out CapEx. However, once it crosses $50 a barrel, it certainly alleviates the fiscal equation in oil producing countries. And people do start to look at CapEx. And going by many reports, international reports, it does seem as they are predicting that oil will go back to around between $50 to $55 a barrel. So we'll have to wait and see. Once oil comes back to a decent level above $50 a barrel, I think we can expect to see some ordering. So while the prospect pipeline is there, both on international and domestic, time lines for that is very, very uncertain. And at this point of time, it's anybody's guess on when these will actually get awarded. As of now, these appear to be on the horizon, hopefully, they'll not get dropped. So that is a situation on the ordering, on the investment front going forward. But as I said earlier, the world is in -- world and India is in such an uncertain state of mind that we would not like to try to speculate our conjecture on time lines of when ordering can come back in a really decent manner.

Okay. Sir, my second question is on the Development Projects portfolio. Sir, did we book Nabha power revenues assuming 100% availability during the quarter? Or we assume there's lower PAS? And related to that, what are the amortization provided for Hyderabad Metro in Q1 FY '21? And what kind of cash for the development business would require to meet all the commitments in FY '21 in an environment where the revenues remain subdued?

Hyderabad Metro, they were shut for quite some time. And one of the reasons was that the State of Punjab was not taking -- there's no demand. I think during lockdown, the demand was miniscule, so they did not have to resort to their priority lists and ask for power from IPPs. So obviously, the PLF fell significantly in line with the fall in revenues. However, you mentioned PAS. PAS was at a fairly high level. In fact, PAS was at around 87% level, which is more than the threshold required -- plant availability, which is more than the threshold required for getting the capacity charges. So while there was a close to 50% fall in the total revenue, the plant availability was at a high level because we had adequate stocks of coal, and we are ready to switch on at a moment's notice. So that was the situation as far as Nabha is concerned. What was your question on Hyderabad Metro?

Sir, what was the amortization provided on fare collection rise for Hyderabad Metro in Q1 FY '21?

See, there's no collection whatsoever. It was under lockdown, and it is still under lockdown. So for the whole of the quarter, there's no collection. There was -- in fact, we had to keep on bearing the fixed expenses. So there's a negative EBITDA. And you talked about amortization, the amortization was around INR 70 crores, INR 70-odd crores during the quarter, the amortization, that means the depreciation and amortization part.

Correct, sir. And the question was, what kind of cash support the development business would require to meet all the commitments in FY '21 in case the revenues remain subdued?

I would not like to speculate on that. What you're asking for is to -- for me to also build in some sort of a conjecture on the revenue and EBITDA. Nabha should not require anything. If at all anything will be required, it will probably be required in Hyderabad Metro, not in Nabha.

We take the next question from the line of Venugopal Garre from Bernstein.

Mr. Mondal, firstly, congratulations on a well-managed quarter, especially on the cash flow side. My first question, I just wanted to touch upon the labor availability part. Now from what I see, your revenues are primarily a function of both availability of sites wherein, of course, there are some containment zones, and number two is availability of full labor. Now looking at this commentary you made that roughly about 230,000 or 240,000 is what is the peak labor requirement, which I understand is usually, let's say, during the March quarter. But you're already at 190,000 now. So post-monsoon, which is the December-ish quarter, you seem to have at least adequate labor availability built for a normal December quarter because that's not a peak quarter anyways. So is containment zones are meaningful enough hindrance for getting back to a revenue growth in a normal quarter? Because labor doesn't seem to be a challenge at least. So that's my first question.

See, firstly, yes, you're right. Most of our sites are operational, around 95% or more than that are operational. It's only a few sites here and there which are in containment zones, which are not operating. Just a handful of sites. But you mentioned labor. I think we also need to recognize that till the virus is not eradicated from the face of the earth or until everybody in the country at least is vaccinated, we have to follow social distancing norms. So even during normal operations, it's not as if execution will go big bang back to what it could have been in a normal boom period. So those constraints are still there as far as the execution is concerned. So some constraints in execution, in spite of reasonably large labor workforce, will still continue.

I think that is very clear. The second thing is on the margin side, wanted to really understand, we were actually very surprised looking at Infra margins honestly. 50% decline in revenues and yet you held up your margins on a Y-o-Y basis. You mentioned some margin levers, especially around overheads, where probably people underappreciated the ability to bring down overheads, et cetera. So can you give us some qualitative color on that aspect? And more importantly, because you want to really see if that's a sticky thing, which can actually help you through the year. And also because I'm assuming that labor is also coming back at a higher cost, so is there any risk around margins because of that? Or everything is a pass-through?

So everything is certainly not a pass-through. It could have a bit of an impact on margins as we increase labor. But I also mentioned that many of our contracts have labor inflation pass-through, which are typically in formula, for example, some contracts would have formula linked to DNS allowance and pass-through formula. However, at the same time, we do tend to benefit from lower commodity prices, particularly in steel. Even though cement has -- prices of cement have gone up a bit, steel should give us some benefit. It has given us some benefit in Q1 already. So to that extent, I think we are not in a situation where input cost escalation will hit us in a big way. Secondly, across the organization, everybody has been focusing on, number one, reducing discretionary expenses and trying to cut down on all sorts of overhead expenses, trying to change business models, so to -- so as to ensure that we operate in a more lean, mean and trim fashion. So just to give you an idea, this has borne fruit in many respects. Obviously, one big saving is on travel and conveyance because everything is being done online, just like today, we are talking on an audio call instead of physically meeting, and obviously, businesses have also been, apart from corporate expenses, businesses have also been at the forefront of trying to curtail expenses. And to give you an idea, in this quarter alone, we saved around INR 200 crores of normal expenses, of which around half was on travel, around INR 100 crores saving was on travel, but INR 200 crores is not a small number. And this is in spite of the fact that Mindtree added another INR 100 crores, even after taking that into account in the sales and admin expense, which people automatically assume that the large part of that is fixed. And the fact is that at an organization level, and obviously, Infra segment has been able to save on their overheads as well as on the input costs as far as material consumption is concerned.

We take the next question from the line of Abhishek Puri from Axis Capital.

Congratulations on a good set of results despite the challenging environment. Just wanted to check with you on the current quarter numbers. I mean we have lost 40 days of complete lockdown. And yet our core engineering revenues are down only 46%. So is there some catch-up that we have done? And would that catch-up play out in the coming quarters also? I mean, despite you being skeptical about the labor availability and the containment zones? So would it be possible to see normalcy earlier than expected is what I'm trying to understand.

We hope so. But Abhishek, please don't mistake my commentary for pessimism on the labor front. I think 190,000 labor workforce that we have is a very decent number, which enables us to execute in a very decent fashion. So we're not pessimistic. All we're saying is that we are cautious on when things will completely normalize. And so yes, some -- as I mentioned, some sites are in containment zones, but those are just a handful. In fact, even the large projects in Mumbai are progressing, the Coastal Road, the Trans Harbour Link and the Metro, for example. All are functioning in a decent manner. So it's not pessimism, but at the same time, we do think that it could take anything between 2 to 3 quarters for things to normalize. That is all we said. And I must also say that we can't just apply a thumb rule saying that revenues, 45% catch-up and stuff like that because every site had its own local conditions. Firstly, while some factories were allowed to start operating in a very limited manner from 14th of April onwards, sites started gradually reopening from 20th of April. So that doesn't mean that we suddenly opened up all sites from 20th of April. That would be -- that depended on permissions at the local level, whether it be a local DM or a gram panchayat or taluka and stuff like that. And obviously, that reopening came with a whole lot of conditions. For example, some sites may have reopened with a restriction that we could only operate at 30% workforce. Some sites may have reopened with a restriction that we could operate at 50%. So every site had its own peculiarities. And obviously, these, along with the gradual resumption of work -- of the workforce would have led to imbalances across the board. So I don't think one can really apply any thumb rule or say whether we managed, we did some catch-up, and whether we -- I don't think we'll be able to catch up on the revenue loss during the course of the year. That is my personal opinion. It is not an organizational point of view, but the revenue shortfall in one quarter, and you mentioned 40-day lockdown, it was not completely 40-day everywhere, as I said. So no numbers, but at the same time, it may be very difficult for us to sort of catch up on lost revenue. These are not lost revenues, these are -- this is execution that has got postponed. That's about it.

Right. Fair point, sir. Could you also spell any segments that would do better than others in the near term like we saw Hydrocarbon has fallen lesser than others in the current quarter? So more of international business here. So has that become 100% normal versus the others in India, where we are facing a lot more challenges due to containment zones?

So to that extent, Hydrocarbon, of course, Hydrocarbon has its own set of challenges. I think everybody knows that. And Hydrocarbon, also their margins were, to some extent, affected because of change in the job mix. Last year, we had a number of high-margin jobs, and the total proportion of jobs which had crossed margin recognition were almost double that of the current year, some foreseeable losses, lockdown costs, under-recoveries. So they had their own challenges. But yes, international locations, obviously, have not been as likely affected as domestic, even though every now and then we have seen some partial closures or partial lockdown or partial restrictions in a number of international sites. So here, again, I would not like to speculate. Apart from the fact that businesses with a higher exposure to international, particularly, I think, the Information Technology and Technology Services is known to everybody, even though their end markets are still very volatile. But Hydrocarbon and Heavy Engineering, which are also -- they get almost half their revenues from international sites, so -- international locations. Hydrocarbon, of course, means on the ground execution at those locations. In case of Heavy Engineering, it is more export of equipment to those countries. So yes, they may probably -- they may be less affected by the domestic lockdown, but at the same time, it's not that they don't have any domestic operations either. And Heavy Engineering, of course, is completely -- the manufacturing is all domestic. So pardon me if I'm not giving you a clear answer, but that would be speculative on my part.

Sir, fair enough. This is helpful to understand at least. And lastly, in terms of the order inflow, you mentioned order prospects of INR 6.3 trillion. If I remember correctly, if my memory serves me right, I think last year, it was about INR 8.5 trillion. So are we looking at 20%, 25% decline in prospects? And maybe I understand order finalization can be very different. It all depends on how the market competition and intensity is. So to that extent, are we looking at 20%-odd reduction overall? And when we know the prospects, why can't we give a guidance?

No. Abhishek, 2 things. Firstly, I don't think it is a clear function of some arithmetical back-of-the-envelope calculation, number one. The reason being that even while trying to get a fix on the prospect pipeline, the fair bit of judgment is involved. For example, some businesses may -- some business head may be looking at prospects, but we seemed very, very remote in -- under the existing circumstances and without any clarity on when things will resume back to normalcy. So to some extent, it's a judgmental call. There may be prospects which are not part of this. But at the same time, I think we also need to recognize that the economy has significantly decelerated. So in these times, I think people are not really talking many customers who would -- many of the public sector customers, particularly who would be maybe doing some drawing-board calculations on some projects, would obviously put that in the background. So it's not amenable to clear interpolation or extrapolation. So to that extent, it's not a mathematical science or an art. And I'd also mentioned that the time lines of ordering the so-called INR 6,30,000 crores of prospects, right, it's so-called because we don't know whether these will actually get ordered out or when they'll get ordered out. And the sheer uncertainty obviously precludes us from making any sort of projection as far as order inflow numbers are concerned. So that is why we have refrained from giving a guidance.

Right. Fair enough. But in terms of the -- some of the segments that you would be more keen or we should assume that high government exposure and PSU exposure sectors will do better than the private ones, for sure?

Yes. At this point of time, it does look as if sectors which are more exposed to government and PSUs, their prospects will probably look more concrete, let me put it, not necessarily better, but look a bit more concrete than those which are exposed to private sector.

Right. And any update on 5G deal? That would be my last question.

At this point of time, no update.

We take the next question from the line of Aditya Bhartia from Investec.

Arnob, just want to understand how significant the benefit of lower commodity cost is. I mean, because I -- there are quite a few contracts which have a pass-through. And in that context, how is it that we've been able to hold up onto our Infra margins despite such a sharp decline in revenues?

I think we have already addressed that. The large part of it was because of -- firstly, you also need to recognize that Infra is a segment, which consumes a lot of material as well as subcontracted labor. And those typically tend to be variable. Forget about the 20-day lockdown period, but more labor and subcontracted labor and material tend to be variable. So to that extent, the margins don't get affected. Where they did benefit, obviously, was on the margin front, on the overhead reduction front. So to that extent, I think we -- yes, it's not that we didn't benefit from commodity prices, I did mention that, yes, we have benefited somewhat, but those are not humongously large benefits, not humongously large benefits.

You would say the bigger cost benefit would have come from SGA cost savings as opposed to commodity costs?

I would not like to get into that level of granularity, Aditya. Sorry to disappoint you. But also keep in mind that because of the lower revenues, obviously, the material consumed was significantly lower as well, in general. Revenues fall by 50%, material consumption will also fall by 50%. So the savings on commodities will also be restricted to that extent.

True, true, true. And regarding lower crude prices, I mean, you indicated that order inflows in the Middle East could get impacted if crude prices remain where they are. And possibly above $50, things start normalizing. But could you explain us -- do these lower crude prices also impact the execution phase or cash flow collections -- or cash collection in a material manner in the Middle East?

Not really, because Middle East countries that we operate in, they clearly respect sanctity of contract. And yes, if some particular country is under fiscal stress, they may request us whether we can maybe elongate the execution time line. So to that extent, 1 or 2 projects may go through that, but it is not with lower oil prices will directly affect execution. Ordering becomes uncertain, obviously, but execution may not get that dramatically affected.

Understood. So from that perspective, as far as cash collection is concerned whether domestically or internationally, we are not seeing any significant challenges as yet?

Challenges are always there, but I mentioned right from the beginning that one of our main focus areas during this pandemic was on liquidity management. So our philosophy is that as far as possible, we will spend only as much as we can collect.

The next question is from the line of Sumit Kishore from JPMorgan.

My first question is that we had heard about conducive ongoing customer negotiations with regard to the cost overrun, which had happened due to the COVID disruption. We had also heard about INR 5 billion-odd per month fixed overhead that you would have incurred through the lockdown period. My question is, how are those negotiations progressing? And how much of the fixed overheads have actually been booked in expenses in the first quarter? And how much is sitting in, say, work-in-progress?

Very difficult question to answer. But number one, as far as negotiations are concerned, those are ongoing, and we have not yet had any significant number of customers agreeing in writing to reimburse on -- reimburse us on lockdown costs, even though we are pursuing it. And obviously, till we get a formal commitment from customers or till we get the actual money, we don't account for it. Once they agree to it, we'll add that to the contract value. But in the meantime, contract values do not get increased. Yes, we were incurring around INR 500 crores a month on subcontracted labor workforce during knockdown. Of course, 7 days of that obviously went in the previous quarter in Q4 in last year. [Audio Gap] And wherever we are already working, and whether it be joint working or whether it be import of equipment from China or even in some cases, I don't know whether we're exporting, maybe in one-off cases we do, but like most countries which follow rule of law, we -- India also recognizes sanctity of contract very, very clearly. So I don't think those contracts will be allowed to -- suddenly, we will not -- nobody will change the rules of the game halfway through. So those contracts will play out going forward. Of course, going forward, we will obviously recognize geopolitical equations that India is currently facing. So we'll obviously look for alternate sources of supply and try to broaden the supply chain ecosystem. And if you keep -- if you have been keeping track on geopolitical events and the spin-off effect of those, the consequential effects of those, you would also realize that many companies are now looking to India in a very serious manner. So to that extent, our supply chain sourcing ecosystem automatically increases as well. So I don't think that there's much of a concern on existing contracts. Going forward, we'll have to be very, very careful on our international sourcing in relation to geopolitical situation.

And in terms of opportunity because now they cannot participate?

Firstly, let the ordering pick up, and then I think we'll comment on that. I'd not like to speculate on that beforehand.

Sure. And the potential loss of revenues quantified at INR 15,000 crores at the end of last quarter. Lockdowns continued till May. Obviously, these revenues are not lost, they are postponed. So what is that number that has moved to?

See, INR 15,000 crore was not -- last quarter, was not INR 15,000 crores. In the current quarter, the revenues that impact of COVID has been approximately INR 12,000 crores.

Next question is from the line of Puneet Gulati from HSBC.

Congrats, Arnob, on good revenue performance. I have 2 questions. Arnob, can you give some sense of what is the fixed cost burn on Hyderabad Metro?

Fixed cost would approximately be around INR 70-odd crores a quarter, approximately.

This is excluding interest, right?

Yes, excluding interest.

And any debt repayment due in this year from Hyderabad Metro?

It's INR 50 crore to INR 70 crore. Look, Hyderabad Metro we availed on a moratorium actually, so…

Okay. Okay. So INR 50 crores per quarter plus interest cost is only fixed costs that you in Hyderabad Metro.

Yes. Approximately. In case, I mentioned depreciation would be around INR 70 crores. And obviously, the interest rate would be on -- the interest charge has to be accrued in any case, whether we avail a moratorium or not.

Yes. But -- so cash cost is only INR 50 crores.

Yes, approximately INR 50 crores. Yes, approximately.

Yes. Secondly, can you give some sense of what percentage of your core business contracts are fixed price contracts? And where there is a pass-through?

Approximately, 55% of our order book, order book of essentially core business is variable contacts where -- which have pass-throughs.

Both on labor and the material side?

No. Labor would be a bit different. I don't have the numbers readily with me for the labor part, but these are essentially on material.

Okay. So 55% of order book has pass-through with variables. So 45% is there, you will typically benefit is on the material side.

Yes. Correct. Correct.

Okay. Perfect. And so on the Heavy Engineering side, also, the margins were quite good. Was it, again, largely a section of the material cost?

Heavy Engineering, not [indiscernible]. They have only material cost.

So what would have resulted in a strong number for the Heavy Engineering that you did almost 17.5% EBITDA?

See, this is, to a large extent, Heavy Engineering as well their -- a large part of their costs are variable. So to that extent, the margins would not necessarily -- but there was still a 2% reduction. So that 2% reduction is obviously because of the under-recovery of fixed overhead.

But on a 50% revenue, it was actually quite good result.

But I cannot give you granular level details on each business. And in case of Heavy Engineering, of course, also keep in mind that depreciation is also a fixed overhead. It's for all manufacturing businesses, whether it be Heavy Engineering or defense or electrical and automation.

Yes, sir. Agree with it. And lastly, on the Infra side, because of lower commodity price, and on the other side, there is an escalation of labor, would you get to keep the margins that you made in 1Q? Or do you think there is a risk of it getting renegotiated when you go for other cost escalations getting renegotiated?

I would not even like to speculate on something -- on that, Puneet. The current quarter, Q1 was so unprecedented in nature, and obviously, the impact of a complete black swan event that has taken the entire world by surprise. So to that extent, I would not even like to speculate on whether it is margin sustainable, whether it will go up or whether it will go down, whether it will lead to different negotiations, all that is completely speculative. So I'll have to disappoint you, but I cannot give you an answer to that question.

We take the next question from the line of Apoorva Bahadur from Jefferies.

Sir, 2 questions from my side. Firstly, you said that we incurred roughly INR 500 crores-odd per month on subcontracted labor force during lockdown. So now that 90% of sites are back on, are we still incurring roughly 50% -- INR 50 crores (sic) [ INR 500 crore ] of this overhead?

No, no. That was only during lockdown. Obviously, that was a very different situation from the current environment.

Okay. Okay. So we're not incurring this expense any longer?

No, no.

Okay. And then secondly, if you could share -- give some color on any potential slow-moving orders in the order book? Or there are any certain states which have not really picked up in terms of payments?

See, state governments, obviously, do -- keep on billing payments every now and then, and that is not something new. It's not peculiar to this quarter. So there's not much difference. But yes, in the past, MP and Rajasthan were lagging behind as far as payments are concerned. Some of those have started picking up again in the current quarter, thankfully. I think the Andhra Pradesh part is well-known, Andhra Pradesh part is well-known to everybody. So I think…

And on the slow-moving order part?

Slow moving, see, there are some orders, which are not moving, but I would hesitate to characterize them as slow moving as such.

Okay. And sir, which would be the -- how large will this be -- will this part be, which is right now not moving? If you could share that?

No. It should not be humongously large, maybe between INR 5,000 crores to INR 7,000 crores or so.

The next question from the line of Ashish Shah from Centrum Broking.

So just a last bit on the margin discussion. I know we've spoken enough. Would the other income, which is up about INR 140 crores Y-o-Y, would a part of the other income being attributable to Infra segment, is that -- could have -- I mean, could that have pushed up the margin a little bit? I wanted to understand this.

Like what…

No. I'm just saying when we take the segmental margins as reported, they include maybe some portion of the other income attributable to the each segment.

Yes. Some portion, yes.

Okay. I'm just saying taking a qualitative judgment, would that have been an influencing factor? Or you don't think that's a very material attributing factor to the margin being flattish Y-o-Y?

No. That is not a very attributable factor.

Sure. Sir, second is, we had spoken about some sort of a support to the Hyderabad Metro as well as the financing business out of the E&A proceeds. Have we -- are we in a position to give any firmed up numbers or any indicative numbers? What kind of support are we looking at now?

See, firstly, as far as Hyderabad Metro is concerned, we don't intend to increase the debt from additional data on the ACV books. In fact, part of the debt is also, as I mentioned, is from L&T and part is [indiscernible]. In that, we also have around in excess of INR 20 crores of income from ICD to Hyderabad Metro at a parent level, which gets eliminated at a consolidated level, but which shows up as part of the interest cost in ACV. As far as the funding support is concerned, Hyderabad Metro, hopefully, we will also get the VGF from the government, which has been pending for some time. And that could be used to repay debt to the parent. And as far as funding support is concerned, we'll have to -- you'll have to wait till E&A proceeds come in before we can give you a better color on what we intend to -- how much of that we intend to use to reduce debt on ACV books. We'll have to wait a bit more.

Sure. Sir, lastly, in the Others segment, any indication on how much would have been the realty segment for the quarter?

The realty, obviously, has taken -- borne the brunt of the pandemic, and I think it's a very well-known thing. So Others segment, yes, realty is largely responsible -- it's, to a large extent, responsible for the drop in segment revenues. But at the same time, it's not as if everything has completely -- it is responsible for -- around half the drop in segment revenues in Others is from realty. It's not as if everything has completely stopped. For example, we handed over close to -- between -- something close to 60 flats in Bangalore during the quarter, even during this situation. So it's not as if everything has come to a standstill, but yes, realty has been affected because revenues, as you would recollect, are realized based upon handover of flats.

We take the next question from the line of Renjith Sivaram from ICICI Securities.

Congrats on good set of numbers given the environment. Sir, I just wanted to understand this INR 500 crore per month, how much would have been actually incurred? And how much is there in the results which we have disclosed of this INR 500 crores which we have actually accounted for?

See, Renjith, I think that INR 500 crores was a number that we talked about when the lockdown started on 26th of May -- sorry, 26th of March. And we said INR 500 crores per month, but we also said that sites started gradually opening up from 20th of April onwards. So close to a month would be a fair, I would say, a guestimate. But each project would have its own calculation. This INR 500 crore was an estimate at that point of time. And it would not be too far off the mark, but that would, for me to give you an answer, would be we've been collecting this sort of granular level detail from 700 to 800 sites. I don't think that would be -- that is possible in the existing circumstances. And even if we do get that information, we obviously cannot get into that level of detail. So I'll have to disappoint you on that front. I did mention how we have treated the lockdown costs. But beyond that, request you not to ask for further details.

But what would be the fixed overhead in Infrastructure, if you can help us?

Sorry?

What will be our fixed overhead under Infrastructure segment?

No, I don't think we'll be able to, again, give you that level of granular level of detail.

Okay. Because the revenue fell down by 50%. So how much was the fall? You told INR 200 crore. Is INR 200 crore the fall in the fixed overhead of the Infra segment? Or is the INR 200 crores the fall in…

Renjith, I mentioned INR 200 crore of reduction in normal sales and admin. This is excluding the provisions that we make for provision -- the nonlinear part that is provisioned for doubtful receivables and all the Financial Services provision. I mentioned that we, in normal operating level, sales and admin expenses, we saw a INR 200 crore reduction. In spite of our total increase of -- this is after considering INR 100 crore additional sales and admin expenses due to consolidation of Mindtree. I did not say that we saved INR 200 crores on Infra segment. Please do not read that, okay? Infra expenses, I did mention that we've charged off close to INR 150 crores of overheads during the quarter. Obviously, they've also saved apart from the overheads that have been charged, they've saved.

Okay. So INR 150 crore is the reduction in the overhead in the Infra segment. Is that understanding correct?

No, no, no. I did not say INR 150 crores is a reduction in overhead. All I said is that the overhead charge to P&L was around INR 150 crores in the Infra segment.

Okay. Okay. Because -- sir, is there any change, the provisions were lower? Or was there any provision write-off, which supported us to show that kind of margins in Infra?

See, I think I've answered the margin question of Infra in fairly good detail. Beyond that, I cannot keep on repeating the same thing on factors which affect. Please do not ask me to desegregate the entire margin of Infra into the minutest detail on overhead, increase in overhead savings, travel increase, travel saving, increase in material cost on cement, reduction on steel, how much of it we've accounted for as pass-through. So I will not be able to give you that level of color.

Okay. Okay. Fair enough, sir. Because that has been one of the major specific element compared to what we were expecting. That's the reason why we…

I know, I understand that.

Yes. And sir, we have -- yesterday, as per media reports citing SNS sir told that INR 8 trillion prospects from government has come down to INR 4 trillion. So what was that?

See, actually he did mention that normally an INR 8 trillion worth of spending happens. But that is probably the spending that central and state governments do, which will obviously could come down in the current year. I would not like to get into -- that's a very macroeconomic level discussion. But I clearly indicated earlier that on a macro front, the central and state government, yes, we will see definitely see a shortfall in tax collections. But hopefully, the additional borrowings program should be able to allow them to make up for a part of the tax shortfall collection. In addition to the additional resources that they will be getting by imposition of increased sales on petroleum products. In fact, that could lead to another one macro additional inflow in the central roads and infrastructure fund itself.

Okay. Okay. And any large iconic projects like high-speed rail or anything which is -- which can be a large element in terms of the order pipeline, which you look forward to?

No. I can't the -- at this point of time, I would not be able to give you any details on that.

We take the next question from the line of Varun Ginodia from AMBIT Capital.

Hello, can you hear me?

Yes. I can hear you.

Yes. Just 2 quick questions. Number one is on subcontracting charges. So you said that, that is like a variable cost. So ideally, the proportion of that as a percentage of revenues should remain steady over previous year. But I see a steep decline in subcontracting charges as a percentage of revenue. So what is driving that? So if you can give some explanation on that. That was my first question.

No. I think in these times, we cannot apply normal margin costing principles in these things.

Okay. Because the proportion to sales, that's why I mean, that should remain constant. So sales can come down.

Again, subcontracting at times also has subcontracting with material. So to that extent, it's not directly.

So it also includes some part of material cost as well in that particular heading. That's what you are saying?

Yes. Some part of material cost would be included as well.

Okay. Okay. And the construction material line item, that also saw a steep decline. So that is largely driven by lower steel prices. Or is there something else as well into that?

It's more because of consumption, more because of consumption of material.

Okay. No, there's a line item called construction material consume and the construction of raw material is a separate line. So that is fine. But this construction material line item, that saw a steep decline. So I think that is largely driven by lower steel prices or something else because there's a decline of 8 percentage points year-on-year. So does the steel price explain that portion? Or there something else as well in that?

No, no. It is not because of steel -- actually, if you're looking at individual line items, construction material and raw material, raw material is more for manufacturing. Construction material is more material that is used in sites. As I mentioned, you cannot directly attribute it to different businesses as such. And at the same time, when you are looking at revenues, you are also looking at revenues, including services business, correct?

No. Sorry, I removed that. I removed that. So I removed the services business from that to have an apple-to-apple comparison. So when I removed that, there is a decline of 8 percentage points year-on-year in 1Q. So wanted to get a sense if it's right…

No. It would -- to a large extent, it would be depending upon stage of execution, right? For example, in the early stages, it is more construction material -- not early stages, in the middle of the stage, it is more construction material use, whereby for the later stages, less construction material is used. So it would vary from project to project. It is not amenable to a state linear extrapolation.

Got it. Got it. Okay. And my second question is on the China part. So can you give like what portion of your order book is dependent on China supply chain as of today? If there is a way to quantify that, total amount of orders dependent on Chinese vendors?

I'm sorry to disappoint you, but I would not be able to give you that sort of detail.

Okay. Okay. And in terms of going forward on that, we will be finding alternative sources of those vendors either domestically or from other geographies. So that will be the way forward to deal with that, right?

That would be our philosophy.

Yes. That will be the philosophy to deal with that. Okay. Yes.

Next question is from the line of Uttham Kumar from Spark Capital.

Sir, first one is just to understand because of this new containment zones that are being defined, what percentage of order book list we can see in the domestic side, on urban and nonurban geographies?

See, international sites are back and all operational. It's not that those are -- it's only the domestic sites where a few sites in some urban locations have got affected. That's about it. And yes, I didn't understand your question. Actually, if at all, any site would get affected, it would mainly be in buildings and factories, 1 or 2 sites, here and there.

Okay. Okay. Sir, what -- of the 82% of the government share of order book, what could be the share of state government orders of the total 82%?

37% of the domestic order book is from the state government. 37% of the domestic order book.

Right. Right. In 82%?

Sorry?

Of the core business? Yes. Now on -- also on this business…

Order book is on our core businesses only.

Yes. Yes. Sir, what is this -- can we get a split of EBITDA of these development projects between Nabha and Hyderabad Metro? [Technical Difficulty]

Well, Mr. Uttham Kumar, I would request you to please hold on to your question. We are just trying to reconnect Mr. Mondal.

Sure.

We have Mr. Mondal reconnected. Mr. Uttham Kumar, you may go ahead with your question.

Sorry, I got disconnected.

No problem. Sir, can we get the EBITDA breakup of these development projects between Nabha and the Hyderabad Metro?

Sorry, can you repeat your question, please?

The breakup of EBITDA in development projects between Nabha and Hyderabad Metro?

See, Nabha was positive and Hyderabad Metro was obviously negative because of fixed operational expenses, even though we've got some miscellaneous income here and there, but largely that.

Okay. Yes. And also on this Hyderabad Metro, what could be the time line for implementing -- getting this TOD Policy in action and monetizing this land bank that we have and unlock that? What could be the rough time line like FY '22? Can we see that happen?

I would not care to speculate on that. We will definitely work towards FY '22 for sure. Let's see how things normalize because commercial real estate has to, again, come back to near-normal levels again in Hyderabad. And we, well, are obviously, exploring all options for that.

Understood. Understood. On the defense orders, given that limited competition, what could be the action that we can see in the next, say, in this FY at least, are we being -- are preparation work happening on some new orders?

No. I think defense ordering time and, again, we have told markets that time lines tend to get so elongated that it would be speculative to even try to give some idea of our time lines on when things can happen. So in fact, we were expecting some orders in Q1, but because of the current situation, those have got pushed forward. Hopefully, we'll get that in Q2. Hopefully, we'll have to wait and see.

We take the next question from the line of Ajinkya Bhat from Macquarie.

Sir, I just had one question again on the Infrastructure margin. So you have talked about clearly about the commodity prices and the other factors. Just one question, is there any contribution from, let's say, number of projects crossing the margin recognition threshold in this quarter? Because in the initial remarks, Harish mentioned that you did focus on essentially those projects where ramp up could be done faster. So could that be one of the reasons why your margins have surprised everyone?

Not really. Not because any large project has suddenly crossed margin recognition, not because of that.

Okay. And can you just give us qualitatively what are these areas where you saw faster ramp-up of projects? I mean be it either the specific sectors where you were able to ramp up faster or maybe specific work components, like, for example, just to give you an example, say, design and engineering is something that can be done on a computer with a software, right? So we cannot [ require ] software. So maybe less likely to be disrupted by a lockdown. Are these nitty-gritties are something that have helped the execution in Infra?

Not so much. See, when you're executing anything between 700 to 800 projects at any point of time, some projects are going faster on the design front and some projects going slower. We're not really seeing the needle to that extent. But very broadly speaking, sites which are a bit more remote away from urban centers, obviously, tend to -- have tended to bounce back in terms of execution a bit faster than those projects in urban or semi-urban areas. That's about it. Beyond that, I'll not be able to give you further color. And yes, you've reiterated it as a very valid point, but a lot of the design work, fortunately, we managed to transition to a work-from-home environment.

And sir, was there any -- I mean is this also -- just from my understanding, is it also possible that when you're getting workforce shortage, is it possible to move additional machinery and ramp up execution? Is that possible in any of the projects? Or can the man not be easily substituted by the machine?

No. Man cannot be so easily substituted. This is a very short period of time. Most of our projects take anything between 2 to 3 years to execute. In one quarter, pandemic happens, it's not that we can suddenly substitute a whole bunch of that. It's a very, very gradual process. At one point of time, the total workforce that we used to employ was in excess of 3,00,000 crores. Obviously, we brought it down to the 3 lakh -- 300,000 labor. We brought it down to around 225,000 end of peak. So obviously, that has happened over a period of time. It has taken a couple of years, but that is also an impact of the digitization initiatives that we have taken. But it cannot be done so quickly.

We take the next question from the line of Girish Achhipalia from Morgan Stanley.

Partly, the question was answered in the last speaker. Just one bookkeeping number, INR 6,30,000 crores, is there any quantification that you can give on the state side, how big that number could be?

No. I would not be able to give you.

The cost at least?

I'm sorry, but I'll not be able to give you those details.

Okay. But would it be similar to the order book composition? Or it could be very different?

Could be a bit different, obviously. For example, almost all the water projects, for example, they are state, most of them are state projects. So -- and water is a large prospected, even though part of the prospect is obviously -- is also international, but water is one area where we are seeing significant prospects. So a large part of that would obviously be states.

Our next question is from the line of Keshav Lahoti from Angel Broking.

Is it possible for you to throw some color on daily revenue run rate per day? Currently, what would be your guess? We are at 90%-plus revenue per day compared to the same a year ago or some sort of range is also fine.

I didn't -- I'm sorry, but I did not understand your question. Your voice was also slightly indistinct, so -- could you repeat your question?

Yes. So as you have given us the labor number, but probably the labor and the execution are not the one and the same thing. So my question is, what would be your revenue run rate? What would be the revenue you will be earning per day compared to the same period a year ago, maybe some sort of range you can give 80% to 90% or 90% to 100%?

I would not be able to give you that color. Sorry, to disappoint you.

Next question is from the line of Parikshit Kandpal from HDFC Securities.

Arnob, congratulations on a decent quarter. My question is, sir, a large sort of order book is funded by multilateral agencies. So -- because of COVID, are we seeing any constraints on the funds coming in from there and any delays in payments on those projects?

No. Actually, the multilateral-funded projects, payments go according to milestones. So if we execute and we cross a particular milestone and the payment becomes due, that comes. So it is more on the execution front rather than on anything else.

Because there could be certification delays or site visits by the independent engineers, so I'm coming from more on that -- the manpower, which is around that multilateral site, that engineers are not able to reach the site because of constraints, like in case of, this Trans Harbour Link or some of the Mumbai project was coming more from that side. So those funds may be there, but because of constraints on certification, there could be delays in collections and disbursal of payments.

I completely agree with you, Parikshit. I think you have answered your question yourself. But yes -- but on a serious note, yes, if we have delays like that, ultimately, the documentation is not complete, we will not get payment. So in the current situation, there could be instances like that.

Sir, the second question was more related to what the earlier participant asked. So what we are seeing -- so in my coverage universe, I have a lot of EPC companies who have reached on an average around 60 -- anywhere from 60% to 80% of lever -- labor availability and execution is far -- a little bit more ahead than what is the labor availability for execution efficiencies. In cases as high as like 90%, some cases at 60%. So it's almost like a one-to-one correlation. And there are studies that typically in construction labor, so labor availability and execution is very more of a linear relationship. So I do understand you have project and containment zone. But the labor number, which you have quoted, so despite social distancing, I would have thought this number could be much lower. But you are still at the normal monsoon levels of labor at 1.9 lakhs. So what gives us this confidence that we should have such kind of a labor force? And is my assumption correct that, though you're not giving any color on what could be the execution, but it could be more, somewhere around that range or maybe lower or higher, something like that, given that's your point. I'm not asking any range.

No. I think your question was far too complicated for me to answer, number one. Secondly, I would not be able to compare L&T's execution with that of peers. Many of the peers would probably be a bit more sectoral. We are much more broad-based. So to that extent, I will not be able to give you any further color on the execution front. And you're asking a bit of a speculative question in that.

Okay. No, I'm saying, you already have the numbers right now. So last month or, say, a couple of months average execution, so you have that number. I'm not asking about future, so what is happening in the next month or next week. So I'm saying what you have already achieved a week back or -- on an average basis.

See, Parikshit, I upfront very clearly said that, please do not go by a mathematical interpolation or an extrapolation. These are very, very different times. And these are changing on a daily basis. You cannot use a back-of-the-envelope calculation and arrive at some execution run rate, which you think will happen, that may or may not reflect reality. So I would refrain from any sort of interpolations or extrapolations on that front.

Okay. The other question is, sir, we have seen in this month typically, there have been bids almost via the L&T moving INR 7,000 crores to INR 8,000 crores of order, where we have bid significantly higher versus the client cost as well as the lowest bidder. Was there any change in that trend on strategy of bidding? Because of late, there was limited competition. You were way off than the cost of the project and even the L1 bidders.

No. I would not speculate on that either. What competition does and the competition may be significantly lower, some person may have given an outlier bid, I would not be able to comment on that. The fact is, we have not changed our bidding strategy. We still try to build up our cost at the most economic level at the minimum threshold, the minimum threshold margins for that particular segment, and put in our bid. If somebody bids at 20% lower or 30% lower or 20% higher, that is something which we have -- which I will not be able to comment on. We have not shown this bidding strategy.

Okay. And sir, this INR 150 crores, which we have given to the PM CARES Fund, has it been explained as expense in this quarter?

Yes. That INR 150 crore PM CARES Fund contribution was expensed in Q4 itself?

We take the next question from the line of Amber Singhania from Asian Markets Securities.

Congratulations on a decent set of numbers in this challenging time. Just some more color I wanted to understand from the prospects on domestic side, as you mentioned about international-some segments. If you can give some color about this INR 5 trillion of domestic pipeline, which segments are there, a broad, broad color on that project status?

I'll not be able to give you complete details, but very, very roughly speaking, water is one of the strongest segment, both domestic. Are you talking only about domestic or domestic and international?

International, you already have given color on hydrocarbon, water and power, clearly. So most from the domestic side, INR 5 trillion of the segment?

See, domestic side, if you ask me water, heavy civil, power T&D, all of them are approximately INR 1,00,000 crore or so each. And the remaining is almost equally divided between buildings and factories and transportation infra.

Okay. And just one thing that -- we are seeing that the tenders are getting delayed continuously, for example, like projects like green corridor and power T&D and all. Sir, are we seeing the similar kind of situation in other segments also where government tenders are there? And what is our outlook in terms of what kind of delays we can see in these large tenders and all?

Yes. Obviously, tenders are -- the tendering activity is getting diligent in power segment, particularly. So I think you touched upon something which is very common. In fact, a number of power plants have been appearing on our prospect list for over a year now. But delay in tendering is practically there across the board. In the current time, I think that is something which you cannot be avoided -- it cannot be avoided.

Okay. And in the pipeline of building and factories, are you factoring in any numbers from our own projects on real estate side? How is that…

No. These are external projects.

Next question is from the line of Aditya Mongia from Kotak Securities.

The first question, which I had was more on, whether you are seeing in the marketplace the ability to price in this working capital pressure in the margins that are -- that have been booked. Sir, basically, the question I'm asking you is that, are peers of yours and you starting to build up this higher working capital cost in your bid margin?

I don't really know what you mean by high working capital cost. The working capital that we carry today are on projects that are already under execution, obviously. So -- and that has more or less -- we have managed to keep that under control, even though as a percentage of sales, it may have shown an increase because, as Harish has mentioned, denominator has gone down. Obviously, this quarter, revenues have fallen significantly. So it's not as if that is really affecting our bidding pricing as such. And typically, at the time of bidding, we tend to look more at PBIT margins, which does not include the interest and tax primarily because the interest is a function of central treasury and tax is the entire company-wide one single PAN number.

Fair, fair point. So a related question would be that -- so obviously, there's been some deterioration. So let's say, the customer has become much more demanding in terms of what kind of working capital is put on the contractors head. Now which is -- which has been happening for some time. I'm now talking about onetime. Generally, the past 2, 3 years, it's been happening. Now in this context, we obviously, have a reasonably good liquidity position. And we also obviously are getting back labor at a fast pace, which the peers of yours may not be getting. So do you foresee a scenario wherein you currently start getting some bit of a competitive advantage and start gaining market share?

I hope that what you say happens, but very, very speculative. For example, in future, these Chinese people are -- Chinese, they are not allowed to bid for on the ground. If you see what -- for example, in underground metro, then that could lead to a better chance. But at the same time, please keep in mind that in this situation, everybody is desperate to get an order. So 1 outlier bid can completely spoil the equation of it. So as long as things are under L1 situation, it is not possible to really speculate on whether we can increase our market share or not. And as far as our working capital is concerned, yes, it does increase, but I think that is also a function of our dependence on public sector, to a very large extent. In fact, 10 years back, proportion of private sector was far higher. And at that point of time, obviously, we used to operate on lesser working capital level. But today, with large dependency on public structure, working capital levels have gone up.

Fair point. Sir, the question that I have next was on -- so we took a round of order cancelations in 4Q and that was more related to issues beyond COVID, which were there prior to COVID. We've obviously seen, let's say, now a quarter where we would have interacted with these customers, and they'd be much more informed now. So if you could comment on the risk of any order cancelations happening out of the INR 3 trillion backlog that you have at this point of time?

Yes. I mentioned that we are not really -- we are not seeing any cancellations as such. So what you're asking, again, is a bit of a speculative question. So I will have to let that pass, Aditya.

Fine, sir. And just the last clarification from my side. I think you or Harish talked about the domestic backlog share of state project being 37%, 3-7. I recall a lower number of about 27% at the end of FY '20 as per the annual report. So I just thought I'll check with you whether both these numbers are listed in the kind of the same series or am I getting it wrong?

See, the current -- if you take the current domestic order book of INR 2,30,000 crores, share of state is 37%, state government. State government, when I say state government, I also include local authorities.

Yes. So this number was 27% as per the annual report, including local authorities inside the annual report?

No. Aditya, are you looking at -- see, what you're looking at is the total order book. Total order book of the state government is 28%.

Fair. Now I got the [ explanation ].

What I'm talking about is a domestic part. If you take the total INR 3,05,000 crores, 28% is the state government share, total.

Thank you. Well, ladies and gentlemen, that was the last question for today. As there are no further questions, I would now like to hand the conference over to Mr. Arnob Mondal for his closing comments. Over to you, sir.

Thank you, ladies and gentlemen, for a very, very long and interactive session. And I think I've already said what I wanted to say. But with that, I wish you all the best, and stay safe, everybody. Thank you.