Markolines Pavement Technologies Limited (543364) Earnings Call Transcript & Summary

Ladies and gentlemen, I welcome you all to H2 and FY '24 Post Earnings Conference Call of Markolines Pavement Technologies Limited. Today on the call from the management we have with us, Mr. Vijay Oswal, Co-Founder & CFO. As a disclaimer, I would like to inform all of you that this call may contain forward-looking statements, which may involve risks and uncertainties. Also, a reminder that this call is being recorded. I would now request the management to detail us about the business performance highlights for the half year and the year that went by and the growth plans and vision for the coming years, post which we will open the floor for Q&A. Over to you sir.

Good afternoon everybody, and thank you for being on the call. So though I can see some name, but I not recollect all of seeing any of them or few of them earlier. So I'll just quickly introduce about -- let you know about the company. As I think we have already said in the presentation, if you have gone through the presentation, Markolines is one of the leading companies who is providing the highway maintenance and does the specialized construction activities for the Highway segment in India. So we were established in 2002, and it has been almost 22 years of long journey wherein we have come from a single product of road marking to be a complete array of maintenance services. Markolines' highlight point has always been that how do we differentiate ourselves from others that we have been very instrumental in bringing in the newer technologies, which were not being used in India, which were used in abroad and they are good in terms of environment, efficiency, cost saving. And that is how we have been increasing our portfolios. And another point, the highlight, is basically that we are the people who provide generally bundled services to the client, wherein a client doesn't have to go. It's not that they will float the inquiry, and we'll just go and bid for it. We will analyze, survey and propose an alternative most effective and efficient and cost effective also proposition for -- particularly for that segment of road. Now as far as these services are concerned, basically, we divide ourselves into highway -- our services into 3 major categories that is: Highway Maintenance, then Specialized Maintenance, and the Specialized Construction Services. In Highway Maintenances, one is of major maintenance and repairs. That is basically road being a wear and tear item, it needs to be maintained on a periodic basis. Typically, most probably, by and large, 5 years. Every 5 years, it has to be overhauled. And apart from that, also it needs smaller maintenances. And there is something called as preventive maintenance wherein if done -- if the preventive maintenance is done in time, which could enhance or increase the life of the road that is in terms of doing the major maintenance from about 100% to 200% also. If done in time, the 5-year scheduled maintenance or recurring maintenance could be taken to 7, 8, or 10 years also depending on the road conditions, road construction, and also the traffic load onto that. Second category is that we do also the Specialized Maintenance Services. Specialized maintenances are these are the technologies, which we take pride in telling, sharing with you all that these are the few things that we have introduced in India. One is Microsurfacing. Microsurfacing, though, to be honest, we have not introduced in India. It was there, but whatever today the recognition to the Microsurfacing is, it is Markolines who has taken really good efforts in establishing Microsurfacing in India. And then second is the Cold in Place Recycling that is actually a recycling of roads. That means the old road, a bad road, which is analyzed, strengthened with the requisite material and excavated, added strengthened with the additives, additional material, and relaid and rerolled. That means a bad road will be excavated, and a good road will be laid in one go by a train of equipments. And then we also do the specialized construction services like a soil stabilization. Soil stabilization is something required, wherein there is subbase is not very strong. And typically, the lot of new greenfield roads, which are coming up, wherein they go through the farmlands. And then that is where the farm soil needs to be stabilized. So -- because the farm soils are not -- does not provide a very hard surface that is required for road construction, so the soil stabilization is required. Otherwise, the very deep excavation is required wherein the land, the excavation material has to be removed and also refilled with the stronger or strengthier material. But then the same can be done by way of machinery, a set of machinery and some chemical additives wherein the subbase can be stabilized. And once stabilized, it forms a very good subbase for the road and over which the roads can be constructed. And another activity because of the vast and varied tunnel in India and, obviously, the infrastructure increase the logistics speed. A better and faster infrastructure requirement is must for us, so lot of tunneling work is happening across India. So we also do tunneling, wherein we have 2 projects as of now. About 2 years back, we started with tunneling with 1 project in Maharashtra. Then we have taken 1 more project in Jammu Kashmir in consortium. So this is about the product line. And now this year, we have also added -- started with 1 division that is, PQC, we call it in the engineering term. That is the concrete road maintenance. Because this greenfield roads, lot of greenfield roads, which are coming, government is keen in developing those greenfield roads with the concrete pavement that is called as rigid pavement. Typically, if you have to give an example, the Nagpur-Mumbai Expressway, if you look at; then the majority of the Mumbai-Delhi Expressway, which is being built and which should be open very soon, probably in next 6 months. So that is also a concrete road, and lot of concrete roads are being constructed. The earlier concrete roads, which are also -- they will also require some maintenance. So in FY'24, we decided to form a separate team for that same. And today, we -- I'm really happy to announce that we have got our first working order also for the concrete road pavement maintenance of about INR 11 crores very recently, which our team is working on. So this is all about the overall Markolines, what you say, the product reach. Now as far as the leadership is concerned, we are 3 Directors, but myself and Mr. Sanjay Patil. Both of us who are the founders, we look into the day-to-day operations. And we have Mr. Karan Bora, who is Executive Director, who is an investor with us and looks after a few functions. And then we have a Director Technical who is a very experienced person, Mr. Nagarkar. As far as our projects are concerned, we work pan-India. Though we have not worked really much in the Northeast region, because the road development has started just recently. So for -- coming in for the maintenance might take time, but we are also looking for a few opportunities exploring on to the -- if we could get some kind of tunneling work also in that region or wherever we could get. Otherwise, on maintenance and all other jobs, we have worked practically almost across the country. In the presentation, we have already displayed the, wherever we have worked to the maintenances. Then as far as the clients are concerned, Markolines being one of the leaders who is providing these kind of services. And so on the client side also, the fraternity is pretty limited. And practically, we have, everybody, every large competitor, who is working or the asset owner, who is working on the National Grid. Our major focus is on national grid, is our client, and it may be a renowned construction houses from any houses from India or now after the -- because over the last few years, the business has been changing very dynamically in terms of infrastructure. So we have now gone from BOT to HAM and HAM to TOT also. And wherein, this sector has been found very lucrative for various international funds. And there are a lot of funds who have come to India, and every fund that has come to India and owns an asset is our client. May it be, I Squared Capital, may it be a Brookfield or a Macquarie or any -- or maybe it is Indian InvITs also like L&Ts, Tatas, all of them are our clients. So this is in nutshell about the Markolines. So, if anybody has any query question, I can answer them in terms of till now whatever we have covered. Otherwise, we can continue and get out to the financials also. Any questions?

Yes. We have the first question from Pawan Kumar. Pawan, you can go ahead.

Sir, you've alluded in PPT also that you are the market leader. Now you've entered the new segments also. So can you give a sense of what sort of addressable market we have in our different lines of, say subsegments or some different lines of businesses?

As far as the market potential is concerned, it is growing year-by-year because we are adding to the road network every day, particularly after the 2014, the Modi government has come in. We've seen that the per day road construction also has elevated from about 10, 12 kilometers to almost 40 kilometers a day. And as far as the product mix is concerned, the product mix or the individual potentials are very dynamic because they all depend upon the road construction, traffic load. So though I have tried a lot to establish some kind of in product wise, what do you say, potentials, but it is very difficult because on a particular project, let's say, if the road conditions and subbase is very good, then a part -- only part of it could be done into the Microsurfacing where the budget would come down from INR 100 to over almost INR 40 to INR 60. So like that, it varies a lot. But as a large, if you have to say, the market potential as of now, a very rough estimate, since the industry is very small, seems to be about INR 15,000 crore on every 5 year recurring basis. On maintenance, I'm talking about. And as far as on these construction activities, it is still opening a lot. The tunneling and the FDR work is coming up in a huge. Maybe I do not really will be able to because what kind of developments are going to happen, it will all depend on the how -- what kind of FDR will be declared. In tunneling activities, I can tell you in a rough estimation also, about INR 10,000 crores to INR 20,000 crores of tunneling work must be happening in India as of now also.

Okay. And sir, in tunneling, like we do maintenance or we are like up...

No, we do -- this is a construction activity, but we only do tunneling jobs. This is not a maintenance. Subsequently, one of the contract we have taken, it also includes the maintenance for the construction that we will be doing for next few years.

Just curious to know, like why we have entered to like construction of tunneling instead of our core expertise being into maintenance?

So sir, actually the whole idea about this is as we are growing in sizes, we also look for, how we can enhance our performance or the size of the company wherein we grow in the business. And because the maintenance works, if you look at, they will be smaller in sizes about 1 particular road patch, the 1 tender would be over 40, 50. So for us to look at growth, we decided that we will not go into the construction, because that is very competitive and very high capital requirement and we have not reached there as of now. And we have do not have any plans to get into the construction as of now for at least next few years because this potentially itself is growing. But -- and at this instance, our particularly, I missed one point that, our focus is majorly onto the private industry. So in the private industry, and we believe in very transparency also. So for growth, increasing our margins, we thought that the addition of newer fields like tunneling FDR, though they belong to the typical construction size, but they are not, they are forming only a part of construction, which is a very specialized activity. And most importantly, there are very few people who does this activity. So it classifies us into a different segment. We get an identity also. And another point is that by adding these particular things, we are looking at enhancing our -- improving our bottom line also.

Okay. And sir you mentioned like, you have an order pipeline of probably INR 500 crore. So what is a typical hit rate?

Our hit rate, see, basically on order book, I'll tell you. The maintenance work, I will answer your question also, but then subsequently, this question will come, so let me answer the order book question, explain you the order book. So our maintenance order books are basically of a consumable type, so we keep getting the new orders and adding the new orders and consuming the previous one because they are typically 6 months, 8 months, or 1 year type of this thing because the recurring maintenance will take only that much depending upon the size of the work. So we keep adding that. And -- sorry, what was exactly your question?

Sir, hit rate of your order pipeline?

Yes, yes. So hit rate, particularly in the private industry, what happens is, we focus in the private industry, wherein though there is technically a bid, but it is by and large, it is decided beforehand. What is the -- whom they would want to work with, and so our hit rate onto the tenders we try is 60% plus. Only when we do not agree onto the costing, we would leave the project. Otherwise, by and large, in the private industry. And as far as, onto the government or semi-government, we work only on the specialized tenders, wherein they require a very specialized services particularly or carved for us, specialized tender only. We don't get into the open tenders where there will be a very rigorous fight for L1 basis and the tenders on the government side could go much below even at the material cost also. So for that we get into only very specialized tenders. So on those, also our hit rate is very high.

Okay. And sir, regarding EBITDA margin, for your specialized services, can you give some sense of how are our margins different from our traditional maintenance work?

Yes. So basically, when we take the -- first of all, the construction -- the tunneling activities will be a large volume or size also spread over the years, okay? But at the same time, we are now being the specialized activity spread over this thing, the efficient working will definite -- can help us, wherein we know our capacities, our setup, and we are looking at improving about 1% to 3% of improvement in the bottom line over the next 2, 3 years. That is our whole target.

We'll take the next question from Hiral Nandu. Hiral, you can go ahead, please.

My question is on the concrete road maintenance. I heard that we got -- we are doing something on the concrete or we'll be doing some works on contract basis. Just wanted to understand, what kind of services or, particularly, work we will be doing, and what will be the potential of this particular segment, as a market potential or not sure if that INR 15,000 crore what you told are also covering this segment or it will be different?

So, as far as the concrete roads are concerned, particularly as I said, since we work, there have been concrete roads in India for quite some time now, probably 15, 20 years. But as I said, we are now only NH has adopted recently onto the maintenances. But still, there are patches which are coming for maintenances. As far as, the concrete maintenance is concerned, there are 2, 3 types of the maintenance works that would come in. One, the smaller maintenance, what do you say, a time gap arrangement. There is, whatever we call as a pothole filling or repair work, patchwork. But majorly, generally, what happens is where this subbase is not good or over the period, the traffic load has increased and maybe some kind of a design flaw, so the panels would crack. So those panels are -- only for a temporary period they can be repaired as I explained earlier, but really the repair means a replacement of panel only. So it includes removal of the panel. If you have seen the concrete roads, normally they are done in patches or blocks. So you need to remove the entire patch because of the inherent property of concrete. It's a very passive material. So having very inert surface and not really good binding capability. So it cannot be repaired. Repaired will be very short-term maintenance. But then the replacement of panel is the majority of the work, okay? And in case the subbase is not good, then there could be an element of stabilization the subbase and then recasting the panels, again. So these are the typical work. And then -- and typically working along with that then, the other works, which would otherwise also be a part of the maintenance work like the damaged shoulders or the repair work of that damage maintenance, repairs of that, all of that would be the typical work of the concrete. Now as far as concrete roadwork potential is concerned, it is still opening up. We are hoping that as far as Markolines is concerned, we have got a INR 11 crore order and we are hoping at least INR 10 crore to INR 20 crore of rupees of more work to be done in this financial year because the concrete maintenance is beginning just now. Because -- and those, the major alignments, which are coming up, as I mentioned, is the Samruddhi or Delhi, Mumbai, or whatever. They will come up subsequently, and the potentials will open up subsequently. But it's a huge potential. It could be in coming time, I could say that if I have to just put in parallels with the concrete road, it would still be about up to almost 25%. And here as I said, the maintenance would means only a smaller job of a construction only. There is very less maintenance in terms of, so it will give volume also.

Great. Just one more clarity on this. As the work which you mentioned on the concrete road maintenance, seems to be a more higher compared to a normal, this tar road maintenance, bitumen road maintenance. So the project size or the contract size will be higher in the concrete road, like INR 11 crore and more?

No, sir. The thing is now there is a basic difference in a rigid pavement and a flexible pavement. That is tar versus concrete. Now concrete is a wear and tear item, which would come for maintenance almost every 5 year by and large, as a thumb rule, I can say. But a concrete as against the tar, the concrete has a very long life. The primary estimated life of concrete road is at least 15 to 20 years for first time to come for the maintenance. Then secondly, only there would be a panels, which would be damaged because of either the construction flaw or maybe geological movements in terms of the surface. And it could damage. So the sizes, as of now, the estimation if the work is done because all those is generally factored-in in the design. So but still then, over a period of time, they will also go to the similar kind of a sizes because then the asset owner would might change the construction patch, okay? Let's say, typically on a flexible payment, our maintenance works were divided into 40 to 60 kilometer stretch. Here, depending upon how it develops over the period, then if the less work is there, they could go for a 100 kilometers. But definitely for them also to -- for them as well as us also, a substantial work at one go will always be economic. So accordingly, these stretches could differ in terms, but they will also be coming, subsequently will go to what INR 20 crores to INR 100 crores size over the period.

Great. And just last question on this from my side for now. The margin profile, for the concrete road maintenance would be similar to that of tar? Or anyone -- either of them would have a better margin?

No. Sir basically, maintenance -- and as I said, since we work very transparently with our clients, so the margins would be on the maintenance will be similar. As I said, for increasing the margins, other these specialized construction activities or these specialized activities is the thing. I think I had shared in last one of the con call also that we are also exploring about the Microsurfacing on the concrete roads also, which could give us a huge potential and a good margin. That is how we are looking at it. Otherwise, on a tar road as of now it is on an only performance basis. But if -- since our -- in a country like us where the decision making in terms of policy making is very slow. Let's say, for example, if a Microsurfacing on a concrete road is approved, then it's a huge potential. A 600 kilometers of only 1 stretch of Pune-Nagpur, 8 lanes into 3.2 kilometers goes huge. Probably -- so it's a lot subjective, how this is going to evolve, how the policies -- we are trying our best. Now in Markolines what we do is that we look at future and keep pushing certain things in terms of acceptance from the asset owners, authorities, the regulatory bodies and keep doing it. It will definitely help everybody in the market, but then we get an advantage of the move ahead this thing -- mover.

We'll take the next question from Karan. Karan, you can go ahead, please.

Thank you for the opportunity sir. My question was regarding the order book. So our order book as of today is lower than what it was in FY '23. I mean, what is the reason for a softer order book this time?

Okay. So order book as of -- 1 second, let me just -- so order book as of now what you see is about INR 287 crores as of 31st March. And I think as I mentioned in earlier question, I was asking to Mr. Nandu, that it keeps -- we keep consuming and keep coming. As of now when we are talking also, we have added -- just a moment, I can tell you. We have added about INR 70 crore of order recently. One of the major order has come in last night. Onto the project, what we are doing, there is a change of scope. And so this is the 2 things, as I said, which INR 11.5 crores of payment, rigid payment was also added in this particular year. And another, about INR 55 crores of work has been added. Keep consuming and we -- and another reason for, this is a cyclic thing for us. Unless there is a patch, which could be repaired during the monsoon. Otherwise, monsoon is a lean period. Typically, majority of the orders are finalized there. But there are still -- India is a huge country, so what happens is there are rain shadow areas. Like particularly, if there is a maintenance and if we get a maintenance in that rain shadowed area, which can be worked during the monsoon, so in that case, our order book could go up and down. But otherwise, by and large, we generally keep -- we keep working towards to have at least 1, 1.5 years of order book. Now as I said, we are working onto almost close to INR 500 crores of work. Out of which, we are very sure that about INR 250 crores to INR 300 crores would be materialized. Another reason this year was that we had a code of conduct, which would expire in another 1 day. Till -- today, probably it has expired now. So till then a lot of things, which we were working on were not like, for example, you must be aware that there is a Pune ring road, which is coming up. All tender submitted, but not opened only because of the this thing -- financial bids are yet to be opened wherein we are also focusing for some kind of a new technology work there. So all of this is, even in Mumbai region, we are looking at few things. So this is a dynamic thing. Very soon, we will add few more orders to this also.

All right, sir. So what is the visibility that you see for order flow for this year?

This year additional order flow I see of at least about INR 400 crores to INR 500 crores.

Okay. And which key segments would contribute to this?

So as I told you sir, that in maintenances, definitely, we are focusing. This year, we have made 1 plan wherein we are also looking at few projects, a new technology which I just mentioned about, which I may not be able to tell you right away what we are looking at because then we want to have it, the first movers advantage. It's that high -- which will give us high margins. And in terms of segments, yes, definitely, our focus is onto this specialized what do you say maintenances and the constructions, which will definitely give us what we are looking for, improving the bottom line. And onto the maintenances, the highway maintenances, it would be similar size what we have done about INR 200 crores, INR 300 crores. We will keep doing it.

We'll take the next question from Aniket. Aniket, you can go ahead, please.

So my first question is that previously, we used to give detailed breakup of orders. So could you share the breakup of the order book across your key work areas and execution period of the opening order book?

Yes. So Aniket, I can definitely do that. That's not an issue. But as I said, it would not help you in analyzing because even after being into the industry and doing this work, I could not establish that, okay, which segment is -- because it is very dynamic depending upon the road conditions. But as far as -- if you ask me what is my focus, yes, on order book, I'm looking at majorly onto the specialized construction and maintenances, okay? So our first target is to have equal share for both the this thing and subsequently focus onto the both. But definitely, you can drop in a mail, and my team will be happy to share the breakup of the order book that we have as of now. That is not an issue.

Sure, sir. Yes, so my another question is that, what is your growth guidance for the next 2 years that is FY '25 and FY '26?

Our growth guidance in terms of what?

Revenue, you can say.

Okay. Though I'm not supposed to mention or anything on to the revenues, so but definitely, we are looking at a very good growth. Though this year, actually, we could have easily grown by 30%. As I said, the code of conduct has stalled our which -- one major order, which is coming up now. Otherwise, we would have been there also. Otherwise, we will be maintaining our -- the growth ratio, what we have been doing over the last 3, 4 years of about 25% to 30%. That is what we are definitely looking at.

We'll take the next question from K. Kumar. K. Kumar, you can go ahead.

Sir, your guidance for FY '25 will be 25% to 30%, right? The previous question.

Right.

So sir, last -- generally, our H1 will be lower than the H2, because of the monsoon.

Yes.

And other than the monsoon, due to the elections and all, is there any slowdown in our revenue, in our work and all?

No. Now we have taken -- we have caught up a pace in terms of infrastructure and that is the need of the economy also. And lot of the work has already happened, and existing potential will also give us a good growth. And I don't see any chance of any slowing down in terms of the potential or the -- and elections, they do not affect much of this thing. But this is basic need of the economy as of now.

Okay. That's great. Sir, the 25% to 30% growth is a conservative growth, or you may, I mean...

Yes, conservative.

[Operator Instructions] Sir, since there are no further questions, we'll end the call here now. Would you like to give any closing comments?

Yes. So, basically…

Sir, 1 minute. Pawan Kumar has raised his hand. Pawan, you can go ahead.

Sir, regarding the receivables. I think, if we really see year-on-year, it has substantially increased. Can you give some sense what's really happening there?

Yes. Definitely, I will be. Normally, this is the question, which I've been answering on every call that particularly on the March, since our H2 is very high, and H2 high means, it also grows over H2 because my actual work starts catching up as we come closer to the end of the financial year because we have a lot of pressure. And because of that our this thing goes high. And particularly on to this, one of the government project, which we have done in Mumbai, our payment, I think, in -- which was a major payment, which was only because of the code of conduct or rather not code of conduct, not availability of the authorities for doing this work. That's it. Otherwise, it is about to be now released. And this is a typical scenario in the March. The receivables will go higher because...

And again, the follow-up on that is, sir, like receivables amount has increased more than the sales we have done. Is some accounting adjustment done?

No. So what happened is, as I told you, that in this particular thing, receivable amount, one is, work done is major amount onto the escalation work that we did it for, which is amounting to almost INR 30 crore. Escalation is basically, I get a price variation onto the work done with depending upon the price variation on the raw material that I consume. And normally, the escalation bill is submitted only when the project is completed at the end of this. So that is the only reason that is, it is looking like this year.

Since that was the last question, would you like to give any closing comments now?

Yes. Thank you everybody for being on to the call. I have tried my best to explain. In case you have any further queries, as I said with the clients, not only with the clients, but as Markolines we've been working very transparently in an open book format. If you have any query, concern, you can always reach out to us or Kaptify. And thank you very much for all the support that the fraternity has offered us till now. Looking forward to it in future also. Thank you very much.

Thank you, sir. And thank you to all the participants for joining on the call.

Thank you very much.

You may disconnect now.

And thank you very much, Vinay, for organizing all this wonderful presentation and lovely people for this call. Thank you very much.

My pleasure, sir. Thank you.