Patel Engineering Limited (531120) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Patel Engineering Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Harsh Patel. Thank you, and over to you, sir.

Thank you, and good evening, everyone. On behalf of Share India Securities, I would like to welcome all the participants for Q2 FY '26 Earnings Conference Call of Patel Engineering Limited. We are pleased to have with us the management team represented by Managing Director, Ms. Kavita Shirvaikar; and Chief Financial Officer, Mr. Rahul Agarwal. We will have the opening remarks from the management, followed by Q&A session. Thank you, and over to you, ma'am.

Thank you, Harsh. Good evening, everyone, and thank you for joining our Q2 and H1 FY '26 earnings call. We have uploaded the presentation summarizing the company's performance for the quarter and half year ending September 2025, along with the results on the stock exchange. I hope you have had the opportunity to review the same. During this quarter, there was a heavy impact of monsoon in some of our project sites. Despite all challenges, we have been able to achieve around INR 1,200 crores revenue for the quarter. This progress is dedicated to the hard work and commitment of the entire Patel team. I will now walk you through some of the key operational highlights for this quarter. At our Subansiri project, which is located in Arunachal Pradesh, the wet commissioning of the first unit of 250 megawatts out of total 8 units was successfully carried out and the full commissioning of this unit and integration of the power grid is expected shortly for this unit. Further, post the quarter, the second unit wet commissioning is also in progress, and we expect that all the balance units shall also be completed in the coming few months. At Kwar Hydropower project, which is in Jammu & Kashmir, we achieved daylighting breakthrough of the Dam Top Road tunnel and breakthrough in the upper horizontal portion of the pressure shaft 4. We successfully completed pouring of about 1.5 lakh cubic meter of concrete in the project. At the CIDCO water tunnel project located in Mumbai, we achieved a record-breaking 752 meters of tunneling in a single month, one of the highest ever monthly urban tunneling progress recorded in India. At PGRW project, which is an underground water tunnel located in Mumbai, we completed 2,045 meters of tunneling using a 2.8 meter diameter TBM and achieved a breakthrough at the Ghatkopar lower-level reservoir shaft, marking completion of the TBM excavation. There were various challenges pertaining to geology, which the company overcame through rigorous planning and execution. At our T-7 tunnel project site located in Sikkim, we completed the concrete lining works in all aspects, which is significant milestone towards the completion of India's first underground broad-gauge railway station. This quarter, we have been able to achieve a consolidated revenue of INR 1,208 crores, growth of around 3% for the quarter as compared to the corresponding quarter in previous year. And on a half year basis, revenue has increased by around 7% to INR 2,442 crores from INR 2,276 crores in corresponding period last year. Our net profit is at INR 77 crores. And for the half year, it is INR 152 crores. During this quarter, we have settled a litigation in U.S. with insurance companies for USD 5 million against the claim of USD 40 million. This was a claim of indemnity against sureties given by them for one of our subsidiaries where operations were closed earlier. Based on legal advice obtained, there was no adverse outcome expected. But to save on future litigation and other travel administrative costs involved, we agreed to settle this case for a value which would have been anyway incurred to fight this litigation over the next few years with the risk of outcome still open. Now coming to our debt position. Our debt as on September 25 is INR 1,543 crores as compared to INR 1,527 crores in last quarter. During the quarter, we raised an [ NCT ] of INR 90 crores, which carried a coupon of 10.25% per annum having a tenure of 3 years, and we have repaid OCT of around INR 100 crores. Post end of the quarter, we have completed sale of Chengalpattu land parcel in Chennai and realized around INR 135 crores, which shall be utilized to reduce debt. Further, in the quarter, we also received a letter of award for one project, the Teesta-V, by NHPC. The project is located in Sikkim. Now moving on to order book. As of September 30, 2025, our order book stands at INR 15,146 crores. Out of that hydro is 62%, irrigation is 20%, 7% from tunneling and remaining 11% from urban infra and other segments. We have submitted tenders of around INR 34,000 crores, which are currently under evaluation, and we expect it will be open in coming few months. Further, we have projects identified of around INR 18,000 crores, which are in the pipeline and expected to come up for bidding in the near future. We anticipate a healthy order inflow for the remainder of FY '26. This is apart from a list of tenders of more than INR 1 lakh crores worth projects, which will be coming up for bidding in the near future. We are hopeful of achieving our target order inflow of around INR 8,000 crores to INR 10,000 crores in next 6 months. Globally, India is the third largest producer and consumer of electricity. As of September '25, non-fossil fuel accounted for 256 gigawatts, which is 51% of the total installed capacity. India's target of 500 gigawatts of nonfossil fuel capacity by 2030 would double the current capacity. This would mean huge spend by government in this segment. And the government has proposed to increase investment in power sector through its 9 PSUs by 21% to INR 86,000 crores in 2025, '26 project. These investments are allocated to all green energy projects. Further, there has also been progress made on river interlinking projects so far. Detailed project reports have been completed for 11 such projects. The [indiscernible] project was the first to start and has already seen an investment of over INR 3,900 crores. These upcoming projects will help provide water for farming, drinking and also generate clean electricity. Also, there are multiple road, railway, metro tunnels and open excavation projects coming up, which will add diversity in our order book. It's a huge set of upcoming projects. And to ensure that we are ready to undertake large value projects, Board of Directors has decided to raise fresh capital of up to INR 500 crores via rights issue, which will ensure that all existing shareholders are given an opportunity to invest. These funds shall be utilized for debt servicing so that the cash flow from operations shall be available for deployment in new projects as we expect huge inflow of new orders. Before I conclude, I would like to share a few moments of pride that reflect the dedication of our team. We were honored to be recognized as the fastest-growing construction company in medium category at the 23rd Construction Times Global Awards 2025. We also achieved an important safety milestone, 11 million safe man hours at the Parnai project. This achievement is a testament to our unwavering commitment to safety and quality, which are values that remain at the core of everything that we do. The government's strong focus on hydropower, pump storage and tunneling is well aligned with our core strengths. Further, there is a huge opportunity coming up in metro and other works. This is creating a large pipeline of new opportunities. We remain committed to timely execution and steady sustainable growth. Thank you. Now I will ask Rahul to take you through the company's financial numbers.

Thank you, Kavita, and good evening, everyone. I will now take you through the company's financials for the quarter and H1 FY '26. On a consolidated basis, the revenue for the quarter is INR 1,208 crores, up by 3% year-on-year, driven by a strong project execution. Operating EBITDA for the quarter is INR 159 crores, which is a margin of 13.13% and profit after tax stands at INR 77.35 crores with a margin of 6.4%. On a stand-alone basis, the revenue is INR 1,198 crores, an increase of 3.74%. Operating EBITDA is INR 151 crores with a margin of 12.6% and profit after tax is INR 64 crores with a margin of 5.37%. Sector-wise revenue breakup for the quarter, hydro is 55%, irrigation is 28%, tunneling is 10%, roads and others are another 7%. And our book-to-bill ratio currently stands at around 3.1. Now moving to the numbers for the half year. On a half yearly basis, our consolidated revenue is INR 2,442 crores, up by 7.29%. Operating EBITDA is INR 324 crores, a margin of 13.27%. Profit after tax has increased by around 18% and stands to INR 152 crores with a margin of 6.24%. On a stand-alone basis, revenue is INR [ 2,422 ] crores, an increase of 8%. Operating EBITDA is INR 310 crores with a margin of 12.79%. Profit after tax is INR 134 crores with a margin of 5.5%. Moving to debt. The total debt as of September is INR 1,543 crores, out of which working capital debt is INR 1,014 crores and remaining is term debt of around INR 529 crores. This debt has reduced from INR 1,603 crores as of March '25, so a reduction of INR 60 crores. Total debt and contracted advances as of 30th September is INR 2,100 crores compared to INR 2,267 crores as of March '25. Hence, overall serviceable debt has also reduced by INR 164 crores during the first 6 months. Finance cost for the quarter is INR 79 crores as compared to INR 76 crores in the corresponding quarter in the previous year. Overall debt to equity stands at around 0.39 and net working capital base is 125 days. That was all on our Q2 FY '26 results brief from our side. Now we are happy to take any questions that you may have. Thank you very much.

[Operator Instructions] The first question is from the line of Dhananjay Mishra from Sunidhi Securities.

Am I audible? I hope I am audible.

Mr. Dhananjay?

[Foreign Language] So numbers are on...

Vijay, you can get onto the next question. And we can take him later.

Am I audible, sir?

Yes. Yes.

So Dhananjay here from Sunidhi Securities. So just wanted to know this extra INR 31 crores...

Sir, requesting you to please rejoin the queue because the management cannot hear you. The next question is from the line of Viraj Mahadevia from MoneyGrow.

Congratulations to the management team for setting a strong foundation. A couple of questions. Your cash collections have been very robust in the first half. What exactly happened there? Because your receivable days are down to 52 days...

We are not able to hear anything.

Can you hear me?

Mr. Viraj, can you have a few lines from your end?

Yes. Can you hear me? Can you hear me? Other participants can hear me. I think I could hear the other participant as well. I think there's a problem with the management line. Can you hear me? Can you ask the management please to dial back in? I think the problem is their end.

Ladies and gentlemen, I request you to please stay connected. I will just disconnect the management and connect them again. The next question is from the line of from [indiscernible] Unique PMS.

If I look at the consolidated segment reporting, there has been a substantial increase in profit in the civil construction segment. So what are the reasons for that's?

Sorry, can you once again please repeat the question?

Yes. If I look at the consolidated segment reporting, there's been a substantial increase in the profitability for the civil construction segment. So what led to that increase in profitability? And also, again, looking at the real estate segment, there's a loss. So what are the reasons for that loss?

So there is no actually revenue as such during the current quarter from the real estate segment. It's only operational expenses. And one settlement of a contractor, if you have -- for the real estate segment, that should be showing in the loss.

Okay. And so all the profitability that is improved is in the civil construction segment?

Correct. Correct.

Okay. And second question on this rights issue. So we were expecting a lot of money from these noncore asset sets in there. So while that is there, we are also raising money via rights issue. So can you explain the rationale behind this.

So the timing of the cash flow requirement is the question. So we are -- as told on the call, we have sold one land bank, but that money is going to repay the debt. Now if we raise some funds right now, we can use funds for new projects. And because there are so much projects in pipeline, we have bidded for around INR 34,000 crores. Another INR 18,000 crores, we'll bid before March. And next year, another INR 1 lakh crores is coming up for bidding. So we are wanting to have money so that we are easily able to plan these projects.

Okay. And 1 or 2 clarifications. So one, do we have any business -- operational business in the real estate segment or...

No, we don't have any operational business right now in the real estate segment. We have shut that business down. There's one project which we had done in Hyderabad, which OC is still pending, but the project is completed. So apart from that, nothing in the real estate business.

Okay. And secondly, we reported some settlements on the exchange. So have all those settlements been accounted in Q2 results or anything is pending?

No, no, everything is accounted.

Okay. And thirdly, in the cash flow statement, there was a INR 65 crores ex credit written back. So that was also netted off in the exceptional items, right?

No, no. See, mostly, it will be part of other income.

Okay. Part of the other income.

The next question is from the line of Viraj Mahadevia from MoneyGrow.

Can you hear me now?

Yes. You are audible.

Sorry for earlier. Congratulations on the steady shift and I think exciting years ahead. Sir, a quick question. Cash collections were very robust in the first half. What happened there? Your receivable days are down to 52 days. Is that sustainable?

So see, the first half for the year has been pretty good. And generally, the last quarter is also good. So we see that our receivable days between 45 to 60 days. So that should be there.

That's a meaningful change from earlier, right, Rahul, because we were -- 2 years ago, we were at 114, then down to 80, down to high 60s. Now you're saying 45 to 60. Going forward, is it sustainable? Is it part of the contract?

Yes, yes. So once the bills are getting certified, they're getting paid in 45 to 60 days.

Fantastic. That's going to make a huge difference in your cash flow profile. Okay. Great. Second question is your inventories have been restated from INR 4,386 crores in March '25 accounts to INR 1,092 crores as of current statement for March '25. Can you explain what happened there?

So there's a reclassification. The inventory has been moved to other current assets and other noncurrent assets.

Why is that?

So based on accounting policies, we reviewed for other entities also, and they are moved -- basically the WIP has been moved to as contract assets in other current and noncurrent assets.

Is that market and accounting practice? And why was it not being followed till now?

No, no. So it is a policy practice which some companies follow and some do not. This time, we've discussed a lot in length with auditors, and we were convinced that we should also do it.

Okay. Okay. My next question...

Essentially, what also marks is the portion of which completed projects has been moved to noncurrent assets.

So this has nothing to do with your settlements in regards to Vishwas scheme or anything like that?

No, no, nothing like that.

Okay. Next is your improvement in ratings. Are you expecting further ratings review given the [indiscernible] asset sales in the months ahead? And are you also seeing and negotiating lower borrowing costs?

So negotiation of lower borrowing cost is a continuous process. As and when the banks take it for renewal, we -- based on the recent improvement in the ratings, we request for the reduction in interest cost. And we are looking that some banks have started reducing also. As regards rating upgrade, we see that post March, we will go again, request for an upgrade.

Understood. How much of your loans are fixed versus floating interest rate loans? Where do you get the benefit if the entire rate curve comes down?

So it is all the working capital loans are floating.

Right. And fixed -- the term loans?

The term loans are mostly fixed.

Term loans are fixed. So that's what we are repaying faster and we take advantage on the working capital.

Yes.

[Operator Instructions] The next question is from the line of Dhananjay Mishra from Sunidhi Securities.

So just wanted to know based on whatever bid pipeline we have and another INR 18,000 crores bid that we are going to do. So you said INR 7,000 crores to INR 8,000 crores order inflow for next year, right? And what is the number -- guidance for this year, FY '26?

So FY '26 only, we had said INR 8,000 crores, INR 2,500 crores we have already done. Balance, we are expecting next 5, 6 months, it should come.

So next 4, 5 months, I mean, how many bids are going to be finalized and out of the 34,000 bids we have completed? Any idea on that?

See, we expect that most of this should come out in the next 6 months.

Okay. So we are pretty confident of achieving these numbers INR 7,000 crores to INR 8,000 crores?

Yes, yes.

And secondly, again, coming back to this extraordinary INR 31 crores. So in Note 5, we have mentioned that apart from this settlement claim, there was also a provision write-back for associate company. So what is the breakup of INR 31 crores? What was the settlement we had to pay? And what was the write-back we got from associate company?

So the settlement, what we have to pay for the U.S. settlement, which is $5 million, around INR 44 crores, INR 45 crores and rest INR 13 crores, INR 14 crores is the write-back of provision.

Okay. So INR 14 crores, INR 15 crores we have provision in write-back?

Yes, yes.

Okay. And what is the margin outlook going ahead in H2?

Margin outlook will be similar, 13%, 14%.

13%, 14%. And you also mentioned that we are entering into the new sector, I mean, to diversify. So which all sector and whether -- the upcoming bids of INR 18,000 crores, whether we are entering into new sector where we are going to be?

So we are looking at some sectors like maybe Kavita can answer more, but metro or other excavation and all that.

So related segment only, like there is a lot of work coming in underground metro and surface metro. So we are exploring the opportunity available in the sector, selectively road sector and metro, that we are planning to enter into. And some related work excavation work, earth work. That also we will explore.

And we will be bidding standalone or we are going to do some joint venture with some other players who already have proven track record in these segments?

So it will be decided based on the project which will be coming up for bidding. So based on the PQ criteria, we'll decide.

The next question is from the line of Varun Mishra from SK Investment.

So I just wanted to know about the recent NCD, which we have raised, like what will be like utilizing the funds for? Also as of now, how much of the funds has been utilized and how much still remains to be like utilized? Could you give a bifurcation for that?

See, as of now, we've utilized everything.

All right. We've utilized everything.

Yes. Yes.

All right. And like what has been like the purpose of that, if you could clarify a bit on that?

The purpose was completely replacement of debt only. So we had other debt to be repaid. So it is a replacement of debt.

All right, sir. And any further plans for fundraising for CapEx or anything like that, sir?

So we have proposed the right issue and this Board has approved up to INR 500 crores. So that we will be taking up at the right time. It is that we have taken a Board approval and kept for that.

All right. And like what is the long-term potential for orders, like which we see for like us with respect to CEA and the recent announcement related to the hydropower capacity transmission from the Brahmaputra Basin? If you could throw some light on that.

So you're talking about that 76 gigawatt transmission?

Yes. Yes, sir.

So there are a lot of opportunities. See, that is the reason we are now looking at raising capital so that we are ready when these projects come up because not only hydro, other segments are also coming up, and there are many, many opportunities there.

The next question is from the line of Jeet Gala from Centra Insights LLP.

Can you hear me?

Yes.

Sir, the new order rate has been slow, right, in the first half. So we've added some INR 2,500 crores and probably expecting another INR 6,000 crores, INR 7,000 crores for the second half. So what is the trend of new order coming in that happened in last year first half? If you can just -- can explain why the order flow is very slow this time?

See, last year was an exceptional year because of elections, the order inflow was very low. And before that year, it was -- last 2 years before that, around INR 4,000 crores, INR 5,000 crores per year was there. And it is not fixed. Actually, it depends upon when the bid happened and when they will complete everything and open. So what we have seen right now is a lot of bidding has already been done, around INR 34,000 crores. And so we expect them to open -- start opening any time. That's why we said a few months, it will...

Understood. And sir, we have a long-term debt of around INR 525 crores. So what is the repayments for the -- repayments coming up in the next 6 months and in FY '27?

So between next 6 months -- next 6 months will be around INR 30 crores, INR 40 crores, and FY '27 is around INR 150-odd crores.

All right. And sir, the entire money of rights will go towards debt servicing, largely long-term debt?

So what we will do is we will use the money to service the debt so that the operational cash flows can be redeployed in the business.