Patel Engineering Limited (531120) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Patel Engineering Limited Q1 FY '27 Earnings Conference Call hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Purvangi Jain from Valorem Advisors. Thank you, and over to you, Ms. Jain.

Thank you. Good morning, everyone, and a very warm welcome to you all. My name is Purvangi Jain from Valorem Advisors. We represent the Investor Relations of Patel Engineering Limited. On behalf of the company and Valorem Advisors, I would like to thank you all for participating in the company's earnings conference call for the quarter ended on June 30, 2026. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's belief as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. I would now like to introduce you to the management team joining us on today's call. We have with us Ms. Kavita Shirvaikar, Managing Director; and Mr. Rahul Agarwal, Chief Financial Officer. Without any delay, I request Ms. Kavita to start with her opening remarks. Thank you, and over to you, ma'am.

Thank you, Purvangi. Good morning, everyone, and thank you for joining us today for Patel Engineering Q1 FY '27 earnings call. I would like to welcome all our shareholders, investors and analysts, and thank you for your continued trust and confidence in Patel Engineering. We have uploaded our investor presentation and financial results on the stock exchange, and I hope you have had an opportunity to review them. I will take you through the key business and operational developments during the quarter, our industry outlook and the opportunities we see ahead. Following this, our CFO, Mr. Rahul Agarwal, will take you through the financial performance in greater detail. Let me begin with the performance for the quarter. We have started FY '27 on a positive note with continued momentum in both execution and profitability. For Q1 FY '27, our consolidated revenue stood at INR 1,281 crores, representing a growth of approximately 4% year-on-year. More importantly, our profit after tax increased by 24.5% to INR 93.5 crores compared with INR 75.1 crores in Q1 FY '26. The improvement in profitability reflects better operating performance and continued focus on execution and cost discipline. While the first quarter is seasonally relatively moderate for the infrastructure sector, we remain confident about the trajectory for the year with a large contribution to growth expected in the second half. Coming to our order book and business development. As of June 30, '26, our consolidated order book stood at INR 14,636 crores. The order book remains well diversified with hydropower contributing 62%, irrigation 17%, tunneling 4% and roads and urban infrastructure accounting for the balance 17%. This mix provides us with a strong foundation for sustained execution while also giving us exposure to some of the infrastructure segments, where we believe the medium- to long-term opportunity remains particularly attractive. In addition to our existing order book, we currently have approximately INR 9,000 crores of bids under evaluation. And more importantly, we have identified a near-term opportunity pipeline of approximately INR 60,000 crores, which we intend to actively pursue over the coming months. Our approach remains focused on selective and disciplined bidding with a clear emphasis on project quality, execution feasibility and appropriate returns rather than pursuing growth at the expense of profitability. We believe the combination of our existing order book, bids under evaluation and identified opportunity pipeline gives us good visibility for the coming years. Another important development during the quarter was the upgrade in our credit ratings. In June, our long-term credit rating was upgraded to A stable from A minus, while our short-term rating was upgraded to A1 from A2. We view this as an important recognition of the improvement in our financial profile, balance sheet discipline and overall business fundamentals. Let me now turn to execution, which remains the core of our business. During the quarter, we continued to make steady progress across our key projects with several important milestones achieved. In hydropower, our execution at the Subansiri Lower hydroelectric project continues to progress well. With 4 units already operational, the project is currently contributing 1,000 megawatts of clean energy to the National Grid. During this quarter, concreting works of Unit 7 commenced, while execution across the remaining units continue to progress steadily. We remain on track for all 8 units to become operational during this financial year, which will be an important milestone not only for the project, but also for Patel Engineering given our long-standing involvement in its execution. In J&K, our Kiru and Kwar HEP project also witnessed strong execution momentum. At Kwar Dam, concreting has crossed the 50% mark, while we also achieved the interdependent milestone of handing over the Draft Tube Unit 1 to the E&M agency. At Parnai HEP, we successfully completed the installation and erection of the roof truss structure for the powerhouse building. In Bhutan also work has commenced at the Dorjilung Hydropower project, further strengthening our presence in the region and creating opportunities for participation in the larger packages of the project. Another significant milestone was achieved recently at our Sleemanabad Tunnel in Madhya Pradesh, where we successfully completed the tunnel boring breakthrough. The 11.95-kilometer irrigation tunnel is currently the longest irrigation tunnel in India. The project involves highly challenging tunneling conditions and was executed using 2 massive TBMs. The successful breakthrough is a significant achievement for our tunneling capabilities and further demonstrates our ability to execute technically complex large-scale underground infrastructure projects. Once completed, the project is expected to provide irrigation to approximately 2.4 lakh hectares across 6 districts, supporting agricultural development and improving water security in the region. Looking ahead, we remain constructive on the infrastructure opportunity in India. We believe the next phase of India's infrastructure development will be driven by large, technically complex and capital-intensive projects across hydropower, pumped storage, tunneling, irrigation and urban infrastructure segments where Patel Engineering has established capabilities and a strong execution track record. In hydropower and pumped storage, the opportunity remains particularly significant. India has an estimated exploitable hydropower potential of around 133 gigawatts, of which approximately 50 gigawatts has been harnessed so far. This is a substantial opportunity for future development. Similarly, the government has set out an ambitious roadmap for 100 gigawatts of pumped storage capacity by 2035, which we believe can create a sizable multiyear opportunity for EPC players with relevant capabilities. We have already seen several large projects moving forward. The union cabinet recently approved the 1,200-megawatt Kalai-II hydropower project in Arunachal Pradesh with an outlay of approximately INR 14,000 crores, as well as the 1,720-megawatt Kamala Hydropower project with an outlay of approximately INR 26,000 crores. The 1,000-megawatt Naying HEP has also received a positive recommendation for environment clearance. In pumped storage, the 1,100-megawatt Vellimalai pumped storage project in Tamil Nadu has received clearance, further demonstrating the increasing focus on energy storage as part of India's evolving power mix. Bhutan also remains an important market for us. We believe this is an important development as it creates visibility for the larger packages of the project to move towards tendering. In tunneling, the expansion of high-speed rail infrastructure and the government's focus on improving all weather connectivity in the Himalayan and Northeastern region should create substantial opportunities. Recently cleared INR 1,198 crores Fotu La tunnel project for all weather connectivity to Ladakh is one example of the scale of opportunities emerging in this segment. Similarly, in roads and urban infrastructure, we see a healthy pipeline of large projects. NHAI has initiated preparation of the DPR for the proposed second Mumbai-Pune Expressway estimated at approximately INR 15,000 crores. [ MSRDC ] is also advancing several major urban and regional connectivity projects, including underground road infrastructure in Pune and projects worth approximately INR 22,000 crores in the MMR region. In irrigation and water infrastructure, the proposed 64-kilometer dam across the Gulf of Khambhat in Gujarat currently estimated at approximately INR 1.2 lakh crores is another example of the scale and complexity of projects being contemplated. While these projects are at different stages of development, they demonstrate the depth and breadth of the opportunities pipeline available to companies with the capabilities to execute large and complex infrastructure projects. Alongside growth, we remain equally focused on strengthening our balance sheet and improving capital efficiency. As part of our stated strategy of monetizing noncore assets, during Q1 FY '27, we completed the sale of a INR 27 crore land parcel in Telangana. We will continue to evaluate opportunities to unlock value from noncore assets with the objective of supporting our balance sheet and improving overall capital efficiency. To conclude, we believe Patel Engineering is entering FY '27 with a strong foundation. We have a healthy and diversified order book, a significant pipeline of opportunities, improving credit metrics and continued execution momentum across our key projects. Our focus remains firmly on profitable growth, disciplined bidding, timely execution and prudent capital allocation. Based on the visibility we have today, we remain confident of achieving approximately 10% revenue growth in FY '27 with a significant portion of this growth expected to come through in the second half of the financial year. More importantly, we believe the opportunities emerging across hydropower, pumped storage, tunneling, irrigation and urban infrastructure provides a strong basis for sustainable growth over the long term. We remain committed to building Patel Engineering as a stronger, more resilient and increasingly value-focused infrastructure company. With that, I will now hand over the call to our CFO, Mr. Rahul Agarwal, who will take you through the financial performance in greater detail. Thank you.

Thank you, Kavita. Good morning, everyone, and welcome to the earnings call. I will now take you through the company's financial performance for Q1 FY '27. On a consolidated basis, our revenue stands at INR 1,281 crores compared to INR 1,233 crores in Q1 FY '26. Operating EBITDA has improved with a margin of 14.02% compared to 13.4% in Q1 FY '26. PAT has increased by 25% almost by -- and stands at INR 93.5 crores compared to INR 75.1 crores in Q1 FY '26. On a stand-alone basis, the revenue is INR 1,274 crores compared to INR 1,224 crores in Q1 FY '26. Operating EBITDA is INR 176 crores with a margin of 13.82% compared to INR 158.8 crores with a corresponding margin of 12.97% in Q1 FY '26. Profit after tax is INR 82.74 crores compared to INR 69.48 crores in the corresponding period last year, up by 19.09%. Revenue breakup sector-wise, hydropower contributed to 68%; irrigation 15%; tunneling 13%; roads, urban infrastructure and others, 4%. Our consolidated debt as of June is around INR 1,293 crores, up by around INR 100 crores in the quarter due to increase in account of utilization of additional working capital limits for new projects. Client advances stands at INR 615 crores compared to INR 622 crores as of March. Debt equity ratio is around 0.28. Breakdown of debt, working capital debt is INR 969 crores, term debt is INR 324 crores and net working capital days is around 137 days. That concludes the financial overview. We are now happy to take any questions that you may.

[Operator Instructions] The first question comes from the line of Rahul Shah with Eternal Capital.

Congratulations on the good set of numbers. So on the numbers front only, I had my question. So the PAT, I saw that grew by 25% and compared to the revenue growth, that was just 4%. So beyond the operating leverage, how much of this divergence is coming from the, let's say, finance costs or taxation? And what should we, as investors, consider a normalized PAT growth trajectory?

So finance cost has come down during the quarter compared to corresponding quarter by almost INR 10 crores. So this is on account of reduction of debt in the last year. So we expect the finance cost to continue on a reduced level. And corresponding to that, EBITDA margin is around the same 13%, 14%. So no major change in that. So this is only majorly which has contributed to the increase in profits.

Correct. And on my second part, so PAT growth trajectory, how much can we expect on that?

Yes. So see, our current year estimates, which is there around 10% growth with an EBITDA of 13% to 14% with similar interest costs every quarter.

Got it, sir. And my second question is on the order book front. So we have an order book of almost INR 14,500 crores. So I would just like to know the execution timeline for this existing order book? And how much of this order book can be converted into revenue over the next 3 years?

This we are expecting to execute over 3 years.

So any numbers?

Yes, almost this has a book-to-bill ratio of around 3 only right now.

Okay. Perfect. Got it. And one last, if I can just squeeze this one. Is the current -- so is the current order book sufficient to support a double-digit revenue growth without requiring a material acceleration from new order wins? Or would you have to win a lot more?

So see, we are targeting around INR 8,000 crores new orders this year, which with that, we are expecting a 10% growth in the current year and 15% in the year corresponding. So for growth, we will obviously need new orders, which we are fairly confident to get.

[Operator Instructions] Next question comes from the line of Viraj Mahadevia with Moneygrow.

Congratulations, Ms. Shirvaikar and Rahul on the excellent results and the very helpful opening speech. In the past quarters or past year, you had about INR 150-plus crores of exceptionals in the last 2 financial years. Can you give us a view of what those were exactly? And are they likely to occur in any way going forward and especially in FY '27?

We don't anticipate exceptional items coming this year. So that was mostly on account of last year for Vivad se Vishwas settlements and some write-down of investments.

Right. Okay. And no more exceptionals expected this year?

Yes, we don't expect.

Okay. Great. You mentioned the land parcel sale of INR 27 crores; is that right, in Telangana? Is it for 430 acres of land in Telangana?

No, no, it is 27 acres, sorry, and INR 26 crores.

27 acres. So you still have another 400 acres in Telangana?

Yes. We have some lands and parcel in Telangana.

Okay. And are there other land parcels moving towards sale discussions, the Electronic City, Powai Hill, Tamil Nadu, et cetera?

Yes, we are in discussions for other land parcels also.

Great. Do you think you'll use the proceeds to become term loan debt free by end of FY '27?

This year target for noncore is between INR 150 crores to INR 200 crores that we are fairly confident to achieve.

Next question comes from the line of Rajeev Rupani, an individual investor.

My first question was on the promoter pledge. Now that our rating has improved. So what update can we have on the promoter pledge? By what percentage will it get reduced going forward in the next 3 months, 4 months, 6 months?

So Rajeev, we are -- the promoters and ourselves, we are all in discussions with the lenders, and we are hopeful that this year, we'll get a substance reduction.

So sir, I know that we are in discussion, but this has been since a long time. So we need clarity by, let's say, in the next 6 months, what percentage will it get reduced?

I don't have an exact number. But right now, if I'm not mistaken, around 85% to 90% of the shares are pledged. So we expect that to come down by at least 15%, 20%.

Okay. That is helpful. And my next question was on that real estate project, Patel's Smondo. So I think there are 3 towers. And so I would like to know out of the 3 towers, is the OC being received? #1. How many flats have been sold into the 2 towers? And what about the third tower? Is it lying vacant or what is to be done?

So the OC is expected, there is some litigation which is there, so that we are expecting a closure very soon. And after that, the OC will be received. The third tower was a service apartment tower. As soon as the OC is received, that can be occupied that is ready to be done and just to be occupied once the OC is received.

So sir, by when can we expect the OC to come, approximately?

So we are hopeful it should come in this financial year.

Okay. But there are reports that despite non-OC, there are people staying in that 2 towers. Is it correct?

People have taken possession for fit-outs and all. I'm not sure about whether they are staying, but they have taken possession.

Okay. And I wanted an update, this 27 acres, which we have sold. So we had 430 acres in outskirts of Hyderabad. So out of that, this 27 acres have been sold. Am I correct?

That's correct.

INR 1 crore we have sold per acre, is not the price too low?

It was in outskirts.

Even when it's in outskirt, I think the price; Hyderabad being an important destination, and a lot of development going on; the price of INR 1 crore seems to be too low.

Sir, it is based on market value.

Next question comes from the line of Rohit Joshi, an individual investor.

I just wanted to ask that given the company's strong positioning in the hydropower segment, how are you balancing things between getting new larger hydropower projects and the historically long execution timelines that come with it, along with all the clearances risk and everything?

So see, there are -- if you see the changes has happened a lot in the overall approval process and everything, the government is taking all approvals, MOU clearances, land acquisitions, et cetera, before awarding the projects. So that's why you would have seen the projects getting awarded a bit delayed. But once it is awarded, the projects is not taking that time as it was taking earlier. For example, the Subansiri project, a 2,000-megawatt project is near the verge of completion in the last 5, 6 years, which is unheard of.

And sir, my next question was that what is the minimum margin and cash flow profile that you are targeting now when you're bidding for new projects in the future?

So we expect to maintain our EBITDA margins between 13%, 14%.

Next question comes from the line of Viraj Mahadevia with Moneygrow.

Q1 last year, you all did 13.4% margins. That's moved up to about 14%. Do you think we'll get back to 15% any time soon given the operating leverage and greater scale likely over the next year or 2?

Viraj, I cannot confirm on that because see the competition and et cetera, has increased. If you have seen last year, a large project went down with it. So we don't see the margins to improve that much. Obviously, we keep on working on various value additions and how to improve and reduce the cost and all. But still, we are confident to maintain our existing margins.

Understood. And any plans given the company should be fairly close to net debt neutral by, certainly, '28 and even '27, your net debt to EBITDA will be very manageable. Given the promoter shareholding of 30-odd percent, any consideration to do buybacks using the spare cash and also give out ESOPs to senior management? Is that being contemplated at all at the Board level?

Buybacks, we will consider once we close the debt. So it may take another maybe 2 years, 3 years to reduce the major of debt. ESOP, we have an ESOP trust, so management will consider on that.

Next question comes from the line of [ Ravi ], an individual investor.