PNC Infratech Limited (PNCINFRA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of PNC Infratech Limited hosted by Asian Market Securities Limited [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Amber Singhania from Asian Market Securities. Thank you, and over to you, sir.

Thank you, Raja. Good afternoon, everyone. On behalf of Asian Market Securities, we welcome you all for Q2 FY '21 Earnings Conference Call of PNC Infratech Limited. We have with us today Mr. Yogesh Kumar Jain, Managing Director; and Mr. D. K. Maheshwari, Vice President of Finance of the company. Now I would like to hand the call to Mr. Jain for his opening remarks, and then we will proceed with the Q&A session. Over to you, sir.

Yes. Good evening, friends. A very warm welcome to all of you to participate in our earnings conference call to discuss on our financial and operational performance for the quarter and half year ended September 30, '20. I hope all of you and your loved ones are safe and are following health advisory issued by government from time to time. Today, along with me, I have Mr. T.R. Rao, Director, Infra; Mr. D. K. Maheshwari, Vice President, Finance; and Strategic Growth adviser, and Investor Relation adviser. First, I will highlight a few development in sector. And then I will share key operational and financial highlights of the company. In the current financial year, road construction has been lagging so far, which is largely due to COVID-19 lockdown and [ reinstatements ] leading to [ suboptimal projects ]. However, the road sector is [ steadily witnessing ] recovery with manpower strength near to pre-COVID levels and [ prorated undo ], leading to improvement in availability of materials. With the monsoon is getting [ recited complete precision ], road construction activity is expected to gain momentum over the next 7, 8 months. There has been an uptick in awarding of road project by government. The working capital management has been less concerned with NHAI being proactive in making timely payments. The recent initiative of government to extend the loan repayment period for 6 months, release of [ retention Benanti], [ reduction in uprates ], et cetera, boosting the sentiments of the industry. Government is actively pushing for infrastructure development to revive the economy from this [ RPS ] slowdown that has not been witnessed over the decades. To meet the objective, the government plans to deploy more funds towards road construction. The central government has offered to make additional provision for expenditure towards roads over and above what was made in financial year '21 union budget. The Ministry of Road Transport and Highways has set a target of constructing Roads or [ INR 58 crores ] in next 2 years. Despite these challenges hold by [ got ] COVID-19, NHAI has awarded 40 projects covering 1,330 kilometers in the first half of this financial year, which is 1.6x higher than 828 kilometers awarded during the same period last year and 3.5x higher than 373 kilometer this quarter compared with [ 2019 ]. Out of the 40 projects, 24 projects were awarded through EPC more than 16 projects on HAM. NHAI expects to achieve its target of awarding 4,500 kilometers of project during 2021. A strong winning pipeline under [ Amala peruses ] compared to acceleration in project awarding going forward. Given the opportunities, we are hopeful of sourcing a few more projects before the end of current financial year. In February, a month before the COVID lockdown, 100 million [indiscernible] working at highways, pressed to 10 million [ in press ] and 55 million in [indiscernible]. And intrastate and interstate borders working to contain this pandemic. According to [ electronic tolling ] data across national [ highways ], [ confined into such arm ] of rating agencies [ concern ], more than 110 million vehicles hit the highway in September 2020. Electronic tolling collections amounted for about 2/3 of total amount across [ national ] highways. The total revenue recorded in September is highest that was recorded in this calendar year. Now moving on to operations of the company. As shared with you earlier, project [ inhibition ] was substantially affected in the first quarter of this financial year due to outbreak of pandemic, imposition of lockdowns and restrictions. After the [ paced ] lifting of lockdowns, [ migrant labors ] started coming back to the project side from June onwards. Manpower availability, which was the key [ incident ] in the first quarter has improved significantly to 90% towards the middle of second quarter. Though construction activity started picking up across our projects in the second quarter, [ progress ] of the majority of our project significantly affected due to active and prolonged monsoon this year. Apart from the monsoon, the overall productivity also affected due to adhering to standard operating procedures at project sites like social distancing, is [ Taga ] timings, sanitation and personal hygiene like masks, sanitizers, et cetera. We expect to deliver availability to reach 100% pre-COVID levels post the festive season. Road sector being a [ broadly ] area for the government and part of infrastructure government, we foresee huge growth potential for the company going ahead. There are very few companies that have enrichment capability, seamless project execution track record, management capabilities, prudent financial management and help balance -- healthy balance sheet under one roof. Our robust [ group ] financial credentials enable us to continue to build large-sized projects on both EPC and HAM to circumvent the fierce competition in the small and mid-sized products. Now moving on to our project development business. Over the years, we have been able to create diversified portfolio of 18 development projects comprising BOT tools, BOT, [ NOT ], HAM and [ OMPSS ]. Out of these 18 project [ case are ] operational including total large short-hem projects, which achieved the commercial operations on 14 February 2020, including already operational Dausa HAM project we have a total of 11 HAM projects, out of which 5 are under construction. One is awaiting appointed date. For the remaining 4 new HAM projects, the concession agreement has [ finished with ] NHAI during the second quarter of an aggregate bid project cost of INR 6,596 crores -- and the process of financial closure is underway. We expect achievement of financial closure for all the 4 projects before the integrated time of 150 days from execution of concession agreements. The company has also anticipate agreement for 2 new EPC projects of Delhi Vadodara Expressway this NHAI for a total contract value of INR 1,548 crores in the second quarter. The Challakere Hariyur HAM project declaration of appointed date has already been [indiscernible] toward and [indiscernible] with effect of '15 up towards 2020. And formal approval by NHAI headquarter is expected soon. For this project, now more than 80% of land is available for construction. In case of 4 new HAM projects and 2 new EPC projects, [indiscernible] of land acquisition up to [ 3 days ] state stands between 85% to 95%. Disbursement of variance compensation to the land owners is also progressing well and declaration of appointed dates for all of our 6 projects are expected between the middle of December '20 and the end of January '21. For all these [ far on ] 10 HAM projects complete, internal network should be sufficient for funding total equity requirements. Now moving to our order book. Our order book inflow has shown resilience and our order book position continues to robust despite the challenges thrown by a pandemic COVID-19. During the quarter, we have been delivered at 1 bidder and received letter of award for 1 [indiscernible] water supply project in UP of INR 290 crore from Namami Gange and rural water supply department, government of Uttar Pradesh. This project is to be constructed in 2 years and post commissioning operations maintenance for 10 years. We projected [ toward the JV ] PNC share in JV being 95%. Given a view of our strong presence across the state of Uttar Pradesh, who has business potential and high priority given by both central and district government for provision of safe drinking water to rural population. We are evaluating more EPC opportunities in the water supply sector. In October 2020, we have been declared as the first one to bid in irrigation EPC project of water Resources Department, Government of Uttar Pradesh for a value of INR 1,001 crores. This scope of project [ entity ] comprised of completion of existing canal system, mainly involving natural structures and canal lining. Our unexecuted order book as on September 30, 2020 was INR 6,795 crores. By including all the projects for which we have already received letter of awards, our order book would be over INR 15,800 crores. That gives existing revenue visibility for the company over the next 2 and -- 2 to 3 years. Now I will present the results for the quarter ended September 30, 2020. During the quarter and half year, the company's operations have been impacted due to the restrictions on account of COVID-19, and therefore, are not objectively compared with the debt corresponding periods of last year. Revenue for second year -- second quarter of financial year '20, that is previous financial year in group INR 109 crores towards arbitration claim received from [ minus ] 24 project. Similarly, other income includes interest of INR 35 crores received on [ avocation ] award. Hence, the financial performance of quarter 2 and H1of financial year '21 is not fairly comparable to the extent. Revenue of second quarter of financial year '21 is INR 1,053 crores and EBITDA is INR 142 crores. The EBITDA margin for quarter 2 financial '21 is 13.5%. Profit of second quarter of financial year '21 is INR 69 crores. Revenue first half of financial year '21 is INR 1,959 crores and EBITDA is INR 262 crores. The EBITDA margin for half yearly financial year '21 is INR 13.4 crores -- 13.4%. Profit of first half of financial year '21 is INR 129 crores. Consol revenue of quarter 2 financial year '21 is INR 1,248 crores, whereas consolidated EBITDA is INR 304 crores. The EBITDA margin came in at 24.3%. Consol PAT for quarter 2 financial year '21 is INR 79 crores. Consolidated revenue of first half of financial year '21 is INR 2,341 crores whereas consol EBITDA is INR 591 crores. The EBITDA margin for H1 financial year '21 came in at 25.2%. Consol PAT for half yearly financial year '21 is INR 170 crores. Our working capital cycle is 85 days. The debtor days as on September 30, 2020 are 72 days as compared to 73 days as of 30 June '20. Our net worth on a stand-alone basis is INR 2,677 crores as on 30 September '20, whereas total stand-alone debt is INR 329 crores. And all of which is equipment finance debt. As of 30th September, we do not have any working capital loan. The total cash and bank balance is INR 694 crores. We have a net cash of INR 365 crores, and net debt-to-equity is 1.2x. On consolidated basis, our net worth is INR 2,726 crores, whereas total debt INR 3,817 crores with total cash and bank balance, including current [ extinguishment ] in INR 1,224 crores. This [ establish ] to net debt-to-equity of 1.4x. With this, we'll now open the floor for question-and-answer.

[Operator Instructions] The first question is from the line of Shravan Shah from Dolat Capital Market.

Sir, just to reconfirm the 4 HAM projects were appointed date is just to be received, that we said, we are expecting appointed date by December to January. And for both EPC and -- that also the appointed date previously you were expecting by October. And now we are expecting December to January. Is it right?

Yes, you're right.

Okay. So all the 6, 4 HAM plus 2 EPC, the appointed date latest by January '21. December to January. That is also right.

December to January, yes.

Okay. And this one, the new projects that we received irrigation, AP and Namami Gange water, when we are going to start on this one?

See this water project already we executed the agreement. So we are conducting DPR and [ events ]. So we'll be starting [indiscernible]. And in case of water project in Uttar Pradesh, water resource project, so we have to receive the Letter of Award, post [indiscernible] at the time for signing the agreement. So then we have to see that how much time the government of Uttar Pradesh will take for signing the agreement and other [indiscernible].

But our expectation would be in 3, 4 months, it will start.

Yes, yes. So we can say from the January onwards.

Okay. Okay. Sir, also, I need a couple of data points, particularly what is the unexecuted order book for specific projects like [indiscernible]

It goes to average, INR 255 crores.

Okay.

And the [indiscernible] is worth for [ INR 230 crores ] [indiscernible] INR 108 crores; [indiscernible,] INR 60 crores; [Package 2] is 252 and Jhansi-Khajuraho Package 1 is [indiscernible] INR 347 crore.

Okay. [indiscernible] You didn't give me how much you said.

[indiscernible] 3-1-8, INR 318 crores. Okay. And [a legal coverage] of INR 398 crore.

398 crore.

Remaining is mentioned in the presentation.

Yes. Yes, yes, remaining is in that. And sir, in terms of this [ for long term ], both the packages this quarter just delayed because of the monsoon, that the execution is much lower versus last quarter because last quarter, I think in combined together, we have been close to INR 280 crores. Now we have done only 144. So just wanted to -- is it the monsoon or it is now the project is getting closer to the completion and that's out of the execution amount is getting lower.

Purvanchal Package 5, we have executed INR 115 crores in this quarter.

Yes. So that amount, I'm just saying last quarter versus this quarter. Last quarter, both the -- last quarter, this amount was INR 178 crore in execution. This time, INR 115 crores. So just trying to know is it the monsoon that has affected the execution? Or is there any other reason?

This is definitely due to monsoon.

Oh, yes.

All okay. And broadly, sir, I just wanted your broader reiterating your last time, whatever guidance we have said in terms of the top line margins, order inflow, if you can once again repeat, then it would be helpful.

In the last con call, we have intimated that we are expecting 10% decline in FY '21 as compared to FY '20. But we revise our guidance and now we expect to exit the last year revenue, and we would be able to share what would be the growth more specifically after the third quarter.

Okay. But definitely, there will be a growth. That's what a minimum that we are expecting.

Yes, yes, yes.

Okay. And the margin -- EBITDA margin would be around the same level, 13.5%. That would be the broader range.

Yes. Yes, 13.5% to 13.7% yes.

Okay. And inflows, how much other inflows now we are expecting this year in the next year. Last time, I think we said around INR 7,000 crores in next year FY '22.

Yes. We have already secured new business of INR 4,250 crores so far this year. Now we have already submitted it's around INR 1,600 crores for a highway project in NHAI. And one rural water supply project for the [ venue ] districts in Uttar Pradesh is around INR 5,000 crores. So I think we are expecting another INR 5,000 crores to INR 6,000 crores of new business this year. Totaling to around INR 10,000 crores in financial year '21.

Okay. And next year, sir?

Last year, definitely, whatever business we'll be securing this year, next year will be [ lower ] than that only.

Yes. Okay. Okay. And in terms of the -- lastly, on the gross base front, so currently, definitely, we are able to maintain our debt level. So will it remain at the same level, considering whatever the new equity to be invested in HAM projects?

In FY '21, we are expecting that for maybe INR 100 crores and term loan [indiscernible] would be for total, debt will be around INR 440 crore. At the end of the year.

[Operator Instructions] The next question is from the line of Mohit Kumar from DAM Capital.

Congratulation on a good set of numbers, sir. So my question is sir -- hello? My question is, sir, on the appointed date for the balance for HAM projects. Are we confident that all of them will receive in the H2 FY '21? Is it possible for you to give the land acquisition update for the [indiscernible]? I think you guided for 80% of land that you acquired, what about the balance for? And also on the EPC of the Vadodara, what is the status? When do you expect the [ divided ] debt?

In case of EPC, Vadodara and [ the team ], [ the company ] is actively disbursing the compensation to the landowners. So we are expecting upon -- anytime after December. And in the 4 HAM projects, where we have signed our agreements, so we expect the appointed date in H2, positively. Because there also, the land acquisition is increasing. And NHAI already, say, awards under [ 3G ], more than 80% planned has been awarded under [ 3D ]. There also the distribution of compensation is also underway. So we expect it in H2 to be awarded. H2 will be declared appointed date. In case of Challakere, more than 80% planned is already available. And at a project level and the regional office level, they recommended a [indiscernible] of appointed date, [ we offered ] from 15th of October, which is trending at [ energy ] headquarters for a final approval. And the remaining land also, we expect maybe next -- before end of this current financial year, we expect the majority of the remaining land. Maybe there may be some parcels where they may face some problem in assistance. Otherwise, we expect before end of this financial year, remaining 20% land.

Okay. Sir, my second question is, you have moved to -- you have with you [indiscernible] irrigation in Uttar Pradesh. I think which is completely a different, new geography, new segment. How do you see the profitability in that segment? And what is the regional ranging out so far from our domain or regular domain.

Actually, it is not complete diversion kind of thing per se. Because this is a linear projects. What we have been doing the linear project all along. It's linear projects of around 72-kilometer upgradation of the existing canal system and also the lining of the canal with the [ craft and sectors ]. And as you know, that we are -- we have our expertise in exploration at work and both in cutting and tilling as well as the concreting of the structure as a part of our road construction. So we don't think that any major deviation from our type of activities we pursue. And we hope that we'll be able to complete this project because we have got a 36 months' time. And with given in-house capabilities, we should be able to execute these projects without any major problems.

Do you expect a similar margin or higher-margin in this particular segment?

We'll have a reasonable margin from this one that we expect.

Okay. Similar margin.

Yes. Yes. What we are getting in Uttar Pradesh.

The next question is from the line of Ashish Shah from Centrum Brokers (sic) [ Centrum Broking ].

I think my first question is on the receivable side. In the stand-alone accounts, we see that the receivables have come down marginally. But in the consolidated accounts, we are seeing that actually, they have gone up. Now this could be because the -- we're getting paid by the subsidiaries, but the receivables from the external clients might have gone up. Just wanted to get a sense on what really has happened on that side.

We'll compare the March '20. So we -- as you are aware that at the end of the March, we have received a payment from NHAI, EPC payment, NHAI, Purvanchal, even they made the payment for the month of March [ date ]. So in case we will compare with the March '20, certainly EPC outstanding, I can see from INR 181 crores to INR 365 crores by INR 183 crores because the outstanding of Purvanchal Express for the month of Jan, September is outstanding, are mainly in Nagina-Kashipur. For simultaneous the HAM project, we have taken the disbursement during this half year, that is by INR 218 crores. So it can be compared with March '20. March '20, and the last of 10 days, substantial payment we have received in the [indiscernible], Purvanchal, NHAI, EPC payment. But in case, if we would compare it with June '20, it is almost same. EPC outstanding, INR 377 crores versus INR 365 crores. And for this September also, we have received in the month of -- yes, we have assumptions. Subsequently, we have received a payment of Purvanchal for the month of September. There is no outstanding [ as of date ].

Got it. So as on date, so what you're essentially saying is that because March you got paid in an accelerated manner, the increase seems a little sharper when you compare with March. But as of now, you are current in Purvanchal. And also on Mumbai-Nagpur, are we current there? Or there are any delays there?

No. We have received the payment. Over the September, [indiscernible] we have received.

Got it. Got it, sir. Just one more on the Lucknow Ring Road, we are not seeing much progress when you look at the closing order books. As of June, you had about 1,060 in September. It's showing 1,014. So is there some issue there? Or that's something that will pick up now post-monsoon?

Initially, we have started in this quarter, and we have [indiscernible] about INR 24 crores. And in this quarter, we have, hopefully, we are -- we will execute INR 40 crores, INR 50 crores growth. Only because of the COVID and the active monsoon, no specific reason, so we should be able to accelerate progress there also.

Okay. And maybe one more, sir. On the financial closure that you guys may be talking that in terms of the -- for the HAM projects for [ the banks ], there, are we seeing the terms to be different from what we have seen earlier? Are you seeing that they are wanting to fund a lesser component of the project? They're asking you to reduce the project cost or they are not wanting to fund the inflation aspect of it. They are only funding what the base amount of the project costings. So are you seeing the terms getting different or more stringent?

At least for our company, almost comes in a condition [ of TAM ]. And we already received a final sanction of 3 projects out of 4, and 1 [indiscernible] project. More or less, our terms and conditions [same] as we have received the earlier project.

Sure. And they are funding the escalation component also?

Yes. Because our EPC cost impaired the fixed-price contract from EPC.

Sure. But the [ SCV ] is getting funded for the escalated part also.

So they are basically project cost the escalation [indiscernible] during construction.

We are funding also. We are funding that also.

That is what I'm asking.

We are funding. That's a part of the [ portfolio ].

The next question is from the line of Vibhor Singhal from PhillipCapital.

Yes. And congrats on a great performance yet again. So just 2 questions from my side. One is, I just wanted to get an idea how are the payments right now from the various governing bodies? And how do you see that in the second half of the year? Sir, given government [ has given ] restriction here or so NHAI payments [ melted ] on all the governing bodies side [indiscernible] side. Do you expect the second half liquidity or some time from the government in terms of payment1 -- or if you can just answer that, I'll ask the second question after that.

[Foreign Language]

[Foreign Language]

[Foreign Language]

I guess secondly, just last question on my side. Sir, as you just said, the order book is more than 3x book to sales and now [indiscernible] irrigation products [indiscernible] sort of going forward, let's say, not just in the [I'm not talking ], that, that goes something over the next 2 years, what will be -- what will be our bidding strategy and will we continue to take more projects, let's say, irrigation or metros and other non-road segments. [indiscernible] these were just maybe to test the waters and only they are very attractive projects will become, and we will still continue to focus only on other projects.

We are very much focused in roads and highway sector. And we are also developing a vertical in water supply sector, parallelly. So yes. So road sector on the prime sector, is good for [indiscernible] but it's not that good in to [ Karnali ] because water supply might be achievable [indiscernible] and Cowi [indiscernible].

[Foreign Language].

[Foreign Language].

The next question is from the line of [ Resil Hawa ] from Ghavan Company.

Can you hear me?

Yes. Yes, we can.

So my question for you, sir, is how do you see the [ automotive ] to pan out next financial year or the remainder of this financial year, not how much more revenue do we need to [ totally secured], that we are protected for any kind of lumpiness of others of NHAI in time to come. And do you feel that HAM and BOT projects -- HAM projects [ miss top and now ] I mean, BOT projects will come into being because there's a lot of pressure from the PM also to -- and the media, too, get the balance sheet in control. And are we going to take any agitation for claims from the [ NRG ] out-of-court by forgoing the interest?

See, our past preference would be EPC. Our preference will be EPC, largely EPC projects. If we are getting either as a part of expressways or a highways. Our preference would be if we see and the second preference would be the HAM. Our the last preference would be for BOT. So BOT is not our priority kind of more that way we want to be BOT to. And this same pattern will continue. And as of now, we are not looking at any out of arbitration model. Of course, if it's not implemented with NHAI because what our cases are there, we have very few arbitration gains there, which are going up.

So any indications you would live on how you would like the order book to flatten out in the next 1 year to 1.5 years?

See, given the pipeline of award by NHAI. So already, we secured INR 4,250 crores of upcoming projects this financial year. Going forward, we are hopeful of getting few projects from NHAI on the highway sector and road sector. Also a few projects in the drinking water supply sector. So we don't see -- have any kind of apprehension that we're not able to get 9,000 to 10,000 kind of order book end up this point. So we should be sufficient again for the future years to feed our revenues.

The next question is from the line of Jiten Rushi from Axis Capital.

Congratulations on a good set of numbers. Sir, can you give us the toll numbers for Ghaziabad-Aligarh, Kanpur Kabrai, Gwalior, Narela, [ Kanpur Ayodhya ] again Bareilly Almora?

MP [indiscernible] , INR 12.94 crores and OMT Kanpur Lucknow [indiscernible] INR 102 crores; Kanpur Highway at INR 17.3 crores; Narela is 10.15, Bareilly Almora, 10.71; Rae Bareli Jaunpur, 32.16 and [Challakere] INR 51.3 crores in this quarter.

And sir, any loss funding yielded so far in any projects this year?

Not in this year. The amount included [indiscernible], in this year, in this first half.

And likely to be infused?

We don't think any funding to be infused because [indiscernible], and we are expecting that this year will be taken by this financial year positively. Bareilly Almora [indiscernible] we will not include any money.

So Bareilly is not required.

Yes.

And sir, on the stand-alone numbers, can you give us the details of the retention money, mobilization advances as on date? And what is the mobilization expected, unbilled revenue and equity investment over a period of next 3 years in the HAM projects, and CapEx also, sir, for this year.

In the CapEx, we require around INR 125 crores in the financial year. Actually, we have already placed an order about INR 30 crores and accepting the machinery by end October. As regard the equity infusion over the existing 7 HAM projects, we require as only INR 355 crores and around INR 617 crores for new HAM projects. The total equity requirement for HAM project is INR 970 crores which is required in FY '21, INR 230 crores; FY '22, around INR 400 crores; and FY '23, around INR 160 crores. But this figure may vary because we include the money only at the time of the [indiscernible] just to maintain the debt equity.

Okay. And so far, how much invested this year in HAM? And how much CapEx done this year so far?

CapEx for the year, only INR 6 crores in the first half.

Okay. INR 6 crores.

But we have placed an order of the various machineries, yes.

And equity invested so far?

In this year around, INR 35 crores for '21. INR 35 crores only.

And sir, other numbers, retention, mobilization advance unbilled revenue. Can you give us the number for stand-alone?

Mobilization stand-alone around INR 180 crores outstanding as on date.

150 crores.