PNC Infratech Limited (PNCINFRA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PNC Infratech Q3 FY '21 Earnings Conference Call, hosted by JM Financial Institutional Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Subhadip Mitra from JM Financial Institutional Securities Limited. Thank you, and over to you, sir.

Good afternoon, friends. On behalf of JM Financial, I welcome you all to the third quarter earnings conference call of PNC Infratech. We are joined today by the senior management of PNC, led by Mr. Yogesh Kumar Jain, Managing Director; and his team. I would now like to hand over the call to Mr. Yogesh Jain for opening comments followed by Q&A question. Over to you, sir.

Yes. Good afternoon, friends. First of all, a very Happy New Year and a very warm welcome to all of you to participate in our earnings conference call to discuss on our financials and operational performance for the quarter and 9 months ended December 31, '20. I hope all of you and your loved ones are healthy and safe. To play along with me, I have Mr. T.R. Rao, Director; Mr. Dr. Bhupinder Sawhne, CFO; and Mr. D. K. Maheshwari, VP Finance; and Strategic Growth adviser and Investor Relations adviser. First, I will share key developments in the sector, and then I will share our thoughts on recently presented Union budget followed by key operational and financial highlights of the company. As per the latest economic survey, the economy is expected to undergo a V-shaped recovery from a GDP contraction of 7.7% in financial year '21 to 11% growth in financial year '22. This is also in line with IMF's latest estimate of 11.5% GDP growth in financial year '22, where it also indicated that India is expected to be one of the fastest-growing economies for the next 2 years. The sharp recovery in economic activities is due to continued government expenditure, resumption of private investment supported by faster pickup in conventional and vaccination drive across the country. We have seen that the credit growth for the construction sector has been rebounding from October '20 onwards, which has been an outcome of various initiatives under the Aatmanirbhar Bharat vision and the economy itself witnessed a positive turnaround was the unlocked prospect. The National Infrastructure Pipeline already led a roadmap for next 5 years, the construction sector and specifically, the road construction is expected to do its duty. As Honorable Finance Minister restated during the -- during her budget speech, infrastructure development is one of the key pillars for the group and with allocation of INR 2.27 lakh crore towards infrastructure projects over the next 2, 3 years, the momentum is expected to increase their ability. The outlay head for financial year 2022 budget estimate for NHAI has increased by nearly 35% to INR 57,350 crore as compared to financial year '21 budget estimate of INR 42,500 crore. To augment its source of fund, the NHAI is already working on InvIT structure where 5 operational road projects with an enterprise value of INR 5,000 crore would be transferred to NHAI-sponsored InvITs. Financial year '22 budget has allocated INR 1.18 lakh crore to MoRTH, out of this INR 1.08 lakh crore will be towards the capital expenditure. This is the highest ever allocation to MoRTH indicating strong awarding activity in next year. The Honorable Finance Minister has also proposed to set up a development financial institution with a huge sum of INR 20,000 crore, which will extend funding support of approximately INR 5 lakh crore to infrastructure sector. The industry continues to see positive trend in terms of positive project awarding activity, the MoRTH awarded a total of 7,597 kilometers during the period of April '20 to January 15, '21 as compared to 3,474 kilometers during the same period last year, whereas NHAI awarded 2,424 kilometers till December in the current financial year as compared to 3,211 kilometer for full year of financial year '20. NHAI is targeting to award anywhere between 4,800 to 5,200 kilometers before the end of current financial year as compared to its full year target of 4,500 kilometers, indicating strong awarding activity in current quarter. With a target of awarding 8,500 kilometers in financial year '22, we expect the robust awarding activity to continue in the next year as well. The similar positive trend is witnessed on construction front as well. During the period of April to January 15, '21, a total of 8,169 kilometers were construction as compared to 7,573 kilometers in the corresponding period last year. This construction progress is achieved in spite of COVID-19-driven disruptions in the first 2, 3 months of the current financial year followed by active monsoon across the country. MoRTH and NHAI are expected to continue the strong pace of projects awarding at 5,000 kilometers of projects and the phase second of Bharatmala Pariyojana have already been identified to start. Phase second will largely be focused on construction of expressway and access-controlled highway. The authorities have already started taking pre-construction approval and preparing DPRs for the projects, which will reduce the project awarding time post approval. With progressive unlocking and [indiscernible], they were returning to project sites, we have seen decent ramp-up in execution post monsoon season. The standard operating practice implemented during the COVID-19 peak periods continuing to be in place at all project sites. With labor availability reaching to the pre-COVID levels and favorable climate, the execution has been better during the quarter 3 as compared to last year. On the toll collection front as well as -- there has been a high growth in traffic in third quarter and in the month of January '21 as well. The government expenditure being the key driver for economy recovery, we foresee that the infrastructure sector will continue to attract its attention. Given the promising outlook since the company has been built on a strong foundation of impeccable execution track record, adequate resources, experienced management team, judicious financial management supported by strong balance sheet and robust techno-financial credentials, we look forward to bidding for new and large projects with confidence. Now moving to our project development business. We have always focused on having diversity in our project development business, which has helped us over the years to continue our growth momentum and risk mitigation. We have a total 18 projects on PPP format comprising BOT toll, BOT annuity, OMT and HAM assets. This diversity has also helped us to gain first time experience in executing by the spectrum of project implementing model. Out of these 18, 8 projects are operational and 6 projects are under construction, 2 projects have achieved the financial closure recently. And we are expecting the financial closure within a week time of [ BLS ] 1 project. The construction activities are expected to begin in the fourth quarter as soon as we receive the appointed dates. For the [ BLS ] first -- 1 once project, Meerut-Nazibabad, we have received the final sanction and the financial closure is expected within this month. In terms of equity investment, the total requirement for all these projects -- HAM projects is approximate INR 1,468 crore, out of which we have already invested INR 542 crore till December '20 and the balance will be invested over the next 2, 3 years. The internal accruals generated over the next 2, 3 years should be sufficient to fund the total equity investment. Now moving on our order book. During the pandemic COVID-19, we have worked on diversifying the order book and result of which is visible in our current order book. During the third quarter, we have received a Letter of Award for an irrigation project in the State of Andhra Pradesh of INR 1,000 crore as well as for 5 rural drinking water supply projects in the state of Uttar Pradesh for total contract value INR 3,717 crore. Our unexecuted order book on December '20 was INR 9,852 crore. By including all the projects for which we have already received Letters of Award, our order book would be over INR 18,000 crore. That gives the distinct revenue visibility for company over the 2 and 2.5 years. Now moving on to our credit ratings. We continue to maintain our -- one of the best credit rating in the industry. During the quarter, CARE Ratings has upgraded our credit ratings to CARE AA from CARE AA minus for long-term bank facility of INR 1,700 crore. The rating on short-term bank facility of INR 5,000 crore is A1 plus. The upgrading in the current scenario is testimony of our prudent financial management and will allow us to raise funds very competitively. Now I would present the results for the quarter ended December 31, '20. During the year till date, the company operations have been impacted due to restrictions on account of COVID-19, and therefore, are not objectively comparable with that corresponding periods of last year. Revenue of third quarter of financial year '21 is INR 1,322 crore, which is higher by 8% as compared to INR 1,218 crore in third quarter of financial year '20. The EBITDA for third quarter is INR 179 crore, which is higher by 5% as compared to INR 171 crore in quarter 3 financial year '20. The EBITDA margin for third quarter is 13.5%. The profit of third quarter of financial year '21 is INR 103 crore as compared to INR 77 crore in third quarter of financial year '20, a growth of 35%. Revenue for 9 months of previous financial year includes INR 109 crore towards arbitration claim received for Hapur-Moradabad project. Similarly, other income includes interest of INR 36 crore received on arbitration award. Hence, the financial performance of 9 months financial year '21 is not objectively comparable to that extent. Revenue of 9 months of financial year '21 is INR 3,281 crore and EBITDA is INR 440 crore. The EBITDA margin for 9 months of financial year '21 has been 15.4%. Profit of 9 months financial year '21 is INR 233 crore. Consolidated revenue of quarter 3 financial year '21 is INR 1,582 crore as compared to INR 1,390 crore in quarter 3 financial year '20, registering a growth of 14%. The consolidated EBITDA for third quarter of financial year '21 is INR 407 crore, which grew by 36% as compared to INR 297 crore for first quarter of financial year '20. The EBITDA margin for quarter 3 financial year '21 came in at 25.7% as compared to 21.3% for quarter 3 financial year '20. The consolidated PAT for quarter 3 financial year '21 is INR 168 crore as compared to INR 64 crore in quarter 3 financial year '20. The financial performance for 9 months of financial year '21 is not comparable to 9 months of financial year '20 due to arbitration claim received for Hapur-Moradabad. Consolidated revenue of 9 months of financial '21 is INR 3,923 crore, whereas consolidated EBITDA is INR 998 crore. The EBITDA margin for 9 months financial '21 is 25.4%, consolidated PAT for 9 months financial year '21 is INR 340 crore. As on December '20, our net working cycle is 67 days as compared to 85 days as on September '20. Our net worth on a stand-alone basis is INR 2,780 crore as on December '20, whereas total stand-alone debt is INR 365 crore, and all of which is equipment finance debt. As on December '20, we do not have any working capital loan. The total cash and bank balance is INR 833 crore. Net cash of INR 468 crore, this translates to net debt-to-equity of 0.13x. On consolidated basis, our net worth is INR 2,903 crore, whereas total debt is INR 3,809 crore. The total cash and bank balance included current investment is INR 1,495 crore. This translates to net debt-to-equity of 1.31x. With this, we now open the floor for question and answer. Thanks.

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

Congratulations on a very good set of numbers. I have a few questions with me. The first one is on order inflow target that we have already quite diversified at this moment. Almost 25% of our order book is from water and irrigation segment. And going forward for FY '21 and '22, what are we having in our mind? Particularly in terms of roads and non-roads, like water and metros?

Yes, our focus area will continue to be on the road sector. So we are fortunate because a lot of projects are coming from NHAI and MoRTH. So we'll continue to focus upon road sector. But since Jal Jeevan Mission is a very long term and very wide mission covering the various states, we also look forward to have some projects in drinking water supply. But before bidding for the new projects, we want to consolidate what are the projects that have been awarded to us in the quarter itself and then move accordingly. The road sector will continue to be our focus area.

Okay. Any guidance number we have?

See, the ratio of nonroad sector should not be more than 20% of overall.

Understood, understood. Sir, another question on the current order book of INR 98 billion. I believe we have ordered -- we have taken the 3 HAM projects that we have got approved and have you taken that Devipatan water supply project also?

See, there is no -- typically, there is no financials for these water supply projects. These are being the EPC projects. But Devipatan and other 3 new divisions they awarded recently, so we are going to execute the agreement soon, maybe before end of this February. Then -- accordingly, then we'll go ahead with the preparation of DPRs, followed by execution.

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

Congrats on good set of numbers. Sir, my question is first on the order backlog, project wise, which I need. So just a highlight which project timing per our book, sir, Koliwar-Bhojpur, then Nagina-Kashipur, Varanasi-Gorakhpur, and then the Purvanchal Expressway projects, package 5 and 6, Chitradurga, package 1 and 2, then Aligarh-Kanpur.

[Operator Instructions]

Yes. But first -- yes, I understand. So I just want -- sir, as I said, I want a backlog of projects, project wise. So, can you just help me with that, sir?

Yes, Koliwar-Bhojpur is INR 193 crore. And Bhojpur-Buxar INR 212 crore. Chitradurga 236 crore. Nagina-Kashipur INR 431 crore.

Sir, which -- Koliwar-Bhojpur, which one you said, sir?

Koliwar-Bhojpur INR 193 crore.

Yes, Bhojpur-Buxar, you said INR 212 crore, then which one you said, sir?

Chitradurga INR 236 crore. Chitradurga.

Chitradurga. Okay. Nagina-Kashipur?

INR 430 crore.

Varanasi-Gorakhpur?

Varanasi-Gorakhpur, it is INR 99 crore.

Purvanchal, package 5 and 6?

Purvanchal 5 is INR 511 crore and Purvanchal 6 is INR 483 crore.

And then this Jhansi package 1 and 2?

Jhansi package 1 is INR 259 crore. And package 2 is INR 175 crore.

And then for Aligarh-Kanpur and Challakere-Hariyur?

Challakere-Hariyur was recently appointed date and full amount is there.

And Aligarh-Kanpur, the one which is under execution?

It is INR 274 crore.

Okay. And sir, the rest other HAM -- rest other projects, Delhi, Vadodara we have started package 31, 29?

It has -- we have not received appointed date so far. So therefore, it is not under execution.

When will be -- when is it the expected, sir?

By end of this financial year, we are expecting appointed date of all these, 2 EPC projects.

And sir, what is the land status for the HAM projects? Is the still awaited appointed date like for this Meerut-Nazibabad and Unnao-Lalganj and other 2?

Yes, these are 4 HAM projects. Preve already being done for more than 90% awards have been made, and NHAI also transferred the money to -- with respect to colors. So the final distribution to the land owners is being done. So we expect more than 80% land availability before end of this financial year. And correspondingly, these appointed dates will be declared progressively.

So by April, we are expecting appointed date for these 4 projects, including Delhi, Vadodara by end of this year?

No, no. All these 4 HAM projects and 2 EPC projects, we expect appointed dates before end of the financial year?

Delhi, Vadodara also land is pending, what I assume, right, sir?

Sorry?

Delhi, Vadodara, also land availability still an...

Distribution is being done. See, what happened is land hold holdings being very small [indiscernible] respect to landowners, but it takes time because sometimes they will be joint ownership kind of a thing. So final distribution to the beneficiaries will be taking time. So we expect that to be completed before end of this current financial year and accordingly, appointed dates will be declared.

And the irrigation could be the 3 projects, the value which you have mentioned is our share? Or is the total value, sir?

Which one, drinking water or irrigation?

All 3, irrigation in INR 80,000 crore and then the water supply...

Irrigation on a stand-alone basis we're being qualified, this is surplus of INR 1,000 crore project but this project will need to execute the agreement. What is happening in the state of Andhra Pradesh, panchayat elections are going on, the code of conduct is still valid until 24th of February. Post that, we'll execute the agreement, and then accordingly, we'll commence the work in the month of March.

And this 100% execution will be done by us?

Yes.

So INR 1,000 crore will come in our books, right, sir?

Yes, yes. INR 1,000 crore will come into our books.

And this INR 290 crore water supply project as against water supply project of INR 2,475 crore also, what is -- how it will progress now in terms of execution?

See, INR 290 crore first water supply project in the district of Hamirpur that we have already commenced the award. Our JV will have a 95% partnership in the JV. So all these water supply projects, we have 95% partnership. So, practically, you say that this all work then will come into the PNC account.

So this INR 290 crore, 95% will come in our share, INR 2,475 crore, 95% will come in our share, right sir?

Yes, exactly.

And sir, what is the payment structure in these projects? And have you received any mobilization advance for these projects on the EPC spend as well as the 2 water drinking -- 2 projects of water drinking?

See drinking water supply for [indiscernible], we have not taken those 10% mobilization advances there, since it interest-bearing thing we have not taken. Going forward in the 4 other projects in Devipatan, Aligarh, Bareilly and Moradabad, so there -- mobilization advances there. Then post signing up the agreement, we look into whether we should take it or not. But most likely, we'll take mobilization advancing to those projects. Those -- that mobilization advances are interest free. It is noted that provision for mobilization advances is in Andhra Pradesh.

So that would be like we'll be investing. So then that would be a higher-margin project and any CapEx for these projects, sir?

See, water supply projects, there is no major CapEx involved because this drinking water supply, then we have to construct overhead storage tanks and the pipeline and all. So though much CapEx you don't foresee. The irrigation project, also, the CapEx would be in a moderate kind of CapEx where the only canal lining machine you have to purchase. So that is not any expensive kind of proposition.

Sir, on the toll collection, can you give me a toll collection number, sir, including Ghaziabad-Aligarh?

Ghaziabad-Aligarh is INR 62.90 crore. MP Highways INR 13.3 crore.

INR 13.3 crore.

Ayodhya INR 124 crore.

Kanpur-Ayodhya, INR 124 crore -- sorry. How much, sir?

INR 124.14 crore, yes. Kanpur Highways INR 25 crore. And Bareilly-Almora is INR 13.95 crore.

Narela?

Narela INR 9.93 crore. And Raebareli INR 32.18 crore. In case you will compare to the last year third quarter, which is a growth around 20% to 40%, such as in Kanpur Highways growth is around 40%, in the Bareilly-Almora, the growth is around 42% and overall, you will see that there is a growth of 22%, total revenue of all the projects versus last year.

And what is the traffic growth, sir? This is the gross revenue...

[Operator Instructions]

Yes, this is the traffic. You can say traffic revenue growth.

The next question is from the line of Parvez Akhtar Qazi from Edelweiss Securities.

Congratulations for a good set of numbers. 2 questions from my side. First, with regards to the irrigation and water supply projects that we have taken, what is the kind of margins and working capital that we envisage? And second, with regards to the pending equity in HAM projects, what is the total amount? And if it is possible to get the year wise breakup as and how much in Q4 FY '21, FY '22, '23 and so on?

In the irrigation and water supply projects, the EBITDA would be the same that of the road projects. It will be in the similar line. In the CapEx side, as I already mentioned, we don't see any major CapEx into these projects being no major equipment is needed. And the other thing, Mr. Maheshwari will share.

As we have the equity commitment, out of the 7 projects, which are under construction, we required INR 848 crore. Out of that, we have already into INR 542 crore, the total requirement, INR 306 crore, and the recently awarded 4 project, we required around INR 620 crore. So as on December 31, we required by equity of INR 926 crore in next 2, 3 years. In case, if you want to year wise, FY '22, around INR 350 crore, FY '23, INR 168 crore and FY '24, INR 120 crore. But this mix can vary because we take -- include the equity at the time of a disbursement, just to maintain the debt equity. But total requirement level remains same, it will be INR 920 crore in next 2, 3 years.

Sure. And if I may ask one question. I mean recently, we have seen an increase in commodity prices. So what is the kind of impact that we see on our margins in, let's say, Q4 or FY '22?

For -- there is an indexations clause. So we don't think any impact in the profitability because in all the projects, inflation in the HAM projects as well as in the EPC, we are getting the...

No, no price adjustment and price indexations are there, but we agree with you. This increase in the steel as well as cement and other commodities being very steep vis-à-vis the pricing cease on WPA, that is marginal kind of a thing, but it should not make any major impact on the profitability and EBITDA.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on good set of numbers. I would also like to welcome Bhupinder sir, on this call, so full-time opportunity for the company.

He conveys deep gratitude to all of you.

Okay. So my first question is on the overall. So we have seen very decent order in demand largely supported by -- from the water segment. This year, water has held us in earning orders and totally a new kind of a diversification. We have INR 18,000 crore of order backlog of -- end up the year close to about INR 5,000 crore of turnover and still growing. So my question was more on next 2, 3 years, so if you are looking to add INR 10,000 crore to INR 12,000 crore of new orders and then build it maybe to INR 15,000 crore, which should be required in FY '23 to give that 15%, 20% growth. So besides road and waters, is there any other surprises that you have with you for the next year, where in the new segment can add significantly like INR 3,000 crore to INR 4,000 crore of inflows? Because that kind of momentum will be required to deliver that growth of 15%, 20%. So if you can just give you a 3-year kind of a view of how this will ramp up and what were segments which you'll add incrementally besides roads and water?

Yes, apart from water sector as well as irrigation and the roads, of course, roads is being our prime sector. We -- immediately, we are not foreseeing any kind of poring into other sectors as of now. Because we want -- because there will be ample of project opportunities, business opportunities in these sectors itself going forward. So as of now, and that's the thing we are not seeing until unless there is any impelling synergy kind of projects we come across, maybe some airport projects, particularly in air freight, like runways and all, we come across, we certainly will look into those opportunities. Otherwise, this sector will remain to be our focus sector. And water and irrigation sectors, which are apart from our prime sector of road sector. See, then second thing is, as we expect, this year, we are expecting a business development of, say, INR 10,000 crore. Already, we have secured INR 7,700 crore. Going forward, before end of this financial year, if you get another INR 2,000 crore to INR 3,000 crore of new projects, we will be around INR 10,000 crore. And if you tie it up with growth, you had mentioned about 20% growth in BD, so we should be able to deliver these things because as BD grows, then our turnover also we expect to grow in the similar lines. So we should be able to deliver these projects. And water sectors, we are already recruited senior professionals. We have what have proven expertise and their experience in this sector. So we are building up the teams. So these water sector projects, basically these are being a ground water kind of a thing. So there is no much kind of engineering kind of thing is not needed. It is the boring then overhead tank and the distribution lines. We don't see any execution issues in this thing. Nevertheless, we recruited the people. So we should be able to execute these projects within the time and that will be the best of standard.

My second question was on monetization. So we have seen most of your peers have concluded some kind of arrangement with their investors on the HAM monetization. But somehow, we have our legacy projects like toll projects where we have not monetized, plus we have INR 1,500 crore would be going into HAM projects next 2, 3 years. So when do you hear unlocking happening and recycling of this equity because from here on growth, I know you have a lot of cash still left on the balance sheet. But still going ahead, there have been some visibility of monetization. So if you can give some color for the next 2, 3 years, how do you see the monetization happening, any complete time lines when you think you'll get into some kind of agreements with the seller -- with the buyer, if you can just throw some light on that?

I intimated to you earlier that the 2 BOT road projects are going to be completed in the 2025. But we have given the mandate for big 4 -- for 6 HAM projects, monetize the HAM project and 1 BOT project Bareilly-Almora and 1 annuity project revenue point. Discussions are going on. And these 6, 8 projects having a total project cost of around INR 9,340 crore. Total debt of INR 4,700 crore and our equity included INR 940 crore. Discussions are going on and yesterday, also, we have discussed about 3 to 4 hours with one of the investors. So we are hopefully that in next few months, we should be finalized with all these things.

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

Yes, am I audible?

Yes. Yes.