Power Mech Projects Limited (POWERMECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to the Power Mech Projects Limited Q3 FY' 20 Earnings Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Muchhala from Nirmal Bang Equities Private Limited. Thank you, and over to you, sir.

Yes. Thank you. On behalf of Nirmal Bang Equities, we welcome you all to the 3Q FY '20 results conference call of Power Mech Projects Limited. The management is represented by Mr. S.K. Ramaiah, Director, Business Development; and Mr. J. Satish, CFO. I now hand over the call to the management for their opening remarks, post which we can take questions. Over to you, sir.

Yes. Yes. Thanks, Chirag. Dear friends, good afternoon. This is Satish here. We're happy to share the recent developments from Power Mech. To start with, we'll take some time on quarter 3 results as well as some updations on Power Mech Projects Limited. During Q3 -- quarter 3 FY '20, the total turnover including the other income is INR 547.44 crores. And the contributions from segment-wise, Erection is close to INR 201.47 crores, whereas, the contribution from Civil business is INR 147.31 crores. And from O&M, it's close to INR 162.65 crores, and whereas, from Electrical, it's close to INR 33.99 crores. Whereas, last year, the turnover for Q3, including other income, it was INR 612.84 crores. There is a dip of 11%. The turnover from revenue business -- the turnover from Erection business, it has gone up by 5.6%, for the traction is in line with INR 180 crores to INR 200 crores, it's moving well. And if you see like O&M also it's moving INR 140 crores to INR 160 crores. There is a growth of almost 11.73%. Electrical, we estimated slightly larger number. There has been -- but still, it has gone up by INR 46.64 crores as against last year and the dip is most in the Civil business. So the total dip of 10.67% is on account of Civil and Electrical business. In addition to some shortfall in few orders which we projected, like the [electrification] from Sadulpur, which is like, situated at Rajasthan OH Electrical work. We anticipated close to INR 128 crores, but because of a delay in engineering clearance, there is a shortfall of INR 55 crores in turnover. Similarly, in Ramayampet Canal work, which is INR 374 crores of work in Telangana, we planned close to INR 100 crores, whereas the actual is INR 34 crores because of certain right of way issues. So there is a shortfall of INR 100 crores. In addition to that, like, Q3 last year, AMTZ project from Andhra Pradesh, it was a short-term project that has contributed substantial turnover in Q3 of last year, which we completed Q1 of this year. So these all factors contributed a little bit dip in the projection. But if you see, like, 9 months, the turnover more or less flat, in spite of a dip in Q3, we could -- able to deliver a flat turnover. So the revenue from Erection business is close to INR 559.83 crores, whereas for Civil is INR 428.58 crores and O&M is INR 474.07 crores, whereas Electrical is INR 104.77 crores. The total turnover is INR 1,567 crores plus the other income and higher income put together is close to INR 1,575.98 crores, whereas last year, it's close to INR 1,615.85 crores. There's a small shortfall of 2.47%. And in terms of EBITDA, margins are maintained more or less same. Q3, it's close to INR 74.21 crores, whereas last year INR 80.97 crores. So because of dip in turnover by 10.67%, as EBITDA has come down by 8.35%. Whereas PAT for Q3 is INR 36.41 as against INR 33.88 crores last year. So this has gone up mainly on account of the benefit of tax whereas the reduction in the tax. Similarly, for 9 months, the EBITDA is close to INR 211.52 crores as against last year INR 216.77 crores. So with a dip of turnover by 2.47%, that EBITDA is going to come down by 2.42%. But whereas, PAT is close to INR 100 crores, whereas last year, it was INR 86.68 crores. So it has gone up almost by 15%, with a dip of 2.47% of turnover, the PAT has gone up by almost 15%. The tax change in this fact has helped, not in terms of pushing the PAT. And both the Domestic and International if we see, for 9 months, the revenue from the International business is close to 17%, and whereas last year, it was close to 23%, a very small decrease in business from Oman and Saudi, but Bangladesh is picking up. So more or less, it should be in the range of 19% to 20%. And similarly, the mix between power and non-power, for 9 months, the revenue from power is close to 67%, that includes both O&M as well as Other power activities, and the non-power is close to 33%, whereas last year, it's 68% and 31% -- 68% and 32%, so more or else the mix is the same. In terms of balance sheet, the net working capital days remains to be close to 160 days. We anticipated some relation to happen from AMTZ Andhra Pradesh project. So we anticipated close to INR 20 crores plus to come during January that got postponed. The government has assured to give close to INR 20 crores during this month. So we planned January, February and March to realize complete amount from Andhra Pradesh. But the way it looks like, it may get postponed one more month, April because this month, they're planning INR 20 crores of allocation. So we may get INR 20 crores plus some amount in March. So some part may get postponed to April. So once that comes, there will be some improvement in the net working capital days. And in terms of the debt, the gross debt more or less the same what we had during Q2. And in terms of net debt, today, it's close to INR 298 crores as against INR 322 crores during last quarter. So there has been -- in spite of a delay from Andhra Pradesh and all, we were trying to manage our working capital and receipts and payments within the existing limits. So we tried that the net debt should come down, that is where the focus, probably with the help of AMTZ realization, year-end debt may slightly come down. That is what we are working towards that. And in terms of order booking, today, we have got backlog of INR 4,928 crores, which is completely executable order book. And apart from that, close to INR 1,300 crores of orders which are L1 stage, and we are about to disclose those orders maybe in next 7 to 10 working days. And by year-end, we are planning to add another INR 800 crores to INR 900 crores. So with that, we had a plan of INR 4,000 crores, maybe if comfortable, we can add INR 3,800 crores plus. If that happens, the backlog order book, which are going to be executable will be close to INR 6,300 crores by year-end. So that leaves a comfortable visibility for next 2.5 to 3 years for a robust growth. I request Mr. Ramaiah sir, just to add some few more at development.

Yes. Thank you, Satish. To carry forward, I can -- on the business development side and the marketing side, we had a factor, the last year, maybe jobs and as per that the -- our backlog has now stands at INR 4,907 crores, with power of INR 3,448 crores and non-power of INR 1,473 crores. I think at the end of the year, we are confident the projection of INR 4,000 crores, there are many things happening. Particularly, what has happened is certain of the projects got postponed for the tendering and the finalization. And still, we are hopeful quarterly L1 status, what Satish has told, some more jobs we have to focus and we should be able to do this. Coming back to the certain immediate opportunities and the business outlook is that, see, we are focusing on 2 major projects presently. One is Khurja 2x660 megawatt, that is SJVN project -- sorry, THDC, Tehri Hydro Development Corporation, owned by. Another is Buxar project 2x660 megawatt owned by [indiscernible] Jamuna Hydro Project. Now in these 2 projects, the L&T has taken the EPCs job in the case of Buxar, and we are trying to look at the opportunities on the boiler erection. We have already given the offers and we had some discussions. And in the case of Khurja, the EPC job has been split between 2: L&T on the boiler package and the Turbine Island on the BHEL package. And apart from that, we are also looking at some of the balance of plant opportunities there. And in fact, we are targeting about INR 800 crores of opportunities there, both from the L&T side as well as from the BHEL side. And apart from that, there are independent BOP packages like material handling, which is going -- which is under tendering stage. We are in the process of tying up with the thyssenkrupp that will be a substantial package amount of INR 300 crores. And then boiler -- 2 boilers, 2 turbines, then TG Island, civil and structures work, boilers and civil and structural work. Therefore, that is where the total target is there. So these are the 2 important projects we have to focus in the next couple of weeks and months. Then apart from this, there are 2 -- 1 project which has been getting postponed, NMDC. I think we have dwelt many times, it has been going on in the last 3 quarters. We gave our price bid in the second quarter. We expect it will close by a third quarter, unfortunately, there are some procedural issues which has happened. And now all the issues and the prebid -- preprice issues on terms and conditions have been finalized. We are awaiting the final revised price bid configuration. And customer has told us by end of this month, they will call for that. Once it comes, we will know that position. That is a very critical package for our future growth. And it is also a major diversification effort into material handling. And here, we have got a consortium approach with thyssenkrupp and that will be a substantial order. I will share with you the things happen because their figures, we want to keep it because of the competitiveness involved. But it's a substantial thing if it happens. Then the new development can be in the JSW, we are already doing about INR 330 crores of job in the non-power sector in the steel plant at Dolvi and Vizag -- sorry, Vijayanagar. And they had a major expansion plan from 13 million to 18 million tonne because of the steel price issues, the expansion plans have been put on hold for another 6 months to 1 year. But there is one package in which they are putting their expansion plans on the Coke Oven and a part of the structural work around INR 126 crores we've already taken it. And there is an opportunity for the Coke Oven equipment piping nearly around INR 150 crores. That will come for finalization by end of this month. So that, we are positive, depends on how we can do the pricing on the competitive basis. And because of our performance with JSW at Dolvi, which has been quite commendable when compared to L&T also, they may give some preferences to us, but ultimately, it depends on some competitive pricing. For this year, I think, we'll focus it. Then, the FGD story, it has -- a lot of things have happened in the last 1 year, and I think I updated you last time also. 164 gigawatts, nearly 65 gigawatts have been awarded. And now, we are in continuous discussions with GE. GE has got almost 22 units of 13,940 megawatts, but not all the units they are able to find the right partners for site execution and earlier, they tried with the smaller parties, and they are not successful. And they have again approached us. We had a 2 rounds of discussions with them. And now we are trying to look at opportunities out of this 13,940, 50% we have tried to talk to them. And also tried to tie up for a back-to-back arrangement for 1 or 2 projects, including all the site works. That means, total opportunity is about 17 sets in GE, 7000 megawatts. We are targeting 50% of that. So something should happen in the next couple of months. This is on the FGD side. Then, non-power side, I explained it regarding the -- mainly JSW and then NMDC material handling. And on the O&M side, there is a new development, it has taken place. Vedanta, we are already working on 4x600 megawatts. And they are now going for a revised bidding process for comprehensively offered in the entire O&M for the next 5 years to a very strong party. We are working under Vedanta as on today, not on a comprehensive basis, but at a field-level operation. Now they want total responsibility, at least 1 agency. We are in dialogue with JSW and then [indiscernible] whoever gets the job, perhaps we will be there with them to work it. And more than that since we have got a track record of working with them for the last couple of years, we will be the preferred subagency whoever takes that job. Apart from that, the 9x135 megawatt, Jharsuguda also, they want to go for a comprehensive O&M. Therefore, both These opportunities, there are three plants, 9x135 megawatts, 4x600 megawatt, which is coming for renewal, and then 3x30 megawatt in Jharsuguda and Lanjigarh together, our total opportunity is about INR 1,000 crores in that. At least some of the things should happen in the next couple of weeks or months. So this is on the O&M side. Then the infrastructure side, there are many projects we are working. In Khurja, we are discussing with the BHEL and L&T. And also some of the part of the Civil work in FGD also because FGD work and the site also consists of the Civil works as well as the mechanical work. So that also we are discussing with GE. Then as far as the new developments in the power sector is concerned, not much we can expect. Only 2 plants are expected to be under the bidding stage. Singrauli 2x800 megawatt, that is NTPC; and Lara 2x800 megawatts. Except for this, we don't see and because FGD is going to be there, another 1 lakh megawatts have to be tendered. Now a lot of -- we are also trying to see whether we can bid directly as a qualification. We had some dialogue with Jaypee Associates for the Nigrie plant. So then we are also trying to see -- Tata's, they are coming up with their -- they've taken over Prayagraj 2x660 megawatt and then Mundra 4x -- 5x800 megawatt, whether we can have some say in that -- in the FGD retrofit packages. These are the -- some of the things. Otherwise, as Satish said our -- as on today, the hard opportunities what we are tracking is our INR 6,500 crores in the last quarter. At least, we hope, about 20%, 25% of that should mature in the next 40, 45 days. And coming to next year, we will plan out the opportunities to see that, that 4,500 megawatts, this one -- opportunity -- this one order booking is on track, and we will come up out with all the opportunity list in another 15 days. Thank you.

Yes. Yes. Chirag, now you can move to question-and-answer session.

Yes. Sure, sir.

[Operator Instructions] The first question is from the line of [ Rishit Shah ] from Dhanki Securities.

So regarding basically, in the recent budget there had been directive from the government, so basically for the thermal plants that are polluting, so -- to shutout those plants. So we -- I mean, so due to that, do we expect any additional FGD orders coming forward?

Yes. You see, FGD plants have been laid out by CEA very clear guidelines for 164 gigawatts. That is every plant has been identified, both in the public as -- private as well as the state domain. Out of that, I told you 65,000 megawatts of EPC ordering has been done, that is coming for tendering now -- subcontracting tendering from various EPC contractors, okay. Now balance 1 lakh megawatt also, perhaps in the next 1 year, they have to award it because the deadline is to commission all these plants by 2022. Already, there is a delay of 2 to 3 years. And government has given a lot o stiff guidelines to all the developers and also the plant owners. Now coming to the question of the -- because of the pollution issues, shutting down of the plants, 15,000 megawatts have been identified as the plants, which will be shut down. And NTPC has got certain plants to augment the capacity -- not augment the capacity wherever some plants are getting retired, they would like to put up the new-age supercritical units. And that is how that whatever is the -- plants which are shut down, maybe equivalent capacity, NTPC's plan is to have 11,000 megawatts of subsidiary plants, as a substitute, once the shutdown comes up in all these cases. And it also depends on the other private -- sorry, other state utilities. But there are some very old plants, 50-year-old, 40-year-old, 30 megawatt, 60 megawatt and then 110 megawatt, maybe they will not go for any replacement of those plants. Any replacement comes with a supercritical technology with the FGD package. Therefore, there can be some opportunities for the replacement of this 15,000 megawatts, which are going to be shut down. And FGD, I said, 164,000 megawatts. And then all the new units, whatever it comes, it will come along with the FGD as part of the main part of it.

Sir, this is Kaushal here. Just a follow-up to that, what is the timeline for -- that is likely on the FGD as well as the ones that you mentioned about NTPC?

No. NTPC has already -- their plan -- their total plant plan capacity of 61,000 megawatts including the JVs, what they're having, plus 40,000 megawatts they awarded. And the lot 5 orders are in the process finalization. And that will be completed in the next couple of -- in the next 1 to 2 months, perhaps they have to close that. The NTPC will be more or less will -- done with all the ordering on the FGD requirements of their plants. Now the things which are lagging is on the IPP sector. Though there is a lot of pressure on the IPP sector to retrofit it, like Tata's are there, Jaypee Group is there, KVK is there, JSK is there, is there -- sorry, KSK. And these people, they are now tying up this funding arrangement and also -- because they have got a tariff issue also, for all those things they are settling it. And one by one, these plants are coming up for tendering now. And that is -- and then the state governments also, like Maharashtra State Electricity Board, then Karnataka, then all the State Electricity Board also have got a mandate to complete their tendering in the next 1 year.

And sir, is there any possibility of any multilateral funding here?

They say the tariff is going to be a pass-through. The -- what CERC, CEA and the government has worked out the mechanism is that because it is an investment which costs about -- present rate is about INR 60 lakhs per megawatt for the FGD. And if it is a 1,320 megawatt moving to 660 megawatt, around INR 780 crores to INR 800 crores plus IDC, it may come to INR 1,000 crores with all the things that they are funding through, again, through banks only. And then the tariff is getting guaranteed increase, maybe up to INR 0.18 per unit there is a guarantee that we have pass-through, that is why the banks also will lend them.

[Operator Instructions] The next question is from the line of Sanjay Dam from Old Bridge Capital.

Yes. So up till now, whatever has been bid out in FGD for NTPC -- by NTPC. So whoever has got all of these -- so we are not in the running, so far as what has been already bid out, we are looking at future opportunities, right?

No, no. Where the orders have been -- if you see, for example, BHEL has got 58 units of 28,530 megawatts, GE has got 22 units of 13,940 megawatts, Doosan, L&T has got 26 units, okay. Now [ BHEL anyway ] become as a tendering we have rotated [indiscernible]. See, the issue in FGD is that the packages are not big for our sustainability, overhead cost can be high and then we have to deploy some assets. Therefore, we are choosing the plants where we can work. That's where we are more comfortable to work with GE because we have demonstrated one plant which has been commissioned at Vizag. That's the first FGD plant which has been commissioned in the country and we are part of that initiative. Therefore, our interest is to work with GE. That is where we -- they are also approaching us because they're not getting good agencies. As far as BHEL and L&T is concerned, yes, based on the competitiveness and our desire to participate, we will look into that.

So you said that 50% of that opportunity you're looking at. So suppose, on an average, for the main contractors like GE, for them, if it is, say, anywhere between INR 40 lakhs to INR 60 lakhs per megawatt. For us, what is the pie that is relevant for us out of that?

Yes. No. If it is, with all the -- see, site construction has got 2 components -- 3 components. One is the Civil works, second is the Mechanical work, third is the Electrical works. Civil, there is a material content also, steel and cement is there. If all those things and the rest of the things is service jobs, manpower and other things. Therefore, we can take around roughly 20%, INR 10 lakhs to INR 12 lakhs per megawatt.

Okay. And where -- by when, sir, would you get a reasonably good visibility of what is the pie for us? How much -- by when will you get a good sense of some finalized final rating?

No. That's what. We -- earlier, we were not very keen on all the FGD jobs because of the value of the jobs were less than INR 50 crores and all. But because GE has shown interest and we said we will do the entire job. We will not do piecemeal jobs. Therefore, we had some dialogue with them recently. Now, for example, Singaji is coming over bidding. They say, we will go on a back-to-back bidding basis with our offer. That means, upfront, we are going to give the offer for the entire site works, 4x660 megawatt. They will bid it. If they are successful, they will straightaway give the job to us. And then, at -- for example, Simhadri, we are trying to give an offer. And we are also -- some of the plants there L1, like Unchahar 5x210, they are L1. We have already given the offer. So Rihand, there L1, 2x500 megawatt. Therefore, all these things, as I showed, we are interested to support GE.

And of whatever you said at 20% kind of a value of the orders those guys are implementing, so the margins that we expect to make there will be in line or better than our overall organizational margin?

See, when we say with GE we're going to negotiate it and they are also in -- not in a very comfortable situation executing. What has happened is that, this FGD there is a timeline of 18 months and the methodology of execution has not been very good so far and government is also not happy. That's why GE has come back to bigger parties, even though values are not much, and maybe we will get some premium. At least, we will be able to get better than the normal margins what we get in the traditional BTG business.

Right. Right. And also, in course of describing the opportunities that you were seeing, some power players are -- some players are going in for -- sorry, material players are going in for a comprehensive O&M, where you would be looking to work as part of a team of larger O&M players? Is that what...

Yes. I think we have made a headway, I think we shared that. Nagarnar, for example, the NMDC, that is a mineral processing plant and also there is a steel plant coming up, which is Nitin, and where we have taken a material handling O&M job and their INR 52 crores job. And we are also -- small, small jobs where we have taken with the Tata Steel. And we are certainly -- like, JSW we are discussing. For example, now we have got a foothold in Bellary. We are discussing, if any opportunities are there in the O&M and all. Therefore, this is a process ultimately we have to drive it from power also and further diversify into non-power O&M. That is our aim. Because the growth will come with more diversification into other than power also.

Sure, sure. And sir, I missed -- I got disconnected in between, so did you say anything about Railway related any opportunities that we're looking at further?

Which one?

Railway?

Railway, looking...

Railway, you see, one railway job we are doing Sadulpur, INR 350 crores. That experience we are trying to establish it. See, what has happened after we take the job with the joint venture, they have changed the tender conditions little bit in the last year because they didn't want new players to enter and flood with the -- a lot of agencies. That job, we are now progressing fast and by end of the year, by another couple of months, we'll get the qualification by doing that job. Therefore, for the time being we are holding on to that. At least future, we will bid maybe after, say, a couple of months once we get the qualification of doing the Sadulpur job, then on our own, we can bid, and that is what we are waiting for. And then Madhya Pradesh, we have done a substation work, INR 78 crores successfully completed in operation for the last 1.5 years. And that also, we will use it. And in fact, in the electrical -- the transfer and distribution side, we have identified about INR 2,000 crores of opportunities in Maharashtra, Gujarat, Bihar and also Bangladesh.

Right, right. And where I missed some part of it, so Satish, if you could just give a sense of how much is pending out of AP as of now? And how much we expect to get by 4Q end? And what would be the gross debt which is outstanding as of now?

Yes. So the AP part, it's around INR 55 crores, okay, which is due from AMTZ project, that's supposed to come in 3 tranches, January, February, and March, okay. January, they didn't happen. They have allocated INR 20 crores for this month. So most probably by this month, we should get around INR 20 crores, maybe part in March and the balance we should get in April. So it's getting postponed one more month following this month. The good part is this project is completed, and they wanted to showcase this project. So still, they're taking our help in spite of our work has been completed. So a lot of coordinations being going on. We have been giving post completion support to them also. They are quite happy. So the visibility is very high getting this money. And in terms of debt, sir, like, the gross, like around the 400 -- including working capital and some of the equipment loans and term loans put together is around INR 448 crores and -- in Q2. And Q3 is close to that number only. It's around INR 460 crores.

Perfect. And apart from this, there is no other receivable out of AP?

AP, it's not there, sir. Now it's all done. Now it's closed.

[Operator Instructions] The next question is from the line of Chirag Muchhala from Nirmal Bang Equities Private Limited.

Yes, sir. On the O&M side, in the last call, we had mentioned that there is a project of GMDC Gujarat worth around INR 750 crores where we were L1. So any update on that project?

Yes. For the time being, it has been put on hold. That is -- this one Akrimota.

[indiscernible]

GMDC.

GMDC, it is on hold. Anyway, but even then, we had a substantial success in O&M in this year. And we hope if Vedanta also happens, we will improve our backlog on O&M, because Vedanta about INR 1,000 crores of opportunities are there.

Right. But any specific reason, sir, why this was put on hold?

I think they had a PPA issue. Mainly because PPA was coming to an end, then unless they renegotiate the PPA, they're now tying up a long-term O&M contract without a proper PA, may not be a proper procedure. That's why they have kept under hold. Once it happens, perhaps we -- it can be revived.

Okay. And sir, on the international business side, so what is international business as a percentage of total order book now? And where do we see the scale-up from international inflows and order book in the next year?

1,100 -- I think that was around INR 1,100 crores.

It's -- along with -- International is close to --