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

Ladies and gentlemen, good day, and welcome to the Power Mech Projects Limited 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 Mayank Bhandari, research analyst at Nirmal Bang Equities. Thank you. And over to you, sir.

Thank you, Ayesha. Nirmal Bang Equities, welcome you all to the Q4 FY '21 Results Conference Call of Power Mech Projects limited. The management is represented by Mr. S.K. Ramaiah, Director, Business Development; and Mr. J. Satish, Chief Financial Officer. I now hand over the call to the management for their opening remarks. Post which, we can take questions from the participants. Over to you, sir.

Yes, yes. Thanks, Mayank. Good afternoon, and thank you, everyone, for joining the earnings conference call for the quarter and year ended 31st March 2021. Along with me, I have Mr. S.K. Ramaiah, Director, Business Development; and Mr. Jigar from SGA, our Investor Relations Adviser. We hope you and your family members are safe and healthy and are taking all the precautionary measures amidst the second wave of COVID-19. I hope you have received the earnings release presentation and the results. With the country undergoing a severe second wave of COVID-19 infections, ensuring that we are following all the necessary guidelines to safeguard our employees at all our sites as well as ensuring that construction and maintain operations are running smoothly. Power Mech Projects have resumed mostly across the board, and the order book is ever increasing. It's not just the quantum of orders increasing, but also the quality of orders. Partnerships and natural book seeing a steady rise. The company is now into its 21 years journey, with a clear division into 3 decades, the first decade being characterized by the foray into power, taking on and completing several large projects and laying the groundwork. The second decade spent in the consolidating the progress, wherein the power sector and making strategic foray into the nonpower sector. Having diversified and proven with exceptional performance, the company aims to spend the third decade growing up on its presence in the power sector as the country's largest O&M service provider and replicate the peat in the noncore sector, with a greater focus on the new strategic areas of railways, water projects, material handling, steel, petrochemical and international footprint expansion, too. To update you with this quarter's development before your question-and-answer session. The reported total income for quarter 4 FY '21 is INR 760 crores. The EBITDA is INR 79 crores, and the reported PAT is INR 36 crores. Whereas quarter 4 of last financial year, the total income was INR 598 crores, and the reported EBITDA was INR 69 crores and PAT of INR 31 crores. And the revenue mix for quarter 4 is as follows. The Erection business has contributed INR 166 crores; Civil, around INR 329 crores; operation and maintenance, close to INR 223 crores; and the electrical business has added INR 36 crores. And other income is close to INR 6 crores. In the same quarter in the previous year, the mechanical business contributed INR 189 crores. In Civil, we did around INR 188 crores. O&M business contributed almost INR 173 crores. And electrical business, it was INR 42 crores. Similarly, the reported total income for entire year FY '21 is INR 1,900 crores, and the reported EBITDA is INR 58 crores and PAT is INR 46 crores negative. Similarly, if you see last financial year, the reported total income was INR 2,174 crores, EBITDA was INR 280 crores and the PAT was INR 130 crores -- INR 131 crores. In terms of segmental contribution, Erection, we did close to INR 446 crores, whereas last year, we did close to INR 749 crores. In the Civil, it was INR 687 crores, whereas last year, it was INR 617 crores. O&M, it is close to INR 661 crores, whereas last year, it was INR 648 crores. And Electrical segment, it is INR 86 crores, whereas last year, it was INR 147 crores. The overall execution cycle has improved a lot from 40% during quarter 1 of FY '21, that has improved to 100% level during quarter 4 of FY '21. Power Mech has developed bandwidth in terms of infrastructure and capability to execute projects in the range of INR 600 crores to INR 850 crores per quarter. Execution capability is well set across all the verticals. This is very evident from our quarter 4 execution cycle, INR 760 crores, which is almost all-time high revenue in the [indiscernible] store journey in a quarter. COVID-related costs, including safety, material movement, manpower handling and lower productivity cost due to COVID protocol, ETC has come down competitively as compared to quarter 1, quarter 2 and quarter 3. However, we have seen substantial improvement in our operations during the year. Similarly, the margin profile is also expected to improve gradually and going to be healthy. Power Mech has a large employee base working across the globe. Majority of the subcontracted cost includes nonpower cost also. The lever situation is much improved this time around as compared to the first wave, wherein there was a mass relocation and migration, often leading to shutting down of sites. This time, the situation has been handled proactively with all safety precautions and measures taken at all sites, resulting in seeing this continuation and timely completion of the projects. Finance cost in quarter 4 has been on down trend -- downward trend because a lot of measures have been taken to control the finance cost. With the continuation -- continuous decrease of debt level, which is right now on gross basis stands at INR 470 crores, which, after removing the deposits, come down to INR 340 crores at net level and will continue to be reduced over the next 2 years, making the balance sheet further linear and efficiencies being seen in the finance cost. Moving to other balance sheet items. The receivables stands at INR 534 crores, whereas it was INR 542 crores as on 31st March 2020. Inventory level has come down to INR 115 crores, and retention money is around at INR 285 crores, whereas it was INR 309 crores as on 31st March 2020. Receivable cycle is around 100 days as on quarter 4, as quarter 4 contributed larger revenue as compared to previous quarter of last year, which got collected subsequently. January and February month generated almost like INR 424 crores of revenue. And the receivable cycle is around 65-ish to 75 days, excluding BHEL and AMTZ project. There is significant improvement in the working capital cycle due to change in the business mix and customer mix. And most importantly, the monthly collection has significantly improved, which reached to INR 85 crores to INR 130 crores just 3 quarters back. Now it has improved to INR 220 crores to INR 230 crores per month. Apart from this, strong order base for our confident -- okay, is building a lot of confidence going forward, with a good liquidity position, healthy order book which is in place to manage projects in the uncertain environment. One of the positive development is the company has generated positive cash flow from operations during this tough time, which is around INR 120 crores -- INR 122 crores, and we are expecting this trend to continue going forward. Despite an extremely challenging year and major hurdles, especially in the manpower intensive business and industry as of ours, we have been able to source very good quality orders beyond our target. Overall, the company added close to INR 4,638 crores of orders. And as you all know, during last year, we did close INR 1,950 crores. So this forms a strong foundation and gives the company a clear visibility for the next 3 years. The order backlog as of today stands at INR 7,333 crores, which even at a modest execution rate of 38% to 40% and additional order coming in and avenues being explored gives a strong indication of the state of effort and growth potential that lies ahead. The company is stepping up the turnover conversion with over INR 200 crores to INR 240 crores per month on an average, being managed comfortably and the company becoming a partner of choice for most of large players across the country. Now I request Mr. Kodandaramaiah to add few more developments. Thank you.

Satish, and thanks our investor partners and thanks [indiscernible]. Yes. I think that is a positive note coming out from Satish on many aspects on -- in a year where a lot of issues we have to face. Obviously, COVID is continuing. The problem from COVID is still continuing in the entire industry as well as in the business segment and day-to-day life. But looking from the business point of view and the company's working point of view, one thing which is very clear obviously is that in spite of these problems, the market has been bullish in terms of the investments. I think that is a very positive thing. But for these investments coming and customers taking new investments and have aggressive mode, we would not have had such a huge order backlog developed in the last year. I think that is one of the key year in our entire history, having booked over INR 4,638 crores of orders in a single year. And if you look at the growth in this year's order booking, it is almost about 35% compared to the previous years 2020 -- '19-'20, about INR 1,953 crores. Now coming to the segments of how the business has -- on the marketing side, it has gone up for the company is that. Today, we have got a total backlog of order build up, INR 7,333 crores from a base of INR 4,575 crores. The overall increase of 60% in the single year. The various segment-wise, in the traditional erection testing commissioning, there is an increase of 15% in the backlog from INR 2,054 crores to INR 2,369 crores. Civil has been in quantum just because of various diversifications into nonpower sector, infrastructure and other areas from INR 1,227 crores to [ INR 3,580 ] crores, an increase of 192%. O&M has been outstanding performance in these years because that is where the base of the company's operations revolve around and also the margins operated, from INR 996 crores to INR 1,168 crores, with a growth of 17.2%. And then Electrical, we didn't have anything in this year because we are watching the performance of the ongoing jobs. Therefore, overall, it has been a very good year in terms of marketing and business development and finding of new customers and new initiatives. Now coming to the segments. Our niche has been developed with that I think the entire story -- growth story in terms of new order has come from the domestic sector, almost INR 4,624 crores of orders we have added from the domestic. And international, obviously, there was not much of activity. That is where we had the -- we should say international, because in the Middle East, because of the COVID conditions, nothing much could be done. Now in terms of the segment-wise breakup in the power and non-power sector, it continues to remain around the same levels. About 66% in the power sector and non-power sector is 34%. And the overall business breakup between domestic and international 86.6% and 13.4%. So that is in the range of 14%, 15%, and domestic, the power and nonpower is 65% to 35%. That trend is going on in the last couple of quarters. Now the key orders what we back last year, I think from [ 468 ] from L&T INR 176 crores from Buxar. Yadadri, major combination of similar structural -- similar mechanical was INR 545 crores. The railway is a combination of railway works from RVNL [ INR 713 crores ]. Steag, 2 into 600-megawatt, Singareni [indiscernible] 5 years on contract with INR 373 crores. [indiscernible] our first time -- full time engineering procurement construction job has been taken with very good terms, payments and other things with advances and all, from an along with the joint venture partner of mentioned group, and that is over INR 198.25 crores in 2 key water projects in INR 982 crores, 2 road projects, one in [indiscernible] about INR 1,000 crores. Then Khurja, have taken the fuel work -- in the conventional fuel work, about [indiscernible] crores. And then within this, jobs are there. So these have been the key jobs what we have done. Now coming to the current year, perhaps we are looking at opportunities worth of INR 25,000 crores. And then traditional ETC business, yes, there are some opportunities coming up in, Khurja is there, Talchar is there and that these 2 projects are then we'll know. Apart from that, we are pursuing some opportunities in Kudankulam Nuclear project, [ 2,000 ] megawatts is coming up, that is in urban area. There is a [indiscernible] about that. Then the total opportunities, what we are looking at about INR 35,000 crores with the penetration and the success of INR 4,000 crore to INR 4,005 crores. And here, we are looking at key areas to develop the growth in the traditional erection testing comes in, and then O&M, we want to scale up INR 900 crores to INR 1,000 crores. Last year, we had a very good year for us in terms of going up INR 833 crores. We want to improve it upon that. Then the electrical, we are looking at a lot of opportunities as is, that is how the opportunities will be tracked. Then coming to the key areas of this was going on is that in the -- apart from the traditional sector, nontraditional sector nonpower sector. The railways, we are doing pretty well, out of INR 649 crores in about jobs that are completed for INR 38 crores. And that is in Gudivada, Machilipatnam, about the rails completed another 5 jobs we are taken from RVNL that is in various stages of execution. Then the irrigation project is also now shaping a better installation project, about [ INR 850 ] crores when compared to INR 150 crores. Then these growth projects have just commenced to see the substantial progress will happen in the current year. Cross-country pipelines, out of INR 330 crores, we have done more than INR 200 crores. Major job is at Mundra and then Koyali, in terms of completion. In JSW, 2 steel plants one at Vijayanagar another at Dolvi almost the job is completed, about INR 200 crores, another INR 200 crores job we are doing together, about 70% of the job is completed. These are the key jobs we have done and major -- major fuel works we are doing conventionally in the traditional power sector, I say, we are doing [ INR 550 ] crores, Yadadri INR 426 crores, Doosan INR 285 crores, North Chennai INR 246 crores, Khurja which has taken into INR 135 crores and then Manuguru, about INR 160 crores. Therefore, these are all the jobs which are traditionally we are doing it, and we are progressing it. But for the problems what we faced in the COVID conditions. Then the -- on the electrical side, that Sadulpur that railway electrification of 1,000 kilometers is progressing. We have completed around 65% of the job. And 2 jobs are at the completion, in Northeast out of 5 jobs what we have taken up in the distribution and get substation works. Then the other major initiative was the drinking water projects, 2 projects with over INR 982 crores in the Uttar Pradesh [indiscernible] instead of completion. We hope in a couple of months, we'll take up these ones. Now on the export side, not much of a new growth story in terms of orders, but in execution, we are doing pretty well at Dangote, $76 million. And that is -- we have completed almost 70% of the work. Then the Maitree, that is a total job in Bangladesh, about INR 855 crores, we have done about INR 270 crores, so 35%. And some leftover jobs we are completing in the Middle East in Bahrain and Saudi Arabia. Then the other major initiative has been there, EPC job is there, take number in [indiscernible], the work has just commenced. I hope -- we hope that we will integrate with the engineering functions, new challenges we have faced on that, engineering and also working with a very strong partner [indiscernible] group. As far as the business outlook and sentiment are concerned. Current year, we are looking at some of the major opportunities in a power and non-power segment in short term project. Adani is teaming up with some new projects, we have to see how they are going to shape up, in terms of thermal, if these are viable, but we have to see. And similarly [ 188 ] megawatts, some opportunities are expected. And I told you about that Khurja is there and then Talchar NTPC projects are there. In export, we are running a few projects in Dubai, then the electrical, there is a whole host of opportunities. But as I've been telling many times in the past, we are trying to see the performance of the ongoing jobs because of tough competition, and that's where we want to go with you on that. On the O&M side, perhaps the first quarter itself, we have without a major job in the case of, Singareni, Koyali INR 343 crores, half is done in the first quarter itself. Then we are targeting a commercial gas project. Then on Jordan, on thermal project, haven't [indiscernible] opportunity where there, we are pursuing that. There are renewable jobs, about 12 renewal jobs are expected about INR 140 crores. That is the jobs which are in hand, which is getting contracts getting completed and getting renewed. Apart from that, the overseas maintenance on the shutdown jobs, that is -- there is going to be a lot of opportunities and that we are targeting about INR 200 crores -- And there are opportunities coming in to need also an on core. Therefore, let us see how we listed the last year's estimate of INR 833 crores in O&M side. And there are in the non-power side, we see opportunities that we are pursuing, there are 2 opportunities worth of INR 1,500 crores, especially in [indiscernible] was their job where we were done, it was canceled. And almost, we were supposed to get out of the initial that were cancelled and come for retendering, purchasing a new tender, EPC tender. We are joining hands in the case of material with [ Metals Group ]. They're a world-renowned firm for mineral processing. And in the case of [indiscernible], we have joined hands with the [indiscernible] Group. And RVNL, certain jobs are there, and mine head works are there [indiscernible] in all material landed projects. And then infra projects in terms of the production, irrigation teams, these are the other opportunities we are looking at it apart from the water projects and the sewage treatment plants. For these are the initiatives on the new businesses. Now as far as the business outlook should be considered, I think we should go by the NIP, National Infrastructure Pipeline. I think that has been a good reading document to help us in focusing on many new opportunities. And we are following it up on that basis, and we continue to see how we can get new initiatives in O&M, particularly in refinery, steel, mining and coal segments, material handling and mineral processing. And the O&M side, the NTPC has taken a lot of initiatives last year, and we hope that would be continued in the current year also. For these are the key aspects I would like to bring it out. Thank you very much.

[Operator Instructions] The first question is from the line of [ Vishal Doshi ] from [ Milestone Financial Advisor ].

Sir, my first question is in terms of execution. So historically, if we see -- we used to execute around 38% to 40% of the opening order book. So considering the COVID-related challenges in the Q1, how do you -- how much execution you can expect for FY '22? And if you can share something about how was the April and May in terms of volume work?

Yes. See, in terms of execution, if you see last 2, 3 quarters, the challenges were completely different, okay? It was not experienced, and the preparedness was -- it was missing because it's new to everyone. But gradually, quarter 3 onwards, things have substantially improved looking forward in spite of small challenges seen due to COVID and all, but the preparedness for executing the site, taking all the COVID precautions, it's well set now. Now we're seeing that the movement is around INR 200 crores, INR 220 crores, so it will happen per month at any cost. Okay? Now we have seen even post 31st March or April, we also -- the momentum of INR 200 crores plus, that movement, we have seen. And all the sites are working in full swing. Of course, the small precautions have been taken because of the COVID based upon the local instruction and customer instruction. The protocol has to be slightly changed, the deployment of the manpower has to be slightly tuned to the customer's requirement. But in terms of execution, it's going INR 200 crores to INR 200 crores plus.

Okay. Secondly, sir, in terms of EBITDA margin. So historically, we used to do around 13% margin. And I understand for FY '21 as a full year, we had a bad Q1 and Q2, and therefore, the margins are lower. But even if I see only the Q4, our execution was very good, almost over INR 700 crore, but the margins couldn't come to 13% or even higher. It was just around 10.5%. So how do you see margins going forward? Is this because the civil work -- the proportion of civil work is increasing in the overall sales, and therefore, the 13% margin may not be sustainable in the future?

Yes. It's partly -- see, it's like there is a lot of improvement in terms of the execution. So because of that cost, of course, it is not proportionate to the execution. So I could say that quarter 1, quarter 2, quarter 3, the challenges, whatever we had, those challenges we have not seen in quarter 4. Okay? But we cannot completely ignore that the COVID is over. For example, as I was saying, like the COVID protocols in terms of deployment of the manpower and the productivity. Secondly, the safety measurement for all the employees because we have a large manpower base of more than 15,000 to 18,000 across the globe. So we cannot ignore the safety cost and the material transportation, manpower movement and all. So there is -- last one is that the margin profile should go up gradually because the challenges, what we have seen in quarter 1, quarter 2 or quarter 3 are different what we are seeing today. I'm sure this margin profile should gradually improve with the environment changing because there is no reason that, with the growth of our execution cycle in terms of the top line, that margin should not increase. And one good thing is, in terms of the O&M business, it's going up. So as you rightly pointed, the civil mix -- with the increase of the civil mix, there is a small pressure in terms of the margin. But having said that, the intention is always that -- to retain that civil. The quotes will, excluding the railway, to 25% to -- 25% to 30%. And the O&M will continue to be 25% to 30%. So with the blended, I'm sure that will come back to the normal and plus gradually.

Okay. And just one last question from my side. So can you give the margin breakup in terms of the 4 different divisions which we report?

Yes, sir, normally, the historical -- but historically, the mechanical of the erection business, the domestic used to be around 12.5% to 13%. But whereas the international, it's 14% to 16%. And for operation and maintenance, the domestic used to be 17.5% to 18.5%, and international is close to 22% to 24%. But the pie is too small to grow. And rail, it's in the range of 10% to 12%, and then electrical is 10% to 11%. That is being experienced. And one more, development is like -- in the business of railway and electrical, we are losing almost like 3% to 4% as a royalty to build the credential, which we did 3 years to 4 years back. Now Power Mech has built enough capability for railway and electrical. So going forward, that mix slightly come to -- that mix slightly will add to our EBITDA margin. So that is the [ third ] point for Power Mech.

So most of these contracts are fixed-price contracts. I mean the kind of the raw material price increase and the inflation we have seen. So are we able to pass on that price increase or we have to absorb in this contract? I mean these are fixed-price contracts or we can pass on some costs?

Sir, actually, it's not all the contracts are fixed. Of course, around 20% to 25% contracts will be fixed, okay, because 18 to 20 months shorter, thinner. Okay. Normally, the contract's really thick. But the [indiscernible] equipment [ even it ] covered the escalation of PVC clause. For example, [indiscernible] we have year-on-year, the execution process we defined by taking the contract for 3 to 5 years. And most of this PVC and all -- okay, the PVC clause and all are well defined. Okay? So apart from that, when we take any contract, okay, which is more than 14 to 16 months, we build some factor towards escalation also 5% to 6%.

[Operator Instructions] The next question is from the line of Pratiksha Daftari from Aequitas India.

Satish, so my first question was that now we are seeing some -- as a percentage of sales, the employee cost is coming down. And on the same -- at the same time, the contract execution costs as a percentage of sales is seeing some rise. So I just wanted to understand that is there a material shift in the model that we are going by that the manpower -- subcontracted manpower is increasing and on the payroll is coming down.

See, it -- there was a tick actually. See, it's -- overall, if you see, honestly, like the staff cost for quarter 1, it's gone up actually. Compared to quarter 1, quarter 2 and quarter 3, quarter 4 has gone up because of some of the international contracts. Apart from that, we have taken new O&M contracts for India, like -- especially like Singareni has started. Vedanta has started. Okay. So with the increase of the business and especially the O&M, the staff cost with -- the staff cost, especially I'm talking about the staff which are in our payroll, that has gone up. And that trend will slightly, again, will go up during the next 12 months with the increase of the business volume. Okay? That is number one. Number two is the subcontracted manpower base, okay, that's also slightly gone up because Maitree, Yadadri and Nigeria, those are 3 big sites which are in full swing. So in terms of the manpower number, there's a slight increase.

Maitree, Yadadri and Dangote.

Dangote. This is like a large contract where the deployment is higher.

Understood. Okay. And...

What will happen is, going forward, you'll see that because the fixed cost of the manpower, which are on our roll, we wanted to take -- confine to a certain level, okay, given that we don't want it to increase. So that will not grow proportionate to the business growth because if you see like the order backing is quite strong. So we have to ensure that the execution momentum is not less than INR 200 crores, INR 220 crores, because that cycle has to has to go for the entire year. So with the growth of the business, the need of manpower may also go up, but we will not keep our manpower focused to the growth of the top line. So there will be a distribution between our payroll and the subcontractor.

Understood. Okay. And right now, with the second wave happening and with the basically COVID cases going up in general in Q1, are you facing any new labor availability issues? Like do we see a concern on that?

Yes. Yes. Ramaiah here, Satish. I think that is a valid question, see, the last COVID cycle, which we see the manpower there almost half -- less than half in the case of May, June, July, August. Then we picked up in the last quarter -- third quarter a little bit. In fact, in the fourth quarter, we reached a peak of 16,000 people. There is -- the key for our turnover in the site jobs is the manpower. I agree with that, apart from the growing and augmentation, what we automated. O&M did not get affected much when they are operating at their levels. But what has happened in the second COVID -- this COVID wave, perhaps March -- after March, it was reasonably well. That's why we could exit that target in the case of fourth quarter. But now the impact in the April, May, the manpower has come to 11,500. That is a dip of 25%, 30%. Now hope is the second wave abating. And for the [ DCS ] turnover, we said INR 200 crores to INR 250 crores of turnover, what we have to do. We have talked about the manpower somewhere between 16,000 to 18,000 for the site working to reach those levels. Apart from the O&M, we don't expect much else for impact. Of course, the key aspects is to complete their -- see the progresses should properly -- Dangote, then Yadadri and then Maitree. They are all the major jobs and then the new jobs, what we have taken in various processing jobs also. There, we hope this normal trend in COVID continues. Then the manpower is coming back now. We hope it would reach the 15,000 to 16,000 piece, and that turnover should be possible unless the third wave begins, as you said, should impact.

And the good part is like wherever we are, more or less, the sites, okay, those sites are fine because the -- now in each site -- the new sites we mobilize, probably we need to see how to deploy the manpower there. The challenges continue. We have to adopt to a different strategy, start the new contracts.

Understood. Got it. Okay. Sir, we have been seeing that, okay, there was a focus on reducing our debt level. And on year-on-year basis, we see that the debt has come down. So -- but on a Q-on-Q basis, I don't know how -- what was the debt reduction, but certainly, the finance costs have gone up. So my question is for FY '22, what kind of net reduction do we target. And is there a specific reason why we see the finance costs go up?

Yes. Pratiksha, see, the peak debt during this year, okay, then -- okay, then our execution level has come down substantially by 50%, reduction -- dropped from INR 200 crores to INR 185 crores to INR 110 crores. So we have to -- we have resorted to utilization of more debt. So the peak debt went to INR 590 crores to INR 600 crores. So today, that has come down to INR 400-something crores. So the [ liquidation ] of the reduction happened again from the realization of the working capital, especially the finance billed and implement of the receivable cycle. Now the plan is at least to reduce by another INR 50 crores to INR 60 crores in the next 12 months, okay? The efforts are slightly for a larger number, but we have to see how the collection cycle improves and all, okay? But today, see, in spite of all the challenges, good that last 4 to 5 months, we are seeing the collection pattern is in the range of INR 180 crores to INR 220 crores, so which is a very good cycle. If that momentum continues, probably we should be able to comfortably manage the reduction because the operating cash flow, which is surplus of INR 122 crores, with the growth of the business, okay, assuming that, my returns on money, there will be some realization. On top of that, one of the good development is the Andhra Pradesh [ AMT joint ], okay, so which a significant amount we have been working for a realization. Government has put a condition that every payment has to be supported with government order, which is a new thing we are seeing in this Andhra Pradesh government. Now finally, there's a lot of efforts. They have brought a new government order that the payment has [indiscernible] government. Now the government order is released, which is a public document now. So now that the government order is released for the release of payment, now they're working on the paperwork. So that start realizing. So that will leave around INR 40 crores to INR 50 crores of surplus cash. So this INR 120 crores of operating cash flow, at least maintain at the same level, it will be comfortable to reduce another INR 45 crores to INR 50 crores.

[Operator Instructions] The next question from the line of [ Vishal Variya ] from [ Avisa India ].

So of the INR 7,300 crore order book that we have, what proportion would be slow moving orders?

Thanks to God, no slow moving, sir. It has been excluded now. What we are talking is all the [ current ] projects, and there is no single contract which have not started at ground. Even the new contract, which we got from Singareni recently, that has also been executed and the manpower, whatever is required is deployed. So there is no single contract which is slow moving or not moving at all.

Okay. So any contracts where the payments from the clients are slow, and that is the reason you are -- you have reduced the pace of execution?

Not been the case, sir, See, the experience is like -- see, it's like BHL and non-BHL. BHL, we are seeing in India domestic, okay? There is slight delays around the some [ 5 ] to 90 days, okay? But BHL in Bangladesh, it's 45 to 50 days. But if we take out BHL, it's around 65 to 75 days. That is on track. Now though the quality is strong, okay, now the focus is choose the quality orders, especially where the payment cycle is good. That is very important. Otherwise, what will happen is, again, the working capital, where to look for cash working capital, which we don't intend to. With the target -- decent target of INR 4,000 crores to INR 4,500 crores only, okay? Because now our opportunities are plenty. We are looking for quality order of INR 4,000, INR 4,500 crores, not beyond that, so that we can comfortably aim to do it.

Okay. And one last thing, so when you analyze the international markets, so post COVID, has there been a change in competitive intensity or it continues to be as competitive as it used to be pre COVID?

No. In the international market, what we have got is Bangladesh. What we are doing is we have got a good process there. And based on the new opportunities come, we definitely will be taking a call on that. But in the case of Middle East, yes, there had been a setback in the case of new orders and investments, like compared to the earlier couple of years, that has dried up now. But a few aspects, a few opportunities can come up. And as far as the competition is concerned there, it is a portion of competition, what we have to work with EPC contractors and mine developers. And we have got a good presence there, and we have got a manpower for 2,000 to 3,000 people now established. They have got the organization working in various sites. They've got resources deployed. Opportunity comes -- a good opportunity comes, we will be one of the preferred customer, contractor to work with the EPC contractors. And that is because of our strong presence in the last 5, 6 years.

So sir, just a follow-up on this. When you say the Middle East orders have taken a setback, you mean that you would have lost some market share there?

No, because new opportunities did not come up last year.

Okay. Okay. That is only...

That is that COVID did not [indiscernible].

Yes. And the last 12 months, we have seen the last months, okay, traction in international because of COVID challenge and all. So maybe another 6 months, we may not expect much orders happening from the international side.

And we have not captured much of the international orders in this year's [ pan-out ], certain [indiscernible] here and there.

[Operator Instructions] The next question if from the line of Deepak Poddar from Sapphire Capital.

Now you mentioned about debt reduction of about 10% to 12% this year. So similar decline is what one can expect over the finance cost as well?

Sir, there are 2 ways to interpret. See, one, in terms of interest cost, we are expecting there will be some reduction, okay? One of the elements in the finance cost should come down, okay? But as the business is going up in terms of non-fund costs, it will slightly go up. But overall, we'll see that the trend will come down as compared to this year.

Yes. The non-fund costs will go up because business is increasing, but your debt-related interest cost will go down.

Interest cost will come down. First off, so you'll see year-on-year, during the next year, we are expecting some reduction in the finance cost overall.

Right, right, right. Understood. And I understood that point. And over next 2 years, maybe by FY '23, any sort of execution level we are looking at? Is there any sort of trend or comment that you can share on the next year? Maybe -- I know it might be a little difficult on your part, but [indiscernible].

See, what is important to see the internal bandwidth to execute the projects. Now we have the manpower base. We have the capability. We have the infrastructure today to execute in the scale of INR 600 crores to INR 850 crores per quarter. Now that has been set now. And secondly is now what is important for us to convert the projects, which are on hand, to ensure that all are getting completed as per the contractual schedule. Now difficult time. Q4, we can still cannot say that the COVID is completely over and the challenges are completely out, but still, we could demonstrate INR 150 crores plus, which is a very good thing for us. We are so happy. So taking that momentum to INR 850 crores will not be at all difficult in a normal scenario. So very huge potential to improve the execution bandwidth. So now the team is set for INR 850 crores now that we wanted to gradually take up to the next level over a period of time.

Okay, sir. So INR 850 crores a quarter. So if I look at FY '23, at least INR 3,300 crores, INR 3,400 crores kind of execution is quite possible.

Bandwidth is already set now.

Next question is from the line of [indiscernible] from [ Perfusion Capital ].

I might have missed a little bit because I got disconnected, but just getting -- I wanted to get a sense of what execution you are looking at for the next 3 quarters? I would imagine that first quarter this year would be a little bit of a dip due to the second wave of COVID and reduction in manpower. So would INR 3,000 crores, in that ballpark, be a right estimate for this year's execution and margin should stay at 4Q levels or slightly better than that?

Sir, the execution now, what we are targeting is INR 200 crores to INR 220 plus crores per month. That is the target now. We are on track now. So normally, what are [indiscernible] will be there. And quarter 3 -- end quarters will be high. So seeing the current scenario, definitely quarter 4, what we have done maybe next quarter, Q4 of next year will be slightly better than quarter 4. But the target is to see that INR 200 crores of execution or INR 200 crores plus execution is taken to every month. That is the target now. And in terms of margin profile, yes, there is a lot of improvements in terms of margin profile. We are trying to come back to the normal at least gradually because the COVID, the [ second amount ] was a little bit [ distributed ], but it is not so bad what is to be quarter 3 or quarter 4. There has been substantial improvement in quarter 4. And this point, clearly gradually, it will improve. On top of that, the railway and electrical where we used to lose the royalty, now we have built in-house credential. Now the new projects, what we are quoting, so we are not losing the royalty for borrowing the credential. So that should also help in terms of improving our margin.

Yes. Satish, what I would like to add, what we said is that I think that is correct. The last fourth quarter has demonstrated that [ INR 200 crores ]. With the backlog increasing in the last quarter, last 2, 3 quarters, with [ INR 7,333 crores ], maybe the first quarter will have a dip because of the conditions still, the COVID conditions are there. The second quarter, to some extent, [ bonds ] will also pay a usual growth. Therefore, we don't quote much in the first and second quarter. But if COVID fully normalizes, I'm sure [ INR 750 crores to INR 800 crores ] of getting the sales in the third and fourth quarter should be positive. That should not be an issue because, to that extent, we have got the resources, manpower and but also it is augmented from there. And as far as the resources are there, we don't have to add up any new resources. We have to utilize the existing resources. A lot of big-ticket contracts will be in the pipeline, and that is a good season to perform. Therefore, that should be passed.

Yes. And is there a time line for the current order book to be executed, like within 2 years? Or does this step out beyond the FY '23, order book of [ INR 7,333 crores ]?

See, momentum in contracts are between anywhere, may be 1 to 3 years, and some of the contracts are 5 years, like the -- we're under contract, what we've taken and then we were in contract, [ what we've taken ] for 5 years. Some contracts are [ over ] 3 years. But the life cycle -- average life cycle for O&M is going out to 2 years. In that, the renewals is expected to come over 15% of renewals every year. INR 150 crore, INR 200 crores will come as a renewal. Therefore, we don't have to look for new orders. That is the average life cycle. In the case of infrastructure projects, it will be anywhere between 2 to 3 years. That is a life cycle type of the infrastructure projects, big-ticket projects. In the case of, for example, the latest of what we have taken with Adani along with [ BHEL Group ], that has got a schedule of 26 -- 25 months plus 2 months [ rest of the year ]. Then the drinking water project has a cycle time of 2 years. Therefore, you can say that the conversion of 40% should be valid with this backlog available. That is where Satish is confident that per quarter, up to [ INR 800 crores ] should be achievable. That should not be a challenge over there if things get normalized.

Right. I was really trying to get a sense of what the ramp-up in FY '23 would be over '22 in terms of execution growth. Would that be that 20% or a little bit less or more? I was trying to get at that.

[indiscernible] now see, it's -- seeing the order book, see, now we have got backlog of INR 7,333 crores. And we have kept a target of INR 4,000 crores to INR 4,500 crores for this year. So -- and the existing order book has to be adjusted or to be completed, okay, 2.5 to 3 years maximum. So seeing the backlog through the conversion, [indiscernible] shouldn't -- has been 20%, 25% to pay cash to.

Correct, correct. So then you should typically be north of INR 3,500 crores in FY '23, right?

So as, I mean, 30%, 35% conversion also, still, there is -- okay -- because, see, what will happen is -- one important factor is the O&M. Okay. Now today, it's in the range of almost like INR 661 crores, okay, which is more or less flat. And 2022, taking Singareni and Vedanta, we have to do close to INR 740 crores. And the INR 745 crores will be close to INR 1,100 crores or INR 1,150 crores 2024. So that [ while it's certainly ] on autopilot mode, it's going on, now what we need to work is only the rest. Maybe around 70%, we need to go.

The next question is from the line of Amit Mehendale from RoboCapital.

Sir, congrats on good set of numbers. I have a quick question, Q2. As things stand today, slowly the lockdown is opening up, and we were expecting Q2 to be slightly better. But I mean just referring to your comment that Q2 will be a little softer. Can you just shed some light on Q2?

Yes. I tell you, the main point of Q2 is we -- there are 2 things in this. Positive thing is COVID comes down. The manpower is returning already. I told you the fixed of 16,000, it has come to 11,600. Now it should go to 13,000, 14,000, and then 15,000, 16,000. Now what is going to happen is that, along with the lockdown liberalization, the monsoon sets in. That's why -- that is one of the factors we normally try to scale down the turnover in the second quarter to that extent. That's why I was a little bit more conservative on that aspect. But by the time of August and September, things will ramp up fully. And then that's why I was confident, with the present backlog of orders and the big-ticket orders to be executed and the cycle time being well set, there will be a lot of pressure from customers there also to deliver this year's target. And already, the pressure is there. Therefore, that is where I said INR 800 crores per quarter upwards should be possible, should be possible.

I have one last question. For Q4, can you -- what is the cost, like nonrecurring cost for Q4, COVID-related nonrecurring cost in rupee terms?

So this year, I should say it's around INR 68 crores, okay. But I could definitely say it's a nonrecurring cost because it can be transportation. It can be a safety cost, and it can be a productivity launch because of...

Could you repeat the number? I was looking for Q4 numbers, because, see, Q4, there is a certain EBITDA margin, the 10.4%.

That's INR 68 crores, sir.

The next question is from the line of [ Satya Goy ] from [ Shares Limited ].

Actually, I have a few questions. How much would have been -- we know that in the Minister of finance and the government of Andhra Pradesh and few other comments have taken this initiative of an extending project time lines and releasing fixed security deposits for the EPC projects.

In Andhra Pradesh?

Government of Andhra Pradesh and Minister of Finance, they had earlier in October, November, they had extended some project time lines and realized contractual obligation pertaining to fixed security deposits to be maintained by the contractors.

See actually, honestly, we do not have any contracts in Andhra Pradesh.

Okay.

Yes, yes. So whatever we have is we have completed. Okay. See, but what has come across is to support the cash flow, the government in few projects, not all the projects, wherever the execution portion is completed, for that [ retentive ] money, they have supported to release, though it was linked to the completion project again thereafter warranty. But during the contract period itself, for the portion which is executed. They have released the articles of money.

Okay, sir. Yes, yes. And sir, coming on the figures basis on the balance sheet side, could you give me amount like how much will be the mobilization advance and our liability in the consol level and work done and not billed.

See, now it's around -- it's close to INR 75 crores [indiscernible] in advance. And what's then not billed is close to INR 380 crores to INR 390 crores.

Okay, sir. Yes.

Because the quarter 4 itself -- okay, mark -- okay, we would have done close to INR 320 crore to INR 330 crores, significant amount. So that would have -- that will definitely have a similar amount.

Okay. Yes, yes. Sir, one last question, sir, regarding our loss this year at consol level. I was seeing the taxation part of it. So therefore tax credit, it refers to our deferred tax asset. Correct, sir? So it's because of the deferred tax adjustment over there, our PAT has reduced by some PBT level.

Yes, yes, right. You're right.

The next question is from the line of Pratiksha Daftari from Aequitas India.

Yes. So question was -- so you mentioned there are 3 sites right now, that big sites that are going on is Maitree, Yadadri and Dangote. So I just wanted to know that what is the level of completion here? And what kind of execution we expect at these 3 sites in this year?

Madam, see, Yadadri, it's now -- the billing is on an average INR 15 crores to INR 20 crores per month. Similarly, which used to be INR 6 crores to INR 7 crores, okay, that we have taken [ of ] INR 220 crores per month. That moment of [indiscernible] we are -- yes, per month. And Nigeria is almost close to INR 10 crores to INR 12 crores. That will also continue to be the trend probably maybe another 4 to 5 months. So these are the 3 big progress. Of course, thereafter Bhusawal is there, okay, which is almost INR 5 crores to INR 6 crores.

Bhusawal, INR 5 crores to INR 6 crores right now.

Yes, yes.

Okay. So what -- like on a project level, how much of completion is left to be done for these projects? Like how do we look at that?

The Yadadri started just 1 year back. Okay. It will be close to 20%, 25% and Maitree is almost like 55% to 60%. And...

55% to 60% complete from Maitree.

Yes, madam. yes. And Dangote, it's almost like, I could say, it's 80% plus.

80% plus done. So this will be completed in another 5 to 6 months.

We are targeting this year itself. Maybe probably by October, November. Max before December, we should close that project. That's the target.

Okay. And Bhusawal?

Bhusawal, it's 25%, madam.

25% complete. Okay. And I just want to verify the stat. So you mentioned that the margins for O&M business in India would be 13%. I would have assumed this is [indiscernible].

On average, it's slightly -- it's -- on average, it works to 18%, okay, 17.5% to 18.5%. And one -- then the international, we expect to be on a slightly larger percentage, but the quantum is small.

Okay. And this 3% royalty increase that we're expect in railway projects, this will be typically categorized under electrical or...

There are 2 portions, madam. One is the electrical pipe that electrical comes under the electrical. Apart from that, what we do with track link, signaling, culverts with this and all comes under this figure. Today, 7% but we wanted to take it up to 15% next 3 years.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Yes. Thank you, everyone, for joining us in this earnings call. And the presentation and the results are already uploaded on the website. If you have any further questions, please do feel free to get in touch with any of us or with our consultant, [ SgA ]. And thank you very much, and stay safe. Take care. Thank you.

Thank you. On behalf of Nirmal Bang Equities, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your lines.