VA Tech Wabag Limited (WABAG) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to VA TECH WABAG Limited Q4 and FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rajiv Mittal, Managing Director, VA TECH WABAG Limited. Thank you, and over to you, sir.

Thank you. Dear friends, good afternoon. First of all, in this trying times of COVID-19, I wish you all the best of health, and let's all hope that we get through this pandemic and emerge as more resilient globally and much more environmentally responsible. This is going to be a new normal for the times to come, and we need to be cognizant of the changes we need to make in our day-to-day life to be stronger and healthier. Let me welcome you all to this earnings call post announcement of FY '20 results of VA TECH WABAG Limited. Mr. Sandeep Agrawal, our group CFO, joins me in this earnings call today. We hope you had a chance to go through our results presentation uploaded over the weekend. The COVID-19 pandemic, which set in during the later part of 2019 and spread rapidly across the globe in 2020, has thrown the whole world off guard and made countries and their governments to take emergency measures to contain the spread. In these difficult times, it gives us an immense pride to have had the opportunity to contribute in these efforts by ensuring our operation and maintenance sites continued to operate across the globe, ensuring no disruption to the normal life. Here, I would like to take the opportunity to thank our direct and indirect staff who have been a pillar of our strength during these difficult times in balancing the personal safety and organizational commitment. They have always been our biggest asset, and once again, have demonstrated their motivation and commitment to the organization. And we'd sincerely express our thanks and appreciation to each and every such COVID warrior. Also, my sincere thanks to all the stakeholders, including our customers, suppliers and banks who have supported us through this journey, and I would expect that this support continues through our growth journey. During this period, activities at some of our EPC sites continued to operate as per the local directives. Over the last few months, activities have started to resume across all EPC sites in a progressive manner. Our order intake for the year was about INR 4,350 crores, comprising of major breakthrough orders such as One City, One Operator, operation and maintenance in Agra and Ghaziabad; the Hybrid Annuity Model project in Digha and Kankarbagh under Namami Gange scheme; the water treatment and network in Bhagalpur; drinking water plants at Saint Sulpice, Switzerland and also in Coimbatore, India; and also a water -- industrial water treatment plant for Thai Oil Refinery in Thailand. After the successful completion of Al Madina Al Shamalia project in Bahrain, we are now operating and maintaining the plant for a period of next 5 years. Also, you may note, today, we have the biggest ever order book with a healthy mix of multilaterally funded projects from market customers with innovative solutions. It is also heartening to note that our O&M backlog comprises 30% of our total order backlog today. This is a significant step towards achieving our target of 25% O&M revenue to the overall revenue in near future. On GENCO projects, the legal proceedings, both at Supreme Court and NCLT, have been deferred due to the COVID lockdown situation. Hence, the status quo remains. We are confident of a positive outcome on both these cases, and we will keep you all updated of the developments. Our large new projects have started to pick up further pace and are expected to progress further in the coming quarters. Our order book position continues to remain strong at approximately INR 11,000 crores plus, which is about 3x of our annual revenue, which gives us confidence and also visibility about our future. This is the current situation [ and ] is such a boon that company is in a position to focus on new orders only if they provide us good margins, cash flow and payment terms. During our earlier communication, we have always committed our focus on execution, cash flow and debt reduction. As you can see, in the current year, our operational margins have improved by 200 bps, mainly due to the transaction in -- sorry, due to the traction in execution of new projects and also control of total cost of operation. We have also turned around and generated INR 245 crores, I repeat, INR 245 crores of positive operative cash flow, primarily as a result of our continuous focus on cash management and working capital. This has also resulted in reduction of our net debt by INR 250 crores, which is almost 60% reduction on Y-o-Y basis. In summary, this year has been a breakthrough orders, strong order book position, back on positive cash flow path, improved operational efficiency. We are committed to keep this momentum going to meet the expectation of all our stakeholders. I now request my colleague, Mr. Sandeep Agrawal, to take you through the financial highlights. Over to you, Sandeep.

Thank you, Mr. Mittal. Good evening, friends. I'm taking this call from my residence in Gurgaon. Because of this pandemic, I'm working out-of-home. So I trust you have an opportunity to look at the results update presentation as circulated and uploaded on our website, but let me quickly take you through the key financial highlights for the year and the quarter ended 31st March 2020. Our revenue from operations for the year stood at INR 2,557 crore on consolidated basis and about INR 1,746 crore on stand-alone basis. Previous year, revenue were about INR 2,781 crore and INR 1,747 crore, respectively. EBITDA for the year stood at INR 246 crore on consol basis, year-over-year improvement of about -- from 7% to 9.6%, and at INR 176 crore on stand-alone basis, year-on-year improvement from 9.8% to 10.1%. We are happy to inform that we have concluded the divestment of our majority stakes in Ujams BOOT SPV in Namibia, in line with our strategy of remaining asset-light. We now own a minority stake of 8.4% in this SPV to continue our presence in Namibia. The reported other income at consolidated level includes INR 19 crores of gain from this transaction. Profit after tax attributable to owners for the year stood at INR 91 crore on consolidated basis and INR 58.8 crore on stand-alone basis. Our previous year profit after tax were INR 105 crore on consolidated basis and INR 102.4 crore at stand-alone basis, respectively. Now during the year, based on government regulations in India, the company had the option to adopt the reduced tax rate of 25% as against the erstwhile higher tax rate. The company adopted the reduced rate of 25% and a onetime impact of this change on deferred tax assets and consequent changes of tax position was absorbed in the current tax expenses of the quarter. Our net working capital has reduced by almost INR 100 crores year-over-year, a reduction of almost 10% on the working capital base. This is in line with our constant efforts and action to improve the working capital position. Also, as Mr. Mittal said, our net debt, I want to reiterate, net debt position at group level as on 31st March 2020 stood at INR 182 crores as against INR 433 crores as on 31st March '19, a reduction of almost 60%. Gross debt has reduced from INR 613 crore to INR 519 crore, a reduction of INR 15%. We continue our focus on debt reduction and improving cash position to return back to debt-free status as soon as possible. We have made significant headway in liquidity management during the year by continued focus on generating positive cash flow. We have generated operating cash of INR 245 crores at group level and INR 132 crores at stand-alone level during the year. This is the direct result of our continued focus on collections, working capital, project progress and cash management in this tough economic scenario. You must have also noticed that we have not given any guidance for FY '21. Considering the uncertainty prevailing across the world, the focus of governments on fighting the pandemic and consequential economic difficulties, we have decided to adopt a wait-and-watch approach and will give an update when there is a reasonable visibility. Going forward, we expect hygiene and sanitation to be more focused and be of one of the first few sectors to revive in the forthcoming quarters. We are monitoring the evolving situation, and we will update as the year progresses. We continue to work closely with our bankers and are thankful for their continued support throughout the year. With this, we now open the floor for question and answers. So I have my Chennai team supporting me, sitting at Chennai, since I am taking call from my home. So they will be helping me in answering any specific queries if you have.

[Operator Instructions] The first question is from the line of Mohit Kumar from IDFC Securities.

Yes. Congratulations on a good quarter and it's a decent year, cash flows improved substantially. Sir, my question is primarily on the -- first the -- sir, given the fact that COVID is still continuing, what is the level of activity which is in Q1 and Q2 because since you are in the middle of Q2? Do we expect compared to last year? Or what will be your current revenue run rate? And how do you expect FY '21 to pan out given the -- all the information as we have as of now?

I think this is a very obvious thing that there is a disruption to the normal life. We have all been facing it. But I think that way we are quite fortunate because a lot of our business can be done out-of-home and which is what we are doing. We being more engineering procurement company, and our engineers have been working with today progress in our digital systems and the support, we have been able to work quite efficiently from home. There's always a team which is required to come to office. They are working from office and others are working from home. I think this we have seen in the first quarter also, and it's been -- surely, there has been a disruption. But more or less, I think we would say that we have been able to achieve our targets. Also, you must note that we have something in the emergency services. All the operation and maintenance of the plants, whether it is for municipal authorities or for industries, they have to run nonstop 24/7. Even in the peak of this COVID situation, all our team members were at the plant site, supporting people to have a normal life, whether it was sewage treatment, pumping station, the networks, all this was very efficiently managed by our people. And today, that operation and maintenance review contributes substantially to the top line, but even better to the cash flows and bottom line. So that has not had a major effect. In fact, it has been 100% plus. Some sites, where clients could get special permissions to continue to work in the lockdown situation, we have continued those operations even during lockdown situation. And in the recent times, as the government is relaxing some of this lockdown criteria, we are slowly ramping up our activities at site, which are the construction activities are getting ramped up. Of course, it will take time. Not only the government regulations should get more relaxed but also it is a question of migrant labors should also start returning back to the work. So this is what is happening in India. In abroad, we have been that way quite fortunate, especially in Central Europe, whether it is Vienna or in Switzerland, Romania, all these countries, they never went into full lockdown. There was always some activity happening even during the peak time, but now they are more or less 80% back to normal, whereas in India, we are still about 20%, 30% ramping up the sites. So that's the effect of COVID on our business.

And sir, given the COVID situation, when do you expect India ramp up to -- given all the information you have as of now, can we expect a full ramp up by end of September, if everything becomes normal?

Your guess will be better than my guess.

Okay. So secondly, on this HAM project, sir, -- on the HAM, of course, a couple of [ projects ] are still to achieve financial closure. Is any timeline attached to it? And has the timeline been relaxed? And what is the progress?

Not at all. I think, as we have said before and we continue to say, if timeline had elapsed, customer would have served notice on us, which is not at all the case because customer is at default. There's one condition precedent which customer has to meet. Our funding, our arrangements are all in place. We're just waiting for customer to meet their condition precedent, which is the last one, which we are still waiting to do. We hope in this month, they will do, and immediately, we are ready to close. So that's the situation where we are on our Kolkata HAM project.

Okay. So are you in touch with the lenders? Have you spoken to lenders? And you...

Not only spoken, we have the agreements in place. [ Some deeds ] are signed, everything is done. As soon as the condition precedent is met, we go for financial closure. It's quite advanced.

[Operator Instructions] Next question is from the line of Jonas Bhutta from PhillipCapital.

Congratulations on a decent set of results, particularly on the cash flow. I have 2 questions. Firstly, carry forward the previous participant's question. So what I noticed is even the Bihar projects haven't -- despite being in our order book for almost 12 months now, haven't seen any movement. So if you can just elaborate on what's happening there, the Digha and Kankarbagh projects?

I think we have mentioned to you, this was a unique project where it was a combination of HAM. HAM is a very small portion out of this. It's just about INR 200-odd crores. And DBO, design-build-operate, is about INR 1,000 crores. So because of this unique combination of DBO and HAM, first time ever this has been done, it had some contractual and legal ramifications. And then recently, the contract was signed after it was very clearly said how they will open 2 different escrow accounts so that -- to these portions or components of this business can be done separately. And then I think the COVID came. So the customer also had to open various escrow accounts and give us assignment of those 2 contracts so that we can operate that. I think this is all slowly coming to shape and now -- from now, we will have 3 months to achieve a financial closure, which I'm sure we will be able to do in the next 3, 4 months, the financial closure. Because the HAM portion is very, very small. First, we'll start the EPC, which is a INR 1,000-crore EPC or DBO, to be right. It's a DBO contract of INR 1,000 crores, and only INR 200 crores is HAM. So HAM is not a very big portion in this.

And here also, sir, you will be bringing in a financial investor like you will be doing in the Calcutta project?

Absolutely, we will stick to our policy of being asset-light. We have no ambition to go into owning assets and bloating up our balance sheet.

Sure. And my second question, sir, was while we understand that many of the domestic projects also have multilateral-funded backing, but keeping in mind the scenario where the revenue inflow for states over the next 12, 18 months is going to be very poor, does this in any way put stress -- further stress on collections given that a bulk -- almost 30%, 35% of our domestic sales comes from municipalities? Do you see the risk of a bloat-up in receivables in FY '21, sir? And particularly when revenue recognition will be weak?

No, Jonas, I think you know better than us that all these multilaterally funded projects, number one, whether it's the central government or state government, they cannot divert these funds for any different purpose. It is an exclusive account. They will get the next tranche from multilateral agencies only when they show disbursement to the contractors. That's number one. Number two, the project progress has to pick up, especially last 5, 6 months where the progress has been slow because of this pandemic. I would think that the second half, we must see a progress -- improvement, and everybody will be in a hurry to use the budget. So everybody will be moving fast. The only thing which will continue to maybe little bit slow down the process of collection, because today there is no physical activity taking place. This is all through e-mails, soft copies, and then later on you send the courier packs and all that. So this is -- we have seen. This is where some documents are getting missed, people are not so organized to track the document, approve the bills, forward it to the next level of -- authority levels so that they can approve and pay us. So this, yes, is taking a few weeks extra. But I hope that, that also will get normalized in next couple of months. From a multilateral agency project, I don't see a major slowdown, except this logistics things can slow it down slightly.

So if Sandeep, sir, can just help us. Out of the backlog that we have for municipality projects, what is pure state funded as in that does not have [ multilateral ]. So we have almost a INR 3,900 crore backlog in the municipality EPC space, how much of it is nonmultilateral?

Sandeep, you got this question?

Yes. In between, I got a little bit...

Okay. I will answer, Jonas, if you...

Yes. Yes.

Because Sandeep is a little handicapped. He's operating from home. Here, I have my team with me. See, as we have said before, in our backlog, almost 95% is either coming from multilateral agencies or coming from central-funded projects, which are either AMRUT or Namami Gange, or there are some industrial clients abroad where they have a letter of credit. Today, state-funded projects per se, there is not much on our balance sheet or on our order book. There may be small O&M projects, that also they have a separate fund because they are Ganga cleaning O&M projects and they have separate funds. And all these projects, which are either multilaterally or central government funded, they all have a sovereign guarantee.

[Operator Instructions] The next question is from the line of Renjith Sivaram from ICICI Securities.

Congrats. Given the scenario, it's a commendable performance. Sir, if you look at the overall -- you've told you are very happy to show positive cash flows, but your receivables is still high. So in that overall receivables, how much of them are more than 6 months or how much of them you feel that are getting -- apart from this -- is there anything apart from this GENCOs, which you have already elaborated on your PPT, which we have to worry about?

Yes. I think there is not anything to worry about if you see our receivables, okay? First, if you take it on a stand-alone basis, our receivables have been in that range of INR 1,100 crore, INR 1,200 crores, and it has remained in that range, okay? So there is no change, you can check that. Whereas if you see on consol, there may be an increase of about INR 100 crores, INR 150 crores and this you must understand that this is all coming from some large projects, which we won last year, and we have done substantial billing in the last quarter. And any billing done in the last quarter, we would get only the money in the subsequent quarter. And I can confirm to you all this billing which was done in the last quarter of these major projects, example, say, like Saudi Arabia, we have a MARAFIQ project, all these payments have been received till date. So all the billing done in the fourth quarter, we have received in the first quarter. Till date, we don't have any outstanding. The only billing which is pending is what is done in the first quarter. Now we are starting to receive those amounts also. So I would say there is nothing unusual. It only shows that we have a high order book and our execution run rate is going to be higher. And at any point of time, if you take cut off, there will be more latest bills, which are pending to be paid.

Okay. So what is our target for the receivable in terms of INR 1,500 crore was the March, so what is the target for this year? Where do you see that?

See, I think we have been in the range of this INR 1,300 crores, INR 1,400 crores, and I think this is where we would remain. Once we get this GENCO out of the way, then obviously, we will come down to INR 1,000 crores, INR 1,100 crores mark.

Okay. And when are these projects for this Namami Ganga (sic) [ Gange ] commencing? What is the status there?

See, we have a number of Namami Gange projects. All are under operation. All have started execution, whether it's Kanpur tannery, it's Pahari sewage treatment plant. These are all projects -- or Rithala in Delhi, they're all under Namami Gange. The only difference is they are DBO, design, build and operate. And earlier, we were talking about like Kolkata and Patna, these are under HAM model, which needs to go through financial closure before we start billing. So all the DBO projects are under execution and we are waiting for financial closure, which we hope should happen in next 1 month or 6 weeks, the first one, and 3 to 4 months the next one. Both these projects will come into force within this financial year.

Related to that, will there be any additional debt taken for the financial closure of those HAM projects?

One would not expect. As we just said, we have been -- last 24 years, we have been telling everybody that we want to remain asset-light. That is the reason earlier we were talking about a financial partner who would come and take a majority of equity and also provide the debt at the SPV level with no recourse to the company.

Okay. And any guidance you have to -- if you want to broaden the growth? Do you expect any growth this year or will it be too early to speak about those things?

I think let's wait. I think we all have other emergencies to handle. It's so unpredictable future. Let's all hope and pray the future comes back to normal pretty soon. And I'm sure next time when we meet, we will be ready with our guidance.

[Operator Instructions] The next question is from the line of [ Akash Shah from AMS Securities ].

My first question is the reduction in net working capital was basically supported by a decrease in other current assets and increase in other current liabilities. Can you specify what has resulted in this?

So, [ Akash ], this reduction in other current assets is nothing but reduction is unbilled receivable, so that has gone down and increase in other current liabilities -- because, as you know, advances are the lifeline for any EPC companies. So during the year, we could secure good advances also from the customer for the projects which we are executing now. So these are the 2 factors for decrease in other current assets and increase in other current liabilities.

Okay. That's great. My second question is, we are targeting an O&M operation and maintenance share of 25% in our revenue. Can you specify like what is the duration of this to achieve, in how many years, and how will that impact our margins?

I think I said before that O&M business, we were probably one of the first company who focused on O&M business. Because generally, most of the companies think that this is not a top line business. But we thought that especially being a technology company, we would like to operate our own plants where we give advanced technology solutions. But as a result, customer also requested us to operate the plants build by some of our competitors and that's how we got full force into O&M. It used to be one of our verticals also. Today, as I mentioned in my opening speech that projects like One City, One Operator, it gives us a good footprint, and we are the first ones who introduced this concept to the ministry to go for such projects so that they can manage it better. And there's a single point responsibility for the full city managing their wastewater. The concept we brought in from Turkey where we were doing 3 years, the city of Istanbul, complete management of city of Istanbul wastewater management. Today, from December, we are managing this wastewater in city of Ghaziabad and Agra. They are going well, and they are very high revenue things. Monthly revenues are close to -- sorry, annual revenues are close to about INR 140 crores average. So this is the kind of projects -- and the duration is 10 years. Some of our DBO, design, build and operate, their average O&M period is 10 to 15 years. We were just talking about HAM projects where the O&M period is 15 years. So these are all long-term O&M contracts. As we are building up our order book, our O&M order book is also building up. And that's what we said. Today, our O&M order book is almost 30% of our total order book. Going forward, I'm sure it will go to 35%, 40%. And then the revenues will start kicking in after we finish the EPCs. And that's how we see and pretty soon, in next few years, we should be able to touch 25% of our O&M business of the total revenue.

Okay. But any broad guidance, like in 2 to 3 years or 4 to 5 years and the impact on margins that it would have?

See, margins are always accretive because O&M business is always a better margin driver than EPC business. The risks are lower. The cash flows -- because it's annuity business, cash flows are better. So that's the reason we want to do that. But whether it's 2 to 3 years or 3 to 4 years, I think let's not guess, but we would like to do it earlier rather than later.

So no specific target or figures that you can give?

Target depends on what projects we get. Because of target, we don't want to compromise on our margins, on our risk or our cash flow collection. So we don't want to be -- yes, we have targets, but we don't want to be driven by it. We want to be driven by other things. Like I said, it should be a good client, it should have good funding, cash flow should be better, there should be willingness of customer to pay. So these are the few things we look at when we select our projects.

The next question is from the line of Priyankar Biswas from Nomura.

Sir, my first question is on the tendering prospects. So what I would like to know is, first, like see, -- especially in the geographies that you are present, like Middle East and also in India. So both the places we are seeing a lot of fiscal strain. So what do you think will be the impact on tendering? And if you can quantify or maybe provide some qualitative color, like on a geography basis, like what do you see coming from Middle East and maybe India like that on the tendering pipeline?

See, as we said, Priyank, that we are not today dependent so much on order, especially in the times when the situations are not so conducive, because everybody is starving of orders, and I don't want to get into this race where people are going to just fight to get the orders. God has been kind to us. We have a decent order book. They are from good customers, supported by multilateral agencies. So our focus will remain on execution. Yes, we are not out of the market, but we will focus on only good projects, which I mentioned, either good cash flow, less risk, great funding available. These are the criteria if they meet, then obviously, we will go for it and take it and especially if these are advanced technology projects, definitely, these are the projects we will focus on. Coming to the geographies, you talked about some Middle East, India, where they are going to be tough getting the funding. See, again, I have not seen that the multilateral funding to any of these countries have reduced. In fact, we can expect a higher allocation of multilateral funding coming for such socially sensitive projects. Because of pandemic, we would see more of such funds coming to developing countries like us so that our environment, sanitation, other issues can be managed better. So in fact, rewards, we look at it. Let's not look at the 6 months, which is gone by. Let's look at next couple of years. I'm very bullish that we will see more funding coming in from multilateral agencies. And that's what the government has been always doing. Most of the projects, especially large ones, are all supported by multilaterals, and this will continue to happen. So I would say this is what we see in India, and we will go for selective projects. And also, if you see in Middle East. Yes, if you see other governments, whatever they are doing, there is a little slowdown. Their decision-making is slowing down. The size of projects may come down. But again, we have to realize that we are in a sector which is a priority sector. How they cannot supply water to their residents? This is a key issue for the government. And I don't think these projects will get canceled. They can reduce the size of the project to say, let's do it in 2 phases. But I don't think they will [ infinitely ] postpone these projects. But this is such a sensitive issue. So even in places like Africa, we see a lot of multilateral agency. We are doing work in Tunisia. This is funded by KfW. And we have not seen any stress that KfW is not funding the project. So this will continue. Yes, maybe next 6 months, we will see a little bit of effect, a little bit of slowdown. But going forward, I don't think our sector, which should be a growth sector, especially after this pandemic, because of sanitation and environment sensitivity which is being brought in, I would see more business in this sector.

Yes. So sir, a follow-up. So some unrelated question here. So when I look at your cash flow statement, I see a very large amounts in the bad and doubtful debts. So almost to the tune of INR 86 crores, INR 87 crores at the consolidated and almost like INR 105 crores, INR 106 crores at the stand-alone. So since your projects are largely either multilateral funded or central government, can you explain the reason why so much bad debt -- bad and doubtful debts have been taken into account?

Yes. I think it's very simple, and we discussed this 2 years back also. When Ind AS came, they brought along with this ECL, expected credit loss, okay, where you have to make a provision as per agreed formula or your policy both for default and for delay. So if your receivables are even delayed, you have to make a provision. Plus, if there's a management that believes that some of them are going to be difficult, they also have to make a default delay. So that's a new ECL policy of Ind AS, which was given, and we are strictly following that policy and making this provision. And that's the reason it is provision, it's not write-off. We are not saying that we'll not collect, but we are only saying this provision is required as a prudent policy of the company and, hence, we are saying that we are making this kind of provision.

So practically, we are not seeing any sort of like a risk? I mean very practically speaking, not...

No, no. There is always a risk, Priyank, because if suppose I delay my collection, the whole idea, I'm sure you know ECL -- the whole idea is if I'm going to be a 6-month delay or 1-year delay, I will have to provide the cost of that money in -- as per my ECL policy.

Okay. Okay.

Okay? So it is -- I'm sure you know the ECL policy. So you have to provide as a prudent principle right at the start, the moment you know it will take me 6 months to collect or 1 year to collect or 2 years to collect, upfront you have to provide for it. And we have been following this very strictly. Even before ECL, we have our own internal debt -- doubtful debt policy when we were making already a provision. But now Ind AS has made it very clear.

Okay. And sir, the last question from my side. So sir, as you -- as your CFO was stating, like there has been a good receipt of advances. So what I would like to know, like since you have quite a large order book at the moment, so what is the level of advances further that can be expected, let's say, in this year or maybe in the first half of next year? A broad assessment will help.

So Priyankar -- let me take this. Priyankar, as we said, advance is the lifeline for any EPC business. Now if you look at our order book, so looking at current order book, we expect another -- like we have around INR 250 crores to INR 300 crores further advances in the pipeline, which we are -- which we will be getting in this financial or maybe partly next financial year.

The next question is from the line of Dhananjay Mishra from Sunidhi Securities.

Sir, congrats on decent numbers. Sir, I just wanted to know this Ghaziabad, Agra, you mentioned O&M contribution is about INR 140 crores. Was it for FY '20 or it will contribute from FY '21 onwards?

Sorry, can you repeat your question, please?

It is not contribution. It is the revenue what we are expecting from this project. So this year, this project started from December onwards. So the INR 140 crore what Mr. Mittal talked about, this was for the full year, which we expect from FY '21 onwards.

Okay, okay. So -- I mean INR 355 crore O&M we did in FY '20. So probably from -- we will earn a PAT of another INR 100 crores from this because INR 30 crore already would have come, right?

Yes. Yes, yes. You can do your math because from December onwards we started Agra, Ghaziabad.

Okay. And sir, the outstanding O&M is about INR 3,300 crore order book, so can we expect 10% every year because depending on the duration of the O&M contract, that will be -- incremental will be added for next year?

So in O&M business, as you said, largely, the highest order book is like INR 1,500 crores. We are talking about Agra, Ghaziabad, and INR 3,300 crores what you are talking about 10%. So it all depends on the order to order, what duration order you get, whether it is for 2 years or it is for 5 years or it is for 10 years. So that way, we'll be executing the orders in O&M also. So it all depends on the different kind of orders what we get.

I'd just like to also add to what Sandeep said. These are -- also include some DBO. As I said, the O&M will start after we finish the EPC. So some of this project will have a deferred start of 2, 3 years from now before we start recognizing the revenue after we finish the EPC contract.

Okay. And sir, what is the billing cycle in O&M compared to EPC? It is much shorter than EPC?

Normally, it should be because you do a monthly job and the next month you submit your bill and then they have their internal process, depending on how many tables it has to go through. Generally, we should get it in about 3 to 4 months from the date you do your billing. That is the cycle for O&M.

Okay. And sir, lastly, if you could tell which all projects will be contributing in FY '21 in terms of -- I mean based on whatever progress is there on ground in EPC?

See. Obviously, we can -- we have given you in the investor presentation some of our projects which are large projects which are there. Obviously, we talked about the O&M projects, Ghaziabad and Agra, which will definitely do. We expect our -- this MARAFIQ in Saudi Arabia will continue to be the revenue driver. Then, we have a Tunisia project, the seawater desalination project. Then, we have also a large project under Namami Gange where we are doing a tannery wastewater in Kanpur. Then, we have MRPL, again seawater desalination project. Dangote, the refinery project in Nigeria. And of course, the last one is the Doha project in Qatar. These are going to be the revenue drivers.

For FY '21?

Yes.

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

So 2 questions from my side. One is SEBI had granted the extension for the results to end of June, but taken in July. So I would appreciate your views on why we have taken so long?

Very simple, Bhavin, you know our business is quite spread out, and we are operating from some of our difficult geographies and some of them have been continuously under lockdown. And that's how I think we could not even go to the sites, do an inventory check, and that is the reason we had to do that. Nobody loves delaying it because it affects our first quarter also. And here, we not only have 1 auditor in India, we have at each entity level a different auditor. So all that has to be brought in, then it has to be consolidated and finally declared. So it does -- I mean these are all EPC business, which all the information has to flow from sites. And some of the sites are not even approachable.

Understand. The second question, regarding an auditor qualification of INR 475 crores with respect to the receivables from APGENCO and TSGENCO and Tecpro, wherein in some of the cases, there has been arbitration proceedings and they are legally challenged. So just was looking to understand your thoughts that as a matter of prudent conservatism, why haven't we actually taken a provision for these?

Bhavin, I think this is known to you. First, I would not call this as a qualification. It is an emphasis of matter. He is just drawing your attention to it, which has been the case for the last couple of years. So he is just drawing your attention. And as I said in my opening speech, this has been in sub judice for the last 6 months at least. And both are at the top most level; 1 is at NCLT and other is at the Supreme Court. The first decision of Supreme Court was itself -- was in our favor where the whole matter was stayed, and the next hearing was due in March end, early April. But after that, the Supreme Court, you know better, that we have never heard any of such cases other than emergency cases, which they have done virtual hearing. We expect that this month, they will give us a date, and we are very hopeful that this will come in our award. And after that, in 2, 3 tranches, we should be able to collect our money on TSGENCO.

The next question is from the line of Mohit Kumar from IDFC Securities.

Sir, one question, sir. One clarification. This INR 86 crore write-off -- provision which you have provided in this quarter, this is entirely ECL, right?

Yes, it is ECL provision.

Okay. Secondly, sir, in Saudi Arabia, of course, with Saudi Arabia and Tunisia, especially, how is the execution? Is the execution completely normal like pre-COVID level or you have seen some impact?

Definitely, there is an impact. I can tell you, like our Tunisia site was completely closed for 2 months. And there was not a single soul at site. But they came back well. I think especially the site was remote. And now we are almost at 80% level in Tunisia.

And the Saudi?

Saudi, it was going pretty well. And I'm saying it is still going well, except there were a couple of cases in our labor camp and the site had to be closed only for 2 weeks. So that was the effect at site. But today, also, we're operating almost at 85%, 90% level in Saudi Arabia.

The next question is from the line of Kaushik Poddar from KB Capital Markets.

Yes. See, in the press release you have given, in -- one of the highlighted thing was that you have been ranked 6 globally in -- among the world's top 50 private water operators. Now what separates you from the top most? I don't know who the top most leader is. So what separates you from them? I mean can you -- can you be the Vivendi or whatever in another 5 years, 10 years?

Yes, we can, if we come to the market and raise some $1 billion and then start investing into assets because if you talk about Veolia and SUEZ and other large Chinese companies, you will not find some of them contractors like us having an asset-light model.

Okay, okay.

And we -- having an asset-light model, we don't have concessions. So we don't invest and our balance sheet is very light, just compare their balance sheet, how heavy it is and how light is our balance sheet. So I would say that is what is separating us. It's actually commendable. I complement my team who has taken the company at least to the sixth level without investing into assets.

So technology-wise, you don't see yourself any inferior to these guys, right?

No, I would say we are second to none.

Okay. Okay. Now that's quite reassuring to here. That's quite reassuring to hear. So other than the asset part, you are as good as them, right? Can we take that message?

Absolutely. If somebody is willing to invest assets on our behalf, we are happy to take on the projects.

The next question is from the line of Renjith Sivaram from ICICI Securities.

Yes, just when I look at the stand-alone margins for this quarter, it has been -- has seen a sharp decline. So anything which we have to worry about in that? Because consistently it was in double digits for the last 3, 4 quarters, suddenly, it has declined.

I think what you should look at -- you should look at operative margins, look at the EBITDA margins, okay?

Sir, EBITDA margins in the stand-alone, it's at 4%.

No. It is not 4%, it is 10%.

No. You're including the divestment gains in that.

No, no. Stand-alone. I repeat stand-alone, not consol. Divestment gains of Ujams, which we announced, is it in consol. In stand-alone, we have no divestment gain, it's all operative income.

Ujams, the asset was controlled by our overseas subsidiary, not by India. So there is no gain -- divestment gain in stand-alone.

But -- because I'm looking at the core EBITDA, excluding other income.

No. Other income, you cannot -- because other income, like if we do exports, okay, and we have export income, as per the audit standard, we have to put it in other income or other operating income. Now is export not our business? Is it some extraordinary income? Every year, we will have that, depending how much more or less exports we do. So how can you eliminate that?

Okay. But then this other income which has increased to INR 12 crore in the stand-alone and INR 25 crore in the consol, you are saying it's largely because of this export?

Exports, then there will be a portion of it, maybe if there's a ForEx gain or loss, and if there's any extraordinary -- and extraordinary that is not...

No. Treasury income. Basically, we have certain deposits also lying with the banks. So we earn interest also on that. So treasury income, we have ForEx income, we have Ujams gain on consol basis. Stand-alone, it is only treasury income and ForEx income and export benefits.

Okay. So of this INR 25 crore of other income, if you can help us with how much was the ForEx because it seems to be a very large number for this quarter?

I think we will take off-line and give you all the breakup. You can contact any of our team members, and we will drill down this income.

Okay. And regarding the next 2 quarters, if you will, because of this lockdown thing, what percentage of our projects have worked or was it a complete lockdown? How do you read that? Because next 2 quarters is kind of very uncertain in our -- for us to also put a number to it. So if you can help us in what kind of -- what percentage of your projects were functioning and how was the utilization? If you can throw some color in that, at least what transpired in this -- the first quarter is almost done.

Yes. I did mention to one of our other friends who have raised a similar question, and I took some time in getting into the details. For just your sake, we will repeat once again. Our income basically depends on India business and rest of the world business. Again, that income is divided into 2. One is a service income, other is an EPC income. Now if you take a service income, I mentioned earlier, there is no reduction even at the most strict lockdown, whether it was India, industries, municipals, abroad, everything was 100% plus. There was no reduction, I repeat. When you come to now the EPC business, as long as we take the abroad business, they were quick to come back, more or less they are at 80% level and international business is going well. And I assume in next couple of months, we will reach almost 95% plus. Yes, India business was low, maybe at 15%, 20% in the peak of the lockdown. Now as we are moving into relaxation of lockdown, we see this going up to 40%, 50%. And in coming months, I'm sure we will go to 75% plus. But please note, this is all which is site related, construction related. We have a substantial income also in EPC, which is done from offices are today being done from home, which is basically engineering work and procurement work. For that, we don't need to sit in sites. We can do sitting in office or homes, which is also going almost at 80% level. Trust this answers your question.

Okay. That was helpful, sir. And hopefully, we'll see good growth next year.

Thank you for your wishes.

The next question is from the line of [ Sandeep Kumar Varma ] from Axis Bank.

Hello?

Yes, we can hear you.

Sir, what is the current situation of labor, sir? As in if I have to compare it with the pre-COVID levels, what is the current labor position at various sites?

See, as I said, on O&M sites, we are 100% plus. On other sites, we are at 50% to 55%.

Okay. And what is the kind of debt levels you are expecting, sir, in FY '21, gross debt?

Our endeavor has been always to continuously reduce the debt, which is what Sandeep mentioned earlier. And this will be our endeavor. As we are executing more projects, getting our traction on the new projects, we see a good cash flow coming. So we do not have, at the moment, a target because of this very volatile situation. One thing is very clear that we want to continuously reduce our debt going forward, and we want to go back to the days when we were used to be almost debt-free company.

All right. And by when you are expecting to be debt-free?

Earlier rather than later.

As there are no further questions, I now hand the conference over to Mr. Rajiv Mittal for closing comments.

Thank you, friends, for your participation in this FY '20 earnings call. We have uploaded the analyst presentation on our website. In case you have any further queries, you may get in touch with our IR advisors, Stellar IR Advisors, based in Mumbai, or feel free to get in touch with my team directly. Thank you very much once again.

Thank you.

Thank you. Ladies and gentlemen, on behalf of VA TECH WABAG, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.