Vascon Engineers Limited (VASCONEQ) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Vascon Engineers Limited Q2 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Dr. Santosh Sundararajan, CEO, Vascon Engineers Limited. Thank you, and over to you, sir.

Thank you. Good morning, everyone. I welcome you all to the Earnings conference call of Vascon Engineers for the quarter and half year ended September 30, 2021. I hope you all and your families are safe and healthy. Joining me on the call is Mr. Somnath Biswas, our CFO. I believe you would have gone through the Q2 FY '22 financial results and results presentation uploaded on the stock exchanges and on the company's website. Your company has worked diligently over the last 2 years to address the twin issues of debt reduction and maintaining sufficient capital for growth. As a result, despite the difficult environment, we have repaid INR 50 crores of debt in the last 18 months, reducing our total gross debt to INR 205 crores from INR 255 crores in March '20. The repayment is primarily made towards the high cost-bearing loans and the high interest cost-bearing debt has been reduced by INR 49 crores to INR 55 crores from INR 104 crores in March '20, and this will assist in lowering our overall interest cost for the company. In terms of growth, our order book has doubled in size over the last 2 years, growing from INR 1,000 crores in FY '19 to INR 2,000 crores at the present. We are pleased to announce the successful completion of the preferential share allotment to raise INR 70 crores in order to strengthen the balance sheet and provide growth capital. We intend to use the proceeds from the issuance to repay about INR 35 crores to INR 40 crores of company's high interest debt with the remainder used to cover incremental working capital requirements. In accordance with our strategy of deriving value from all noncore assets, your company has achieved considerable strides. We are pleased to share that we have sold our stake in Goa hotels. Vascon has sold its 43.34% stake in Cosmos Premises Pvt Ltd. and associate company for a consideration of INR 45.5 crores concurrent with the sale of 6.66% of certain promoter-related entities in Cosmos Premises Pvt. Ltd. to Royal Orchid Hotels. In exchange for selling Cosmos Premises Pvt Ltd., the company has acquired shares in Rivershore Developers Pvt Ltd from the promoters of Royal Orchid Hotels Limited. Rivershore Developers Pvt Ltd has a land parcel in Powai, Mumbai. The land parcel is situated at an excellent location, and we intend to materialize the land in the near future. On the EPC front, as COVID-19 has taken a backseat during Q2 FY '22, all our projects are operating at optimum capacity, which has led to faster execution of projects and resulted in better revenue generation in Q2 FY '22. The order book of the company remains robust, providing strong visibility of EPC revenue growth for the next 2, 3 years. The current order book is INR 1,915 crores, comprising external EPC contract of INR 1,838 crores and an internal order book of INR 77 crores from the real estate launches. The government orders account for 80% of total orders as a result of the company's efforts to improve customer quality, thus providing visibility of faster execution while ensuring uninterrupted cash flow. During the quarter, we received an order from the government of Goa in the consortium with DCS Solar Energy Limited for the development of the International Convention Centre at Dona Paula, Goa on a design, build and finance, operate and transfer basis. DCS is the lead member, and Vascon is the technical partner in the project. The project entails the building of a conference center with a capacity of 5,000 people as well as ancillary construction to service the convention center on a parcel of land measuring about 28 acres. We remain committed to accelerating order book execution, which will result in enhanced capacity utilization and operating margins for the EPC business as well as improved cash flow generation for future sustained growth. We continue to take a cautious approach towards bidding for new projects and prioritize orders from reputed private players or government entities with stronger margin visibility. Coming to the Real Estate division. As you all are aware, the sentiments in the real estate market had turned pessimistic during the April-June quarter because of the outbreak of the second wave of COVID-19. With the Indian economy recovering, active COVID-19 cases declining and vaccination progressing rapidly, sentiments in the real estate sector have turned optimistic, reaching an all-time high during July-September and the outlook for the next 6 months continues to remain positive. During H1 FY '22, we did a new sales booking of 13,373 square feet, amounting to a total sales value of INR 13 crores. Our new sales bookings were lower due to the fact that the majority of our projects are fully sold out, resulting in lower inventory levels. As previously stated, our ongoing project Forest Edge Tower A and B as well as Vascon Goodlife 3 buildings in Phase 1 to be completed in this fiscal year and occupation -- occupancy certificates will be awarded for all of these projects in this fiscal year. We are happy to share that we have completed the first tower of Forest Edge and expect to complete the second tower and Vascon Goodlife's 3 building phases by the end of the financial year. In terms of new launches, we expect to launch residential project in Coimbatore in Q3 FY '22 with an estimated sales value of INR 200 crores. We have secured all the necessary approvals for the project's launch. Additionally, we have a robust launch pipeline and continue to actively watch the market, opting to launch new projects only when the market is receptive to new launches. On GMP business front, our GMP business is faring well. In H1 FY '22, the revenue stood at INR 78 crores and the EBITDA at INR 4.8 crores with margins of 6%. Let me now take you through the financial performance. Let me start with the stand-alone numbers. During Q2 FY '22, the company reported a total income of INR 119 crores as against INR 93 crores in Q2 FY '21, a growth of 28% year-on-year. EBITDA stood at INR 11 crores as against operating loss of INR 2 crores in the corresponding period last year. EBITDA margin was at 9%. Reported net profit of INR 3.4 crores in Q2 FY '22. On consolidated basis, in Q2 FY '22, the company reported a total income of INR 161 crores as against INR 123 crores in Q2 FY '22. And we reported a growth of 31% year-on-year. EBITDA stood at INR 13 crores with a margin of 8% and net profit at INR 3.4 crores. With this, we can now open the floor for question and answers. Thank you.

[Operator Instructions] The first question is from the line of [ Viral Shah ] from YES Securities.

Congratulations on great set of numbers. Just a couple of updates. One, in terms of bidding pipeline, could you highlight what is pipeline looking like? And what are the key segments where we are seeing good amount of order book visibility? That is the first question. Second question is on the acquisition front. What do you feel in terms of acquisition when we expect the acquisition to ramp up to maybe a INR 750 crores or INR 800 crores kind of contract for the full year per se because we have a very high order book. So which year do you feel that contracts can come back to around INR 750 crores to INR 800 crores in the [indiscernible] per year. And third is on the margin. Do we expect the margins to be maintained going forward given the [ such a ] steep rise in commodity prices? That's it for now.

Yes. I'll answer your question on -- I'll go back because I think I'll answer the question on margins first. We do expect the gross profit or the EBITDA margins of the EPC division to remain in the same range that it has been over the last few quarters, anywhere between 16% to 19%. It will hover around this range. In spite of commodity prices going up because we do have pass-through for most of the commodity prices with our clients, we do have escalation clauses. Very few commodities are not covered by our escalation clauses, but we are in negotiation if it is a significant impact to us. We are in negotiation with the clients. So we do not expect a major hit to our bottom line because of the huge increase in commodity prices in the recent days. In terms of execution of the existing order book, things have picked up pace. All our projects are now having fronts at site. There are no real hassles in terms of approvals or any other situation that is putting any roadblocks to progress. So we should be executing this order book faster quarter-on-quarter. We've already done more than INR 100 crores this quarter. We did that in Q4 last year. And now we are back to -- in Q2 itself, which is actually one of the worst quarters of construction industry normally because it is washed out by rain. We've crossed INR 100 crores already. So definitely, we expect Q3 and Q2 to only take this further up. And to answer your question on when will we achieve INR 750, INR 800 crores. Hopefully, if we are able to keep our order book upwards of INR 2,000 crores in spite of what we execute this year, which means we need to order book another INR 500 crores to INR 750 crores by maybe somewhere by June next year. If we are able to do that, then next year, definitely, we should be in a position to cross that INR 700 crores mark. So fingers crossed, we need to book about INR 500 crores, INR 700 crores more of order in the next 9, 10 months, which we are working on. And that comes to your question on order pipeline. Government projects are now coming up in the first quarter. I think all the government departments are busy fighting COVID. So it took the first quarter and second quarter for them to come back to normal business. Now tenders are being floated and we do intend, while we are still cautious and we have no retrace to back tenders and -- at a low profits, but we will continue to pick and choose and we are hopeful that by the next 9 months, as I said, we will be able to book on the INR 500 crores, INR 700 crores. So that our order backlog always remains at least INR 2,000 crores and then slowly goes upwards.

Sir, last two questions from my end. One is on the real estate front. Sir, what -- given the strong pickup in demand in the real estate. So what will be our strategy going forward be and the kind of launches we are expected in that vertical going forward. So could you brush up on that point? Sir, and lastly, in terms of opportunity road you are building definitely, there is a huge opportunity, which is coming from private and government. So what will be your strategy? We are keen of taking more private projects or going towards more of institutions or government going forward?

Yes. So on the real estate front, yes, things are looking better. Demand has picked up in the market. We will be planning to launch, as we said, the Coimbatore project this year. We are also having another launch coming up in Kharadi in our own Forest County project, which has been doing very well over the last 10, 12 years and it has already established its name in the market over there. So we have another last phase to be launched over there, which again might not be in this financial year, but definitely in the first half of next year or so we'll be looking to launch the project over there, which will be almost about 5 lakh, 6 lakh square feet of saleable that we will generate. So these 2 launches are on the cards in the short term. We do have Madurai also for next year, which we will intend to launch. These are already projects we have in hand. Other than this, our real estate team now is already working on tying up joint ventures in niche. They might be smaller parcels, but they'll be prime parcels. We are not looking -- as we've always maintained over the last 2 years, we are not looking to create a township of 50 acres and 100 acres. We are looking more at smaller parcels, which are in prime locations where we can develop and sell fast. And so the real estate team is definitely lining up a few of these. So hopefully, in the next -- as the order book for EPC increases in the next 8, 10 months, real estate will also line up a few more joint ventures, which will then come into execution maybe the year after. And I forget what was the second question.

The second question was on the client mix when you look at...

Correct. Correct.

So private versus institution or government.

Yes. So at present, our order book is heavily skewed towards government. That was intentional over the last 3 years because the last time we took a big beating from the private client side and then we sort of are very careful when we look for jobs in the private sector. We dictate our terms. Many times, the client doesn't accept our terms and so we walk away. That has been going on for a while. The government sector we've focused. And today, almost 85% of our order backlog is government sector. We would like to bring this balance down a bit. We wouldn't want to be exposed primarily only to the government sector. We feel that the time now is right post-COVID and with RERA and all the regulations that have come in that the private sector is now much more a secure place to be operating in than it was 3, 4 years ago. They are also bound by many more regulations. They are bound by escrow accounts. And I do not think the private sector -- the reputed players in the private sector would any more delay their projects or not make payments to the contract around time. They would have their financial tie-ups. So we will also be looking at private sector going forward definitely to bring down that ratio a bit.

[Operator Instructions] The next question is from the line of Rohit Natarajan from Antique Stock Broking.

Sir, my first question is on the last call you said INR 60 crore expensive loan you're paying 15% interest. We're going to repay with the proceeds that you received from this [ present situation ]. When do we see that impact on financial cost maybe from next quarter onwards? What exactly is that content because we don't see that number reflecting in there.

Sure. So that loan from INR 60 crores will come down straight away to close to about INR 30 crores or INR 35 crores quite immediately. And by March, we hope to bring it down closer to INR 25 crores or sub-25 levels. That's the target for the year. We've raised capital and we are using proceeds of the capital to pay back almost INR 35 crores, INR 40 crores of high-cost debt, which includes part of that. Part of that will definitely be going to pay off the Windermere debt as well. And the target is to bring this high cost debt down to INR 25 crore level by March and hopefully, by next year, extinguish it in entirety.

Okay. So the last time when we had a discussion, you saw INR 60 crores effectively, you're paying INR 9 crore, which will come down to INR 4.5 crores or INR 5 crores, I don't know if that is the number.

Correct. So you can...

So that means...

See, with the money raised, we will be bringing down our debt level -- high cost debt levels by at least INR 40 crore in the short term itself. So INR 40 crores times 15% is INR 6 crores a year, which will be immediately be reflecting on our balance sheet half -- for half of this year and then going forward for next year as well.

Okay. Sir, my next question is on the Goa. When do you expect the monetization to translate? I think you have gotten to an MOU. What is the time line to complete this?

So in Goa, the exit from Goa -- you're talking of the new projects that we have got?

No, no. The Goa, the ones that we're talking about, some INR 45 crore with the promoter...

Correct. So that, see, always held a share in a result we developed in Goa long ago. And we were partners with Royal Orchid Group who are operating the hotel. We've been trying to sell our stake for a while. However, because we were only holding 50% -- or 45% of the stake there, we were not getting buyers for a period. Subsequently, now we've struck a deal with Royal Orchid where we have bartered battered in a way. We've exchanged our shares in that hotel, which for us was a noncore asset. Although it was profitable and giving us profit every year, it was still viewed as a noncore asset as far as our business is concerned. So we have exchanged -- bartered that for a land in Powai. So immediately, there is no cash flow. That INR 45 crores is not really a free cash flow that the company will be getting at this point of time. We will be selling our stake in Goa, receiving INR 45 crores for it. However, we will be using the same INR 45 crores to buy a stake -- buy the land in Powai. The land in Powai is real estate land. It is not noncore as far as we are concerned. We are still exploring what exactly we can do to monetize that land in Powai. It is definitely worth more than INR 45 crores. We could -- we've still not firmed up our plans of what we will be developing there or how we would be liquidating that asset. However, since it's empty land with approvals to construct, it becomes part of our real estate portfolio. So what we've achieved is move from a noncore asset to a core asset.

So help me understand what this INR 45 -- INR 5 crore, what initially happened? What was the investments to this hotel? And now what your exit multiple looking like?

As of now, the investment sitting in that hotel is close to INR 5 crore, INR 6 crore and there are some expenses are also being lined up over there. So that will be -- so whatever the things are there, we are getting a substantial capital gain out of this transition.

Okay. So INR 5 crores was the investment and INR 45 crores is the exit that you are...

Yes. INR 40-odd crores. Yes, there will be a profit, INR 30-odd crores of profit, that would come from this transaction, but it would be parked as investment in the land in Powai.

Got it, got it. Sir, then I have to come back to the numbers that we have touched in the past as well, that is you are looking to break the BG [ bankers ] limits. What exactly is the position over there? What is the progress on bankers?

So we have already tied up a limit with TSB, which is now active. So that has got us a little bit of BG and LC limits, which gives us a little bit of float at this point of time. We do have about INR 30 crores available with us of limits, which will help us this target that we immediately have of achieving INR 500 crores, INR 700 crores that is possible with the existing limits. In the meantime, we are waiting for -- this quarter result is good. Next quarter results will be even better, touch wood, and then we will be approaching the rating agencies to rerate and then negotiating with the banks for better terms and for higher assessment on limits. So this is the target with our finance team. They are working on it actively. But it's a process step by step, which we will be targeting by March to be in a better position in terms of our relation with the banking consortium.

Okay. Sir, then one more final question, which I have touched with in the past. We keep on saying that 3 million first quarter is whatever execution trend is looking like. So if I have to make it that numbers in realization terms, INR 2,000 first quarter. 3 million which translated to INR 604 crores revenue. So we are roughly working around with that kind of number for expenses in mind. At the same time, our target is to reach 8 million square feet per annum. So which means effectively our execution should go to INR 1,500 crores kind of number -- INR 1,500 crores kind of number. Is that a fair understanding? Is that a strategic outlook that you have in the business?

You're right. In fact, I've always maintained our current execution capabilities are in the range of INR 750 crores, INR 800 crores, not even INR 600 crore. With the existing CapEx and the senior management staff that we have, we are very capable of executing about INR 750 crores, INR 800 crores. We have been doing less than half of that. This year, we will do more than half of that. Next year, hopefully, we will come closer to that -- our capacity of execution. So for the last 3, 4 years, we have not had major CapEx issues, not that we had to increase our fixed cost in terms of senior level staffing. But then after that -- so after the next year, then we will be looking at growth inching towards the INR 1,000 crore mark and then eventually the INR 1,500 crore mark, as you said, which will need a little bit of CapEx as well as augmentation at senior level staffing, which we will then do. So we are on that path. See, we should have done much better this year, closer to our capacity. Again, COVID has taken away a good portion of the first and second quarter. We would have done much better in second quarter also had COVID not hit the first quarter because by the time the clients -- our government clients woke up to the situation and started making payments again, we lost out a month or so in second quarter also. So hopefully, third and fourth quarter will pull us through. And hopefully, that same run rate will maintain next year, which means next year we will achieve close -- very close to 80 -- above 80% of our capacity.

So just to reconcile these numbers, INR 500 crores in FY '22, maybe INR 800 crores kind of number in FY '23 and INR 1,000 crores kind of number in FY '24. That's the way you see the trajectory?

So I wouldn't stick my neck out and project numbers on the call. But yes, we are moving somewhere in that direction, hopefully, yes.

Yes. So -- but again, when we come back to the question that order book, will it be supporting that kind of -- do we have external EPC order backlog to support that kind of a growth trajectory? Are we in for big numbers in this particular year, maybe next year?

You're right. See, I -- also, our hit list, I've always said this and it remains the fact that we will only execute about 30% of the order in hand in a year. We never managed to execute more than 30%, 33% of the order book in hand. Currently, the numbers are still okay because we're executing even lesser than that. But as we want -- if we want to execute INR 800 crores, we should have INR 2,400 crores-plus of orders in hand. Otherwise, INR 800 crores doesn't happen in a single year. If we want to achieve INR 1,000 crores, we should have INR 3,000 crore-plus order in hand. Otherwise, it is not possible to achieve that with the existing order book because that is roughly the pace at which activities happen on an average. Some projects go fast, some projects go slow. On an average, it takes 3 years to finish a project. And so 1/3 is what you get in a year. So as I said, by -- in the next 8, 9 months, our target is to ensure we are about INR 2,000 crores in terms of order in hand when we start next year. And then we'll take the target to be -- next year to be closer to INR 2,500 crores as we end the year. So if we are executing x, we should be actually booking order of 1.3, 1.4x in the same year, so that we grow. So we are aware of that and we are focusing on that. The banking limits also have to keep growing in that direction to support us to bid and bag orders. So we have all these numbers in hand. We have these targets for each department inside the organization, and we are well poised to achieve those targets.

Yes. So I was saying, so the order inflows, you talked about that INR 2,400 crores if you have to get it to the order backlog zone. What is the big pipeline that we are looking at? I mean what is a big conversion rate like 4x you have to bid for orders or maybe 10x. What is that number looking like? Are you in a position to do that? Are we looking something like that?

Yes. So our big conversion rate, admittedly is very, very low. We are almost in the range of [ 1:50 ] kind of a bit conversion. We do bid a lot, but we back out of the race if it is becoming crazy. Very often we meet competitors who are not the biggest contractors. Very often, we meet contractors who are extra aggressive to bag the order. So we remain shy of being desperate to get top line because top line without bottom line is a pain because it ties up your bandwidth for 3 years. And when you know a project is not going to yield your bottom line in the end, just getting top line and celebrating it on day 1 and then dealing the pain for 3 years with your senior management tied up, we've gone through those situations. It then blocks you from taking healthy orders later when they are available because your management is already tied up and your assets are locked. So we are very careful. We do not want orders without the kind of bottom lines we want to have. So our hit rate is very low. So therefore, we will be, our tender department keeps filling a lot of tenders or the pipeline per se keeps changing, new tenders come. Tenders get awarded, they keep going. We keep filling a lot every month. But the target -- more than the order pipeline, the target in mind is to bag, as I said, we have the order booking that we want to do and we focus on that.

[Operator Instructions] The next question is from the line of [ Sagar Bakani ], individual investor.

The question here is as far as the Powai land is concerned, how much does Vascon now have in that? How much does Vascon own in their entity? And what's the land parcel like in terms of size or in terms of development potential if you can throw some light?

So Vascon owns the entire entity, that entire land parcel there would be Vascon. We do not have a partner. This entity belongs entirely to Royal Orchid and we have taken over the entire entity. The land size is close to about 55,000 square feet in -- it is right next to that Renaissance, close to a Renaissance Hotel. I think it is Ramada now or at Powai. It's a very good parcel. And the development potential, we are still working out based of the rules in Mumbai. It's a good amount of development potential over there. The Excel sheets look very good. I mean honestly all that is good if we are able to launch and convert. But if you go by our Excel sheets, INR 40 crores is nothing. The numbers look much better than that -- much, much better in that.

And so you will be developing this on your own or you will have some development partner in Mumbai?

So there is an investment required to get it to approval in Mumbai with a huge cost of approval. We are assessing that. And then we will definitely -- either there are 2, 3 ways we are seeing how to go about it. In the meantime, if we do get a tempting offer for the land, we are open. However, otherwise, we're looking for a partner who would come in and invest for the approval stage so that he joins in as an equity partner and then we launch it together.

Okay. Because the approval cost in Mumbai is actually going to double from 1st January, so there is some benefit available till 31st December post which some of the components of approval costs are actually going to double.

Right.

And the next question is with respect to the liquidation of other noncore assets. Can you give an update where we are as to those things? And what's the potential value of those 3 assets?

So we have a land in Aurangabad, which we are in discussion to liquidate. We do have -- party negotiations are going on. That should get us about INR 30 crores of sale value. And that will not be highly profitable. I think it is, in fact, slightly higher on our books already. So we might be taking a minor P&L hit. But from a cash flow perspective and from a perspective of getting away from a noncore asset, we're working on that. We also have Kaledonia in Andheri, which is the office property, which we have still not managed to sell. We have put it on lease. We have discounted the lease. So in that sense, we have derived cash flows out of it already. But we are looking out to sell it and close out the lease discounting. And the third and fourth are for Thane land and GMP, which are big ticket items. These are noncore -- or I mean Thane land would be classified as core as well. On both these aspects, no real movement has happened on trying to liquidate it. I think these are a little bit long term and we will wait for a year or 2 and then see how to liquidate.

Sure. And just one very quick question. On the Kaledonia, how, what's the annual rental that you are getting?

For the rental, Kaledonia? Do you have the number? We're getting about 17 lakhs per month current year.

[Operator Instructions] The next question is from the line of [ Anand Date ] from [indiscernible].

Sir, I have a question on GMP business. What is the current order book of GMP? And what kind of revenues we are looking for at this fiscal?

Currently, GMP is having order book in the range of close to INR 70 crores to INR 80 crores. It obviously keeps on moving on a frequent basis. Order keeps on coming and order keeps on executing on a frequent basis. And as of now, the offshore order book is also close to the range of INR 80 crore-plus, which is supposed to be in -- there is still -- there is a lot of restriction in terms of offshore movement and all these things. So it's a little bit stagnant for some time, but we are expecting the order book is going to increase very drastically because a lot of inquiries and things are coming up. So by next quarter, we'll see some upward trend of the order book. And the run rate, whatever the -- on a half yearly, we did a business of close to INR 80 crores for GMP. So we are expecting doubling of this business by the end of this year. So last year, we did close to INR 150 crores. So we are expecting it will be in the range of INR 150 crores to INR 160 crores despite of some movement restriction in the offshore execution. Still, it is not quite open for the actual execution, which is a little bit delayed and stuck up till now.

Okay. What are the operating margins we are looking at in the business segment going forward?

Sorry.

What are the operating margins are we looking at in this business segment going forward?

We don't have too much enhancement of the EBITDA margin as compared to the last year. We're within the same range of last year obviously. Once this -- as it was in the domestic business, majorly the dominant is domestic business and there is a lot of [ price ] structure that has happened in terms of the steel is concerned, where GMP is partially protected and partially not protected. So keeping in view of that part, so we don't see too much enhancement of the EBITDA margin for GMP this year. This year also we'll have that same range of EBITDA pattern between the range of close to 3% to 3.5% of [indiscernible] .

[Operator Instructions] The next question is from the line of [ Mikit Desai ]from [ Desai Investments ].

Sir, I just wanted to ask regarding net debt. So currently, I think we are sitting at some INR 135 crores. So what is the target, which we are looking at 2 years down the line, sir?

So we are looking at bringing this down in the range of sub-INR 90 crores the net debt, sub INR 90 crores by this year-end itself. Then another -- so see, our focus, I'll tell you, is to get rid of all the high cost debt. We have a working capital limit with SBI, which is in the range of INR 60 crores, INR 70 crores. For EPC, considering that EPC has a high target to grow steeply over the next 2, 3 years, we are now -- we are not in a hurry to bring down the EPC limits that we have. Those are -- we will be working on bringing down the rate for EPC limit by improving our balance sheet and P&L and renegotiating. However, we are not looking in the short term to bring down the exposure itself. But we are targeting otherwise by end of next year, that is March '23, that we should be done with most of the other real estate-related high cost debts.

Sure. So that would give a good chunk to our profitability in next, say, next year.

Correct. Correct. That will continue. So already with this infusion of equity and bringing down of debt that we have done now in this month, which is not reflecting in Q2, but it will start reflecting from Q3 and Q4 and we'll continue to reflect and only improve over the next 5, 6 quarters as we keep bringing the high-cost debts down.

Sure. And that would also help us to increase our sort of bidding capabilities for EPC business?

See, as our P&L increase -- improves and as our top line also continues to improve in terms of execution that we are doing in EPC, that's what the banks look for. Then we can go back to the bank and continue to grow our limits, so then our bidding capacity will continue to increase based on that.

Eventually, just to add this thing. Indirectly, this is, yes, because the little bit rate reduction, improvement of the P&L structure and finance costs and all these things. So probably, that will help us to increase the rating and all these things and to negotiate better terms with the banks. So in that also, it will help us to leverage better rate.

Sure. Sir, my last question would be on the industry front. Sir, currently being COVID at what the states currently assuming at a gradual recovery phase, sir, in what pockets do you see opportunity in our EPC business, sir?

The EPC business is looking very bright going ahead because, as I said a while ago, we are also now very keen to open up our exposure to the private sector. We had shied away from it for 2, 3 years. But now that we have enough order booking in government and that will continue, we will be continuing to bid for government projects, but the private sector is also now opening up post-COVID. The real estate market has stabilized, the demand has increased. And in the meantime, only reputed developers with -- and reputed projects, more than developers. What I mean by reputed projects is projects that have their financial tie-up in place that are abiding by RERA and therefore are very conscious that they have to complete what they start and they cannot indefinitely postpone construction. I think that realization has sunk in to the real estate market in a big way. So we are excited to look at opportunities within this market as well because now the risks are drastically reduced compared to 3, 4 years ago for us as contractors.

The next question is from the line of [ Mohit Bansal ] from [indiscernible].

I have 2 questions. The first question is on the what is our total eligibility in EPC contracts? And the second question was on the tax rate. I wanted to understand the tax rate of the company for this year as well as for the next 2 years.

So eligibility-wise, currently see each department puts up a tender with PQ terms, which are totally different. So that's the way the entire system operates in India where the PQ is desired by the department. So sometimes, the PQ is so stringent or they have certain terms in the PQ that we do not even qualify for a INR 200 crore project. But sometimes we do qualify for a INR 500 crore, INR 600 crore project. Having said that, in general, our capacity would be to qualify for anywhere in the range of INR 500 crores, INR 600 crores, INR 650 crores. And we would not be qualifying for projects much bigger than that as of now. So that will also change as we continue to grow. But as of now, INR 500 crores -- we've got a couple of projects in the INR 500 crores range. So maybe INR 500 crores, INR 600 crores is the highest qualification that we would have currently.

Sir, this is the across roads and buildings?

Sorry.

This would be across roads and building and railways as well.

Sorry, I'm not able to hear you.

No. My question is the eligibility is you would also do railway contracts or it's only roads and buildings?

This is only to all kind of buildings. It can be from any department. Railways also have buildings. Metros have buildings. These are all kind of buildings. So metros have sheds. Sheds are also building. But yes, this is purely for different types of buildings, not for railways, roads, bridges, infrastructure, ports. No, we are not in any of these. We do not have qualification in this direction as of now.

Okay. Understood. And please throw some light on the tax rate, sir.

The tax rate for the next 2...

I'll tell you the tax rate to be for the next 2 years. If you look at the taxes as it is because we have the carryforward losses. For next 2 years, we don't have to pay any taxes. But prior to that, we have migrated to Section 1 [indiscernible]. So the tax rate will be 25% as of now, including all such charges and sales once we will come into that range.

I didn't understand the first part, sir. You don't have to pay any taxes you said?

First part is since we have carryforward losses, which is still to be absorbed until next year. So next 2 years, we don't have to pay any taxes.

Till, what amount, sir, of profitability?

No. It will be profitable. But since we have carryforward losses, we don't have to pay taxes.

We have carryforward losses, which will nullify our taxation for the next 2 years.

What is that amount, I'm trying to understand. This carryforward losses is how much?

Even INR 100 crores. It is next year almost INR 130 crores, carryforward losses, which is to be absorbed.

[Operator Instructions] The next question is from the line of [ Vinny Jain ], individual investor.

I'm sorry I've joined the call a really late. I'm not sure this question has already been asked. I just wanted to understand the transaction of the Goa hotel. And are there any kind of money outflows will happen from there?

Yes, yes. The question was asked. But nevertheless, Goa hotel is a cash-neutral transaction. We are not expending any money, nor are we receiving free cash flows at this point of time from that transaction. It is moving from a noncore asset to a core asset, moving from holding stakes in a Goa hotel to holding a land parcel in Powai. That is what will be achieved in the immediate time frame by doing this transaction. Subsequently, we will then liquidate the Powai land by either selling it or developing it and we will achieve high cash flows. But in the short term, no cash outflow, no cash inflow.

[Operator Instructions] Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments.

Thank you all for your participation. Wish you a great day. You could connect with Stellar Advisors, if you have any further queries or you could contact us, and we would be glad to answer them. I'll see you again next quarter, and wish you all a happy festive season. Happy Diwali. Thank you.

Thank you very much. On behalf of Vascon Engineers Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.