Welspun Enterprises Limited (WELENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Welspun Enterprises Conference Call hosted by IDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar. Thank you, and over to you, sir.

Thanks, Ayesha. I welcome you all to the conference call of Welspun Enterprises Limited to update you on the Sattanathapuram-Nagapattinam project. We have with us Mr. Sandeep Garg, Managing Director and CEO; Mr. Ved Mani Tiwari, Deputy CEO; Mr. Sridhar Narasimhan, Chief Financial Officer. We will start with an update from the management on the project, and then we'll proceed to the Q&A session. Thank you. I now hand the conference call to the management for their opening comments. Thank you, and over to you, sir.

Thank you, Mohit. Good evening, everybody. Thank you for coming on this call at such a short notice. I hope that each one of you are safe and taking care and due precautions as per the safety guidelines stipulated by government and the local authorities. As Mohit said, this call is to give you an update regarding the most recent appointed date that we received for Sattanathapuram-Nagapattinam Road Project. I'm sure you would have read the release, which was uploaded on the exchange yesterday. During the declaration of appointed date of the long-awaited project, which we won in 2018, which we call SNRP, the full of which is Sattanathapuram-Nagapattinam Road Project. To give you a background, we received the letter of award for this project in July 2018. The concession agreement was signed on December 3, 2018. Whilst NHAI was preparing to meet its condition precedent of acquiring the land, the Honorable High Court of Madras passed an order directing the NHAI to put on hold the widening of this 179.5 kilometer NH 45 A between Villupuram and Nagapattinam, of which this road section was part of. However, the Honorable Supreme Court subsequently gave relief to NHAI by granting an ad-interim stay against the Honorable Madras High Court order. Post this, NHAI has also received the CRZ clearance for this project, which has allowed them to proceed with the appointed date formalities. The company is pleased to inform that NHAI, National Highway Authorities of India, has declared the appointed date for SNRP project on 5th of October 2020. The competent authority has made a few changes. The appointed date has been recorded for a 4-lane project with 4-lane structures as against the concession requirement of 4-lane project with 6-lane structures. So there is going to be a change of structures being reduced in width from 6 lane to 4 lane. And also, the appointed date has been granted with a land availability for working of 29.39 kilometers, that is 52.71% of the total land acquired, as against the concession agreement requirement of 80%. So these 2 changes are without any claim by either party. So the original value of the project that we had bidded was approximately INR 2,005 crores or INR 2,004.51 crores to be precise for a 6-lane structure. And the first year O&M was supposed to be INR 5 crores. Because of this change from 6-lane structure to 4-lane structure, although the exact value cannot be ascertained at this point in time, because the design -- redesigning of the project has to be done, it is expected to be in the range of INR 100 crores to INR 150 crores with an equitable reduction in the civil costs as well. So there will be an increase -- there will a decrease in the bid project cost of around INR 100 crores to INR 150 crores and then something in the same ratios, reduction in the civil costs. The project is to be completed in 2 years from the appointed date, that is 5th of October 2020, and it is to be maintained for next -- operated and maintained for 15 years post the commercial operation date by the company. The project, I would like to remind, has already achieved the financial closure and the loans are disbursable at this point in time. With this project, which has now started to -- started off, we -- our current portfolio of HAM projects stands at -- for 7 projects at approximately INR 10,000 crores. In addition, we also have a new project of about INR 2,100 crores, which we acquired through harmonious substitution. So the total value of portfolio stands for both HAM and BOT stands at about INR 12,000 crores. And the current order book, post execution of Q1, stands at approximately INR 4,700 crores. So this is the latest update that I wanted to share with the investors, and I would open the floor for any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Nirav Shah from GeeCee Holdings.

Congratulations for finally securing the appointed date. So with the financial closure already in place, would the execution immediately start? That's the first question. And the second question is, this is appointed date coming about a month late compared to what we had earlier expected. I mean, we had guided for an August appointed date, and this has come in early of October. So will this have any impact on the full year guidance? Or will we be able to cover up the 1 month's loss of execution period?

Thank you, Nirav. So yes, the project -- it's good to have this appointed date given. However, since the delay in the project appointed date has been during the monsoon period, I don't think the impact on the completion or the revenue guidance would change much because of that minor figures changing here and there is not an issue. The delay was primarily because of the NHAI wanting to make sure that the Supreme Court hears the petition from the other side before they award the appointed date. So that's the reason there was a bit of a delay. But we are confident that there is not going to be much change in our forecast because of this delay. And yes, the financial closure is complete. So this should start -- the project should start immediately. And we are already mobilized on the ground, so it should not be -- it should not take much time to start churning revenues.

And the margin profile will also be very similar to what we had expected? Or will there be any change?

It'll be in the same range as we had expected, no change. Margins are not changing.

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

Sir, my question is more on the land acquisition part. The land availability, I'm given to understand it is 52.7%, as against the requirement of 80%. So what impact can it have? Is there any descoping that is already implied at this point in time from the management side or even for that matter NHAI side?

So to answer your question, Rohit, thanks for raising this point. So the current physical land in possession was 29.39 kilometers. However, NHAI has already disposed money for about 85% -- approximately 85% of the road. So the possession of the balanced road was being taken gradually. And NHAI and we both were keen that we start the project now. So we have taken the appointed date, but the payments have already been made for more than 85% -- of approximately 85% of the land. For the balance, about 15% of the land, the 3D stage awarding is in process. So there is no descoping per se taking place. Yes, the width of the road has changed because of which the land acquisition is now for 45 meters as against 60 meters required for the 6-lane structures, et cetera. So to that extent, yes, there is a descoping taking place, which I've already spoken, is in the range of INR 100 crores to INR 150 crores.

Okay. So if I understand it correctly, 52.71% is 3H and 85% is 3D, at the land acquisition stage?

So 29 kilometer -- 29.3 kilometers is already in hand. The balance is -- balance, about 30%, is at 3H stage. And between 3G and 3D is about 15% of that.

Okay. My second question is, sir, in terms of the banker, the -- how -- because I'm given to understand bankers are quite reluctant to do the financial closure without land acquisition in place, or maybe there is some clarity on that front. How come we could conclude the financial closure? And what are the terms and conditions? Who are the bankers? Can you throw some color on those aspects?

I'm sure I could, but given the constraint of time, Rohit, I can only say that the financial closure is done. And for a detail on the financial terms and conditions, I would request if you could get in touch with the team, my Investor Relationship team, and they would be very happy to share that information. On the strategic question, the land -- the bankers are uncomfortable doing a financial closure for projects where the land acquisition is at a risk. Because the land is already paid for, I don't see any risk in land acquisition. The problem is that the land awards are not taking place or land awards are not paid. So the parties have already been paid. It's only a question of taking possession of the land.

[Operator Instructions] The next question is from the line of [ Ajay Gupta ] from JM Financial.

Congratulations on getting this appointment date. What would be your guidance now in terms of revenue for March ending '21 and '22?

So we all -- as I say, these are unprecedented times. It's better to take smaller steps at a time rather than give forecast for long term. However, the current forecast for this year, which I had guided, I stand by that. Our revenue would grow year-on-year in the ranges of 10% to 15% range.

And proportionate increase would also be in the PAT levels, I presume, right?

Yes. The profit margins are protected, so the profit, the PBT levels and EBITDA levels will be the same.

Okay. The -- and the last question is that in terms of ground operations, is the company facing any difficulties? Or are you now fully at pre-COVID levels for all your projects? Or what -- any difficulties you're facing in terms of mobilizing or labor or anything?

So, [ Ajay ], the reality is that there is a push from our side and from the labor -- or the execution side, everybody, to start stabilizing the sites. However, the real test is going to be post monsoon, with the 100% efficiency, people start working, how does the pandemic situation play out? Nobody knows. But at this point in time, I think we are doing reasonably well. We are almost at about 80%, 85% of where we should be in terms of our mobilization of manpower. Rest of the mobilization is more than 100% complete. So it's a question of if you get corona patient, some days are lost, the productivities are lost and the social listening issues are still there. So this is where we are. I think only -- a couple of months from now should we have that clarity as to how the things will pan out going forward.

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

Sir, 2 questions, sir. First, sir, given the need to implement this project in the next 24 months, have you started any kind of work as of now? Or is it all that we're going to initiate now? And are we getting any kind of relaxations from NHAI, given that, of course, there is some restriction on the labor movement and blah, blah, blah? So is there any chance that we'll get some relaxation on time line? Are you looking for it?

So the situation is something like this, that 2 parts of the question. One, we are already mobilized at the site. So we should start quickly. So our equipment mobilization is practically 50% already there. So we should start the project, in true earnest, very quickly. The second part of the question is, is NHAI contemplating expansion of projects? Yes, the government is considering. They had extended for 3 to 6 months. They are considering there beyond because of these pandemic issues. However, there is no decision as such. But there is definitely a realization on part of the authority that business is not as usual. So they are more amenable to the suggestions for the concessionaires in case there is a reason for any extension.

Okay, sir. And is there any challenges in getting labor to that side of the geography, because I think it's Tamil Nadu? I'm not sure whether do you get labor from Bihar and Jharkhand or Orissa or is it the local labor you'll be relying on?

So it's always a composition of labor. There will be certain labor which would be local, and there'll be certain labor which is migratory. But to answer your question, the migratory labor has already started coming back to the works. So it's not something which is a difficulty. Yes, there is some effort required to move the labor in terms of sending buses or something of that kind, but that's a very minor issue which the systems have now geared up to deal with.

And sir, by the moment I think the bid happened 1 year back, and of course things have changed over the last few months, so does -- is there any cost implications because of COVID or something which should be considered by the NHAI while estimating the new bid project cost?

I don't think that's something whether the costs have gone any different. As you know, the HAM project allows for the increase in the bid project cost at our WPI CPI formula, which has already allowed about 11% increase in the bid project cost as we speak. So if there are any minor changes in the costs, I'm sure, there is enough increase because of the escalation mechanisms to take care of it.

Sir, when are you going to get the exact clarity on the total cost from the NHAI for the reduction in scope and at what time?

It'll be about 3 months. As I said, we will need to do some detailed engineering before we can present how many -- how the quantities have changed. And based on that, the cost will be ascertained. But it is not going to be any much more different than what we have forecasted, because we've done an initial computation based on which the proposition was accepted. So exact numbers we will work out after the detailed engineering, but the ballpark numbers are known.

So last question, sir, is the -- are all the things happening smoothly at NHAI given the COVID situation? I'm seeing all these [ dealers ] saying change in scope, all the discussions. Are all these things online, very smooth -- is happening very smoothly? Or do you think there are some delays which happen because of online?

I think NHAI has been extremely efficient during this phase. They've been extremely efficient in releasing the payments. They have been very efficient in concluding certain disputed cases. They have disposed of a lot many disputed cases during this period. So I think the authority has been extremely proactive. I mean, to go into the SLP at Supreme Court against a High Court order and getting a relief during this period is not something which is easy. But they've been very, very proactive, and they are very focused on the development of infrastructure. So I see a very positive stance by the authority.

[Operator Instructions] The next question is from the line of [ Parin Navroji from Progwell Securities. ]

Sir, I would like to know as to how does our bidding pipeline looks like? And what kind of order inflow are we targeting in this fiscal year?

So there's a lot of bidding taking place. As we speak, there are about 20-odd bids open. So I think we -- there's enough pipeline available going forward, and there are a lot of projects which are also on the queue or thereafter. So I think there is a lot of work, which is getting awarded. In terms of our forecast, I would think that anything about in the road sector, I would be looking at about anything between INR 2,500 crores to INR 3,000 crores order book in this year. That will be our internal target to achieve.

Sir, can you just throw some light in terms of our working capital cycle? So how is it currently? And are there any chances of improvement?

Sorry, I couldn't follow your question. Could you repeat?

Yes. Sir, can you throw some color on our working capital cycle?

So practically, our working capital is not very high in terms of -- because the -- we are doing our EPC contracts of our HAM projects. So it's more of cash flow balancing than anything else. So I think in terms of our working capital, the requirements are pretty stable, nothing very substantial in terms of working capital requirements.

Thank you. Due to time constraints, I would now like to hand the conference over to the management for closing remarks.

Thank you. So thanks for everyone for coming -- making for this call. And it is my pleasure to have answered your questions and addressed you all. I wish you a safe period ahead. And if there are anything that you would want clarity -- more clarity on, please get in touch with our Investor Relationship team. Thank you for being our investors and being associated with us. I look forward to a long journey together. Thank you.

Thank you. On behalf of IDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.