Welspun Enterprises Limited (WELENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call to discuss the divestment of Completed Highway Projects Portfolio to Actis Conference Call hosted by JM Financial. [Operator Instructions] a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhanshu Bansal from JM Financial. Thank you, and over to you, sir.

Thank you, Faizan. Good afternoon, everybody. On behalf of JM Financial, I welcome you all to the conference call of Welspun Enterprises to discuss the divestment of Completed Highway Project Portfolio to Actis. We have with us the senior management of Welspun Enterprises. With this, I would like to hand over the call to Mr. Salil Bawa, he's the Group Head of Investor Relations, for introducing the management and taking the call forward. Thank you for your time, sir. Over to you, Mr. Bawa.

Thank you, Sudhanshu. Good afternoon, everyone, and I welcome you all to the investor call of Welspun Enterprises Limited to discuss the divestment of Completed Highway Projects Portfolio to Actis. We will call it Actis deal in today's call. Present along with me today on this forum are Mr. Sandeep Garg, Managing Director of Welspun Enterprises Limited. We have Mr. Akhil Jindal, Group CFO and Head Strategy for Welspun Group; Mr. Sanjay Sultania, who's the Chief Financial Officer for Welspun Enterprises Limited; Mr. Lalit Jain, Senior Vice President; and other senior management team members. We will start the forum with opening remarks by our leadership team. Post that, we will open the floor for your questions. Should you have any queries that remain unanswered after this call, you can reach out to us any time. Thank you very much, and over to you, Mr. Garg.

Thank you, Salil. Good evening, everyone. Today's call is to give you an update on the divestment of Completed Highway Projects Portfolio to Actis. And I'm very pleased to inform you that we have complied with all the necessary conditions and have obtained all necessary regulatory and statutory approvals for First Closing and divestment of 100% stake in HAM assets and 49% stake in BOT-Toll assets. We got all approvals in place from NHAI, PWD and lenders. To give you the details of the transaction, the total enterprise value of the transaction stands at INR 9,049 crores, out of which construction linked milestone/grant payments received by us or receivable by us from NHAI and PWD standard, INR 3,196 crores. The Completed Highway Portfolio as on date of the First Closing has an outstanding senior debt on closing of INR 3,544 crores. This includes the un-disbursed portion of INR 59 crores. The -- as of today, if we compute -- the return on the divestment portfolio, we are making a return of 15% at a portfolio level. The divestment of balance 51% stake in BOT-Toll asset shall be undertaken upon obtaining necessary regulatory and statutory approvals. We have always maintained that we have an asset-light business model, and we have stayed the course. The Actis transaction demonstrates our commitment to act on stated strategy. With this deal, we have also fulfilled our business model of capturing entire value chain of successfully winning, constructing, stabilizing, monetizing of road assets. So we are successfully recycling capital, which will provide us a strong foundation for our next phase of growth. In this growth phase, we will target a portfolio of high-value, high-margin assets. We will continue to work with our low-risk execution model. I would also want to share with you that the First Closing consideration has already been received and is in bank of the company. With this, I now open the floor for any questions. Thank you.

We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen, we will wait for a moment while the question queue assembles. [Operator Instructions] The first question is from the line of [ Sudhir Bheda ] from [ Right Time Consultant ].

And congratulation on the closing of [indiscernible] Actis. See, sir, as per your opening remarks, total enterprise value is INR 9,049 crores. And if we did that milestone, we'll receive INR 3,196 crores and then debt of INR 3,540 crores. So balance is INR 2,313 crores. So out of this amount, what amount we have received and what is the balance left for the 49% of BOT and then some retention money would be there? So if you can throw light on that.

Yes. So let me answer this. This is Akhil Jindal. I would like to give you more details on this. So essentially, the 2 amounts which are pending to be received by the company. One is the INR 247 crores, which are linked to the certain milestones and other things, which we would be getting shortly, perhaps before March of this year, that's our target. And another INR 269 crores, which would be disbursed to us only when we would achieve the 51% equity approval from NHAI with respect to Mukarba highway project. But I think these are the 2 pending items almost totaling to around INR 500-odd crores, which we will receive whether as a 2-stage process. Other than that, we have got our entire...

Yes, INR 15 crore also you already got, right?

How much?

INR 2,313 crores minus, say, of your INR 500 crores.

No, no. So I'm -- it also -- the deal also involved the liquidation of our working capital engaged in these SPVs because if they would remember we have got all of these -- we were doing the EPC contracts and there were account receivables and pending and this and that with the current assets and current liabilities. So the total that we were to receive is around INR 2,700 crores, and we have already -- other than this INR 500 crores, we have received everything. So INR 2,200 crores -- we have received as a consideration/working capital liquidation. And the balance INR 500 crores in 2 stages, INR 250 crores within March, our team is working very extensively on that. Another INR 250 crores -- INR 269 crores, post 51% approval.

Understood, understood. Sir, 1 more question, if you can throw light on. So what would be the stand-alone balance left in our balance sheet. Now we are having 2 BOT, right? Where our equity investments are there and then some debts are there.

So let me also answer this part. So the gross debt in the books of Welspun Enterprise as on date is INR 630 crores.

[indiscernible]

INR 630 crores, [Foreign Language] including the working capital, including CP -- including your CP, NCD, all kind of debts -- gross debts was INR 630 crores. So naturally, some of the proceeds will be used to retire as much debt as possible. And as regards to 2 projects are concerned, we have got 2 not BOT projects, as you said, but 2 HAM projects left.

HAM projects. Sorry, sorry, HAM projects, yes, yes.

So out of the 2 HAM projects, I think, in Aunta - Simaria, and correct me if my team has any other view, we have already fulfilled our equity commitment. It is only in the SNRP, which is a Tamil Nadu project. We have further equity required of around INR 225 crores. So that is the commitment further on the road portfolio that we have. Other than that, we have fulfilled all our commitments until date.

[Operator Instructions] Next question is from the line of [ Sudarshan Bavaria ], an individual investor.

Yes. My question is, after doing this deal, what will be the tax outflow? And how much cash you will have in the books? And out of that, how much you will use to repay the loan. And after meeting the current equity commitments, how much would be left?

Yes. So I would just request Sanjay to address this. Sanjay came in, who have tax working.

Yes. As far as tax outflow to go, that we are working with our consultant Pricewaterhouse, and hopefully, it looks like that it should be in the range of INR 35 crores to INR 40 crores as a tax outflow in the whole deal in the current rate.

So how much cash will be left after meeting the current commitments?

As Mr. Akhil Jindal has said regarding -- we will -- regarding the outstanding loan that we have currently in our books, which is close to about INR 600-odd crores.

Sorry to interrupt, but he mentioned as much as possible, not the entire loan.

See, what is happening, there are certain loans which we have a time commitment, which is coming in the next 4 to 6 months to give that money to retire and whatever we can retire immediately as per our loan agreement, that we will retire. The idea is that to become a zero-debt company on the stand-alone basis. If we retire that in the tax outflow and the deal -- I mean, the deal expenses and all put together, we are expecting close to about INR 700 crores to INR 750 crores as outflow at this point of time. And then we have a further equity commitment for our HAM projects, which is under construction of the movement, which is close to about INR 225 crores as of now. That is the commitment, and which you put together, the INR 1,000 crores is already visible at this moment. And whatever is left out, I would request Mr. Akhil Jindal or Mr. Garg to explain about it, what would be the decision of the Board when we take it to the Board.

Yes. So as Akhil presented, we have in the bank right now, INR 2,338-odd crores, out of this INR 1,000 crores was explained by Mr. Sanjay Sultania. The balance money is available for future growth of the company and capital allocation as decided by the Board.

No, fair enough, Sanjay, but only thing is that these cash will have cost of money. So -- and this was very much expected that this will come this financial year. So I'm very sure you would have some time line to deploy this money. Whether you are going to deploy in next 6 months, next 12 months, you must be having some broad guideline.

For sure, we have opportunities where we can deploy the cash. And we will present it to the Board for the guidance of capital allocation.

Okay. But by when as an investor, we will come to know?

I think the reasonable expectation should be to declare the Q3 numbers sometimes in late part of January. And by that time, what would have authorized the further deployment of these funds. So just have a bit of a patience until that point of time. And I hope we would be able to give you a very clear picture after the Board has approved the deployment plan.

The next question is from the line of [ Saurabh Kumar Agarwal ], an individual investor.

Congratulations on the closing of the deal. I have 3 questions regarding the future revenue since we have now given up these projects to Actis. What is the expected drop in the revenue because we have given these projects? And what would be the steadying of the interest? I mean you can -- average figure of -- on the quarterly basis, how much interest are you going to save since we are becoming debt-free. Could you give these 2 figures?

So if I understood your question, you're asking how much is interest saved. So naturally, along with the debt, along with the equity, INR 3,500-odd crores debt is also transferred in the books of the new buyer. So basically, on the conclusion of the deal, our balance sheet would be lighter by INR 3,500 crores on the gross debt basis. So I mean even if I consider, saying, 8% has an average cost over the INR 3,500 crores, we are talking of a good -- how much, around INR 300 crores.

INR 250 crores.

Yes, between INR 250 crores to INR 300 crores as an annual saving on the -- on this portfolio. In addition, as we mentioned, post conclusion of everything, the company would have got a cash of around INR 2,700 crores. So you can say, even if we won a treasury on between 8%, 8.5% on an average, we are talking of another INR 250 crores to be generated out of the treasury. I'm not even talking about the deployment plan and what value we can create, as we answered in the previous question, the Board has to decide that. But just on a pure math, these are the numbers. As far as the revenue and the income forego, your question. So all of these were HAM projects, 5 were HAM and one was the BOT project. And the 5 HAM were -- you can say because they were completed for substantial time now. All of them were almost in a self-sustainable mode. That means whatever NHAI was paying or PWD was paying, that was taking care of the interest and depreciation and loan repayments and the O&Ms and everything. So all in all, basically, our balance sheet would be lighter. We would generate more cash on the -- I mean more cash on the cash earned through this process. And ultimately, whatever value we can create out of this divestment is something that I'm sure all of you would be very keen to know, which I would be -- which we would be able to present post our quarter 3 numbers.

All right, sir. Sir, another question is, Adani has got Dharavi Redevelopment Project. Has it got any impact on our Dharavi Wastewater Management Project? Or is it totally a mutually exclusive project?

These are 2 mutually exclusive projects. Dharavi's sewerage treatment plant is a separate identified piece of plan, and the SRA land is a different identified land.

[Operator Instructions] The next question is from the line of [ Sudhir Bheda ] from [ Right Time Consultant ].

Sir, I would like to know the -- what would be the monthly run rate. I saw in your television interview that it would be around INR 350 crores kind of thing -- in a month. So next year, is it possible we should cross INR 4,000 crores?

As I said, this -- we have a clear visibility of the order book, which is for about next 2.5 years. We have an order book of INR 11,400 crores, so which is the run rate that we should be targeting for the next year.

And any new orders in pipeline which we are likely to win in the next 2 to 3 months?

There are enough orders in the market. Are we aggressively pursuing them? The answer is no because we still believe that the competitive intensity in road is high, which we believe should settle down going forward.

The next question is from the line of [ Vikash ], an individual investor.

Congratulations on the entire transaction. I have just 1 question. Just to understand on the oil and gas assets, is there any plan to liquidate the same? I think it was mentioned previously. Any plans on that, sir?

This is a pure Actis related call. I would request that if we stay with the Actis call. We will address this issue in the Q3 call that we will have in the January.

Ladies and gentlemen, that was the last -- we have 1 more question in the queue from the line of [ Anirudh Singh ] from Dalal and Broacha Portfolio Managers.

Congratulations on the transaction. So you mentioned you expect 8.5% return on your treasury income, so how do we look to invest these proceeds?

I think we answered that in our previous conversation. So my submission again would be that we will be able to give you a bit more detailing once we have a chance to meet at a board level with our Q3 numbers, just -- kindly wait up until there.

Okay. And any possibility of returning some money to shareholders through dividend or buyback?

I think it would be a cumulative decision that would be taken in the holistic manner. So I guess we all have to wait for that.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Bansal from JM Financial for closing comments.

Yes, Faizan. So I thank the management of the Welspun Enterprises for giving JM Financial the opportunity to host the call. I thank all the participants for attending this conference call. Thanks a lot, and over to Mr. Bawa if there is any closing remarks. Thank you.

Thank you. This is Sandeep Garg. I would thank once again all of you for joining on this call. And I hope that we have been able to address all your queries. I must emphasize that as a company, we see a lot of opportunities. And this deal provides us a strong foundation for our next phase of growth. Before I wrap up, I'm taking the opportunity to wish you all a safe and happy new year in advance. I look forward to connecting with you in the new year. Meanwhile, please feel free to reach out to Salil or his team for any questions or feedback. Thank you all.

Thank you. Ladies and gentlemen, on behalf of JM Financial, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.