Welspun Enterprises Limited (WELENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Welspun Enterprises Limited Q4 FY '24 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Salil Bawa, Head of Group Investor Relations, Welspun World. Thank you, and over to you, sir.

Thank you very much, Sagar. Good afternoon to all of you. On behalf of Welspun Enterprises Limited, I welcome all of you to the company's Q4 and FY 2024 earnings call. Along with me today, I have here Mr. Sandeep Garg, Managing Director of Welspun Enterprises Limited; Mr. Saurin Patel, Managing Director of Welspun Michigan Engineers Limited; Mr. Lalit Jain, Chief Financial Officer for Welspun Enterprises; Siddharth Bharadwaj, Head IR for Welspun Enterprises. We hope you have had a chance to review the investor presentation that we filed with the exchanges. The presentation is also available on the company's website. During today's discussion, we may be making references to this presentation. Please do take a moment to review the safe harbor statement in our presentation. As usual, we will start the forum with opening remarks by our leadership team, and then we'll open the floor for your questions. Once the call gets over, should you have any further queries that remain unanswered post the earnings call, kindly feel free to reach out to any one of us. With that, I would now like to hand over the floor to Mr. Sandeep Garg, Managing Director of Welspun Enterprises Limited. Over to you.

Thank you, and good afternoon, everyone. Welcome to the Welspun Enterprises Q4 and FY '24 Results Conference Call. I would like to thank all participants for their presence. We have uploaded our results on the exchanges and our website and I hope you have had a chance to review the same. We start FY '25 with the highest ever stand-alone opening order book of INR 12,200 crores. This order book includes close to INR 3,600 crores of operation and maintenance. This is a clear reflection of WEL's diversification strategy and our meticulous approach to order selection. The Water vertical now has a share of close to 67% in the order mix with the balance being in the Transportation vertical if you are to consider only the EPC order book. Post our results, we have emerged as one in one of the MSRDC road projects, where our quoted price is INR 1,864 crores approximately, the details of which have been uploaded on stock exchange. We will inform you further details of the project once the LOA is issued by the client. Our subsidiary, Welspun Michigan Engineers Limited, has an opening order book of INR 1,600 crores. This makes our consolidated order book of formidable rupees INR 13,800 crores, which is about 4x our consolidated revenue for the FY '24. Although it is not material from the listed entity point of view, but I would like to mention that Welspun Michigan has also emerged L1 for an order worth INR 170 crores, the details of which will be shared by Mr. Saurin Patel, Managing Director of WMEL in his address. I'm certain you will appreciate the immense visibility such an order book provides. We are certainly [indiscernible] and we are working to further build on our project pipeline. Our future ordering within the Transportation vertical, we have seen a continued muted period in the last quarter. Having said this, we see promising growth opportunities from NHAI and in the state of Maharashtra in the next few quarters. I would like to reiterate that we at Welspun are extremely positive on opportunities that lay ahead of us. We believe the country's CapEx spend will double over the next 5 years from a base of approximately INR 11 lakh crores. Our balance sheet strength positions us extremely well to seize on this opportunity and thus deliver many years of profitable growth. At Welspun, we strive to achieve excellence in every sphere of activities that we take on. In this direction, we are pleased to share that Welspun Enterprises has been recognized and certified as a Great Place To Work by GPTW certification agency. Welspun also saw one of the highest employee participation among the corporates, which was at 96% during the certification. I'm also extremely pleased to share that Trust Index of 88% of Welspun Enterprise employees have rated us as a great place to work. Our ranking will be announced on June 20, which we will share with you in our next engagement. While we have grown sequentially on a quarterly basis, our revenue in FY '24 has dropped on year-on-year basis by 8%. Our stand-alone FY revenue is INR 2,450 crores, while total income is INR 2,5553 crores. Though we expected to do a bit better on revenue, however, holds on work front on our SNRP and VARP projects and continued challenge on our ESR construction and UP JJM project led to deferment of revenues to FY '25. I want to assure you all that our teams across the Transportation and Water verticals are continuously solving these issues on real-time basis. I would also like to mention that in FY '24, we achieved EBITDA of INR 439 crores on stand-alone basis, which is the highest stand-alone EBITDA for our company in any financial year. On consolidated basis, our revenue has grown to INR 2,872 crores with total income of INR 3,063 crores. This marks the highest consolidated revenue in the history of our company. Similarly, our consolidated EBITDA of INR 6,016 crores (sic) for FY '24 is the highest in the history of the company. I stand corrected, INR 616 crores in FY '24 is highest in the history of the company. I would like to emphasize that the model we follow for developmental projects is most, a life cycle of 5 years. This includes the period of project construction, stabilization and monetization. Considering this life cycle, we have delivered an average PAT percentage of over 12% in the past 5 years. The accounting classification notwithstanding this PAT percentage is a reflection of business potential and the model that we follow. The details of the financials will be covered by CFO, Mr. Lalit Jain, in his address. I'm also pleased to inform that the Board has recommended dividend of 30% on face value, that is INR 3 per share for approval by the shareholders. I want to mention that excluding the current recommendation of the Board, we have distributed over INR 700 crores by way of dividends and buybacks, which translates to a return of about INR 50 per share. Now coming on some operational highlights on major projects for the concluded quarter. Our HAM project, Aunta-Simaria, has gathered pace in execution and we anticipate this to continue as we target the completion. The bridge work is more or less -- is complete by more than 90%. The balance works are primarily road and approach, which we target to complete by Q3 FY '25. Our HAM road project of Sattanathapuram-Nagapattinam, SNRP, is progressing but I must share that this -- the pace is slower than our plans. We have interacted with client on both nonavailability of potash and earth materials and delays in approval of mines by earth for earth extraction. We remain confident to deliver the project on targeted time lines. Our EPC work of Varanasi Aurangabad NH2 is progressing well, and we are on track to meet our completion target date. It is an honor to share that our section of the national highway was selected to be inaugurated by the Honorable Prime Minister, which is a testimony to the quality of execution that we deliver for our clients. Coming on our Water vertical, our UP JJM project in the state of UP under the State Water and Sanitation Mission is progressing well and despite challenges of multi-locational distributed work. This project has crossed a significant milestone of 50% of targeted household connections. Skilled manpower shortage, especially for DSR, has affected pace of progress. We are deploying various strategies to overcome this shortage, including the precast option and also steel, which we have proposed to the plant. Dharavi wastewater treatment facility, our project to deliver the clean Mithi River has progressed well. After a period of delays in earlier quarters, we have moved ahead with the improved execution. We have planned our execution in [indiscernible] to minimize the impact of the impeding monsoon months. We are adding another significant order in the last quarter, and I'm pleased to inform that the design, build and operate, DBO, for the development of the new 2,000 MLD water treatment plant at the Bandhup Complex, including civil mechanical and electrical instrumentation work has been awarded to the company. The project is designed -- sorry, the project is to be designed and constructed within a period of 48 months from the notice of to proceed, which is still awaited, and thereafter, operated for a period of 19 years -- 15 years, sorry. The total contract value excluding (sic) [ including ] GST is INR 4,123 crores, the split of which is that the design/build is INR 2,243 crores while O&M is INR 1,880 crores. During the quarter, we continued with our efforts for development of oil and gas field blocks housed in the joint venture, Adani Welspun Exploration Limited. We submitted our EDP to the regulator for our block MB-OSN-2005/2, or what we call Mumbai block in this quarter. Subject to the approval of EDP by government, our endeavor is to commence gas production by FY '26, '27. We were awarded the contract for well design and engineering and also finalized the [ feed ] contractor. We have the approval to invest INR 100 crores into this venture in the current financial year. I would like to reiterate that in line with our prudent approach, we will commit future capital only upon clear visibility of commercial viability. As I conclude, I'm delighted to share that Welspun Enterprises was bestowed with 2 national accolades at the 15th CIDC Vishwakarma Awards - Construction HSE Award and [indiscernible] and supervision award for UP JJM Mission and our EPC work at Varanasi Aurangabad road project. With this, I now hand over the call to Mr. Saurin Patel, MD of WME.

Thank you, Sandeep, and good afternoon, everyone. I'm happy to share that we have clocked the highest quarterly revenue in Q4 FY '24 at INR 141 crores. Our revenue for full FY '24 is INR 411.8 crores. This marks a growth of approximately 30%. Having completed the process of integration with Welspun Enterprises, I'm extremely optimistic of increasing our growth momentum in FY '25 and beyond. This performance has been consistent from a margin perspective wherein we have achieved an EBITDA margin of 23% for the full year, which translates to a whopping INR 99 crores. Both our current projects as well as potential new wins give me immense confidence of sustaining these margin levels. We have currently 18 projects, which are spread across micro tunnelling, segment tunnelling, marine works, pumping stations, rehabilitation of underground sewer lines and bridge construction. These combined projects give us an outstanding order book of approximately INR 1,627 crores (sic) [ INR 1,637 crores ], with INR 170 crores of operations and maintenance. This order book is largely executable over the next 36 months. I must add here that I'm not including an order of INR 170 crores from the MCGM to rehabilitate underground sewers using glass reinforced polymer liners, where Welspun Michigan has been declared L1. I would like to reiterate that we foresee vastly larger opportunities ahead. These opportunities are both from new geographies due to Welspun's worldwide reach as well as new initiatives that we are evaluating such as working with new technologies. We have been an engineering solution provider for urban and infrastructure needs, which is a niche area, and we wish to operate in the specialized niche areas of tunneling and water rehabilitation projects on a larger scale. Historically, we have been a very profitable company and our EBITDA growth over the last 3 years has been a CAGR of 33%. I would now like to share a brief on an exciting new technology partnership that we will be introducing to India. [ SmartOps ] is a cutting-edge technology to convert gray water into an asset. It is modular, scalable, cost-efficient and easy to deploy technology in a water body or drain point to rejuvenate or recycle the water, river, sewers, ponds and lakes. This involves biological treatment of wastewater with minimum wastage and provides tertiary treated water, portable water, for commercial and domestic use. Besides [ SmartOps ], we at Welspun Michigan Engineers are pioneering hyper-tunnel, which will replace or substitute in part the existing methods of BOTs pushing for road under bridges and the widely used NATM method for hand mine tunneling; a unique combination of proven technologies using artificial intelligence, 3D printing and swarm robotics, from diverse industries to build a tunnel and enhance any underground scheme. This is a new approach, a radically new approach, which is safer and more sustainable than current techniques and it is claimed to be 5x faster than the current rates. Our order pipeline is healthy and with the rollout of the new technologies for the future that I mentioned earlier, we retain our sights on projects worth INR 20,000 crores. We will be bidding for these on a selected basis. With this, I will close my remarks and hand the call to Lalit Jain, CFO of Welspun Enterprises Limited, for updates on the financials. Over to you, Lalit.

Thank you, Mr. Saurin, and good afternoon to everyone, and many thanks for being part of this call. I'm sure you would have had an opportunity to review our financial numbers published. Our stand-alone FY '24 total income is INR 2,553 crores and PAT is INR 285 crores for FY '24. I'm happy to inform that we have delivered the highest reported EBITDA of INR 439 crores, which work out to a margin of 17.2%. For quarter 4 FY '24, our revenue from operations stood at INR 644 crores and other income, our total income was at INR 665 crores. We reported an EBITDA of INR 97 crores, which works out to a margin of 14.5%. Our profit before tax for Q4 FY '24 is INR 87 crores, which works out to 90% conversion of our EBITDA to PBT. This is predominantly because of our unique business model. This gives us the ability to retain a very large part of our EBITDA. I am confident we will continue to scale our operations while being true to the successful model. You may recall that we have given a guidance of reported EBITDA margins in the range of 13% to 14%. We will maintain this. Our income has dropped by 64% -- Our other income has dropped by 64% to INR 22 crores from INR 60 crores in Q4 FY '23. This is due to the high Welspun Q4 FY '23, where we had the large part of our proceeds from the assets sale to Actis on our balance sheet. Likewise, our finance cost has dropped 67% year-over-year to INR 8 crores in this quarter since we retired NTV that were outstanding in Q4 FY '23. I do not anticipate an increase in [indiscernible] from these levels in the near future. Our effective tax rate will be 25% in the normal course. But for this quarter, it is close to 28% due to additional tax provisions taken from [indiscernible] years. Our stand-alone profit after tax will be INR 64 crores. Please note this is not comparable with Q4 FY '23 numbers. There was an asset sell transaction we undertook with Actis highway in December 2022, which resulted in additional income of INR 37 crores. Now coming to our consolidated numbers. Our concept FY '24 total income is INR 3,060 crores and PAT is INR 319 crores for FY '24. I'm happy to inform that we have delivered the highest consolidated reported EBITDA of INR 616 crores, which worked out to be a margin of 20.1%. For Q4 FY '24, our revenue from operations stood at [ INR 821 crores ] and along with other income, our total income was at INR 867 crores. We reported an EBITDA to INR 157 crores, which worked out to a margin of 18.1%. Our PBT INR 120 crores and PAT stands at INR 78 crores. I would like to mention that due to consolidation of Michigan Engineers as a subsidiary, the contribution of Michigan Engineers towards EBITDA is INR 31 crores. However, 49.9% of Michigan's PAT has been reversed due to minority interest. We have a strong balance sheet with the net debt of INR 923 crores as on 31st March 2024 at stand-alone level. The reduction of INR 625 crores as compared to 31st March 2023 is on account of buyback worth INR 289 crores, payout for MEPL acquisition of INR 137 crores, followed by the equity investment of INR 156 crores in ongoing projects. And the remaining amount, used for the working capital. Now I transfer this call to Mr. Garg. Thank you.

Thank you, Lalit. Now, before we open the forum for question and answers, I would like to correct myself. Apparently, while talking about the new wins for which we have been declared L1, I said the name of the client wrongly, and I would want to correct myself to say that post our results, we have emerged L1 in one of the MSRDC road projects, that is in Maharashtra, where our quoted price is approximately INR 1,864 crores. I would request to bring this correction on record. With this, I will request that the floor be opened for question and answers. Over to you.

[Operator Instructions] The first question is from the line of [ Siddarth Singh ] from Green Portfolio.

Am I audible?

Yes, you are.

So my first question is, as the semiconductor industry is witnessing a growing demand for the ultrapure water, so, sir, does our company have a technology to build an infrastructure for that? Or how we are seeing that opportunity?

Can you repeat the question, please?

Sir, I'm saying that in semiconductor industry, there is a need of ultrapure water. Okay? So, sir, as we are into the water infrastructure segment, so do we have -- we are targeting that technology also? Or what are our take on that ultrapure water?

So let me respond to this question by saying that we are not into technology per se ourselves of development, okay? We use the existing technologies to deliver projects. In terms of the technology associations that we enjoy at this point in time, we enjoy a relationship with Xylem, which is world's one of the largest water treatment and product supplier. We also enjoy our relationship with Veolia, which is the largest water treatment technology supplier. So technology is something which we have an access to anything that we should -- should we require for a particular project. Michigan on its own, Welspun Michigan on its part, is associating with new technologies and new ways of achieving desired results, but that technology is not targeting ultrapure water. So I hope I've answered the question.

Yes. Okay, sir. And sir, can you give the detail of current bid pipeline? So how much order you have bidded for in Water and Transportation verticals and also the historical conversion rate?

So normally, in the Water, our conversion rate is extremely high because we have bidded very selectively. Now, talking about the opportunity on Water business, there is a huge opportunity, as we all know. The short-term opportunity of pipeline that we see at the top of the [indiscernible] is about INR 1 lakh crores in the areas that we are interested in. So this is a short term, which means that we expect these to fructify in FY '25. As we speak at this point in time, there are no open bids on Water. There is an open bid on our Transportation section, but there are no open bids on the Water segment.

The next question is from the line of Dhananjay Bagrodia from ASK.

Congratulations on good set of numbers. I wanted to ask you, you mentioned that there's a INR 3 lakh crores project for Water available which out of that, how much would be addressable to us and over what segments are you seeing this INR 3 lakh crores?

So approximately see, that's a larger canvas, which is a short-term and a medium-term by Water segment. The segments that we have targeted are primarily distributed in 3 hedge. That is the transmission, treatment and distribution. So treatment per se includes the water and a sewerage or a wastewater treatment, desalination and river rejuvenation. So in treatment, we cover 3 aspects, while transmission includes the pipeline and the river-linking works. So if I were to look at this total canvas, we see opportunities in the Maharashtra of about INR 1,25,000 crores; in the Madhya Pradesh, about more than INR 50,000 crores; in Uttar Pradesh, approximately INR 17,000 crores, and the list goes on.

So in this INR 3,00,000 crores, how much would be [ responsible ] to us? Say, would it be only the lag of treatment because the pipes would come in corp's, right? So that won't come in, the transmission part will come to us. So only the treatment part will be to us, right?

No. So when I'm talking about these are the project values, which we can do, which we can target in terms of construction contracts, now EPC basis. Now with -- the pipes have to be bought from our company, whether it is Welspun Corp. or any other company. That will be a supply for the company which wins it rather than anything to us. So it's not excluded there.

Okay. And in terms of -- so regarding this right now in the Water opportunity, which is coming back to the same thing, so INR 3,00,000 crores, is there any idea in terms of like when this could be executed by or how would it go? And how are we seeing in this Jal Jeevan Mission? On their official website, they are above 80% in terms of their targeted households. Is that something which you think we are ending the cycle? How are we looking at that?

Sorry, could you repeat the last part of your question, please?

So on the official Jal Jeevan Mission, on their website, they say that a significant portion of their water of taps, which they wanted to reach are done. But there's not been -- nothing has been explained on how much is now for the river linking. So how do we see that segment grow? Because I believe the tap, the last leg has been done in most of the households.

So household connections, the government is pretty much focused on delivering it. And the official website, I haven't browsed it, so I will take it on a face value that is what we've done. But as far as the orders that we have, we have crossed the household connections of more than 50% on 31st of March. And the pace at which it's growing, I'm sure we would be somewhere close to 65%, 70% at this point in time. However, the government is -- in terms of the water interlinking, the river interlinking, the projects are just about to take off. They will be bidded going forward after the elections are over. That's what our anticipation is. So that this -- that work will start unfolding from FY '25 and go for a few years going forward.

Okay. Okay. And so -- okay, so -- okay, fine. So for us, now since we are not in the last leg of distribution, since we are in transmission treatment, for us, the opportunities will be much bigger going ahead vis-à-vis some of the PVC players who are in the distribution part. Is that the right way to answer this?

So I think we -- I would want to correct that we are already in distribution. If you look at it, we -- the vast water project is distributing water to the industries in MP. And in UP JJM, we are already doing distribution to the villages, about 1,070-odd schemes, about 2,500 villages. So we are already in distribution. So it's not [ arena ], which is outside our capability to deliver projects.

Okay, fantastic. And sir, lastly, in the order book, we have around -- roughly around INR 14,000 crores. How do we see that executable over time? And how should one look at those numbers?

So as we look at it at this time, I would want to say that the FY '25 looks healthy. We anticipate from the orders that we already have in hand somewhere around INR 3,000-plus crores of revenue should mature on a stand-alone basis for the Welspun Enterprises. And the orders that are in the offering, we expect that we will be able to add another about INR 300 crores to this number. And in terms of the consolidated level, we do believe that we will be somewhere around INR 4,000 crores on a consolidated basis.

Okay. So it's fair enough to assume that 1/3 of the order book is executed over every year, more or less?

Yes.

Okay. Fantastic. And lastly, just coming around, are we looking at any CapEx number for the year? How should one look at that?

The CapEx number, as I -- we pre-committed CapEx at this point in time into the business is approximately -- for the HAM project is approximately about INR 200 crores and about INR 100 crores towards the oil and gas. The balance cash flow -- balance cash reserve is available for any further growth of the business.

The next question is from the line of Shree Krishna Agarwal from Agarwal Consultancy.

Hello. Am I audible sir?

Yes.

Just wanted to know, sir, you have the existing order book of around INR 15,661 crores, including your subsidiary. So your normal time limit is 3 years for completion of the project. So can we assume that the annual turnover will be decreasing to INR 5,000 crores per year.

As I just said that we would give you -- that we expect the turnover for FY '25 on a consolidated basis to be around INR 4,000 crores.

The next question is from the line of Nirav Shah from GC Holdings.

So firstly, I mean, from our press release, we've mentioned that we have 5 road project bids where the results are awaited. But I believe this would be the yesterday. And does it include the recent [indiscernible] order win where we are [indiscernible] -- not [indiscernible], but where we are [indiscernible]?

Yes. So the -- out of the 5 open bids at that point in time, when we went to the press release, 4 have opened. And 1 of them, we have opened -- emerged L1. There's 1 bid which is still not open, which is at NHAI. So we are awaiting that result whenever it opens.

Perfect. That's the first question. Sir, second question, I mean, we've mentioned that we've derived -- we mentioned the Michigan top line at around INR 141 crores for the quarter. What is the corresponding EBITDA impact for the quarter from Michigan?

Give us a second, we will give you the number.

Sure.

The corresponding EBITDA is INR 99 crores for the full year. Just give us a second. We'll just look at the number. For the quarter, Michigan EBITDA is INR 32 crores.

INR 32 crores. Got it. Fair point. And last quarter, we gave a guidance of INR 500 crores for Michigan, but if I just derive the consol minus stand-alone, I understand that we've given a guidance of INR 3,000 crores on existing book plus another INR 200 crores to INR 300 crores on the new wins. So our Michigan guidance would be approximately INR 600 crores to INR 700 crores for the current year?

That is correct. It's really about INR 600-plus crores.

INR 600-plus crores. Perfect. And another last question is, sir, from when will we start the execution of Bandhup project?

As I stated in my opening statement, we are awaiting the notice to proceed. I think post the election process is complete, we should get the notice to proceed. And thereafter, we will start the work. If it is very close to the monsoon period, we will not hit the ground. We will hit the ground post the monsoon period.

Post the monsoon period. Perfect. And on Michigan, just lastly, the INR 600 crore top line would be at stable margins of existing 23%, 24%. Am I correct in assuming that?

That is correct.

Great. Great. Thanks, sir, for an encouraging guidance. Looking forward to re-meeting the -- our own expectations, sir. Great. All the best, sir.

Thank you.

[Operator Instructions] The next question is from the line of [ Rashil Javi ] from Crown Capital.

Congratulations on a great set of results. I hope I am audible.

Yes, you are, [ Rashil ].

Yes. Sir, a lot of my questions have already been answered. I just wanted to just picture in a bit in terms of the margin side. So on a consolidated basis, our margins stand at 15%, right? Because INR 600 crores will be at a higher end than our normal 13%, 14% margin in the stand-alone. So is that a fair assumption, sir?

For Michigan, you are talking?

No, on a consol blended basis.

Consol basis of the margin, is -- if I get you correctly, the question is what is our guidance on the margin for the FY '25 on a consolidated basis.