NCC — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Questions and answers
Moderator · Conference Operator
Thank you very much Sir.
We will now begin the question-and-answer session.
Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line of Ankur Sharma from HDFC Standard Life Insurance.
Please go ahead.
NCC Limited May 11, 2022
Ankur Sharma
Good afternoon and thanks for your time Sir.
I just have two questions.
One when I look at your order inflows for Q4 is weak so just trying to understand what has led to this, typically Q4 is the strongest in terms of the orders finalization I think we were also looking at upwards of Rs.
14000 Crores of orders for the full year so what led to this weakness, is it delays in finalization, do you think that will pick up in the coming quarters and also what kind of orders are you looking at in FY2023 and which sectors please?
Y. D. Murthy
For the year as a whole for FY2022 bagged about Rs.
9900 Crores of fresh orders they are slightly less than what our expectation is which is at Rs.14000 Crores.
You are right in the Q4 we could not get some orders which we were expecting.
This order award is like a game some you win some you lose, so we had a sort of a temporary setback as far as Q4 is concerned, but as far as FY2023 is concerned we are very confident order execution will be pretty strong and some of the orders we missed out in the Q4 they should be coming back to us in the Q1 of the current year as well as in the remaining quarters as well and also as you know we are focusing on Jal Jeevan mission projects, we are focusing on metro projects, we are focusing on expressways, we have started bidding for hybrid annuity projects.
Right now we have an order book of Rs.
40000 Crores so all these are big positives as far as the company and its business is concerned.
Q4 we had a setback I fully agree with you, you have asked the right question, but I want to assure you it is only a temporary setback as far as Q4 is concerned and order increase is likely to pickup in the current financial year.
Ankur Sharma
Is this an industry wide deferral that you see that orders have not been finalized or is it that the loss of some large orders or projects?
Y. D. Murthy
No, with these sorts of projects some will win some will lose.
Some big orders we expect in the Q4 could not materialize because other competing construction companies have bidded better rates or lower rates than us and as you know we always see that we maintain proper margins and we never bid aggressively that also could be one of the reasons, but as I told you it is only a temporary blip in our long journey and we will bounce back in the current financial year.
Ankur Sharma
Just one more any guidance on topline and margins for 2022, I do not think you mentioned the number, but any numbers you can share topline margins and order inflow for 2023?
Y. D. Murthy
We have not yet decided.
The Board has not yet decided the topline and turnover numbers of shorter attrition so at this stage we will not be able to say with you anything on those lines.
Maybe once the Board approval is there in place and the management thinking is clear we can share it with you, but give us some time, right now I cannot give you any topline number as far as FY2023 is concerned.
Ankur Sharma
Thank you and all the best.
Moderator · Conference Operator
Thank you.
The next question is from the line of Shravan Shah from Dolat Capital Markets.
Please go ahead.
NCC Limited May 11, 2022
Shravan Shah
Thank you.
Sir just continuing the previous participant’s question I understand the Board has not finalized but last time we were looking at the Rs.
36000 Crores order book at standalone, the broad range what can be expected in terms of the topline and in order inflow as you mentioned that we will bounce back so can we expect on Rs.
15000 Crores plus kind of inflow for FY2023?
Y. D. Murthy
That is very much possible definitely.
For example, if you go back a little.
In FY2021 for example we bagged Rs.
18000 Crores of orders.
FY2022 it is only about Rs.
10000 Crores, but I am very sure but anyway let the Board to decide and communicate.
We will be able to share it with you definitely Rs.
14000 Crores, Rs.
15000 Crores in FY2023 should not be a problem according to me.
Shravan Shah
On the revenue front 15% to 20% growth given the kind of order book that is feasible though I understand a formal guidance is not there.
Y. D. Murthy
That is very much possible.
We have done 10% to 15% growth in current financial year FY2023 is very much possible.
Shravan Shah
Sir the main question is on the margin so I understand given the kind of commodity pressure so far this quarter we have seen a significant contraction in the EBITDA margins to 8.5% because previously we were looking at 11%, 12% so do you think this pressure will continue at least for the next couple of quarters and broadly how do you see for FY2023 the broad range in terms of the EBITDA margin?
Krishna Rao
EBITDA margin because of this exceptional price spiraling in Q4 as well as 2021-2022 there is a dip.
Apart from that last year as I mentioned there was a special exceptional item but we aim to have that around 10% which is quite possible.
Shravan Shah
Lastly on the debt front I wanted to congratulate that we have reduced our debt significantly to close to Rs.
1200 odd Crores so how do you see this number by end of FY2023 so has this number also increased by April and May now or is it remains at the same level?
Y. D. Murthy
It is difficult to give a number right now.
What I can say is FY2023 year end numbers if you are targeting the management is very keen to see that this number remains between Rs.
1200 Crores to Rs.
1500 Crores.
Other than that in the meantime because of our work pressures and working capital requirements the working capital limits utilization may go up that always happens but there is nothing to be alarmed about.
In our kind of business these things happen as my colleague was mentioning in the month of March we received nearly Rs.375 Crores of payments so naturally we park them in our cash credit accounts in the banks so that the debt at the end of the year is minimized, but later on when the work is progressing and requirement of funds is there we will start drawing those funds, there should not be cause for worry at all.
Shravan Shah
So accordingly we can see the sizeable reduction in finance cost as a full year business FY2023?
NCC Limited May 11, 2022
Y. D. Murthy
Yes.
That is the aim.
Shravan Shah
Thank you Sir.
Moderator · Conference Operator
Thank you.
The next question is from the line of Parikshit Panchal from HDFC Securities.
Please go ahead.
Parikshit Panchal
Sir the first question is on the AP receivables so if you can tell us what was the total AP opening net exposure and what is the total AP closing exposure of FY2022?
Krishna Rao
AP we have categorized into two one is that the old orders, old orders we have at the beginning Rs.
2903 Crores and we have executed Rs.
214 Crores there is a scope change to the tune of Rs.1584 Crores.
Closing order book with regard to the old project is Rs.
1104 Crores and exclusive new projects at the beginning of the financial year Rs.1268 Crores and we secured another Rs.
1900 Crores, executed Rs.
62 Crores, and closing order book Rs.
3106 Crores.
Old and the new together AP as a whole at the end of the financial year order book stands at Rs.
4211 Crores.
Parikshit Panchal
What will be the receivable positions and net exposure in April now old and new orders?
Krishna Rao
Receivables stands at, there is a sizeable reduction as I was mentioning to you considering that the value of the orders executed to the tune of Rs.
250 Crores there is a reduction in the total receivables as well as the unbilled revenue total Rs.
149 Crores there is a reduction.
Now the receivables stand at Rs.
510 Crores.
Parikshit Panchal
On the old capital city projects which we have removed from the order book on that if you can quantify on that project where we had done some work so start of the year net position and closing year net position if you can give that number?
Krishna Rao
Those projects we have not removed, whatever we are doing the government has given the permission one by one project and where we are able to complete and there is a specific directions to go ahead to complete and we have also received as I mentioned to the tune in AP Rs.
384 Crores so far so we are taking up as per the directions of the government like APTIDCO, MLA, IAS quarters, those are in the final stage of completion.
Parikshit Panchal
The projects to the tune of Rs.
12000 Crores to Rs.
13000 Crores which we had canceled earlier removed from the order book including everything I think about Rs.
16000 Crores we had removed on that order we had executed some work so have we realized any payments on those projects especially the ones which were removed from the order book?
Krishna Rao
Nothing outstanding from these because there is no movement in these orders only we canceled.
They have not started and stalled.
They are only without any movement these projects they have been removed.
NCC Limited May 11, 2022
Moderator · Conference Operator
Thank you.
The next question is from the line of Ashish Shah from Centrum Broking.
Please go ahead.
Ashish Shah
Good evening and thank you for the opportunity.
Sir one is that if I look at the consolidated numbers and the standalone numbers in Q4 there is a negative difference of around Rs.
30 Crores so what could have been the reason why the consolidated profit was lower than the standalone profit?
Krishna Rao
You mean to say that the difference between consolidated PAT and standalone?
Ashish Shah
Yes Sir.
Krishna Rao
Where in standalone we need to provide the provision for the investment if there is a loss in any company whereas in consolidated it gets knocked off only in NCC Vizag Urban as I was mentioning the equity disposal our share is Rs.
199.50 Crores whereas the same in standalone books it is Rs.
149 Crores whereas only Rs.
7 Crores was knocked off in consolidated that is the main difference.
Ashish Shah
But even if I am looking at pre-exceptional numbers the standalone Q4 pre-exceptional and pretax profit was Rs.
143 Crores and if I look at the consolidated I think it was about Rs.
111 Crores or so, so even prior to considering any of the exceptional items there is a negative difference?
Krishna Rao
No we have other companies where there are some companies there is a profit and some companies definitely there will be a loss.
Ashish Shah
Right so which entities would have reported a loss Sir in the subsidiaries?
Krishna Rao
Subsidiaries it is only we are at the closure of that international and some of the companies which were required to make a provision for investment only two companies.
Infrastructure Holdings with regard to the Taqa interest there is a provision and PDTL there is a provision.
Only these two provisions have been made in the books of accounts.
Ashish Shah
Sure Sir.
Also in terms of the interest cost if you can just give us a breakup of the total interest cost we have reported and the capex requirement for 2023?
Y.D Murthy
The interest cost breakup for the Q4 is like this.
Interest on term loans Rs.
1.10 Crores.
Interest on cash rate and WCDL is Rs.
38.89 Crores.
Interest on mobilization advance Rs.
27.31 Crores, interest on others is Rs.
16.37 Crores, total is Rs.
83.67 Crores.
BG commission Rs.
27.39 Crores, LC commission Rs.
8.39 Crores and bank and other finance charges in the Q4 Rs.
3.68 Crores, total for the quarter Rs.
123.13 Crores.
The numbers for the year as a whole is Rs 459.6 Crores the total finance cost for FY2022. NCC Limited May 11, 2022
Ashish Shah
Just to confirm the numbers, the outstanding net exposure from AP in terms of working capital is 510 Crores correct?
Y. D. Murthy
Yes.
Ashish Shah
Thank you and all the best to you Mr. Murthy.
Have a great life ahead Sir.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Nikhil Abhyankar from Dam Capital Advisors Limited.
Please go ahead.
Nikhil Abhyankar
Good evening Sir and thank you for giving me this opportunity.
I just had two questions.
How will we use the money from the sale of NCC Vizag and do we have any more monetization plan ahead?
Y. D. Murthy
NCC Vizag Urban as my colleague was explaining as of now we have issued only Rs.
47 Crores the balance equity is coming in three quarterly installments so by FY2023 the balance amount of out of Rs.
199 Crores Rs.
47 Crores is received balance will come, that will be used for our working capital and also the reduction in the debt in the standalone balance sheet.
Now the other thing is Rs.
308 Crores of loan is there that about 50% is expected to come in FY2023 and the balance 50% in FY2024. These moneys also as and when they come will be utilized for working capital purpose only.
We have very little termed it on our books, which means we are moving towards a direction of becoming it debt free company and also, we have told you that cash on books is about Rs.
600 Crores and we are targeting and negotiating with the banks to reduce the cash margin on Rs.
558 Crores is cash and bank balances and if we succeed in convincing the banks and the cash balances lying with the banks on account of bank guarantee cash margin that money will also come back into the system.
So the company is moving towards a situation of becoming a debt free company in maybe the next two to three years.
Nikhil Abhyankar
Understood Sir and one more question Sir.
We are L1 in Mumbai for which project Malad I guess?
Y. D. Murthy
Yes.
Nikhil Abhyankar
How did we end up bidding for the same because earlier in the question we also said that we are focusing on JJ and metro and expressways so what was the thought behind it?
Durga Prasad
We have submitted our bids.
It is under process.
Now we cannot disclose any details with regard to this.
Y. D. Murthy
We have water and environment division; there are a lot of sewage treatment plants across the country we have done a number of projects and wherever opportunities are there we start bidding for them.
NCC Limited May 11, 2022
Nikhil Abhyankar
Understood.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Vibhor Singhal from PhillipCapital.
Please go ahead.
Vibhor Singhal
Good evening Sir.
Thanks for taking my question and Murthy Sir congrats for retirement and wish you a very happy life ahead.
Sir my question was basically two questions one is on the margin front and the other on the overall debt front, so on the margin front I think you mentioned that around 1.1% was the impact of commodity prices and there was no impact of the other exceptional items in the last year in the same quarter, but if I look at it on a quarter-on-quarter basis also our margins have kind of around 200 basis points so on a quarter-on-quarter basis if I compare it with the December quarter is the entire impact due to the commodity price inflation and if that is the case then how much of it do you expect to basically come into our margins in the next two quarters, I know for the full year you mentioned the margins are expecting maybe around 10%, but do you expect this pressure to be there in the next two quarters also on the margin?
Krishna Rao
You are aware that in April and May compared to the peak of the prices of 2021-2022 have come down so thereby we are confident we will be able to maintain the 10% Q1 and Q2 all the entire year.
Vibhor Singhal
Specifically in this quarter the margins came at 8.5% as compared to 10.8% in the last quarter so this entire drop was all because of commodity price is it?
Krishna Rao
I mentioned the two the expositional item of the previous corresponding quarter represents 1.4% and only 1.2% is the material impact.
Vibhor Singhal
That 1.4% you are mentioning is for the December quarter for last year Q4?
Krishna Rao
Corresponding previous quarter of the previous year I think.
Vibhor Singhal
So I am asking about Q3 December quarter?
Durga Prasad
Q4 FY2021 there was a claim of 121 Crores considered so which is equivalent to 1.4%.
We do not have any claims accounted in Q4 FY2022 so that 1.4% and material cost impact of 1.2%, so all put together about 2.6% has come down when compared to previous year Q4.
Vibhor Singhal
I got that Sir.
I was comparing Q3 FY2022 to Q4 FY2022, where the 200 basis points drop that is because of commodity price right?
Durga Prasad
Yes right.
Vibhor Singhal
Because in Q3 there was also no exceptional item?
NCC Limited May 11, 2022
Y. D. Murthy
Yes.
Vibhor Singhal
Got it Sir.
Thank you so much.
My second question was on the debt front so could you take us through that we have reduced the debt by more than Rs.
600 Crores compared to last quarter itself so what is the kind of reduction in the overall interest expense that we can expect for next year, so as you rightly mentioned that this year we have kept our interest expense at the same number but as a percentage of sales it has come down so this Rs.
450 Crores number that we are looking at this year what could be the ballpark number that we could expect this to come down next year?
Y. D. Murthy
Vibhor now banks are increasing their interest rates.
As you know Reserve Bank has increased the policy rate by 40 bps the MCLR rates are going up so the interest cost is likely to go up and I do not think the BG commission cost will come down so I think the finance cost for FY2023 will remain at say 4.5% of the turnover of the company.
As a bank as I was mentioning 4.5% to 5% but we are confident we will close it at the lower end of the bank for FY2023 also.
Vibhor Singhal
Got it Sir.
Thank you so much for taking my questions and wish you all the best Sir.
Moderator · Conference Operator
Thank you.
The next question is from the line of Prem Khurana from Anand Rathi.
Please go ahead.
Prem Khurana
Thank you for taking my questions Sir.
Sir two questions so to begin with I just want to get your sense on Jal Jeevan mission orders, if I remember correctly last call when we spoke I think Jal Jeevan mission order was a key contributor to the topline right so is the situation is the same in this quarter as well wherein these orders would have contributed a large chunk and also if you could share your thoughts on how has the payment cycle been with these orders of Uttar Pradesh?
Krishna Rao
There was a delay in finalization of the DPR and consequently the contract agreement.
Now for all the projects the DPRs and the necessary approvals have been in place.
Contract agreements have been entered.
The diffusion has started.
The last financial year there was a turnover to the tune of Rs.
205 Crores this year we have done about Rs.
1217 Crores and the payment the delay absolutely we are able to realize well in time.
Prem Khurana
Sir what proportion of the total Jal Jeevan mission orders would we kind of generally under construction as of now because you will take up these orders in phases you decide on the number of (inaudible) 48:04 that you want to start with, go and get the details approved so how much or what proportion of the total order backlog would be operational or under construction as of now?
Krishna Rao
I mentioned as well (audio cut) 48:15 this should be completed and which we are planning to complete as per the contract agreement.
NCC Limited May 11, 2022
Prem Khurana
Sure and Sir second question was I am sure the way your commodity price have moved up and you would have engaging with the clients wherever you have this price escalation clause is in place with these orders so how are the clients kind of responding to your request when we seek adjustment in the project cost?
Krishna Rao
It is ongoing.
Wherever we have the price escalation clause in the contract and as per the contract terms we are raising our PV bills based on a monthly or quarterly, which the client is certifying and we are realizing it is a continuous process.
Prem Khurana
We are not facing any issues in terms of getting these escalations approved?
Krishna Rao
No issues.
No problems.
Prem Khurana
The kind of reduction I am seeing in the debt I think a large part of it is also because of higher trade because if I remember my numbers correctly our trade payables at the end of this year are around 4300 odd Crores and last quarter these were at around 3800 Crores so would you be able to share why is this large jump on a sequentially base payables and is it fair to assume this is temporary and it will go down next quarter or a quarter after that?
Krishna Rao
The prime reason is you are aware that the material prices are increasing and in order to curtail the price increase the conscious decision was taken for some of the projects wherein we have procured steel and pipes it is more and compared to the previous year it is around Rs.
260 Crores inventory has increased so as a result this trade payable also has gone up.
Prem Khurana
Sure these are the questions from my side and Murthy Sir all the very best for the future.
Thank you.
Moderator · Conference Operator
Thank you.
The next question is from the line of Parikshit Panchal from HDFC Securities.
Please go ahead.
Parikshit Panchal
For FY2022 what is the total JJM revenue?
Krishna Rao
Jal Jeevan mission revenue for FY2022 is Rs.
1218 Crores.
Parikshit Panchal
What were the JJM revenues from Q4 because I remember in the last earrings call you had said that in Q3 we had almost 800 Crores of revenue from JJM?
Durga Prasad
No, Rs.
800 Crores for nine months.
In last call we told that we have done about Rs.
850 Crores revenue in the first nine months, now for entire year it is Rs.
1218 Crores.
Parikshit Panchal
You have guided for FY2022 revenue of about Rs.
5000 Crores from JJM?
Y. D. Murthy
No this is in line with the contract agreement absolutely.
NCC Limited May 11, 2022
Parikshit Panchal
Last question Sir if you can update us on the SembCorp and the Taqa?
Y. D. Murthy
SembCorp basically the arbitration got delayed because of COVID and now the arbitration hearing is almost completed.
They are likely to do their verdict.
I think by June the final phasing will be done and by September we are expecting the final verdict by the arbitration panel.
Parikshit Panchal
Capital gains from the Vizag land sale anything booked in the standalone P&L?
Durga Prasad
Yes so capital gain of Rs.
68 Crores on account of sale of Vizag Urban.
Parikshit Panchal
It is under the taxation?
Krishna Rao
It does not attract any tax outflow on account of this capital gain.
Parikshit Panchal
Is it under standalone or it will be part of the subsidiary, it is not figuring in the standalone numbers?
Durga Prasad
Standalone.
Parikshit Panchal
Because the tax rate is 22% so I was just wondering if you are saying 68 Crores is the total tax so is there any tax or deferred tax in which we have taken in this quarter?
Y. D. Murthy
When we have the carry forward loss which we were able to set up for no cash outflow.
These things you cannot discuss in the open discussion like this.
If you have any queries like this you can send us an e-mail or talk to our colleagues like Mr. Vijay Kumar or Durga Prasad whose e- mails are available with you because unnecessarily lot of time is wasted, go deeper and deeper into it in a general discussion about the Company’s business and its performance.
Parikshit Panchal
All the best to you Sir.
Moderator · Conference Operator
Thank you.
The next question is from the line of Parvez Akhtar Qazi from Edelweiss Securities.
Please go ahead.
Parvez Akhtar Qazi
Good evening gentlemen.
Couple of questions from my side so first I think in our press release we have mentioned that the standalone order book at the end of the year was about Rs.
36300 Crores and there is Rs.
3058 Crores order in the subsidiary so which subsidiary does this pertain to?
Y. D. Murthy
This is pertaining to the mining subsidiary MDO project, it is all MDO.
Parvez Akhtar Qazi
Great.
The second question is have we made any provision for the Taqa case and are there any incremental provision that might be needed in future?
NCC Limited May 11, 2022
Y. D. Murthy
Taqa we have already made a provision of about Rs.
117 Crores.
There is no further incremental provision required for that.
On the other hand we are talking with the client for an out of court settlement, because of COVID it got delayed but we hope to close it may be in the next six months or so.
Parvez Akhtar Qazi
Was this entire Rs.
117 Crores made in this quarter or was it made throughout?
Y. D. Murthy
It was made about one year back in the books of NCC Infra Holdings this provision has been made because NCC Infra is holding the shares in that company that is Himachal Sorang.
They are the investors.
The provision was made long time back.
Parvez Akhtar Qazi
Lastly I think with regard to the BMC sewage project I think the Supreme Court has already asked BMC to award it so while you might not want to comment on the order type but is it fair to assume that maybe if everything goes well maybe sometime this quarter we can get that order?
Durga Prasad
I hope so.
It is too early to comment so let us wait.
Once we get official communication, we will communicate with you.
Parvez Akhtar Qazi
Fair enough Sir.
Thanks for answering my questions and Mr Murthy all the best for your future.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, as this was the last question for today I would now like to hand the conference to the management for closing comments.
Y. D. Murthy
We thank all the participants for their enthusiastic participation.
If we are unable to take up any of your questions kindly send us an e-mail or talk to my colleagues here Mr. Durga Prasad, General Manager who is already in touch with most of you and also Mr. Vijay Kumar, our Vice President Finance and we thank DAM Capital for hosting this conference call and we will hand over the thing to the organizers.
Thank you all.
Moderator · Conference Operator
Thank you.
On behalf of DAM Capital Advisors Limited that concludes this conference.
Thank you for joining us.
You may now disconnect your lines.