PSP Projects - Construction Company

Stock Opportunities Untested - but worth a good look
204

Q2 FY24 Concall Notes

Project Awards:

  • 9 projects in Q2FY24; 14 in H1FY24.
  • Notable projects:
    • Commercial building in Gift City
    • Astral Corporate House Phase III
    • Expansion of a Chocolate Plant for a Multi-National Company
    • Institutional and Industrial precast orders totaling Rs.42 crore.

Project Completion:

  • Surat Smart City Development Command Center and Adani Group’s school completed.

Order Book & Projects:

  • Order book: Rs.4,898 crore (as of Sept 30, 2023).
  • Private projects: 48%, Government projects: 52%.
  • 54 ongoing projects (83% in Gujarat, 17% in UP).
  • 212 projects completed since inception (84% private, rest government).

Order Inflow:

  • Q2: Rs.175 crore; H1: Rs.934 crore (excluding GST).
  • Expected order inflow for FY24: nearly Rs.3,000 crore.

Recognitions:

  • “Contractor of the year” for 500 Crore+ projects.
  • “Excellence in Construction Sector” for “Development of Shri Kashi Vishwanath Dham”.

Financials (Q2FY24):

  • Revenue from operations for the quarter is at Rs.607 crore vs Rs. 357 crore,
    increased by 70 % YoY basis
  • EBITDA for the quarter is at Rs. 74 crore vs Rs. 39 crore, higher by 91% YoY
    basis.
  • EBIDTA Margin is at 12.15% vs 10.83%.
  • Net profit for the quarter is at Rs. 39 cr vs Rs.23 crore, higher by 71% YoY basis.
  • PAT Margin is at 6.4% vs 6.3%.

Revenue Guidance and Projected Closure:

  • Revenue guidance for FY24: Rs. 2,600 crores.
  • On track to meet the guidance, with H2 historically heavier on revenue.

Project Level Updates:

  • UP Projects: Revenue - Rs.268 crore in Q2; Rs.1,183 crore as of now.
  • SMC administrative building: Revenue - Rs.122 crore.
  • Dispute with Pandharpur: Arbitral Tribunal formed; preliminary hearing upcoming.

Future Prospects:

  • Indian economy set to double in the next seven years.
  • Infrastructure spend expected to double by 2030.
  • PM Modi’s announcement for projects worth Rs.6,909 crore in Gujarat.

Bid Pipeline Overview:

  • Bid Book: Rs.6,500 crores. (Excluding Delhi Railway Station)
  • Notable Projects:
    • AIIMS at Rewari: Rs.1,000 crore
    • Museum Project, Madhya Pradesh: Rs.1,000 crore
    • University Projects in Vadodara and Lucknow: Rs.775 crore and Rs.525 crore, respectively
    • Dharoi Dam Pkg-2: Rs.421 crore
    • Commercial Building in Delhi: Rs.350 crore
    • Museum Project in Ahmedabad: Rs.400 crore
    • Delhi Railway Station: Rs.4,800 crores (bid submission by month-end).

Project Timelines and Completion:

  • UP Projects: Expected completion by March 2024.
  • SMC Surat: Revenue in the second half similar to current quarter, progressing with structural work.

Capital Expenditure (CAPEX):

  • CAPEX for the year: Already Rs.79 crores, with an additional requirement of around Rs.10-12 crores for SMC site.

Debt Reduction and Finance Costs:

  • End of March 2024 Debt: Expected reduction, but not specified.

  • Combined Long-term and Short-term Debt: Currently Rs.377 crores.

  • Finance Cost: Anticipated to remain Rs.10-11 crores on a quarterly basis.

  • Fixed Price Contracts Percentage:

    • UP Projects: Mainly fixed price contracts.
    • Other Projects: Most private projects have escalation clauses for cement, steel, finishing materials, and pass-on mechanisms.
    • Projects like Surat follow escalation through RBI index.

Other Expenses and Run Rate:

  • Recent Changes:
    • Other expenses reduced in the quarter, with some reductions in consultancy expenses.
  • Run Rate Expectation:
    • Anticipated to be in the same run rate.
    • Historical data indicates stability; last year’s other expenses were Rs.26 crores, and half-yearly it is Rs.13 crores.

Promoter Stake:

  • Stake Changes:
    • Promoter stake decreased from 70% to 66% on a year-on-year basis.
  • Future Stake Plans:
    • No further reduction in promoter stake expected as of now.

Precast Revenue:

  • FY24 Guidance:
    • Last year’s precast revenue: Approximately Rs.75-80 crores.
    • FY24 Guidance: Estimated around Rs.225 crores.

UP Project Receivables:

  • Total Receivables (as of September):
    • Unbilled revenue for UP project: Around Rs.100 crores.
    • Additional outstanding of Rs.50 crores from the previous month.

SMC Project Execution for FY24:

  • Execution Outlook:
    • SMC project currently in the structure stage.
    • Anticipated pace: Similar to the current stage until March 2024.
    • Expected revenue for FY24: Around Rs.140 - Rs.150 crores.

Investment in Precast Facility:

  • Recent Expenses:

    • Expansion at the mould level incurred expenses of Rs.14-Rs.15 crores.
    • Investment primarily related to fulfilling requirements for the bullet train project from L&T.
    • Additional shed constructed for infrastructure.

  • Future Investment:

    • No significant future investment expected in the precast facility.
    • Current investments have addressed both mould and infrastructure requirements.

  • Total Investment: Rs. 160 crores – Rs. 165 crores

    • Initial Phase: Rs. 110 crores
    • Subsequent Phases: Rs. 51 crores

  • Phases Commissioned:

    • All three phases confirmed operational.

Production Capacity Expansion:

  • Increased Capacity:
    • Initial: 1 million sq. ft.
    • Current: 3 million sq. ft.
  • Clarification on Measurement:
    • Challenge in converting to sq. ft. due to mold variations.
    • Presently focused on cubic meters of concrete daily.
  • Future Clarity:
    • Square feet clarity expected in residential or commercial building projects.

Debt and Working Capital Analysis:

  • Gross Debt Projection:
    • Expected to remain over Rs. 300 crores.
  • Cash Conversion Days:
    • Current: 42-43 days.
    • Anticipated Reduction: Less than 40 days, nearing 30-35 days.

Order Inflow and Diversification:

  • Order Book Overview:
    • Rs. 6,500 crores without Delhi project.
    • Includes substantial projects: Rs. 1,000 crores AIIMS Hospital, Rs. 1,000 crores Museum project, Rs. 775 crores University Project in Vadodara.
  • Diversification Efforts:
    • Confidence in reaching Rs. 3,000 crores order inflow.
    • Ongoing bids exceeding Rs. 2,500 crores.
    • Geographical Expansion: Emphasis on bidding outside Gujarat.
  • Revenue Growth and Order Inflow:
    • Annual revenue growth targeted at 15%-20%.
    • Corresponding order inflow growth projection: 20%-25%.
    • Confidence in maintaining revenue versus order inflow alignment.
  • Success Rate Estimate:
    • Anticipated success rate: 15% to 20%.
    • Potential conversion from the present order bid book (Rs. 6,500 crores): Approximately Rs. 1,200 crores.

Bidding Strategy and Election Year:

  • Thoughts on Bidding Strategy:
    • Current bid pipeline: Rs. 6,500 crores plus Rs. 4,800 crores for Delhi project.
    • Confidence in sustained bidding activity despite the upcoming election.
    • No significant slowdown expected in bids from government or private sectors.
  • Order Book Preparation:
    • Present bid pipeline and Delhi project size total approximately Rs. 10,000 crores.
    • Average bid pipeline consistently exceeding Rs. 6,000 crores.
    • Anticipation of bids converting into the projected Rs. 3,000 crores despite potential election-related disturbances.
  • Partnership for Delhi Project:
    • Delhi project size surpasses our maximum bid capability of Rs. 2,500 crores.
    • Likely partnership for the Delhi project due to the necessity of bridge-building expertise.
    • Confirmation of a joint venture for the Delhi project.
  • Ahmedabad Railway Station Project:
    • Tender already opened and awarded to DRA.
    • Our bid stood 3rd or 4th among 6.
    • Not part of the current bid pipeline.

Precast Mould Utilization:

  • Rail Project Mould Expenses:
    • Expenses incurred on moulds for the rail project.
    • Inquiry about the fungibility of these moulds after the rail project’s completion.
  • Fungibility and Utilization:
    • Materials produced for the bullet train project, such as ducts, can be repurposed.
    • Ducts suitable for data, electrical, and drainage applications in road infrastructure.

Bidding Discipline and Market Competition:

  • Bidding Scenario:
    • Discussion on bidding discipline and competition intensity.
    • Not always the L1 bidder, ranking 4th or 5th in some cases.
    • Commitment to maintaining 11% to 13% margins despite competition.
  • Market Dynamics:
    • Acknowledgment of industry competition.
    • Intent to avoid aggressive bidding and focus on maintaining margins.
    • Capacity to handle multiple projects concurrently, avoiding unnecessary aggression.

Litigation and Arbitration:

  • Litigation Update:
    • Inquiry about the visibility of finalizing matters under litigation.
  • Arbitration Process:
    • Confirmation of arbitration process adherence to government norms.
    • Anticipation of completion within 12 months for both ongoing arbitrations.
    • Expectation of conversion into finalization within the specified timeframe.
4 Likes