HGINFRANSEQ4 & FY22May 28, 2022

H.G. Infra Engineering Limited

11,515words

212turns

20analyst exchanges

5executives

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Management on call

Harendra Singh

CHAIRMAN & MANAGING

Rajeev Mishra

CHIEF FINANCIAL OFFICER,

Vinod Giri

HEAD (OPERATIONS), H.G. INFRA ENGINEERING LIMITED

Sanjay Bafna

HEAD (GROUP FINANCE &

Rishav Das

INVESTOR RELATIONS, PARETO CAPITAL ,

Key numbers — 40 extracted

43%

of our company delivered for the year gone by. In FY'22, we reported standalone revenue growth of 43% to reach Rs.3,615 crores, surpassing our target of Rs.3,400 crores as guided during the year. Thi

Rs.3,615 crore

y delivered for the year gone by. In FY'22, we reported standalone revenue growth of 43% to reach Rs.3,615 crores, surpassing our target of Rs.3,400 crores as guided during the year. This reinforces our belief

Rs.3,400 crore

, we reported standalone revenue growth of 43% to reach Rs.3,615 crores, surpassing our target of Rs.3,400 crores as guided during the year. This reinforces our belief in continuously delivering sustainable gro

Rs.585 crore

n continuously delivering sustainable growth. We surpassed our EBITDA target as well, reporting Rs.585 crores with 16.2% margins, which remain as guided despite inflationary pressures during the year. We

16.2%

livering sustainable growth. We surpassed our EBITDA target as well, reporting Rs.585 crores with 16.2% margins, which remain as guided despite inflationary pressures during the year. We faced severa

Rs.4,328 crore

maintaining our margin profile. Our total order inflow in terms of EPC value stood at Rs.4,328 crores for the last financial year. The total order intake for the year is slightly lower given the int

rs,

ability to ramp up significantly. The total construction of national highways was 10,400 kilometers, a decline of nearly 24% as compared to the previous year. However, the NHAI and different agencies

24%

ificantly. The total construction of national highways was 10,400 kilometers, a decline of nearly 24% as compared to the previous year. However, the NHAI and different agencies outbid last year's p

75%

ve applied for COD of the same. In DV Pkg-8, we have made good progress and have completed around 75% till date. In Delhi-Vadodara Pkg-9, we have completed around 59% till 31st of March. In Hapur-M

59%

ogress and have completed around 75% till date. In Delhi-Vadodara Pkg-9, we have completed around 59% till 31st of March. In Hapur-Morradabad EPC project, we have completed close to 78% of the projec

78%

pleted around 59% till 31st of March. In Hapur-Morradabad EPC project, we have completed close to 78% of the project and we expect to complete the project in the first half of FY'23. However, we have

56%

, likely to be achieved in June '22. In the Mancherial project of Adani, we have completed around 56%. There have been some land disruption into that, but however, again we are applying for the PCOD

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Guidance — 20 items

Harendra Singh

opening

“In FY'22, we reported standalone revenue growth of 43% to reach Rs.3,615 crores, surpassing our target of Rs.3,400 crores as guided during the year.”

Harendra Singh

opening

“We surpassed our EBITDA target as well, reporting Rs.585 crores with 16.2% margins, which remain as guided despite inflationary pressures during the year.”

Harendra Singh

opening

“Further, the government's overall plan to develop two lakh kilometres of national highways network by 2025 helps us remain confident in the opportunities the sector has to offer.”

Harendra Singh

opening

“We have made significant progress on Delhi-Vadodara Pkg-4 project, which has almost completed now and further we have applied for COD of the same.”

Harendra Singh

opening

“In Hapur-Morradabad EPC project, we have completed close to 78% of the project and we expect to complete the project in the first half of FY'23.”

Harendra Singh

opening

“However, we have applied for the PCOD of this particular project, likely to be achieved in June '22.”

Harendra Singh

opening

“In the Mancherial project of Adani, we have completed around 56%.”

Harendra Singh

opening

“There have been some land disruption into that, but however, again we are applying for the PCOD of this particular project in June '22, likely to get by July.”

Harendra Singh

opening

“In the EPC project which we received on 20th of October of Karala-Kanjhawala in Delhi, that is a UER-2, we have completed 4% of the work.”

Harendra Singh

opening

“However now this project is going well on track.”

Risks & concerns — 14 flagged

We faced several headwinds during the year, especially in the last quarter, with rising prices of key raw materials and various input cost pressures on account of disruption due to COVID, higher crude prices and geopolitical tension, etc., However, our strategy on selective bidding and constant efforts on operational efficiencies, coupled with multiple digital initiatives helped us mitigate this pressure and continue maintaining our margin profile.

— Harendra Singh

The total construction of national highways was 10,400 kilometers, a decline of nearly 24% as compared to the previous year.

— Harendra Singh

So, can you explain a little bit more, why it does happen and can we see that trend should be changing because that will be putting a pressure on the CSO, because overall CSO for this year has significantly reduced versus Rs.527 crores last year, now Rs.114 crores?

— Shravan Shah

So, it's not a long-term receivables or a stress receivables, they are all in track.

— Harendra Singh

And as a result of that, is it possible that we could see a significant amount of slowdown in bidding from such players in this financial year?

— Ashish Shah

But do you think that in the next two quarters especially Q1 and Q2, the cost pressure could actually be much higher and we could probably see some more correction in the margins and then probably recover in the second half or do you think we have enough buffer and enough stable provisions in the system to be able to maintain a steady kind of margin through the year?

— Vibhor Singhal

We have seen the margin pressure in Q4, that was visible, wherein Q1 again we cannot rule it out, because the project is in main stream of execution, all projects are being awarded to us in two, two and a half years earlier.

— Harendra Singh

So there I think you can just see completely hit where this margin pressure is there.

— Harendra Singh

So, we do expect that I think whatever stress we experienced but for Adani Mancherial project, we have never experienced.

— Harendra Singh

So there the balancing is visible that on the payments though bit of a stress in IRB and then Rajasthan project, but then again, we are able to manage and having a decent working capital cycle.

— Harendra Singh

We don't see any big challenge as far as there is increase in the competitive intensity or the people would be taking, because it's a very nominal number.

— Harendra Singh

So, I wanted to just understand in terms of the EBITDA decline of maybe about a percentage point on a YoY basis, what could be the probable contribution from input prices, and what could be the contribution from rising competitive intensity?

— Franklin Moraes

Do you feel irrespective of whether NHAI get these stress funds or even if the minister has changed or whatever, the kind of momentum that NHAI has now gained will really continue over the next four to five or six years?

— Faisal Hawa

Had it been labor stress or whatever it is, Gati Shakti which they have rolled out.

— Harendra Singh

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Q&A — 20 exchanges

My first question is what kind of guidance for revenue and EBITDA margin you expect in FY'23? And given that there is a muted order inflow, how do you see FY'24?

Harendra Singh

We already guided during our speech that we would be say maintaining EBITDA margin of 15.5% to 16% during FY'23 and our order inflow is about Rs.9,000-10,000 crores during the year. Whatever we are saying for FY'24, I think the likely order addition of Rs.9,000-10,000 during the year and with the stable commodity price hit, we can just imagine that we would be again maintaining that 16%-16.5% EBITDA during FY'24. Can you repeat revenue guidance? I didn't get it? Order inflow is 9,000-10,000 crores during FY'23. The revenue already I have given that is Rs.5,000 crores to be done during the year

Congrats on full year very good set of performance and also good to hear that Rs.5,000 crores revenue guidance, that is 38% 39% growth, so, that boosts the confidence. Sir, just to touch base on the Rs.9,000 to Rs.10,000 crores order inflow that we are looking at, can you split in terms of the EPC, HAM, how much we are looking at? So, previously we were saying that Rs.6,000 crores order in HAM we can take without going for monetization. So is the stand remains the same?

Harendra Singh

Yes, of course, I think for HAM, we are keeping a guidance of about Rs.3,500 crores of addition during this FY'23 so that we would be getting at least EPC value of Rs.3,000 crores into that. Out of Rs.9,000 crores, Rs.10,000 crores is the one and where we are looking for a certain project of say in Ganga Expressway that we have already discussed, that is the EPC project. And apart from that we are looking into Rs.1,000-odd crores of addition into other sectors which we tried for this in FY'22 even, but we could not succeed, but this year, we are very much hopeful with our team is already equip

The first question is that there seems to be a little bit change in the accounting where a part of the other income has gone and been reported in revenue. So, if you can just explain the change which has happened in terms of accounting?

Harendra Singh

Other income which was coming from other part like rental revenue, so, those have been now taken into main revenue. So, it's not a big number, it's almost a Rs.7 crores which is there. So, the rental income which we have taken is a part of the reported revenue? You can see the number change from '21 to '22. So, this is the only number which has changed. Secondly, in terms of the revenue, if we try to reconcile it from the individual orders, it seems there is some change of scope, etc., because the difference of the order backlogs is not really adding up to the total revenue that we have report

So, just to harp a bit more on Ashish's last question of Rs.5,000 crores guidance, you mentioned Rs.3,200 crores is what you're expecting from the other execution projects. This includes the Vizag?

Harendra Singh

Yes, this is all inclusive, which I am talking of Raipur-Visakhapatnam corridor, all three projects where appointed date on 31st March received by AP-1, and only five, six inclusive of that. If I look at our order book let's say total order book of around Rs.8,000 crores and out of that almost Rs.4,000 crores is already under execution and around Rs.2,000 crores will be right back to packages, so almost Rs.6,000 crores of order book. So you're expecting Rs.3,200 crores of execution from almost Rs.6,000 crores of orders. So almost 50% of the projects of this other execution order will be comple

Sir, my first question is on the Adani UP project. Can you just highlight in details about the project like what would be mobilization advances, completion bonus, execution timeline and sourcing of aggregates for the project, whether it will be provided by Adani or we should be doing through mining our own, so, a bit broader view on the project, that will help us to understand?

Harendra Singh

This project is almost a group of 51 kilometers, and for that, one is the lump sum turnkey EPC project to us, so as similar terms and conditions with NHAI except for the price variation condition, say, where we have also experienced a big hit in our EPC projects rather than the HAM projects in our last few quarters. So, we have just gone into arrangement where the clauses having the star rate price variation rather than any of the moving average or WPI or CPI has been referred to. So, there has been a significant change in the condition as far as PV is concerned. All conditions are the same. W

Just more on sector. So one, essentially, ministry of road transport and highways recently came out with a notification wherein they seem to have changed the bidding criteria for hybrid annuity, I mean, they are moving from bid price to bid project cost and O&M would be fixed as a percentage of the bid project cost. So how do you see this kind of come to impact competitive intensity that you see for hybrid, annuity, I mean, do you have the feeling that because of this limit for you to be able to kind of upfront O&M, you would see bids to turn and therefore competition would go down and we woul

Harendra Singh

Also, streamlining the disparity into O&M where I think upfront loading or forward loading was there. We don't see any big challenge as far as there is increase in the competitive intensity or the people would be taking, because it's a very nominal number. If you see any of the projects which we have bidded and we are doing, reasonable O&M has been there. So, we are doing those O&M with the same cost. They have indicated that initially 0.4% year-on-year. Coming for Rs.1,000 crores of TPC, the new project cost, is coming at Rs.4-5 crores in the initial year, later on increased to Rs.6 crores, t

For the equity requirement of Rs.490 crores as you stated for FY'23, are we confident of doing it from internal approvals or how are we planning the source of funding for this amount?

Harendra Singh

No, no, it has to be done from the internal approvals only. We don't require any debt or any equity to be raised. Sir, one thing which I notice in the presentation versus the 3Q '22 PBT, is that for OD-5 and OD-6, the land acquisition numbers, in the previous presentation were approximately 90% and in this PPT it is 80% and 81%. So is there a mistake or has something --? I think there have been some mistake into that. I think some notification was yet to be issued. Stage-I clearance was done, but stage-II was not concluded at that time. So it is because of that. Now, right number is 88% where

From a reputation point of view, you mentioned Rs.5,000 crores breakup revenue, one is like Rs.3,200 crores from the current projects, which are under execution, you mentioned something for Ganga Expressway and for AD with appointed, can you just explain that?

Harendra Singh

So, if you consider this Raipur-Visakhapatnam all three packages, within this month, appointed date for one we received and two more we would be receiving. The Rs.3,200 crores would be executed from these, six projects are there, which are nearing completion and would be completed by Q3. So, they all will be contributing majorly into those execution. And apart from that Rs.800 crores from Ganga Expressway which we are going to start say by August end and remaining Khammam-Devarapalle Package-I and II and Tumkur, that's on a Karnataka package of EPC NHAI, so, there we are expecting some Rs.1,00

Sir, just wanted to understand a bit more on the revenue guidance which you have shared. I know you have explained a lot, but just to clarify, you're saying that Rs.1,800 crores roughly is the order book of the old orders barring the new ones as such. So entire Rs.1,800 crores will get executed out of Raipur-Visakhapatnam one and Karala which has just started, you are expecting Rs.1,000 crores out of Rs.2,000 crores of order book, balance Rs.4,200 crores where you are expecting AD, you are expecting another Rs.1,000 crores and the Rs.9,000 crores kind of revenue or order inflow, you're expecti

Harendra Singh

No, probably I just correct it that the project where the appointed date is already received. It's not Rs.1,800 crores, it is coming at about Rs.3,000 crores - Karala and Raipur-Visakhapatnam one, right? Yes. Then if you include that it is coming to about Rs.3,800 crores rather. So, what I'm saying is out of those projects, we will be completing almost Rs.3,200 crores, but that includes the packages of OD-5 and OD-6 where we are going to get the appointed date within a maximum week time. So, that gives that indication that about Rs.2,200 crores of these orders, where we are likely to get the a

Harendra Singh

No, I think there is no rising competitive intensity which has impacted our margins, because these all are the projects, which were all being awarded to us some two and a half years back. So it's only price hit which has impacted the margin. The newer rate changes that the government has introduced on exports which is likely to push down the domestic prices in iron ore and steel, what is the kind of benefit that can happen for our projects? Definitely, the problem is so severe. We would be getting some relief out of it. It's not that we will be benefited. But the margins impact which has been

I have just two questions. First one being, you talked about the EPC formula correction for the cost inflation. So, is it safe to assume that whenever this new formula is being implemented by NHAI, so we will be getting the impacted PAT later on?

Rajeev Mishra

No-no, see, the formula would be of our new EPC project. It will not be having any impact for the older one. What would have been the impact on the FY'22 EBITDA, so if you could give us the quantification of roughly? No-no, I have just given the indication, then Q1 or maximum Q2, the things would be all stable, we will be coming back to the level of 16% to 16.5% EBITDA. My second question is regarding the HAM project which has received the provisional completion certificate. So from when will be the annuity like be receivable for us, and if you could give us the amount of the annuity that was

One of the small flavor is required is that recently government acquired 26% in the Safety First Engineering and Safety First Partnership. It is around Rs.9 crores investment. Any rationale behind for such kind of the small investment?

Harendra Singh

Very specific commodity which is being used with a significant miscellaneous items is a (Inaudible) 62:11 crush barrier or such kind of crush barriers. We usually are purchasing from out of the market. This is a dedicated where we have invested. There is a lot of opportunity going ahead, where I think most of the companies, they have done a backward integration, say, internally. So this is not being done wholly, but it is a significant portion being taken into as a stake in that company. We have the substantial cost saving in future? Yes, of course, I think that's why the decision has been tak

Just a couple of questions. So you mentioned about the increase in the CAPEX for FY'23 as compared to the usual run rate. So is it like, for next few years, the CAPEX would continue to remain in this elevated range of Rs.100 to 125 crores?

Harendra Singh

No, no, it's not like that. We are looking at a significant increase in the order inflow during that particular year. So, for that reason, we have indicated and then again, as in 2016-17, so this is almost four, five years plus six plus years of use. So this is the older fleet now being with latest technology, that would be added benefit in our operational efficiency, fuel economy is there. So all technical benefits are available, and then definitely getting the right value of that differentiated product. So, this makes sense that it is up to just 70, 75 crores. For this year it is at about 11

Sir, congratulations on the good set of numbers especially given the rising input costs and the inflationary environment. I had a couple of accounting questions. So, first is building on the contract assets and contract liabilities question that was previously asked. So, is it fair to expect that eventually these contract assets and contract liabilities given our work as we deliver, we should expect them to turn into cash for the business? And second, there has been a substantial increase in the non-current financial assets. I was just trying to understand what exactly goes into these and simi

Harendra Singh

The first question is about contract liabilities and contract asset. The contract liabilities, again, the mobilization advance which we usually receive in all the projects, had it be from the HAM projects and through SPV or these other projects from EPC or any private client. So, this is during course of execution, this mobilization would be recovered. But then again, they are all almost interest-bearing, it's not that they are free of interest, number two. So the contract assets are those assets, which is a part of unbilled revenue. So, we are doing those all EPC mode. So, there are a few of

Going forward, the competition is continuously rising in the tendering and most people are quoting even below the bid price. So, this will lead to destroying of many companies. So, how are we really preventing from that happening and with large players like Adani also coming in, how will we really protect ourselves from really bidding too low and going wrong?

Harendra Singh

See, we are maintaining our own standards and discipline towards the bidding at least maintaining and keeping a balance. That is only what we can say, that we are keeping quite a good control on what should be the margin, wherever we are moving as far as geographical areas, and where we can move for the company, and it will be a balancing order of our HAM and then EPC and then say private EPC even. So, that is how I think we are keeping control on those things. I cannot say much about most of the companies doing wrong and just losing because of that reason. That is all evident I think. Because

Two questions. First is we said that we have bidded for projects of around 14,000-odd crores. Is it right and if you can break it into the HAM, EPC?

Harendra Singh

I have seen that, I think it is some mistake which I have conveyed, that is Rs.1,400 crore. These are the only two projects the bid results are yet awaited, because not so much of activities, say bidding has happened in last April and May. So, these two projects are EPC projects? Correct. Lastly, on that debt front, so, given everything, strong guidance, so the debt likely to be maintained at the current level of 300, 350, that's the level that we look for at least two years? Correct.

I just had two questions. First question is on the receivables front, how much is the receivable from Adani and IRB?

Harendra Singh

Adani receivables are including the timeshare is coming at about Rs.52 crores and IRB receivables, if we take out the retention which is not yet due is Rs.167 crores. When you have given trends for the EBITDA margin of 15.5% to 16% for FY'23, does it include the early completion bonuses for the HAM projects you're going to get or not? No, no, it is not considered into it.

My question is on the HAM side. So government has recently proposed for a change in networth criteria. So what is the status on that? So you are discussing with the government, so when is this expected to get implemented, because that is very important, because most of the smaller players networth and the negative trajectory and still they're able to win projects? How do we see is to get normalized or being on that, the proposal will not get passed, because you're looking.

Harendra Singh

So there are a few modifications already been given. So that's why the bidding activity is now almost at a standstill. So they are going to do this modification very soon. What kind of modification are these, can you throw some light? One is the networth criteria, one already is the O&M criteria which they are now standard as a percentage basis of the BPC or the tentative EPC. On the Rajasthan north and Maharashtra projects, so these projects are standstill or we can see some execution from these projects? No-no, we have executed some Rs.60-odd crores during the year in Rajasthan project. So i

Sir, in the latest NHAI circular, they have expanded this relief measures for contractors and developers till 31st October '22. So how do you see this continuation benefiting you and the industry as well?

Harendra Singh

For sure, I think entire industry being benefited because of that relaxation being given. And they have also extended this timeline for submission of the performance guarantee. It's now would be 3% only till March '23. So not going to increase. With that I think everybody benefited.

So, thank you everyone for your participation in our Q4 FY'22 Earnings Call. In case of further queries, you may get in touch with Pareto Capital or feel free to get in touch with us. We look forward to interacting with you in next quarter. Thank you.

Management

Speaking time

Harendra Singh

Moderator

Jiten Rushi

Shravan Shah

Ashish Shah

Vishal Periwal

Faisal Hawa

Vibhor Singhal

Prem Khurana

Rajeev Mishra

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Opening remarks

Rishav Das

Good morning, everyone. This is Rishav Das from Pareto Capital. We represent investor relations for H.G. Infra Engineering Limited. On behalf of H.G. Infra, I welcome you all to our Q4 FY'22 earnings conference call. I have with me from the management, Mr. Harendra Singh -- Chairman and Managing Director; Mr. Rajeev Mishra – CFO; Mr. Vinod Giri -- Operations Head and Mr. Sanjay Bafna -- Group Finance & Accounts Head. We will have “Brief Opening Remarks from the Management” followed by the “Q&A Session.” Please note that certain statements made during this call may be forward-looking in nature. Such forward looking statements are subject to certain risks and uncertainties that could cause our actual results or projections to differ materially from these statements. H.G. Infra will not be in any way responsible for any action taken based on such statements and undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances. I wil

Harendra Singh

Thank you, Rishav. Good morning, everyone. Thank you for joining us on this call and hope all of you and your families are keeping healthy. I'm immensely proud of the performance of our company delivered for the year gone by. In FY'22, we reported standalone revenue growth of 43% to reach Rs.3,615 crores, surpassing our target of Rs.3,400 crores as guided during the year. This reinforces our belief in continuously delivering sustainable growth. We surpassed our EBITDA target as well, reporting Rs.585 crores with 16.2% margins, which remain as guided despite inflationary pressures during the year. We faced several headwinds during the year, especially in the last quarter, with rising prices of key raw materials and various input cost pressures on account of disruption due to COVID, higher crude prices and geopolitical tension, etc., However, our strategy on selective bidding and constant efforts on operational efficiencies, coupled with multiple digital initiatives helped us mitigate th

Rajeev Mishra

Thank you, sir. Good morning to all of you. Let me brief you on the financial performance for the quarter and full year ended March '22. For the quarter, standalone revenue stood at Rs.1,026 crores. We reported an EBITDA of Rs.157 crores and PAT stood at Rs.91 crores with a margin of 8.9%. For the full year performance, revenue stood at Rs.3,615 crores, a growth of 43% as compared to last year. EBITDA stood at Rs.585 crores with a margin of 16.2% and PAT stood at Rs.330 crores with a margin of 9.3%. Our endeavor is to strengthen our balance sheet to continue to remain. Total standalone gross debt as on 31st March '22 stood at Rs.315 crores. This includes working capital debt of Rs.44 crores, term loans plus current maturities of Rs.271 crores and NCD of Rs.97 crores. Cash and bank balance on standalone level stood at Rs.159 crores. Our consolidated debt stood at Rs.1,183 crores, which includes project loans of Rs.869 crores. Cash and bank balance on the consol level stood at Rs.165 cro

Harendra Singh

Thank you, Rajeev. Let me just shortly touch upon the digital initiatives we have undertaken during the year. We rely strongly on having accurate and timely information, which helps us in executing and achieving operational excellence. On this front, digital transformation continues to be a key focus area for us. We have undertaken several new technology initiatives in the company during the year and implemented various solutions to enhance our operational efficiency and cost reduction measures. Some of the initiatives we have taken are sensor-based technology for fuel dispensing and fuel level management system. And that give us the real-time information on consumption and put effective control on fuel cost, which constitute in a material. We already enabled this technology on 40% of our moving machines. There are also other active initiatives that improve equipment control, vehicle management and inspection and offer multifunctional application to automate manual processes and more.

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