POWERMECHNSEQ4 FY2022May 23, 2022

Power Mech Projects Limited

7,729words

101turns

8analyst exchanges

5executives

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Management on call

Prasheel Gandhi

NIRMAL BANG EQUITIES PRIVATE LIMITED

S. Kodanda Ramaiah

DIRECTOR –

J. Satish

CHIEF FINANCIAL OFFICER – POWER MECH PROJECTS LIMITED

S. Kodandaramaiah

Director, Business Development and Mr. J. Satish - Chief Financial

S K Ramaiah

Director Business Development.

Key numbers — 40 extracted

Rs.905 Crore

en up the floor for your questions and answer session, the reported total income for Q4 FY2022 is Rs.905 Crores and EBITDA is Rs.98 Crores and the reported PAT is 48 Crores whereas Q4 of last financial year

Rs.98 Crore

stions and answer session, the reported total income for Q4 FY2022 is Rs.905 Crores and EBITDA is Rs.98 Crores and the reported PAT is 48 Crores whereas Q4 of last financial year, the total income was Rs.760

48 Crore

ed total income for Q4 FY2022 is Rs.905 Crores and EBITDA is Rs.98 Crores and the reported PAT is 48 Crores whereas Q4 of last financial year, the total income was Rs.760 Crores and the reported EBITDA wa

Rs.760 Crore

Crores and the reported PAT is 48 Crores whereas Q4 of last financial year, the total income was Rs.760 Crores and the reported EBITDA was Rs.79 Crores and the PAT was Rs.36 Crores. The revenue mix for Q4

Rs.79 Crore

whereas Q4 of last financial year, the total income was Rs.760 Crores and the reported EBITDA was Rs.79 Crores and the PAT was Rs.36 Crores. The revenue mix for Q4 is as follows: erection business contribute

Rs.36 Crore

year, the total income was Rs.760 Crores and the reported EBITDA was Rs.79 Crores and the PAT was Rs.36 Crores. The revenue mix for Q4 is as follows: erection business contributed around 152 Crores, civil

152 Crore

PAT was Rs.36 Crores. The revenue mix for Q4 is as follows: erection business contributed around 152 Crores, civil business including railways and water business contributed around 516 Crores, operation

516 Crore

ibuted around 152 Crores, civil business including railways and water business contributed around 516 Crores, operation, and maintenance around 217 Crores and electrical business close to 17 Crores and o

217 Crore

ding railways and water business contributed around 516 Crores, operation, and maintenance around 217 Crores and electrical business close to 17 Crores and other income close to 3 Crores. In the same quart

17 Crore

around 516 Crores, operation, and maintenance around 217 Crores and electrical business close to 17 Crores and other income close to 3 Crores. In the same quarter in the previous year, the mechanical b

3 Crore

aintenance around 217 Crores and electrical business close to 17 Crores and other income close to 3 Crores. In the same quarter in the previous year, the mechanical business contributed 166 Crores, civil

166 Crore

close to 3 Crores. In the same quarter in the previous year, the mechanical business contributed 166 Crores, civil around 329 Crores, O&M 223 Crores, electrical 36 Crores and other income close to 6 Crore

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Guidance — 20 items

J Satish

opening

“For Power Mech coming years will be consolidation and growth phase, last 10 years efforts for Power Mech in building credentials and competency started yielding results in all our business segments.”

J Satish

opening

“Going forward the finance cost as a percentage and also as an absolute number is expected to come down further.”

J Satish

opening

“Seeing the present market opportunity size, the company has set a fresh target of winning 6000 Crores for this year.”

S K Ramaiah

opening

“In fact, in Q1 so far, two major projects we have taken about 297 Crores one is the coal handling plant is an engineering and construction job for 2x660 MW Khurja Project and Godda Boiler job, it was a job which could not be done by another agency and Adani Power have awarded the same based on our capabilities , and this boiler erection has already been started..”

Aditya Sen

“Okay Sir, one more question, you mentioned that margins are expected to increase going forward, so what could be the possible reasons behind this and to what extent shall we expect the margins to increase?”

Aditya Sen

“Okay Sir, can we expect it will be around 13% going forward by FY2023?”

S K Ramaiah

“Yes, all the water projects has got escalation, road project has got escalation and some of the other projects ,and also major O&M jobs we are taking on escalation may be 60% to 65% will be with escalation clause and balance are at fixed prices.”

Pratiksha Daftari

“Okay and on our receivables, how much of our receivables will be from BHEL like in terms of base and how much would be the other segment?”

J Satish

“In terms of receivable days BHEL is still around 80 days to 90 days but overall, it has come down, so BHEL used to be 90-90 days plus but now there is an improvement of 10 days coming down, in terms of absolute numbers it will be close to 130 Crores to 140 Crores.”

Abhishek Poddar

“So, this expectation of 6000 Crores would include FGD or if FGD comes that will be plus for us?”

Risks & concerns — 1 flagged

Number two, some impact of the material cost because of the price increase which is expected to normalize and the new fresh orders we have in built, so we will see that second half which will start improving, so in midterm we are expecting to come back to our normal peak reported margins.

— J Satish

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Q&A — 8 exchanges

Good afternoon, Sir, can you please come back on the order receipts expected this year and the execution on the same, I think you mentioned but I misheard that, I guess, so can you please repeat?

S K Ramaiah

Can you repeat again? Power Mech Projects Limited May 23, 2022 I wanted to know the order receipts that we are expecting this year and the execution on same? I think the execution is on track as we have seen with sales of 2720 Crores and the initial order backlog 7333 at the beginning of the year 2021-22 and the addition of 4251 Crores we have achieved a sustainable growth in execution. Now the order backlog on today is 8855 Crores and the new opportunities as I said in two orders we have booked so far THDC coal handling plant along with addition of 192 Crores and Godda Boiler erection of 105

Good afternoon, Sir, just one question, our total order book how many contracts would be having fixed price remuneration and how many would have price escalation clause?

S K Ramaiah

Yes, all the water projects has got escalation, road project has got escalation and some of the other projects ,and also major O&M jobs we are taking on escalation may be 60% to 65% will be with escalation clause and balance are at fixed prices. Okay and these escalation clauses are linked to WPI, right? Yes, it is linked with variety of factors related to labor wages, then commodity prices steel price index, fuel prices , we are looking at all these cost elements and accordingly factoring in our new bids also. Okay and on our receivables, how much of our receivables will be from BHEL like in

Thank you and congratulations on a good set of numbers, regarding this order expectation of 6000 Crores for this year, does this include FGD order expectation also and could you give some understanding that if you are bidding for private?

S K Ramaiah

Yes, we are discussing and is based on the tie-ups with the technology partners and at this stage what I can only say we are discussing with couple of leading Private IPPs, and in the Power Mech Projects Limited May 23, 2022 next one month or two months then we will have more clarity but there can be substantial scope for the FGD orders in this year. So, this expectation of 6000 Crores would include FGD or if FGD comes that will be plus for us? it will include FGD also. Yes, 6000 there are various developments going on, so to some extent we have taken some of the contracts apart from that if f

Thank you very much for the opportunity, I just wanted to understand firstly on this revenue I think 3600 Crores we are targeting, so any sort of revenue we are building for MDO as well in this year or it will start only from FY2024?

J Satish

FY2024 will start billing the revenue, so FY2023 is purely the existing cash contract, MDO will start adding from 2024. 2024, so basically 8900 Crores excluding MDO, so we have taken about 40% conversion, right? Yes, and we have kept a target of 6000 Crores this year, so we have taken a softer conversion, so substantial amount is expected to come from the existing order book itself. Correct and next year as we close it in 11000 Crores and even if we assume a similar 40% 4400 Crores and then 400 Crores of annual revenue from MDO, a 4800 Crores FY2024? Yes, the existing order book plus 40% plus

Thanks for the opportunity. I wanted to understand regarding the royalty, so whom are we paying this royalty to?

J Satish

We have borrowed the technical qualification from some of the companies, so we are paying as a royalty normally it ranges 2.5% to 4% that is a straight impact on EBITDA margin which we share to the other companies for sharing the JV. Okay and now that we have developed these what we can say technical knowhow in-house, so they will not be having any problem and nothing on the legal front, right? No, now we are directly eligible, so we have built enough credentials and now we can quote directly, so we did not borrow the credentials. So, this we have been working since seven years, there are some

Good afternoon and thanks for the opportunity. Sir, my question is on the part of capital expenditure required for the CCL and MDO and what is the kind of EBITDA margin is Power Mech Projects Limited May 23, 2022 possible in this business and related question is that what is the opportunity in MDO you are targeting in medium term, is this the only project you want to do or are you willing to take more projects and if you can throw some of the opportunity which is available for FY2023?

S K Ramaiah

See, government has got a policy of liberalization in the mineral, metals and then coal of course the initial lot of opportunities from coal about 50,000 Crores that was on the execution side. We had bid for a few tenders but MDO for which opportunities are opening up in coal side and non-coal there also we have to look for some partnership, therefore it is on a selective basis going forward. Yes, just adding to Ramaiah Sir like we have taken a mid-size project where the investment is low by next two and a half years we need to develop the infrastructure full-fledged so once it is developed th

Thanks for the opportunity. Just couple of questions, first you mentioned about the royalty payment, so how much would be the royalty payment you must have paid in FY2022? J Satish FY2022 could be around 1.5%, it used to be 2%-2.5%, and gradually it has come down because the pie is coming down.

Dikshit Doshi

Okay and my second question is regarding this MDO project, MDO from CCL, you mentioned that this 400 Crores annual topline could go to 600 Crores, so just a clarification, is it because the cost of doing the job has gone up or is it because the coal prices have gone up, I mean just wanted to understand that our revenue are linked with the volume or the prices of coal as well? No, see our price is not linked to the coal price but our price is linked to the cost per ton which CCL is going to pay, the contract says that we will be paid Rs.886 per ton and that Rs.886 there is an escalation clause

Thank you everyone for joining the call and showing the confidence on Power Mech. If anyone has any more clarification, they can directly reach to the management at any time. Thank you very much.

Management

Speaking time

J Satish

S K Ramaiah

Moderator

Deepak Poddar

Mohit Kumar

Abhishek Poddar

Aditya Sen

Pratiksha Daftari

Akshay Kothari

Dikshit Doshi

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Opening remarks

Prasheel Gandhi

Thank you Deeksha. Nirmal Bang Equities welcomes you to Q4 FY2022 results conference call for Power Mech Projects Limited. The management today here is represented by Mr. S. Kodandaramaiah - Director, Business Development and Mr. J. Satish - Chief Financial Officer. I now hand over the call to management for their opening remarks post which we can take questions from the participants. Over to you Sir!

J Satish

Thank you. This is Satish here. Good afternoon all and thank you for joining the earnings conference call for the quarter and 12 months ended 31 March 2022. I have with me Mr. S K Ramaiah – Director Business Development. For Power Mech, the quarter and year ended with a very positive note. We have seen various developments across execution, collection and also on business development. Now Power Mech has got into a larger league, I think demonstrated our execution capabilities in all the segments. For Power Mech coming years will be consolidation and growth phase, last 10 years efforts for Power Mech in building credentials and competency started yielding results in all our business segments. To update you with this quarter’s developments before we open up the floor for your questions and answer session, the reported total income for Q4 FY2022 is Rs.905 Crores and EBITDA is Rs.98 Crores and the reported PAT is 48 Crores whereas Q4 of last financial year, the total income was Rs.760 Cror

S K Ramaiah

Thank you Satish and thanks to Nirmal Bang for this call. I will update on what is happening on the business side order growth and the new opportunities. I think as Satish rightly said there has been a 27% increase in the total order backlog for the year from 7333 Crores to 8855 Crores and that is a very positive sign. This is strongly driven by the new investments as part of the National infrastructure pipeline and Gati Shakti and we all have seen that is bearing fruits now. With COVID behind us, hope so, things are normalized and that is how the opportunities are coming up in a big way and we have done extremely well in the civil and infrastructure and the EPC project business, the engineering projects, in fact the back log in this segment of 2584 Crores has gone up to 5842 Crores a positive of 63% in FY2022 and we have done exceedingly well with many new initiatives and that order backlog in O&M has gone up from 1158 Crores to 1244 Crores an increase of 17%, of course in the ETC seg

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