Punj Lloyd

Q2 2012 Earnings Call -Punj Lloyd
Dt-8 Nov11
Operator
Ladies and gentlemen, good day. And welcome to the Punj Lloyd Q2 and H1 FY 2012 Earnings Conference Call. As a reminder for the duration of this conference, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions at the end of today's presentation. Please note that this conference is being recorded. At this time, I would like to hand the conference over to Ms. Sameera Kedar from CDR India. Thank you. And over to you, ma'am.
Sameera Kedar
Thank you, Myron. Welcome everybody to the Punj Lloyd Q2 and H1 FY12 earnings conference call. I trust you all have received the communication and results. To recap on the company's financials for Q2 FY12, consolidated revenue stood at Rs. 2,460 crore, up 24% Y-o-Y. EBITDA at Rs. 270 crore, up 45% Y-o-Y. And PAT at Rs. 30 crore, up 43% Y-o-Y. Value of the order book as on date is Rs. 26,690 crore. Before we begin, I would like to mention that some statements made during this call may be forward-looking in nature. And a disclaimer to this effect has been sent to you with the conference call invitation. Also, I would like to emphasize that while this call is open to invitees; it may not be broadcasted or reproduced in any form or manner. I would now like to handover to Mr. Anil Jain, Head, Investor Relations to introduce the management. Over to you, Mr. Jain.
Anil Jain, Head, Investor Relations

Yeah. Good afternoon everyone. On behalf of Punj Lloyd, we welcome you all to the second quarter earnings conference call, post release of quarterly financial results yesterday. With me the entire management of Punj Lloyd is here. Let me introduce all the management team members, who are available for this call. Mr. Atul Punj, Chairman; Mr. Luv Chhabra, Director Corporate Affairs; Mr. P. K. Gupta, Whole Time Director; Mr. Atul Jain, President and Joint CEO Middle East; Mr. Ravindra Kansal, President and Joint CEO Middle East; and Mr. Raju Kaul, Group CFO; and Mr. Pradip Tandon, CEO Libyan Operations. Now we invite investors for their queries and we can begin now the Q&A session.
Questions And Answers

Operator
Thank you very much sir. [Operator Instructions]. We have the first question from the line of Pritesh Chheda from Emkay Global. Please go ahead.
Pritesh Chheda
Yeah. Basically two, three questions sir. One, we have kind of stabilised the margins at about 8% that's been since the last two, three quarters. Just wanted to understand on the debt side, there is continuous addition in the debt. Any outlook there as to how do we go forward?
Corporate Participant
So, Pritesh, on the debt side, our debt is largely working capital in nature. I mean, there has been some increase in our debt, which is really dependent on the working capital cycle of project. Whereas in India, particularly, we've been observing a significant delay by a number of clients, particularly the government owned clients in releasing payments. But we hope that this situation will normalised over the next three to six months. And our total debt levels will only come down, when significant increase in our business and the profits is used to repay the debt.
Pritesh Chheda
Okay. The outlook on the margins in the new orders that we have won specially the 10,000 crore kind of inflow in the H1. How they are versus the existing margin also that we are booking currently?
Yeah, I mean we don't give any specific guidance, but our outlook is that it will be around the current level.
Pritesh Chheda
Okay. Lastly, on the FX side, if there was any FX impact in the current quarter and if you could quantify the FX impact in the same quarter last year?
I think Raju, you can give the details, but my understanding is on the balance sheet side there is the benefit of about 60 odd crores.
Pritesh Chheda
Okay.
Reserves and surplus.
Pritesh Chheda
And on the P&L side?
P&L side, I won't have the exact numbers.
Raju Kaul, Group Chief Financial Officer

I don't have the exact numbers.
Pritesh Chheda
Okay. Okay, lastly sir, what is the, now in the current backlog, what is Libya's order included in the backlog in the value terms?
3,900 crores NBP values.
Pritesh Chheda
Okay.
Which is in fact only the building and infrastructure order backlog.
Pritesh Chheda
Okay. And lastly, just wanted to know, any developments on any of those qualifications?
Corporate Participant Pritesh Chheda

Okay. But no developments from last quarter to the current quarter?
So, yeah, hearings have taken place. We have submitted our claims to the arbitrators. Now ONGC will give their rebuttal, then we have given time for us to give a rejoinder to ONGC's rebuttal, then hearings will take place on the claims, possibly expert witnesses will come in and give their views on the claims. And this process will carry on for, as I mentioned earlier, for about two to two and a half years.
Pritesh Chheda
Okay, okay. Many thanks to you. And all the best to you sir.
The qualification in respect of Heera, our GP has come down by 52 crores, because there was a bank guarantee against, advanced payment bank guarantee which has expired. So to that extent, the qualification time reduced.
Pritesh Chheda
Okay, okay. Thank you. And all the best to you sir.
Thank you.
Operator
Thank you. The next question is from the line of Naveen Jain from JM Financial. Please go ahead.
Naveen Jain
Yeah, sir. Good afternoon.
Good afternoon. Sir, my first question is on the CapEx side. It appears on the balance sheet that in the first half, you have done a CapEx of around 400 odd crores. So, what is this CapEx for to begin with?And second, what is the total CapEx plan we have for the full year?
Our CapEx spend is really linked with project wins. We are not building CapEx for any other long-term facilities in the sense. So, every time you win a project, we evaluate the availability of existing equipment, the possibility of renting equipment and the possibility of buying equipment. So, that is the base on which we take a decision. So, the spend number moves based on the wins that we have and different verticals.
Naveen Jain
Right. So, any outlook for the year in terms of, like first half is 400 crore, so that way?
First half is slightly below 400 crores, but it will really depend on the nature of contract and the geographies where these projects have won. As Mr. Punj explained, if it is economical and cheaper to hire equipment in these geographies or there is availability of adequate internal equipment, those equipment will be utilised. And if neither of these options exist, only then we will go in for purchasing equipment.
Naveen Jain
Sure, fine. And second question was on your standalone numbers. I know generally you do not basically focus too much on standalone and consol numbers are the one to look at. But the margin in the standalone this year seems to have dropped quite a bit. So, is that a sign that Indian business is probably not doing as well or the margins in the Indian business is little lower or has fallen, is it something like that to interpret for?
I am not sure, where you are getting these numbers, I mean the ones that I am seeing are that EBITDA margins compared to last quarter have gone up significantly. But I mean, as a general trend, what you are saying is probably correct, because we've seen in certain sectors in India very high levels of competitive intensity. So, particularly on the road sector or some of the other infrastructure sectors, the level of competitive intensity is very, very high. And this is evident from the fact that you see 14, 15 bidders for even projects of the size of $750 million to $1 billion. However, on the oil and gas side, again we do see an increased level of competitiveness. So, our focus will continue to be in larger international markets, where we believe the margins are more robust.
Naveen Jain
Okay, okay.
Corporate Participant Naveen Jain

Sir, I think when I'm talking about EBITDA margin, I'm not considering other income, probably the one you are talking about is inclusive of other income, which was about 112 crores in this quarter on the standalone basis. So, I also wanted to understand what is this 112 crore about, it is also ForEx gain largely?
Navin that's a part of operating income anyway. So, that you cannot really call it as another income. So, other operating income is also coming out of operations.
Naveen Jain
Right.
So, the rightful way would be to take it into account in the revenue and then to tabulate EBITDA to arrive at a real conclusion.
Naveen Jain
Okay. So, basically what you are saying is volatility in the foreign exchange is basically part of your core business itself?
Yeah, we win some, we lose some.
I mean it's a translation risk Naveen. So....
Naveen Jain
Right, right.
It depending on which geography and how the currencies move. In some quarters, it will come down, in some quarters it will come up and this changes on a quarter-to-quarter basis. But that's the nature of a business, because we operate in 20 countries. And in the case of standalone, our business in the Middle East and business in Libya and where we operate through branch offices, is all a part of the standalone business. Okay, okay. All right. Fair enough. And just last question, you have invested about 15 odd crores in Punj Lloyd Infra. So, just wanted to get a sense, which all projects, basically I believe this is infra holding company, so which all SPVs that you will be investing in going forward?
Punj Lloyd Infrastructure currently has two projects.
Naveen Jain
Okay.
One is the road project, Khagaria-Purnia, which is on an annuity basis.
Naveen Jain
Right.
Right. And the other one is a 5 megawatt solar power project in Rajasthan.
Naveen Jain
Okay.
Both these projects will be implemented or will be developed through special SPVs.
Naveen Jain
Okay.
So, the money flows in from Punj Lloyd Infrastructure into the equity of these SPVs.
Naveen Jain
Sure. So, these are the two projects. Currently, we have these two projects.
Naveen Jain
Sure. Thanks a lot, sir. Thanks a lot for answering questions.
Thank you.
Operator
Thank you. [Operator Instructions]. We have the next question from the line of Srinivas Rao from HDFC Mutual Fund. Please go ahead.
Srinivas Rao
Sir, my first question is on the margins from the new orders. Can you tell us, are we higher than the existing margins that you are reporting or...?
So, I think we answered that question earlier, Srinivas. We don't give specific guidance on orders and specific margins. We expect the margins to be in line with what the margins are on our other existing projects.
Srinivas Rao
No, we were on an impression, the first half margins are lower, are the sustainable margins that you just report earlier in the 9.5% to 10%. So, just trying to understand, whether you are taking new orders at those levels or lower?
Srinivas, if I can just explain to you. If you look at our bidding strategy in the recent past, we have been reasonably unsuccessful in winning projects in the highway sector. And the reason for it is that we are not comprising on the margins at which we will win projects. So, we are looking to maintain consistency of the margins across all verticals in the Group. So, I'll not wanted to get into too much more detail. I think you will see that we have been exercising lot of restrain and not just winning orders for the sake of winning orders. So, the geographic spread of our wins will describe to you as to how we have recently de-list ourselves by having a larger deals to choose from. So, we can maintain a minimum level of margin.
Srinivas Rao
Sir, I just wondered, earlier your margin seems to be in that 9.5% to 10%. So, given the current competitive environment, do we have to assume that those that are not sustainable? I don't think that will be a fair assessment.
Srinivas Rao
Okay. Next question is on the, in the other income, the 67 crores second quarter other income, does it include any one-time numbers?
No, definitely.
It does not.
I think other than foreign exchange changes that's also part and parcel of every quarter, that will be there every quarter. So, there is
nothing like one-time in the other income.
Srinivas Rao
Okay, okay. And the last question from my side is, what will be the current utilisation of the equipment sir?
Of all our equipment?
Srinivas Rao
Yeah. If you can give us the sense in terms of overall, utilisation base how is it moving for you?
So, that's a....
Srinivas Rao
And also if you touch upon offer part?
I think that, Srinivas that's a very difficult question to answer and I'll explain to you why. There is a variety of equipment in our portfolio, right. Some are equipments that are used probably in a project only a few times during the duration of a project, but these are equipment which are very difficult or almost impossible to get on hire. So, you take the case of some very heavy duty Manitowoc cranes, which are used to put-in heavy pressure vessels in the refinery project. They are probably be used a couple of times in a two year project, right. So, it depends on the nature and type of equipment, but more specific on the offshore project, I think Mr. Gupta can give a clear indication.
P K Gupta, Whole Time Director

Yeah. See, right now our equipment is fully utilised. We are doing lot of pipeline projects, which is the equipment intensive. And in the pipeline, the utility of those equipment is up to say 70% to 80% level. And as far as offshore job is concerned, we have almost a full book order and we are now utilising all our sets in offshore....
In fact, this quarter we have around 70 crore of higher charges, which we have paid for hiring equipments from outside.
And Srinivas, if I'm getting you correctly, you are more interested in knowing about the bars utilisation?
Srinivas Rao
Yeah. One is the offshore equipment and overall also I was trying to get a sense, yeah.
No, with the large order backlog like this, equipment is pretty well utilised.
All our parties are deployed outside India nowadays.
Srinivas Rao
Okay, okay. Okay, sir. Thank you. And all the best.
Thank you.
Operator
Thank you. The next question is from the line of the Abhishek Bhandari from Macquarie Capital Advisors. Please go ahead. Hi. This is Inderjeet here from Macquarie. Couple of questions from my side. First is, historically you have taken lot of road projects in tie-up with GMR, they used to hold minority stake till the time of construction. GMR has off-late won very big ticket size contract. So, is it a possibility that you will enter into some kind of a relationship with them to take the EPC contracts for those road projects? That's one. Second, if you could comment on what kind of competitive intensity you are seeing for orders in India, both on the civil construction side and also what kind of pipeline you are seeing from the ONGC or the other oil companies in India? And what kind of competitive pressures are there also? Thank you.
So, your first question was GMR, we are in dialogue with GMR for doing some of the construction work, but it all will boil down to whether both sides fine with the price is acceptable or not. So, it's a 50-50, whether we will or we won't and the dialogue is on as we speak. The second question was, competitiveness in India is rising as Mr. Chhabra mentioned few moments ago, which is where the fact that we are operating in 20 geographies right now. We feel a lot more comfortable than if we were only in India specific operations. The third point about oil and gas, the process side is running a bit slow. But ONGC, on the offshore side has about almost 8,000 crores worth of work to be decided in the next six months. And we are well positioned hopefully for a significant part of that. Competitive pressures on the offshore side are obviously less. They are there, but they are obviously less than you would find on the highway side. So, overall I think we are in a comfortable place simply because of our global diversification and the equipment assets we have particularly on the offshore side.
Inderjeet Singh Bhatia

Okay. One follow-up on that. If you look at Middle East, there have been lot of talk about massive CapEx on the process side, in the petrochemical side. And at some point of time Punj Lloyd was also interested in partnership with some of these very large global companies looking at these very big ticket size orders. Is that strategy still on the table? Are you still looking at those kind of multi-billion dollar kind of contracts or those kind of orders are available at a first place itself? That's one. And then second is, just a kind of a question on the financials side. If by any chance we need to kind of take some kind of write-off on some of the covenant, would that have a trigger on some of the covenants on the debt side, because our debt-equity is already 1:1. So, is there kind of, what's the kind of plan B, if that has to happen some write-off on some of those auditor qualifications?
Well, I will take this part of the question, I will let Mr. Chhabra on the second part. On the petrochemical projects of large sizes, there are projects that are going on in places like Qatar and Saudi Arabia. We are participating in some of those tenders and we'll continue to do so. We are now qualified for a lot of bids in the Iraq, which is a major opportunity country for us as we speak. So, in terms of opportunities in petrochemical process, refining, they will come. But you won't see the tens of billions of dollars, I think the tens of billions of dollars has been invested now more and more in social infrastructure of the Middle East, which is also interesting position for us, particularly in Zawya, recent political developments in the region.
Okay. So, you will see a greater increase of infra project. And the petrochemical projects are normally linked to the cycle prices of the commodities. So, that really determines the trigger date of client going ahead starting his project or not. On the second part, you just take that.
Luv Chhabra, Director, Corporate Affairs

Yeah. I think we should look at it from a two large projects on, or set of projects on which we have qualification. The first one is Heera. Now, in Heera, we've explained this before that while our qualification is about 240 odd crores, our claims on ONGC are over 1,300 crores. Now, we are absolute absolutely confident that we will recover through the process of arbitration or even if it's necessary subsequent to that through a process of using the courts, much more than what has been provided in arbitration. So, we don't believe there is any question of any provisioning there. The second big one is Libya, now Libya you must understand, it is not situation that we have created, it's a question of political unrest and hopefully things will stabilise and normalise over the next few months. We have remained in that country well after the political unrest started and we continued working on the projects. So, and we've also invoke force majeure because of the political unrest. So, I don't believe that there will be any provision on any of these contracts. And since the country will now be on a mode to start rebuilding starting with the oil and gas and then moving on to the infrastructure projects, we expect to see some movement on revival of our projects over the next three to six....
Let me just add-on a bit on the Libya thing. You got to understand that the National Transitional Council had to give an undertaking to the United Nations that they would honor all commitments entered into, prior this chaos breaking out. So, this is a commitment by the Transition Council to the United Nations. We have already been having dialogues with some of our clients and there is no write-off maybe that we're expecting to take in Libya at all. So, it was a deferment of revenues and of course profits along with it. And I would, as Mr. Chhabra said, also agree that first the oil and gas will come back then the infra will come back.

No, I think your point about some of these claims from your side could be, could actually turnout to your favor in the due course. My question is more from, just from a financial point of view, whether our debt carries any of these covenants like debt-equity and maybe just for a short-term, there could be issue on that front? Though, you say in next two years or so, you might recover say funds from the ONGC side, but in the short-term would that trigger any kind of dilution or requirement or a substantially higher interest rates from your side?
No, it does not. See, most of the working capital doesn't have debt-equity, I mean, they have more in terms of DSCR and interest coverage.

Okay, okay. Thank you. Thanks.
Operator
Thank you. The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Analyst
Yeah, hi. This is Mukul from Goldman Sachs. Good afternoon everybody. Thanks for taking my question. In your 2Q results table, there is a reclassification of about 63 crore in 1Q '11 from other operating income to other income. Can you tell us the reason for this reclassification and the heads which have changed?
This time the auditors felt that some part of the other income should actually come below the line. So, it's just a reclassification. As far as we are concerned, it's very much part of the other operating income for us. Yeah, please.
Analyst
Yeah. Can you tell us like which part, was there something related to FX or...?
Some liability write-back and something on account of, little amount on account of ForEx gain or loss.
Analyst
Okay, okay. Thank you.
Thanks.
Operator
Thank you. [Operator Instructions]. We have the next question from the line of Parikshit Kandpal from Karvy. Please go ahead.
Parikshit Kandpal
Sir, thanks for taking my question. I just wanted to know the update on your Bihar project, which you were doing, the EPC water treatment project. What were the earlier timelines and have we completed this project? And is there any cross-over on this project? There is no cross-over on this project. The project is moving ahead. I think we will deliver by the end of this calender year about a 100 site. And it's pretty much moving on track.
Yeah, it's 100 sites more.
100 sites more.
So, in addition to what we've already delivered. So, the total project is about 800 odd....
850 sites.
Sites in villages
Parikshit Kandpal
Okay.
And of which, by the end of this financial year, I think between 170 and 200 are expected to be completed. And then the balance will get completed towards the middle of, towards next year, when the project is suppose to complete.
Parikshit Kandpal
So, there was no time-over on this project?
No. Right now....
Corporate Participant Parikshit Kandpal

And second question was on your real estate, what you're holding earlier like projects with Ramprastha. So, have you completely exited real estate or still the projects are going on, on the ground?
No, there is no progress on that. We have mentioned this before that we have gone through a process of arbitration to get our money back from Ramprastha.
Parikshit Kandpal
Okay.
And we expect that to come to a fulfilled conclusion by the end of this financial year.
Parikshit Kandpal
And any plans or any progress on this listing of the subsidiary, international subsidiary?
Are we listing....
Parikshit Kandpal
Sembawang, talks about Sembawang getting listed?
They will make such a disclosure at any point of time.
Parikshit Kandpal
No not you. I'm saying, there were being talks in the market about listing of Sembawang.
You are asking me to comment on some speculative news, how do you expect the company to comment on that. Okay. Just wanted a clarification. Thank you sir.
Operator
Thank you.
Thank you.
Operator
The next question is from the line of Nitin Arora from Angel Broking. Please go ahead.
Nitin Arora
Hello. Good afternoon sir. Firstly, sir can you please tell me the reason for the high tax rate during the quarter?
See, it's not a high tax rate. See what happen, when you have subsidiaries abroad, whatever tax they pay, you can't cut it off against the income of the main holding company in India.
Nitin Arora
Okay. So, is it..
Plus there will be some subsidiaries which may have losses. So, it does not has relation with any, with the PBT.
Nitin Arora
But if you look at like historically even in second quarter FY11, the tax rate was much lower, even though we were operating in other geographies as well. So, is it something which has happened in last few quarters or normal course?
We have a subsidiary Sembawang, which has made good profit. So, they have paid around 18% tax in Singapore. Similarly, in Malaysia, we have a subsidiary, which has also made profit, they have paid 20% tax, which you can't cut off. Plus you have another one or two subsidiaries, where there are some marginal losses. So, obviously if you look at the consol level... Okay.
PBT figure which you have with tax situation, there cannot be the percentage which you apply.
Nitin Arora
Okay. And secondly sir, coming back to that non-operating income of 67.7 crores in this quarter.
Yeah.
Nitin Arora
If you look at past few quarters, our non-operating income has been around like 3 odd crores. So, just wanted to understand, is it like, what portion of this is, like is this majorly a foreign exchange income or it composes of something else as well?
No, if you have other things like I mentioned earlier, you have some liability write-back, some interest component, some dividend component.
Nitin Arora
Okay
And of course some product, I don't have the exact figure right now.
Nitin Arora
Sir, can you just breakup the foreign exchange income from this 67 crores, 68 crores?
I don't have...
Corporate Participant Nitin Arora

Okay, sir. Thanks a lot. That will be up from my side.
Operator
Thank you. [Operator Instructions]. As there are no further questions, I would now like to hand the floor over to Mr. Atul Punj for closing comments.
Atul Punj, Chairman

Well, thanks everybody for coming on the call. I think we are busy doing what we do best, which is trying to pick up more business. One of our major projects now is to address the interest component and the debt component. So, hopefully in the next few months, you should start see some positive impact of that effort as well. Quality of our order book is strong. We're seeing clients are well funded. There is no project that are on-hold. And once again, I think the global diversity is really now beginning to pay-off in view of the competitive intensity that we are seeing in India. And we hope that this trajectory will carry on now and we look forward to delivering similar results to you over next few quarters. Thank you very much.
Operator
Thank you very much, sir. On behalf of Punj Lloyd that concludes this conference. Thank you for joining us. You may now disconnect your lines.

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Q2 2012 Earnings Call -Punj Lloyd

Anil Jain, Head, Investor Relations

Questions And Answers

Raju Kaul, Group Chief Financial Officer

Corporate Participant Pritesh Chheda

Corporate Participant Naveen Jain

nothing like one-time in the other income.

P K Gupta, Whole Time Director

Inderjeet Singh Bhatia

Inderjeet Singh Bhatia

Luv Chhabra, Director, Corporate Affairs

Inderjeet Singh Bhatia

Inderjeet Singh Bhatia

Corporate Participant Parikshit Kandpal

Corporate Participant Nitin Arora

Atul Punj, Chairman

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