Q2 2012 Earnings Call - Punj Lloyd Dt-8 Nov’11 particularly. The outlook on the margins in the new orders that we have won specially the 10. I would now like to handover to Mr. we've been observing a significant delay by a number of clients. Good afternoon everyone. particularly the government owned clients in releasing payments. Group CFO. we have kind of stabilised the margins at about 8% that's been since the last two. How they are versus the existing margin also that we are booking currently? Corporate Participant Yeah. Please note that this conference is being recorded. I trust you all have received the communication and results. With me the entire management of Punj Lloyd is here. . 270 crore. I would like to hand the conference over to Ms. Value of the order book as on date is Rs. our debt is largely working capital in nature. Whereas in India. Questions And Answers Operator Thank you very much sir. on the debt side. Myron. there has been some increase in our debt. Raju Kaul. Mr.690 crore. which is really dependent on the working capital cycle of project. consolidated revenue stood at Rs. Welcome everybody to the Punj Lloyd Q2 and H1 FY12 earnings conference call. I would like to emphasize that while this call is open to invitees. Any outlook there as to how do we go forward? Corporate Participant So.Operator Ladies and gentlemen. Head. And there will be an opportunity for you to ask questions at the end of today's presentation.460 crore. there is continuous addition in the debt. President and Joint CEO Middle East. 2. As a reminder for the duration of this conference. when significant increase in our business and the profits is used to repay the debt. Mr. Sameera Kedar Thank you. But we hope that this situation will normalised over the next three to six months. Before we begin. Pritesh Chheda Okay. and Mr. Sameera Kedar from CDR India. Anil Jain. up 43% Y-o-Y. up 45% Y-o-Y. Basically two. who are available for this call. Atul Punj. Mr. [Operator Instructions]. One. but our outlook is that it will be around the current level. And welcome to the Punj Lloyd Q2 and H1 FY 2012 Earnings Conference Call. Please go ahead. CEO Libyan Operations. Investor Relations to introduce the management. Mr. I would like to mention that some statements made during this call may be forward-looking in nature. Whole Time Director. 30 crore. At this time. up 24% Y-o-Y. Mr. Jain. Head. and Mr. Director Corporate Affairs.000 crore kind of inflow in the H1. Luv Chhabra. I mean. Ravindra Kansal. And over to you. To recap on the company's financials for Q2 FY12. Let me introduce all the management team members. 26. Now we invite investors for their queries and we can begin now the Q&A session. Investor Relations Yeah. good day. And our total debt levels will only come down. all participant lines will be in the listen-only mode. K. three quarters. three questions sir. I mean we don't give any specific guidance. Over to you. Gupta. Anil Jain. EBITDA at Rs. Thank you. And PAT at Rs. post release of quarterly financial results yesterday. On behalf of Punj Lloyd. it may not be broadcasted or reproduced in any form or manner. Chairman. We have the first question from the line of Pritesh Chheda from Emkay Global. Pritesh. we welcome you all to the second quarter earnings conference call. ma'am. Pradip Tandon. Pritesh Chheda Yeah. Mr. Atul Jain. President and Joint CEO Middle East. P. Just wanted to understand on the debt side. Also. And a disclaimer to this effect has been sent to you with the conference call invitation. lastly sir.900 crores NBP values. Pritesh Chheda Okay. just wanted to know. what is the. any developments on any of those qualifications? Corporate Participant Pritesh Chheda Okay. Group Chief Financial Officer I don't have the exact numbers.Pritesh Chheda Okay. if there was any FX impact in the current quarter and if you could quantify the FX impact in the same quarter last year? Corporate Participant I think Raju. Pritesh Chheda Okay. Pritesh Chheda And on the P&L side? Corporate Participant P&L side. you can give the details. on the FX side. But no developments from last quarter to the current quarter? Corporate Participant . Raju Kaul. Okay. Corporate Participant Which is in fact only the building and infrastructure order backlog. now in the current backlog. Pritesh Chheda Okay. what is Libya's order included in the backlog in the value terms? Corporate Participant 3. Lastly. but my understanding is on the balance sheet side there is the benefit of about 60 odd crores. I won't have the exact numbers. Pritesh Chheda Okay. And lastly. Corporate Participant Reserves and surplus. Pritesh Chheda Okay. Please go ahead. Good afternoon. So. Many thanks to you. Sir. And all the best to you sir. as I mentioned earlier. okay. Now ONGC will give their rebuttal. what is this CapEx for to begin with?And second. our GP has come down by 52 crores. So. that is the base on which we take a decision. And this process will carry on for. so that way? Corporate Participant First half is slightly below 400 crores. The next question is from the line of Naveen Jain from JM Financial. So. what is the total CapEx plan we have for the full year? Corporate Participant Our CapEx spend is really linked with project wins. So. like first half is 400 crore. Corporate Participant Good afternoon. We are not building CapEx for any other long-term facilities in the sense. As Mr. Corporate Participant Thank you. because there was a bank guarantee against. So. the possibility of renting equipment and the possibility of buying equipment. possibly expert witnesses will come in and give their views on the claims. but it will really depend on the nature of contract and the geographies where these projects have won. So to that extent. the qualification time reduced. Pritesh Chheda Okay. my first question is on the CapEx side. then we have given time for us to give a rejoinder to ONGC's rebuttal. Naveen Jain Right. any outlook for the year in terms of. okay. Naveen Jain Yeah. And if neither of these options exist. Punj explained. those equipment will be utilised. we evaluate the availability of existing equipment. We have submitted our claims to the arbitrators. It appears on the balance sheet that in the first half. . And all the best to you sir. sir. only then we will go in for purchasing equipment. hearings have taken place. advanced payment bank guarantee which has expired. Operator Thank you. then hearings will take place on the claims. every time you win a project. Corporate Participant The qualification in respect of Heera. you have done a CapEx of around 400 odd crores. if it is economical and cheaper to hire equipment in these geographies or there is availability of adequate internal equipment. the spend number moves based on the wins that we have and different verticals.So. for about two to two and a half years. yeah. Thank you. And second question was on your standalone numbers.. our focus will continue to be in larger international markets. fine. Corporate Participant I mean it's a translation risk Naveen. basically what you are saying is volatility in the foreign exchange is basically part of your core business itself? Corporate Participant Yeah. 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. the level of competitive intensity is very. other operating income is also coming out of operations. And this is evident from the fact that you see 14. Corporate Participant So. I mean the ones that I am seeing are that EBITDA margins compared to last quarter have gone up significantly. So. where you are getting these numbers. . 15 bidders for even projects of the size of $750 million to $1 billion. right. we win some. Naveen Jain Right. 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 Right. on the oil and gas side. I'm not considering other income. it is also ForEx gain largely? Corporate Participant Navin that's a part of operating income anyway. So. particularly on the road sector or some of the other infrastructure sectors. is it something like that to interpret for? Corporate Participant I am not sure. that you cannot really call it as another income. okay.Naveen Jain Sure. I know generally you do not basically focus too much on standalone and consol numbers are the one to look at. So. So.. what you are saying is probably correct. as a general trend. probably the one you are talking about is inclusive of other income. because we've seen in certain sectors in India very high levels of competitive intensity. So.. which was about 112 crores in this quarter on the standalone basis. I also wanted to understand what is this 112 crore about. But the margin in the standalone this year seems to have dropped quite a bit. So. So. where we believe the margins are more robust. again we do see an increased level of competitiveness. However. Naveen Jain Okay. So. Naveen Jain Okay. I think when I'm talking about EBITDA margin. very high. But I mean. we lose some. Corporate Participant Naveen Jain Sir. Corporate Participant Both these projects will be implemented or will be developed through special SPVs. which all projects. we have these two projects. Naveen Jain Okay. Naveen Jain Right. But that's the nature of a business. which is on an annuity basis. And just last question. basically I believe this is infra holding company. Okay. Corporate Participant So. Naveen Jain Sure. so which all SPVs that you will be investing in going forward? Corporate Participant Punj Lloyd Infrastructure currently has two projects. And in the case of standalone. In some quarters. in some quarters it will come up and this changes on a quarter-to-quarter basis. Naveen Jain Okay. All right. . is all a part of the standalone business. Fair enough. because we operate in 20 countries.Corporate Participant It depending on which geography and how the currencies move. So. Naveen Jain Sure. And the other one is a 5 megawatt solar power project in Rajasthan. Currently. you have invested about 15 odd crores in Punj Lloyd Infra. Naveen Jain Okay. the money flows in from Punj Lloyd Infrastructure into the equity of these SPVs. sir. these are the two projects. just wanted to get a sense. Corporate Participant One is the road project. Corporate Participant Right. Thanks a lot for answering questions. Thanks a lot. So. Khagaria-Purnia. okay. it will come down. our business in the Middle East and business in Libya and where we operate through branch offices. earlier your margin seems to be in that 9. Operator Thank you. does it include any one-time numbers? Corporate Participant No. If you look at our bidding strategy in the recent past. are the sustainable margins that you just report earlier in the 9.. So. given the current competitive environment. So.5% to 10%. So. Can you tell us.5% to 10%. that will be there every quarter.? Corporate Participant So. just trying to understand. So..Corporate Participant Thank you. whether you are taking new orders at those levels or lower? Corporate Participant Srinivas. we have been reasonably unsuccessful in winning projects in the highway sector. Corporate Participant I think other than foreign exchange changes that's also part and parcel of every quarter. I'll not wanted to get into too much more detail. are we higher than the existing margins that you are reporting or. we can maintain a minimum level of margin. if I can just explain to you. [Operator Instructions]. Srinivas Rao Okay. I just wondered. We don't give specific guidance on orders and specific margins. So. Srinivas Rao Sir. do we have to assume that those that are not sustainable? I don't think that will be a fair assessment. Corporate Participant It does not. So. the first half margins are lower. I think we answered that question earlier. my first question is on the margins from the new orders. there is . we were on an impression. And the reason for it is that we are not comprising on the margins at which we will win projects. definitely. we are looking to maintain consistency of the margins across all verticals in the Group. in the other income. Please go ahead. Srinivas. So. We expect the margins to be in line with what the margins are on our other existing projects. Next question is on the. I think you will see that we have been exercising lot of restrain and not just winning orders for the sake of winning orders. We have the next question from the line of Srinivas Rao from HDFC Mutual Fund. 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. Srinivas Rao No. Srinivas Rao Sir. the 67 crores second quarter other income. Srinivas Rao Okay. if I'm getting you correctly. Corporate Participant No. but more specific on the offshore project. So. So. I think Mr. with the large order backlog like this. Srinivas that's a very difficult question to answer and I'll explain to you why.. Corporate Participant In fact. And the last question from my side is. And in the pipeline. what will be the current utilisation of the equipment sir? Corporate Participant Of all our equipment? Srinivas Rao Yeah. P K Gupta.. this quarter we have around 70 crore of higher charges. you are more interested in knowing about the bars utilisation? Srinivas Rao Yeah. that's a. which is the equipment intensive. we have almost a full book order and we are now utilising all our sets in offshore.. yeah. which we have paid for hiring equipments from outside. Srinivas Rao And also if you touch upon offer part? Corporate Participant I think that.. Gupta can give a clear indication. right now our equipment is fully utilised. See. the utility of those equipment is up to say 70% to 80% level. utilisation base how is it moving for you? Corporate Participant So. which are used to put-in heavy pressure vessels in the refinery project. Corporate Participant And Srinivas. Whole Time Director Yeah. Some are equipments that are used probably in a project only a few times during the duration of a project. If you can give us the sense in terms of overall. They are probably be used a couple of times in a two year project. but these are equipment which are very difficult or almost impossible to get on hire. We are doing lot of pipeline projects.nothing like one-time in the other income. There is a variety of equipment in our portfolio. right. One is the offshore equipment and overall also I was trying to get a sense. equipment is pretty well utilised. you take the case of some very heavy duty Manitowoc cranes. okay.. right. . And as far as offshore job is concerned. it depends on the nature and type of equipment.. there are projects that are going on in places like Qatar and Saudi Arabia. Corporate Participant Thank you. And then second is. we are in dialogue with GMR for doing some of the construction work. But ONGC. which is where the fact that we are operating in 20 geographies right now. They are there. So. Second. but they are obviously less than you would find on the highway side. Couple of questions from my side. We are now qualified for a lot of bids in the Iraq. I will let Mr. So. So. The next question is from the line of the Abhishek Bhandari from Macquarie Capital Advisors. And all the best. The second question was. This is Inderjeet here from Macquarie. I will take this part of the question. historically you have taken lot of road projects in tie-up with GMR. in the petrochemical side. Corporate Participant So. recent political developments in the region. would that have a trigger on some of the covenants on the debt side. And we are well positioned hopefully for a significant part of that. okay. Inderjeet Singh Bhatia . Please go ahead. 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. it's a 50-50.000 crores worth of work to be decided in the next six months. but it all will boil down to whether both sides fine with the price is acceptable or not. So. Competitive pressures on the offshore side are obviously less. whether we will or we won't and the dialogue is on as we speak. 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. If by any chance we need to kind of take some kind of write-off on some of the covenant. Thank you. competitiveness in India is rising as Mr. on the offshore side has about almost 8. if you could comment on what kind of competitive intensity you are seeing for orders in India. sir. Hi. I think the tens of billions of dollars has been invested now more and more in social infrastructure of the Middle East. 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. Chhabra mentioned few moments ago. particularly in Zawya. Chhabra on the second part. they will come. So. Operator Thank you. is there kind of. But you won't see the tens of billions of dollars. there have been lot of talk about massive CapEx on the process side. The third point about oil and gas. Okay. On the petrochemical projects of large sizes. if that has to happen some write-off on some of those auditor qualifications? Corporate Participant Well. which is a major opportunity country for us as we speak.Corporate Participant All our parties are deployed outside India nowadays. Srinivas Rao Okay. refining. We feel a lot more comfortable than if we were only in India specific operations. in terms of opportunities in petrochemical process. Inderjeet Singh Bhatia Okay. which is also interesting position for us. We are participating in some of those tenders and we'll continue to do so. the process side is running a bit slow. because our debt-equity is already 1:1. 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. your first question was GMR. they used to hold minority stake till the time of construction. 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. just a kind of a question on the financials side. One follow-up on that. First is. what's the kind of plan B. If you look at Middle East. GMR has off-late won very big ticket size contract. So. Director. Now. there could be issue on that front? Though. hi. So. it does not. and we've also invoke force majeure because of the political unrest. Chhabra said. you will see a greater increase of infra project. now Libya you must understand. we've explained this before that while our qualification is about 240 odd crores. okay.Okay. So. And I would. 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. Thanks for taking my question.. prior this chaos breaking out. you just take that. Inderjeet Singh Bhatia Okay. The second big one is Libya. much more than what has been provided in arbitration. Now. I mean. there is a reclassification of about 63 crore in 1Q '11 from other operating income to other income. this is a commitment by the Transition Council to the United Nations. We have remained in that country well after the political unrest started and we continued working on the projects. This is Mukul from Goldman Sachs. could actually turnout to your favor in the due course. we don't believe there is any question of any provisioning there. just from a financial point of view. we expect to see some movement on revival of our projects over the next three to six. you say in next two years or so. 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. My question is more from.. I think we should look at it from a two large projects on. also agree that first the oil and gas will come back then the infra will come back.. 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.300 crores. they have more in terms of DSCR and interest coverage. whether our debt carries any of these covenants like debt-equity and maybe just for a short-term. you might recover say funds from the ONGC side. See. Corporate Participant Let me just add-on a bit on the Libya thing. Can you tell us the reason for this reclassification and the heads which have changed? . So. The next question is from the line of Pulkit Patni from Goldman Sachs. in Heera. Luv Chhabra. On the second part. Corporate Affairs Yeah. In your 2Q results table. it was a deferment of revenues and of course profits along with it. 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. our claims on ONGC are over 1. And the petrochemical projects are normally linked to the cycle prices of the commodities. Inderjeet Singh Bhatia No. Operator Thank you. I think your point about some of these claims from your side could be. Thanks. I don't believe that there will be any provision on any of these contracts. The first one is Heera. it's a question of political unrest and hopefully things will stabilise and normalise over the next few months. Please go ahead. Analyst Yeah. Good afternoon everybody. but in the short-term would that trigger any kind of dilution or requirement or a substantially higher interest rates from your side? Corporate Participant No. it is not situation that we have created. So. Thank you. as Mr. So. So. most of the working capital doesn't have debt-equity. that really determines the trigger date of client going ahead starting his project or not. or set of projects on which we have qualification. . We have the next question from the line of Parikshit Kandpal from Karvy. the total project is about 800 odd. the EPC water treatment project. Parikshit Kandpal Sir. Thank you. The project is moving ahead. Corporate Participant Sites in villages Parikshit Kandpal . Corporate Participant 850 sites.. thanks for taking my question. Corporate Participant Thanks.. Please go ahead. was there something related to FX or. Corporate Participant 100 sites more. Yeah. Operator Thank you. little amount on account of ForEx gain or loss. it's very much part of the other operating income for us.? Corporate Participant Some liability write-back and something on account of. So. in addition to what we've already delivered. it's just a reclassification.. Analyst Yeah. I just wanted to know the update on your Bihar project. okay. Analyst Okay. So. it's 100 sites more. I think we will deliver by the end of this calender year about a 100 site. Can you tell us like which part. which you were doing. As far as we are concerned. please.. 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.Corporate Participant This time the auditors felt that some part of the other income should actually come below the line. Corporate Participant Yeah. And it's pretty much moving on track. Corporate Participant So. [Operator Instructions]. on the ground? Corporate Participant No. . Corporate Participant And of which.Okay. Parikshit Kandpal So. So. I think between 170 and 200 are expected to be completed.. Parikshit Kandpal And any plans or any progress on this listing of the subsidiary. Parikshit Kandpal Sembawang. Parikshit Kandpal No not you. Corporate Participant And we expect that to come to a fulfilled conclusion by the end of this financial year. And then the balance will get completed towards the middle of. towards next year. I'm saying. there were being talks in the market about listing of Sembawang. have you completely exited real estate or still the projects are going on. talks about Sembawang getting listed? Corporate Participant They will make such a disclosure at any point of time. what you're holding earlier like projects with Ramprastha. international subsidiary? Corporate Participant Are we listing. there is no progress on that.. there was no time-over on this project? Corporate Participant No.. when the project is suppose to complete. Corporate Participant Parikshit Kandpal And second question was on your real estate. by the end of this financial year.. Parikshit Kandpal Okay. We have mentioned this before that we have gone through a process of arbitration to get our money back from Ramprastha.. Right now.. is it something which has happened in last few quarters or normal course? Corporate Participant We have a subsidiary Sembawang. the tax rate was much lower. Nitin Arora Hello. which has made good profit. Corporate Participant Thank you. So. So. So. sir can you please tell me the reason for the high tax rate during the quarter? Corporate Participant See. they have paid around 18% tax in Singapore. Corporate Participant Plus there will be some subsidiaries which may have losses. Thank you sir. So. Operator Thank you. when you have subsidiaries abroad. Operator The next question is from the line of Nitin Arora from Angel Broking. which you can't cut off. is it. Firstly. in Malaysia. . Just wanted a clarification. where there are some marginal losses. Good afternoon sir.Corporate Participant You are asking me to comment on some speculative news.7 crores in this quarter. there cannot be the percentage which you apply. Similarly. it does not has relation with any. we have a subsidiary. with the PBT. they have paid 20% tax. whatever tax they pay. Nitin Arora But if you look at like historically even in second quarter FY11. Okay. Corporate Participant PBT figure which you have with tax situation. Nitin Arora Okay. So. which has also made profit. See what happen. how do you expect the company to comment on that. Okay. even though we were operating in other geographies as well. coming back to that non-operating income of 67.. Plus you have another one or two subsidiaries. you can't cut it off against the income of the main holding company in India. And secondly sir... Please go ahead. it's not a high tax rate. Nitin Arora Okay. obviously if you look at the consol level. our non-operating income has been around like 3 odd crores. thanks everybody for coming on the call. Quality of our order book is strong. Nitin Arora If you look at past few quarters. Atul Punj for closing comments. 68 crores? Corporate Participant I don't have.Corporate Participant Yeah. can you just breakup the foreign exchange income from this 67 crores. Thank you very much. Atul Punj. So.. Nitin Arora Okay Corporate Participant And of course some product. I think the global diversity is really now beginning to pay-off in view of the competitive intensity that we are seeing in India. sir. hopefully in the next few months. what portion of this is. One of our major projects now is to address the interest component and the debt component. which is trying to pick up more business. some interest component. There is no project that are on-hold. some dividend component. That will be up from my side. . Operator Thank you very much. On behalf of Punj Lloyd that concludes this conference. I think we are busy doing what we do best. is it like. like is this majorly a foreign exchange income or it composes of something else as well? Corporate Participant No. Thank you for joining us. Chairman Well. As there are no further questions. I don't have the exact figure right now. Corporate Participant Nitin Arora Okay. We're seeing clients are well funded. I would now like to hand the floor over to Mr. [Operator Instructions]. you should start see some positive impact of that effort as well. Operator Thank you. Thanks a lot. And once again. So. sir. you have some liability write-back. just wanted to understand. Nitin Arora Sir. if you have other things like I mentioned earlier. And we hope that this trajectory will carry on now and we look forward to delivering similar results to you over next few quarters.. You may now disconnect your lines.