Dilip Buildcon Limited (DBL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Dilip Buildcon Limited Q4 FY '23 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jiten Rushi from Axis Capital. Thank you, and over to you, sir.

Thank you, Zico. Axis capital welcomes all the participants to the Q4 FY '24 earnings conference call of Dilip Buildcon Limited. We would like to thank the management for giving out this opportunity [indiscernible], today from the management, we have Mr. Devendra Jain, MD and CEO. Mr. Rohan Suryavanshi, Head, Strategy and Planning; and Mr. Sanjay Kumar Bansal, CFO, along with the Investor Relations team. We shall begin the call with the opening remarks on the management followed by Q&A session. Thank you, and over to you, sir.

Good evening, ladies and gentlemen. A very warm welcome to all of you to the fourth quarter and year ending 31 March, 2023. We're grateful to each of you who have joined this call today, and I'd like to show my gratitude to all our stakeholders who have continuously demonstrated and put their trust and confidence in our company and the management. Before I begin, I'll just go with our standard disclaimer. Certain statements made during the course of this call may not be based on historical information or facts and maybe forward-looking statements, including those relating to general business statements, plans and strategies of the company, the future financial condition, and the growth prospect. The forward-looking statements are based on expectations and projections and may involve a certain number of risks and uncertainties and other factors that could cause actual results, opportunities and growth potential to differ materially from those suggested from by such statements. And now I'd like to begin with a brief update on the economy and the industry trends, followed by the highlights of the company for the year. The Indian economy has continued to [Technical Difficulty] emphasis on capital expenditure and robust private consumption also accelerated this growth. For the upcoming year, '23, '24, World Bank has forecasted 6.3% of growth for India's GDP. We've seen inflation levels being elevated in this year, around 6.5% for the fiscal year 2023. However, it is projected to decline to an average of 5.2% in the fiscal year 2024. Government has had strong revenue collections, like gross GST revenue collection grew by 21% year-on-year to about INR 18 lakh crores in FY '23 from about INR 14,80,000 crores in FY '21, '22. The center's budgeted capital expenditure for FY '24 stands 33% higher than the previous year at about 3.3% of the GDP. Even the Indian state capital expenditure was about 11.9% higher during April to February 2023 on a year-on-year with approximately 54.7% of the budgeted capital spend -- capital expenditure spent during this period, so the governments -- not only the central government but also the state governments have been putting into CapEx, which is a good heartening sign. In FY '23, MoRTH has constructed 10,993 kilometers of national highways and awarded 12,375 kilometers. It's also important to mention here that over the last 9 years, national highways have added almost 50,000 kilometers, so as of March '23, India has a total of 145,155 kilometers of national highway, whereas in 2014, '15, this number stood at about 97,830 kilometers. So it's been commendable what the government has been doing and working tirelessly as all of you have noticed [indiscernible]. Also, like some other details into how this will look, the growth in the sector. According to a credit rating agency, the road construction sector is expected to see a ramp-up in road execution activities during this year by around 16% to 20%. This is backed by basically an increase in capital outlay made by the government, a healthy pipeline of projects and focus on project completions ahead of the general elections. It is also expected that the toll collections will grow between 6% to 9% during the fiscal year 2024, supported by growth in traffic. Also, the Ministry of Road Transport and Highways has set a target to generate about INR 35,000 crores through asset monetization during the current fiscal year, surpassing the previous year goal of INR 32,855 crores. During this year, the ministry intends to raise INR 15,000 crores through project-based financing of expressway by securitizing future toll revenues. Additionally, the ministry also aims to collect INR 10,000 crores through TOT model. I think these measures demonstrate the Ministry commitment to leverage innovative financing models and generate revenue for infrastructure development projects. So along with the [indiscernible] given by the government, all these will definitely hit in the Ministry's endeavor. Now having said that, let me run you through the highlights of the year for the company. As you all know, our major focus has always been on execution of projects in hand. This has been a strength which we were known, and we've continued same. I'm very happy to announce that we've also crossed INR 10,000 crores in revenue for the first time in the history of the company. This number had alluded us for the past 2, 3 years because of COVID and other things, but we finally done that, and we hope to go upwards from here in this coming year as well. In this year, we also won orders worth INR 10,918 crores compared to INR 7,811 crores during the last financial year. So this is almost an increase of about 40% over the last financial year. And out of the quarter one, about 46% road projects are in road sector, 23% in metro and 31% in water supply. I'm also happy to tell you that this year, we have completed five HAM projects and three EPC projects worth INR 9,053 crores. Another thing that I'm very proud to tell all of our participants here that we've completed the divestment of three HAM projects to Cube Highways and completed 100% equity stake divestment in five HAM projects and 49% equity stake divestment of three HAM projects with Shrem InvIT, so the continuous -- basically trend of completing projects and then monetizing them, that has continued to go on that. I should also mention here that we are expecting to complete eight more new projects in this financial year, where we'll be expecting a good amount of capital to come back here, and we are in the process of monetizing those assets as well. In those eight assets we have invested about INR 900-some-odd crores of equity, and we are expecting a very good monetization there as well. Besides this, I'm also very happy to announce that we have started both our NBO projects so both [Sarma] and Pachwara are on, and they are doing coal extraction and delivery and pass it, revenue has started there. So just a quick update there. [indiscernible], as you all know, that is the largest mine in private hands right now, and it's about 50 million metric tonnes of coal production every year, which is almost one [indiscernible] of what Coal India does, so we have started with. I should also mention here that this project was started in 1.5 years from since we have gotten it. So this is one of the quickest MDOs to have started production, so extremely proud to do that. And similarly Pachhwara also after years of litigation, we started and that the racks are going very well, there as well. Then I'd also like to mention in this year, we have reduced debt of around a little less than INR 400 crores, about INR 370 crores, we have reduced in debt as we had spoken about. And in this coming year, we are targeting a good number of debt reduction as well. So we are hopefully targeting at about INR 800 crores to INR 1,000 crores of debt we will reduce in this coming year. And this will happen through a mixture of internal accruals that we will be doing. Along with that, the monetization of the eight assets that I mentioned to you earlier, we're expecting those will fetch a good valuation and that money that will come in will reduce that. Finally, while this is in there, I must also say we were also lucky to have had strengthening in our financial team with our CFO, Mr. Sanjay Bansal joining in. He is an ex-ICICI banker and ex- [indiscernible] comes with a large experience of being in infrastructure and also understanding the banking sector well. So that was that. So these are the big highlights that the company had. Now let me quickly run you through our order book. So our order book currently as of March 31, 2023, stands at INR 25,395 crores, 40% of our order book is constituted by roads, highways and bridges projects. Water supply contributes 12%. Mining is 18%. Irrigation is about 14% and others make up about 16%. We're also happy to inform you that recently we have won the award for the latest project, which is the full line of Urga-Pathalgaon section. Now this is under the [Bharatmala Pariyojana], and it amounts -- it is a HAM project, which amounts about INR 1,955 crores. And all these details are available in our presentation. Guidance for the year that I'd like to just say before I hand over to our CFO, for the financials. We are hoping to do a top line growth of about 10%, the EBITDA guidance that we are trying to focus towards is about 13% to 14% of EBITDA. New orders that we are trying to win in this year will be about INR 10,000 to INR 12,000 crores. And I've already mentioned about the debt reduction that we are looking to reduce that about INR 800 crores to INR [2,000] crores we want to -- we will be targeting to reduce in this financial year and improve our working capital cycle as well by some 10 days. That's the target that we have for this year. We're excited about all the older projects that were a drag on the company's profitability and balance sheet of them getting out of it. And now the new projects where we see a lot of potential. Now let me hand over the presentation to our CFO for insights and comments on the financials of the company. Over to you.

Good evening, everyone. I welcome all our stakeholders to our earnings call. Let me present the results for the current quarter and year-ended FY 2023. First, on revenue side, we have the revenue increased by 14% in Q4 FY '23 and 12% on a full year basis on Y-o-Y. This is mainly because of the better execution of the projects. On the EBITDA side on absolute terms, in Q4, the EBITDA increased by 6%. And on a year-on-year basis, the EBITDA in [indiscernible] terms 31%. The finance cost in Q4 decreased by 6% and 15% in FY '23 on account of reduction of [indiscernible] debentures, [term] loan and lower utilization of working capital facilities. The company registered a profit of INR 583 million in Q4 FY '23 vis-à-vis INR 30 million profit in Q4 FY '22. This increase in Y-o-Y, a bit increased in profit due to the good EBITDA margin, lower finance cost, profit on account of the divestment of HAM assets to Shrem InvIT and Cube Highways. On full year basis, DBL registered profit of INR 2,218 million vis-à-vis INR 860 million in FY '22. This is on account of higher revenue, lower finance costs, profit on account of divestment to Q1 [indiscernible]. The net debt in absolute decreased by INR 370 crores from FY '22 to FY '23. The net debt-to-equity ratio decreased by 11 basis points. In FY '22, it was 63 basis points, now in FY '23 on 31 March, it is 52 basis points. Here, I would like to highlight that the company is continuously on track of reducing debt on quarter-on-quarter basis since last 2 years. Now we can open the floor for the questions and answers.

[Operator Instructions] Our first question is from the line of Shravan Shah from Dolat Capital.

It's good to hear that we are looking at INR 800 crores, INR 1,000 crores debt reduction, so that's a significant positive thing for us. I just wanted to further understand how we want to achieve this INR 800 crores, INR 1,000 crores. So just to dwell further in terms of the -- are we looking at any further improvement in working capital days? Or is it only primarily from the asset monetization that we will be able to reduce the gross debt by INR 800 crores, INR 1,000-odd crores.

Thank you. This is a combination of all the points you said. So this is like the better performance, meaning the EBITDA margins, we are expecting around 13%, 14%. The second, reduction of debt because the long-term debt, there are scheduled payment of around INR 400 crores. And basically, from divestment proceeds also we are expecting a good amount of cash flow. And the last one is basically working capital days also we are expecting 8 to 10 days reduction. So all these 4 items put together, the free cash flow would be around INR 800 crores to INR 1,000 crores, which will basically total reduce the debt.

Okay. So on the top line front, we are looking at how much, 10% growth?

About 10% growth from -- so this year, we are at INR 10,100 crores, so from here, we expect around 10% growth.

Okay. And on the order inflow front, how much we are looking at?

So this INR 10,000 crores to INR 12,000 crores orders we are expecting in this year, [indiscernible] all the sectors.

So this will be across the sectors. So anything in terms of INR 4,000 crores, INR 5,000 crores from HAM or it would be much lesser HAM would be.

I can only say on the investor presentation you can say we are in 8 sectors. So primarily the mix would be more or less same.

Okay. Okay. Okay. Got it. Just to still further understand on the -- particularly on the debt reduction part. So if I see this [indiscernible], I think the creditor this has actually supported in terms of the -- from December to now, if I can see creditors significantly has helped in terms of the reduction in the working capital. So will this remain at this level? Or it will further come back to the normal level of 95-odd days.

So yes, this is a very good question. So basically, we are expecting the creditor days go down. But considering the total working capital, we will -- we are expecting around 8 to 10 days lesser. So creditors will reduce. And similarly, the net working capital also improved by 8 to 10 days.

So just to again clarify. So inventory days, which is at close to 128 days. So that will -- we are expecting that to reduce and creditor days 108 will come back to normal 95-odd days. Is it the case?

Currently there will be mix -- there will be a reduction in inventory days also, there will be reduction in debtors also, there will be increase in creditor days also. So put together everything, it will be -- there will be a reduction from [indiscernible] to 10 days in the current level of 70 days.

Okay. And then from the monetization, how much are we -- are we in terms of the cash, how much are we expecting this year?

So these numbers are like you know about our previous deal Shrem InvIT. So we are -- you can say more than like our [indiscernible] assets, we already completed 100% divestment, [indiscernible] assets 49%. So from balance, there will be significant cash flow. But toward future divestment, we don't want to give any numbers now.

Because there, I understand, I think of a larger sum would be through the InVIT units that we will be getting. So that's what I was asking how much cash we have already received for the Shrem and how much cash that we are -- because my understanding was that the larger amount we will be getting through the InvIT units.

Sir, so we're not talking about the deal that we've already done. This is the Shrem deal that we -- where we have monetized 10 assets. That is a mix of cash and a mix of units. So that's it. We are not talking about that. Besides these 10 assets that we sold, we will be completing another 8 assets in this financial year. These are new assets where we do not have a final buyers right now in place, where we haven't announced or done a deal, from these assets -- in these 8 assets, we have invested about INR 900 crores of total equity. From this, we are expecting a good release when we monetize it as we are in discussions with different ways to monetize that. So we're expecting a good [indiscernible] to happen and a majority portion of which will come in this year. So because of that, we are expecting good cash flow. Now the unit back to us and the cash that we've received that is already on the -- our investment deck as well. You can look at the...

Okay. Okay. Okay. I got your point. So just trying to further understand here. So these 8 assets that we are looking at to monetize, so that is the route will not be the InvIT route. I'm not asking in terms of the value or sum of the buyer or who is the buyer? I'm trying to understand, it will be more like a cash deal that we are looking at and buyer if we are looking at -- in terms of the timeline to get the cash, will it be before March '24, we will be able to get the cash?

Sir, you're right. We are not looking to -- there is no automatic thing to Shrem InvIT. What we are looking as shareholders of this company and as a prudent management we will go out and get whatever is the best possible valuation for these assets. Whenever we get that valuation, we will get that asset, and this will be in all probabilities, this will be all cash deal only in this year, we will be looking to... And four projects out of these rates that I'm talking about, four of them will be commenced by July. So you will start seeing the monetization happen very, very soon.

Sorry, sir, last part, I missed, I didn't get your voice.

Out of 8 out of 8 projects, the 8 new projects that I'm mentioning, where we do not have a deal. Out of those 8 projects, 4 projects will be finished by July. So you will see -- so the COD, the COD of those four projects will be achieved by July. So you will see a monetization happen very soon. So we are on the job of getting that monetization. And wherever, like I mentioned, we'll get the best valuation. We will monetize those assets there.

Okay. Okay. That's a great thing. Just to catch up in terms of the CapEx for this year, how much we are looking at?

So we are looking to do a CapEx of about INR 50 crores to INR 75 crores, like we had mentioned even last year. So that's the same kind of -- and this is all kind of small replacement CapEx in the company of our size that [indiscernible] large CapEx that we used to do in the earlier years. As part of our stated goal that we will not be looking at doing CapEx, and because [if] we are using our equipment right across all the different sectors that we're working in, and then we had made that public offer that we will be looking at focusing and reducing our debt, improving and focusing on getting the best efficiencies out of our equipment. So that is what we have been trying to do. And even the smaller CapEx that we do is more of a placement effect or all small things that might need to change here and there.

Okay. And then last on the margin front. So this quarter, again, we have seen on Q-o-Q front, another 100 bps or a reduction to 9.5% EBITDA margin, and now we are looking at 13% to 14%. So two things, trying to understand till now, still we are not able to get the higher margins and now we are confident to get this 13% to 14% margin. So will it start reflecting from the Q1 itself and if that's so, what is -- what gives us the confidence that we will be able to achieve a 13% to 14% EBITDA margin?

Sir, the confidence that we get it from the order book that we currently have, the margins at which we have won those projects at, so #1 is, what are the kind of values, I mean, the different commodity rates at which we had won those. On that, we have also seen a cooling off in the prices of commodities. So it was also not like we were hitting getting it by those prices. We're also expecting to do those on time over 4 times. So that will also be something that we are kind of now focused on in doing that. So it's a bunch of all those things, which historically till now, we were suffering from all the extra baggage like I mentioned, from the older projects because as you can -- as you remember, a lot of these projects were won in actually 2018, like this was March of 2018 that we had won a lot of old HAM projects that we are currently monetized and those projects got stuck first by the government, by the appointed dates getting delayed by -- in most cases by over a year. And then eventually to when they finally got -- I mean, in fact, the last project that we got at appointed it was one package of Bangalore, Mysore Highway which we got appointed it in December 2019, which was just 3 months before COVID lockdown happened. So we had just got an appointed [indiscernible]. So all those projects, which were causing a drag on the company's performance now because we have more or less kind of exited them and getting move on and the future projects we see a good kind of potential, along with hopefully a docile inflation scenario, where we don't expect things to now move suddenly. And some of that confidence in terms of inflation not going out of hand, is also based on global factors. If the West is looking at an economic uncertainty and depression, it will obviously have a cooling effect on those prices as well. So I think that -- so part of global scenarios, part of what we are -- and obviously, all these are anticipations that we are looking at whenever we look at those kind of guidances. So that is kind of what we're doing. And if you also want to ask whether it will be quarter-on-quarter or no? I mean I'm giving a guidance for the overall year on it. It's very difficult for me to give you an exact accurate picture of what, how things will look every quarter. So this is the whole year -- the same but we are confident of achieving of these kind of numbers, with the diversified order book that we have and with coal firing on all cylinders, with road projects coming, with irrigation projects happening, so across all those pipeline projects all across the sector, we are confident that we will be able to get those kind of margins going forward.

Great. The purpose of asking, I'm not trying to get the quarter-on-quarter EBITDA margin guidance. The purpose is if we don't get a 13% in the first quarter, then the [ask] rate for the remaining 3 quarters and the same if we don't achieve in the second quarter, the [ask] rate for the second half is much, much higher. So that's the main reason I was looking at -- it should be kind of an equal 13% across the fourth quarter. So if we, let's say, do 11% in Q1 than the ask rate to achieve or for full year, 13% for three quarters is much higher. So that's the main reason I was looking at, the last question is DBL Infra, the debt is the same INR 700 crores, INR 750-odd crores.

Yes, it's actually INR 675 crores.

May we request Mr. Shravan Shah to join the question queue for follow-up questions. Our next question is from the line of Parikshit Kandpal from HDFC Securities.

Just wanted to understand, so you said that the worst is behind us now. So next year looks promising. So if I do numbers...

Your voice is not very clear. I'm so sorry.

Can you hear me now?

Yes, we could hear you, it was not earlier very -- sorry.

Saying if I do the quick math, so you said there's 10% growth, if I take 13% margin on the 10% growth, about INR 1,450 crores of EBITDA. And if I take same interest of INR 500 crores and INR 400 crores of depreciation, so about INR 550 crores of PBT and INR 400 crores of PAT. We will make roughly about INR 800 crores of cash profit, which will go towards funding your equity requirement for the HAM and old projects. So I'm not adding CapEx and I'm not adding any working capital infusion. So large part of your debt retirement will depend on how much you can save on your working capital despite 10% growth, whether you can reduce the NWC and secondly, on the monetization of this INR 900 crores worth of 8 projects which are getting completed. So how confident are you? Because these 4 projects may get completed by July. But eventually, when you get all NOC, all approvals, it will still take like good 2 quarters or 3 quarters. So -- and also, you have to find an investor before that. Have you assumed anything -- any inflows coming in from the monetization for the debt reduction?

Sir, coming to this you are very right with the numbers, whatever you've done the calculation. Those are the same calculations that we've also kind of done. Now coming to how confident we are about monetization, has been very confident and we have a long track record and history of monetizing assets, as you've all seen for the last few years. And so there's a reason for our confidence, we build projects of extremely good quality. And for that, you can look at any of any of the players who are buying assets, all of them can tell you that whoever has looked at our assets, we'll always be very confident for quality. So because of that comfort and the fact that this is a sizable portfolio and a [indiscernible] portfolio of any of the large investors who are looking to build a road portfolio. So from that sense, we are very, very confident that, that kind of thing should happen. And even on a conservative estimate, like I mentioned, this is -- we've invested about INR 900 crores of equity in these projects. And if I look at INR 1,000 crores of inflow from those projects, I think we will still be in good place to achieve what we are trying to go and achieve.

But typically, you will sell 49% and then after like annuities coming after 6 months, you will be able to then sell the rest, and then flow comes in, so which may go into FY '25. So maybe the entire amount may not be able to come in FY '24. And before that, you also need to...

No, very good question. So you're assuming that at one time, my assets are not going to be sold at one time of value the book value. We are expecting the book value to be a very high book value because these assets were won at a time when the interest cost scenario was low. So -- and now with a higher [difference], that's also there. Also, while we are adding that even if you do, we are also getting a whole bunch of Shrem InvIT units, which where we will be getting -- we'll be getting that. Also, we're in conversation with them that there will be some more cash compensation that they'll be doing, instead of some units. So that's all -- it's a mix of all the things that will happen. And hence, we're giving you that fixed kind of...

So let me summarize what [indiscernible] said. Basically from the current divestment, which is under progress, we are expecting the balance consideration is around INR 1,000 crores, and we'll be receiving at least minimum 50% in cash and balancing units. From the further divestment of 8 assets, as [indiscernible] said 4 assets are in advanced stages and will complete by 31st July. Those assets, you can see if we are achieving the COD in 31 July, the 100% money can come by 31 March. But the assets -- the other 4 assets which will complete in Q3 and Q4. Those assets, 49% will be divested. So like you can say a number, we will be receiving at least INR 1,000 crores type cash flow from those projects also. So put together, INR 1,000 crores to INR 1,500 crores cash flow will come only from divestment.

The Shrem InvIT -- so what is -- you said 500 is still the cash payout, which has to happen, right? 500 of units.

Balance consideration is close to INR 1,000 crores. Out of that, minimum, we are expecting INR 500 crore inflow and from new asset divestment, the plant divestment, we are expecting INR 1,000 crores by March 31. So in total, total INR 1,500 crores, we are expecting in this financial year.

Of the total Shrem InvIT, sir, how much you have received already as units as of now? And how much is the cash inflow we have received?