J. Kumar Infraprojects Limited (JKIL) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of J. Kumar Infraprojects, hosted by Yes Securities. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Viral Shah from Yes Securities. Thank you, and over to you, Mr. Shah.

Yes. Thank you, Margaret. Good afternoon, everyone. I welcome all the participants to the 3Q FY '22 Results Conference for -- of J. Kumar Infraprojects. We have with us Mr. Kamal Gupta and Mr. Nalin Gupta, who are the Managing Director of the company. We will commence the call with the opening remarks from Mr. Gupta to give an overview of the company's performance. Post that, we'll be having a Q&A. Over to you, sir. Thank you.

Good afternoon, everyone. A very warm welcome to all of you for this Q3 FY '22 earnings conference call. Along with me, I have Mr. Nalin Gupta, MD; Mr. Praveen Kumar Bhandari, our CFO; and our IR team. I hope everyone had an opportunity to go through the results. The presentation and press release have already been uploaded on the stock exchanges and our company's website. Let me start with sharing some important updates. Appointment of Mr. Sidharath Kapoor as an Independent Director. Mr. Kapoor is a Chartered Accountant and CS. He is currently on the Board of Noida International Airports, also a strategic adviser-AIF, SBI Mutual Fund; and Senior Adviser and consultant in Airport and Infrastructure sector. He has a track record of over 2 decade in strategic leadership and leading complex businesses. Mr. Kapoor's induction will be of immense value to our Board. I'm also glad to announce the appointment of Mr. Praveen Kumar Bhandari as Chief Financial Officer. He receive a provision with 28 years of great experience. A majority of this like 16 years was with APG CPR. We will be welcoming. We have also been awarded project totaling to INR 1,811 crores (sic) [ INR 18, 111 crores ] during 9 months of FY '22. Coming to our performance -- stand-alone performance highlights for Q3 FY '22. Our revenue from operations for Q3 grew by 18% to INR 966 crores. The operating margin for Q3 stood at INR 139 crores which is -- the margins of Q3 is 14%, yes. And the PBT for Q3 grew by 33% to INR 82 crores and the profit after tax grew by 31% to INR 59 crores. Coming to a standalone performance highlights of 9 months ending December 31, '21. The revenue from operations for 9 months FY '22 grew by 53% to INR 2,430 crores. The operating margin for 9 months stood at INR 345 crores. And the PBT for 9 months grew by INR 300 crores to INR 179 crores. The profit after tax for 9 months FY '22 grew by INR 323 crores -- 323% to INR 132 crores as compared to the previous year-on-year. The company continued its focus on working capital management and quality of good order book. The company has been able to reduce its debt level by INR 53 crores despite increasing execution, disruption cost due to COVID-19. Our total order book as on 31st December 2021 stood at INR 10,636 crores. Before taking the Q&A, I would like to reiterate the vision of the company. Our target is to achieve a revenue of INR 5,000 crore plus by FY 2025. Although we have profitable debt position, our endeavor is to reduce gross debt every year. Objective is to continuously improve shareholders' return ratio by investing in people, technology and process. With this, now I leave the floor open for questions. Thank you.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital Advisors.

Sir, congratulations on good set of numbers. Sir, the first question is order [indiscernible] has slightly muted for us...

I am sorry to interrupt you Mr. Kumar, your audio is not very clear, sir. Can you please...

Is it clear now?

It's not very clear, sir.

Can I speak louder, does it work? .

Your voice is cracking.

Yes, actually.

Okay. congratulations on good set of numbers...

Mr. Kumar, I would just request you to rejoin -- check your phone line and rejoin the queue please. In the meanwhile, we'll move to the next question, which is from the line of Shravan Shah from Dolat Capital Markets.

Sir, congrats for a good set of numbers, and also welcome Mr. Praveen. I hope he will be adding value to our company. . Sir, the first question is, now we have already done good in terms of the execution. So previously, we guided INR 3,500 crores -- INR 3,200 crores to INR 3,500 crores for this year. So definitely, we would be touching, even crossing INR 3,500 crores. So just wanted a thought from your side. Can we see at least some growth Y-o-Y in the fourth quarter, so that will lead to INR 1,000 crore plus revenue? So we would be ending INR 3,500 crores plus? And at the same time, in terms of the margin, though we were guiding at 14% to 16%, but still we are on the lower band, 14.3%. So any thought process that we can at least inch up to 15% kind of a level?

Shravan, as we had mentioned that we will be doing a top line of INR 3,200 to INR 3,500 crores for FY '22. So we have narrowed down our expectation to INR 3,400 crore to INR 3,500 crore looking at the performance of Q3. And to -- have crossing INR 3,500 crore would our target -- would be our target as well, but it all depends on the execution. But yes, we should be in the range of INR 3,400 crores to INR 3,500 crore.

Okay. And for the next year, then can we see a 20%, 25% kind of growth on the top line front?

On the top line front, we are expecting at least -- we expect that we should be growing at the rate of 14% to 15% CAGR and so -- and with regard to margins, we have been maintaining at the rate of around 14% to 15%. And you can see from the 9 months also, we have achieved an EBITDA margin of 14.3%. So the current order book that we have of around INR 10,600 crores, they are all with a similar margin of around 14% to 15% EBITDA margin.

Okay. The next is in terms of the inflows. So already, we got INR 1,811 crores. So how much more are we expecting, how much we bidded and what's the total bid opportunity size currently available?

We have bidded for around INR 3,500 crore to INR 4,000 crore jobs already for Gujarat Metro, Kanpur, Agra and that are -- we are in the process of bidding for new projects as well. So it all depends upon when the tenders are opened and which of the bids we are able to submit. But there is a lot in the pipeline. And the opportunities are very good. There are various projects coming up, even with this year's budget has been excellent, and the government focus has been totally on infrastructure, with around 25,000 kilometers of NHAI roads, 100 ports and building [ works], your Metro projects, so there is lots and lots of opportunities, which is there. It's good, frankly, we are allowed to bid for projects more than INR 10,000 crores in a short span of time. So order book should not be an issue for the company, I would see.

Okay. Okay. But -- so you rightly mentioned that INR 3,500 crore to INR 4,000 already bidded. So can we expect at least INR 1,500 crores to INR 2,000 crores kind of a inflow by March?

See, the time period available as of now, if you see, we are already in mid of -- so in 1, 1.5 months' time with elections being also there, I don't see that there will be a huge chunk of order book coming in as of this time. But in the near future, maybe in Q1, we should have a good set of order book coming in for our organization.

Last...

INR 5,000 crores for [indiscernible]...

Sorry sir, INR 5,000 crores?

We are expecting to achieve an inflow of around INR 5,000 crores for the coming fiscal year.

Okay. Okay. Sir, lastly, I need a number on the balance sheet front.

It was communicate -- Yes, Shravan go ahead.

I need a couple of balance sheet numbers for mobilization advance, retention money, trade receivable, inventory, payables cash, all these [indiscernible] need?

Mr. Praveen Bhandari?

[ I call them out ], we have an inventory of INR 905 crores, and we have a term loan of INR 80 crores. We have working capital loan of INR 395 crores. So added to that, our total loan is around INR 272 crores. And we have receivables at around INR 900 crores, partially of them has been received and realized in this month, January and Feb put together. And we have a bank balance of around INR 410 crore, which is consisting of FDR of INR 750 crores. That's what we are taking for margin as LC and bank guarantee. So all put together is this. Net-net, if you ask me, we are INR 39 crore worth of net debt position as of now.

Sir, what's the mobilization advance, retention money and unbilled revenue number?

Yes. Mobilization advance as it stands today is INR 550 crores. And security deposits and all the retention money is INR 200 crores.

Okay. And unbilled revenue, sir?

Unbilled revenue is INR 540 crores.

540?

Yes.

Okay. Sir, you said inventory is INR 905 crores and payable is INR 900 crores. So what's the receivable number?

Payables are INR 533 crores, INR 533 crores. Receivables are INR 900 crores. We have realized a major chunk of this account receivable in the Jan and Feb months [ put together ].

[Operator Instructions] The next question is from the line of Mohit Kumar from DAM Capital Advisors.

Hope I'm audible now.

Yes.

So congratulations on a good set of numbers. So first question on the -- of course, on the ordering pipeline. How do you -- I think you mentioned the INR 10,000 crore number. Is it possible to give more granular details in which segment these tenders are apart from Kanpur, Agra and I think Chennai? Is there something else which is -- which form part of this order? It is the first question. Secondly, coming to Mumbai opportunity, how is the opportunity in Mumbai at this point of time? And do you think some of the large debt -- the large tendering opportunity will be available in FY '23?

Yes, no, there's sufficient opportunity in Mumbai itself in MMR region. So like as it is, we are doing a lot of Metro work in and around Mumbai MMR and flyover projects. So there are a lot many coming in also. So in terms of metro, in terms of flyover bridges in MMR by MMRDA, by the Mumbai Metro, CIDCO. And in terms of the project pipeline, apart from metros in Agra, Nagpur, Chennai, Kanpur, [ via ] MMR, or in Surat, we're also focusing on bullet train projects. We are also focusing in water lines and institutional building. This is also a focus area. So it's not only this. It's like we also -- the budget also says we will also go for this river linking project. So there's a lot in pipeline, Mr. Mohit.

What is the status of Gudwandar-Mulund link road (sic) [ Goregaon-Mulund Link Road ]? Are you participating in that? Have you put in a bid?

It is Goregaon-Mulund Link Road. So we have already submitted our prequalification for that project, and it is under scrutiny. So there are 2 projects of around INR 3,000 crores each.

So most likely, this will get finalized in FY '23. .

Yes. In early 2023, I would say.

Understood, sir. Understood. Secondly, sir, is there an impact of raw material inflation in the quarter in the Q3 in the margin? And if you can quantify that number?

So there has been escalation currently in this month. The prices have shooted up again for steel. But as we have been saying that with prices, all our contracts are fully covered by price variation and escalation clause. So the effect comes later or sooner, but that is always covered under the price variation and escalation clause. So it doesn't impact our bottom line.

So the 14% margin -- the kind of margins is to sustain or, there will not be material impact?

[indiscernible] what we look at, sir.

Okay. Lastly on this are -- the revenue guidance for FY '23, you said 15% kind of growth, right? And given that we have a large order book, the 15% looks to be on the lower side. Is there a chance that we will reach to 20% or 25% revenue growth in FY '23?

So Mohit, like as we have been saying, we go at a seizure of 12% to 15% always. And like we always want to say a conservative figure and try to achieve best possible. It depends like how the execution goes. So we are hopeful like we should cross this number.

Sir, lastly, sir, is there any debt target, debt number in your mind here, which you want to reduce your debt to in less than a couple of years?

So we are expecting a debt of around INR 500 crores going forward. And if you look at the debt levels, currently also, we are at a gross rate of around 0.23. And with a net -- which is almost a net-debt free company. So even with the -- what is important to be noted is that even after the growing revenue, the debt levels have not been increased. So maintaining a debt of INR 500 crore across, it would be a good number, I see. And further, our endure would be to reduce it as far as possible for sure.

The next question is from the line of Vasudev from Edelweiss. .

So sir, the first question would be, can give the project status of the major projects that we have that CIDCO project, Metro project and Dwarka Expressway?

Status. To let you know your Metro Line 3, we have completed around 80% of the projects where total tunneling has been over [indiscernible]. And the station was then finishing and CNM works are on. And if you work. Major second one is your Dwarka. So Dwarka projects are going in full swing, package 1 and 2. And we are hopeful to complete it by next year, June, one package and the other one by another couple of months. So this is Dwarka. And CIDCO, the major other projects are completed. We have recently backed one project of INR 170 crores of fixation. So even that project has started in full swing. So we are able to complete it in this year-end only by like December CIDCO will be completed. With regards to Mumbai Metro, Line 2 and Line 7, they have been completed 98%, you can say, because both the lines would be put into operations by this month end or you can see by 15th of March is the target by the government. The CMRS inspections are going on. So it should be operational to public by 15th of March, we can say. And other metro lines are also in full swing. All the works are in proper execution, and we should see good progress coming in from metro again in FY '23 also.

Okay. Got it. And also, could you please give some light on the Pune and the Surat Metro project?

So Pune Metro, we have 2 projects. One is underground of around INR 300 crores and one is elevated. So the elevated project is, again, the entire completion from J. Kumar's side would be in March or April. All the major work has been completed, and we are on the verge of the balance [indiscernible] works. So it should be completed by March or April. Surat, we have recently started.There were a lot of land acquisiton issues. The entire stations were -- we were expecting it would take some more time. But what a surprise for the better is the Bajaj government has demolished all the shops and everything, and we have got a clear cut site. We have mobilized our machineries and we have started our first [indiscernible]. Yesterday, we have done our first [indiscernible] for the station. So the work is -- now we should see some good revenue coming in even from Surat Metro.

Okay. Understood, sir. And on the coastal road project, we were awaiting forest clearances. So have we received it or it's still pending?

Yes. The coastal road, CIDCO coastal project, the [indiscernible] clearances are in advanced stage. So I think it will take a couple of more months. But we already started mobilizing there and like the casting yard work, the design works are already started.

Okay. Okay. And next, sir, on the CapEx front, what is the CapEx that we did in this quarter? And what are our plans for the next quarter?

So this quarter, we did INR 20 crores of CapEx. And like till now, it is INR 64 crores for the 9 months and like we are expecting around INR 80 crores to INR 100 crores by the year-end. So wherein you will understand the 5% is like for the maintenance CapEx and some incremental CapEx. The total will be around INR 80 crores to INR 100 crores by the year-end.

Got it. So this quarter, sorry, can you please repeat how much was for this quarter?

INR 20 crores.

INR 20 crores.

INR 20 crores, okay. And finally, sir, on the order intake, what is the order intake that you're expecting in the next quarter, like this Q4?

So in the Q4, we don't expect some big numbers to come in because there is hardly 1.5 months left. So it all depends on when the tenders got opened and when do they award for the ones that we have already bidded. But we are not very -- we don't have much high hopes as to some good numbers to come in the Q4. But in the Q1, we are expecting some good amount of orders to come in.

Okay. Okay. And finally, sir...

And like service -- so if you see like a lot of states are gone for election. So this is their [ code of conduct period ], nothing happens during this period.

Okay. Yes. Okay. And finally, sir, can you give the working capital days, the [indiscernible] editor inventory and the net working capital cycle days?

Net working capital cycle is 122 days till date for YTD, and we'll try to improve it, but this will remain almost [indiscernible].

The next question is from the line of [indiscernible] from HG Hawaiian Company.

So sir, we have been able to survive the entire downturn in the intracycle. -- where we -- for the rest...

Can you please repeat the question, Mr. [indiscernible]

Mr. [indiscernible], Can you please speak on the handset mode, there's some disturbance from your line.

I'm on actually Airpods, but yes, I'll do it.

Can you please come on the handset mode?

Hello?

Yes, it is clear.

Much Better.

So my question is that -- I mean this entire last decade, we have been able to survive bad intra cycle. And now things are turning around. Unfortunately, our stock price does not reflect the same reality. Whereas we have actually backed orders, done some very good execution. So is there any thinking -- is the management change that by -- I mean the main problem is your ROE and ROCE. So is there a thinking within the management to change that status quo and how will we do it? Is it because of the legacy orders that this ROE, ROCE doesn't come up? Or is there now a new thinking for the orders which are upcoming? And second question, sir, would we be open -- see now there are large corporates like Adani, backing order on the strength of the balance sheet, but they are subcontract [indiscernible] project. So is there a thinking within the management to take up these subcontracts? And third is are we qualified to take up very large HAM projects also?

Yes, first of all, like, of course, we are qualified to take up HAM projects. We have bidded also for a HAM project of this Mumbai-Delhi project, but we were not [indiscernible], unfortunately. And so of course, we have been qualified. Secondly, we are sure that our ROE and ROCE will improve going forward. We have got major changes also in the organization. We appointed KPMG as a consultant for drafting the SOPs, streamlining the processes, wherein our efficiencies will go up, the margins will be better and cost will be less. So the major changes, Mr. Praveen Bhandari has joined as the CFO. We expect a lot of valuation from there also. Our independent directors, Mr. Sidharath Kapoor is coming with a great infrastructure experience. So I think there will be massive changes. And as you know that we have great execution capabilities, there's no doubt about that since our history states that. And we are fully prepared to capitalize on the infrastructure [indiscernible] given by the government in this budget also. So of course, like there will be -- and we are very sure that the market will also very soon acknowledge this and give the appreciation to us. We have recently also shifted to our new corporate J. Kumar House at Vile Parle East Mumbai. So everybody is under one roof, so the efficiency level should also be increasing with the best facilities available to this J. Kumar team. And with regards to taking subcontracts with these large [ cap ] players, we are open to such opportunities. If we get the work, which are -- if they are this R margins -- but what is important [indiscernible] as J. Kumar individual experience and the past certificates of work done that we have, we do qualify for individual projects like HSR, like GMLR, huge market -- huge Metro projects, flyover, if you see Dwarka ExpresswaY, which is like INR 1,500 crores, Mumbai Metro Line 9, which is of INR 2,000 crores plus and various projects, like we took our Line 3 on a joint venture where we call it [indiscernible] because execution is by J. Kumar. So still now we qualify for the works on a stand-alone basis, what I just want to say. Now we are going to bid for HSR, which is a INR 8,000 crore plus project. And that also we qualify individually. But to hedge our things, we may partner with somebody, that's a business strategy. But when J. Kumar qualifies on its own for large projects of INR 5,000 crores, INR 8,000 crores, we had also bidded for HSR C2 and C4 projects, which was INR 20,000 crores. So -- but we were unfortunately [indiscernible] in that. So there is a lot of business opportunities as a main contractor. So that would be our primary objective to focus as a main contractor and if we get work from people like Adani on this, we wouldn't be staying back if it is [ related ] to R margin, we would look forward for it also.

So do you see some kind of a short squeeze happening where the projects itself are too many, and there aren't enough people who are qualified to do it? Or a lot of people have even gone bankrupt over the last decade? So do you see short squeeze happening because you've had a career of so many years, and you may have seen that situation where there's orders are so many, but very few people do get it done and then that leads to a huge order backlog to each of the existing players. And then you may be even able to dictate margins to the [indiscernible] of 2% to 3%.

What happens is some people become aggressive. When they like, for example, like right now, J. Kumar, we got an order inflow of only INR 1,800 crores. So now how stable your organization is, your team is, the management needs to have a very patient approach towards bagging the projects. We get aggressive that no we are not any getting and we start taking projects like I wouldn't like to name companies, but if you look at Chennai, Delhi, some people have been overaggressive. So taking up the work and just filling the order book without good bottom line, I think that should not be approach for any good organization, and that subsequently, we [indiscernible] the periods of the infra companies. So I think then there is so much on the table for each one of us there, you won't find good contractors to execute with the ample amount of work available as of now in the market. So I think in FY '23, you will see all the good companies being flooded with the orders. So I think it's a matter of time where we all need to be patient and select the right project for our organization.

So being flooded by, you mean that most good companies would have orders for like 4 years and 3 years or even 5 years end?

Right now, if you look at J. Kumar's order book, we have an order book of INR 10,600 crores, which takes care of the top line for the next 2 years very comfortably. And with the -- in this fiscal year, as we have already mentioned that we should be bagging INR 5,000 crores plus order book, we are quite confident that the order book coming in FY '23 would be INR 5,000 plus, not less. So that is what I want to say with flooding of the orders.

[indiscernible] And next to it, you are headed for almost INR 5,000 crores since -- in either FY '23 or failing which FY '24, you are headed for at least INR 5,000 crores sales per month -- per year, sorry.

So you're talking about [indiscernible]?

No, no, no. Like with the order inflow that you are talking about in FY '23 or even FY '24 latest, we will be able to do INR 5,000 crores sales?

FY '23 is what I'm talking about. In fact, this year, we had inflow of nearly just INR 2,000 crores. But in FY '23, we will be adding an inflow of more than INR 5,000 crores.

And we are expecting to [indiscernible] around INR 5,000-plus crores in FY '25. So [indiscernible], we are expecting a INR 5,000-plus crores plus revenue in FY '25.

The next question is from the line of [indiscernible] [ Savla ], an Investor.

Just one question, sir. Regarding the various different kind of assignments we do, I wanted to know which -- from a profitability standpoint, which of these assignments has the highest margin? And if so, are we planning to increase our margin by taking up more projects of those kinds?

So Mr. [ Savla ] it's, of course, what we are working, that is a very niche area, whether it's because they are mainly into structures, whether it's flyover, bridges, metro elevated or underground, plus some institution building. So these are, of course, a niche area. But wherever we take, like we take a bit of our own margins of this 14% to 15% EBITDA. So it's a mix of these projects. So you cannot say that this particular vertical will give you higher margins. So there are people in all verticals, but we have our strength in this vertical to be able to maintain these good margins of 14% to 15%. And going forward also, we'll secure all projects with many of these margins.

If you look at the track record of J. Kumar, we have been making this margin, which is coming mainly from the transportation sector, mainly focusing in 2 structures, so like elevated metros, flyover that we have been mentioning. So that we will try to be focused on it. And also underground metro as we -- J. Kumar is among very few companies in India who has 7 tunnel [ boring ] machines in its fleet.

Okay. Just one more thing. Sir, is that 14% more like an accept-reject kind of rule that, suppose some project is not giving us such a margin and we probably will not go for it?

Yes. So like that's what -- what happens, if there is a project joining to your project. So there, your cost goes down. So of course, the 14% will be maintained going forward also.

The next question is from the line of Prem Khurana from Anand Rathi.

Congratulations on a very good set of numbers. Sir, just to, I think, continue on the status that you shared with us on some of these Mumbai metro line. And if you could help us with the line 9. I think last time we spoke, I was made to believe that there was some land acquisition issue with the underground section. And we were also awaiting approval for that 2-kilometer flyover. So what's the status there? Has the work started? Or is it yet to begin or the issues are yet to be kind of resolved?

So line 9 is the total project worth around INR 2,000 crores, wherein this 2-kilometer line and we -- actually 1.8 kilometers towards Bhayandar end, which was under dispute due to the location of depot. But the MMRDA, we have finalized a location for the depot and now it's on the verge of finalization. But there was also the underground portion was -- that we had mentioned earlier was on hold because of the AI land acquisition. So we have received the permission from Airport Authority of India and the work has physically started. We have demolished the residential buildings in the airport colony and also the main station box file foundation work has already been started. So Line 9 now, we can see the entire job is in our hand.

Sure. And how about Line 3, any change in the completion time lines?

As I told you, we have completed around 80% of the project. The total tunneling is completed and ATM is almost completed. It's only the station work, which has [indiscernible]. So finishing and the architectural finishing plus there's some RCC work and E&M work that is going on. So we expect it to be operational -- you're talking about completion of our parts?

Yes, completion of our parts, yes.

The completion of our parts should be in coming June '23.

Okay, sure. I think initially, we were targeting to finish it by March '23, or it is 3 months, which is [indiscernible] give sure. And sir, I was looking at the recent Chennai metro bid and it seems that we partnered with Patel for this. Was there any reason? I mean, why did we -- why were we required to partner with Patel because I mean we have our in-house execution capabilities we've been doing underground metro for so many years now and have capacity as well. So why would you go with Patel and not go solo? And also -- and we did not bid for the second package, the underground package to -- any specific reason for that?