GPT Infraprojects Ltd

NSE:GPTINFRA

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to GPT Infraprojects Limited Q4 FY '23 Earnings Conference Call.

[Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Atul Tantia, Executive Director and Chief Financial Officer. Thank you, and over to you, sir.

[Atul Tantia, executive]

Thank you. Good morning, everyone, and a warm welcome to the GPT Infraprojects Limited Q4 and year ended 31 March 2023 Earnings Conference Call. The results presentation and the press release along with the financial results were uploaded on our website and the website of the stock exchanges, and I hope you have had a chance to review the same. We are also joined by Stellar IR, our Investor Relation advisers.

I'm happy to announce that the fiscal year 2023 marked the best year for the company in its history on all parameters that is revenue, EBITDA, PAT, ROCE and cash flow. This achievement is attributable to our strong execution capabilities, steady focus on cash flow and the realization of old receivables from customers, which improved our return ratios, leading to ROE and ROCE being 14% and 17%, respectively.

As per the dividend policy of the Board and in order to reward our shareholders for the robust performance of the company, the Board has recommended a final dividend of INR 1.5 per share. This will lead to a total dividend payout for the year of INR 2.5 per share, that is 25% of the face value.

You will recollect that in November 2022, the company had allotted bonus shares in the ratio of 1:1 after approval of the shareholders. Post dividend -- post bonus, the dividend has been the highest in the history of the company, taking the total payout to INR 14.5 crores for this year.

Now moving ahead to our financial performance for the full year 2023. Our revenues from operations were INR 790 crores on a stand-alone basis, which compared to INR 669 crores last year, representing a growth of 18.1%. On a consolidated basis, the revenue stood at INR 809 crores compared to INR 675 crores for the last year, representing a growth of 20%. In both the stand-alone and the consolidated numbers, we have exceeded the targets set out of 15% growth at the beginning of the year. This growth was driven by significant execution in the Infrastructure segment, which accounted for 88% of our total revenues.

Our stand-alone EBITDA for the year stood at INR 96 crores compared to INR 88 crores in FY '22, with EBITDA margins at 12.2% compared to 13.1% last year. The EBITDA was slightly muted on account of impairment of the investment in the associate in Namibia due to foreign exchange fluctuations and change in the discounting rates. Operationally, adjusted EBITDA margin was well above our EBITDA hurdle rate of 12.5%, which we have guided historically.

On a consolidated basis, as we had announced earlier, the South African business has resumed operations after receiving orders in October 2022, which led to growth in the top line. However, due to the volatile currency fluctuations in South Africa and Ghana, there were some mark-to-market losses. The currency has since recovered since March as on date. However, as on March, we had booked some mark-to-market losses. This led to a muted EBITDA margin of 11.4% for the consolidated results. Again, if we were to adjust this currency fluctuation and the impairment of the Namibia investments, we would be meeting our threshold EBITDA rate of 12.5%.

The profit after tax grew by 40% to INR 34.5 crores on a stand-alone basis due to a reduction in depreciation and interest costs and the profit after tax after minorities for the -- and after jointly controlled entities grew by 29% to INR 31.4 crores for the consolidated results. The deferred tax reversal was on account of the above mark-to-market losses for the currency fluctuations in the foreign subsidiaries.

The strong performance is also quite evident in the cash flows from operations of the company as well, which grew by an impressive 52% to INR 106.2 crores, representing an industry-leading cash flow to EBITDA conversion of 110%. This is on account of reduction in trade receivables from GMR and realization of old outstanding, which has allowed the management to reduce debt and also invest in a new subsidiary in Ghana, RMS GPT Ghana Limited.

This strong performance and good cash flows should also improve our excellent credit rating, which is currently BBB+ stable by CRISIL. Any upgrade in the credit rating will also lead to a reduction in borrowing costs for the company as you are aware.

Furthermore, our healthy order book of INR 2,276 crores, which represents almost 2.81x our FY 2023 revenues provides strong visibility. It is worth mentioning that this order book represents one of the highest in our company's history. To enhance profitability, we have implemented key measures such as optimizing working capital and reducing outstanding investments with various customers.

We remain positive due to our healthy order book and improving financial efficiencies, including improved cash flows and reduced debt position resulting from reduction in receivables. We are focusing -- we are focused on reducing our borrowing further by INR 20 crores in this current financial year and refinancing our existing debt at lower rates upon the upgrade of the excellent ratings in the current year. This will be achieved by the expected strong performance this year as well as returns from the investment in the subsidiary in Ghana and full liquidation of the outstanding receivables from GMR.

As you may be aware, the Honorable Finance Minister in her budget speech on February 1, 2023, has announced a Vivad Se Vishwas scheme to settle all contractual disputes with central government and PSUs. The management is quite confident that the existing arbitration cases will be settled through the scheme once the same is made operational by the government in this financial year, which will lead to a cash inflow of almost -- in excess of INR 50 crores.

Now turning to the performance of our segments. Our Infrastructure segment demonstrated strong execution progress throughout FY '23 with a remarkable 24% increase in revenues, reaching INR 712 crores for the year ended 31 March 2023. This segment continues with the backbone of our business, contributing almost 88% of our total revenues in FY '23. In some key contracts for the segment, like Ghazipur, Mathura, Jhansi and Nimitita, the company has well exceeded the targets set forth for the fiscal year '23, which has led to the overall jump in the revenues as -- and we expect the team to maintain the momentum for the current year as well.

Regarding the Sleeper segment, it gendered revenues of INR 98 crores for FY '23. We anticipate increased momentum in this segment with the commencement of the operations of our factory at Ghana, which has an outstanding order book of INR 1.3 crores. A new factory, which is expected to be commissioned in FY -- Q1 FY '24 will have a capacity of 240,000 sleepers per annum.

In fiscal year FY '23, we secured orders worth INR 1,401 crores, including incremental orders from existing contracts. As of 31 March 2023, our healthy order book amounts to INR 2,276 crores, approximately 2.81x our FY '23 revenues, providing excellent growth of visibility for the company. The company has expanded its horizons and is entering newer geographies like Maharashtra, wherein we're doing 3 contracts in the Mumbai City for MRIDCL, totaling to approximately INR 600 crores and have also entered a new country for the Sleeper segment by setting up a factory in the Republic of Ghana.

I would like to highlight that now we can bid for orders up to INR 1,000 crores each in our own name, expanding our potential opportunities for the growing segment of infrastructure business in the country. The future looks quite bright for the company, and we are confident of repeating our strong performance in the current year as well and have targeted a growth of 20% in revenues and almost 30% in profits for the financial year '24, which would be a repeat performance of our last year.

This is only possible to be the support of our entire team, GPT, and the various stakeholders who have [indiscernible] in us, which has enabled us to perform better each year and deliver returns to the investors. We believe that the best is yet to come for the company, and the management is quite confident of exceeding the target set out.

Thank you, and we look forward to addressing any questions or concerns you might have regarding our financial performance and future prospects. I will now -- I will request the moderator to kindly open the floor to questions-and-answers. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Aditya Sen from RoboCapital.

[Aditya Sen, analyst]

Congratulations on a good set of numbers and the order book that we have. In one of the earlier con calls, you mentioned that we are expanding in new geographies, especially in the Northeast also. So do we have any updates regarding that?

[Atul Tantia, executive]

So in Northeast, we have a couple of contracts. We have 2 contracts in Manipur for NHIDCL. We have contracts in Assam as well. So we do -- we are doing a couple of contracts in Northeast. Out of this INR 2,276 crores, about INR 200 crores is from the Northeast in terms of geographical spread, about 10% -- close to 10%.

[Aditya Sen, analyst]

Okay. So INR 200 crores. And also, any guidance on the closing order book or the order info expected in FY '24?

[Atul Tantia, executive]

So historically, if you see, we like to keep our order book as close to 2.75x to 3x our trailing 12 numbers. So I would say that for the full year of our closing order book for next year, we should be around INR 3,000-odd crores.

[Aditya Sen, analyst]

INR 3,000 crores. Okay. So that would be a good benchmark for us also.

[Atul Tantia, executive]

Thank you.

[Operator]

[Operator Instructions] The next question is from the line of Chirag Shah from ICICIdirect.

[Chirag Shah, analyst]

Sir, just wanted to ask your guidance on the debt side. Did I hear it right that you would be reducing the debt by INR 20-odd crores next year?

[Atul Tantia, executive]

For the current year, yes, INR 20-odd crores. If we were able -- if -- I also said that in terms of the settlement of disputes with -- which they have come out with this Vivad Se Vishwas scheme, too, if we were able to -- that does get operational, and we get -- we are expecting to get almost INR 50-odd crores. That will further reduce the debt by almost INR 40-odd crores from there as well.

[Chirag Shah, analyst]

Even if you don't win the arbitrations or based on delaying that, the debt -- minimum debt reduction would be INR 20-odd crores for the next year, right?

[Atul Tantia, executive]

Correct. So it's not a question of winning the arbitration. We have won the arbitration in most of the cases. It's a question of settlement and getting the money.

[Chirag Shah, analyst]

Okay. And on your guidance front, you mentioned 20% revenue growth and 30% profit growth. Is that right?

[Atul Tantia, executive]

Correct.

[Chirag Shah, analyst]

Okay. Okay. And any improvement on margins given you said that your threshold consol EBITDA margin should be an extra 12.5%. But given your execution, this will pick up during a strong backlog. So would operating leverage kick in and you might see some uptick on margins as well? Is there any possibility?

[Atul Tantia, executive]

So it depends on how the WPI inflation does pan out. As you might be aware that all our contracts, which you have also said in previous con calls as well, have a price variation crores, which is linked to WPI indices. The WPI for April is negative. So having said that, some of the prices have also cooled off in terms of steel and cement as well. So it's not as if it will drastically hurt our margins, but I think that for the current year, we are guiding for a 12.5% margin. If any operational, what do you call, efficiencies do kick in, that will be about [indiscernible] as well.

[Chirag Shah, analyst]

And sir, within your order backlog of INR 2,300-odd crores, are there any orders which are slow moving or there is some delay execution either because there is some...

[Atul Tantia, executive]

No, none of that.

[Chirag Shah, analyst]

None of that. None of that. And sir, you mentioned that now you can bid for projects worth INR 1,000-odd crores on your own strength and balance sheet, so what would be that -- it will be the same or traditional sector or you'll fall into some new segments or sectors per se?

[Atul Tantia, executive]

So we are bidding for large contracts now as well. We have bid for some contracts, INR 900 crores, INR 950 crores, whatever, we have not been successful. Our strike rate is within our comfort zone of 20-odd percent. So I think that we would be bidding for contracts when we can do value addition. And obviously, this is an industry where you need prior experience. So we have to -- obviously, before contracts wherein we have similar -- we have done similar work within bridges and roads and stuff like that. We can't be bidding for contracts on our own name in vastly different segments.

[Chirag Shah, analyst]

Okay. And sir, how confident are you that we will be ending FY '24 with a backlog of INR 3,000-odd crores? So have you done any...

[Atul Tantia, executive]

Pardon.

[Chirag Shah, analyst]

Sir, I'm just trying to understand that what is the bid pipeline or the prospect pipeline that you might have put in bids into and given you have -- you're guiding for an order backlog closing of INR 2,000-odd crores for FY '24.

[Atul Tantia, executive]

So we are continuously bidding for large contracts, like I said. So if we were to get 1 or 2 large contracts, that kind of secures the INR 3,000-odd crores order book backlog. Last year itself, FY '23, we have got new order inflow of almost INR 1,400 crores. So in order to achieve order book backlog of INR 3,000 crores, we would need new order inflow of close to INR 1,800 crores for this year, which is not quite different from what we got last year.

[Chirag Shah, analyst]

Okay. And sir, lastly, you mentioned that you are ratings might be upgraded or it has been upgraded. So what would be the reduction in the cost of debt for you? And what is the cost of debt currently?

[Atul Tantia, executive]

So rating has not gone upgraded the rating agency, which is CRISIL is waiting -- was waiting for the balance sheet and the results for this year. Currently, we're rated BBB+ stable by CRISIL. The current cost of debt is in the range of 10% to 11%. However, having said that, the finance cost, which appears includes a whole host of things, including bank processing fees, includes bank guarantees which is a large chunk of our borrowings or non-refund limits, which are submitted to the clients. So we expect a reduction of minimum 50 to 75 basis points upon upgraded ratings. Most of these banks have now linked their interest cost with the external rates. So we expect that to happen.

[Chirag Shah, analyst]

Okay. And then my last question on the working capital cycle, given there is a huge amount of release of receivables from GMR and some other contracts. So would the same trend continue or probably it might inch a bit higher...

[Atul Tantia, executive]

No, same trend will continue because from GMR, we are yet to receive about INR 20-odd crores. So that will provide additional release of the working capital. And also, hopefully, this arbitration disputes are settled that will again provide a flip to the working capital as well.

[Operator]

[Operator Instructions] Next follow-up question is from the line of Aditya Sen from RoboCapital.

[Aditya Sen, analyst]

Yes. Regarding the exceptional EBITDA loss that we did in the Namibia investment. So shouldn't that be recorded separately? What I believe is that it should not be recorded in the EBITDA margins, which would be recorded as exceptional income. So please correct me if I'm wrong on this.

[Atul Tantia, executive]

So it's not an exception income as per the management's understanding as well as the auditors because it is -- as per IFRS, every financial year, you're supposed to do an impairment testing of the investments that you do carry. So in this case, the impairment testing was done, which was certified by independent charter accountant and then also verified by the auditors and also the audit committee. And the audit committee has found it -- and the auditors and the management has found it fit to take that impairment of the investment. It cannot be an exception item because next year, it might be a gain as well depending on how the foreign exchange and the discounting days do pan out.

[Aditya Sen, analyst]

Okay. Understood. So the quantum was around INR 2 crores, INR 2.5 crores, right?

[Atul Tantia, executive]

The quantum is about INR 3.5 crores, because that is the difference to -- because the EBITDA margin was about 12.2%. Had that not been there, we would have been north of the 12.5%.

[Operator]

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Atul Tantia for closing comments.

[Atul Tantia, executive]

Thank you, everyone, for joining the conference call today. We hope we have been able to answer and address all your queries. In case you have any further questions, do please get in touch with us directly or through our Investor Relation advisers. Thank you, and have a good day.

[Operator]

Thank you very much. On behalf of GPT Infraprojects Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.