Gammon Infra's current order book at Rs 9K cr

Parvez Umrigar, MD, Gammon Infrastructure Projects said the company as of now has an order book of Rs 9,000 crore. "It is Rs 1,000 crore more than where we were last year. We had a certain amount of staticness for some time but Rs 9,000 crore is a decent figure, this is on the contracting side."

Q: There has been a concern in the market over interest rates and the way they have gone up, at what point will start pinching you and the infrastructure sector as a whole?

A: We need to break up these long-term projects in two parts. One, that are yet up for bidding people, tend to factor in the prevalent scenario. If you debt costs are up then your expectations on equity and your overall project returns are bound to be expected higher. The projects which are also closed off financially do not get affected.

One has to be cautious about projects in between. That means from a business point of view the projects that you already bid for taking a certain set of assumptions whether it is on the operating costs, whether its on the  financial cost and which you are have yet to financially close. So if you break up three sectorals, the two extreme sides you are not impacted, so there is that small window in between where the projects can pinch you.

Q: Where are you seeing projects getting delayed in that intermediate sector?

A: I don’t see projects getting delayed which are financially closed for the simple reason; there is a lot of inbuilt discipline on the infrastructure financing.

Q: Cost escalations?

A: If you are moving away from the interest to operating costs-yes, the projects which have been already on the ground and where you may get hurt depending upon whose carrying the risk; the developer, the main contractor, in some cases the sub-contractors. So somebody is carrying that call which can differ from projects to projects.

Even in terms of the developer projects where otherwise you take the risks, Andhra Pradesh for example has already taken the initiative where even the public-private partnership (PPP) module of the concession, they have provided now a cost escalation. So they have already reacted fast and the first set of such projects under these new guidelines was already put out last month.

Q: How is your order book looking, in the Q1 some order book pressures were already been seen, what was your rate of growth of order book in FY08 and what is it looking like ending in  FY09 and how will FY10 look?

A: As of now we are at Rs 9,000 crore. It is Rs 1,000 crore more than where we were last year. We had a certain amount of staticness for some time but Rs 9,000 crore is a decent figure, this is on the contracting side.

On the developer side of our business, we have a capital outlay in projects worth Rs 8,000 crore additionally. There is only a 15% odd off business which is a intermix. So, that is like a double count, otherwise these are two different businesses; Gammon India the listed arm is on contraction and Gammon Infra on the developer side.

Q: But Rs 9,000 crore is not telling the proper story. What is the rate of growth you seeing from 2007-2008 to 2009?

A: We are geared for three LoI's worth Rs 4,000 crore where we the preferred bidders await the LoIs, 90% LoI, or the letter of intent should come. If that happens our growth rate would actually have moved up in the current phase but yes, there was a certain time last year when we were also at Rs 8,000 crore maybe stagnant for 3-6 months.

We get one project of a couple of thousand and it sounds as if you suddenly jumped. But it maybe sometimes one project or sometimes it maybe a mix of five small projects.

Q: What is your current debt equity ratio and how do you expect it to move over next couple of years?

A: Gammon India, the main company is at a debt equity of around 0.7, which does keep it still in a comfort zone. Gammon Infrastructure, the listed arm for developer’s roof is actually a debt-free company over the last seven-years where you take the heavier debt in the project companies which are the Special Purpose Vehicle companies (SPVs) and are generally the project specific financing not a balance sheet financing. There it depends if the projects are market-oriented, traffic- oriented then the leverage maybe just 2:1. If they are annuity type projects backed by say an National Highways Authority of India (NHAI), it may even be 5:1. So it all depends upon the concession and its nuances.