Fourth-quarter results have been hit by delays on Kishanganga Project, says Ajit Gulabchand, chairman and MD of Hindustan Construction Company (HCC). Talking to CNBC-TV18, he says that projects worth Rs 10 lakh crore have been stalled due to environmental reasons, and some have also been stalled due to land acquisition issues. He says while the visible order book has become hazy for most infra companies, monetisation of assets will pick up pace in FY14.
Here is the edited transcript of his interview with CNBC-TV18
Q: Why is the topline of HCC showing such a sharp decline after the stable performance seen in Q3?
A: Going into Q4 results is very difficult. There have been some delays on the Kishan-Ganga project due to the Afzal Guru agitation in Kashmir. It is a substantive project which lost some turnover. The broader turnover is a flat line at about Rs 3800 crore but the group turnover is marginally better at Rs 8500 crore.
Q: Order book growth has been very muted at just 1.5% year-on-year for many quarters now. Can you give us details of whether any new orders are coming in at this point?
A: Well that has been the problem of the economic crisis in the country that the Rs 10 lakh crore worth projects have been stalled due to environmental reason or land acquisition.
As a result of which, many construction companies have been in trouble, in addition to which there has been the situation of paralysis in decision making because of the various scams and the fear that most bureaucrats feel in terms of taking decisions.
Now good or bad, the net result is that this has happened. Therefore lots of dues of contractors are not paid, critical decisions are not taken, and claims are not settled. They are continuously challenged for the fear of taking decisions. Even if they are referred to third party, they go on challenging till the last stage.
Now this has resulted in huge lockups. Just two agencies, National Highway Authority of India has Rs 22,000 crore due to the industry. Then there is the Hydroelectric Power Corporation which owes Rs 7000 crore to its contractors. Here the finance minister has initiated that quick settlements must be done so as to release the funds of the contractors.
These are fairly large amounts of money which the contractors funded in good faith by borrowing from the banks.
And now this is not their responsibility if they are only a service provider. So we have to change this practice where the government agencies which own the project must fund the project whenever there are cost overruns or delays which are not attributable to the contractor.
So in this context, there is a problem in the country, there is an investment standstill in the country and even the private sector capital investment is not coming through. As a result the visible order book which I would like to say has become hazy.
Q: The corporate debt restructuring (CDR) process — is HCC looking to monitise some assets as a part of the CDR?
A: As I have said already that yes, we are now moved ahead in the monitisation process and some monitisation of assets during the current financial year will be in the offing.
Q: What would be the blueprint for the entire FY14? You said earlier that HCC will become a leaner organisation. How exactly is that expected to happen?
A: We have come to a conclusion that we will have to operate under these hostile environments at least for the next two-three years. In order to do that, we have be able to control our cost, where we have improved our cash flow management considerably and as a result of which we expect to be able to perform better than last year during the current year.
We operated in a very different way in which we have already achieved substantial saving during the current year. That is why we haven’t added to our borrowings during the year. We have been able to manage with the money. In fact, we have been able to meet some of the interest payment requirements, thereby reducing the losses from last year.
Overall this is what our plan is. Lavasa is also back on track that will also start adding to the revenues and profitability during the current year. Our company in Switzerland is doing much better, so the total group turnover is Rs 8,500 crore.
In short, what we are really seeing is a company in progress of adjusting to the hostile environment and a group that is now moving slowly and steadily with a certain new resolve.
Q: How are you now dealing with working capital troubles?
A: We just manage the cash flow in a better way. So there are troubles and I would like the media to support us in asking the government to pay back the dues of the contractors quickly. It is stalling the economy and causing a crisis in the banking sector.
Q: Can you give us the new project pipeline that you see in the quarters to come? You also said that you will revive some of the stalled projects. When will all of this happen?
A: The situation is little hazy and the visible order book for the next year doesn’t look that great. Still a number of old projects which is stalled will open up, some of the delayed projects will now come on stream.
One of them has been just unblocked and we will add about Rs 2000 crore to their order backlog. So during the year we will be alright on the order balancing position. But India is not the greatest of stories at this moment and you must understand that.