Mar 26, 2013, 05.02 PM IST
Gammon Infrastructure Projects has received financial closures for five road projects spread across different states. The company received a total grant of over Rs 1,000 crore for these projects.
The five road projects include Yamunanagar-Panchkula in Haryana, Patna-Buxar in Bihar, Sidhi-Singrauli in Madhya Pradesh, Birmitrapur Barkote in Orissa and Vijayawada Gundugolanu in Andhra Pradesh.
"All of these projects have been financially closed through different large banks and institutions and so it does sort of give us a very strong sense of comfort that the projects will now gradually progress on its implementation phase," Parikh said.
Gammon Infra has commisioned three large projects over last one and half year, which has led to rise in the company's interest cost. However, the company's revenues have also grown correspondingly. "We reported a consolidated top-line of over Rs 500 crore for nine months, which is significantly higher than the corresponding nine month period for the last year and that has more to do with the fact that these revenues have now started getting recognized," Parikh added.
Below is the edited transcript of the interview.
Q: Very recently the company has secured underwriting for the financial closure of five road projects. Could you provide us more details on this and what’s the tune of financial closure that you have achieved?
A: Yes, we had won a set of road projects, which from time to time have been announced to the stock exchanges. These have been a clutch of road build-operate-transfer (BOT) toll projects across the different states of the country. So for example, we have one in Haryana called Yamunanagar-Panchkula. We had one at Patna-Buxar, which is in Bihar, as well as we have Sidhi-Singrauli in the state of Madhya Pradesh and a couple of them more to add in. All these projects have been awarded to us where the concession agreements have also been signed over a period of time. The leverages are different for different projects and it also holds a significant piece of grant of over Rs 1,000 crore all put together.
All of these projects have been financially closed through different large banks and institutions, so it does sort of give us a very strong sense of comfort that the projects will now gradually progress on its implementation phase.
Q: Can you take us through your debt position? Your interest outgo has been rising continuously. What is the total debt? Is there a plan to deleverage?
A: Once the projects gets commissioned, i.e. post implementation the interest cost of this debt starts beginning to reflect in the profit and loss statement. In last one and half year three large projects have got commissioned including the Mumbai-Nashik Expressway, the Kosi Bridge Annuity Project and Gorakhpur Road Annuity.
Now as these projects get commissioned the interest cost, which have to be paid to the debt move from the capitalisation phase to the profit and loss (P&L) statement and therefore when you see the P&L you see the interest cost rising.
However, one will have to keep in mind that as these projects have got commissioned they have also added onto the corresponding revenue line. For example Kosi Bridge by itself has an annual revenue of a little over Rs 64 crore. The Gorakhpur Annuity has an annuity of Rs 96 crore annually and so is the case with Nashik where we are having an annual revenue of upwards of Rs 120 crore. So, these three projects have its revenue lines getting met up and along with that depending on the leverages the interest cost for this debt also move into P&L.
So, I would say that while in an very isolated process one would see that the interest cost has risen over a period of time, but we have reported consolidated top-line of over Rs 500 crore for nine months, significantly higher than the corresponding nine month period for the last year and that has more to do with the fact that these revenues have now started getting recognised. To that extent, we are reporting improvement of 60 per cent in consolidated earnings before interest, tax, depreciation, and amortization.
Q: Any new projects on which you are facing cost overruns?
A: In terms of the newer projects that we have just announced, clearly any kinds of cost overruns are about atleast two-two and half years away.
On the existing projects, which have got commissioned, certainly in that sense you put a cap and ceiling to the project cost. On the projects which are under implementation, clearly there are sometimes where you see that there is a little bit of cost overrun and more often than not, when this is due to clients, you tend to represent back to the client for extensions of time and cost claims.
Q: How much of your debt could you deleverage in FY14?
A: The projects are getting financially closed with a combination of a debt and equity. These are all non-recourse project financings and therefore the cash flows of the projects, which are getting commissioned are able to absorb and service the debt obligations of the project. As any sort of stakeholder who promotes these special purpose vehicles (SPVs), Gammon Infrastructure as the sponsor of these vehicles would like to sort of see enhancement of equity returns. To that extent there is no reason for us to sort of look at reduction of debt in terms of the project SPVs.
Q: Errant company Gammon India has been admitted into the corporate debt restructuring cell, any kind of an impact that would have?
A: The two entities are separately listed. Gammon Infrastructure is primarily an infrastructure developer, which involves itself in participating into private financial infrastructure projects, whilst the other entity of the group is more into the core engineering, procurement, and construction (EPC) engineering business. So, the business is itself a very different and therefore across the stakeholders should look at it very differently.
Q: Are you seeing any improvement in your order book, Gammon Infrastructure?
A: Since, we have received this five-six recently awarded projects over the last 9-12 months and with the last one being a Mormugao single port terminal for mechanisation as late as the fourth quarter. We want to consolidate our existing opportunities in the same breadth. Even from a perspective of opportunities, I think from the government client side there is a general slowdown in putting out newer projects.
Gammon Infra stock price
On December 20, 2013, Gammon Infrastructure Projects closed at Rs 7.49, down Rs 0.13, or 1.71 percent. The 52-week high of the share was Rs 16.71 and the 52-week low was Rs 6.05.
The company's trailing 12-month (TTM) EPS was at Rs 0.19 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 39.42. The latest book value of the company is Rs 8.75 per share. At current value, the price-to-book value of the company is 0.86.
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