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Jan 23, 2012, 02.36 PM IST
Ramky Infra has signed a concessional agreement with NHAI for a 120 km road project. Goutham Reddy, executive director of the Group spoke to CNBC-TV18 about what this means for the companyís financials and the way ahead.
ďA two-lane road (Hospet-Chitradurga) is being widened to a four-lane road at an estimated project cost of about Rs 1,100 crore,Ē he says.
This takes the order book of the company to Rs 14,000 crore, giving a clear visibility for the next three years. "Since the base is higher, growth could be seen tapering for the company, but margins will be mainted at the traditional 15-16% mark," Reddy says.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Just take us through this concession agreement that you all have signed with NHAI and what this means for the company in terms of a project and execution of it?
A: Itís a very good road project that Ramky Infrastructure has signed for Hospet-Chitradurga. Itís a length of 120 kilometer. A two-lane road is being widened to a four-lane road at an estimated project cost of about Rs 1,100 crore. Itís a project that will be executed in about 30 months and has a toll-right collection for the balance period of 25 years. So itís all in all a very good project. The location is very nice with access materials in the neighborhood of the road; so makes it a very decent attractive project for Ramky Infrastructure. Ramky Infrastructure will immediately start into the execution mode of this project.
Q: Could you tell us what the returns from this project is for Ramky Infra? If you are tolling, how much would perhaps come by all, any kind of details?
A: Itís a project return of about 18% IRR based on the current road estimates and with a traffic growth rate of about 5.5-6% in the current interest rate environment. However, the upside of this project is an interest rate better environment; if the interest rates move southwards there will be upward benefit on the project. Secondly, mining activity in this area is on a complete hold. As and when the mining activity reopens in this area, there will be better traffic in the area that will make it far more attractive. So there are two upsides to the project. Other than that itís got a 17% IRR on the project for Ramky Infrastructure.
Q: So then just tell us what this takes your total order book to and how much more are you expecting from the NHAI in terms of an order inflow?
A: Currently most of the bids we have submitted are all been decided and we have got approximately Rs 14,000 crore odd of order book on hand, giving us a clear visibility for the next three years to come.
There will be more projects that we will bid, but as of now there is nothing else pending in the pipeline from NHAI. However, we have got lo of bids submitted in the water segment, buildings, institutions and healthcare segment for EPC works, which we are awaiting decisions. Nevertheless, the order book is very robust is what I would say.
Q: What would your L1 status be? Are you L1 in any of the orders?
A: Yes, we have about Rs 1,800 crore where we are L1 right now which is mostly in the buildings and the water treatment segments.
Q: Just give us a sense about what you are currently executing at this point in time and what we could see in top-line possibly for the coming quarters?
A: Ramky Infrastructureís execution is now broadly basketed under four major EPC areas: Roads constituting a large chunk, water waste constituting the next largest, buildings, the third largest.
We are executing projects with Bihar and we are executing in another almost 20 different states. So there is a diversified portfolio of execution for Ramky Infrastructure right now across 20 different states in the country and a fair distribution of work coming for Ramky from water constituting 30%, roads constituting about 35%, buildings constituting 20%.
I would tend to say the performance would be in line with market expectations. However the past performance cannot be the benchmark because past has been far superior. We have been achieving upwards of 30% in the past, but of course, now the base has moved up. There will be some tapering in growth, but it will still be a very robust growth for Ramky.
Q: How has been the operational performance this time around? If you could give us in reference to how the raw material cost and pressures have panned out and even with respect to the competitive intensity? Are you all likely to maintain margins in the 17-18% mark?
A: The margins at a consolidated level are around 15-16% mark and they will continue to be in that range. I donít see any change in operating environment in terms of raw materials, execution competence and execution capabilities. The one thing that surely has been impacting all the infrastructure companies over the last few months is the interest rate. It translates to about 0.3% on revenue. The P80 is affected to that extent. Beyond that I would say every other operating environment is quite neutral.
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