Had no intent of concealing aircraft buy: IRB Infra

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IRB Infra acquired an aircraft for Rs 107 crore in November 2010, which according to Goldman Sachs was masked by the company. The rating agency says that the acquisition was not adequately disclosed. 

Clarifying the aircraft purchase, VD Mahiskar, chairman and managing director, IRB Infra said, the company had no intention to hide the buy from its investors.

In an interview to CNBC-TV18, Mahiskar said, "If there would have been any intention of hiding it, we would not have registered it in India and paid a full duty of almost Rs 20 crore on it."

Stating the rationale for this acquisition, he said, the purchase of aircraft has enabled them to get faster access to project sites.

Meanwhile, the company is confident of retaining margins on construction projects .

Below is the edited transcript of Mhaiskar's interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video.

Q: The Goldman Sachs analyst says that he was surprised at the aircraft purchase because it was a fact unknown to him. He only stumbled upon it looking at the gross block increase. The suggestion was that you actually wanted to hide that aircraft purchase. What is your defence?

A: We have already issued our clarification on this regard to the exchanges yesterday. There is no intention of hiding this asset at all. This was something which was purchased in November of 2010 and disclosed in the balance sheet of Modern Road Makers in March 11. This is known in the industry and the analyst community quite well. This is nothing new.

I had a chance to go through that Goldman Report and I have really not seen any sentence or line in the report which says that we have tried to hide the asset or we have not disclosed it properly or anything of that kind. On the contrary what they have tried to say is that the three investments what the company has that is the owning of the aircraft, investing into the Sindhudurg Airport and the real estate are non-core investments of the company.

That's what they have remarked according to the best of my belief in that report. In today's age, if there would have been any intention of hiding it, we would not have registered it in India and paid a full duty of almost Rs 20 crore on it.

Q: Is it true thought that that purchase accounted for 90% of your plant and machinery capex in FY11? What would that figure look like for FY12 up until the time we are speaking?

A: The gross block for Modern Road Makers was about Rs 500 crore for 10-11. This asset was material or almost 20% of it and henceforth shown as a separate line item. As regards IRB's consolidated balance sheet is concerned, it was only 1.5% of the total gross block. Hence it was not shown as a separate line item. But in the Modern Road Makers books, it is definitely shown as a separate line item being a purchase of including duties of around Rs 100 crore.

Q: Just on the core business as well there have been some concerns with those NHAI projects you have been awarded. The Goa project of course was cancelled for lack of land availability. You as well had sought damages from NHAI on a particular project. Any trouble that you are facing with road projects in specific?

A: No, in fact other than Goa all the rest of the projects are doing extremely good. The execution is proceeding as planned. We maybe able to complete couple of projects perhaps little ahead of schedule and we are not seeing any major challenges on the execution front other than the Goa project.

We had said in the past also that Goa and Kerala are two states where we have seen headwinds in terms of state government's ability to handover land to NHAI. But barring those two states, there has not been a concern in terms of getting land for the project and project progress has been quite satisfactory.

Q: We have been hearing from sources that financial closure of many of the projects in the current environment is becoming a problem. Are you facing any such difficulties with your Ahmedabad-Vadodara Project which probably has not been closed yet?

A: Ahmedabad-Vadodara Project needs to be closed this month. We are very confident that we will be able to declare the closure this month itself. There are challenges where bids have been aggressive beyond an IRR expectation of 16-18%. But considering IRB's credit history and track record, we are confident that we will be able to declare the closure in time.

Q: The other issue that your investors be wondering after the Crompton Greaves episode a few months back is whether you really need to spend this kind of money to purchase aircraft as a corporation?

A: The company has grown out of Maharashtra-Gujarat belt and now we are catering to various diverse locations as long as Pathankot in north which doesn't have air connectivity or down south to Tumkur or Amravati and things like that. Now having an aircraft has eased out the job. It is not a super jumbo what we have purchased, it is a small aircraft which caters to the executives' requirement to reach these sites.

I can give you an example reaching Pathankot and coming back via Amritsar used to take a three days journey for top executives from Bombay to go visit the project and come back. Today, they can go and come back on the same day. It has helped a lot for the top management and I am really happy about the performance of the projects given the flexibility that we have offered them.

Q: You had some pressure on the margins and bottom-line in the quarter gone by. Has the situation alleviated any both with reference to what's happening with your margins and how much may follow through or flow through to your bottom-line?

A: On the tolling side, the revenue growth has been really good. We haven't really seen any major pressure on the slowing down of traffic or anything of the kind. On the bottom-line, as more and more projects become operational the interest costs would definitely go up because the capitalization process ends and they start getting charged to the P&L. On a cash accrual basis, we are doing extremely good and on the construction side also we are confident of retaining the margins what we have been doing earlier.