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Aug 07, 2013, 02.04 PM IST | Source: CNBC-TV18

FY14 sales to grow 25%; 5% margin dip seen: Ashoka Buildcon

The company had to handover one of the project back to government during the quarter leading to fall in revenue, says Satish Parakh, MD, Ashoka Buildcon.

Road and bridges constructor, Ashoka Buildcon hopes to clock revenue growth of 20-25 percent in current financial year, however sees margins dipping by 5 percent due to lower traffic, Satish Parakh, MD, Ashoka Buildcon told CNBC-TV 18 today.

The company reported 26 percent on year decline in consolidated net profit at Rs 30.4 crore for the quarter ended June due to lower income from BOT (build-operate-transfer) projects and slow growth in construction segment. Its consolidated income rose marginally by 0.6 percent on year to Rs 469.1 crore. Parakh said the company had to handover one of the project back to government during the quarter leading to fall in revenue.

However, the company has an orderbook of Rs 3200 crore currently. “We are expecting two projects where we are lowest bidder (L1) so that would take our order book more than Rs 4,000 crore,” Parakh said. This means that the company has a revenue visibility for at least next two years. 

Below is the verbatim transcript of the interview

Q: The build, operate and transfer (BOT) side of your business has seen revenues come down close to about 8 percent on year on year basis, your margins as well contract. What can you guide in terms of BOT side of business for the remaining three quarters and what went wrong in the quarter gone by?

A: In the quarter gone by one of the projects have been handed over back to the government, so we are seeing a slight reduction there. Overall our order book is good. We are having Rs 3,200 crore of balanced order book and we are expecting two projects where we are lowest bidder (L1) so that would take our order book more than Rs 4,000 crore.

Q: What does that give you in terms of visibility? You have work for a year, for two?

A: Two years.

Q: What kind of BOT increases in revenues are you expecting, how many projects will get completed and reach revenue stage in FY14?

A: In our entire portfolio of 18 revenue earning projects, 17 are already revenue earning and only one project which will be completing by February, which will add to the revenues.

Q: What can you guide in terms of your revenue growth for all of FY14?

A: FY14, we will see around 20-25 percent growth.

Q: Will margins be under pressure. Will it also imply and increase an interest cost and depreciation as this asset comes into revenue generation?

A: Margins, we may see 5 percent down overall, because traffic growth is lower by 5 percent.

Q: Traffic growth is 5 percent now, is that your experience?

A: Traffic growth is almost minus 5 percent.

Q: Could you tell us more about the order which you lost to the government in quarter gone by? How this order size and is it the first time that an order has been cancelled?

A: Order is still not cancelled. We are in a process of finding amicable solutions.

Q: Will that entail a penalty?

A: It should not entail a penalty because we are not at fault. The government is at fault; they have not given environment clearance, they have not given land. Therefore, we are trying to amicably find solutions to process.

Q: Which project is this?

A: This is Cuttack-Angul in Orissa.

Q: What was the size of this project?

A: The project size is around Rs 1,200 crore.

Q: Are you expecting an amicable solution in the next three months or is it going to drag on?

A: We hope we should get solution because there are number of projects like us and government is trying to address these issues.

Q: Are you looking for increasing your assets by buying BOT projects of other builders. We hear a bunch of them are looking for buyers. Given your balance sheet, you are one of those rare engineering, procurement and construction (EPC) guys in whom private equity (PE) funding is still possible, anything on those lines where you will be increasing your equity as well as increasing your asset book by purchasing from the secondary market?

A: We have SBI Macquarie as our partners now and they have already agreed to invest Rs 800 crore, Rs 50 crore is promised for new project. We are looking at various opportunities in market.

Q: When will you be announcing something?

A: I am not sure about announcing anything in near future because it takes time to evaluate what we have in the market.

Q: But it could be in FY14 or it could be in calendar 2013?

A: Yes, in FY14 we can look at some announcements.

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