Order flow sluggish; mgmt taking steps to lower debt: NCC

YD Murthy, executive VP-finance, NCC, says that the management is very keen to bring down the debt levels in the company by monetizing some of our BOT assets and real estates. The order flow has been sluggish.

Below is the edited transcript of his interview to CNBC-TV18.

Q: You had declared your intention to bring down debt. Is there any timeline? One was expecting that would be done largely through stake sales in your build, operate and transfer (BOT) projects or in the special purpose vehicle (SPV) for your power project. Coming to SPV in your power project, have you been able to tie-up power purchase agreements (PPAs) in gas supply for that project? 

A: The process is on. In PPA, we are participating in the Case I bidding. As far as the coal linkage is concerned, we are going to sign the fuel supply agreement. 

Q: But won’t the coal linkage be dependent on you having a PPA?

A: Yes, earlier in Karnataka they had a Case I bidding where we were awarded about 400 megawatts and we gave a bank guarantee of Rs 120 crore. But for some reason the government of Karnataka has cancelled the entire Case I bidding process. As a result our 400 mw is also cancelled. Now we are participating in Andhra Pradesh (AP) for 500 mw where we are one of the shortlisted bidders. We are waiting for the government of Andhra Pradesh to contact us and we are also participating in a bidding process in Uttar Pradesh (UP).

Q: When would you know about AP and UP?

A: It is difficult to give a time line. But anyway our project will be up and running only in March 2015.

Q: Interest cost has been a concern for your investors, in Q2 they were up almost 40-45 percent. Is there any progress on deleveraging? There were reports that you have also identified two toll roads, any progress on that front?

A: The management is very keen to bring down the debt levels in the company by two measures; one is by monetizing some of our BOT assets and also monetizing some of our real estate assets. Together we want to bring to the table Rs 400-500 crore and that will be entirely used for debt reduction in the parent company. Already the process of selling some of the real estate asset is stated. We are confident we can bring to the table Rs 120-130 crore of which already deals of around Rs 85 crore have taken place and money is flowing in .

Q: Can you update what is the sales status?

A: We have five road projects which are operational and are generating revenues and Himachal Sorang is on declaring the commercial operation by March 2013 and we are looking at a stake sale in our power project which declared financial closure. Adding all these three things we are confident that we will be able to raise Rs 300-400 crore. But it may take some time mainly because of the market conditions.

Q: Stake sale in that SPV for your power project – would that not be dependent on the fuel supply agreement (FSA) and the PPA being signed. Would an investor put money before that was done?

A: The incoming investor knows what is happening and already some investors have invested in various projects knowing well that PPA is not in place. The lenders are also disbursing the money. So we have a better chance because our financial closure and execution has taken place. Now the project should look more attractive even though FSA is not in place right now.

Q: But are you on schedule to start commercial output in 2015 March?

A: Yes.

Q: Captive projects have been driving the order book, aside of the captive projects have you seen a pickup in terms of order inflows?

A: Order inflow was a bit sluggish. In las six months we had order of about Rs 2,600 crore and in current quarter we have an addition orders of about Rs 600-700 crore. Our target was around Rs 8,000-8,500 crore. Some pick up in order is expected in Q3 and Q4.

Q: In which area?

A: Particularly roads, some EPC contracts are expected and that should boost orders. We are getting orders in buildings, water pipelines and electrical.

Q: Will the margins largely be at about 8-8.5 percent for these projects?

A: Yes, we are confident. We maintain EBITDA around 8-8.5 percent for the current year.

Q: The various sales in SPVs and BOTs that you are talking – can you tell us whether it will be possible by March 31st to reach that 400 crore?

A: Hundred percent is difficult but at least some Rs 200-300 crore can flow into the company.