Expect to cross Rs 1000 cr topline for FY14: Gammon Infra

KK Mohanty, MD, Gammon Infrastructure, in an interview to CNBC-TV18 said the future of infrastructure sector looks very gloomy because of a three-fold impact of land acquisition, infrastructure environment clearance (EC) and the forest clearance. Absence of bids, languishing old projects and exit plans by some players have badly affected the sector, he said. 

However, while commenting on the future of his company, Mohanty said, "We are intending to put three more projects into operation. We will be completing Godavari Bridge, Patna-Hajipur Highway and one of the power project or port projects". These projects will start completion from third quarter onwards.

This year we should cross around Rs 1,000 crore topline and a much better bottomline, he added.

Also read: Back-end infra in non-FDI states is positive: PwC India

Below is the verbatim transcript of his interview on CNBC-TV18

Q: First up let me start with an industry issue. We are given to understand that there are very few orders coming in from National Highway Authority of India (NHAI). Only about 180 kilometers of orders have been coming through, projects have been awarded from April to May that is two months. What are you hearing? How many projects do you think are getting lined up in the first half of the current year?

A: You are absolutely right. The biddings in the last one year or so has been very minimal and more importantly, the projects that were awarded one-and-half-year back have not got off and are languishing. They are languishing because of the three basic issues; land acquisition, infrastructure environment clearance (EC) and the forest clearance (FC). Though few of the projects are suffering for financial closure, from our side financial closure has not been an issue.

Q: You were pointing out bidding has been lower, the number of orders that NHAI has put out has been on the lower side, and old orders have not been awarded. Do you get a sense that things have actually worsened?

A: Yes, there is a threefold impact. Not only are projects are not getting bidded, the old projects too are not getting started and more importantly quite a few players are trying to exit the projects. So, this is a very gloomy situation and it is not creating any additional confidence or hope for the future.

Q: We heard ofcourse about GMR and GVK who have publicly reported instances of two companies walking away from projects, have there been more thereafter?

A: Few more are also in the news. Ashoka Buildcon has exited out of one project, a couple of more projects in Odisha also where people are trying to exit out.

Q: What is the performance of the Build Operate Transfer (BOT) projects that have already started working for you for instance the Kosi Bridge Annuity and the Mumbai-Nashik Expressway? How are revenues panning out in these?

A: Last year we completed three projects and the commercial operations date (COD) was achieved, which is reflecting in our annual results. We had shown growth on the top-line, and we moved from an Rs 25 crore loss to an Rs 15 crore profit at the bottom-line. Our organisation has done reasonably well in the last year and this year also we are intending to put three more projects into operation. We will be completing Godavari Bridge, Patna-Hajipur Highway and one of the power project or port projects.

Q: Could you give us a timeline; will it be in quarter two, quarter three or Q4?

A: Q3 onwards we will be completing these projects.

Q: Is it true that in general the industry is finding it difficult to get private equity (PE) funds to buy stakes in projects, which are close to completion because that is one of the modes of funding for you all?

A: Yes, the capital market operations are at very low today and not many players are showing interest. And even those who show interest are trying to buy it at a price which might not be the right price for the projects.

The Mumbai-Nashik Highway for us is doing well. The traffic growth has been reasonable despite the gross domestic product (GDP) or economy not doing well. Although annuity projects are not affected by the economic growth or traffic as such.

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Q: But is Mumbai-Nashik Highway too annuity, we thought only Kosi Bridge and Gorakhpur annuity projects?

A: Yes, Kosi and Gorakhpur are annuity projects but for Mumbai-Nashik Highway the traffic has been good and the growth has been okay.

Q: What is the traffic growth over there?

A: For the past couple of years we had around 10 percent growth and for the last year it has been between five to six percent growth.

Q: Even if the NHAI comes out with a few new projects in the coming few months will Gammon Infra be looking to bid?

A: We will surely look at good attractive projects, but yes, we will be little more careful in this situation because the whole environment is very volatile. The government agencies specially the public agencies are not really cooperating or implementation has been a big challenge, more than the policy issues.

People today talk about policy issues if you see the implementation has been the real challenge. If you look at the recent developments also it is becoming more and more complex.

Q: When you say implementation has been the challenge are you saying that it is because these clearances didn’t come or is it because people bid unrealistically? Like you are speaking about a five to six percent traffic growth some of the projects or many of them I remember say two years ago were actually getting financed at an expectation of eight percent traffic growth. So is it that Engineering Procurement and Construction (EPC) contractors or developers are not going ahead with projects in anticipation that there is not much money there?

A: That might be partially correct, but that is a very insignificant problem area. The real problem area is implementation and further projects coming out and economy not doing well. If you see a recent example, if we suppose talk about a Land Acquisition Bill, it has created still more confusion by now, there are several level of committees, there are three to four times higher cost, but there is no guarantee that when the industry will receive the service of this and this will be implemented properly so that within a definite timeframe you are going to get your land. So, this type of approach to the industry will not help the situation anymore.

Q: Has there been any EPC contracts atleast that NHAI or anybody has been able to give?

A: A couple of EPC projects in Rajasthan were bidded, it went at a very aggressive and competitive rate because it is quite natural that when you don’t bid projects and the order booking position for all the companies are not great, naturally the competition will be very high.

Q: What do you expect revenues this year to look like since you have got a full year performance for your Kosi-Gorakhpur as well as for Mumbai-Nashik?

A: This year we surely should cross around Rs 1,000 crore top-line and a much better bottom-line.