"We are looking at further reduction of finance cost and for that, we are talking to banks to restructure working capital loan," YD Murthy, Executive VP-Finance of NCC said.
NCC has been buzzing this week, rising 8 percent in two days. Most recently, the company's joint venture (JV) with BGR Infra won over Rs 25,000 crore mine development and operation order for Talai-Palli coal block from NTPC.
"EBITDA growth is likely to continue in second half of FY18 and we are targeting EBITDA margin over 9 percent for FY18," YD Murthy, Executive VP-Finance of NCC said in an interview to CNBC-TV18.
He expects earnings to improve due to fastrack orders. “We are confident, we will be able to bounce back very quickly,” he added.
He expects EBITDA to grow faster than revenue growth. With order execution has been increasing, working capital requirement may go up, said Murthy.
"We are looking at further reduction of finance cost and for that, we are talking to banks to restructure working capital loan," he further mentioned.
Below is the verbatim transcript of the interview.
Latha: First about this Rs 25,000 crore order – the release has said that the annual revenue is Rs 1,000 crore. How much is yours in this Rs 1,000 crore and have you got all the approvals, will some money hit the profit and loss (P&L) this year?
A: There is a two-year development period so first two years, there will not be any turnover at all starting from the day of signing the agreements. In the first year of commercial operation, we are targeting about 1.5 million tonne of coal extraction and supply which means the SPV will have a turnover of Rs 92 crore out of that about 51 percent is our share.
Then the turnover will be ramped up 1.5 million in the first year to 15 million in the fifth year. So when we reach that rated capacity of 15 million tonnes per annum, we are looking at a topline of about Rs 1,000 crore. In that our share will be 51 percent.
Surabhi: Just to go over the timeframe, the first year, this Rs 45 crore that you will get because the first year turnover is only Rs 92 crore, you will get about half of that. That is going to flow through in the current financial year or in FY19?
A: No, we signed the agreements recently. There is a two-year development period. The first year of commercial operation will start two years from now, FY20.
Anuj: I want to touch upon the financials. Even though the market gave you benefit of doubt, the last quarter looked ugly but was it a bit of an aberration and would things be normal for the next few quarters?
A: Yes, absolutely. We already mentioned it in our calls because of a variety of reasons, the predominant one being goods and services tax (GST) and also the supply restrictions during the GST period because of supply delays in procurement and also some delays in payments by various government agencies because of some initial confusion about GST, all these have contributed to the negative growth in the topline as far as Q2 is concerned.
But we are confident, we will be able to bounce back very quickly mainly because we got huge orders of nearly Rs 15,000 crore in the first seven months of the current year and some of them are fast-track orders. Like the Ring Road in Amaravati city, it is a Rs 2,000 crore order to be completed in 12 months, which means every month I have to book a topline of at least Rs 170-180 crore to see that it is completed on time and added to that we have two more orders of Rs 2,000 crore each which have to be completed over a period of two years. So all these will contribute substantially to the topline in the next six months of the current year.
Latha: Let me get back to Q2 so that you can give us some idea of how Q3 is panning out, Q3 already 60 days done. Your EBITDA was Rs 120 crore and that was the disappointment because it had fallen by about 27 percent. Q3 is an advantage also because it is a quarter where you don’t have the disruption of the rains, so how much better does it get in the second half and Q3 since you already know about it?
A: First of all, second quarter though the EBITDA has come down but if you look at the EBITDA margin, it is almost 9.5 percent. One of the best in our operations and that is likely to continue in Q3 and Q4 and once the turnover increases, EBITDA will also definitely increase at a higher rate and for the current year we are targeting ....at least 9.25 for the year as a whole for six months we reported about 8.9 EBITDA so good improvement is definitely going to be there.
Latha: This 9.25 is your margin, right, which was about 9.6 in Q2? When you say 9.25, you mean margins.
A: Yes, margins for the year as a whole.
Latha: What kind of an EBITDA growth should we pencil in?
A: Last year we have reported EBITDA of 8.8 and this year six months we reported 8.9 though Q2 is 9.5 but year as a whole I am telling okay, 9.25 to 9.5 is possible.
Surabhi: Growth is coming in, orders are coming in, you are looking good from the revenue standpoint as well. Quick word on financing because your debt at the standalone level was slightly higher, will you be looking at borrowing more to build these sort of orders in hand?
A: We look at it by rule of thumb, for every Rs 1,000 crore of topline, we need about Rs 250 crore of working capital and out of that at least 10 percent that is about Rs 100 crore is coming from the client by way of advance. So I have to arrange for the balance Rs 150 crore.
The debt levels are very much under control and some increase will not harm us as such and by a rule of thumb once again, on Rs 15,000 crore of orders, we are looking at advance of Rs 1,500 crore. So all these things give us the enough elbow room in terms of our working capital cycle in terms of our ability to take care of all our contracts without abnormally increasing the debt level.
Latha: Your interest costs have come down in the last quarter. Do you think it can come down further in the sense the finance cost since interest rates are now attractive?A: Yes, absolutely. That is also likely to happen further reduction in the finance cost – we are looking at it. Banks are supporting us nicely. We are converting some of our cash credit loans into working capital demand loans at lower rates that is definitely adding to our reduction in the interest cost likewise based on our A-category, we are able to bring down the cost of our bank guarantee commission. All these are likely to improve the finance cost for the company as a whole.