Infra is picking up now; target 40% lower debt: Punj Lloyd

Latha: What is the order book looking like as of year-to-date?

A: As we close with the latest order that we have got for this road projects, we have more than Rs 24,000 crore order backlog on today. What is most important is that this year, we have been seeing good order book happening.

In the pipeline, we have quite a few orders which have made outside the country but this order’s importance as it is a first major order we have got in India. Most of the orders that we got till date in the current financial year have been outside India. Infrastructure sector in India is now picking up. In addition to the orders that we have won right now, there is about Rs 20,000 crore worth of road bid which has been announced and due for bid in this month and the next month.

There are quite a few opportunities coming in the metro sector. So, infrastructure is opening up in India and we expect to build the order booking there.

Sonia: Despite having a very strong order book as you just suggested, your revenues have been very weak this time around. Total income has gone down by about 43 percent. Just take us through when you expect the revenue flow to pickup and what could be the growth trajectory say in the second half of the year or in the first part of FY16?

A: If you remember the last time when we had the Q1 results, we gave a guidance that from now onwards if you would make Q1 results as the base, you will see an improvement. If you see that this quarter Q2 if you compare with Q1, our revenue has gone up by about 14 percent and even the margin pressure is slightly coming down where we had about minus 22 percent EBITDA margin last quarter, it came down to minus 7 percent.

So we are improving. The reason for the revenue being low is that we are now transiting from the completion of the old projects to the new projects and we didn’t have major order wins in the last couple of years. So therefore you would always have that gap of the old projects getting tapering of and the new projects picking up on this. That is the reason you are seeing the revenue being low but then you will see quarter-on-quarter revenue picking up from now onwards. Once the new orders what we won which we pick up in a significant way in the next financial year, the revenues would automatically go up.Our concentration is not mainly on the revenue, but right now our target is to improve the bottom-line because revenue would anyway will come because we have large order backlog on this. So most important for us is to reduce our financing cost and reducing our overheads cost and improve the margins, concentration is completely on the margin improvement.

Latha: Since you spoke about reducing your financing cost, what is the plan, any more non-core asset sales?

A: As we mentioned last time that the two tracks we are following for the reduction of our debt. One is the non-core asset monetisation and the second is we are aggressively following up our claims which are there globally and which is a significant amount which is outstanding there.

On the non-core asset monetisation, as we talk about our stake sale in Medanta. There was a slight shift of a couple of months of the deal happening on this but the deal is done now and the documentation process is done, we are now in the approval process for both. Sometime towards the end of Q3 or end of December we should get the money. That would help us to reduce the debt and we are seeing some momentum, some traction in our claims especially in the Middle East and other places that we expect to materialise to cash-in in Q4 of this year so therefore we should be on the track for what we gave the guidance but on March 31, our debt would come down significantly.

Sonia: How much have you gotten for this sale of Medanta?

A: I will be able to announce the amount next time when we meet because now it is in approval process till the documents made it formal, I will not be in a position to exactly say the amount. But it is an amount which would have a significant impact on our debt reduction.

Latha: On the claims, can you give us what is almost getting settled and what might you reasonably expect by March?

A: Some of the claim settlement with Qatar Petroleum and then NDIA or the New Doha International Airport, these are things which have picked up momentum in the last two months. We expect that the process to get concluded in this quarter but then they have their own approval process therefore I said that the money to flow in Q4 of that.

Same way in India, we are aggressively following up that the claims take little longer than what we anticipate but we are on the track. Therefore, something should flow in December and most of it would flow in Q4.

Sonia: You can give us some indication of how much your debt might come down by and how much your interest cost might come down by. So currently, with debt at about Rs 6,000 crore can we expect 10-15 percent reduction by the end of next year and also Rs 200 crore is your runrate of interest cost per quarter, how much do you think you can scale it down by in the next one year?

A: Our target is to bring down the debt as I said earlier by about 40 percent -- not to 40 percent but by about 40 percent. Right now we are still on the track and our guidance continues in the same manner on this.

Latha: How much can we reasonably expect the interest cost to come down by you think?

A: The debt comes down by 40 percent then obviously to that extent our financing cost should come down because that is very important for us; the reduction of the financing cost is the key for the company as we move ahead. That is what we have been working on in the last six months. We have bought in lots of efficiencies in our operations but then the debt reduction depends upon the funds flow in and which we don\\'t have 100 percent control, there are other parties involved which is what we are chasing. That\\'s the goal we had but it is almost there, it would happen.

Latha: Can we put say Rs 2,000 crore money coming from claims in FY15?

A: As I said, on paper we have a claims worth of Rs 10,000 crore globally. However when we took stock internally, saying that let us see what is the most conservative basis we can recover these claims, we are at a figure of about Rs 3,000 crore. We did a quarter wise schedule and it is expected to be liquidated by Q3 of next year. Therefore, we expect this in four-five quarters the money to flow in gradually.

These claims is something which we target each quarter then it might move by next quarter but end date we are targeting is the Q3 of next year is what full money of Rs 3,000 crore minimum on a conservative basis to be achieved.

Latha: If that balance Rs 7,000 crore claims have to be written off, will it have an impact on the profit and loss (P&L)?

A: It is not written off in the P&L because we have not even considered them in our P&L therefore it doesn't make that difference.Latha: You were also replacing Indian debt with foreign debt. Is that anything more in that - that you can eke out in terms of financing gains?

A: Right now our concentration is mainly to reduce debt, optimisation of the debt is step number two. We want to concentrate one at a time on it. First reduce the debt, reach an optimal level then start doing debt optimisation so that we can further reduce our interest cost.

Sonia: Are there any other non-core assets apart from Medanta that you could be looking to sell?

A: There are few but right now these are the things which we are concentrating on. If need be, we will look at few others.

Sonia: What are the others?

A: I don’t want to talk about them at this stage but because we are also not even thinking about monetising our assets because we feel that with these two plus the claims we would reach a very comfortable level and with new orders picking up and these being the good orders with good margins on this, we will be on track thereafter.

Latha: What about the order book that you were talking about, Rs 24,000 crore is a very impressive number but as you said part of it are slow moving orders, can you give us some break up in terms of those that are slow moving orders, low margin orders which hopefully as they fade out, your margins will improve, what percentage would you consider slow moving and low margin?

A: Out of this Rs 24,000 crore, about Rs 8,000 crore is in our pipeline in tankages vertical, which is extremely good, very good margins . About Rs 3,000 crore is what we have in our building and infrastructure division that is roads, metros and India and outside India, that is also good one.

The only one which is slow moving in entire basket of Rs 24,000 crore is the orders that we have in Libya, which is about Rs 7,000 crore of it, which are at standstill at this stage. We are seeing some movement offlate but not significant. The client is asking us to start the work, in fact our joint venture partner who is a local partner have commenced the work therefore we will see how that goes on and we will also start working. There is some little movement but not significant. The slow moving when I say is that Rs 7,000 crore in Libya where by the next quarter end when we have this call, I hope to see some traction happening there. Right now that is a slow moving.

Sonia: The FIPB has given you a go ahead for the defence sector, what kind of opportunity do you see from the defence sector now for your company?

A: We have the large manufacturing base in the state of Madhya Pradesh where we have already been working for the defence public sectors as well as some defence companies but it is pure manufacturing only. But with this approval happening now, I think we are seeing significant opportunities in defence. Having said that these defence opportunities to fructify into actual order would take anywhere between the cycle of about one and a half to two years on this that is when the orders will fructify and thereafter the delivery of the orders is anywhere between two and three years.

Order size I understand, varies anywhere from Rs 500 crore to Rs 2,000 crore. We are participating, we are putting a couple of bids, let us see when the bids get opened up on this but the defence orders -- though the opportunity is tremendous, the starting would be little longer time because the cycle itself is about couple of years before they finalise the order. We are fully prepared to take advantage of the opportunities that are coming up.

Latha: What is the percentage of domestic and foreign orders and are domestic orders margin wise better, how much better?

A: Right now on the topline wise, we are still continuing with the two-third coming from outside India and one-third from India on this. Our margins are better off as of now outside India in the projects -- there were much better efficiencies in implementing those projects but moving ahead some of the infrastructure projects that we are getting in India would have good margins, like the road projects that we announced today is a pretty good project from the margins point of view and these are all short duration projects like today’s project is 27 months.