New project to push margin growth to 12%: Sunil Hitech

Sunil Hitech has bagged an order worth Rs 474 crore on engineering, procurement, construction (EPC) basis in Bihar. The project, a part of national interconnectivity, will be funded by the World Bank. Sunil Ratnakar Gutte, Managing Director of the company told CNBC-TV18 that the road project is divided into two patches – one valued at Rs 319 crore and other at Rs 155 crore – will be completed within 30 months. The company will get a 10 percent advance for execution of the project, he said. Sunil Hitech has formed a Joint Venture (JV) with RCM for the project, Gutte said. Gutte expects the margins to improve to 12 percent with the new project. For FY16, he expects a 100-150 basis points (bps) margin expansion and 15 percent growth for the full year.For FY16, the company’s order target is Rs 3,000 crore of which Rs 1,800 crore has been received so far, Gutte said adding that the order book stands at Rs 3,650 crore, including the new project, at the end of September. Below is the verbatim transcript of Sunil Ratnakar Gutte’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18. Nigel: Could you give us some details about the order. We know it is Rs 474 crore order. We have brief details about it. What is the project completion time? Will you require any working capital as well for this particular project? A: The orders that we have bagged recently are in the state of Bihar. This is a 116 km patch divided into lot I and lot II. Lot I is Rs 154 crore and lot II is Rs 319 crore. So, ultimately it is a Rs 474 crore on the same road patch. It is part of the National Interconnectivity funded by the World Bank project.  We will require certain working capital. However, we are sorted as far as the execution and there is advance in this. For the execution period - the smaller one is 24 months and the larger one - the Rs 319 crore one - is 30 months. We are confident that we should be able to do it in time.

Reema: What would your order book stand at? A: Our order book at the June end quarter was Rs 3,450. With the execution of this quarter and these new orders coming in we would be having this quarter end around Rs 3,650 crore that should be the closing order book. Reema: Of September end? A: Yes, of September end. Reema: What is the order visibility? A: The order visibility, we are participating, there are few orders in the pipeline. As far as the annual target goes we are expecting around Rs 3,000 crore of orders during this entire year, that is the target. We have achieved almost Rs 1,800 this year so partly we should be able to achieve because the market is looking good on the building side and road size where we have recently forayed.  We had very few orders in the road sector, but this year we have almost Rs 1,000 crore of road orders in our kitty. All are World Bank funded projects with a timeline of 30 months for the larger one and 24 months for the smaller one.

Nigel: Just talking about this particular order Rs 470 crore order you said you will be receiving some advance what will that amount be? Secondly, it is a joint venture (JV) I believe could you give some details about that? A: The advance in various stages we are eligible is around 10 percent. So, Rs 470 crore means Rs 47 crore of advance will be at different stages that we are eligible. There is a JV so for qualification. Since, we are new to the road sector we have done a JV with RCM. However, the responsibility of this contract jointly is ascertained to Sunil Hitech. So, we would be executing the contract.  Reema: What about revenue share between you and RCM? A: It is going to be 51-49 and since the 49 percent part as per the understanding is with us so we would be eligible for the complete revenues. Nigel: What about margins? Your margin has been flattish around that 9.5-10 percent odd. This project as well entails those margin and also could you break up your order book for us in terms of how much is the road segment and how much is the hospitals the other project across your order book. Could you just breakup the segmental order book breakup?  A: We have essentially three segments and the order book what we divided is into roads, buildings and civil structure and power plants operations and maintenance (O&M) works. So around Rs 700 is power plants and civil and structure works. So, with this order we would be Rs 1,000 crore in roads and balance would be buildings. O&M is around Rs 200 crore so balance is the building works.  On the road side we are having a good margin because these roads also what we have taken are on the estimated rates on the above side of the estimates. We are confident of getting revised margins of around 2 percent. So, from existing 10 percent we should be able to have 12 percent EBITDA in these projects.