S Ramachandran Director (Business Development) at IVRCL says the company is looking at exiting two road projects going forward and has no plans to sell its land parcels.
In an interview to CNBC-TV18, S Ramachandran Director (Business Development) IVRCL says margin and revenue growth for the company will come in from engineering, procurement and construction (EPC) contracts and not Built, Operate and Transfer (BOT) projects because BOT is essentially a function of self sustaining the debt as well as interest payment.
At the current juncture, the company does not plan to sell its land parcels worth Rs 1200-1300 crore but would instead look at loan from banks, says Ramachandran.
The company is talking to lenders for corporate loan of about Rs 1000-1100 crore and has also been talking to bankers, he adds.
The company is looking at exiting two road projects going forward.
Meanwhile, IVRCL is looking at closing FY14 with an order book of about Rs 8000 core and targeting a total income of about Rs 6100 crore but feels the company will manage to do only about Rs 5700-5800 crore.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: Actually your numbers in terms of revenues were a surprise, everything else of course has been disappointing, your EBITDA is down about 33 percent to Rs 46 crore, your interest costs are so much above your EBITDA that the loss of Rs 122 crore is staring at you in the face. Yet revenues did surprise positively. Can you give us more about how revenues might do in this quarter and the next, is it looking like execution is speeding up?
A: We should be doing much better in both Q3 and Q4 quarters. Essentially there is no lack of orders that is one important point. However, to do these higher revenues, we obviously need to pump in cash into the system and that is what is coming in the critical path. We have been talking to bankers; bankers have given a lot of confidence in the manner in which IVRCL has been shaping up in the past. And with the orders in position and the current high interest rates etc, banks have come forward. We are talking to lenders for about Rs 1000-1100 crore of corporate loan.
With that money getting pumped in, I think for the second half normally we do better and all we need is cash. We are targeting about Rs 6100 crore for the year. But my gut feel is that we should hit about Rs 5700-5800 crore. It is only at that level, certain costs down below the gross margins will get absorbed like interest rates, fixed expenses, etc.
Q: What does this mean in terms of the order book, you had about Rs 4500 crore of order inflow in the first half of the year, what kind of visibility do you have for the second half?
A: We are actually L1 in about Rs 2000 crore and we still have about four months to go. So, another Rs 2000-3000 crore will not go anywhere. Therefore, we should close the year with about Rs 8000 crore of order book. If we do the implementation, we will come back to about Rs 17000-18000 crore of orders on our hand till April 2014 which is a comfortable position.
Q: Even if you do between Rs 5700 and 6100 crore what will you do in at EBITDA level? It seems to bite over there, will you even get to Rs 200 crore, and will you be able to cover interest costs even at that level?
A: It will bite. At Rs 5700 crore, I think we should hit a loss of anywhere between Rs 75-100 crore for the year. Only, if we move to about Rs 6200 crore level this will get absorbed. So we can imagine a downside at Rs 5700 crore of about Rs 75-100 crore.
This corporate loan will be a game changer because it is essentially pumping in money - it is a vicious circle; if we don't then overheads they eat in from the gross margin. Gross margin is about 15-16 percent.
Q: What is certainty of revenues- in your BOT projects what is the traffic growth or the rate of return?
A: The revenues would come more out of our EPC contracts and that would be our focus.
When it comes to BOT, it is essentially a function of self sustaining the debt as well as interest payment. So it is not really going to contribute. I will be happy, under these conditions to service my debt both principle and interest.
So, it is the EPC which will give us the turnover and margins.
We have given a micro detailed presentation to banks. It is only after going through our presentations and underlying assets that we have, as well as the land, banks are confident that we will come back.
Q: Could you give us a timeline on how many more road projects you plan to exit in the next one year or so and how much you plan to reduce your interest costs run rate?
A: In terms of road projects we are looking at exiting another two projects but I cannot tell you because the buyers are not there.
Q: Are you in the que for rescheduling your premiums – NHAI has been speaking with roads ministry.
A: If it comes through then in Indore – there is a premium and we would put in our application. But we haven’t yet applied.
Q: Any surplus land parcels that you plan to sell?
A: We do have almost Rs 1200-1300 crore worth of land parcels but we would rather hold on for a better period and that is where the banks are willing to support us with the loan otherwise it amounts to distress selling and we wouldn’t like to do that.
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