Welspun Ent targets 8x growth in order book over 3-5 years

Welspun Enterprises has bid Rs 841.5 crore for a Delhi-Meerut project. this is 26 percent more than National Highways Authority of India's (NHAI) estimates of Rs 663 crore, says Sandeep Garg, MD of the company.In an interview with CNBC-TV18, Garg said this project will be value-accretive and will fetch the company margins of 17-18 percent. He is of the view that the company will achieve 18 percent internal rate of return (IRR) in this project over 15 years.Meanwhile, the company is targeting increasing its orderbook to Rs 8,000 crore in next three-five years from the current Rs 1,000 crore, he adds.Furthermore, Welspun Enterprises has invested Rs 90 crore in Welspun Energy, Garg says. The company's networth is at Rs 1,500 crores and cash on books is at Rs 800 crore, he adds.Below is the verbatim transcript of Sandeep Garg’s interview with Nigel D’Souza and Reema Tendulkar on CNBC-TV18.Reema: First about this package one of the Delhi-Meerut Expressway. What caught our attention is the fact that you were the lowest bidder at Rs 841.5 crore. What will be the kind of margins that you will enjoy?A: We are lowest bidders on the package one of the Delhi-Meerut Highway. As you know, it is a bidding process, only the lowest bidder ever gets awarded so if we need to get awarded we will be the lowest bidder. However, our bid is of Rs 841 crore as against the estimate of the NHAI being Rs 663 crore which is 26 percent higher than the estimates of NHAI. We expect the de-risked margins of about 17-18 percent on this project. I would also want to add that if you look at EPC projects that are being bided in the NHAI, most of the projects are being bided at -10 to -20 levels whilst this bid has gone positive about 26 percent above the estimate. So, we believe that it is a good bid to go. Nigel: The last time we spoke, you had told us that maybe in fact in the next couple years we could expect close to around Rs 40 crore odd to be added to the bottomline. Now, this particular project is for around Rs 2.5 crore odd so it will be ripe in that period, FY18-FY19 approximately. Do you think it could add more to your bottomline now? A: For the coming years it surely will add to a better bottomline. I cannot predict at this point in time how the bottomlines would be, we do not give the forecast as you know. However, it is a pretty value accretive project so we should be better than what we estimated earlier. Nigel: You could give us some numbers, it is around 2.5 year project, Rs 841 crore is the lowest bidding price, any kind of margins you could give us, net profit margins, operating margins? A: As I said, this is hybrid annuity model in which it is a concession so we will make our money on an internal rate of return (IRR) basis. We expect about 18 percent IRR over a period of 15 years so that is what it should give us. In addition there will be construction margins which are something which we need to still workout. However, we expect some construction margins as well. Reema: What would be the order book of the company now? A: The current order book of the company is about Rs 1,000 crore and we expect this order book to grow in future. As we have been saying that the infrastructure story is strong now, the industry is behaving a bit better itself, people have realised that it is industry where we need to not only grow the topline but as well as the bottomline. So, everybody is cautious in its bidding. So, we believe that over a period of next three to five years we will be growing the order book somewhere in about Rs 8,000 crore levels. Reema: In how many years? A: About three to five years.Nigel: There were various news articles suggesting that you are planning to divest close to around 15 percent stake in Welspun Renewables. Is there any substance in that news, what kind of valuations would you give that 15 percent?A: As you know that we have invested about Rs 90 crore. The Welspun Enterprise board took a decision not to invest beyond Rs 90 crore in the company of Welspun Energy. Currently, because it is a day-to-day business dealing, I do not have the knowledge about what is happening in the company. However, at the same time, as you know, solar is a flavour of the day kind of industry. Everybody is entering into it so I am sure it is a value accretive proposition. Reema: Could you give us a sense of what the balance sheet of the company is, the cash on the books as well as the debt currently?A: The current balance sheet is pretty healthy. We have a net worth of about Rs 1,500 crore odd out of which Rs 800 crore is the net cash available. About Rs 500 crore is the investment into the subsidiaries like energy, oil and gas so pretty strong balance sheet with relatively close to zero debt. As I said, Rs 71 crore is the standalone debt. Reema: You haven’t paid dividend since 2010 despite having such strong investments and cash on the books, are you planning to start doing that?A: We have made the balance sheet strong by doing a consolidation about a year back. The balance sheet has become strong, we are considering a dividend policy to be adopted by the board and once it is adopted we surely will.Reema: How soon?A: We believe that we will take it up in the annual review of the company.