Will monetise power, road projects to pare debt: NCC

A: All construction infra companies suffered a lot during last two years mainly because of the payment delays, the high interest rate and also the high inflation. But, things are improving particularly after new government is come in place and they also appear to realise that physical infrastructure is essential for the development of the economy and also to make structure of the ‘Make in India’ programme. So, we believe the worst is behind us. Things are improving.

Ekta: But when you say, worst is behind us, what has picked up on the ground? What are you confident of in terms of maybe capital expenditure (capex)?

A: As far as our company is concerned, we have gone for a rights issue of Rs 600 crore that has stabilised our working capital nicely and the payment cycle has also improved for us. That debt collection period has come below 90 days and order accretion has improved and we are getting orders with better margins. And last year we reported earnings before interest, taxes, depreciation and amortization (EBITDA) of about 7.8 percent compared to 6.6 percent in the previous year. Current year, we are targeting EBITDA of about 8.5-8.8 percent.

Nigel: So, a couple of questions. What is your current debt, what is the guidance in terms of debt? I believe is around, post the rights issue has come down dramatically. And also could you tell us these EBITDA margins, they are going to move higher because of a specific of orders are coming in, because I remember the in last quarter, that is quarter four, you had some low margin orders that were eating into your margins. So, all those low margin orders, they are out of the way?

A: Yes.

Nigel: So a couple of questions, one is with regard to the debt. And also your margins, you are expecting it to improve, so all those low margin orders, they are already taken care of in the last quarter, so that is how you will see better margins?

A: I will explain. First of all, the debt levels were successfully brought down the debt level to below Rs 2,000 crore. That is March 31, 2015, the debt level is about Rs 1,995 crore and the debt equity is also improved nicely, it is around 0.6 because the net worth has gone to nearly Rs 3,200 crore thanks to the rights issue. And in the current year, we targeting further reduction in debt and end of the year, FY16, we want to bring down the debt levels to about Rs 1,800 crore or so.

Ekta: How would you propose to do that?

A: We are looking at monetising some of the assets particularly the power assets and also one road asset. And our subsidiary NCC Urban is likely to repay about Rs 100 crore of debt taken from the parent. So, together with all these three measures, we are getting about Rs 400-500 crore of additional money into the company and part of that will go towards working capital and part of that will go towards the debt reduction.

Ekta: One question with regards to what is happening in the roads space because we heard from Ramki Infra as well that they are, not heard, but there are reports that they are looking to possibly divest four of their operational road projects in order to reduce debt. Plus you have yourself just said that you would look to possibly monetise a road asset in order to reduce debt. Where is the demand coming from in terms of buyers for these assets? And what is the premium that you are possibly getting in terms of your assets at this point?

A: Actually road assets particularly the build operate transfer (BOT) assets have become a pain point for most of the construction companies. We have gone into BOT roads primarily with an idea of getting the construction contract and exits from the projects once the construction is over. But the secondary markets for the developed roads projects is not good. There is no depth in the market. There are few buyers and too many sellers. So, the right kind of valuations are not coming. That is a problem and some of these pension funds and Private Equity (PE) investors in roads are available but the valuation is a issue. The right kind of valuation we are not getting.

Ekta: So, what kind of valuations are you getting?

A: I cannot disclose right now, but we were expecting at least 1.25-1.5 times the book. But that is becoming difficult. We have to see when I have discussed and finalised. Things have improved somewhat in the recent past. Nigel: In terms of national Highways Authority of India (NHAI) itself, what is the ordering? How many projects have been bid out Are you participating

A: NHAI, last year they have done only about 3,000 kilometres against a target of nearly 8,000 kilometres. But in the current year, the order accretion is likely to improve, but they are thinking the BOT model, the hybrid model and all, so we are waiting to see how it will be. Cash contracts, yes, they have started giving. We are carefully examining and participating.

Ekta: At the end of Q4 your credit rating was improved from junk to Triple B minus. Are you in talks with banks to possibly, what would your debt status be or maybe your credit rating status be? Could we see further improvement in this coming fiscal for your credit rating in particular?

A: Absolutely, the rating improvement happened in December after the rights issue was launched successfully and our fundamentals and the confidence in the company would give us triple B minus rating that is investment grade. But the annual results of March, 2015 have improved the fundamentals of the company even substantially. Compared to what it was in October 2014 and based on these fundamentals, we are looking at two things. One is the internal rating by the member banks. The consortium banks is definitely going to improve and also... (interrupted)

Ekta: What is it currently?

A: Currently each bank has got a system of rating it. For example, State bank of India has got a system of rating on SB category, SB9, SB10 like that. We are confident we will come below SB9 in the current round of internal rating by SBI. That will also help us to improve the pricing in terms of loans and commission on bank guarantees. And added to that even the external rating, further improvement is expected.