Gammon Infra aims to close FY11 with EBITDA margins at 60%

Gammon Infrastructure posted net profit of Rs 3.47 crores for the quarter ended December, 2010 against Rs 6.56 crores for same quarter a year ago. Its net sales came at Rs 91 crores for the December quarter versus Rs 92.02 crores, year on year (YoY).

Parag Parikh, chief financial officer of Gammon Infrastructure in an interview with CNBC TV-18's Udayan Mukherjee and Mitali Mukherjee, said that the company expects to close the year with EBITDA margins at about 60%.

Current contributions in the EBITDA margins were primarily from roads and port projects. Roads contributed close to about 60% of the EBITDA margins, he added.

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: You have done Rs 142 crore of EBITDA in the first nine months of the year. What can you end the year with in terms of EBITDA and PAT performance?

A: The EBITDA margins continue to surge. We expect the margins to close at about 60%. On a corresponding nine months to even annualised comparison as we move forward, shall be at a rise of about 40%. Similarly, when we look at cash profit we have grown in the corresponding period by close to 23% and we expect that trend to continue.

Q: Can you breakup the EBITA contribution you expect to see between roads, ports and power?

A: Primarily, the current contribution is more between roads and ports. Roads constitute close to about 60% of the EBITDA margins and the balance is from our operating port project.

Q: While your EBITDA has grown 40% in nine months, at the PAT level depreciation and higher interest cost because of new projects coming onstream is eroding your PAT. It looks like a struggle to even get to that Rs 26 crore PAT that you did last year. When do you think all these numbers will show up at the reported bottomline?

A: We will need to recognise within our industry that there are impacts of larger capitalised costs. Also, once these projects move into commissioning phases the interest outgo which converts into a P&L is a significant number. Further, close to a year back we finished our periodic maintenance activity on the two road annuity projects. And these are being capitalised and amortised over a period of five years.

This will feature as a periodic activity every five years. To that extent, when you see the depreciation block as well as the interest cost is more, merely out of the fact that Nasik had got commissioned over last year. So, depreciation and interest expenses move up. One will, therefore, need to continue to see from a cash flow perspective also. So, at a cash profit number we are growing at about 23%.

Q: How much do you reckon interest cost could go up to by the time you get into FY12?

A: At this juncture projects which have commissioned are the two road annuity projects, the Mumbai-Nasik, the Vizag sea port and the Cochin toll bridge. We are on track in completing our entire stretch of 100 km of Mumbai-Nasik. Once that gets completely commissioned you will see the interest expenses as well as depreciation expenses on the balance sheet and road being completed also graduating into the P&L.

Beyond that, there are two road annuity jobs, which are up for commissioning over the next financial year. All put together you will gradually continue to see some rise in the interest and the depreciation expenditure and on the revenue side once these projects have been commissioned.

Q: Any acceleration in the awarding of projects from the NHAI that you are sensing because last one year a lot of people from your industry have been complaining about the lethargy at the pace at which NAHI has been moving, any signs of that picking up?

A: For quite sometime there has been a quite a slowdown in terms of award of new projects. I do expect we are just about on the bend of the corner. There are close to about 45 projects at different stages of qualification of bids of NHAI. These are by far enlarges significantly the largest PPP, BOT client. We expect those coming up over the next 90 days. I do see some of these jobs being awarded in the quarter one of the next financial year.