Expect revenues to normalize from Q1 FY14: Sadbhav Engg

Sadbhav Engineering's net profit fell by 91 percent year-on-year to Rs 3.7 crore in the third quarter of financial year 2012-13 due to fall in revenues and high interest cost. Total income halved to Rs 353.4 crore from Rs 724.9 crore during the same period.

Speaking to CNBC-TV18, Nitin Patel, ED of Sadbhav Engineering said delay in environmental clearances for its two projects led to the poor set of third quarter results.

He expects clearance for Shreenathji Udaipur by this month and for that of Solapur-Bijapur by end of March. Also, he expects the new project Rajsamand-Bhilwara to start generating revenue from April FY14. "We expect from Q1 of next year, we will be normal. We expect at least a sizeable jump over whole year’s business," he adds.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Can you take us through the numbers in terms of what exactly the synopsis looks like for this quarter? Sales were down 50 percent, profitability down 91 percent. Do you see recovery going forward?

A: In the construction industry, we are a project specific company. We have already achieved the financial closure of two major projects namely Shreenathji Udaipur and Solapur- Bijapur. However the environmental ministry has not given nod for starting the project.

The scheduled date for starting these projects was October 14 for Shreenathji Udaipur and November 28 for Solapur- Bijapur. That was a major hit because that was expected to give turnover for Q3 as well as Q4. Till today, the ministry has not issued clarification on both these projects.

Secondly, looking at past results of the company, almost all the projects have been completed ahead of schedule and so, what was projected in current year was actually completed in last year. That is the reason why the company has earned cash bonus of Rs 60 crore in first quarter, because of early completion.

Both these aspects have given negative impact on the turnover of the company in the current quarter.

Q: But you are lower even quarter on quarter, you have not earned what you earned last quarter in terms of revenues, you have not made what you did in the year ago quarter as well. Why did revenues fall so much?

A: Basically, in Q3 these two projects were supposed to start generating revenues and each project is of almost Rs 1000 crore. So, significant revenue was supposed to start from these two projects but that did not start. That is why Q3 could not match the numbers compared to even Q2 of the previous quarter.

Even in Q1 and Q2 of the current year it is low because all the projects mainly Bijapur-Hungund, Rohtak-Panipat as well as Dhule-Palasner these three major projects that have been completed ahead of schedule which was booked in the financial year 2012. So that is the reason the first half was also lower.

Q: Your power generation is also showing an EBIT loss, what happened over there?

A: This power generation is a wind based generation and it is not significant as compared to the overall business of the company. It is only 7.2 megawatt, only four turbines of 1.8 megawatt has been installed by the company.

Q: When can we expect environmental clearance for these two projects  to come through?

A: For Shreenathji Udaipur, we are expecting enviormental clearancei in this month itself and for Solapur-Bijapur, we will get it by end of March. We also have other two new projects that we have won. One is Rajsamand-Bhilwara that will start generating revenue from April FY14. So we expect that from Q1 of next year, we will be normal. We expect at least a sizeable jump over whole year’s business. Compared to the current year, next year will be very high.

Q: How much do you get from construction and how much are you getting from say annuity or build, operate, transfer (BOT)?

A: In terms of revenue almost Rs 1 crore a day is coming now as toll revenue from toll roads, which has not been considered in the construction business. As of now whatever result is purely construction business turnover.

Q: This is coming from which roads?

A: It is from four toll roads which are already operational under the company. So, all four together are generating Rs 1 crore a day.

Q: How much are you making in terms of E&C, construction revenues?

A: Construction turnover this quarter was Rs 353 crore . Q4 will be little higher even barring these two projects which are not going to add to revenues. But Q1 of next year, we will see because all these new projects will start generating, so improving revenues as well as margins of the company.

Q: But why are you not including the toll revenues?

A: It is not a consolidated result. Toll revenue comes under subsidiaries, so this is only stand alone result.

Q: Aren’t you holding more than 51 percent in those subsidiaries?

A: Yes we are holding more than 51 percent in those roads where you collect toll?.

Q: So on a consolidated basis what would your revenues be if you can give comparison as well?

A: Consolidated basis this quarter revenue you have to add another Rs 90-100 crore over these revenues. EBITDA is higher in toll business; it is almost 82-85 percent. But even after servicing interest the net level margin will obviously improve. Consolidated level on yearly basis, the company is obviously going to add further value.