Gammon India looking to liquidate real estate assets: CFO

Gammon India is looking to cut debt by around 22 percent to Rs 2,500 crore by next year. The construction major which has lined up civil works, roads, bridges and thermal power projects across states has been facing liquidity issues since past two financial quarters partly due to high cost of borrowing.

To combat financial issues, the firm is looking at liquidating its real estate portfolio, Girish Bhat, chief financial officer at Gammon told CNBC-TV18 in an interview.
The company is reeling under debt due to cost over runs in a few projects and adding to trouble is the general slowdown in the infra space. However, Bhat mentioned that there is no slowdown from the company's side for bidding of BOT (build, operate and transfer) projects.
The company is keen to deleverage its balance sheet to pursue growth.
Gammon is currently sitting on an order book of around Rs 16,000 crore.
Meanwhile the company has reported a net loss of Rs 39.44 crore for the September quarter due to muted sales and increased finance costs. The company had reported a net profit of Rs 4.13 crore in the year-ago period. The company also reported a forex loss of Rs 1.72 crore during the quarter due to fluctuations in dollar-rupee exchange rate.

Below is an edited transcript of Girish Bhat's interview on CNBC-TV18.

Q: Could you layout the game plan Gammon India has to pare down its debt and interest cost? There were a lot of stake sale talks. Is there anything that's fructified?
A: Overall, our EBITDA margin has been down to 5.7 percent and the interest cost has been up. We have been facing a lot of liquidity issues in the last two quarters. The focus is on how we can reduce our borrowings. Since April the bank funding has been quite tight because we have taken a lot of short-term loans towards real estate.
The challenge to the business is liquidating the real estate portfolio, which is in the process of being done. By the end of financial year, we will be in a position to reduce borrowings from a current level of around Rs 3,200 crore to Rs 2,500 crore. That will help us in terms of shrinking our size of the balance sheet as well as improving the interest service ratio. It will also help us to enhance our execution of the projects, which is a big challenge for us in the last two quarters.
For a lot of funds, the priority has been liquidating borrowings and converting the unsecured loans into secured loans. We are in the process and this is taking a little time, especially with the banking system. A lot of bureaucracy and delays in the banking system are causing issues in terms of funding our site and execution. That's the primary reason why our EBITDA margins have been down because our fix costs are stagnant and we need the short-term liquidity to execute the project. Q: Besides reworking on your lending situation, are you at this point of time looking to divest or monetise any of your assets to help the situation?
A: Exactly, that's what I indicated. This is because we are in the process of divesting the asset, especially part of our real estate portfolio which is critical for us in terms of reducing the borrowings by the end of the financial year. Also, in Italian business we are trying to get an external partner who will help us reduce the burden of our borrowings and help us in enhancing our liquidity. Q: Do you think this may get done by the end of this calendar year or even in the early part of next year? Have you already found potential parties?
A: No. The work is in process. We are quite confident that in the real estate we will be in a position to close it by the end of the financial year. So, we are quite positive in terms of the progress which is happening. Q: A word on your top-line as well. Your total income has de-grown by 1.5 percent and because of the inability to raise equity and fund debt many companies like you are not bidding for build, operate and transfer (BOT) projects. What is happening on that front in terms of new projects?
A: The positive side is our order book, which is around Rs 16,000 crore. It is a comfortable situation for us. If you ask for a BOT project, we have a separate company which is Gammon Infrastructure. It bids for the BOT projects and I do not think there has been slowdown from our side in terms of bidding those BOT projects. We are very cautious in terms of quality of those projects because we do not want to bid for the project in an aggressive way, which doesn't help us in the long-term in terms of profitability and the overall balance-sheet situation.
The focus should be on the projects, which will provide good growth and not just a growth for the sake of order books. We are bidding for the BOT projects through Gammon Infrastructure and they have been working quite positively in the last six months on that side.

Q: The receivable days that Gammon India is currently sitting on, how much do you plan to bring it down, so that it would help with your working capital cost as well?
A: Our overall debtors position is not bad except for a few debts in our transmission business. We got debtors in terms of the rural electrification projects, which is around 150 crore and have been stuck up for the last two years. So the process has been to work with those State governments and in terms of getting those debtors back in terms of improving our liquidity.
We believe in the next one year or so we will be in a position to liquidate those things and get the money back, which has been tied up for over two years and for which we are unnecessarily paying the interest. Therefore, with the help of the State government we are working with, three state governments Chhattisgarh, Uttar Pradesh, I do not remember the name of the third state but three states in which we are stuck up in terms of rural electrification debts.