No immediate pressure on operating margins: IRB

IRB Infra has successfully retained margins and the company doesn't see any immediate pressure on operating margins.

In an interview with CNBC-TV18, V D Mhaiskar, CMD, IRB Infra said that the average cost of capital for the company stands at 11.25%. However, he refrained from providing any guidance for FY13, unless operation on the Ahmedabad-Vadodara project commences. Mhaiskar also explained that IRB's basis profits have gone down due to depreciation in the Surat-Dahisar project.

IRB has declared a profit of Rs 117 crore on total income of Rs. 881 crore for Q4FY12. Income from operations was up 11% to Rs. 848 crore for Q4FY12 from Rs 767 crore in the corresponding quarter last fiscal. IRB's overall income for FY12 increased 30% YoY.

Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video.

Q: Could you split up your performance between the build, operate and transfer (BoT) and the E&C division first for the current quarters?

A: For the current quarter we have done a topline of Rs 881 crore and construction is Rs 624 crore and toll revenue is Rs 257 crore and the PAT is Rs 120 crore.

Q: What kind of margins have you done this quarter?

A: We have been fairly successful in retaining the margins. We have not seen much of a margin pressure. On a trailing quarter, basis profits have gone down due to higher depreciation in the Surat-Dahisar project. Full amortisation for this quarter has been considered. As a result of that higher depreciation on a trailing quarter basis, we see a slightly lower number on the PAT.

Q: Take us through what this MVR Infra is about? What have you paid Rs 69 crore for? Are you taking any debt from the books of that company and how big is the company in terms of sale and profits?

A: We are not paying Rs 69 crore. That is the number of shares we are acquiring for 100% stake and it is a project around Salem, starting from Omalur to Namakkal. This is a 68 km, four-lane stretch which is operational. We expect excellent IRRs out of this project in the range of 20-21%.

This is a four lane highway which is completed and open to traffic. This acquisition will happen over three tranches, subject to NHAI approvals. Upto 74%, we can acquire immediately and the balance 26% would be subject to NHAI approval.

Q: On your topline and bottomline for the year, you had given a guidance of 15% to 20% for FY12 and you have maintained it on the topline at least. For FY13 what kind of targets will you setout for revenues and profits?

A: At the moment, we would like to refrain from giving any guidance because we are waiting for the projects to start. Maybe, with the Q1 results we will come out with the detailed guidance, once the Ahmedabad-Baroda project gets into construction mode.

Q: Can you give us an update on what is happening with the CBI case and has the polygraph test being taken?

A: No. In fact, there is no change in the status from what we had last communicated to the exchanges. The status remains the same. We have categorically denied any involvement in that particular matter. Still, we have to go through the process, which we will do.

Q: What have been the interest costs in this quarter? How much do you plan to pare it down by in the subsequent quarters and also on your debt, how much you plan to bring it down by?

A: The net debt now stands at Rs 5,300 crore and the net debt to equity ratio is at a comfortable 1.86:1. The average interest cost for the company is in the range of around 11.25%.

We are seeing signs of cooling off on that with India Infrastructure Finance Company Ltd (IIFCL) coming out with excellent products where they are refinancing operational projects at around 10.5%. We would be applying for all those projects which would now be eligible for that scheme.

Q: What did you mean by you would complete the process. Would you be taking a polygraph test in the next few days?

A: Yes.

Q: When is that?

A: They have to tell us the date.

Q: You said that you have received financial closure for your Ahmedabad-Baroda project and now you cannot give us any guidance going forward. When will you start execution because the last time you had indicated that in Q1 of FY13 you would start the project execution?

A: We expect the National Highways Authority of India (NHAI) to handover the site, maybe by middle of June or end of June. So, end of first quarter is when we will be starting the execution.