Hope to achieve topline growth of Rs 7200 cr in FY12: NCC

Nagarjuna Construction (NCC) is targeting a topline growth of Rs 7,200 crore (consolidated) in FY12.

YD Murthy, Executive VP-Finance in an interview to CNBC-TV18 said, the company is confident of achieving the targeted growth. However, he said that, there may not be much growth in the net profit for the current year and it may be flattish. The company is confident of achieving Rs 9,000 crore of order inflows in FY12. The company's average cost of borrowing currently is at 10.75%. However, the company has no plans to raise debt further. It is planning to bring down the debt levels by selling some of the real estate assets. Below is the edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee of CNBC-TV18. Also watch the accompanying video. Q: What do you expect to see both in terms of sales and profits through the course of this year? A: The first quarter profits have been impacted because of very high interest burden. Interest was about Rs 69 crore in the first quarter as compared to Rs 29 crore in the first quarter of the previous year. This accounts for 60 % increase in the interest burden. It brought down the net profit level to about Rs 23 crore for the first quarter compared to Rs 41 crore in the first quarter of the previous year. The interest burden is a macro phenomenon, we are taking measures to reduce the debt on the books of the company. The interest rate cycle may bottom out as we go ahead. As far as the current year is concerned, we have given our top line guidance of Rs 7,200 crore on a consolidated basis. We are confident that we will be able achieve that. There may not be much growth in the net profit for the current year and it may be flattish. Q: Your average interest cost now is very close to 11% and that may even go up further. How substantially will interest burden go up during the course of the year because it will unless you manage to pair down debt by selling real estate? Can you just give us the blue print on how you are dealing with this problem? A: We have taken a decision not to increase further debt on the books of the company. To the extent possible we are actually planning to bring down the debt levels by selling some of the real estate assets. Our average cost of borrowing, at present is at 10.75%. One month back we were able to borrow in the commercial paper market at a low rate of about 10.5%. We are still able to borrow at reasonably good rates. But going forward, increase of about 50 basis points is expected. That will have an impact on the interest burden for the year. Last year for the year as a whole we had a interest burden of about Rs 170 crore or so. This year it is likely to be in the range of Rs 230 to Rs 240 crore. Unless we take some measures to bring down the debt burden, there is going to be an impact on the profits of the company for the year as a whole. At the same time, we are factoring the increased interest cost into our order booking. For example, whatever orders we are receiving in the recent past we are loading the higher rate of interest in the price bids that we are submitting. There is a mitigation mechanism available to us and we are working in the direction. Going forward, we will be able to absorb the interest cost without much difficulty. But as far as the year is concerned the profits for the year are likely to be flattish. Q: Even your top line is not going great guns, just 5% increase in sales. Is execution also quite sluggish this year? A: Execution is not sluggish. We have given a top line guidance of 15% growth that is Rs 7,200 crore on a consolidated basis. In the first quarter, our budget is Rs 1,200 crore whereas we have achieved Rs 1,143 crore. Likewise for the consolidated numbers also our budget is about Rs 1,600 crore whereas we achieved Rs 1,612 crore. So on a consolidated basis we have achieved about 103% of the budget. On a stand alone basis we have achieved about 98 % of the budget. So we are on track. The first and second quarters are usually a bit sluggish mainly because of the client related issues in the first quarter and also the monsoon in the second quarter. The real growth comes in the 3rd and the 4th quarters. So this year is also not going to be an exception. We are confident we will be able to achieve the budgeted growth of Rs 7,200 crore for the year as a whole. Q: You also guided to fresh orders of Rs 9,000 crore for this year. The first quarter has been low key at about Rs 1,300 crore. Are you confident you are seeing that kind of demand and you will see that much by way of fresh order inflows? A: Yes absolutely. We are confident we will be able to achieve Rs 9,000 crore without considering the in-house order of about Rs 5000 crore. If you factor that also into account the actual order growth for the year as a whole is likely to be in region of Rs 14,000 crore. Out of this Rs 9,000 crore first quarter we thought we will achieve about Rs 1,800 to Rs 2,000 crore whereas we ended up achieving only Rs 1,300 crore. But we are confident, year as a whole Rs 9,000 crore turnover order book from outside agencies is definitely achievable. We are bidding in a number of road projects, we have been pre-qualified also. We are confident that we will win some road projects in the current year.