Confident of execution pick-up in Q3, says NCC's Murthy

Reema: Could you give us the key highlights, what was the reason for your revenue decline; also your order book has come down on a quarter-on-quarter (Q-o-Q) basis?

A: The revenue we recorded of Rs 1,972.9 crore in the second quarter, it is slightly less than the second quarter of last year mainly because of the heavy monsoon rains during the second quarter which has impacted the topline to some extent in the frontier but nevertheless we are confident we will be able to pick it up as we go forward in the third and fourth quarter and we are confident of achieving the targeted turnover for the year.

Latha: What is the targeted turnover?

A: Last year we had done about Rs 8,500 crore. We are looking at a topline of about 10 percent growth which means about Rs 9,200 crore. These are all standalone numbers and we will definitely be able to pick up the shortfall in the second quarter going forward.

Latha: We are told that the order book at the end of September 2016 was at Rs 18,600. That looks like a fall. How do you expect to end the year in terms of an order book?

A: It was a bit sluggish in the second quarter, I fully agree with you but what has happened is in the month of October we received nearly Rs 2,387 crore of fresh order and with those order the order book is looking good now. And added to that we have got the mining order, Mine Developer and Operator (MDO) that is in our subsidiary company, that also if you take on a pro-rata basis another the Rs 2,000 crore or orders will be added to our parent company's order book. Totally we will reach a level of Rs 21,000 crore.

Reema: When we had last spoken to you, you had guided for margins of 9.2-9.5 percent in FY17. In Q2 your margins were below the 9 percent mark. Are you maintaining your margin guidance or do you think it could be closer to 9 percent for the full year?

A: At the end of second quarter that is the first six months we have done an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of 8.8 percent, it is definitely slightly less. But there we are expecting some pick up in the second half and for the year as a whole we can do about 9 percent EBITDA margin.

Latha: This may be a temporary phase but does the demonetising of Rs 500 and Rs 1,000 notes in any way impact business, will there be any prolonged sluggishness because of whatever, land transactions, payment to companies or payment from companies. How do you see the next two months?

A: As far as our construction business is concerned we don't think there is going to be any impact because all our clients are making cheque payments. However, we make payments to our subcontractors and suppliers through cheques or through real-time gross settlement systems (RTGS) and the subcontractors in turn make labour payments and other smaller payments in cash.

So, I don't think there is going to be any problem as far as the construction business is concerned except cash being not available for a few days, maybe a week or 10 days at the sub-contractor level. But at the corporate level, at NCC level I don't see any problem whatsoever at all.

However, real estate companies, because land transactions are bound to be there, there could be some impact and our NCC Urban has to adjust to that issue. There again NCC Urban also, when a flat is sold, all the monies are received only in cheque. There is no cash payment whatsoever.

Latha: Your NCC Urban is a 100 percent subsidiary; will it show up in the P&L in anyway?

A: It is 80 percent subsidiary; it will show up in our consolidation obviously.

Reema: Your debt at the end of the quarter has increased to Rs 2,060 versus Rs 1,890. Your debtor days have gone up to 73 days, what is the outlook on debt?

A: Debt we have fully utilised the limits that are sanctioned to us. You are right, the debt has gone up by about Rs 170 crore or so, that is mainly because of the deficit in the working capital. We received some order without mobilisation advance. So, to bridge that gap we have to draw the debt fully. Nevertheless, it is well within the limits and we are confident that we will remain around Rs 2,000 crore but by March 2017 it is likely to come back to about Rs 1,800 or so.

Coming back to debt collection period it has gone up slightly to 73 days, that is mainly because of some delays in payments in our electrical division and water division. Nevertheless it is a temporary phenomenon, the payments are expected to start coming and also at the macro level we are reporting one of the best debt collection periods in the industry at 73 days. We are far better than many other construction companies and we will be able to maintain that.