Demand in hydrocarbon sector, international pipeline strong: EIL

A: The last couple of years we have changed our strategy and have gone on a big way in the international sector. I think the rich dividends have started flowing in.

On the international scene in this year, and in this particularly quarter, we have done extremely well and we are looking at very good revenues. However, if you look at this particular sector, our numbers are very attractive, about Rs 100 crore revenues have flown in from the international segment itself.Sonia: Your order inflow in this quarter was Rs 2,060 crore and your earlier guidance was Rs 2,000 crore for the full year. So in one quarter, you have met your full year guidance or exceeded that. Given that international orders are looking good, would you want to scale up your guidance? Where do you see total orders by the end of the year?

A: The greenshoots in the hydrocarbon sector which were waiting for a long time has started paying dividends. There is a lot happening in the hydrocarbon sector now. Euro-VI is a very important segment, which I have mentioned last time also. There has been great order flow around there. We have got all the BS-VI projects so to say from Indian Oil Corporation (IOC) and a number of them are already in the pipeline. There is a good segment which is opening up in 'Namami Gange' and there are a few other major things happening including a major breakthrough which has come from Bangladesh territory. So, the order books like pretty good and yes, we will have some good reason to cheer up.

Anuj: Let us talk about the order book and also about guidance revision, but before that your income was down but EBITDA went up a lot. Was there any cost write-back in the turnkey business where we saw this huge surge in EBITDA and EBITDA margins?

A: Most of the engineering procurement and construction (EPC) segment of work which we do, happen to end at some kind of a closure. A lot of provisions are made for this particular segment. We are very glad that in this particular segment, we have been able to close a few jobs and because of that, all the provisions which had been made, that has also added to some of the profits or some of the revenues flowing in from this segment. This is a continuous exercise and keeps happening in any kind of a sector that we operate.

Anuj: But this is not a one-off? Is this number sustainable?

A: Most of the EPC works, which we did in the last couple of years, are towards the closure stages. So, probably not only this quarter but probably in the next quarter also we might have some of the news flowing in.

Latha: I thought you spoke about international orders, but when you mentioned piecemeal orders, you referred more to Indian refinery companies. What is the share of your export orders or global order?

A: As far as this particular quarter is concerned, we have got in the overseas segment to the tune of Rs 134 crore which have been added in this particular segment itself and there is a lot more which has to happen. A major breakthrough, as I mentioned, came from the Bangladesh segment and there are a number of opportunities which are opening up in the African sub-continent for which also we are in various stages. Some small go-aheads have already been received. There are some small opportunities opening up in the African subcontinent and the market will have to wait to hear some more good news.

Latha: Should we expect it in this fiscal? Would you want to guide us about where you maybe L1 and therefore you have some visibility about what will be the potential order book or order flow for full year.

A: Let us put it this way that the market is already aware that we are doing a very major job in Nigeria; they are drawing some subsea pipelines for which we are very favourably placed. I would like to keep it there at the moment.

Sonia: In terms of your margins you did mention that these international orders will boost your margins further. Can we expect margins better than 21 percent in the second half of the fiscal?

A: As things stand we would say yes, we would like to hold on to what we have done, but the efforts would obviously be on to do something better.

Anuj: To get back to the question that Sonia asked earlier. You reached Rs 2,060 crore versus the full year guidance of Rs 2,000 crore. As of now, you have not officially revised the guidance but I am assuming it is a matter of time. What kind of visibility will you have for the full year now?

A: There are many opportunities which are opening up as the market is aware, particularly in the hydrocarbon segment. Some big projects, particularly in the refining segment, some creep expansions, etc, at various stages for which we did a lot of initial work. There is likelihood of number of these opportunities maturing. However, we will probably be sharing some good news in a few quarters to follow.

Latha: You are in a vantage perch where you will be able to give us some idea of capex plans in general. You have spoken at length about hydrocarbons, but are we on the cusp of any capex in the country?

A: We are looking into opportunities. Ramagundam is one such foray in which we have already put in some equity. If an opportunity of that sort does crop up, we will look into it.

Sonia: I wanted to ask you a little bit more about your turnkey project segment because although your income is down, your EBIT in that project has gone up. Just want to know exactly what were the cost write-backs that you took in this particular quarter?

A: As I mentioned, most of the EPC projects which we do, there are certain closure liabilities which we have put into our account and we keep provisioning for those. Some of those in various projects are being taken care of now appropriately as we are approaching towards settlement. Some of them have already been settled and as I mentioned probably in the next few quarters there will be more good news in this segment.

However, in the lump sum turnkey (LSTK) segment, there is good news that possibly there are a few opportunities which are already with us for which we have received the go-ahead. So, while we did not see a very high order book in the last few years, but possibly things are picking up now. So, we should be able to do better on that front as well.