Kishor Kumar Mohanty, MD of Gammon infrastructure, discusses company's earnings for the fourth quarter and its future outlook.
Gammon infrastructure has started adding low margin engineering, procurement, construction (EPC) income to the revenue, said the company's Managing Director, Kishor Kumar Mohanty in an interview to CNBC-TV18.
The EPC business contributes around Rs 40-50 crore to the overall revenues, Mohanty said.
He said the company is likely to complete two projects by the first week of June.
The Hazipur–Muzaffarpur project will get completed over next 3-4 months, he said.
Mohanty said the company's interest burden has reduced as loans from IDFC has been repaid using proceeds from the recent share sale.
Below is the edited transcript of Kishor Kumar Mohanty’s interview with Reema Tendulkar and Sonia Shenoy on CNBC-TV18.
Reema: Your margins have come down a bit on a year-on-year basis. So, from 70 percent it is come down to 50 percent. Could you tell us what resulted in the pressure on your margins this quarter because it is also lower if you look at it on a quarter-on-quarter basis? And what is the outlook on the margins going ahead?
A: Let me explain it. It is in the expected line only because last quarter we had an earning of Rs 35 crore from Gorakhpur project. That is why that has given a little jump into the top-line which was not available this quarter. That is why it has come down by around 10 percent. To that extent exactly it is Rs 35 crore.
Second thing is we have started adding little engineering, procurement and construction (EPC) income of the few of the under implementation projects. In EPC, income the margins are not that high as the operational projects in the public-private partnership (PPP) segment. So they are the, earnings before interest, taxes, depreciation and amortization (EBITDA) is hardly, around 10 percent.
So, considering we had around Rs 40-50 crore EPC income in the top-line, our margin levels have reduced.
Otherwise it is in the expected line and we are just coming into a stability zone which is positive impact on both stand-alone and consolidated. Going ahead in the future quarter, we expect to perform better and consolidate ourselves.
Sonia: So, the first half of the year, since it is a September ending company, the first half, you have seen a growth of around 35 percent in your income. Can you tell us what the outlook for the top-line growth in the second half is? Which are the projects that are on the verge of completion which could perhaps contribute to revenues in the second half?
A: We are on the verge of completing two projects in this month itself or maximum in the first week of June. So, that will give us an additional top-line of around Rs 150-200 crore annualised basis, so quarterly basis, this should be around Rs 40 crore.
Second thing is we are also expected to put the ICTPL – the Indira Container Terminal to some alternative use. We are under intense discussion with Mumbai Port Trust (MbPT). They have already given some approval.
We are in a good setting where in we will share. So, once that is available, naturally that will also add some amount to the top-line.
The other project, Hajipur-Muzaffarpur, the big annuity project, is around Rs 200 crore annuity per year. So, that will also get completed in three to four months time.
Sonia: Which are the two projects that you said will get completed in June?
A: That is Godavari Bridge in Andhra Pradesh and the 30 Megawatt cogen plant.
Reema: With that do you maintain your FY16 revenue guidance of Rs 1,250-1,500 crore or would you like to revise it higher given the visibility.
A: No, annualised basis that will be in that range. You must realise that we had a nine month account last year.
So, this year we have started from again December, so this is nearly half year for us up to June. And might be the next annual account will come in March, 2016.
That will effectively become around 18 months. So, considering all that the numbers what I am talking about is annualised. Yes, annualised number will come in that range.
Sonia: Finally, before we let you go, your finance costs have also come down quite a bit, 20 percent year-on-year in this quarter. Can you give us a run-rate of what your interest costs will be in the next couple of quarters?
A: Finance costs basically came down because in the HoldCo we had a debt of nearly Rs 250 crore from IDFC so, that we have paid off the qualified institutional placement (QIP) proceeds.
Second thing is as we go in PPP projects, re-pay the principle amount, the interest component comes down.
The third factor is there was a two round of interest reduction, so some effect of interest reduction has also come into play.
So, all these three factors together naturally effects to the finance cost coming down. Hence forward, it will depend upon mostly how much the overall interest cost is coming down because these are capital intensive business where there is a huge amount of debt in each of the projects. So, as the interest cost will come down, it will naturally add to the profitability of the project.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.