Punj Lloyd expects its revenue to grow to Rs 10,000 crore in the coming year, and reduce debt significantly. Recovery of dues from customers, settlement of legal disputes, and sale of non-core assets will help the company reduce debt, J P Chalasani, MD and CEO of Punj Lloyd told CNBC-TV18. In addition, the company was also looking to "realign" some of its loans, Chalasani said.Along with an increased focus on the defence business, the company will also expand in the engineering, procurement and construction (EPC) business.
The company’s current order book is Rs 21,000 core, and Chalasani said he expected fresh orders of USD 2-3 billion in the EPC businessInstallation of a new power plant will make Punj Lloyd a 50 megawatt company in FY16, he added.
Below is the edited transcript of JP Chalasani’s interview with Sonia Shenoy and Reema Tendulkar on CNBC-TV18.Sonia: The year FY15 was a very challenging year for you. Overall your revenues have fallen almost about 40 odd percent or so this year. But in the last two quarters we have seen things improving for you on the operational front. Just give us a sense of how you expect FY16 to shape up, at least the first half based on your order pipeline, where is it currently? And, on this base of around Rs 5,000 crore of income, how much do you think you could manage to grow at least in the first half of the fiscal?A: Let me just take you back to FY15, so that that it is relevant for us to talk about FY16. As you mentioned, I completely agree with you, FY15 had been very challenging for us on this. But, after the end of quarter one, we mentioned that that is the bottom where we have reached and we would have a sequential improvement quarter-on-quarter basis. And that is what you have seen the results on this. And, also what we have been doing, as we had mentioned earlier is that there is a big concentration on the bottom-line, not just in the top-line. And one of the reasons the top-line has been low is because the order book in the previous year has been very low. So, therefore the new orders picking up in the year was less. But that would change. Now, coming to the FY16, because we now set the ball rolling and we have been on the improving trend constantly, I am not going to say that FY16 is going to be a fantastic year for us but it is still going to be a challenging year. But we were much different compared to the FY15. We will continue to show the improvement, quarter-on-quarter basis. For three reasons, on is we will consolidate our engineering, procurement and construction (EPC) business and we will be concentrating on the difference statement which is going to add to the top-line as well as the bottom-line. And third reason is infrastructure development on this. On the EPC business, the last year we had about Rs 7,000 odd crore of order booking on this. That got added to the existing order book and today we have about Rs 31,000 crore of order backlog and we see the FY16 moving ahead, both in India and outside, a good order pipeline. Even on the most conservative basis, we should expect about USD 2-3 billion of fresh orders of booking happening in India and outside, put together. So, therefore from that angle, the order book would show the good health as moving ahead on this.Second, because whatever we achieved, the operational improvement in FY15, would start showing us more and more results in FY16.Third is that we are trying to reduce our cost of debt, which will add to the margins on this. That is another area because of which the margins would further improve. Overall, one would see a significant change in terms of both top-line and more importantly the bottom-line in the FY16. But again, a word of caution, I am not saying that this is going to be a fantastic year for us, but it is going to be a tough year yet good year for us.Reema: Focusing a bit on the operational improvement, so should we assume that from here on the company will continue to report positive earnings before interest, taxes, depreciation and amortization (EBITDA) and overall for FY16 the company is, at least at the operating level, the company will be profitable?A: That is the expectation depending upon what we are seeing the visibility at this stage. Sure that is what one can expect to happen on this.Sonia: You did mention that one of the reasons for improvement in your profitability going ahead will be the increased focus on the defence business. You are bidding for many defence orders. Just take us through what the situation is looking like in terms of how much better could the margins be. What are the average margins that you could expect from the defence business and how big is the opportunity for you? A: At this stage it is more important to talk about the opportunity because it is not the stage to talk about the margins. As you know that we have been in this business for quite sometime, but it is really that defence has been become the thing in FY15. That is where the momentum has really picked up on this. We have a large manufacturing base at Malanpur which we have been manufacturing for the defence utility both in India and outside, till now. But now, we started bidding for projects on this as the anti-defence gun system which is expected to be ordered shortly, that is one which is around Rs 500 crore worth of order, which we are hopeful. Other one is the anti-aircraft gun system, which is about USD 2 billion worth of orders, which is in the request for information (RFI) stage and we expect request for quotation (RFQ) and request for proposal (RFP) to come out some time in the second quarter of FY16. And other one we are doing is the upgradation of the artillery gun system. Many of these things are expected to be over Rs 1,000 crore of order. Many of these things what we are trying to do is we are using these things both in India as well as the outside India. We have started marketing outside India as well. We do have a few collaborations, at this stage the guidance would be as we are thick-and-thin of the defence and we do have the wherewithal for doing that. And this is definitely going to add to the top-line, start adding to the top-line.This will start adding to the top-line in this year and moving ahead from FY17-FY18, you will see a significant additions coming in on this.Other area is the infrastructure development. Last year we commissioned another 20 megawatts of solar plant, taking our installed capacity to 26 megawatts. We are doing another 21 megawatt which is expected to be commissioned this year. So, we would become a 50 megawatt solar company by end of this year. We already have a road project in our kitty and we would work towards improving that business as well where these assets we won these assets. All these three put together is what you would slowly see that it is not just a pure EPC company. You would see that as moving ahead that this is EPC defence and infrastructure company in a big way, definitely with a global footprint.Reema: You indicated that one of the priorities of the company in FY16 will be to reduce the debt in the books and that will also help in improving the operational performance. Currently, your gross borrowing is close to about Rs 7,100 crore. How much would you like to reduce you debt by? What will be the manner in which the company will reduce it?A: If you see, I have been consistently saying in each quarter that the debt reduction is our primary target and which we said that we will do through the monetisation of non-core assets as well as the claims realisations. And at both fronts we had some movement in FY15 which we expect to pick up further momentum this year. We divested our stake in Vedanta and we reduced our term loan which was at the beginning of the year was around Rs 1,460 crore. And the term loan, not the working capital, had come down to about Rs 1,050 core. That is about Rs 400 crore odd drop. Obviously the working capital would depend upon the number of projects we do. Also what helped us to start reducing the debt is the claims realisation. We had a very focused approach on claims realisation. In the last financial year, that is FY15, we realised about Rs 750 crore of claims which have been pending for quite some time. And we expect this number to go up to about Rs 2,000 crore in FY16. That would again help us to reduce the debt. Third, is that we are right now in the final stages of completing the documentation with the banks. What is called the debt realignment plan which would give us more firepower in terms of fund based and non-fund based facility as well as to reduce our debt cost by at least 100 basis points. So, the multiple things what we are doing are that we are trying to reduce the debt. We are also working with the banks to see that the interest cost also comes down. So, therefore, no number can be put out at this stage hoping that this Rs 2,000 crore realization, as we see it today, is feasible. And as we see our interest costs coming down, you would see the debt would be much different from what it is today in the year end.Sonia: In terms of monetisation of non-core assets, you spoke about the stake sale in Vedanta; any other non-core assets that you have that you would be looking to sell within this fiscal itself? A: We do have few set of assets in terms of barges for the offshore business. We are looking at divesting them. But the bigger sorts of income for reduction of debt this year would come from claims realisation which is what we targeted to about Rs 2,000 crore this year. We are little more confident because whatever efforts we had put last year, gave us about Rs 750 crore. In fact, including this financial year also if we add Rs 750 crore, it has now gone up to Rs 1,000 crore. So I am sure that it will keep on increasing and that is going to be the main source for us to reduce the debt.Sonia; So, this Rs 2,000 crore is what you expect to recover this year. What would be the pending claims be ex of this Rs 2,000 crore?A: The on-paper claims that we have are about Rs 10,000 crore worth. But, realistically we are expecting that at least Rs 3,000 crore to be realisable out of which about Rs 1,000 crore we already have realised. So, therefore another Rs 2,000 crore is what remains that we are expecting to realise now. Reema: You will have 50 megawatts of solar projects, you did indicate that defence could perhaps contribute to your revenues in FY16 as well, the order book in EPC is picking up. Can you give us a sense about what the revenues of the company might look like in FY16?A: At this stage, I can definitely say that if you see at the consol level we are about Rs 7,000 odd crore this year so you should at least expect let us say about, this touching, going close to about Rs 10,000 crore. But the right stage to talk about this is the end of quarter one. We are not really focusing on top-line alone. Most important for us is that how do you efficiently execute and then improve your bottom-line. Even if the top-line increases, if the bottom-line does not increase, it is really not going to help.
Below is the edited transcript of JP Chalasani’s interview with Sonia Shenoy and Reema Tendulkar on CNBC-TV18. Sonia: The year FY15 was a very challenging year for you. Overall your revenues have fallen almost about 40 odd percent or so this year. But in the last two quarters we have seen things improving for you on the operational front. Just give us a sense of how you expect FY16 to shape up, at least the first half based on your order pipeline, where is it currently? And, on this base of around Rs 5,000 crore of income, how much do you think you could manage to grow at least in the first half of the fiscal? A: Let me just take you back to FY15, so that that it is relevant for us to talk about FY16. As you mentioned, I completely agree with you, FY15 had been very challenging for us on this.
But, after the end of quarter one, we mentioned that that is the bottom where we have reached and we would have a sequential improvement quarter-on-quarter basis. And that is what you have seen the results on this.
And, also what we have been doing, as we had mentioned earlier is that there is a big concentration on the bottom-line, not just in the top-line. And one of the reasons the top-line has been low is because the order book in the previous year has been very low. So, therefore the new orders picking up in the year was less. But that would change. Now, coming to the FY16, because we now set the ball rolling and we have been on the improving trend constantly, I am not going to say that FY16 is going to be a fantastic year for us but it is still going to be a challenging year. But we were much different compared to the FY15. We will continue to show the improvement, quarter-on-quarter basis.
For three reasons, on is we will consolidate our engineering, procurement and construction (EPC) business and we will be concentrating on the difference statement which is going to add to the top-line as well as the bottom-line. And third reason is infrastructure development on this. On the EPC business, the last year we had about Rs 7,000 odd crore of order booking on this. That got added to the existing order book and today we have about Rs 31,000 crore of order backlog and we see the FY16 moving ahead, both in India and outside, a good order pipeline.
Even on the most conservative basis, we should expect about USD 2-3 billion of fresh orders of booking happening in India and outside, put together. So, therefore from that angle, the order book would show the good health as moving ahead on this.
Second, because whatever we achieved, the operational improvement in FY15, would start showing us more and more results in FY16. Third is that we are trying to reduce our cost of debt, which will add to the margins on this. That is another area because of which the margins would further improve.
Overall, one would see a significant change in terms of both top-line and more importantly the bottom-line in the FY16. But again, a word of caution, I am not saying that this is going to be a fantastic year for us, but it is going to be a tough year yet good year for us.
Reema: Focusing a bit on the operational improvement, so should we assume that from here on the company will continue to report positive earnings before interest, taxes, depreciation and amortization (EBITDA) and overall for FY16 the company is, at least at the operating level, the company will be profitable? A: That is the expectation depending upon what we are seeing the visibility at this stage. Sure that is what one can expect to happen on this. Sonia: You did mention that one of the reasons for improvement in your profitability going ahead will be the increased focus on the defence business. You are bidding for many defence orders. Just take us through what the situation is looking like in terms of how much better could the margins be. What are the average margins that you could expect from the defence business and how big is the opportunity for you? A: At this stage it is more important to talk about the opportunity because it is not the stage to talk about the margins. As you know that we have been in this business for quite sometime, but it is really that defence has been become the thing in FY15. That is where the momentum has really picked up on this. We have a large manufacturing base at Malanpur which we have been manufacturing for the defence utility both in India and outside, till now.
But now, we started bidding for projects on this as the anti-defence gun system which is expected to be ordered shortly, that is one which is around Rs 500 crore worth of order, which we are hopeful.
Other one is the anti-aircraft gun system, which is about USD 2 billion worth of orders, which is in the request for information (RFI) stage and we expect request for quotation (RFQ) and request for proposal (RFP) to come out some time in the second quarter of FY16. And other one we are doing is the upgradation of the artillery gun system. Many of these things are expected to be over Rs 1,000 crore of order. Many of these things what we are trying to do is we are using these things both in India as well as the outside India. We have started marketing outside India as well. We do have a few collaborations, at this stage the guidance would be as we are thick-and-thin of the defence and we do have the wherewithal for doing that. And this is definitely going to add to the top-line, start adding to the top-line.
This will start adding to the top-line in this year and moving ahead from FY17-FY18, you will see a significant additions coming in on this. Other area is the infrastructure development. Last year we commissioned another 20 megawatts of solar plant, taking our installed capacity to 26 megawatts. We are doing another 21 megawatt which is expected to be commissioned this year. So, we would become a 50 megawatt solar company by end of this year. We already have a road project in our kitty and we would work towards improving that business as well where these assets we won these assets. All these three put together is what you would slowly see that it is not just a pure EPC company. You would see that as moving ahead that this is EPC defence and infrastructure company in a big way, definitely with a global footprint.
Reema: You indicated that one of the priorities of the company in FY16 will be to reduce the debt in the books and that will also help in improving the operational performance. Currently, your gross borrowing is close to about Rs 7,100 crore. How much would you like to reduce you debt by? What will be the manner in which the company will reduce it? A: If you see, I have been consistently saying in each quarter that the debt reduction is our primary target and which we said that we will do through the monetisation of non-core assets as well as the claims realisations.
And at both fronts we had some movement in FY15 which we expect to pick up further momentum this year. We divested our stake in Vedanta and we reduced our term loan which was at the beginning of the year was around Rs 1,460 crore.
And the term loan, not the working capital, had come down to about Rs 1,050 core. That is about Rs 400 crore odd drop. Obviously the working capital would depend upon the number of projects we do. Also what helped us to start reducing the debt is the claims realisation. We had a very focused approach on claims realisation. In the last financial year, that is FY15, we realised about Rs 750 crore of claims which have been pending for quite some time. And we expect this number to go up to about Rs 2,000 crore in FY16. That would again help us to reduce the debt. Third, is that we are right now in the final stages of completing the documentation with the banks. What is called the debt realignment plan which would give us more firepower in terms of fund based and non-fund based facility as well as to reduce our debt cost by at least 100 basis points.
So, the multiple things what we are doing are that we are trying to reduce the debt. We are also working with the banks to see that the interest cost also comes down. So, therefore, no number can be put out at this stage hoping that this Rs 2,000 crore realization, as we see it today, is feasible. And as we see our interest costs coming down, you would see the debt would be much different from what it is today in the year end.
Sonia: In terms of monetisation of non-core assets, you spoke about the stake sale in Vedanta; any other non-core assets that you have that you would be looking to sell within this fiscal itself? A: We do have few set of assets in terms of barges for the offshore business. We are looking at divesting them. But the bigger sorts of income for reduction of debt this year would come from claims realisation which is what we targeted to about Rs 2,000 crore this year.
We are little more confident because whatever efforts we had put last year, gave us about Rs 750 crore. In fact, including this financial year also if we add Rs 750 crore, it has now gone up to Rs 1,000 crore. So I am sure that it will keep on increasing and that is going to be the main source for us to reduce the debt. Sonia; So, this Rs 2,000 crore is what you expect to recover this year. What would be the pending claims be ex of this Rs 2,000 crore? A: The on-paper claims that we have are about Rs 10,000 crore worth. But, realistically we are expecting that at least Rs 3,000 crore to be realisable out of which about Rs 1,000 crore we already have realised. So, therefore another Rs 2,000 crore is what remains that we are expecting to realise now.
Reema: You will have 50 megawatts of solar projects, you did indicate that defence could perhaps contribute to your revenues in FY16 as well, the order book in EPC is picking up. Can you give us a sense about what the revenues of the company might look like in FY16? A: At this stage, I can definitely say that if you see at the consol level we are about Rs 7,000 odd crore this year so you should at least expect let us say about, this touching, going close to about Rs 10,000 crore.
But the right stage to talk about this is the end of quarter one. We are not really focusing on top-line alone. Most important for us is that how do you efficiently execute and then improve your bottom-line. Even if the top-line increases, if the bottom-line does not increase, it is really not going to help.
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