Gammon India degrows 5%, full year performance on target

Things are tough for the infrastructure industry during the rainy season, says Girish Bhat, CFO, Gammon India. The company has degrown by around 5 percent and is down a bit on the EBITDA margin, close to 80 bps. He expects Q3 and Q4 to be better, but the pain will continue.

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The company has posted a loss of Rs 50 crore against a loss of Rs 20 crore earlier. EBITDA is also down by close to 20-odd percent.
He says, full year performance of the company will be on target, but Q1 and Q2 will be challenging. Full year estimates stand good because since the company is expected to grow by around 5 percent because Q3 and Q4 will be decent. Overall EBITDA margin we will be back to around 5.5 percent level, he adds.
Bhat says, next year onwards the company will be on path in terms of funding its interest through EBITDA margin, though it had to go in for corporate debt restructuring this fiscal. The company is getting around Rs 275 crore of interest deferment by way of a funded interest term loan as part of the CDR scheme. Below is the verbatim transcript of Girish Bhat’s interview on CNBC-TV18 Q: A lot of companies like yours have been facing a huge hit on the operational performance and huge slowdown on the top line as well. Going forward can you tell us how many more quarters of pain a company like yours will have to face and how much more operational deceleration do you foresee?
A: The situation is quite tough because of the liquidity situation. Overall we have degrown by around 5 percent in a tough time and I believe the situation should continue for another two quarters. Especially in the rainy season, things are quite tough for the infrastructure industry. Q3 and Q4 may be a little better, but the pain will continue. Our degrowth is 5 percent and our EBITDA margin is at 4.7 percent which was around 5.5 percent. So we are down a little bit on the EBITDA margin close to 80 bps. Q: If you expect this weakness to continue for the next perhaps one-two quarters, what is your expectation for the full year because the last time you said that the company is likely to grow top line by 5-10 percent and maintain margins at 5-5.5 percent? This quarter you are seeing a degrowth, if the next quarter is also weak is there a downside risk to your FY14 estimates for the full year, for revenue as well as margin?
A: I don't think so. Our full year estimate stands good because we believe that we will grow by around 5 percent because Q3 and Q4 will be decent. Overall EBITDA margin we will be back to around 5.5 percent level. So I estimate the full year performance will be on target but Q1 and Q2 will be quite challenging.
_PAGEBREAK_ Q: How do you plan to tackle the huge finance cost that the company is sitting on? Finance cost this quarter is double of what you have seen on your EBIT line. Going ahead how do you plan to bring down the debt and eventually how will the finance cost go down?
A: Our borrowings are huge therefore we have gone for corporate debt restructuring (CDR) and our whole CDR package has been approved and we have received Letters of Approval (LOA) on June 29 and we will have to complete all the documentation within 120 days. So we will complete that, that will help us in terms of even though the interest burden is high but we will get for the funded interest term loan to an extent for our term loan whatever interest we are paying. So that will give us relief for this year in terms of cash flow. We believe next year onwards we will be on path in terms of funding our interest through our EBITDA margin that is what the whole business plan is about in the CDR package. Q: Gammon has recently put its Dombivli plot on the block. By when do you think this plot could get sold and how much money do you think you could rake in?
A: We have not put Dombivli plot on the block. We are in the process of developing and trying to monetize the asset. So somewhere things have been misquoted. In our CDR package that is process we have built in to create cash flow from that asset to help us to repay our borrowing. So the real estate monetisation is a big piece in overall CDR restructuring package, which will help us to reduce our debt substantially. Q: Will the money from this monetisation flow in this year itself and what will be the quantum of the money that can be generated from monetizing this?
A: The monetisation process will start two year later and that is what we have built into the package. After two years in the next five years we will be in the process to pay off a substantially significant part of our debt. So it is a seven year process what we have built into monetizing our assets. Q: Since your CDR will give you some relief at least this year as well as next year, what could be the interest saving for FY14?
A: There is no interest saving as such. These interests are deferred in terms of cash payment and therefore to an extent of around Rs 275 crore we are getting interest deferment by way of a funded interest term loan. So it is not that we are getting a relief, cash is being funded by the bank to help us repay and then we will have to repay this interest over a period of next 20 quarters. Q: What is the current order book of the company, where does it stand at as of Q1?
A: Our order book is at Rs 13,500 crore and in this year we have got reasonably good orders, which are coming in also even in Q2. As we are talking we have got orders worth around Rs 800 crore and most of the orders we are getting from the hydro sector. So that is good from the business point of view.