IRB expects to see good growth in toll vertical

IRB Infrastructure Developers' (IRB) spoke on its business scenario on the construction and the tolling vertical after its Q3 results.

IRB had bagged Solapur-Yedeshi Project worth Rs 1300 crore. The developer has also stated that Surat-Dahisar Project in which they hold a 10 percent stake is eligible for interest rate refinancing.Below is the interview of VD Mhaiskar, CMD, IRB Infra with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Q: Your company has managed to hold onto good margins despite a slowdown in overall revenues. Just give us a sense of how the margin profile may improve in the next couple of quarters or at the start of FY15?A: We operate on two business verticals, one is the construction vertical and the other one is the BOT tolls. In the last calendar year, we have completed three projects and as a result of that the construction order book has not grown so fast and the Karwar-Kundapur project which we were slated to start by September has got deferred and we will now be starting that project in this quarter. So, a deferment of that turnover has affected the construction vertical, but if you look at the tolling vertical that has shown a robust growth of almost 16 percent. Normally what happens is that the BOT segments operates at 85 percent EBITDA margin whereas the construction vertical operates on a 20 percent EBITDA margin. Therefore, because of the tolling vertical giving better results, the mix has resulted in a better margin scenarioQ: There are problems with tolling verticals as well, isn't it? We saw the newspaper headlines being dominated by the problems that you have faced. Are they behind you? How would you estimate tolling revenues for the current quarter?A: These problems are not something new to the sector. We have been seeing these kind of issues in the past as well. We have to keep in mind that these are national assets and these are government owned assets. We are concessionised for the same. Government has rallied very strongly behind these assets all across and as a result there was excellent police protection and beyond a 15-20 minute period where the operations were disrupted there has been no revenue loss across any of the projects.Q: How is the mix for the fourth quarter in terms of toll revenues expected and when next are you having new projects coming to give you revenues?A: We bagged the Solapur-Yedeshi project in the last quarter which gives another Rs 1,300 crore of order book visibility to the existing order book growing it to Rs 7,800 crore. The revenues on the construction vertical this quarter around also should remain flattish as we have seen in the last quarter, but thereafter we should see growth coming back with Karwar-Kundapur starting to contribute. Also, with the Solapur Project, a lot of spread work on the ground has been completed by National Highways Authority of India (NHAI), as a result of which we expect that project to commence earlier, achieving financial closure. So with those two projects coming on-stream, the construction vertical should also start reporting growth.Q: What should we assume for fourth quarter? You will maintain that about Rs 550-600 crore in terms of execution revenues and around 28-29 percent margins?A: Yes. On the construction side, you are right that should be the kind of number we can pencil in. On the tolling side we have made these projects operational so we should continue to see good growth on the tolling vertical.Q: Good is what - 15-16 percent as you reported in this quarter?A: Yes, we expect so.Q: You said that at the moment your order book has grown reasonably well, Rs 7,800 crore was the number you mentioned, but if you have to cast your eye just beyond, how is the picture looking? We are not seeing too much by way of offers coming from NHAI or are you? Do you see a healthy growth continuing in FY15?A: If I have to take a view till the elections I would say we believe another 1,000-2,000 kilometers of BOT projects will get bid out and we would certainly like to pick up at least 200-300 kilometers of orders in the near future. As regards the further pipeline is concerned, there is a robust order pipeline at the NHAI end which will get bid out and all those 20 odd projects which have now been cancelled or in the process of getting cancelled, even those will come back for bidding.  So I do not see any problem on the order pipeline from NHAI. From our own perspective, we see the existing order book and the equity commitment to meet these projects would be around Rs 2,000 crore in the next three years and the cash accrual in the next three years is going to be close to Rs 3,000 crore. So we would have the appetite to bid and win more projects and fund them from internal accruals itself.