Margins sustainable at 8% level: Man Infra

Due to challenging environment in the last two years, Man Infraconstruction took fewer new orders, which resulted in lower revenues, says company CFO Ashok Mehta. Low revenue recognition caused margins to decline, he says.

However, he adds margins look sustainable at 8 percent level.Below is the verbatim transcript of Ashok Mehta’s interview with Nigel D’Souza on CNBC-TV18.Q: The numbers look quite disappointing. On the topline itself there was a cut of close to around 9 percent at around Rs 60 crore. Do you expect to recover in the next couple of quarters back towards the Rs 70 crore per quarter run rate?A: Due to challenging circumstances in last two years, we had stopped taking new construction orders and we were focusing on completing our jobs which were on hand and starting our own real estate development projects utilising our execution capabilities and liquidities. Now, this has resulted into reduction of order book over a period of time and hence there was decline in operating revenue. This was not a surprise but it helped us preserve and maintain our liquidity and profitability and we were able to tap opportunities in real estate development space as well. So, currently what is happening is, we have seven projects coming up in real estate development and out seven, five projects have already started and two big projects we are expecting to start in January 2016. So, it is almost about 5.3 million saleable are square feet for all these seven projects. So, all the projects commencing in FY16, we are seeing better future than now. Q: When exactly will these numbers reflect in your profit and loss account because I am aware that your order book is around Rs 320 crore roughly as per what you have given in your presentation? A: The Rs 321 crore is the EPC work and the real estate projects, the realisation is per the accounting standard and once you reach certain threshold that is the time when you start recognising revenue. Q: One of the positives in your numbers was your margins, around 8.1 percent from around 6.7 percent but there are a lot of changes in terms of there is some inventory credit as well. 8.1 percent is it sustainable? A: Yes it is sustainable. Q: Another important factor, below your operating performance the reason that you delivered net loss is your other income is only around Rs 5-6 crore. That sharply down on a sequential basis as well as on year-on-year (Y-o-Y) basis could you tell us why exactly this happened? A: At the consolidated level, the effect is basically there are three reasons mainly. One is that real estate development projects which are executed through special purpose vehicles (SPVs), they are at the initial stage and where revenue recognition has not started. Secondly, at consolidated level again there is reversal effect given in PAT due to unrealised income which forms part of the working progress at SPV level because the interest charged by holding company which eventually gets reversed once the revenue recognition starts. However, at this point it has a negative effect and that is why there is drop in that margin. One more reason that BOT project where we have given termination notice, from this year we have stopped capitalising the interest which is resulting it to hit to P&L account at consolidated level. So, at standalone alone, the PAT at half yearly level is almost Rs 16 crore. Again there is slight drop but that is as I said due to the drop in operating income which we had stopped.