See 15-20% revenue growth in FY17: Sadbhav Engineering

The first quarter of FY17 is expected to be better than fourth quarter of last financial year, says Nitin Patel, Executive Director of Sadbhav Engineering. Five projects that were started in last month of Q4 will translate into revenues in Q1 of FY17, he adds. The company reported a weak set of numbers with 11.3 percent decrease in revenue to Rs 858 crore. Operating profit (EBITDA) fell by 11.3 percent to Rs 81 crore in the fourth quarter. Patel expects 15-20 percent revenue growth in FY17 and says that volumes are likely to improve by over 10 percent in the current year.Below is the verbatim transcript of Nitin Patel’s interview with Ekta Batra and Mangalam Maloo on CNBC-TV18.Mangalam: Now the results the street was expecting them to be weak, but what caught them with a negative surprise was the decline in your engineering, procurement and construction (EPC) revenue which were down 15 percent, could you please explain that?A: See first of all I would like to book because these we have already indicated basically to all the analyst community well in advance and they are mainly because there are five projects what the company wins during the first half of the year, that has been just took off into the last month of the Q4 actually, so the invoicing from all the five projects because all five put together order book was around Rs 2,800 crore, where the expenditure has already been started by the company, but invoicing could not be happened during the quarter, so obviously this will translate into the actual numbers in the Q1 and all the quarters for the FY17, so this is one reason the way how it is coming out actually, so far as the basically the top line which has gone down by Rs 110 crore.Ekta: What would be the likely revenue growth in Q1? When the invoicing would be something that you can tangibly look through?A: See put together what we are looking that these five projects which have already been started, this will for the whole year we are seeing that it will generate almost 50 percent of the total order books revenue, so practically we can consider that first half obviously the 40 percent will come and the balance 60 percent will come in second half, so on a ball park we are of the view that the Q1 will be reasonably better than the Q1 of the same quarter of the previous year, because these new projects and obviously the margin numbers and margin levels are reasonably higher than what the completing projects.Ekta: When you say reasonably better what would you mean? It would be a growth of say single digits, double digits, early teens, mid teens, above 20 percent?A: See put together what we can say they have considering the current order book for FY17 we are of the view we should grow at least between 15-20 percent because the new projects what we have added here recently just last week of the March in FY16, this will start generating the revenue in the second half of the FY17 also, so these will add the further top line for the FY17.Mangalam: Recently Sadbhav Infra won two hybrid annuity projects, so could you tell us what was the internal rate of return (IRR) on that?A: See normally in all the infra build-operate-transfer (BOT) what the Sadbhav Infra is owning, we don’t put the bid below the 16 percent post tax free cash flow to equity (FCFE), so obviously the competitive intensity was lesser here in this hybrid annuity, so we are expecting the IRR should go between range of say 16-20 percent and obviously it may go further better also if the interest rate cycle and the inflation cycle continue to remain at this level, so because all these pass through in the projects, so we have considered and taken some of the base while calculating our IRR for the bid.Mangalam: Could you also give us a sense of why was there weak cash generation on your book and at the same time you continue to invest in working capital as well.A: See here I would like to mention that the FY16 the cash generation from operation, because the cash flow and everything is now through, so as compare to FY15 which was a negative of Rs 38 crore which went to almost Rs 160 crore positive for FY16, so what we are seeing the FY16 has generated reasonably better cash as compare to FY15 and also now the SIPL basically the infra projects are also now came into a cash generating mode and also even during my couple of interactions with CNBC also I have mentioned that we have completed a large number of refinancing of the various ongoing operational projects, so that will give the real benefit in the bottom line for FY17, so all put together we are going to see a reasonable number of incremental cash generation over the FY16 also for FY17.Below is the verbatim transcript of Nitin Patel’s interview with Ekta Batra and Mangalam Maloo on CNBC-TV18.Mangalam: Now the results the street was expecting them to be weak, but what caught them with a negative surprise was the decline in your engineering, procurement and construction (EPC) revenue which were down 15 percent, could you please explain that?A: See first of all I would like to book because these we have already indicated basically to all the analyst community well in advance and they are mainly because there are five projects what the company wins during the first half of the year, that has been just took off into the last month of the Q4 actually. The invoicing from all the five projects because all five put together order book was around Rs 2,800 crore, where the expenditure has already been started by the company, but invoicing could not be happened during the quarter, so obviously this will translate into the actual numbers in the Q1 and all the quarters for the FY17, so this is one reason the way how it is coming out actually, so far as the basically the top line which has gone down by Rs 110 crore.Ekta: What would be the likely revenue growth in Q1? When the invoicing would be something that you can tangibly look through?A: See put together what we are looking that these five projects which have already been started, this will for the whole year we are seeing that it will generate almost 50 percent of the total order books revenue, so practically we can consider that first half obviously the 40 percent will come and the balance 60 percent will come in second half. So, on a ball park we are of the view that the Q1 will be reasonably better than the Q1 of the same quarter of the previous year, because these new projects and obviously the margin numbers and margin levels are reasonably higher than what the completing projects.Ekta: When you say reasonably better what would you mean? It would be a growth of say single digits, double digits, early teens, mid teens, above 20 percent?A: See put together what we can say they have considering the current order book for FY17 we are of the view we should grow at least between 15-20 percent because the new projects what we have added here recently just last week of the March in FY16, this will start generating the revenue in the second half of the FY17 also, so these will add the further top line for the FY17.Mangalam: Recently Sadbhav Infra won two hybrid annuity projects, so could you tell us what was the internal rate of return (IRR) on that?A: See normally in all the infra build-operate-transfer (BOT) what the Sadbhav Infra is owning, we don’t put the bid below the 16 percent post tax free cash flow to equity (FCFE), so obviously the competitive intensity was lesser here in this hybrid annuity. So, we are expecting the IRR should go between range of say 16-20 percent and obviously it may go further better also if the interest rate cycle and the inflation cycle continue to remain at this level, so because all these pass through in the projects, so we have considered and taken some of the base while calculating our IRR for the bid.Mangalam: Could you also give us a sense of why was there weak cash generation on your book and at the same time you continue to invest in working capital as well.A: See here I would like to mention that the FY16 the cash generation from operation, because the cash flow and everything is now through, so as compare to FY15 which was a negative of Rs 38 crore which went to almost Rs 160 crore positive for FY16, so what we are seeing the FY16 has generated reasonably better cash as compare to FY15. Also, now the SIPL basically the infra projects are also now came into a cash generating mode and also even during my couple of interactions with CNBC also I have mentioned that we have completed a large number of refinancing of the various ongoing operational projects, so that will give the real benefit in the bottom line for FY17, so all put together we are going to see a reasonable number of incremental cash generation over the FY16 also for FY17.Ekta: Well, one of the concerns that has in fact brought up by analyst is what led to the decline in terms of the payable days in FY16. If you could provide some clarity on that and what you might expect in FY17 considering that you are expecting incremental cash inflows as well?A: See payable date you mean to say that the outstanding date what is basically payable by the company say what we are seeing that the FY17 the cash generation plus the cost of the fund which has also came down here, but FY16 if we see that we have completed the various acquisitions also apart from the what initial public offering (IPO) proceeds has been done by the company.