IRB Infrastructure is confident of maintaining margins at current levels in both its construction as well as toll road business, Virendra Mhaiskar, chairmand and managing director, told CNBC-TV18 in an interview. The company's order book stood at Rs 7,030 crore at the end of the September, and 16 out of its 18 projects have now become operational.
"Going forward we will have Ahmedabad-Baroda highway which will be the main project under execution and we are awaiting appointed date for Karwar-Kundapur project from National Highways Authority of India (NHAI) which we expect to have with us in the coming quarter. If that happens in time then a steady growth looks visible," Mhaiskar said.
The company earned Rs 273 crore by way of toll during the September quarter, up 10 percent over the same period last year. There are no toll hikes due in the next couple of quarters. But from April 2014 onwards, motorists on the Bombay-Pune Expressway will have to shell out 18 percent more.
The company's current debt to equity ratio is 2.5:1, which Mhaiskar says is quite healthy compared to industry standards.
"As far as the balance sheet is concerned we have absolutely no issues on hand. We are comfortable in terms of interest payment," Mhaiskar said.
"As we are in a growth state as more and more projects, construction proceeds the debt drawdown will continue to happen. However on a debt equity ratio basis I don't think we will exceed 3:1 on a net debt to equity basis," he said.
IRB shares have a poor run on the bourses so far this year, in line with the depressed outlook for infrastructure companies in general.
The stock closed at Rs 88.45 on Friday, and is down 35 percent for the year.
Below is an edited transcript of the interview
Q: This time around your margins have been steady. If anything it is a down tick of just about 10 basis points year on year. Can you take us through how the second half of the fiscal may pan out? Do you think you will be able to hold on to these margins?
A: As far as the margins are concerned, we feel confident that on a sectoral basis whether it is construction or tolling, we would be able to maintain the margins going forward.
Q: What about the order book front itself? At the end of Q2 your order book stands at about Rs 7,030 crore. What can we expect in terms of execution for the next couple of quarters and what maybe the growth in the order book?
A: As regards the order book is concerned now we have 16 projects which have become operational out of the portfolio of 18 projects. Jaipur-Deoli and Kolhapur project have become operational in this quarter maybe at the fag end of this quarter. Now we have Tumkur Chitradurga which is also likely to get over in this quarter. So going forward we will have Ahmedabad-Baroda which will be the main project under execution and we are awaiting appointed date for Karwar-Kundapur project from National Highways Authority of India (NHAI) which we expect to have with us in the coming quarter. If that happens in time then a steady growth looks visible going forward.
Q: There was a toll rate revision. How much has your toll revenues grown in this quarter because of that and going ahead now that you have completed almost your full work on the Kolhapur project when do you think the toll collection from that will enter into the revenue stream?
A: Kolhapur tolling we have already commenced. As regards to the toll revenue in this quarter is concerned as against September 2012 Rs 248 crore the tolling revenue in this September 2013 has been at around Rs 273 crore, a jump of around 10 percent.
Q: You were pointing at the build-operate-transfer (BOT) revenues. Just wanted a breakup between the construction and the BOT revenues this time and what does the growth look like on a Year-on-Year basis?
A: Construction revenue has been Rs 597 crore same quarter last year. The construction revenue this time around has been Rs 666 crore and the toll revenue has come in at Rs 273 crore as against Rs 248 crore.
Q: What is the pipeline for the revision of the toll hikes? Is there anything more that we can look forward to in the second half of FY14? Can we expect some toll hikes on projects?
A: We do not have any immediate toll rate revisions in the next two quarters, but we have Bombay-Pune having an 18 percent revision effective from 1st April, 2014.
Q: On your balance sheet front your net debt at this point in time stands at around Rs 8000 crore or so and you have been having an issue with interest costs for a while. What is the plan of debt reduction in the second half of the year and what is the interest cost run rate that IRB Infra is perhaps looking to achieve or to reduce it to?
A: The net debt at this point in time is around Rs 8700 crore on a networth of Rs 3420 crore which comes out to a 2.5:1 debt equity ratio which I believe is the lowest in the sector which has a average debt equity of more than 6:1 today.
As far as the balance sheet is concerned we have absolutely no issues on hand. We are comfortable in terms of interest payment.
If we look at the pattern in which infrastructure projects are funded where normally 2:1 is the debt equity ratio I think the debt equity as regards to projects is concerned remains steady.
As we are in a growth state as more and more projects, construction proceeds the debt drawdown will continue to happen. However on a debt equity ratio basis I don't think we will exceed 3:1 on a net debt to equity basis.
Q: What have your construction segment margins been? Last quarter you have clocked in margins of around 28 percent in that segment itself. What was in this quarter and what could it be in the second half?
A: We have maintained more or less same kind of margins this quarter also. The construction margins are likely to remain in the same trajectory going forward as well, because we are not seeing much of inflationary pressures on the raw material side.
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