We have a big appetite of doing 300-400 kms a year: IRB Infra

According to him, the company has an appetite of doing 300-400 kilometers per year and aims to bag orders for that many kilometers.

Below is the verbatim transcript of Sudhir Hoshing's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.

Sonia: The fall into margins to 48 percent versus 57 percent same time last year, what could be the reason for that and what is the average blended margins that you can expect this year?

A: Margin as such doesn't go down. We work in two sectors; tolling and construction revenue. On the construction revenue front, the margins are at the range of 27-28 percent and talking about the build, operate and transfer (BOT) that is the tolling, there we get margins around 86-87 percent. Therefore, depending upon that mix, if you see the mix thing, individually it will be okay but if the mix changes then the margins changes accordingly. So within construction and tolling sector, you will see that the margin will be same but depending upon whether the tolling was higher or whether construction for the quarter was higher, these keeps on changing. So as such the margins have not come down.

Latha: Therefore, if you can guide us on margins next quarter since you will have a better handle of whether it is going to be construction or whether it is going to tolling as well in that same context there were some worries that analysts gave us about your Ahmedabad-Vadodara toll way. What is the expected revenue run rate from that specific sector?

A: The margins in the coming times will be on the rise hereon - that is what we think and the way construction is going on and the way tolling is coming, we feel it is on a positive side.

As far as Ahmedabad-Vadodara is concerned, it's initial days. We hope that traffic volume will increase there and revenue will increase there.

Sonia: What is the average daily toll collection in the Ahmedabad-Vadodara project and what is the expectation?

A: The average toll collection as on date is around Rs 1-1.05 crore. As of now we are tolling around 95 percent of the road, so another 5 percent will be increased in next three months. So that will increase by another Rs 5-7 lakh and it will reach Rs 1.1 crore. Hence, with the traffic coming back, we are expecting it to reach our number of around Rs 1.15 crore per day.

Latha: The other niggling worry was the employee cost and other expenses. Why did that go up so much?

A: That is because new tolls have come, so number of employees increase for the tolling cost.

Sonia: What about your overall traffic growth. Q4 was a good quarter for you, you saw traffic growth of 8 percent year-on-year lead by the Mumbai-Pune and Surat-Dahisar toll way. What about FY17. What could the traffic growth be in FY17?

A: On an average we see around 7-8 percent and I expect it should remain in that range mostly.

Latha: I want to ask you about investment trust. You are setting up one and yesterday we got discussion paper or at least Sebi proposing a panel which will discuss some proposals to make it easy for you, the sponsor can bring down its stake to 10 percent and you can have five sponsors instead of three. So how is the picture looking? If this get finalised, let me assume, in this quarter then how much money would come from those trusts, how much will your finance cost drop in the second half assuming the trust is setup?

A: As far as bringing down from 25 percent folding of the sponsor to 10 percent; as of now we are going ahead with 25 percent mindset and it would depend on the market appetite whether you can reduce to 10 percent or not but we are going ahead with 25 percent as of now. The enterprise value (EV) that we are thinking for our project, which will be six-seven numbers, which we are getting to invade, should be around Rs 7,000-8,000 crore, which should give around Rs 2,500-2,600 crore to the company.

Latha: How much finance cost will fall because you are getting this money?

A: The financing cost would fall by a percent or so but basically the money which comes, will be used for the new projects.    

Latha: Overall your financing of projects can fall by a percent?

A: Can fall because debt equity will be around - what is hovering around 2.6-2.7 now, would come down drastically.

Sonia: Can you tell us about the pipeline of projects going ahead. Out of the total 25,000 km target that was communicated for both the National Highways Authority of India (NHAI) and the road ministry put together, what do you expect in terms of BOT projects that could be awarded?

A: We see most of the projects coming in hybrid annuity and some of them in engineering, procurement and construction (EPC) but we see around 1,500 km coming in BOT and our appetite for 300-400 km, if around 2,500 km comes, our appetite of 300-400 km can be managed from that easily.

Latha: One gets the impression after two years of the National Democratic Party (NDA) government that it's the road ministry that performed the best. Are you getting a sense that the road sector and EPC projects therefore are in a robust pace, in a takeoff phase?

A: As of now the projects have been awarded. A lot of projects in EPC and hybrid have come and yes, the most positive mood we can see only in road sector. We continue to see this happening for another two-three years.