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Engineers India Ltd
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Good evening, ladies and gentlemen. I'm Kritika, moderator for the conference call. Welcome to Q1 FY '23 EIL Earnings Conference Call hosted by DAM Capital Advisors. [Operator Instructions]
Please note that this conference is recorded. I would now like to hand over the floor to Ms. Bhoomika Nair of DAM Capital. Thank you. And over to you, Ma'am.
Thanks, Kritika. Warm good evening to everyone. Welcome to the 1Q FY '23 Earnings Call of Engineers India. We have the management today being represented by Mr. Sanjay Jindal, Director of Finance; Mr. Suvendu Padhi, Company Secretary; Mr. R.P. Batra, Group General Manager of Finance and Accounts and Investor Relations; and Mr. Vinay Kalia, Chief General Manager of Business Development and Investor Relations.
Over to you, sir, for your initial remarks, post which I'll open up the floor for Q&A.
Good evening, everybody. We have declared our results for the Q1 on 5th August 2022. In the first quarter, EIL reached north of INR 805 crores vis-à-vis INR 735 crores for the corresponding Q1 period in the time period '21-'22. Yes, in this quarter, EIL is having a turnover of INR 350 crores from the Engineering Consultancy segment and INR 455 crores from the LSTK business segment. As such, 44% turnover is from the Engineering Consultancy segment and 56% is from the EPC business segment.
EIL is having operating profit of INR 48 crores vis-à-vis -- sorry, segment profit of INR 40.8 crores vis-à-vis INR 99.9 crore in the corresponding Q1 in the financial year '21-'22. Our reduction is mainly on account of increase in provision for the doubtful debt, which we are going to reverse definitely in the coming quarters on the receipt of these outstanding debts. And in the previous quarter, we were having some change orders due to which our operating margin was higher. But we are -- for this quarter and coming quarters, we are negotiating with our clients for some of the change orders. And definitely, you will find the impact of these change orders in the coming Q2 and Q3 onwards.
And on the stand-alone basis, EIL net profit is INR 50.51 crores. And we have a good news from the RSL front also. In the current quarter, we are having net profit of INR 13.85 crores on account of EIL. In the previous quarter, we were having a loss of INR 89.95 crore in the Q1. And on a consolidated basis, EIL is having net profit of INR 64.81 crores vis-à-vis INR 2.68 crores in the corresponding quarter 1 of financial year '21-'22. Over to you. Bhoomika?
Yes. Kritika, can you please open up the floor for Q&A.
[Operator Instructions] First question comes from Deepak Narula from Birla Sun Life.
So my question is about the profitability in the consultancy business which you, I think, in the initial, did not mentioned that you had certain provision on account of doubtful debt. So I just wanted to have a little more clarity on that. So this is regarding -- what is the quantum of that? And what is the possibility that this will be reversed in the coming time?
And also the second question is about the change orders. So in this quarter also, I think in your LSTK, you had certain change order. So what exactly is that? And will it have any impact on your profitability? Like, is it going to likely to improve in coming time?
Actually, [Foreign Language] provision for doubtful debt that were reversed. We were revised -- provision for doubtful were reversed to the tune of INR 20 crores. And in the Q1 quarter, there was no provision for the doubtful debt. But in this first quarter of financial year '22-'23, we are having a provision for doubtful debt to tune of INR 18 crores.
So provision for doubtful debt is not so much high, but if you compare with the previous quarter, definitely, there is an impact on the -- there is an impact due to provision for doubtful debt. And if I talk about the change order, we are negotiating with our clients, and it's a routine process. We are speaking to this change order from our end, and we are confident that the change order will be received in the quarter 2 and quarter 3. Definitely, I cannot tell you the exact amount for which I'm speaking with my clients. And definitely, my results will be better on account of these change orders in the coming future.
So sir, even if you adjust for that provision for doubtful debt of INR 18 crores, so then also, I think your profit margins or you can say EBIT margins in the consultancy business would be lower in the quarter. Any specific reason for that?
No. It's -- our provision for doubtful debts are being done as per accounting standards, in line with accounting standard, and company policy. Therefore, it does not mean that debt is unrecoverable from the clients. But the provision as debt is in line with the Indian accounting standard, but we are sure that these debts will be realized in the coming future.
So not about the doubtful debt, sir. I'm just asking about the overall profitability in the consultancy segment. Is there anything specific which needs our attention that, just going forward, for a year if you can give any guidance for the profitability? The normal profitability is in between somewhere around 25% to 30%. So if this quarter is such a lower margin, so will it go into have an impact on the overall margin in the -- for the year, something like that?
Let me tell you, EIL is a project-oriented company. And you know in the company like EIL, which is project-oriented company, our results are cyclic in nature. And we agree in this first quarter our margins are lower. But you will find, we will cover this dip in the profit in the coming quarter. That's why I'm saying we are hopeful that in the balance period, our margins will be intact in the range of 25% to 28%. We are sure rather.
Okay. Okay. And sir, in this quarter, you had a change order or in the LSTK business or the order book is -- came at INR 2,700 crores in the LSTK business.
In the LSTK business, already we have received a change order of INR 1,700 crores from our clients, and we are expecting more LSTK business in the coming quarters.
So what is the current order book in the LSTK business?
Let me see.
And the P&C business also.
Our total order value is INR 28,883 crores, out of which our outstanding is INR 4,040 crores only. And in the consultancy segment, we are having order book of INR 4,793 crores -- or INR 4,800 crores. INR 4,800 crores in the consultancy segment and 4,000 in the LSTK business segment and total order book INR 8,800 crores.
Sir, then the total comes at INR 9,200 crores. The breakup you are given only...
No, no, INR 4,800 crores, INR 4,000 crores.
INR 4,000 in the P&C business?
INR 4,000 in the turnkey, LSTK business and INR 4,800 crores in the consultancy segment. Total is INR 8,800 crores.
Okay. Okay. INR 4,040 crores and INR 4,400 crores.
No, no. You can write INR 4,040 as -- if you want exact figure, INR 4,040 crores. Otherwise, you can call it INR 4,000 crores.
INR 4,000 crores in the LSTK?
Yes.
P&C?
INR 4,800 crores.
Next question comes from Renjith Sivaram from Mahindra Mutual Funds.
Sir, I just wanted to check with you, what was that -- if you can -- if you adjust for some of these one-offs or, what do you call, the provisions, how is the margins looking at -- is that normalized rate of 25% in consultancy and 5% in LSTK, is that in line? Or is there any risk to that margins?
No, there is no risk to the margin, and we are sure that in the coming -- in this financial year -- and we will strike our consultancy margin of 25% to 28% and 3% to 4% in the LSTK business segment. I'm sure. It is just because of -- we are in the project-oriented and project-execution company where the revenues are cyclic in nature. Sometimes it may be over and sometimes it may be higher than the expectation. So on the overall basis, for the financial year, we are sure that we were having a 25% to 28% margin in the engineering consultancy segment and definitely 3% to 4% in the LSTK business.
And how much is the kind of revenues we are looking at both the segments for this year?
I think we are targeting a total turnout of around INR 3,200 crores -- more than INR 3,200 crores, and we are expecting 50% turnover from the engineering consultancy segment and 50% turnover from our LSTK business segment. And definitely, we are targeting net profit of more than INR 350 crores or INR 360 crores.
Okay. Great. And how is the overall order intake pipeline? How much is the order intake we are targeting this year?
As on date, we are having order book of INR 8,800 crores.
And how much of new orders.
New orders, I pass on this to Mr. Vinay Kalia, he will explain.
Yes. As we had said earlier, we'll be looking for -- we'll be targeting for a growth in the turnover in the next 3 to 4 years, for which we are aggressively pursuing new opportunities in diversification areas and green energy. So we'll be having aggressive order inflow targets. We'll be targeting both OB and cost plus and consultancy projects in the coming year. As we had shared in the last earnings call also, we are looking at petrochemical expansion...
I'm sorry to interrupt, sir. This is the operator here.
Inflow targets would remain in the range of INR 4,000 crores to INR 5,000 crores that we will be looking for, including the OB. If you are asking from purely consulting point of view, traditionally, we have been doing consulting in the range of INR 2,500 crores to INR 3,000 crores. We'll try to maintain that.
Okay. So if I heard it correctly, around INR 4,500 crores to INR 5,000 crores of total order intake, and in that consultancy will be around INR 2,000 crores.
That's traditionally what we have been doing in consultancy, but since we have to push in for higher turnover growth as -- to increase our turnover to INR 5,000 crores by '25. We are also looking at other opportunities, both in green energy and OB, LSTK as well.
Okay. But in green analogy, what kind of...
See, for a number of technology interventions which are happening, which we have been sharing in earnings call to you -- all of you, some of the things like green hydrogen, we have shared, we have started working on it. We have already worked 2 projects which are currently at pilot scale. But yes, we are going to expand them. We are looking at technology licensing options in our existing technology.
Then we are looking at green policies which are coming up like gasification. There is a policy on greener utilization of coal. Similarly, there are exploration in the key sector on emissions control. Our refinery and petrochemical plants are going for technology interventions as well for emissions of net zero. All of us, as per the Paris climate change, have a mandate for net zero. Most nations are committed to it. So all the oil companies and petrochemicals are going for net zero targets. So the -- all these projects are technology-related projects, which will be coming up, where we have a role to play.
Okay. And we -- recently, there was some press release regarding some salt idea. I understand like -- what was that...
We are looking for strategic alliances, which we have been sharing in past. So this is one first alliance, although there is no investment required for this. This is a partnership alliance who are taking a project. So this is one of the companies who will be associated with us in building of caverns, giving services on caverns. We have already done rock caverns, so this is a new area, new venture of salt caverns. Technology for salt caverns are slightly different. So we have tied up. We have aligned with another technology player, and both of us would be bidding for projects.
How big is that opportunity?
I see, like you have -- we have seen rock caverns. We have done 3 rock caverns. We are doing 2 more LPG caverns as of now. We have done DFRs for about 3 more projects. 2 more are under realization. So this is the history of rock caverns. And this is not just for India. I mean, because of our history of rock caverns, we are also being approached internationally because it's a very selective field. So there are a few players in the world who do rock caverns.
So -- but now people are also exploring, putting up salt caverns, which are slightly different in technology, and so we needed a partner for it. Wherever there are potentials for putting up salt caverns, again, there will be very few limited players like there are in rock caverns, so we will be one of them. So one such project is expected in Bikaner. And we have also got some international inquiries which we are looking at whether we can start working on it. So I can't say the potential and size. Yes, these are selected projects, few projects. But there are a few players, so we have a good chance of getting those also.
Okay. And sir, lastly, what is the status of that second-generation ethanol plant, which we have put in Numaligarh? Is it -- has it started working or can we expect more...
It's under advanced stage of construction. Yes, we were putting up the plant right -- commercializing it, in fact, right from pilot scale to a commercial scale. It's one of the world's largest bamboo-based bioethanol plant. It's under advanced stage of construction activities and not yet gone for commissioning. We are expecting that maybe next year-end, it should -- middle of next year, we should target for completion of that project. But yes, there are technology challenges because it's a new project, it's a new technology. And now since we are partners in the technology, we will be putting up or looking at opportunities of more such projects in the northeastern region.
Okay. So will we be participating in similar projects? And what is the size of this plant which you are putting in...
For example, I can just share with you the approximate project cost would be in the range of INR 2,500 cores, INR 3,000 crores for this kind of a plant. And our fees, as of now, we are expecting some more changes as well. As of now, fees are close to INR 100 crores. But since we are partners in technology with CHEMPOLIS and Fortum now, we will be putting up projects as we need consultant if any such project comes up in future also.
What's the KLPD size of this?
I'd have to check. I don't remember immediately. I'll revert with them.
Before we go ahead with the questions, I request Mr. Kalia to come closer to the mic, sir, since the voice is too low.
We are having a question from Ranjan Pillai from Sun Capital.
This is Rajan here. I just wanted to check on the revenue stream for Q2 and Q3. Will they be in line with the Q1, given the operating margin is believed to be improved than Q1? And also, how about the profits from the joint venture? Will they be in the similar line what has been reported in Q1? Or where we can find more increase in the profits from joint venture?
And the third question would be, how would you -- how are you planning to reward the shareholders? Will the dividend payout ratio will remain the same as it has been since last 1 year? Or is there any plan for buyback or rewarding shareholders with more dividends?
Okay. Good afternoon. Hello. Am I audible?
Yes, sir, please go ahead.
Yes, sir, I can hear you.
First of all, in this Q1, there is good news from our joint venture from RFCL, Ramagundam Fertilizer & Chemicals Limited. As I have earlier told, in this quarter, EIL is having net profit of INR 13.85 crores vis-à-vis with loss of INR 89.95 crores in the first quarter of financial year '21-'22. And this profit of INR 13.85 crores is definitely going to improve in the second quarter and third quarter because now this plant has been stabilized, and this plant will definitely achieve 100% progress target. And after some time, it will work at 110% capacity also. So we are expecting more and more profit from this joint venture in the coming quarters.
As long as dividend is concerned, in the last year, we have already paid 60% dividend and we assure that at least 60% dividend will be paid in this year also. And we will be happy if we are in a position to declare more dividend. Definitely, our management will consider if that is possible.
And as regard the revenue targets, as I have already said, in the coming quarter 2 and quarter 3, our revenues will be better than Q1. Because in this Q1, our results -- operating margin were down on account of provisions and some non-receipt of change order from our clients, which have been delayed. And definitely, in the coming quarters, we are going to get these change orders from our clients. Okay?
And I just wanted to note that given the profits should be increasing from this joint venture that we have invested in, any plan of buyback for this year or whether we are planning to invest somewhere more -- other -- diversifying your business more in other years?
In this quarter -- in this financial year, we have no planning for the buyback. And for the investment opportunity, let me admit investment opportunity. As on date, we have not finalized any investment opportunity, but we don't have any in the hand. Or we are not considering any investment opportunity as on date. And if I get good opportunity, then definitely, our management will consider it.
Understood. And can you just give me a position on cash -- on the existing cash...?
Hello?
Can you hear me, sir?
Yes.
I was asking that can you give us the position on cash as on today? How much cash are we having in book?
I think we are having cash around INR 1,200 crores and -- we are having cash position of INR 12,000 crores. Okay. Anything else?
That answers my question.
Next question comes from Mr. Nimish Maheshwari from RSPN Ventures.
I have a couple of questions. What include technical assistance or subcontract head? Why it increased so much? Like last year comparison it increased by almost 50%, where revenue increased by just 9%. So how to project it for this year?
Can you repeat your question, please?
Okay. So what includes technical assistance or subcontracting charges? Why it increased so much? Like last year comparison increased by almost 50%, where revenue increased by 9% only. So how to project it for this year?
Our -- this subcontractor payments includes the payment made to our contractors who are working on the LSTK jobs. As you know, in the LSTK jobs, we are having margin of 3% to 4%. So whatever there is increase in the revenue's team on account of OB job, 93% or 94% goes to this subcontractor payments only. So there is -- so since there is increase in the LSTK turnover for this quarter, therefore, there is increase in the subcontractor payments also.
In the corresponding period of Q1, the -- our LSTK turnover was INR 370 crores. And in this quarter, we are having LSTK turnover of INR 455 crores. So that's why you are seeing subcontractor payments are being on increased size.
Okay. Can you explain the technical assistance, it's same as subcontracting?
Technical assistant and subcontractor payments are same.
Okay, okay. So like we invested, I think, INR 700 crores in Numaligarh, which gave, I think, INR 10 dividend for the last year? Whether it is in the other income portion or whether it will receive in this current quarter, when we are expecting the same?
In the last year, we have received 2 dividends from the Numaligarh Refinery, which is included in the other income. And further to that, Numaligarh Refinery has also declared one more dividend of INR 5, but this dividend will be covered in the second quarter because it will be accounted on the declaration of a dividend in their area. So on the overall -- on the previous year, we will receive around INR 48 crores as dividend from the Numaligarh Refinery on the investment of INR 700 crores.
Okay. Got it, sir. Can you explain a little bit more about the strategic alliance with the German company? And how we can project revenue from this venture going forward? Mr. Kalia will tell you in detail.
See, we are already doing rock caverns. So there are now advanced technologies for having storages in salt caverns as well. This is another field, which is fast emerging, but yes, it's a niche technology area. So we are looking for alliance partners because we are already working on rock caverns.
So in future, there will be potential options for storages coming up in salt-type of caverns as well, like for Bikaner, we have already done a DFR. And there are international opportunities as well, where we have our alliance also extends to international boundaries with case specific we will be jointly offering services for such type of projects.
Typically, the rock caverns are slightly bigger in size and they could be, say, 1.5 million tonne kind of caverns. The assessment of salt caverns has just started. We have done some DFRs on it. One potential project at Bikaner has been identified. So that's one project in India, where definitely we will be there. More projects will be explored in India and overseas, like in Middle East, there are a number of salt caverns opportunities, which we can target.
So I can't tell you the size and potential, but probably it will depend upon the capacity of caverns which are discovered. These are underground bedded caverns, maybe you can say 600 meters to 1 kilometer deep, within the earth. So as we discover the size and potential of projects, we can share.
Next question comes from Digant Haria from GreenEdge Wealth Services.
My question is on the consultancy side that we just mentioned that we are probably targeting around INR 1,600 crores of revenue for the full year. So our revenue has been hovering in this INR 1,500 crores, INR 1,600 crores for the last 3, 4 years. When do you think that this breakout will happen to say something like INR 2,000 crores revenue because if we have to reach our vision statement of INR 5,000 crores and 65% of that INR 5,000 crores coming from consultancy, this number should inch up. So sir, what should happen for these numbers to inch up? Because refining, maybe the growth is slower. But in all these new areas, when does the numbers become meaningful?
See, as I've already shared, we are looking at aggressively other business opportunities as well in India and overseas. In India, it's majorly on sustainability and green energy. Some technology interventions are going on, which are -- which will be the additional revenue streams which we are looking at. We are looking at technology licensing. We have entered into the salt cavern business. So all these incremental initiatives have been taken up to increase the consultancy business as well from the current levels of INR 1,500 crores, considering that we will be having aggressive targets in the order inflow. Besides, we will also be looking at OB/LSTK when supplies of our technology proprietary items because wherever we are technology providers we are also looking at supplying our own proprietary equipments as well.
Right, right, right. It's fine, fine. And 2 more things, is that Ratnagiri Refinery back on track? Because there's a change of government that's happened in Maharashtra? Like anything that you hear on that? And secondly, this coal to methanol, like, how big can it be or it is just an experiment that will it -- because we don't even have a coal for the normal power plant. We are importing a lot of coal. So is coal to methanol going to become big in India or it's right now just an experiment that everybody is trying to see?
I'll answer your second question, sir, then I'll [indiscernible] to take up the first question. There is already a coal gasification policy or coal to green energy. So it's an initiative of converting coal to greener energy. Like we have hydrogen route, from hydrogen we are trying to make methanol and ammonia also as green methanol and green ammonia. Ammonia can be used for so many purposes like urea as well. And methanol, ethanol, you know are building blocks for blending purpose also and also for olefin production, which are petrochemicals.
So from coal, there are already established technologies, but there are a few technology players and we are also researching on technology for coal gasification, converting it into value-added products, while not having us an impact on the environment as well. So there is a policy. So a number of projects have been identified. One such project has already started from Neyveli Lignite where we are doing another project of [indiscernible] is already going on. So yes, things are happening on the ground, that's what I can say.
And as regard to Ratnagiri Refinery, we are also expecting some positive news with the change of government in the state, but we are still waiting for the good news.
Sir, if Ratnagiri Refinery goes through, that will give a very, very big bump up to our book, if at all, it goes through because there Saudi Aramco also involved. Our relationship with them? How is it? I know it's a guess on guess, but just asking.
But one thing is very sure if Ratnagiri Refinery comes, it will give business at least for the 4, 5 years which you were talking about the turnover of INR 1,500 crore or INR 1,600 crore, then definitely our turnover will be more than INR 2,500 crores.
Okay. Okay. So one more connected question, I may ask that if BPCL -- what percentage of our revenue would come from BPCL, like, currently, in the consultancy space?
That figure is not readily available with us.
Normally we make it industry-wise and segment-wise. We have not yet worked out that. But then again -- see, it would vary. Our big ticket size orders are far and few. So if one more big ticket size order comes in, the entire mix changes.
As you know, now currently, Rajasthan Refinery is going on. Some VRMP Refinery from HPCL is going on. So both refineries are from HPCL, and we are working for the new projects for the Indian Oil in Panipat and CBR, Cauvery Basin Refinery is also yet to start or yet to be started for the turnover point of view, which is from the CPCL. So it depends on the project. which companies are doing CapEx. So now it is a major CapEx is from HPCL, Indian Oil and CPCL and our book.
Okay. Okay. Then in the refining space, the private sector refinery, especially that SR and Reliance, they are -- they have very heavy petrochemical complexes. In the public sector ones, are they trying to invest more to generate more petrochemicals? And could that be another round of CapEx coming? Or there are no such discussions at all?
You are right. There is a huge demand and supply gap for the petrochemical plants and all clients are planning to put petrochemical plants, and we are getting DFR jobs from our client also for the integration of their refinery with the petrochemical plants. And there are more and more business from the petrochemical sector also in the coming years.
Next question comes from Ravi Nanda an Industrial Investor.
So you have said that INR 1,200 crores of cash is lying in the balance sheet. So what do you intend to do with this cash? Because the share price is continuous decline and investors are suffering because of it. So what is your full plan with this amount of cash?
Hello? Yes. [Foreign Language ] revenues are cyclic in nature, therefore, we are trying to create another business revenue segment, where, if there is any downfall in the hydrocarbon sector in the engineering consultancy segment or business segment so that we can have constrained revenue stream from other sectors so that it does not affect the overall profitability of the company. So on these lines, we have recently invested in Numaligarh Refinery, and we have invested in Ramagundam Fertiliser & Chemical Ltd. And in case, in the future, we get some good opportunity for the investment, then EIL will definitely encash the opportunity.
[Foreign Language]
As per DP guidelines, we have recently done a buyback of shares. As on date, we are not planning any buybacks of share. But definitely, we are rewarding our shareholders for the good dividend, and I expect this payment of dividend will continue for that. And for the revenue generation of company, we are looking for the investment of where investment -- in the stand-alone project, where CapEx is lower and revenues are high.
[Foreign Language]
[Foreign Language]
[Foreign Language]
So yes, cash flow we have given in the cash flow statement. I think you will find it along with the balance sheet. From there, you can see. If there is any question, you can definitely ask us.
Next question comes from Sanjay Agarwal, an Individual Investor.
[Foreign Language]
[Foreign Language] And the value from the RSL will be over and above this figure.
[Foreign Language]
[Foreign Language], but definitely, next time, I'll share with you. Once the project achieves 100% production target then it is easy to have a prediction about the plant. And now plant is already running well, so definitely, next time, I'll give you update on this.
Mr. Sanjay Agarwal, could you please join the queue for further questions?
No, just last question on this. [Foreign Language] profit and that will improve the consolidated profit. Is that understanding correct?
[Foreign Language]
[Foreign Language]
[Foreign Language] Rather, we are expecting more and more profit.
[Operator Instructions] We are having a question from Anil Kumar Sharma, an individual investor.
Thank you, sir. My all questions have been answered already. Thank you.
Next question comes from Somnath Paul, an individual investor.
Am I audible?
You are audible.
Sir, kindly [Foreign Language] presentation, Page #10, could you just please open once?
Okay. [Foreign Language]
Mr. Somnath Paul, please respond. Sir, there seems to be no response.
Yes. [Foreign Language]
This will be the last question for the day. I would now like to hand over the floor to Ms. Bhoomika Nair from DAM Capital for closing comments.
Yes, sir. Thank you so much for giving us an opportunity to host you, again. And wishing you all the very best for the future, and thank you to all the participants for being on the call. Thank you very much, sir.
Thank you.
Thank you, Bhoomika. There was one question which was left on the capacity of ABRPL. The capacity is 185 KLPD of ethanol. And they have an option to produce additional value-added products like acetic acid and phosphorus.
Got it, sir.
Thank you so much. I'll be ending this call for us and we value your feedback. Thank you to all the analysts and investors who are part of this. Thank you.
Thank you, Bhoomika.
Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's Conference Call service. You may disconnect your lines now. Thank you, and have good day.