Engineers India Ltd

NSE:ENGINERSIN

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Engineers India Limited Q2 FY '22 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Bhoomika Nair. Thank you, and over to you, ma'am.

[Bhoomika Nair, Security Analyst]

Thanks, Chetan. warm good evening to everyone. Welcome to the Q2 FY '22 earnings call of Engineers India. The management today is being represented by Mr. Ms. Vartika Shukla, CMB and Additional Charge Director Finance; Mr. Suvendu Padhi, Company Secretary; Mr. R.P. Batra, Group General Manager, F&A and IR; Mr. Vinay Kalia, Chief General Manager, MNBD and IR. Over to you, ma'am, for your initial remarks, post which we'll open up the floor for Q&A.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

So thank you so much. And good evening to all who have joined us in the Q2 earnings call. The company in the interim of last Board meeting, which was held on the 12th of August till this Board meeting, the 60th Board Meeting held on 11th of November has been active and has secured some major orders for the PMC and EPC jobs for the CPCL 9 million tonnes Cauvery Basin refinery. And there has been activity on the LNG front as well for our businesses, wherein we have expansion planned for the Petronet LNG for which we will be working as well as we will be engaged with them in terms of other business prospects for the company. The company also in the projects that are being executed has progressed very well in the HMEL polymer addition project, which is one of the world's largest, which is 1.2 million tonnes [indiscernible] which is going in a very good stead in terms of both the CPP progress and the time we will take for commissioning that. There was some of our own technologies, which also underwent performance [indiscernible] plan in IndianOil and also some excellent site activities with minimal lost time accidents for some of our sites. Of course, there were many other activities in terms of the compliance with respect to the quality managing system. EI also entered into a collaboration agreement with Evergreen Technologies Private Limited for the marketing, supply, development of proprietary items and some innovative products. We also conducted as our association with the manufacturing industry is from several decades and very robust. We also had several vendor meetings and also conducted a focused key [indiscernible] MSME suppliers for [indiscernible] suppliers as well as women entrepreneurs. This is a brief of our major activities, and I will leave it now to our CGM and GGM who will take this forward who represent a Mr. Vinay Kalia Mr. R. P. Batra.

[Unknown Executive]

Yes. Good evening to all of you. Just to be brief again, the results of Q2. As on Q2, our consultancy turnover was INR 296 crores -- INR 351 crores and turnkey turnover was INR 296 crores, totaling to INR 647 crores with an other income of around INR 28 crores. As of H1, if you add Q1 and Q2 numbers, consultancy turnover was INR 717 crores, the turnkey of INR 665 crores totaling to INR 1,382 crores with other income of INR 50 crores. And total income was INR 1,433 crores. Consultancy segment profit as of H1 was INR 199 crores and Turkey was INR 19 crores, totaling to INR 218 crores. As CMD madam has already clarified, we have secured a major order from Cauvery Basin refinery and we have secured some design and licensing orders from [indiscernible]. We have secured a pipeline order from BPCL. And going forward, we are looking forward to major expansions in IndianOil PSU projects, which we will be targeting in '21, '22 and '22, '23. As far as the total business secured is concerned. We secured a business of INR 1,450 crores as of 30th September, and we wish to improve upon these numbers by the end of this year to meet our targets. We would now like to invite your Q&A so that we can take it up.

[Operator]

[Operator Instructions] The first question is from the line of Anuj Sharma from M3 Investments.

[Anuj Sharma, Fund Manager]

My first question is, we have announced a revenue target of INR 5,000 crores by 2025. Can you just broadly help us understand what are the broad opportunities and which segments we are targeting to achieve this kind of turnover.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

So when we are looking for our -- growing our year-on-year turnover, this is the target and it is done at roughly something like 10%, more than 10%, about 13% per annum year-on-year growth. The sectors that we are targeting is definitely the investment opportunities in the oil and gas sector, which is our core strength. And wherein we are looking at the expansion of refinery capacity to 440 million tonnes in the future as well as looking at the expansion of the gas grid and the penetration of gas in primary energy mix from 6%, 6.5% today to about 15%. The challenges today in the country are that we need a lot of petrochemical. And that's something which we are focusing in a variety of projects, variety of clients. Not just in the commodity polymers, but also in the niche petrochemicals, one of which we have already completed, which is BPCL's Mumbai -- the Kochi refinery propylene derivative project. So that has given us an edge and given the experience and a strong base to go into these areas. So these are the projects that we are talking. It could be probably until -- let me sure to share exactly which are the ones and how we are strategizing to target these projects. That's one. The second part, which we are looking is into the stronger presence in the sector of infrastructure where there is a lot of investments. The more important thing today is the transformation of the company to looking into greener technologies looking into green [indiscernible], looking into being there when the energy transition is happening. So we have already some clients who we are working for in terms of the biofuels. You are aware that we are working for the bamboo refinery in Assam for Numaligarh refinery. We have also secured DFR feasibility, which is a step towards the project from NTPC again, looking at the biomass. This is, again, a diversification in the area as well as client base. We are also looking into other sectors which are neighboring sectors, complementary sectors. And as and when they mature, I think we would share with you as to how these business opportunities. Our focus in terms of internationalization is still strong. And we have a reasonably sized set up at Abu Dhabi. And the focus is to kind of strengthen it and try to expand our own business base there, which helps us getting more international business. That's the main thing in broad detail. One is the expanding our horizon looking at more diversified areas, spend in geographies. I mean there are some projects, which we have detailed out. I think time will well be able to share once they mature and look at that target of [ 5K25 ].

[Anuj Sharma, Fund Manager]

That's useful. Just 1 quantitative number. Of this INR 5,000 crores, how much would be coming from oil and gas segments and how much we think could come from non-oil and gas? Just the broad number based on whatever we see visibility in the next 2, 3 years.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

As you're quite aware, it's like a very, very difficult number, difficult answer to give you value for it. We will be doing our best and endeavoring to expand the non-oil and gas. But considering the fact that India is dependent on a significant amount of imports of oil and we import almost 85% of our crude oil, the -- it's very difficult. I mean, you need to -- you probably will end up in the Caribbean, which we are able to predict. So I don't think that's a possibility for us. But the point is that we, as a company, want to be in the newer area so that we continue to be relevant in the emerging sector, continue to have the competency and capability and the experience to be there when the industry needs this. Needless to say, some of these sunshine sectors may not stand alone on their own in terms of their returns when you compare it to the conventional sector of oil and gas. So only time will tell how we -- the policies emerge, how the market dynamics prevail, how the technology component in terms of all this, how the cost curve moves for them? How it is adopted and integrated in the oil and gas sector as well beyond. It's like that. But we want to be there when the transition is happening so far. So we are enabling ourselves to be the investors and diversified sector. And our teams are doing fairly good job in terms of both [indiscernible] for projects as well as implementing.

[Operator]

[Operator Instructions] The next question is a follow-up question from the line of Anuj sharma from M3 Investments.

[Anuj Sharma, Fund Manager]

On, we have -- in the AGM talked about a lot of changes in the way we are bidding and the mix change. Can you just elaborate? And what is the win ratio we have been able to achieve? What is the target win ratio?

[R.P. Batra]

Could you repeat your question? I could not get your question clearly.

[Anuj Sharma, Fund Manager]

Yes. In the AGM, we have said that we are introducing a number of changes in the bidding document to improve our win ratio, right, to become more competitive. So can you just enumerate on some of them? And could you also highlight how we expect the win ratio or the bid win ratio to evolve in the next 3, 5 years?

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

If I understand correctly, you mentioned that in the AGM, I communicated this, right?

[Anuj Sharma, Fund Manager]

That's right. That's right.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

Looking at the transcript and look at the context.

[Anuj Sharma, Fund Manager]

All right, then maybe I could ask another one, we have set up a portal called Lakshya Bharat for information dissemination. Does the portal have a revenue margin?

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

See, the roles of EIL are twofold. One is, of course, to deliver sustainable, profitable growth. This is 1 objective as a corporate. But we are under the aegis of the ministry. And we are, hence, also the pillars of building the manufacturing base of the nation. In that context, as you may be aware, one of our vendor [indiscernible] cell, which is there, has created a base of vendors in the oil and gas industry for all type of equipment. Any and every type, whether they're fabricated or their supplies so it is but natural that we extended this to a broader platform, which is nationwide, which is the Lakshya Bharat. Now when you're talking about business, how does it come back to us. We look at it in 2 ways. One is we get much more indiginization. And if I recollect the numbers correctly, there are not less than 15 Indian vendors that we have added in various categories in -- wherever there were -- import components which were imported by international players within a span of 1.5 years. So that is the kind of value addition which has been done by the Lakshya Bharat or our vendor cell, which is now transforming to Lakshya Bharat. Now Lakshya Bharat has -- therefore, that bringing competitiveness into the industry. So the business or the efficiency which we execute our job if there is a lot of competition then it is an ease for us to get competitive. So it is easy for us to execute to. If we have more Indian suppliers, we are better complying to the guidelines of public procurement and the GFR guidelines. So it's indirectly assists us to make our execution of projects simpler with more competition. So if you say it's a direct benefit, probably the answer is a little indirect or would I say it's a consequential benefit to EIL.

[Anuj Sharma, Fund Manager]

All right. All right. And then on the bidding strategy evolution.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

So again, there are 2 parts to this. One is the strategy for bidding. And the second part is the operations and execution of that. Successfully 1 bid. The strategy which we are following in bidding is, as I shared with you earlier, we are not restricting our focus to just the oil and gas. And that is the 1 most important thing. So we are reaching out to every other sector in a very focused manner to see where all our core competencies and our related competencies can add value and garner business for EIL. So that is one very focused attention or kind of widening our strategy to those areas as well. That's 1 part. The second part, in terms of the management of projects, we are in terms of execution. That is -- it's again a process which involves a lot of stakeholders. So and it is a very difficult one size fits all because every location is different, the complexity of projects is different. The contractors who work in 1 site do not perform in other sites. So there are a lot of issues in the execution. Nevertheless, there has been already dialogue with a lot of clients how to ease out the terms, particularly for the contractors in terms of enhancing cash flow. You would be aware that the [indiscernible] has been reduced significantly to enhance cash flows because that becomes a major issue in execution in cash in hand. So we are always, whenever we do review meetings, whenever we discuss with clients, we try to ease out these [indiscernible] these issues so that the execution part becomes and that is again being done in a more focused and a more consolidated manner.

[Anuj Sharma, Fund Manager]

And one last quick question. The Numaligarh refinery extension, which is from 3 to 9 MMTPA would entail a CapEx of around INR 28,000 crores. Now we being equity shareholders with 4.37% stake, would we be also -- how will the capital allocation work in the incremental CapEx? That would be helpful.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

It will be in the same proportion, so our stake will continue to be retained. It will not be diluted in any way. It will be retained because for making -- number one, we are guided by the -- it has to essentially [indiscernible] it will not -- it will remain the same even when we go to expansion.

[Operator]

[Operator Instructions] The next question is from the line of Bhoomika Nair from DAM Capital Advisors Limited.

[Bhoomika Nair, Security Analyst]

Just wanted to understand our order intake pipeline. You've had a fairly healthy order intake in the first half of about close to INR 1,500 crores. What are we looking at in the second half and in the next 2 to 3 years, if you can talk about the pipeline, both from hydrocarbon space also in terms of the nonhydrocarbon space that you spoke about.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

So what we -- there is a target that we have to meet as for the MOU that we signed with the Ministry. And after that, we have -- what's the exact...?

[Unknown Executive]

[indiscernible].

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

So we are looking at something close to INR 1,800 crores is our target. And let's hope we do better than that. We are trying our best.

[Bhoomika Nair, Security Analyst]

Right. And is it possible to get some more color in terms of what are the likely orders which would come through in the next 12, 18, 24 months, which areas... ?

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

Vinay?

[Vinay Kalia]

Bhoomika, you know, we are into competitive bidding on a number of projects. You know the visibility of projects which are coming up in the industry. Since they are on a competitive basis, we would not be able to declare immediately. No matter whenever we get those projects, we'll definitely share the data as we have been doing through press and media and through stock exchange. But definitely, we have set these targets considering the projects that are going on, and we are bidding. And hopefully,we can [indiscernible]

[Bhoomika Nair, Security Analyst]

The second aspect of the question is related to -- you spoke about the fact that you'll try and look at some non-hydrocarbon space as well, whether it be infra, water, et cetera. Now as we diversify into these segments, how will the margin profile move because typically, these hydrocarbon in our Consultancy segment, we have anywhere margins between 25% to 30%. But would it be possible to continue getting these kind of margins in the nonhydrocarbon space and infra sector, how will you balance that out?

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

The decision making for entering the sector is not subject to the confirmation of a margin of 20%. So let me put it this way. The essence of entering a new sector is that if we do not, as a company, we remain without the experience of that new sector. So this is a strategic decision many times and is again case-to-case basis, one has to look. There is no 1 rule for how we bid. It depends if we are having core expertise there, then you can -- you are entitled to the margin. But if its a strategic entry, then the entry is more important. So it is on a case-to-case basis, which the -- calls have to be made. And the -- however, to dent the bottom line is not the intent. So the intent is to maintain a robust bottom line. I think that is the way we will look at all the newer areas and the new projects that we will [indiscernible]

[Vinay Kalia]

Bhoomika, to take this point forward, even in the current [indiscernible] we have a number of projects of different sizes, capacity. So the margin profile of each of these jobs would be different. So we have been trying to optimize both the top line and the bottom line for a sustainable growth. The idea is to enter into new sectors, take strategic decisions also while entering. But in the long run, for sustainable growth, these new sectors will also give us reasonable top line and bottom line. So that's why we are trying to enter.

[Bhoomika Nair, Security Analyst]

Okay. Okay. So basically, what you're saying is, even though the margins may be not comparable to the current level, but incremental business will basically add to the incremental bottom line in that sense, and that is how we are trying to look at it?

[Vinay Kalia]

Not just in contactable terms, we have to see in the volume terms also, the EBITDA volume has to be improved upon.

[Bhoomika Nair, Security Analyst]

Yes, yes. That's what I mean. Yes. Okay. Okay. And lastly, just on the international side, the crude price is moving up. Are we seeing ordering activity or CapEx cycle improving and then trying to look at players like us, especially, if you can just comment on how the international landscape is -- any potential orders out there over the medium term?

[Vinay Kalia]

We are seeing a mix and match of both. You would have seen the impact of low crude oil prices and the impact of pandemic. And also the new energy mix, which is coming up, [indiscernible] for the environment and the new green technology, which have been taken up. Even it's been introduced in most of the countries. So even Middle East countries have become more conscious. So they are also very selective in their expansion projects. But yes, with the improvement in prices, they are going ahead with some of their projects, but they are also rationalizing their CapEx and costs. So we are seeing a mix and match of both. On the Indian context, yes, we have from Honorable Ministry and the government initiative and focus to expand overseas also, not just EIL, our vendors and contractors as well to bring in more ForEx. So we are also trying to do that. We'll try to expand our international operations. Currently, also you're seeing that we have a good mix in international and consulting.

[Operator]

The next question is from the line of Samarth Singh from TPF Capital.

[Samarth Singh]

Could you please give us an update on RFCL and what capacity we are running at today?

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

Yes. So the RFCL unit is -- since it's fertilizer unit handling a lot of solids in terms of bagging and dispatch, It has now stabilized and it is currently operating at around 70% of its capacity.

[Samarth Singh]

And is there any plans of spinning off this business or sort of monetizing [indiscernible]?

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

Selling RFCL? So, see, you are aware that it is governed by the Urea policy. And so our investment there close to INR 494 crores?

[Vinay Kalia]

INR 491 crores.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

INR 491 crores is already fetching a post-tax return of [ 12% ] in RFCL ?

[Vinay Kalia]

RFCL, yes.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

Yes. So we are already having an assured return in terms of the investments we have made. Since it is -- it is 1 of the projects which are under the Prime Minister's Fertilizer Revival, very crucial to the country in terms of minimizing urea imports and having both self-reliant as well as sustainable supply. So since -- on pure financial terms, since it is going to get us a good return, which is, again, policy driven since it extended to our unit also. We don't see any reason why we would need to sell the investment [indiscernible] our investment to any other party.

[Operator]

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Mr. Bhoomika Nair for closing comments.

[Bhoomika Nair, Security Analyst]

Yes, ma'am. Just one thing before we end the call, just one question on my side. We have obviously fairly despite the investments in NRL and Ramagundam subsidies. Is there any plan to invest further any of these cash or any thoughts behind this strong cash book cash balance that we have?

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

See, as a company, we are open to good projects with assured returns in sectors which are related to us or something very significant, which we value -- we would value in the future. So we are open to continue this -- I mean, continue to invest in promising projects.

[Bhoomika Nair, Security Analyst]

Sure. Thank you, everyone. I mean thank you to the entire management team and ma'am, for your time and for the call. I really appreciate giving us an opportunity to host you and wishing the entire team on the very best.

[Vinay Kalia]

Thank you so much.

[Vartika Shukla, Chair, MD, CFO & Director of Finance]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.