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IRB Infrastructure Developers Ltd
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Ladies and gentlemen, good day, and welcome to the IRB Infrastructure Developers conference call, hosted by the company for discussing the financial results for Q3 FY '19. We have with us today Virendra Mhaiskar, Sudhir Hoshing, Anil Yadav, Mehul Patel and Poonam Nishal on the call. After the opening remarks by management, there will be a question-and-answer session. I would now request Mr. Virendra Mhaiskar to give you an overview of significant developments during the quarter. Over to you, sir.
A very good evening to all of you. I would like to welcome all the investors and analysts on this conference call. I hope you have been able to go through our detailed numbers as well as the presentation by now. Overall, it was a satisfactory quarter with a decent tick up in toll collections and continued progress for projects under construction. On the toll front, as discussed earlier, opening of Narwana Bypass led to a strong 30% growth in Kaithal-Rajasthan project and the double-digit growth continued for Ahmedabad-Baroda for a fifth consecutive quarter. Mumbai-Pune witnessed a subdued trend and under construction 4 to 6 [ training ] projects that is the 3 Rajasthan projects, and Agra-Etawah saw a softening in toll collection as construction activity has picked up considerable pace. Construction segment revenues and progress was in line with our expectations for the ongoing execution. We achieved financial closure for our third HAM project based in the state of Gujarat, and since we have received appointed date for the same recently. For the 2 Tamil Nadu projects, we are witnessing some delays on account of land handover-related issues being faced by NHAI. This is despite having completed financial closure well in time, and the same is being recorded by the authority. We await clarity on time lines and next steps from the authority in this regard. Discussions for financial closure of Hapur-Moradabad are at an advanced level and should be closed soon, followed by starting of the tolling and construction simultaneously. Last quarter was marked by liquidity tightening across banks and financial institutions, and credit availability continues to be a prized affair even now. Even in this market, we have been able to reduce cost of debt for the INR 1400 crores debt by 150 basis points for our Kaithal-Rajasthan project. Good number of projects awarded a year back are yet to achieve financial closure, and our sense is that this situation will prevail until election. I would now request Anil to give you an overview of the financial performance. Over to you, Anil.
Thank you, sir. I will present the financial analysis of Q3 of FY '19 versus Q3 of FY '18. Total consolidated income for Q3 of FY '09 (sic) [ FY '19 ] has increased to INR 1,835 crores from INR 1,342 crores for Q3 of FY '18, registering a growth of 37%. The total consolidated toll revenue for Q3 of FY '19 has increased to INR 559 crores from INR 483 crores for Q3 of FY '18, registering growth of 16%. Total consolidated construction revenue for Q3 of FY '19 has increased to INR 1,276 crores from INR 859 crores in Q3 of FY '18, registering growth of [ 49% ]. EBITDA for Q3 of FY '19 increased to INR 807 crores from INR 676 crores in Q3 of FY '18, registering a growth of 19%. Interest cost has increased to INR 287 crores in Q3 of FY '19 from INR 237 crores in Q3 of FY '18. Depreciation has increased from INR 132 crores in Q3 of FY '19 from INR 121 crores in Q3 of FY '18. PBT has increased to INR 388 crores in Q3 of FY '19 from INR 318 crores in Q3 of FY '18, registering growth of 22%. PAT has also increased to INR 219 crores in Q3 of FY '19 from INR 207 crores in Q3 of FY '18, registering growth of 6%. Now I will request moderator to open the session for question-answer.
[Operator Instructions] Our first question is from Atul Tiwari of Citigroup.
Sir, if I calculate the like-to-like toll revenue growth, I mean, taking only those assets which were there in 3Q as well as the year ago 3Q FY '18 quarter, the number is more like 5%, 6%, is that right roughly ballpark? And if yes, why we are seeing this kind of slow toll revenue growth for the portfolio as a whole? Any color on that will help.
Yes, you are right. The 4 project that is Rajasthan 3 project and Agra-Etawah, their construction is now going on and, in fact, the construction is on its peak. So basically, we see some kind of a reduced traffic on those corridor because of the construction activity is in full swing. Even on the Mumbai-Pune also the growth has been a little lower considering the -- basically the growth in earlier year was on a very high -- was in double digit.
Okay, sir. And sir, the second question is on the kind of ordering environment that you're seeing. So I did see in the presentation, you have put some number, INR 0.7 trillion worth of ordering that you will be participating, but what is the actual situation on the ground because we have not seen too much of ordering for quite some time, and now we are in the peak election season. And even after the elections are over, probably it will take a few months for the new government to settle in and the new road minister to have his priorities clear. So how does it look from here till May, and then probably even till September-December, in terms of ordering to you?
The number of projects which are already open in HAM, so number comes from there. So we have already around 70 projects of HAM, which are still to be bid out, which are already in the market and they will be coming anyway. And in addition to this, if you're saying overall, then there are a lot of EPC projects also coming up. And these projects have already been bid out for -- these will come for bidding. So in HAM, there are all put together around 60 to 70 projects in line for bidding.
I think your question is more on the timing of the same. I understand and completely agree with you that how many of them will further get postponed because these projects have been getting postponed quite a lot a number of times. So whether they will get postponed or some of them may happen and some of them may get pushed to the next government, that we are not very sure of. But yes, we remain prepared and ready to bid as and when the bidding happens. That is what we can say as far as we are concerned.
Of course, sir. And sir, just the last one on, and this does not concern the company per se, but the entire road sector, so we have seen some of the recent annual reports or -- and the bond prospectus of NHAI, which shows that the debt on NHAI's books is now crossing INR 1,50,000 crore, INR 1,60,000 crore, up from about INR 30,000 crores 4, 5 years ago. And obviously, this money has been used to fund EPC and the HAM activity and land acquisition as well. Now -- I mean, if you take a slightly medium-term view, I mean, how -- I mean, in your view, how sustainable is this? Will NHAI have enough bandwidth in terms of the financial muscle that it has to keep driving HAM and EPC projects? Or will it ultimately have to revert back to BOT toll projects, given the fact that its debt is already so high?
It is difficult to, I mean, know perfectly well as to how the things will swing because it will also depend on what is the budgetary support that they are able to get. You're right to the extent that today, almost 50% of their budget is getting allocated for land acquisition alone, plus if we just look at the allocations made in the recent budget, NHAI plus [ MORTH ] together around 8%, 9% has been the total overall budgetary allocation increase, but that is more in sync with the inflation kind of a thing. So the breakup of the spend that they intend to do in terms of land acquisition towards committed annuity payments for the HAM, which have been awarded earlier plus distribution of annuity towards the 40% grant that they have to do during construction period plus the EPC projects. So it will be very interesting to analyze and split those expenditures and come out clear how much incremental projects they can do. But still the final word can't be said today.
The next question is from Ankita Shah of Elara Capital.
Sir, wanted to check on the construction margins quite low in this quarter, so reason for that is 25% EBITDA margins for construction segment?
With respect to, we have executed almost INR 100 crores of utility shifting and change of scope work where the margin is hardly -- negligible margin is there. And thirdly, to certain extent, the material prices was also got increased. There is 100 to 150 basis point reduction on that count.
And so do you expect this to come back to 27%, 28% kind of levels by next quarter onwards? Or it will take some more time?
I think considering the current order book and going forward, we are going to execute HAM projects also, the margin will be on -- in the similar range, that is close to 23% to 24%.
23% to 24%. Okay, got it. And sir, could you help me with the EPC project-wise order book breakup? Project-wise?
We will revert back to you.
Key projects?
I think the order book breakup is already given in the presentation -- detailed presentation.
EPC wise? EPC project-wise, sir. Project-wise.
Project-wise, we will revert back to you.
Sure. And sir, equity requirement total invested and pending to be invested in the next 2 years?
Equity requirement till -- in FY '20 will be roughly INR 1,300 crores, and FY '21 will be roughly INR 500 crores.
And -- INR 1,300 crores and INR 500 crores?
Yes.
And how much has been total invested till date in all projects put together?
So all projects total will be close to INR 7,000 crores, including the sub-debt whatever infused in those companies.
Correct. Got it. Perfect. I'll await the project-wise breakup from you later on.
[Operator Instructions] Our next question is from Vibhor Singhal of PhillipCapital.
Sir, my question related to just the last question which Ankita asked, was on the equity requirement, if I see the Slide 24 of your presentation, we're looking at around INR 8-point -- INR 850 crores of equity requirement in FY '19, which includes around INR 300 crores in Hapur-Moradabad. So does that assume that we will probably achieve financial closure in this quarter and then we would might have to do it this year itself? Or do you see this equity requirement might actually move to next year?
No. I think this will happen this year, this financial year. We are very sure to achieve the financial closure and bring in the initial 25% equity. So yes, you're right. This will get induced into the project this year itself.
And sir, the equity investment in the HAM projects, that includes the condition that the banks are putting up these days that 50% of the equity has to be invested upfront?
That's correct.
We -- our projects are also -- are coming under that condition, right, sir?
The general condition what you're talking about in most cases of 50% is right. But as regards we are concerned, the negotiated terms are 25% upfront equity.
Okay. So -- in basically all the 3 HAM and Hapur-Moradabad, we will invest 25% equity in FY '19?
Right.
Fair enough. Also sir, just wanted to understand basically, in this year itself, I think, in August, our Mumbai-Pune project is probably going to finish, and we don't have any visibility in terms of MSRDC awarding it basically on -- again to the bidder in that sense. So I think a significant amount of cash tap, if I can call it, will probably dry up for us, which had -- all which had been there for the past 4 years, 5 years. Do you believe the cash flow from these new projects which are still under initial stages, will that be enough for us to basically fund this equity requirement that we need for the HAM and Hapur-Moradabad projects? Or do you believe we might need to either borrow more at the stand-alone level or maybe raise some equity to fund the equity requirements?
So I think if we look at the cash on hand plus the profitability of these projects, I think we should be able to comfortably meet the equity requirements.
Okay and -- for the current portfolio?
That's correct.
And do you see that -- do you see the cash flows enough for, let's say, 2 or 3 more projects also going forward that we might or might be able to win over the next year? So basically, how many -- how much more projects can we take before we might need to basically maybe start leveraging your balance sheet?
Vibhor, it will depend, because if we get a HAM there, the equity requirement will be very minuscule. But if we get a TOT, then definitely equity requirement will be different. It will depend upon the kind of project we get.
Fair enough. On that front, sir, just one last question. We saw that the second package of TOT bid being much lower than what NHAI had basically asked for, a complete contrary to what happened in the first round of bidding. So as we understand, I think those bids have not been taken forward. So any update on that as to what is the time line expected for either maybe another round of bidding or are -- is NHAI sitting with the winning bidder to undergo some negotiations?
My frank opinion is they have got one of the best number. They should go ahead and award it. If they are not going to award it, it's a mistake that they are doing. But I don't know what they have finally decided to do.
But they have not yet awarded it, right, sir?
Not to my knowledge because they haven't returned our bank guarantee yet.
The next question is from Jayesh Gandhi of Birla Sun Life.
Sorry, I joined a bit late and don't know whether it got discussed, but why is the toll revenue so poor both for InVIT as well as for our existing toll roads? The revenue is in low single digits, if I understand correctly.
I think we need to dissect it project-wise. As I mentioned in my opening remarks, Kaithal has seen a 30% growth in the toll revenues. Ahmedabad-Baroda has continued to clock double-digit revenue growth for the fifth consecutive quarter. The Rajasthan projects and Agra-Etawah have clocked a low -- soft number because the construction activity is at its peak there right now. If you have seen in Surat-Dahisar also when the projects were under construction, it used to have an impact of diversion of traffic. But as soon as the construction -- particularly when the structure will get done, then the traffic comes back quite thick and fast. So at the moment, these 3 Rajasthan projects as well as Agra-Etawah, all 4 are seeing heightened construction activity, because of which there is some softening. But still if we look at our own estimation, what we had given to the lenders when we had bid for these projects, we are absolutely in line with our own estimations for these 3 projects as far as the revenues are concerned.
Okay. I know, it's -- this is not the call for InVIT, but in InVIT also we saw the toll to be quite low. Is it basically because of the one-offs or poor road traffic activity?
No, I don't see there is a general slowdown or anything of the kind. We'll have to specifically get into the details, and we can -- we'll be happy to have a call with you with the InVIT team on this. But I don't see there is any generalized slowdown or anything of that kind as far as the sector is concerned. So no need to -- I mean, no reason of undue worry on that aspect to my mind.
Okay, wonderful. So that's reassuring. Second question was on the project that you are looking to sell down or sell to InVIT. Is that plan on or will we be deferring it to next quarter?
See, there is a dilemma. It's a good question. It's a dilemma. The dilemma is that the project is getting eligible to be sold. There will be several others also which will become over a period of time eligible to be sold. The dilemma here is that these are all concessions with a 25-year-plus concession period. Now the problem here is that although the project might be doing in sync with whatever was the original estimation as far as that individual project is concerned, it being able to give you a 12% starting yield is very difficult there because it will have a 25-year concession life. So the problem is that if we sell it even at a very decent price, the existing unitholders may not be able to get a 12% yield out of it. If we sell the HAM projects after 2 years, if we sell some of the Six Laning projects after some years, those with 20-year concessions where 2, 3 years have gone in construction and after 1 or 2 years of stabilization, those projects may still be able to give you that 12% return. But the 25-year concession is going to be a little tricky as to whether those will be able to give you the starting yield what the present InVIT is offering. So it's a bit of dilemma that whether it is a wise idea to -- for us to sell and for InVIT to buy at this price.
Okay, but that dilemma may continue for a few years, what I am hearing and...
So there are 2 ways to look at it, and you can also guide us on this being a shareholder at both ends, that whether you would like IRB to offer this project at 11.5%, 12% discounting and the InVIT will be -- InVIT unitholder will be willing to buy it at that price or you will be happy as IRB shareholder for us to sell that to a third party and monetize it?
Well, third party is also not a bad idea. The -- I mean, it's very difficult for me to tell you on the phone. But...
I am happy with your frank response, Jayesh. I am really happy with that frank response. The same dilemma is with us, but you are right. Wherever there is a value maximization, that should be done. That's a frank opinion, which you just expressed, and we completely buy that. So the process is on, and we will evaluate the pricing and then make the necessary disclosure at an appropriate time.
Fair enough. So I guess, my point comes from the question which was raised earlier, is that your capital requirement for the next 2 years is heavy. Obviously, next few months, if the election code of conduct, et cetera, plays, then there's not enough bidding required, and you'll be fine. But as new projects come in for bidding, the -- your ability to transfer projects to the InVIT was one of the key ways in which you could have released capital in the parent.
So let me make a very frank disclosure here. In case if we get anybody who's wanting to buy projects at a decent price, we will not shy away. We will sell.
So unless you sell it out at the same price, you will not give it to InVIT is what you're saying?
Yes. So it has to be a balance of interest for the InVIT as well as for IRB. So we definitely -- we'll look at trying to discount the cash flows at 11.5%, 12%, and if at that price it's not making sense for InVIT unitholders to vote in favor of it, we won't shy in terms of going out and selling it to any private party if there are takers. Because we continue to remain focused on our strategy which we have articulated 2 years back, which is B.E.S.T. So IRB will bid, execute, stabilize the project and then transfer it to either a unit or to a private party, whatever is required to monetize and redeploy that money into newer projects.
The next question is from Vaibhav Shah of IDFC Securities.
This is Ashish. Sir, firstly, on the -- in the third HAM project, by when will we expect the appointed date for the -- for that project?
Ashish, the VK-1, which is the Gujarat project, we have received the appointed date, and we have commenced the construction there this month itself. And the other 2 Tamil Nadu projects...
So one of the 2 Tamil Nadu projects for which we've still to sort of get the appointed data.
No, both -- so I'll just quickly give you a heads-up on that. The Gujarat project, appointed date is received, construction has commenced. The 2 Tamil Nadu projects, both the projects, the appointed date is yet to be received. We are being told by NHAI that there -- they have some land acquisition issues on both of them. As soon as the same is cleared and they give us the appointed date, we are ready to start. We have already got our concrete pavers, which we had bought, they have already arrived. We are ready to commence the work as and when they give us the land.
Fine. Yes, because actually the presentation kind of put it that one of the Tamil Nadu had. So maybe I think there is some...
No. I'll check if there has been any error. But the clear fact is both of the Tamil Nadu projects are yet to receive appointed date.
Got it, sir. Sir, secondly, in Agra-Etawah, we also had this issue where the government had opened the state expressway, and we had seen some diversion because they were also billing at a discounted rate. So have they now started collecting the normal toll rate? And have you seen some traffic coming back because of that?
Ashish, on your earlier question on the presentation aspect, basically, there -- the financial closure for one of the Tamil Nadu project was received in the current quarter. It means in October. So that's why it got reported being -- technically being -- then in the current quarter, not the appointed date.
Sure. Sir, on the Agra-Etawah thing?
On the Agra-Etawah, I think the diversion and the expressway authority continues to collect toll at a lower rate. They haven't enhanced the tariff yet. But my sense is that in the next couple of months, as all the structures get complete and we open the full corridor for usage, we are expecting a strong jump as what we have seen in Kaithal. We expect a similar kind of a jump back on Agra-Etawah maybe 3 months from now.
Right. So what is the difference in the current rates between us and -- between our stretch and the state expressway?
I think the state expressway, what I am told, is collecting at around 50% or 75% of their approved tariff. Now I don't know exactly what is their approved tariff, but what we are told is that they are collecting at 75% or 60% of their approved tariff.
Sure. Sir, lastly on Hapur-Moradabad, now we've -- we just mentioned to somebody that you expect that you will infuse the equity in this quarter itself. But what is the status of land there? And when do you expect to receive appointed date for that project?
On the contrary, there are no land issues as far as that project is concerned. We are mobilized also well on that project. So it's only the financial closure which is delaying the appointed date, is what I will say. There are no other issues as far as Hapur-Moradabad are concerned. So the moment we are ready with our financial closure, we'll be able to get the appointed date and start the project.
Right. So what would be the debt in the EPC, the stand-alone plus MRM, the total including ODs?
Yes. EPC debt is -- gross debt is INR 3,000 crores, including overdraft, and cash is roughly, including the liquid fund, is close to INR 1,500 crores.
Sure. So that pretty much remains what it has been so far.
Yes.
Next question is from Parikshit Kandpal of HDFC Securities.
Sir, just on this Hapur-Moradabad. So when do we expect the financial closure? I mean, will it happen...
Within a month.
Okay. And the work will start by March?
Yes. Before that, I think.
Okay. Secondly, on -- so this Mumbai-Delhi expressway's EPC packages are up for bidding. So how does it impact our Rajasthan 3 packages?
I think we have done -- we have discussed this in the past also. We have done an elaborate origin-destination checks. And I don't, frankly, think there will be any meaningful diversion of these particular expressway coming up on these 3 Rajasthan projects.
Okay. And any update on the Ahmedabad-Vadodara arbitration. I know you mentioned in the presentation that you're pursuing it with NHAI, but any concrete time lines when we can hear from them or the state government?
No, not yet.
Okay. And did we have any impact of this axle load increase on any of our projects?
Again, this question we have replied last time also. There is a very, very minuscule 2% impact of this -- changes in the axle load on the overloading because the total -- sorry, I think the total overloading charges that contribute to the total revenue is [ 92% ], and this particular change will translate to some 0.3% or 0.4% of the total revenue, that would be the impact as would come. But right now, if you see, I don't think that kind of impact is also coming if we look at the overall growth that we have witnessed.
And sir, if you see the order book, I mean, INR 8,000 crores work has yet to get commenced. So I think this year, we are targeting around INR 4,500 crores of EPC projects. So how do we see this revenue ramping up in FY '20?
In respect of the current year, I think the similar run rate should continue for the fourth quarter also.
And as far as the next year is concerned, the key deciding factor for the next year top line on the construction side will depend on when the Tamil Nadu project appointed date is given by NHAI. So I would like to, right now, not make a comment on that. Once we have the appointed date for the 2 Tamil Nadu projects, then we can talk with some -- certain degree of assurance clear that this is what looks like to be achievable.
So what is the land status of these 2 HAM -- [ TN ] HAMs?
So that's what I said that the land acquisition is in advanced stage, but they haven't got the required land yet, and that's the reason why they have not yet issued us the appointed date because we have achieved the financial closure long back. They have acknowledged the financial closure as well. But as the land is still not in place, they are struggling with giving the appointed date. And considering the fact that this is a 2-year construction period, we want to be very sure that there are no hindrances at all on the site before we start the construction.
So what will be the 3D or 3G status of this...
We can come back to you with the details separately.
Okay. And lastly on the other income breakup, if you can give on EPC and BOT?
Yes. The other income -- basically, toll other income is roughly INR 26 crores and construction is INR 20 crores.
We'll request the moderator to -- are there any pending questions? I believe there are none.
We have no further questions in the queue at the moment, sir. Would you like to make some closing comments?
Yes. So just checking on if there are any questions balance. So would like to thank all of you for being on this call and would be happy to have you all with us for the next quarter results as well. Thank you so much, and have a great evening.
Thank you, sir. Ladies and gentlemen, this concludes the conference for today. We thank you for your participation and using Chorus Call conferencing services. You may disconnect your lines now. Thank you, and have a great evening.