Kalpataru Projects International Ltd

NSE:KPIL

Earnings Call Analysis

Revenue Growth and PBT Guidance Outlined

The company is forecasting a promising year ahead with a projected 25% increase in console revenue for the full year 2024. At the Profit Before Tax (PBT) level, expectations are to reach the guided range of 4.5% to 5%, albeit likely leaning towards the lower end. The firm is also poised to hit an order book goal of INR 25,000 crores for the year.

Robust Revenue Growth Despite Market Challenges

The company is projecting a substantial increase in their console revenue, aiming for a growth rate exceeding 25% for the full year of 2024. This uplift in revenue is a significant indicator of underlying business strength and market demand. It demonstrates the company's ability to effectively navigate through market uncertainties to deliver growth.

Operating Margins: A Cautious Outlook

In terms of profitability, the company sets its Profit Before Tax (PBT) target within the range of 4.5% to 5%. However, there is an indication that the reality may trend towards the lower end of this spectrum, which suggests a certain level of conservatism in financial forecasting amid current market conditions.

Forging Ahead with Cautious Optimism

The management conveys a cautiously optimistic stance looking into the second half of the year. The company's environment is characterized by increasing tender activities, improved execution capabilities, and a robust order flow. These factors should collectively contribute to an enhanced operational performance. Nevertheless, vigilance remains key due to factors such as rising competitive intensity, fluctuating commodity prices, strained labor markets, and ongoing geopolitical tensions that present challenges to the global business landscape.

Strategic Asset Management and Divestment

Confidence is expressed in progressing with the sale of road assets, the divestment of Shree Shubham, and the liquidation of Indore Real Estate inventory. These initiatives are part of a strategic asset management plan to improve return ratios and profitability. Although such market developments take time to fruition, diligence and patience are expected to yield positive outcomes in the forthcoming quarters.

Diversified International Order Book with a Focus on T&D

The company's international order book is diversified, with the Transmission and Distribution (T&D) segment being the largest. Current international projects make up about 40% of the total order book, estimating around INR 18,000 crores. Despite the optimistic perspective on international business opportunities, particularly within emerging markets such as the Middle East, Africa, and Latin America, the company remains mindful of geopolitical risks and the necessity to maintain a balanced approach in terms of concentration and country risks.

International Project Acquisitions Skewed Towards T&D

Remarkably, in the first half of the year, the international orders obtained by the company were predominantly within the T&D sector, with no significant achievements in the non-T&D segment. This indicates a strategic preference or stronger performance in T&D projects and points to potential growth avenues for diversification into non-T&D areas in future periods.

Margin Performance Shaped by Order Book Mix

Q2 EBITDA margins were majorly influenced by the type and mix of order books that the company closed during the period, rather than by unusual, one-off items. This suggests that going forward, as the order book's composition changes and legacy orders are concluded, especially in the railway sector and Building and Factories segment, the margin could potentially see improvement. With a healthy EBITDA margin of 8.3% on a standalone basis and a close proximity to their targeted PBT margin, the company is steering clear of any severe margin pressures currently.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Kalpataru Projects International Limited Q2 FY '24 Earnings Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that, this conference is being recorded.I now hand the conference over to Ms. Bhoomika Nair. Thank you, and over to you, ma'am.

[Bhoomika Nair, analyst]

Thanks, Arvind. Good morning, everyone, and a warm welcome to the Kalpatru Project International 2Q FY '24 earnings call. We have the management today being represented by Mr. Manish Mohnot, Managing Director and CEO; Mr. S. K. Tripathi, Deputy Managing Director; Mr. Amit Uplenchwar, Director Group Strategy; and Mr. Ram Patodia, President Finance and CFO.At this point, I'll hand over the call to Mr. Manish Mohnot for his initial remarks, post which we'll open up the floor for Q&A. Over to you, sir.

[Manish Mohnot, executive]

Thank you, Bhoomika, for hosting this conference call and good morning, everyone. A very warm welcome for our Q2 financial year '24 earnings call.Let me start with our performance for the quarter, post that, I will update you on the individual businesses, key focus areas and outlook for the full year. We have delivered another quarter of resilient performance, with improved turnover, sustained profitability and strong order width. We have scaled a new milestone by crossing rupees INR 4,500 crores of quarterly console turnover for the first time.Our order inflows and order book position are at record level during the quarter. We have reported console revenue growth of 19% in Q2, and 17% for the first half of FY '24. The revenue growth was led by improved execution and healthy order book in our T&D, B&F, Water and Urban Infra business.Our consoled EBITDA margin are at healthy levels of 8.2% in Q2 and 8.6% in first half FY '24. Our finance cost as a percentage of sales continues to remain stable. Our finance cost as a percentage of sales was at around 3% on console basis, while for standalone it is at 2.2% for Q2. Our console PBT at INR 132 crores and PAT of INR 90 crores was reported in Q2.For our first half, our console PBT is INR 297 crores with PAT of INR 203 crores. Our console net debt stands at INR 3,183 crores. Our net debt in our core EPC business, excluding Road BOOT assets and Shree Shubham Logistics stands at around INR 2,480 crores.Our focus on timely collections and project closures has helped us to maintain net working capital days at around 104 days for the period ended September 2023. We are proactively working and are focusing to bring our net working capital days below 100 by end of March '24.Our tendering activity across most of our businesses remain very strong. We have witnessed robust order inflows of INR 12,178 crores till date in the current financial year, including the orders worth INR 1,576 crores declared yesterday. Additionally, we have an L1 position of over INR 4,200 crores, mainly in T&D, Water and Urban Infra business.We are witnessing increasing tender pipeline in most of the businesses, which makes us fairly confident to achieve our targeted order inflows of over INR 25,000 crores for the full year 2024.Our order book at the end of September 2023 stands at INR 47,040 crores with a fair mix of T&D, B&F and other civil business. Our international business, which is around 40% of the total order book is fairly spread across more than 30 countries outside India, which balances this pertaining to execution and receivables.Now, coming to our business segments. Starting first with the T&D business, our revenue growth was strong at 24% in Q2, led by improved execution across various project sites, along with a healthy opening order book. We have secured orders of INR 5,300 crores till date in the current financial year. And additionally, we have an L1 position of around INR 1,500 crores.On the international subsidies front in Brazil, Fasttel has reported revenue of INR 192 crores in Q2, a growth of 90% Y-o-Y. Fasttel order book stands at INR 500 crores at the end of September 2023.At LMG Sweden, we have achieved revenue of INR 184 crores in Q2 compared to INR 256 crores in Q2 last year, with an order book low of INR 1,427 crores at the end of September 2023.Our T&D order book, including our international subsidies, stands at INR 17,000 plus crores as of 30th September 2023. Our business environment remains very promising on T&D, with strong or tender pipeline in domestic and international markets in Africa, Latin America, CIS, and Middle East.Our Buildings & Factories business has recorded 14% Y-o-Y growth in revenue for Q2, led by healthy execution. We continue to ramp up our execution capabilities to increase mechanization and enhance training and development of labor force.Simultaneously, we are working to strengthen our capabilities in areas like data centers, design-build EPC jobs, industrial and institutional projects. Moreover, we have expanded our market reach by adding new clients in data center projects, residential, industrial, and commercial B&F works.We have secured orders worth INR 4,330 crores in our B&F business and have a closing order book of around INR 10,000 crores. The delivery time of most of the – order in B&F is between 2 to 3-years, giving ample visibility for good growth in the B&F business in the coming quarters.Next, in our Water business, revenue has grown by 65% in Q2, on the back of strong order book and improved execution. Our order book stands at INR 11,423 crores as of September 30th. Our current focus is on improving execution and completing the existing projects.Of late, we have witnessed a lot of influx of small and regional players in this business, and now we are working on improving our capabilities on large water scale projects, and also to establish presence in water and sewage treatment projects.In our railways business, revenue has declined by 10% in Q2 on the back of lower order book. We have successfully completed trial runs of Indore and Bhopal Metro projects within light of the project award for electrification of roads. Given the competitive intensity, we continue to remain mindful in our bidding strategy for our railway business.In our Oil & Gas business, we have achieved revenue of INR 171 crores in Q2, compared to INR 220 crores in similar quarter last year. We have seen the domestic trending in Oil & Gas business remaining subdued with increased competition. Hence, we are working to expand our reach in processing plant-related projects and international expansion to drive sustainable growth for this business.In the Urban Infra business, we have achieved a major milestone by getting favorably placed for our first underground tunneling project for Kanpur Metro. The business has achieved revenue growth of 37% in Q2 on the back of improved order book and good project progress. We expect our Urban Infra business to contribute significantly to growth in coming years as we continue to strengthen organizational and build development efforts.In our Road BOOT projects, revenue per day has improved by 15% Y-o-Y to INR 57.2 lakhs per day in Q2 on the back of rise in traffic. We have infused INR 43 crores in the first half of FY '24 in Road Boot projects, primarily to repay the debt level.Speaking about progress made on our key sustainability initiatives, we have formed up our sustainability strategy and have recently announced our sustainability goals, which aims to achieve water neutrality by 2032, circularity by 2035, and carbon neutrality by 2040. We are taking up various initiatives at our manufacturing facilities and construction sites to de-carbonize operations and rapid adoption of clean energy. As we evolve and sharpen our focus, we will keep sharing more details on our sustainability outcomes.Before I come to the outlook, I would also like to highlight a few setbacks that we had in the last quarter. First, on the Umling project in Australia, we have exited from the arrangement of forming the joint venture. Hence, that project is no longer part of our L1 position. We continue to work for establishing presence in EPC market in Australia.Second, in one of the legacy projects in Brazil, which was secured before our acquisition, we had an impact of a guarantee encashment of INR 16 crores, which has been taken to P&L in the current quarter. This has affected the profitability of Fasttel in Q2. We believe this is a one-off incident and would not change our strategy of making Fasttel break-even by the end of the year, excluding this event.Lastly, with respect to sale of Vindhyachal Road asset, the non-binding offer from a potential buyer has not moved forward, as we continue to look out for a new buyer. We remain confident to complete the sale of CEPL in the near future as we are discussing the proposal with other prospective buyers.Notwithstanding this, we remain cautiously optimistic as we move ahead in the second half of the year, given heightened tender activity, improved execution, and strong order flow. This should help us improve our performance going forward. However, we remain watchful of increasing competitive intensity, volatile commodity prices, tight labor markets, and tough global geopolitical conditions.Overall, we expect our console revenue to grow by 25% plus for the full year 2024. At PVT level, we will be in the guided range of 4.5% to 5%, maybe on the lower side of the guided range and not on the higher side. And we are confident to achieve our order book and close of INR 25,000 crores for full year.We are working hard to improve our return ratio, especially through divestment of non-core businesses. We remain confident in our ability to achieve progress on sale of road assets, divestment of Shree Shubham, and liquidation of inventory in Indore Real Estate in the coming few quarters.Of course, as we have said before, market development with such initiatives takes time and one needs to stage the course for positive outcomes. Having said that, we will continue to manage our business with agility and pursue growth that is consistent, competitive, and profitable. With this, I conclude my opening remarks.Also, my advance wishes for a Happy Diwali to all of you and your dear ones.Bhoomika, I would now request you to open the lines for Q&A. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Parikshit Kandpal from HDFC Security.

[Parikshit Kandpal, analyst]

Congratulations on a decent quarter. So, my first question is on the international order book. So, now it's about 40% of the total order book. So, I just wanted to understand out of this order book, if you can give a breakup of T&D and non-T&D segments. And pertaining to that, over the next 3-4 years, what is the total addressable market size for us for the non-T&D segment and how do you look to ramp up the order book in that segment?

[Manish Mohnot, executive]

Parikshit, no, on the international order book, Parikshit, primarily the order book consists of 3 segments today. Now, T&D being the largest, Buildings and Factories being the second, and Water and Airports being the third. Right? Water, Airports and Roads. So, if you look at it from an international order book perspective, an international order book today is approximately 40%, which comes to a number of around INR 18,000 crores.Out of which, TLI, which is the international, is around INR 11,656 crores. And LMG and Fasttel is around INR 2,000 crores. So, out of the INR 18,000 crores, around INR 13,700 crores is transmission. And balance would be the civil businesses, which includes B&F, Road, Water and Airport.As for the strategy for international business, I said that in the past also, we continue to remain very bullish on this business across various segments. Middle East, we are seeing, has a lot of opportunities with the oil levels and the critic's expansion there.At Africa levels, we see funding institutes coming back. Majority of them come back after COVID, and we see a lot of projects coming up there also. We continue to remain very strong in the Latin American market beyond Brazil. It's not only Brazil, but even all the other Latin American markets. And with Fasttel and Linjemontage, we continue to look at European markets from a Linjemontage perspective and Brazil from a Fasttel perspective.Even on the civil businesses, we're seeing a lot of opportunities coming in Buildings and Factories in the neighboring countries. And also road projects in Africa. So overall, I think we remain very bullish on the international order book. But I would also say that, we are cautiously optimistic on it because currently the geopolitical situation is such that we need to make sure that from a concentration risk perspective, from a country risk perspective, we balance everything. And that's also our focus.

[Parikshit Kandpal, analyst]

But if we have to get some numbers, so within the first half, if you can give some numbers on how much you would have bidded in T&D and non-T&D in international market.

[Manish Mohnot, executive]

I think the first half, whatever we have got on international is all T&D. I don't think we've got anything non-T&D. We got a small special one, $30 million. Otherwise, everything in the first half, if you look at it, so there's only transmission. So there's nothing on non-transmission in the first 6 months of our current year.

[Parikshit Kandpal, analyst]

Because my only thing is that the entire rationale of German JMC and KPTL merger was that we take this segment international and we still have INR 4,000 crores of order book in the international market, non-T&D. So over the next 5-years, 3 to 4-years or 5-years, can this multiply significantly from year on like 4x to 5x and contribute meaningfully to our overall order book?

[Manish Mohnot, executive]

So, perhaps strategically, yes. But I know, there are 2 or 3 important things which we need to be very clear on. If I look at the civil business, for example, road project, they are very CapEx intensive. So at a given point of time, we need to balance CapEx and growth. If I look at buildings and factories, they are very specific to country requirements. So, we are getting into 4, 5 countries, but at a given point of time, we can't look at 20, 25 countries.Transmission has an advantage of already having presence in 70 countries and that's the advantage they're taking. So while we continue to remain bullish on saying that we will grow across all segments and internationally, but is it going to be the same speed of transmission may not be at least for the next 2-years. Over a 4 to 5-year perspective, clearly we'll see all businesses, whether it is Oil & Gas, whether it is Roads, whether it is Buildings and Factories, whether it is Water, Urban and for all doing reasonably well.But you know, the advantage of transmission has of being in 70 countries for the last 10 years is something which will be helping them at least for the next 2, 3 years, if not beyond that also.

[Parikshit Kandpal, analyst]

Okay. Coming to the second question on the margin. So this is what standalone EBITDA margins have seen in some data. So there was supposed to be some synergies coming in with the merger, post the merger between KMC and KPTL. So it looks like at least the numbers doesn't look like it's happening. So broadly, if you can quantify why was there this kind of volatility in margins when you were expected to improve performance year on after taking write-offs the last year? So give some sense directionally on the margins that will be helpful and reasons for this kind of underperformance during this quarter.

[Manish Mohnot, executive]

So, I would go back to my unit targets at the opening of the year where we said we will focus a lot more on PBT at 4.5% to 5%, right. And that's what we have been driving and that's what we'll be driving for at least the current year and next year.As far as EBITDA margins for Q2, I think it's primarily driven by the mix of order book and a standalone basis. It's not driven by any one-offs in any form. It's just a mix of order book which got delivered and that's why we were at - at the margin what was reported. If you look at it on a half yearly basis, you look at our EBITDA margins. They are at a healthy or a standalone basis at 8.3%. And if you look at a PBT margin also, we are very close to what we have projected. So there's not been any one-offs in the Q2.It's just the mix of order books and it's just the closure of legacy orders which are happening. So a lot of legacy orders got closed in the previous year. A lot of them, I would say 80% plus. There are a few still happening, primarily in railway sector and primarily in -- in Building and Factories, some old projects. And there's some hit coming because of that. So on an analyzed basis we continue to be guiding ourselves at that 4.5% to 5% PBT. 5% looks difficult but definitely at a 4.5% plus levels with the revenue growth which will be minimum 25%. And I know we are targeted closer to 30% at the beginning of the year. But we believe now 25% is achievable looking at what happened in the first 6 months.

[Parikshit Kandpal, analyst]

This is the last question for 2 segments, specifically Buildings and Factories. So I just wanted a strategy. I mean, here, we are very prominently strong in certain markets. So what will be the go-to market for other geographies within India and Western, Northern and Eastern markets? And on the T&D side, you have given a very strong pipeline of INR 50,000 crores. So if you can quantify how much do you think realistically can happen by March and how much of this will overflow and how does the pipeline look for FY '25?

[Manish Mohnot, executive]

So I think on the Building and Factories, our strategy always has been to work with selective players in the country. And even today, if you look at our INR 10,000 crores of order book, 80% percent would be with 6 or 7 large players with whom we have a relationship which is beyond the last 15, 20 years. We continue to remain strong in the southern market.But we are building and ramping our capabilities big time on Western, Eastern and Northern market also with a huge order book which is visible now. So strategy Building and Factories work with selective players. Look at getting into newer areas, whether it is data centers, whether it is hospitals, or industrial opportunities. And be cautious on the CapEx driven businesses because some of the Building and Factories opportunities are very CapEx intensive.As far as T&D is concerned, yes, we've seen good bullishness in the overall environment. And, we believe that the margin should improve on that business primarily on the domestic order book. And having an order book of INR 6,000 to INR 7,000 thousand crores visibility in the next 1 year on domestic would not be a challenge. But while we say so, historically, whenever there's a tender driven process, competition unnecessarily competition comes in and we want to be aware of that. But we will not be building that order book by compromising on profitability in any form.

[Parikshit Kandpal, analyst]

But is there any issue with the supply chain in the T&D segment? Because the kind of ordering which we are seeing now, even other peers are highlighting that there could be lead time, delivery lead times increasing for transformers, substations and other high voltage equipment. So and even the pricing going up there. So are you seeing any signs of that happening? Are you seeing that serious side effects being taken and that could impact our margin or the delivery timelines being extended?

[Manish Mohnot, executive]

We are seeing some impact of this on the substation business within T&D, within transmission substation if I divide this. So on the substation business, definitely we're seeing some impact of it, which is delaying a few projects. It might not have a big impact on margins because we had already inbuilt that.On the transmission side, as far as supply chain is concerned, we're not seeing much issue as of now, but we want to be cautious about it given the geopolitical situation where if again freight issues come up, that's something which we need to be worried about. But as of today, on the core transmission business, we do not see much issues but on the substation side, we definitely see some issues on supply chain.

[Operator]

The next question is from the line of Renu Baid from IIFL Securities.

[Renu Baid, analyst]

So my first question is on the revenue side, on the guidance, which you are now indicating 25% growth versus 30% growth earlier. While first half growth has been in mid-team level, what are your concerns where you think growth may be softer than expected in the second half? Is it primarily election-led or it is more constraints on the customer and also geopolitical issues, especially Israel, Middle East, where you think there could be some softness?

[Manish Mohnot, executive]

So, Renu, I don't think either of the 2 are reasons why we have reduced our projections. It's neither the political, neither geopolitical issues. I think it's come down primarily because of delay in some orders which we're expecting and we're getting out of our Australia order where we were L1, where we projected some revenue to come by the year end. So it's primarily driven by these 2 factors. We remain very confident of achieving what we have projected now. And there could be some very small impact of supply chain on the substation business, but that's not significant enough for that 30% to become 25%.

[Renu Baid, analyst]

And more than substation, do you think labor is a bottleneck, potentially, as we move towards fourth quarter and first quarter of next year?

[Manish Mohnot, executive]

So, Renu, historically, first quarter of every year, labor always stays in the bottleneck, given the transition which happens on the agriculture side. A lot of people would go back and come back. But next 2 quarters, we don't see labor to be challenged in a current order book in any form. Neither labor nor supply chain, nor waiting for any new orders. So that's why next 2 quarters, we're pretty confident. And I don't think anything to do with election will have impact on the revenue or the profitability in the current order.

[Renu Baid, analyst]

Sure. The second question is, first half of standalone EBITDA margins have been about 8.3%. Full year level, you're guiding close to 8% levels. Given the fact that some of the legacy bulk of the legacy orders are already behind, and just a few of them are left. Why should margins not be at least 100, 200 basis points higher than the first half, given operating leverage and execution kicking in?

[Manish Mohnot, executive]

So, Renu, first, a couple of things. We're not guiding for EBITDA at 8% for the banner 6 months. I don't think we have guided for that. We still say that we're guiding for PBT in the range of 4.5% to 5%. Where in EBITDA could be 8.5% and above.Second, we still have some legacy projects which are getting completed. And also, finally, we are ramping up our abilities in the Urban Infra and B&F beyond south, right? Which could not be as high margins as our normal businesses. Because that ramping up is equally important, looking at the opportunity from a 3 to 5-year perspective.So given that, I think we're pretty confident. And if you look at, you know, the standalone happen PBT margin also at 4.5%, we're pretty confident we will be in that 4.5% to 5% from a PBT level.

[Renu Baid, analyst]

And next year, the margins should see some material improvement given legacy projects will be behind in FY '24?

[Manish Mohnot, executive]

So I don't know the definition of material, but they should definitely show some improvement, right? I'll be happy to provide the data maybe in March or maybe January or March. But definitely there should be some improvement unless something else comes up. But on the current order book, with the current situation, I definitely see some improvement coming into the next year.

[Renu Baid, analyst]

Got it. And lastly, on the monetization or exit from non-core businesses, while you have mentioned in opening remarks a few things in WIP, just some update of how much more time to exit from Indoor Real Estate project has been lingering around for quite a long while now. And any timelines that you would like to give in terms of targets to move out of the road BOOT assets?

[Manish Mohnot, executive]

So, Renu, Indore, we stay committed to our earlier target that by December '24, we'll be out of that project. In the current year also, we have seen INR 25-odd crores of cash flows coming in and sales of INR 40-plus crores happening in the first 6 months. So Indore, we are pretty confident by December '24, latest, we'll be out of that project in every form.As far as road BOOT assets are concerned, our advisors continue to work on looking at opportunities beyond the one which we signed last time. We should be looking at signing or exploring a non-binding again in the next 2, 3 months. And once we do that, we could come back to you with a definite timeline again. The only good part is now the road assets, if you look at it as a bunch of assets, they're all, there's a break even, they're getting into the cash positive zone. We don't need to fund anything for their own assets, for debt repayment.And at least we're not desperate enough to say that, they're taking cash or profit in any form as far as the assets are concerned. It does not mean that they're declared as core, they still are non-core, and we are looking at exiting it. But the stress is much lower on those assets as compared to what it was in the previous few years.

[Operator]

The next question is from the line of Amit Anwani from Prabhudas Lilladher.

[Amit Anwani, analyst]

Just wanted to understand on the margin front, you did highlight it that there would be a margin ramp up in few of the segments where we are, including B&F and a few other segments. Just wanted to understand how the margin profile is across international T&D, domestic T&D, B&F Water, and where we are expecting a major margin improvements in 12 months, 18 months, in each of the segments, if you can highlight on that?

[Manish Mohnot, executive]

I think I'm happy to give you details, whatever we can provide, but I just want to clarify, we've not spoken about margin ramping up in the current next 2 quarters. We've just said that we would be in what we have projected at the beginning of the year, 4.5% to 5% levels. Next year, there could be a ramp up, but we will come back with those numbers by the end of the year or early next year.As far as business segments are concerned, T&D as a whole continues to be at EBITDA, which is in the range of 9% to 10%. Our Building and Factories business has been doing EBITDA, which is more in the range of 10% to 12%, depending on project to project. Oil & Gas and railways have been in that, Oil & Gas, railways, and transmission domestic have been in the low single digit, in the range of 4% to 6%, depending on project to project.And some of our new businesses, which we're getting in, whether it is Urban Infra or B&F, beyond south, have also been in the range of 6% to 8%, which is very different for every project. So the new businesses are not going to help us immediate to ramp up businesses, ramp up margin, but the new businesses would balance the margin, comparing from some of the established businesses, because we are ramping up that business, which requires additional cost at this stage.

[Amit Anwani, analyst]

All right, my next question is on the Shree Shubham Logistics. How was the utilization losses, any update? And second part is on investment in road, you did mention some amount you did this quarter, and basically for debt repayment, how much more will come for debt repayment here? So these 2 parts.

[Manish Mohnot, executive]

So on the Shubham business, we've not seen a big ramp up happening. So our revenues were very similar to what they were in the previous year, Q2 revenues of around INR 28 crores, with a negative PBT. So we continue to remain cautious on that business. And currently with a huge difference in the minimum support price provided by the government and the retail price. We're not seeing huge inflows coming into the Agri warehouses across all our competitors, including ourselves.So currently our strategy is very simple, that whatever within Shubham is non-core to us, some land parcels, some warehouses, where we believe we do not see the opportunity by exiting those. And finally, making sure that at least the debt reduces on that business over a period of time and that's a key focus as far as Shubham is concerned. SKT, you want to just add on the road assets, what we expect in the next 6 months?

[Shailendra Tripathi, executive]

On road assets H2 normally there will be a better traffic growth and we can see the better revenue. As such they are break-even now as Manish said on the PBT level. As far as the, but these road assets they are in their last leg of the debt repayment as well as the maintenance cycle. So they will require some amount of infusion going forward for these 2 items. And on as far as the sale is concerned, yes we will continue to look for the right value at the right time. We will diversify them or divest them. In fact we are not in hurry as Manish said because we are already break-even. We will look for the right opportunity to divest. That is currently on the position of the road.

[Manish Mohnot, executive]

And we believe that we have infused around INR 45 crores in the first 6 months. We might have to infuse similar amount of INR 45 crores in the balance 6 months, primarily to repay debt.

[Amit Anwani, analyst]

Sure, sir. Last part on the merger synergies, we did highlight it in earlier calls that there could be some INR 100 crore interest cost synergies. And we can see I think this quarter we are at about 3.3%. So would you like to give any status on how the you know merger synergies are panning and what have you lowered your expectations or it is going on track?

[Manish Mohnot, executive]

I think as far as merger synergies are concerned we believe we have done better than what we had projected. It's -- it's the way if you look at it. So interest rates have gone up by closer to 200 basis points in the last 1 year from the time we declared synergy till now. If you look at the combined entity the rating is for the erstwhile JMC is 2 notches higher with a similar rating to what KPTL has. And the combined rating of KPIL like AA is a rating whereby interest cost of the erstwhile business has reduced significantly.If you look at the interest cost increase also an absolute number that's much lower than the increase on our as even as a percentage on our revenue. So on an overall basis, there are 3 areas where we have already achieved reasonable success. One is interest cost, second is our ability to bid for large projects and you've seen one large data center which we won we're bidding for a few large international projects also you'll hear about that soon.Also on manpower rationalization, we have made sure that whatever additional people we had out of the merger have been deployed into new businesses wherever they were fitting in because there's so much growth coming in. So, on an overall basis while numbers you might not see exact that reduction of INR 100 crores but if you give that impact of 200 basis point increase in interest rates you see that we have already achieved that reduction.

[Shailendra Tripathi, executive]

That reduction is also absorbed by the growth, in fact.

[Operator]

[Operator Instructions] The next question is from the line of Ruchita Ghadge from I-Wealth Management LLP.

[Ruchita Ghadge, analyst]

Congratulations on a recent set of numbers. Sir, my question was on the consolidated book. So the guidance that you gave on the sales side was on the standalone book right? So on the consolidated what is the kind of growth that we expect and on the PBT margin if you can give some clarity on that?

[Manish Mohnot, executive]

Sure. So I think on revenue even at a console level we believe we will grow at 25% plus for the entire year. We've seen for the first 6 months growth of around 17%, but we are pretty confident that we should be at 25% plus growth on revenue on a console basis. As far as PBT margins on console we believe we should be in the range of 4% to 4.5% more towards 4% within EBITDA which is in the range of 8.5% to 9%. We had an exceptional cost coming in Q2 on a bank guarantee encashment in one of our subsidiaries, which we are fighting for but as per accounting policies we have taken that entire hit of around INR 15 crores. Otherwise you would have seen that margins coming in H1 '24 also. So we're guiding for that 25% plus growth and margins in the range of 4% to 4.5% on a console basis.

[Shailendra Tripathi, executive]

PBT margins.

[Ruchita Ghadge, analyst]

Understood sir. I have another question on your Urban Infra, Railway and Water order book. So this got around there was no substantial order book that we received like it was around INR 100 crores odd. So how do we see this going ahead like how is the pipeline and how do we see this coming?

[Manish Mohnot, executive]

So I'll just divide this into 3 different segments as far as railway business is concerned. As I said earlier, we are slightly optimistically cautious on this because of a huge competition coming in and because pricing levels are not something which have margins in built. So we are -- and we have a reasonable order book of around INR 4,000 crores in railways which gives us visibility for next 2 years.So we are cautious as far as railway business is concerned. As far as Water business is concerned I think we've got good orders in Q1 and we've also declared some orders yesterday in our order and we're pretty confident of receiving orders in the range of INR 4,000 crores for the current year. We're also L1 in good orders in Water business.As far as Urban Infra business is concerned you know we are ramping up that business and we are very happy to have our first success in underground tunneling in our Metro project where we are L1 in one large project and that order we expecting should be coming in any time in the next few weeks. So that's the business which is very CapEx intensive. So we are not running into that business like let's say a growing at let's say 20%, 30%, 40% because it's a very CapEx intensive business.We're looking at project after project and the plan is over the next 2 years ramp it up to a level that it becomes similar to a T&D, Water or B&F. So we are growing it, we are very focused but we are cautious on that also.

[Ruchita Ghadge, analyst]

So sir, this 25% sales growth that we are speaking about, so the major execution we are expecting in which segment?

[Manish Mohnot, executive]

T&D, B&F and Water. If you look at today our order book you know closer to 78% of our order book is out of these 3 segments. So we expect all 3 of them to be doing 25 to 30, if not, Water is doing closer to 50%. So these 3 businesses will drive primarily revenue growth both in the current year and next year.

[Ruchita Ghadge, analyst]

Okay sir, and next year sir you were providing the guidance for around INR 25,000 crore on sales. So are we still guiding for that or is there any change?

[Manish Mohnot, executive]

I think we're pretty confident of our vision for 2025 on all parameters which includes revenue, profitability, order book as well as improvement in ROCE. We're working towards it and as of today the team and the senior management is pretty confident of achieving our vision 2025.

[Ruchita Ghadge, analyst]

And so just last question, what would be the risk to these guidance like on the margin stand and on the sales front if you know you could just try to help me with that like 1 or 2 major risks to it?

[Manish Mohnot, executive]

I think the biggest risk today is the geopolitical issues and the impact of that on supply chain or on let's say anything to do with lines of credit available from funding agencies. So, biggest risk if you ask me today the first one is a geopolitical issue. The second one linked to the geopolitical issue is a volatility in commodities and ForEx if it all that comes up. And the third which is you know scarcity of resources. While we have ramped up enough to be looking at growth in the current year and next year but availability of resources is also a key challenge. Whether I look at labor, whether I look at professional resources, whether I look at you know banking resources everything.So to me 1, 2, 3, this 3 would be the biggest risk. While we say so where we are today we've inbuilt those risks into some of our numbers and we're pretty confident unless there's something very exceptional we still might will be achieving our targets.

[Operator]

The next question is from the line of Deepak Narnolia from Birla's SunLife Insurance.

[Deepak Narnolia, analyst]

Am I audible?

[Manish Mohnot, executive]

Yes.

[Deepak Narnolia, analyst]

Yes sir, correct me if I'm wrong but consolidated revenue you are saying a 25% growth for a year so initially you had guided for 30% growth, correct?

[Manish Mohnot, executive]

Yes, you're right. We revised the guidelines from 30% to 25%.

[Deepak Narnolia, analyst]

And still you know for the first half the growth is somewhere around I think 16%-17% types growth. So second half would be better than the first half, that's what you're saying even if it's at 25% growth.

[Manish Mohnot, executive]

Yes for sure, we are targeting second half growth of closer to 30% if not higher than 30% and that would give us a console growth of 25%. Typically, second half growth is always much higher than the first half growth given the nature of our business.

[Deepak Narnolia, analyst]

Yeah, but sir, most of the companies are talking about electricity in the year and weaker second half.

[Manish Mohnot, executive]

No, I don't think in our order book we will have any significant impact coming because of election and I would like to highlight this properly to you. I would like to go on our top 3 segments. If I look at transmission international it has no impact of elections. If you look at transmission domestic primarily order book is with power grid which it would have no impact of elections, probably and a few private sector developers which would not have any impact.If you look at Buildings and Factories 85% of our order book is with private sector right which has no impact of elections. If you look at Water business it's primarily driven by the Jal Jeevan scheme where you know funding as well as the push by everyone. Actually the push would be 2x because of elections. It will not reduce workers, it will only increase our revenue because given elections there's a huge pressure on delivery on all Water projects. So in our order book today we do not see any impact coming because of elections at least in the next 2 quarters. What happens in Q1, Q2 of next year something which we will review again in February, March but pretty confident next 2 quarters you will not see any impact coming.

[Deepak Narnolia, analyst]

But as far as the moderation is in sales guidance is concerned for the year so what has gone wrong in comparison to your initial expectation?

[Manish Mohnot, executive]

So 2 important things one we were L1 in a large project which we have exited Australia project which we were declared one and which we have exited that has had some impact on revenue. Second a couple of large projects in Urban Infra and Oil & Gas which we have been focused on got delayed. We were expecting those projects to come in May, June but they have not just coming in now in October, November.So given the delay in those new projects and given the exit on the Australia project you know we believe and also something to do with supply chain issues on some of the substation projects. We believe that we might not be able to achieve our targeted 30%, but we will achieve 25% without compromising on profitability and balance sheet ratios.

[Deepak Narnolia, analyst]

So one last thing, do you see any risk to this 25% guidance again because initially you had guided for 30% and now it is being cut down because of certain projects. So, now do you see any you know emerging risk in this 25% guidance also?

[Manish Mohnot, executive]

I don't think so because today we have full visibility on the order book which we need to deliver in the next 6 months. We have also inbuilt issues if at all they come on supply chain on the substation business. Unless, there is huge geopolitical issues, which all of us will know together right it's not that I would find out and you would not. Unless, there is huge geopolitical issues or trade issues in terms of non-availability of you know ships and all of that I don't see a challenge in achieving this 25%.

[Operator]

The next question from Bharat Sheth from Quest Invest.

[Bharat Sheth, analyst]

On domestic T&D I believe that opportunity looks I mean tendering around INR 50,000 crore to INR 70,000 crore kind of a thing but and I believe is largely on our renewable side.

[Manish Mohnot, executive]

So Bharat bhai, opportunities coming across the country yes a lot more to be added as capacity for the renewable segment generation primarily in Rajasthan, Gujarat but we're seeing opportunity across the country. So we're seeing some traction coming up and let's say the Leh Ladakh side also where recently the government has approved that large project for power grid.We also seen some traction coming in South India but yes you're right 60% to 70% of new order books are more in Rajasthan and Gujarat to take care of the renewable capacity which is being added in the country.

[Bharat Sheth, analyst]

Two things are on that side. I believe that timeline for completion is relatively lower because of I mean they come up very fast vis-à-vis thermal power plant and second thing there are a lot of issue related to power fluctuations so CETCOM opportunity which was early in between has I mean this gone down. So how do we see the CETCOM opportunity in this whole segment and the timeline?

[Manish Mohnot, executive]

No, you're right Bharat bhai. The timelines now for majority of the projects which are getting floated as more in the range of 24 months. Rarely, we getting projects which are more than 24 months. So 18 months to 24 months is the timeline for majority of the new projects, which are being awarded now. As for the CETCOM opportunities, I think you know, I still believe that, those opportunities will come back because that's something which you will require as a country over a period of time. Maybe not in the short course of time, maybe not in the next 6 to 9 months but beyond that, again, I believe that those opportunities should come back for everyone.

[Bharat Sheth, analyst]

So how we have built our capability earlier we were going along with the JV partner and so now can we manage our own or?

[Manish Mohnot, executive]

Today on the substation side we build huge capabilities over the last 5-years. Today, I think we qualify on 95% of the tenders, which get floated bearing a few high-end GIS tenders which we still don't qualify, but maybe in the next 6 months we'll qualify for that also.So today I think we are doing every kind of substation projects domestic and international right from a 230kv to 400kv to 765kv. We are doing both the AIS and GIS projects and as I said earlier, more than 95% projects we qualify by ourselves, and the target is even for that balanced 5% in the next 6 months to 12 months we will have all qualifications.

[Bharat Sheth, analyst]

And which are others, I missed, I mean in between, so what are other opportunity are we seeing in a domestic as well as in T&D side?

[Manish Mohnot, executive]

So as far as domestic is concerned, Bharat bhai, we are we are building our Urban Infra order book with selective orders we took order on the metro last year, we have now taken underground metro tunneling where we are L1, we should be getting that order. We are ramping up our capabilities in B&F in North and West. We are ramping up our capabilities on the international front both in all these segments which is Oil & Gas, B&F as well as roads.So on the domestic front, I think we're bullish on all 3 business T&D, Water and B&F. We are cautious on railways and Oil & Gas in the domestic front as of now. Internationally, I think we just there are huge opportunities we're just making sure that we take those opportunities which are balance sheet can sustain and which we can deliver in the defined timeline. Sorry, Bharat bhai, is that clear?

[Operator]

Sorry, sir. Mr. Bharat has left the question queue. We would take the next question from the line of Ashwani Sharma from ICICI Securities.

[Ashwani Sharma, analyst]

First question is on the working capital. We have very well managed our working capital days at 104. Just trying to understand, you know, what is helping us because we look at your closest competitors of working capital cycles around. It's pretty much higher compared to yours. So what is helping us and what is our strategy going ahead? And the related question is how do you see your debt by end of FY '24?

[Manish Mohnot, executive]

You are asking one key reason which is helping us on working capital has been our relentless focus on closure of projects. I think that's something which is a lot more driven in the Kalpataru environment where closure of without closure of projects the majority of a senior management CRAs have projects have a huge weightage for closure of projects, and that's really which helps us on differentiating ourselves from anyone else, one.Second, I think we've also been cautious on not getting into projects which have high retention or low advance. So there are a lot of projects in Middle East where retention is as high as 20%. And we've been very cautious in not building that order book because that is an order book which, while there could be a margin, but it has a challenge on the balance sheet and while we have opportunities everywhere else, we're not getting too much focused on that. So our second advantage has been not getting into projects which are very bad on payment cycle.And third, I think from a long-term focus, I think debt has always been a big focus for our group. And if you look at it the last 10 years, debt is now one number which we've always kept under control without compromising on vendor payment days. So if you look at our vendor cycle also, we are the lowest in the industry. And on working capital also, we are the lowest in the industry. So focus of right order book and relentless focus on closure of projects. These are the 2 things which are helping us.

[Ashwani Sharma, analyst]

Sir, is it possible to give, a segmented break of the working capital? I mean, T&D, Water, B&F.

[Manish Mohnot, executive]

I might not have the data with me readily available, but if you need that data, you could connect with Kunal or our finance team later on to take that data. But I know one thing that our international business is much lower on working capital days. And some of the businesses are even at the range of 30, 40, 50 days.And the domestic businesses, typically private sector is more in the range of 90 to 100 days, but the public sector, which is SEBs or PSUs, all of that is more in the range of 120 plus days. If you need specific, it might just help for you to connect with either IR or finance team, and they'll be able to help you on that.

[Ashwani Sharma, analyst]

Sure, sir. Second, and just a bookkeeping question. Such an Australian order that we had got, you have lowered your revenue estimates, but what would be the impact on our order inflow during the quarter? Because we have not cut our order inflow estimate.

[Manish Mohnot, executive]

No, so, we still believe on an overall order inflow, we will be there at 25,000 crores, because while the Australia order book has gone out, we've seen huge traction coming in domestic T&D. And we also seen some traction, which was beyond what we had thought of coming on the international business in some other segments. So, even with the Australia order going out, which our share was a reasonably good number, we believe that on an overall basis, we will be able to reach our target at INR 25,000 crores.If you look at it today, we have visibility of INR 17,000 crores already, including L1. You have declared INR 12,200 crores and we L1 in INR 4,300 crores. So, with that, I don't see a challenge in achieving a INR 25,000 crores order inflow target for the current year.

[Operator]

The next question is from the line of Abhineet Anand from 3P Investments.

[Abhineet Anand, analyst]

Yes, sir. First of all, if you can, I think I missed your margin for the segments. You did mention about some of the segments which will be below the company average, like Oil & Gas. If you can just, I mean, let me know. Oil & Gas, you had referred to 4% to 6%, right?

[Manish Mohnot, executive]

Yeah, Abhinit, so you're right.

[Abhineet Anand, analyst]

What are the other sectors, if you can just let us know?

[Manish Mohnot, executive]

I'm sorry, just give me a minute. No, I think the margins, what we had guided earlier, we continue to be at similar levels, with transmission being in the range of 9% to 11% and Building and Factories being in the range of 10% to 12%, and Water being in the range of, again, 8% to 11% project to project. Our margins are lower on our Oil & Gas, Railway and Urban Infra business.Two of them, given the competitive intensity, and one of them, given that we are ramping up the business right now, so it requires some additional capital, some strategic bidding, some selective ways of winning projects. So 3 businesses, which are our core businesses, will be in the range of 8% to 11%, and the 3 businesses which are also core, but not doing so well today, would be in the range of 4% to 6%.

[Abhineet Anand, analyst]

Okay. And in terms of the PBT margin, we are saying 4.5% is the likely number, right?

[Manish Mohnot, executive]

Yes, in the range of 4.5%

[Abhineet Anand, analyst]

And just on the supply chain, you did mention some issues around substation. That is in particular to India or across the geography, sir?

[Manish Mohnot, executive]

I think it's across the globe, primarily in availability of transformers and a few related items. It's just an issue across the globe.

[Abhineet Anand, analyst]

And just for the JMC part, our road BOOT is what would be the debt at presently?

[Shailendra Tripathi, executive]

It's in the range of about 536, 540.

[Abhineet Anand, analyst]

And this around INR 80 crore, INR 90 crore that we will be paying will be the debt repayment only, right, for FY '24?

[Shailendra Tripathi, executive]

Yes, yes.

[Operator]

The next question is from the line of Ashish Shah from JM Financial.

[Ashish Shah, analyst]

So the first question is on the loans given to the subsidiaries and various entities. So what we see in the financials is a net number of INR 136 crore being given in the first half. You did mention that about INR 45 crores, INR 50 crores would have gone to the roads as series. Where would have been the balance amount gone?

[Manish Mohnot, executive]

So there's an amount of around INR 60 plus crores which has gone to Chile, which is normally a project, but it comes in the part of subsidiary because we're doing a project in Chile, but it's via subsidiary route. So it's normal project. We've got the advance last year already out of it.So now is the time when the money is being given. So there is Chile, there is some amount given to Brazil and there is some amount given to the road assets. Significant number is Chile, which is closer to INR 75 crores. Sorry, thanks for correcting INR 75 crores, which is normal business. It will come back, it is an EPC project, but done via subsidiary route.

[Ashish Shah, analyst]

Got that, sir. Secondly, on the domestic P&D opportunity. So there are numbers of as high as maybe INR 50,000 crore, INR 70,000 crore of pipeline, but how much of this you think is at an advanced stage, which can actually get tendered and ordered before let's say the end of this financial year, keeping in mind that maybe March could be a little slower?

[Manish Mohnot, executive]

So I believe that significant portion of this, because there's number of INR 50,000 crores to INR 70,000 crores is coming primarily out of all the tenders which are available in the REC, PFC websites and some projects of Power Grid. So I believe a significant portion of this should get at least tendered before the year end. Some of that might get awarded next year, but my own assessment is that maybe 75% to 80% of this would get tendered before March 24th.

[Ashish Shah, analyst]

So I mean, would you kind of put a number of more than 50% to this? I mean, do you think there's a 50% chance?

[Manish Mohnot, executive]

Yes, yes, definitely more than 50% should get tendered before March 24th, if not more than that.

[Ashish Shah, analyst]

Right. Sir, on the underground metro project that we won, so in our scope, are we actually going to do the tunneling part? What's our value in the project? And what's the kind of CapEx that we might need for the project?

[Manish Mohnot, executive]

So yes, tunneling would be a part of our scope also along with our partners. We would also be looking at tunneling on this project. The total CapEx on this project could be in the range of INR 80 crores to INR 100 crores over a period of next 12 months to 18 months. Significant portion should be coming in next year. We don't expect much CapEx to come by March because the ordering cycle itself is around 5 months to 6 months. The biggest CapEx on TPM machines, which, even if once we place the order it would be a 6 month lead. So from that perspective, the CapEx should be coming in '24, '25 significantly in the range of INR 80 crores to INR 100 crores.

[Ashish Shah, analyst]

And so what would be our value of the order? Our share of the order?

[Manish Mohnot, executive]

I might not be able to share that today because we have not declared the order value and all of that. So once we declare the order value, we'll be able to help you with that share and all of that because it's L1, we still are expecting that order in the next few weeks.

[Ashish Shah, analyst]

Got it. And so lastly, when we look at the CapEx number, the first half capex number seems to be significantly lower as compared to what we did last year. About INR 79 odd crores versus only INR 260 crores last year. So you think the second half CapEx is going to catch up or this year it would be a little bit lower on CapEx?

[Manish Mohnot, executive]

No, I think we're going to be catching up on CapEx in the second half. We believe that our CapEx for the current year would be in the range of INR 250-plus crores. It could slightly even go up. A lot of CapEx is expected to happen in the next 2, 3 months on projects which you already won. The orders are all placed, the material is expected and we'll get capitalized once the material comes in. So I think on our CapEx guidance, we would be definitely at INR 250-plus crores for the current year. And it will only go up in the next year. It does not look like coming up, which is a good sign because there's so much opportunities and ramping up always helps on CapEx.

[Operator]

The next question is from the line of Bharat Sheth from Quest Invest.

[Bharat Sheth, analyst]

Sorry, my line got disconnected. Hello?

[Manish Mohnot, executive]

Yes, Bharat bhai, sorry.

[Bharat Sheth, analyst]

Sorry, sir. Just understanding, I mean, on this T&D side -- PC side, sorry. See, our standalone EBIT is around, then just if you try to make with the console number, then the loss is INR 51 crores out of that, INR 16 crores is fairly understandable of the Brazil. So balance is on what account, I mean, sir, because there's amount that's gone up substantially.

[Manish Mohnot, executive]

So I think it is a combination of 5 key things. First one, Brazil, which is around INR 19 crores, INR 20 crores. Second is reduction on profits of Linjemontage. If I compare on a Y-o-Y basis, which has the impact of INR 8 cores, INR 9 cores, profitability of Linjemontage is much higher last 2 years. And we're expecting it to reduce in the current year. Third are losses, small losses coming on Shubham. Fourth, some of our Saudi projects also, which comes in console numbers, because they are done through subsidiary routes have some small losses.So if you look at it, significant amount of international subsidiaries, which would be in the range of INR 28 crores to INR 30 crores. And then Shubham road assets, and, some of our international projects, which we are doing via subsidiary route would be the balance number. When you compare Y-o-Y, the impact of reduction in margins at Linjemontage also has a big impact.

[Bharat Sheth, analyst]

And how do we see going ahead?

[Manish Mohnot, executive]

At the current year, we do not see Linjemontage performance improving or reaching back those levels, which we have seen over the last 3 years. And that we were aware of at the beginning of the year itself, because we're not focused on too much growth in that business in the current year. Last 3 years, they've grown up by closer to 100%.So this year, we are building resources, we are ramping up on processes, systems, and revisiting a lot of, assumptions for the next 3 years. So on our annualized business, as far as weather is concerned, as I said, we should be at a break-even level on our annualized business, excluding this impact which came in. Linjemontage EBITDA margin would be in the range of 4% to 5%, not 8% to 9%, at least for the current year.Shubham Logistics at a PBT level would be negative only. We're expecting it to be break-even. It could be either break-even or just slightly negative. On our international subsidiaries, I think majority of the losses are done. We could maybe have one more quarter of losses, but otherwise, that's somewhere where we should improve it.As far as from standalone to console, I think going forward, we'll only see an improvement. We'll never see a reduction coming out of losses because road assets are now positive. The international subsidiaries are moving towards positive. The interstional projects, which are done through subsidiaries are moving towards positive. So that gap will only reduce going forward.

[Operator]

We would take that as a last question. I would now like to hand the conference over to Ms. Bhoomika Nair for closing comments.

[Bhoomika Nair, analyst]

Yes, I would just like to thank the management for giving us an opportunity to host the call, and all the participants for being there, and asking all the questions. Thank you very much, sir, and wishing you all the very best and a happy Diwali, sir.

[Manish Mohnot, executive]

Thank you very much, Bhoomika, and wishing all of you and family a very happy Diwali.PC^Operator^ Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.