Power Mech Projects Ltd

NSE:POWERMECH

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Power Mech Projects Limited Q1 FY '23 Earnings Conference Call hosted by Nirmal Bang Equities. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Prasheel Gandhi from Nirmal Bang Equities. Over to you, sir.

[Prasheel Gandhi, analyst]

Thanks, Rinju, and good afternoon to all the participants. Nirmal Bang Equities welcomes you all to FY '23 earnings conference call for Power Mech Projects Limited. From the management team, we have S.K. Ramaiah, Director, Business Development; and Mr. Jami Satish, CFO.

Without taking much time, I hand over the call to management for opening remarks, post which, we can take for Q&A. Thank you, and over to you, sir.

[Jami Satish, executive]

Yes, yes. Thank you.

Good afternoon, all. This is Satish. And along with me, I have Mr. S.K. Ramaiah, Director, Business Development. We welcome you all to the earnings call quarter 1 FY '22, '23.

Let me take first to the financial highlights of first quarter '23. Performance for quarter 1 FY '23 continue to be healthy in line with overall plan set for the company. The reported total income for quarter 1 FY '23 is INR 749 crores. The EBITDA is INR 86 crores, and the reported PAT is INR 39 crores. Whereas quarter 1 of previous financial year, the reported total income of INR 628 crores, EBITDA was INR 71 crores and PAT was INR 31 crores.

The revenue mix for quarter 1 FY '23 is as follows. Erection business contributed INR 152 crores. Civil business, including Railway, Water Projects is around INR 376 crores. Operation and Maintenance, INR 196 crores. Electrical business, INR 22 crores, and Other income, around INR 2 crores. Whereas during quarter 1 of last financial year, Erection business contributed around INR 137 crores; Civil business contributed around INR 284 crores; O&M business contributed INR 173 crores; Electrical business, INR 28 crores and from Other income, it was around INR 6 crores.

Domestic business has contributed almost 83% and rest, 17% business has come from Overseas business. The mix between power and non-power business stands at 60% and 40%.

We have seen growth across all the segments, except Electrical business, whereas the company is conscious of growing in Electrical business space. This is partly best and all-time high quarter 1 performance for Power Mech in this entire journey. Reported total income flocked a growth of almost 19% during quarter 1 as against quarter 1 of previous year. We had the EBITDA has shown a growth of almost 20%, and PAT has shown a growth of almost 26% on account of controlled finance cost, depreciation and increase in margin profile.

Depreciation cost as a percentage to revenue remained lower side due to controlled CapEx spending. Generally finance cost as a percentage has come down on account of production in overall usage of [indiscernible]. Overall execution cycle expected to improve further on account of robust order book, stronger engineering skill, construction management and strengthening first and second level leadership in-house.

Power Mech is known for its execution capabilities. From a pure power sector play 7 years ago, the company has transformed itself into a multidimensional infrastructure player, retained its core competence in O&M and mechanical piles as we foresaw slowdown in the thermal power sector years back. Post that, Power Mech has demonstrated its execution capabilities in every segment we operated so far, including railway, road projects, water projects, material handling, cross-country pipeline, international operations, etc.

Another important point to note is that Power Mech has experienced in operating in all trust areas, including international territories.

During this 23 years journey, including tough period of COVID, the company has built capabilities to deal with any adversity. We have instances that we were awarded few contracts without performance guarantees, which shows the confidence of our customers. On execution front, the company is much confident to deliver on schedule.

We are also excited and happy to share new talent from reputed organization joining Power Mech across all verticals. Few names will include N. Srinivasa Rao, MD, joined as a MD and CEO, International Operations, Africa. Actually he was associated with reputed company like Shapoorji Pallonji; Mr. Umesh Mehta joined as Chief Techno Commercial Officer, having more than 3 decades experience. He was associated with some of the reputed companies like Vedanta, Sterlite, Vaaman Engineers; Mr. Vijaya Bhaskara Rao joined as Vice President, Contract Management and Business Development, having 35 years of experience. And earlier, he was associated with companies like Tecpro, Desein, APGENCO; Mr. Ashok Kumar Datta, joined as Vice President. And he has almost 30 years of experience. And earlier he was associated with some of the reputed companies like Reliance Industries, Nirman, L&T.

So this shows the confidence on the execution front and the talent getting attracted from bigger organizations that gives lot of confidence among the team in terms of execution.

And going forward, the overall working capital cycle looking to be improved. The average monthly collections continued to be in the range of INR 250 to INR 300 crores, and the synergy expected to improve going forward. Net current debt, excluding cash and cash equivalents continued to be in the range of 140 to 145 days during the period. This is again expected to come down during the year.

Gross debt and net debt remained controlled despite growth in the business. Overall debt utilization and finance cost expected to come down during the financial year.

As you all would have seen recently Power Mech as there'll be a large contract in the space of FGD, which is around INR 6,100 crores plus from Adani Group for its projects based at Mundra, Tiroda, Kawai and Udupi on a complete EPC basis. These projects are to be executed over a period of 30 months. Power Mech has created a separate unit to handle this project headed by senior professionals.

Also, Power Mech has tied up with the well-proven technology partners for technology support and also for equipment supply to install this FGD and taken all necessary precautions to mitigate all contractual and external risks. The major thrust into FGD EPC business is part of our forward integration and major diversification based on Power Mech's core competence of over 2 decades in power plant installation. Power Mech's vast experience and in-house core strength to handle any power plant will add lots in terms of value addition in execution of these projects.

These contracts have 10% mobilized advance cost, which is interest-free. Therefore, we do not see any incremental working capital for executing this project. We see this project as self-sustained. And the margins are expected to be at around 11% plus at EBITDA level from the FGD project. Of course, there is a scope to improve further, that's because of our inherent strength in similar field. We will deploy need based equipment in-house and new with a mix of additional CapEx of INR 25 crores to INR 30 crores, which is part of our CapEx done for this year.

The order backlog for the company as of today stands at INR 24,000 crore plus, including MDO contract, and INR 15,000 crores plus excluding MDO contract. As to date, during the current financial year, the company added new orders of INR 6,948 crores.

For the entire year now the company has set target for reaching [indiscernible] of new order additions. We're yet to add new orders of INR 3,100 crores for the balance period of current financial year. As of today, the company is already allowing for almost INR 1,500 crores of projects.

The company has strong visibility for it's 3 years growth. During the current financial year, the company is confident of converting order book to revenue of around INR 3,600 crores plus conversion of revenue from this new FGD contracts. We will come with the revised target of revenue for the year in couple of days based upon the FGD of schedule.

For FY '23, '24, the company is expecting to have opening order backlog of [ INR 40,000 ] crores plus, this is excluding MDO contract. The company's trying to convert opening order book to revenue by around 38% plus during FY '23 and '24. The MDO project is going as per our original schedule.

After 3 years, the company will consolidate its business model to sustain growth, and the focus will continue to be more on improvement of margins and cash flow. First 30 months, the company has opportunity of additional O&M contracts of INR 1,000 crores which will be executed over a period of 5 years. Clearly, it will add almost INR 200 crores plus in terms of revenue from the FGD orders and the O&M orders yet to receive.

In addition, the MDO contract will start generating revenue. Moreover the company has built strong enough credentials and features in the field of railways, water projects, road projects, international operation, material handling, cross-country pipelines, etc.

So Power Mech will align its business model, keeping opportunities in line with the NIP. Of course, Operation & Maintenance both in power and non-power sectors, including international operations is expected to play a dominant find in our overall business plan going forward also.

The promoters are intending to infuse funds into Power Mech by way of preferential allotment subject to Board and necessary approvals. Power Mech's need non-fund base limit, mainly performance bank guarantees of various banks.

Infusion of equity from promoters will build a lot of confidence among the lenders, and will also help a lot improving the external credit setting. It will range around 1.3% to 1.4% of pre-allotment equity base. And subject to consent of the Board and necessary approvals, which will come within a couple of days.

Now, I request Mr. Ramaiah to add few more developments before we move forward to Q&A. Thank you.

[Sudha Kodandaramaiah, executive]

Yes. Thanks, Satish, for your opening remarks and bringing of the various facts on the company's operations. Thanks, everybody.

I think on the marketing and business side, as you know, the COVID is behind us, and that has obviously opened up the market in a big way. And that is obviously reflected in the results and the opportunities and the new orders the company is bagging. And last year, the last year, at the end of the year, we had a backlog of INR 8,855 crores, and the first quarter about [indiscernible] order have been booked in the Mechanical side and then Civil side and then O&M side of [ INR 155 crores ]. And that has -- taking into the backlog of conversion in the first quarter, the order backlog now stands at INR 8,883 crores. And there is a modest increase based on the first quarter inflow of the orders, about 8.6% in the Mechanical and ETC business. And of course, since the conversion has been taken place in O&M, the order backlog stands at INR 1,203 crores. And then Civil and infra, the order backlog is now [ INR 5,789 ] crores. And then Electrical, we are not adding much. It stands at INR 96 crores.

Last year, the first quarter, the order booking was INR 343 crores. This year, it has gone up INR 775 crores. And the major orders which have been received are Khurja coal handling. It is a very good opportunity. We are working with Thyssenkrupp in partnerships, [INR 191 crores ], of course. Then the Godda 800-megawatt boiler that Adani has entrusted the job to us because of the failure of the existing contractor, about [ INR 105 crores ], that is going on a fast track basis. Then there was FGD field works we have taken up at North Chennai, on BHEL, INR 119 crores. And then sheds construction in Dabhol from the railway opportunity, INR [ 113 ] crores. And then going into more opportunities about INR 155 crores again which was part of that. On bridge construction work roughly INR 50 crores, and the other Civil Works about INR 41 crores.

For -- That is what the breakup of INR 775 crores. The major orders in the pipeline L1 status or the FGD orders for the Civil and Mechanical execution jobs. About 1950 megawatts, Haldia, Chandrapur, [indiscernible] CESC Goenka Group. And we are stand lowest at INR 870 crores for our 1950. There is not an EPC job, but it is a balanced site execution jobs are there.

Under Bangalore Metro, 1 Depot construction is coming up. And that is about INR 450 crores at Challaghatta. Then, railway electrification jobs in Mangalore [ INR 88 crores]. And then there is an O&M opportunity in Nigeria, where we are already doing installation job, in Dangote. It's about INR 94 crores. So these are the orders in pipeline.

Then coming to the business segment analysis. The domestic business stands now at the balance order backlog of INR 8,361 crores compared to [ INR 8,212 ] crores last year. And the international, not much is happening because our focus has now fully in the domestic side because of various opportunities, INR 522 crores.

The Power Sector business is around 43%. On the order backlog, INR 3,799 crores, and the non-power continues to play a role, INR 5,084 crores.

Now, there are 2 distinct developments here which is going to give a big provision for the company in the next couple of years. One is the main development operation in Jharkhand that is INR 9,294 crores for 25 years. With that, the backlog will stand at INR 18,177 crores as on June. But barring this main development, now, the new initiative which has happened in the FGD order as Satish was speaking about [ 8460 megawatts ] or about 15 units of T32 infused megawatt Adani at various of their projects in Kawai, Mundra, then Udupi et cetera. That is LOI, order has been resumed.

And taking that into factor, the backlog has gone up to INR 15,056 crores. And that also boosts up the Power sector and Mechanical job presence in the business, and the domestic business has ballooned to almost 96% with a backlog of INR 14,531 crores. And the Power sector business has jumped, with us on the downward trend for the last couple of, 4, 5 years. And now the backlog grows to 66% of the total orderbook up INR 15,056 crores, and the non-power is INR 5,084 crores.

So for us, this is a very good ground to take off and then have a vision for the next 2, 3 years. Major works we are executing in Udangudi, similar structure job, INR 345 crores. Then Buxar boiler for L&T INR 176 crores. Bhusawal, similar structure was INR 285 crores. Maitree, major job in Bangladesh, INR 855 crores. Yadadri, for the 5x800 megawatts, many packages in Civil Mechanical coal handling, INR 813 crores. Ramayampet Canal was INR 373 crores. And then Sadalpur electrification, INR 350 crores.

And the major water projects, which we are doing in UP, about INR 2,775 crores. The present value, it can go up to plus [ INR 49 crores ]. Then roadworks, what we are doing in Karnataka and Mizoram about INR 780 crores. And then the latest job, what we have taken from the Adani, in the Khammam, Kodad road project in Telangana, INR 645 crores. And if we add up the FGD in the 4 projects, INR 6,163 crores.

So this is why the company's focus will be the next 2 to 3 years, and the O&M continues to play a role in our bottom line growth and also contributes for the revenue generation. With the major presence in Singareni INR 343 crores, Tuticorin, 2x600 megawatt INR 391 crores. And then non-power jobs also, we've taken at JSPL, INR 66 crores. And then Jharkhand, Jharsuguda, 4X600-megawatt, INR 387 crores.

And then international, also now the focus is on O&M side, because we have done lot of installation jobs that we are expecting about INR 100 crores. This is the presence in the O&M side.

And the manpower side, the company continues to add people, as rightly said both on the senior level and also the working level to strengthen the execution and oversight of the project execution. And it stands about 32,000, with a contract labor of nearly 15,000. There may be some more additions have to take place to take care of the new order booking.

And as far as the opportunities are concerned, without the FGD, we had a target of INR 4,000 crores. And with INR 1,500 crores with the L1 position and INR 775 crores, perhaps we're still able to achieve those figures without the FGD. And if you add up the FGD, the order booking for this year can go up to INR 10,000 crores. Therefore, that should help us to understand at the end of 2023 assuming that the conversion of INR 3,600 crores can go up slightly higher of the Adani -- Adani FGD order to plus INR 4,000 crores. The backlog by end of the next year, it should stand between INR 14,000 crores to INR 15,000 crores. And that is a very clear working model for us in the next couple of years.

And then the major areas of the work are the drinking water projects, INR 2,775 crores. The growth project was [ INR 1,650 crores ], and then the FGD is about INR 6,163 crores. And then O&M jobs are on [ INR 400 crores ]. These are the -- and then I think the business, as Satish has rightly said, we have aligned ourselves with the national infrastructure pipeline that is reflected in our order flow in the last couple of 2, 3 years. And if you look at the -- if you look at the order flow in the last 2 years, in 2021, it was INR 4,638 crores. In '21, '22, it was INR 4,231 crores. And as I -- based on the projects including the Adani order book, it is certainly possible we can get around INR 10,000 crores in the current year.

And down the line, obviously, the NIP investments will continue to be bullish, with various investments in infra side, railways, the minerals and mining, then mine development. That is a major opportunity since we already entered there. In fact, Coal India is planning to undertake mine development operations for about 162 million ton. And the drinking water projects continues to be funded well, and out of INR 19.1 lakh crore of households, 50% have been provided with the last -- with the first of the last couple of years. And we are working in about 3% villages in UP.

And the one more area or perhaps the long-term vision can be the operational maintenance of the thermal power plants will undergo basic changes, with increased capacity addition into renewable power. And by 2024, '25, it is expected to go up to 450 megawatts installed base. And the end of the decade, the present PLF stands at 58% which has come down if you further go on down to 30% to 40%.

Well, in a way, the thermal plants will come under a lot of stress in operation because of the -- in the generation mix of the fuel, and that obviously calls for different O&M practices. The company is gearing up for that, it's huge presence in about 67,000 megawatts of operating base and working at about 40 plants. And in fact, it is both an opportunity for us to work under these adverse conditions in operating those plants because in many of these cases down the line, the power plants are to be operated in day/night basis. That can add up to the O&M costs also.

But in a way, it can be an opportunity. And railways are coming with big investments and we are already there, perhaps with INR 500 crores of working orders, what we're executing. Another INR 450 crores expected shortly. And then railways is going for 500 numbers of multimodal terminals, cargo terminals, and their [session free developments].

And then there are new opportunities, what we are looking at is a metro project. Today, metro is going to be there in most of the [indiscernible] grade town. And the total length has gone up to 702 kilometers and is planned to go up to [ 1,700 ] kilometers, and the opportunity is INR 280 crores to INR 320 crores per kilometer.

And then roads I explained you already. The investment in this year is nearly INR 2 lakh crores. And there is a compounding growth of investment of 20%, and we are working in about 151 kilometers of road of [ INR 1,646 ] crores.

Then the -- as far as Electrical, T&D, Transmission & Distribution, yes, we are taking a view on that, how to proceed on that because of the competition. We have successfully completed four projects, and we are working another 4 projects in Northeast Bihar and Bombay and we are watching the opportunities. There is going to be a substantial investment in T&D also to strengthen the grid and break down the [ transmission distribution, water ] the investment of nearly INR 3 lakh crores.

And railway electrification is going to be a huge opportunity. And we have completed 640 kilometers of railway line in the Sadalpur section out of 727 and another 80 kilometers, we are bidding for that and hoping to get that.

Therefore, this is what I can bring out about the opportunities then -- other portion and the marketing side. Yes, we can go for the next phase of the question and answer. Thanks a lot.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

The first question comes from the line of Abhishek from HDFC AMC.

[Abhishek Poddar, analyst]

And congratulations on a very strong set of orders.

Sir first question regarding the FGD order that we have received, some understanding on how the revenues will be booked in '24, '25? And also, if you could give some understanding on the payment terms, how much is retention money?

[Sudha Kodandaramaiah, executive]

Yes. I think this INR 6,163 crores will be spread over next 30 months. And the first year, we can expect about 10% of revenue that is the maximum. Therefore, perhaps, '23 and 24, the revenue should -- out of these, at least 50% should get converted, 40% to 50%. That can boost up the revenue amid the other backlog of orders for the year '23, '24. Because by end of the year, as you I told INR 14,000 crores to INR 15,000 crores of backlog will be there. And that should give a vision of INR 4,500 crores to INR 5,000 crores of revenue beyond '23.

[Abhishek Poddar, analyst]

Yes. And sir, what is the retention money in that we have agreed on?

[Sudha Kodandaramaiah, executive]

It's around 10%.

[Abhishek Poddar, analyst]

Okay. After a year of completion will get eased?

[Sudha Kodandaramaiah, executive]

No. No. That is the end of the completion. Then we can get that payment spend.

[Abhishek Poddar, analyst]

Okay. And sir, this commodity escalation clause and margins, how are those covered in this contract?

[Sudha Kodandaramaiah, executive]

I think they are in line with the market expectations and the competition, about 11% to 12%. And about the advantage for us is we got more validation for our side because of the -- our operations are well grounded with in-house equipment, supervision and our own construction in expertise. And what we have to focus is on the procurement side. And then fund -- the working capital should not be a problem because we are getting the advances, and we are going to tie up on a matching basis the payment terms to the suppliers also. That is how we are planning to execute this on.

[Abhishek Poddar, analyst]

Understood. And I think the comment that was made earlier that next year, you're looking at 38% execution on a INR 14,000 crore order book. So opening order book, which will be there. So that would mean about INR 5,300 crores to INR 5,500 crores of revenue in '24. Is that understanding correct? And if you could comment on the execution capability ramp-up, how the planning has been done?

[Sudha Kodandaramaiah, executive]

I think that is a very interesting question. You see, how the execution comes up will be based on the expertise Satish explained us in [indiscernible] part [ 23 ] years. In fact, in the last couple of years and even the COVID period, we have managed the projects much better than our competitors. That's why one of the example I told you, the Godda project, customer has removed the job from the other agency and given to us.

One is the resource management, what we are having it. And the strong supervision base of nearly 6,000 to 7,000 engineers and supervisors working on live, on-site, at site. And then, we have what -- a SBU-based project management approach of focused project implementation, and then delivery management and customer relationship.

And for us, handling this many projects is not a challenge at all because we are quite used to work in about 40 to 50 projects. And what we may need in this case may be another modest increase of the manpower about 5% to 10%.

And as far as the resources are concerned, we have got a lot of resources in terms of the execution what we picked up for the coal-based power plants. In fact, we have got excess capacity of the resources, in the construction equipment that can be generally deployed for all these jobs. And the in-house capabilities in the fuel works under structural fabrication erection works, and then structural fabrication erection works, that also stands good for us. And the erection station jobs is already our basic strength. And then O&M, we continue to play a leading growth. That's why, we are the preferred -- customer prefers us.

Therefore, I think of -- scaling from INR 3,600 crores the current year, I think the existing resources a little bit of modest additions. Scaling up to 5% course is not a challenge because as you know, earlier, we were on the range of INR 2,000 crores. Now, we are expecting to grow to INR 4,000 crores in a matter of 3, 4 years. And that is how the company is scaling up it's capabilities, resource management and the optimally usages of the resources.

[Abhishek Poddar, analyst]

Understood, sir. And regarding the operating margins, we had highlighted in the previous call that we would expect an improvement led by O&M, and also royalty cost is going to go down. So when do we start seeing improvement in operating margin, sir?

[Sudha Kodandaramaiah, executive]

I think many of the projects -- means we are working on joint venture basis, the consortium basis are getting completed in another -- close to 1-year. Then we will be better qualified to bid the deposits on a [indiscernible] basis and a stand-alone basis, that should add up to our operating margins much better when we bid for the railways in [ passenger ] jobs, and many -- especially jobs which we are working with others. And that is -- that number at this stage, we cannot calculate. But there's going to be some improvements in that.

[Operator]

Next question comes from the line of Pritesh Chheda from Lucky Investment Managers Private Limited.

[Pritesh Chheda, analyst]

Sir, a few clarifications. You mentioned that the revenue for '23 will be INR 3,600 crores and revenue for '24 will be INR 5,000 crores. And bulk of the FGD execution, which means will slow down to '24. Is that correct from the assessment?

[Sudha Kodandaramaiah, executive]

I think that INR 3,600 crores was based on the order backlog of INR 8,855 crores, what we built up in the beginning of the year. Taking into account whatever orders we are going to build up in the current year also, excluding the FGD orders. But with the FGD orders substracted, that should go up to nearly INR 4,000-plus crores. And the next year, obviously, the backlog is going up, by the end of the year because of the balance of the -- pipeline of the orders of INR 1,500 crores, plus the FGD orders, what has been backed, plus addition of what we are expecting it. That is how that projection has been given beyond '23, '24.

[Pritesh Chheda, analyst]

Sir, my second question is you mentioned that on FGD, you got 10% advanced, and there will not be any incremental working capital is the assessment? So which means when you move your revenue from INR 3,000 crores to INR 5,000 crores, the movement in your working capital -- absolute working capital requirement is hardly any?

[Sudha Kodandaramaiah, executive]

See, it is not much, why I can say is that, see in this type of business, you also tie up back-to-back thumbs with the suppliers. And the rest of the resources we are putting from our side itself, like construction side and all those things, infrastructure inputs. Therefore, that is already available. That doesn't give the investment.

What is required is the ordering on the supply packages, and those things we'll try on a back-to-back basis with matching advances and all. That is how we are able to figure out without much upgrades in the working capital.

[Pritesh Chheda, analyst]

Okay. So is this assessment correct, right? Whatever is absolute working capital today, and when you move your revenue from INR 3,000 to INR 5,000, the absolute working capital requirement will not rise in sync with the revenue?

[Jami Satish, executive]

It will not.

[Sudha Kodandaramaiah, executive]

Satish, any can you take that?

[Jami Satish, executive]

10% mobilization advancement from which is interest free, needless to utilize them. See that this project is going to be self-sustained. So if ours is cash neutral...

[Sudha Kodandaramaiah, executive]

It will be cash neutral...

[Jami Satish, executive]

So we don't envisage any additional funds pumping into this project.

[Pritesh Chheda, analyst]

Okay. And sir, my last question is, are these FGD orders one-off, which takes you to these kinds of backlogs and revenue and post '24, we see a tapering off? Or do you see this higher base -- or what are the levers for this higher base sustaining?

[Sudha Kodandaramaiah, executive]

I think, see, company has diversified a lot from what was 5 years back, 10 years back. And we are quite confident, of course, these are all one-time retrofit jobs. The 50% has been ordered, balance 50% is in the pipeline. And there we are targeting under 2,000 to 3,000 megawatts. And that's also a...

[Pritesh Chheda, analyst]

Sorry. How many megawatts, sir?

[Sudha Kodandaramaiah, executive]

About 169,000 megawatts is identified retrofits. In that 50% has been ordered already in the market. Balance 50% is under the ordering process.

[Pritesh Chheda, analyst]

Okay.

[Sudha Kodandaramaiah, executive]

And these ordering will be completed in the next 6 months to 1-year, perhaps. That is to keep the deadline. Maybe the deadline of 2024 may not be fully possible. It can go up to another -- 12 to 18 months to take care of the balance order booking and execution and all.

But what I -- your question is specifically I agree. What will be without the FGD in future? I think today, the company into infrastructure area, O&M said we are expanding in non-power sector, in the international market also. And then in the railways, we have made a big presence. And Railways investments are going to be continuous. And we're investing more than INR 1 lakh crore per year. And there are many jobs which are -- to our product or service profile. Depots, maintenance depots, maintenance workshops. And then railway steel works. And therefore, railways is an area. Then both projects we have already established, and we are working with our own capabilities and that too continue to play a role.

Therefore, I agree. Definitely, with the opportunities available. And then more importantly, the private sector becoming with big investments in steel, infrastructure and then the mining and metal. And what I can say is that the mining is going to offer a lot of opportunities. Today, we have taken a mining development budget of 5 million tons. Our plan is to receive to 15 million to 20 million tonnes in the next couple of years, 1 or 2 years. That should give us a lot of top line growth and also bottom line in terms of the O&M business. Perhaps even this MDO once implemented from 2024, it should add up to INR 400 crores to INR 600 crores of additional revenue on the O&M side. And we are looking another 1 or 2 projects, another 10 million tonnes, that should further take up the revenue to INR 1,500 crores to INR 2,000 crores.

But we are having plans still for filling up these gaps. We know these are all the opportunities. And then the infrastructure side, I don't think there is getting slowdown. We tell it's always going to upside only to investment, and the company is rightly caught up with all these investments. And that's how the order booking is touched.

[Jami Satish, executive]

Yes.

This FGD has got the follow up for O&M of almost INR 1,000 crores, that's for 5 years. So that will open INR 2000 crores per annum. On top of that, this MDO project will stabilize. These 2 projects itself will add INR 1,000 crores top line after 3 years. So that is once the FGD is over post 3 years, we consolidate, plus the INR 1,000 crores will supplement.

On top of that, the prerequisite now what we have built in-house, that will help a lot in terms of bidding for larger projects. So we'll see that in terms of number of projects -- because today, we are operating 112 projects, including O&M. So we'll see that the size comes down, of course, O&M will continue for the numbers will be always larger. And based upon our [ frequency ], we'll target for larger projects. So this will help a lot in terms of our -- in terms of sustaining the growth going forward, too. So we'll consolidate after 3 years, where to move forward. And of course the focus is continuing to be on margins and cash flow because that is important.

[Pritesh Chheda, analyst]

Yes, sir. Sir, lastly, sir, this -- out of 69,000 or out of 80,000 megawatts which has been ordered, what is the megawatt that we have got and -- our in line of business here is largely Mechanical, Civil and Erection, including the equipment or without the equipment?

[Sudha Kodandaramaiah, executive]

Now, this job is a complete EPC job, 8,460 megawatts for about 15 units, up 330-megawatt to 660-megawatt. And it includes engineering, procurement, construction, then civil, structural, mechanical works. And then the technology partner, we are going to rope in there. And there the key equipment for the process equipment, for the absorption and the technology part of the FGD, that will be sourced from them. And rest of the installation work and sourcing, we will do it our place. And the civil and structural installation, we do completely. That is how the plan is. Therefore, it is -- it well fits into our business model.

[Operator]

The next question comes from the line of Rohit Natarajan from Antique Stockbroking.

[Rohit Natarajan, analyst]

Congratulations on this fantastic order.

So my first question is noted over the L1 that you have identified, it's almost like INR 1,500-odd crores. Can you highlight on what exactly these orders are, and where exactly is expected to be part of order backlog?

[Sudha Kodandaramaiah, executive]

Sorry, can you come again?

[Rohit Natarajan, analyst]

The INR1,500 crore L1 order.

[Sudha Kodandaramaiah, executive]

Yes. I told -- yes. In this, there are about 7 FGD orders. Of course, not ETC orders, they are construction orders, about 1,950 megawatts for about INR 870 crores, that is from the Goenka Group of CESC, at Haldia, Chandrapur, and [indiscernible] station of 250 to 350 megawatts available units. And then Bangalore Metro Depot, we are L1, for about INR 450 crores. And then railway electrification job in Mangalore also about INR 88 crores. And then one O&M job in Nigeria, where we are already doing the installation job for the Dangote about INR 94 crores.

[Rohit Natarajan, analyst]

Okay.

And sir, you also said that additional you are filing INR 3,100 odd crores kind of opportunity. Over and above what we have won so far?

[Sudha Kodandaramaiah, executive]

No. What I said was that we had a plan about INR [INR 12,000 crores], in that [ INR 7,050 ] has been already bagged in the first quarter. I'm talking about excluding the FGD. And then we are pursuing opportunities worth of nearly INR 17,000 crores to INR 18,000 crores of opportunities in power, civil, non-power, electrical, O&M, water and then roads, et cetera. Therefore, we are pretty confident maybe another INR 1,500 crores to INR 2,000 crores should happen apart from the -- what is being ordered in the pipeline. Over and above the FGD orders what we have finished.

[Rohit Natarajan, analyst]

Understood.

Sir, one more question is on the fund infusion part that you're talking about, professional development. How exactly can this improve, if at all, any finite enhancement that you're thinking, either in terms of bankers giving you better non-fund-based limits, fund based limits. What exactly is the picture over there, sir. If you could throw some light on it?

[Jami Satish, executive]

See, normally, we don't get funds, in fact, we are trying to bring down the fund base. So what importantly is recorded is non-fund in terms of bank guarantees and all. So we have got close to INR 1,650 crores of limit. Of that, the utility is around INR 900 crores. So we have kept a limit to support our growth. Any good projects comes, I should be ready to support the non-fund basically. So this will help in terms of inclusion from the promoters as a backup in terms of long-term equity. So that gives a lot of confidence to the bankers while they do the assessment for the non-fund limit.

On top of that, that helps in terms of improving the internal state for the bank, so we can negotiate contractor I think and we'll also help for the extra...

[Rohit Natarajan, analyst]

Okay. Yes, if I understand it correctly, say, let's assume INR 100 crore is the order, you would typically require a INR 20 crore kind of non-fund based limit. Is that the right way to look at the non-funding limit?

[Jami Satish, executive]

Now, today, it's ranging 3% to 10% project to project. So on an average, we can take 5% to 7% of PBG.

[Rohit Natarajan, analyst]

So 5% to 7% would include what all things like your [ EMG] or maybe the performance guarantees?

[Jami Satish, executive]

See, the [ EMG ], when we quote for the project normally it ranges 1%. But once the contract gets award so that the [ EMG ] will be released, so what continues is the PBG, performance bank guarantor for 6% to 7% or maybe 5% to 7%.

[Rohit Natarajan, analyst]

But what about the mobilization advance, what the client gives you, you will have to give some guarantee to that as well, right?

[Jami Satish, executive]

That depends because if we wanted to draw mobilization advance, depends on the customers to customers. Either it comes by way of upfront mobilization advance or milestone based advance. So because...

[Rohit Natarajan, analyst]

So yes, when you say that you don't require much of incremental working capital. I thought maybe you are looking more to do -- play very aggressively on this mobilizer advance. So which means your need for more non-funded limit will be much higher.

[Jami Satish, executive]

Yes, if we draw, yes we need for which...

[Rohit Natarajan, analyst]

So if I see the current unutilized limit is maybe somewhere around INR 700 odd crore. And if I go by the 20% metric of nonfund-based limit, probably your limits are like largely exhausted, right? I mean...

[Jami Satish, executive]

See, not all the contracts we take that -- for example, BHEL, every contract has got a slot of availing 10% mobilization advance which we don't draw because it carries 14% of interest now which we don't take it.

It ranges around 20% to 30% or 35% of the total projects. Not all the projects we have in that, and not all the projects will have that clause.

[Operator]

The next question comes from the line of Vivek Hinduja from Thrive Capital Partners.

[Unknown Analyst]

Sir, I wanted to ask that in the first quarter, we heard reports of income tax rates on the trimester of the company, including that of a top management and the promoters. If you could put some light on the same it will be great? And also, has the IT department, you've done any monetary claims on the company? Sorry, the rates?

[Jami Satish, executive]

Yes. See, 13th July to 17th July, they had search under section -- search actually, it's a different premises. Now, the matter is going on. The income tax department, whatever the information they're asking, we have been providing. This -- they have come regarding some subcontractors pertaining to some projects where they had some concern, okay, even they have gone to multiple companies, including Power Mech. So we are providing all the information such still the matter is going on.

It may take some more time. Of course, this will not impact as far as our operation is concerned, and we don't see any impact measured on our financials.

[Unknown Analyst]

Okay. Because, sir, as per the media reports, we heard about some incriminating evidence being found on the premises. So if you could throw some light on the same, or I mean, give some clarification?

[Jami Satish, executive]

Yes. See, media even -- we have come across because I do not know where from they get information and all, but honestly, it's not that the case, okay. It is -- yes, it's complete speculative because the information sharing are now still going on. It's a continuous process. It may take another 3 to 4 months. So we are supporting this all -- we had information with regards to contractors, projects, wherever there -- the matter is going on.

[Unknown Analyst]

And no claims you've made, okay, as of now?

[Sudha Kodandaramaiah, executive]

Because it takes time, it's -- the information flow and all, it will take time. We need to provide all the digital information to the satisfaction of the department. So based upon the information flow, the case will be settled, so it will take some time.

[Operator]

Next question comes from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

[Dixit Doshi, analyst]

Firstly, one clarification from this FGD order of INR 6,100 crores. Does that include INR 1,000 crores of O&M?

[Sudha Kodandaramaiah, executive]

No, no. It excludes, it excludes.

[Jami Satish, executive]

So that INR 1,000 crores is in addition to INR 6,100 crores, that order yet to get. So that will be a follow up opportunity to this FGD.

[Sudha Kodandaramaiah, executive]

After the commissioning. After commissioning.

[Dixit Doshi, analyst]

We have not received that order, it will be tendered and...

[Sudha Kodandaramaiah, executive]

It has been tendered, we are -- and won. But the awarding part, they've broken into 2 components. Immediately they've given the FGD, the effective part of INR 6,100 crores. So follow up INR 1,000 crores, they will award later.

That will throw opportunity of INR 200 crores per annum in terms of O&M.

[Dixit Doshi, analyst]

Okay. Okay.

My second question is regarding this [ MDL ] project of Coal India -- MDO project. So from when the revenue will start flowing in?

[Jami Satish, executive]

'24 Q4 onwards, sir.

[Dixit Doshi, analyst]

Q4 FY '22.

And as on today, how much is the current and net debt or gross debt and net debt?

[Jami Satish, executive]

Yes. Today, we have got close to INR 490 crores and net is we have got deposits of INR 150 crores, so around INR 340 crores net. Which is expected to come down.

[Dixit Doshi, analyst]

Okay.

And one last question. As on today, how much would be the retention money on our balance sheet?

[Jami Satish, executive]

It's around INR 350 15 crores.

[Operator]

The next question comes from the line of Ankur, an individual investor.

Mr. Ankur, please go ahead with your question. Mr. Ankur, if you have muted your line from your phone, please unmute yourself and go ahead with the question.

Since there is no reply from the line of Mr. Ankur, we'll go with the next question. And it comes from Faisal Hawa from H.G. Hawa & Company.

[Faisal Hawa, analyst]

So my question is that in the orders that you have now taken on, what is the ROCE and the ROE if you're targeting for the orders which have been taken in the recent 1, 1.5 years? I would believe it's beneficial to have -- due to the current commodity between in 3 to 4 months?

[Jami Satish, executive]

Yes. See, the [indiscernible] pure cash contracts, okay.

So in terms of margins, it will be 11% plus. So definitely, we don't need to invest much except the CapEx of INR 25 crores to INR 30 crores. So it will help a lot in terms of improving the both ROE and ROCE because we don't intend to increase net debt, so that will help to push ROE also.

[Faisal Hawa, analyst]

And what is the ROE which will come ultimately, say 1, 1.5 years?

[Jami Satish, executive]

So it will definitely -- my assumption is, it should cross 18% to 19% plus, sir. Blended.

[Faisal Hawa, analyst]

I can't hear you, sir.

[Jami Satish, executive]

18% to 19% plus blended, sir.

[Faisal Hawa, analyst]

And sir, we are looking like we are going into so many sectors. So what is the risk management you are now taking so that 2 or 3 projects going back or some government intervention in that -- in those projects? Does it affect the company? So can you just list out 3 risk management principles or steps you have taken to really protect the company from going backwards?

[Jami Satish, executive]

Can you repeat, because sorry, the voice is not clear.

[Faisal Hawa, analyst]

So my -- we are now going into many sectors -- unrelated sectors. So what are the kind of risk management measures we are taking to avoid company going backwards?

[Jami Satish, executive]

Yes.

So for our industry, it's one, the execution. Second is the service and the third one is the material component. And we step in as a contractor, so normally everything increases when we step in. So most of the risk gets automatically mitigated.

Now service component, of course, the manpower plays a key role. So we see that the price variation clause is well protected so that for any changes in the lever and all, they are well protected. And the second part is the material component. Again, we have seen last 2 years, there is abnormal changes in the prices. So whatever little bit cost impact we had we have observed that. Now going forward, the projects which we are quoting, we have taken a call unless until it's well protected in terms of price variation clause escalation, we're not bidding for those type of projects.

And more importantly, once we execute and the payment part of, the experience in -- like once upon a time, the receivable cycle used to be 45 to 60 days that went up to 90 to 100 days, now it's coming down to 75 to 80 days. And we are very particular about the customer in terms of the funding, the healthiness of the financial so that we are executing and we are getting paid on time. That's very important. So exclusive projects, wherever the payment cycle is in the range of 60 days maximum, of course it goes up to 70, 75 days.

The recent project been always like, all are like 30, 40 days maximum. So the idea is to bring down the working capital cycle as much as possible. That is one of the areas where we are more serious about it.

[Faisal Hawa, analyst]

Sir, and what is our order book ratio from normal to private? And how is the competitive intensity in government orders presently, is it very competitive, and are people -- as you log in quoting less than the base price and how many orders have we lost in the last 3 to 4 months to very aggressive bidding?

[Sudha Kodandaramaiah, executive]

No, let me explain it. I think there are different segments in this. Mainly the Mechanical business, we are a rating player, and will be based on the margins what we can protect it. And as I told in some of the jobs, customer has terminated the existing contract given -- they didn't work that has happened in quarter. Then we have got leadership in this installation business, mechanical business. And then civil side also, there are a few players are there. But even in that case, in one of the jobs in Udangudi, a job has been terminated zone for the INR 275 crores.

Therefore, the competition is there. We are able to manage those competition and we support what is expected our cost and then our margins are there. And we have also particularly in the private side and the O&M side we have got a preference because of our execution capability and conversion capability. And that's what we get a preference in the case of O&M state also and then in some of the private players also.

But yes, the competition we had in the government projects, you cannot avoid that. But there are a lot of opportunities, even if you can get a hit rate of 15% to 20%, it is okay for us. And we are prepared for that type of situation. That is what it is expected in the market when 7 to 8 players are there in these kind of segment.

[Jami Satish, executive]

And see, Power Mech since inception is quite conservative. So not taken any projects, okay, with undue risk. We are quite selective, okay. And the study always continues to be conservative. We are comfortable, we'll take the order. We see there are some disciplines there. We are not comfortable in terms of execution in the customer or the location, left out of the projects. So the approach of conservativeness continues.

[Faisal Hawa, analyst]

And what is our proportion from private orders to government orders.

[Sudha Kodandaramaiah, executive]

Yes. Can take around 50-50. Of course with this O&M, the FGD order is about change. We have to rework on that. That is how it is -- most of the infrastructure projects are in government sectors. Coal India also, yes.

[Jami Satish, executive]

Yes, because now they're doing pretty well.

[Operator]

The line of Mr. Hawa got disconnected.

We'll take Rishikesh now from RoboCapital.

[Rishikesh Oza, analyst]

Am I audible?

[Sudha Kodandaramaiah, executive]

Yes.

[Rishikesh Oza, analyst]

One question from my side. If you could please provide EBITDA margin guidance for FY '23 and FY '24?

[Jami Satish, executive]

Sir, now it's here working around 11% to 12%, and we're seeing that margin profile to improve further. And as we discussed like -- the projects which we are quoting directly, so it can help us to save in terms of cost for borrowing the credit sell and all. That will also help adding EBITDA margin. So we're expecting the margin profile to improve gradually.

[Operator]

The next question comes from the line of Deepak Poddar from Sapphire Capital.

[Deepak Poddar, analyst]

And many congratulations for the good results.

Sir, just wanted to check what's current -- our current execution capability per month in rupees crore?

[Sudha Kodandaramaiah, executive]

Sir now it's well set. It's in the range of INR 750 crores to INR 1,000 crores. It can be increased even up to INR 1,200 crores gradually.

[Deepak Poddar, analyst]

INR 750 to INR 1,000 crores, up to INR 1,200 crores per annum?

[Jami Satish, executive]

Per quarter. INR 1,000 crores per quarter. That is the way.

Now for the FGD, we have created a separate unit headed by senior professionals. The team is well set now. Okay, which should gradually move up.

[Deepak Poddar, analyst]

Correct. Understood.

The reason I was asking that is because, I mean, given the revenue outlook that we have for this year, ideally given the second quarter is generally lean. So our second half execution per quarter should be close to about INR 1,000 or 1,200 crores, right? I mean, unless we have that we won't kind of execute our annual target, right.

[Jami Satish, executive]

So in the fourth quarter, in any finance period, quarter 3, quarter 4 will be always robust, okay. Comparatively if you see, it has moved quarter 1, quarter 2, it used to be in the range of INR 450 crores to INR 500 crores. Now, it moved to INR 600 crores, and now this has moved almost INR 750 crores, which is all time, okay, in the power mix journey. And Q4 last year, we did close to INR 900 crores, okay. So this INR 900 crores to INR 1,000 is well tested now.

So what is -- what we need to work this to improve further. Now, we are working on the creating of the resources, infrastructure to sustain the execution.

[Deepak Poddar, analyst]

Okay. Okay.

So basically, since the INR 900 crores INR 1,000 crores you have already done so incremental maybe a INR 200 crores, INR 300 crores might be required by fourth quarter? I mean, that's how fourth quarter -- so to increase your execution capability but given the kind of outlook we have, right?

[Jami Satish, executive]

It's now INR 900 crores is -- it's already tested the quarter 4 last year. Okay. And this year, the target what we have kept is more or less is quite comfortable because the incremental you see quarter 3 quarters will add more volume in terms of absolute numbers, okay. Gradually, you'll see that number going up further.

[Operator]

[Operator Instructions]

Next question comes from the line of Ankur, an individual investor.

[Unknown Attendee]

My question is with regards to the notification given to the stock exchange today that there will be a Board meeting for potential issue to the promoters. Now, you know the company is at an inflection point, the profitability, revenue, everything is going to be very, very good over the next 2, 3 years. So at this point, for the company to go ahead and give preferential issue to promoters is not really minority shareholder friendly. What would be nice is to have a rights issue, which is given to all the stockholders of the company, if somebody subscribes, fine. If not then promoter shareholding's means a lot. So that's my humble submission to the promoters.

[Sudha Kodandaramaiah, executive]

Yes, we'll take a note of it, sir. Thank you.

[Operator]

As there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.

[Jami Satish, executive]

Yes. Ramaiah, do you want to add something?

[Sudha Kodandaramaiah, executive]

Yes. I think a lot of things have been covered up. I think we have got a very clear vision for the 3 years. And then the issues which can come up after third year, perhaps we are geared up also in both in the marketing side, business development side and then the most important operations side. Therefore, the company is well set for INR 4,000 to INR 5,000 crores of turnover in the coming year. And what is important is to sustain the growth and then the new opportunities will be there in infrastructure, O&M, mining and then railway, and the international operations also will focus, if not as COVID is behind us.

Therefore, I think this growth story will continue for the next couple of years. And the operations wise, we are fairly comparable with the current setup what we are having here. And adding the headcount, critical headcount and also the capability wherever is required in different areas. That should take care of our conversion and then working of the projects. Thanks.

[Operator]

Thank you.

On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.