Power Mech Projects Ltd

NSE:POWERMECH

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Power Mech Project Limited earnings conference call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. [ Prasheel Gandhi ] from Nirmal Bang Equities. Thank you, and over to you.

[Unknown Attendee]

Thank you, Deeksha. Nirmal Bang Equities welcomes you to Q4 FY'22 Results Conference Call for Power Mech Projects Limited. The management today here is represented by Mr. S. Kodandaramaiah, Director, Business Development; and Mr. J. Satish, Chief Financial Officer. I now hand over the call to management for their opening remarks, post which we can take questions from the participants. Over to you, sir.

[Jami Satish, executive]

Yes. Thank you. This is Satish here. Good afternoon all, and thank you for joining the earnings conference call for the quarter and 12 months ended 31st March 2022. And I have with me Mr. S. K. Ramaiah, Director, Business Development.

For Power Mech, the quarter and year ended with a very positive note. We have seen various developments across execution, collection and also in business development. Now Power Mech has got into a larger league, having demonstrated our education capabilities in all the segments. For Power Mech, coming years will be a consolidation and growth phase. Last 10 years' efforts for Power Mech in building credentials and competency started yielding results in all our business segments.

To update you with this quarter's developments before we open up the floor for your question and answer session, the reported total income for quarter 4 FY '22 is INR 905 crores, and EBITDA is INR 98 crores, and the reported PAT is INR 48 crores. Whereas quarter 4 of last financial year, the total income was INR 760 crores and the reported EBITDA was INR 79 crores and the PAT was INR 36 crores.

The revenue mix for quarter 4 is as follows: Erection business contributed around INR 152 crores; civil business, including railways and water business, contributed around INR 516 crores; operation and maintenance, around INR 217 crores; and electrical business close to INR 17 crores; and other income close to INR 3 crores. In the same quarter, in the previous year, the mechanical business contributed INR 166 crores; civil, around INR 329 crores; O&M, INR 223 crores; electrical, INR 36 crores; and other income close to INR 6 crores.

Similarly, on a year-to-date basis, the reported total income for 12 months FY '22 is INR 2,728 crores, the EBITDA is INR 303 crores and reported PAT is INR 139 crores. Whereas in the similar period for the last financial year, the total income was INR 1,900 crores, marking a 44% rise in the revenue, the reported EBITDA was INR 58 crores and the PAT was negative by INR 46 crores during the last year.

And the revenue mix for 12 months is as follows: Erection business has contributed INR 521 crores; civil, including railway and water, has contributed close to INR 1290 crores; operation and maintenance contributed close to INR 805 crores; and electrical business, INR 93 crores; and other income includes INR 18 crores. And the same period during the last year, the mechanical business contributed INR 446 crores; civil, INR 687 crores; O&M, INR 661 crores; electrical, INR 86 crores; and other income was around INR 20 crores.

The quarterly and yearly performance remained all-time high for Power Mech due to its robust order book, strong execution capabilities across the vertical. This is expected to improve more on account of stronger engineering skills, construction management and strengthening second level leadership in addition to robust order book.

Margins are expected to improve in midterm to our reported peak level. We have seen additional cost on account of COVID protocol, royalty cost towards sharing the JV credentials in some of the new initiatives and also due to price increase in some of our raw material consumed. The depreciation cost for the 12 months remained flat due to controlled CapEx spending.

During 12 months, finance cost remained flat as compared to previous year, despite huge growth in business and execution. Going forward, the finance cost as a percentage and also as an absolute number is expected to come down further. The overall working capital cycle seen improving for the period significantly. The average monthly collection now ranging from INR 250 crores to INR 300 crores per month, and which is expected to improve further shortly.

The net current days, excluding cash and cash equivalent, has come down to 145 days during the year from 194 days during FY '21 and 180 days during FY '20. So we have seen significant improvement in our working capital cycle due to business mix. This has resulted generating surplus operating cash flow of INR 170 crores -- INR 177 crores and free cash flow of INR 135 crores during the year. This is a good achievement in Power Mech in recent past because of the working capital cycle improvement.

The gross debt remained flat despite increase in the business and growth in the order book and the net debt has significantly come down to INR 319 crores as compared to INR 379 crores during last financial year. The order book for the company stands at INR 8,855 crores as of -- as on 31st March 2022. And this is excluding the MDO order. And if we include the MDO contract, the order book stands at INR 18,149 crores.

Seeing the present market opportunity size, the company has set a fresh target of winning INR 6,000 crores for this year. We are very confident of converting close to INR 3,600 crores plus from order booking to revenue during this financial year.

Now I request Mr. S. K. Ramaiah to add to more developments. Thank you very much.

[Sudha Kodandaramaiah, executive]

Yes. Thank you, Satish, and thanks to Nirmal Bang for this call. A bit on what is happening on the business side and the order growth and the new opportunities. I think as you rightly said, there has been a 21% increase in the total backlog from INR 7,333 crores to INR 8,855 crores. That is a very positive side. It is strongly driven by the new investments as part of the national infrastructure pipeline. We all have seen that is bearing fruits now, the COVID behind us hope so.

Things are normalized, and that is how the opportunities are coming up in a big way. And we have done extremely well in the fuel and infrastructure side on the EPC projects, new engineering projects. In fact, the backlog in this segment of [indiscernible] we have done exceedingly well with many new initiatives. And that our backlog has gone up from INR 1,158 crores to INR 1,244 crores, an increase of 17%. Of course, in the ETC segment, electrical segment, we are not seeing much of growth has on today because of the opportunities and -- of course, in the electrical, it is more due to the -- lot of competition and pricing issues, and we are waiting and watching, and we want to complete the ongoing jobs.

So total order booking compared to last year was INR 4,638 crores and this year it was INR 4,231 crores. And if you look at the trend in the business, we have come out of the [indiscernible] segment, what we had between '18 to '20. And now we have crossed the INR 4,000 crores capability in -- actually in the order booking. And as Satish rightly said, we are gearing up to achieve around INR 6,000 crores with a lot of opportunities, and that is a positive sign.

And in fact, that will help us to build up a fairly good order backlog, the good backdrop of the margins availability and a wider customer base. In fact, in the first quarter so far, 2 major projects we have taken, about INR 297 crores, one with THDC coal handling work, is an engineering and construction job, and [ Noida ] boiler job. It was a job, which was -- could not be done by another agency, and they had given at a good account for ourselves based on our expertise in this. And both these jobs come to around INR 300 crores.

Now coming to the -- the domestic segment continues to play a major role. And obviously, looking at the opportunities as per NIP, the Gati Shakti Yojana, huge investments are coming up in all segments of the business. We find a positive thing on the domestic side. The [indiscernible] backlog has gone up from INR 6,357 crores to [ INR 8,212 crores ], a positive of 29%.

And we continue to see wait and watch international segment. It has come down the backlog some INR 176 crores. The present backlog is INR 634 crores. It has come down by 35%. But in the power sector, in fact, we had a dominant position with O&M and installation business in coal segment and all the associated jobs in civil and O&M and installation. There is a downward trend there, from INR 3,940 crores to INR 3,678 crores, minus 6.6%. But in non-power, obviously, the growth has picked up, what was 46% of the total business segment in the order backlog. From INR 3,393 crores, it has gone up to INR 5,177 crores, almost 52% jump. So that's a very positive sign, and we continue to look at that opportunities what is available.

And coming to the O&M story, it has been a very good year -- extremely good year with major orders backed at Singareni, 2 x 600 megawatt, INR 343 crores; Tuticorin, 2 x 600 megawatt, INR 391 crores; IL&FS in Tamil Nadu, INR 51 crores. And we have made a penetration into the JSPL, Angul, with an O&M job of INR 56 crores in [indiscernible] nickel handling job. And another positive aspect is that the opportunities are looking up for the shutdowns, maintenance, capital overhauls in the export sector. About INR 80 crores of orders have been taken in the export in the Middle East mostly, and that is where perhaps you can look at future opportunities.

And non-power sector is also an initiative, O&M. Earlier we have taken Tata Angul and now JSPL Angul, we have taken up. And another positive aspect of the O&M is the more interest of the PSUs in getting the O&M approval and contracting done through a specialized agency. That we have seen in the success in Singareni and then KPCL and NTPC, all these jobs substantially account for our O&M backlog also.

The major orders which we bagged in the current year are [ Adani ] coal handling EPC of INR 80 crores [indiscernible]; then NTPC Kahalgaon, NTPC civil and structural job, INR 112 crores; NMDC civil works, INR 57 crores; Adani Khammam-Kodad road project of INR 645 crores; and Udangudi civil and structural work of INR 345 crores; then we have taken another North Chennai [indiscernible] job in civil and structural of INR 120 crores; and a railway job, RVNL in Baroda for [indiscernible] basic structure, INR 127 crores; then I told you about the Singareni O&M and the Tuticorin O&M, INR 343 crores and INR 391 crores.

And the major breakthrough had been the huge investments coming in the drinking water projects. As you know, previous year, we have made a beginning in the drinking water [indiscernible] and lot has fructified into new opportunities and getting the orders in [indiscernible]. This is how the orders have been taken in various segments. And major jobs are progressing pretty well.

Udangudi job, INR 345 crores, NMDC, then they're still lending EPC jobs of around INR 500 crores, which we have taken first time, where it gives a footprint on the engineering capabilities to establish the company. We have done at [ ArcelorMittal ] about 20% of the work out of INR 200 crores. And the jobs that we had taken [indiscernible]. Buxar job is shaping well, INR 176 crores, 13% we have completed. Then Dolvi is under completion. Dangote is under completion, 90% of the work has been completed of $76 million.

Maitree and Yadadri progress are pretty well. INR 855 crores, Maitree, 65% completed. Yadadri, INR 813 crores, 35% completed. Ramayampet canal worth INR 373 crores, [ 85% ] completed. And the Sadalpur, we are segment-wise commissioning the railway electrification job, about 70% we have completed out of INR 350 crores.

Then water projects, we have just started in the last year, about [ 128 ] works we achieved, that is a good beginning. These are all the major ongoing projects what we have done. And as far as development and [indiscernible] which was taken last year. Development progress is in full swing with acquisition of the land for the 5 million-tonne capacity mining operation from the Central Coal Fields and then where the consortium, PMPL and AMR consortium, 74-26, has established a special purpose vehicle, KBP Private Limited. And this is on track. The next process is to complete the various formalities involving forest clearance, environmental clearance and then going for the ordering of equipment and the infrastructure development worth -- that is around INR 280 crores.

In fact, one pretty thing which has happened on the growth on the revenue side is due to the advantage of the manpower, which has happened post-COVID condition. What we had about 28,000 manpower as in April '21 has gone up by almost 15% to 38,000. And with the increase in the manpower requirement for the O&M increased business and also the construction business and installation fuel in various areas. That is how the positivity in terms of the manpower deployment is happening.

As far as the opportunities are present, we are pursuing about INR 18,000 crores of opportunities in various areas of the power sector, non-power sector, electrical, O&M, then water business and non-power sector, et cetera. One of the things perhaps I would like to bring about is the implementation which we are doing on a drinking water project [indiscernible] about 828 villages completed the [indiscernible] and this is valued at [ INR 660 crores ].

The point here is that the order value is given on a specified item rate, but when [indiscernible] is done, value can go up. Therefore, there is an increase of 50% in the value of the village-wise working. And then out of INR 660 crores, we have done about INR 120 crores last year, and balance INR 498 crores village survey and DPR preparation is under progress. And we are working with a [ high power ] partner, BRCCPL. And the 18-month contracts, we've got price variation clause for the pipeline. And the percentage work involved in this is 50% almost cost of the pipeline work, 35% is field work, 15% is the electromechanical jobs.

And total villages is, as I told, 898. And the new order what we have taken prior [indiscernible] and together, today, the company is sitting on a backlog of INR 2,700 crores of orders and 2,752 number of villages. And as the DPRs are updated and the order values are updated, the implementation will come into force, and that is how we will get more opportunities.

And another area of development is looking at the FGD opportunity. In fact, out of 1,69,000 megawatts of the install base earmarked by CCL for the FGD conversion, ordering has been done [indiscernible] only 40,000 megawatts have been ordered by the developer, mostly in the public sector. Private sector [indiscernible]. And there are 448 plants, 149 plants in the central sector, 166 plants in the state sector, and private and ISP is about 133 plants.

And we are looking at some of the key opportunities which can be available in the private sector, and we are discussing with them and tying up also for the technology partner and doing a substantial business. And the main business trust areas will be -- we continue to focus on the national infrastructure pipeline, which is also transforming it as part of the Gati Shakti, integrated project management model, who fast track the progress [indiscernible] and that is where the substantial of our order book [ is also complete with new ] investment coming.

And with the new investments coming in minerals, coal and steel plants, with our experience that we gained in the steel plant construction in JSPL and JSW, perhaps we can continue to foray into the new opportunities coming up with ArcelorMittal and other investments. And also minerals and metals, a lot of investment coming for mineral processing and material handling.

After we have seen the success in taking a few jobs from Adani group and more opportunities are expected. We are also bidding for many projects in that segment. The diversification to EPC is a good beginning, where the company can afford the engineering capabilities, and that is where we can increase our value additions in the turnover and margins also.

I think with this, I would like to open the discussions on any questions. Thank you very much.

[Operator]

[Operator Instructions] We'll take the first question from the line of Aditya Sen from RoboCapital.

[Aditya Sen, analyst]

Can you please come back on the order receipts expected this year and the execution on the same? I think you mentioned, but I misheard that, I guess. So can you please repeat?

[Jami Satish, executive]

Can you repeat again?

[Aditya Sen, analyst]

Yes. I wanted to know the order receipts that we are expecting this year and the execution on the same.

[Sudha Kodandaramaiah, executive]

I think the execution is on track, as we have seen with the INR 2,720 crores with initial out of backlogs of INR 7,333 crores and the addition of INR 4,251 crores, we have achieved a reasonable growth in the execution. Now the balance order backlog as on today is INR 8,855 crores and the new opportunities, as I said, two orders were booked so far; THDC coal handling plant along with Thyssenkrupp [indiscernible].

And as I mentioned, in this year, our [indiscernible] increased opportunities available in various segments. And based on what we achieved last year, we feel confident we can achieve around INR 3,000 crores in the first quarter -- first half and another INR 3,000 crores in the second quarter (sic) [ second half ]. And the opportunities are in the work available in the power sector, [indiscernible] electrical business, over INR 450 crores; and then O&M, the target is about INR 1,400 crores. [indiscernible] and then non-power jobs, it's around another INR 6,000 crores.

And many opportunities tracking on the electricity, railways and material handling and O&M also. Therefore, these things happening perhaps in the next 2, 3 months, a lot of order flow is expected. And our expectations that by the end of the year, if we can achieve this, the backlog will go up to INR 11,000 crores. With that, the growth would be on a new trajectory in the coming 2, 3 years.

[Aditya Sen, analyst]

Yes. Okay, sir. And one more question. You mentioned that margins are expected to increase going forward. So what could be the possible reasons behind this? And to what extent shall we expect the margins to increase?

[Jami Satish, executive]

Yes. See, the margins, we were operating in 12% to 13%, okay? And recent past like for various reasons, it has come down. And the major cost is like the royalty, which we pay to our JV partners for selling the credentials. That we have built the credentials in-house, now we can quote ourselves. So that is going to be a significant amount, okay. That will help us to improve our margins, number one.

Number two, some impact of the nickel cost because of the price increase, which is expected to normalize and the new fresh orders we have in-build, okay? So we'll see that second half, it will start improving. So in midterm, we are expecting to come back to a normal peak reported margin.

[Aditya Sen, analyst]

Okay. Okay, sir. So can we expect it to be around 13% going forward by mid FY '23?

[Jami Satish, executive]

Yes. Gradually, it's expected to go up.

[Operator]

[Operator Instructions] We take the next question from the line of Pratiksha Daftari from Aequitas Investment Consultant.

[Pratiksha Daftari, analyst]

Just one question of out of the order book, how many contracts would be having fixed price remuneration and how many would have price escalation clause?

[Sudha Kodandaramaiah, executive]

Yes, I think we can take -- because all these water projects have got escalation, road projects have got escalation and some of the other jobs also we are taking an escalation, maybe 60% to 65% will be the escalation clause and the balance would be on prices.

[Pratiksha Daftari, analyst]

Okay. And these escalation clauses are linked to WPI, right?

[Sudha Kodandaramaiah, executive]

Yes, it is linked with a variety of factors. There are labor wages, then commodity prices, then steel index also -- steel price index also is there. We are looking at all these things and accordingly [indiscernible].

[Pratiksha Daftari, analyst]

And on a receivable, how much of our receivables will be from BHEL -- if -- like based in terms of days? And how much would be the other segment?

[Sudha Kodandaramaiah, executive]

Satish?

[Jami Satish, executive]

Yes, yes. In terms of receivable days, BHEL is around -- it's still running -- it's around 80 to 90 days, but overall, it has come down, okay? So BHEL used to be 90, 90 days plus, but now it is -- there is an improvement of 10 days coming down. In terms of absolute numbers, it will be close to INR 130 crores, INR 140 crores.

[Pratiksha Daftari, analyst]

Okay. BHEL INR 130 crores to INR 140 crores, right?

[Jami Satish, executive]

Yes, yes.

[Operator]

We take the next question from the line of Abhishek Poddar from HDFC Mutual Fund.

[Abhishek Poddar, analyst]

And congratulations on good set of numbers, sir. Sir, regarding this order expectation of INR 6,000 crores for this year, does this include FGD order expectation also? And could you give some understanding that if you're bidding for private [indiscernible].

[Sudha Kodandaramaiah, executive]

Yes. See, we are in the -- see, IPP -- so we are discussing. And based on the tie-ups, we are going to make the partner -- technology partners. And at this stage, what I can only say is that positive signals are there. And then as in the private side, apart from the participation, now we have to look up into discussions and negotiations we have to entertain within the project execution also. And those [ acknowledgments ] will be cleared in the next 1 or 2 months. Then we'll have more clarity, but there can be a substantial scope for the FGD orders in this year.

[Abhishek Poddar, analyst]

Okay. So this expectation of INR 6,000 crores would include FGD? Or if FGD comes, that will be a plus for us?

[Sudha Kodandaramaiah, executive]

No, it will include FGD also.

[Jami Satish, executive]

Sir, yes. See INR 6,000 crores, there are various developments going on. So to some extent, we have taken some of the contracts. Apart from that, if a few more orders materialized, probably that will be on top of this INR 6,000 crores. So we have kept two targets. So probably in few, this will come with revision number. So this INR 6,000 crores, we have taken considering O&M, electrical, water and mechanical, domestic and international altogether. FGD pie, a smaller component also we have taken. But apart from that, there are some other discussions going on. If that fructifies, probably it will add on top of INR 6,000 crores.

[Abhishek Poddar, analyst]

Okay. Understood. And sir, this O&M, would the operating margins be much higher than the other EPC business? If you could give us some sense how the O&M margins are. And given the increasing mix of O&M, should you assume that, that also will help you in operating margins in the next 1, 2 years?

[Jami Satish, executive]

Yes. You've taken the right point, sir. See, normally, this -- now the profit margins are ranging 17% to 18%, okay, in the O&M pie. Apart from that, now what is missing is the international pie, where we wanted to grow in the O&M space, too. But last 2 years have been a bit slow because of COVID and all.

Now since 4 to 5 months, we have been extensive traveling in international market. Now that will help us to push the O&M pie. Now one development is Dangote, the Nigeria, where we have been doing the mechanical work. Now that contract is getting over and the customer has shown interest to be the O&M contract. That single contract itself will be close to INR 200 crores to INR 300 crores.

So this O&M pie may go up with the development of the international also. Apart from the -- some of the developments in the non-power tool, we are working in the petrochemical, steel and electrical side. And of course, in India, the public sector also like Singareni, Karnataka government in the public sector, they've started initiating discussions, so we got 2 contracts. That may also add to a larger extent. So overall, it will help us to push the margins, you are right.

[Abhishek Poddar, analyst]

All right. And O&M is, let's say, about 25%, 30% of revenue. So any target there that where would we end up in the next 2 years?

[Jami Satish, executive]

See, next 2.5 years, we wanted to -- actually honestly speaking, we wanted to double. So we are working in all the fronts to backward integration, international or domestic and all. So at least next 2 years -- this year, we concluded close to around INR 800 crores. Maybe next year, we may touch close to INR 1,000 crores, maybe '24, '25 where this number should be double. That is the plan.

[Sudha Kodandaramaiah, executive]

Satish, one more thing in this is that all these O&M contracts are also renewed. See, as we add more new opportunities in the basket, what happens, the more contracts will become part of the renewal with escalation also, at least 1/3 of the contracts can come for renewal every year. And then backing up the domestic balance in the non-power and also in the government sector and the private and other sectors.

And then the international business of O&M, because in Middle East, there's an opportunity of 120 gigawatt install base for O&M, and where we have many projects now and the projects are under completion and that should help us to get their market approach. That means, we'll be able to [indiscernible] that is how last year, we have taken about INR 80 crores of mainly shutdown jobs. But long term, of course, we are trying, as we have rightly said. Nigeria, where we have a $76 million job to be completed in the next couple of months, but that is [indiscernible]. And that type of projects will be a huge opportunity. And that will add up to the domestic O&M where we are one of the leaders -- leading service provider.

[Jami Satish, executive]

And moving from a non-competency to full-fledged competency, including the debt cooperation. Now we have built that expertise; Singareni coal is the live example now. That credential will help us to reach to the existing customers and increase this scope. So to some extent, that will also help to improve the existing business from the existing orders.

[Sudha Kodandaramaiah, executive]

Yes. one more thing. The water business part has come in the drinking water. At the end of the project, there is a 10-year O&M contract is there. For all these water projects -- drinking water projects, once we complete it, those projects will be eligible for O&M as part of the contract to be entered for 10 years. So that will also add to the profile of the O&M part and what we are doing in power and non-power. Infrastructure, drinking water can also become a significant O&M contributor after say 1 or 2 years.

[Abhishek Poddar, analyst]

Understood, sir. And sir, any update on this contract with Coal India? Are you on time lines? And when do you see now it's starting?

[Sudha Kodandaramaiah, executive]

Yes, Satish, can you add up more?

[Jami Satish, executive]

Yes, yes, sure. So this Coal India, the MDO of this [ quarterbacks on ] KBP Mining project. As per the original time line, we were expected to have the FC stage 1 forest clearance by November. But however, the way it's moving, we are expecting to close by August itself. If that follows, probably the environmental will follow by December. So the ground activity should start thereafter 4 or 5 months. So we'll start issuing the orders, okay, and start working on the equipment and the infrastructure part. So this is as per the time line we are ahead of 3 months now. It's going well.

[Abhishek Poddar, analyst]

Understood. And sir, the last question, CapEx for this year, how much are we expecting?

[Jami Satish, executive]

Sir, we have kept a target of INR 55 crores for this year.

[Abhishek Poddar, analyst]

This doesn't include any contribution for Coal India? Or does it?

[Jami Satish, executive]

No, sir. This year, we will not spend anything except maybe like all the clearances, plans and all, okay? Hardly maybe maximum INR 7 crores or INR 8 crores. So we are talking overall INR 55 crores during this year.

[Operator]

We take the next question from the line of Deepak Poddar from Sapphire Capital.

[Deepak Poddar, analyst]

Sir, I just wanted to understand, firstly, on this revenue, I think INR 3,600 crores we are targeting. So any sort of revenue we're building for MDO as well in this year or it will start only from FY '24?

[Jami Satish, executive]

Sir, FY '24 will start building the revenue. So FY '23 is purely the existing cash contract. MDO will start adding from '24.

[Deepak Poddar, analyst]

'24. So basically, INR 8,900 crores excluding MDO, so we have taken about 40% conversion, right?

[Jami Satish, executive]

Yes. And we have kept a target of INR 6,000 crores this year. So we have taken a softer conversion. So substantial amount is expected to come from the existing order book itself.

[Deepak Poddar, analyst]

Correct. Correct. and next year, as we close in at INR 11,000 crores, and even if you assume a similar 40%, INR 4,400 crores and then INR 400 crores of annual revenue from MDO, INR 4,800 crores FY '24...

[Jami Satish, executive]

Yes. See, the existing order book plus 40% plus, the MDO will add close to INR 120 crores to INR 150 crores. So that uprate will go gradually to INR 600 crores.

[Deepak Poddar, analyst]

Gradually to INR 600 crores or INR 400 crores? I think the MDO is giving annual...

[Jami Satish, executive]

It is going up now because being the price escalation and all, the weightage of diesel being given high 55%, so that INR 886 per tonne, which we quoted, now it stands at INR 1,350 to INR 1,400. So the prices have substantially gone up. So that INR 400 crores may go up to INR 600 crores.

[Deepak Poddar, analyst]

INR 400 crores may go up to INR 600 crores. So ideally that gives INR 5,000 crores annual run rate, maybe 2 years down the line is quite achievable for us, right, given the current scenario. Maybe it will start -- and we will start at about maybe INR 150 crores, INR 200 crores, but gradually it will pick up, right, for us.

[Jami Satish, executive]

Yes. You are right.

[Deepak Poddar, analyst]

Understood. Fair enough. That's quite a fair understanding. And then on the margin front, now we're talking about 12%, 13%, FY '23, is that what we are looking at?

[Jami Satish, executive]

See, the margin front, see, now we have got a mix of new and old orders. Old orders, wherever we are giving royalty, that will continue. So first half, maybe in line with what we are reporting now. So thereafter, if we are seeing some sort of improvement gradually. So in midterm, we are expecting the margins to come back to our peak reported margins.

[Deepak Poddar, analyst]

Which is 12% to 13%.

[Jami Satish, executive]

Yes.

[Deepak Poddar, analyst]

And by midterm, we are saying about 6 months to 1 year?

[Jami Satish, executive]

No, slightly longer. We will see the first 6 months based upon the ramping up the water and all the new projects, because now we are working like -- in a situation where like the prices, they're all like have abnormally gone up, okay? So we have factored that cost and all, but there is also a view that the prices may come down, okay?

So we'll take a view post second half. So probably if this continues, this year, we'll be in the change of the reported -- okay, maybe quarter 3, quarter 4, we may see some improvement, okay? But surely, '24, '25, there will be significant improvement.

[Operator]

We take the next question from the line of Akshay Kothari from Envision Capital.

[Akshay Kothari, analyst]

I wanted to understand regarding the royalty. So whom are we paying this royalty to?

[Jami Satish, executive]

See, we have borrowed the technical qualification from some of the industry -- companies. So we are paying to, as a royalty. Normally, it ranges 2.5% to 4%. That is a straight impact on EBITDA margin, okay, which we share to the other companies for sharing the JVs.

[Akshay Kothari, analyst]

Okay. And now that we have developed these, what we can say, technical know-how in-house, so they won't be having any problem and nothing on the legal front, right?

[Jami Satish, executive]

No. Now we are rightly eligible. So we have built in-house credentials and now we can quote directly, so we did not borrow the credentials. For this, we have been working since 7 years, okay? There are some projects, we started with INR 250 crores to INR 300 crores. Now we can -- there are some projects, even drinking water, railway, they can go even up to INR 800 crores to INR 1,000 crores a single bid. So that is the credentials we are bidding on.

[Akshay Kothari, analyst]

Okay. And could you explain more on the order execution cycle of top 4 to 5 projects, how does it go?

[Sudha Kodandaramaiah, executive]

I think in the drinking water projects, the DPR is completed. DPR [indiscernible] 16 months because that is where the major intake is there. [indiscernible] 18 months. And that is for the drinking water projects about INR 2,700-and-odd crores. And that also can go up from the actual number [indiscernible] Dangote, a major job, $76 million, I said 90% is almost completed; Maitree, INR 855 crores, 65% is completed; Yadadri, INR 813 crores, 35% work is completed. And then Sadalpur electrification job, INR 350 crores, 70% is completed. And then the drinking water, we have done about INR 120 crores in the last -- so far. And these are all the major works.

[Operator]

[Operator Instructions] We take the next question from the line of Mohit Kumar from DAM Capital. Please go ahead.

[Mohit Kumar, analyst]

My first question is on the total capital expenditure required for the CCL MDO and what is the kind of margin -- EBITDA margin is possible in this business? And the related question is that what is the opportunity in MDO you are targeting in medium term? Is it the only project you want to do or are you willing to take more projects? And if you can throw some -- the opportunities which is available for FY '23.

[Sudha Kodandaramaiah, executive]

See, government has got a policy of liberalization in the minerals, metals and then coal. Of course, the initial lot of opportunities from coal is about INR 15,000 crores. That was on the execution side. We had [indiscernible] but MDO with -- for mines opening up in the coal side and non-coal side [indiscernible] and there also, we have to look for some partnership on various aspects. Therefore, it is on a selective basis to go forward.

[Jami Satish, executive]

Yes. Just to -- adding to Mr. Ramaiah, we have taken a mid-sized project, okay, where the investment is slow. By next 2-1/2 years, we need to develop the infrastructure full pledge. So once it's developed, then we'll start generating revenue of INR 150 crores, we will scale up to INR 650 crores plus the escalation. So the strategy is like once this mine gets operationalized, thereafter, we'll take a view, okay? As of now, we are not very serious to add any more projects. We want to be very selective.

And yes, the CapEx -- this leads to close to INR 364 crores. And we will go a model of equity and debt. So we may need to put INR 95 crores of equity, and it's a combination of we pumping around 74% and 26% our JV partners. And the rest will go for a project-specific term loan, okay, there is a plan. And we quoted this project to assuming IRR of almost like 22% plus, okay? And taking the new revised price, the margins are significantly going up, okay?

Let's see how the things are moving. So far, it's a very good development. Margins are absolutely under control. So it is expected to go upward direction.

[Mohit Kumar, analyst]

Understood. So can I expect a similar margin, which we are in our EPC business?

[Jami Satish, executive]

Sir, EPC is slightly -- now there are new projects. Wherever we are quoting, we are not quoting anything less than 14% to 14.5% because we are -- our tummy is full. So we have given a clear-cut instruction towards the business development to work only 14%, 14.5% plus minimum at EBITDA level. This type of margins in EPC contracts may be not practical, maybe not possible now, okay? But this is a specialized contract where we could able to crack and the per tonne price has gone up, okay, because of the escalation and all.

So this -- but what will happen is at a consolidated level, once the mine starts, our EBITDA margins will improve a lot because we are thinking that next in midterm, we are trying to come back to our normal reported margins of 13% plus. If it comes, there's a high probability that the blended EBITDA may go up.

[Mohit Kumar, analyst]

Understood, sir. And what is the kind of execution run rate we expect in Uttar Pradesh Jal Jeevan Mission project? Are you expecting in FY '23, FY '24?

[Sudha Kodandaramaiah, executive]

I think today, we have got [indiscernible] updated for INR 666 crores. And perhaps with this, we shall be able to [indiscernible] INR 200 crores.

[Mohit Kumar, analyst]

How much, sir?

[Sudha Kodandaramaiah, executive]

INR 200 crores.

[Jami Satish, executive]

We need to close in 2 years, okay. So at the minimum level, this year, we need to cross INR 850 crores to INR 900 crores. That's minimum level we have kept, okay? There is a possibility that may also improve. So next 2 years, we need to close it.

[Sudha Kodandaramaiah, executive]

More villages, DPRs have to come up, because the other order, what I said, INR 1,854 crores [indiscernible] we are yet to start the DPRs. We could take 6 months, then only the implementation will come. We have to update the ordering also on that.

[Mohit Kumar, analyst]

And what are the kind of opportunities you are pursuing on the water side? Is there any opportunity to bid more for projects like Jal Jeevan Mission across the country?

[Sudha Kodandaramaiah, executive]

Yes. Sure. Today, our order booking around INR 2,750 crores and we have started executing in 2 or 3 projects, and we are gaining the expertise there. And there is nothing extraordinary. It is not a high end. It is a matter of putting different groups in different villages and then controlling operations from a control center [indiscernible] deployed that we can easily get it done.

And as an investment, we have seen the total investment is [indiscernible]. The total Jal Jeevan Mission what Government of India has started as part of the national infrastructure pipeline. And the present norm is every village, the average cost is approximately INR 1 crore per you, right? But in reality, it will go up by 50% because the items which are included for the village which are number of the households and then how many [indiscernible] 50% it will go up.

Therefore, even this present order what we have taken, likelihood of growing by 50% is very much there. And I told you about the O&M opportunity after we complete [indiscernible] but having taken a major portion of the job, we have [indiscernible] in this year also. But we don't want to expect too much because there is a lot of [ spreading ] required in that, and we are quite satisfied with what we are having.

[Mohit Kumar, analyst]

Understood. And how do you see the O&M opportunities panning out in the next couple of years? Do you think we'll able to target something substantial in the domestic side? Do you think the opportunities are very, very limited in the domestic markets?

[Sudha Kodandaramaiah, executive]

I think that is a very important question what you asked, that is [indiscernible]. O&M has got couple of segments of works in the power sector where we have established our leadership around [indiscernible] more than 80,000 megawatts are there, but not much has been penetrated there because they're still doing the whole method of doing [indiscernible] That opportunity is available.

NTPC, we are doing about [indiscernible]. And we've taken Singareni, that is 2 x 600 megawatts. And the private sector anyway we established [indiscernible]. And the other thing what we have seen is that the projects where we have completed [indiscernible] have done about 7,000 megawatts of captive power plants and then utilities and all. We are approaching these customers with an opportunity in O&M. And then there are two types of opportunity there when they shut down on brake down maintenance.

I told you about INR 80 crores, we have done the job [indiscernible] and that segment will go up and then the long-term O&M contracts, like what we are doing on AMC basis, that we have to figure out more in the international segment also with the experience what we've gained. And a lot of inquiries are coming in and that is another area.

Third, I told you about the drinking water. The projects what we have completed, at the end of the contract period, where O&M becomes part of the contract for 10 years. That will be another project. And some of the EPC jobs where we are going to complete it, perhaps O&M opportunities available in the minerals and material for some EPC jobs and the coal handling, material handling and other things and the non-power sector.

So these are the opportunities [indiscernible] given a figure. Perhaps this year, we want to target about INR 1,200 crore. And surely, we want to double up the O&M segment. And all these O&M jobs are repetitive jobs and are due for renewal, and that is where we don't have to spend again for the same job because we are already established there. And customer doesn't want the existing manpower and is also [ inducted ] by a contractor, and they would like to extend it [indiscernible] opportunities can be many, and we are quite hopeful on that.

[Mohit Kumar, analyst]

Do you think this NCLT -- [indiscernible] in NCLT and they are restarting -- the lenders are restarting the project with the help of NTPC. Do they increase your basket of opportunities, given that, if I remember correctly, there are a couple of power plants [indiscernible] which is supposed to start operation in Andhra Pradesh.

[Sudha Kodandaramaiah, executive]

Sure. I think that is very important. All NCLT projects are wherever these are gone, [indiscernible] shut down because of variety of things. The government is now feeling the shortfall of current run in the last 2, 3 months. And they are working with banks also to fund these projects and see how it can be used for and all. And we are also limiting the imports of the coal for [indiscernible] also. And all these things put together should open up these NCLT projects also, and we are there. We are very much there.

[Operator]

We take the next question from the line of Dixit Doshi from Whitestone Financial.

[Dixit Doshi, analyst]

Just a couple of questions. First, you mentioned about the royalty payment. So how much would be the royalty payment we must have paid in FY '22?

[Jami Satish, executive]

Sir, FY '22 could be around 1.5%, sir.

[Dixit Doshi, analyst]

1.5% of royalty.

[Jami Satish, executive]

Yes. It used to be 2%, 2.5%. Gradually, it has come down because the pie is coming down.

[Dixit Doshi, analyst]

Okay. And my second question is regarding this MDO project -- MDO from CCL. You mentioned that this INR 400 crores annual top line could go to INR 600 crores. So just a clarification, is it because the cost of doing the job has gone up? Or is it because the coal prices have gone up? I mean just wanted to understand that our revenues are linked with the volume or the prices of coal as well?

[Jami Satish, executive]

No, sir. See, our price is not linked to the coal price, but our price is linked to the cost per tonne, which CCL is going to pay us. The contract says that we are -- Power Mech will be paid INR 886 per tonne and that INR 886, there is an escalation clause that is subject to escalation. And there is a formula of WIP, where they have given weightage of 55% to diesel. So because of that, this INR 886 which CCL supposed to pay Power Mech, that stands at INR 1,400 today.

[Operator]

As there are no further questions, I would now like to hand over the conference to the management for closing comments.

[Jami Satish, executive]

Yes. Thank you, everyone, for joining the call and showing the confidence on Power Mech. If anyone has any more clarification, with which they can directly reach to the management at any time. Thank you very much.

[Operator]

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