W

Welspun Enterprises Ltd
NSE:WELENT

Watchlist Manager
Welspun Enterprises Ltd
NSE:WELENT
Watchlist
Price: 501.5 INR 6.14% Market Closed
Market Cap: 69.4B INR
Have any thoughts about
Welspun Enterprises Ltd?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2023-Q1

from 0
Operator

Good afternoon, ladies and gentlemen. I'm Kritika, moderator for the conference call. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Mohit Kumar from DAM Capital. Over to you, sir.

M
Mohit Kumar
analyst

Thank you, Kritika. On behalf of DAM Capital, I welcome you all to the Q1 FY 2023 Earnings Conference Call of Welspun Enterprises. We will start with a brief introduction, followed by Q&A. To start the proceedings, I'm handing over the call Mr. Abhinandan Singh, Head, Investor Relations, Welspun Group.

A
Abhinandan Singh
executive

Good afternoon, everyone. I welcome all of you to the Q1 FY '23 earnings call of Welspun Enterprises Limited. Present along with me today on this forum are Mr. Sandeep Garg, Managing Director Designate, and someone most of you already will be familiar with. Mr. Sanjay Sultania, Chief Financial Officer of the company; and Mr. Akhil Jindal, Group CFO and Head Strategy, Welspun.

You would have already received the company's results, and that is also available in our filings with the BSE and NSE as well as the company's website, welspunenterprises.com, which has additional disclosures and information in the Investors section there. Do note that anything said on this call, which reflects the outlook towards the future or which could be construed as a follow-up statement must be seen in conjunction with the risks that the company faces.

As usual, we will start the forum with some opening remarks by our leadership team, and then we will open the floor for your questions. Should you have any queries that remain unanswered after this earnings call, you can reach out to us.

With that, I would now like to give the floor to Mr. Sandeep Garg. Over to you.

S
Sandeep Garg
executive

Thank you, Abhinandan. Good afternoon, everyon. I'm pleased to share that our operating and financial performance in the quarter reflects the still unfolding outcomes of our efforts and investments over the past few years. This includes the recent asset monetization transaction that you would be already aware of. We have signed definitive agreements with Actis for the sale of 6 assets in our roads portfolio. This transaction is in line with our stated strategy to operate with an asset-light model. We have also witnessed a significant uptick in our order book, both in terms of quantitatively and qualitatively. The order book as on 30th June stands at INR 11,900 crores, out of which approximately INR 1,500 crores is towards O&M and balance towards [ PPP. ]

The most important point to note is that with the addition of the Dharavi Wastewater treatment facility project, our average contract value is more than INR 2,000 crores. [ Because of ] Dharavi, which was received in this quarter, we have received the acceptance -- letter of acceptance and it's our single highest order with a total consideration of around 4,000 lakh 36 crores. This amount is inclusive of GST. I'm particularly happy that with this project, which is one of the largest water -- wastewater treatment facilities in India, Welspun will make an important contribution in the city's journey to achieve Swachh Mumbai, which also strengthens the Swachh Maharashtra and Swachh Bharat mission. This large win provides good visibility for sustainable growth.

Coming to our Q1 results. As you would have noticed, our performance during the quarter has been strong as far as revenue growth is concerned. It is almost 96% or nearly doubling on a sequential basis, but with subdued margins. Looking ahead, the status of our order book, which is fairly balanced between the water segment and the road segment, water segment being close to INR 6,450 crores and the balance being from the road. Road is approximately INR 5,450 crores. There's a clear visibility for growth, both in the water and the road sector, and the revenue of the company. We are reasonably confident of delivering consistent and robust growth going forward.

As regards to the pressure on the margins in Q1, this is primarily due to the unusually high commodity price cycle. And as we see the inflation normalizing, the signs of which are for now, we believe that this pressure will ease off.

I would also want to touch upon the -- one of the major operating highlights of this quarter, which is the commencement of toll inflows from Mukarba Chowk-Panipat. This project alone will contribute on the consolidated book approximate EBITDA of INR 250 crores on an annualized basis till the time the exit transaction, which was referred by me, with Actis does [ not ] close. Post which, the company will have corresponding cash inflow, which will make the company a debt-free company, and with a substantial cash on the book. This project -- that is, the Mukarba Chowk-Panipat and Chikhali-Tarsod project, are the 2 road projects, which were dedicated to the nation during Q1 FY '23.

Post this monetization transaction, our asset -- road asset portfolio will comprise of 2 under construction HAM projects, namely Sattanathapuram-Nagapattinam road project and Aunta-Simaria road project. The balance of Mukarba Chowk-Panipat road project is close to completion. This will leave us with our EPC contract of Varanasi Aurangabad road project. As you would recall, both of these water segment projects -- that is, the UP JJM and the BMC project of STP are EPC contracts, and hence require more investments from us.

I'm also happy to share with you that during the quarter, the Gold award was conferred upon Welspun Enterprise Limited by the Union Ministry of Road Transport and Highways at the National Highways Excellence Awards 2021. The award was presented for excellence in project management under public private mode for the 14 lane Delhi-Meerut Expressway package 1. You may recall that this expressway was completed in record-breaking 19 months as opposed to the projected 30 months, setting a new standard for operational efficiency and project management excellence, and reflects our execution capabilities.

I would also want to mention that we have been working very hard and building our order book strategically, with a focus both on roads, and water, and wastewater segment, and shall continue to do so. We are very optimistic about our growth strategy and trajectory to come, and are confident of capitalizing upon the ongoing trust by the government on improving and developing the country's infrastructure sector.

With this, I hand over the call to Mr. Sanjay Sultania, our CFO, to share the key highlights of our financial performance. Over to you, Sanjay.

S
Sanjay Sultania
executive

Thank you, Mr. Garg, and a very warm welcome to all of you and I'm very happy to welcome all of you in this Q1 financial year '22, '23 earnings calls. I am sure you must have noticed that we have delivered a very strong revenue growth in this quarter on -- either on a Q-on-Q basis or on a year-on-year basis. We have significantly surged our revenue growth by 96% on year-on-year and 44% on a Q-on-Q basis. We also witnessed some major events, including the monetization of our portfolio of operating road assets as mentioned by Mr. Garg in his speech. We have demonstrated strong skills in terms of undertaking infrastructure assets and executing them efficiently. We believe this asset monetization is a remarkable achievement by the company. We possess the confidence of our asset-light model and the recycle philosophy. Thus, this will provide us enough liquidity to move forward and explore newer opportunities, developing the ever-growing need of infrastructure development in our country. Hopefully, this will also help us to be a 0 debt company on a stand-alone basis and adding marginal data on consol financials.

As Mr. Garg said during his address to you, that our order book is around INR 11,900 crores, which is a very balanced order book between water segments and road segment. And you also noticed that since we have started as a developer company, but now our order book is skewing towards the external order book and which is taking pace than the captive order books. And one -- as we know that we have also won 1 additional contract of INR 1,000 crores, which is a repeat order from the same clients of National Highway #2 and this order book -- this new order will definitely boost up our individual speed and help us to rationalize and optimize our execution costs as well.

In the area of wastewater, you all know that we have won this MCGM order from the -- in the city of Mumbai. That is what Mr. Garg has already explained about the size and the completion time schedule for this order book. On the strong execution in all our projects, we were able to maintain a strong revenue momentum during the quarter. On a stand-alone basis, the company's revenue for quarter 1 was INR 675 crores, a 96% year-on-year growth as compared to INR 344 crores in Q1 FY '22. On the back of a strong base and execution front, EBITDA was at INR 50 crore in Q1 FY '23 as against INR 41 crores in Q1 FY '22. EBITDA margin was at 7.2% as compared to 11.7% in corresponding quarter of the last year.

The decline in EBITDA margin was mainly due to unprecedented headwinds, including inflationary pressure, leading to high input costs and some supply chain disruption, such as ceasing of mining operations in Jharkhand, along with the commencement of work on our new orders. We believe the margin to improve going forward with the softening up of raw material prices and the pace of a facilitated execution in this new order. We've achieved PAT of INR 25 crores in Q1 FY '23 as compared to INR 20 crores in the corresponding last financial year.

Now moving to the consolidated performance. Consolidated revenue for Q1 was INR 822 crores as compared to INR 413 crores in Q1 corresponding last year, a growth of 99% year-on-year. Consolidated EBITDA for Q1 stood at INR 151 crores as against INR 72 crores in Q1 FY '22. EBITDA margin for Q1 FY '23 was 18.3%. Consolidated PAT was INR 49 crores in Q1 FY '23 as compared to INR 26 crores in the corresponding last year. I would like to further highlight that from this quarter onwards, we will have substantial income adding to our consol financials on account of our toll operations, which will be upward trend also on quarter-on-quarter basis and thus substantially contributing to the EBITDA margin at consol level.

As a company, we are growing consistently and with a robust order book and enhanced financial strength, we expect the growth momentum to continue in the coming quarters as well.

This is all from my side, and we can now open the floor for questions and answers, please. Thank you very much for your presence.

Operator

[Operator Instructions] First question comes from Nikhil Abhyankar from DAM Capital.

N
Nikhil Abhyankar
analyst

I had a few questions. What is the status of the road transaction of assets? And what will be the cash flow from that to us?

A
Akhil Jindal
executive

Could you repeat your question? The line was really choppy.

N
Nikhil Abhyankar
analyst

Can you hear me now properly?

A
Akhil Jindal
executive

Yes, much clearer.

N
Nikhil Abhyankar
analyst

So what is the status of the road sales transaction? And what will be the cash inflow for us?

A
Akhil Jindal
executive

Okay. Let me just answer this. This is Akhil Jindal. Basically, the definitive agreements were signed in the month of June and that's why we have shared with the investors and analysts the commencement of the deal. Basically, we are in the process of getting the CP compliant, which primarily involves the lenders and the NHAI-PWD regulator's approvals. So we believe that all of this should be over by, say, end August, early September. And that's the time that the deal -- the money will start flowing in. That's part A of your question.

The part B of the question is that how much money is the company really getting. The total consideration along with [ LCA ] is expected to be in the range of INR 2,350 plus. In addition, it will also enable around INR 300 crores of the working capital lease out in the Welspun Enterprise level. So in all, I'm looking at a fund acquisition or fund transaction of in excess of INR 2,600 crores. In addition, the debt will also be then transferred to the new owner. And to that extent, our support will also reduce, if not extinguish completely, because our support will be extinguished after completing of all the approvals, which includes the Mukarba Chowk, our road project, where we have a 49% approval likely to come shortly and [ 51% ] policy change. So over a period of time, our support on the debt side will also come down and also the amount -- the infusion or the new fund moving into the company in excess of INR 2,600 crores, as I mentioned. I hope I answered your question.

N
Nikhil Abhyankar
analyst

Just a small follow-up. How do we intend to use the cash?

S
Sanjay Sultania
executive

So this order book, as you see, is a substantially large order book. So we will become debt-free, which we have some debt of about INR 500 crores at the parent level. So that is something that we will -- and then the balance cash will be available for supporting the current operations as well as our future growth.

N
Nikhil Abhyankar
analyst

Understood, sir. Sir, in the initial comments, you mentioned that the margins were low. So can you give us a specific -- like any specific commodity because of which the -- specific number of commodities because of which the prices were high? Or -- and what are the protections that we have taken so that we can tackle this problem going forward?

S
Sandeep Garg
executive

So as you would -- as you would -- most of you recall, practically the whole commodity cycle was upward, whether it was petroleum products, bitumen, cement, steel and was talked about, Jharkhand mining closure, so which has led to some input costs going up. As you see, there are decisions being taken at the government level to ease out, the inflation is down, the steel prices have relatively eased out. Relatively, cement has also has eased up to some extent. So the derivative pressure is up on the commodity cycle. So we look forward to that and with the monsoons coming, being forward, there will be further ease of on the cement and steel prices is what we anticipate. So we believe that this temporary blip is a quarter or 2 quarter issue.

N
Nikhil Abhyankar
analyst

Okay. So understood. And one final question. We have won a large order from BMC. So how do you see -- how will it affect revenues in the near future? And do you see any other large opportunities like in the next 1 year?

S
Sandeep Garg
executive

So this large order of MCGM is a 5-year contract for the EPC. The first year, there's going to mostly be devoted to preparing the ground for work as well as the engineering. The rail work would begin about 9 months to 10 months after the project is awarded. And so this year, I don't see it substantially causing much of a revenue. However we have major projects like Varanasi road project, certain other -- SNRP project and the UP JJM, which are on a fast track. Those will be the large revenue contributors going forward.

Operator

Next question comes from Chirag Singhal from First Water Fund.

C
Chirag Singhal
analyst

Sir, first question is on the physical progress across projects. Could you please share the numbers as of 31st of March and as of 30th June, what is the physical progress across all your projects?

A
Akhil Jindal
executive

I think just to answer, start with it, we have 5 projects on the HAM side, which have already achieved PCOD plus COD. In fact, out of 5, 4 have already achieved COD, the 5th one is likely to get to COD as well. On the BOT project, we have achieved against the PCOD and we are likely to get the COD in the third quarter or so. And on the balance 2 HAM projects, which is SNRP and Aunta-Simaria, these are the 2 HAM projects which are left. And we'll just give you the physical progress done on them.

S
Sanjay Sultania
executive

So SNRP road project, it is currently at 8.3%, and the Aunta-Simaria is at 43% or there around at the end of June. And the completion period expected for SNRP is June 3, 2024, while that for Aunta-Simaria is December 2023. Did that answer your question?

C
Chirag Singhal
analyst

Yes, this was for 30th of June for the HAM project. And if you could share the same data for the projects as well as the corresponding numbers as of 31st of March.

S
Sanjay Sultania
executive

I don't have those ready. If you could get in touch with my team, they would be very happy to answer those.

C
Chirag Singhal
analyst

Okay. All right. Sir, we have seen that the delay has been happening in the execution, at least in the 2 projects, Aunta-Simaria and SNRP. So can we, let's say, assume that this will have a speedy execution going ahead in the next -- in the current fiscal as well as the next fiscal?

S
Sandeep Garg
executive

That is correct. The SNRP, the debottlenecking of the, as you know, that there was all the Tamil Nadu projects were having problems relating to the earthwork and the [indiscernible]. With the intervention of the government, central government and the state government, the things have started to ease up. And we are now just started getting earth. We are quite hopeful that in the next few months, the [ format ] should also going to get resolved. So the structure work has been progressing at SNRP, the question was if we're getting the results now. So we are very confident that SNRP will start turning substantial revenue going forward.

In regards to the Aunta-Simaria, we are already -- the bridge section is already substantially moved ahead. However, as you know, because of the -- working on water, there are -- the time period available for working on the water is somewhere around 6 months. So it will be a bit slower on the bridge site, but they'll be much faster to work on the approaches, which have started -- on which we have started the work, because now these fronts are available to connect the bridge from both sides. Another thing that I would also want to -- another thing that I would also want to say that Aunta-Simaria, there are certain changes because of the railway requirements. So certain RUB requirements have come in, for which the approvals are now in place from Railway. And hence, the -- that particular section is also -- stands debottlenecked.

C
Chirag Singhal
analyst

Okay. But I believe that the Aunta-Simaria was FY '23, and now I think we have just stated December '23. So what is the reason for this delay? So I think in the last quarter only, you mentioned that Aunta-Simaria will be completed in March '23 itself, now you're saying December '23. So...

S
Sandeep Garg
executive

Because -- let me -- let me -- the reason is because, as I said, there was a requirement of ROB/RUB from railways and railways approvals have come now. It's a major railway track, which has -- because of the configuration of railway track, there is a requirement to convert one of the ROBs to RUBs. Otherwise, the access is not available and which took us some time for -- it was with the intervention of Pragati that this resolution could take place between Railway and Ministry of Road and the NHAI. So now with this having come, we are entitled to an extension of time of approximately 500 days, which we will get. And since this is the now debottlenecked that is why I'm telling you that we are expecting this to be completed by December 2023, because there is a process of building the RUB, which has now been approved, which is a time-consuming process.

C
Chirag Singhal
analyst

Okay. Okay. All right. My next question would be, what is total [ LOE ] at this point of time? And can you please give any guidance on the fresh order inflows for the current fiscal?

S
Sandeep Garg
executive

Sorry, I couldn't follow your question. Could you repeat, please?

C
Chirag Singhal
analyst

Yes. I'm saying the total [ LOE ] at this point of time and if you can please give some guidance on the fresh order inflows for the current fiscal?

A
Akhil Jindal
executive

LOA.

S
Sanjay Sultania
executive

I think as far as LOE is concerned, we have only LOA, this MCGM project which we've talked about.

C
Chirag Singhal
analyst

Okay. And any guidance on [indiscernible]?

S
Sandeep Garg
executive

So we have substantial orders. And as I said, we are really selective in our order book. We want to take strategic orders. So we have substantial, as you would know, even with the substantial growth rate, we have a clear visibility of order of -- orders for at least 3.5 years. So we will be very selective in bidding up the orders. However, strategic orders we will take.

C
Chirag Singhal
analyst

Okay. All right. Sir, just 1 last question.

Operator

Sorry to interrupt, sir...

C
Chirag Singhal
analyst

I'll get back in the queue.

Operator

[Operator Instructions] You are having a question from Rohit Natarajan from Antique.

R
Rohit Natarajan
analyst

My first question is related with this top management change that we have seen. We are glad to see good margin in the business. What seems to be this reason for it? And does this particular changes will impact our strategic thinking, execution in the days to come? If you could throw some color on those aspects?

S
Sandeep Garg
executive

See, we would have wanted Ajay to take this forward. Whatever we are talking is something that Ajay and team have done in the last quarter, completed supported by the team and the Group. However, Ajay had his personal reasons to move on. And the Board, in its wisdom, decided to recall me. So that -- I have the advantage being that I have practically for the last 10 years, barring for this short period, been with the group, with the company and seen its growth. So hopefully, I will deliver the results as are expected.

R
Rohit Natarajan
analyst

Sure, sir. Apart from that, is the goal that [ MDMC ] will be separate? I mean what exactly was the new way of thought process was there?

S
Sandeep Garg
executive

We are right now continuing. However, there can be always new opportunities going forward.

R
Rohit Natarajan
analyst

Sure, sir. Coming on to the company-specific questions. At least we have got a very good asset monetization in place. I understand in your opening remarks that you will be using it for future growth opportunities, as I understand. But could you please directionally guide us where exactly this cash will be deployed? Would it be more towards road projects and HAM projects -- if not HAM, will it be BOT projects? Or would you be going for inorganic growth opportunities? Any color on those aspects?

S
Sandeep Garg
executive

As I said, we are looking for strategic building of order book. So we are not -- it would be not prudent for me to say that it is -- it would HAM or a mix thereof. Any projects in the sector of road and water sector, which is strategic and gives us a return in the ranges of 15% and the above, is something that we will look at this cash.

R
Rohit Natarajan
analyst

Sure. So, [indiscernible] we are focused on EPC business. We don't have -- maybe strategically, we will have some asset heavy model. But largely, we would be in EPC business. Is that understanding correct?

S
Sandeep Garg
executive

We have all the HAM, the BOT, toll, everything that's within the portfolio and open as a business opportunity. As I said, our governing principle is it should be strategically right for us to enter into that project, and it should give us a return of more than 15%. So these criteria, which whatever are the options of the models will allow, we will be looking at those -- at that option.

A
Akhil Jindal
executive

Also, look, the 15% is not just on our own investor equity, but on our overall project basis, is what we would be mindful of. Because ultimately, if there is any debt being taken on the books of the company, we believe that is also our exposure. And on an overall basis, we should be getting a return of 15% plus. Then only this money would be applied.

R
Rohit Natarajan
analyst

Sure, sure. I appreciate, sir. So final question from my part. Given that we have got such a huge order backlog, 6x book-bill, I understand that there will be abundant revenue, and you've been guiding not really in the very immediate term -- it will take a little time. But could you just give us some -- like the peak revenue in -- will we achieve the peak revenue by FY '24? Will it be between INR 3,000 plus kind of number? Any color on those aspects would be a great help.

S
Sandeep Garg
executive

Yes. We should definitely be touching for those numbers. For sure. We will be [indiscernible] for the current financial year and the next, we should be touching and also being above those numbers going forward.

R
Rohit Natarajan
analyst

Got it, sir. But also on the margin part, but I understand this was a transient issues that we have had in the last quarter. But would it mean that we will be back to 9% to 10% EBITDA margins once we do the peak number?

S
Sandeep Garg
executive

Sure. We are definitely considering that.

S
Sanjay Sultania
executive

Yes, we should be in the range of double digit as we move forward, and we are very hopeful that we should be closer to this.

Operator

Next question comes from Riddhesh Gandhi from Discovery Capital.

R
Riddhesh Gandhi
analyst

I just wanted to understand, after this Actis transaction, how much would be net actually cash on books overall on a consolidated level?

A
Akhil Jindal
executive

Today we are at a net debt of INR 400 crores, if I'm not mistaken. The exact number, Sanjay, you can just tell me. But with this total free of the cash would be that INR 2,600 crores. So I think on a net debt basis, we would be around INR 2,200 crores.

S
Sanjay Sultania
executive

INR 2,200 crore plus and 0 debt on the books. And INR 2,200 crore plus. And on the consol side also, out of the 6 assets which is getting divested, all the loans will go to the buyer. That's out on the consol also, and at the moment we will have only 1 company -- I mean, 1 project which is Aunta-Simaria, which will carry debt. Otherwise, there is no debt after this transaction gets consummated. And SNRP is not at the moment, but going forward it will come, as we just discussed.

R
Riddhesh Gandhi
analyst

Got it. Sir, [indiscernible] that's a reasonable amount of the cash on books. And I understand that while the order book is also actually large, we are, I mean, meaningfully under leveraged. So just wanted to understand, I mean, is the plan to actually deploy it into infrastructure only? Or are there some new areas we are looking at? Or is it -- if we return it like a capital to, effectively, shareholders? How are you just thinking about it? Because even based on existing order book, we've got way too much cash on books.

S
Sanjay Sultania
executive

In the infrastructure, as you will recall, the journey when we started to grow in infrastructure, we had created a war chest of about INR 1,000 crores, and we propelled the company to the current order levels. So if you have a war chest of this kind, we will have the next phase of growth. That's what our belief is, and that is why we would want to retain this cash and as we said, and deploy it in projects where we can do a project IRR of 15% or therearound.

We believe that there are opportunities out there to deploy it successfully once the cash is on the book.

R
Riddhesh Gandhi
analyst

Got it. Sir, the other question was on going back to the journey which after the solar asset sale, we were deploying into infrastructure. At that time, our expected equity returns were closer to 18% with an aspiration to go over 20%. Just wanted to understand between what the ratio was and what actually ended up playing off, actually what our learnings were, and is there a reason why we are happy now with a 15% project IRRs or effectively that's all we actually should be able to expect in an industry like this?

S
Sandeep Garg
executive

Yes, that's why I clarified in between, that is not 15% equity IRR, this is 15% project IRR. And with a project IRR of 15% with a gearing of, say, 2:1 or maybe 3:1 as may be permitted in the infrastructure sector, our equity returns are in excess of 20%. So we have maintained on that path, which we have guided you at the beginning and always have been mindful of cost of equity being the highest in the pecking order. And to that extent, we have always respected it in the bidding as well as in our exit strategy. The shareholder's interest has always been kept aligned along with the returns that we have projected for our bidding and for the exit strategy.

R
Riddhesh Gandhi
analyst

Got it. Understood. But effectively, still, a capital heavy business because on one hand, we are indicating we are preferring to do actually capital, actually light projects. On the other hand, we are retaining the INR 2,200 crores of cash with a potential to gear up 3x. So then let's say, anywhere between INR 7,500 crores to call it 10,000 crores on projects. So just wanted to understand how should we sort of be thinking of this difference between the two?

S
Sandeep Garg
executive

So we are trying to -- this is like, as I said -- as I said earlier also, it's trying to create all spots of where we can stand on a stable footing. So there will be a developmental module deployed regarding cash. However, there will be a stable EPC business, which gives us the return without the capital investments. And that's the diversification we also made into water. So it's as the company is going big, the intent here is to make it come to a stable platform and have offerings which can both work when there is a liquidity on the balance sheet and also when there is limited liquidity as the deployment of cash takes place. Growth has to continue, and that's the business model that we have come up with. So we will be working on 2 sectors, that's road and water. So the offerings both of the EPC and the investment model, we believe will give us the stability that is required for a sustained growth.

S
Sanjay Sultania
executive

Sanjay here -- this is Sanjay here. In addition to what Mr. Garg has said, our asset-light model philosophy will always remain. Though we are having -- we will get cash in our books by this Actis sale, but as we note, the order book in EPC side is more than INR 10,000 crores. This will also require certain working capital side, not from the asset side. And you see as a mindset, we are very -- we are not that aggressive or we are very conservative in utilizing the borrowed fund as working capital. So this money will also get consummated to some extent to retire our term debt liabilities, as well, used against our EPC order book as a working capital, not to buy the capital assets. But as and when we get the opportunity, as mentioned by Akhil Jindal, to our mind set of getting the right IRR, we will get into it.

R
Riddhesh Gandhi
analyst

Quite interesting. Last question, is from historically, and I think we've discussed this also that -- I mean EPC is not typically have been extremely lucrative. So I just wanted to understand, how does that thought process has changed? And effectively, if you are now looking to use actually equity on books as opposed to even levering it up? How do the EPC return then really accrue to actually equity shareholders? Because, I mean, I would assume if you don't even include the leverage, you may not be able to achieve your sort of adequately return on equity on a highly competitive EPC projects.

S
Sandeep Garg
executive

So let me take this question. The EPC -- if our offerings are primarily EPC on road, then your observation would be absolutely right. So our focus on EPC on road is primarily at a strategic level rather than a bidded level. We are more focusing on water segment where there is a differentiation through engineering and design optimization, where we believe that even the EPC gives us the desired returns as opposed to predesigned road or ready straight-line road construction. So we are very mindful of the bottom line. So when we take the EPC contracts, they have to be strategic and have to meet the threshold return requirements as they have been specified. This is sacrosanct for us.

R
Riddhesh Gandhi
analyst

Understood. Congratulations on your transaction and all the best.

Operator

[Operator Instructions] We are having a question from [ Saurav Agarwal, ] an individual investor.

U
Unknown Attendee

Sir, I just had a very basic question regarding this deal, which was informed to us in June, last month, about the sale of these projects. And a tentative time line has been given by 31st March, the deal should be over. So could you please give us any update on this tentative time line? Is it going to be expedited or 31st March is like the ultimate time period we should take?

S
Sandeep Garg
executive

Yes. I think we answered at the beginning. In fact, we are looking at multiple rounds of closing in this transaction. And we believe that in and around March 31st, 2023 is when the full deal will be concluded. Of course, subject to the NHAI approval for the balance 51% equity sale also from -- which currently is under evaluation at NHAI, not yet finalized. But I think all in all, we are looking at a perhaps June quarter or something next year for the full commencement. But as I mentioned, the closing will happen in multiple rounds, and we are expecting the first round of money to be available sometimes, perhaps, if we are lucky, within this quarter or at the beginning of the next quarter.

Operator

[Operator Instructions] We are having a follow-up question coming from Riddhesh Gandhi from Discovery Capital.

R
Riddhesh Gandhi
analyst

This is a follow-up. Just to understand how much was the equity IRR we were able to generate out of the projects which we sold?

S
Sanjay Sultania
executive

All in all, it was at 1.5x of our invested capital. So it was 1.5x. Sorry, I don't have that IRR percentage handy with me just now, but I would ask my team to circle back. On a price to book basis, it was 1.5x.

R
Riddhesh Gandhi
analyst

Yes, yes, yes. We saw that in the release. And the other question, I just want to understand with regards to how are you seeing the kind of competitive intensity now on the HAM side and water side, on the EPC side, and the do you feel given effectively the equity IRRs, I think, for the projects which we sold may have been slightly lower than our expectations, how are these things going to change going ahead and the learnings you've had from historical transactions?

S
Sandeep Garg
executive

So first, just to answer the question of competitive intensity. I think the competitive intensity in the interim period on the road projects has been extremely high, which has now seen some reduction. We have stayed away from very highly competitive environment in the road, because the pricing was practically going into negatives of -- ranging from 10% to 35%. Not an area that we want to play in. However, the recent awards, a few of them are about 5% to 10% above the budget. So we think the control is coming back, because there's enough orders which are not seeing financial closures. So I think the competitive intensity is reducing and in other quarter or 2 quarters, I think the playing field should once again be established.

In terms of the offerings, the government has now relayed that the BOT model initially without any guarantees on the traffic, heavy traffic risk being taken by the developer is not a model that can sustain. So there is pivoting going on, which I believe will make the risk and reward equation a bit favorable. So we will be looking at those developments and decide if it can give the adequate returns.

On the water side, plain vanilla small value contracts, it is [ self ] competitive intensity in water. However, we have seen that the higher value contracts have limited players and limited competitive intensity, and that's the area that we would be in.

Operator

Thank you, sir. And that will be the last question for today. I would now like to hand over the floor to Mr. Sandeep Garg, MD of Welspun Enterprises, for closing comments.

S
Sandeep Garg
executive

I would want Kritika to correct you that I'm not the Managing Director, I'm Managing Director Designate. Managing Director still continues to be Mr. Ajay Hans, who will relinquish the charge on the 8th of August. I'm stepping in on behalf to address this, because he has his own personal commitments.

I would want to thank all of you for joining us on this call today. Your questions have been insightful and I appreciate your interest in Welspun Enterprises. I look forward to speaking to you once again during the next quarter. Meanwhile, please feel free to reach out to Abhinandan for any clarifications or feedback. I also thank Mr. Ajay Hans, the Managing Director, for the support that he's given the company during his tenure. Thank you all. Good day.

Operator

Thank you, sir. Ladies and gentlemen, this concludes your conference for today. Thank you for your participation and for using Door Sabha's Conference Call Service. You may disconnect your lines now. Thank you, and have a pleasant day.

All Transcripts

Back to Top