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Ladies and gentlemen, good day, and welcome to Q2 FY '23 Earnings Conference Call of Welspun Enterprises Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhinandan Singh, Head Group Investor Relations, Welspun Group. Thank you, and over to you, Mr. Singh.
Good afternoon, everyone. I welcome all of you to the Q2 FY '23 earnings call of Welspun Enterprises Limited. Present along with me today on this call are Mr. Sandeep Garg, Managing Director; and Mr. Sanjay Sultania, Chief Financial Officer of the company. You would have received the results from the company and also available in our filings on the BSE and NSE as well as on the company's website welspunenterprises.com, which has additional disclosures and information in the investor section over there.
As usual, we'll start the forum with some opening remarks by our leadership team, and we will open the floor for the 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 hand over the floor to Mr. Sandeep Garg, MD, Welspun Enterprises. Over to you, sir.
Thank you, Abhinandan, and good afternoon to everyone present. Before I start the discussion, I hope everyone had a safe and joyful Diwali and also wish that the new year brings in further job and prosperity to everyone present on the call.
Now coming on to the discussion for the quarter, I will start with a few highlights for the quarter and then give an update on the asset monetization efforts of the company, followed by Mr. Sanjay Sultania sharing his thoughts on financial performance of the company.
Following our Q1 FY '23 performance, the performance of Q2 FY '23 continued to be strong as compared to the same period last year. They reported a strong growth in revenue as well as profitability, which is largely driven by better execution of a few other key EPC projects in both road and water segment. With the execution of these key targets picking up, we are confident of delivering a strong performance in the current as well as next financial year.
On the stand-alone number front, our revenue from operations grew 82% year-on-year basis. Our EBITDA margin has improved from the preceding quarter due to the easing of commodity prices. It currently stands at 11% as compared to 7.2% in Q1 of FY '23. On the order book front, we have a very strong order book of INR 11,400 crores. This includes INR 1,796 crores of O&M and asset replacement for MCGM STP project as of 30th September 2022.
As a diversification strategy, we now have a very strong order book in water and wastewater segment -- sorry, wastewater treatment segment, which will help us to derisk ourselves. Water and wastewater treatment projects constitute 56% of our order book and balance 44% comprises of road projects. We are focused on establishing ourselves as a credible player in the water and wastewater treatment segment, which we believe has a huge opportunity.
We will continue to focus on value creation in our high-value, high-margin project portfolio. We have demonstrated the same with the recent asset monetization deal we signed with Actis. You may recall, our HAM journey started in the year 2016 with an investable corpus of approximately INR 800 crores. And over the last 6 years, we have been able to develop or we have been able to build developmental projects portfolio of about INR 12,000 crores. A large part of this INR 12,000 crores valued at above INR 9,000 crores is being monetized through the Actis transaction. And once the consideration comes in at first closing, our past guidance on these projects of mid-teen returns at project level would be actualized.
For anticipated IRR on the assets we are divesting, would be at least 15% at project level considering both EPC prospects and divestment returns. This brings me to an update on asset monetization with Actis. We had anticipated that the approvals from NHAI for PWD and lenders would come in by September 2022. I'm happy to update that we have received approvals from all our clients as per the concession agreements as well as from the lenders and have thus achieved most of the CPs by October 2022. Currently, we are in the process of compliance with the rest of the CPs. Consequently, we expect first closing to happen of the Actis deal in the current quarter itself.
We have always maintained that we have an asset-light business model, and we have stayed the course. The impending Actis transaction demonstrates our commitment to act on stated strategy. We are successfully recycling capital, which will provide us a strong foundation for our next phase of growth. In this growth phase, we will target a portfolio of high-value, high-margin assets. We will continue to work with our low-risk execution market.
On the operational front, we have received completion certificates for 2 HAM projects, namely Maharashtra Amravati Package AM2 project, which was received on 30th July, 2022 from Maharashtra PWD, and Chutmalpur-Ganeshpur & Roorkee-Chutmalpur (CGRC), which was received on 7th October 2022 from NHAI. These projects are part of the monetization portfolio.
As I conclude, I'm delighted to also share that Welspun Enterprise was awarded the second fastest growing construction company in the small category and the 20th Construction World magazine Global Awards 2022, which were held on 14th October 2022. With this, I now hand over the call to Mr. Sanjay Sultania, our CFO, to share his thoughts on financial performance. Over to you, Sanjay.
Thank you, Mr. Garg, and good afternoon to everyone. On the financial front, our stand-alone performance continues to be strong for the quarter as compared to the same quarter last year. We registered a revenue of INR 510 crores, which is a growth of 82% in Q2 FY '23 as compared to Q2 FY '22. Our EBITDA in Q2 FY '23 is INR 57 crores for the quarter. The growth in revenue and profitability has been on the back of a strong project execution of key large projects in road as well as water segment. The operating margin has been stable year-on-year at 11%. On a sequential basis, margins have improved, aided by some moderation of input cost. So the moderation of input costs continue and margins are likely sustainable going forward.
The profit for the quarter has registered a growth of 1.8x year-on-year to INR 40 crores on account of better project execution and lower input costs. The finance cost has slightly increased due to accelerated execution in EPC business. For the first half of the fiscal, which is H1 FY '23, the performance mirrors he quarterly performance trend with revenue and PAT growing by 90% and 89% year-on-year to INR 1,184 crores and INR 65 crores, respectively. The EBITDA for half yearly for current year stands at INR 107 crores.
Now coming to our consolidated financials, consol revenue for the quarter saw a growth of 83% year-on-year to INR 530 crores. EBITDA for the quarter is INR 70 crores. During the quarter, we acquired 51% increase of our JVs, namely CGRC, GSY, CTHPL, that we held, the consolidated financials reflect a gain of INR 61 crores shown as an exceptional item on account of business competition and accounting of these SPVs. And I would just like to insist upon that this gain of exceptional items is an optional gain.
Further, since we are in the process of divesting 6 of our completed HAM and BOT projects, we have clarified those assets as assets under held-for-sale. Therefore, you would have seen an item of INR 32 crores shown as profit from discontinued operations in our consolidated financial results. The net profit for Q2 financial year '23 after considering sales loss in associate and joint venture companies as well as a post-tax profit from discontinued operation grew by 4.9x year-on-year to INR 133 crores as compared to INR 22.5 crores in Q2 FY '22. Once the sales are divested, the profit from discontinued operations shall not be part of our financials.
On the balancing front, the total stand-alone gross debt is approximately INR 652 crores with cash and cash equivalent to INR 249 crores, translating to a net debt of INR 402 crores. The net debt [indiscernible] 0.21x. On a consolidated basis, the gross debt is approximately INR 927 crores, which excludes FCD project debt of assets which are being monetized. The cash and cash equivalent on the consolidated basis is INR 259 crores.
Once the closing of asset monetizing concludes, we expect to become a 0-debt company as a stand-alone basis after we fully retire our facilities and are likely to have a marginal under construction project specific date on consolidated balance sheet.
Pickup in execution backed by a strong order book, along with easing of input cost should aid growth in revenue and profitability going forward.
This is all from my side, and we can now open the floor for your questions please. Thank you.
[Operator Instructions] The first question is from the line of Riddhesh Gandhi from Discovery Capital.
Congratulations on your numbers. So just wanted to understand and clarify. So after the Actis transaction, we would effectively have a net cash of -- so I think the equity proceeds is about INR 2,500 crores. We've got INR 400 crores of net debt. So we'd expect to have about INR 2,100 crores of net cash on books?
So yes, if you look at the net debt position, the numbers are pretty much close to it, subject to the minor adjustments on first close and second close. But till the time the plant closure takes place, we'll be close to the numbers that you are stating.
Sure. And just to understand the reason you just structured it in terms of the 2 closures, is it because of the regulatory approvals? And I guess you indicated the first close to happen in this quarter. any indication on the second closure time line?
So the secondary close is required from a statutory clearance point of view. Otherwise, we would have preferred to close it noncore. But there is a constraint on the concession, but when we can do the complete transaction of Mukarba Chowk-Panipat project.
Got it. So sir, any indication as to how much we'd expect to do in the first close? How much is the second close and the timing of the second close?
So we would come back with the exact numbers. As we speak, the numbers are being generated. So as soon as the transaction is about to close, we shall come up with the numbers and then know how much percent would come in the first close and the second close. I also would want to clarify a point which you have raised is also the net debt right is about INR 400-odd crores. But we would want to be free of the stand-alone debt. So we expect the company to become net debt 0. The stand-alone debt stands at about INR 650-odd crores.
Got it. Sir, sorry, if you just can answer that. So if you could get an infusion of about INR 2,500 crores, and we've got about INR 400 crores of net debt, so INR 600 crores of gross debt effectively, then we would be net cash, right? Or am I missing something in terms of how...
The company will have a net cash surplus for sure, which will be utilized for, as I said in my opening statement, after retiring the debt for regional reasons of EPC, the current order book which still stands at about INR 11,500 crores and for the future growth of creating further assets, which are high value and high margin assets.
Got it. Understood, sir. And just to understand with regards to effectively, is there any update to provide on our oil block?
So there is -- yes, I can provide an overview on the oil block. The current investment in the oil block stands at about INR 410 crores. We had 2 blocks, namely MB/OSN/2005/2 for Mumbai block, which is an adjoining discovers small field block, B9 block. So between the 2 of them, we have reserved about a Tcf petroleum initially in place. And currently, as we speak, we are doing a field equipment plan study, field development study for the sale, which we expect to be completing in January 2023. At that point in time, we will know the completely strategy as to how we are going to produce, when we are going to produce and how much infrastructure would be required to produce and the commercials are the same. So that's where we currently are.
Good. And then we would expect to use this excess cash flow to effectively speaking, develop with these blocks? Because I'm assuming if they're offshore, reasonably expensive to develop as well?
So the intent is, as we speak, we will be looking forward to all forms of investment into that block as well from a concept of farm in or farm out as well as the interest of oil majors, if there is any. So we will take a strategic call on them once we can at FDP in 2023, and the Board has had a much chance to apply its mind and on to the opportunities and how to be with those opportunities.
Got it. And just my last question was with regards to how should we be thinking about -- I mean you have indicated we have invested about INR 400 crores. But from what we understand is that the belt in which we have these oil blocks is reasonably lucrative with a reasonable high level of reserves. So how should we be thinking about how much the oil block is actually valued at? And how should we be thinking about it?
So I mean it's a gas block, I would refrain from...
Yes, big gas block, sorry.
Primarily, these are gas blocks. The petroleum initially [ places ] about 1 Tcf. And in a gas block normal, 70% of the petroleum initially in place subject to the studies concerning is producible. So you can do the math depending upon how you foresee the gas pricing to move forward over the next 10, 15 years as to what these blocks mean. So...
That's a pretty large number effectively if that's really what it ends up looking like.
That is a large number, and I will refrain from naming the number. The mass is there, so obviously you can take...
Understood.
The next question is from the line of Rohit from Antique Stockbroking.
Congratulations on a very good set of numbers. So now that we have a very robust order backlog and even the top management is back on track, how will be the guidance going ahead in terms of execution? Can we look for that INR 3,500 crore kind of number, maybe, say, in FY '24? Or is it too early to say on that?
So yes, I mean, the number I would refrain from saying that it is a guidance, so number one. This is definitely our endeavor to ensure that we are doing a rate of about INR 300 crores per month on the FY '24 for sure.
Okay. INR 300 crores -- it seems to be a little bit -- okay, per month, that is the number that you're targeting, okay. No issues.
Yes.
The second thing is that we have witnessed a slowdown in NHAI orders. And I'm not too sure whether at this point in time now that your hands are full with this kind of order, you may not be aggressively looking out for order. But still, if you could give us some color on how do you see the road sector panning out in terms of the awardings and some color on even the water space too?
Sir, let me take the water space first because which is, as I stated in my opening statement, I believe it's going to be in future because we are at a very nascent stage, both in terms of order accessibility to the large part of the country as well as the treatment of wastewater. So the opportunities are among us at this point in time. So there are about at least INR 10,00,000 crores worth of UP JJM projects. Every state has to want to do the Har Ghar Jal schemes.
The wastewater treatment projects stand-alone for the -- itself stand at about INR 22,000 crores. So -- and imagine what kind of numbers pan out if you look at the Class A and Class B cities alone of the country. So the numbers in the water treatment are on the both the supply side and the treatment side are substantial, leave alone the opportunity that has been in the offering of river linking plants, which is also, I think, something which is taking shape as we speak. So my views are there'll be ample part in this space going forward. And that's a space we believe is -- has enough room for player with differentiation to create a differentiation and command some value there.
In terms of the road projects, you are right that there is a bit of a slowdown. But however, it's to my mind, a temporary scenario. There is still a substantive growth to be done both at the center level and at the state level for road infrastructure to be built. So it will be -- I think the more important point is we speak the government is seized with the issue that they need a reliable concessionaire contractors, and they would want to revive the BOT toll projects. So there is go back to the drawing board and see what will be the risk-reward scheme, which is balanced and which will attract financial strengths of the private sector and help the infrastructure build up quickly. So I think in 9 months, both the state and the NHAI should come up with certain revised models in maybe a few months more than that. And then the uptick will start on the order book as well.
Sure. Sir, if we could also touch upon some of these railway projects, which we have been hearing coming up for this development part. Is there any thought given from Welspun Enterprises to participate in any of those projects? Because I believe in the past, we have had explored such opportunities.
So yes, there has -- an adjacency always been on the horizon. As long as those are developmental projects, we surely really look at it. Pure EPC play, we may take away from it until and unless we build the requisite strengths to deliver those projects.
[Operator Instructions] The next question is from the line of Chirag Singhal from First Water Capital.
So first question is on the completion percentage, if you can just share the completion percentage at the end of Q2 for Aunta-Simaria, SNRP and Varanasi?
So Aunta-Simaria is about 55% on the financial progress side -- sorry, I will correct myself. Aunta-Simaria is 46%. SNRP is 12%, and Varanasi road project is 15%.
Sir, I didn't get the SNRP part. SNRP, you said 12%?
That is correct.
Okay. Sure. So second question is on the margins. So the reported 9% OPM, if you look at the stand-alone operating EBITDA margins, what is the guidance for the second half?
So as I said, it's a difficult situation to give in a market wherein the commodity price cycles are pretty volatile. So I would refrain from giving a guidance. How our anticipation is that our -- if the current trend is to continue, our EBITDA margin will improve further in 2 quarters, primarily on 2 counts, because of the high revenue that we expect to generate in Q3 and Q4 and also the commodity cycle that we see up to now.
I would also want to clarify that to our working the operating profit margins are in the range of 10% to 11%. I'm not too very sure how the computation is being done -- sorry, I stand corrected, it is 9%, my apologies.
So basically, in Q3 and Q4, we should be expecting better margins in Q2. Will that be correct understanding?
That is correct understanding.
Okay. Sir, just last question on the guidance. You mentioned that for FY '24, you plan to do INR 300 crores per month revenues. What is the guidance for the current fiscal?
So one, I would want to -- even at the cost of repetition, I will not and I will not classify that as our guidance. I only want to share this as an information, which we believe we are in a -- it is an expectation that we have. So we expect the current year to close anywhere around a run rate of close to the double of last year. And as I have said, next year, we are looking at a higher rate of execution given the order book strength. So that's what I would say.
The next question is from the line of Sudhir Bheda from Right Time Consultancy.
Congrats for a great set of numbers, sir. Sir, going forward, what kind of projects you would be concentrating given the good cash on hand and good liquidity position? So would it be like a pure EPC HAM or water treatment projects. So where our focus would be in coming time?
So let me state a stated position of the company that we are governed by our order book, which is consistent with the return expectation that the company has. We are -- while we would want to have a balance between the verticals and the offerings that we have, however, the guiding principles, first of all, is the return expectation. Our concentration, as we speak, would continue to be on the developmental projects where we can bring in a differentiation. However, we are open to EPC project on the road. In terms of water segment, we are looking at EPC and selective investmental projects.
Okay. And with the kind of the return which your company will make. So any plan to reward the shareholder?
This is a decision which the Board will take at an appropriate time when the Actis deal concludes. However, from a management point of view, we see a lot of opportunity to invest this capital, as I said in my opening statement. We have a clear -- we have a need of the capital to retire our debt. We have a need of capital to support our current operations, and we have a need to have a war chest for next phase of growth. So 3 adequate opportunity to create wealth for the stakeholders on a sustainable basis. However, these decision are board-level decisions which we will have at an appropriate time project to the Board and be guided by them.
[Operator Instructions] The next question is from the line of [ Saurabh Kumar Agarwal ], an individual investor.
Sir, my first question is about the last conference call, I think Sandeep indicated that we'll start receiving the first tranche of money from the September for this Actis deal. So I would like to ask, have we received any fund from Actis so far? Any advance fund or in part fund?
No. As of now, no. We have been able to get the approvals from the lenders and the clients only in the month of October, which is the major condition precedent. And thereafter the balance condition precedents are being met as we speak, because closing is expected to be in the Q3 of '23.
Right, sir. Sir, my second question is, presently, the total shareholder equity shown in the balance sheet is about INR 1,965 crores. What is your expectation after this deal, what would be the impact on the total equity solely by this deal, expected impact?
See, you are referring to our stand-alone Welspun Enterprises shareholding part. And after this deal, we are divesting into SPV, the investments will get canceled, and there is no impact on the number of concern.
Sir, I was referring to the consolidated balance sheet. Total equity, it shows about INR 1,965 crores. So what you're saying is that there won't be any impact of the deal on the total equity?
No. There is no deal on the total equity Welspun Enterprise indicated level. This is only what we are doing as a team that we are divesting our SPVs.
Right, sir. And what would be the estimated...
If we were to have considerations, there's no equity involved into it.
And sir, what would be the estimated tax burden on the enterprise due to this deal, estimated tax burden?
Yes, we have engaged consultant. They are working on it. Once this computation and everything gets finalized, then we will come to know the real impact.
Sir, the last question, though the deal is already on and hopefully it should be completed, do you see any scenario, any probity, however low it is, of the deal not going to -- I mean, do you have any concern on your mind, which may affect the deal?
To the best of our knowledge, there is no reason for the deal to not take place. And we reasonably think that this shall take place in the Q3 of FY '22, given that we have picked all the -- given that we have the approvals from all lenders and the clients and the first close of this deal to take place in Q3 of FY '23.
All right. And since you said there won't be an impact on the total equity shown on the balance sheet, I assume there won't be any impact on the number of outstanding shares also as it stands above INR 15 crores?
Yes, there may be no impact.
[Operator Instructions] The next question is from the line of Nirav Shah from GeeCee Investments.
Congrats on decent numbers. One quick question. So we are seeing the pending equity requirement of around INR 236 crores or versus the number was INR 175 crores on 30th June and we have invested approximately around INR 30 crores. So what explains this INR 90 crores increase in the pending commitments, which project is this?
See, you are correct when you were referring the last June number of about INR 108 crores, and the current number is INR 236 crores. But you refer to our last press release, where we have said that this INR 175 crores is our consolidated net of our short term loan also, which we have invested during the journey to ensure that speedy project executions are in the momentum. Now during the Actis deal, this INR 91 crores is likely to get a structure of angulated in the deal. So now we are coming up with a fresh requirement without getting off the short-term loan, where we have only 1 project left is the SNRP and some minor equity in the oil and gas business that we are looking at to invest in the next 1, 2 years as the project progress. So INR 236 crores equity requirement has been mentioned in the press release as well.
Okay. So just to understand the difference of INR 90-odd crores, I mean, that will go to the one project which is spending for the Actis deal.
No, there is no INR 91 crores will go in equity. What I'm trying to say is that this was the short-term loan outside equity, which we have been supported to the SPV during the course of the journey.
As there no further questions from the participants, I now hand the conference over to Mr. Sandeep Garg, Managing Director, Welspun Enterprises, for closing comment.
I would thank once again to all of you for joining us on this call today, and I hope that we have been able to address all your queries. I look forward to speaking to you once again in near future. Meanwhile, please feel free to reach out to Abhinandan or his team for any questions or feedback. Thank you, all.
Thank you. On behalf of Welspun Enterprises Limited, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.