Welspun Enterprises Ltd
NSE:WELENT
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Ladies and gentlemen, good day, and welcome to the Welspun Enterprises Limited Q4 FY '23 Earnings Conference Call. 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 involves 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. Salil Bawa, Head Group Investor Relations for Welspun Group. Thank you, and over to you, sir.
Thank you, Irene. Good evening to all of you. On behalf of Welspun Enterprises Limited, I welcome all of you to the company's Q4 FY 2023 Earnings Call. Along with me today, I have Mr. Sandeep Garg, Managing Director of Welspun Enterprises Limited. I also have Mr. Akhil Jindal, Group Chief Financial Officer and Head Strategy for the Group; Mr. Lalit Jain, CFO of Welspun Enterprise Limited; and my colleague, Siddharth in the Investor Relations Group.
We hope you have had a chance to review the investor presentation that we filed with the exchanges today, albeit it was a little late. Apologies for the same. It is also available on the company website. During the discussion, we may be making references to this presentation. Please do take a moment to review the safe harbor statement in our presentation.
As usual, we'll start with the -- with opening remarks by our leadership team and then we'll open the floor for your questions. Once the call gets over, should you have any further queries that remain unanswered post the earnings call, please feel free to reach either me or Siddharth or our earning -- our Investor Relations team, SGA Partners.
With that, I would now like to hand over the floor to Mr. Garg, Managing Director of Welspun Enterprise Limited. Over to you.
Thank you, Salil. Thank you, and good evening to everyone present on the call. I welcome you to the Q4 and FY '23 earnings call of Welspun Enterprises Limited.
Talking about the macro situation in the country, in the past quarter, the Indian economy has shown continued growth on the back of government's enabling economic policies and measures. Likewise, the thrust on Infrastructure has been reinforced by the union budget.
As a result, MoRTH, NHAI and Jal Shakti Ministry has ambitious targets in the current fiscal year. Altogether, the enrollment for the new fiscal looks extremely encouraging.
Now coming to the updates on the company. Firstly, let me talk about the distribution of wealth to the shareholders. In line with our process of distribution to our shareholders, we have by way of dividend and buyback, returned INR 8.50 per share and INR 235 crores, respectively, in this financial year. I repeat, we have by way of dividend and buyback, returned INR 8.50 and INR 235 crores, respectively, in this financial year. So in total, we have returned more than INR 700 crores to our shareholders over the last 5 years, which translates to around INR 50 per share.
In the financial year of FY '23, we have clocked the highest stand-alone revenue in the history of the company, which stands at INR 2,676 crores. And accordingly, the highest PAT in the history of the company stands at INR 713 crores.
This year, of course, included the transaction wherein Welspun Enterprises sold 6 load assets to a marquee global investor, namely Actis for an EV consideration of INR 6,000 crores. Just to reiterate, our business model is unique with realization of profits by way of EPC business during the construction phase of these projects as well as the time of divestment, public project monetization as and when we sell the assets.
In the next growth phase, our business strategy continues to focus on twin goals. First, building a portfolio that generates high-value, high-margin projects backed by our asset-light business model; and second, diversifying our portfolio to derisk ourselves from dependency on any single subsegment of Infrastructure.
Coming to the operational quarter. This best-ever result in the history of the company was clocked due to increased progress in our Varanasi-Aurangabad Road project and UP Jal Jeevan Mission water project. Another good news that I would want to share is that we have received for the Mukarba Chowk-Panipat Road project, PCOD 2 in this quarter.
Coming to the other water project of substance, which is Dharavi Sewage Treatment Plant. We have been able to do initial mobilization of civil contractor and the work has commenced on ground. We have obtained the preconstruction approvals and also received 5% advance from the client, the mobilization advance, from the client.
We exit FY '23 with a healthy order book of more than INR 10,000 crores, which is split roughly 60:40 into water and road, respectively. This ratio of 60:40 gives us the ability to grow on twin engines. A recognition of our capabilities is exhibited by the fact that 80% of our order book is external with the remaining 1/5 being internally addressed.
As we conclude our detailed scope of projects -- I stand corrected, as we have concluded our detailed scope of -- out of projects, I'm happy to share that we have identified significant pool of projects across water and road segments to the tune of INR 67,000 crores, which we intend to look at for our bidding purposes.
We will remain true to our asset-light model and focus on project management and engineering solutions for the assets that we target. We will continue to focus on projects which enhance and are adaptable to our capability to bid for projects with higher engineering complexity and harness our core strength of execution excellence.
Coming to the Oil and Gas. We continue with our efforts for exploration and production of the oil and gas field blocks housed in the joint venture called Adani Welspun Limited.
Recently, we have started field development plan to the authorities for the block called B9 and are currently in process to submit the field development plan for the block MB-OSN-2005/2 or what we call Mumbai Block. We expect this to happen within this quarter. Based on the approval of the same, we would proceed with the field development of both blocks simultaneously. In line with our prudent approach, we will commit future capital only upon clearance of the field development plan, which gives us the visibility of early monetization.
During the quarter 4 on the Welspun new energy site, we appointed Mr. Kapil Maheswari, ED and CEO, for the business, who will help us identify, along with his team, the space in which we want to operate in the large space of sustainable energy solutions.
With this background of the quarter, I will request Akhil to take you through the financial results of the company. Over to you, Akhil.
Thank you, Sandeep. Thank you, Salil, and good afternoon to everyone. So we are extremely delighted to share the numbers for this quarter and for the last full financial year. As Salil mentioned, we could only upload it a little late in the afternoon. So I'm sure many of the people may not have got a chance to go through it. So just for the sake of everyone, I'm touching upon the key highlights, the key numbers that are of interest to you.
So clearly, the stand-alone performance of the quarter had been one of the highest ever in the history of Welspun Enterprise. We recorded total income of INR 884 crores in the Q4 FY '23 and that means almost 85% growth over the last quarter corresponding year on a Y-o-Y basis. This has also resulted in a net profit of INR 138 crores, which has meant a growth of almost 160% in the corresponding period.
This is -- of course, had been there because of the successful execution of key projects on the roads and water segment. And as Sandeep mentioned, a lot of revenue growth has come from those segments. The increase in other income has also been a large jump in this quarter. And as you would remember, the sales of proceeds of the assets that happened in the last week of December, that money is being effectively put into treasury operations into the bonds and mutual funds and there has been a significant increase on account of this treasury income.
The EBITDA, which is a paramount important item, we have got almost 80% growth to have reached INR 150 crore just in this quarter and this again shows a strong level of execution. On a consol basis, for the company as a whole, the numbers are more or less in line with the stand-alone numbers. But just to share some of these numbers, the top line has been at around INR 845 crores. The corresponding top line was INR 476 crores last year. And of course, these are now excluding 6 projects, which we have divested as a part of the divestment program that got concluded in December 2022.
On an overall basis, on a total income basis, again, on a consol basis, we recorded a growth of almost 85% to INR 917 crores as compared to INR 494 crores in the Q4. The EBITDA, again, for this quarter has been INR 166 crores, which was INR 93 crores in the previous year same quarter, and which means almost 78% growth in the EBITDA number.
And to sum it up, the profit after tax has grown by 1.8x to INR 142 crores on a consol basis as compared to the last previous year. And obviously, the cash that we have in the company are deployed on most effective treasury operations on which the company is expecting to earn in a safe and secure manner a decent amount of treasury. And going forward, I think this is our highest cash position as reflecting in the balance sheet of the company at INR 1,838 crores. This is, of course, including the sales proceed that I mentioned to you earlier.
On the full year basis, the top line has been, again, one of the highest in the history at INR 2,775 crores. The PBT, again, was one of the highest to INR 760 crores and the PAT was INR 713 crores. This, of course, included an exceptional gain on account of divestment of around INR 410 crores, which got completed in December 2022.
So before we open the floor for Q&A, I would like to state that as agreed with Actis, as a part of the transaction, there were certain payments which are to be received by the company based on the milestone payments. Out of the total INR 259-odd crores, we have received around INR 161 crores till date and the balance is likely to be received within Q1, a little -- part of it may still slip over Q2, but mostly in the Q1.
In addition, as and when we will receive the permission for divestment of 51% stake in Mukarba Chowk, there is another INR 169 crores is likely to come. So together almost -- together, INR 169 crores of the consideration, plus another INR 120 crores of the balance money which are linked to the balance payment is something that we would likely to receive from Actis or the SPV that we have sold over the period of time. And we are hoping that all of this would be achieved within this financial year. This is, of course, contingent on us getting the approval for -- from NHAI for the 51% stake sale, as I mentioned to you earlier.
So I think this is a short summary. If you have any questions, please feel free to ask us now or later as the case may be. And we can open the floor for Q&A just now. Thank you.
[Operator Instructions] Your first question is from Karan Asli of Maximal Capital.
[Audio Gap] more visibility. As we ramp up, could this sort of see any upside bias?
Karan, we couldn't hear initial part of your question. Can you please repeat that?
Yes. Sorry about that. Is this better now?
Yes.
Okay. Right. So I was actually referring to the INR 300 crores execution target per month that we have for FY '24. How do we see that as you're on sort of the brink of the start of the year, could there be any potential sort of upward revision to that?
I think we would stick to a target of around INR 300 crores per month on an annualized basis. Obviously, quarter-on-quarter, the run rates will change depending upon the various projects coming on and the construction work starting as well as the [ batteries ] of weather. But on an annualized basis, we would be targeting upward of INR 300 crores per month of revenue.
Sure. I see. And in terms of margins, I think we're at around 11% right now, operating margins, which is somewhere around what we are comfortable. But as execution picks up, could we expect some possible operating leverage to kick in maybe in the second half of the year?
Sure. I mean that we would also expect the -- as the volumes will grow, fixed cost will be apportioned over the larger base. So we expect the margins to be slightly better. However, this is subject to a caveat that these -- the commodity prices do not go out of the normal CAGR pattern that we account for when I -- when we are looking for the margins.
Right, right, of course. And coming to the order book, I think you mentioned in your opening comments that there is around INR 17,000 crores of pipeline that we're pretty sort of looking forward to bid for. So any more details on that in terms of what sort of projects are these? Are they water or road? And maybe any timelines we could expect, updates on the pipeline coming through?
So the pipeline for this financial year that we have right now identified is in the range of INR 67,000 crores. The split is practically in the ranges of INR 40,000 crores is approximately the road portfolio and the balance is approx -- in the water. However, we are not going to bid for each one of them. We will be very selective in our bidding out of the lot that we have identified at this point in time.
Right. Right. And any sort of -- out of this INR 67,000 crore, how much is sort of the real subsegment that we are targeting in terms of that matches our base criteria? If you could...
So we have already -- whatever we believed at the initial stages that these projects are not likely to meet our return expectations, we've already taken them off. Now this is a subset, out of which we will then be looking at -- depending upon our wins and the competitive intensity that we expect, we will be identifying the projects that we will target to bid and win.
Got it. And just coming to the Oil and Gas division of ours, you mentioned that there's some progress in terms of FDP is going through. Any indication in terms of what P1, P2 reserves you're possibly looking at in these 2 blocks?
I -- we do have an idea about these -- the P1 and P2, but I would request to defer this question to the time when we have the FDP in place, which means another a quarter before I publicly declare that.
Sure, sure. I understand. And what sort of ballpark investments could we see being made in the Oil and Gas division, because I think we have roughly around INR 1,500 crores of net cash? So would the bulk of that be going into this division?
See, the investments can only be ascertained when we have the FDP in place and an approval thereof. I would request that we get to the numbers after the FDP is being submitted and approved. The only thing that I would say is we are currently looking at 2 scenarios. One scenario is our own infrastructure to produce this cash. And the second scenario to leverage the existing infrastructure of other players to produce this gas and liquids.
So depending upon which model works out in the FDP, would the numbers change, and I would request that you grant us time till the time FDP is finalized and these options are closed by us -- for us to give you an idea of the investment.
Also, I would want to be very specific that we would be very cautious based on our returns as well as subject to the Board approvals based on the returns that we will have to go back to the Board about this investment proposals. And if those are met with, we'll proceed with the Field Development Plan.
The next question is from Rohit Natarajan of Antique.
My first question is on the water projects from UP. When do you expect those tenders to be out? Are we participating in all the tenders?
So could you repeat the question because there was some cracking which happened? Can you repeat the question, please?
So I was asking on the UP water tenders.
Okay. UP water tenders...
Are we participating in all those?
UP water tenders, we are looking at them for sure because we are already mobilized in UP. We, on our stand-alone, do not qualify for those projects, prequalifications. So we will look at getting the right JV partners, if you -- if we are to participate. And if we get the right partners and we are comfortable, we shall participate in these projects.
My second question is on the renewable front. Could you explain us what those plans are? The business development over there? The news you could also highlight, well, exactly what we have in spirits in those regard.
So our renewable plant, as I said, we took the -- from the Board a decision to explore this new energy options. We are -- currently, we have taken a CEO and are in the process of building the team. We are also -- we've also appointed a consultant to advise us based on various state schemes as to which state is best suited for these kinds of solutions. And we are interacting with the consultants to understand this business line.
And once we have a clarity as to where we want to play, both in terms of space and the state where -- which part of the value chain we want to capture, we will make a business plan. And once that is clear in our own internal approval processes, we would be very happy to share with you. Right now, we are in a process of only committing to the extent of initial investments into the teams and consultancy, which we do not believe to be exceeding anything more than INR 25 crores, INR 30 crores at this stage.
[Operator Instructions] The next question is from Chirag Singhal of First Water Capital.
Sir, first, I wanted to understand on the existing projects. So when you say that INR 300 crores of execution run rate is what you're looking for in the current fiscal. Out of this, how much are we expecting from the 2 HAM projects?
So I don't have the exact numbers in front of me as to purely from HAM projects, how much we are expecting and how much we are expecting from the EPC projects and the water. However, the split between road and water is likely to be more in the ratio of 60% to 40%, 60% coming from road and 40% coming from water.
So the reason I'm asking is because if I look at the timelines that we have stated for the Varanasi project and SNRP and Aunta-Simaria, I mean, INR 300 crores seem to be on a very conservative side. So I'm just trying to understand how have we come to this number and whether we are targeting to complete both the HAM projects during the current fiscal?
So we are -- we have an extension of time for the HAM project Aunta-Simaria to October 2024. And we also have in-principle agreement, our not written down in terms of agreements, but as a part of our minutes of meeting of the conciliation process, the 18-month extension on Sattanathapuram from 1st of April 2023, which takes us to the October 2024. That is what the time line available at this point in time is about any other challenges notwithstanding, and we expect both of them to go to the next financial year, for sure.
Okay. And could you also help me with the status on the Varanasi EPC projects, both the projects? So I think the original time line stated that we'll complete the projects by November of this year. So are we on track in terms of execution?
So the -- there are certain hold points from the client that will not allow us to complete the projects by November 2023. We expect this project to also go into the next fiscal year.
Okay. Understood. Right. Sir, my second question is again a repetition of one the previous participant's question. So we have set up this new subsidiary, and we have also appointed a new CEO for that subsidiary. So could you at least help us in terms of which part of valuation are we planning to foray into? And also, if you could confirm the INR 25 crores, INR 30 crores? So are you saying the initial investment will be to the tune of INR 25 crores, INR 30 crores only in the subsidiary?
So what we are saying to you are 2 things. And let me repeat, if I'm not clear, we will try and make myself clear. The mandate from the Board is currently to explore this area. So for which we are creating a team taking some consultants and exploring as to how the value chain in this whole new energy space is.
Now this expense that I'm talking about is the pre-expense, as you would call it, in a business balance for investigating and understanding the complete value chain and a decision as to what value chain is -- which portion of this value chain can we play in and in which territory can we play in, which state can we play in, which is the right place to set up any such business per se.
Once that clarity exists, we will create an annual business -- a business plan around it, which will be subjected to the Board review. Once the Board accepts that this is the area that you may want to play, we will start looking at any investment into the assets. Till the time Board does not clear, we are not going to make investments into any asset. It is an exploratory cost of a business line.
Understood. Got it. Understood. Sir, one more question, if I may, on the Oil and Gas side. So could you please help with the time line as to how those things work? So currently, you mentioned that for one of the blocks, we have already submitted the Field Development Plan and for another block, will be submitting the FDP during the current quarter. So how much time do the exploration for the block for which we have already submitted the FDP? And exploration and all is going to come at a huge cost. So what are the plans in terms of that? Are we looking to invest such huge sums in exploration and all those things?
So first of all, let me explain to you. We are no more in exploratory phase. We are in developmental phase. So there are 2 different categories, which means that the exploration is complete, the resources are available. Now they need to be brought out to the surface and sold. So we are now developing a plan as to what is the most optimal way of exploiting these resources rather than trying to find these resources. So that's something which I would want to, first of all, clarify.
Secondly, the earliest that I look at this point in time for the B9, the anticipated -- anticipation is we'll not be able to get the first gas out before FY '26. Depending upon the approval of FDP, this is the earliest that we can target.
Now since I said that we are going to develop B9 as well as MB-OSN-2005/2. Together, simultaneously, we will submit the FDP of the Mumbai block or MB-OSN-2005/2 block within this quarter. And these -- both projects, FDP being approved by this authority, we will create a business proposition for the Board to accept. Once the Board accepts as to what will be the debt-equity contribution, how the funding will take place of this project, will we be in a position to tell you what is the total outlay and how that is going to be funded, we will come back with transparency once this clarity comes in.
[Operator Instructions] The next question is from Riya Verma of NR Securities.
Firstly, I wanted to know, out of the INR 10,100 crores of order book, how much would flow through the P&L and how much would flow towards capital during the exit?
So this is the INR 10,000 crores-plus order book is all which will pass through our P&L through the EPC route. Now there are 2 of these projects, namely Aunta-Simaria Road project and Sattanathapuram-Nagapattinam Road Project. These are HAM projects where we are also standing as developers. The developing -- the value of these -- as an asset per se for us will be in the ranges of about INR 3,500 crores EV, enterprise value.
Right. And having moved out of road HAM into less competitive water, what is the next segment that you see Welspun moving towards to earn higher returns?
So let me clarify that I have not moved out of HAM projects. We've stayed away from very highly competitive intensity. However, over the years, we see that intensity going down. We are waiting in the wings to get back to the business as and when the opportunity is right. So we are very focused on the bottom line driven decision-making and analytics of what is viable for us. We are not necessarily chasing a particular model.
We are agnostic to the model. We could try EPC, we could try BOT Toll and hybrid annuity model. We are already in the Toll Road as Mukarba Chowk-Panipat, we are already in HAM with the various smart projects that we have and we are in EPC on Varanasi-Aurangabad Road project. So we -- our offerings on the road are composite on all these 3 models. However, on the water side, our current offerings are primarily EPC. We have one small BOT project in the water space as well.
Okay. Got it. And lastly, how do we see us build on our order book going forward? Any outlook on the same? And additionally, if you could throw some light on our focus segments.
So the current focus on the road and water shall continue. And as I said in my opening remarks, we have identified projects worth INR 67,000 crores as our first cut, where we believe that they will be amenable to the returns that we expect.
Now any business scenario of our nature, you would expect anything to 10% to 13% of a win ratio on this kind of order book. So that's what I would be expecting. However, we will see based on competitive intensity, how much we would actually want to build.
[Operator Instructions] The next question is from Diwakar Rana of Prudent Equity.
Sir, in the earlier con-calls, you've mentioned that you plan to go debt-free on a stand-alone basis. Right now, I can see in your balance sheet that you have paid some debt. So can we assume that you will get -- the company will go debt-free in coming 1 or 2 quarters on a stand-alone basis?
Yes. Let me just try and answer this. The net debt that is left in the company, I mean, the gross debt, not net debt, is just the NCD, which is INR 275 crores, which are also falling due in this month, which is May -- in the current month. So once that also gets repaid -- unfortunately, we couldn't prepay those NCDs because the provisions were not there in the NCD document. But say, 1st June onwards, our gross debt at the holdco level or on the stand-alone level would be 0.
Okay. By -- sir, sorry, I missed you by, next quarter?
Say, by 1st of June 2023, within a month's time from now. Yes.
Okay, okay. And sir, one small question, basically, if I see your P&L -- consolidated P&L, there is around INR 13.88 crores of loss from discontinued operation. So can you just throw some light on this?
Yes, I would request Lalit to add...
Yes. Basically, we have Mukarba Chowk project, which we have already seen. We have actually 51% holding in that project. So this is basically associated accounting we are doing. So for the quarter, this is the loss we accounted.
So this is basically a onetime loss?
Yes, this is a one-time loss.
[Operator Instructions] The next question is from Riya Soni of Soni Investment.
So firstly, with the cash that we have available from the Actis deal, could you please provide specific details about your plan for deploying the fund? And it would be great if you could share some concrete information on the same, as you said that you will update the same in the Q4 FY '23 earnings call?
Yes. So I'll take the initial portion of the question and ask Akhil and Lalit to step in. The current situation is that we have identified the fund requirement for our existing projects in terms of equity and temporary loans, which is for the existing business, which will be in the range of INR 375 crores. So that much of allocation is already made out of the cash that you see on the balance sheet as on 31 March.
Please recall that there has been a buyback of about INR 285 crores, including taxes, the money which has gone out. INR 275 crores is already allocated to refund the NCDs that we have. So this is the current allocation that we already have made. As I said, the -- we are looking at business of INR 67,000 crores of projects, which are both the HAM as well as EPC contracts. So certain allocations will be reserved for future business growth. The balance money as and when it is either the Oil and Gas business scenario becomes clearer, we would allocate those funds to Oil and Gas or any other verticals that we create.
Over to you.
I think you summarized it well, Sandeep. Clearly, the -- quite a lot of cash is already earmarked for some of the pending liabilities or pending investment commitments. And to that extent, I think while the cash balance looks pretty heavy at the beginning of the year, but almost INR 1,000 crore out of that is either to be used for the debt repayment or for the investments or the buyback as the case may be. So -- and as Sandeep mentioned, we are chartering the plan for the further investments, which we're going to come and discuss with you in more greater details in the next earnings calls.
Okay. That answers my question. So secondly, are we currently exploring any transaction in the nature of Actis?
See, these 2 assets that we are building in, as Sandeep mentioned, we have time for almost 18 months to build up those assets. Our endeavor would be to build them as soon as possible. And naturally, we have an arrangement under which we would also like to sales of assets in the line of our strategy of being asset-light model, which has been followed so far.
Clearly, these 2 assets would be of an enterprise value of around INR 3,500 crores to INR 4,000 crores as the case may be. So a lot of liquidity is likely to get generated at that point of time also.
And just to reiterate what Sandeep mentioned in the beginning of the call, over the last 4, 5 years, 6 years, as a company, we have returned almost INR 50 per share -- in excess of INR 50 per share by way of a dividend or by way of buyback. So almost INR 700 crores-plus has been returned back to the shareholders over the last 5 to 7 years. And our endeavor would be to continue on this path. And naturally, our earnings are also not like a single line function. It's a combination of both EPC income as well as the funds that we get on the exit. So both of these are to be kept in mind. And also, our Board will decide on the distribution policy as the case may be from time to time.
So I think the exit is certainly in our mind. And as Sandeep also mentioned about the Oil and Gas as they are getting FDP-ready, the interest on these Oil and Gas assets is also likely to improve from the external world perspective. So that is also one of our focal area that once we have established a viability and have completed the FDP, we would also look at the possible ways to monetize those assets. So this is something that is our overall plan over the next 12 to 18 months. And that would keep the balance sheet healthy.
By the way, I just also want to share that CRISIL which has otherwise not rated Welspun Enterprise so far. But this time, they have done the rating of Welspun Enterprise, and I'm happy to share that we are one of the few companies in the Infrastructure segment, which has been accorded a AA minus rating by CRISIL. And CRISIL, one of the most respected rating agency, has gone through a 360-degree evaluation of this company. And to that extent, this is a very happy news for the company and also from an overall risk metrics perspective. So I think that is something that I would like to share.
And I think if there are any -- no further questions, can we move on to the closing remarks?
[Operator Instructions] It seems there are no further questions. I would now like to hand the conference over to Mr. Sandeep Garg for closing comments.
Thank you. On the happy note of putting in the highest revenue for the financial year for the quarter, the best cash position, the best profit after tax is -- it's a very happy situation for me to thank you all once again for joining us on this call today, and I hope we have been able to address all your queries. I look forward to speaking to you once again during the next quarter. Meanwhile, please feel free to reach out to Salil or Siddharth of SGA, our Investor Relations Adviser, for any clarifications or feedback. Thank you all, and good evening.
On behalf of Welspun Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.