NCC Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. Ladies and gentlemen we will wait for a moment while the question queue assembles. The first question is from the line of Shravan Shah from Dolat Capital. Please go ahead.

Thank you very much Sir and first congratulations on great set of numbers particularly on the execution and the order info front Sir, s o I understand we are not giving any guidance or upgrading the guidance on the execution but roughly trying on the direct ionally front trying to understand that normally the second half is relatively much better on the execution front versus the first half so last year also was the case, s o broadly looking at the current run rate 3 6% kind of a topline growth that we have seen in this first half is it fair to assume that we should be having at least 30% plus kind of a growth this year and the way the order inflow is that definitely you can update how much more are we expecting the order inflow so considering that even the next year also one can see a 20% plus kind of a revenue growth so that is directionally I am correct?

As far as guidance is concerned what we have given the 20% growth on the topline and the first six months our achievement is almost close to or that one w hatever guidance we have given and going forward in the next six months as you observed earlier the percentage of execution generally good in the second half than the first half but here because of certain nature of projects, the execution increases happen in Q2, so e arlier the type of increase not there in the Q2 but in this year in the Q2 more because of the various projects big size of projects are in the good position to execute and in the second half as you said that there is a good amount of order book and order value is increasing but whatever orders we received in the first half year or in the Q4 of the previous year they are big size orders are there like this Malad project, now tunneling project and the se smart meter projects but these projects require certain pre-execution proceedings including the finance closure so January takes some time to really turn out the report and in FY2024-FY2025 good visibility is there to report good turnover from these projects and in the second half generally basing on the first half year performance, we believe that and definitely some execution would be good and thereby I mentioned in my marks that management is confident to achieve the 20% guidance so thereafter there may be some increase could be there but we are not going to increase or change any guidance at this moment.

In terms of the margin level so if we adjust the claim so full 1H is 10.3% kind of a n EBITDA margin so that number is sustainable and previously we were talking in terms of the further debt reduction also so from here on obviously if we fight and we will get the cash flow maybe at later stage but broadly considering whatever we have so how much more we can see the debt reduction and accordingly the finance cost reduction?

As far as now margins are concerned , the main c ompany philosophy is since there is a competition in the market now we at the gross profit margin level there a compromise is there where bidding the projects but at the bottom level from EBITDA level onwards improvement is is looking by the management were reporting by increasing the the t opline that is the philosophy in such way we are moving . So now in the second half whatever normal margins now the first half Q2 got impacted because of this one t ime in the transactions but Q2 and Q3 remains as we reported in the Q1 so in normal course excluding those transactions for the year as a whole we expect an EBITDA and we given guidance as 10% but it may go 10.1 % to 10.2% so there would be a growth over the previous year in the EBITDA percentage and similarly in the net profit also increase would be there. We reported last year 4.2% and current year there is a chance of reporting 4.5% plus at net profit level.

Sir I was asking in terms of the order inflow so further how much are we looking at to get the more orders so how much we are planning to bid by March end and to get?

As of now we already secur ed Rs.20000 Crores orders as against Rs.26000 Crores mandate guidance we have given. So now we are confident that we definitely achieve the Rs.26000 Crores order book basing on the present flow of orders and there is some chance to exceed that one so it may go another 2000, 3000 and 4000 plus of what guidance we have given. Shr avan Shah: Got it and lastly on the data point Sir so you have mentioned the mobilization advance if you can repeat the retention money and unbille d revenue number and the investment is I hope the subsidiary, JV loans a nd investment is the amount the same Rs.1230 Crores which was there in the previous quarter?

You are not giving chance to the others . Total questions appear that you are asking . JM Financial, Mr. Ashish Shah just you tell me whether to proceed further to answer.

This was data point so it can help everybody.

Good afternoon Sir and thanks for the opportunity. My question is in the slide number 32 you are saying that there is a need to enter into new ver ticals to grow at 20% does it mean that we are expecting a slower growth in the existing verticals in the near ter m and hence there is need to enter into a new segments and i f you can help us with the new segment which you are trying to enter into?

Mr. Mohit the fa ct of the matter is it is not that we do not see lot of visibility in the existing verticals. The infrastructure market in India is evolvi ng at a very fast pace. F or example if you talk about the tunnel projects it was not an active market about a decade back so smart meter I am just giving you an example to answer your question in totality. We are always looking at what are the new avenues for growth , what are the new projects which are coming up for bidding and accordingly we try to have the competence , the qualification and then decide to bi d for the projects. So the pipeline of the project continues to be very healthy in the existing vertical as well as the new ones but we are not going whole -hog we are a bit selective in these new verticals. As we have already shared with you we have just started with a big tunnel project in the City of Mumbai we have taken three smart meter projects so this is what we intend to do so as and when the new opportunities come in the newer verticals , we will try to see what kind of projects are those, what is the competence required to do that, what kind of investments if any is required, and what kind of you know competence is required in terms of people skill, then we decide to bid for those projects.

Sir my second question is smart meter opportunity right? We have not done I think electrical or smart metering ever in our history so do you think that how will you go on bringing those competencies and building those capabilities so that we execute at reasonable profit margin especially big orders?

Mr. Mohit I agree with you that this is a new market but this is an emerging area reall y and we have done lot of distribution projects. This is a kind of project that we are doing i n the Jal Jeevan Mission. What is the Jal Jeevan Mission essentially is all about ? It is about giving the retail connection and retail tap connection to the households . In the smart meters we are trying to do the same thing . What is required to be done here is to provide these smart meter connections to all the households and we have done lot of distribution projects and we know the clients . In fact we have been active in this vertical. We have been working with this State Electricity Board for about two de cades now and all these projects are promoted by them so we understand th e space and we believe what it takes to succeed in this space.

Thank you.

Thanks for the opportunity . Sir my question is regarding we will be entering into the election season in the next six months so do you see that any order for the final arbitration will be hit say after January or Febr uary so whatever the orders come in should happen till December and January?

Yes you have asked a very good question. We are entering into this very exciting festival of elections. The state elections followed by c entral elections but we already have the buffers in place as my colleague Mr . Raju has already shared with you w e are already sitting at the highest order book in our history that is about Rs. 61797 Crores so close to Rs. 62000 Crores so even if though I do not agree with this view th at after the elections are announced there w ill not be any project but even if theoretically let us say that the proposition that you are trying to make is correct. In that eventuality also we have sufficient orders on our books to continue to execute till the new pipeline of projects are announced and awarded.

Right Sir understood and Sir also what is the status for Dhaka arbitration and what is the total claims for that arbitration?

Dhaka certain developments are there. Now already we explained about the legal status earlier. In this quarter there are some amicable settlement proceedings are going on so there are good chances to get resolved through mutual discussions and other things . That process is almost 70% to 72% is over and we expect some amicable settlement between the two parties so as a result the pending legal proceedings and other things gets closed so there will not be any and we are not expecting any big amount over what provision we made in the books of accounts to happen.

How much are the provisions?

Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.

Thank you very much Sir for this opportunity. Sir just a clarification, you mentioned PAT margin of 5% plus in this year right that is what you mentioned to one of the participant earlier?

4.8%.

4.8%?

4.5% we mention in my initial answer.

But what your question is.

4.5% plus okay fair enough and I think our adjusted EBITDA margin in this quarter was around 10.8% right so ideally second half is generally much better than your first half I think so ideally this a margin of 10.1% to 10 2% is not that on the conservative side?

For the year as a whole you are asking?

Yes that is what you mentioned right 10.1% to 10.2% EBITDA margin?

It depends upon the mix of several divisions we have and several efforts are there. It depends upon the mix. G enerally the band 0. 25% in between it will vary so we are confident to at least report 10.2% level for the year as a whole.

I understood and my second question is on your debt outlook I think we have seen increase in debt and I think we had earlier guided that FY2024 and debt on a Y-o-Y basis from FY2023 base it would be lower by about Rs.100 Crores to Rs.200 C rores so where do we stand in that front and how do we see the interest cost because our inter est cost ha s always been on the increasing trend so some understanding on interest and debt would be helpful?

Now as far as interest cost is concerned there are two parts so one is the interest on mobilization advance and other one is interest on our loans . As far as the loans are concerned there is no any good increase in terms of interest because mobilization a dvance is increasing and mobilization advance also the mix of the advances . O ne is interest bearing advances t he other one is non- interest bearing advances and that mix moves that is where most more interest bearing advances are there then as well as the interest cost goes but always we should see with reference to the topline. If you see with reference topline there is a decline in the interest cost from the previous year and any year decline is happening in terms of percentage. When the company grows about 30% to 40% actually the debt also supposed to grow but somehow the debt is under control so in this year since the more orders have come and big orders have come where the smart met er projects is a different type of semi an d UTR hybrid nature of annuity projects that one it requires the initial investment by the company . Only the payment will come over a period of 10 years from those projects as a result some part of investment or infusion of the capital into the three projects required . A s a result going forward there would be some increase in the debt level increases but it is in correspondence to the growth in the t opline. In terms of turnover the interest cost we expect a decline but not in the absolute terms . So as far as the Q3 also in the Q3 we are anticipating any big increase in debt but Q4 and and thereafter in FY2025 the debt increase maybe there.

So what is the debt level we are targeting in FY2024?

Rs.1500 Crores to Rs.1600 Crores of FY2024 end?

Yes.

That is it from my side. Thank you so much. All the very best.

Thank you. The next question is from the line of Deepika Bhandari from PhillipCapital. Please go ahead.

Sir thank you for taking my question. Just two questions from my my end that in the first half we have taken significant amount of orders so do we see our capex to increase next year th an the usual range?

Yes capex basing on the present nature of projects we are not forcing any significant increase in the capex. The next year we required to buy the tunneling machines and in SPV the tunneling project we are required to buy that again in the special purpose vehicle so how that company structure, whether the company borrows on its own and buys equipment and so when they equipment on consolidation that part again comes into the balance sheet like that. S ome naturally it is a c apital intensive project thereby some capex would be there . F or electrical smart meter projects we are not expecting any significan t capex for those projects so there may not be big increase unless we get any road projects or mining projects . When we get mining project a significant increase will be there in the capex. It depends upon the nature of projects so as on date whatever projects are there are, are secured and we are not any significant increase in the capacity. It would be the normal level of Rs.300 Crores or so.

My next question is because we have won recently so many orders which might be on the mobilization state so as on this September 31, 2023 what percentage of order book was not contributing into our revenue if you can just give us a rough percentage?

If you consider Rs.20000 Crores what we secured in the current year out of which 70% to 80% of others w ill not participate in the current year turnover. 15% to 20% orders participate in the second half.

Sir that means Rs.15000 Crores to Rs.16000 Crores of the total order book was not contributing as on September into our revenue?

Correct.

But there will be some contribution in the second half.

Thank you. The next question is from the line of Prem Khurana from Anand Rathi Shares. Please go ahead.

Thank you for taking my question Sir and congratulations for a very strong execution during the quarter. Sir my question w as to understand our thought process with the way we are thinking about the business now so as I see it when I look at some of these orders that you have been able to manage in the recent past like the tunneling project which is very large for us and even the advanced metering systems seems as if you are willing to commit your balanc e sheet now right because the tunn eling project you would need to kind of go and I understand it could be SPV level as well but either you are willing to take more debt or you would be required to infuse some money and go and buy a TBM and even with a dvanced metering sys tem there will be some infusion from your side so does it mean we are open to kind of come in our balance sheet to kind of get some more orders where you feel this money would be able to generate and do great whatever it is, to what extent would you be willing to kind of take more such projects wherein you will be required to kind of commit your balance sheet?

As far as th ese projects execution are concern ed there are two parts o ne is tunneling project you ask me the other one is this smart m eter project. As far as smart met er projects are concerned already my proje ct manager Neerad Sharma explained though they are big in size we have the earlier experience in the same segment that is electrical distribution works . This is nothing but again the type of nature but the payment terms a type of annuity and it is a big size order. Number of electric meters smart meters to erect in various places like water. In Jal Jeevan water parts how we are doing retail connection to each and house like that each an d house we have to erect the new meters and additional thing is the supporting s oftware system to link each and everyone to the central process so that is there, so as far as this process concerned management at this moment is not facing and the team is now they build up to take up to execute this projects and though it is a big platform problems would be there. It is a new but it is a managerial level at this moment the management is there. A s far as tun neling project is concerned definitely it is a new vertical and earlier we do not have experience in tunneling but we have experience in the road. Only one tunneling operation of the tunneling is the one new item so we thereby we and secured this project with a joint venture of Vijay Kumar where they have the experience of execution of this type of projects earlier so jointly we will execute this project so thereby we do not foresee any big problems so certain challe nges would be there but it is manageable with the help of the other partner.

No Sir basically I think I coul d not convey what I want to understand so I want to understand in these sort of projects right you would need to infuse some equity in the SPV s so internally is there any change in the thought process wherein you are are willing to invest money in some of these asset ownership businesses so let us say in advanced me tering you would have to put in money, tomorrow you could go and decide I want to go bid for road hybrid wherein you would be required to put in money and to what exte nt would you be willing to commit your balance sheet towards such projects wherein you would be required to stay back with these project for some time?

Now these SPV s we created separate SPV s. These SPVs on SPV level making a finance model whereby to mobilize the funds partly through the debt and partly by e quity so when our share of equity is required about for all the projects put together at this mom ent we expect about Rs.400 Crores to Rs.500 Crores equity infusion would be there that is over a period of two years or so. In a year about Rs.22 Crores to Rs.250 Crores equity NCC needs to invest to that extent our balance sheet gets adjusted or gets affected.

Just one bookkeeping could you please give me the breakup of order backlog in terms of how much is the Rs.61800 odd Crores how much is for the standalone entity and how much would be with the subsidiary like let us say for MDO and advanced metering system which would not reflect in the standalone operations and possibly if you could share that break up please?

Now from these two SPVs we secur ed the electric smart meters. Ou t of three one i s directly received by the NCC, n o SPVs required and NCC execute the project that is Rs.2400 Crores or so and other two projects which appear in the first of all which appear in the SPV books of accounts. Now we are structuring that SPV again award that EPC content to the NCC so whatever EPC contract to be done in the first two to three years to complete the project to that extent they give to the NCC. That value is about Rs. 3660 Crores that appears in the NCC books of accounts and some part appears in the SPV and that SPV part is about Rs.927 Crores. A gain totally the subsidiary companies the order book as on this date basing on the structure stands at Rs.7732 Crores and NCC stands at Rs.54000 Crores. T ogether Rs.61796 Crores and further another point to be noted here is the O& M part of these three elect ro smart met ers project totaling to Rs.2690 Crores is kept aside out of the order b ook. This we consider into the order book only when the O&M date starts that is roughly in the fourth year of the project starting.

I have a few more but I will come back in the queue. Thank you and all the very best for future.

Thank you. The next question is from the line of Parvez Qazi from Nuvama Group. Please go ahead.

Good afternoon. Thanks for taking my question and congrats for great order intake. Sir two questions from my side one if you could provide us what is the total exposure to subsidiaries JVs, etc., that we have and second what is the status of payment on the Andh ra project percentage and the state is also going to go to election soon? Thank you.

You are asking about the Andhra projects. As far as Andhra projects exposure i s concerned there are two parts one is the capital city projects and other one is other than the capital city projects so in the c apital city projects the exposure in terms of fund based and non-fund based. As far as bank guarantees are concerned there is a significant decline happened from the level of 300 and 300 to 200. N ow it comes to nearly Rs.1 20 Crores. A s far as capital city exposure at the beginning of the year we have Rs.157 Crores n ow it has come down to Rs.147 Crores. For the running projects there may not be any big change in the running projects . W hatever we have there every month we put the bills and every month bills w e are getting. Whatever outstanding is there as of March 31, 202 3 the same level is there now and as far as further exposure is concerned we are not taking any new orders from AP State and also the execution of the projects what projects are there wherever fund allocation is there only we are doing such projects to bring down or to control the exposure till the f und position of the government improves. Any further clarification you need?

No Sir just the exposure to subsidiary as such?

As far as subsidiaries there is no change in the first six month period. I n the first six m onths we did the investments weighing Rs.875 Crores at the beginning of the year the same level is also there. Same level is also there as of September 2023.

Sure Sir. Thank you.

Thank you. The next question is from the line of Ash Shah from Elara Capital. Please go ahead.

Sir can you provide the standalone and subsidiary order book for Q2 FY2023 outstanding one?

Now th e order book as of September 30, 2023 for standalone stands at Rs. 54000 Crores and subsidiary companies is Rs.7700 Crores totaling to Rs.61796 Crores.

I was asking for Q2 FY2023 that is September 30, 2022?

In comparison?

Yes.

Same quarter previous year.

Now we have about Rs. 7700 in subsidiary companies at this moment corresponding to the same September 2022 that would be around Rs.3500 Crores or so.

Also second question would be could you thr ow some light on the pipeline that we are seeing right now if you could quantify it sector wis e or the overall pipeline or something like that if possible?

We continue to see very healthy pipeline of project coming up for bidding. F or example in our biggest division buildings and housing, the transportation we get to see lot of elevated corridors and lot of bridges kind of structure. The same way the Jal Jeevan Mission, the water supply, rural as well as bulk water supply projects continues t o be very interesting space and we continue to see lot of lot of opportunities and lot of bi ds coming up. The same is true for the electrical division when we speak about the smart meter projects or the distribution side we continue to see lot of healthy projects but it is not really helpful to put a number why because these projects may not get decided in next six months or 12 months. A n infrastructure project takes lot of time to develop, to get permissions, to get the funding, get all the permissions in one place and then they bid out so even if l et us say that that number is X t hat number X may not get decided in next six months or 12 months so that is the reason, we do not really wish to share that number because that is not something that gives you a meaningful information to estimate our performance for the next few years.

That is all from my side. Thank you.

Thank you very much . The next question is from the line of Saket Kapoor from Kapoor Company. Please go ahead.

Thank you Sir for the opportunity . Sir first due to paucity of time we are having only two questions so Neerad what is the best way to get in touch with you post the call ? Y ou also elaborate on that and secondly Sir on the MDO business I think so some mine development SPV we have done earlier that was about to yield results now so what is the update on the same?

Surely firstly I will answer your first question first. You please note down my number and email. If you are ready then we will talk about the MDO project so that you can reach out.

Yes Sir please.

Otherwise in the presentation and on the website the email IDs and numbers are already given so you please note down my number 9000326123.

Thank you Sir.

To connect with you. N ow your next question was about this MDO project this mine development project right?

Yes.

So now the MDO project basically it is given for 30 years time stand and we started the project . At the beginning the client is able to provide the land and other facilities to some extent . As a result the mine plan approval is taken for a period of five years and in place of 30 years so the five years period is almost over and for the ba lance 25 years whatever format is required that is procuring forest land, procuring stage two clearance and R& R this revise d mining plan for 25 years, revised mining lease for balance this coal extraction all these things for the last one and half year are there, now they were completed and the WPD of the client, it is the obligation of the WPD sale to procure all these things . Now the client completed those formalities and hand over the forest land and we started working in that one tree cutting and then starting mine other side and the shifting of villages and settlement of their R&R issues all are in progress and as a result the extraction of (inaudible) 1:1:26 coal is continuing so last year we achieved the final milestone of achievement of (inaudible) 1:1: 35 15 m illion tonnes per year that we have achieved. So as on this date whatever obligations are there or milestones are there for the MDO it is in place and within the time are in place. Similarly the WPD they are also putting lot of efforts whatever is come and whatever facility is required that they are also cooperating and they are providing. As a result we are able to report good amount of turnover on quarter-on-quarter. So for the current year we have given target of about Rs.1500 Crores or so and that we are confident to achieve to Rs.1500 Crores turnover and for the first half year the company repo rted turnover of Rs.804 Crores. S o about t ransportation 100 is there transportation from mine mouth to the railway siding t hat is 55 km distance and as per the original document the WPDCL agreed to provide the railway siding up to the pit mouth in a period of five years but there is no good progress as far as railway siding is concerned. Still the transportation going by the trucks of this distance of 10 km. Now we and WBD as an alternative plan till the railway siding comes into the place worked out variou s options and identified another two routes to reach the railway si ding, another two railway siding stations identified and the second one already we started transporting this one . More than 50% now we are transporting through the second road and also identified another road now and that strengthening of third route is going on and once this come s into operation to some extent the density in the transportation of the roads comes down but this is one problem at this moment of the transportation of the coal but of course this is an obligation of the WPDCL to provide the facility but as far as MDO is concerned it is performing w hatever it requires to do so at this moment we can say that the project is going well.

Sir a very small point I joined late so depending upon the the scalability of execution the last H2 the last year H2 and this year H 2 what kind of growth are we looking in terms of the execution getting scaled up?

Last year H 2 we accounted certain pending bills in the Q4 whatever they kept spending. T he escalation bill dispute is there with the WPDC L. E arlier they had not escalation . T here is a dispute between the two parties and the dispute is resolved and finally agreed by the client and they certified the bills in the Q4 as a result Rs.250 Crores or so happened in the previous year . The same Rs.250 Crores will not come in this year so as a result we stand at Rs.1500 Crores to Rs.1600 Crores and in the second half also Rs.800 Crores plus about Rs.850 Crores to Rs.900 Crores in the turnover may stand.

No Sir I was looking at company as a whole , l ast year we clock ed yes Sir it was my second question only if I would just complete it?

The company as a whole Sir, we did topline on consolidated closer to Rs.6700 Crores for H1 and ended the year Rs.15500 Crores so how should this H2 look in terms of a comparison with last year that was my question and all the best to the team?

As comparing to the last half year, last year cons ol about Rs.7000 Crores. Roughly Rs.6700 Crores t opline we reported and on that one 20% growth would be there Rs.8200 Crores to Rs.8300 Crores.

So H2 will be lower than H1 Sir in that case?

No.

H1 we have done Rs.9100 Crores so if we are looking for Rs.8200 Crores for H2 that means sequentially it will be lower?

So it is not low.

It will be more or less in the same range. M aybe it is Rs.9150 Crores in the first half and it may lead to Rs.9300 Crores or Rs.9000 Crores.

Now last time say Rs.6000 Crores to Rs.7000 Crores or so we have given the topline for second off and this 20% comes to about Rs. 8500 Crores or so, so another Rs.600 Crores is differen ce there so the same level would be there.

I would answer your question little differently . We have already given guidance for 20% growth and we continue to stick to that target so we will hopefully surpass that number.

Right thank you. I hope that has answered your question.

Yes it is answered. Thanks.

Thank you. As there are no further questions from the pa rticipants I now hand the conference over to Mr. Ashish Shah from JM Financial for the closing comments. Please go ahead Sir.

Yes on behalf of JM Financial I would like to thank everybody for participating in this call . Also a big thank you to the management for allowing us to host the call . Sir any closing remarks from your side that you would like to make.

I thank you very much JM Financ ial Services for organizing the call and I thank all the participants and I also thank for the questions that were ask ed by you and we hope that we clarified all the questions and whatever questions we have not answer ed and if any further clarifiactions required you may please contact our strategic plan head Mr. Neerad Sharma. His phone numbers are available in the investors’ presentation. Thank you all.

Thank you very much. On behalf of JM Financial that concludes this conference. Thank you for joining us. You may now disconnect your lines.