Order Win Buzz For ITD Cementation
#ITDCementation creates buzz on the back of a Rs 3,290 crore marine contract win.
Company’s CFO Prasad Patwardhan joins in to discuss the order book with BQ Prime’s Alex Mathew. #BQLive
Company’s CFO Prasad Patwardhan joins in to discuss the order book with BQ Prime’s Alex Mathew. #BQLive
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NewsTranscript
00:00 Hi, thanks so much for tuning in.
00:02 You are watching BQ Prime.
00:03 My name is Alex Mathew and we are here to talk about arguably the stock of the day,
00:07 ITD Cementation.
00:08 It is a stock that is up over 10% today and in the year to date period, it has nearly
00:13 doubled.
00:14 The most recent trigger has to do with an order win and we are going to talk about the
00:18 significance of this order and the road ahead for the company.
00:22 Joining me is the Chief Financial Officer of the company.
00:24 We have got Prasad Patwardhan joining us.
00:27 Prasad, thanks so much for taking the time.
00:29 This latest order win, Rs. 3,290 crore, quite a large order in the context of your order
00:35 book which as of the end of last quarter stood at Rs. 18,500 or thereabouts from what I can
00:41 see.
00:42 What can you tell us about this order?
00:43 I am not able to hear you.
00:44 Okay, let me see if I can…
00:45 It is a Rs. 3,290 crore order.
00:46 Please go ahead.
00:47 Am I audible?
00:48 Yes, please go ahead.
00:49 So this is a Rs. 3,290 crore marine order and we have to execute it in a period of about
00:58 40 months.
00:59 Overall, our marine order book is about 33% of our overall order book and the total order
01:08 book after considering this order is about Rs. 22,000 crores to be executed over a period
01:13 of 3, 3.5 years.
01:16 Understood.
01:17 At the end of the last quarter, there were L1 orders of around Rs. 5,500 crore.
01:22 Is this one of them or are you still…
01:24 Yes.
01:25 Okay.
01:26 So you have essentially removed some portion of that.
01:28 What do L1 orders currently stand at?
01:29 Well, there were a couple of large L1 orders.
01:33 One was an order in Bangladesh which we announced, I think, a couple of weeks back or so and
01:38 this is the second one.
01:39 So there is no significant L1 order at this stage in our hand.
01:44 We had these orders, couple of orders which have been awarded to us and they have been
01:49 already disclosed to the stock exchange.
01:50 Okay.
01:51 So you have Rs. 22,000 crore of orders that you currently have in your kitty and you had
01:57 quite the first quarter as well.
01:59 Your revenues grew at over 67% or thereabouts.
02:03 And this, from what I have read, has to do with an improvement in order execution.
02:09 What can you tell us about the quarter that you're currently in, in terms of the trajectory
02:13 of execution?
02:15 And how come you are executing much faster than you did last year?
02:19 Well, on a year-on-basis, you are right.
02:21 Our top line has grown by about 60-70% or thereabouts.
02:26 But there were a few significant orders that were awarded to us in the previous year.
02:31 And one of them is part of the Ganna Expressway, a six-lane highways project of about 5000
02:38 crores approximately.
02:40 And the order execution, which we started sometime in December-January of this year,
02:46 the execution is really picking up.
02:48 Last month, there was a bit of a lull because of the monsoon.
02:51 But prior to that, we were doing about 160 crores a month.
02:55 So this order was not part of our order book in the previous year, a year back.
03:00 So that and some of the other orders, like the Chennai Metro orders that we won last
03:05 year, there the progress has come in.
03:07 And some of the other orders that are under execution, like Bangalore Metro, like a couple
03:11 of other marine orders, there the execution pace has also picked up.
03:15 So that has helped us to ramp up the scale of operations this year.
03:20 And we see a similar trend going forward.
03:22 Typically in the past, this Q2 is a bit slow because it gets impacted by the monsoons.
03:29 This year, the impact has been a little less than it has been in the past.
03:34 So we might see a bit of a slowdown in this quarter as compared to the previous one.
03:38 But we expect the execution to really pick up again from Q3 and Q4 onwards.
03:43 Prasad, can you help me understand the ticket size of the orders that you have, if you break
03:48 that 22,000 crore for me, and this 3,300 crore order, how does it stack up to the average
03:54 order value?
03:55 Well, we have received in the last 15 months or so, 15 or 18 months, we have received some
04:01 larger orders.
04:02 So a couple of Chennai Metro orders for about 2000 crores apiece, the highways project in
04:07 UP that is about 5000 crores.
04:11 Also, the order that we won in Bangladesh a fortnight back, that is about 1200-1300
04:19 crores, and this one is about 3300.
04:23 So we have been focusing on getting larger orders and that is bearing fruit, as you can
04:27 see from these order wins in the last maybe year or two years.
04:32 Okay.
04:33 Now, if I look at FY24 as a whole, I believe that the expectation is, or what you had set
04:38 out for was between 6,500 and 7,000 crore of revenue.
04:43 Based on your Q1 performance, and I think that was also better than expected or better
04:47 than at least the street had expected.
04:50 Are you set to beat that?
04:51 Yeah, I think it's reasonable to expect that we will beat that.
04:56 Our expectation today is, you know, anywhere between 7,200 to 7,500 crores.
05:03 And we might be able to do better than that as well.
05:06 But that will depend on how things go in Q3 and Q4.
05:10 What are the parameters that could affect that?
05:12 Well, new order wins and the pickup in pace of execution, you know, or some of the input
05:19 costs that we need to incur.
05:20 There are many things that could impact the execution.
05:24 But typically, we expect things to pick up in Q3 and Q4.
05:28 So as I said, 7,200 to 7,500, I think we should be able to reasonably do that.
05:34 Whether we can do something better than that, we'll have to see how things progress.
05:38 Okay.
05:39 Now, in terms of execution and taking on new orders, you've mentioned that you are targeting
05:45 slightly larger orders.
05:47 I'm just trying to understand in terms of capability and how much you can scale.
05:52 Because I would think that you would focus at a certain point on execution rather than
05:56 winning orders left, right and center.
05:58 So where would you draw that line?
06:00 Well, there are two things.
06:02 We are focusing on execution, as you can see from the growth in our top line numbers.
06:07 And in terms of order wins, we are focusing on select orders.
06:10 So it's not as if we are chasing all the orders that come up for tendering.
06:14 We know which sectors we have the strength to execute and the necessary resources in
06:19 terms of equipment, in terms of manpower.
06:22 So we are looking at three, four sectors, basically.
06:25 One is underground metro, second is marine, the third is public tunneling.
06:29 And the fourth could be buildings, industrial buildings or something like that.
06:33 So we are trying to focus on these three or four sectors where we have prior experience
06:37 and expertise.
06:38 And we have the necessary resources or we are confident that we will be able to ramp
06:42 up the resources in case it is required.
06:45 You mentioned that a third of the order book is in marine right now, right?
06:50 What is the composition of the rest of the order book?
06:53 Well, about 25% is urban infrastructure and the rest would be, yeah, it's 25% and the
07:05 rest is probably buildings and tunneling work as well.
07:10 Now, as I understand it, you have CAPEX that you have lined up of up to 200 crore rupees.
07:17 Do you anticipate based on the kind of orders that you're winning, that you will have to
07:21 ramp that up?
07:23 No I don't think so because we already have the equipment in place for executing marine
07:28 projects.
07:29 Even in terms of underground metro projects, we have tunnel boring machines available with
07:35 us.
07:36 So we are trying to focus on orders where we don't need to significantly spend more on
07:41 CAPEX.
07:42 In the highway space also, we have about 20% of our order book today is highways, which
07:47 is one project we are doing in the state of Uttar Pradesh.
07:51 So again, we are trying to have a judicious mix so that we don't end up spending too much
07:56 on CAPEX.
07:57 Maybe on some projects we rely more on subcontractors or we hire out the equipment that we require.
08:05 So we are trying to get a mix so that our cash flows are also not adversely impacted
08:09 and we don't end up spending too much on CAPEX and start the projects on the funds that they
08:13 require to expedite or scale up the execution effort.
08:17 So the reason I'm asking is because the space looks like it's very attractive.
08:21 There are a lot of opportunities and you seem to be winning a lot of orders.
08:25 But at the same time, you seem to be focusing on keeping your balance sheet very lean.
08:28 I see that your debt to equity was what 0.5x.
08:33 Is that likely to stay that way?
08:36 Well, the debt has gone up a bit because of the CAPEX that we have done.
08:41 The larger increase was in the previous financial year, that is FY23.
08:45 This year, the debt might go up a bit, but we don't expect the debt to increase as much
08:49 as it did in the previous financial year.
08:51 So there will be a sort of plateauing in terms of the pace of increase in the debt would
08:57 typically slow down.
08:58 And from next year onwards, we expect the debt to start reducing actually.
09:03 Can you quantify that for me, sir?
09:06 So we ended the year with a gross debt of about 720 odd crores.
09:11 As of today, we are at a debt of about 800 crores.
09:17 So the increase last year was about 200 crores.
09:20 We went up from 500 to 700 plus.
09:23 So this year, I don't think the debt will go up by 200.
09:26 700 may go to 800 or 850 or thereabouts.
09:30 But thereafter, it should stabilize and start coming up.
09:33 That is what we expect.
09:35 The final lever that I want to talk to you about is margins.
09:37 You mentioned briefly about input costs being or having a bearing on execution.
09:43 And you achieved 8.8% EBITDA margin in the quarter gone by.
09:47 And that's an improvement of what about 65, 66 basis points year on year.
09:54 Would you be able to keep that trajectory in terms of staying very close to that double
09:58 digit mark?
09:59 Or do you think that you can reach that as well?
10:01 Well, our first target is to reach double digits.
10:05 And we are pretty sure or confident that we should be able to reach that number in Q3
10:10 or Q4.
10:11 I think we need to understand that there were some legacy orders where we were actually
10:16 losing money.
10:17 And those orders are now behind us.
10:19 We have already taken a hit on our P&L in the previous year, as well as in Q1 of this
10:23 year.
10:24 So going forward, we expect an improvement in our margins, especially from Q3 or Q4 onwards.
10:30 So for the quarter, we are hoping to reach the magical figure of double digit operating
10:35 margins.
10:36 And next year, I think for the whole year, we hope to see an improvement.
10:42 And finally, on an ongoing basis, what according to you is the magic number in terms of size
10:48 of order book?
10:49 Because I think, as you say, execution has picked up quite dramatically.
10:53 Your shareholders will be quite keen on understanding where you see the magic number.
10:58 Magic number would be somewhere between 1000 to 1500 crores is something that we would
11:06 look at.
11:07 There are not many orders with a value of say, exceeding 2000 or 2500 or 3000 crores.
11:14 So magic number would be we would like to focus on probably lesser number of orders
11:18 but larger in value.
11:20 So that you know, we can really, you know, the fixed costs can be recovered faster.
11:25 And the margins also tend to be better on larger projects.
11:28 And in terms of overall orders, what are you comfortable with executing?
11:33 So would a 25,000 crore order book be something that you can comfortably execute?
11:38 Well, I think we can.
11:41 25,000 crores should not be difficult.
11:44 The only thing that we need to factor in or keep in mind is the capex that is required.
11:49 So if the new project is capital intensive, and we need to invest more in construction
11:53 plant and equipment, you know, that is something we need to look out for.
11:57 If it's in the sectors where we have the necessary resources, then we are okay with 25,000 or
12:02 even higher number than that.
12:05 Fantastic.
12:06 So a pleasure speaking with you, Prasad.
12:08 Thank you so much for joining in and for giving us that clarity.
12:11 And look forward to speaking to you real soon.
12:13 Thank you, Alex.
12:14 Pleasure speaking to you as well.
12:16 All right, viewers, there you have it.
12:18 Stock of the day, like I mentioned, ITD Cementation.
12:21 We'll touch base with them very soon to figure out how that project is going and of course,
12:26 the rest of the business as well.
12:27 Lots more coming up over the course of the day on B2Prime.
12:30 So do stay tuned.
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