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00:00Let's talk about VA Tech, Vabac. They have secured a repeat order of 415 crores.
00:05It's a company engaged in the business of water treatment, design, supply, installation
00:10and management of drinking water, wastewater, industrial water treatment and desalination.
00:16So, interesting space. Skandaprasad Sitaraman, the CFO of the company is joining us now on the show
00:22to talk about this repeat order. It's an operate and maintenance order, I believe, Mr. Sitaraman.
00:29So, let's begin with the details of this 415 crore order and why you feel that it is, you know,
00:36going to be an important pivot for the growth plans you have going ahead.
00:41Good morning, Kamana. Thank you for the opportunity today and very good morning to your viewers.
00:48We have a very clear laid out strategy that we want to increase the share of our
00:54operation maintenance business of our overall revenues. We are today at about 15-16%.
01:00We have set a medium term target of getting it to 20% and this order is pivotal that way
01:07in furthering this revenue stream growing. What is also more important is this is an order that
01:15we have been already executing for the past about 11, 10-11 years. We built the plant.
01:22The plant was commissioned in 2013 and this was the first DBO model desalination plant for
01:30domestic water supply in all of India and we have been maintaining it for the past 11-odd years.
01:36Now, we have secured an order for 7 more years that makes it an overall about 18-year life cycle
01:43and this is also a demonstration that long-term O&Ms can be successful, can be successfully
01:50maintained and this is also a success story for desalination both for Chennai and for world.
01:57So, let me just come to the financials before we get to the bigger picture of desalination and
02:02where you think you're going forward. If I'm looking at your Q1 numbers, pretty decent quarter
02:08margins at 13% bump up over there from 11.9%. You're seeing those margins maintained and even
02:17for a repeat order like this one where you've been with that client for a while and then they
02:22have now renewed that order. What are the kind of margins you see and what is your margin
02:27maintenance guidance for the year? We have given a medium-term guidance. We don't do it year over
02:33year because it's a practically lumpy business. 70-80% of the business comes from EPC but we have
02:39given a band of 13-15% within which we would like to maintain the EBITDAs going forward.
02:45From the last year, we have also seen revenue growth now starting with the robust order book
02:51that we have and this is a O&M order. This is not an EPC order and while you see the margins are
03:00blended at about 13%, the O&M margins are generally much better. We don't give a sectoral
03:07margin guidance or a project-wise margin guidance but I can tell you this is a very profitable order
03:13and it is much better than 13%. Just give us an idea of your new projects and what are going to
03:25be your revenue drivers? You have new projects in Chennai, in Bangladesh. Since you have work
03:30in Bangladesh right now, also give us a sense, Mr. Sitaraman, has there been any impact due to
03:36the political turmoil that we've seen? Let me take the Bangladesh question first.
03:42This is a World Bank and AIIB funded order. So payment securities are very clean over here.
03:49So multi-lateral funded orders is what we go for. So we don't see any typical risk over here.
03:56We are waiting and watching it is too early. We have demobilized our resources while the
04:01local resources continue to chug along over there. It's the engineering and procurement
04:10phase is what the project is at which we will continue to do from the head office.
04:16The local site works will obviously be on a wait and watch mode but we see that
04:22being multilaterally backed, being an essential services sector, this should move forward and
04:29we'll see the next couple of weeks. We hope that things will be much, much better.
04:34From a Chennai order perspective, it's going very well. The engineering is largely
04:41complete. We are in advanced stages on the engineering front. Procurement again is on
04:47full swing. We will start our supplies by end of Q4. Next year will be a peak in terms of
04:55procurement and supplies and also marine activities will be at full swing in the next year.
05:02Civil activities are going at very, very good pace. There is a lot of mobilization of resources
05:08because huge amount of concreting has to be done with the size of the projects of 400 MLD project
05:14and all things are on track, on time, on quality and on budget.
05:20Just to get a sense of the kind of order book you're looking at,
05:24of course, your breakup is 60% rest of the world and 40% India. Do you see that continuing? Do you
05:33see more municipal orders bumping up from various states? Just give us a sense of where you see the
05:39order book growing. From a strategy perspective, we will not go for state orders. We have repeatedly
05:47stated that we will be on orders only where there is a multilateral funding, a federal government
05:53scheme funding or a letter of credit, sovereign guarantee or a GDG funding. So, we want to be
06:00very secure on the payment front and we have been very successful on this. More than 98% of our
06:05orders in EPC are on this front. From an order book perspective today, we see that the existing
06:13order book is good and we are also seeing the order pipeline to be very strong, especially in
06:18the Middle East and Africa region. India last 9-12 months has been a little slower because of the
06:26general election phase. Now that that is passed, H2 should see some better action from an India
06:34perspective. But the last 12 months, having known that this is going to be a general election phase,
06:40we moved our resources overseas. We put in bids of over $1 billion and we are already
06:47seeing the outcomes coming through one by one. Early on in the year, we had one order
06:55from Ras Tanura. It is about a $33 million order. We are now seeing the Chennai order coming through
07:03and we have also stated in our earnings call, which was earlier the last week, that we are
07:11preferentially placed, we are preferred bidder in orders of over 6,000 crores and largely these are
07:17international in nature, desalination, wastewater treatment. So, we see that the international
07:23breakup will continue to grow and Middle East and Africa will be the growth engine while India will
07:30remain the core market. At an overall level, we will stay within the emerging economies,
07:37India, Middle East, Africa, Southeast Asia and CIS countries. We have completely defocused from
07:43our European business. You would have already seen that we have divested the third European
07:48subsidiary. So, we are practically 0% exposure on the Western Europe while we will continue to see
07:55that the Eastern Europe CIS countries still need a lot of water infrastructure and that is part of
08:01our strategy where we are putting in business development efforts. But at this point in time,
08:06India, Middle East and Africa plus Southeast Asia is our core market.
08:11Thank you very much for joining us today on the show. It was indeed a pleasure to get a
08:16better understanding of what's happening at Vatek. Good luck with business going ahead.