When FY19 ends, the number of kilometres that the government would have constructed will be higher vis-à-vis FY18 by at least 15% to 20%, Rohan Suryavanshi, Head – Strategy & Planning, Dilip Buildcon, tells ET Now.
13 analysts have a buy call on your stock price and they expect a 75% return in 2019. Would you say that their expectations are on line?
I guess you guys are better judge of that because I would not understand how the stock market moves. I can tell you that our performance is very much on track. Whatever we had promised, we are on track to deliver that and if you even look at our historical performance, we have shown that whatever the company talks about, we end up over-achieving it. Stock price is just a consequence of sentiments I guess but from our side, the business is doing very well and we should end on a very strong note.
Would you say that 2019 is going to be a strong execution year for you?
Absolutely. On a YoY basis, in the first half we are already up by a little less than 30% in terms of the total revenue. From last years Rs 7700 crore of top line, we have guided to around Rs 10,000 crore of top line. We are confident that we should be hitting that number. I do not see there is any problem with execution because the company has been doing well.
Do you think the second half run rate will be better than the first half which means the guidance is intact?
In our industry, typically in the H1, you do about 40% of the total revenue of the year and the H2 accounts for about 60%. This happens because H1 is also the monsoon quarter that comes in. There is always a lower revenue there. If you look at the maths and even if you look at our historical numbers that we put out on our presentations, typically that has always been the trend. So we are very confident that it should happen in that same sort of number that we are talking about. However, let me also add that while we are confident of our execution capabilities, there is also another party involved, the government.
In case there is any delay from the government in terms of appointed dates and all that, obviously some of this calculation may go a little here and there. But we expect it to be in the same region and we are very confident that government would stick to the dates appointed.
Can upcoming elections bring down land acquisition process to a standstill in select states? Would that stall the rollout of projects for the interim?
I do not believe that it will because we have not seen any huge impact because of election processes on land acquisition, of course there are certain things which might get slowed down but it is a not a huge impact. Also one thing we need to remember is that whenever we get an appointed date for a project, it means 80% to 90% of the land has already been acquired depending on the model of the projects.
So there is a huge runway available for work and get on with execution and deliver revenues. Given that most of the players in the industry are looking at a huge order book and of that order book, the amount that we can all execute right now, we will appoint it or the appointed dates should come before the model code of conduct comes into play. I do not foresee that being a problem.
But do you think that second half can be a year where execution can slow down at all because industry channel checks are indicating that it is going to be a little difficult to convert this almost 0.9 trillion rupees of tendered projects of NHAI into orders as most of such projects lack cabinet clearance and the cabinet has its hands full!
I do not have the numbers vis-a-vis how many projects need cabinet clearance as of now but what I can definitely tell you is that most construction companies have an order book of at least four years or almost five-year trailing revenue. This means they have already have so much orders in hand that they cannot execute it all in one year. Even if few projects do not have cabinet clearance, the backlog is so huge that the companies are already finding it difficult to execute what they already have in hand.
For them, I guess it would be a godsend if some projects get a little delayed. However, if you look at the commentary of all construction companies, everyone is talking about growth in revenue this year which clearly means that there is higher execution that is going to happen from last year.
I can also like tell you very confidently that when FY19 ends, the number of kilometres that the government would have constructed will be higher vis-à-vis FY18 by at least 15% to 20%. I do not think execution relative to last year or the years before that would slow. It would actually increase. It will definitely be the highest gear of execution till date that the country has seen.
How will the net debt situation be managed?
A lot of people probably did not understand and they were like kind of surprised that the net debt levels were up. If you look at our trends, in the quarter two, the net debt level always goes up because like I mentioned earlier, it is the monsoon quarter and revenues do not happen that much.
We are still investing in people and equipment and so cost goes up. When we first hit the public markets two years ago, our top line was Rs 5,000 crore. This year, we are talking about Rs 10,000 crore. If you are increasing your revenue by that much, given our model, where we do not sub-contract anything at all, obviously we need more working capital and also investment in equipment. The debt level continues to climb up as long as the company is growing at a higher rate than its return on equity.
So that is very much in line. However, as growth normalises a bit, these debt levels should come down. For a lot of projects, we have not received appointed date and the mobilisation advance. But we have invested in those projects. Now as soon as the appointed dates and the mobilisation dates come for this year, the net debt level will normalise and will be at a much lower level where it is at right now.