NCC Limited’s debt level will come down to Rs 1,500 crore by March 2022: YD Murthy, Executive Vice President

YD Murthy, Executive Vice President, NCC Limited, talks about order wins worth Rs 2,150 crore, expected order book in FY22, current debt levels and plans to reduce it further, asset monetisation among others during an interview with Swati Khandelwal, Zee Business Edited Excerpts:

Q: You have won five new orders worth Rs 2,150 crore in June. Let us know about the execution timelines of the orders? Also, update us about the current order book situation of the company?

A: We have received five new orders in June of about Rs 2,100 crore. These pertain to the building of waterworks and other divisions and the execution cycle is about two to three years. There will be a delay in terms of signing the construction contracts and starting the work at project sites. Usually, it takes around 3 months in which we have to provide the performance guarantees to the clients and also sign the construction contract and then we are eligible to get the advance and then the client gives us the notice to proceed and hand over the project site to us.

This is a standard procedure and this will happen as we go forward. As far as the order book is concerned, at this point in time, we are sitting at about Rs 39,000 crore of orders and execution is also picking up after the COVID-2. Now things are receding at the project sites. So, we believe that FY22 will be far better than FY21 in terms of the top line as well as the bottom line.

Q: You said about the order book at which you are sitting at present. Now, let us know about the kind of order book that you are expecting this year?

A: We have not provided any guidance for this year because during the board-level decision in May the COVID phase-2 was at its peak, so the management felt that it may not be right on our part to provide any guidance in terms of topline for FY22 as well as order accretion for FY22. So, there is no guidance but if you will look at the macro environment. However, the government is planning to ramp up the physical infrastructure across various verticals. They are planning to implement the National Infrastructure Pipeline (NIP), those things will give substantial order book to companies like us. SO, I cannot give any number as far as order accretion for FY22 is concerned at this point in time. Our board will look into this matter at the end of the first-quarter results and maybe at that time, we will be able to share with you not only the order accretion target for FY22 but also the top line for FY22.  

Q: Can you update us about the kind of orders have you bid for currently and are you L1 for any of them?

A: Success rate is important about how many projects I bid for to get one project. Normally, the success rate is around 1:7. That means, if I got one project, I bid for seven projects, for example, last year as you said that we got orders worth Rs 19,000 crore, so 19,000 x 7 is the actual bidding that has taken last year. A similar thing is like to happen this year also based on the competitiveness and the comfort with the project and also our profit margins in that project. These all things will be carefully considered accordingly and then a bid is placed. We have a decentralised bidding process because we are a big company to participate across the country and at various regional offices we are authorized to bid for the projects coming up in that area of operation.

As far as the order pipeline is concerned, we take the order book only when I get a written communication and a letter of intent is issued to us. But before that, when they open the price bids and declare XYZ as L1, there is a successful bidder but for them to give the letter of comfort and letter of award it will take at least 15 days to a month, so that is a pipeline we are talking about. Usually, Rs 500-600 crore of orders are always there in the pipeline as far as NCC is concerned.

Q: Can you update us about the verticals where the majority of orders are coming? Is there still heavy dependence on government orders or are you seeing some revival in private orders?

A: As far as NCC is concerned, we have strong execution capabilities in buildings, roads and water pipelines. These three verticals together constitute 75% to 80% of our order book and we have a leadership position in all of these verticals. Particularly in building packages of Rs 1,000 crore and above we are comfortably placed because the competition intensity is very less in that vertical. Like we are doing All India Institute of Medical Sciences (AIIMS) number of projects and about four packages for AIIMS, we are doing two airport projects; we are doing some defence projects for the Indian Navy. Like that number of projects are coming.

As far as water is concerned, the central government has started a Jal Jeevan Mission that is about portable drinking water for all the citizens of the country in every state. In that connection, UP has called for tenders in December and we were able to bag about Rs 6,200 crore of order in the state of Uttar Pradesh under the Jal Jeevan Mission, they call it, where 50% of the project cost is given as a subsidy by the central government and balance 50% the state government will bring in. That is a very important step that they have taken, so, we are looking at this Jal Jeevan Mission and providing a substantial order book when other states also start implementing this Jal Jeevan Mission in their respective states.

Q: What is the current debt on the books and any plans to reduce debt further? How the working capital cycle currently and what is the CapEx that you are lining up for the next one to two years?

A: Debt level is under control, we have comfortable debt-equity at 0.3:1, it is one of the best in the industry. It has come down by Rs 150 crore compared to FY20 as March 2021 was less than Rs 150 crore. And we are planning to reduce debt further based on our cash flows, based on our comfort, based on our some repayment of loans by our subsidiary companies taken to the parent company. By March 2022, the debt level can come down to Rs 1,500 crore and that is what we are planning.

As far as payment cycle is concerned, we are doing a lot of projects for the central government agencies like Airport Authority of India, All India Institute of Medical Sciences, defence projects etc, they are all good paymasters, triple-rated companies and their payment cycle is very good, we are not finding any difficulties in term of getting payments from those agencies. Whereas at the state government level, we have to bid carefully because of the COVID-19, the focus of the state government is more on welfare measures and healthcare measures and in payment to contractors, some delays are there here and there but payments are coming nevertheless. Also, we are comfortably placed liquidity wise, debt wise, the working capital cycle has also improved compared to last year and we are expecting further improvement as we go forward.

Q: Is there any plan on asset monetisation or hiving off subsidiaries that are being considered currently?

A: Earlier, we have successfully sold four BoT (build, operate and transfer) assets and they are two power assets and two road assets in the last five years and we have also received its money. Now, we have to focus on real estate monetisation. In real estate, we have a subsidiary ‘NCC Urban’ and they have taken a loan of Rs 400 crore from the parent company. Recently, they paid about Rs 100 crore and around Rs 120 crore debts have been converted into equity, so the debt level of NCC Urban has come down to around Rs 149 crore taken from the parent. They are planning to pay another Rs 100 crore in the current financial year. So, the debt level will come down substantially. In real estate, we are trying to monetize real estate investments. We have exited from Tellapur Technocity, where we have joined hands with Tishman Speyer of the USA and ICICI Venture.

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The project is already sold off to the incoming investor who backed our investments. Likewise in the Jubilee Hills Landmark Projects also, we have already exited on the equity side, we are getting a double of the area about 70,000 square feet in our favour for our investment. And, once the project is fully developed in the next two years, we will be able to sell developed areas and get back our investment of nearly Rs 100 crores. Likewise for NCC Vizag Urban Infrastructure, Limited, we were able to find one buyer and that deal is likely to happen very shortly.