NCC's guidance for FY21 is Rs 10,000 crore; It has received orders worth Rs 5,500 crore in the first six months: YD Murthy, Executive Vice President

YD Murthy, Executive Vice President, NCC Limited, talks about activities going on in the construction sector, orderbook, capacity utilization, margins, delayed payments among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts: 

Q: Some activity has been seen in the construction sector and you have also received an order worth Rs 1,400 crores. Tell us the kind of impact it will have on your books and what kind of activity is visible in the context of the orderbook?

A: Construction business fell significantly in the first quarter. Even the economy went down drastically. The country’s GDP reduced by 23.9% and the construction industry reduced by 50%, which means the highest reduction in the economy was felt in the construction business. In April, we were not able to do any construction activity because of the lockdown. In May work started around 20-30%, which improved slightly in June but we are having an acute shortage of manpower at various projects sites.

In the first quarter, we reported a turnover of less than about 40% compared to the first quarter of the previous year but things are improving slowly in the second quarter and now we have reached a level of about 65-70% of execution that is pre-COVID level. And we are likely to restore 90% availability of manpower and execution by the end of October that means the actual turnover will come in the third-fourth quarter of the current financial year. As far as the orderbook is concerned, we started the year with an orderbook of Rs 6,000 crore and in the first five months, we have got orders worth Rs 4,000 crore and in September, we got an order of Rs 1,400 crore.

So, the total order accretion in the first six months of the current year is about Rs 5,500 crores, which is as per our expectations. We have given guidance of about Rs 10,000 crore for FY21 and have got more than 50% in the first six months. The remaining two quarters the total order accretion is likely to be little stronger, mainly because the government is planning to kick start the economy by awarding a lot of physical infrastructure projects across the country. And, we are nicely positioned to capture those orders. So, orderbook wise we are comfortably placed at this point of time, the orderbook is nearly about Rs 30,000 crore. Going forward, the execution is the main problem because of the shortage of labour due to which execution could not happen as per expectations. Also, the slowdown of the economy, the payment cycle got affected but all the things are slowly but steadily falling in place. And the real turnover will be achieved in the third and fourth quarters of the current financial year. 

Q: What is the execution run rate and are you working close to full capacity? Also, have you been able to make up for the revenue loss that occurred due to lockdown or will that take some more time?

A: First I would like to talk about execution. Now, we are having an execution level of about 65-70% that is pre-COVID execution level. In April it was only 35% and what I am saying is that at the end of October, the current month, we are likely to reach a pre-COVID level of about 90%. As far as our turnover is concerned, we are not able to give any guidance because of the pandemic and also uncertainty associated with that. As far as, we are concerned, enough orderbook is there, enough resources are there, the raw material is there, working capital is there but there is a shortage of manpower, which is slowly but steadily increasing. So, we are confident that we can reach the book turnovers in the third and fourth quarters of the current year but are not giving any guidance as far as the turnover is concerned because of the uncertainty involved in it due to the pandemic. 

Q: You also talked about the cost of material and we are seeing that it is going up. Do you think that it will have an impact on margin and what is the margin range for a couple of quarters, i.e. the current margins will be maintained or it can go up or there can be a dip in it?

A: The gross margin has remained good in the first quarter despite COVID and all. Turnover was low but the gross margin has been a good one. But at EBITDA level and profit level we have taken a BT mainly because of the fixed cost cannot be absorbed fully because enough turnover was not there. So in the first quarter, we reported an EBITDA of 8.7% as compared to our 12% in the first quarter in the last year. But in the second quarter, we are expecting the EBITDA to improve compared to the first quarter. And for the year as a whole, complete FY21, we are looking at an EBITDA of about 11-11.5%. But the real problem is at the net profit level, we are reporting net profit margins of only 1.5% as compared to nearly 4% the last year that. It is again the first quarter but we will likely to improve to about 3% for the year as a whole in FY21. 

Q: Can you name the segments where maximum activity or recovery is visible? Also, from the geographic point of view, I would like to know the states where you are seeing good traction in terms of economic activity pick-up and you believe that you can get maximum orders?

A: We have major thrust on buildings, roads and water pipelines. These three verticals together constitute about 75-80% of the orderbook of the company. In all these verticals, we have a leadership position and we can get substantial orders time and again in these three verticals. Particularly, building vertical comprises of nearly 50% of the order of the company and we will term it as the backbone of the company and we are expecting substantial order acquisition in the building segment and also in the road segment, going forward. These three verticals will actually drive the growth of the company in the third and fourth quarter, as well, as substantial orders are there with us. 

Q: Do you have concerns about the delayed payments and have you been able to recover your delayed payments? What is the receivable situation linked to the delayed payments? Also, tell us about your work working capital requirements and are they comfortable at present?

A: Receivables have improved substantially and I am glad to inform you mainly because the government’s initiatives to see that the payments are made in time. The finance ministry has also come out with direction to various government agencies to make payments of the contractors, whose bills are submitted and certified and that is helping us. But we do a lot of projects on all India basis for various central government agencies, like the Airport Authority of India, we are doing Patna airport, Lucknow airport;

We are also doing three medical campuses for All India Institute of Medical Sciences in various locations and each campus project size is worth around Rs 1,000 crore We are doing some defence projects for Indian Navy. All these are simply A-rated companies and the payment cycle is good and there are no delays in payment provided work is done and the bill is certified, which is a big positive for us. Likewise, we are doing Nagpur-Mumbai expressway and there also the payment cycle is good because the new government is also supporting the project. The real problem only in some state governments, we had a setback in AP in terms of payments because of the change of the government among others. But now, things have improved there also.

In March, we received about Rs 100 crore of payment under the affordable housing and again in September last month, we got Rs 75 crore as payments and some more payments are also expected. In other states, we do not have any problem and AP is also falling in line, so, I think that a good improvement is there. We can manage our working capital very nicely without any difficulty. In fact, the Reserve Bank has come out with a circular directing the banks to provide COVID-loans up to 10% of the working capital of the fund-based limits.

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We have received Rs 180 crore of fund-based limits, which is 10% of our fund-based working capital from consortium banks. It is also helping us in maintaining our liquidity and see that all our payments are made in time without any difficulty. As of now, fund wise, liquidity-wise, we are comfortably placed and can honour our all obligations to various stakeholders including the banks.