VA Tech Wabag has a strong order book of Rs 10,400 crore: Rajneesh Chopra

Rajneesh Chopra, Global Head - Business Development, VA Tech Wabag Ltd., talks about June quarter numbers, impact of lockdown of the first quarter, order book situation and debt situation of the company among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: The numbers have been good on a year-on-year basis, and we have seen a good rise in revenue and profit, but slight pressure was seen on margin. What led to a growth in revenue and profit and a fall in the margins?

A: Our revenue has grown by 52% and our profit after tax (PAT) is almost three times. In this, there is a learning of the last year that even there is a COVID impact than how we have to mitigate I and how to work with minimum disruptions. As you know, the impact of the second phase of COVID was quite high in the first two months despite that we continued to work at all of our sites ensuring the safety of people and following the social distancing and COVID norms. This is something that helped us to post a business of over Rs 650 crore in this quarter. As far as the margin is concerned, it has declined by around half a per cent from the past but in absolute value, it did not have a major impact because there is growth. Secondly, the margin was under pressure in the first quarter also because COVID had its impact in the first two months although we were able to do things well at our sites, we faced problems in terms of logistics due to which the construction materials and equipment were not able to reach at sites on time and any delay in it have an impact. Also, the maximum of our contracts is covered under the escalation clause. But 100% of the escalation is not covered under the escalation clause and you would have seen that there is a price hike of almost everything like steel, cement, plastics among others and it had some impact on the margin. But going forward, we have a good order book for the first quarter, so these orders will not be impacted by the escalation, and we pray that it is not hurt by the impact of the third phase of COVID. So, in the coming time, you will see that our margins will improve a lot in this financial year as compared to the first quarter. 

Q: There were execution-related challenges in Q1 considering the lockdowns of April and May. What is the situation now and what was the revenue loss of the company due to these issues and how will you make it up? 

A: As I have said that there has been a lot of learning due to the COVID of last year due to which we have started working differently and it had benefitted us. In the first two months, as I have already said that there was an impact on logistics and prices, so, if I guess, we have already arrived at the 90% of our efficiency. I think because this quarter is going on then we will have quite a strong order book from this quarter and our execution capability is quite strong and people are already at the sites. I think, in the coming quarters, our execution will be strong from the past and our new order book, like we have taken an order from Russia of Rs 1,230 crore and we are supposed to convert it into revenue in less than two years. So, we have technology and engineering & procurement orders in it and it doesn’t have construction order and if we have a look at it then definitely in the coming future our execution will improve further. have said it earlier and would like to revise it again that if I will make a guess then we have worked at 90% efficiency in the first quarter despite the two months were impacted by the COVID. 

Q: You have an order book of Rs 10,000 crore at present. What kind of revenue visibility does this provide? You have also talked about the Russian order, and you want to convert it into revenue. So, what kind of margins do you see in that? Also, beyond the existing order book what is the quantum of the expected order book, which has already been factored in and what can be included by the end of FY22?

A: We closed the last financial year with an order book of Rs 8,400 crore and at the end of this quarter, we are at Rs 10,400 crore. So, our order book is strengthening from the past and in it around 30% is from municipal order book and around 70% of the order book is from the EPC business. The normal conversion time for us varies based on projects and lies between 12 months and 30 months. So, if we will have a look at the current order book then it provides three-year visibility on the current revenue including double-digit growth. So, we have visibility for the next three years. Form the last year’s December quarter, we saw that the industrial enquiries started to come, and you will see that we have order book in the industrial enquiries. As far as municipal tenders are concerned, we are seeing traction in it, and we will bid at many places in the ongoing quarter and they will convert into order in the coming time. But in the case of industrial, I think, we have scope as we are actively working at many places in the industrial jobs. Going forward, our order pipeline is looking quite strong, and I feel that our order book will strengthen further from these levels and the contribution from the industrial segment will increase further. At the same time, I feel, the contribution of international orders will also go up compared to the previous year. There is a big order in the first quarter but in the next three quarters, it seems that our international order book will turn stronger. And, if we have a look at its impact on the margin than with the international orders, we have had an experience that our margins remain better in comparison to the Indian orders and secondly, our cash flow from the international orders, which is always considered to be better in the international market as most of the payments are made on LC, so on the due date, we automatically get the payments. But it seems that this year will be the year of growth for VA Tech Wabag and we are quite optimistic about it and bullish.

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Q: What is the debt situation of the company at present and do you have any concerns related to the working capital front? Also, do you have any fund-raising plans and what is your outlook in the context of expansion?

A: If you will have a look at our results of this quarter, our interest cost has declined due to which our borrowing has reduced. You would have also seen that last year we raised some funds from the marquee investors. Still, we have board approval for further fundraising but as and when there will be a requirement, we will utilize it and raise the funds but immediately there is no need to raise the funds. So, our cash flows are quite comfortable, the working capital situation is comfortable, debt has come down. So, all put together, this will aid our execution and I do not foresee any challenges in front of the cash for the execution.