The company enjoys the attractive coming together of the largest order book in itsexistence on the one hand of Rs. 1850 cr and higher margins of the orders received whichshould enhance our overall profitability going ahead.
On a promising growth trajectory
At GPT Infraprojects Limited we believe that we are passing unprecedented times froman economic and national transformation point of view.
India is expected to remain the fastest growing major economy in 2017 according toInternational Monetary Fund. India's Current Account Deficit increased from about 1% ofGDP in 2015-16 to 1.4% of GDP in the final quarter 2016-17 due to a widening of the tradedeficit. As on May 12 2017 India's foreign exchange reserves reached $443.6 billionrepresenting a comfortable cover for about 12 months of imports. India graduated from theninth largest manufacturing country to the sixth.
This economy has started to generate infrastructure growth across various segments.Initiatives such as the Pradhan Mantri Gram Sadak Yojana and the Sagarmala projects areproof that infrastructure is what will drive our nation's growth. The same optimism hasbeen carried forward to the railways sector. For 2017-18 the total capital anddevelopment expenditure of Railways was estimated at RS. 1310 billion. Railway lines of3500 km are likely to be commissioned in 2017-18 against 2800 km in 2016-17. Some 953 kmof new tracks were laid in 2016-17 against the targeted 400 km; track electrification ofover 2000 km and gauge conversion of over 1000 km.
In March 2016 the Union Government launched the Setu Bharatam programme to build RailOver Bridges and Rail Under Bridges at railway crossings to minimize frequent accidentsand loss of lives at level crossings. As a result more than 1503 unmanned levelcrossings were eliminated in 2016-17; it is estimated that all unmanned level crossings onbroad gauge lines will be eliminated by 2020.
Translating promise into performance
At GPT Infraprojects we believe that we are at an attractive inflection point in ourexistence.
The company enjoys the attractive coming together of the largest order book of RS.1850 cr in its existence on the one hand and orders with higher operating margins on theother hand. This should enhance our overall profitability going ahead.
Of the Rs. 711 cr orders received in the last year the majority of the orderscomprised construction projects mostly for execution of steel girder bridges ROBs andRUBs and contracts for the concrete sleeper segment. As you are aware historically thecompany has solely participated in government contracts wherein the visibility of fundingand decision making is clear. We continue to carry forward the same approach in future aswell. These contracts have been accompanied by better payment terms marked bymobilization advances and shorter receivable cycles. Besides I am pleased to report thatthe average ticket size of our orders have improved from RS. 40 cr a few years ago to morethan Rs. 100 cr today translating into project economies and increased profitability.
It would be pertinent to communicate that during the course of the year under reviewthe Company received its largest ever construction order of Rs. 217 cr in its name. Thisproject comprises construction of bridges on the Mathura-Jhansi third line for Rail VikasNigam Limited and is to be completed within 36 months. On completion of this project thecompany will be able to bid for projects in the range of Rs. 1000 cr in its independentcapacity from 2020 onwards.
Even as this has progressively evolved the quality and quantity of our order book I ampleased to report that there has been an improvement in our cash flows and a correspondingdecline in our Eligible to bid for Rs. 1000 cr contracts in independent capacity from2020 onwards working capital cycle from 232 days as on 31st March 2015 152days as on 31st March 2016 to 121 days as on 31st March 2017following a quicker payments inflow.
This improvement had a trickle-down impact on the company's finance costs during theyear under review. Even as turnover increased which should have increased the company'sworking capital outlay and related costs the company moderated its finance costs by Rs.85 lacs to Rs. 37.8 cr during the course of the year under review.
What we could have done better
I am pleased to state that the improvement in the company's revenues though by amarginal 2 per cent and increase in profit after tax by 24.4 per cent came in the face ofone of the most challenging sectoral realities during the last financial year.
The currency demonetization during the course of the year resulted in extensiveabsenteeism affecting manpower mobilisation and deployment across project sites. This ledto the deferment of execution of contracts in the third quarter
The company has successfully commissioned two concrete sleeper factories for DFCC inUttar Pradesh in March 2017. The delay in commissioning due to the demonetization exerciseled to a revenue postponement to financial year 2017-18.
The company's operations in South Africa and Namibia were subdued during the year underreview. The company's South Africa operations declined by 30 per cent while Namibiaoperations declined 10 per cent during 2016-17 following a slowdown in the respectiveeconomies slower payments by customers and an order slowdown. I am pleased to state thatthe order inflow began to revive in the last two months of the financial year; there isnow a project and revenue visibility for the next two years.
Strengthening the business
I am pleased to report that the company strengthened its business beyond what may beevident in the financials of 2016-17.
Even as the company's revenues may have only been marginally higher than in theprevious year the direction of the company continues to be positive. Besides theprojects are larger the margins hurdle rate higher and each of these projects whencomplete will make it possible for the company to address even larger projects.
During the course of the year under review the company's credit rating was enhancedfrom BBB minus to BBB by CARE. This development when coupled with a decline in rates bythe banks will help the Company moderate its finance cost further. Besides the companyconducted its growing business with less debt strengthening its gearing from 1.43 at theclose of 2015-16 to 1.26 at the close of 2016-17.
The outlook for the company's sector and business appear optimistic.
The Indian government announced a slew of reforms in 2016-17; one of the big changeswas the merging of the Rail Budget with the Union Budget
Larger Railways outlay
There is increased focus in rail network decongestion accelerating railway tenders.The Union Budget 2017-18 announced the largest allocation for Indian Railways of Rs. 1.3trillion with a cross Budgetary support of Rs. 55000 cr. The government announced thecommissioning of 3500 km railway tracks in 2017-18 an increase of almost 25% over2016-17.
GPT is a railway-focused player attractively placed to capitalise on track renewalsnetwork decongestion and expansion projects.
Replacing legacy assets
The Indian Railways replaced 1503 legacy unmanned level crossings and 84 manned levelcrossings with road-over-bridges and road-under-bridges in 2016-17.
Of India's 28607 level crossings 19267 are manned and 9340 unmanned; IndianRailways expects to eliminate all unmanned level crossings by 2020. The Central governmenthas sanctioned approximately Rs. 2300 cr for building road-over-bridges in West Bengal amajor market for GPT.
Of the 19 road-over-bridge projects expected to commence in West Bengal GPT expects tobe engaged in the construction of a sizable number.
Dedicated Freight Corridor
Dedicated Freight Corridor Corporation of India Limited is awarding contracts foreastern and western freight corridors. Around Rs. 14000 cr contracts are expected to beawarded in 2017-18 resulting in project completion by 2019. The government announced threenew dedicated translating into lower populism stronger market-orientation and highercapital expenditure. Besides the government outlined shorter project delivery deadlinesand started remunerating vendors faster making it possible for them to strengthen theircash flows and deleverage their Balance Sheets. The commodity cycle has moderated whichshould ease working capital outlays. The banking sector could re-appraise sectoralprospects moderating debt costs.
The company expects to capitalise on this scenario through selective bidding forprojects based on its desired risk appetite Balance Sheet strength and competence areas.The company also intends to pursue its arbitration with National Highways Authority ofIndia related to a BOT contract that has been pending for nearly three-and-a-half years.
A decision in the company's favour could result in a sizable cash inflow which couldbe used to repay debt right-size the Balance Sheet seek a superior credit ratingmoderate debt cost and accelerate a virtuous financial cycle.
The two concrete sleeper factories commissioned during the last quarter of FY 17 havestarted deliveries to the customer which should bolster the revenue in FY 18.
The company expects to report a superior performance of operations in Africa. Thecompany has broadbased its revenue profile whereby non-Eastern India revenues will accountfor more than half its overall revenues during the current year the highest ever. Thecompany intends to seek larger construction opportunities in Bangladesh and Myanmarbesides seeking to capitalise on an unprecedented opportunity emerging from within India.In view of these realities the Company expects to generate a 40 per cent topline growthduring the current year coupled with profitable growth.
At GPT Infraprojects we made a commitment in our last annual report: that we wouldenhance profitability even as we grow larger and continue rewarding our shareholders. I ampleased to announce that the Board has declared a bonus issue of 1 equity share for every1 equity share. In addition the company has paid dividend of Rs. 2.5 per share a 25%payout which is in line with the dividend policy of the company.
We stand by this commitment and assure shareholders that this will be more visiblyevident in our performance starting 2017-18.