IL&FS Engineering to focus on debt reduction, group synergy

As India’s infrastructure sector once again looks to depend on the engineering, procurement and construction (EPC) model, Mumbai-based IL&FS Engineering and Construction Ltd (IECCL) is also attempting its own turnaround story.

The EPC major now plans to focus more on captive orders, develop an international portfolio and streamline operations in the next 12 months. In October 2016, the company appointed Mukund Sapre, an old hand in the IL&FS group, as managing director. 

Sapre, who has been associated with the group since 1992, says a key focus area would be to increase synergy with the group infrastructure developer company, IL&FS Transportation Networks Ltd (ITNL).

“We’ll also look at increasing synergy with ITNL in terms of receiving work orders; currently just Rs 500 crore of the order book would be group-related,” Sapre said.
 
To date, the company has an order book of Rs 10,000 crore, of which, Sapre added, it had the visibility to carry out orders of Rs 3,600 crore by the end of 2017-18. 

The company also looks to increase its focus on the road sector. Now the sector contributes about 35 per cent of its orders. Sapre said it was possible to increase this to about 50 per cent. 

In addition to roads, the company expects more activities in rural electrification. Sapre said, “In this segment the number of players is limited.” 

The company is also planning to look at international orders. “We will look at international orders both in the road and oil and gas space, but only those where there is multilateral funding. Africa is emerging as a market,” Sapre said. 

The company has chalked out plans to improve margins and its debt quality. Of the various steps planned on margins, it looks to reduce sub-contracting the orders the company has got. 

Sapre said almost all its irrigation projects had been sub-contracted so far. “In the road sector, 40-50 per cent of the work has been sub-contracted, and it would look to cut it down to 20-30 per cent,” he said.
 

Reducing sub-contracting jobs will help the company to get better margins. 

The company also plans to look at rationalising costs under various heads, including the human resources cost at various site offices.

On the debt side, there are plans to improve the debt-equity ratio. Sapre said the required approvals were in place for a further equity infusion from its partner, Saudi Binladin Group, which has a 30.16 per cent stake in the company. With this equity infusion likely next year, proceeds of Rs 400-500 crore could be used to reduce the debt. 

“The plan is to use the entire money to pay off lenders,” Sapre said. The company’s debt is Rs 1,700-1800 crore. 

After the Satyam scam, in September 2009, Infrastructure Leasing & Financial Services Ltd was inducted by the Company Law Board of India as the principal promoter of IECCL, the erstwhile Maytas Infra Ltd, a company started by B Ramalanga Raju, who was also Satyam chairman. 

In 2010, the Saudi Binladin Group was inducted as the second major shareholder.

For the December quarter of 2016, the company reported net profits of Rs 85 lakh compared to a net loss of Rs 79.67 crore in the corresponding quarter in the previous year and sequentially a net loss of Rs 81.42 crore in the September quarter of 2016. 

Though the company has a well-chalked-out plan, competition is biting into its margins with most companies focusing on the EPC segment. According to Care Ratings, the company’s ability to improve its operating performance, meet the projected financial performance in the immediate term, receive an adequate and timely equity infusion from the promoters and realisation of claims in timely manner remain the key rating sensitivities.