 "We aim to become as much debt-free as possible: Gayati Projects' MD")
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The company managing director T V S Sandeep Reddy tells B Dasarath Reddy as to how the surge in road contracts help reposition Gayatri as a pure EPC player and also cuts the requirement for fresh debt.Excerpts of his interview:
Gayatri appears to be quite successful in winning new road contracts. When will fresh orders start reflecting on your top-line growth?
New orders came in the last quarter of FY16 and during this year. Normally road projects take 8-9 months before we get the designs approved and start the construction. That is why till September-October our new jobs turnover hardly will be 5 percent. Our revenue guidance for the current year is Rs 2,500 crore to Rs 3,000 crore while it will be much higher next year. We are concentrating only on EPC business. We are targeting another Rs 3000 crore- Rs 5000 crore worth of orders before March, 2017.
Has this aggressive bidding for road projects put pressure on the margins?
We have been careful in bidding the projects. Take for instance the new Rs 1,255-crore national highway contract we have just won in Odisha. Most of the job on 66 km contract of NH4 and NH5 gets completed by December. That procurement will all move here. With logistics are in place we can achieve resource optimisation. That is how we were able to secure this job.Tomorrow, somebody else cannot make the same margins because for them to re-mobilise resources in a new place may take little more cost. We have the strength of working in Odisha so we are able to price it correctly. We have not won a single bid in states like Rajasthan as we are not present there.
Why the company wants to list BOT road projects under a separate entity?
If you have to be in BOT business you have to keep investing. It is a different business as you need long term funds for that. So our idea is to separate out BOT business as a separate listed entity and make a platform so that we could then look at some partners and investors in that company and grow that separately. Then there is this pure play EPC company. We have four annuity and 2 toll projects that can generate amaximum of Rs 500 crore revenues as our portion. The company won't make fresh investments in BOT space at least for the next 3-4 years.
What is the overall scenario looks like in the construction sector?
If you look at what the Government has been talking about roads and railways, investment is happening only in road sector. We have not seen that kind of traction in railway projects as yet. Then we have irrigation which is state centric and has its own problems. Then there is industrial construction, which has been very slow. There is no new power plant being constructed. No new steel plant is being built. Everything is in a stand still here.
You have a call option to increase Gayatri's stake to 30 percent in the 2,640 mw (660 mwX4) power JVs with SembCorp of Singapore from the present 13 percent level. The company earlier said it would exercise the call option in 2-3 years and to do that you need Rs 900 crore. How do you plan to bring in this equity?
We are looking at various options. Bringing in a sub partner or an equity partner into the holding company are among them. But we have not yet come to a conclusion. We have got five years to exercise this option.
How is the company managing the debt?
We have a net debt of about Rs 1,700 crore of which majority is working capital and the rest is term loans, which have to be repaid over 7 years. Debt levels will remain more or less the same as we are neither going for fresh debt nor envisaging increasing working capital this year. We are only going for bank guarantee facilities. Based on order book cash flows wewill be able to comfortably repay the debt.
Going forward we want to become as much debt-free as possible. We want to get out of all the term loans, which are currently in therange of Rs 700 crore-Rs 800 crore. Whatever free cash we have we will use it to retire this debt early.
