A very good morning, ladies and gentlemen. I hope all of you and your near and dear are safe in these very difficult times. The format that we will follow for this conference call is the usual format, whereby initially my colleague, Mr. Harish Barai, will make a presentation. He'll walk you through the presentation. The presentation was uploaded on our website last night. I hope that all of you have downloaded it from the website because he'll keep on referring to slide number so and so, slide number so and so. After the presentation is over, we will open the session to question and answer. With that, I would like to hand it over to Harish. Harish, please go ahead.
Thank you, Mr. Mondal. Good morning, ladies and gentlemen. Once again, a very warm welcome to all of you into the Q1 FY 2021 earnings call of Larsen & Toubro Limited. I will move on to the next slide, which is slide number two on disclaimer. Essentially, this presentation contains certain forward-looking statements concerning L&T's future business prospects and business profitability, which are subject to a number of risks and uncertainties, and the actual results could materially differ from those in such forward-looking statements. Disclaimers assume special importance in times like these. The remaining portion of the statement, I will take it as read and move on to the next slide, which is slide number four. Q1 FY 2021, an unprecedented quarter. There will be rare instances in history where you start the financial year with a lockdown.
Our group's performance, therefore, in Q1 FY 2021 has to be seen in the context of the macroeconomic environment we operate in. Since FY 2021 started with a lockdown on account of the pandemic, it disrupted economic activities in the quarter. More than two-thirds of India's economic activity was shut or working at reduced capacities during April, with progressive improvements witnessed during May and June. Happy to report that group has secured orders of INR 236 billion in Q1 FY 2021 in an otherwise very challenging quarter. Our order book at INR 3,051 billion is stable. Coming to revenues, the operations gradually resumed with requisite precautions during the quarter, given limited availability of workforce and disrupted supply chain. There have been sequential improvements in execution in each month of the quarter. During the quarter, we have tried to prioritize those jobs that can ramp up faster.
Negative operating leverage kicks in due to muted revenues in Q1, and the consequences of negative operating leverage have impacted EBITDA and PAT for the quarter. Surprisingly, due to ample liquidity in the system and the fact that both the central and the state governments have front-loaded their borrowing programs for the year, our collections therefore in Q1 has been robust. We have not had to draw down on the cash reserves on our balance sheet to fund the operations. This is also evident when you glance through the cash flow statement. If we were to summarize our performance, we could just say noteworthy performance in an unprecedented quarter. With those comments, I will move on to the slide on key financial indicators. Q1 FY 2020 numbers are on the left part of the slide, and Q1 FY 2021 numbers are on the right portion of the slide.
Our order inflows for Q1 FY 2021, as I said, at INR 236 billion, has registered a decline of 39% over Q1 FY 2020. Our order book as on June 30, 2020 at INR 3,051 billion is up 4% over June 2019. Revenue for Q1 FY 2021 at INR 213 billion has registered a decline of 28% over Q1 FY 2020. Our EBITDA and PAT at INR 16 billion and INR 3 billion, respectively, have registered a decline of 47% and 79%, respectively. For the reasons mentioned in the previous slide, the results of this quarter is not comparable with the previous quarters presented. Some comments on working capital. Our net working capital to sales have moved up from 23.9% in June 2019 to 26.8% in June 2020.
As I mentioned in the previous slide, our cash flow management for the quarter has been good, thanks to the payments that have been regularly flowing from the public space. Consequently, our operations have predominantly been funded from collections, and our absolute levels of net working capital has marginally moved up from March 2020 to June 2020. NWC to sales at 26.8% as on June 2020 is largely on account of the fall in the denominator. The trailing 12-month sales, as you know, has moved lower because of our Q1 FY 2021 performance. Coming to return on net worth, consequences of negative operating leverage impacts EBITDA and flows into PAT as well, which impacts our return on net worth. Our return on net worth on a trailing 12-month basis stood at 12.7% for the June quarter.
With those comments, I will move on to the next slide, which is Q1 FY 2021 order inflow, order book. Order inflow numbers again on the left, order book on the right. Order inflows for Q1 FY 2021 at INR 236 billion is down 39%, it is good to note that ordering activity has continued despite pandemic concerns, though with some time delays. Our Q1 FY 2021 domestic order inflow of INR 147 billion has largely been contributed by the infrastructure segment in areas like water, heavy civil, and Power Transmission & Distribution. Our Q1 FY 2021 international order inflow of INR 89 billion almost flat compared to Q1 FY 2020, largely due to Mindtree consolidation. Having said that, we have seen some international order inflows in infrastructure, hydrocarbon, and heavy engineering segments during this quarter.
To conclude, it is heartening to note that order inflows, both domestic and international, have continued to flow in Q1 despite pandemic and lockdown. At the end of June 2020, and for the remaining nine months of this financial year, FY 2021, we see total bottom-up project pipeline of around INR 6.32 trillion in our core businesses, of which about INR 5.07 trillion is domestic and INR 1.24 trillion is international. Far, the government has ensured that project execution continues and payments to contractors are released. Hopefully, the government may turn its focus on new awards, which will aid economic recovery and generate employment. Coming to order book, portfolio diversity as well as our dependence on government and PSU investments definitely mitigates cyclicality. Today, we have six business verticals where each of their order book is between 9%-15% of the overall company order book.
They are buildings and factories, water, Power Transmission and Distribution, heavy civil infra, transportation infra, and hydrocarbon. Diversity of order book helps and future revenue growth is not dependent on the fortunes of any single vertical. Again, 82% of our domestic order book of INR 2,306 billion as on June 2020 is dominated by central and state government as well as PSUs. In times like these, it is good to have government risk on the balance sheet. With those comments, I will move on to the next slide, which is group performance, sales, and cost. This is slide number eight. Now pandemic shadows Q1 revenues across verticals. On the other hand, IT and TS businesses smoothly transitioned to a work from home model. Consequently, our revenues for Q1 FY 2021 at INR 212.6 billion has registered a decline of 28%.
Favorable MCO expense variation is largely due to higher proportion of IT and TS businesses, including Mindtree consolidation, and secondly, due to cost control initiatives within the group. Large part of the cost of IT and TS businesses reside in staff cost and sales and administration expenses, which are given below. Finance charge Opex largely represents borrowing costs of the financial services business. Staff cost at INR 61.5 billion for Q1 FY 2021 is up 35% over Q1 FY 2020, largely due to Mindtree consolidation and resource augmentation in our service businesses. Staff cost of 21,955 minds of Mindtree amounting to INR 1,277 crore have been consolidated in the Q1 staff cost. Excluding Mindtree, the staff cost is up 7% for the quarter. Sales and administration costs at INR 21.5 billion, up 8% for Q1 FY 2021 is mainly on account of credit provisions in the financial services business.
Secondly, Mindtree consolidation also contributed to increase in sales and administration costs, partly mitigated by overhead expense savings at a group level. Consequently, our total Opex at INR 196.4 billion for Q1 FY 2021 registers a decline of 26% over Q1 FY 2020. With those comments, I will move on to the next slide. Group performance. Profit parameters. For reasons explained in the previous slide, our EBITDA for Q1 FY 2021 at INR 16.2 billion, as I said, has registered a decline of 47% over Q1 FY 2020. Finance cost at INR 10.6 billion for Q1 FY 2021 is commensurate with increased borrowings and interest costs on full commissioning of Hyderabad Metro. Higher depreciation charge at INR 6.7 billion for Q1 FY 2021 is mainly on account of Mindtree consolidation. Other income of INR 7.8 billion for Q1 FY 2021 is reflective of the level of treasury investments and higher returns earned during the quarter.
As you are all aware, both the long-term and short-term yields have moved lower during Q1. Share of JV associate PAT largely comprises results of IDPL Power Equipment and Forging JVs. NCI variation is largely due to lower FinServ profits, partly offset by Mindtree consolidation. E&A business, as you are aware, is classified as discontinued operations. Exceptional item of INR 1.1 billion represents gain on divestment of wealth management business by the financial services group. Consequently, for reasons explained above, our PAT for Q1 FY 2021, at INR 3 billion, has registered a decline of 79% over the comparable quarter of the previous year. With those comments, I will move on to the next slide, which is slide number 11, segment composition. This slide on segment composition is essentially for reference purposes.
Based on the progress of the divestment process, the company continues to classify Electrical & Automation business as discontinued operations and disclose the financial results thereof separately for the previous periods presented. Information technology mentioned within the IT and TS segment includes Mindtree as well. Effective from 1st April 2020, Smart World and Communications business has been transferred from infrastructure segment to the other segment. Concurrently, military communication business has been transferred from defense engineering to Smart World and Communications. Figures for the previous periods have been regrouped, reclassified to conform to the classification for the current period. With those comments, we will move on to the slide on Q1 FY 2021 order inflow composition. Again, this slide for reference purposes only. In a lockdown quarter, it is encouraging to see 48% of our total order inflows being contributed by infrastructure.
Hydrocarbon and heavy engineering have also contributed 5% and 2% respectively. For obvious reasons, the share of services as a percentage of total order inflow stood at 42% for the quarter. Moving on to the split between domestic and international, 62% of our order inflows are domestic and 38% international. A healthy chunk of domestic order inflows in Q1 is from infrastructure. Coming to international, a significant portion of international order inflows is from IT and TS businesses. Having said that, as I mentioned earlier as well, infra hydrocarbon and heavy engineering have also contributed to international order wins during this quarter. With those comments, I will move on to the next slide, which is Q1 FY 2021 order book composition. As you can see, 72% of our total order book of INR 3,051 billion is from infrastructure and 14% from hydrocarbon.
Within infra, as I mentioned earlier, the order book is very well diversified across the five large verticals. Coming to geographical split of the order book, since we are predominantly an India-centric company, 76% of our total order book is India-based, and within that, 82% is from central government, state government, and PSUs combined, and the remaining 18% is from the private sector. Our international order book is 24% of the total order book. As you are aware, over the last couple of years, we have consciously moved away from the Middle East. These efforts have borne fruit, and about 42% of our international order book today is non-Middle East. With those comments, we will move on to the next slide, which is Q1 FY 2021 revenue composition.
This is an interesting slide in a way because services business, as you know, we have been mentioning for quite long that it acts as a good hedge in a portfolio of businesses which is dominated by core E&C business. In a quarter like this, where pandemic shadows revenues across core businesses, services portfolio comes to the rescue. Of the total revenues of INR 213 billion for Q1 FY 2021, services and infra contribute 47% and 30% respectively. Moving on to the geographical split of revenues, 55% of our total revenues are domestic and 45% of our total revenues are international. These percentages appear a little skewed towards international, primarily because of the contribution of the IT and TS businesses. With those comments, I will move on to the next slide, which is the infrastructure segment. Slide number 15.
Infrastructure segment, as you are aware, is the largest segment within the group, and obviously, the financial fortunes of this segment impacts group performance. Quick comment on order inflows before we move on to other parameters. As I mentioned earlier, we have seen early signs of ordering activity pick up within this segment in both domestic and international space during this quarter. Areas like heavy civil, water, Power T&D has done well, whereas we are yet to see pick up in other areas. Healthy list of order prospects exists at a ground level. Hopefully, the ordering activity should pick up once the government has a reasonable fix on its finances, which again is to a large extent dependent on the progressive pickup in economic activity. Revenues for Q1 FY 2021 at INR 63.9 billion has registered a decline of 53% over Q1 FY 2020.
Execution was hindered by lockdown across all verticals, and during the quarter, we have witnessed a graded resumption with limited workforce and a disrupted supply chain. Good news, as I said earlier, is that client collections have continued during the quarter, and we did not have to finance this execution from our own balance sheet. Margins for Q1 FY 2021 at 6.3% have broadly remained stable as compared to Q1 FY 2020, mainly attributable to the favorable input cost and expense controls. With those comments, we will move on to the next segment, which is the power segment. Now, no prospects were being targeted for award in the power business in Q1 of FY 2021. You will recollect that in Q1 of last financial year, this business had secured a large order for a ultra-supercritical thermal power plant.
Order book of this segment is at around 5% of the company's total order book, and a couple of quarters of low order wins would not impact this business segment. Revenues at INR 3.7 billion for Q1 FY 2021 registered a decline of 33%, largely reflective of graded resumption of operations during the quarter. The high-value order won last year, as I mentioned, is yet to cross the margin recognition threshold. This explains the margin variation from 3.3% in Q1 FY 2020 to 1% in Q1 FY 2021. Finally, as you are aware, power business margins appear optically low because boiler and turbine JVs, as well as the other power JV companies, are consolidated at a PAT level under the equity method. We move on to the next slide, which is heavy engineering segment. Quick comment on order inflow before we move on to other financial parameters.
Surprisingly, this segment secured orders during Q1 FY 2021 despite pandemic and lockdown. International orders constitute 70% of the total order inflow of this segment during the quarter. Phased ramp-up constricts revenues for the quarter. The decline in revenues was mainly in the refinery business, which in the previous year includes simultaneous execution of multiple high-value reactor orders as well as due to lower manufacturing activity during the current lockdown period. Revenues for Q1 FY 2021 at INR 3.8 billion registered a decline of 57% over Q1 FY 2020. Coming to margins, margin variation between Q1 FY 2021 and the corresponding quarter of the previous financial year is largely explained by low capacity utilization and under-recoveries. We move on to the next slide, defense engineering segment. Policy bottlenecks, fiscal constraints, and lengthy MOD procurement procedures have continued to beset investment momentum in this sector for many years now.
Consequently, large order inflows are missing, and order inflows in the current quarter comprises of multiple small-value orders. Having said that, the recent government announcements on time-bound defense procurement procedures and faster decision-making awakens hope for the future. Announcements around separate budget provisioning for domestic capital procurement is also a positive. Not sure at the moment if the recent skirmishes around the border areas results in an immediate benefit to domestic manufacturers. Having said that, I would like to mention here that for the first time in the history of defense, online remote inspection was initiated enabling milestone clearances at our end. Revenues for Q1 FY 2021 at INR 4.7 billion registered a decline of 49% over Q1 FY 2020, largely due to delay in procurement of materials on account of nationwide lockdown. Margin variation is largely explained by job mix and under-recoveries.
We move on to the next slide, which is slide 19, the hydrocarbon segment. Slowdown in order inflows in Q1 is largely due to muted tendering activity in a low oil price scenario. Order inflows during this quarter is driven by international wins. This business today is sitting on an order book, which is around two and a half years of revenue. Revenue for Q1 FY 2021 at INR 30.6 billion registered a decline of 19% over Q1 FY 2020, mainly due to low utilization at yards and constraints on execution at job sites. Cost provisions and under-recovery of overheads in a restricted execution environment has impacted margins for the quarter. We move on to the next segment, which is the developmental project segment. As you know, this developmental project segment comprises of power development business and Hyderabad Metro.
Here again, roads and transmission line concessions, which are housed in L&T IDPL, are consolidated at a PAT level under the equity method. Obviously, the numbers presented in this slide do not include roads as well as transmission lines. During Q1 FY 2021, the revenue of this business segment at INR 5.5 billion registered a decline of 53% over Q1 FY 2020. The revenue decline in this segment is largely attributable to the power development business. Lower power demand during the lockdown leads to revenue decline in the power development business. As far as Metro is concerned, you are aware we fully commissioned the Metro in February of 2020. Operations of the Metro have remained under lockdown for the entire quarter.
There has been under-recovery of fixed Opex depreciation and interest expenses during Q1 FY 2021. We move on to the next slide, which is the IT and technology services segment.
As Mindtree was consolidated from second quarter of FY 2019/2020, the previous period Q1 FY 2019/2020 does not include the performance of Mindtree Limited. Hence, the current period is not comparable with the previous period on a like-to-like basis. Therefore, the revenues of this segment at INR 60.3 billion for Q1 FY 2021 has registered a growth of 58% over Q1 FY 2020. However, we would like to mention here that even excluding Mindtree, this segment has recorded positive growth in Q1 FY 2021 over the comparable quarter of the previous year during these challenging times. All the three companies in the IT and TS segment are listed companies, and they had their earnings call as well. All the numbers in detail are available in public domain.
An array of business verticals have contributed to the growth within each of the companies during Q1. The details are mentioned in the slide.
It is important to note that each of the listed IT subsidiaries have smoothly transitioned to a work-from-home environment right at the onset of the pandemic with encouragement and support from customers. Margin variation is an outcome of some headwinds in pricing and staff furloughs. With those comments, I will move on to the next slide, which is the other segment. Other segment now comprises of construction and mining equipment, rubber processing machinery, industrial valves, realty business, and Smart World and Communications. Q1 FY 2021 revenues of this segment at INR 7.1 billion has registered a decline of 51% over the corresponding quarter of the previous year. Q1 revenues have been impacted by significantly lower handovers in our realty business. Low demand environment impacts industrial valves as well as construction and mining equipment revenues. Smart World and Communications revenue has been affected by lockdown.
Margin drop is largely explained by under-recovery of overheads on low volumes. We move on to the next slide, which is the L&T Finance Holdings group. L&T Finance Holdings again is a listed company, and they had their earnings call as well. All numbers are available in the public domain. Income from operations for Q1 FY 2021 at INR 32.8 billion has registered a decline of 5% over Q1 of FY 2020. The strategy for the group during these challenging times has revolved around recommencement of on-ground operations, further tightening of credit measures, steady resumption of disbursements, and maintenance of adequate liquidity on the balance sheet. The group over the last couple of years has demonstrated tremendous resilience despite the challenges surrounding the NBFC space. L&T Finance Holdings and all its lending subsidiaries have been reaffirmed triple A from all the four rating agencies.
The business continues to focus on retailization of the loan book, prudent asset liability management, improving asset quality, and increasing diversity of the funding sources. Profit after tax for Q1 FY 2021 has largely been impacted by increased statutory and macro-prudential provisions, partly offset by gains on divestment of wealth management business. We move on to the next slide, which is Electrical & Automation, slide number 24. As mentioned earlier, E&A business has been classified as discontinued operations in FY 2020. You would have observed in the earlier slide that PAT from E&A business is being aggregated as a separate line item in our profit and loss account. Q1 FY 2021 revenues at INR 7.1 billion registered a decline of 48% over Q1 FY 2020, largely reflective of lockdown conditions.
Secondly, fixed overheads of the manufacturing unit charged to the profits amidst low capacity utilization impacts the margins for the quarter. I will now hand over the presentation to my senior colleague, Mr. Arnob Mondal, to take you through the slide on environment and outlook, post which we will take the Q&A. Thank you.
Thank you, Harish. Before getting into the actual slide on the environment and outlook, I'd just like to give a few comments. As Harish said, of course, it is a very unusual quarter, and it's not to be construed as representative of any of the normal quarter or extrapolated for the year. I think all of you realize that. Considering the uncertainty that is still prevailing in the environment, we have again decided not to give any guidance on either order inflows or revenues or margins. One thing which I think I would specifically like to mention, which is a defining feature of this particular quarter, is the significant headway that we made on our liquidity management. We managed to keep ourselves fairly liquid. We managed to raise resources.
We have not used those resources, those are the funds used in funding working capital, because that is one area where we have focused in great detail. Our philosophy was that as far as possible, we will try to restrict our working capital outflows to the extent that we collect. I think we have done a very decent job on that front. That, I think, is a defining feature of the current quarter. I think everybody realizes the impact that COVID has had on both revenues and PAT. As far as everybody, of course, many people have been asking about labor availability and operational sites, primarily because the issue of migrant labor was highlighted in so many different forms of both mainstream as well as social media. Yes, sometime during May, after a large number of sites became operational, availability of labor became a question.
The labor workforce plummeted significantly. We have seen a steady increase thereafter. It fell to around 70,000 labor at one point in time from a peak of 220,000 odd labor. Obviously, we were hamstrung by that. Fortunately, we have seen steady increase in labor and we've still been adding labor at around 1,500 additions a day or so. Currently, we're at a total strength of around 190,000 labor, which is a reasonable strength to work for, particularly in Q2, which is normally beset by monsoons in any case. Another small thing which I would like to amplify on something that Harish touched upon. If you see the total order book of INR 305,000 crores, and you take out the INR 75,000 crores or so which is order book attributable to international projects.
In the domestic market, our total unexecuted order book is INR 230,000 crore approximately, of which 82% he mentioned was public sector. Yes, that's correct. Within this 82%, around 50% is by central and state, and 32% is from PSUs. As you would all be aware, the PSU revenue models are different. They're not directly dependent on tax collections and things like that. They have their own revenue generation models. The 50% of the domestic order book on which we're dependent on central and state, obviously will depend upon, to some extent, the fiscal resources. The liquidity resources, I won't say fiscal as such. Another thing that needs to be considered is that out of this 50%, close to half are multilaterally funded. There again, that gives us a measure of comfort.
Harish also mentioned the contribution of IT and technology services business. This is something that we've been talking about for a long time. At least in the last five years, we have been reiterating that this business lends a lot of stability to the cyclicality of our core business, in addition to the fact that it has a much healthier bottom line and return profile. That has clearly been borne out by the current quarter, where even if you take out Mindtree, IT and technology services businesses grew decently. Along with Mindtree, it has to a large extent contributed significantly to the revenues, close to 45% odd. One other thing which he also mentioned is that in financial services, we got some exceptional income from the sale of the wealth management business, which is shown as an exceptional item.
However, for those of you who would have attended the call on L&T Finance Holdings earnings call would also realize that over and above the COVID provisions that they did, the COVID provisions, of course, centered around the increased statutory provisions mandated by RBI as well as the increased macro-prudential provisions that they did because of the COVID environment. Over and above that, the gains that they got from sale of wealth management business were used to put in further provisions of a similar amount, and those further provisions are sitting in the sales and admin expenses and not in exceptionals. We have also had fairly significant savings in overhead expense control, and that has obviously contributed to a better bottom line than what many people originally expected. Now sorry. Coming to the slide. Again, it's a bit of a complicated slide if you were to read the fine print.
I would urge you not to read on the fine print. Essentially what we have tried to do is that in this slide, we have tried to put out in different buckets the various external and internal factors that have been affecting our operations, particularly in this quarter. Obviously, the global pandemic is well known and countries like U.S., Brazil, India, and Russia are the most affected. While the pandemic has been tapering in many countries, in India, the curve, as it is called, is yet to show signs of flattening. Hopefully, that will happen. I think everybody realizes that the lockdown administered both demand and supply shocks to the economy, and that is why we have had a phased reopening, apart from the multi-phase lockdown itself. We are yet to completely normalize because there are still many containment zones across the country, including some such as this.
For example, Tamil Nadu has a large number of containment zones, including, for example, our Hydrocarbon Kattupalli facility is also struggling there, obviously because of lockdown conditions. Labor migration I briefly referred to on what we saw, this of course, was the largest constraint that we faced in Q1. From what I understand, this is a constraint that all construction companies and engineering and construction companies face. We are seeing steady normalization and hopefully within the next few quarters this should normalize. Supply chain disruption was not as severe as the labor availability issues, that of course is steadily normalizing, even though some imports and road transport bottlenecks still persist here and there. As far as input costs are concerned, it is a fact that we have been seeing lower commodity prices, particularly in areas of construction steel.
However, we are seeing a trend of increasing costs of labor migration, labor costs of migrating labor who are coming back. We do think that will lead to an increase in labor costs overall. However, fair bit of the contracts that we have from the public sector particularly have labor cost inflation built in into the contract. We should hopefully be able to pass on some portion of the increased cost as well. In case of commodity price decline, even though cement has gone up, but steel has come down a bit, maybe around 5%, 6% or so. In the case of commodity price decline, we obviously stand to benefit on our fixed price contracts. We have seen strong liquidity support from the government.
I think everybody is aware of the extremely large stimulus measures, of which a small part was fiscal and a major part was monetary. Be that as it may, the government also realizes that this year is going to be a year when tax collections will fall short of not only what we had projected, but is likely to fall short by, I have no idea, but maybe around INR 5 to 7, 8 lakh crores or so from even last year. What the government is doing is that because they have decent headroom on the debt to GDP ratio, they have increased the originally budgeted borrowings program by around, going by the reports which various economists have brought out in the past.
The increased borrowing program would be around INR 9 lakh crore, of which INR 5 lakh crore would be on center and INR 4 lakh crore would be additionally raised by states. These would be front-ended. For example, around 70% of the total borrowing program is expected to be complete in the first half itself. That ensures that the government, at least center and state, has adequate liquidity, and that is one of the reasons why we also see payments collections coming from both center and state in a reasonably decent manner. Obviously, the government is focusing on infrastructure. I think during the lockdown, they released a 300-page report on the National Infrastructure Pipeline, which is a significantly large investment plan. They've also given some idea of the funding.
Even though the 20-odd% which they're envisaging from the private sector, this is up to 2025, may fall a bit short if private sector does not see a bump up in investment momentum, but at least the center, state, and PSU spend should be by and large in line with the plan. The plan doesn't appear to be wishful thinking. Lastly, I think we realize that we have an economic moat. Our organization has an economic moat. We have a healthy balance sheet. We've got a very large unexecuted order book, which gives us multi-year revenue visibility. Our portfolio diversity to a large extent has been mitigating the impact of cyclicality. As Harish also mentioned, dependence on public CapEx at this point of time is not a bad thing to have. If we are largely dependent on private CapEx, we may have been more badly affected.
Of course, our execution track record is well proven, and apart from that, we carry strong liquidity on the balance sheet. With that, I would like to open the session to question and answer. Over to you, Janice. Hello, Janice?
Yes, sir. Can we begin with the question and answer now?
Yeah, please. Start with the question and answer.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Subhadip Mitra from JM Financial. Please go ahead.
Good morning, Arnob. I have two questions. Firstly, you did mention about the labor situation improving. My understanding, as per the last quarter's call, was that you were expecting to reach about 200,000, 220,000 kind of labor by end of July. We are currently at 190,000, is what you mentioned. By when do you see labor reaching an optimal level, and how do you see probably execution picking up in second and third quarter?
Subhadip, I think there was a small misinterpretation on your part. What we said was that during peak period, sometime in Q4, January, February, when typically execution obviously ramps up in Q4. Our total peak labor workforce was around 225,000. At the end of the year or sometime during the quarter when we talked, at that point of time, our labor force was around 140,000. It has come to 190,000. Of course, that would be probably around 70% of peak requirement. One thing you must also keep in mind is that during monsoon season, labor requirement may be down a bit. Yes, what we said was that it will take some time for us to come back to a normal operating requirement, not come back to peak. That could still be a couple of quarters away.
Understood. Secondly, I was just referring to the slide on the balance sheet. Just looking at the borrowings part of it, the others borrowings, which is ex of financial services and development projects. There is a sharp spike there, I believe, in the borrowings part. Just wanted to understand that this is provisional borrowings that we've taken anticipating working capital pressure in future, or if you can throw some light on that.
Yes. The additional borrowings was essentially for two things. One was to sort of tank up on liquidity because in the month of April, the entire world was in turmoil and India was completely locked down, and nobody had any idea of how long it would remain and how long the depressed economic conditions would pan out. We raised a fair bit of borrowings during that period. Of course, around INR 4,000 crore to INR 5,000 crore or so is earmarked for repayment of the earlier borrowings which will fall due for repayment sometime during the course of the year. Normally, we tend to raise resources just before repayment. In this particular case, we raised that money in advance. It was essentially for two things. One is to raise money in advance to earmark for repayment of borrowings, and the other was to increase liquidity on the balance sheet.
Understood. Lastly, by when do you see the proceeds of the E&A sale coming in?
See, I think we are very clear. Both Schneider and L&T are committed to the deal. The deal is still on, but the only problem is that in India, unfortunately, some of the documentation that needs to be completed has to be done in physical form and cannot be done electronically. For example, transfer of land to the new entity. They require signed documents. We are all waiting for international travel to open up, after which people can come to India and sign whatever documents are required for registration, because that's an essential part of the deal, transfer of the existing businesses and assets to the new entity. Till that happens, we are sort of keeping everything in abeyance. Everything else is in a state of readiness, but we'll have to wait to see when that happens.
I'm going by recent news reports where the government has said that they'll try to create air bubbles between different countries for dedicated flights to and fro. Hopefully, that will alleviate the international travel thing. Once that international travel gets opened up in a limited or full manner, I think we should see this deal getting concluded.
Perfect. That is all from my side. Thanks a lot.
Thank you. We take the next question from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Congratulations, sir, on a decent performance in a very challenging environment.
Thank you, Mohit.
Sir, two questions. The first on order inflow. Of course, it's difficult to paint a picture, but if you can throw some light on the international side and on domestic side. Are you seeing any kind of deferral of execution, especially on the international side, given the low oil prices? Okay, I'll come to second question later, sir.
Yeah. Okay. See, as far as order inflow is concerned, we have seen a bit of a pick up in ordering activity, but obviously, till things stabilize, I don't think you will see a rush of orders coming through, particularly since we are largely dependent on central, state and public sector undertakings. Many of the senior people in these organizations are maybe not so tech-savvy. They would not like to approve everything electronically. I think we'll have to wait for things to stabilize, even though the pipeline appears very recent. In fact, Harish mentioned around INR 6.3 trillion of prospect pipeline. If correct, INR 630,000 crores. Of which around INR 500,000 crores is in our infra segment. Power and MMH is another INR 50,000 crores. Hydrocarbon is around INR 70,000 crores. Heavy engineering and defense is around approximately INR 10,000 crores or so.
Oil prices, obviously, low oil prices have caused concern on international ordering, particularly in the hydrocarbon space. However, please do understand that if oil remains at around $40 a barrel, of course it's been moving up quite a bit, that is not a very good price point for oil producing countries to put out CapEx. However, once it crosses $50 a barrel, it certainly alleviates the fiscal equation in oil producing countries and people do start to look at CapEx. Going by many international reports, it does seem as they're predicting that oil will go back to around between $50 to $55 a barrel. We'll have to wait and see. Once oil comes back to a decent level above INR 50 a barrel, I think we can expect to see some ordering.
While the prospect pipeline is there, both on international and domestic, timelines for that is very uncertain and at this point of time, it's anybody's guess on when these will actually get awarded. As of now, these appear to be on the horizon. Hopefully, they'll not get dropped. That is the situation on the investment front going forward. As I said earlier, the world and India is in such an uncertain state of mind that we would not like to try to speculate or conjecture on timelines of when ordering can come back in a very decent manner.
Okay. Sir, my second question is on the development projects portfolio. Sir, did we book Nabha Power revenues assuming 100% availability during the quarter, or we assumed a lower PAF? Related to that, what are the amortization provided for Hyderabad Metro in Q1 FY 2021? What kind of cash support the development business would require to meet all the commitments in FY 2021 in an environment where the revenues remain subdued?
Hyderabad Metro, they were shut for quite some time, and one of the reasons was that state of Punjab, there was no demand. I think during lockdown, the demand was minuscule, they did not have to resort to their priority list and ask for power from IPPs. Obviously the PLF fell significantly in line with the fall in revenues. However, you mentioned PAF. PAF was at a fairly high level. In fact, PAF was at around 87% level, which is more than the threshold required. Plant availability, which is more than the threshold required for getting the capacity charges. While there was a close to 50% fall in the total revenues, the plant availability was at a high level because we had adequate stocks of coal, and we are ready to switch on at a moment's notice.
That was the situation as far as Nabha is concerned. What was your question on Hyderabad Metro?
Sir, what was the amortization provided on fare collection rights for Hyderabad Metro in Q1 FY 2021?
There was no collection whatsoever. It was under lockdown, and it is still under lockdown. For the whole of the quarter, there was no collection. In fact, we had to keep on bearing the fixed expenses. There was a negative EBITDA. You talk about amortization. Amortization was around INR 70 odd crores during the quarter. The amortization. That is the depreciation and amortization part.
Correct, sir. The question was, what kind of cash support the development business would require to meet all the commitments in FY 2021 in case the revenues remain subdued?
I would not like to speculate on that. What you're asking for is for me to also build in some sort of a conjecture on the revenue and EBITDA. Nabha should not require anything. If at all anything is required, it will probably be required in Hyderabad Metro, not in Nabha.
Understood, sir. Thank you. Best of luck.
Thank you.
Thank you. We take the next question from the line of Venu Gopalakrishnan from AllianceBernstein. Please go ahead.
Hi, Mr. Mondal. Firstly, congratulations on a well-managed quarter, especially on the cash flow side. My first question, I just wanted to touch upon the labor availability part. From what I see, your revenues are primarily a function of both availability of site, wherein, of course, there are some containment zones, and number two is availability of all labor. Looking at this commentary you made that roughly about 230,000 or 240,000 is what is the peak labor requirement. Which I understand is usually, let's say, during a March quarter, but you're already at 190 now. Post-monsoons, which is a December-ish quarter, you seem to have at least adequate labor availability for a normal December quarter, because that's not a peak quarter anyway. If containment zones are meaningful enough hindrance for getting back to a revenue growth in a normal quarter?
Because labor doesn't seem to be a challenge at least. That's my first question.
See, firstly, yes, you're right, most of our sites are operational. Around 95% or more than that are operational. It's only a few sites here and there which are in containment zones, which are not operating. Just a handful of sites. You mentioned labor. I think we also need to recognize that till the virus is not eradicated from the face of the Earth or until everybody in the country at least is vaccinated, we have to follow social distancing norms. Even during normal operation, it's not as if execution will go big bang back to what it could have been in a normal boom period. Those constraints are still there as far as the execution is concerned. Some constraints in execution, in spite of a reasonably large labor workforce, will still continue.
Got it. I think that is very clear. The second thing is on the margin side. Wanted to really understand. We were actually very surprised looking at infra margins, honestly. 50% decline in revenues, yet you have held up your margins on a YY basis. You mentioned some margin levers, especially around overheads, where probably people underappreciated the ability to bring down overheads, et cetera. Can you give us some qualitative color on that aspect? More importantly, because we want to really see if that's a sticky thing which can actually help you through the year. Also, because I'm assuming that labor is also coming back at a higher cost, so is there any risk around margins because of that, or everything is a pass-through?
No, everything is certainly not a pass-through. It could have a bit of an impact on margins as increased labor. I also mentioned that many of our contracts have labor inflation pass-through, which are typically things like formula. For example, some contracts would have formula linked to dearness allowance and pass-through formula. However, at the same time, we do stand to benefit from lower commodity prices, particularly in steel. Even though prices of cement have gone up a bit, steel should give us some benefit. It has given us some benefit in Q1 already. To that extent, I think we are not in a situation where input cost escalation will hit us in a big way.
Secondly, across the organization, everybody has been focusing on, number one, reducing discretionary expenses and trying to cut down on all sorts of overhead expenses, trying to change business models so as to ensure that we operate in a more lean, mean, and trim fashion. Just to give you an idea, this has borne fruit in many respects. Obviously, one big saving is on travel and conveyance, because everything is being done online, just like today, we are talking on an audio call instead of physically meeting. Obviously, apart from corporate expenses, businesses have also been at the forefront of trying to curtail expenses. To give you an idea, in this quarter alone, we saved around INR 200 crore of normal expenses, of which around half was on travel. Around INR 100 crore saving was on travel, INR 200 crore is not a small number.
This is in spite of the fact that Mindtree added another INR 100 crores, even after taking that into account. In the sales and admin expense, which people automatically assume that a large part of that is fixed. The fact is that at an organization level, and obviously infra segment has been able to save on their overheads as well as on the input costs, as far as material consumption is concerned.
Got it, sir. Thank you so much.
Thank you.
Thank you. We take the next question from the line of Abhishek Puri from Axis Capital. Please go ahead.
Thank you. Congratulations on a good set of results despite the challenging environment. Just wanted to check with you on the current quarter numbers. We have lost 40 days of complete lockdown, yet our core engineering revenues are down only 46%. Is there some catch-up that we have done, and would that catch-up play out in the coming quarters also? Despite you being skeptical about the labor availability and the containment zones. Would it be possible to see normalcy earlier than expected, is what I'm trying to understand.
We hope so. Abhishek, please don't mistake my commentary for pessimism on the labor front. I think 190,000 labor workforce that we have is a very decent number, which enables us to execute in a very decent fashion. We're not pessimistic. All we're saying is that we are cautious on when things will completely normalize. Yes, as I mentioned, some sites are in containment zones, but those are just a handful. In fact, even the large projects in Mumbai are progressing. The coastal road, the Trans Harbour Link, and the Metro, for example. All are functioning in a decent manner. It's not pessimism, but at the same time, we do think that it could take anything between two to three quarters for things to normalize. That is all we said.
I must also say that we can't just apply a thumb rule saying that revenues are 45% catch up and stuff like that, because every site has its own local conditions. Firstly, while some factories were allowed to start operating in a very limited manner from 14th of April onwards, sites started gradually reopening from 20th of April. That doesn't mean that we suddenly opened up all sites on 20th of April. That depended on permissions at the local level, whether it be local DM or Gram Panchayat or Taluka and stuff like that. Obviously, that reopening came with a whole lot of conditions. For example, some sites may have reopened with a restriction that we could only operate at 30% workforce. Some sites may have reopened with a restriction that we could operate at 50%.
Every site had its own peculiarities, and obviously these, along with the gradual resumption of the workforce, would have led to imbalances across the board. I don't think one can really apply any thumb rule or say whether we managed to effect some catch-up and I don't think we'll be able to catch up on the revenue loss during the course of the year. That is my personal opinion. It is not an organizational point of view. The revenue shortfall in one quarter, and you mentioned 40-day lockdown. It was not completely 40 day everywhere, as I said. No numbers, but at the same time, it may be very difficult for us to sort of catch up on lost revenues. These are not lost revenues. These are execution that has got postponed. That's about it.
Right. An fair point. Could you also spell any segments that could do better than others in the near term, like we saw hydrocarbon has fallen lesser than others in the current quarter. More of international business here. Has that become 100% normal versus the others in India where we are facing a lot more challenges due to containment zone?
See, to that extent, yes, of course, hydrocarbon has its own set of challenges. I think everybody knows that. Hydrocarbon also, their margins were to some extent affected because of change in the job mix. Last year they had a number of high-margin jobs and the total proportion of jobs which had cost margin estimation were almost double that of the current year. Some foreseeable losses, lockdown costs, under-recovery, they had their own challenges. Yes, international locations obviously have not been as badly affected as domestic, even though every now and then we have seen some partial closures or partial lockdown or partial restrictions in a number of international sites.
Here again, I would not like to speculate, apart from the fact that businesses with a higher exposure to international, particularly, I think, Information Technology and Technology Services is known to everybody, even though their end markets are still very volatile. Hydrocarbon, Heavy Engineering, they get almost half their revenues from international sites. International locations. Hydrocarbon of course means on the ground execution at those locations. In case of Heavy Engineering, it is more export of equipment to those countries. Yes, probably they may be less affected by the domestic lockdown, but at the same time, it's not that they don't have any domestic operations either. Heavy Engineering, of course, is completely the manufacturing is all domestic. Pardon me for not giving you a clear answer, but that would be speculative on my part.
Fair enough. This is helpful to understand at least. Lastly, in terms of the order inflow, you mentioned order prospects of INR 6.3 trillion. If I remember correctly, if my memory serves me right, I think last year it was about INR 8.5 trillion. Are we looking at 20%-25% decline in prospects? Maybe, I understand order finalization can be very different. It all depends on how the market competition and intensity is. To that extent, are we looking at 20% odd reduction overall? When we know the prospects, why can't we give a guidance?
No. Abhishek, two things. Firstly, I don't think it is a clear function of some arithmetical back of the envelope calculation, number one. The reason being that even while trying to get a fix on the prospect pipeline, a fair bit of judgment is involved. For example, some business head may be looking at a prospect, but which seems very remote under the existing circumstances and without any clarity on when things will resume back to normalcy. To some extent, it's a judgmental call. There may be prospects which are not part of this. At the same time, I think we also need to recognize that the economy has significantly decelerated. In these times, I think people are not really talking. Many of the public sector customers, particularly, who would be maybe doing some drawing board calculations on some project, would obviously put that in the background.
It's not amenable to clear interpolation or extrapolation. To that extent, it's not a mathematical science or an art. I'd also mention that the timelines of ordering this so-called INR 630,000 crore of prospects. It is so-called because we don't know whether these will actually get ordered out or when they'll get ordered out. The sheer uncertainty obviously precludes us from making any sort of projection as far as order inflow numbers are concerned. That is why we have refrained from giving a guidance.
Right. Fair enough. In terms of some of the segments that you would be more keen or we should assume that high government exposure and PSU exposure sectors will do better than the private ones for sure.
Yeah. At this point of time, it does look as if sectors which are more exposed to government and PSUs, their prospects will probably look more concrete, let me put it, not necessarily better, but look a bit more concrete than those which are exposed to private sector.
Right. Any update on 5G build? That will be my last question.
At this point of time, no update.
Okay. Thanks a lot for all of that, and all the best.
Thank you.
Thank you. We take the next question from the line of Aditya Bhartia from Investec. Please go ahead.
Hi. Good morning, Arnob.
Hi, Aditya.
Arnob, just want to understand how significant the benefit of lower commodity cost is? There are quite a few contracts which have a pass-through. In that context, how is it that we've been able to hold up onto our infra margins despite such a sharp decline in revenues?
I think we have already addressed that. The large part of it was because of, firstly, we also need to recognize that infra is a segment which consumes a lot of material as well as subcontracted labor. Those typically tend to be variable. Forget about the 20-day lockdown period, both labor and subcontracted labor and material tend to be variable. To that extent, the margins don't get affected. Where they did benefit obviously was on the margin front, on the overhead reduction front. To that extent, I think yes, it's not that we didn't benefit from commodity prices. I did mention that yes, we have benefited somewhat, but those are not humongously large benefits.
You would say the bigger cost benefit would have come from SGA cost savings as opposed to commodity costs?
I would not like to get into that level of granularity, Aditya. Sorry to disappoint you. Also keep in mind that because of the lower revenues, obviously the material consumed was significantly lower as well. In general, revenue is fall by 50%, material consumption will also fall by 50%. Savings on commodities will also be restricted to that extent.
True. Regarding lower crude prices, you indicated that order inflows in the Middle East could get impacted if crude prices remain where they are, and possibly above $50 things start normalizing. Could you explain us, do these lower crude prices also impact execution pace or cash collection in a material manner in the Middle East?
Not really, because Middle East countries that we operate in, they clearly respect sanctity of contract. Yes, if some particular country is under fiscal stress, they may request us whether we can maybe elongate the execution timeline. To that extent, one or two projects may go through that. It is not as if lower oil prices will directly affect execution. Ordering becomes uncertain obviously, but execution may not get that dramatically affected.
Understood. From that perspective, as far as cash collection is concerned, whether domestically or internationally, we are not seeing any significant challenges as yet.
Challenges are always there, I mentioned right from the beginning that one of our main focus areas during this pandemic was on liquidity management. Our philosophy is that as far as possible, we will spend only as much as we can collect.
Perfect. Thanks a lot, Arnob.
Thank you.
Thank you. The next question is from the line of Sumit Kishore from JPMorgan. Please go ahead.
Good morning, Mr. Mondal. Thanks for the opportunity. My first question is that we had heard about conducive ongoing customer negotiation with regard to the cost overrun, which had happened due to the COVID disruption. We had also heard about a INR 5 billion odd per month fixed overhead that you would have incurred through the lockdown period. My question is, how are those negotiations progressing and how much of the fixed overheads have actually been booked in expenses in the first quarter, and how much is sitting in, say, work in progress?
Very difficult question to answer. Number one, as far as negotiations are concerned, those are ongoing and we have not yet had any significant number of customers agreeing in writing to reimburse us on lockdown the costs, even though we are pursuing it. Obviously, till we get a formal commitment from customers or till we get the actual money, we don't account for it. Once they agree to it, we'll add that to the contract value. In the meantime, contract values do not get increased. Yes, we were incurring around INR 500 crores a month on subcontracted labor workforce during lockdown. Of course, seven days of that obviously went in the previous quarter in Q4 in last year.
Wherever we are already working, whether it be joint working or whether it be import of equipment from China or even in some cases, I don't know whether we're exporting, maybe one-off cases we do. Like most countries which follow rule of law, India also recognizes sanctity of contract very clearly. I don't think those contracts will be allowed. Suddenly nobody will change the rules of the game halfway through. Those contracts will play out going forward. Of course, going forward, we'll obviously recognize the geopolitical equations that India is currently facing. We'll obviously look for alternate sources of supply and try to broaden the supply chain ecosystem.
If you have been keeping track on geopolitical events and the spin-off effects of those, the consequential effects of those, you would also realize that many companies are now looking to India in a very serious manner. To that extent, our supply chain sourcing ecosystem automatically increases as well. I don't think that there's much of a concern on existing contracts. Going forward, we'll have to be very careful on our international sourcing in relation to geopolitical situation.
In terms of opportunity, because now they cannot participate?
Firstly, let the ordering pick up, and then I think we'll comment on that. I would not like to speculate on that beforehand.
Sure. The potential loss of revenues quantified at INR 15,000 crores at the end of last quarter. Lockdowns continued till May. Obviously, these revenues are not lost, they're postponed. What is that number that has moved to?
See, INR 15,000 crore was our last quarter, INR 15,000 crore. In the current quarter, the revenues that impact of COVID has been approximately INR 12,000 crore.
Okay. Sure. That's it from my side. Thanks.
Thank you. Next question is from the line of Puneet Gulati from HSBC. Please go ahead.
Yeah. Thank you so much, and congrats on good resilient performance.
Thanks so much.
I have two questions. Number one, can you give some sense of what is the fixed cost burn on Hyderabad Metro?
Fixed cost would approximately be around INR 70 odd crores a quarter, approximately.
Okay. This is excluding interest, right?
Yeah, excluding interest.
Any debt repayment during this year from Hyderabad?
50 to 70. Hyderabad Metro, we waived our moratorium, actually.
Okay. INR 50 crores per quarter plus interest cost is the only fixed cost that you have on that.
Yeah, approximately. I mentioned depreciation would be around INR 70 crores, and obviously the interest charges to be accrued in any case, whether we waive a moratorium or not.
Yeah. Cash cost is only INR 50 crores.
Yeah, approximately INR 50 crores.
Yeah.
Approximately. Yeah.
Secondly, can you give some sense of what % of your core business contracts are fixed price contracts and where there is a pass-through?
Approximately 55% of our order book. Order book is initially core business, is variable contracts which have pass-throughs.
Both on labor and the material side.
No, labor would be a bit different. I don't have the numbers readily with me for the labor part, but these are essentially on the material.
Okay. 55% of waterproof has passed through with variability.
Yeah
45% is where you will typically benefit on the field side.
Correct.
Okay. That's it. On the heavy engineering side, also the margins were quite good. Was it again, largely a section of the material cost?
Heavy engineering, not necessarily. Not necessarily only material cost.
What would have resulted in a strong number for the heavy engineering that still did almost 17.5% EBITDA?
To a large extent, heavy engineering as well, a large part of their costs are variable. To that extent, the margins would not necessarily, but there was still a 2% reduction. That 2% reduction is obviously because of the under recovery of fixed overhead. For almost 50% revenue, it was actually quite good, I thought. I cannot give you granular level details on each business.
No, that's fine.
In case of heavy engineering, of course, also keep in mind that depreciation is also a fixed overhead.
Okay.
For all manufacturing businesses.
Yes.
Whether it be heavy engineering or defense or Electrical & Automation.
That's it. Agreed. Lastly, on the infra side, because of lower commodity price, and on the other side, there is an escalation on labor. Would you get to keep the margins that you made in one, two, or do you think there is a risk of it getting renegotiated when you go for other cost escalations getting renegotiated?
I would not even like to speculate on something on that, Puneet. The current quarter, Q1, was so unprecedented in nature, obviously the impact of a complete black swan event that has taken the entire world by surprise. To that extent, I would not even like to speculate on whether the margin is sustainable, whether it will go up, whether it will go down, whether it will lead to different negotiations. All that is completely speculative. I have to disappoint you, but I cannot give you an answer to that question.
That's fine. Okay, great. Thank you so much, Arnob.
Thank you.
That's all from my side.
Thank you. We take the next question from the line of Apoorva Bahadur from Jefferies. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, two questions from my side. Firstly, you said that we incurred roughly INR 500 crore per month on subcontracted labor force during lockdown. Now that 90% of sites are back on, are we still incurring roughly INR 50 crore of this overhead?
No. That was only during lockdown. Obviously, that was a very different situation from the current environment.
Okay. We are not incurring this expense any longer.
No.
Okay. Secondly, if you could share, give some color on any potential slow-moving orders in the order book or there are any certain states which have not really picked up in terms of payments?
State governments obviously do keep on billing payments every now and then. That is not something new. It's not particular to this quarter. There's not much difference. Yes, in the past, MP and Rajasthan were lagging behind as far as payments are concerned. Some of those have started picking up again in the current quarter, thankfully. I think the Andhra Pradesh part is well known to everybody.
Anything on slow-moving order part?
Slow moving. See, there are some orders which are not moving, but I would hesitate to characterize them as slow moving as such.
Okay. Sir, which would these be, and how large will this part be which is right now not moving? If you could share that.
Should not be humongously large. Maybe between INR 5,000 crores-INR 7,000 crores or so.
Okay. Got it, sir. Thank you for the opportunity.
We take the next question from the line of Ashish Shah from Centrum Broking. Please go ahead.
Yeah. Good morning, Arnob.
Hi, Ashish.
Just a last bit on the margin discussion. I know we've spoken enough. Would the other income, which is up about INR 140 crore year-over-year, would a part of the other income be attributable to infra segment? Could that have pushed up the margin a little bit? Did I not understand this?
What-
I'm just saying, when we take the segmental margins as reported, they include maybe some portion of the other income attributable to each segment.
Some portion, yes sir.
Okay. I'm just saying, taking a qualitative judgment, would that have been an influencing factor, or you don't think that's a very material attributing factor to the margin being flattish YOY?
No, that is not a very attributable factor.
Sir, second is, we had spoken about some sort of a support to the Hyderabad Metro as well as the financing business out of the E&A proceeds. Are we in a position to give any firmed up numbers or any indicative numbers? What kind of support are we looking at now?
See, firstly, as far as Hyderabad Metro is concerned, we don't intend to increase the additional debt on the SPV books. In fact, part of the debt, as I mentioned, is from L&T and part is mezzanine debt. In fact, we also have around in excess of INR 20 crores of income from ICDs to Hyderabad Metro at the parent level, which gets eliminated at a consolidated level, but which shows up as part of the interest cost in SPV. As far as the funding support is concerned, Hyderabad Metro, hopefully we will also get the VGF from the government, which has been pending for some time, and that could be used to iterate it to the parent.
As far as funding support is concerned, you'll have to wait till E&A proceeds come in before we can give you a better color on how much of that we intend to use to reduce debt on SPV books. You'll have to wait a bit more.
Sure. Sir, lastly, in the other segment, any indication on how much would have been the realty segment for the quarter?
The realty obviously has borne the brunt of the pandemic. I think it's a very well-known thing. Other segment, yes, realty is to a large extent responsible for the drop in segment revenues. At the same time, it's responsible for around half the drop in segment revenues in other ways from realty. It's not as if everything has completely stopped. For example, we handed over something close to 60 flats in Bangalore during the quarter, even during this situation. It's not as if everything has come to a standstill, yes, realty has been affected because revenues, as you would recollect, are realized based upon handover of flats.
Sure. Thank you very much.
Thank you. We take the next question from the line of Renjith Sivaram from ICICI Securities. Please go ahead.
Yeah. Hi, sir. Good morning, and congrats on this set of numbers given the environment.
Thanks, Renjith.
Sir, I just wanted to understand this INR 500 crore per month, how much would have been actually incurred, and how much is there in the results which we have disclosed of this INR 500 crore, which we have actually accounted for?
See, Renjith, I think that INR 500 crore was a number that we talked about when the lockdown started on 25th of March, and we said INR 500 crore per month. We also said that sites started gradually opening up from 20th of April onwards. Close to a month would be a fair, I would say, guesstimate, but each project would have its own calculation. INR 500 crore was an estimate at that point of time, and it would not be too far off the mark. For me to give you an answer would mean collecting this sort of granular level detail from 700-800 sites. I don't think that is possible in the existing circumstances. Even if we do get that information, we obviously cannot get into that level of detail. I'll have to disappoint you on that front.
I did mention how we have treated the lockdown costs. Beyond that, I request you not to ask us for the detail.
What would be the fixed overhead in infrastructure, if you can help us?
Sorry?
What will be our fixed overhead under infrastructure segment?
No, I don't think we'd be able to, again, give you that level of granular detail.
Okay. Because if the revenue fell down by 50%, how much was the fall? You told INR 200 crore. Is INR 200 crore the fall in the fixed overhead of the infrastructure segment, or is it INR 200 crore the fall in-
I mentioned INR 200 crore of reduction in normal sales and admin. This is excluding the provisions that we make for the nonlinear part that we provision for doubtful or the financial services provision. I mentioned that in normal operating level sales and admin expenses, we saw a INR 200 crore reduction. This is after considering INR 100 crore additional sales and admin expenses due to consolidation of Mindtree. I did not say that we saved INR 200 crores on infra segment. Please do not read that. Okay. Infra expenses, I did mention that we've charged off close to INR 150 crores of overheads during the quarter. Obviously, they've also saved. Apart from the overheads that have been charged off, they've saved.
Okay, INR 150 crore is the reduction in the overhead in the infra segment. Is that understanding correct?
No, I did not say INR 150 crore is the reduction in overhead. All I said is that the overhead charge to P&L was around INR 150 crore in the infra segment.
Okay. Is there any change, the provisions were lower or was there any provision write-off which supported us to show that kind of margins in infra?
I think I've answered the margin question of infra in fairly good detail. Beyond that, I cannot keep on repeating the same thing on factors which affect. Please do not ask me to disaggregate the entire margin of infra into the minutest detail on overhead increase, overhead saving, travel increase, travel saving, increase in material cost on cement, reduction on steel how much of it we've accounted for as pass through. I will not be able to give you that level of color.
Okay. Fair enough, sir. Because that has been one of the major surprise element compared to what we were expecting. That's the reason why.
I know. I understand that.
Yeah. Sir, yesterday as per media reports, I think SNS has told that INR 8 trillion prospects from government has come down to INR 4 trillion. What was that?
See, actually, he did mention that normally an INR 8 trillion worth of spending happens, but that is probably the spending that central and state governments do, which obviously could come down in the current year. I would not like to. That's a very macroeconomic level discussion. I clearly indicated earlier that on the macro front, the central and state government, yes, they will definitely see a shortfall in tax collections, but hopefully the additional borrowings program should be able to allow them to make up for a part of the tax shortfall collection. In addition to the additional resources that they will be getting by imposition of increased cess on petroleum products. In fact, that could lead to another one macro additional inflow in the Central Roads and Infrastructure Fund itself.
Okay. Any large iconic projects like high-speed rail or anything which can be a large element in terms of the order pipeline which you look forward to?
No, at this point of time, we'll not be able to give you any details on that.
Okay, sir. Thanks and all the best. It has been a good show.
Thank you.
Thank you. We take the next question from the line of Varun Pinotia from Ambit Capital. Please go ahead.
Hello. Can you hear me?
Yeah, I can hear you.
Yeah. Hi, Arnob. Thank you so much for taking my question. Just two quick questions. Number one is on subcontracting charges. You said that is like a variable cost. Ideally, the proportion of that as % of revenues should remain steady, over previous years. I see a steep decline in subcontracting charges as % of revenue. What is driving that? If you can give some explanation on that. That was my first question.
No, I think, in these times we cannot apply normal marginal costing principles.
Okay.
In these times.
Okay. The proportion to sales, I thought that should remain constant. Sales come down.
No, see, again, subcontracting at times also has subcontracting with material.
Okay.
To that extent, it's not directly.
It also includes some part of material cost as well in that particular heading. That's what you are saying?
Yeah. Some part of material cost would be included as well.
Okay. The construction material line item, that also saw a steep decline. That is largely driven by lower steel prices or is there something else as well?
It's more because of consumption on material.
Okay. There is a line item called construction material consumed and the consumption of raw material is a separate line. That is fine. The construction material line item, that saw a steep decline. I think that is largely driven by lower steel prices or something else, because there's a decline of 8% points year-on-year. Does the steel price explain that portion or there is something else as well in that?
No, it is not because of steel. Actually, if you're looking at individual line items, construction material and raw material, raw material is more for manufacturing. Construction material is more material that is used in sites.
Okay.
As I mentioned, you cannot directly attribute it to different businesses as such. At the same time, when you are looking at revenues, you are also looking at revenues including services business, correct?
No. I removed that. I removed the services business from that to have an apple to apple comparison. When I removed that, there is a decline of 8% points year on year in one Q. Wanted to get a sense if it's.
No, to a large extent, it would be depending upon stage of execution. Like for example, In the middle of the stage, it is more construction material used, whereby towards the later stages, less construction material is used. It would vary from project to project.
Okay.
It is not amenable to a straight linear extrapolation.
Got it. Okay. My second question is on the China part. Can you give what portion of your order book is dependent on China supply chain as of today? If there is a way to quantify that total amount of orders dependent on Chinese vendors.
I'm sorry to disappoint you, but I would not be able to give you that sort of detail.
Okay. In terms of going forward on that, we will be finding alternative sources of those vendors, either domestically or from other geographies. That will be the way forward to deal with that, right?
That will be our philosophy.
Yeah. That will be the philosophy to deal with that. Okay. Yep. That's it from my end. Thank you so much.
Thank you. Next question is from the line of Uttam Kumar from Spark Capital. Please go ahead.
Yes. Thank you for taking the question. First one is just to understand, because of these new containment zones that are being defined, what % of order book is clear we can see in the domestic side, all urban and non-urban geographies?
See, international sites are all operational. It's only the domestic sites where a few sites in some urban locations have got affected. That's about it.
Okay.
I didn't understand your question. Actually, if at all any site would get affected, it would mainly be in buildings and factories, one or two sites here and there.
Okay. Sir, of this 82% of the government share of order book, what would be the share of state government orders of the total 82%? Hello.
37% of the domestic order book is from the state government.
37% of the domestic order book. Okay.
37% of the domestic order book.
Right. In 82%, sir.
Sorry?
Of the core business. Yeah.
Order book is all core businesses only.
Yeah. Sir, can we get a split of EBITDA of this development project between Nabha and Hyderabad Metro?
Well, Mr. Uttam Kumar, I would request you to please hold on to your question. We are just trying to reconnect Mr. Mondal. We have Mr. Mondal reconnected. Mr. Uttam Kumar, you may go ahead with your question.
Yeah, sorry, I got disconnected.
No problem. Can we get the EBITDA breakup of the development project between Nabha and Hyderabad Metro?
Sorry, can you repeat your question once?
The breakup of EBITDA in development projects between Nabha and Hyderabad Metro.
See, Nabha was positive and Hyderabad Metro was obviously negative because of fixed operational expenses, even though we got some miscellaneous income here and there.
Yeah.
Largely that.
Okay. Yeah. Also on this Hyderabad Metro, what could be the timeline for implementing, given this CRE policy action or monetizing this land bank that we have and unlock capital? What could be the rough timeline, like FY 2022, can we see that happen?
I would not care to speculate on that. We will definitely work towards FY 2022 for sure. Let's see how things normalize, because commercial real estate has to, again, come back to near normal levels again in Hyderabad, and we are obviously exploring all options for that.
Understood. On the defense orders, given that limited competition, what could be the action that we can see in this FY at least? Are we seeing some preparation work happening on some new orders?
No, I think, defense ordering, time and again, we have told markets that timelines tend to get so elongated that it would be speculative to even try to give some idea of the timelines on when things can happen. In fact, we were expecting some orders in Q1, but because of the current situation, those have got pushed on. Hopefully, we'll get that in Q2. Hopefully. We'll have to wait and see.
Understood. Thank you, sir. That's it from me.
Thank you. We take the next question from the line of Ajinkya Bhat from Macquarie. Please go ahead.
Hi, sir. Thank you for the opportunity. Sir, I just had one question again on the infrastructure margin. You have talked clearly about the commodity prices and other factors. Just one question, is there any contribution from, let's say, a number of projects crossing the margin recognition threshold in this quarter? Because in the initial remarks, Harish mentioned that you did focus on essentially those projects where ramp-up could be done faster. Could that be one of the reasons why your margins have surprised everyone?
No, not really. Not because any large project has suddenly crossed margin recognition. Not because of that.
Okay. Can you just give us qualitatively what are these areas where you saw faster ramp-up of projects? Be it either the specific sectors where you were able to ramp up faster or maybe specific work components. For example, just to give you an example, say design and engineering is something that can be done on a computer with a software. With an AutoCAD software. It may be less likely to be disrupted by a lockdown. Are these nitty-gritties something that have helped the execution in infra?
Not so much. When you are executing anything between 700 to 800 projects at any point of time, some projects are going faster on the design front and some projects going slower would not really swing the needle to that extent. Very broadly speaking, sites which are a bit more remote away from urban centers obviously have tended to bounce back in terms of execution a bit faster than those projects in urban or semi-urban areas. That's about it. Beyond that, I'll not be able to give you further color. Yes, you did raise a very valid point that a lot of the design work, fortunately, we managed to transition to a work-from-home environment.
Sir, just for my understanding, is it also possible that when you're facing worker shortage, is it possible to move additional machinery and ramp up execution? Is that possible in many of the projects? Or can the man not really be substituted by the machine?
No. Man cannot be so easily substituted. This is a very short period of time. Most of our projects take anything between two to three years to execute. One quarter pandemic happens, it's not that we can suddenly substitute a whole bunch. That is a very gradual process. At one point of time, the total workforce that we used to employ was in excess of 300,000 labors. We brought it down to around 225,000 at our peak. Obviously that has happened over a period of time. It has taken a couple of years. That is also an impact of the digitization initiatives that we have taken. It cannot be done so quickly.
Okay. Understood. Thank you, sir. That's it from my side.
Thank you. We take the next question from the line of Girish Achhipilay from Morgan Stanley. Please go ahead.
Thank you, Mr. Arnob. Partly the question was answered in the last speaker. Just one bookkeeping number, INR 630,000 crores. Is there any quantification that you can give on the state side how big that number could be?
I would not be able to give you.
Across the case?
I'm sorry, but I'll not be able to give you those details.
Okay. Would it be similar to the order book composition, or it could be very different?
Could be a bit different, obviously. For example, almost all the water projects, for example, are state. Most of them are state projects. Water is a large prospective. Even though part of the prospective obviously is also international. Water is one area where we are seeing significant prospects. A large part of that would obviously be states.
Okay. Understood. Thank you, sir.
Thank you.
Thank you. Next question is from the line of Keshav Lahoti from Angel Broking. Please go ahead.
Thank you for the opportunity. Sir, is it possible for you to throw some color on daily revenue run rate per day? Currently, what would be your guess? We are at 90% plus revenue per day compared to the same year ago, or some sort of range is also fine.
I'm sorry, I did not understand your question. Your voice was also slightly indistinct. Could you repeat the question?
Yeah. As you have given us the labor number, but probably the labor and the executions are not one and the same thing. My question is, what would be your revenue run rate? What would be the revenue you will be earning per day compared to the same period a year ago? Maybe some sort of range you can give, 80%-90% or 90%-100%?
I would not be able to give you that color. Sorry to disappoint you.
Thank you. Next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.
Hi, Arnob. Congratulations on a decent quarter.
Thanks, Parikshit.
My question is, sir, a large part of order book is funded by multilateral agencies. Because of COVID, are we seeing any constraint on the funds coming in from there and delays in payment on those projects?
Actually the multilateral funded projects, payments go according to milestones. If we execute and we cross a particular milestone and the payment becomes due, that comes. It is more on the execution front rather than on anything else.
Because there could be certification delays or site visits by the independent engineers, coming from more on the manpower, which is on the multilateral side, that engineers were not able to reach the site because of constraints, like in case of the Trans Harbour Link or some of the Mumbai projects. It was coming more from that side. Those funds may be there, but because of constraints on certification, there could be delays in collections or dispersal of payments.
I completely agree with you, Parikshit. I think you have answered your question yourself. Yes. On a serious note, yes. If we have delays like that, ultimately, if the documentation is not complete, we will not get payment. In the current situation, there could be instances like that.
The second question was more related to what the earlier participant asked. What we are seeing. In my coverage universe, I have a lot of EPC companies who have reached on an average anywhere from 60%-80% of labor availability, and execution is far, a little bit more ahead than what is the labor availability. Execution efficiencies in cases as high as 90%, some cases at 60%. It's almost like a one-to-one correlation. There are studies that typically in construction labor availability and execution is more of a linear relationship. I do understand you have projects in containment zone, but the labor number which you have quoted, despite social distancing, I would have thought this number to be much lower. You are still at the normal monsoon level of labor at 1.9 lakh.
What gives us this confidence that we should have such kind of a labor force? Is my assumption correct that though you're not giving any color on what could be the execution, but it could be more somewhere around that range or maybe lower or higher, something like that you can touch upon. I'm not asking any range.
No, I think your question was far too complicated for me to answer, number one. Secondly, I would not be able to compare L&T's execution with that of peers. Many of the peers would probably be a bit more sectoral. We are much more broad-based. To that extent, I will not be able to give you any further color on the execution front. You're asking a bit of a speculative question in that.
Okay. I'm saying you already have the numbers right now. Last month or say a couple of months' average execution. You have that number. I'm not asking about future. What is happening say next month or next week. I'm saying what you have already achieved, say, a week back or on an average basis.
See, Parikshit, I upfront very clearly said that please do not go by a mathematical interpolation or an extrapolation. These are very different times, and these are changing on a daily basis. You cannot use the back of the envelope calculation and arrive at some execution run rate, which you think will happen. That may or may not reflect reality.
Okay
refrain from any sort of interpolations or extrapolations on that front.
Okay. My other question is, sir, we have seen this month, typically, there have been bids almost, we have seen L&T looping INR 7,000 crore-INR 8,000 crore of order where we have bid significantly higher versus the client cost as well as the lowest bidder. Is there any change in our trend on strategy of bidding? Of late there was limited competition. You were way off than the cost of the project and even the L1 bidders.
No, I would not speculate on that either. What competition does and competition may be significantly lower. Some person may have given an outlier bid. I would not be able to comment on that. The fact is we have not changed our bidding strategy. We still try to build up our costs at the most economic level, at the minimum threshold margins for that particular segment, and put in our bid. If somebody bids at 20% lower or 30% lower or 20% higher, that is something which I will not be able to comment on.
Okay.
We have not changed our bidding strategy.
Sir, this INR 150 crore which we have given to the PM-CARES Fund, has it been expensed in this quarter?
Yes, that INR 150 crore PM CARES Fund contribution was expensed in Q4 itself.
Okay. Q4 itself. Okay, sir. That's all from my side. Thank you and all the best.
Thank you.
Thank you. We take the next question from the line of Ambalal Singhania from Asian Market Securities. Please go ahead.
Hi, Arnob. Thanks for taking my question, and congratulations on a decent set of numbers in this difficult time.
Thank you.
Just some more color I wanted to understand from the prospects on domestic side, as you mentioned about international, some segments. If you can give some color about this INR 5 trillion of domestic pipeline, which segments are there, a broad color on that project as such.
I'll not be able to give you complete details, but very roughly speaking, water is one of the strongest segments, both domestic. Are you talking only about domestic or domestic and international?
International, you already have given color on hydrocarbon, water, and power previously. More from the domestic side, INR 5 trillion of
See, domestic side, if you ask me, water, heavy civil, Power T&D, all of them are approximately INR 1 lakh crore or so each. The remaining is almost equally divided between buildings and factories and transportation infra.
Okay. Just one thing that we are seeing that the tenders are getting delayed continuously, for example, projects like Green Corridor and Power T&D and all. Are you seeing the similar kind of situation in other segments also where government tenders are there? What is our outlook in terms of what kind of delays we can see in these large tenders and all?
Yes, obviously, the tendering activity is getting delayed and power segment, particularly. I think you have touched upon something which is very common.
Okay.
In fact, a number of power plants have been sitting on our prospectus for over a year now. Delay in tendering is practically there across the board. In the current times, I think that is something which cannot be avoided.
Okay. In this pipeline of building in the factories, are you factoring in any number from our own projects from the electric side?
No, these are external projects, sir.
Okay, fine. That's all from my end. Thank you.
Thank you.
Thank you. Next question is from the line of Aditya Mongia from Kotak Securities. Please go ahead.
Hello, everyone, and thanks for the opportunity.
Yes.
The first question which I had was more on whether you are seeing in the marketplace the ability to price in this working capital pressure in the margins that you can book. Essentially the question I'm asking you is that are peers of yours and you starting to build up this high working capital cost in your bid margin?
I don't really know what you mean by high working capital cost. The working capital that we carry today are on projects that are already under execution, obviously. That has more or less, we have managed to keep that under control, even though as a percentage of sale, it may have shown an increase because as Harish mentioned, our denominator has gone down. This quarter revenues have fallen significantly. It's not as if that is really affecting our bidding pricing as such.
Okay.
Typically at the time of bidding, we tend to look more at PBIT margins, which does not include the interest and tax, primarily because interest is a function of the central treasury and tax is the entire company-wide one single pane number.
Fair point. A related question would be that, so obviously there's been some deterioration. Let's say the customer has become much more demanding in terms of what kind of working capital he'll put on the contractor's head. Which has been happening for some time. I'm not talking about one, two, in generally past two, three years it's been happening. In this context, we obviously have a reasonably good liquidity position, and we also obviously are getting back labor at a fast pace, which peers of yours may not be getting. Do you foresee a scenario wherein L&T starts getting some bit of a competitive advantage and starts gaining market share?
I hope that what you say happens. Very speculative. For example, in future if Chinese sellers are not allowed to bid for underground EPC work, for example, in underground metros, then that could lead to a better chance. At the same time, please keep in mind that in this situation, everybody's desperate to get an order. One outlier bid can completely spoil the equation of a bid. As long as things are under L1 situation, it is not possible to really speculate on whether we can increase our market share or not. As far as the working capital is concerned, yes, it has increased, but I think that is also a function of our dependence on public sector to a very large extent.
In fact, 10 years back, proportion of private sector was far higher, and at that point of time, obviously, we used to operate on lesser working capital levels. Today, with large dependency on public sector, working capital levels have gone up.
Fair point, sir. The question that I have next was on, we took a round of order cancellations in 4Q, and that was more related to issues beyond COVID, which were there prior to COVID. We've obviously seen, let's say, now a quarter wherein we would have interacted with these customers and may be much more informed now. If you could comment on the risk of any order cancellations happening out of the INR 3 trillion backlog that you have at this point of time.
See, I mentioned that we are not seeing any cancellations as such. What you're asking again is a bit of a speculative question. I will have to let that pass, Aditya.
Fine, sir. Just a last clarification from my side. I think you or Harish talked about the domestic backlog share of state projects being 37%, three seven. I recall a lower number of about 27% at the end of FY 2020 as per the annual report. I just thought I'll check with you whether both these numbers are kind of the same series or am I getting it wrong?
If you take the current domestic order book of INR 230,000 crores, share of state is 37%, state government. When I say state government, I also include local authorities.
Yes. This number was 27% as per the annual report, including local authorities inside the annual report.
No. See, what you're looking at is the total order book. Total order book, the state government is 28%.
Fair. Now I got the linkage. Thank you so much.
What I'm talking about is the domestic part. If you take the total INR 305,000 crore, 28% is the state government share. Total.
That clarifies. Those were my questions, Arnob. Thank you and all the best.
Thank you.
Thank you. Well, ladies and gentlemen, that was the last question for today. As there are no further questions, I would now like to hand the conference over to Mr. Arnob Mondal for his closing comments. Over to you, sir.
Thank you, ladies and gentlemen, for a very long and interactive session. I think I've already said what I wanted to say. With that, I wish you all the best, and stay safe, everybody. Thank you.