Good morning, ladies and gentlemen. Very warm welcome to our q four and FY twenty earnings call. The presentation analyst analyst presentation was uploaded on our site last night around by 08:00 or so. I hope all of you have downloaded it. The format that we will follow is that my colleague and all of you would have met him or talked to him at some time, mister Harish Barai, will walk you through the presentation and after that we'll open the session to questions and answers with which mister S.
S. Suburbani, our CEO and MD as well as mister Shankaraman, our CFO, group CFO will take. Just one small point since mister Suburanian and mister Shankaraman will be taking the q and a. I would just request all of you to kindly concentrate on broader things like strategy and business, and and if you have any immediate nitty gritty questions, we can always you can always ring me up or send me a mail offline subsequently. With that, I'll hand it over to Harish.
Harish, you can please go ahead.
Yeah. Thank you, mister Mondal, and good morning, ladies and gentlemen. Once again, a very warm welcome to all of you into the Q4 and FY20 earnings call of Larsson and Tubro Limited. I will move on to the next slide on disclaimer. Essentially, this presentation contains certain forward looking statements concerning L and 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.
The remaining portion of the statement, I will take it as read and move on to the next slide, which is slide number four. The performance highlights for FY20. Our order inflows for FY20 at Rs. $1,864,000,000,000 registered a growth of 9% over the previous year. Our revenues for FY20 at Rs.
$1,455,000,000,000 registered a growth of 8% over the previous year and our EBITDA and PAT for FY20 grew at 7% each over the previous year. Our order book as on March 20 is at Rs. 3,039 billion, up 4% over March 19. These numbers have to be seen in the context of the current domestic macroeconomic environment. FY20 order inflows grew by nine percent even in the face of subdued business environment and economic challenges.
Coming to revenues, despite carrying a large order book, we consciously slowed down execution to prevent further working capital build up. Payments from the public space, as you know, has not been very encouraging during the year. Secondly, as you are aware, 5% of our order book was not moving for most parts of the year. Lastly, COVID-nineteen also impacted revenues in the March. Despite all these challenges, our revenues for the year FY20 grew 8%.
If we were to just summarize, we could say growth achieved in a difficult year. With those comments, I will move on to the next slide on key financial indicators. Now, the quarterly numbers are mentioned on the left portion of the slide and the full year numbers are on your right. Since we have broadly covered the full year numbers in the previous slide, in this slide, I will mainly focus on the quarterly numbers. Our order inflow in Q4 FY20 at Rs.
$578,000,000,000, up 5% primarily on the back of significant orders received in the Infrastructure segment. Our order inflows have grown in Q4 FY20 despite the high base in the corresponding quarter of the previous year. Our revenue for Q4 FY20 at Rs. $442,000,000,000, up 2% despite challenges faced due to COVID-nineteen and a work from home or a lockdown kind of environment in the last fortnight of the quarter. Our EBITDA and PAT for Q4 FY20 at Rs.
51,000,000,000 and Rs. 32,000,000,000 respectively, has registered a degrowth of 36% respectively, mainly due to execution challenges that are arising out of not moving jobs and impact of COVID-nineteen. Just to mention here, we lost about Rs. 17,500,000,000.0 of revenues in Q4 due to COVID-nineteen and around Rs. 4,000,000,000 of PAT, which includes COVID-nineteen provisions in FS business and around Rs.
15,000,000,000 of collections due to partial stroke complete lockdown in the last fortnight of March 2020. Some comments on working capital. Our net working capital at 23.7% in March 2020 is up from 18.1% in March 19. As I mentioned in the earlier slide, payments from the public space has not been very encouraging during the year. In addition, you would recollect that we had to support our vendor ecosystem in Q1 of FY twenty twenty.
Now at this juncture, I want to just mention that as a company philosophy, we have been doing a balancing act between revenues and working capital for last couple of years now. Secondly, we would also like to mention here that despite a tough March, there has been no sequential worsening in net working capital levels from Q3 FY20 to Q4 FY20. Lastly, contrary to popular perception, we did receive collections from clients even during the last week of March 20 and we have enough liquidity buffers on our balance sheet. Our return on net worth for financial year FY20 is at 14.8% from 15.3% in March. As I said, our inability to execute 5% of our order book during large parts of FY20, as well as the COVID impact in the last quarter had an impact not only on the revenue growth but also impacted PAT and consequently our return on network.
With those comments, I will move on to the next slide which is slide number seven Q4 FY20 order inflow order book. Our order inflow numbers again on the left, order book on the right. Our Q4 order inflow at Rs. $578,000,000,000, up 5% over the corresponding quarter of the previous year, largely on the back of strong domestic order inflows in an otherwise subdued March. It is good to note that domestic orders were back in Q4 FY20.
In FY20, we managed to secure almost the same level of domestic orders as last year. Our order inflows for FY20 at Rs. $1,864,000,000,000, up 9% over the previous year, largely on the back of international orders. We had international order wins in Power Transmission and Distribution, Metallurgical and Material Handling business, Water Affluent and IT and TS segment. Coming to order book, yes, a strong order book provides a good hedge against cyclicality.
You will observe from the numbers that our international order book as a percentage of total order book has moved from 21% in March 19 to 25% in March 20. Today, have six business verticals where each of their order book is between 9% to 15% of the overall 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. With those comments, I will move on to the next slide.
Group performance, sales and costs Since we have already explained the revenue variance for Q4 FY20 and FY20, we will move on to other P and L items. If you will observe, MCO as a percentage of sales has declined for Q4 FY20 and full year FY20, largely explained by two factors one, due to the higher proportion of IT and TS business, which is largely due to mind free consolidation and secondly, due to cost control initiatives within the Group. Finance charge OpEx largely represents borrowing cost of Financial Services business. Staff cost increase for Q4 FY20 and FY20 is largely explained by mind free consolidation and resource augmentation in our Service businesses. Sales and administration increase for Q4 FY20 and FY20 is mainly on account of credit provisions in the Financial Service business and Mindfree consolidation.
Consequently, our total OpEx at Rs. 391,300,000,000.0 for Q4 FY20 is up 3% and total OpEx for FY20 at Rs. $1,291,000,000,000 is up 8%. With those comments, I will move on to the next slide, which is slide number nine. Group performance profit stack.
For reasons explained in the previous slide, our EBITDA for Q4 FY20 at Rs. 51,200,000,000.0 has registered a degrowth of 3% and EBITDA for FY20 at 163,300,000,000.0 is up 7%. The finance cost increase for Q4 FY20 and full year FY20 is commensurate with Group debt levels reflective of the scale of operations and phased commencement of Hyderabad Metro. Our average borrowing cost at the parent level in FY19-twenty is around 7.5%, which is one of the lowest amongst corporates. Our parent company, as you know, enjoys the highest credit rating in India.
Higher depreciation charge for Q4 FY20 and FY20 is on account of mine free consolidation and right of use assets. Other income is reflective of the level of short term investments at a group level and higher yields earned during the year on those investments. JV associate FAD share reflects IDPL assets, forgings and power JVs performance. NCI variation is largely due to mine tree consolidation, increase in LTI LTTS share and moderated by lower financial services profits. E and A business has been classified as discontinued operations.
Consequently, our Q4 PAT at Rs. 32,000,000,000 has registered a degrowth of 6% over the corresponding quarter of the previous year and our full year PAT at 95,500,000,000.0, up 7% over the previous year. With that, 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. E and S segment has already been classified as discontinued operations and consolidated at a PAT level.
Information Technology mentioned within the IT and TS segment includes Mindtree. Moving on to the next slide, FY20 order inflow composition. This slide is again for reference purposes. As you can see, 55% of our total order inflows in FY20 is from the Infrastructure segment. If you recollect, up to nine month FY20 infrastructure as a percentage of total order inflows was 48%, essentially means that our Q4 FY20 order inflows have largely been powered by the infrastructure segment.
Moving on to the split between domestic and international, 68% of our total order inflows are domestic and 32% international. Now last year, in FY19, our international order inflows were 26% of the total order inflows. In the current year, 44% of our international order inflows is from GCC, whereas in the previous year FY19, 33% of our international orders was from GCC. We'll move on to the next slide, FY20 order book composition. As you can see, 89% of our order book of Rs.
3,039 billion is dominated by infrastructure and hydrocarbons. Within infrastructure, as I mentioned earlier, the order book is very well diversified across five large verticals. We are predominantly an India centric company and therefore 75% of our total order book is India based. Now over the last couple of years, we have tried to consciously move away from The Middle East. These efforts have borne fruit and about 44% of our international order book today is non Middle East.
With those comments, I will move on to the next slide FY20 revenue composition. This slide is again for reference purposes and there are no major observations in this slide except that infra continues to dominate the revenue pie at 50% and secondly, 67% of our total revenues in FY20 is domestic and within international, 42 of our revenues is Middle East. With those comments, I will move on to Infrastructure segment. Slide 15 Infrastructure segment, as you are aware, is the largest segment within the Group and obviously the financial fortunes of this segment impacts the Group performance. Quick comments on order inflow before we move on to other financial parameters.
As I said earlier, the segment has witnessed strong order wins in Q4 FY20, both from domestic and international in an otherwise challenging quarter. Our full year order inflow in the Infrastructure segment crosses the Rs. 1,000,000,000,000 mark in FY20. Order wins were in varied areas of health sector, affordable mass housing, power transmission and distribution, renewable energy, airports, industrial water systems, water supply and distribution projects, idle projects, network management system, gold beneficiation plant and railway freight facility package. Consequently, the order book of this segment is Rs.
2,240,000,000,000.00 as on March 20. Coming to revenues, for FY20, Infra revenues at Rs. $730,000,000,000, up 1%, is up 1%, whereas for Q4 FY20, infra revenues at Rs. $253,000,000,000 has registered a degrowth of 6%. Now, muted revenue growth for Q4 FY20 and FY20 is largely reflective of execution challenges on account of stoppage of AP jobs, slow moving orders, funding constraints and finally impact of COVID-nineteen.
And as I said earlier, we would not compromise our balance sheet for the sake of execution. Due to this inability to execute jobs in a tough environment and also the fact that some of our large value jobs did not cross the margin recognition threshold finally impacted margins for this segment. As a company philosophy, we do not recognise margins till the jobs cross a certain margin recognition threshold. Secondly, Jan to March is a seasonally strong quarter for progress in the Intra segment. We have also been impacted by the slowdown and finally leading to the lockdown in the month of March.
Consequently, our FY20 margins for this segment has moved from 8.5% in FY19 to 8.1 in FY20. We move on to the next segment, which is the power segment on slide number 16. Now, strong order inflow in the current year replenishes the order book and provides healthy revenue visibility for the coming quarters. Revenues for this segment at Rs. 5,600,000,000.0 for Q4 FY20 registers a degrowth of 40% whereas revenues for the full year FY20 at Rs.
22,900,000,000.0 registers a degrowth of 42% largely reflective of the depleted opening order book and tapering of international jobs. The new job awards during the current year are yet to pick up execution momentum. Margins again are reflective of job mix and state of execution. The substantial increase in Q4 FY20 and full year FY20 margins is on account of client claims. Finally, as you are aware, Power business margins always 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.
With those comments, I will move on to the next slide, which is slide number 17, Heavy Engineering segment. Quick comment on order inflow before we move on to other financial parameters. This business segment had a robust order inflow in the previous financial year, which is FY18-nineteen. Current year awards are impacted by deferments. However, that again, I guess, some extent would be dependent upon the economic cycles of global oil and gas industry.
Revenues for FY 'twenty at Rs. 28,500,000,000.0, up 31% largely driven by the strong opening order book. Q4 FY20 revenues have largely been impacted by client delays and shutdown. Coming to margins, global competence, technology differentiation, proven track record and cost efficiencies yield strong margins for this business. Q4 and FY margins have been impacted by cost provisions.
Moving on to the next segment, which is Defence Engineering. This is on slide number 18. Policy bottlenecks, fiscal constraints and lengthy MOD procurement procedures have continued to reset investment momentum in the sector for many years now. Consequently, large order inflows are missing and order inflows in the current financial year comprises of multiple small value orders. Having said that, the very recent announcements on the time bound defence procurement processes and faster decision making awakens hope for the future.
Announcements around separate budget provisioning for domestic capital procurement is also a positive. FY20 revenues at Rs. 39,700,000,000.0, up 6% led by the noteworthy progress in the execution of a marquee order for tracked artillery guns. Q4 FY20 revenues at Rs. 9,300,000,000.0, down 15%, largely impacted by delays and non receipt of targeted orders.
Margins reflect stage of execution, job mix and operational efficiency. L and T Shipbuilding Limited, a 100% subsidiary under the Defence Engineering segment, has now been merged with the parent after obtaining NCLT approval. However, this does not have an impact on group financials, the deal driven advertisement. Moving on to the next segment, which is the Hydrocarbon segment. This is on slide number 19.
Hydrocarbon segment has been doing very well and today there is an unexecuted order book close to three years of revenue. Hydrocarbon business had significant order wins in the current financial year from both domestic and international markets. Slowdown in Q4 order inflows was largely due to global volatility in oil prices. Moreover, Q4 FY19 had a large international order, which is the last year, last quarter of FY18nineteen. So the base effect obviously comes to play again.
Strong revenue growth of 15% for Q4 FY twenty twenty as well as full year FY twenty twenty on the back of in line execution of a large opening order book. Finally, margins are contributed by efficient execution, job mix and change. Moving on to the next segment, which is the Development Projects segment. Now Development Projects segment comprises of, as you know, Power Development business and Hyderabad Metro. In the previous year, this segment included Kathopali Port as well.
You would recollect that we sold off Kathopali Port last year. Here again, roads and transmission lines are consolidated at a PAT level under the equity method. So obviously, the numbers presented in this slide do not include roads as well as transmission lines. Now, the balance stretch of Hyderabad Metro was commissioned during Q4 FY20 with which the Metro is now fully commissioned. Revenues of this segment is largely contributed by Power Development business.
For Q4 FY20, the revenues of this segment at Rs. 9,800,000,000.0, down 9% largely due to the maintenance shutdown. It's a regular maintenance shutdown of one power unit during the period. Secondly, lockdown impacts metro ridership in March 2020. Full year FY20 revenues at Rs.
48,500,000,000.0, down 4% largely due to Kathopali Port sale in the previous year. Margin profile of this business segment is still emerging, primarily because the final outcomes will depend on the various claims that we have filed in respect of Metro and the court cases in Naba Power. While Metro ridership is dependent on external factors, we will be working towards DOD monetization, financial restructuring and induction of equity partners. With those comments, I will move on to the next segment, which is the IT and segment. All the three companies in the IT and TS TS segment are listed companies and they had their earnings call as well.
All the numbers are available in public domain. Revenues from the IT and TS segment for Q4 FY20 at Rs. 63,500,000,000.0, up 68% and for full year FY20 at Rs. 221,400,000,000.0, up 54% primarily because of Mindtree consolidation from Q2 FY20 onwards. It is important to note here that all the three listed IT subsidiaries have posted healthy Q4 numbers in an otherwise challenging quarter.
An array of business verticals have contributed to the strong growth within each of these companies. The details are mentioned in the slide. It is important to note that each one of the listed subsidiaries have smoothly transitioned to a work from home environment during the pandemic with encouragement and support from customers. Margin variation again is the outcome of increased resource cost. We move on to the next slide, which is slide number 22.
This is on the Others segment. The Others segment comprises of Construction and Mining Improvement, Rubber Processing Machinery, Industrial Vaults and Realty Business. Q4 FY20 revenues of this segment at Rs. 11,300,000,000.0, down 13% largely due to the delayed handovers in Realty Business. Secondly, low demand impacts construction and mining equipment revenues.
However, Walls business records growth on the back of large opening order book. FY19 revenues and margins of this segment are higher compared to FY20. So, I am again repeating, FY19, which is the previous year, revenues and margins of this segment are higher compared to FY20 primarily because previous year included lumpy sales of commercial premises in reality business. Moving on to the next slide, which is the L and T Finance Holdings Group. Now, L and T Finance Holdings listed company again and they had their earnings call as well.
All the numbers available in public domain. For Q4 FY20 as well as FY20, income from operations has grown 69% respectively. Now, Group over the last couple of years has demonstrated tremendous resilience despite the challenges facing the NBFC space. The Group continues to maintain healthy capital adequacy levels and sufficient liquidity buffers in its balance sheet during these challenging times. L and T Finance Holdings and all its lending subsidiaries have been reaffirmed at AAA from all the four rating agencies.
Company continues to focus on various initiatives starting from prudent and smart lending to focus on asset quality, generating robust NIMs and fees income, maintaining prudent ALMs as well as diversification of fund sources over time. Without getting into the numbers above, let me mention here that FY20 profits have largely been impacted due to one time restatement of opening deferred tax assets post migration into the new tax regime. Q4 FY20 profits have largely been impacted on account of credit costs arising due to COVID-nineteen provisions as per RBI guidelines. With those comments, I will move on to the next slide, which is Electrical and Automation. This is on slide 24.
As mentioned earlier, E and A business has been classified as discontinued operations in FY20. You would have observed in the earlier slide that PAT from E and A business is being aggregated as a separate line item in our profit and loss account. Now FY20 revenues at Rs. 52,300,000,000.0 registered a decline of 10% primarily due to reduced industrial offtake in a soft demand environment. Muted revenues in Q4 FY20 is a product of soft demand and COVID lockdown.
Consequently, margins are also lower in Q4 FY20. We will move on to our final slide on environment and outlook. This is on this is slide 26. Now, just when some green shoots of economic recovery were visible in early parts of Q4 FY20, India got impacted by COVID-nineteen. Consequently, India's real GDP growth fell to 3.1% in Q4 FY20 and full year FY20 real GDP growth fell to 4.2% versus 6.1% in FY19.
Now, Government of India and RBI both put together have announced total measures 20,970,000,000,000.00, which is roughly about 10% of our nominal GDP. Being an exception here, both the central government and the state governments will be borrowing an additional Rs. 9,000,000,000,000 for FY21 to substitute for the shortfall in tax revenues and handle the forecasted expenditures for the year. Now as a company, we are back to our feet and at present 90% of our sites are operational.
Secondly, around 40% of labour is available with us today. We are in the wait and watch mode and any type of forecasting is fraught with uncertainties till the macroeconomic situation stabilizes. We will be reworking our numbers once the dust settles down. In fact, even the Government of India is waiting to recompute the budgets for the year. So if we have to talk slightly longer term, government has come out with a detailed roadmap around national infrastructure pipeline with projects of 111,000,000,000,000.
Around 85% of these total NIP spends will be in areas like energy, roads, railways, urban infra and navigation. Since we are present across the entire infrastructure spectrum, we will definitely benefit from these spends. We believe much of it is achievable if India achieves a nominal GDP growth of nine-eleven percent over the next couple of years, which is not at all asked by any means whatsoever. We do believe that our large order book, a strong balance sheet, a robust business portfolio and our capability spectrum will get us through this challenging period. Moreover, 80% of our domestic order book is from the central government, state government and PSUs.
Believe me, government credit risk is the best risk to have in these challenging times. Thank you everyone for the patient listening and we will now commence the Q and A.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star then 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then 2. Participants are requested to use handsets while asking a question.
Anyone who wishes to ask questions, please press star then 1. The first question is from the line of Sumit Kishod from JPMorgan. Please go ahead. Good morning. Hope you and your teams and families are keeping safe in these unprecedented times.
Sir, I have two questions. The first question is, what is the proportion of slow moving or nonmoving orders in backlog currently due to COVID nineteen or other factors across your domestic and overseas order backlog? SNS, I can take this. Sir. Sumit, the you know, during the course of the year, we have been actually removing some of the non moving or in our assessment difficult to execute projects.
So, for the entire year of FY '20, where we have reported a three lakhs three thousand crore order book is after removing about 29,000 crores during the year in aggregate. And it is not specific to COVID, it is specific to you know issues surrounding the project and award. For example, all the Andhra Pradesh order that we won in the prior year, which is you know due and fixed for execution in the current year got removed. And likewise, there were some orders which are subjected to Green Tribunal stay and those have got removed as well. And a few of the building orders that the real estate sector took a beating and many of the developers were placed some orders on us.
We had to reassess the viability of those projects and remove them. So, the 3 lakh 3,000 crores has next to nothing in terms of non moving orders. We do believe all the orders that we have reported are executable, subject to, of course, the current pandemic situation. Sure. And because of the pandemic situation, you would say what portion of your order backlog is, you know, probably slow moving?
No. As I was telling you, we think all the orders that we have in the order book are executable, and they are capable of moving forward. The only uncertainty is how long is this restriction and movement of people, movement of goods, etcetera are going to exist in the larger scheme of things in India. And once those are sorted out, I think each of these 3 lakhs, 3,000 crores is executable and not slow moving. Sure.
My second question is, you know, could you please elaborate on the order inflow prospects for the year ahead and the visibility, especially on the good ticket order prospects? I know there's a lot of uncertainty, you know, within the constraints. SNS, would you like to go on this? Yeah. Little early days, my friend, but as we see it, we see good prospects or the good is not a nice word to use nowadays, reasonable prospects in in some of the segments like heavy civil, power transmission, water, and heavy engineering.
These are expected to gather momentum over time. There are fairly large large value tenders on hand, and that is the norm. We don't get into specifics of which are the tenders, but there are fairly large value tenders on hand, both domestic, Middle East, as well as from Africa. And this should see the light of the day as we go forward. We are l one in quite a few of these tenders.
There are also fair amount of proposals on hand to take it forward. Some of the businesses like hydrocarbon buildings, transportation, we see the prospects, but not immediately, maybe it will start coming back into stream by Q2, Q3. And maybe those will be something stratified during the later part of the year. Construction equipments and business like that, we expect the momentum in the later part of the year. As you know, the mining sector has also been opened up.
We do expect fresh investments to come in. We expect mines which have been blocked, but now can be opened up from a mining activity point of view to be opened up in the later part of the year or maybe sometime in the early part of the first quarter of next year. I mean, the the the the the January, March part of the quarter. And therefore, those those should also pick up at that time. So overall, there's nothing to say that it doesn't look very good, but it could be better.
Things are positive. Sure. Thank you, and I joined the queue. Thank
you. The next question is from
the line of Mohit Kumar from IDFC. Please go ahead. Yes. Good morning. Good And congratulations on the good order inflow in a tough environment.
I understand you're refraining from giving any orders and revenue guidance, but how does that give the how is the execution is playing out in q one and the working capital challenges, and how has the activity picked up the recent weeks, and when do you expect things to go back to a slightly normal level and the challenges? Can you speak can you give a can you comment on that? So as I see it, the it's a no brainer that April may have been difficult. So India is one of the few countries probably the only country in the world which had a total lockdown. And the lockdown, in my opinion, was enforced fairly strictly in many in most parts of the country with not only the states taking power strict powers, but also the local district magistrate, and others abrogating sufficient powers to ensure a total lockdown.
Therefore, whatever billing could be done was more on the engineering procurement and certain minimal activities from safeguarding point of view, but not much of work could take place. It's also a fact that we had held back nearly 160,000 odd laborers in our various labor camps and facilities, and to hold human beings for more than two months is no means an easy task. We do we did give them wages. We gave them breakfast, lunch, and dinner. We took care of the medical and such facilities.
And as far as domestic is concerned, there are hardly any cases of code positivity or or any any other any other facts from from that point of view. So I think our administration has done a reasonably good job from that point of view. It's a it's it's it's clear that due to psychological reasons, to the need to go back to the families, to the various media and such as the news that is coming out, As soon as the restrictions were limited, the labor did want to go back to barracks, as we call it, from the villages and towns, predominantly from the Eastern part of the country, the Northern and Eastern part of the country. And and and much of the stomach drains and other facilities that the government had opened up were filled with these laborers going back, and and quite a bit of them must have been less than in two group labor. They're in our roles too.
So now the the challenge in center press to get these labor back, It's it's not a new challenge for us. As you know, in a year, three, four, five times, the laborers go back and come back during during the harvest season, during the holy season, during the Diwali season, and during other festivities like marriages, etcetera. So if we have to employ we normally employ about two seventy, 300,000 laborers, and that means we employ four or five times that. That means about 1,000,000, 1,250,000 people is what we employ because many of them go back. The same labor doesn't come back.
Somebody else comes back. So that's how they operate. So this is not something which is impossible for us. We've been doing it every year. So we have put our organization back to work to get back these laborers.
The good thing is that, you know, most most of the people in the country want to work hard, self respecting. They want to earn their living, and by doing the jobs that they know and and and and being correct about it. So there is an innate feeling in many people to get back to work now that they're seeing their families and seeing that seeing that most of the conditions are okay and such. Now we already got back quite a few laborers at at at the later at the pre COVID, it was about hundred and seventy thousand. And during the last three, four weeks back, it went down to seventy thousand.
Now it has come back to about hundred and twenty odd thousand. Every day, we are adding about 500, 2,000 laborers. The the the speed of adding laborers expect to pick up. And this happens, we need to get back to about two lakh 20,000 as we see it right now to get back to more or less the kind of activity that we did. And if that happens, I think we should get back to billing.
This should take another thirty to forty five days in my guess. The monsoon is happening also at the same time. So maybe at some for some point of time, we had to be more careful not only from social distancing and other norms that exist from a work point of view, but also from the monsoon point of view because one tends to be careful when monsoon tends to prevent accidents and such. So I guess in another forty three days, if the pandemic does not reappear again in some manner or does not create any other scare, we should be back. And that's one worry which nobody can answer any question as of date.
Luckily for us in India, though there are COVID positive cases, the number of deaths or fatalities is is is comparatively compared to the rest of the world is very negligible. Although, it's very unfortunate that some deaths are happening. But I do hope that it doesn't become a w and and and it subsidized subsides as a v, and that only one can pray towards that, and that's not in our control to answer that. But assuming that is from that point of view, something which which which can be managed and which does not create any any further flutter, I think we should get back to very normal things by about thirty to forty five days. So that's the way I would like to answer that.
And so on the working capital challenges in the first quarter? Yeah. Okay. So do you have to look at working capital in two two, three different directions right now? Yes.
The working capital during the last quarter went up a little bit for two reasons. Number one, the the clients had their own difficulty in paying. Second, I think we as an organization also took a very clear view that we have thousands of small scale industries and other smaller vendors and and and people who who believe in our ecosystem, who trust us, and who and who survive because of the work that we give them and that we are that we extract out of them. And, therefore, it is very, very important for us to support them, and and and we took the policy inside that all the vendors would be paid, and to the extent possible, wherever there were issues, we sorted them out, we paid them, and and to that extent, some cash outflow was there beyond beyond the collections that we did. As my colleague, Shankar and Harish, said earlier, even during March, even during the pandemic, our we we did one of the record collections.
And even during April and May, the collections have been fairly decent from that point of view. Now what we got to see is that we got to keep to maintain the pressure to ensure the collections continue. A very good thing that has happened, and I would like to compliment the government also out here. They understood the industry's saving problems in much of the government jobs. And as you know, 80% of the jobs government jobs that is whether it's a central state or public sector, the great effort has been there to have dialogue with us.
And even during the pandemic times, we have had extensive m teams or Zooms or or bridge calls or whatever. And we have been able to water down the contract conditions to the extent that the payments have been the the the advance advance inquiry has been postponed. Certain milestones have been broken down. Certain milestones have been preformed. Certain way of billing has been altered, and therefore, the the anxiousness on the part of the authorities, whether it is central, state, or public sector, to ensure that cash flow is maintained during these times as they knew that as an organization, L and T and maybe others too were doing a national duty by helping out laborers, maintaining them, so on and so forth, including facilities.
And therefore, there has been a quite a bit of easing on that. So this should help us next six, seven months as we go forward. And therefore, I feel there should not be any major problem in working capital beyond what it is right now. The only negative effect that could arise due to this pandemic going forward as fresh proposals and tenders come into our books, one should be careful to see that due to due to tightening of budgets, due to non availability of sufficient funds as before. It should not be the case that the government organizations or or the public sectors put payment conditions which are more back ended, which which have interest, which have mobilization advance, the secured advance, which are of higher which which are of which are high interest bearing and such because that will deviate the payment part of it from a from from a from a contractual point of view.
And after the moment, we don't see anything, but we do expect that something could happen like this in in certain cases. But after the moment, things are as they are, and we we hope to take it forward. You did this upon the domain execution. Mister, this is the operator. Yeah.
I'm sorry to interrupt. Mister, your voice is breaking. Yeah. Can't hear you at all. So can you hear me now?
Yeah. Much better. Sir, my second question is, you did touch base on domestic execution. Can you touch base touch base on the international, order execution in the in the pre corporate coal situation? So international stand up.
There there are two parts international, basically, Middle East and Africa. And from a Middle East point of view, I think all the odd orders are going whatever we have as a backlog in the hand are all executable orders, are all moving quite well. There has been incidences of COVID positive cases there, including quarantine of some fair amount of staff and labor in some of the key sites. No no major incidents per se, but as a precautionary measure, the clients are overreacting there because of the maybe the less population and more availability of facilities and testing. To that extent, works slightly got affected for the first two months, but things are getting back to normal.
So all the sites are moving, all the clients are positive, payments are coming in, and as of the moment, things are moving as they should from from an execution point of view. Now we do expect that because Middle East has gone through a double whammy of one, the one, the the oil price coming to where it is right now, and second, the the corona issue. So we do expect further prospects from Middle East to slow down a bit. The Ramslist study and others indicate that oil prices will get back to $50.55 dollars somewhere during the end of the year. So maybe till the time, there will be certain amount of traction from an from an executable from a new proposal's point of view.
But there are new but there are new ways of doing business coming up there. We are certainly seeing fair amount of traction on Solan. We are seeing various social infrastructure schemes schemes being rolled out, and therefore, maybe there's another way to look at it. Therefore, we are still neutral on Middle East, but what is going on is going on decently well right now. From an Africa point of view, there's some of the states did get affected by corona, but largely, it has been less from an overall point of view compared to India or Middle East.
There has not been any major quarantine or any COVID positive cases in any one of our sites. The works that are going on is normal. There has been some slight nonavailability of labor because of the psychological issues of pandemic, etcetera, so people are maybe trying to be restrictive in the moment. But that issue should be got over in another fourteen, thirty days from our point of view. Thank you, sir.
Thank
Thank you. You.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to two per participant. For any further questions, you may come back for a follow-up. The next question is from the line of Renu Bed from IIFL. Please go ahead.
Yeah. Hi. Good morning, sir. Good to see a reasonable performance despite challenging market situation. First question is to just understand a bit more on for an update on the E and A business, which was due for sales closure by the June.
So how are we moving there with respect to time line? And broadly, what would be the broad plan utilization of the funds given that in the April itself, you have raised about 90,000,000,000 rupees of NCD. So how should we look at the sale transaction along with the utilization of the funds thereafter?
From a EIC sale point of view, the transaction was supposed to be completed by thirty first March. We could not do it because France got locked out from around February, and therefore, the senior people from Schneider could not move out of Paris and their offices, and therefore, certain work and and detailing that auto have been done could not be done. Second, from our point of also, as you know, this is a business within the Lassen and Toubro existing system, And therefore, there was land involved, properties involved, various building structures involved, and there was novation of contracts involved and such. It is work in progress. We are come to a fairly high point in terms of closing out much of the issues.
I think, hopefully, as soon as this international travel begins and and we are able to sit across the table, a few of these matters which needs to be checked and cross checked and verified before one does the transfer will be done. I guess, give us another two to three months, and they should be they should be on its way from that point of time. And I request Shankar to answer that other question that you asked. Renu, I think the the resource raising that we did was actually in anticipation of the requirement for the year. Half of the results that we raised will be to refinance maturing liability and the other half would be for our growth requirements.
So, to that extent, resource raising has been more of using the proceeds for the year requirement. Right. The the proceeds that Schneider transaction would release is actually capital unlocking and we would like to possibly use the proceeds to right size the capital allocation that we have done to our large projects like, say, Hyderabad Metro and stuff like that.
Okay. Alright. Second would be, also aligned with capital allocation. Do you think there would be any requirement for equity infusion in any of the subsidiaries, which could be a bit strained during this lockdown period? Especially, there have been lot of investor concerns on capital infusion required in finance holding.
So any view on that?
See, finance holding is a debt play. Right? I mean, we've we've if you want to retain the triple a that we are, our debt equity has to be around $6.06 and a half and currently, it's almost at 5.6, 5.7. The growth has slowed down and hence the disbursement has slowed down. So, recircling the existing capital on collections etcetera to meet the current requirements at this phase of operations is okay.
But if the operations were to pick up and let us say second half of the year post monsoons, the rural India settles down and operation picks up in rural India, a lot of our disbursements go there, then, possibly we might have to relook at the need for capital. This business every two years, every three years, depending on the growth, would go in for capital, injection because that's the nature of the the beast. So I think when we come to that point, we might have to look as to whether further capital for, the company is required. And we'll also have to take stock of the market at that point in time for either issue dilution or in terms of rights. Those those those bridges will cross at that time.
Sure. And my last question would be relating to the asset monetization strategy. Now that large two assets are left in the portfolio which are easily monetized, you have the Nava Power and HypoPublic Shroom. So what would be the broad outlook in terms of the roadmap for kick starting the monetization process partially of VD for both these projects, especially on the Hyderabad Metro? There was some inward structure planned over the next twelve to twenty four months.
Yeah.
See, I think, unfortunately, the plan was cooking up nicely and then this pandemic happened threw a spanner in the wheel. So, first, will have to wait for the trains to start. As you know, as a part of this lockdown, the metro network has been shut. And so, whatever ridership that we were having in pre COVID has come to zero now. It's been the case for the last two months.
We'll have to wait and watch when the state feels confident to open it up and then the ridership has to climb back. And secondly, we also through this period of lockdown experienced all of us, that it is possible to work from home and be productive. So, many companies are reviewing their policy about how much of infrastructure they should incur by setting up large grand offices or how much can actually be achieved from sitting at homes. So, I think, every organization will go through some reassessment of this requirement and that will also have a bearing on their leadership because Hyderabad as you know, like Bangalore is a very high t strong commuter traffic. So so to that extent, we have to wait and watch as to how these developments happen.
Ultimately, it'll happen because our intention to unlock capital is very much on cards. No change in that strategy. Timing could have to suit the environment. So probably it might be FY 2023 bank bucket transition '21 or at least the power budget as well. Why don't you please which things can improve fast, and we can get back fast.
So we'll do it ASAP. No problem, sir. I'll get back in the queue. Have a couple of more questions.
I'll be back. Thanks, and best of luck, sir.
Thank you.
The next question is from the line of Vengo Palgaray from Bernstein. Please go ahead.
Hi. Thanks a lot for the opportunity. You know, the my first question is more to understand the contractual obligations on the number of projects you have, you know, given that there are several sites and several projects in simultaneously work, and each of them might have different obligations. The the background to do to this is that that in a situation where you have a couple of, let's say, one, two months of delay, while it has already happened, so two things happen. One is, of course, there would be extra costs, because you would have some lease equipment where you're paying money, would have paid money to labor, while there's no work going on.
And more importantly, there'll of course be some delay in terms of timeline of delivery of the project. The third thing is the fact that you're heading into a monsoon season, right? So I'm assuming that when you sort of create your project schedule, you always, you know, decide what to do during monsoon and what to do pre to pre monsoon. So that could also have potentially some impact on how you look at project execution. And lastly, the labor challenge, which I'm assuming will will be less as we go forward.
So putting all of this into picture, have we managed to negotiate on all our contracts to get crossover and start and assuming execution time lines, of course, we get pushed out. And if that's not
the case, how do we look at
provisioning cycle, you know, through the year?
I think let's let's be positive on this. We knew this corona was hitting us, and I think as a management, we were agile and and agile enough to get back to all of the sites on what to do and what not to do. Luckily for us, the company split up into various verticals, though on an overall basis, there could be about nine fifty odd sites, India International put together. When you look at it IT wise, some ITs are just 30 sites, some ITs are sixty, seventy sites, some ITs are maybe 200 sites, but one could do that, including some other workshops where contracting work is taking place in terms of fabrication, etcetera, one could do that. And since there is also a fairly good robust risk management process within the company, broadly, the kind of contractual obligations that we're undertaken in terms of what kind of risks we have in terms may not be in terms of pandemic, but in in in terms of some stop down, etcetera, were rather clear.
Some contracts, it could be easy, but most of the contracts are very clear. So we did two, three things immediately. Number one, we went back to all our sites to read the contract and write the necessary letters to the client because the as you know, in a contract, there's not a new navigation from our side, which is tripping. It is also an obligation from the client consultant, which was not coming through. But they were also working from home or not able to work, etcetera, etcetera.
They are not coming to the offices. So they need to give us drawings. They need to approve something, so that process is also on. So it's a trip from both sides, and therefore, in many cases, either the force majeure clause or certain clause towards that we are idling and we need to be compensated, etcetera, have been taken up, and that's work in progress as to how to get the cost reimbursed. At the same time, within the company, I think we put up an elaborate structure in place as the staff forces within various ICs to look at how to optimize resources, to look at how to ask certain people or service providers, others to stay at home, to ask discounts.
The price will also come down. The commodity prices are coming down. The oil prices are coming down. That means the logistics and production costs will come down. On a high charges point of view, we said equipments are idling idling, so give us discount or take it away.
We've we've been we've though we have managed our labor for many for much of these months, there's also a dictation from government and the Ministry of Home Affairs that much of the client should reimburse us. So there are letters from most of the clients and some clients that even started paying us in terms of reimbursing the labor based on records, etcetera, that we are showing, collecting, and proving it to them and such. And that's why I think it's a fair play on. There is there is at the end of the day, there's a disruption. But from a cost point of view, yes, the fixed cost would definitely catch up, but that has to be rubberized or performing better in the next ten months or nine months that is available.
How much we we would be able to catch up is is is what we need to arrive at in some formative within the next thirty to sixty days, and we are not able to gauge it right now. Monsoon is a factor, but of late, we have learned to live with monsoon. Have learned to work with monsoon unless it's very heavy in some parts of the country, then the work does get affected for a few days. But other than that, work goes on in monsoon. Maybe if if you're pouring x concrete per day, maybe slightly less, but at the same time, you work extra, etcetera, and work goes on because it's also a good time to do the work from a climatic point of view.
And therefore, overall, one I don't think one needs to unduly, what do you call, put a measurement here that something has totally gone wrong. But there would be lot of discussions. There would be lot of give and take. There would be a cost that has built up, which needs to be rubberized over a period of time, and that cannot be helped. But at the same time, I would I would think that the the it's a very remarkable change in many government agencies, maybe because the central government did that, that most the state governments, central government, and public sector units are being very fair to to make earlier payments, to look at reimbursement of certain costs, to admit contractual clauses, not necessarily a force majeure, but you know disruption or not nonworking and and trying to see how to how to provide for some cost reimbursement.
We may not get what we need, but that there is a process involved to get something that's fair enough. And maybe we'll also have to improve our productivity and speed of work so that some of the some of the sales, which I would say are are still in the backlog, which is which could not be done during the last two months, can be done to get something back. See, the the the biggest point with an organization like L and T, it's brand we will stress. It's an 82 old brand. We we know to perform.
We have done things. Therefore, most clients look at us as, yeah, disruption took place, but this company would catch it up. They will finally keep up their obligation. We we could restart whatever we need to do on time. And therefore, with that trust, I think most clients come back come back to us to see in a positive move to see how to also assist us to pick it up.
There are the clients in in in in Maharashtra who come will back to us and say that he will take care of all the labor wages for the next three months. Just get the labor to site. He has said he will fund the food for all the labor. Just get the labor to site. So there are clients who are extremely positive on us, and and therefore, most clients are, I would say, few are neutral.
I won't say any client has been negative so far, so we will get over it. But but it'll take some time.
Thank you, Krishna. That's good to hear. Actually, second question is again on government, a very small qualitative question. We just wanted to read from you on one aspect. There is a balancing going on.
Government seems to be keen to revise the economy. Of course, they do have challenges on the fiscal side. When you speak to state governments and central governments, are you seeing any urgency from them at this point of time to kick start new projects in terms of tendering or also pushing you to execute where sites are open, which of course means cash flow side? And more importantly, things like the renewed focus on defense, make in India, etcetera. Will it finally lead to any large projects coming in the pipeline?
That's it from me. Okay. From the from the speed point of view, there are government agencies, both public sector and predominantly central and some state governments, urging us to get back to sites and and push the projects. I would say everybody is doing it. Few of them are worried.
Few of them are worried about budget. Naturally, budget of the revenues were also gone down terrifically in these two months, and therefore, I guess they're also scratching their head as to how to go about it, what to do about it. So some states, I would guess that there will be issues, but many other states are positive. Very surprising, the states in the Eastern part of the country, northern and eastern part of the country, Northeastern part of the country seem to be wanting to hurry it up, seem to be wanting to really hurry it up. Maybe they have been affected, less the fan.
And they see also the labor coming back, and therefore, they feel that the situation where much of the migrant labor come back or got to be given employment, and therefore, they see it as a panacea for that problem by seeing that work goes on faster. So we have letters. We have phone calls. We have local discussions on how to speed up work on, basically, the northern and eastern part of the country, which is a substantial part of the country. But the bigger part of the country, from our point of view, the rest of the South where where bulk of the backlog is.
And there, the key problem is, though the clients would want us to proceed ahead with the work, it's the the key matter is how to attract the labor to these places back again because huge amount of labor has gone back to the Cent to the North, Central, and East. And to get them back with with the psychological cloud hanging on on this pandemic is a challenge in front of us. And if we can crack the formula, I think we can get moving there. No government, no state, or central, or public sectors come back to us saying stop the work or we're gonna defer the work. We're gonna postpone the work.
There have been no statement like that so far. There have been no letters like that so far. We need to, as we get into the work, look into the amount of budget allocation that has been done, whether these budget allocations are valid, and whether it is for the year, and then do the work according to that. Luckily for us, most of these contracts have price escalation and and process towards time time escalation and so on and so forth. And therefore, they they assuming work needs to be completed in two years, it takes two and a half years.
You would get reimbursed from a cost point of view. But that we are spending six more months is maybe a little bit of a heartache, but I think one needs to look into the situation from that point of view. Now on the second question of yours on the defense side, there has been a major liberalization which has been done, though principally, I don't agree to that from an organization point of view and personally on the liberalization that we have done. We have increased the FDI from 49% to 74%. Most countries have an indigenous defense industry, which is highly protected.
Even if FDI has improved before '74 or whatever, I don't think any foreign government, foreign company is going to come here and put put into play technology from high-tech point of view to from a from a different source of point of view or from a national security point of view. There will be more doing fabrication or offsetting kind of work or some low end CKD or assembly kind of work. And therefore, that kind of liberalization, I I don't see where it goes, except for the fact that you people have announced collaboration with some foreign names, but that will be low end facility, what do you call assembly, etcetera, and not real true manufacturing or or high end defense capability. So we have, as you know, probably the largest defense manufacturing capability in India. That program is going decently, but the money allocated in defense is also under strain because, generally, the funds availability, defense is always considered an expense which which which has to be there, but which should not be there.
And, therefore, that that difference side always struggles with the the requirement of fund. I call it the permanent start up. So it will continue in that manner. I don't see any major change coming up there.
Thank you so much.
Thank you. The next question is from
the line of Sujit Jain from ASK Investment Managers. Please go ahead.
Yeah. Hi. Is there a risk to the consideration to be received from Schneider based on certain milestones and because the performance naturally will be muted during these times?
No. There is nothing like that. It's a straightforward deal. There's a consideration, and and a business transaction agreement is signed. Now we have to put there are some conditions precedent as we go forward.
Essentially, as I said before, it is on the transfer of properties, it's transfer on the the innovation of agreements, and the the regular few other the the the transfer of some of the the vendors and wholesalers and retailers, and that part is going on. And beyond that, there's nothing else in the agreement. It's it's a straightforward agreement.
Sure. And during these last three, four months, what is your experience in The Middle East geography, which is, you know, dependent on broadly oil and gas in terms of closure costs, in terms of receivables collections? And with our past experience of what has happened with hydrocarbons previously with us, do you see those risks coming and hitting us going forward?
I'll I'll answer the second part of it first. The hydrocarbon went through problems. Many of the l and t businesses we went abroad have had some problems initially. Hydrocarbon has had its share share of problems. We've got a great leadership in one of my colleagues there, mister Subramani Sharma.
I've got a good set of people whom we have brought in now to strengthen the organization, not only from a managerial point of view, from a risk assessment point of view, from an execution point of view, from a client relationship point of view, engineering point of view, so on and so forth. I think it's a robust and extremely good setup as you see it. It's it's a fantastically good fighting commander force. It's done very well last three years, and it continues to perform well. Hydrocarbon has got a backlog of roughly about 50,000 odd crores as we see it.
50% is Middle East, 50% is India, therefore, it's also balances. And from a Middle East point of view, most of the contracts that we have are rigid contracts, good contracts and very essential contracts from a from a future production point of view because some of the wells are going down, therefore, they need to have this to keep up the production from the future point of view. And so these jobs are all going well. Where the problem will come as we see it as future proposals, future contracts from Middle East. That may see a slowdown immediately.
But as I said, when you read the Goldman report, the Ramsdet report, and many other reports that are that are privy to many other details, which we may may may not be aware and which have much better research and such as a such as a data scientist associated with them from a research point of view, you find that the oil prices are expected to come back during the later part of the year or the last quarter of this year, that is January to March. Therefore, we hope that these prices come back. Also, oil producing countries, OPEC plus OPEC plus as they call it, which includes Russia and and and Venezuela, etcetera, have cut down oil production by 10,000,000 barrels. Roughly about 100,000,000 barrels of oil have come down to about 90,000,000 barrels per oil. They also say that due to the present low prices, the shale and the Venezuelan hard and in the North Sea, some of the rigs are getting, what you call, decommissioned.
And therefore, there is a natural tendency to to lower the oil production even from where it is today, it may come down to 70. As such, at the moment, the oil consumption has gone down, but once the world comes back to normal, The US economy has suddenly generated 2,300,000 jobs. Even Indian economy, yesterday, when you see, you saw some green shoots of economic activity again picking up. Therefore, the world is coming back to order, and let's pray to god there's no w of this pandemic. And assuming all that happens, I feel the Middle East has come back from a hydrocarbon point of view, and therefore, I'm reasonably confident about it.
From a Middle East spending point of view, yes, due to the lower oil prices, you may not find sufficient proposals during the during the q two, q three kind, but I guess it will come back during q four. Much of the infrastructure that needs to be created have been done. But surprisingly, what is happening there is suddenly, as you see, a spend towards social infrastructure. That means power transmission distributions, water jobs, and some pipelines and such. And, therefore, we will try to capitalize on those opportunities that is available as we move forward.
Yeah. Thanks. That's it for myself. Thank you.
The next question is from the line of Abhishek Puri from Axis Capital. Please go ahead. Thank you for the opportunity. Two questions. First, in terms of the execution expectations, you refused to give a guidance rightly so.
But could you give us a sense as to how many of the infrastructure projects or percentage of projects are funded through the MSAs, central and state government exposure, private sector exposure? We just trying to understand what proportion will remain steady despite all the economic challenges that we see. As I see, about 80% of our projects are central government, public state governments, and public sector units. And in those 80%, about 35 odd percent is multilateral funded agencies, Jaika, Jebi, World Bank, Asian Development Bank, so on and so forth. And the rest is the the I mean, 50% are funded directly with the state and central government.
As I see it now, we don't see any problem anywhere. The the one problem that is there is Adir Pradesh, which we believe was more political in nature rather than economical in nature. There was a change in government, they had some tribulations whether the capital should come up come up at Amaravati or some other places. The present regime has declared three capitals, and maybe the confusion created out of that, but they decided whether they needed a capital number over there. And much of the project that we're doing was towards the capital city development.
So we had decided to withdraw from that. We wrote up all those backlog that we had, and some money to be collected. We'll do that over a period of time. We have started receiving it. We'll continue to receive it.
There has been some disruptions in Madhya Pradesh, Rajasthan to, again, change of regime and more to do with allocation of funds and reprioritization of projects. Somebody said, let us do the water line there somebody said, let us do the electricity substation here. These things will happen. We have not seen any cancellation or go slow on the projects. We have reconciled many of these matters, and some of these projects have started moving, and cash flow has also started.
I think the government generally realizes that the key challenge in front of them to keep the economic activity going, to to keep the nation at last peaceful, the most important thing facing them is the creation of jobs. So as you can see, huge money has been allocated to Henrikas scheme. What what's the main purpose towards that? The sufficient contracts are not available. Therefore, the labor that is free, the human the humans that are free, the labor that is migrating back from the West and South into the East and North have to be given jobs.
And contracts take time, three to six months for even the best of past procedures to happen to settle even a 500 crore job or a thousand crore job because that is the procedures involved. But as an end regard, something is completed job. So in my sense, as I answered one of your colleagues previously, there is an urge in northern and eastern areas to quickly push ahead of the project to even at a faster speed because that will give employment to the people who come back and who are locals, but who had migrated and who have now come back. Therefore, I feel that this brought thoughts in mind. Maybe new proposals to come may take certain time, but existing proposals to push and fulfill and to and to rectify, I think there will be a hard pressure to get going on it because that gives employment.
Thank you for the answer. So my second question is on the working capital plan. We understand that you managed it pretty well despite the tough scenario and the lockdown period, but still Q3, if we look at the commentary and the data for the Q2, which has been disclosed in terms of receivables, it had been declining and the entire increase in working capital was due to the vendor support that we had given. Whereas when we look at the balance sheet data for now, the receivables and other current assets have gone up sharply. So has has there been any change in payment terms or project parameters that has led to this?
Shankar, can you take that? Yeah, I'll take this. Actually, it's not only what is fallen due and not collected. Many of the contracts, there is also a milestone up to which we continue to, invest money, progress the project, reach the threshold for invoicing, and then you are asked to invoice. Over the last two years, there has been a shift in the trend that increasingly, the clients have gotten, used to using the balance sheet of the contractors.
And to that extent, the terms of the contract have gone a little biased towards the customer. The milestones which used to be frequent and to each other have got elongated. And secondly, we also have gotten larger and more complicated orders as compared to the past. So consequently, in the larger orders, the milestones are so defined that you need to first invest the money, reach the milestone, and then release the invoices. The nature of overdues, that is dues which have the due dates have gone past and customer has not paid, has not deteriorated.
We still continue to operate between fifty days and sixty days sales in those over dues. Out of the total balance, it is a bit lost in between eighteen. That is why your voice was getting cut. Better now? Yeah, slightly better.
Okay. So, what I am saying is, if you look at the balance sheet, of the 55 odd thousand crores of dues from the customers about 19,000 crores is what is overdue and that includes retention as well. And retention as you know is linked to performance confirmations and completion testings and stuff like that. So, these are often very laborious processes in project business. So, to that extent, I want to say two things.
One is I do not think there is deterioration in the quality of customer receivables portfolios. They still continue to be around fifty to sixty days. And only, the nature of the contract that we execute from time to time will also the balance sheet. Sir, in that context, this is a continuation for this. How do we look at working capital in the coming period?
I know it is difficult period and in terms of as well as, you know, some of the cost reduction measures that you would have taken, if you can, you know, spell out that, it will be helpful to for us to model it. Thank you. Shankar? Shankar, your voice is totally gone. Can the Chorus, person come in and
Yes, sir.
Establish a concept? Mean, I'm not able to hear it now. Now we can hear you, sir. We can hear you, Yeah. I didn't hear the question, sir.
Sir, the question is in continuation to the previous one that any cost reduction measures that you would have taken or in terms of working capital, how do you see it Whether our targets which were there in '21, how how do we look at that at this point in time now? See, we are a little short on data points to fix an exact target, but a very simple, you know, grandmother's recipe we are using that we use collect and spend collect and spend. So to that extent, I don't expect, as SNS earlier mentioned, I don't expect working capital to deviate from here because I think we are going to keep circulating the capital. And at site level, we have cascaded the message that the the money that will be spent in the site is proportionate to the money that we collect. So we are now also trying to talk to the customers, and they they are in a bit of an appreciative mood now given the situation that all of us find ourselves in.
And we are trying to loosen up some of contractual terms to enable us to get some initial funding to be able to recommence the operations. So I think it's a question of both a very engaged partnership with the client in order to deal with the working capital situation. So I think as we, later, period, maybe a month or two down the line, then we are clear about their revenue trajectory. We'll also be clear about the working capital trajectory. But suffice to say that I don't see it going south from where it is today.
Thank you, sir. Thank you, and all the best.
Thank you. The next question is from the line of
Balchandra Shinde from MaxLife Insurance. Please go ahead. Good morning, sir. As as we are aware that there will be a limited budget opportunities for most of the state and central, and as we mentioned in the start related to national infrastructure pipeline, can we gauge bit, like, which projects can be prioritized over next two years to achieve the or to be online on that target? I I couldn't get your question.
You've got to be a little more specific about it. It's like, sir, as for the sectors, like, which sectors will be prioritized because of the limited budget available with the state and central from the national infrastructure pipeline? So but but those pipeline can be seen as a good prospects over next two years? I look at it in a slightly different manner. And, you know, most states realize that, let's say, economy be where it is right now, let's save the life.
I think now that that part is more or less achieved, the thing would get back to saving the economy or reviving the economy. Much of the states cannot last without it because they have huge huge commitments both in terms of their own payment as well as many social and other commitments that they have had. I think third is most government, central, and states realize that one way to get back to power is by creating employment. The self respecting Indians and employment is paramount in everybody's mind. And you could see from the present central governments, way they've gone about.
It is more about empowerment than entitlement. There's been some entitlement, of course, because the very needy had to be provided for through direct benefit transfers and and such. But much of the money was through n n riga or or various other forms of help by giving loans and facilities to micro small industries, moratorium and payments, so on and so forth. The whole idea is give empowerment to people. They'll find jobs.
Will get back. So with this in view, I find that and also, if you look at from an overall budget point of view, states have been allowed to draw 2% more overdrafts on the there's a bank budget certain carriers. 90,000 crores of money has been given to the DISCOMs. And with all this, there is there will be liquidity which is possibly created in the system, may not be the kind of liquidity that one wants, but definitely liquidity from that point of view. It's not necessarily a revenue liquidity, may be maybe it's a debt liquidity.
But having said that, the the necessary infrastructure for creating liquidity has been created. Now there are many projects which are also awaiting clearance of multilateral funding agencies like World Bank, ADB, African not African. There's Chinese bank. I forgot the name of it. And also and also the government to government financing and so on and so forth.
So these will see the light of the day. Now this is going to happen tomorrow, next month, within two months, I'm not sure. But this will come back in in some manner or the other. Now we did some calculations internally. It's not that the central state and public sectors are not going to spend.
Maybe if they are spending 7 to $8,000,000,000 previously, it might have come down to $5,000,000,000, so $3,000,000,000 would be get. So not so the priorities will be different. For example, they would look at rural electrification, rural water projects. They would look at the roads to hinterlands because the goods needs to be transported. The creation of retail avenues for now the food grains and others can be sold across the country.
There's a major liberalization that have come and farmers can sell and produce anywhere in the country and need not go through the fixed price, MSP, and so on and so forth, the necessary storage of other facilities will come up. We'll have to wait for the we're not going to be opportunistic, but we will look for opportunities. And if there are good opportunities, we'll definitely go behind us. That's the way we look at it. Anshul, on the metro project side and even on the high speed rail, how we see those projects panning out, especially high speed rail also, which has been on the back burner for Maharashtra government and even on the central government side?
See, on the metro projects, there's a national policy that every city with more than a million population have a metro. And as you know, in the last few years, many metros have come up across the country. Much of these metros are hardly 20% funded by the state government, and their stuff is funded by either a loan from JECA, JEBIT, World Bank, or sometimes even ADB. But and with some funding or a survivability gap funding from the central government. So these projects will continue to grow because one it's not enough if you do a line.
There'll be always pressure to do multiple lines so that people from multiple points can be taken, brought in hub and spoke and such. So those metro projects will continue. High speed, I have my own doubt. It is a it is a bit of a costly project, and to do that kind of a project in this particular season when you're when you're constrained a budget and such, I'm not sure that project will go on, though it is heavily funded by Jaika. I have a feeling that project may take a back burner.
That's my gut feeling. So let's see how that goes. Thanks, sir. Thank you. The next question is from the line of Ashish Shah from Centrum Broking.
Please go ahead. Yeah, thank you. Sir, you spoke on defence as a space, but specifically referring to certain changes done by the government recently as the results on 26 items for domestic procurement. Anything concrete that we believe we can benefit from that? I think the the key thing is the strategic partnership.
You know, the government went with this policy of identifying strategic partnership. The the the principle behind is that you can't have five people making tanks in India, five companies making the size in India, five 10 companies making something else in India. So I think the idea was to identify one or at best two partners who will make certain very high end defense item, let's say, a tank or a or a or a main battle tank or a submarine or a aircraft carrier, whatever it is. Because you now look at this idea, we make submarines. So if if if it is that we get one set of submarine, and after five years, we don't get the next set of submarines, we're gonna have two companies in the country making submarine.
And the third tender comes, and there's a third party coming in. A in a country like us with with not so many submarine requirements, you can't have three companies making submarine. You can have at best one or two. So that was the whole and and why does it help? Because the guarantee is making submarines.
It's just not making submarines. It's investing in an ecosystem of vendors. It's investing in research Research is inventing new methods to do it. It's it's doing low cost, making India stuff. It is training our own people, so on and so forth.
And you can't lose this entire trained set of people into fabricating something else tomorrow because the submarine does not come. So the idea was strategic partnership. I think that has started moving, and that's a that's a pretty good news from an overall welfare of the defense or the or the goodness of the defense point of view in our opinion. The second is this FDA policy, which which is in one way good that some foreign company does not think in that terms of taking private sector around its arms and and then cussing it to create a solid defense industry sort of a sort of an sort of an environment by which continuous developments and new products are introduced to protect the organization. This will not go further.
I hope somebody is thinking like that. It's not enough with two people like me scheme around about it. That's to be a national policy. That's to be a national requirement. They need to see the imperatives of having two very highly armed neighbors around us.
And from that point of view, I think with the with the with the with country's economy being audited, sufficient funds as they see and and deems which is being allocated, but I guess it is not enough from an overall standpoint point So we need to look at it from that that overall perspective. Sure. Thank you. And the second one is on the AP, you did touch upon that you canceled the older orders.
So presently, none of the capital city projects continue in our order book. Can I can we take that as a position? And secondly, you did mention about certain receivables, which you'll get over a period of time. If you can quantify that, that will help. Thank you.
The the fact that none of the orders continue in in our book is is right. But from an accounting point of view, since we have some receivables, something has to be kept alive, and that is kept alive from that point of view. We don't give specifics of what is due from where. Therefore, I'd like to avoid it from that point of view, but it's nothing to be overall worried about. Let me also clarify that.
Sure. Thank you.
Thank you. The next question is from
the line of Aditya Bhatia from Investec. Please go ahead. Hi. Good morning, sir. Sir, my question is mainly with respect to lower commodity costs.
How big a benefit could it be for us over the next few quarters, and what proportion of our orders would be having the pass through process? Almost all the contracts are pass through clauses. And even if they are lump sum contracts without the separate escalation clause, escalations have been calculated and provided for in the in the contract value that we have got from the clients. And therefore, if the prices do not go up, that's the savings that is available. If the prices go up, that's cost that has been provided for which is spent.
And therefore, to a to a large extent, they can, with absolute reassurance, tell you that most almost all the contracts are provided that. And without that, it does not go through the risk committee and high board committee within the organization. And, therefore, that's the way it is. Does that imply, sir, that with the quality cost being lower, that advantage should be largely retained by the company? You're right.
Absolutely right. But we got to see whether there's any other increase in cost. Labor is going to be a shortfall as we see it. Skilled labor is going to be tough to get. Maybe there'll be some little bit premium of premium on labor cost.
I do hope the oil prices continue as it is. I hope there's no other major disruptions in supply chain, etcetera, that we had to cancel an order somewhere and go somewhere else. But to a large extent, these are limited and and not negligible and does not cause one to lose sleep. So we should we should we should be having some efforts to save on some of these matters, and and and a real good effort is going on within the system to capture what whatever we can. Understood, sir.
And, sir, you explained about Andhra projects. For Maharashtra projects, where also we face certain issues initially with the change in government, Is everything now settled over there and execution is I mean, once these COVID issues are resolved, should execution on those projects be at normal pace? Maharashtra, we never face anything due to a change in government. What happened in Maharashtra was two of what two of the most prestigious projects we're doing there, the two packages of Coastal road and the metro project there. So a lot of public interest litigations and unnecessary litigation from various points of view.
Somebody objected saying that the coastal road is spoiling the the the the the fish liability there. Somebody said it's spoiling for spoiling the corals industry. Somebody said his house view is getting affected. Somebody said the visible noise, which is it was in 1840 act or slightly more than what it is. So we had to go through all that, and that was not anticipated that Mumbaikers, when they know that they're getting such a good facility, would object to that.
So we have passed through most of it. We went up to the Supreme Court to get it cleared. We lost six to seven months of good working in the in the previous year. And this year, even during the corona season, like, if you are a Mumbaiker, you would have seen the coastal road works going on. The transcriber work is going on going around.
Metro got affected the last fourteen days because one of the contractors in another package had had twenty five or 30 of the people under COVID positive tested. None of the people in our sites have tested positive. So we also had to stop the work because administration got a big panicky on that. But other than that, all works in Mumbai area are going on. But not in the speed at what we want because of labor shortage, but the and the scope is that we attract the labor back to speed it up.
Perfect, sir. That's helpful. Thanks so much.
Thank you. The next question is from the line
of Keshav Lahoti from Angel Broking. Please go ahead. Thank you for the opportunity. So can you
please guide me, like, as we know, like, twenty, thirty odd days of work were not going on due to lockdown, what would be the proportion of fixed cost on the basis of revenue for core e n c business?
Shankar? Actually, Keshav, it is generally, if you look at expenditure of the the company, the staff cost is around 56% of the revenue, on an annualized basis, I am saying, and, the other administrative cost around 34%. So, put together, about 10% of the revenues goes in form of people and all the administrative costs that we run. Now, is the thumb rule. Now, project to project, sector to sector, vertical to vertical, it could vary.
But this is something at the moment since we have not been able to exactly quantify what is going to be the revenue impact, how much is going to be the catch up etcetera. At the moment, you can take it as possibly eight to 9% of the revenue lost would be the cost that the company is carrying forward. Okay. Is
it possible for you to quantify how much proportion of your order book is from Maharashtra?
Yeah. Around 22, 23% of our order book is from Maharashtra. Okay. Thank you.
Thanks. Thank you.
The next question is from the line of Varun Ganodia from Ambet Capital. Please go ahead. Varun Ganodia from Ambit Capital, please unmute the line from your side and go ahead. As there's no response, take the next question from the line of Priyankaar Biswas from Nomura Financial Services. Please go ahead.
Yeah. Good afternoon, sir. So I have just one question as most has been answered. So what I wanted is, like, in your ex services segments, so which are the segments which have been worst impacted by COVID and which has been least impacted? If you can, like, put in an order, like, maybe the top most impacted and least most impacted.
And where we are seeing utilization levels, let's say, coming back more faster than the others among the segments, if you can shed some light on that. Are you talking about the services segment? No. No. Ex services, excluding the services.
What do you say? I think the business that got up I will see the how do you answer this question? We have a backlog of 3 lakh 3,000 crores. So all the businesses have very healthy backlog at the moment, and and all of them are proceeding with the work. So nothing has got impacted.
The impact has been two months of severe lockdown like nothing else in the world in in our country. And, therefore, across the sectors, we have had a lockdown and and not much work is progress, but the engineering procurement and certain basic activities to protect the sites from some natural calamities and such. And therefore, once the now that lockdown is getting eased, we have started activities. As I said, the 90% of our sites are bad, but laborers are only 40% when we need to pick it up. So from that point of view, we are a healthy organization.
There are very few organizations in the globe which can say they have a 45,000,000,000 backlog, and that's what we have. And therefore, I don't think there's a cost to be all of our workshops have worked till September 21. The the big complex at Hazira, the the the Power complex, the the Talaga, the Baroda, the Coimbatore, except for the Katipoli Shipyard where we are desperate to get some different orders, but even the yard there has got worked till September, November 21. So we have enough work on hand. That's not the issue at all for us.
Sir sorry, sir. I'm just reframing the question. So what I meant is, like, right now with the unlock thing happening, so what I meant was, like, which segments are maybe ramping up faster than the others? So, like, for example, let's say heavy engineering could be doing better than the infra subsegments like power t and d, heavy civil. So that sort of a thing I was asking.
So, Tristan, believe me,
biggest advantage of L and T is its verticalization. Either it's an IC inside or it's a listed company outside. Say, across the board, the IC head or the CEO of that setup, including his team of top management, is going all out to revive the sector. So across the board, we see work happening and and people trying to push. So I wouldn't be able to rate somebody who's doing better, somebody who's doing less better.
It's a question of somebody getting laborers little faster than the other, somebody getting slightly more skilled laborers, somebody holding some more in a scam. That's a very marginal difference. Everybody is going all out to get the steam back to push the work, and that's that's across the company. Okay, That will be all from my side. Thank you.
The next question is from the line of Amit Mahalwar from Edelweiss. Please go ahead. Hello, sir. Quick two quick questions. First is on overall market opportunity and consolidation.
Do you think in the coming quarters and years, we will see a much greater consolidation of market opportunities in the domestic market? Because if we actually see BSET for L and T, you know, the profile of most of them is getting much poorer and our focus has been towards balance sheet and cash flow as reflected in past, you know, couple of quarters. So do you think you will have a much stronger consolidation of market share? It's already reflecting in some of our segments where we have a much higher share versus all the conventional segments. That's my question number one.
Second is, sir, more on reimagining the project sites. No one knows what kind of disruption, what's going be the disruption cycle in project sites. You will have demobilization and demobilization of social distancing costs. So do you think the contractual terms needs to change with the top clients, at least, you know, top 5,100 clients? And as a sector also, do you think there will be critical changes there?
That these are my questions. Thank you. I think the second question, I did answer earlier to one of your colleagues who was on the line, but I'll try to give you a short answer. On the first one, the market consolidation, you've got to look at it from a point of two views. Number one is much of the competition is under tariff extreme from a from a balance sheet point of view, heavy debts, poor cash flows, and so on and so forth, including many of them have gone into very heavily into and BOT projects and have huge debts on the books, and with this two, three months of lockdown, collected provision tolls to repay back the debts and interest thereon.
We are not aware, but you do see the deterioration from that point of view. Now this will continue to happen because that's the way they have taken those contracts and such. I cannot comment beyond that on that. What will happen is because of their inability to to sometimes bid for large projects, etcetera, we would maybe tend to get a higher share of the market. But that will also go through a process because in India, normally, a single bid basis is not accepted.
The client will mostly government clients, especially government clients will call for a bid twice or will hard negotiate with us to accept a certain price they consider as budget. So it makes life a little more difficult from that point of view, but it's also good from that point of view that we may care where the sun shines for some time at least. So that hopefully answers your first question. Now regarding consolidation, I'm not very sure. There have been at least four, five of those construction companies who have come back to me saying, can we buy them out?
We are not interested in any m and a in this space. I think we have a good backlog. We need to take that forward from various points of view. And some of these other construction companies, we know the type of contracts they have taken and what price they have taken, what kind of obligations under which they have taken those contracts, so we would avoid any m and a in that particular space. So whether they consolidate among themselves, I cannot comment on that again.
So from a site's point of view, I did say tell you tell your colleague earlier, and don't mind repeating it. As I said, we have about 120,000 laborers in our sites right now. We need to get it to two lakh 22 lakh 30,000 for for for for to attend the pre COVID kind of good activity that we had. So every effort is being made to do that. Yes.
You're very right that due to the prevailing circumstances, it's extremely important to have proper safe working conditions at site. The huge elaborate standard operating procedures are being done for working from offices, for working from project site offices, working at site, so on and so forth. So the productivity will not be as much as it ought to be because of the social distancing. As such, you can't pour concrete or do bar bendings with social distancing. People have to be together to carry the load or to place it or to tie it, etcetera.
So that there will be some, let's say, followed there. But what we are trying to do is we've been talking about mechanization for a long time, and what we ended up doing was we mechanized, and we also had the labor. So now we are getting back to the many of our people saying that, listen, at least now you get back to mechanization, improve productivity, and so on and so forth. One of the good thing that is happening is also due to lack of projects in Middle East, many of the companies there are not doing well, etcetera. A lot of labor who are much more productive, much more efficient, and maybe used to better ways of working from Middle East are coming back.
We'll try to attract them back to the domestic sites now that they don't have work in Middle East, and that will bring in better work methods and more efficiency and productivity to the site. The combination of this should help, but the fact remains that standard operating procedures and norms look good on paper. Well, in practice, it it is going to be difficult. I don't want to shy away from the answer that life of site is going to be little more difficult than what it was originally because you can't work in those conditions to your optimum. Well, that's helpful.
Just just if I just have a follow-up on that question only. So we'll basically proceed on execution or we'll first clarify with all major clients on all major sides? Because a lot of costs, they cannot compensate. So even if they say they will compensate, practically speaking, a lot of what we will incur might not get compensated. So just to safeguard ourselves, do you think we will more be helpland because L and T has been focusing very well on the preferred cash flow over growth also we've seen in last ten quarters?
And likewise, in profitability also, our fair share of profitability to claim that back. Do you have something in mind so that we safeguard our profitability? That's my point. That's it. Thank you.
I'll answer this question like this. The only companies that will survive such a situation is the ones that have cash in hand, And therefore, our victim to all our site managers, accounts, and project managers, very clear, chase cash, sales will come. Progress will then collect. This victim has been repeated a thousand times by me and Shankar, and I I guess it is recorded very well in the mind, and they know it when they get up, when they go to sleep, or even in their dreams. And it is known to all the people at time.
This message continues to be given. Now, also, in term in in times of natural disasters, pandemic, etcetera, fear, etcetera, people will always migrate to organizations, brands, or or good names whom they trust. In our case, it's an eighty two year old company with a brand that is highly reputable and which has always done things on time to quality. The clients look forward to holding our hands now to help us out in in in in such circumstances and to cooperate with us to see how to get their work done because we are we'll be one of the few organizations which will want to get work done from that point of view. And therefore, I see in most of the cases, the clients wanting to help us in some manner or the other, even government clients, by easing out contract terms, by taking decisions which are not contracted.
If it is pre COVID, they would not have taken suggestions, but today they're taking suggestions. Yes. Of course, there will be some public sector and government clients who will be stuck up about it. But then what we need to do is we need to show the good examples of what has happened in a b c d e f d x clients and tell them x y zed, please, there's a president. One of your sister companies within the same government has done it.
One of your governments in the same country has done it, so why can't you do it? So this will take some coaching, some amount of positioning, some amount of, what you call, leveraging, but trust and believe me, we we we are used to it, and we will get it done. Thank you, sir. Really helpful. Congratulations and good luck.
Thank you.
Thank you. The next question is from
the line of Nishant Chandra from Temasek. Please go ahead. Hi, thanks for taking my question. So I'm just looking at the company's forward looking view in the context of where the journey has been over the last four, five years. So when we look at the EPC business, at least the ROE has improved meaningfully over the last five years, perhaps with similar or lower margins.
Now, as we stand today from an order book perspective, as you covered earlier, I think we are well positioned. So would it be fair to say that as we look forward in incremental bids, we should see some element of stronger margins, especially for sectors like infrastructure? Because, I mean, there are a lot of uncertainties in India, if you look at the last three, four years, starting from demonetization to GST to NBFC issue to elections and now COVID, there's been no sort of let up in sort of unforeseen circumstances. So do you start pricing that in into your bids going forward in a greater manner? Chandra?
See, the the margin play is not simply, the demand and supply. The most of the bids that we submit our prices are also in the context of the budgets that get approved, by the customer with their respective boards. We have had instances where we have been l one, but the prices have exceeded, the customer's budget, and hence, it had to be rebid. And it is actually a loss of productive time and money effort to get into rebids. I think, the effort would be to operate at profitable, levels.
It will be difficult to put a number to say that we will, accept bids only if it gives me 12% margin or, etcetera. There is a floor and a cap within which we operate. And if you see over the several past several seasons, despite the cyclical business cyclicality, we have been more or less stable in our margins. And, so I think that strategy has worked well. We don't want to fix something that's not local.
Agree. No, I think, Karim, my question was also in the context that if you look at it since five years back, there was some competition now, even those competitors who were there in the last three, four years, they've also gotten washed out, including some ill established names. So I was just wondering whether that Yeah. But I'm bored and aware of that. Affordability is also an issue.
Right? I understand. Yeah. The second one is in terms of the consolidated ROE target of 18%, which is artificial a few years back. So at this stage, I think there may be some sort of timing challenges, but is it fair to say that if you were to look at that as a cut off, would financial services development projects, power development in Hyderabad Metro be the four large things below the 18% threshold today?
Financial services have been managed, but for the the current year where there were some specific provisioning. Financial services almost touched 18. They're one of the first ones to touch 18. Very asset heavy investments like Naba, Hyderabad, Petro will have a challenge and that's why we want to unlock the capital. But we have not lost heart.
We've been pushed back in time for our 18% ROE, but we'll continue to plow along and figure out the sooner we get some divestments going. Possibly we will touch there. Understood. And and just just so that, I mean, wanted to place on record the fact that the free cash flow generation of the company has been quite robust despite all of these times. Think it's a commendable achievement by the management.
Thanks a lot.
Thank you for appreciating. Yeah. Thank you. The next question is from the line of Aditya Mungya from Kotak Securities. Please go ahead.
Yeah, hi, thanks. My questions have been answered. Thank you. Thank you. The next question is from the line of Parikshit Kanpal from HDFC Securities.
Please go ahead. Hi, mister miss. Pandya, you had highlighted that there are some good prospects in heavy civil power transmission, water, and heavy engineering. So can you quantify at least for these parts that is the prospect pipeline now? I'm not don't call the chickens before they have, so I have not summed it up.
But sufficient to say I'm quite busy going through pricings and press review meetings and such that there are quite a bit of prospects which come to you in my level. So there there are sufficient for us to that. I have not added altogether to see how much is the prospect as putting the cart before the wheel or or, you know, getting too hungry before you're hungry. So let it come. Let's be positive.
Okay. Okay. Sure, sir. So just on the labor issues, I've been talking about the other contractors, the smaller ones and mid sized. So their sense has been that because of the social distancing in the trains, not more than 60 people are allowed, and even some of the migrant neighbors which want to come back.
So there has to be a policy push from the government side, like how they started the the shamik train. So there has to be reverse shamik train and more in number for the people who want to get back. So logistically, I mean, how do you see this thing panning out? Have you represented the the federation as a present this this to the government to get these labels back? So what is the way forward for getting these people back?
No. The the Shami trains, let's say, originate outside Mumbai and go to, let's say, Ranchi, And they're coming back to saying there's coming back trains. We are loading back labor who want to come back, and we are getting them back in a similar manner, Parasheet. It's not that it is not happening. In some of the labor clusters, we are also arranging buses, and, naturally, the bus can carry 50 people.
They now carry only 30 people, but they are two back that are also getting labor back. And some of the major labor contractors, some people who are who hold 500,000, 2,000 people, they are also playing the part of it. So we may have to reimburse some some cost of travel, etcetera, which we'll do from that point of view. As you see now, beyond summit trains, some of the regular trains have also started. It's not that trains are not moving.
I believe nearly 2,400, 2,600 trains are functioning in the country, many of them between West and East and Southeast. And therefore, there is a moment in labor. But as I said to one of your colleagues, we are adding about 500 to 600 people a day. The target is to jump it to 3,000, 4,000 by next week or so, and we are on the job on it. Okay.
So on the real estate business, we have been adding projects, which have been I think that you have been partnering with some of the developers in Mumbai taking up their projects. So how do you see the development business or real estate side now in the current context of COVID nineteen from the capital allocation there? See, the the real estate business has got, let's say, two parts to it. One is the residential part, and second is the the the commercial part. The residential, again, had two broad segments in it.
The larger ticket sizes, the four bedroom and the bigger flats and the and the studios and the small sized apartments. Now where we have done these larger size block, because that was the trend for three, four years back, five years back, so we went for it. And those are slightly are moving or moving very slowly. Whereas the studio and small size apartments, for instance, in the Belvedere that we are doing in in in Bangalore, we even had 25 bookings last week, advanced paid and such. So the studio and small sized apartments are moving very well.
Our has gone very well. Our has done very well. These are studio or small sized apartments. The the the one which has got one block of some big apartments, that's not moving very well. We did a study inside to see whether that could be made smaller apartments, but the cost of structural modification is very heavy compared to what we can sell.
Therefore, we said, let's wait for it and sell it over time, or we do some slight discount and sell it. As such, the residential, I guess, will move fast. So please understand in terms of natural in terms of natural calamities, you know, pandemic, etcetera, people would not invest too much in shares and stocks and bonds, etcetera. They tend to invest in real estate because it's considered a relatively safe investment. Also, have looked to a brand like L and T having constructed something to invest there because it's considered to be on time.
All papers are clean. The the the the property is is good to invest structurally and otherwise, and therefore, people would tend to do it. And therefore, we believe the residential will go well. Maybe initially, one or two months, there would be a problem, but it tends to go well because people have surplus money, and they don't want to invest it. On the commercial side, like you are, I am also confused.
I don't know where this is going to go. We have some commercial developments at the moment. Now whether the work from home is going to come back in a in a big manner, whether work from home was a temporary spike, and maybe there would finally be some 20% work from home, etcetera. I don't but at the same time, let me tell you some positives on it. You know, the the the trend in US after the president administration came to power was that they would want on premise work.
They would tell people to stay in US and work. They've got locals to be employed, so on and so forth. But due to the pandemic there, many other states in The United States and Europe also got closed out, and the people there were working from home. So now we are going back to the clients and saying, listen. You're paying us x dollars to do the same work from home.
We'll do it at x minus dollars sitting from work from home from India at home. So why do you want these people out here? And and second, there are there are factors in India. Many organizations in The United States are also looking into cost and optimization and and better productivities and improvements, and therefore, I guess, there could be a spike in IT spending from that point of view to bring in overall efficiencies. And that that would mean more commercial spaces in India and otherwise.
And therefore, that part is a bit confusing. We need to wait for the things to settle down from a strategic point of view. But but what we look at real estate today is that there are very good very good developments available, and some of the some of the developers are going financially kabut, some of the banks are not able to hold on, then it is a chance for us to get these properties at good prices and see how to make some capital out of it, and that's what we'll try to do. With last year on monitoring, have you availed any moratorium of any of the development assets or for the business on the working capital side? I mean, just Okay.
I couldn't hear you. It's got to be a bit louder and clearer. So I'm talking about the moratorium. So have we availed any of the moratorium for our development projects, lower assets, Nava, or Hyderabad Metro, or any deferments on interest on the working capital side of the term loans? For the main company, yeah, for the main company, there's no moratorium that we took.
For Hyderabad Metro and some of the road concessions, we had applied for moratorium, and we had availed what was available to us. And for Laba, sir? No. Laba, we have not taken any more of. Okay.
Thank you, sir. That's all from my side. Thank you. The next question is from the line of Shalini Vasantham from DSP Mutual Fund. Please go ahead.
Hi, is Vivek. I have two interrelated quick questions, so I will ask them in one go. And these are on the group's financial strategy. Given that there is savings leveraging the L and T group due to the financial services business, How do you see how do you view this appropriate stand alone debt levels in L and T Limited? Would you see zero debt as an objective?
Leaving around the current environment is challenging. Working capital always remains an issue in India and you do take some amount of credit to senior projects. So the first question is regarding the standalone debt in L and P Limited, especially in the context of Financial Services business. Then taking the same question forward, you know, the financial services business apart from capital that you alluded to also needs liquidity now and then because the market can break. You know, you've committed some level of support.
How do you see that in terms of support and other covenants saying that you'll give this much support or this much capital, maintain shareholding, etcetera? Thank you. Yeah. Yeah. Let me take this.
See, the stand alone debt in the context of they are not connected issues. The as I mentioned to someone earlier in this call, the standalone debt was the function of the refinancing that we are required to do and the gross money that would be required for our own core businesses, not the ones that is run through listed subsidiaries. The standalone debt historically has been very low in L and T. They'll continue to be low. We had raised about five years ago, a lot of long term, debt, which is coming up for repayment in the current year.
So as a as we normally do, we have raised money little ahead of time to repay those. So you can call that as some kind of a timing issue from time to time, but standalone debt is for L and T score requirements, which is largely working capital. When it comes to financial services, I think even though there is, as a parent who is sponsoring organization, there are credit lines sanctioned by the board, for the financial services. So far, they never have had the requirement to dip into those resources to be able to meet their liquidity requirements. Being a listed company, there is adequate visibility on their operations and their disclosures have been fairly transparent to the capital market.
They've been able to raise money on their own for their requirements. None of the financing that L and T finance, the services group financial services group has raised has got any recourse to L and T. So they are standalone debt. And, even during the last six, seven months when liquidity was very tight and we've had, you know, so many NBFCs, government issues and credit issues stumbling out the cabot, financial services have been able to manage raising money to the extent they require and at attractive cost. I do believe that their cost of money is pretty competitive.
So so to that extent, I think we are closely managing and facilitating and helping the business in a manner of speaking, handling them to deal with economic uncertainty. But I don't think there is any financial drain from the parent to support the liabilities of the financial services business. Thank you, sir. Thank you. Next question is from the line of Ankur Devre from Bank of America.
Please go ahead. Hi. This is Amish from Bank of America. I only have a couple of clarification questions now. So firstly, you know, in a in a of potential wage inflation on account of labor shortages, would that also not be a part two in your contract?
Wage increases, yes. It is to a large extent minimum wages are fixed or base wages are fixed, and and we can if it goes up, we can claim it from the from the client. But if we are paying some, you know, for transport or or some incentive cost to get them to the site, that would go as a general CPI inflation claimable, cannot be specifically claimed as what we did from a labor point of view. Go to a large extent, that's how contracts are defined. In lump sum contracts, we would have taken the normal increase as you see it based on CPI or or any other factor.
But there, it could become we had to put it in some other cost and payments from the clients as done during pandemic or done during extra mobilization or something like that. We may or may not get the full cost that we have spent, but to a large extent, it should be got. But we are not talking about you see, at the end of the day, if we take guarantees contracts, labor wages are at about six to 7% of our total cost. Even if you assume 10% increase on on that, it is about, you know, point six to point six to point five. And assuming bulk of it can be get reimbursable, you're talking about very negligible cost increase on that point of view.
That's one advantage of India, the labor costs are still low. So, SRS, thanks for that. But, you know, while you're on, you know or let me let me rephrase it. I think that, you know, you do use a lot of subcontract labor as well, right? And with the migrant labor, the little shortages that we're talking about, there's a possibility that the subcontract labor wage goes up, that is a decent percentage of your expenses.
Isn't that right? And could that increase? And if that increases, can that be a hard tool? It's actually my question. So it's it's like this.
So the the all our laborers are in a way subcontracted. We don't we don't have any laborers directly on our rules. We employ the laborers through what is called as subcontract gangs, and there are there are people who own labor gangs, hundred, two hundred, 500, sometimes even ten, fifteen specialized people. So all the contracts are through them. So we give contracts to them either based on minimum wages or through certain productivity measures that we give a base wage.
If you do so much productivity, give you more, we give you so much more. So if there is a cost coming up there, we would recalibrate this productivity increases to tell them to do produce more and thereby compensate the cost, increase the better productivity and such as the work content at site. So there's another form of subcontract, like, for example, we give the entire air conditioning to somebody. We give the entire plumbing sanitary work to somebody. We give the entire erection work to somebody.
In those kind of cases, it's a back to back contract. So if we get some money from the client, we give it to them. If we don't get money, we don't give it to them. So that's how contracts work to to a certain large extent protected from many points of view. Of course, they would make mercy claims on us.
We will pass on the mercy claims to the client. If we get it, we pass it on. Sometimes, if it's a well known contractor who is working with us for a very, very long time, we may have to make some adjustments even if we don't get the money. But these are give and takes that happens and somewhere we gain, somewhere we lose it. Overall, it balances out.
Okay. And my second question is around L and T finance. So RFR did mention in his comments that if growth comes back, then there may be a possibility of an equity raise. But just to clarify, did that and then you did mention about the additional rights. So does that mean that we are talking about L and P, if having to raise equity, L and T finance will raise on its own and this is not about L and T increasing when you are increasing its stake into L T finance?
Every time L and T finance is raised when it is listing, it has raised on its own. And the decision, L T, had a 100% holding. It had come down to 75. It had come down to 65. Last time over, there was a preferential offer where L and T invested in money.
So, we have had all kinds of, you know, situations. We need to judge this in the nature of, the investment allocation. If the investment is going to create value for the L and T shareholders from a larger context, L and T will participate. If the alternate application of money that L and T has has better return potential, then obviously, the money will be allocated to the more meaningful return asset. So it's a we'll have to it's a contextual thing.
We'll have to, take a call as and when we come to a situation where capital is required, then we will we'll take a call. But the fact is that as a part of services business, financial services is a integral part of the services portfolio. And the broader derisking strategy that we have followed at the portfolio level is to balance the projects business, manufacturing business, and services business. So that at the portfolio level, we don't have imbalance or risk skewed towards one particular type of activity. So within that overall context, keeping that in the back of our mind, we'll have to take a call from time to time.
Sure. And and very quickly, my last question is that the project business as we calculated actually even currently earns around 18% ROE, which is actually quite healthy in this environment. While you may not want to confirm the number, but would you would you say that, you know, despite the working capital challenges, evolution challenges that we are taking around, you know, this is like a pretty high return business in the you know, if you were to draw an average, is it an above average return business right now? See, it's a bread bread and butter of L and T. It's core of L and T.
EPC business is core of L and T. So I think over time, we've also we're learning, and we are mastering the art of execution. So consequently, I think the current levels of return on equity on project business has been hard learnt over many, many, many years. And to that extent, I think we would like to stay and improve on that level of capital efficiency for EPC business. Fortunately, most of the EPC business we do in clients' premises.
So we don't have to incur substantial fixed, expenditure, like setting up a factory and stuff like that. We'll have to manage working capital efficiently. We'll have to contract smartly, procure very capably. If you do all that, I think, it is a good business to be in. Risky, and the returns that you're talking about is actually the reward that matches the risk that we take.
So thank you. Thanks, Arishan. Thank you.
Thank you. The next question is from
the line of Abhishek Pogdar from HDFC Asset Management. Please go ahead. Thanks for the opportunity, sir. Part of
this question was, you know, touched upon before. So this is regarding the, you know, increase in the working capital, and we have seen that margins have not increased commensurately, and that that has led to a decline in the ROCE in the last few years. And if you look at the competition, you know, I think the situation for L and T still looks better where competition balance sheet is even in worst state. So what is your sense that do you think that working capital is a stretch would start getting in priced in the start getting priced in by the competition as well as company, whether, you know, returns can ROICs can return to historical levels?
See, working capital, again, is a function of the contractual obligations that we run. Normally, we sit down and price a bid, we take into account the cash flow trajectory of the project and, price the amount of money that we need to invest and that, hopefully, becomes a winning price. So if we have a contract that we have won at the price at which we have quoted, so long as there is a congruence between the the projected cash flow and the actual cash flow, you can say that the working capital has been compensated, for by the client or by the project that we are executing. The trouble happens when the projects start getting executed at a timeline, which is different than what was originally anticipated. The minute there is a time delay, a lot of things goes wrong in a project, including working capital.
So what we need to be acutely focused on is that if you're able to execute project in time, a lot of these things actually will fall in place and should not create, mismatches. But, you know, that's wishing for an ideal world. We do go through our own, upheavals in trying to execute projects. So the working capital that we are allocating is mostly working capital that has been priced, but because of the way we account, they appear as capital, in the in the current asset scenario. And the margins have been stable despite these movements of working capital.
So one other way to look at it is, why is it that this company has been able to maintain a certain stability in its margin, give and take a certain band, which is, in my opinion, highly, acceptable band of 1%. The only reason why we've been able to do most of the times, we've been able to get the pricing of working capital as part of the project.
Okay. So but if you look at the competition, you know, there are companies with net debt to EBITDA even of four or five times, and part of that problem is stated by working capital. So, you know, I understand, you know, you also mentioned the budgets and all, but but won't the companies themselves when they're quoting the pricing, they would be mindful more about the, you know, all the issues that is there because these issues are not going away in the last two, three years. And we have seen that working capital kind of we are were at fourteen, fifteen percent five years back, but those were different times. But we have accepted that 20 to 23% is kind of a normal levels right now.
So wouldn't that get priced in in terms of when you're quoting, or would you be constrained by so much by budget? Because essentially, what quotation is coming from the entire industry, and everybody is a price setter there. No. That's where I did say that we will obviously price it in and try to endeavor to stick to
the same trajectory. And most of the other competition, especially the types that you are referring to, will be so stressed on working capital. The problem is not so much about cost of capital. The problem would be access of capital for them. The the availability of bank line to be able to give various guarantee as we get into the project itself becomes an issue.
So access to credit, according to me, is a competitive advantage for L and T rather than just a comparative pricing of credit between the competition and ourselves.
Okay. So moving to second question. You had mentioned earlier that your intent is to monetize the development sites, including the Nava and Hyderabad Metro. You made a comment about allocating more capital to Hyderabad Metro. So how do we see that?
No. No. I said capital reallocation in the terms of capital structure correction. Because once the see, when the project is getting implemented, it takes in a more traditional capital structure. And once the project gets completed, the construction risk is off the table.
And then thereafter, it becomes a project which is essentially based on revenue risk. So that gives an opportunity for us to resize the the debt equity in a in a project. So, if you come across a situation where the project is going to generate less revenue than what is anticipated, the amount of sustainable debt in that project has to come down. So, to that extent, there could be a infusion of money to repay the debt of, that particular project to make it a sustainable viable debt. On the other hand, if the revenue profile improves in a project and it can afford to take a little more debt than what it is currently engaged in, then possibly the capital unlocking will happen and then the debt equity will get appropriately altered.
So the the what I was trying to say is there are several options given that we have a portfolio of investments that we have made around our businesses. There's several opportunity for us to productively use the capital so that the overall return at a consolidated level improves from where it is. So that's what I meant. I did not mean, either to give capital or take capital. Take capital would be to derisk equity exposure.
Give capital would be to derisk the unsustainable debt the sustainable debt.
Okay. So the proceeds of Schneider Electric which will be coming through, so part of it, you said, would could go into equity infusion in Hezbollah metro. Is that the right understanding?
Yeah. It could go to reduce the debt. Whether it goes as equity, it has go as any other form is something we need to sit and evaluate. But, essentially, if the traffic does not pick up and suppose there is an extended lockdown and stuff like that, we need to recalculate as to what is the level of sustainable debt. The debt we have committed in that project is based on a certain level of traffic and running without interruption.
Right.
And, sir, you mentioned that part of the capital can go in growth of the core business. Is that because of the COVID challenge and it's the short term thing, or do you think that for your group EPC business growth, you still need more capital?
See, growth is life. Right? And I think we have not come to a conclusion that we are hitting the ceiling in so far as growth opportunities. And we do think that we should continue to look at a 10 to 15% growth on a year on year basis. And when you are looking of a 10 to 15% growth on the delta growth, we also need to provide the the capital support.
So, when I talk about growth requirement, this is what I meant. Now, obviously, there is going to be a timing mismatch because of the pandemic and the disruption that has happened, but we are not measuring the company's requirement in a limited time frame of one quarter or one year. We're trying to look at next three, five years, what is it that would take the company to become more stronger, more formidable than what it is. So from that point of view, this capital raise, etcetera, will go to strengthen the growth opportunities for the company.
Sir, sorry. Just the last point. If I look at the EPC operator.
Mister Kulwar, maybe request you to come back in the queue, please.
This is just a follow-up. It will just take a minute on the same question. Sir, regarding the if I look at the EPC operations and kind of cash flows it generate, you know, I if I'm look at the modeling the numbers for next four, five years, I see EPC business actually throwing up cash flows rather than taking something. So I'm not very clear that where the capital will be going in the growth business in the core operations.
Can we actually take this offline? Because this would mean getting into the details of EPC business and where the growth opportunities would come come up. And secondly, in a very simplistic way, the model of EPC, which used to be working on customers cash has changed over time. And going forward, looking at the way various, our customers are largely government and PSUs, looking at the way the cash flows are arranged in the next couple of years, I would expect that the working capital intensity not to relent to those levels of, you know, either having customers cash or having very low working capital. So when you want to add another 10,000 crores of revenue, you might have to think in terms of 2,000 crores of working capital, just to give you a ballpark estimate.
Okay. Okay. Understood, sir. Thanks. I'll come back.
Thank you. Thank you.
Thank you. Ladies and gentlemen, we will be able to take the last two questions. Also request participants to please limit your questions to two per participant. The next question is from the line of Puneet Gulati from HSBC. Please go ahead.
Yes. Good afternoon. Thanks for the opportunity. Just clarifying the order. So is it excuse me.
This is. Mister, your voice is breaking. Okay. Can you hear me again? Yeah.
Better now.
Yeah. Thank you.
Okay. Great. Just so much for giving a lot of color on the ordering and execution side. Is starting correct that you are not facing any major delays in terms of execution of existing orders and no major cancellations have been reported as well? Yeah.
I confirm there has been no there has been delays, of course, because of two months lockdown, but we hope to catch it up. But there's no request from clients or cancellation or go slow or anything like that. There has been some discussion on reallocation of budget, and can we go this little later and prioritization and such, but as such, nothing else. Yeah. Okay.
Great. And does it hold private sector order? Private sector, it's it's not much at all. It's mainly some Middle East clients who are requesting reallocation of budget and so on and so forth, but hardly anything. No.
Nothing. No. Specific looking in fact, many private sector in India are requesting to speed up and and hold back to the original commissioning time in spite of the loss of two months. Oh, okay. Thanks.
Mister, your voice is breaking again.
Yeah. So
the prospective orders that you would be looking at this year? I didn't even get your question. Your voice is badly off. Sorry. Is it better?
Yeah. Much better.
It is
no. No, my friend. We can't hear you. Okay. So, Yeah.
So I'm saying, can you give some number for the prospect order book? Oh, we never do that. As I said, there are prospects. We're quite busy. We have proposals in most of many of our businesses, and we look to the future with with with positive with positivity.
But to give any numbers, it's not fair at the moment. Okay. Okay. Great. That's all from my side.
Thank you so much. Yeah. Thank you.
Thank you.
The next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead. Yeah. So sir, thanks for the opportunity. So one thing which I wanted to check is, like, if you look at the ability of the state or central government to order out the average size of the project, do think that may go down because even in the prospect pricing, there was some reduction in the average order sizes and looking at this scenario with capital constraint, maybe they might focus on the smaller projects.
How do you see that and then the LNG's ability to look for those smaller ticket type projects? I think that depends more on the season that you're talking about. See, last two years, there were huge packages of this dedicated freight corridor and and and this national water schemes and and distribution schemes that are going on, and you had good packages. So much of those work has been done. So unless and until the government comes out with new dedicated freight corridors or the high speed or river interlinking or this and such, I don't think there would be scope for very big packages immediately.
When you say very big packages, greater than 5,000 crores or 7,000 crores, etcetera. So what I would guess would happen is, unfortunately, we are such a low cost country. Even a huge football stadium, which in in Qatar costs 4,000 crores. In India, the entire cricket Stadium, the world's largest with the reasonable margin that we made has cost only 800 crores. That's the kind of costing that we have in this country because of the low prices.
We have three times lower cost than other countries. Just to give you an example, the same L and T was in United States. Our turnover would be three times what it is we reflect in India, but that's the way it is in India, and therefore, we have to live with the fact that our rupees rupee buys lot more things than what a dollar can do from a pricing point of view. And therefore, at the moment, I guess, since there are no major new schemes that has been announced, and what they will do is carry on existing schemes and existing projects, which will be mainly the regular projects, predominantly the natural highways sector, the the river in the certain amount of river interlinking they are talking about, the power transmission, the water kind of projects and expansion of refineries and such. This would be reasonably big projects, but not those very big value projects.
Okay, sir. Thanks for that. And just lastly from my side now, if you look at the MIT and the thought process that the government has, so government wants to, you know, sell out assets across different sub segments or across different companies to raise money. And what we are seeing is that there could be a limited appetite in the near term from the different you know, maybe pension funds or wealth funds to invest. So Brahmet is one thing crowding out as a you know, as a developer in the market, it will also create problems for the other developers to delever their balance sheet.
So how do you see this overall selling of the assets to different stakeholders in the market going forward? Yes, that's all from my side. I think sale of assets is taking place in in two particular manners. One is the divestment program that the government is thinking about, and second is the NCLT process, which has kicked in very honestly. Unfortunately, the NCLT process due to this pandemic, etcetera, there's there's a deferment there, much of the cases that were fast tracked and and going very well from a disposable point of view has got deferred by three months, six months.
Though, off late, some beginnings of disposals have again started. So that is one point. From a central government point of view, from even for them to achieve the budget or even for them to generate certain cash flow, a divestment is a must and part of their overall scheme of things. The the few of these assets divestments like BPCL, etcetera, started, but, again, LAC, etcetera, started, but, again, we'll put in back burner due to the pandemic. I guess if they have to match their budget to come anywhere near matching the revenue requirement to the budget, they need to do some of these things.
And this and that's the process that will continue on my view. So good assets will find buyers, and they're not so good assets. We'd like to see how they take it forward. Yes, sir. That's all for my side.
Thanks for taking my question.
Thank you.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Arnab Bhandal for closing comments. Thank you, ladies and gentlemen for a very patient and interactive session. Thank you, it went on considerably longer than what we expected and with this we will close the session with a small note that if anybody else has any queries, they are free to contact me or Harish.
With that, good afternoon, and goodbye. Thank you. Thank you. Thank you, all. Thank you.
Thank you.