Ladies and gentlemen, good day, and welcome to the Larson and Troglor Limited Q1 FY 'twenty two Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. P.
Ramakrishnan, Head, Investor Relations, Larson and Tobra Limited, thank you, and over to you, sir.
Thank you, Rudhita. Good day, ladies and gentlemen. Very warm welcome to all of you into the L and T Q1 FY The analyst presentation was uploaded on the stock exchange and our website today around 6 40 pm. Hope you must have had a quick look at the numbers. And instead of taking you through the entire presentation, I will give you a brief overview of the performance of the company in the first 15, 20 minutes or so, Post which we will get into Q and A.
Before I begin with the overview, a brief disclaimer. The presentation which we have uploaded on the Stock Exchange and our website today, including our call discussions that will happen now, contains or may have certain forward looking statements concerning our business prospects and profitability, which are subject to several risks and uncertainties, and the actual results could materially differ from those in such forward looking statements. Coming to the overview, in the Q1 of the current financial year, India remained in the throes of a Severe second COVID wave. The proliferation of infections was much faster than the first one And with significantly higher fatalities recorded, the fast pace of transmission put pressure on the healthcare systems across various states in the country. Unlike the national lockdown being announced last year, which resulted With sufficiently higher economic cost, this time around, we have witnessed regional local lockdowns in order to curtail the rising infections.
Furthermore, several states imposed restrictions on discretionary services In order to limit the spread of the virus, fortunately, India's 2nd wave abated faster than initially feared, Though concerns remain around the risk of future waves, since vaccination programs have commenced in full swing, We hope the economic impact in the coming quarters will be insignificant. Coming to the company performance, q1 FY 2022 was all about navigating against the COVID tide in difficult times. Our order inflows for Q1 of FY 2022 at INR266 1,000,000,000 Registered a growth of 13% over the corresponding quarter of the previous year. The international orders constituted 34% of the total order inflow. Excluding of services and concessions, our order inflows in Q1 FY 2022 are INR151,000,000,000 registering a growth of 10% over the quarter of the previous year.
The order wins, again excluding services and concessions, are fairly well spread across Infrastructure, Hydrocarbon, Power, Heavy Engineering and Industrial Machinery Businesses. Having said that, Let me mention here that the ordering momentum in Q1 was impacted by a subdued tendering and award activity. On a sequential basis, the project tenders and awards in Q1 FY 2022 We're down 40% 60%, respectively. On a Y on Y basis, the same was 20% 25% With respect to tenders and awards, on a positive note, our prospects pipeline For the remaining 9 months of the current financial year, we expect that INR 8,960,000,000,000 As against INR9.06 trillion at the beginning of the current financial year, The order book at INR 3,230,000,000,000 is at near record high levels. A large and a diversified order book provides us multi year revenue visibility, Currently having an average execution cycle of around 27 months.
Currently 80% of our order book is domestic And 20% is international. Within international, around 60% of the order book comes from Middle East And the remaining 40% from Africa and Southeast Asia. 89% of our total order book It comprises of infrastructure and hydrocarbon, infrastructure having 76% and hydrocarbon having 13% share. Within the infrastructure, our order book is well spread out across the various businesses like heavy civil, Water, Buildings and Factories, Power Transmission Distribution, Transportation Infrastructure and Minerals and Material Handling. The composition of the domestic order book, which today comprises 80% of the order book It's comprising of central government share at 9%, state government at 31%, Public Sector Corporations at 43% and Private Sector at 16%.
Coming to revenues, Our revenues for Q1 FY 2022 as INR293,000,000,000 registered a growth of 38% Over a low base of Q1 FY 2021, international revenues constituted 38% During the quarter of the revenues during the quarter. Despite the project progress in Q1 of FY 2022 Being impacted by, as I said earlier, by regional lockdowns, there were intermittent supply chain disruptions, Below optimum labor force and shortage of industrial oxygen, some of that impacted manufacturing and site execution. Our revenues excluding the Services and Concessions business at INR 179,000,000,000 For Q1 FY 2022 has registered a growth of 57% over the quarter of the previous year. Let me also mention here that in Q1 FY 2022, we have caught up to the revenues Of Q1 FY 2020, thanks to the healthy portfolio mix of EPC projects, manufacturing and service businesses. The group level EBITDA margins at 10.8% for Q1 FY 2022 is 3 20 basis points higher than Q1 FY 2021, primarily due to improved overhead recovery.
EBITDA margin excluding the Services and Concessions business has improved from 6.5% in Q1 FY 2021 To 8.9% in Q1 FY 2022, attributed to higher overhead recoveries Despite input cost headwinds, the details on EBITDA margin are given in the annexures to the analyst presentation. As guided in our previous call that we had on 15th May, we will endeavor to maintain our core Our current composition of Variable price contracts, jobs that are expected to cross margin recognition threshold in the current year, Cost contingency releases for jobs that may near completion, overhead optimization initiatives, Enhanced productivity through various digitization programs, value engineering and wastage control initiatives, Negotiation with some of our key vendors and discussions with clients on use of alternate varieties of inputs Should hopefully see us through in terms of managing cost headwinds during the current year. Coming to PAT, our overall PAT for Q1 FY 2022 is at INR 12,000,000,000 As compared to INR3 1,000,000,000 in Q1 of FY 2021, this is largely due to the stabilization of operations in the current year as compared to the corresponding quarter of the previous year. Anyway, Q1 FY 2021 Would not be a right reference point for comparison as because a major part of the Q1 of the previous year was affected due to the national lockdown.
However, if we compare our PAT with the Q1 of FY 2020, that is the year prior to FY 2021, You would notice that our overall path in Q1 FY 2020 was INR15 1,000,000,000 Vis a vis INR 12,000,000,000 in the current quarter, both metro operations and the financial services business Have been disproportionately impacted by COVID. Had this not happened for these one offs, Our Q1 PAT should have been higher. Coming to working capital, Our net working capital to sales ratio has improved from 26.8% in Q1 FY 2021 to 22.9% in Q1 FY 2022. One of the reasons for improvement in NWC to sales Is due to the denominator that is the revenues moving higher. Having said that, let me mention here That our customer collections have improved in the current quarter over the quarter of the previous year.
Our group level collections in Q1 FY 2022 were at approximately INR276,000,000,000 Vis a vis INR 252 1,000,000,000 of Q1 FY 2021. Let me also mention here that on a sequential basis, our NWC to sales ratio has marginally worsened from 22.3% in March 2021 to the current level of 22.9% in June 2021. This is primarily due to release of supply chain payments that fell due in the current quarter. If you could glance through our cash flow statement given as again as part of the annexures to the analyst presentation, Our net cash from operations is a minor negative at INR 7,900,000,000. In summary, we have been able to preserve our cash levels in a predicted and a seasonally weaker quarter.
As mentioned in the previous earnings call, we will again endeavor to maintain our NWC to sales ratio For the full year, at around the March 21 levels, which was around 22.3 Pursuant to the repayment of liabilities in our Financial Services business, Our development business and to a some limited extent at the L and T parent entity during the current quarter, Our group level gross debt to equity and net debt to equity levels have improved In the current quarter as compared to the quarter of the previous year, the details are mentioned in the Part of the balance sheet that is attached as part of the annexures to the analyst presentation. Finally, our trailing 12 month ROE is at 17.2% in Q1 FY 2022, Vis a vis 12.7 percent in Q1 FY 2021. The trailing 12 month ROE for Q1 FY 2022 Also includes the gain on the divestment of the E and A business that happened in August 2020. Suffice to say, the return ratios internally are being pursued very rigorously. Going forward, our robust business portfolio focused on cash generation and distribution And the progressive divestments of some parts of our business portfolio should hopefully get us there.
The group performance P and S stack is available in the analyst presentation and the major variations have been explained. You may kindly go through the same. Very briefly, I will comment on the performance of each of the segments Before we conclude on the environment and outlook. Coming to infrastructure, Order inflows at INR 110,000,000,000 in Q1 FY 2022 is well spread out across the various sub segments. Let me mention here that during Q1, we did witness pandemic induced delay in tendering and award activities.
Our order prospects pipeline for the remaining 9 months of the year for the infrastructure segment remains very healthy At INR6.4 trillion, up by 33% as compared to June 20. Order book in this segment at INR2.45 trillion as on June 30, 2021 is quite healthy. Revenues for the current quarter at INR 104,100,000,000 registered a strong growth Over the corresponding quarter of the previous year, despite the COVID second wave challenges, Consequent to a better job mix and as I said earlier, a higher recovery of overheads, our EBITDA margins in this segment improved from 6.3% in Q1 FY 2021 to 7.1% in the current quarter, Despite commodity price inflation affecting input costs. Next to going to Power, The receipt of a flue gas desulfurization order in Q1 FY 2022 boosted the existing large order book in this segment. Revenues for Q1 FY 2022 at INR 7,600,000,000 is up more than 100% with various projects in the order book Gaining execution momentum.
Better execution progress drives the margin recovery in the current quarter. As you may be aware, the profits of the manufacturing part of the EPC Power business that is the boiler turbine and the other power Joint venture companies are consolidated at the PAT level under the equity method of accounting. After that, I come to Heavy Engineering. Again, in this quarter, this segment had multiple order wins in the refinery oil and gas verticals. Revenues for the quarter at INR5.5 billion registered a growth of 45% over Q1 of the previous financial year.
On account of improved execution across multiple jobs, Their margins also consequently improved in the current quarter. Coming to defense, We believe the policy pronouncement and the recent indigenization drive of the government will drive order inflows in this segment in the medium to long term. Revenues for Q1 FY 2022 at INR 6,900,000,000 is up 46% on better job progress. The buoyant Q1 margins for this segment was contributed by cost savings and contingency releases in certain jobs. At this stage, I would like to reiterate that this Defense Engineering business does not manufacture Any explosives nor ammunition of any kind, including cluster ammunitions or anti personnel land mines or nuclear weapons Our components for such munitions, this business also does not customize any delivery systems for such munitions.
We come to Hydrocarbon segment. This segment had subdued order inflows in Q1 FY 2022 As we did face elevated levels of competitive intensity. Having said that, I wish to mention here That due to lower levels of ordering witnessed in the business since the second half of FY 2020, the prospects pipeline has significantly improved largely due to the recent pickup in oil prices. Our prospects pipeline in this segment For the balance 9 months for the current year, we said INR 1,820,000,000,000, which is significantly higher RMB668,000,000,000 at the end of Q1 of last year. Revenues for the current quarter at JPY 41,900,000,000 is up by 37% over Q1 of FY 2021.
The strong execution activity drive revenues in the current quarter. Secondly, Q1 EBITDA margin improvement is aided by cost savings Moving to Development Projects. This segment includes the Power Development Business Portfolio Of 2 operating assets, a 1400 Megawatt Coal Based Power Plant in the State of Punjab and a 99 Megawatt Heidel based plant operating in Uptranjal. Besides these two assets, we also operate the and report under this segment, the Hyderabad Metro. The roads and the transmission line transition part of L and T Infrastructure Development Projects, L and T IDPL, is consolidated at a past level under the equity method of accounting.
The revenues for this segment At INR11.3 billion this quarter, registered a growth of more than 100% over the previous of the quarter of the previous year, Largely due to the power development business and it is because of the strong power demand, The Nava Power Plant, the coal based power plant in Punjab was operating at a PLF of 90% in the current quarter. Coming to Hyderabad Metro, unlike in the previous year when the Metro services were completely shut, In the current quarter, the services did remain partially operational with restrictive timings due to the localized lag lockdown. This in turn affected the ridership. The Q1 FY 2021 ridership was averaging around 55,000 passengers per day. However, having said that, as we see now in the month of July, It is now improved to almost 120,000 to 130,000 passengers per day.
The segment margin in this segment is affected By OpEx under recovery in metro and the non recognition of NAVA margin, since we have impaired The carrying value of NAVA in our books in Q2 FY 2021 and are looking out for prospective buyers, We do not consolidate NAVA at the margin level. Coming to Metro, at a PAT level, The consolidated loss was around INR 4.72 crores during Q1 FY 2022. Operating and amortization cost of INR €0,750,000,000 each and the interest cost of rupees 3,700,000,000 were incurred for the quarter with respect to Hyderabad Metro. At this juncture, let me give you a quick status update On divestments of our concessions portfolio, for our power development assets comprising of Nava and Utranshel, We are looking to divest our entire stake in both these projects. Coming to IDPL, we are exploring to divest our remaining 51% stake In favor of other third party investors, discussions are on currently with prospective buyers.
However, premature to comment On the timelines at this stage. As far as Hyderabad Metro is concerned, we are looking for new investors to put in new pit Equity into the project, discussions are on with the state government for assistance, and we are also exploring the Now I come to the IT and Technology Services segment. The revenues for Q1 FY 2022 at INR 72,200,000,000 is up 7% on quarter on quarter basis and 20% on Y on Y basis, reflecting a surge in demand for Technology led offerings in the sector. The export billings constituted 93% of the total customer revenues. The EBITDA margin improvement in the quarter is led by improved utilization, a more favorable onshoreoffshore ratio and operational efficiency.
All the 3 companies in this segment are listed entities and the detailed earnings Details are available already available in the public domain. Coming to other segments that comprises of reality, Construction Mining Equipment, Rubber Prostig Machinery, Industrial Walls and Smart World and Communications. In Q1 FY 2022, There was a broad based revenue and margin growth across all the businesses as compared to the quarter of the previous year. Lastly, Financial Services, this segment was one of the segments besides Hyderabad Metro, which was also affected due to COVID. Financial Services, again, Trinity Finance Holdings is a listed entity and the detailed results are available in the public domain.
Over the Q1 revolved around pickup in rural and infra disbursements, robust collections, improved net interest margins, and fees and maintenance of adequate liquidity on the balance sheet. The business continues to pursue the strategy of higher utilization of its loan book, Diversification of liabilities, maintaining a more prudent ALM and targeting sustainable net interest margins. Sufficient growth capital is available post the rights issue that happened in January 21. Now I come to the final portion of my Overview, which is the environmental and outlook. We believe that the road ahead is looking a little more optimistic and constructive With the waning of the 2nd wave and lockdown restrictions being progressively eased, there are definitely the good signs of a pickup economic activity.
The government with its fiscal stimulus and RBI with its accommodative monetary policy Remaining committed to support this growth revival. It is a matter of time before the business and consumer confidence comes back. No doubt the household balance sheets have undergone through immense stress in the recent past. However, with the envisaged increased investment spend, The employment indicators also should look up in the near future. Despite the weakness in the Q1, we do believe that the Indian economy in the current year Should be growing between 9% to 10% in nominal GDP terms.
Over the first half will be led by low base effect And the second half will see a sharper recovery. The vaccination efforts have been stepped up and hopefully the 3rd wave, If not, we'll not disproportionately impact the economy. Having said this, I would say that the risk of the 3rd wave and its consequent fallout Thus can be a potentially adverse risk factor. Some of the key determinants for us at group level revolves around an enabling environment for better execution going ahead, sustained CapEx ordering from the government And better private investment spend, if not in the current year, hopefully in the following financial year. And last but not the least, Liquidity conditions to be continued to remain favorable.
Internationally, the order prospects also look far better than what we witnessed in June 2020. We remain committed to our guidance of up to a low to mid teens growth In the order inflow and revenues for the current financial year, as we said earlier, the non Excluding the services and the concessions business, we are talking about the main EPC and the manufacturing business. As we mentioned earlier, We will endeavor to maintain the business margins around the same levels that we printed for FY 2021. And NWC revenues at a group level will continue to maintain the guidance of in and around the March 21 levels of 22.3. As a group, we believe we are positioned well with a healthy order book, a strong balance sheet, Proven ability to execute large projects and a growing IT and TS portfolio.
In the medium term, our focus areas will revolve around cash generation, improved return ratios, Exploring newer business areas and sustainability. We remain committed to sustainable business growth in the foreseeable future. Our integrated report for FY 2021 should be released around middle of latest by middle of August 2021. Before I close, our 5 year strategic plan is under preparation and should be completed by the end of latest by the end of this calendar year 2021. We will articulate our goals around the business portfolio, newer businesses and our sustainability roadmap in detail once we are ready.
Thank you for the very patient listening. We'll now get into Q and A.
Thank you very much. We will now begin the question and answer session.
The first question is from
the line of Mohit Kumar from Dam Capital. Please go ahead.
So thanks for the opportunity and congratulations on good set of numbers. So my first question is, Are you staying with the order inflow and revenues outlook of 12% to 15% growth and a stable core EBITDA margin as our guidance?
Mohit, are you done or should I answer to this?
No, no, no. That's the first question. Yes.
Yes. So as I said, Mohit, when we communicated this around 14th May, We also knew about the status of affairs of the Q1 because of the COVID situation. And we have factored This, while we gave the guidance on up to we don't want to put a number to it, but what we have stated is that we expect Considering the current economic environment, number 1. And number 2, the COVID crisis stabilizing by the end of June and normalcy returning From the start of July, and with the government now focusing to bring back the economy by way of higher investment spend And improved international prospects given the rise in oil prices that gives us a reasonable confidence That we should be in a position to maintain a guidance of up to a low to mid team in both in the order inflow. And given the fact that we have upwards of INR 3,000,000,000 of order book, assuming that We come back to near normalcy from the start of Q2 onwards gives us that confidence that we should be in a position to maintain Around the same levels in the revenue side as well.
And coming to margins, the margins that what we have given as a guidance is for Businesses, which is comprising of our traditional business of EPC projects, manufacturing, it excluding the services part, excluding the concessions, Whatever we reported for FY 2021 at around 10.3, we do expect that given the fact that the revenue momentum, the way it will continue For the balanced time months, we are reasonably confident to see that whether we'll be able to achieve the number after factoring into account The recent increases in their commodity prices.
Understood. 2nd question, sir, on the Middle East. You did speak about the Jopec Plus segment and imminent recovery gives you confidence that some of the hydrocarbon will see traction. Do you see any larger improvement also in the Power, D and D and the other order segments from Middle East and Africa? And we give you confidence that somewhere around 20%, 30% of our order inflow will comprise some Middle East and Africa.
Is that possible?
Even anything?
So, Mohit, our in the order prospects that I just know talked about Aggregating to INR8.96 trillion as we see in June, the share of hydrocarbons is almost around INR1.8 trillion. And I guess that roughly around 70% of that prospects is coming out of India, which is largely, I would say, Middle East. Similarly, coming to Power Transmission and Distribution, again, the prospects are Roughly around $1,070,000,000,000 to $1,080,000,000,000 as of June. And out of that, again, Almost 60% of those prospects are outside of India from having a combination largely of Middle East and some part in Africa as
Understood, sir. Thank you and all the best, sir. Thank you.
Thank you. The next question is from the line of Tarik Sibthandapal from HPW Securities. Please go ahead.
Hi, Piyar. Congratulations on a decent quarter. So my first question is on asset monetization. So first one is on Hyderabad Metro. So we have been engaging with the government to get And every quarter we have been going to them and asking for some relief.
So do you think any tangible movement have happened from the government side and Likely to materialize in the near future. Secondly, if that doesn't happen, so you did list out that you're trying to get some Sir, and also looking at refinancing. So whether refinancing will happen first and then investor will come in or the investor comes in and then maybe refinancing may not happen at all? That's my first question.
So, Parikshit, I mean, you've asked a very right question and Whatever questions you have asked on various measures, all are at parallel, okay? It's not sequential. So whereas our discussions with the Telangana government is going off quite favorable, but as you are aware, It will take some time for the government to take a final, I would say, decision on that. But I would like to reiterate here that the discussions have been quite positive. And we have been asking, it's very easy for us to Get extended the concessions period anyway it is for 60 years.
So citing the COVID situation as force majeure, That anyway could be possible. That doesn't really help us out. So we are talking to them for financial assistance. They have heard us positively. We do believe We will see some amount of conclusion on this.
Yes, the talks are on also with investors to bring in equity because at this juncture, The priorities for us is to reduce the overall level of debt. Now the debt reduction can happen in any of the scenarios like A new investor coming in with equity or the government giving some sort of funds. And last but not the least, we are also looking at Monetizing the POD rights, the transit oriented development rights that we have almost of 18,000,000 square feet. So there are discussions happening. Really, it is difficult for me to stage the sequence part of it.
Parallelly, we are also looking at trying to refinance the existing loan because this loan what we have, the Hyderabad Metro currently has was a loan that was taken at the time of Construction, now that the project is done, so we are looking forward to refinance the loan with a slightly extended tenure So that we are able to at least bring down the cash support requirements in the near term. So all of this is again work in progress, very difficult to put our timelines on all of these, but we do believe that By March 2022, we should be in a far more better position from what we are today. Now As it stands now, like during the last call, we did talk about that we have set aside around INR 2,000 crores For the next 4 quarters, out of which we have given cash support of almost INR 500 crores in the current Q1 of FY 2022. And hopefully, with the balance 1500 that should suffice and before that we should be able to get through What are the things I just now spoke about?
Okay. You preempted my second question. So you think the 2000 should be sufficient enough before there is Some resolution on funding side. So we may not require further support funding support to the projects.
So that is the plan, Parikshit, we have today and we do believe that with the easing of COVID situation, As I said during my overview that today the traffic has inched up to 120, 130, 140 per average per day. And as the economy opens up, as all the restrictions go away, we should be in a position to see higher ridership. And also some of the points that I spoke about, we should get our near visibility of closure by the end of this financial year.
Okay. So this financial assistance is basically concessional kind of loan kind of assistance which you are seeking from the government?
There are many parts to it, Parikshit. It would not be inappropriate for us to really comment on it, but we are talking about financial assistance in many forms. Now How the government finally gives it, how much they give is a question of time, but we'll keep you posted.
So just last Question on Q3 FY 2021 call, you had highlighted that about INR1800 crores of AP receivables is still net exposure was there and you had done INR100 So any improvement in that status now? Have you come and paid you something over the last two quarters? So what we did
All right.
Can you repeat that question, please?
Sir, in
the Q3 FY 'twenty one, you had mentioned that about INR1800 crores of net exposure, it just got 80 projects. It got canceled. So and there was a INR 100 crore reseal provision done against those projects. So any update on what will be the status Now has that reduced and what could be the initial provisioning done against those receivables?
See, okay. I mean, Roughly speaking, we do have an exposure of almost INR 1200 crores on the AP projects, but I wish to tell you that Discussions are on with the various state agencies who have awarded these contracts. Our first objective is to get some of these amounts realized and Possibly, I don't know whether we'll be able to kick start the project because some part of the AP projects also is actually funded by multilaterals. To that extent, we should expect a revival. But as it stands now, our exposure to these projects stands at a net $1200,000,000 level.
600 is a recovery which has happened in last few quarters?
Partially recovery and partially attributed to higher provisions.
Okay. Thank you, sir. That's all from me.
Thank you. The next question is from the line of Sumit Kesore from Axis Capital. Please go ahead.
Hi, good evening, KR. I have two questions. My first question is that you seem to have added order prospects to your June Callie, because to your March 2021, Callie, Your order prospects seem to have reduced by about INR 100,000,000,000, while you have got core inflows of over INR 150,000,000,000 In the Q1. So where have these additional prospects come from? Can you please elaborate?
So I think, Sumit, while I covered that, as of March, our order prospects was aggregating at 9,080,000,000,000, okay? And today as we report, as we look at it, it is around 8.96, just a marginal drop. The Drop, obviously, includes the orders that we have already backed during the current quarter. But I would like to mention 2 parts to it, That the hydrocarbon prospects, which was 1.44 as at March end, That has jumped to 1.81 as of June. So that is one of the very important thing which we are looking at, which has Attributed to, I would say, almost the same levels of order prospects as that June end.
And these are mainly overseas, prospects, the Internet?
Yes, in the hydrocarbon, I guess 1.81, Almost 71% seems to be coming outside of India. And coming to the other part of where I mean in terms of the order prospects Where we have seen a reduction because of the passage of time and orders we have been awarded is in total infra where we reported 6.97 As an overall subset of 9.08, that has partially dropped to 6.40 as of June for infrastructure.
Got it. Very clear. My second question is, you commented that The impact of COVID in coming quarters will be insignificant. You've partly covered that, but what gives you that confidence? How much below normal levels was the average workforce availability during Q1 FY 2022 and where are we right now?
And is there any execution issue overseas as mobility from India may have been impacted because of COVID?
Okay. So, Sumit, it is like this. During the Q1, in fact, I remember clearly that in the call, we said that in the month of April May, we were averaging at around 170,000 workforce, Partially because anyway during the 1st 2 months, summer months, we do see a drop, but partially attributed to COVID, was almost 30,000 to 40,000. Normally, it should have dropped down to 210,000, but we actually witnessed 170,000 in April May. But by the end of June, We are almost at 235, 240 of labor force.
And for peak execution during as per the Requirements in Q2, which is again not the best of a quarter in terms of seasonality because of milestone, What we need is typically 250,000 to meet our planned targets. So we are today at almost 235 or so. So maybe running at a shortfall of 10,000 or so, but that is not much of a challenge. So when I Spoke on COVID is, obviously, I did communicate that our assumption for the revenue momentum Our operations momentum to become normalized is on one assumption that we would not witness Lockdowns that will impact the economy from a business perspective that is either manufacturing or site execution. And despite a more severe second wave, I don't think manufacturing or site execution got impacted As much as what we witnessed in the Q1 of the previous year, so that's one of the reasons that we have been able to demonstrate growth in our Businesses outside of services and concessions.
And we do believe with near normalcy as we are witnessing now, We do believe that this should become hopefully normal. But again, that's an assumption that the 3rd wave should not even if it were to happen, should not impact The economic activity on the business side.
Sure. I had also asked that have been any education Yes.
No, international challenges our international execution, I would say, has been near normal as A pre COVID level, I would be. So we don't have evidence to say about lack of workforce availability. The only one thing which keeps lingering once in a while and that I did mention is intermittent supply side Strange, especially when it is importing into Middle East or into India coming from outside of other continents. So there are some delays that are being witnessed, but nothing material.
Okay. But given that Air travel is a bit difficult right now to Middle East. Does mobility of workforce from India to Middle East impact Execution.
So actually speaking, no, Middle East actually came back to normalcy even before the Onset of what we witnessed as 2nd wave. So Middle East execution went into normalcy from after September onwards itself. So we have not had a situation like in India. We had labor moving back to their native place or hometowns and we had a challenge of bringing them back. In the Middle East, it was not that kind of a situation.
So they moved back to the site well before the end of the last calendar year itself.
Got it. Thank you and wish you all the best. First question is on the HSR projects. So where are we in terms of the on ground mobilization, on ground execution Of these projects? And when do you think some significant amount of revenue should start hitting the PN for us from the HSR packages?
So, Ashish, let me tell you that the work has commenced sometime in February 2021, Okay. Actually, the deadline for us that is the 4 years deadline starts from, I think, January 21 and ends at Exactly, 48 months later. The work is progressing as per the schedule of activities that are done. But I would believe that a meaningful increase into top line, that is a substantial increase where we will have to articulate The increase in revenue in the segment is attributed to sufficient progress or major progress will happen or will be witnessed in the next financial year, Not in the current financial year. But I would like to state here that some of the important things as a contractor that we need to do Because along the parcel right from the entire Gujarat stretch, we are supposed to have places where we can Do the completing and all the batch mix plants and all that for which we need to take land.
I think around 15 or 16 land parcels have to be taken To facilitate the construction, that is all in the scope of L and T. All those enablements have been done And the progress of work has started in this
week, okay?
And but in terms of major accretion to revenue, Possibly, we could witness maybe in Q4 of current financial year, but a large part would get into FY 2023.
Got it, sir.
Secondly, when I look at the debt breakup in the presentation, the developmental projects debt has gone down from about RMB2600 to RMB18700. So this reduction of about RMB19 100 crores, is that in the metro or in the power plant?
So in the power plant, the debt levels, we reduced it by around $12.50 odd crores because of there was a settlement that happened in the a favorable settlement that happened of a case that was Under dispute and that enabled us to recover a lot of money that was stuck up from the client. That money got released and That enabled us to reduce the overall debt level. And the balance INR 600 crores was a reduction in the debt level at Hyderabad Metro. So but actually speaking that debt level came down because that was 3rd party debt. Obviously, it went into part of our L and T cash support That I just now referred to 10 minutes back.
Got it. Got it. Fair enough. Thank you. Thank you, sir.
Thank you. The next question is from the line of Lainu Bey from ISL Securities. Please go ahead.
Yes. Hi, good evening, sir. Hi. Two questions from my end. First question is on coastal road project, which Sure.
We're significantly delayed. Can you give a broader heads up in terms of where are we in terms of execution phase? And are we through with the margin recognition and that should be expected sometime
in 2Q?
So, Coastal Road project revenue is almost covered 1 third now. We have 32% covered at this juncture. And obviously, usually, we recognize margins upwards of 25%. So it has come into margin recognition stage. And we do believe that it's going on in some normal way.
So 32% is the completion what we have witnessed today.
Sure. Secondly, in the Cargo segment, while we have seen a strong jump sequentially in terms of prospect list, clearly, after 18, 24 months since orders have come, Global players are also very aggressive in terms of pricing. They've lost few orders in the last few quarters. So what is our perspective in terms of the strike rate in this segment? And what is the expected perspective on the competitive scenario in the international hydrocarbon orders which are coming?
So Renu, you're right in terms of having said that of late, we have been Witnessing a lot of competitive intensity. But let me tell you that we are Asmit's very clearly focused to ensure that we don't want to be seen to win orders and At compromising big time on margins, whereas competitive intensity is there and obviously, we will be A little more careful while bidding for projects, but that doesn't mean we compromise on profitability. And so there has been some slip ups, But we are fairly bullish on a combination of whatever domestic opportunities are there and international opportunities. We stand a good chance to secure some of them in the balanced 9 months.
Sure. And would it be possible for you to quantify approximately what was the onetime impact in hydrocarbon margin?
The impact of a one time claim was in the range of INR 90 odd crores. But at the end of the day, all these things running in a projects business, you will have Statements and claims and everything happening. So I just wanted to say that, yes, margins have gone up because of one time claim, but doesn't mean one time claim is one time. You can have claims across each of the segments in every quarter.
Yes, it's a recurring activity. So it's not a very alarming number that one should be worried about there.
Correct.
As broadly, if you observe, the core ROCE on a KTM basis have actually now increased up to almost 21%. This is after 2 years, now back to FY2019 level.
Can you repeat the question? I didn't get your first part. Sorry.
The core ROC for the L and T X Services business after 2 years is now back to 21% levels. It was hovering between 2019 as in last year it was depressed, but even in FY 2020, it was around 20%. So as in the 1Q numbers, if you look on a trading 12 month basis, Roshis are a 21% class, which is similar to FY201911. So with this as an improvement in the capital employed That we're seeing through, should we expect that in subsequent quarters, if payment collection remains through, the gross debt on book should taper off relatively faster than what you had expected?
So, Renu, I think you must have heard me, I've Stop using the word core, okay, for the benefit of all because P. Vijay Kumar:] Okay. So we are talking about excluding services and concessions, if I have to talk about what we used to call traditionally the court, which is nothing but EPC manufacturing, PPT Projects and Manufacturing. So whereas I don't want to comment on the numbers that you spoke, but I wish to tell you that for our current year, When we speak about that, we are endeavoring to maintain the margins of the this part of the business that Around 10.3, the same things that we printed for FY 2021. And the working capital of Of course, the overall working capital is what we spoke about 22.3%, but that core level, it could be slightly higher.
If we can manage that, I'm sure our ROCE also should improve, but that's the target. In fact, all the projects which are going under bids and the way we are executing projects, Some of the projects are sometimes kept on a slower pace because collections not coming in the same, I would say, same way. So we restrict ourselves. So we do believe that we will focus on margins stability And also controlling working capital to the best of our capability.
So broadly, the gross debt, which has been almost flattish on a sequential basis at INR 25,000 crores, one can expect a substantial reduction in that towards the end of the year. So debt deleveraging or outside debt reduction should be one of the objectives of improvement in cash flow?
Yes, yes, 100%. Whatever I mean, over a period of of course, in the Q1 of last year, as a preemptive COVID To preserve liquidity because we did not expect that the collections, the momentum which actually happened, we went ahead and did almost a INR 12,000 crores borrowing. But at that same time, the fact of the EIC divestment also was not very clear. But definitely, At the group level, at the parent L and T level, the objective is to reduce the debt level sequentially and that has been happening. So We will ensure, as I said earlier, that liquidity will be maintained to the extent what is required in terms of the next, I would say based on the overall investment requirements and managing the overall working capital situation, the rest of that will be used to retire all the debts That is following due.
Sure. And if I can ask one more question. In Nabha Power, you mentioned that since we are the project is up For sale of your consolidating the profits at the margin level. So do we have any internal time line to target We are targeting this in the next 6 months, 9 months or within the current financial year or it's still open ended?
So I don't want to comment on the timelines, Renu, but I wish to tell you that talks are on with prospective investors, okay. At least it is now known To the market, I would say that both these two assets are for sale. And hopefully, we should see some developments happening, But very difficult to comment on time lines unless and until we get into a sort of what you call as a typical A binding
sheet or a debt segment.
Got it. Thank you and all the best.
Thank you. The next question is from the line of Ranjit Shivram from ICRC Securities. Please go ahead.
Yes. Hi, sir. Congrats on good set of numbers. Sir, this Insta margins have been Healthy. So is there any kind of a provision write back?
Or what is the sense you are getting on the
So, infra margin, I think I did communicate That current quarter was 8.1 as against 6.3 sorry, 7.1 as against 6.3 for the Q1 of the previous year. And that has been largely on the back of an improved execution, Okay. Despite the COVID second wave. And it is also factored some amount of steel price increase That has come because of impact on the input cost materials. But Ranjit, We are working on multiple things to mitigate the steel price or the cement price increase in this part of the business.
Major part of the Infrastructure segment orders, I would say, is a substantial part. They are actually Variable price contracts. So to that extent, that will partly mitigate this particular, I would say, cost increases. But more important is that this year, we do as per our plan, We do have some decent amount of jobs getting into margin recognition threshold. And if volume recovery that is site execution stabilizes with no kind of COVID restrictions or any lockdown protocols, Then that itself will enable us to cover those thresholds, recover a major part of our overheads.
And touch wood, as it stands now, the job mix that we are witnessing in the infrastructure side are a mix of orders that are All as per schedule not getting into major cost overruns, whereas in some jobs you could have, but those kind of jobs also have the Prospective of some claim releases and settlements. So overall, we do believe that we should be in a position to Maintain the Infrastructure segment margins at these levels as what it had printed for FY 2021.
Okay. That was helpful. So just wanted to recheck you just Coastal Road getting into margin recognition. Was that a factor Sir, this is not a decision on that.
No, no, no, no, no. Ranjit, let me tell you, I was responding to a particular project Progress, okay. We have in infrastructure segment, we operate around 800 sites are there. So which means roughly around 700, 600 Projects are there under execution. It is not necessary that 1 project 22 margin recognition threshold enabled us to Have this higher margin.
It's a combination of various factors. And let me tell you, it's not that each and every project gets
into a complete profitable execution.
We do have execution, we do have negative stock prices. But as I said earlier, our ability to execute in terms of volumes by which I can Observe a major part of overheads and also successfully complete the project on time, including some claims that we put on the client And just for claims of the client on us, I think with all these things undertaken at a holistic level, we do believe that if volume uptick happens, We should be in a position to improve or sustain the margins that we reported last year. After factoring, the input cost increase, which will have an impact on the fixed price contracts.
Okay. And there was some news regarding the submarine order. Some parties have been Are likely some of the technologies are they are not likely to go with. How are we placed There is expression of interest has been placed. So do you see a light at the end of the tunnel this year or anything That we should be happy about in that submarine contracts which have been long overdue?
So, Ranjit, okay, I will put it like this because obviously this is a sort of classified to the It is available in the domain. I can definitely comment on that. Yes, the Defence Advisory Council has cleared That the P75I, which is India based indigenous supply of submarines, has been cleared. The RFP was issued last week, if I remember, I think it was on 20th July, and we are supposed to submit our Once within 4 months, unless the government extends it or the customer extends it. At this juncture, I can say that we have got RFP and we are supposed to submit the RFP response within 4 months, which is Again, maybe 20th November, unless extended by the client.
Okay. So our technology is in line with What day 1? There is no negative surprises for us.
We have to obviously, I think as part of the requirement, we are supposed to Also have a technology partner to it. But this is all at this juncture, Ranjeet, I can say. And we do believe that that should not be a problem for L and T per se. The only thing is we have to submit our response On or before? By the end of 4 months.
Okay, sir. Thanks and all the best for that and Yes, we saw good numbers come. Thank you. Thank you.
Thank you. The next question is from the line of Please go ahead.
So, complement on a good set of numbers. In NWC, and correct me if I'm wrong, that it was at around 21,000 for your You don't want to call it core. So E and C and Manufacturing and 27,000 crores Overall, Ghansal, what those numbers stood as on June?
The core which was 21, okay, as of June has become almost an increase of INR 1,000 crores to INR 22, okay? And at a console level, that INR 27,000 crores order Ard has become around 29,500. And this I would say primarily is because Of almost our current liabilities, that is vendor payouts, have actually gone up substantially by almost, I would say INR 3,000 crores that we have paid as per schedule. But at the same side, because of higher Activity levels, obviously, the invoicing on the clients also happened big time in the current quarter And some of that will get into collections more in the next quarter or subsequent quarters depending on the terms of payment.
Got that.
So let me tell you, Sujit, at this juncture, if you have observed the movement of What we call the L and T, the projects business part of the working capital, normally the way it happens is that Because of the enhanced Q4, at that Q1 when the customers also ensure a faster pace of certifications And they also release a lot of money as part of their overall budgets that gets completed. So typically, you will find that the working capital situation Improves maximum during the Q4 and then from Q1, Q2, Q3 slowly I mean it worsens in Q1 and then slowly improves. So today as we speak, the number which I talked about at Overall group level of 22.9 is as expected. It is not that it is not expected. And in fact, it is slightly better than our own internal estimate.
So which gives us that at a group level, when we Close FY 2022, obviously, the caveats of all the 3rd wave and other things are becoming to normalcy. We do believe that we should be in a position to maintain the Working capital in and around the 22.4 levels of FY 2020 1.
I got that. And for the core, what this NWC number would have stood. The console is 22.9%. The floor would have Today, what level?
25%.
25%. 25%. And the ROE ex of the one time gain Of the end, would have been what?
Around 11%, 11.2%.
Okay. And for Hyderabad Metro, what is the absolute debt and equity as on June?
Our absolute debt is around 13,500 also, 13,600. And equity, what we have put is around 25, 41. And cash support will be another INR 5,000 odd crores?
Right. And lastly includes INR 1,000 crores and you're saying
No. When it cash support did include equity, our total exposure in Hyderabad Metro would be in the range of 5,000 odd crores And 13,600 is the debt.
I get that. You have guided that this year, we may have to Support by around INR 2,000 crores, INR 500 crores you have already given us support in Q1. And I believe that last year we've increased about INR 1,000 crores, right?
Yes. Last year from Q2 onwards, we increased up to INR 1,000 until March, And we have set aside another 2,000 in the current financial year, out of which 500 has gone in the Q1.
Right. And one last question is that, how much is the absolute number contribution of PAC From Boyalty and IT Services Business?
I don't think we can I think I would request you to kindly go into the segment result, right, Which shows the PBAT of those businesses, it would not be right for us to calculate and report the pack for those segments per se? As far as ITTS sub companies are concerned, their respective PAT, whatever they have reported, you just take with respect to LTTS TS and LTI 75% and Mindtree would be 61%.
That I can get, but reality how much it would should have contributed in June quarter, because the margin
is not I put it like this, in the other segment, the total revenues that we have posted, Reality would be in the range of 3.30 odd crores, okay? And PAT would be Around INR 100 crores PAT, but that would be a basis number, okay?
Right, right. Sure. Thank you so much.
Thank you. The next question is from the line of Ankur Sharma from HDFC Life. Please go ahead.
Yes. Hi, sir. Good evening. Just two questions from my side. One, given that labor is largely kind of back to normal, Fair to assume that and that's again without a third wave of million.
Fair to assume that we
at least go back to the sales we saw in Q2 2020 For this quarter, if
not more that is?
See, let's see if we look it like this that I would only maintain what I said earlier that when we gave the guidance on revenue Up to a low to mid teen. We factored that Q1 would be a little subdued because we gave those guidance In the middle of the second COVID wave. So we knew where we are actually taking Q1 looking like. But we also communicated that we should be able to demonstrate this revenue growth on the back of that we won't have restrictions Coming in to effect from Q2 onwards, if those things are normalized, Hopefully, you should see a better set of numbers that finally aggregate to what I spoke on our guidance of low to mid teens in revenue.
Okay. Fair. So look, is that the question of labor normalizing and things being over and not about any significant headwind to execution on the order book Right, right, in terms of right of way or environment, etcetera.
Okay. That way I will tell you that whatever Our internal estimates are there. They are all on the basis of whatever active order book that we are having. Based on that, with the assumption that There is no COVID 3rd wave, everything comes to normalcy, gives us that confidence or capability or confidence rather to See a mid teen up to a low to mid teen kind of a growth. Hopefully, I think by the end of Q2, maybe we'll be in a better position to finally Put out a number because the issue is that, I mean, we can say the assumption, but we don't know how the whole things Pan out because of of course, this time around, let me tell you at least, I tell, not only LNG at more like an economy level, at least people now know how to face The 3rd wave.
And with all these improved vaccination efforts gives us the confidence that we should be Far more better positioned to manage the execution.
Okay. And just one quick In terms of while you did mention about a 90 crore kind of a kiln in hydrocarbon, there also seems to be some kind of a contingency release in defense business. Could you quantify that, please?
No. That is not material. I'm saying it is at the end of the day, the margins for the Difference Management is around 20 odd percent. So it's a Combination of various jobs that went into closure, usually the last bit of contingencies that get released. So that's the mix out there, I will put it that way.
The next question is from the line of Ajithya Bhatia from Investec. Please go ahead.
Hi, good evening, sir. See, you spoke about non recognition of Nabapar margin. I just want to understand where exactly is it getting recorded now?
Okay. Like for example, what we did in Q2 of FY 2021, The group decided that this asset will be put up for a divestment. And consequently, we have capped the carrying Value of that asset in our books at what we believe should be our realizable value. So since then, we only take Nava's revenues and costs, But we don't factor that margins. That margins get impaired in one of the schedules in our financials So that we keep the carrying cost at the same level unless and until we are able to seeing a higher realization Or maybe even a lower realization, either which way.
Understood. And secondly, You spoke about margin improvement happening on account of better overhead absorption. And this is really interesting Because Q1 itself has been a bit of a disrupted quarter. So does that mean that had there been no second wave, we have managed to cut our overhead cost an extent that margins would have looked better than what we are seeing today? And also, Is overhead reduction being that material that we are able to offset complete RM cost increase and still able to show some improvement in margin?
So actually speaking, I will tell you that in absolute terms, the overheads might have gone up, but the thing is that If you see when you are in the projects business, it is not necessary that your revenue is only a combination of whatever we report in manufacturing, construction and operating expenses. Part of the direct project related spend also gets factored into staff costs and in the other Schedule other operating expenses schedule that we have on the advertisement. So a higher recovery because Some of these costs like staff costs and part of operating expenses could be largely fixed to the more amount of high productivity output that we manifest No. Obviously, it means that we are able to factor that in our billable costs and get into recovery mode. And consequently, as a share of revenues, if you see in staff costs and also manufacturing, construction operating expense that Come down, that is essentially the margin recovery that is visible.
And obviously, there can be other reasons, as I said in the earlier part of the call, Claims, counter claims, ECL provisions, reversal of ECL provisions because of collections, all of that is part of the overall, I would say margins stack up.
Understood, sir. That's helpful. Thanks.
Thank you. The next question is from the line of Subhadip Nitra from JM Financial. Please go ahead.
Good evening, sir. You did mention that a significant portion of the infrastructure order book Has variable price contract, is it possible to quantify in terms of a percentage?
I will tell you that at a global level, Okay. When we are talking of a $3,200,000,000,000 order book that we have covering the entire projects segment, Roughly around 40% is fixed price contracts and 60% is variable price contracts.
Okay, okay. Understood. So from infra hydrocarbon, it's not going to be possible to give those lit up cycles?
At this time, sir, for some reasons, we keep it at the overall segment level, Subhadeep.
Okay, understood. Also, I think in the early part of your commentary, you had given this breakup of the 80% domestic order book Between government PSE, you have said I missed those numbers, if it is possible to just repeat that.
9% central government. Okay. Then 31 is state, public sector reenterprise is 43 And the last 16 is private.
Got it.
Okay. Thank you so much.
Thank you. Ladies and gentlemen, due to time constraints, this was the last question for the day. I would now like to hand over the conference over to Mr. P. Ramakrishnan for closing comments.
So thank you, Rupita, and thanks to all of you for participating in this call at this late hour. I wish you all the good luck and all the best. In case if any one of you have specific questions, Please reach out to me or my colleague, Harish. To the extent possible, we'll try to clarify that. And thanks for your time.
Thank you.
Thank you. On behalf of Larson and Toubro Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.