NCC : Transcript of the Analyst call held on May 15, 2024

"NCC Limited

Q4 FY '24 Earnings Conference Call"

May 15, 2024

MANAGEMENT: MR. R.S. RAJU - DIRECTOR PROJECTS - NCC LIMITED MR. SANJAY PUSARLA - EXECUTIVE VICE PRESIDENT, FINANCE AND ACCOUNTS - NCC LIMITED

MR. NEERAD SHARMA - HEAD STRATEGY AND INVESTOR RELATIONS - NCC LIMITED

MODERATOR: MR. VAIBHAV SHAH - JM FINANCIAL

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	NCC Limited
	May 15, 2024
Moderator:	Ladies and gentlemen, good day and welcome to Q4 and FY 24 Results Conference Call of NCC
	Limited, hosted by JM Financial. 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.
	Should you need assistance during the conference call, please signal an operator by pressing star,
	then zero on your touch-tone phone. Please note that this conference is being recorded.
	I now hand the conference over to Mr. Vaibhav Shah from JM Financial. Thank you, and over
	to you, Mr. Shah.
Vaibhav Shah:	Yeah, thank you, Manav. On behalf of JM Financial, I welcome everybody to the Q4 and FY 24
	Earnings Conference Call of NCC Limited. We have from the management today, Shri R.S.
	Raju, Director Projects, Shri Sanjay Pusarla, Executive Vice President, Finance and Accounts,
	and Shri Neerad Sharma, Head Strategy, and Investor Relations. So I hand over the call to the
	management now for their opening remarks, after which we can begin the Q&A. Over to you,
	sir.
Neerad Sharma:	Hi, good evening, everyone. At the very outset, I thank each of you for taking out time to attend
	this interactive meeting. As you are already aware, I have with me my colleagues, Mr. R. S.
	Raju, Director Projects, and our CFO, Mr. Sanjay Pusarla. About 15-20 minutes back, we have
	uploaded the results on the Stock Exchange website and one investor's presentation as well.
	Hope you have been able to download the presentation and go through the numbers. As you are
	aware, we have declared an excellent set of numbers for the fourth quarter and for the financial
	year 2024. I will hand over to Mr. R. S. Raju.
R.S Raju:	Good evening to all of you. Thank you, Mr. Vaibhav Shah. Before we read about the financial
	results of the company for the Q4 and the 12-month period of the FY24, I want to give the
	introductory remarks. Thank you, Mr. Vaibhav Shah. Good evening, ladies, and gentlemen.
	A warm welcome to all of you into the Q4 and the 12-month period of the FY24 Investor
	Earnings Call of NCC Limited. The presentation containing the performance of Q4FY24 and
	12-months was uploaded on the Stock Exchange website and in our website. Now, I will take
	you through the key highlights of the fourth quarter and thereafter, we will take you to the
	questions and answers.
	Before my briefing on the Q4, the usual disclaimer of the presentation that we have uploaded on
	the Stock Exchange and our website, including the discussions that we will have in this call,
	contains, or may contain certain forward-looking statements relating to an official business
	prospects and profitability, which are subject to several risks and uncertainties, and actual results
	may materially differ from those in such forward-looking statements. Now, coming to the
	current period, all of you are aware that this is the general election year and lots of elections are
	completed in some parts of the country, and the remaining parts, the elections are going to be
	held in a couple of days.
	These elections, followed by some state-listed elections in the year 2024, may have an impact
	on order booking, but little impact on the progress of the NCCL business. Before going to the
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NCC Limited

May 15, 2024

results, just I want to mention about the significant matters which have taken place in the 12- months period, and more specifically in the fourth quarter. The SPVs, smart meters.

You are aware that the company has secured three smart meter projects value of INR7,403 crores. Out of three, two projects we require to incorporate SPVs, and accordingly we have incorporated two SPVs for two projects, valuing INR5,756 crores. The work-sharing between SPVs and NCCL, the SPVs have given contract value of INR 3,660 crores by retaining at SPV level INR 2,095 crores.

The equity tie-up for these two projects is in good progress, and investment bankers show an interest to invest, and the management will decide the modalities in a couple of weeks. As far as debt tie-up is concerned, we have already approached banks, and SBI Caps has recommended our debt application to SBI, and we expect the sanction in a couple of days from the SBI.

As far as Bihar smart meter project is concerned, NCCL doing on its own, already started the work, and erection is done for some sample testing meters. The sample testing is in progress by the client. And other major projects which NCCL doing is UP, Jal Jeevan, Nigam projects. There is a good progress in execution of these Jal Jeevan projects in UP, and these projects contributed significantly in Q4 and 12 months in the topline. Out of the total orders of INR16,900 crores, we have executed up to March 24, about 53%.

It may take another one year to complete the major part of Jal Jeevan projects, second phase and third phase. And Malad project, you know that we received a larger size project valuing INR3,802 crores a year back, we received, but now we received the environmental clearance to proceed further for execution of the project.

So, already other facilities are mobilized, and in 24-25 this project expected to report a good progress. NCCL Vizag Urban, we have received INR52 crores in 23-24, and another INR65 crores we received in the April-May 24, and aggregating to INR119 crores, the receipts happened. The balance of INR35 crores against equity consideration, we expect to receive in 24-25. And apart from that one, we also expect to receive another INR50 crores against the loan from the buyer of the project.

Sembcorp, you are aware that the arbitration tribunal has given an award for a total amount of INR198 crores, out of which we received INR151 crores, and balance INR45 crores pending. And both the companies went to the, again, court under Section 34, and the outcome, it takes some more months to know. As far as AP projects are concerned, there is not any major change, and we have about INR701 crores at the beginning, and now the order, the value has come down to INR598 crores, related to the capital city projects.

As far as BGs are concerned, we have INR267 crores value of business at the beginning of the year. Now it has come down significantly to INR67 crores, a decline of nearly INR200 crores in the 12-month period of the year under review. So, similarly, the outstandings have come down from INR 157 crores to INR 147 crores. And another significant matter taken place is settlement of TAQA. All these quarters, we use it to tell about the status of the TAQA, and in the last meeting also we expressed that amicable settlements are in progress.

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NCC Limited

May 15, 2024

Now, the settlement, amicable settlement is reached between the two parties. According to the settlement, we require to pay INR175 crores on installment basis, out of which INR90 crores was made in March 24, and balance INR85 crores payable in two instalments in 24-25. On account of this settlement, there is an impact on P&L of NCCIHL about INR55 crores and same is observed in the Q4. In the PTTL, another case pending related to the PTTL or associate company, the lenders of PTTL made a claim in NCLT against PTTL. In Q4, we have received a settlement award from NHAI, and they deposited in the Consortium Bank account for further distribution to all the lenders.

All the lenders have given no objection certificate, and accordingly the PTTL pending case is now closed. And another transaction is NCCIHL vs. GEVPL. All of you are aware that GEVPL has invested 37% in NCCIHL, and at the same time NCCIHL has invested its money equivalent to that in the form of Debentures in GEVPL. So, in Q4, NCCL has acquired the investment from GEVPL. As a result, NCCIHL now has become 100% subsidiary of NCCL.

GEVPL, in turn, uses the sale consideration to redeem its OCDs held by NCCIHL. So, these are the major significant transactions taking place in 12 months as well as in the fourth quarter. Now, coming to the fourth quarter performance the first I will discuss on the order book. So, order book at the beginning of the year we have INR50,244 crores, and in fourth quarter we received INR6,044 crores and in fourth quarter we have executed INR5,949 crores.

As a result, the closing order book now stands at INR57,536 crores, as against INR50,244 crores, showing a growth of 15%. So, we targeted for the year the new orders about INR26,000 crores, but company received orders INR27,283 crores, a little more than its plan. So, the orders executed in 12 months period is INR17,891 crores. Similarly, the order size increased significantly from INR578 crores of last year to INR780 crores.

In the year 23-24, we secured 35 number of orders. So, this is about the order book. Now, I want to brief the operating and financial performance of NCCL from the Q4. On stand-alone basis, the company reported a revenue of INR5,487 crores against INR4,047 crores, a growth of 36%. The revenue primarily driven by the buildings division and electrical divisions, which in turn driven by the UP Jal Jeevan Mission project mostly. The gross profit reported as INR771 crores against INR634 crores, a growth of 22%. Similarly, the gross profit margin reported is 14.2% against 15.8%, a decline by 1.7%.

The company has posted an EBITDA of INR510 crores against INR424 crores, an increase of 20% against the corresponding quarter of the previous year. The PAT reported INR188 crores against INR178 crores, an increase of 6% over the corresponding quarter. The EBITDA margin reported is 9.4% against 10%. The other income reported for this quarter is INR42 crores against INR31 crores.

Coming to the cash flows, stand-alone Q4. On stand-alone basis, the fourth quarter, the cash flows of INR1,146 crores generated from the operating activities, as against INR1,123 crores year-on-year. The net cash flows used in investing activities INR148 crores against cash flows generated INR55 crores. The net cash flows used in financial activities INR615 crores against INR1,082 crores.

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NCC Limited

May 15, 2024

Coming to the 12-monthstand-alone operating results the company reported a revenue of INR18,459 crores against INR13,504 crores, a growth of 37%. The revenue increase is primarily due to more revenue from building and electrical divisions, again good progress from the Jal Jeevan Mission project. The gross profit reported as INR2,590 crores against INR2,170 crores, a growth of 19%. The gross profit margin in 12 months is 14.14% against 16.25%. The adjusted gross profit margin for 12 months period is 15.7% as against an adjusted margin of 15.52% of the previous year.

We know that in the second quarter some major impact happened on account of Sembcorp settlement. As a result, we have worked out adjusted margins. So, the adjusted gross profit margin when compared to the previous year, there is a decline, but the decline is only to the extent of 0.45% over the previous year. The company has posted an EBITDA of INR1,648 crores against INR1,343 crores, a growth of 23%.

The EBITDA margins reported as 9%, adjusted EBITDA is 10% as against same 10.06% of the corresponding period of previous year. It means there is not any big change in EBITDA margin on apple to apple comparison. PAT reported as INR631 crores against INR569 crores, PAT margin 3.4% but adjusted PAT margin is 4.57% as against 4.2% of the previous year. Cash flows for 12 months on standalone basis, nearly INR1,248 crores generated from the operating activities as against INR873 crores of the previous year.

Net cash flows used in investing activity is INR333 crores against INR132 crores. Net cash flows used in financial activity is INR707 crores against INR749 crores. The above cash flows indicate that there is a significant increase in the operating cash flows from INR873 crores to INR1,298 crores in 2023-2024, which shows the kind of collections and the kind of working capital management done by the company.

So that is about the standalone. Now I want to brief Consol Q4. This quarter reported a turnover of INR6,530 crores against INR4,980 crores at a growth of 31%. The Gross Profit reported as INR851 crores against INR692 crores at a growth of 23%. The Gross Profit Margin reported as 31.1% against 13.8%. The EBITDA reported INR554 crores against INR462 crores at a growth of 20%.

Now the PAT reported as INR210 crores against INR185 crores at a growth of 14% over the corresponding quarter of previous year. Now I will go to the 12-month consol. This 12-month period reported turnover of INR20,971 crores against INR15,701 crores at an increase of 34%. The Gross Profit reported INR2,780 crores against INR2,336 crores at a growth of 19%. The EBITDA reported INR1,983 crores against INR1,459 crores at a growth of 22%. The PAT reported INR711 crores against INR609 crores at a growth of 17%.

Next, I will briefly touch about the group companies. There are two companies actively reporting the top line and the profits. One is Pachhwara Coal Mining Private Limited. Another one is NCC Urban. So in this 12-month period, the Pachhwara Coal Mining Private Limited has reported turnover of INR1,829 crores against INR1,780 crores of the previous year.

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NCC Limited

May 15, 2024

Similarly, NCC Urban has reported turnover of INR389 crores as against INR370 crores in the corresponding 12 months of the previous year. So the total group companies reported a turnover in this 12-month period is about INR2,533 crores as against INR2,199.78 crores a growth of 15%.

So the standalone company reported growth of 37% and this group companies reported a topline growth of 15%. Coming to the balance sheet in this investment. The investments in this quarter increased from INR875 crores to INR1,033 crores which on account of the acquisition of the NCCIHL from the GEVPL.

Next capex in fourth quarter we have spent INR114 crores and in the 12-month period we have spent about INR249 crores. The inventories slightly increased in the 12-month period from INR1,078 crores to INR1,434 crores about INR356 crores and this increase in this period is in line with the increase in the volume of activities.

As trade receivables, the trade receivables declined by INR150 crores in the 12-month period from INR2,945 crores to INR2,791 crores though there is an increase in the top line. The trade receivable days for the year under review significantly come down to 57 days from 87 days almost the lowest in the decade.

Retention money also significantly has come down from INR1,930 crores to INR1,595 crores. It declined by about INR435 crores which in turn due to receipt of settlement amount from Sembcorp. The unbilled revenue increased from INR3,225crores to INR3,859 crores an increase of 20% as against an increase of 37% in the top line. The UBR in terms of percentage of turnover has come down from 24% to 21%.

The next item is working capital. There is a significant improvement in working capital days from 102 days to 76 days, lowest in the decade. As a percentage of turnover it is reported 20% of sales or revenue as against 29% of the previous year.

In terms of value the kind of working capital has come down from INR3,870 crores to INR3,700 crores despite increase in activity by 36%. The debt has come down from third quarter to fourth quarter by about INR400 plus crores and stands now at INR1,005 crores. Compared to the opening debt of the year there is a slight increase of INR25 crores in the debt. In the previous investors call meeting we said that the debt may stand at INR1,300 crores or so by the year-end, but now it stands at INR1,000 crores because of the good collections that happened from the clients in March-24.

The mobilization advance is decreased from INR2,755 crores to INR2,311 crores a decline of about INR440 crores. So, there is no increase in debt, but there is a decrease in mobilization advance which shows companies' working capital management.

Next, we come to the ratios. The RoCE reported for FY24 is 14.04% as against 13.41% of the previous year. Similarly, the return net worth i.e. PBT by net worth reported 13.56% as against 12.95%. On a consolidated basis, the RoCE reported is 15.77% as against 14.41%. Another significant matter taking place here is the credit rating.

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NCC Limited

May 15, 2024

	We received an enhanced credit rating AA minus from the Care Ratings. So, with this, we expect
	further improvement in our term loans, our working capital loans, our BGs, LCs, costs we are
	expecting some improvement in the cost point of view. The last but not least item is about the
	guidance.
	We have given guidance for order booking for FY23-24 as INR26,000 crores whereas we have
	achieved INR27,283 crores and top line we have given a growth of 20%, but we achieved 37%.
	So, for the year 24-25 we give a guidance on order booking about 20,000 to 22,000 considering
	the present market environment particularly the general elections, followed by some state
	assembly elections. And the top line growth guidance about 15% plus as against 20% guidance
	given in the last year.
	Similarly for the EBITDA margins we have already seen about the margins how the margins.
	So we expect the EBITDA margin 9.5% to 10%. However, these numbers are subject to impact
	of the elections, if any. Now, this is about the brief on the NCCL Q4 and 12 months operating
	results. Now, the session is open for the participants for their questions, and we answer the
	questions.
Moderator:	Thank you, sir. We will now begin the question-and-answer session. We have our first question
	from the line of Mohit Kumar from ICICI Securities. Please go ahead.
Mohit Kumar:	Good evening, sir. Congratulations on a good set of numbers. My first question is on these
	margins. Our margins used to be 12% it has been declining from 12% to 10%. When you're
	guiding against a softer margin against 50 basis point correction. Given the outlook, do you think
	any chance of margin surprise in FY25 and are we targeting a slightly higher number as we go
	forward, maybe a couple of years henceforth? Can we expect a better margin more than 10%?
R.S Raju:	As now I have got the margins. Now the company's focus is on to secure more orders and other
	size orders and in the market, there is a competition and to get the orders we have to compromise
	at 1% or 2% at the gross profit margin level. So this has been the experience for the last two,
	three years. As a result, the company decided on its philosophy to quote, to get more orders and
	do more turnover.
	And as a result, 35% each year, 35% growth, company reported on the top line. And though the
	gross margins are lower, but ultimately maintain the bottom-level margins at PBT-PAT level,
	improve the margins at that level. That is the focus we are making. But the company's plan, we
	are making an improvement in the net profit margins year-on-year, at least by 50 base points
	every year. So like that, the company management philosophy is there. So accordingly, the
	business model is there.
	So the EBITDA margins, as a result, last year reported 10%. Now, again, 9.5% to 10% we have
	given as guidance. So as far as order booking is concerned, this year is an election period. And
	definitely, five to six months period, every company loses in getting the orders. We don't know
	how the things take place. But we have given 20,000 to 22,000 as the minimum benchmark to
	secure. So if there is no impact -- good impact on the front of the elections, so we may get more
	orders. But a minimum of 20,000 to 22,000 is the benchmark the company has kept.
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	NCC Limited
	May 15, 2024
Neerad Sharma:	Mohit Kumar if I may add a couple of things. Firstly, this is also a function of the competition
	prevailing in the space. As the space gets more competitive, generally, the price levels tend to
	go down. But I think it is better to look at the profits, the PAT or PBT, whatever that you prefer
	in terms of absolute numbers, I mean in rupees crores. Then you will see a clear direction that
	we are moving northwards always. And going forward, the guidance that we have shared with
	you, that is 9.5% to 10% is for the current year, that is FY' 24, '25. Going forward, next couple
	of years, our intention is always to keep the needle moving.
Mohit Kumar:	My second question is, what are the capex and equity invested for FY '24? And what is the
	guidance for capex and equity investment in FY '25?
R.S Raju:	In FY '24, we spent about INR285 crores. And for FY '25, we are targeting to spend about
	INR250 crores.
Mohit Kumar:	This is on the capex side. On the equity side, sir? Equity investment in the subsidiaries?
R.S Raju:	As equity investment, it varies between INR100 to INR175 crores. Depends upon the
	requirement and progress of the recently received smart meter projects.
Mohit Kumar:	So the total number will be below less than INR2 billion for FY '25. For everything. Am I right,
	sir?
R.S Raju:	Yes.
Mohit Kumar:	Understood, sir. Thank you and all the best, sir. Thank you.
Moderator:	Thank you. We have our next question from the line of Shravan Shah from Dolat Capital. Please
	go ahead.
Shravan Shah:	Sir, I need data points on retention money as of March, mobilization advance, and loans to
	associates and subsidiaries?
R.S Raju:	Please note down. The retention money is INR1,505 crores. The mobilization advance is
	INR2,311 crores. The other item you asked is UBR, right?
Shravan Shah:	Sir, loans to subsidiaries and associates?
R.S Raju:	He is standing at INR 509 crores.
Shravan Shah:	2509.
Sanjay Pusarla:	No, no. 509. I think we will repeat again for your benefit. Retention money has gone down from
	INR1,930 crores in the last year to INR1,505 crores. And mobilization advance, it has gone
	down from INR2,755 crores to INR2,311 crores. The loans, it has come down from INR549
	crores to INR509 crores.
Shravan Shah:	So total investment in subsidiaries and associates including investment and loans now is
	INR1,544 crores?
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	NCC Limited
	May 15, 2024
R.S Raju:	Yes, you are right.
Shravan Shah:	Okay. And couple of clarification, you mentioned the TAQA settlement. So in this fourth quarter
	how much we have INR55 crores you mentioned this is booked in other expense or where it has
	been booked?
Sanjay Pusarla:	It was shown as an exceptional item.
Shravan shah:	And the prior year tax of INR36.82 crores in FY '24, is the entirely in the fourth quarter or?
R.S Raju:	It is not entirely in the fourth quarter. It is over a period of 12 months.
Shravan shah:	And sir, now how do we look at in terms of the debt level and in terms of the finance cost for
	FY '25?
R.S Raju:	Yes, finance cost now for the current year in terms of percentage works out to about 3.23% is
	the interest cost for the year '23, '24. And for next year we expect some 30 to 40 base points
	reduction.
Shravan shah:	So as a percentage of revenue we are seeing some reduction. So does that mean on absolute level
	also INR595 crores finance cost will reduce in FY '25?
R.S Raju:	The same level about INR10, INR20 crores in that level will be there. There won't be any
	significant change.
Shravan shah:	And on the working capital and the debt level, how it will look by end of FY '25?
R.S Raju:	So we are targeting now we have INR 1005 crores, and we are targeting to reach INR500 crores
	by end of FY '25.
Shravan shah:	And working capital any further improvement possible?
R.S Raju:	Working capital in terms of working capital days, yes still two, three days reduction would be
	there. But in absolute terms for some amounts get increased for 15% plus growth. But in terms
	of days or in terms of percentage a little reduction we expect.
Shravan shah:	Okay, thank you sir and all the best.
Sanjay Pusarla:	Thank you.
Moderator:	We have our next question from the line of Parikshit Kandpal from HDFC Securities. Please go
	ahead.
Parikshit Kandpal:	Yes sir, hi. Congratulations on a good quarter. So my first question is on the stake purchase of
	37% for INR240 crores. So we can understand the rationale behind this and how did you arrive
	at INR240 crores of consideration? And what are the assets, balance assets in this entity?
R.S Raju:	This is an old transaction. Originally the transaction taken place some six, seven years back. At
	that time there is a pre-understanding are there. At that time the GEVPL is a partner in our NCC
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NCC Limited

May 15, 2024

Power Company. So at that time basing on the restrictions or conditions we used the GEVPL shares to transfer to the Sembcorp. And in turn we have given a stake in our NCCIHL equivalent to that amount. The rights we have given to GEVPL, 37% stake in the NCCIHL. The same time the NCCIHL has invested the similar amount in the form of CCDs or Optional Control Debentures in GEVPL. So in all the books the transactions are continuing for the last 5-6 years.

We are waiting for the swapping of this transaction for a period of time. Now in the current year we have taken up this exercise and exchanged the same thing. It is nothing but a swapping of the transaction, cancelling or closing of the transaction. So, we reacquired the stake of 37% from GEVPL at a predetermined price.

It is not the market driven price and other things. And the same amount they used for redeeming the debentures issued by them to the NCCIHL. This among the three companies this transaction has taken place. It is nothing more or less a paper type transaction. The transaction entries are closed in the books of accounts. As a result, now NCCIHL has become a 100% subsidiary of NCC. There is no profit, there is no loss in the transaction.

Neerad Sharma: Mr. Parikshit, this is not really a new transaction. This is something that we have just affected. This was an agreement that we entered into several years back.

Parikshit Kandpal: Is it a cash item or a non-cash item? Non-cash item.

Neerad Sharma: Non-cash item, the fact of the matter is you are aware that long back we had one power asset. And we wanted to sell that power asset to Sembcorp, the acquirer. But due to some permissions we could not sell. Because we had to transfer all the coal linkages and everything. That is the reason this arrangement was made between us and Gayatri. In other words, this is just the unwinding of the pre-agreed milestone. So, this is just a sort of paper transaction if you prefer that word. There is no cash involved in this.

Parikshit Kandpal: That is, what I wanted to check if it is cash or non-cash item.

Neerad Sharma: I hope that answers your question.

Parikshit Kandpal: Yes, Secondly, on the order pipeline, given that almost half of this year will go around elections, government formation, so ordering is expected to get delayed. But which sectors? Are you looking at new sectors to compensate for the shortfall? Are you looking at solar projects? So, to build up the order book, are you open to take subcontracting works or beauty toll projects from other dealing developers? Because I think you don't invest in equity intensive projects in both segments. So, any sense on how do you intend to make up for the shortfall?

Neerad Sharma: Yes. But see, the prospective pipeline of the projects which we expect to come up for bidding, post the elections, we continue to see a very healthy pipeline. And at least in 3, 4 major verticals in which we are present in a major way, such as our buildings division, our transport division, the water division, electrical T&D, we continue to see a very healthy pipeline of projects.

So, in light of that fact, you must have noticed that we have sort of toned down our order inflow guidance for the current financial year. These two verticals that you are talking about, solar EPC

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