Concall AI

Ahluwalia Contracts (India) Limited — Q2 FY25 earnings call

Call held 18 Nov 2024

Management summary

Ahluwalia Contracts reported a mixed Q2 FY25, with healthy revenue growth of 12.19% YoY but a significant PAT decline of 30.63% due to margin compression. The company's EBITDA margin fell to 7.25% from 9.96% YoY, impacted by labor shortages, monsoon, and project delays. Despite these challenges, the order book remains strong at over ₹16,000 crores, and management provided guidance for 15% revenue growth and 9% EBITDA margin for FY25, while adopting a cautious approach to new order inflows and capex.

Highlights

Q2 FY25 Revenue stood at ₹1,011.48 crores, marking a 12.19% YoY growth.
Q2 FY25 PAT was ₹38.36 crores, experiencing a 30.63% YoY decline.
EBITDA margin for Q2 FY25 was 7.25%, down from 9.96% in Q2 FY24.
H1 FY25 Revenue reached ₹1,930.83 crores, with PAT at ₹68.96 crores.
The net order book as of September 30, 2024, is robust at ₹16,193.45 crores.
Total order inflow for FY25 year-to-date is ₹7,794.37 crores.
Management guided for ~15% revenue growth and ~9% EBITDA margin for FY25.
FY25 Capex guidance was revised downwards to ~₹130 crores from ₹175 crores.

Concerns

Labor availability and wage inflation
NGT (National Green Tribunal) restrictions in NCR

Key financials

4 periods

Headline

Net Order Book (Sep 30, 2024)
₹16,193.45 Cr
Gross Debt
₹9 Cr
Trade Receivables (Current)
₹625 Cr

Q2 FY25

Revenue
₹1,011.48 Cr
YoY +12.2%
PAT
₹38.36 Cr
YoY -30.6%
EBITDA Margin
7.3%
PAT Margin
3.8%
EPS
₹5.73
Net Working Capital Days
93 days

H1 FY25

Revenue
₹1,930.83 Cr
PAT
₹68.96 Cr
EBITDA Margin
6.9%

FY25 YTD

Total Order Inflow
₹7,794.37 Cr

What they filed

Q1 FY27: revenue up 12.0%, net profit down 78.4% against the same quarter last year.

₹ Cr · quarterly

Line item	Q2 FY25	Q3 FY25	Q4 FY25	Q1 FY26	Q2 FY26	Q3 FY26	Q4 FY26	Q1 FY27
Revenue	1,011	952	1,216	1,005	1,177 +16%	1,061 +11%	1,322 +9%	1,126 +12%
Expenses	938	868	1,092	919	1,049	965	1,199	1,078
EBITDA	73	84	124	86	129 +77%	96 +14%	124 +0%	48 −44%
Margin	7%	9%	10%	9%	11%	9%	9%	4%
Other income	12	15	18	16	15	15	25	16
Interest	16	15	13	12	15	11	12	16
Depreciation	17	18	17	21	22	26	29	32
Profit before tax	53	67	112	69	106 +100%	74 +10%	108 −4%	15 −78%
Tax rate	27%	26%	26%	26%	26%	27%	26%	26%
Net profit	38	49	83	51	79 +108%	54 +10%	80 −4%	11 −78%
EPS	5.73	7.37	12.41	7.63	11.80	8.06	11.96	1.70

How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Guidance & targets

Revenue

Revenue Growth Revenue · FY25 · High confidence 15%

So as far as our top line growth is concerned, we are seeking to a guidance about 15% growth.

— Shobhit Uppal, Deputy Managing Director
Revenue Growth Revenue · FY26 · High confidence 15-20% (targeting 20%)

Yes, it should be between 15% to 20%. We are targeting a 20% growth.

— Shobhit Uppal, Deputy Managing Director

Margin

EBITDA Margin Margin · FY25 · Medium confidence 9%

As far as our margin is concerned, we feel that we'll have to moderate it a bit. It will come below double digits now. It will be around 9%.

— Shobhit Uppal, Deputy Managing Director
EBITDA Margin Margin · FY26 · Medium confidence cross double-digit barrier

As far as the next financial year is concerned, since our order book is healthy and a lot of our design build projects we feel will be in full swing in the next financial year, we should cross the double-digit margin barrier in the next financial year, that is FY '26.

— Shobhit Uppal, Deputy Managing Director

Order Inflow

New Order Inflow Order Inflow · remaining FY25 · Medium confidence INR1,000 crores

So in the rest of the 3, 4 months of this financial year, we're not bidding very aggressively, maybe another INR1,000 crores inflow.

— Shobhit Uppal, Deputy Managing Director
New Order Inflow Order Inflow · FY26 · Medium confidence INR5,000-6,000 crores

And going forward, in the next financial year, maybe anywhere between INR5,000 crores to INR6,000 crores new orders.

— Shobhit Uppal, Deputy Managing Director

Order Book

Bid Pipeline Order Book · current · High confidence INR5,000 crores

Currently, the bid pipeline as it stands, is about INR5,000 crore.

— Shobhit Uppal, Deputy Managing Director

Capex

Total Capex Capex · FY25 · Medium confidence INR130 crores

Previously INR175 crores → INR130 crores

Given a guidance of about INR130 crores, I think. ... And then the rest of the financial year, it should be about another INR30 crores to INR35 crores. That also we are revising it downwards.

— Shobhit Uppal, Deputy Managing Director

Staff Cost

Staff Cost as % of Revenue Staff Cost · ongoing · Medium confidence 7-7.5%

From 6.8-7.1% today

So just to give you an idea, our staff cost per se, only our staff cost, if that is helpful to you is in the region of -- it varies from about 6.8% to 7.1%. And this is where it's been kept at over the past, say, 2 to 3 years. ... We aim to get it down to anywhere between 7% to 7.5%.

— Shobhit Uppal, Deputy Managing Director

Project Execution

DLF Arbour Project Execution Rate Project Execution · ongoing · Medium confidence INR25 crores/month

From INR11-12 crores/month today

Or last month, we achieved that run rate. And this month, we were on a target to achieve to double that. And then going forward, maintain about INR25 crores every month.

— Shobhit Uppal, Deputy Managing Director

Project Revenue

CST Project Turnover Project Revenue · FY25 · High confidence INR300 crores

So to specifically answer your question, as far as this financial year is concerned, we are looking at a turnover of about -- we're targeting a turnover of about INR300 crores.

— Shobhit Uppal, Deputy Managing Director
CST Project Turnover Project Revenue · FY26 · Medium confidence INR800 crores

And as far as the next financial year is concerned, as Vikas just said, INR70 crores to INR80 crores per month would be an average. That's about INR800 crores give or take a few crores here and there for the next financial year.

— Shobhit Uppal, Deputy Managing Director
Jewellery Park Revenue Start Project Revenue · FY26 · High confidence H2 FY26

So revenues will start flowing in from next year, second half?

— Vikas Ahluwalia, Director
Jewellery Park FY26 Revenue Run Rate Project Revenue · FY26 · Medium confidence INR30-50 crores/month initially, then INR70-80 crores/month

Maybe about INR50 a month. You see, by -- what will happen in this is that by the time the design is going to get complete, rains are going to set into Mumbai, Maharashtra next year. So that is what is going to happen in this case. I mean very honestly. Maybe next year, again, an average run rate of about INR30 crores to INR50 crores in the first few months. Then again, it is going to go up to that level of INR70 crores, INR80 crores.

— Vikas Ahluwalia, Director

Settlement

Emaar Settlement Remaining Settlement · January (last tranche) · High confidence INR56 crores

I think it's INR56 crores to be received now. ... Total, INR218 crores. Out of this, INR56 crores is to be received down.

— Satbeer Singh, Chief Financial Officer

Risks & concerns

Labor availability and wage inflation
high

Labor shortage is continuing due to elections and NGT issues, impacting execution and margins, expected to persist through FY25 and Q1 FY26.

Management acknowledged
NGT (National Green Tribunal) restrictions in NCR
high

GRAP-IV implementation in NCR is impacting Q3 FY25 execution, especially for projects in Gurgaon, affecting margins.

Management acknowledged
Monsoon impact on project execution
medium

Prolonged monsoon across the country (Mumbai, Odisha, Bihar, Assam) affected turnover and execution in H1 FY25.

Management acknowledged
Design and approval delays for large projects
medium

Delays in design approvals for major projects like CSMT and Tata Memorial Hospital impacted execution and margins in H1 FY25, though expected to resolve soon.

Management acknowledged
Election-year disruptions
medium

Country being in 'election mode' for 5-6 months impacted labor force availability on site, contributing to execution delays.

Management acknowledged

Q&A highlights

3 direct

Reasons for margin contraction and future outlook Direct

So look, while one of the things which has surprised us in the past is the volatility in material cost, that we had catered for by building in escalations in our contracts. But a, on some of our larger order book larger contracts, which we have won in the last year or so, there are various factors which have hit us, which would not sort of within our control. One is, of course, the prolonged monsoon across the country. ... The turnover has been affected there. Then as I mentioned in my answer to the earlier question about the last 5, 6 months, the country has been in election mode. ... Thirdly, on some of our large contracts, the design part, approval, so to say, have been delayed for no fault of ours... That has impacted our margins because our fixed overheads have continued to be there, and we've not been able to execute on the ground.

This question directly addressed the significant margin decline, and management provided a comprehensive list of internal and external factors, including monsoon, elections, labor shortage, and design delays, which are critical for understanding past performance and future risks.

Asked by Lakshminarayanan, Tunga Investments

Capital allocation strategy and capex reduction Direct

It's an internal reworking that we've done. Some of our larger projects have gotten over. And as I mentioned earlier, we become we are conservative as far as new order inflow is concerned. So as a part of cost-cutting exercise that we have gotten into, once we've realized that the margins were down for the reasons as enumerated earlier by us. So we are looking to reduce our capex expenditure as far as equipment and shuttering go. We are looking at as far as shuttering goes, we are looking at maybe going the rental route on some of our projects where we feel which are fast-track projects where we can use rented shuttering a quick in and out. So as a part of the overall strategy to cut costs.

This question probed the rationale behind the downward revision of capex guidance despite revenue growth targets, revealing management's strategic shift towards cost-cutting, conservative order inflow, and utilizing rental equipment for specific projects to optimize capital.

Asked by Samyak Jain, Marcellus Investment

Strategy for private vs. public sector order book mix Direct

Nothing is stopping us, but other than the scars of the last downturn. Earlier when the downturn hit the private sector, we a lot of contractors got waylaid. They lost actually companies got finished. So we don't want to put a lot of eggs in one basket. And while the going is good today, we as an infrastructure company, we are always at the forefront of cycles, be it upward cycle or downward cycle. So we're just being cautious.

This question challenged management's 50-50 private-public sector mix, given better terms in private, and management's response highlighted a cautious, risk-averse strategy based on past downturn experiences, providing insight into their long-term stability focus over aggressive growth.

Asked by Sunny Roy, Individual Investor

2 min read 6 chapters

Detailed narrative

Q2 FY25 Performance Overview and Margin Pressures

Ahluwalia Contracts reported a Q2 FY25 turnover of ₹1,011.48 crores, representing a 12.19% year-on-year growth. However, PAT declined significantly by 30.63% YoY to ₹38.36 crores. The EBITDA margin compressed to 7.25% from 9.96% in the prior year, and PAT margin fell to 3.79% from 6.13%. Management attributed this margin pressure to prolonged monsoons, labor shortages exacerbated by election season, and design/approval delays on large projects like CSMT, which impacted execution and increased fixed overheads.

Order Book and Inflow Dynamics

The company maintains a healthy net order book of ₹16,193.45 crores as of September 30, 2024, with an execution timeline of 2 to 2.5 years. Total order inflow for FY25 year-to-date stands at ₹7,794.37 crores. Management anticipates an additional ₹1,000 crores in order inflow for the remainder of FY25 and projects ₹5,000-6,000 crores in new orders for FY26. The current bid pipeline is approximately ₹5,000 crores, with a focus on industrial activity, airports, and government office buildings.

FY25 and FY26 Guidance

For FY25, Ahluwalia Contracts guided for approximately 15% revenue growth and an EBITDA margin of around 9%, a moderation from previous double-digit expectations. Looking into FY26, the company targets 15-20% revenue growth, aiming for 20%, and expects to cross the double-digit margin barrier as design-build projects gain full swing. This outlook is contingent on the resolution of current execution challenges like labor availability and NGT restrictions.

Working Capital and Debt Management

The company demonstrated improved working capital management, with net working capital days reducing from 117 in Q1 FY25 to 93 in Q2 FY25. Current trade receivables are ₹625 crores, with ₹525 crores expected within 6 months and ₹100 crores beyond. Gross debt remains low at ₹9 crores. Management noted improvements in working capital from states like Bihar, with dues certified and expected to be cleared in FY25.

Capex Revision and Cost Optimization

FY25 capex guidance was revised downwards to approximately ₹130 crores from an earlier estimate of ₹175 crores. This revision is part of a broader cost-cutting exercise, driven by lower margins and a conservative approach to new order inflows. The strategy involves reducing expenditure on equipment and shuttering, and increasingly utilizing rental options for fast-track projects where profitability will not be impacted, particularly for projects with a 1-1.5 year completion timeline.

Key Project Updates

The CST redevelopment project is targeted to achieve ₹300 crores in turnover for FY25 and approximately ₹800 crores for FY26, with an average run rate of ₹70-80 crores per month starting January/February. The DLF Arbour Project aims to increase its execution rate to ₹25 crores per month from the current ₹11-12 crores. The Jewellery Park project is expected to receive its notice to proceed in December, with revenues commencing in H2 FY26, targeting ₹30-50 crores/month initially, then ₹70-80 crores/month.

This is an AI-generated summary of a publicly available earnings call transcript.

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