Patel Engineering Limited — Q2 FY25 earnings call

Call held 13 Nov 2024

Management summary

Patel Engineering reported a strong Q2 FY25 with robust revenue and profit growth, driven by solid project execution. The company significantly reduced its gross debt and maintains a healthy order book, primarily in the hydro sector. Management expressed confidence in future order inflows and project execution, supported by government infrastructure initiatives and strategic alliances.

Highlights

  • Consolidated Revenue grew 14.98% YoY to ₹1,174 crores in Q2 FY25.

  • Consolidated Operating EBITDA increased 15.8% YoY to ₹162 crores, with margins at 13.81%.

  • Consolidated Profit After Tax (PAT) surged over 150% YoY to ₹81 crores.

  • Gross Debt reduced by over ₹500 crores in the last year, reaching ₹1,438 crores as of September 30, 2024.

  • Current Order Book stands at ₹17,260 crores, with 64% from the hydro sector.

  • Targeting ₹10,000-12,000 crores in order inflow over the next year.

  • Anticipate maintaining average EBITDA margins of 13-14% in coming quarters.

Key financials

  1. Consolidated Revenue ₹1,174 Cr +15%YoY
  2. Consolidated Operating EBITDA ₹162 Cr +15.8%YoY
  3. Consolidated EBITDA Margin 13.8%
  4. Consolidated PAT ₹81 Cr +153.1%YoY
  5. Gross Debt (Consolidated) ₹1,438 Cr
  6. Debt-Equity Ratio 0.39

What they filed

Q1 FY27: revenue up 3.9%, net profit up 21.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,174 1,206 1,612 1,233 1,208 +3%1,239 +3%1,421 −12%1,281 +4%
EBITDA162 184 218 165 159 −2%145 −21%215 −1%180 +9%
Net profit73 82 38 81 73 +0%72 −12%44 +16%98 +21%
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.

Segment breakdown

  • Hydro Sector
    56% Revenue Contribution
  • Irrigation Sector
    18% Revenue Contribution
  • Tunnelling Sector
    12% Revenue Contribution
  • Roads and Other Sectors
    14% Revenue Contribution

Guidance & targets

Order Inflow

  • Order Inflow Order Inflow · next 1 year · High confidence ₹10,000-12,000 crores
    Right now, we can only say that from 1 year from now, we are looking at around INR10,000 crores, INR12,000 crores order inflow.

    — Rahul Agarwal

Profitability

  • EBITDA Margin Profitability · coming quarters · High confidence 13-14%
    See, we anticipate on an average 13%, 14% margin. So that we'll maintain.

    — Rahul Agarwal

Debt

  • Term Debt Payoff Debt · next 3-4 years · Medium confidence ₹650 crores
    We expect to pay the term debt over the next few years. say, around 3 years -- 3, 4 years from now. So that is our target that we'll pay off the term debt.

    — Rahul Agarwal

Asset Monetization

  • Non-core Asset Realization Asset Monetization · per year · High confidence ₹150-200 crores
    This year, we had planned to realize around INR150 crores to INR200 crores per year from monetization of non-core assets.

    — Rahul Agarwal

  • Arbitration Claims Realization Asset Monetization · next 6-12 months · Medium confidence ₹100-150 crores
    What we are looking at is maybe next 6 months, 1 year, we get around INR100 crores, INR150 crores more.

    — Rahul Agarwal

Capex

  • Capex as % of Order Inflow Capex · ongoing · High confidence 5%
    Yes, actually, it's 5% maximum.

    — Kavita Shirvaikar

Interest Cost

  • Interest Cost Savings from Credit Rating Interest Cost · Q4 onwards · Medium confidence 50-100 bps
    Between 50 to 100 bps.

    — Rahul Agarwal

Risks & concerns

  • Monsoon season impact on execution

    medium

    Q2 was a challenging monsoon quarter, but the company still achieved revenue growth.

    Management acknowledged

  • Election season impact on order inflows

    medium

    Slowdown in new orders due to election year, but anticipate strong recovery post-elections.

    Management acknowledged

  • Interdependency on other contractors for project completion

    low

    Finishing work on projects like Subansiri is interdependent on H&M/E&M contractors, which can affect timelines.

    Management acknowledged

Q&A highlights

3 direct
Working Capital Management and Inventory Composition Direct
See, I'll tell you, inventory is a component of two, three things. One is there is a stock of land parcels also, around INR350-odd crores is stock of land. So as I mentioned earlier, so our net working capital days is around 115 days, if I remove the average normal working capital. That excludes some arbitration claims, which are continuing in inventory, plus there are the stock of land is there. So if you exclude that, then my normal working capital is around between 3 to 4 months only, so which is normal.

Clarifies the components of high inventory and explains that core working capital days are within normal range after adjustments for non-core assets and arbitration claims.

Asked by Tej from Niveshaay Investment Advisors

Confidence in Timely Hydro Project Execution Direct
So now going forward, whatever projects are coming, thanks to the government initiatives and various measures taken by the government, whatever projects LoA is getting issued, they are ensuring that 90% land acquisition is completed, environment clearance is in place and the kind of monitoring also from PMO office like large projects, it has been monitored from PMO office directly... So going forward, we see this kind of delay will not happen and projects are execution will be more or less on time. So we are confident about that.

Addresses historical project delays in the hydro sector by highlighting government efforts to pre-clear land and environmental approvals, boosting confidence in future project timelines.

Asked by Tej from Niveshaay Investment Advisors

Nature and Future of Capital Expenditure (CapEx) Direct
No, no. See, for us, CapEx is plant and machinery, what is required for the new projects. So when -- because we run multiple projects, so when as and when new projects come in, there are some equipments which we shift from the existing project, if it is free, and there are some equipment which we have to buy new ones. So on an average, if you see an order inflow of INR5,000 crores per year and if the CapEx INR100 crores, INR150 crores, it's only 2%, 3%.

Clarifies that CapEx is primarily for plant and machinery for new projects, is variable, and is a small percentage of order inflow, indicating efficient capital deployment.

Asked by Chirag from White Pine Investment Management Private Limited

2 min read 5 chapters

Detailed narrative

Robust Q2 FY25 Financial Performance

Patel Engineering reported a strong Q2 FY25, with consolidated revenue growing 14.98% year-on-year to ₹1,174 crores. Operating EBITDA saw a 15.8% increase, reaching ₹162 crores, while EBITDA margins stood at 13.81%. The company's Profit After Tax (PAT) demonstrated significant growth, surging over 150% to ₹81 crores compared to ₹32 crores in the prior year, despite the challenges of a monsoon quarter and the loss of the late CMD.

Strong Order Book and Future Inflow Outlook

As of September 30, 2024, the company's order book stands at a healthy ₹17,260 crores, with the hydro sector contributing 64%, irrigation 21%, and tunnelling 10%. In Q2, Patel Engineering secured a Letter of Award for the Jigaon Water Lifting project worth ₹317.6 crores (₹111 crores share) and was declared L1 for the Teesta-V hydropower project at ₹240 crores. Management anticipates an order inflow of ₹10,000-12,000 crores over the next year, with a bidding pipeline of ₹10,000 crores currently under evaluation and another ₹40,000 crores identified for future bidding.

Significant Debt Reduction and Asset Monetization

The company has made substantial progress in debt reduction, decreasing consolidated gross debt by over ₹500 crores in the last year to ₹1,438 crores as of September 30, 2024, resulting in a healthy debt-equity ratio of approximately 0.39. This was aided by the monetization of non-core assets, including a ₹36 crore land sale in Bangalore and ₹55 crores from an arbitration award in Q2. The company aims to realize ₹150-200 crores annually from non-core assets and expects to pay off its ₹650 crore term debt within the next 3-4 years.

Positive Sector Outlook and Strategic Focus

Management highlighted India's significant infrastructure commitment of ₹11.11 lakh crores and the government's focus on renewable energy, hydro, and water management. The company's strategic focus remains on hydro (56% of Q2 revenue), irrigation (18%), water sector, pipeline work, and roads. Strategic alliances with PSUs like RVNL and Ircon are expected to strengthen project execution capabilities, both domestically and internationally.

Project Execution Confidence and CapEx Strategy

The final concreting of the powerhouse for the 2,000 MW Subansiri hydroelectric project has commenced, with the remaining ₹250-300 crores of work expected to be completed in 6-12 months. Management expressed confidence in future project timelines, citing government initiatives ensuring 90% land acquisition and environmental clearances before project awards. Capital expenditure is primarily for plant and machinery for new projects, averaging ₹100-150 crores annually, representing a maximum of 5% of order inflow.

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