Ashoka Buildcon: Q1FY25 Earnings Call Highlights
Optimistic about the future, citing a strong order book, new growth avenues, and a favourable industry outlook driven by government spending on infrastructure
ashokabuildcon.com | NSE: ASHOKA
1. Key Takeaways
1.1 TLDR
Experienced revenue growth but acknowledges a slowdown in India's highway construction sector.
The company is optimistic about future order inflows, driven by a robust project pipeline and government initiatives.
Asset monetization plans are progressing well, with HAM and some BOT asset sales nearing finalization.
EBITDA margins are expected to improve throughout FY25 and reach 10% in FY26.
Committed to expanding its international presence and developing its water vertical.
1.2 Financial Performance (Q1 FY25):
Standalone: Total income: INR 1,901 crores (22% YoY growth)
EBITDA: INR 145 crores (52% YoY growth)
EBITDA margin: 7.6%
PAT: INR 41 crores (148% YoY growth)
Debt-to-equity ratio: 0.5%
Consolidated: Total income: INR 2,495 crores (26% YoY growth)
EBITDA: INR 628 crores (23% YoY growth)
PAT: INR 158 crores (156% YoY growth)
Total debt: INR 7,183 crores
Order Book: INR 10,356 crores (excluding L1 projects of INR 3,434 crores)
1.3 Industry Overview:
India's road infrastructure sector has experienced a slowdown due to elections and land acquisition delays.
The government aims to construct 10,421 km of highways in FY25, a 15% decrease from FY24.
NHAI plans to offer INR 44,000 crores worth of road projects under the BOT model in FY25.
The government is actively working on improving the Model Concession Agreement (MCA) for BOT projects.
1.4 Outlook & Strategic Initiatives:
Order Inflow Guidance (FY25): Expects order inflows between INR 10,000 - INR 12,000 crores.
Revenue Growth Guidance (FY25 & FY26): Aiming for around 20% growth in both years.
EBITDA Margin Guidance: Expecting margins to reach 8-10% by Q4 FY25.
Targeting 10% EBITDA margin in FY26.
Asset Monetization: Sales of HAM and five BOT assets are in advanced stages, with SHA agreements expected soon.
Monetization of Jaora-Nayagaon and Chennai ORR assets will take longer due to regulatory hurdles.
International Expansion: Currently operating in 6 countries, with plans to expand further.
Aiming for international projects to contribute 20% to order book and revenue in 2-3 years.
Water Vertical:Executing projects in India and Ivory Coast.
Expecting the vertical to contribute 15-20% to overall business in 2 years.
1.5 Quotes:
Industry Outlook: "During the last quarter, the highway construction has slowed down significantly due to elections and delay in land acquisition approvals." - Satish Parakh, Managing Director
Asset Monetization: "So both these processes [HAM and BOT asset sales] are at very good advanced stage and maybe in a month's time we'll be entering into SHA and then, of course, NOC process will take some time." - Satish Parakh
EBITDA Margin Improvement: "So hopefully, this range of 8% would be there for a quarter or so, and then we'll be at 10%, 12%." - Peeyush Jain, Assistant Vice President, Accounts and Taxation
International Expansion: "This [international vertical] will be an independent vertical. We will add may be in 2 to 3 years' time around 20% of our order book and revenues." - Satish Parakh
1.6 Challenges:
Working capital requirements remain high due to the nature of projects.
Delays in land acquisition and regulatory approvals could impact project timelines.
Competition in the sector remains high, potentially impacting margins on new projects.
Ashoka Buildcon Limited (ABL) Q1 FY '25 Earnings Call FAQ
Q1. What is the outlook for the Indian road infrastructure sector?
The Indian road infrastructure sector is a priority for the government, but has experienced a recent slowdown in highway construction due to elections and land acquisition delays. However, the government remains committed to infrastructure development and has outlined plans for significant investment in new road projects, including projects under the Build-Operate-Transfer (BOT) model.
Q2. What is the status of ABL's asset monetization plans?
ABL is making significant progress in divesting its stake in five BOT and eleven HAM road projects. The company is in advanced talks with potential buyers and expects to sign definitive agreements soon. Monetization of the Jaora-Nayagaon and Chennai ORR projects will take longer due to regulatory hurdles.
Q3. What is ABL's current order book and what are the expectations for order inflow in FY '25 and FY '26?
As of June 30, 2024, ABL's order book stands at INR 10,356 crore, with an additional INR 3,434 crore from projects where ABL is the lowest bidder (L1). The company expects order inflow between INR 10,000 crore to INR 12,000 crore for FY '25, driven by government spending on road infrastructure. ABL is targeting a 20% revenue growth in both FY '25 and FY '26.
Q4. How does ABL plan to expand its international business?
ABL's international business currently accounts for 10-12% of revenue. The company plans to expand its international presence by focusing on the six countries where it currently operates. ABL aims to grow its international business to contribute 15-20% of the total order book and revenue within the next two to three years.
Q5. What are ABL's plans for the newly established water vertical?
ABL is developing a dedicated water vertical, currently executing projects in India and Ivory Coast. The company plans to build its qualifications in this segment and expand its portfolio, targeting for it to become 15-20% of ABL's total business in the next two years. Margins for water projects are expected to be similar to other EPC businesses, around 10%.
Q6. What is the reason for the increase in ABL's standalone debt and how does the company plan to manage it?
The increase in standalone debt to INR 1,410 crore is primarily attributed to higher working capital requirements due to the increased project activity and the nature of projects being executed. ABL expects debt levels to stabilize around INR 1,200 crore, in line with FY '24 levels, as working capital cycles normalize.
Q7. What are ABL's EBITDA margin expectations for FY '25 and FY '26?
While current EBITDA margins are around 7-8%, ABL anticipates improvement in margins in the second half of FY '25, reaching around 9-10% by Q4 FY '25. This improvement is expected due to a robust order book, operational efficiency, and the completion of lower-margin projects. ABL is targeting EBITDA margins of around 10% in FY '26.
Q8. What is the status of ABL's participation in the Transmission & Distribution (T&D) sector?
ABL is actively participating in the T&D sector for projects up to 300 kV. However, the company does not currently qualify for high voltage projects (400 kV and above). ABL is exploring opportunities in the Revamped Distribution Sector Scheme (RDSS) for lower kV projects.
Source: Link to Earning Call Transcripts
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