Capacite Infraprojects: Q2-25 Earnings Call Highlights
Strong project pipeline. Focus on securing high-quality orders. Shift towards public sector paying off, resulting in larger order sizes & improved profitability. 25% growth for the next 2-3 years.
capacite.in | NSE: CAPACITE
1. Key Takeaways
1.1 TLDR
Capacite Infraprojects is on a strong growth trajectory, supported by a robust order book and strong execution capabilities.
The company's strategic shift towards the public sector is paying off, resulting in larger order sizes and improved profitability.
Management is confident in achieving its working capital targets and mitigating any concerns regarding liquidity.
The successful recovery of outstanding receivables is a testament to the company's proactive approach to risk management.
Management is optimistic about the future, with a strong project pipeline and continued focus on securing high-quality orders.
The company is well-positioned to benefit from the government's infrastructure push and the increasing demand for residential and commercial construction.
Continued focus on operational excellence and working capital management will be crucial for sustained growth and profitability.
Investors can expect continued strong performance from Capacite in the coming quarters, driven by its diversified order book and efficient execution.
1.2 Operational Highlights:
Strong Financial Performance:
Capacite Infra reported impressive results for Q2 and H1 FY25, showcasing significant revenue growth and margin expansion.
Revenue from operations grew 28% YoY in H1 FY25, reaching ₹1,088 crores.
PAT grew 153% YoY, reaching ₹98 crores in H1 FY25.
EBITDA margin for H1 FY25 stood at 19.7%, a significant improvement from 17.6% in H1 FY24.
Robust Order Book: The company secured projects worth ₹1,500 crores (excluding the BDD addition of ₹858 crores) in the current fiscal year and remains confident in exceeding its order book guidance for FY25.
Execution Strength: Improved execution across project sites led to better absorption of fixed costs, contributing to the enhanced profitability.
Strategic Shift in Order Book: The company has transitioned to a more balanced portfolio, with the public sector now accounting for 73% of the total order book compared to 80-90% private sector reliance previously. This diversification mitigates risk and leverages opportunities in both sectors.
Focus on Operational Efficiency: Capacite Infra prioritises projects with a minimum revenue contribution of ₹10 crores per month, leading to increased operational efficiency and profitability.
1.3 Key Themes:
Balancing Public and Private Sector Orders:
While acknowledging concerns about working capital cycles in government projects, management remains committed to maintaining a balanced portfolio.
The recent Signature Global order, a private sector project, showcases the company's continued success in securing contracts from both public and private clients.
"There is nothing called 50/50. We will continue to bid for projects in both private and public. Quality of plan continues to be the most important parameter while taking an order book."
Working Capital Management:
Although working capital increased this quarter, the company attributes this to election-related payment delays.
Management reiterated its commitment to reaching the 100-day working capital target by the year-end, with internal goals set at 90 days.
"We are very confident of achieving 100 days net working capital by the end of the current fiscal and that will only improve going forward."
Significant Projects - Sidco & Mahad:
Sidco project execution is on track, with a monthly run rate of ₹50 crores in October, expected to increase to ₹75 crores by January.
The Mahad project is also progressing well, with land allocation for several towers secured and execution expected to ramp up significantly in the coming quarters.
Receivables Write-off & Asset Monetization:
A significant portion of the receivables write-off in FY24 was related to the Radius Group.
Capasite Infra now holds assets worth over ₹200 crores against a collection target of ₹115 crores, which will be monetized over the next 7-8 quarters. This will strengthen the balance sheet, reduce debt and boost profitability.
Economic Slowdown Concerns:
Management believes the current economic environment remains positive for the construction sector, citing record government spending and robust private sector activity.
"I don't see any slowdown. On the contrary, the project pipeline is full for all building construction companies."
Employee Costs & Availability:
Increased employee expenses were attributed to new hires and salary increments, but are expected to remain lower as a percentage of revenue compared to last year.
Management highlighted the ongoing challenge of skilled labour availability and emphasised their focus on employee retention through initiatives like a 15-day payment cycle.
Revenue Recognition & Accounting Norms:
Capacite Infra follows the Percentage of Completion Method (PCM) as per Indian Accounting Standard 115, ensuring transparent and accurate revenue recognition.
Revenue from the Mahad project is currently recognized only at the subcontractor level, with profits from the LLP expected to be booked in the next financial year.
Future Growth & Diversification:
Capacite Infra remains focused on a 25% growth target for the next 2-3 years, driven by a robust order book, efficient execution, and expansion into new segments like factories.
The company is actively pursuing opportunities in new geographies while prioritising client quality and project profitability.
1.4 Key Quotes
On the strategic balance between public and private sectors: "COVID taught us that overdependence on any one, whether private or public, is not warranted. It is very dynamic in nature. We continue to bid for both private sector and government sector."
On the expected impact of receivables recovery: "This will mean that about 100 crores of debtors or debt levels will fall in the balance sheet. Number two, the bottom line will strengthen by close to 80 85 crores. And number three, the gross debt of the company will fall apart from whatever it falls from the operational profits by about 200 crores from these collections."
On the sustainability of strong EBITDA margins: "No, with the current order book superimposed, we do believe that this will continue at least for the next four quarters until unless there is something which happens to the industry which we don't expect."
On potential slowdown in government spending: "I haven't read any such article. However, having said that, the government spending stands at the highest, you are seeing a big fraction in the public or private sector as well with 40% uh increase quarter on quarter in the registrations of apartments."
Capacite Infra Projects Limited Q2 and H1 FY25 Earnings Call FAQ
Q: How did Capacite Infraprojects Limited perform financially in H1 FY25?
A: Capacite Infraprojects Limited commenced the year with a strong performance, achieving a 28% year-on-year revenue growth from operations during H1 FY25, reaching ₹1,088 crores. Profit after tax (PAT) also significantly increased by 153%, reaching ₹98 crores. This robust performance was driven by improved execution across project sites and better absorption of fixed costs, leading to enhanced profitability.
Q: What factors contributed to the improved profitability in H1 FY25?
A: The improved profitability can be attributed to several factors:
Improved Execution: With central elections and monsoons behind them, execution across project sites picked up, leading to better revenue generation.
Fixed Cost Absorption: The increased execution facilitated better absorption of fixed costs, contributing to higher margins.
Project Portfolio Optimisation: Over the past few years, the company has strategically optimised its project portfolio. This has resulted in a larger average order size, a reduction in the number of projects under execution, and increased revenue contribution per project. These factors, combined with enhanced management efficiencies, have driven the improvement in the margin profile.
Q: What is the current status of the order book and what is the outlook for future order intake?
A: As of September 30th, 2024, the order book stood at ₹9,203 crores on a standalone basis, with 73% coming from the public sector and 27% from the private sector. The company has already secured projects worth ₹1,500 crores (excluding the ₹858 crore BDD addition) in the current fiscal year and is confident of exceeding its guided order book addition for FY25.
Q: What are the key growth drivers for Capacite Infraprojects Limited?
A: The company is currently in a high-growth phase fuelled by:
Diversified Order Book: The company has a well-diversified order book from reputable clients in both the public and private sectors.
Robust Financial Position: Capacite's strong financial standing allows them to pursue new opportunities effectively.
Execution Expertise: Their proven track record and expertise in project execution provide a competitive advantage.
These factors position the company to achieve its growth targets and set new benchmarks in the industry.
Q: There have been concerns about working capital levels. What steps are being taken to manage working capital effectively?
A: The company acknowledges the increase in working capital cycle and attributes it to temporary shifts in payments due to elections. They are confident of reducing net working capital to 100 days by the end of the fiscal year, driven by a robust collection drive, especially after the elections. They also highlighted a reduction in retention amounts and the availability of unutilized bank guarantee limits, mitigating any liquidity concerns.
Q: What is the progress on key projects like MHADA and CIDCO?
A: Both projects are progressing well.
CIDCO: The execution run rate for CIDCO was ₹50 crores in October and is expected to reach ₹75 crores per month by January. Land for six locations, totalling ₹2,400 crores, is already available. The seventh location is identified and expected to be received soon.
MHADA: The company has received land for five towers of the sale component and 14 towers for the rehab portion. Eight more towers are expected to be released by December. The execution run rate is projected to increase significantly, crossing ₹100 crores per quarter from the next fiscal year.
Q: Is Capacite looking to diversify into new segments or geographies?
A: Capacite Infraprojects Limited is currently present in major cities and is selectively expanding into new geographies like Hyderabad and Pune. While they have traditionally focused on residential projects, their portfolio now includes commercial buildings, healthcare facilities (hospitals), retail spaces (malls), and data centres. They are actively pursuing opportunities in the factory segment, which offers better financial closure and works with higher-tier clients. However, the company remains cautious and selective in its approach, prioritizing the quality of clients and projects.
Source: Link to Earning Call Recording
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