The road sector is now likely to open up in a big way

Written by Kavitha Venkatraman | Updated: Jan 17 2010, 03:45am hrs
Nagarjuna Construction Company Ltd (NCC), an infrastructure firm spread across business verticals like buildings and housing, transportation, water and environment, irrigation, power, electrical, metals, oil & gas and international business, has an order book of Rs 16,000 crore and is poised to touch a turnover of Rs 4,800 crore by the end of the current year. In an exclusive interview with FEs Kavitha Venkatraman, YD Murthy, executive vice-president (finance), NCC, talks about the companys projections, competition, margin pressure and the status of the Machilipatnam Port project. Excerpts:

What are your projections for the current fiscal and going forward, how do you see the growth

We have given a guidance of a turnover of Rs 5,500 crore on a consolidated basis and Rs 4,800 crore on a standalone basis for the current fiscal. During the first six months, on a standalone basis, the company has registered a topline of Rs 2,100 crore and we are on track to achieving the guidance of Rs 4,800 crore by the end of the current year.

Currently, we have an order book of Rs 16,000 crore. The order accretion during the current year has been very good, despite the elections and the financial turmoil. The company has also obtained fresh orders to the tune of Rs 6,000 crore during the period from April to December 2009. With this kind of an order book, the company is confident of achieving the turnover guidance set.

NCC operates under nine verticals and the orders are coming in from all the verticals. However, a significant portion of the order book comes from the buildings and housing segment, the water pipeline and the international division.

The road sector is now likely to open up in a big way with the Centre showing positive inputs. The Centre is also planning to tender out a substantial number of packages in the next 4-6 months and NCC is participating in them. We are pre-qualified for about 35 packages and should be able to bag at least 2-3 packages worth about Rs 3,000 crore to Rs 4,000 crore. This year, we are targeting a growth of 17%-18%, while next year we should be able to grow between 20%-25%.

Are you planning to diversify further into any segment in the near future

Two years ago, we forayed into the power, oil & gas, and metals & mining sectors. These are now settling and contributing to the business of the company. We feel that the future growth of the company will be driven by these new four verticals over the next 3-5 years.

As far the new mining sector is concerned, we have got only one order so far from Singareni Colleries worth Rs 360 crore. We have entered the sector as a contractor. With the possibility of private sector participation in mining growing in the further, we hope to participate and garner many more orders. NCC is also bidding for projects of Mahanadi Coal Fields and Coal India.

At NCC, we have a 100% subsidiary called NCC Infra Holdings Ltd, which is focused on BOT projects like road and power. Right now, the subsidiary has five road and three power projects. The aggregate project cost of the BOT projects is Rs 15,000 crore. NCC does not fully own the SPVs, floated for execution of the projects.

Did the financial turmoil and stiff competition in the sector result in any pressure on margins

The year 2009 was a bad one for all companies across the globe because of the financial crisis and the global meltdown. At NCC, during the year ending March 2009, the net profit margins were down at 3.8% compared with 4.8% in the previous year, a drop of 100 basis points. This fiscal, we are bouncing back. During the first six months of the year, the company recorded net profit margins of 4.15% and should be able to close the year with net profit margins of 4%-4.25%.

Ebitda margins of the company, during March 2008 stood at 10.4% and came down by 140 basis points in March 2009 to touch 9%. During the first six months of the current fiscal, Ebitda margins were at 10.25% and we expect this to continue.

How do you view the financial position of the company Are you planning to access the market anytime soon

We have successfully concluded a qualified institutional placement (QIP) of Rs 367.35 crore ($ 75 million) in September 2009. Recently, we also sold stake in Gouthami Power, in which we had a holding of 9.5%. We sold our stake to GVK for a consideration of Rs 112 crore.

The money raised through the QIP issue and the stake sale should take care of our requirements for the next two years. It would be invested in our BOT projects, including roads and power projects. We are very comfortable as far as our long-term finance needs are concerned. The interest of PE firms in infrastructure companies has revived but we are not looking at any PE investment now.

What is the present status of the Rs 1,590-crore Machilipatnam port project Has any decision been taken to sell Maytas Infras stake in the project

Navayuga Engineering, which developed the Krishnapatnam Port project, has shown interest in picking up the 26% stake of Maytas Infra in the Machilipatnam Port project. With the approval of the government of Andhra Pradesh, Navayuga is likely to join the port project in place of Maytas Infra.

It might take an additional six months for a decision on the project.

How has the performance of the international division of the company been

Under the division, we have two subsidiaries: one in Muscat for the Sultanate of Oman and the other in Dubai for UAE. Both the subsidiaries are focused on construction projects pertaining to roads, water pipeline and buildings, areas in which we have strong execution capabilities. We have also taken a conscious decision to bid only for government agencies so that there is no payment risk. In the recent past, we have bagged substantial orders from the international division. In fact, nearly 20% of the overall order book comes from the division alone. NCC will also like to consolidate its position in the Gulf right now before looking at foraying into other markets.