Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vascon Engineers Ltd (BOM:533156, Financial) reported a significant 35% year-on-year revenue growth in Q1 FY25, driven primarily by the EPC segment.
- The company has a robust order book of INR3,482 crores, which is 4.9 times the FY24 EPC revenue, indicating strong future growth potential.
- New orders from PWD Sindhudurg for the construction of a medical college worth INR331.38 crores have been received, showcasing continued business expansion.
- The GMP business delivered improved performance with a 42% year-on-year revenue increase and a healthy gross margin of 26%.
- The company is optimistic about its real estate segment, with plans to launch two new projects in the current fiscal year and forming relationships with AAA-rated realtors in Pune, Mumbai, and Coimbatore.
Negative Points
- Despite the revenue growth, the company experienced a decline in profit before tax due to timing differences in the booking of expenses and revenue in the real estate business.
- Total debt has increased to INR38 crores due to new real estate joint ventures, raising concerns about financial leverage.
- The EBITDA margin for Q1 FY25 was at 9%, which is relatively low compared to the revenue growth.
- The divestment of GMP Technical Solutions is expected to result in a net cash flow of INR100 crores to INR110 crores, which may not be sufficient for all planned growth initiatives.
- Real estate revenue recognition is expected to be low in the next two years due to the timing of project completions, impacting short-term financial performance.
Q & A Highlights
Q: What is the revenue and margin for GMP Technical Solutions this quarter? Is there any one-time impact expected from the divestment?
A: GMP reported a revenue of INR79 crores and an EBITDA of INR4.4 crores (6%). The divestment is expected to generate free cash flows of about INR110 crores. There is no significant one-time impact, but a profit of around INR20 crores is expected from the sale. (Santosh Sundararajan, Group CEO)
Q: When is the divestment of GMP Technical Solutions expected to complete?
A: The divestment is expected to complete by the end of this month or the first week of September. (Santosh Sundararajan, Group CEO)
Q: What is the timeline and expected margins for the new INR331 crores medical college order?
A: The gross profit margins are expected to be in the range of 13% to 14%. The project is expected to start in four to five months and should finish in 24 months once it starts. (Santosh Sundararajan, Group CEO)
Q: Can you provide details on the pipeline for real estate projects and their expected launch timelines?
A: We expect to launch the Powai and Santacruz projects in Q3 or January. The Prakash project will be launched in the next financial year. The Baner-Pashan and Ajanta projects will also be launched in the next financial year. (Santosh Sundararajan, Group CEO)
Q: What kind of deals are you looking for in partnerships with A-grade realtors in Pune and Mumbai?
A: We are not looking to partner with other realty players but are focusing on partnerships with investors and landowners to launch our projects. (Santosh Sundararajan, Group CEO)
Q: Why are you guiding lower margins for new EPC projects compared to historical margins?
A: The guidance reflects a cautious approach. While historical margins have been around 14% to 15%, new projects like the Sindhudurg medical college are expected to have slightly lower margins (around 13% to 14%). (Santosh Sundararajan, Group CEO)
Q: What is the expected revenue recognition from real estate projects for FY25?
A: We expect to recognize around INR125 crores in revenue from real estate in FY25, depending on project completions and government approvals. (Somnath Biswas, CFO)
Q: What is the current order book size and expected order intake for the upcoming quarters?
A: The current order book is INR3,400 crores. We expect to book at least INR1,000 crores more before March 2025. The mix is currently 80% government and 20% private, but we aim to increase the private sector share to 30%-35%. (Santosh Sundararajan, Group CEO)
Q: Are there any significant risks related to funding delays or political changes in government projects?
A: While political risks exist, we mitigate them by focusing on healthcare projects in non-prime locations and avoiding new orders in states with upcoming elections. (Santosh Sundararajan, Group CEO)
Q: How confident are you in your ability to execute the recent strong order inflow on time?
A: We are confident due to our focus on design and build EPC mode, which allows us to make labor-efficient design decisions. We have factored in labor availability issues and expect to complete projects within 24 months. (Santosh Sundararajan, Group CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
