RKEC Projects LtdQ1 FY18Construction

RKEC Projects Ltd

Q1 FY18 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 2

→The company expects a 20% to 25% increase in revenue every year. (Page 10)
→For FY19, a growth of around 30% to 35% in revenue is anticipated. (Page 10)
→Order book is expected to reach around Rs. 1,300 crores by the third quarter of FY19. (Page 12)
→Execution of Rs. 300 crores from the Rs. 820 crores order book planned in FY19, with the balance carried forward. (Page 17)
→Additional order inflows of approximately Rs. 500 crores expected, targeting a total order book of around Rs. 1,000 crores by the end of FY19. (Page 17)
→The company expects to maintain PAT margins between 7% to 9% through FY19 despite CAPEX and shift in project mix. (Page 18)
→CAPEX planned in the range of Rs. 50 to 60 crores to support growth, especially in the bridge segment. (Page 16-18)

Category 3

→Revenue growth expected at 20% to 25% annually, with 30%-35% growth projected for FY19.
→PAT margin guidance maintained between 7% to 9%.
→Order book expected to rise to around Rs. 1,300 crores by FY19 Q3.
→Execution order book of approx. Rs. 1,000 crores by FY19 end with bridges constituting Rs. 600-700 crores.
→New growth segment in bridges with expected Rs. 50-60 crores CAPEX for equipment.
→Margins expected to be maintained despite CAPEX and higher equipment hire, supported by better project execution and completion.
→Government payments stable with some delays, expected to improve so profitability will be sustained.
→Earnings growth will benefit from completion bonuses on ongoing projects, with advances and receivables management improving cash flow.
→No dilution expected; capital raising not currently planned, with financing done through pledging shares if needed.

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Yes

→No current plans for raising further equity such as Follow-on Public Offer (FPO). (Page 7)
→For financial assistance, the company may have to pledge promoter shares as collateral to banks due to tightening bank norms; without collateral, banks are not giving bank guarantees or financial assistance. (Page 7)
→Company is approaching private sector banks and Non-Banking Financial Companies (NBFCs) for cash credit limits and banking facilities, aiming for better interest rates. (Page 15)
→Credit limits are being enhanced with existing banks (e.g., Vijaya Bank) to support increased working capital requirements. (Page 12)
→No explicit mention of new debt issuance, but working capital limits and bank guarantees are being expanded. (Pages 12, 15)

Yes

→Current confirmed order book: Approximately Rs. 826 crores, including Rs. 500 crores with a Chinese partner.
→Expected execution of Rs. 300 crores in FY19, reducing unexecuted orders to around Rs. 500 crores.
→Additional orders expected: Around Rs. 500 crores; total order book expected to reach Rs. 1,000 crores by end of FY19.
→Breakdown of unexecuted order book by end FY19: Rs. 600-700 crores in bridges, 75-80% from Central Government, 20-25% State Government.
→New bids under submission: Around Rs. 1,300 crores with an expected success rate of 40-50%.
→Focus on bridge segment with Rs. 1,000 crores of new bridge projects expected this year.
→Drone subsidiary received Rs. 8.07 crores orders, expecting additional Rs. 10 crores.

Yes

→Current year CAPEX planned around Rs. 35 crores to Rs. 40 crores (Page 7).
→CAPEX might increase to Rs. 50 crores to Rs. 60 crores as the company enters the bridge segment, requiring purchase of equipment and machinery (Pages 16-17).
→CAPEX is driven by ongoing and upcoming EPC projects, dependent on design specifics, especially span length which affects equipment costs (Page 17).
→Strategy involves striking a balance between owning equipment and hiring to optimize margins (Page 17).
→Some equipment costs are mitigated by in-house development of machinery, reducing costs by 30-40% compared to purchasing externally (Page 19).
→Potential strategic moves include negotiations with professionals for R&D and technology upgrade (Page 8).

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