Kalpataru Power Transmission Limited (KALPATPOWR) Q4 FY23 Earnings Concall Transcript

Kalpataru Power Transmission Limited (NSE:KALPATPOWR) Q4 FY23 Earnings Concall dated May. 09, 2023.

Corporate Participants:

Vishesh Pachnanda — Vice President and Head – Investor Relations

Manish Mohnot — , Managing Director and Chief Executive Officer

S.K. Tripathi — Deputy Managing Director

Analysts:

Abhineet Anand — Analyst

Renu Baid — IIFL Securities — Analyst

Mohit Kumar — ICICI Securities — Analyst

Charanjit Singh — DSP Mutual Fund — Analyst

Parikshit Kandpal — HDFC Securities — Analyst

Teena Virmani — Kotak — Analyst

Akshay Kothari — Envision Capital — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst

Ashwani Sharma — ICICI Securities — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Q4 FY ’23 Results Conference Call of Kalpataru Power Transmission Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhineet Anand from Emkay Global Financial Services. Thank you, and over to you, Mr. Anand.

Abhineet Anand — Analyst

Thanks, Nirav. Good morning, everyone. I’m Abhineet Anand from Emkay Global Financial Services. First of all, I’d like to thank the management for giving us this opportunity to host the call. I will hand over the call to Mr. Vishesh Pachnanda, VP and Head, Investor Relations. Over to you, Vishesh.

Vishesh Pachnanda — Vice President and Head – Investor Relations

Thanks, Abhineet. Thank you for hosting the call today for us. A very good morning to all the participants. This is Vishesh Pachnanda. I’m pleased to welcome you to Kalpataru Power Transmission Limited earnings call for the fourth quarter and the full year ended 31st March, 2023. We have with us today the management team represented by Mr. Manish Mohnot, the Managing Director and CEO; Mr. S.K. Tripathi, Deputy Managing Director; Mr. Amit Uplenchwar, Director, Group Strategy; and Mr. Ram Patodia, CFO and President, Finance. We’ll start with a few minutes of opening remarks by Mr. Manish, and then we can open the floor for Q&A.

With that and without any further delay, over to you, Manish, sir. Thank you very much.

Manish Mohnot — , Managing Director and Chief Executive Officer

Thank you, Vishesh. Good morning, everyone. Thank you for joining us on the call today. As always, it is a pleasure to interact with all of you. Let me begin with our full year performance in detail, highlighting progress on our strategic priorities and then outlook for the financial year ’24.

Before I start, let me put forth that with the completion of the merger and the appointed date being 1st April 2022, our standalone results represent the combined standalone financials of erstwhile JMC and KPTL.

The performance for FY ’23 has been remarkable for the combined entity, as we continue to accelerate profitable growth and build on our position, as a leading player in the global EPC market. We have recorded noteworthy performance on many fronts, which includes robust top line growth, remarkable and strategic order wins, stable profitability and notable management of working capital and debt levels. Our strong diversified order book and favorable business outlook across all our verticals provides us with a huge runway to growth in the next couple of years. Having said that, we will continue to focus on accelerating growth, while improving profitability and upholding the strength of a strong balance sheet.

The financial year 2023 has been a landmark year for KPTL, as we have completed the merger of JMC with KPTL. The merger reinforces our market position in high-growth EPC business verticals and places us favorably to leverage on the global push for infrastructure development and fast-paced adoption of clean and green energy.

During the last few months, the benefits of the merger have already started to kick in, in some form or other. We’ve improved our ticket size of [Indecipherable] particularly in the civil business, as we have secured numerous high-value orders in water, B&F and urban infra business. We continue to gain traction in expanding our civil business in both domestic and international markets, as we have added new clients and improved our global reach.

Additionally, on the finance cost front, we’re already working with our lenders to provide parity in terms of finance cost between erstwhile JMC and KPTL. We are already seeing positive momentum on that front. We have also internally realigned our operating structure to improve efficiency and reduce cost. The benefits of all these actions will increasingly improve our performance in the coming quarters.

Coming now on the performance front, our consol revenue grew by 11% to reach INR16,361 crores and standalone business grew by 16% Y-o-Y for the full year ’23 on the back of robust execution. Our consol EBITDA margin is at 9.1% and the standalone EBITDA margin at 98.9% for financial year ’23. This EBITDA margin includes an amount of INR109 crores shown as exceptional items in published results with respect of an award obtained by an erstwhile power transmission subsidiary and is contractually receivable by the company. With improved execution of profitable projects, productivity improvement initiatives and merger-related benefits, we expect margin performance to improve going forward.

In FY ’23, we put considerable efforts on project closures and timely collection along with adopting a prudent approach to capital management, which has helped us to maintain our finance cost despite the ongoing environment of increasing interest rates. Our finance cost, as a percentage of sales has remained at around 2% at the standalone level, which is nearly similar to the year’s financial year ’22. We are confident to maintain finance cost, as a percentage of sales around 2% for FY ’24 also.

Our net debt at the standalone level has declined by INR373 crores Q-o-Q to INR1,680 crores at the end of March ’23. While the net debt excluding non-core business stands at INR1,800 crores at the end of March ’23. Our net working capital days are below 100 days at the end of March ’23 for the combined entity.

During FY ’23, we have invested close to INR500 crores for capex for improving project delivery and achieving our growth targets in FY ’24 and ’25. We expect capex in the range of INR250 crores to INR275 crores in FY ’24.

Our standalone PBT after exceptional items grew by 48% Y-o-Y to INR738 crores for FY ’23 with a margin of 5.1%. Similarly, PAT rose by 52% Y-o-Y to INR531 crores for standalone business. At the consol level, the reported PAT was INR435 crores for financial year ’23.

Our order book, including LMG Sweden and Fasttel Brazil was at INR45,918 crores, as on March ’23. Additionally, we have an L1 position of around INR4,000 crores. In FY ’23, our order inflows grew by 39% Y-o-Y to INR25,241 crores. Our growth in order inflows was led by T&D, B&F and water business.

In FY ’24, till date, we have received orders of INR4,114 crores. This is including orders of INR1,229 crores declared in our press release yesterday. We are targeting order inflows of over INR26,000 crores in FY ’24.

Coming now to individual business verticals. In the T&D business, we have secured orders worth INR10,000 crores in FY ’23. The T&D business order book, including our international subsidiary has a record high of around INR16,500 crores. Additionally, we have an L1 position of over INR2,500 crores [Phonetic] in the T&D business.

During the year, we strengthened our position in existing and new geographies by securing various high-value projects. We are also selected as a preferred EPC partner in a — by a major utility in Australia for executing a large size EPC projects for renewable integration. This is a significant achievement for us and demonstrates our capability to manage and execute such large size complex projects at the global level. The business outlook remains very promising on the back of the push for renewables and setup of new T&D infrastructure in India and international markets.

We have a huge tender pipelines of over INR50,000 crores in the next 20 months to 24 months for the T&D business. In the international market, we have robust visibility with tender pipeline over USD4 billion, especially in focused markets in Africa, Latin America, Asia and Middle East.

In Fasttel Brazil, we are focused on project closure and strengthening our organization in FY ’23. Fasttel reported a full year revenue of INR439 crores with an order book of INR1,140 crores. Similarly, at LMG Sweden, we have achieved revenue of INR1,002 crores with an order book of INR1,009 crores for ’23.

In our B&F business, we have achieved growth of 25% Y-o-Y to INR4,136 crores in FY ’23 on the back of robust execution and a healthy order book. We continue to improve our market standing by securing new clients and improving our presence in areas like data centers, institutional buildings, processing plants. Additionally, this year, we have secured our second B&F project in the international market, in line with our strategy to expand our civil business to newer markets outside India.

Our water business continues to be on a solid growth trajectory, our revenue grew 54% Y-o-Y to reach INR2,622 crores in FY ’23. We have secured orders worth INR7,553 crores and have an order book of INR12,476 crores in FY ’23. We are consistently investing in strengthening our capabilities in order to improve our competitive position to execute large-size projects in the water business.

In the railway business, revenue grew by 4% to reach INR1,652 crores. We continue to adopt prudent approach and remain selective in bidding given the higher competitive intensity. During FY ’23, we have secured orders of INR1,557 crores and the addition of two large-size metro electrification projects. We are increasingly looking to strengthen our business in areas like metro electrification, S&T [Phonetic], RITS [Phonetic] and high-speed rail.

In the oil and gas business, reported revenues of INR985 crores for financial year ’23. Our business visibility in this business remains very good in India and international markets. We have received qualification to bid in six, seven countries in the oil and gas business, and we expand — expect to expand our international reach in the near future.

Our urban business grew by 23% Y-o-Y to INR403 crores on the back of execution of a new project secured during ’23. We’re improving our capabilities to secure projects in metro rail, elevated road, public spaces, airports, etc.

Our road BOOT SPVs continue to witness good growth backed by improvement in traffic. Our quarter revenue increased by 21% Y-o-Y to INR58 lakhs in Q4, ’23. We have infused an additional amount of around INR71 crores in FY ’23 largely to fund the repayment of loans. We have appointed advisers to evaluate the sale of road BOOT assets, and we’re receiving active interest from large foreign investors.

In Shree Shubham Logistics, we achieved revenue of INR109 crores with EBITDA of INR22.5 crores. The business remains under pressure, given lower utilization of warehouses because of decline in procurement by government agencies. During FY ’23, we’ve collected around INR70 crores from the sale of Indore real estate. We aim to complete the sale of the balance inventories by calendar year ’24.

The Board is mindful of the importance of returns to shareholders, and as a result of the strong performance and ongoing confidence in the strategy, it is pleased to recommend a dividend of INR7 per share.

Now moving to the outlook of financial year ’24. I want to mention here that our business today has never been so strong in terms of size, scale, capabilities, diversified business mix and financial profile. In this context, we will continue to manage our business with agility and focus on consistent and profitable growth and reach to pre-COVID level of profitability from a midterm perspective.

Additionally, our focus remains on the speedy resolution of non-core assets. We expect standalone revenue growth in excess of 30% for financial year ’24 and PBT margin in the range of 4.5% to 5%. We expect finance cost, as a percentage of sales to be in the range of 2%. We are targeting to achieve ROCE in the range of 18% to 20% for FY ’24.

Our tender activity across all our business remains favorable and provides a huge runway for growth. We expect order inflows, including erstwhile [Phonetic] Sweden and Brazil subsidiaries to be at around INR26,000 crores for financial year ’24. However, we remain watchful for various uncertainties related to geopolitics, inflation, commodity and currency volatility, and are accordingly navigating them through strengthening our risk management and building a diversified investment and improving our execution capabilities.

With this, I would request the moderator to open the lines for Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Renu Baid from IIFL Securities. Please go ahead.

Renu Baid — IIFL Securities — Analyst

Yeah. Hi, good morning, sir. My first question is on the synergy benefits. If you can help us understand what kind of operating level benefits are we expecting? And by when should we start accruing the benefits to the full? Aligned with this, what are the time lines and progress in terms of divestment of the road BOOT assets and other non-core assets for the portfolio overall now? That’s the first question.

Manish Mohnot — , Managing Director and Chief Executive Officer

Yeah. Good morning, Renu.

Renu Baid — IIFL Securities — Analyst

Good morning, sir.

Manish Mohnot — , Managing Director and Chief Executive Officer

Renu, our merger benefits, if I had to put it in three buckets, one being the interest cost advantage; second being advantage on productivity; and third, being the advantage of getting large-size projects, all of them have started in some form. On the interest cost, the difference between KPTL and JMC in terms of the rates was closer to 200 basis points. Majority of the bankers have now agreed to get the erstwhile JMC limits to the KPTL cost of interest and a lot of them would happen starting from Q1 itself. Some have happened in Q4, but the new — the filing for the new rates and the new limits. So we expect a lot of it to happen from Q1. So on that ground, we expect, as a merged entity at least INR60 crores to INR70 crores coming in as gains, getting into the next year itself.

On the productivity levels, a lot of our back-ended functions, primarily finance, HR, IT, project managed PMG growth [Phonetic], QA, risk management, all of them have been merged, wherein we have looked at keeping the best resources there and the balance have been deployed to various projects or have looked at opportunities outside. We have not seen a lot of people leaving us, but they’ve gone into different roles within the Group given the kind of growth, which is happening and those benefits have also started coming in.

On the IT front, now we have a unified SAP, wherein that entire organization is running, and that also brings in cost savings on every aspect, whether it is AMC [Phonetic], whether it is licenses or anything and everything. The largest benefit comes from our ability to bid for large-scale projects with integrated capabilities of civil, mechanical, electrical, and you’ve seen our — the success in airports, the success in urban metro, the success in international projects, including civil projects, our ability to bid for large projects, and the entire ability to bid for higher-value projects and not smaller value projects is helping us.

So if you ask me, all of that has started on a quantifiable business — basis, we have said that we should be seeing INR100 crore plus benefit coming in over a period of time because of the merger. And I’m pretty confident that you’ll see that coming in from ’23, ’24 itself. So that’s the first one.

On the second one, on the road BOOT assets, we have appointed advisers, and we expect to sign a non-binding offer for at least one out of the three assets in the current quarter itself. We are seeing good interest from a few large players from — actually not few, from four or five large players, and it’s pretty confident, I know we have said this in the past also a few times, but this time, we see huge traction. We’re pretty confident of signing at least one non-branding offer for the largest road BOOT asset in the current quarter itself. Got it. Right. Then coming to the core business, T&D obviously have seen quite a strength in terms of order flow trajectory and tailwinds. How do — how are we looking at this business momentum to sustain growth, both from domestic, as well as international business? And also aligned with this, what would be the status on the low-margin fixed-price projects, which have been completed. So by when are these projects expected to be completed? And by when do we expect the margins in the core T&D business reverting back to double-digit levels?

S.K. Tripathi — Deputy Managing Director

So Renu, I think let me first speak about growth. All our business segments, okay, except maybe railway are targeting a high, high double-digit growth for the next year, whether it is TL business, whether it is B&F, whether it is water, whether it is urban infra or whether it is oil and gas, and that visibility on order book is available today.

As far as historical projects are concerned, we are out of majority of them, if not all. Even in the current quarter, we have additionally provided for a CPC loss of INR87 crores historical project, which has impacted our profitability slightly. And with that, I believe that we are out of all our historical pre-COVID projects in terms of fixed price, in terms of the volatility issue, in terms of freight, all of them, significantly, maybe a few crores here and there.

As far as margins going back to double digit, I think it’s important to look at the size and scale, and we are looking at definitely margins improving, but double-digit might still take a few more years for us to reach there. But at the PBT level, we’re confident of delivering a 4.5% to 5% margin, which with the 30% growth results in a huge improvement in EPF [Phonetic], as well as PAT for the larger organization.

Renu Baid — IIFL Securities — Analyst

Thanks. Kindly bear with my ignorance here. If I look at the operating level, prior to this demerger, JMC was almost at double-digit levels, 10% level margins. KPTL standalone had issues because of T&D margins in suboptimal and pressures from oil and gas, railway segment. So is it now that the overall at the consol level, your comments on double-digit margins being away — still away for a couple of years, implying that the core KPTL portfolio, which was there in T&D, oil and gas, railways witnesses more headwinds, while the civil oriented portfolio of JMC continues to fare well in terms of low teens operating margins?

Manish Mohnot — , Managing Director and Chief Executive Officer

Renu, let me again clarify this properly, right? JMC businesses, a few businesses were showing low-teen margins, but not consistently for the last three years, four years. At the size and scale they were, they were showing low-teen margin. Now with the growth of 30%, 40%, we are investing a lot in building the teams and making sure that delivery across all the projects happen. So on — JMC on a few businesses will still continue to be in teens, right? B&F business will definitely [Technical Issues]. Water might not be there. Water would be high single digit, but the B&F business will continue to be there.

As far as T&D business is concerned, that is also into high single digits. So T&D and water would be high single digit. We continue to have pressure in the railway business and the oil and gas business in terms of profitability, and that is where our margins on an average basis get to those levels, which are single digits and not yet double digits.

S.K. Tripathi — Deputy Managing Director

Rail and…

Manish Mohnot — , Managing Director and Chief Executive Officer

Railway and oil and gas.

Renu Baid — IIFL Securities — Analyst

Got it. Thanks much, sir, for this. All the best. I’ll get back with more questions later in the queue. Thank you and all the best. Yeah.

Operator

Thank you. Next question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.

Mohit Kumar — ICICI Securities — Analyst

Hi. Good morning, sir. Sir, can you please give us some more color on the international T&D order book? And what — how much is the capacity [Phonetic] in your order book, as of current order book? And how do you see in FY ’24, the order outlook?

Manish Mohnot — , Managing Director and Chief Executive Officer

Sure. Mohit, on the international business on the transmission side, our order book visibility as of 31st March, order demand [Phonetic] is in excess of INR11,000 crores. Besides that, we are L1 in orders of around INR2,500 crores [Phonetic], as we speak about. So in totality, the visibility today is around INR13,500 plus crores, as far as the TLI business goes, which includes Linjemontage and Fasttel. So if I remove Linjemontage and Fasttel, which is approximately INR1,800 crores, the India international TL business, I repeat TL, not necessarily the international overall portfolio, it is now INR11,800 crores.

As far as growth in this segment is concerned, as I said earlier, we are expecting a good 25% plus growth for this business on the India TLI front. As far as Brazil and Sweden are concerned, we do not see them growing at a very fast speed. Brazil would do well. But Sweden would not be growing at beyond 5% to 10% for the current year.

Mohit Kumar — ICICI Securities — Analyst

Understood, sir. Secondly, sir, of course, you have guided for 4.5%, 5% margin. What are the key risks to this PBT margin guidance for FY ’24? And related question is that what is our fixed price contract in our current order book?

Manish Mohnot — , Managing Director and Chief Executive Officer

Sorry, I missed, what is the…

Mohit Kumar — ICICI Securities — Analyst

What are the key risks to the margin guidance?

S.K. Tripathi — Deputy Managing Director

Okay. Let me first answer this. See today, where we are, all our businesses have a visible order book. There is literally very minimal amount of book and bill, which have been considered in the targets of 30% plus growth. So on the revenue front, we don’t see any challenges unless there are any geopolitical issues, which are completely beyond us.

The existing geopolitical issues on places like Afghanistan, Myanmar and a few other countries have already been removed from the order book. So the order book has been adjusted to that extent of those projects, which includes Afghanistan, Myanmar, Ukraine, and that’s not a part of our order book. So from a revenue perspective, we see minimal challenges in achieving that 30% growth on an annualized basis.

On a margin perspective, a lot of our historical projects are already completed, and we have delivered on it. And today, with low volatility in all segments of — whether it is commodities, whether it is FX, whether it is freight and with a consistent team, which stays with us, we don’t see much challenges on achieving the 4.5% to 5% of PBT. So as we stand today, I don’t think that should be a challenge in any form, unless there are geopolitical issues at India, as well as global levels, which are beyond our — beyond our vision, as of today.

Mohit Kumar — ICICI Securities — Analyst

Understood, sir. Thank you and all the best. Thank you.

Operator

Thank you. The next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.

Charanjit Singh — DSP Mutual Fund — Analyst

Hello, sir. Am I audible? Good morning, Charanjit. Yeah, yeah. Very much. Yeah. Good morning. Sir, thanks for the opportunity. Sir, my first question is, sir, if you look at the order backlog now water as a segment has become large for us at around INR12,000 crores. Sir, if you can touch upon the nature of these projects and how is the competitive intensity? And do you see this becoming larger? And similarly, if you can touch upon the buildings and factories, as a segment, how is the scale up there? And you have touched upon some of the new areas like data centers and PLA-related [Phonetic] capex, and all those things happening. So in terms of the competitive intensity margin profile in these two segments, if you can touch upon that? That’s the first question. Yeah. So — hi Charanjit, this is Tripathi from here. As far as the water business is concerned, you are right, it is currently have a higher order book. And we see next to two years, three years a good growth in this business. At the same time, we are also — these projects are spreaded over 12, 13 states. So going forward, from here onward, we will be balancing the act in terms of the spreading the business size because the delivery also is gathering the requirement going forward these projects to be delivered properly, right. So yeah, and we see this sector, right, from the water supply to the urban and the rural areas, it has taken a big traction [Phonetic] due to the government agenda, as well as, there is a lot of activities happening in the micro irrigation, those projects are also part of the water division. So overall, we can see next two years to three years, there will be a good run on the water side. Coming to the B&F, I think this is a stable business in the current environment when the whole sentiment and the real estate sector has revived. We will continue to see this momentum to go on. And based on that, we have also try to — trying to diversify into some more sectors of B&F, like airport, we already diversified, and the data center is the next thing we are looking. As far as the margin profile of B&F is concerned, our core business of core shell and the civil buildings there, the margins because of the price rise of the commodities, in general, margins will be under pressure. We are not going to see a huge uptick in the B&F margin. But the new sectors will have a better margin profile because due to the lesser competition in those sectors, particularly the data center and the airport, but those businesses are had to be built, right? So we have just laid the foundation of airport. And based on that, we will be going ahead. Got is,sir. Sir, the other question is right now the mix in terms of our domestic and international is 60-40 [Phonetic], and we are very positive in terms of getting into railways in the international markets, and so you see this mix in terms of domestic and international changing with larger projects available in the international markets. How do you see overall international markets and which particular segment you would like to target more in the international markets?

Manish Mohnot — , Managing Director and Chief Executive Officer

Yeah. So Charanjit, on the international front, we have good visible growth coming out of three primary segments, the first being transmission, which is our core strength; second, civil in terms of buildings and factories and airports and water in a few select geographies, where we’ve been there for a long time; and third is oil and gas, where we have now qualified, as a contractor in six large Middle East countries, and that’s giving us the opportunity to bid for that. So if you ask me from an order book perspective, you’ll see all three coming into the next year.

As far as railways and a few other divisions are concerned, we have started that process, but will it convert to a huge order book in the current year might not happen. But at least, the prequalification will be done, the teams will be built maybe one order here and there would happen. And the larger chunk of the order book on the international front for some of this business would happen in ’24, ’25.

Charanjit Singh — DSP Mutual Fund — Analyst

Okay. Got it, sir. So those are the two questions from my side. Thanks a lot for your time. Thank you.

Operator

Thank you. Next question is from the line of Parikshit Kandpal from HDFC Securities. Please go ahead.

Parikshit Kandpal — HDFC Securities — Analyst

Yeah. Sir, hi. Manish ji, congratulations on a good quarter.

Manish Mohnot — , Managing Director and Chief Executive Officer

Good morning, Parikshit.

Parikshit Kandpal — HDFC Securities — Analyst

Hello. Yeah. Sir, my first question is, sorry, I missed the early part of the call. Why was the margins in this quarter lower than like quarter-on-quarter, the margin has declined, EBITDA margin. Any specific reason, any legacy projects because I think you still had some GIB issue-related projects in your order book. So why was the margins lower in this quarter?

Manish Mohnot — , Managing Director and Chief Executive Officer

So Parikshit, probably no specific reasons as such, mix of order book, but a couple of things, which have definitely caught us by surprise, if I would use a right word. One was the FX movements in the last six months to nine months by which the current year, we have seen some loss because we have — it’s a timing issue because we are primarily hedged on a slightly lower rate. You’ve seen in the one — last one year, FX has gone up from INR76 to INR82. So there were some small impact for last year. For Q4, there was INR7 crores we gained this year. Current year is a INR25 crore loss. So that is one key reason.

Second, on some aspects of our overhead expenses, namely traveling and legal, we have seen a huge increase in cost and that’s across the board. So that’s something, which I would say we’ve caught completely unaware. So to give you a perspective, our traveling expenses have nearly gone up by 35% in the current year. And even if you compare to the pre-COVID year, they are much higher than that. And that’s the true reality of that entire segment, and we are redoing that — those numbers in the current year.

Similarly, on legal expenses, given that we had a few of our cases going on at advanced stage and we won a few of them. So all of them had some impact. But otherwise, it was business as normal. We are confident of being in that 8% to 9% range of EBITDA getting into on an annualized basis even next year. Our focus is a lot more on PBT rather than EBITDA because for us, our leverage ratios are much, much lower, and that’s how we want to continue doing that. So our target is going to be that 4.5% to 5% PBT of more than any other number getting into the future.

Operator

Sir, the line for the participant dropped. We move on to the next participant. The next question is from the line of Teena Virmani from Kotak. Please go ahead.

Teena Virmani — Kotak — Analyst

Yeah. Hi, sir. My question is, again, on the margin side, just to build up on what you have earlier mentioned. You mentioned that you are investing in building capabilities across different segments to increase the exposure going forward in these segments. Now where is that reflected? So I’m just trying to understand how will margins — how will margins behave in the next one years, two years on account of these incremental investments? And how will that be going forward also? So is it reflected in higher other expenses — or is it reflected in higher employee cost or like higher travel expenses. So the point is, if legacy projects are over, raw material costs are down, your gross margins will start improving, but then what incremental investments will happen in employee cost and other expenses, which will drive the margin going forward, maybe in the single digit in the next one years, two years? And then, how will it move to double digits?

Manish Mohnot — , Managing Director and Chief Executive Officer

So Teena, a good question from a larger strategy perspective. Over the last three years, we have already built a lot of businesses. We’ve been building businesses continue, but within the sector, where we exist. So we have not gone and diversified into something, which we do not understand, and that’s something, as a core we’ve stopped doing for the last seven years to eight years.

Within the businesses, what all we have done in the last three years, we’ve won on civil international in a big way. We’ve got three large projects: Ghana, Ethiopia and Maldives, the entire thing. Maldives, we have three projects right now. While some of them are reasonably good in margins, but a few of them are projects, where we just went in to make sure that we build our prequalifications around that.

As far as the profitability is concerned, and I just want to reiterate that, that at a PBT level, we’ve been targeting 2.5% to 5% even pre-COVID even during when we were double digit. The difference is the way we have leveraged our balance sheet. The difference is the way we have utilized the cash flows, which came from a lot of our assets, which we divested. So at a PBT level, even during the best times if you go back, last seven years, eight years, you will see we were at that 4%, 4.5%, 5% rarely above that, okay, and that’s why we’ve come back.

At EBITDA level, it’s the leverage, which is so low on our balance sheet, which is impacting EBITDA from an outside perspective, as you start looking at 8% to 9% and not higher. It is the efficiency in managing working capital being — working capital below 100 days is something, which we have targeted, and we are below that and will further goes below from there. So it’s important for everyone to understand that we are different in terms of having a balance sheet strength on debt, our ability to manage working capital and our huge growth visibility.

So we’re not reducing margins. Our margins will continue to be in the range of 4.5% to 5%, which will be one of the best in the industry — in the EPC industry sector without compromising on debt, without compromising on working capital and growing at 30% for the current year and similar number, if not — we — I’m sure, all of you know the vision of 2025. INR25,000 crores by 2025 is a vision, which means a high double-digit growth even for next year.

So our focus is a lot more on ROCE. So if you go back to our numbers of ROCE, we were at 12% levels five years ago. We have come to 16% to 18%. Our target is to take it to 18% to 20% in the current year and beyond 20% next year. So that the entire focus is, profit continues, profitable growth continues, so just to that be clear on that.

To answer the question on where are we investing? I think SKT mentioned earlier, some segments like airports, data centers and civil international, including civil, oil and gas might be sectors that we might be average in terms of margins, not very, very bad, but not as good as, let’s say, the existing business of transmission, B&F and water. But on overall basis, we still believe that 4.5% to 5% is easily achievable, as far as the current order book and the current year is concerned.

Teena Virmani — Kotak — Analyst

So you mean to say that even though there may be incremental investments in these areas, you will have savings on the interest costs, and that will drive your PBT margins of around 4.5% to 5%.

Manish Mohnot — , Managing Director and Chief Executive Officer

Exactly. And that’s been our best always. Even when we were at double digit, if you go back and historically see a reason — our results, you’ll see, while we were double-digit, but interest cost was much higher, depreciation was very different, and that’s how it was. So from a — we are improving profitability. Our focus is only profitable growth, not top line growth.

Teena Virmani — Kotak — Analyst

So will your debt not increase sir, because you are going to grow at a very high pace, which had not happened earlier in the past because order inflows have been very good for the Company, so technically — and even your target also for the growth rates in the range of 25%, 30%. So will it not result in continued high debt levels for the Company in terms of commitment required for working capital and all those things?

Manish Mohnot — , Managing Director and Chief Executive Officer

So Teena, definitely debt will increase compared to the current levels because in our growth, we cannot grow without debt because we are in a working capital intense business. Important is to see that can we keep our working capital levels below 100 days, right? Can we — we have targeted a interest cost at lower than 2% — at 2% of our sales, which is what even in the increased interest cost scenario, that’s our target. So while debt would go up, right? But from a ROCE perspective and profitability perspective, we would still be better than what we had in the past. So the proportionate increase in debt is not going to be similar to the increase in revenues.

Teena Virmani — Kotak — Analyst

Got it. And the working capital in — yes.

Manish Mohnot — , Managing Director and Chief Executive Officer

So just to add to this, our divestment of non-core assets also continues, right? So we earlier said that Indoor, we should see cash flows coming into the current year. We’re also focusing on a road asset, where we are planning to sign a non-binding in the current quarter. So with all of that also, at least, we are pretty confident that our ROCE number should only improve going forward.

Teena Virmani — Kotak — Analyst

Okay. And lastly, on the water business, where your size is also increasing. How is the payment cycle on the water business?

S.K. Tripathi — Deputy Managing Director

Sorry. Can you repeat the question? SKT here.

Teena Virmani — Kotak — Analyst

On water business, sir, since the order book and order inflows have been fairly good, how is the payment cycle in terms of receivables in water business?

S.K. Tripathi — Deputy Managing Director

So it is a good new sector. Here, our working capital cycle days are less than 50. But at the same time, since we are spreaded over 13, 14 states, depending on the political and the financial condition of the states, we have to keep dabbling with the cash flows and moderating the business growth, right? So this is a real condition on the ground because some of the states suddenly you find that funds have dried up, we have to wait for a couple of months. But the only thing is that most of these projects are supported by the multilateral funded agencies, either the World Bank or the ADB. So there is a certainty on that aspect.

Teena Virmani — Kotak — Analyst

Got it, sir. Thank you. That’s it from my side.

Operator

Thank you. Next question is from the line of Akshay Kothari from Envision Capital. Please go ahead.

Akshay Kothari — Envision Capital — Analyst

Yeah. Thank you for the opportunity. Sir, what was the reason for lower execution in T&D on the international side?

Manish Mohnot — , Managing Director and Chief Executive Officer

So Akshay, a lot of our international T&D order book had a long gestation and currently one large order, which was in Chile, where there’s a 12 months to 18 months on design and environment, which is the client’s responsibility. So from a perspective of where we started the current year, order book had a lot of orders, which were long gestation. And a lot of orders moved into issues on a geopolitical front, whether it was Ukraine, Myanmar, Afghanistan, which is now out of our order book completely. We’ve removed that from our order book.

So given all of that, we were just making sure that we’ve delivered on all our commitments of the past, which is all done and parallelly build an order book, which is healthy margin. So yes, there was a slight reduction in what we projected at a division level. But the good part is that the visibility now looks very good. It was a mix of those two, three things, decision on some projects and some geopolitical issues in some countries.

Akshay Kothari — Envision Capital — Analyst

Okay. Sir, on the guidance front, in the earlier presentations, we didn’t use to mention the word standalone, and now we have come up with the standalone thing. So I just wanted to know what all comes in standalone. So you did clarify that JMC is a part of standalone. So Linjemontage, Fasttel would be in the consol, right?

Manish Mohnot — , Managing Director and Chief Executive Officer

Yes. Yes. Yes. So thank you for highlighting this. I’ve also not seen it on a lighter note. Yes, yes. So Linjemontage and Fasttel would be more than consol. Standalone is our entire KPTL and erstwhile JMC business. Consol would include the road assets, Shubham Logistics, Linjemontage, Fasttel and the Indoor real state.

Akshay Kothari — Envision Capital — Analyst

Okay. So…

Manish Mohnot — , Managing Director and Chief Executive Officer

And there also — there — on a consol basis, also, we’re looking at a growth of 25% plus. Although, our internal target is higher than that, but for the external world, it is on a consol basis also we’re looking at a growth of minimum 25% plus.

Akshay Kothari — Envision Capital — Analyst

Okay. And PBT margins?

Manish Mohnot — , Managing Director and Chief Executive Officer

PBT margins came in the range of 4.5% to 5% So we’ve seen a huge turnaround in Brazil also, where we have suffered a huge loss in the last two years, and we expect Brazil to be positive on a PBT level, not only at the EBITDA level in the current year, and that will also help us from a margin turnaround perspective. So our only challenge now as far as the consol margins is on Shubham Logistics, where we’re still not seeing our warehouse utilizations improving.

We are seeing good traction on road assets. We are seeing good traction on Linjemontage. We’re seeing good traction on Fasttel. We are seeing cash flows coming in on Indoor. Our only challenge continues to be Shubham Logistics, where we believe we might still have a year of challenges because warehouses are not utilized even to the breakeven level. It’s good at EBITDA level, but PBT level, we have challenges on Shubham Logistics.

Akshay Kothari — Envision Capital — Analyst

And sir, this vision 2025, which is mentioned, it is CY 2025 or FY 2025?

Manish Mohnot — , Managing Director and Chief Executive Officer

It is FY 2025. [Indecipherable] ’25, ’24 next year ’24, ’25, FY ’24, ’25. Yes.

Akshay Kothari — Envision Capital — Analyst

Okay. Sir, lastly, long-term borrowings have decreased and short-term borrowings have increased. So what is the reason for that?

Manish Mohnot — , Managing Director and Chief Executive Officer

No. I don’t think there will be any specific reason except for maybe the interest cost, as well as availability of long-term loans at a given point of time. It’s not strategy, as much as it’s about opportunity of having lower interest cost, one. Second, it’s also driven by our visibility on cash flows for the near future. So if you see Q4, our cash flows were very, very good, right? And if you see your visibility of cash flows to be very good in the near future, you’d typically love to keep short term. But getting into the next year, we should be, again, taking some long-term loans once interest rates stabilize at a particular level.

Akshay Kothari — Envision Capital — Analyst

Okay. And are other intangible assets have decreased and asset held for sale have increased. So what was the reason for that?

Manish Mohnot — , Managing Director and Chief Executive Officer

So I think other intangible assets primarily had some write-offs coming on a few of our investments, so Shubham Logistics was one of them, as well as the losses on Brazil. As far as asset held for sale, I think we have classified one of the road assets, as assets held for sale because we believe that we will be getting a non-binding offer very, very soon. It might not even go beyond this month, and we already are in active touch with it. Yesterday, we have got in principle approval from the senior management also. So that’s why I kept for asset held for sale. And I’m pretty confident of signing that in this month itself, not even June.

Akshay Kothari — Envision Capital — Analyst

Sir, and there is also a liability associated with asset held for sales. So net off, there has been no movement. So what is that liability?

Manish Mohnot — , Managing Director and Chief Executive Officer

It would be the loans on that portfolio. It’s just a similar thing. But I’ll have to see those details and come back to you.

Akshay Kothari — Envision Capital — Analyst

Okay. Thanks a lot and I’ll get back in the queue.

Operator

Thank you. Next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.

Bharat Sheth — Quest Investment Advisors — Analyst

Hi. Good morning, Manish Ji and Tripathi Ji, and congratulation on a good set of numbers.

Manish Mohnot — , Managing Director and Chief Executive Officer

Good morning, Bharat bhai.

S.K. Tripathi — Deputy Managing Director

Good morning, Bharat bhai.

Bharat Sheth — Quest Investment Advisors — Analyst

Sir, my first question is, we — since last one year or two year, we have been expanding our geographical, as well as within that geography vertical also we are expanding new vertical we are building. So in order — I mean in medium-term perspective, what exactly that — each geography has some kind of, I mean, geopolitical or surprises or — so what is our risk management capability that we are building from a medium-term perspective, so this kind of a surprise should not really affect us. And…

Manish Mohnot — , Managing Director and Chief Executive Officer

So Bharat bhai, I think a very important question for us. This entire last four years, whether it started from COVID, whether it started from the war, a lot of learnings for us. I think, hello…

Bharat Sheth — Quest Investment Advisors — Analyst

Yeah, sir.

Manish Mohnot — , Managing Director and Chief Executive Officer

I think the good part is, historically, we’ve been following this consistent policy of taking ECGC across all our projects. And that’s why even if — when you look at Afghanistan, more than 80% of our dues have come from ECGC. So we will continue to make sure that at least on a global front, we will take ECGC on all projects, where at least in those countries, where you believe that even there’s a 1% risk. So that’s one thing, which we are very focused on.

Second, we have slowly over the last three years, if you look at our portfolio, we have moved to a lot of developed countries, right? So look at Chile, look at Australia, look at our expansion in LATAM, look at what we are doing in a few of our geographies in neighbouring countries, which are funded by Exim. So our focus is compared to what we were four years ago, our focus is to move to a lot more developed economies, which one has limited competition, where delivery is the key requirement and while you can get in there as a small player, and then eventually grow to be a large player. So that’s been our second focus.

Third, on a risk management perspective, we further strengthened our risk management committee both at a business unit level, at SBG level, which is strategic business group level, as well as at the Company level, where we look at a lot of this very, very closely. I would be happy to sometimes discuss with you about how our risk profile in the last three years — three years ago, majority of our exposure were in countries, which were more in the category of B&C. But today, more than 50% of our exposure are in countries, which are more in the category of A and B from a ECGC rating perspective. So that’s also helped us. So gradually, we’ve obviously learned from the last three years, four years, and we’re making sure that as much as we can recover to prudent risk management policies.

The one more aspect is our breakup of fixed and variable order book. So if you look at today, our variable order book is closer to 65% of our total order book size at — some — it’s actually more than 65%, I think someone, Ram has corrected me for that. But that’s what is actually growing. So as long as we get into that variable order book a lot more, at least, we do not lose on a lot of surprises. We might not gain on surprises because that’s not our core business, but we do not lose on surprises. So it’s been a mix of new countries variable to fixed, strengthening our risk management across the geographies and continue seeking insurance for majority of the countries, if not all.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Great. And sir, that is largely, say, on the external side that we are working, but internal like execution, since — this developed country, I mean, timeline — timeliness is very important. So execution perspective, how we are building those capabilities, so that we internally should not default over there?

Manish Mohnot — , Managing Director and Chief Executive Officer

So Bharat bhai, you are an important for — and you’ve been associated for the Company for long to understand that we’re going international only in businesses, which have grown in India for at least five years to seven years.

Bharat Sheth — Quest Investment Advisors — Analyst

Correct.

Manish Mohnot — , Managing Director and Chief Executive Officer

So if you look at our approach, it’s been that we were doing only transmission International till three years ago.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay.

Manish Mohnot — , Managing Director and Chief Executive Officer

Last five years to seven years, we built huge capabilities on buildings and factories and civil. We went international on that just one year ago. Oil and gas, we have built huge capabilities in India over the last 10 years, we’re going international now. So we are also cautious on the fact that not to go international, unless we have a strong team on all aspects, whether it’s tendering, whether it’s execution, whether it’s project management and whether it’s the commercial side of it. So we are not going international any business, which is new in nature, right?

So if you look at our international growth, it’s been only in sectors, where we have a strong team in India on the basis of which we build the strong international team, on the basis of which we have built over a period of time and done one order delivered and then grown it further, one. Second, we’ve also not grown very fast on new businesses. So if you see, even in transmission, international, if you go back to our history, 10 years ago, we would take three, four orders deliver and then go to the next three, four orders. So that’s what we have done here also. We’ve taken five, six orders, we’re building, ramping-up the team, and then, we will take further larger orders in size and scale. We are in no hurry for top line growth. Let me assure you, we are in no hurry for top line growth, for us, this is profit, which makes a lot more important than revenue.

Bharat Sheth — Quest Investment Advisors — Analyst

Got it. And last bookkeeping, what are our capex for two years. ’24 and ’25?

Manish Mohnot — , Managing Director and Chief Executive Officer

So for the current year, we budgeted for capex around INR275 crores based on the current order book. If we win any large orders in urban infra or international oil and gas, we might revise this capex upwards. But otherwise, we believe on an annualized basis, we should be okay with INR275 crores to INR300 crores for this year and next year.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. All the best, sir. Thank you very much.

Manish Mohnot — , Managing Director and Chief Executive Officer

Thank you, Bharat bhai.

Operator

Thank you. [Operator Instructions] Next question is from the line of Ashwani Sharma from ICICI Securities. Please go ahead.

Ashwani Sharma — ICICI Securities — Analyst

Yeah. Hi. Good morning. Thanks for the opportunity. Sir, my first question is on the debt. So you did alluded the fact that there will be increase in the debt going ahead, as the order book has gone up. In case if you can just put some numbers, how do you see debt shaping up in FY ’24 and ’25? And related question is, is that you did mentioned on the interest cost saving because of the merger, here also if you can put some number, how — what kind of savings do you see because of the merger?

S.K. Tripathi — Deputy Managing Director

Sure. So on a standalone basis, our net debt levels are around INR1,700 [Phonetic] crores, while we speak on 31st March. We believe that we should be at levels of not beyond INR2,200 cores to INR2,300 crores by the year-end, even with a 30% growth. So that’s on a net debt basis.

As far as interest cost is concerned, even in the rising interest cost scenario, we’re still targeting our interest cost, as a percentage to the sales to be below 2%, right? And that’s where we have in built all the savings coming from the JMC merger, all the savings coming from our effective working capital management and also increased advances, which we are not picking at some point of time given the huge difference in the interest rate on advances versus the banking interest rates.

So with the combination of all of this, I think if you look at the consol numbers, where they are going to be at INR20,000-plus crores and standalone numbers, which would be at a number of anywhere between INR18,000 crores to INR19,000 crores, we believe that our interest cost should be in the range of at a standalone level in the range of INR350-odd crores, if not slightly lower than that.

Ashwani Sharma — ICICI Securities — Analyst

Thank you. Sir, do you see any infusion in road assets during the year or Shubham Logistics — just on the losses?

Manish Mohnot — , Managing Director and Chief Executive Officer

So can you repeat the question?

Operator

Ashwani, sorry to interrupt you, but your voice is not coming very clearly. It’s coming a little muffled. Can I request you to speak through the handset?

Ashwani Sharma — ICICI Securities — Analyst

Yeah. Sorry for that. Sir, any infusion required in road assets and Shubham Logistics during the year?

S.K. Tripathi — Deputy Managing Director

So road assets, if you know, these assets are almost eight years to nine years in their life cycle time, and they will be requiring the O&M, the major maintenance, right? So we will be requiring to infuse about INR50 crores to INR60 crores towards that account. If you look at two SPVs, even at the PBT level, they are breakeven. One SPV will still require the fund support. So that is the situation currently. So we have to infuse the money, but a major amount of that will go towards the major maintenance, which is due now on the projects. And…

Ashwani Sharma — ICICI Securities — Analyst

Yeah.

Manish Mohnot — , Managing Director and Chief Executive Officer

On Shubham Logistics, we do not see immediate infusion of capital required, but we will revisit that at the end of Q2. If we do not see improvement in traction just to repay some of the external loans, at Shubham Logistics, the external loan number is around INR170 crores, as of 31st March, we might be revisiting this number at the end of Q2.

Ashwani Sharma — ICICI Securities — Analyst

Okay. Just a bookkeeping question, sir. On the international subsidiaries, both Fasttel and Linjemontage, if you can just provide the bottom line numbers or PBT numbers?

S.K. Tripathi — Deputy Managing Director

So as far as — on an annualized basis, Linjemontage had a profit of approximately INR44 crores at a KPTL Sweden level. And as far as Fasttel is concerned, we had a loss of — last quarter, I remember around INR56 crores. Yes. Kalpataru [Indecipherable] is a loss of INR56 crores, and KPTL Sweden is a profit of INR44 crores on an annualized basis. The revenue number was INR1,002 crores and with a profit at INR44 crores. As far as Brazil is concerned, revenue of INR439 crores with a loss of INR56 crores.

Ashwani Sharma — ICICI Securities — Analyst

Yeah. Sir, last question from my side. The NWC number, which is 100 days is what you’re saying. Can — is it possible to give us a breakup between T&D business and the other civil and B&F [Phonetic] business?

Manish Mohnot — , Managing Director and Chief Executive Officer

I might not have that breakup immediately. It might help if you can just connect with the team, any of them, Vishesh, Kunal and they’ll be happy to provide you those details.

Ashwani Sharma — ICICI Securities — Analyst

Sure, sir. Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aman [Phonetic] from State Bank of India. Please go ahead.

Unidentified Participant — — Analyst

[Foreign Speech]

Operator

Aman, can you hear us?

Unidentified Participant — — Analyst

[Foreign Speech]

Operator

Aman, can you hear us. Due to no response, we will move on to the next participant. The next question is from the line of Parikshit Kandpal from HDFC. Please go ahead.

Parikshit Kandpal — HDFC Securities — Analyst

Sorry, sir, I got dropped out earlier. My question is on the promoter shareholding. So after the merger, we have seen in this part that the promoter shareholding has come down to 47% because of the merger. And given the bad press, which we be thinking had on the Group, do you think now when we have come below the psychological level of 50%, can promoter — can offload some more shares in the market and this holding go towards more 40%? Or will it going — will go above 50%? So what’s your view there?

Manish Mohnot — , Managing Director and Chief Executive Officer

So Parikshit, we do not have any specific view on this question. We have not had any discussions with promoters on this aspect. Our only discussion with them was on the pledge component and where they have told us that pledge will continue to reduce only. They have a plan going forward, but you’ll see the pledge reducing going on quarter-on-quarter. As far as the promoter holding is concerned, we have not had any specific discussion with the promoter on this aspect.

Parikshit Kandpal — HDFC Securities — Analyst

Okay. My second question on the road monetization, sir, you said that one asset will get monetized. So likely, what could be the potential the deal value? Or you can also give some sense on what is the total equity investment in that asset would — whether we’ll be able to recover a large part of it or there could be potentially a write-off, so if you could give some sense on that?

Manish Mohnot — , Managing Director and Chief Executive Officer

Parikshit, we might not be able to share the deal contours at this stage because we are at the signing stage of the non-binding offer. We can only tell you that our — we’re getting much more than the equity what we have invested.

Parikshit Kandpal — HDFC Securities — Analyst

Okay. And what was the total equity investment in that asset?

Manish Mohnot — , Managing Director and Chief Executive Officer

No, I’ll not be able to give you those contours right now, as I said earlier, but just keep patient for the next two, three, four weeks, and we might be able to share those details once we sign the non-binding offer.

Parikshit Kandpal — HDFC Securities — Analyst

Okay, sir. Thank you, and wish you all the best.

Operator

[Operator Closing Remarks]