Welspun Enterprises Limited (WELENT) Q3 FY23 Earnings Concall Transcript

Welspun Enterprises Limited (NSE:WELENT) Q3 FY23 Earnings Concall dated Feb. 02, 2023.

Corporate Participants:

Salil Bawa — Investor Relations

Sandeep Garg — Managing Director

Akhil Jindal — Interim Chief Financial Officer

Analysts:

Sudhanshu Bansal — JM Financial — Analyst

Rohit Natarajan — Antique Stock Broking — Analyst

Unidentified Participant — — Analyst

Preet Jain — Molecule Ventures — Analyst

Vikash — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Welspun Enterprises Limited Q3 FY 2023 Earnings Conference Call, hosted by JM Financial. [Operator Instructions]

I now hand the conference over to Mr Salil Bawa, Head Group Investor Relations, Welspun Group. Thank you and over to you sir.

Salil Bawa — Investor Relations

Thank you very much. Good afternoon. I welcome all of you to the Q3 FY 2023 earnings call of Welspun Enterprises Limited. Present along with me today on this forum are Mr. Sandeep Garg, Managing Director; Mr. Akhil Jindal, Group Chief Financial Officer and Head, Strategy Welspun Group. I also have Lalit Jain, Senior Vice President, Finance for Welspun Enterprises Limited. You must have received the results and investor presentation of the company, which are also available on BSE, NSE, as well as on the company’s website.

As usual, we will start the forum with some opening remarks by our leadership team. We will then open the floor for your questions. During the discussion, we may be making references to this presentation, which is uploaded on our website, as well as on the stock exchanges. Please do take a moment to review the Safe-Harbor statement in our presentation. Should you have any queries that remain unanswered after this earnings call, you can reach out to us.

With that, I would now like to hand over the floor to Mr. Sandeep Garg, MD, Welspun Enterprises. Over to you, Sandeep.

Sandeep Garg — Managing Director

Thank you, Salil and good afternoon to everyone present on the call. Firstly, I would take time to congratulate Mr. Lalit Jain for being the Acting Interim CFO. Now let me begin the call with the discussions for the quarter. First and foremost, I’d like to inform you of our Actis transaction. We are pleased to report that during the quarter, we have already received INR2,172 crores, including partial release of working capital. This is around 90% of the funds receivable from this transaction.

Further balance money shall be received on 55% stake sale approval of BOT asset and fulfillment of other conditions subsequent. As we highlighted earlier this transaction translates into 19% equity IRR on existing portfolio. With the Actis transaction closure, we have demonstrated the value creation of the entire value chain that is successfully winning, constructing, stabilizing and monetizing our growth assets.

With our unique model of asset like execution, we are able to maintain a lean balance sheet, which results in better translation of revenues to profits. You can appreciate that recapture our profit by way of EPC business during the construction pace of these projects, as well as at the time of divestment of the portfolio.

I would like to highlight at this time that since we entered into HAM business, including the proposed buyback we would have distributed approximately INR50 per share amounting to INR700 crores plus to shareholders by way of dividend and buybacks. So with the successful recycling of capital, we have a net debt balance as negative INR1,582 crores at standalone level, which gives us a strong foundation for our next phase of growth.

Out of the monies we have received, we have set aside funds to repay our debts and become debt free standalone at a standalone level over the next two quarters. In the next growth phase, we will continue to target high-value, high-margin assets. We will also continue to work with our low risk asset light execution model.

Now coming to the quarterly highlights, we continued our performance in the Q3 FY 2023 on back of efficient execution of our EPC projects both in roads and water, waste water and wastewater treatment segments. In terms of standalone figures, our revenue from operations increased by 210%, while our PBT before exceptional incomes increased substantially. We saw our improvement in margins in this quarter over the same quarter last year as input costs have begun to moderate.

On the order book front, we had a very strong order book of INR10,800 crores as of December 31st, 2022. This includes INR1,800 crores for O&M and asset replacement in the MCGM STP project. Our business strategy is focused on two goals, first, building a portfolio that generates high-value, high-margin projects. And second, diversifying our portfolio to derisk ourselves from dependency on any single sub-segment of infrastructure. Water and wastewater treatment projects account for 57% of our order book, with the remainder being road project. We see enormous opportunities in the water and wastewater treatment segment going forward.

Lastly, on the operations front. On the HAM asset, I’m happy to inform that NHAI has approved extension of time for completion of Aunta-Simaria project up to 29th October 2024. Whereas extension of time for Sattanathapuram-Nagapattinam SNRP project is under finalization. As far as the physical progress of these projects is concerned, Aunta-Simaria project has achieved a physical process of more than 40% and SNRP HAM project has achieved a physical progress of about 15%.

With the background of the quarter, I would request Akhil to take you through the financial results of the company.

Akhil Jindal — Interim Chief Financial Officer

Yeah, thank you, Sandeep. Good afternoon to everyone. This quarter has seen some exceptional performance as a company primarily one because of the Actis deal. And secondly also because we executed lot of orders in this quarter. And naturally the numbers are a reflection of both this positive developments. So the Q3 FY 2023 as you would have seen, we recorded INR680 crores as top line, which is nearly two times higher than what was delivered last quarter, I mean, the same quarter on a Y-o-Y basis. This of course includes the successful execution of large projects in roads, waters and this has naturally driven both revenue, as well as profit for the company.

We are also seeing there has been a cost moderation and thereby we expect margins to improve here from here on and the whole industry should be in my opinion be re-rated as far as the margins are concerned. On a nine months basis, you would have seen our profit have gone up, the revenue has gone up to almost INR1800 crores. Our PBT has gone up to INR125 crores and the PAT has gone up to INR576 crores. Now the PAT of course includes the exceptional item which we are going to speak a little while and that’s largely on the kind of active thing.

So looking at the consol numbers, the revenue of the company you know for just for this quarter has been INR717 crores. The revenue on the consol side was of course driven by the EBIT revenue, as well as the toll annuity revenue during the quarter. You must be aware that we have got five toll projects, five annuity projects and one toll project already operational. And these all six projects from the part of the deal that we done with Actis and naturally from next quarter onwards you will not see this top line and bottom line impact of these exits.

The PBT without the exceptional item was reported at INR59 crores for this quarter. So thereby, as you see on an overall basis, the net profit of the company has gone to almost INR402 crores on a consol basis, which of course include INR357 crores of exceptional item for this quarter. On a nine nonth basis, the total revenue consol is nearly touching INR2000 crore at INR1,985 to be precise. PBT is around INR132 crores and the PAT with an exceptional item is INR584 crores.Now this of course as I mentioned to you includes INR427 crores. For the quarter — for the Actis detail and the details of which are already provided in the Clause 41, which is uploaded on the website and also shared with the stock exchange day before yesterday. With this, I open the floor for question-and-answers. If there is any question ask the operator to assist you and as a management team, we will try and answer it as much as we can on this call today. Anything leftover, you can always reach out to our IR team and they would be happy to answer any of your questions, which are unanswered today. Thank you very much.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] Our first question is from the line of Sudhanshu Bansal from JM Financial. Please go ahead.

Sudhanshu Bansal — JM Financial — Analyst

Am I audible?

Operator

Yes, sir.

Sudhanshu Bansal — JM Financial — Analyst

Good afternoon, sir. Thank you for the opportunity and congratulations for the good set of results. With respect to the acquisition of [Technical Issues], it would be great if you can share your vision for the new venture in terms of one target areas like solar wind or other? Second, the size of the opportunity what we are targeting and the third the business model like what we want to become in terms of EPC player or a developer? Thank you, sir.

Sandeep Garg — Managing Director

Thank you. So, firstly the board has given us a clearance to evaluate new — sustainable energy options for us to decide where we want to be in this whole chain of sustainable new energy business. We need a team of competent people, as well as certain experts to advice us. We have taken initial clearance from the Board to explore this. We shall come back to you once we have decided as to which sub-segment of the sustainable new energy we want to play and the business plan that we have for the same.

Sudhanshu Bansal — JM Financial — Analyst

Okay, thank you, sir.

Operator

Thank you. We’ll take our next question from the line of Rohit Natarajan from Antique Stock Broking. Please go ahead.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah, thank you for this opportunity. Congratulations on very good set of numbers.

Operator

Sorry, Mr. Natarajan, if you can switch to handset mode and speak, we can’t hear you clearly.

Rohit Natarajan — Antique Stock Broking — Analyst

I hope I’m audible?

Operator

This a little better.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah, sure. Congratulations on this fantastic deal and even the good set of results. One, my first question is now that you have almost like INR1,500 crore cash as you made in your opening remarks, help us understand in a big-picture, what exactly if the quantum of hammer sets you could deploy this capital as equity income. So if I understand it correctly this can support at least INR10,000 crore of additional order inflows you are looking to early summer HAM [Indecipherable], can you throw some color on those big-picture part?

Sandeep Garg — Managing Director

If I were to understand your question correctly, your question is that if this INR1500 crores cash surplus were to be deployed purely for HAM related projects, how many projects could it practically support? On a principle past experience, we believe that this kind of liquidity should be able to support those projects of about 12,000 to 15,000 crores easily.

Rohit Natarajan — Antique Stock Broking — Analyst

And how much do you plan to dip in — will be entire [Technical Issues].

Operator

Mr. Natarajan, sorry, your voice is breaking up. If you can just adjust your device or move to an area where there is better networks are and you will have to repeat.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah, so my question is, what lift are we looking in, like I mean, are we confined our opportunity space to roads in terms of capital allocation and what percentage with the interest would be?

Sandeep Garg — Managing Director

So we as I said in my opening remarks, we are already present in road and water vertical. And we have taken decision to explore the new energy sustainable energy solutions. The capital allocation towards each of these segments will be taken-up in the annual business plan exercise for the FY 2024 and once that clarity emerges, we will share the details with you.

Rohit Natarajan — Antique Stock Broking — Analyst

Sure. [Technical Issues] what stage of execution are we right now, I mean when can we expect the execution numbers to be looking like in a point?

Sandeep Garg — Managing Director

There is a lot of problem with the voice that I’m getting.

Operator

Maybe Mr. Natarajan, I would request you to return to the queue, we’ll have an operator check your connection and join you to the call.

Rohit Natarajan — Antique Stock Broking — Analyst

Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aakash Mehta from Compass [Phonetic] Investments. Please go ahead.

Unidentified Participant — — Analyst

Sir, good afternoon. I just had a quick question, how much money are we planning to invest towards the oil and gas and road?

Sandeep Garg — Managing Director

So as I had stated earlier, we are awaiting the field development to plan which is expected within the February, once the field development plan is clear, we would know exactly how much money will be required for developing the project, the asset. Based on the numbers thereafter, we will be able to give you a clarity. At this point in time before the FTP is finished, we need to invest about 15 crores, 20 crores which we will continue to do here in this period while the FTP is accepted by the government.

Unidentified Participant — — Analyst

All right. And do you have any plans to invest in warehousing as well?

Sandeep Garg — Managing Director

We surely have no plans to invest in the warehousing, this money is going to remain in the infrastructure space itself.

Unidentified Participant — — Analyst

Okay got it. That’s helpful. Thank you.

Operator

Thank you. We’ll take our next question from the line of Harshit Toshniwal from BU Research [Phonetic], please go ahead.

Unidentified Participant — — Analyst

Hi, sir, am I audible?

Sandeep Garg — Managing Director

Yeah, yeah, you can.

Unidentified Participant — — Analyst

So thanks a lot for the opportunity, few questions sir. Sir, first I just wanted to clarify that post this Actis deal, our net-debt position basically gross debt minus cash which because I think we have 600 crore in gross debt, net of that we are having around 1,100, 1,200 crore cash.

Akhil Jindal — Interim Chief Financial Officer

Yeah, you’re right.

Unidentified Participant — — Analyst

On the consolidated level?

Akhil Jindal — Interim Chief Financial Officer

So we have as on the 31st of December, our net debt [Technical Issues].

Unidentified Participant — — Analyst

Sir, it was not very clear, can you repeat it again?

Akhil Jindal — Interim Chief Financial Officer

So as on 31st December, our net-debt position is INR1582 crore. Okay? Then the company [Technical Issues] and the buyback amounting to almost INR200 crore plus. So that sees our net cash position, as on March, in our opinion will be in the range of 1,100 crores as you correctly mentioned.

Unidentified Participant — — Analyst

So this INR1582 crores is not net-debt, it is net cash?

Akhil Jindal — Interim Chief Financial Officer

Yeah, so you’re right, post-retirement of all the debt and everything which is — which come up this May, fall due in May or so, after the retirement of the debt in May, this will be around 1,100 crore net cash.

Unidentified Participant — — Analyst

So if I understand it correctly, just to calculate 2,200 crore is what we [Indecipherable], 400 crore will be for dividend and buybacks, so 2200 minus 400 is around 1800 crore, 600 crore we have an existing gross debt which we’ll repay over the next three, four months. So net we’ll be remaining with around 1,100 crore of cash?

Akhil Jindal — Interim Chief Financial Officer

Yeah and this is of course after investing some amount in the working capital of the company, because we are in execution phase for almost 10,000 crore of the project. So, the money that was received earlier is also allocated towards day-to-day working capital and we are ensuring that we are not withdrawing any CC, any PP, I mean we’re not drawing any CC or any CP and managing the business without working capital allocation that we have done.

Unidentified Participant — — Analyst

Got it, got it, got it. Second question is, sir, so right now we in 3Q FY 2023 if I look at the number, we have a revenue of around 668 crore and then EBITDA of around 77 crore. This is a standalone on an consol basis our EBITDA is more like 92 crore and revenue 700 crore, just want to understand that out of the assets which we have sold a good part of the number is something which is not going to come in 4Q. So if you can split the total income and EBITDA of Q3 into what is not going to come from 4Q?

Sandeep Garg — Managing Director

So if I understand your question correctly, the question is how much of the EBITDA that we are — we have reported is coming from discontinued operations?

Unidentified Participant — — Analyst

Right.

Sandeep Garg — Managing Director

So is that the question, we do not expect any percentage wise impact, negative impact on the EBITDA due to the discontinued operations. As Akhil mentioned in his earlier statement, we do expect because of the moderation of the commodities, improvement at the EBITDA level that we do not see any negative because of this.

Unidentified Participant — — Analyst

No sir, see, if I may ask, I’m not asking of margin, I’m saying that out of the 92 crore Q3 EBITDA, there would be some component from the assets which we sold. So you are saying that the contribution was negative which is why the EBIDTA in absolute basis will not be impacted.

Sandeep Garg — Managing Director

So if you see on the consolidated numbers, profit from discontinued operations in Q3 FY 2023 on a consol level is zero. So if you were to look at our press release, the profit from discontinuing operations is dash in the Q3 FY 2023, so there is nothing which is contributing there for the Q3.

Unidentified Participant — — Analyst

Okay. So, this Q3 number is basically ex if I remove that exceptional item, but PBT before exceptional item is a sustainable number even from Q4?

Sandeep Garg — Managing Director

Yeah, [Technical Issues].

Unidentified Participant — — Analyst

That’s right.

Akhil Jindal — Interim Chief Financial Officer

Yeah, because the transition has happened in this quarter. So clearly the profit from the discontinuing operation you would have seen in our press release has been indicated as zero.

Unidentified Participant — — Analyst

Okay, okay, got it, got, which maybe in the last quarter it was 108 crore, so that you have already segregated?

Akhil Jindal — Interim Chief Financial Officer

That’s right, that’s right.

Unidentified Participant — — Analyst

Got it. And lastly sir, got it. So the other question is that we have a contract order book of around 10,000 crores. If you can give some indication of the period over which it will be executed roughly? And do we expect to maintain around 10% to 12% margin in this 10,000 crore product number?

Sandeep Garg — Managing Director

So as I said earlier, we on the HAM portfolio or the development portfolio, we have profit or wage accounted under two scenarios that is [Technical Issues] as the construction phase it is correct to anticipate that the margins will be rolling around 11%, 12% for all — for the developmental projects, as well as the EPC projects.

Akhil Jindal — Interim Chief Financial Officer

So just to add to what Sundeep has said, we have a sustainable EPC margin, which is reflected in our books as on a quarter-to-quarter basis. In addition, there are these exit special occasion exit margins and as a company we have model of EPC which is regular and exit which is periodic which cannot be every quarter. So what is driving, Sandeep, is as a company we are delivering profit into two buckets, one is on our ongoing sustainable EPC margin. And also on the exits of the road assets or other assets that we are getting, which happens say every three years every year as a cycle maybe.

Unidentified Participant — — Analyst

Understood, sir. So if I can just rephrase the question like that out of that 10,000 crores, I don’t know the number, but say for example, some portion would be EPC which will throw gradually in our P&L and obviously it maybe 4,000 crore, 5,000 crore and the balance 5,000 crore which is more the expenditure of which we’ll get a capital gain at one point of time after three year, four year because I just wanted to understand that how do we contemplate that of this 10,000 crore order book, how much will be flowing at a gradual level through the P&L and how much would be restricted for that capital gain point?

Sandeep Garg — Managing Director

So let me try and answer this question, the — out of this 10,800 crore is our pure EPC order book of developmental as well as pure EPC play. So you think you will get 11% to 12% return on this portfolio on a regular basis. The portfolio behind — the developmental portfolio behind this is also of a magnitude of about 3,500 odd crores, of which, you will get a lumpy exit when we when the projects are completed and we exit from those portfolio. I hope I have answered the question.

Another thing that I may want to clarify at this point in time because you’ve been talking about EBITDA Levels. I want to bring because we are in — we are into an asset light model execution. We and I as I said in my opening statement, the right metrics for us to be evaluated is more profit before tax, because unlike most of the other infrastructure companies, we do not have a level or a depreciation which brings which is a differentiating factor in our model and that’s what my submission would be that the right metrics for us to be evaluated is PBT and our PVC over a lifecycle of the asset rather than a quarterly basis, which possibly is a bit downplayed on a quarter-to-quarter basis.

Unidentified Participant — — Analyst

I had a follow-on, but…

Operator

[Operator Instructions] Thank you very much. We will take our next question that’s from the line of Amit from Nuvama. Please go ahead.

Unidentified Participant — — Analyst

Hi, sir, congratulations on the fantastic results. I have a I mean recently you sat that, I mean submitted on the exchanges about the wealth from natural resources being like liquidity and I think it includes the oil and gas thing as well. So just I mean wanted to have some light on it, if there is anything more then what is being already known to the exchanges?

Sandeep Garg — Managing Director

So I think we have been very categorical in our releases, the WNRL was intermediary company holding our oil and gas assets in — for the purposes of leasing of the compliances and making it light, we decided to liquidate our natural resources. I don’t think there is anything else that really is something that I can declare.

Unidentified Participant — — Analyst

So just a very basic thing, just wanted to understand, so these businesses still stay with the investment enterprise, is that correct?

Sandeep Garg — Managing Director

That is correct. So what we were holding through with some natural resources, not directly held at Welspun Enterprises level through directly.

Unidentified Participant — — Analyst

Correct, correct. And any light on positive when could these asset start their commercial production etc?

Sandeep Garg — Managing Director

So we are awaiting the field development plan, which we which as I said earlier, we are expecting within the February. The intent is to try and make them operational by FY 2026, so anytime between.

Unidentified Participant — — Analyst

Great. And sir just one more thing. So as previously we were focusing mainly on HAM, I think we found a very sweet-spot there where competition was less, now I think the competition has sort of intensified there, but I think smartly I think we are now more focusing on water thing which I presume is not everyone’s expertise. So is that understanding correct?

Sandeep Garg — Managing Director

Yes, understanding is correct. So we are very clear that we will not play in a very intensely competitive cut throat pricing competition environment. So we are derisking our as a company by adding portfolio and the models to offer. So that is the way we look at infrastructure play.

Unidentified Participant — — Analyst

That’s excellent. I wish you all the best. I think that’s one of the best probably good, very good strategies to adopt. I wish you all the best.

Sandeep Garg — Managing Director

Really appreciate. Thank you very much.

Operator

Thank you. Our next question is from the line of Rohit Natarajan from Antique Stock Broking. Please go ahead.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah, yeah. Thank you sir, thank you for this opportunity once again. So my first question is more to do, just to follow-up on the earlier question, Welspun Natural Resources. Is there any impairment that probably we may think about in the days to come?

Sandeep Garg — Managing Director

We don’t see any impairment coming through this process per se.

Rohit Natarajan — Antique Stock Broking — Analyst

Okay. Sir, my second question is in the execution track-record. If I recollect last-time you said FY 2024, you’re looking at 36 billion, 3 billion kind of execution every month, is that target intact?

Sandeep Garg — Managing Director

Yeah, I think so. I mean, obviously, I said going-forward from the time that I was addressing, so we believe that the period was somewhere in the middle of November, so are tracking alongside that way. We do believe that going forward that will be the run-rate.

Rohit Natarajan — Antique Stock Broking — Analyst

And, sir, any update on the wastewater treatment project, is it like already or hitting on the ground, contributing to the numbers. What’s the status over there?

Sandeep Garg — Managing Director

So it should start contributing very small numbers in the Q4 of FY 2023, however, the major contributions will start in the FY 2024 only.

Rohit Natarajan — Antique Stock Broking — Analyst

I understand, sir, when you talked about the capital allocation part, it’s too early for you to make any commitment on road and the solar part or the renewable part. But if you could give us some color on there, at least in the sectors will be like I mean, one, obviously, the roads which is your HAM projects, water projects is essentially for EPC, but the capital allocation for other things, you were earlier contemplating railways too. So what exactly are the sectors that we are looking in terms of capital allocation?

Sandeep Garg — Managing Director

So, railways we have been looking for some time and we will continue to look at it if it makes economic sense and we can develop a model which is unique. So are we stay — we develop unique models and we stay differentiated, that’s the way we look at the industry. As I said, we are looking at sustainable alternate of new energy sources. So we do believe that there are various opportunities unfolding there as well with the focus of the government. And we do have the strength and the ability to mature a few of them.

So I think the right time to look at this would be about a quarter later from now and we have some firm capital allocations and better understanding of what the government’s views are on the budget announcements for us to have a conversation about allocation.

Rohit Natarajan — Antique Stock Broking — Analyst

Yeah, sir, also earlier you were thinking about buying a lot of equipments and going a little bit more down the vertical in EPC part, is that is also intact?

Sandeep Garg — Managing Director

So I do not know how — where you gathered it from that we would want to buy equipment. We have always maintained that we will be asset-light, if we buy the equipment, it is primarily to support the sub-contractor base that helps us complete the projects and we transfer these assets to the subcontractor upon completion of the project. So we don’t retain these assets onto the balance sheet beyond the project completion for which specifically these are bought.

Rohit Natarajan — Antique Stock Broking — Analyst

I appreciate all your answers. Thank you for taking the time and wish you all the best.

Sandeep Garg — Managing Director

Thank you. Appreciate it.

Operator

Thank you. [Operator Instructions] The next question is from the line of Preet Jain from Molecule Ventures. Please go ahead.

Preet Jain — Molecule Ventures — Analyst

Hi, sir, congratulations on good set of numbers. Sir, my first question is how much money are you planning to invest towards oil and gas and road sector? And my second question is, do you have any plans to invest in warehousing also?

Sandeep Garg — Managing Director

So, thank you. As I had said, we have absolutely no plan to [Technical Issues] hosting. As far as the road is concerned, the current commitment on the [Technical Issues] road we have approximately 225 odd crores to be invested balance. As regards the oil and gas sector, we have about 20 crores, 25 crores of pre-committed expenses till the time IPP is received and approved, post pre field development plan being received for the oil and gas sector we’ll be in a position to give the numbers that we need to invest to make them operational.

I want to state only two things on oil and gas to respond to your question. We have a clarity that if — when we develop these assets, we will develop in the two phases, the first phase will be a very low capex option wherein for us, the fees that we are having from where we want to produce have infrastructure of alternate companies which we can use to get the initial gas or the liquids out, which we plan to use, so that the capex is at a very basic level at the Phase one. And the next phase will be with the full development of the field where which will be self funded from the cash flows of the initial gas that we will produce others initial fluids that we experience.

So two messaging that’s number-one, on the oil and gas, I can only comment upon the capex once the field development plan is available to us. And we have decided that it will be up phased development Phase one will be low capex or initial gas out and once the profitability is established, we will start looking at the field development. And the second message that I would want to give that the from the funds that we have, we are not contemplating any investment in warehousing. I hope I have responded to your questions?

Preet Jain — Molecule Ventures — Analyst

Thank you sir, thank you for answering my question in detail.

Operator

Thank you. Our next question is from the line of Vikash, an Individual Investor. Please go ahead.

Vikash — Individual Investor — Analyst

Hi, sir, congratulations on excellent set of results. Just a few follow-up questions in terms of the oil and gas that you’re talking about. There is a write-up of approximately 57 crores on this Palege [Phonetic] oil block. Can you just throw some color on it?

Sandeep Garg — Managing Director

So as I have been telling in fact, that Palege block was a block which was be it as in conjunction with a company called Napto [Phonetic] Gas. And the government has have taken a view that the natural gas had commented upfront and hedged decided not to let us proceed with this particular block. So we have not we have been declaring that this is something which is litigious now and we were liquidating well for natural resources, it was a requirement to take write-up of this particular asset, so which we have taken. However, our fight with the government to in respect of this block will continue to as we’ve generally believe that the block was terminated by the government on basis which is not fair and equitable to us.

Vikash — Individual Investor — Analyst

Sure sir. Additional questions sir, see because oil and gas is not a significant line of business. Can you help us understand little bit in terms of how we should be valuing this business per se. I understand 400 crores has been invested, but what’s the kind of return that can we expect in the longer run?

Sandeep Garg — Managing Director

So as I have been maintaining that we target mid-teens returns for the businesses that we enter into. So our endeavor for any future investment should we may go beyond what we had already committed to, will be guided by the same principle of return that can we generate in returns, if we cannot we shall not pursue the opportunities.

Vikash — Individual Investor — Analyst

Sir, actually I’m trying to understand in terms of the oil and gas assets and basically two assets in Mumbai offshore, where oil and gas has been found, what kind of potential valuations or returns something that we can generate from this the next two, three four years what’s sort of per se?

Sandeep Garg — Managing Director

So it’s as I’ve been maintaining, see, right now, my any guess — I think messaging would be a guess work, we are expecting the field development plan from a company called CGG in France, so which is like a gold standard in this industry for them to advise us for us to produce from these fields water pick will entail and what kind of margins can we expect. So once we have that clarity, we will take a capital allocation decision and come back to the investors, whether we are going ahead with the development or not and in which form and fashion are we going to go ahead with it. But giving you a writing principle that we do not look for any developmental projects until and unless our return expectations of mid-teen are met. So that criteria shall apply to oil and gas equally well.

Vikash — Individual Investor — Analyst

Thanks sir and last question, sir. Any plans to probably exit this business similar to what the HAM assets you sold to Actis?

Sandeep Garg — Managing Director

So as we — as I’ve said, we are an asset-like model company and we do ensure that we get the right value for our asset. So we will develop, we will mature provided there is a return potential of the asset and look at various options of divestment because we don’t want to hold anything for a long-term, which becomes more of a rental again.

Vikash — Individual Investor — Analyst

Sir, last question, sir, any thoughts right now whether you’re planning to exit or won’t be more — any discussions on with respect to exit?

Sandeep Garg — Managing Director

So we will — see it will be, at this point in time, if you were to go for an exit, it will a) development plan is not in place and it will be — there will be development progress that the buyer will take. So we do believe that the right valuation will come and it will derisk it from developmental risks and demonstrate the viability of the project.

Vikash — Individual Investor — Analyst

Thank you so much sir.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now request Mr. Sandeep Garg to add a few closing comments.

Sandeep Garg — Managing Director

Thank you very much. I would like to thank once again all of you for joining us on this call today. And I hope we have been able to address all your queries. I look forward to speaking to you once again during the next quarter. Meanwhile, please feel free to reach out to our Mr. [Indecipherable] or SGA, our Investor Relationship Advisors for any clarifications or feedbacks. Thank you all. Good day.

Operator

[Operator Closing Remarks]