“Lanco Infratech Q4 FY-15 Earnings Conference Call”lancogroup.com/pdf/call_transcripts/LancoInfratech-May30-2015.pdf · May 30, 2015 Page 2 of 24 Moderator: Ladies and gentlemen

Page 1 of 24

“Lanco Infratech Q4 FY-15 Earnings Conference Call”

May 30, 2015

MANAGEMENT: MR. ADI BABU- COO FINANCE MR. DHEERAJ SOOD – HEAD- INVESTOR RELATIONS,

LANCO INFRATECH LIMITED

Lanco Infratech Limited May 30, 2015

Page 2 of 24

Moderator: Ladies and gentlemen good day and welcome to the Lanco Infratech Limited Q4 FY-

15 Earnings Conference Call. As a remainder, all participant lines will be in the

listen-only mode. There will be an opportunity for you to ask questions after the

presentation concludes. Should you need assistance during the conference call, please

signal an operator by pressing “*” then “0” on your touchtone phone. Please note that

this conference is being recorded. I now hand the conference over to Mr. Dheeraj

Sood. Thank you and over to you.

Dheeraj Sood: Thank you, Zaid. Good morning everybody. On behalf of Lanco Infra I welcome you

all to the call. I will just quickly highlight the key numbers then we can have the

Q&A.

Gross revenue before eliminations declined by 18% Y-o-Y to Rs. 23.1 billion in Q4

FY-15 from Rs. 28.3 billion in Q4 FY-14. Gross revenue before eliminations

declined by 11% Y-o-Y to Rs. 96.8 billion in FY-15 from Rs. 108.8 billion for the

year FY-14.

Adjusted EBITDA increased by 69% Y-o-Y to Rs. 4.5 billion in Q4 FY-15 from Rs.

2.7 billion in Q4 FY-14. Adjusted EBITDA increased by 13% Y-o-Y to Rs. 23.1

billion for the year FY-15 from Rs. 20.4 billion in FY-14.

For Q4 FY-15, there was a reported loss of Rs. 5.9 billion versus a loss of Rs. 5.8

billion in Q4 FY-14. For FY-15, there was reported loss of Rs. 20.4 billion vis-à-vis a

loss of Rs. 22.7 billion in FY-14. For the fourth quarter of fiscal year ’15 there was

FOREX loss recorded of Rs. 1.4 billion versus the FOREX gain of Rs. 802 million in

Q4 FY-14.

For the full fiscal year FY-15, Rs. 4.8 billion was recorded as FOREX loss versus

FOREX loss of Rs. 3.7 billion in FY-14. In the power segment overall PLF for the

quarter was at 54% total receivables for the company as of March 2015 end for Rs.

26.3 billion.

In the EPC segment the current order book stands at Rs. 280 billion including the

solar order book. Solar order book stands at Rs. 28 billion. At Griffin our production

for the quarter was 0.5 million tonnes and sales for the quarter 1.55 million tonnes.

At Devihalli toll collection revenue was Rs. 104 million during the quarter and at

Hoskote toll collection was Rs.144 million during the quarter.

Zaid, we can now start with the Q&A.


Page 3 of 24

Moderator: Thank you very much, Mr. Sood. Ladies and gentlemen, we will now begin the

question and answer session. Our first question is from the line of Mohit Kumar from

IDFC Securities. Please go ahead.

Mohit Kumar: Sir what is the gross debt after the transaction which you have concluded Adani

Power? And what is the repayment which is supposed to be done in FY-16 and FY-

17? And have you restructured almost all the project loans?

Adi Babu: Yes, I will just explain, projects which are under construction we have completed the

cost overrun approvals and most of the documentation also before march. Balance

documents were done post March but the process of cost overrun and appraisal,

approval has complete by 31st March of the four under construction projects namely

– Amarkantak, Babandh, Vidarbha, Phata. Teesta project is underway it will take

some time and that is also will get concluded shortly. This is on the completion of

under construction overrun pending proposal. And the second one is on the gross

debt after Udupi, the Udupi because of the sale of Udupi. Udupi was having 4,100

long-term debt and close to 2,000 crores working capital debt. The entire 6,000 odd

crores will get reduced from Lanco consolidated book post the sale transaction.

Mohit Kumar: So what is the gross debt as of May 30 or May 31st sir?

Adi Babu: It is at around 37,400 plus crores.

Mohit Kumar: What is the appraisal project cost Amarkantak to Amarkantak Unit-III and

Amarkantak Unit-IV Vidarbha and this Babandh?

Adi Babu: The appraisal project of whichever the project and other things I will ask Dheeraj to

share you. It is at around 10,000 levels but the full details and other things I will ask

Dheeraj to share with you.

Mohit Kumar: Sure, I will get in touch with Dheeraj. We have won this Solar EPC contract then

PVC so are these firm contracts and these are which location?

Adi Babu: This is the recent one is from NTPC for the project coming in Andhra Pradesh in

Anantapur district.

Mohit Kumar: In Andhra Pradesh, right?

Adi Babu: In Andhra Pradesh in Anantapur district.

Mohit Kumar: That is only for 250 megawatts?


Page 4 of 24

Adi Babu: That is for 250 megawatt, yes.

Mohit Kumar: So we have won the 50 megawatt?

Adi Babu: Yes, we have won and there are other three players also who are there in the 250.

Mohit Kumar: Okay. And sir if I remember correctly the NTPC there are other three tenders one for

Telangana, one for MP and one for Rajasthan have all this solar contract has not

closed or?

Adi Babu: No, the last dates for those bids are July 2nd just announced we have announced now

the last date for participation in those bids is July 2nd.

Mohit Kumar: And what is the timeline for execution of these projects?

Adi Babu: These projects timeline is one year from the letter of award.

Mohit Kumar: Have you received the letter of award for?

Adi Babu: We have received letter of award of that Andhra Pradesh 50 megawatts. We have

already started the execution plan of action.

Mohit Kumar: On this Lanco Kondapalli sir of course we have won this gas pooling bids so have

you signed the PPA with the Andhra Pradesh?

Adi Babu: Yes, we have signed PPA with Telangana.

Mohit Kumar: Telangana, okay. For further entire capacity, right?

Adi Babu: Yes.

Mohit Kumar: For the 35% PLF?

Adi Babu: Yes.

Mohit Kumar: And what is just Anpara sir we are suppose to of course we had…

Adi Babu: Pardon.

Mohit Kumar: There was committee which was set up by UPPRC. So is there any update which you

can…


Page 5 of 24

Adi Babu: The committee has already submitted the interim report and I think they have to

submit a final report which may take some more time. Once they submit the final

report then the regulatory authority has to conclude and pass its order.

Mohit Kumar: So why there is so much delay can you just you know I think…

Adi Babu: I cannot answer the question because it is not because normally since the committee

meets they would like to have some hearing and they would like to have some data

documentation, validation and our listing this is process by itself. So that a reason in

a committee situation always it takes its own time and of course one thing is at least

they have given an interim thing and the balance area also they we are working and

the final report is expected maybe in a month’s time is what our expectation is.

Maybe by June end the committee report is finalized then sometime later then the

UPERC has to consider the committee report and finalize its order.

Mohit Kumar: What is update Amarkantak Power Unit-II?

Adi Babu: Amarkantak Unit-II still we are working with Coal India also parallelly with Haryana

for getting the coal. Today we are not able to get the coal so we are still working with

both the sides to make system so that the coal is made available the moment coal is

available we are ready and the unit has already done the maintenance and other

things also are done and is ready to start at any point of time once we get the coal.

Mohit Kumar: When do you think we are likely start sir?

Adi Babu: Everything goes fine then definitely I think we will start the unit by July end.

Mohit Kumar: Sir last question have we mobilized, have started construction in Amarkantak Unit-III

Amarkantak Unit-IV?

Adi Babu: Yes, we have mobilized it in all the sites, Amarkantak, Babandh, Vidarbha then the

hydro sites all the sites we started the works and the gearing up of the activates going

on parallel in all the sites. We wanted the full force of EPC be there in all the sites by

July.

Mohit Kumar: Have you received the other…

Adi Babu: A lot of site moment activities are already happening in all the sites.

Mohit Kumar: And have received some additional loan from CDR lenders to start this construction

and what will be that amount?


Page 6 of 24

Adi Babu: Yes, whatever there is undrawn priority debt so we are discussions also with the

lenders and they have agreed and they have also understood the importance of the

time lines and we also said because it is very important for us to move fast so that

these existing under construction projects have to be completed then only there is a

value addition to the entire group and also the visibility. That is the reason we are

also very keen to release the funds and the focus area is to complete all these projects

as per the revised completion dates.

Mohit Kumar: How much is additional loan we received during the last year sir?

Adi Babu: Last year the overall gross debt what we have received is say around close to close to

600 crores?

Mohit Kumar: Working capital loan which you were supposed to get from the lenders?

Adi Babu: Yes, working capital is a continuous thing which is one day it will go one day it will

come down all depends upon the requirements but there is not any additional

working capital has come into this system but because of the under construction

projects the new debt drawdown there is a 600 crores increase compared to the last

quarter.

Moderator: Thank you very much. Our next question is from the line of Deepak Agarwal from

Elara Capital. Please go ahead.

Deepak Agarwal: Sir few questions. Can you give us some update on this Adani Power transaction is

that complete from your side?

Adi Babu: Yes, it is complete from both the sides the transaction is complete today. It was

concluded on 20th April 2015.

Deepak Agarwal: So the money has come and the assets has been transferred completely?

Adi Babu: Money was transferred, shares were transferred everything was complete.

Deepak Agarwal: Okay. And most likely where proceeds is would be used to in within the Lanco

group?

Adi Babu: Whatever the proceeds we get those things are used partially to use as equity for the

under construction projects partially used for the clearance of some overheads and

some bank dues.


Page 7 of 24

Deepak Agarwal: Yes. You mentioned in your earlier question that revise cost estimate has been

finalized for the various projects under construction. So specifically for Amarkantak

III, Amarkantak IV will be seeing some amount of equity getting deployed from this

Adani transaction because lenders were insisting on that equity for the Amarkantak

project also to be infused on.

Adi Babu: All those things are complied with already.

Deepak Agarwal: Okay. So III and IV when do you expect because that was the first one that project

that should come through amongst your other projects?

Adi Babu: The site work has started in all the projects Amarkantak, Babandh, Vidarbha the

other two hydro sites also.

Deepak Agarwal: Amarkantak 3&4 is the first one to come right?

Adi Babu: Right. In order of completion Amarkantak, then Babandh then Vidarbha.

Deepak Agarwal: okay. So what is the timeline that you think Amarkantak can come through?

Adi Babu: The revised dates what we are looking at the completion by February 2017.

Deepak Agarwal: February 2017, okay. The next thing what is your internal view that you have taken

on this coal auction because I did not see you participating or at least you are not

getting in any of the coal blocks so what is the internal view that your company has

taken like because we need coal at least for some of the assets which are already

there.

Adi Babu: The assets what today we have operating assets are already having the linkage coal

the assets under construction also are having the linkage coal so there is nothing we

need to get into the coal bidding and get a mine as such the linkage coal is a better

option than going aggressively on the mining side. When we saw the bidding is going

beyond a particular level then we dropped out.

Deepak Agarwal: Because you could have used the coal like to augment your linkage supply you know

as well as to meet the Amarkantak II requirement.

Adi Babu: We intended to do that but when the bidding was going a bit aggressive we dropped

out. In the long-term maybe Coal India coal availability maybe better and the

linkage coal available maybe much better compared to the other alternatives.


Page 8 of 24

Deepak Agarwal: In terms of Lanco Solar we have seen some amount of activity and also you are

getting such a larger order NTPC. So and government was talking a lot on Lanco on

the solar capacity side. So what is the manufacturing capacity that you had installed

in the solar and because that is one life of the business that can really grow

exponentially. So how are prepared for that?

Adi Babu: That is what we are focusing it. The capacity what is our internal capacity will be

close to 180 megawatt.

Deepak Agarwal: The module manufacturing capacity it is from the entire domestic content if you

work it out once our manufacturing plant is complete. As of now we are doing only

the module level which is around 75 megawatt as of now and that also we are

expanding to 150 megawatt and going forward it will become 180 megawatt and if

required if the demand persist then we were planning to increase it further at a later

date and right now with manufacturing capabilities and other things there are very

few players in the country and there are good opportunities coming we are quite

bullish on the solar EPC market. Recently we now awarded with 50 megawatt and

there are three bids which are coming up and subsequently also there are going to be

other bids definitely there is going to be a good market for solar EPC in the coming

two years to three years period. And we are quite confident that we will be one of key

players in the market.

Deepak Agarwal: So the order book that you mentioned is now largely of external orders in the solar of

Rs. 28 billion?

Adi Babu: Yes, there are both internal and external projects in the order book. 54% of the order

book is external.

Deepak Agarwal: For your solar thermal internal 100 MW I think the deadline was over right the May

‘14 was the deadline it got extended by a years.

Adi Babu: Yes, that concluded still that process is going on the extension process is not yet

concluded still pending with the regulator to get the final extension after that the

execution has to get completed.

Deepak Agarwal: Okay. And in terms of your bidding strategy that you are getting for solar let’s say

for NTPC orders do you think and versus the order that you are getting from the

external power plants how do you think the margin profile is slightly better in solar?

Adi Babu: Solar the good thing of solar is the time to complete the project it is between nine

months to 12 months the turnaround is very quick so within a year we will complete


Page 9 of 24

the project. In case of other project the gestation period is long because the

construction period and completion period is a four year period if everything goes

well if there are some delay here and there it is beyond that but easy thing in solar is

that you complete the contract faster and release the money faster.

Moderator: Thank you very much. Our next question is from the line of Shankar K from

Edelweiss. Please go ahead. Mr. Shankar, your line is un-muted. Please go ahead

with your question.

Shankar K: Sorry, I thought my line was already un-muted. I actually started my question earlier.

Just wanted to get a clarification as to based on your replies earlier should we assume

that the EPC work will start beginning only from July now?

Adi Babu: No, EPC work started already, to ramp-up the activity it will take time so that is

what we have started with the process in April itself there is some ramping up done

in the current month May and further ramping up till June so that what I mentioned is

from July it is full-fledged activity. This has happened in the last say few months in

the past because of that the entire site need to get remobilized it. So the

remobilization process started already in April and it got streamlined and further in

the month of May and it will get ramped up in June so that the full-fledged activity

will start from July.

Shankar K: Okay. So the roughly the 200 odd crores that we are seeing as revenues in this

quarter roughly what could get indicatively in Q1 and what going forward you think

so can be on steady state basis then?

Adi Babu: Because whatever 200 odd crores what we are getting is out of the external order

book out of which as on date today we see our order book it is around 22% external

around 78% internal. If we see last year we did 1500 crores earlier we did 2200

crores so these are all the external order book we did. Suppose that is the percentage

for external order book we would have internal order also in addition to that it means

four times of the external order book we have to do in the internal order. So 1500 into

four it is say 6000 you should get anywhere between 5000 to 6000 level on a per

annum basis since we are starting from July so it should be anywhere around 5,000

level for the current year.

Shankar K: Okay. So in a quarter you are saying that we should expect a revenue recognition of

something like 1500 crores starting Q2.

Adi Babu: Yes.


Page 10 of 24

Shankar K: Okay. Now coming onto the power side what is the various plan that we have to

bring back to profitability especially Amarkantak and Anpara because those are the

only two projects that is left with us now on the commercial.

Adi Babu: Amarkantak definitely if Unit-II is operating Amarkantak should be making profit

even now also and so Unit-I only was operating which is operating profitably Unit-II

once we start the activity which I told you by July end definitely will be starting the

Unit there afterwards the unit will be making profit. So overall Amarkantak as such

for the current year it should make profit. Anpara as well should make profit for the

current year and if everything goes well and if there is some improvement in gas

apart from the gas what we get recently for Kondapalli we are able to get some more

gas then there is a better opportunity of utilizing the capacity at Kondapalli as well.

The Tanjore asset is profitable asset on the power side. So going forward I think once

the capacity whatever the 3,000 capacity once we are able to use that capacity

definitely there is value addition. So definitely things are going to be better in the

current year compare to the previous year.

Shankar K: No, the point is this Amarkantak II and Anpara why do you think because Anpara

you are already operating at optimal PLF and Amarkantak is only because of the

Unit-II and which has been shut down for quite some time so why do you think so

both of them will return to profitability.

Adi Babu: I told Amarkantak Unit-II will be operating. Once we operate then that will be

profitable.

Shankar K: That means you have concluded the PPA with Haryana on that front you have enter

into some kind of settlement with them?

Adi Babu: Since the PPA is not concluded as per the Supreme Court direction we need to supply

power to them at a tariff what will be determined by them for this interim period. So

since that process has more or less come to a closure now the challenge is getting

coal, okay. So the coal process were are working with both Haryana and the ministry

of coal on getting the coal which we are hopefully that you should addressed by June

end if not June end maybe by middle July that is the reason I am telling from July

end the unit will start.

Shankar K: So what is the tariff that has been arrived at now for Haryana?

Adi Babu: The tariff as per the Supreme Court has directed the commission to work the tariff

based upon the parameters that are applicable on the CERC guidelines like.


Page 11 of 24

Shankar K: Okay. So it is no more early…

Adi Babu: We had worked out and okay the commission has given a tariff there are some

deviations from the normal principles that are applied for those things may take some

time but that is not going to stop in any way the running of our unit once coal is made

available we can start operating that unit.

Shankar K: Okay. What is the indicative sir in Haryana PPA? What is traffic close to three?

Adi Babu: Yes.

Shankar K: So that is roughly around Rs. 0.40 more than what it was originally entered it.

Adi Babu: Right.

Shankar K: And what is the strategy for Anpara?

Adi Babu: Pardon.

Shankar K: Strategy for Anpara?

Adi Babu: As Mr. Deepak was earlier asking the question was the commission has to give its

report once the commission gives the report then UPERC has to finalize the tariff

order once that is there then there will be an additional valuation that will be there in

Anpara and the unit is now operating well. So with that tariff Anpara will also will be

having decent bottom-line going forward.

Shankar K: Okay. And sir just wanted to a get a prospective government earlier said only those

units which come achieve COD by March 31st 2015 will be eligible coal from Coal

India. Now that all our under construction projects are going to come up somewhere

in fiscal ’17 or fiscal ’18. What is the kind of an comfort level that are we getting for

the coal supplies?

Adi Babu: The coal supply is going to continue because unfortunately due to various

macroeconomic situations in the country most of the under construction units are still

in the completion stage only. That is the reason the coal availability will continue

even though the units are getting complete post March 2015.

Shankar K: Okay. And coming back to the funding of these how do you plan to fund these

because I know there are some amount of borrowing that you will do and some of the

sale from the Udupi you might marginally utilize it but last week or earlier this week


Page 12 of 24

we heard that you have put in abeyance any sale of any incremental asset so how do

you plan to fund the under construction projects especially the equity front?

Adi Babu: We have already said that we have not put in abeyance any divestment program.

What we said was in the current situation it will take time because for a fully

completed and operational plant like Udupi it took almost two years to complete the

sale transaction. For an under construction project today to do sale transaction it will

be much more challenging unless the unit is complete. It takes at least two years to

complete the first unit because of that there may not be a good prospect of us

divesting an asset to be in the next two years so that was the context I quoted. Okay,

it was not to put in abeyance any of our divestment plans so we are on the same plan

as we indicated in the past but only thing is the time lines that will take to conclude a

transaction. For the fully completed operational asset has taken two years it will more

challenging for asset which is under construction most of our assets are under

construction. We have to do then is focus should be let us complete the unit okay

once the unit is complete their maybe a good prospect of divesting these units and by

at that time in the macroeconomic situation also improves the time lines maybe less

but first thing is we have complete the unit. To complete unit all these units are going

to take minimum of two years that is what I said because they may not a substantial

divestment that can happen in the next two years. But otherwise we are keen divest.

Shankar K: And how do you plan to fund the cost overrun and especially the equity portion for

these under construction projects because…

Adi Babu: The equity portion for these under construction part of the equity already put in and

the balance equity what we are planning to mobilize form the strategic partners we

are working with strategic partner to bring them at an SPV level so that the projects

equity requirements are met and completion is done.

Shankar K: Okay. And so the other divestment that you are going to pursue right now is some

strategic stake at the Griffin asset right?

Adi Babu: Yes, strategic sale at the Griffin asset where there is some more equity requirements

as of now. Right now we are not in a position to put those equity things that is the

reason either in the under construction project or a different project we are looking at

some strategic partners so that the required fund flow is available and continuity and

the executions are in place.

Shankar K: So how long do you think Griffin might materialize how long will it take according

to you?


Page 13 of 24

Adi Babu: The strategic partnership?

Shankar K: Yes.

Adi Babu: I think it should go through maybe everything well in a quarter’s time yes, it should

go through.

Shankar K: That is quite good. But when you are saying that any of the operational project any

divestment is difficult so you are not looking at divesting Amarkantak or Anpara?

Adi Babu: Amarkantak because Amarkantak is an integrated unit.

Shankar K: Okay. Anpara?

Adi Babu: So between Unit-I, Unit-II, Unit-III, and Unit-IV there are many common facilities.

Shankar K: Okay, understood but what about Anpara?

Adi Babu: Anpara, is still because we want to establish the bottom-line in Anpara before at least

we discuss anything on that.

Shankar K: Okay. So you think so by that time it stabilizes and everything get settle it will be at

least a year and from there even if you start negotiation it will take another year.

Adi Babu: This is what the experience we had when we have sold both our assets, both Budhil

which was operating asset and Udupi which was operating unit.

Shankar K: Okay, sir. And sir lastly, on that coal block what you had won some four years back

on from the state government what is the status of that or you have just surrendered

it?

Adi Babu: That was the Maha Tamil Block what we had between Maharashtra and Tamil Nadu

put together. That also was what we call de-allocated by the Supreme Court.

Shankar K: Yes, so you are not planning to pursue that or trying to get it back?

Adi Babu: Once the Supreme Court has given a de-allocation where is question of getting it

back.

Shankar K: No, I am saying that it might get even if it gets re-allocated to the state.


Page 14 of 24

Adi Babu: Recently it got reallocated to Maharashtra earlier it was between Maharashtra and

Tamil Nadu recently it was reallocated to Maharashtra.

Moderator: Thank you very much. Our next question is from the line of M. B. Mahesh from

Kotak Securities. Please go ahead.

M. B. Mahesh: Just wanted to check a couple of things. What will be the kind of cash flows in FY-16

that you will be generating? And would you be able to service all your debts in FY-

16? Second one is on Lanco Griffin, is there any payment which is coming up in FY-

16 as well?

Adi Babu: Lanco?

M. B. Mahesh: Griffin.

Adi Babu: So there is no repayment coming in Lanco Griffin in the immediate future.

M. B. Mahesh: And repayment across all your projects and as well as parents entity.

Adi Babu: The repayment some of these things we recently what we are doing because recently

RBI came out with that 5x25 refinancing proposal so wherein the banks are permitted

to do a 5x25 refinancing proposal for the project which are operating. So wherever

there is a cash flow strain because of real issue or because any other infrastructure

related issue, it would be better to go for a 5x25 scheme. Keeping this in mind, at all

the operating assets we are planning to have this 5x25. So that whatever the

operating cash flow we will address the repayments comfortably without any delay.

The talks are already on maybe in a couple of months all those things will get

concluded.

M. B. Mahesh: You would do it for Kondapalli, Amarkantak, Tanjore, and Anpara.

Adi Babu: Kondapalli and Amarkantak all operating assets will have that. Then the under

construction projects recently they have been appointed and once the projects are

completed then there is a value for those projects.

M. B. Mahesh: So is it a fair assumption to make this year you are broadly comfortable on your debt

servicing capacity.

Adi Babu: Yes, we should be broadly comfortable on our debt servicing, yes, you are correct.


Page 15 of 24

M. B. Mahesh: Okay. And last question where does the peak debt reach for the company if you

exclude the sale of Udupi?

Adi Babu: Could you repeat the question?

M. B. Mahesh: Where does you peak debt level reach because currently if I understand it is 38,000,

right?

Adi Babu: Yes, 38,000.

M. B. Mahesh: And if I include given the fact that you got approvals for investing right now in the

projects where do you see the peak debt levels?

Adi Babu: As we complete all those projects. Once we will complete all those projects we will

add another close to 8,000 to 9,000 crores debt to the book.

M. B. Mahesh: And if I exclude Udupi sale, you are including the Udupi sale or excluding the Udupi

sale?

Adi Babu: Excluding Udupi we will be at 34,000.

M. B. Mahesh: Okay, fine. And I just had another 9,000 crores of debt for the balance projects.

Adi Babu: Yes, over a period next two years.

Moderator: Thank you very much. Our next question is from the line of Rahul Modi from

Antique Stock Broking. Please go ahead.

Rahul Modi: Just wanted to ask a couple of questions. One, that what is the status of the Lanco

Babandh project? And if I remember correctly, that we have been selected in the UP

bids so which has been preponed as well so are we going to supply to them or how

are we planning to supply to them if you can throw some clarity?

Adi Babu: Of course what we are targeting to complete Babandh by say September 2017, okay.

Once we complete the unit we will be in time with our PPA with either UP or

Rajasthan.

Rahul Modi: Okay. But because UP I believe has been postponed so, is there any obligation on our

part to supply to them as per the revise timelines?

Adi Babu: Definitely, no.


Page 16 of 24

Rahul Modi: Okay. So we do not have to source power from someone else and…

Adi Babu: No, that is in the six months before the committed dates it is an option that you can

source form other source and also can supply, okay.

Rahul Modi: So it not an issue with on that.

Adi Babu: No, it is not an issue with us.

Rahul Modi: Okay. Any strategy going ahead in terms of participating in bids?

Adi Babu: For?

Rahul Modi: Any bids coming up you know…

Adi Babu: Which side coal side?

Rahul Modi: No, for the power procurement.

Adi Babu: Obviously, definitely, still we need to tie-up some more power so definitely

whenever there is a bid coming up we will participate.

Moderator: Thank you very much. Our next question is a follow-up from the line of Deepak

Agarwal from Elara Capital. Please go ahead.

Deepak Agarwal: Yes, just a follow-up. Did you participate in the gas bids which the government has

invited to at least which would have help you to start the Kondapalli plant for few

months?

Adi Babu: Yes, we have already, we are one of the winners in the auction.

Deepak Agarwal: Because I did not find any press release to that effect so.

Adi Babu: But media release covers that.

Deepak Agarwal: Sorry, I did not some problem with the point.

Adi Babu: Yesterday media release the first page if you see.

Deepak Agarwal: Yes, I think I missed that point. So how much capacity you will intend to start?


Page 17 of 24

Adi Babu: Now we have a PPA with Telangana for 325 megawatt and going forward there is an

additional opportunity we will be adding to that.

Deepak Agarwal: So this is the Kondapalli-II that will be getting started like and unit 3 is still not yet

commissioned?

Adi Babu: Yes, it is in the process of getting commissioned.

Deepak Agarwal: Okay. So two plant start form 1st of June onwards.

Adi Babu: From 3rd of June.

Deepak Agarwal: 3rd of June. And this will continue for how long?

Adi Babu: This initial period of four months and after that again they are planning to have this

again. That is one more session of bids.

Deepak Agarwal: Okay. And my just one more question is any update that you would like to share on

the real estate and Lanco Hills like how is the year by…

Adi Babu: Last year was not good, in current also it is not that encouraging. The Hyderabad

market is still not that encouraging it may take some more time, once one or two big

announcements come and because the divisions of the state it is as such in the

country there is what we call dullness in the real estate and which is more in

Hyderabad because of the division of the state. It may take some time to stabilize the

market there. It is a good market but only thing it may take some time. It is a well-

developed market and good potential market but definitely it will take some time to

have that potential.

Deepak Agarwal: Okay. But Lanco Hills per se is not on the block for divestment, right?

Adi Babu: No, Lanco Hills per say is not on the block for divestment as of now.

Moderator: Thank you very much. Our next question is a follow-up question from the line of

Mohit Kumar from IDFC Securities. Please go ahead.

Mohit Kumar: Yes sir we Lanco Kondapalli I think we have bid from Unit-II and Unit-III.

Adi Babu: Yes two put together we have bid.

Mohit Kumar: So are you saying that Unit-III is not ready right now?


Page 18 of 24

Adi Babu: No, it is ready but the commissioning activities are happening. So when the

commissioning is done all the capacities are available but provided we have the gas.

Mohit Kumar: So how much time it will take for Unit-III to commission and will we getting the full

amount of gas?

Adi Babu: No, the government is giving only gas to the tune of 35%. As we have 1,100 capacity

between II and III. 1,100 capacity if you say 35% what we get is 385 megawatt,

okay. So 385 megawatt is sufficient today to operate only one unit.

Mohit Kumar: So when is the expected date of commissioning for Lanco Kondapalli Unit-III?

Adi Babu: Unit-III should get over anytime in the month of June.

Mohit Kumar: Okay. So my second question pertains to this note to account #13 where you stay at

that you invested on 2.1 billion in Maha Tamil Mining Energy Limited and so are not

we suppose to get the money directly from industry of coal?

Adi Babu: Yes, that is what as per the Court order and subsequently as per the ordinance this

compensation have to be given back here we are not in the first because it is a two

state system in our case because the allottees are Maharashtra and Tamil Nadu first

so they have to get somewhere we have to get so it will take some time. We are

pursuing the matter.

Mohit Kumar: How much Maharashtra and Tamil Nadu are getting? Has the amount being

quantify?

Adi Babu: So far it has not finalized that’s what. They are also working.

Mohit Kumar: And sir under this solar bidding which is being floated by NTPC, is there any

domestic content requirement?

Adi Babu: Yes, there is a domestic because NTPC model is 50% they want to make it as a

domestic content and 50% for domestic content the last 250 megawatt that has come

is with the domestic content and there are bids coming up. It is a mix of both the

domestic content as well as without domestic content.

Mohit Kumar: So what is the kind of value addition we do in the domestic content in the sense what

is the facility we have to just the simple the module we get the polysilicon from

China or wherever it maybe…


Page 19 of 24

Adi Babu: Right now, that is what I told our module plant is there where we import those things

and do the balancing thing and supply and going forward once we started

manufacturing the PV itself which manufacturing plant is getting ready and by March

2016 the plant should be ready. Once that is done then we are there from the silicon

stage to the module.

Mohit Kumar: So what are you going to manufacture module or polysilicon? Not poly silicon, right?

Adi Babu: Yes, right now we are in a process of establishing that unit. Right now we are in

module manufacturing. Module manufacturing means basically from silicon level it

is some type of assembly and treatment.

Moderator: Thank you very much. Our next question is from the line of Prem Khurana from

Batlivala & Karani Securities. Please go ahead.

Prem Khurana: My question is with respect to EPC vertical sir if I were look at our presentation it

seems we have done on top-line about Rs. 318 odd crores and so far loss of around

1,100 million or 110 odd crores. So what is the running cost of business because

when I assume you would not have made any margin of this 318 odd crores that will

be the cost of construction it seems our running cost of business in access of Rs. 110

crore on a quarterly so what level would you require to take your construction

activity to as to be able to cover this fixed cost which would be there with us?

Adi Babu: We have in the EPC business there is an EBITDA of around between 10 to 12%

depending upon the mix of the contracts. So to take care of the interest as well as the

overheads and other things we should get EBITDA of 900 to 1,000 crores. So it

means we need to do around between 7,500 to say 9,000 crores business turnover to

cover all the costs.

Prem Khurana: And how do we intend to get this number 7,000- 9,000?

Adi Babu: We have an order book as of now the present order book itself is 26,000 crores. This

will be executed over a period of three years. During this period we need to further

build the order book at a decent size.

Prem Khurana: Sure. But sir I were to look at order book almost 80% of order book comes from

internal projects only coming to consolidation you knock off your numbers that you

do from your internal projects I mean even in this quarter when you say we have

done loss EBITDA 110 odd crores we would have knocked off whatever we would

have done for our own project so that will be the case going forward as well so which

in effect means we would to relay on our external or so as to be able to post any


Page 20 of 24

growth in our numbers as far as EPC vertical is concerned. So what kind of order

pipeline or bid pipeline do we have in place so as to be able to kind move this

number around 20%-22%-odd percent of external order some higher number?

Adi Babu: Going forward the business composition will be the external order book will be

increasing as the equity constraints and other things we have internal development

portfolio will be less compared to the past. Then whatever order book we get going

forward it will be only the external order book. Therefore the composition of

internal-external order book keeps on changing and some time the ratio may get

reversed.

Prem Khurana: Okay. So now if I have to understand you correctly I mean you need money so as to

fund your own projects and apart from that if you are bid for new projects you would

have to arrange for bank guarantees for these new projects as well. So where do we

intent to get these funds from as in I mean currently none of our projects are able to

give us any free cash flow as such?

Adi Babu: To get new projects is a long draw process. It is not that okay, there is a project bid

today we participate and we will get it tomorrow. A process for big EPC contracts the

process is anywhere between 1 year or 1.5 year. The day the bid is announced you

will get the letter of award it is a 1 year plus process taking a coal allocation, then

technical waiting, then the commercial waiting then final bid then ultimately they are

deciding and they are giving the letter of award. Post letter of award again you need

to get into the compliance that is performance guarantees and other things. Then the

project execution starts. So we hope that okay, todays situation may not continue

forever and we have a lot of experience on hand we have a lot of learnings also in the

past which we should get participated in the bidding now whatever the opportunities

that are coming in so that those bids should get materialize and then to execution

down the line for a couple of years or one and half year. All those requirements will

come at that point of time so for the bid requirement the requirement is nominal. EPC

bank guarantee but where the larger requirement will be to submit a performance

bank guarantee after the letter of award. Definitely one and one and half year from

now I think the situation should be totally different form the current situation where

we are in. And these external projects also facilitate advance moneys for the contracts

by giving advance bank guarantee. So with that those contracts can be executed in a

self-mechanism mode without getting into any external funding for those projects.

Only EPC requires the bank guarantee facilities to provide for the performances and

the advances. Other than that the funding will take care of itself on a self-sufficient

mode.


Page 21 of 24

Prem Khurana: Sure. And sir as far as I mean for Griffin you are looking at some strategic partner so

I mean what are we looking at as in we are planning to cash out some of our

investments or we are planning to have some equity investment for this strategic

point because if I remember correctly I mean we always use to maintain that we

would able to take a our production number of 5 million odd tonnes kind of number

without any incremental CAPEX which in fact means I mean to be able to do that

number we do not need any money so does it mean we intent to cash out some of our

investments to the strategic partner route.

Adi Babu: We are not limiting ourselves to only 5 million, 5 million will give a breakeven so we

are not looking at breakeven having invested in that we need to get some return on

investment which is available once the expansion activity is done. For the expansion

definitely we require a strategic partner and like the under construction projects

where today we find challenging and getting the equity so that is the reason we are

open to a strategic partner like that. Now the focus area is to bring these assets to

operating mode. So for that okay if we are not having enough resources we will bring

a partner and get the required resources and complete it, okay.

Moderator: Thank you very much. Our next question is from the line of Anirudh Gangahar from

Nomura. Please go ahead.

Anirudh Gangahar: Sir two small questions – one is on Griffin itself we have been trying to get strategic

partner and now we have mentioned we will probably get one in the quarter. For any

reasons we do not get one how much time do we have before we start getting new

flows on liquidation and everything once again from the authorities over there?

Adi Babu: The situation in the newspaper and other thing was not new. It was there for quite

some time as well and we have been maintaining that and we have been managing

that we will continue to manage that is not a challenge. But the most important thing

is let us do some value addition to the asset that is what we are looking at. So we

thought is more appropriate to have a strategic partner and bring more valuation to

the asset.

Anirudh Gangahar: In the interim sir we continue to fund the required cash flow require and the cash

burn from our LITL.

Adi Babu: The gap has been pretty less and going forward I think it should become a self-

sufficient mode. Only thing is we should have become a self sufficient long back but

in the international coal market pricing where the exports have not been encouraging

that was the reason we could not even enhance the production and go to a level say


Page 22 of 24

four and five level so that we get something. Exports are pretty discouraging that was

the reason the current supplies are constrained only to the local requirements.

Anirudh Gangahar: And there is no export quantity as of now?

Adi Babu: Export is commercially not making sense as of now.

Anirudh Gangahar: I see and sir second data point was in terms of receivables from Discom that Adani

has taken over the Udupi project how much do we have on our books and it is

manageable are we getting the money from?

Adi Babu: Anirudh it is quite manageable now because except the old struck receivables but

otherwise whatever the power we are supplying for that now we are repayment there

was no problem for the current payouts only thing that got blocked those things only

still not fully recovered so what we got stuck with Uttar Pradesh that was fully

recovered and just now Karnataka is out. What we have still some dues are with

Haryana and Chhattisgarh for the Amarkantak unit other than that otherwise things

are on track.

Anirudh Gangahar: Okay. And we are getting payments within 60 days?

Adi Babu: Yes, we are getting payments now.

Anirudh Gangahar: All right and sir if you can just help what the number if you gave in the release the

receivables as of 31st March could you just separate Karnataka out of that and how

much will be ex-Karnataka?

Adi Babu: Karnataka itself is close to 1,700 crores.

Anirudh Gangahar: Would be from Karnataka itself.

Moderator: Thank you very much. Our next question is from the line of Archit Singhal from

Nomura. Please go ahead.

Archit Singhal: Two clarifications from my end sir firstly for the Amarkantak project the only thing

pending is the start-up of coal linkage and Haryana Discoms have not challenge the

HERC order?

Adi Babu: They have not challenged the HERC rather we have challenged the HERC order.


Page 23 of 24

Archit Singhal: Okay. And secondly on the power project you said that the interim report has been

submitted by the committee so have they recommended any compensatory tariff?

Adi Babu: No, the final report is to be submitted. This is only interim report. Based upon

feedback from the regulator and again they have to complete the balance report and

finalize and send it which we are hoping that by June end it should get concluded

after that the commission has to finalize this order.

Archit Singhal: And any timeline after that how much time the commission we are expecting should

take for the order?

Adi Babu: We expect in the normal course in a couple of months I should be over let us see.

Moderator: Thank you very much. Our next question is a follow-up question from the line of

Mohit Kumar from IDFC Securities. Please go ahead.

Mohit Kumar: Sir you are executing this Koradi Power Plant order is that execution more or less

over?

Adi Babu: This is a three unit order what we got. We have already completed one unit, the other

two units are under implementation now.

Mohit Kumar: You do not expect all the units to get commissioned.

Adi Babu: All three will get over by December ’15.

Mohit Kumar: In the road segment there are a lot of EPC orders which are coming up so are we

participating in those?

Adi Babu: Definitely we are evaluating the bids and wherever there is a value definitely we will

participate.

Mohit Kumar: Have you put any bids so far?

Adi Babu: So far, no. Going forward, yes.

Mohit Kumar: Your EBITDA margins in solar business seems to be pretty high given that we do not

do much of you know value addition in sense your EBITDA margin is at 37% which

look pretty high and sir second question…

Adi Babu: Who said there is 37% EBITDA margin something like that you told me.


Page 24 of 24

Mohit Kumar: Yes, sir FY-15 if I look at the presentation page number five.

Adi Babu: That is basically the generation, power generation has very high margins.

Mohit Kumar: Okay, I got it sir. So just 41 megawatt power plant, PV power plant, and sir we also

have 100 megawatt solar thermal power plant, so when do you expect the 100

megawatt solar thermal power plant to get complete?

Adi Babu: 100 megawatt power plant is linked to the time extension and which is already

pending with the CERC.

Mohit Kumar: How much time it will take once we have the CERC order?

Adi Babu: Finalization of the order after that it will take two years.

Mohit Kumar: Two years?

Adi Babu: Yes.

Moderator: Thank you very much. Ladies and gentlemen that was the last question. On behalf of

Lanco Infratech that concludes this conference call. Thank you all for joining us and

you may now disconnect your lines.

Documents

“Lanco Infratech Q4 FY-15 Earnings Conference Call”lancogroup.com/pdf/call_transcripts/LancoInfratech-May30-2015.pdf · May 30, 2015 Page 2 of 24 Moderator: Ladies and gentlemen