Key takeaways of the call

Order inflow upto Nov 13, 2020 was Rs 2836.2 crore and of which erection orders was Rs 556.2 crore (or 20%), O&M is Rs 262.1 crore and civil and other works were RS 2017.9 crore (or 71%). Of the order inflow about 44% is power and 56% is non power.

Order backlog as on Nov 13, 2020 was Rs 6791.8 crore (up from Rs 4574.8 crore as end of March 31, 2020) of which power sector orders were 59% and non-power orders were 41%. The erection orders were Rs 2462.7 crore (or 36%), O&M orders were Rs 991.9 crore (or 15%); electrical works were Rs 266.8 crore (or 4%) and civil & other works were Rs 3070.4 crore (or 45%).

Despite strong order book the execution cycle suffered across all segments due to COVID.

O&M operated at 86% level in Q2FY21 vs 85% in Q1FY21. In O&M customers have not allowed to operate at full capacity due to covid restrictions. Expect O&M operations to touch 96-95% level in Q3FY21 and about 100% in Q4FY21. Excluding O&M, the other business operations together operated at about 55-60% in Q2FY21 compared to 45% in Q1FY21 and expect that to reach 90% level in Q3FY21 and further to 100% by Q4FY21. Overall the operations were at 65-70% in Q2FY21 (up from 56% in Q1FY21) and that expected to go to 90% in Q3FY21 and 100% in Q4FY21. So hope Q4FY21 will be a normal quarter for PowerMech Projects on overall basis.

The company faced challenges in Bangladesh project (Maitree, where it has an order book of Rs 840 crore) ranging from labour as well as transportation etc. Similar challenges are faced in Kareswaram project, Bhusaval project and some cross country pipeline projects in Gujarat and western states of the country.

Margin got impacted due to lower level of execution together with additional/increase in cost due to COVID such as Idle manpower cost during quarantine, re-mobilisation cost of labour plus visa cost in case of overseas projects, additional transportation cost, safety measures etc. Remobilisation cost was Rs 9-10 crore in maître project alone and overall it was about Rs 25 crore. This will not reoccur.

Having bagged orders worth Rs 2836 crore order till now, the company expect to add another Rs 1500-1600 crore of order booking/inflow in balance 4 months period of current fiscal. Some orders are in advanced stages of finalisation and expect announcement in next 30 days.

Under normal circumstances, the current order backlog could give a revenue conversion potential of Rs 220 crore per month from Rs 170 crore per month. Execution of order book to gradually improve to Rs 220-230 crore a month and that is the target of the company.

To ramp up execution, the company has to put more resources on job, find additional resources etc.

Indirect/worker strength as of now stand at about 15000 workers, which is just about couple of thousand less than peak level. This gives confidence of pickup in execution for the company.

The company bagged two O&M contracts one in power sector for 660 MW power project and another in non power sector i.e. Bhusan steel for Rs 70 crore. JSW for both dwelvi and vijaynagar.

Expect order backlog to be about Rs 8000 crore by current fiscal end. Of which the O&M backlog should reach a level of Rs 1700-1800 crore and EPC & erection to account 35-40%.

Update on major projects orders on hand: In case of Bangladesh project the company has completed only 25% of the order book. The project that got disrupted due to COVID pandemic has come to normal in terms of execution. In case of Yadadri project only 12% of the work (civil, structural and mechanical) is completed with about Rs 800 crore worth of order book still pending to be executed. The work for Yadadri project is progressing well with enough resources are pressed on it. In case of Rs 284 crore Bhusawal order about 40% of structural work has completed. The company has just completed mobilisation for the L&T's Buxar, Bihar project worth Rs 176 crore. Dangote refinery project about 65% of work completed. About 40% of work is completed in case of Rs 400 crore JSW order (both Bellary and Dhelvi together). The company has completed about 60% of the order book in case of Gujarat & Maharashtra cross country pipeline project.

Typically the annual revenue conversion of the order backlog will be about 40%. IF 35% conversion of expected FY21 year-end order backlog of Rs 7500 crore will give a revenue that translates into a huge growth for FY22.

Dangote the company has to complete the project by end of this fiscal. This orders is of Rs 550 crore.

Q3FY21 will be blend of good and bad, so the margin will be bit subdued than historical margin. The company expects Q4FY21 margin to be in the range of 11% and that for FY22 to be little better than 11%.

Jump in order backlog required 20-30% of additional labour next fiscal.

The company has Rs 170 crore of bank deposits, which will help the company to take care of any contingencies.