Key takeaways of the conference call

Order backlog as end of Sep 30, 2017stood at Rs 8881 crore up from Rs 7698 crore as end of June 30, 2017. The order book will be executed over next 3 years. Of the order book as end of Sep 2017, the share of consultancy orders were about 54% and that of turnkey was about 46%.

Orders bagged in Q2FY18 were Rs 1608.4 crore and that for H1FY18 were Rs 1952.2 crore. Of the Q2FY18 order intake about Rs 1373.4 crore was consultancy orders and of which about Rs 1101.2 crore is domestic consultancy order. Turnkey orders bagged in Q2FY16 were Rs 479.7 crore. Most of orders were secured from Hydrocarbon sector.

Strong consultancy order inflow in Q2FY18 pushed up the share of consultancy segment in order book to 54% from about 49% as end of Jun 2017 quarter.

Improvement in consultancy segment revenue is largely due to good order on hand. Projects relating to emission norms started contributing to the revenue.

Margin for consultancy in Q2FY18 was 31.7% and the company expects the consultancy margin to be in the range of 25-30% going forward as well. The company expects the margin of turnkey projects expect to be in the range of 5-7%.

For FY18 the company expects 15% growth in consultancy revenue. And for FY19 the growth for consultancy will be about 25%. Major contribution from large turnkey orders i.e. HPCL and BPCL orders that was bagged in last fiscal will happen starting next fiscal. The contribution though gradually kicks in starting H2FY18, major contribution is expected only from FY19 onwards only.

Other income declined due to drop in interest rate.

Second quarter is good in-terms of order intake. The company bagged one large consultancy order worth Rs 1015 crore from HPCL Mittal Energy. Other major order bagged is Polymer rehydration project at GuruGovindsahib refinery and Rs 235 crore EPC project of ONGC at Hazira.

On green-field refinery project Rajasthan Refinery is the one that is expected to get finalised in H2FY18. This project is delayed and the company is still continuing with discussion. This project can come in by Q4FY18 if all goes well. All other projects are touch and go kind of projects. The company targets onsite and offsite consultancy assignment and it has finalised one large order i.e. HMEL in Q2FY18. The target order intake for this fiscal is about Rs 2500 crore.

IOCL Gujarat is an expansion project, so the consultancy order will not be that big with the order size will be in the range of Rs 150-200 crore. However the company is targeting a large petrochemical project from GAIL, which has to cross budgetary approval.

Jump in receivables in Sep '17 end - No issue with receivables, collection are on time. The increase in receivable is largely due to GST, increased billing activity in Q2FY18 which will be received in current quarter.

All Euro 6 upgrade orders were already placed and nothing is pending as of now.

Refineries are gradually moving towards petrochemical integration. In next 8 years we see petrochemical integration in the country. Work already started at Kochi Refinery for HME. Planning for expansion is envisaged at Panipat refinery. Numaligarh Refinery some conceptual work is under planning for product export to Bangladesh.

Major brown field projects under pipeline/envisaged in the country are Numaligarh expansion project (from 3 to 9 MMTPA), Matura from 8 to 11 MMTPA, Gujarat from 13.5 to 18.5 MMTPA and Panipat from 15 to 20MMTPA.

Greenfield refinery projects under pipeline are – Rajasthan Project with Phase I capacity of 9 MMTPA plus petrochemical complex. Maharashtra phase I with a capacity of 14 MMTPA and 20 MMTPA in phase II.

For aGreenfield refinery project the average capital cost per MMTPA will be about Rs 4000 crore/ mmtpa. In case of brownfield the capex will vary depending on the facility created.

West Coast green-field refinery is still in land acquisition stage.

Share captured by the company depend on the mode of tender/contracting. If it is PMC then the share will be around 2-5% and if it's EPC then it will be higher.

Impact of wage revision was 17%. The wage revision is effective from Jan 1, 2017 and the company has provided for the last three quarters.

Q2FY18 revenue and profit include an amount of Rs 37.42 crore towards claim settlement relating to a project executed in previous years for which the client has levied price discount for delay in completion of the project.

Order intake target for this fiscal is about Rs 2500 crore, not considering materialisation of both the greenfield projects even though the company expects some possibility of Rajasthan greenfield refinery project materialisation in Q4FY18. If green field project materialize then the company will overshoot the OI target for the fiscal.