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Voltas

Q1 FY09 Post Earnings Conference Call Transcript

Management Rep.: Mr. Miyajiwala, Executive Vice President (Finance) Mr. Garudacharya, General Manager PL Rep.: Apurva Patel – 91-22-6632 2257

Date: 22nd July, 2008

- Moderator – Pallavi

- Good afternoon, ladies and gentlemen. Thank you for standing by. This is Pallavi, the moderator for your conference call today. We welcome you to the conference call of Voltas Ltd, hosted by Prabhudas Lilladher Pvt. Ltd. We have with us today Mr. Miyajiwala, Executive Vice President (Finance), Mr. Garudacharya, General Manager from Voltas Ltd. and Mr. Apurva Patel from Prabhudas Lilladher Pvt. Ltd. At this moment all participants are in the listen only mode. Later we will conduct a question and answer session. At that time if you have a question please press * and 1. I would now like to turn the conference over to Mr. Apurva Patel. Please proceed.

- Mr. Apurva Patel – Prabhudas Lilladher

- Thank you Pallavi. Good evening everyone. We will start with Mr. Miyajiwala by giving us a brief on the numbers and then open the floor for a Q&A session. I request participants to limit their questions to 2. Over to you Sir.

- Mr. Miyajiwala – Executive VP (Finance), Voltas Limited

- Good afternoon. Thank you for attending this conference call. I will quickly go through the numbers broadly and move on to segment results and analysis of business wise status and thereafter open for question and answer session. As told we see the turn over has gone up in this quarter by 22%. And our EBITDA margins have touched 7.7%, our profit before exceptional items has gone up by 32%, PAT is up, 63% and tax rate is marginally lower at 33% as against 34% last year. This is in view of the combination of various types of incomes which are taxed at different rates and we hope that this 33% will be maintained through the year. EPS for the quarter stays at 2.57 as against 1.58 last year. Our turn over for rupee of employee cost in domestic market stands at Rs.18 and at international market stands at Rs.6 which is more in line with last year. As far as the domestic and international break up is concerned, 25% of our turnover has come from international operations at 245 crores and domestic turnover is 772 crores. Domestic turnover has increased by about 20% and international turnover has increased by about 28%. The other income has gone up in the domestic segment from 7 crores to 28 crores. A very large part of other income comprises of rental income and apart from that we have 10 crores received on account of mutual funds, which explains increase in other income. Certain expenses are more or less in line with turn over increase and all other expenses are more or less in line with increase in the turnover.

- Our profit before interest depreciation is there in domestic market, stands at 12% as against 10% last year and profit before exceptional items stands at 85 crores. In the international market our turnover is 245 crores as against 190 crores. Some of the turnover from the newly started jobs has started coming in. the margins may not have been accounted in view of 10% not completed. Other income stands at 8 crores which is primarily comprising of dividend received from international joint ventures which is entirely operating income and amount pertains to exchange gain. The profit before interest depreciation in international market stands at 18 crores as against 22 crores last year. And here I

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would like to remind the persons that, the analyst that lat year we had an income of 7 crores arising from settlement of our Queen Mary, 2 projects which was a one time item and therefore if we exclude that then our Ebita stands at 18 crores against 15 crores last year. So there is a substantial increase in EBITDA in the international market as well. Moving to half cost increase in staff cost ranges between 10-15%. In the Middle Eastern market it is slightly higher because of the adjustment for the very high inflation existing there. Now I will move to the segment results. The first segment turnover has gone up by 24% and it stands at 463 crores in which the domestic as well as international, both the businesses have shown an increases in turnover. The margins are slightly higher in the case of domestic turnover and international margins also have moved up slightly after adjusting the one time item that I mentioned earlier. However the working capital has gone up significantly both in domestic and international market. In domestic market also the order book position is very strong and in a minute I will come to order book position. The order inflows have been good. The new enquiries are good and robust. However there are some early signs of customers delaying the execution. Also it is at this point of time to make any judgement whether it is temporary or permanent and probably by the end of the second quarter we will know the correct position whether it was a blip or it was a strength.

- Also there has been a little pressure on the cash flow in the domestic market and once again we believe that this is a temporary phenomenon. However as we move more and more towards intermediate and large projects the terms of payment will change in favour of lower advances and higher credit terms which will increase the capital investment in this business. As far as electromechanical business is concerned the capital investment has increased. Some of the very large projects have just started off. Not very large turnover has come from this project. However because of the mobilisation capital investments have started and we have started some billing. However in the initial phases of implementation of projects, about 6-8 months is design engineering and technical work plus mobilisation and therefore revenues wont start flowing in. We expect large part of the revenues to start flowing in from the 3rd and 4th quarter.

- Coming to the second segment which comprises of machine tools, textile machinery, mining and construction and material handling. The turnover has increased by about 23% whereas the results are lower by about 15%. As far as machine tools are concerned the performance has been good because the older set that we had booked last year the execution has started now. However there is a bit of slowdown on fresh orders coming in and we will have to observe very closely to see whether this is a trend or it is a blip. As far as textile machinery is concerned we have started doing some sale of accessory oil used in spinning machine wheels etc. and therefore our SOPs have increased. But at the same time the margins have marginally come down although the turnover has gone up. This affects the overall margins earned in this business to some extent. In the case of mining and construction business the turnover has risen significantly. However, the margins have not risen in line with the same because the turnover pertains more to spurt in sale and known margin business. In the case where we get pure margin from our principals, the dispatches have been delayed. The order book is very healthy. But the principals are not in a position to meet the requirements of the customers and therefore there are delays taking place in the dispatches from the principal’s end.

- Also in the quarter there are certain materials which have been received from the principal’s end and kept in stock on behalf of customers either to provide the services or for them to get the licenses before they clear the goods and in respect of these goods we have provided for various costs incurred at about 1.5 crores. To be affected, this amount will come there and the margins at that point of time will look much higher than they are today. To that extent we are not really concerned about the lower margin in mining and construction business. The belief is that by end of the year mining and construction business will have a robust performance in view of the healthy order book position and the demand, which is increasing. In the case of materials handling business the turnover has gone up slightly and the absolute margins have slightly come down. This is a very marginal number and overall margins have been there for primarily affected by the lower margins coming in mining and construction business.

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- As far as segment 3 is concerned the performance has been very good although the turnover has not increased to the extent that we had expected. We and most of the players in the market had expected that there would be a very robust increase in the quantity sold and everywhere everybody had thought to finish those to meet this anticipated high demand. However, this market was impacted by early rains taking place in late May and early June across the country because of which the temperatures came down and therefore certainly there was a slump in the demand for air conditioners and therefore our turnover also has decreased only by 30%. As a consequence of this, lower turnover our capital engagement also has increased very substantially from 71 crores to123 crores. We believe that this quantity for additional stocks that we have, we will be able to liquidate over the next 6 months and by December we will turn positive in this business. As far as the result of this business is concerned with the launch of new product, just continuing high demand for energy, selling products and the star rated products, the profitability has improved very significantly by about 65% and we have margin percentage of 9% as against 6.7% last year.

- As far as the composition of various segments in our overall turnover is concerned the break-up remains more or less the same. Segment A contributes 46%, segment B contributes 13%, segment C contributes 40%. But as far as the results are concerned there has been a shift. The A segment has contributed 39%, B segment has contributed 22% against 30% last year and segment C has contributed 38% as against 27% last year.

- As far as our balance sheet is concerned our networth now stands at 600 crores. Last year we had about 171 crores in liquid investments which has now risen to 239 crores. Of course this may come down after payment of dividend but still there is a very significant increase. Our investments have increased with funding of Saudi Instar in which we are in the process of acquiring full ownership and also investment in additional specifications for duct manufacturing in Middle East. Our inventories and receivables have also gone up. Inventory increase is primarily in limited cooling products as I mentioned earlier and in mining and construction business and the balance increase pertains entirely to the increase in jobs in progress. As far as receivables are concerned, the increase to very large extent also is represented by the retention money and the amount which are not due pending certification. As far as our cash balance is concerned they have increased to about 370 crores, about 60 crores in India and the balance overseas. While in India the cash balance is ….in the international market, these relate to the advances received from various large jobs that we have.

- As far as the cash flows are concerned there has been pressure in the domestic market on accounts of the goods that we are holding in limited cooling products and in mining and construction business and the slowing down of cash inflows in domestic mechanical segment whereas international has contributed very substantial cash flows with various new jobs being on. Last but not the least our order book position has improved very significantly. Domestic order book now stands at about 1,000 crores against 600 crores last year at the same time and 800 crores at the end of March. In the international market our order book stands at 4,600 crores as against 1,360 crores, 30th June last year and 3,800 crores approximately as on 31st March. So there is a very good increase in order book. The pipeline also looks healthy and we look forward to a future with optimism because of this very healthy order book position. With that I would throw the house open for question and answers. Thank you.


- Thank you Sir. Ladies and gentlemen we will now begin the live question and answer session. If you have a question please press * and 1 on tour push button phones and await your turn to ask the question when guided by the facilitator. If your question has been answered before your turn and you wish to withdraw your request, you may do by pressing the # key. Our first question comes from Mr. Nishit Master from Anand Rathi. Mr. Master.

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- Mr. Nishit Master – Anand Rathi

- Hello. Good day Sir. Congratulations on very good set of numbers. Sir just two points. One is how much is the tax which is attributable to the extraordinary items?


- It would be the same rate as …..income. so you can assume 33%.


- Ok 33%. And Sir one more thing. We are saying that there is inventory pile-up in the unitary cooling products business because of early rains. Now in a lot of part of India rains have stopped and there has been a certain kind of heat wave so have we seen certain demand pull back, certain demand push again coming back into, in the 2nd quarter?


- As far as the heat wave is concerned, really the temperatures have not risen that significantly as there are no rains and we have not seen any substantial increase in demand as yet.


- Ok. Thank you Sir.


- Thank you for your question Sir. Our next question comes from Mr. Nikunj Doshi from Envision Capital. Mr. Doshi?

- Mr. Nikunj Doshi – Envision Capital

- Hello. Good afternoon Sir. Just can you explain us the international orders geography wise. What kind of means this international order book is from which geography and again international margins are supposed to be better than the domestic business, so do you see further improvement in operating margins going forward in this business?


- This quarter we have received some good orders from Singapore where we did not have any orders on 31st March and we also have good orders received from UAE. But other than Dubai there are the new islands, which are being formed at Marina Bay. And we have also received some orders from Qatar.


- Ok and operating margin wise?


- We are about 200 crores, 250 crores would have come from Singapore and the rest is equally distributed between Qatar and UAE.

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- And operating margin wise, do you see improvement because of the international increase?


- It would not be absolutely correct to say that domestic market margins are lower than international market. We have always maintained that more or less the margins are similar. Sometimes because of specific orders the margins mat go up or down. But those are related to the specific orders.


- And usually right now the order mix that we have, will it, how some kind of cost escalation leading to some commodity prices or it will be?


- We will take some time to get some of the new customers who agreed to cost plus basis for contract but I think it’s going to take time to move to cost plus. In the mean time we are continuing with fixed price contracts where there is no escalation. So we have to basically ensure that whatever anticipated commodity price increases are there we take into account while submitting the tender and we keep contingency for any negative feel.


- Ok and just last one. Can we just give us the break-up of other income again? We missed it earlier.


- Just a second. Other income comprises of about 6.5 crores of rental income, about 7 crores of foreign exchange gain, about 13 crores or 12 crores on account of mutual funds and balance are recurring items.


- Ok thank you very much Sir.


- Thank you Mr. Doshi. Our next question comes from Dipal from Citigroup. Please proceed ma’am.

- Ms. Dipal – Citigroup

- Hello Sir. Just 1 question. This rental income that you mentioned is 6.5 crores and the balance is recurring items. I didn’t understand. This rental income is also continued, right, also in the future?


- I want to confirm that rental income also is recurring, contracted for long period and therefore it will continue, as far as the mutual funds are also concerned we are holding adequate balances. So that income would also continue. Except certain amount of FMP liquidation which took place in this quarter which about 4 crores can be anticipated to that and balance these are items like net sale of businesses etc. that will also recur.

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- Sir in terms of our overall vision that is 10/10/10, now in terms of the outlook for division 2 and slightly slowdown in division 3, do you see that we are still on track to achieve that by ’10?


- As of now we hope that engineering businesses, the blip will be short-lived and it will get corrected because our vision is really for 2010-11. So we still have about 2 years and 9 months to go. And we are in the meantime taking various sections for you know finding other revenues for reviving our engineering group. For example, we have been talking about in textile moving to first sealing, we are talking about MET for textile industry. There are various things that we have been internationally discussing and rating. So we would want to overcome these technical problems by finding innovative new areas of operations. So, as far as we are concerned as of now, we are on track and we hope to be on track by the time we reach to 2010-11.


- Sir in terms of our last 2 quarters we have had a push back in terms of execution in some of our international orders, right? And as we discussed this execution would kind of, the whole period had got delayed. From this quarter onwards you would see some margin booking right, on those orders as well.


- If you verify the margin in the international business has also gone up.


- That is primarily because you have booked your margins on that. Some of that I think we still have 1 order on which we have not booked margins. But going forward basically there are no new projects which have started now on which also very large turnover will accrue during the current year. All that will start flowing in, in the 3rd and 4th quarter.


- Sir in terms of, there was this media article today which talked about, which mentioned you saying that there will be some price increases in the inventory products division given the fact that they were.


- That to be taken in the context of the question. The question was whether we have increased prices so we said no. but the commodity prices have increased so we said that no we have been able to manage by doing other cost cutting and matching the cost increases with cost savings. They said that but if they continue to rise, so then I had to say that yes we will look at price increases if the commodity price is this, the prices continue to increase particularly in inventory cooling segment.


- Ok, so that was the context of the entire discussion. Ok Sir, we will get back with more questions. Thank you.

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- Thank you for your question ma’am. Our next question comes from Mr. Nainesh from Tata Mutual Fund. Mr. Nainesh.

- Mr. Nainesh – Tata Mutual Fund

- Good afternoon Sir. Coming back to the previous question just wanted a little bit more details on 5 projects in your last conference call you had mentioned that there were 5 odd projects in your international business which hadn’t reached milestones from where you have been start recognising margins. Can you just throw some more light on how many projects had started reaching the threshold from which you could start recognising margins and how many would be recognised over the next few quarters Sir?


- As far as one particular project is concerned we have not started reckoning the margins still. We want to make sure it is a large project and therefore we want to be sure that 10% will be completed.


- Sir 1500 crore project if I am not mistaken you had mentioned during the last conference....


- One particular project I am talking about and one of the new projects that we have started also we have been cautious because we are not sure about the 10% completion. Most of the projects we have started reckoning the margins and more margins would be reckoned in the Q3 and Q4 if the turnover starts ticking in.


- Ok. My second question would be related to your operating profit margins, you did mention that you worked on a fixed price contracts. Now going forward of course you would be negotiating on the rising raw material prices but for your existing order book as you mentioned Rs. 5,600 crores, how are you placed as far as your operating profit margins are concerned? Would you see biggest commodity prices have increased quite a lot in past 5-6 months. Do you foresee further kind of margins contraction in your business Sir?


- As far as our operating margins are concerned we are quite confident that they will be at current levels because current cost is more or less in line with what has been existing for quite some time. Since there are further cost increases people also have taken some contingency provisions, I don’t know we are doing a very detailed exercise for `A’ drive projects of reviewing the commodity prices. It may take couple of months and then they would be able to by end of the Q2 when we talked about the Q2 returns we will be able to definitely confirm that there is no impact. The way it looks today there is no major income.

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- Sir another thing you mentioned in the segment 1 there that international order book is strong but you are witnessing certain kind of slowdown in the domestic market. Is that what I understand is what you said?


- I said as far as the order inflow is concerned and as far as inquiry committees are concerned it is pretty strong even now. However, there could be some behaviour taking place on the behest of customers in some of the projects.


- Is it in the domestic markets Sir?


- These are deliberate, these are normal ups and downs, which takes place in projects, we would be able to determine a trend over the next couple of months.


- But are these in the domestic market Sir?


- Domestic markets.


- Any specific sector that you see certain kinds of delays, anything of that sort Sir?


- More in terms of commercial complexes.


- Alright Sir. No issues at all. Thank you very much and in case if I have anything I will come back Sir.


- Thank you for your question Sir. Our next question comes from Mr. Sachin Trivedi from UTI Mutual Funds. Mr. Trivedi.

- Mr. Sachin Trivedi - UTI Mutual Funds

- Hello.


- Hello.

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- Sir first of all congratulations on the good set of numbers. I can see the staff cost and other expenditures have seen a significant increase. So what is this on account of, if you can throw some light on that?


- Major increase in staff cost in Middle East and that is primarily because of the new project we have taken. We have hired people on contract basis so that’s the primary reason.


- And how about the other expenditure?


- Other expenses also include new camp site we established. We have expenses for people who are recruited, the cost was certainly in the new site, etc. but these are mostly related to the project businesses and they are directly linked to the project and that is why I specifically talked about the expenses of the domestic side, there is no significant increase in the cost other than in proportion to the turnover increase.


- Sir although you spoken about the MEP side, certain projects which are not in the revenue cycle. Sir can you quantify if possible how much of this order book…?


- I don’t have the quantification now.


- Ok and one final question on the other incomes…


- Then it would relate to all the projects that we have booked since January, these are very large projects.


- Ok and these projects are yet to come on the revenue cycle this is what you are saying?


- No what I was saying was when the new project execution starts, in the first 6-8 months the revenue coming in is very low in relation to the overall project size. But once the actual executions starts the revenue starts kicking in, generally picking towards the last 6 months of the execution of the project it will be a huge turnover coming in.

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- And Sir does it also mean that once these are in the revenue cycle or second half of FY `09 current year we can see the electro mechanical side of the business, will see marginal improvement?


- We hope so.


- And Sir in this quarter actually we have seen a significant jump in unitary cooling margin business, the margins in this business has increased. So what will you attribute this to?


- I think I have mentioned this in my earlier discussion of the segment results, it is primarily because of our targeted products being well received in the market. The various new models that we have launched they have been very well received and it is primarily because of that.


- And is it sustainable?


- 9.2% margins will not be sustainable.


- So in your reading....


- We are still looking for the full year, it is about 6-6.5% margins, we would be able to definitely talk about it only towards the end of this calendar year. Once the leap year is over, also we have to see what the competition does or how the economy performs, whether there are more frills in economy. Because all that we determine they demand push.


- Ok Sir. Thanks a lot.


- Thank you Mr. Trivedi. Our next question comes from Mr. Atul Tiwari from Citigroup. Mr. Tiwari.

- Mr. Atul Tiwari - Citigroup

- Sir I have couple of questions on your margins. Like cost in business segments over the years and compared to the quarter, Q1 of FY `08, the margins have changed. Either they jumped up quite substantially as in the case of unitary cooling products or they have fallen off. So could you bring

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some sense of the sustainable margins in the individual segment as per your assessment of your businesses?


- Cost segment I have already talked about that we are at 6-6.5% but we are not very sure.


- This was for the first segment?


- Yeah. In the second segment or coming to first segment we have 8.1% margins against last year 7.7% margins. So there is no problem there is a marginal improvement when I say 7.7% margins it is after excluding one time settlement from Queen Mary luxury liner. If you exclude the margins comes to 7.7% against which we have achieved 8.1% and I think this is the kind of range in which our margins should continue although we are overall looking at moving. By the time we hear, we achieve our vision margins should be 10%. As far as the second segment is concerned I think this quarter the margins are slightly depressed and we do hope that with the mining and construction equipment getting cleared, the margins would overall increase.


- Back to somewhere close to previous year’s level?


- Previous year’s margins were I think about 30%, sorry 22%, we are looking at between 18-20%.


- And Sir in the third segment, unitary cooling products there should be somewhere between 6.7 and 9.2%.


- Are you talking about the third segment?


- Yeah, yeah.


- I will say that our margin is high but saying that 6-6.5% is going to be maintainable margins. Once again I, when I spoke of 6-6.5% margins yet we are not in a position to determine the exact margin percentages at this point of time because we will have to see how the economy performs. We will have to see how the competition performs and based on that we will be able to determine what are the sustainable margins, which we would be able to take a view towards this end of the calendar year.

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- And Sir my second question is regarding the fixed price contracts. Sir because the contracts fixed priced and you have big amount of products in past couple of months and you have factored in very high commodity prices, in future if the commodity prices were to soften up, come off, would you stand to benefit and in that scenario would your margins go up?


- I have explained earlier that we normally try to manage the prices or the commodity risk while taking contracts on a back to back as regards suppliers. We try to tie as early as possible in execution cycles of the new projects. If we have already tied in those contracts then we may not benefit too much because of the softening of the commodity prices if that does happen. In case if we have not tied in we will be able to get the benefits.


- And Sir from the time you get contract, what would be the average time period before which you are able to tie up the supply and place back to back orders on your suppliers?


- After we receive the letter of intent during that 3-4 months we try to finalise all the contracts but this also depends on several factors. Whether we have clear designs available from our main contractor or customer consultant. We have all the data as required for placing orders then we see performance we place orders.


- Ok. Thank you. Thanks a lot Sir.


- Welcome.


- Thank you for the questions Mr. Tiwari. Our next question comes from Mr. Abjhijit from ABN Amro. Mr. Abhijit.

- Mr. Abjhijit - ABN Amro

- Good afternoon Sir.


- Good afternoon.


- My question was regarding our order inflows. For the last 4 quarters we have seen something like 1,200 crores order inflow in every quarter. So what I was trying to understand is, is this anything to do

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with our own constraints and going ahead there will be similar kind of order inflows in the next 3 quarters?


- In some point of time we will have to decide whether we have our hands full, right now we are not in that position, we are still about to manage our projects. As I mentioned the pipeline also looks good at this point of time so we may accept some more orders. At some point of time we will have to decide but I think there is a very dynamic kind of situation, how many people we are able to engage and additional people we are able to engage. What are the kind of salaries prevalent? So in this view whether our hands are full or not can change from time to time but it is a continuous exercise.


- Ok Sir as of now there is nothing like constraints....


- As of now we are still in a position to accept some more orders if they come our way.


- Sir, secondly of these 4,600 crores of the overseas order book, can you tell me what would be the execution cycle and when would the last order in this order book get completed?


- Previously we used to say about 2 years in average, probably it could have expanded to about 30 months now.


- 30 months only for international ones?


- Only for international ones.


- So Indian ones will remain at 9 months?


- 9-12 months, that’s what I can see, so we continue with that.


- Alright Sir. Thanks a lot.


- Thank you Mr. Abhijit. Our next question comes from Ms. Tanu from Morgan Stanley. Ms. Tanu.

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- Mr. Parag – Morgan Stanley

- Good afternoon Mr. Miyajiwala this is Parag here.


- Good afternoon.


- Just want to check on your engineering agency business, given the current trends which are seen. Are we going to see revenue growth taper off to about 20-25%, or could this segment still grow at about 30-35%?


- No I think we see the revenue growth tapering down particularly in textile machinery division, the rate of order inflow has been slow and therefore the growth could come down very substantially.


- So would you be comfortable with about 20% then?


- At this point of time it is very difficult to comment on that but probably even lower than that.


- And also what impact you see on your overall numbers especially on your profitability once you consolidate 100% of UCPL, which is after you buy out 50% stake from feeders?


- We have already bought out, that will come in the consolidated numbers. We have not been consolidating every quarter because the additional profits which come in are not very large in the overall context of the company and this will continue.


- Would you see some kind of a margin pull back given that I think based on your consolidated numbers and annual report it seems as if UCPL probably does not make any margins at all?


- I think that situation will continue and therefore those who have picked up turnover in UCPL, the consolidated numbers will not change very significantly.


- Sure. Thanks a lot.

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- Thank you Mr. Parag. Our next question comes from Mr. Arsh from Tauras Mutual Fund. Mr. Arsh.

- Mr. Arsh - Tauras Mutual Fund

- Hello.


- You please proceed Sir.




- Good afternoon.


- My first question is regarding your average project execution time which you have already told us, I just want to confirm that. It is 9 months for your domestic projects…


- 9-12 months.


- And 30 months on an average for your international projects.


- Right Sir.


- My next question to you is regarding the execution delays which you talked about in a very beginning of the call, I want to get a brief view about that? What was all the execution delays and reasons for that?


- Actually there are some designs, that the designs are not received in time. Now this could be because of consultant’s law being ready genuinely or it could be a way of delivering the projects. This we are not in a position to definitely say only because the customer wants to delay. That is why I said that it is too early to make any trend analysis on this way they send that execution projects is getting delayed.

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- Mr. Garudacharya - General Manager, Voltas Limited

- Let me just add here is what really happens is the consultant actually conceptualise our projects and he gives it to Voltas. Voltas actually works with the complete project and converts it to implement, projects that can be implemented. Why we are doing this process there could be a change requirement or may be the consultant wants to change requirement. So this whole process of trying to convert the concept into implementable designs is what takes time. And first time if it is a very complicated one may be takes a longer time.


- There have been delays in designs as I mentioned earlier, but it is not difficult to describe that either to deliberate delays or genuine design problems. We will have to see if this continues then it is definitely a chain of people delaying the execution otherwise it would not be...


- Ok. The delay which you are talking about is certainly in the domestic front or domestic projects you are talking about?


- Sorry?


- It is mainly into which project? International project or domestic project which you are talking about?


- Internationally there is no delay. Internationally the normal cycle of design etc. is taking normal time. I was referring primarily to the domestic market.


- It means if any delay is there it is mainly in the domestic market and that will be cleared only by next quarter.


- That’s right.


- And apart from that you may raise prices in unitary cooling products for domestic?


- Sorry?

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- I mean your article in the paper that you may rise the pricing in the domestic cooling products, unitary cooling products. Are you comfortable with the margins as of now? Is this some inventory provisions for the…?


- As I said, the 9.2% margins is extremely high and we are not anticipating that those levels of margins will continue for the year.


- Ok. Thanks Sir. Thank you.


- Thank you.


- Thank you Mr. Arsh. Our next question comes from Mr. Nirmal Shah from Alchemy Shares. Mr. Shah.

- Mr. Nirmal Shah - Alchemy Shares



- Good afternoon.


- I just wanted to check in the engineering agency services revenue, how much percentage of it came from agency and how much percentage of it came from manufacturing?


- This quarter it is about 60:40


- 60% _ commission and 40 manufacturing.


- 40 on manufacturing all trading.


- Sorry?

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- All trading.


- Ok, and Sir how do you see going forward the ratio ?


- About 70% continues from manufacturing and 30% would be from agency.


- And Sir how do you foresee going forward?


- I think this ratio should continue; if the textile machinery turnover comes down then there could be marginal change of 3-4%. I don’t think it is significantly changed.


- Ok. Thank you Sir.


- Thank you Mr. Shah. Next in line we have Mr. Munjal from ICICI Pru.

- Mr. Munjal - ICICI Pru



- Good afternoon.


- Just wanted to check out the cash balance and the liquid investments as of today, you mentioned some 239 crores, right?


- That’s right.


- In liquid.


- Yeah.

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- And over and above you have 370 crores of cash balance.


- Correct, but most of it is outside the country so we cannot utilise it for our internal requirements. It is primarily advance and receipts and passed over them until they get utilised in execution.


- And out of 370, 60 crores is overseas?


- 60 crores is domestic and balance is overseas.


- Ok, so what is the amount of cash that can you utilise?


- The domestic cash balance and liquid investments.


- That is the available cash.


- Of 300


- And Sir just wanted to know this extraordinary income of somewhere around 23 crores, which is some lease or it is surrendered. Sir what is the objective behind such things actually because we are anyways cash rich?


- The lease rights are available only for a very limited period of time. And therefore we thought that it is better to get out while the going is good value and actually this was negotiated sometime back but we are not able to execute it because of various documentations and clearance required. Not that we have received all the clearance etc. we have finalised the assignment of lease.


- So it is basically you feel that the prices were a bit you know in your favour and that’s what…?


- Particularly because the lease period was running on.

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- And a difficult question how many such properties you will still have wherein we negate such positive surprises going forward?


- As far as lease premises are concerned we don’t have too many. In ownership we have but not lease.


- And this Hyderabad land is still existing?


- Yes.


- And any plans on that?


- I think within the next few months we are in the process of looking at various options. We have received some proposals, we are evaluating them and hopefully in the next few months we will take a final decision.


- Ok. Thank you very much Sir.


- Thank you.


- Thank you for your question Sir. Our next question comes from Mr. Rohit from Max New York. Mr. Rohit.

- Mr. Rohit - Max New York

- Sir first of all sorry for again coming to the question of delays.


- No problem.


- Are you seeing any delays in terms of you know your expectations of orders being traced by developers or in the infrastructure field domestically sort of being delayed.

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- As of now we have not seen any such sign but normally in this business there is a late effect so we will have to wait and see how things develop.


- Sure Sir. And another thing, I mean you mentioned separately that you have back to back contracts with suppliers. So you have to probably take the supplies anyway from them even if there is a possible delay in the project of say 6 months of something of that sort?


- Normally if the project is delayed we also have a clause in the contract where any additional cost incurred we can claim that from the customer.


- And that will be Sir something like interest charges or it can be….?


- A form of payment, overall there would be some compensation for them.


- Sir you mentioned earlier that even for the high debtor days, I am sorry I missed it, could you just repeat it?


- High debtor days are because we are going for larger projects in domestic markets and normally bigger projects which are MEP projects etc. the terms of payment are lot similar to very small projects. In small projects we get paid upfront, for most of the services that we provide. There is a _ of MEP projects and larger projects, the terms are slightly different. The values are very large their terms of payment is not as liberal as small projects.


- Sir, finally any guidance numbers that you can give?


- Unfortunately we don’t give any guidance.


- Thank you Sir.


- Pallavi we have time only for one more question.

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- Sure Sir.

- Our last question comes from Mr. Shalabh Aggarwal from Sundaram BNP Paribas. Mr. Aggarwal.

- Mr. Shalabh Aggarwal - Sundaram BNP Paribas



- Good afternoon.


- Sir just wanted to check on this I mean the order that you mentioned in Singapore, this is also an MET order?


- That’s right.


- Are we making a conscious effort for starting new countries to get orders...?


- Yes we have presence in Singapore. Unfortunately there was not much development taking place over there. So we had a period of no orders but now there are developments taking place over there for resource etc. and we have dealt orders in respect of those.


- Is it a single order?


- That’s what we did in Singapore.


- Is it a single order or...?


- Few orders.


- Are we targeting any other countries besides Middle East and Singapore?

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- More or less our hands are full right now barring the diversification of risk there is no other reason for expanding our geographical spread.


- And Sir any update if you can give on the other businesses that you had earlier planned to move into like water management and you know....?


- It is nothing much to discuss on that front at this point of time and at an opportune time we will come back to you.


- Ok. Thank you Sir and all the very best.


- Thank you so much.


- Thank you Mr. Aggarwal.

- As there are no more questions I would now like to handover the conference to Mr. Apurva Patel. Please go ahead Mr. Patel.


- Thank you everyone and thank you Mr. Miyajiwala and Mr. Garudacharya for taking your time and all the best to you for future quarters Sir.


- Thanks a lot. Thank you.


- Thank you.

- Ladies and gentlemen this concludes our conference for today. You may please disconnect your lines now.

- Thank you.

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