Ahluwalia Contracts (India) Limited (AHLUCONT) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Aluvalia Contracts India Limited Q1FY27, our next conference call, hosted by Ambit Capital Private Limited. As a reminder, all participant lines will be in the listen-only mode, and 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 star and zero on a touch-to-one phone. Please note that this conference is been recorded. I now hand the conference over to Mr. Sudeep Bora. Thank you and over to you, sir.

Good evening, everyone. On behalf of Ambit Capital, I thank the management of Alualia Contracts India Limited for the opportunity to host the Q1 FY27 earnings conference call. To discuss the results, I am pleased to welcome Mr. Shabit Upil, Deputy Managing Director, Mr. Vikas Alualia, Director, and Mr. Suddhi Singh, Chief Financial Officer. Now, I invite the management to take us through the key highlights of the quarter, those which will open up for QA. Thank you, and over to you, sir.

Thank you. Good afternoon, everybody. Alualia Contracts India Limited has announced its financial results for Q1, FI27. During Q1 FY27, the company has achieved a turnover of 11.25.81 crores and a PAT of 11.42 crores in comparison to a turnover of 1004.88 crores and a PAT of 51.11 crores during Q1 FY26. The company has registered a growth of 12.03% in turnover and degrowth of 77.65% in PAT. During Q1-FI27 in comparison to Q1-FI26, EPS of the company for Q1-FI27 is Rs.1.70 compared to EPS of Rs.7.63 in Q1-FI26. During Q1-FI27, the company's EBITDA margin is Rs.1.70. 4.29% as compared to 8.59% in Q1 FY26, and PAT margin is 1% as compared to PAT margin of 5.01% in Q1 FY26. The primary reasons for the dip in EBITDA margin are as under. There has been a finalization of the bill. of the AIMS-Jammu project, which has resulted in a reduction of bill value by Rs. 29 crores. This is a cause of dispute, and now that the bill has been finalized, the dispute will be raised through an arbitration process. The adverse impact on this account is 2.6% on our EBITDA. Then there has been an adverse impact on account of West Bengal and Assam SIR drive and elections. This has led to a reduction of turnover in the projects that are being executed in these states, and it has impacted in higher IDC costs, thereby impacting our EBITDA margins. Then, during this quarter, labor rates have increased significantly. In NCR, which contributes nearly 50% to our total portfolio. The minimum wage increase has been to the tune of about 35 to 40%, spanning over unscaled and scaled categories. This has led to an increase, a substantial increase in our wage costs. Then, there has been an increase in our staff costs, where we have significantly increased our employee base, as we have strengthened the organization and mobilized staff resources for our enlarged project portfolio. The net order book of the company, as on 30th June, is 20,663.52 crores to be executed over the next three, three and a half years. Total order inflow during FY27 till 36-2026, as well as up to basis 512.81 crores. We are ready to receive questions.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use answers while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Shravan Shah from Daulat Capital. Please go ahead.

Hi, sir. Hi, sir. Sir, to further understand this EBITDA margin, because this is 4.3% is... Kind of one of the historic lowest margin. I understand you tried to explain, but further want to understand in detail. So first, you are saying this 29 crore for Ames Jammu, that the bill which was under dispute now finalized. So this 29 crore we have booked in raw material cost, which has led to a kind of a 2.6% impact.

You can say that. This is under dispute now, after finalization of the bill. You know, as you know, the project was completed last year, and final billing and its checking was under process. Now, during this quarter, Q1, it has been frozen, and we have now this bill value, final bill value has come down by 29 crores.

Okay, and you are right, the costs have been there,

but the bill value has come down, the receivables have come down.

Yeah, but the other part what you highlighted in terms of West Bengal Assam and the labor cost increase, so in the last call then when we did, so that must be known to you at that time or at this time even post the last call, this was the thing and that's why there is a significant impact on the margin.

Yeah, the labor, the increase in labor was not known during the last call, and it is a hefty increase. While there is a labor escalation clause in a few of our contracts, but quite a few contracts don't have this clause, you know, a lot of our large orders. With some large developers, the labor escalation is not there. Post this increase, we have reached out to these clients and submitted claims, if you may say, wherein we are asking for a revision in our item rates, which can lead to compensation on account of the large increase in labor costs. And so, the most significant increase has been in NCR, especially Haryana and UP, where 50% in NCR, 50% of our odd book is in NCR. That is why it has hit us in this quarter.

Yeah, I got it. So now, given these things we know, so in Q2, do we see how much the clients have agreed to kind of compensate or still it will take time? So how one can look at our net-net in Q2, will the similar margin or can we, because we were looking at double digit, so when can we start seeing a double digit from Q3 itself, so for full year, how one can look at the margins?

So, look, you know, there are a number of external factors, one being this radical increase in pricing by the government of Haryana and the government of UP. So, it is not possible for us to put a date as to when we will be compensated, whether it will be in Q2. But we expect that, you know, over the next two quarters, this... Some of this compensation will start flowing in. I haven't answered the first part of your question. The second part, you know, Q3, again, we are hearing rumors about, you know, NGT, the impact on account of NGT, government of Delhi and Haryana looking to take stringent measures, while nothing is still out. Is there in black and white, but we can't quantify the impact on our EBITDA of the NGT, potential NGT impact. So I cannot tell you whether we will be hitting the double digit in Q3. Q3 is likely to be impacted by NGT. How much, we cannot sort of give you an indication today.

So, at current juncture, what do you think that, what kind of a margin we can look at, let's say, for the full year, or maybe Q3, or when can we start seeing a double digit from Q1, F1, 28, or still it will be a difficult, maybe a one-off?

This year, there have been a few black swan events. One, of course, has been the war. Second, of course, has been this labor pricing has impacted us in a major way because a couple of our projects, you know, there are the labor factors as it is are higher because some materials are being supplied by the client. So, it would be fair to say that this financial year, we are ruling out having a double-digit EBITDA margin.

But at what max number one can look at, let's say, if I have to look at other way, how max, because as you highlighted, Q3 also.

Q2, look, Q2 is an aberration. Primarily, as I said, 2.6 percentage points have been shaved off because of one, this thing, and that also, you know, it's something that the client at one time would agree and now. For various reasons, they've gone back on it. We are already looking at, we are starting arbitration to see things. So, you know, we should, whatever we had, what was there in Q1 of the last financial year, we are hoping that we will get back to those margins over the next three quarters. The effect of NGT, that is a rider that I am putting here, we are unaware. How much that is going to contribute or hit, or margins?

And this in any way is also impacting the execution, so whatever we were looking at, 15-20% growth for this year, and even similar number for FF28. So, is there any change on the lower side?

No, we still feel there has been a top-line growth this time around. We still feel that we will grow at about 12 to 15 percent, top-line growth. And, you know, it will, as per the historical EBITDA margin over the past couple of years, we should be there and thereabouts.

Okay, okay. Some balance sheet number, sir, if you can provide inventory data.

Yeah, inventory data spread payable.

This is 776 crore.

776.

Yes, sir. That is the data.

Trade receivable is 776 crores, you say?

776 trade receivable and debt trust is 632 crores, and retention is 401 crores.

Sorry, how much you said retention is? Retention is 401 crores. 401 crores, and inventory is?

Inventory. Including the real estate inventory, 391 crore.

391 crore. And mobilization and unbilled revenue?

Mobilization 924 crore. And unbilled revenue 946 crore.

946 crore. Okay, that is also sharp. And gross date and the cash?

That is, there are two crores. Hardly. What country it lacks. And cash and bank balances, including cash and bank balance, 920 crore.

920 crore. Okay. Okay.

Thank you, sir.

Thank you.

Thank you. The next question is from the line of Vaibhav Shah from GM Financial. Please go ahead.

Sir, we saw a sharp increase in interest cost in the first quarter. So, the reason for that and could this be a recurring number in coming quarters?

This is the increase in finance cost due to we have availed mobilization advance during this quarter for the new project, so that's why there is an increase in finance cost.

So in coming quarter, it should be a similar number every quarter, 15-16 crores?

Yes, yes.

Interest only 8%.

Sir, that's 8%, but that's more the proportion of the thing raised on it. And it will be a concern number.

It will be a concern number.

Amount by state. And sir, out of mobilization advance of 924 crores, what is the interest-bearing portion and the interest rate?

This is 31%.

31%. And the interest rate.

Interest rates, you might say, around average 8%.

Okay. So, secondly, on Jemso and Jewelry Park, so when do we, what are the challenges which you are facing, and when can the work on the ground begin, and what is the revenue expectation on the project in this year and next year?

So, you know, there is a change in design or requirement happening from the client side. That is why the, you know, while our designing, the architectural designing has been done, but that is undergoing a change. So, I think work on the ground will only begin, it will not happen in this quarter. It is likely to begin in quarter three. And we are looking at a billing of about 100 crores in this financial year.

Is that in next year?

Next year, the billing should be to continue about 450 crores.

So, what is the time frame of completion for the project?

It's three and a half years.

Okay. Okay. And on the CSG project, we have not seen that kind of pickup even in the first quarter. So, how do you see the revenue moving in over there into this year and next year?

So, we are looking at an average billing in the nine months after the first quarter to, you know, about 40 to 45 crores. That is roughly a billing of about 450 crores, 400 to 450 crores in this financial year, which will be ramped up to about 700 crores in the next year.

Sir, what is the main challenge over here? So, we have, earlier we were targeting close to 600 crores in this year. So, what is stopping us from doing that?

So, we are hopeful that we will still touch about 500 crores. As I said, we have done about 70 crores in this quarter. And if we do about 450 crores in the balance nine months, we will still, we are hoping to cross 500 crores here.

Any specific issues? Sorry? Any specific issues over there?

No, it was, you know, the project is basically dividing two parts. One is the platforms and the station area, and the other is the new buildings which are coming up. Work on the new buildings, which is the LD node, DRM building. All this, you know, the DRM building has started. LD node will start now. The building there, the client is approving in stages. That's why, you know, the work can not be taken up all at one go. As far as the platforms and station areas go, there we get blocks as per the traffic. That is why it is taking time.

Okay, okay. And so lastly, on Central Vistas, how is the work on ground going and what revenue are we targeting for 27 and 28?

So, FY20, let me first tell you, there are two buildings which were to be broken there, Nirman Bhavan and Udyog Bhavan. Nirman Bhavan completely broken, the foundation casting has begun, and in September we will start erecting the structural steel. Udyog Bhavan was handed over to us about three weeks ago, and 90% of that has been demolished. The demolition will be completed in the next 15 days, and we've started the excavation work. A month from now, the foundation works will start in that area also. We are looking at a billing of about 700 crores in this financial year.

And for next year?

Next year, it would be about 1,000 crores.

Okay, and sir, you mentioned that we

are looking to complete the building which we started where Nirman Bhavan existed, which is about 50% of the job. We are looking to commission it by the end of next year.

And entire project will be completed in FY29?

Our entire project will be completed in FY29.

And so on revenue, you mentioned 12% to 15% growth, right? So we are lowering the guidance from the previous call. It was 15%.

We are sticking to that. As I said, the lower 12%, you know, the NGT is something which we are not sure about what impact that is going to cause. So that is why.

So, if it is similar to what happened last year, then we could, we make raw 50%? Yes. Okay. Okay, thank you.

Thank you. The next question is from the line of Sandeep Sabharwal from AskSandeepSagharwal.com. Please go ahead.

Yes, I think your last conference call happened 15 days after the end of the previous quarter. So it's very difficult to believe that you did not know the impact of the new labor charges, etc. and what impact it will have on your first quarter results because Your results and concourse typically happen 45 days, last day of the results season. So, like, I've been observing that you've been giving guidance on growth, on margins, etc., last many quarters. But I think those are no relevance, actually, because the numbers which come out are totally different. So, have you any comments to offer on that?

It's a very generic observation that you've given. You have some data, or we can have a separate meeting, our CFO can meet you. I would like to think that we have been more or less in line with the guidance that I've been giving over the past three, four years, post-COVID. If you could be a little more specific, while I agree, no, no, no, no, no, let me complete, let me complete. While, let me address the first part of your query, that whether I was aware, or whether we were aware of the impact of the price escalation on account of labor, when we did our last investor call, are you insinuating that I was aware and I hit that? Do you have some specific data? Do you have some specific data which you want an answer from me? Two.

Your last conference call happened 45 days after the end of the previous quarter. So you, I think, had a call on the 15th or 16th of May. So, you are saying that the new labor charges were imposed on you after 15th of May or before 15th of May? Was the impact here for the full month or full quarter or half of the quarter?

If you know the nature of our business, if you track this industry, you would know that... April, May, June, or traditionally that part of the calendar year, where labor is in extreme short supply on account of various factors. This quarter, this was further exacerbated by a slew of festivals, especially Muslim festivals. 50-60% of our skilled labor or 80% of our skilled labor is Muslim. So the impact on the ground was felt much more, which was very difficult to predict, especially in NCR, especially in Ariana and UP, where government further compounded this issue by increasing the labor costs by 40 percent, 35 to 40 percent between skilled and unskilled. It was very difficult for us to predict the impact on our costs. Have I spent out to position clearly?

No, not really, because when was the increase in labor costs done for you? Was it from 1st of April?

It's an ongoing process. Then you are not understanding. Then it seems you have not tracked this industry. Please understand what we are paying today on the ground to a barbinder or a carpenter or a mason. That is totally based on demand and supply, and in most cases, over the past two months, it has been more than what the government has mandated. It's a demand and supply issue. If you practice industry, you would know that. If you don't, we would be more than willing to meet up with you and give you a refresher course.

No, no, I don't need a refresher course. There's no need for you to become aggressive on the call.

No, no, I am just telling you, you are insinuating, your first question that you asked me,

you are insinuating that I have hidden some facts.

You need to articulate better your question.

No, no, I said you have a call middle of the quarter, by that time you should have a fair idea of what's happening in that quarter. If you don't have a fair idea of what's happening in that quarter, then any kind of guidance is of no relevance.

Luke. I know what guidance I am giving. It is your prerogative to agree to it, believe it or not believe it. I am willing to invest more time with you and trying to take you through what impacts my costs from the ground. You are the one who is saying you don't need it. What more do you expect from me?

No, no, I don't think. Anyway, let's move on.

Thank you. The next question is from the line of Rishal Perival from PL Capital. Please go ahead.

Kaya, sir, thanks for the opportunity. I really like to know. Yeah, thanks, sir. Sir, on this labor, whenever these changes happen, I mean, can this be considered more like a GST-related changes, a change of law, will this become applicable? And then same can be passed on to our clients?

So, this is not considered a statutory increase. While if a certain component of the increase, say, if the PS was getting increased, that would be taken as a statutory increase, which the clients would have to necessarily bear. In terms of increase by the government, It's not a statutory increase, I've said, but having said that, we are still writing to all our clients and telling them that this increase coupled with the demand and supply issue. Today, labor has become a big issue. You know, especially over the last two, two and a half months, all our projects, especially in NCR, have been operating at 40 to 50 percent labor strength. So, we have reached out to our clients, and they have been sympathetic. In at least listening to or going through the numbers that we are presenting to them as to the impact on our costs. So we are hopeful that the projects which do not have a labor escalation clause with some of our larger clients in NCR, client will consider compensating us to some extent.

Okay, okay. And from accounting point of view, the employee cost that we book in our P&L, does this have an impact of labor or it's only the actual related and other things which is part of the employee cost? No, I don't think we have.

It has. To the extent that such labor is employed by the company, it is included therein, and what is not employed and they are into like a, you know, contractors or labor suppliers, that is in the subcontractor or labor costs.

Okay, okay. Because from the P&L, it looks like, I think, probably a 30 crore kind of impact, which is coming from the aims. And if it is getting moved somewhere in the raw material and subcontracting, where the labor cost is also there, then that explain probably a 30 crore impact. The other impact is the employee cost increase that is impacting much more to our P&L. I think that's what I could gather.

That you already answered.

So, yeah, you're right. You know, one is at 30 crores. There is actually a threefold impact on our EBITDA. Right? One is at 30 crores. The other is broadly split up into our increased staff cost and increased labour cost.

Okay, okay, okay. And maybe one last thing, in terms of the employee cost, is there any one-off in terms of any bonuses or anything that has happened? It's more like a recurring employee cost.

It's just this that, no, no, it's just this, that this should rationalize over the next three quarters, because we have ramped up considerably on account of our large projects, like Central Vista starting, or Dahlia starting, you know, these are large projects, one is a 3,000 plus crore project, one is a 2,000 crore plus project. Also, you know, another project for DLF, which is downtown, you know, which is also a 1,600, 1,700-croyecture project. That project has been delayed going through design changes. So there the timeline is, the client is looking to compress timelines. We further ramped up our mobilization in terms of our staffing there. So these large projects, so to say, you know, we've... As their turnover from these projects or their contributions to the top line increases, the percentage-wise staff cost will rationalize.

Okay, okay, okay. I think that's all from my side, sir. Thank you very much. Thank you.

Thank you. The next question is from the line of Sharawan Shah from Dolat Capital. Please go ahead.

Hello. Sir, currently the L1 last time we said, 1,620 Watt Kroon, the hospital in Delhi and Odisha Government University, Bhuvnesia. So out of that, which one got converted into L1? University.

No, University, you know. They were asking us to increase our bid validity. We refused because that was a fixed price contract. And seeing the volatility and the increase in costs at the ground level, we refused. So that has fallen through. That is no longer live now. So RML continues to be live.

Okay, so 512 crore inflow for this quarter is different from the RML, which is still L1, or that is the one which got converted into L1?

RML is still L1. RML has not translated into our quarter yet. So this 512 is different from that.

Okay, so RML value is 700, 600 crore. No, no, I think it's about 500 crores.

500 crores.

500 crores, okay. So, and then full year, what we guided in terms of inflow, 8,000 crores, so that remains intact.

No, to be frank, we are no longer very aggressive. That should come down. Because, you know, this volatility, both in terms of material prices as well as labor prices, we are looking for this to stabilize, and as it is, our order book is 20,000 crores plus. So, you know, we are being conservative as far as the rest of this year is concerned in our approach towards picking up new orders.

So, maybe 4,000-5,000 crore for full-layer, we can...

Yeah, it will be a little bit, yeah.

Okay, okay, got it. And currently, in terms of the bid pipeline, that will also will be now reduced, should be a 5-6,000 crore.

Yeah, what I'm saying is our bid pipeline, the visibility is there. We will bid only, you know, and we will factor in, we will not be very aggressive. We will factor in the ground realities and these fluctuations, you know, and then bid. We will not bid very aggressively.

Okay. Okay. Got it. And currently, from the total order book, 20,000 crore plus, 11-12% would be the fixed price contract? Yes. 10.34%. 10.34%. Okay. Okay. Okay, and then capex in Q1, how much we have done, and for full year, we are looking at 300 crores, so there also, any slowdown in terms of the capex?

Yeah, we are looking to reduce the capex for the, this quarter was 60 crores, so that full year, we will reduce it to anywhere between 220 to 260 crores.

Okay. But overall, in terms of the working capital level, from here on, do we see some further pressure will be there or it will remain here or can improve by year end?

That we are expecting in this quarter that to be reduced from the existing level, that project is 119 days, and because of we are getting money from the Assam regions, and that we are expecting that should be at previous quarter's level.

Okay, okay. Okay, got it. Thank you, sir.

Thank you.

Thank you. The next question is from the line of Parvez Kazi from Novama Group. Please go ahead.

Hi. Good afternoon, sir. Thanks for taking the next day.

Yeah.

So, I mean, the external environment is challenging. There is no doubt about it, both on execution and on the cost front. So the first question is, I mean, we have a relatively lower proportion of fixed price contracts at about 10 odd percent. But in general, how have or how has commodity price volatility been over the last? That's five odd months since the Iran war started and what are, I mean, on the ground, how difficult or easy has it been to navigate to these challenges?

So, as I mentioned earlier, we are facing the brunt both on account of materials and labor. Right? While labor, I've answered in detail, as the questions have been asked since the call began. As far as the material is concerned, you know, its impact is on two counts. One is the price increase, and second is the supply chain getting impacted in terms of the delivery getting impacted because of the war. That has also led to, say, let me give you an example. Now, we buy a lot of panels, which run into many, many crores, right? The switchgear is not available. So, delivery, which used to take four to six weeks, is now taking three to four months. That is impacting our performance on the ground also. So, while in between, you know, whenever there was a call for ceasefire, news of ceasefire happening, the prices used to stabilize. But the impact, it's been up and down. So, yeah, this quarter has been impacted by that also. Coming back to, you know, some of our large contracts and labor. Specifically, you know, say, for instance, DLF, there have been changes in design at Dahlias, which is one of our largest projects. That has also contributed to lesser work being done in this quarter on that project. Our IDC costs have also impacted our margins there. Right. So, these are some things which have sort of hit us as far as this quarter is concerned. Having said that, geographically, these projects are in NCR. NCR seems to have won the brunt as far as supply chain issues are concerned also, and labor price increase is concerned also. Hopefully, going forward, I think now that these projects have started in real earnest, we are targeting a billing of, as I said, nearly 30-35 crores every month from Dalia. We are targeting a billing of close to 60 crores from Central Vista. We are targeting a billing of 25-30 crores from DLF downtown, where design issues also seem to be a thing of the past.

So, I think the increased turnover

from these projects should sort of help us in sort of getting back to the margins that we had, we were showing over the past.

Sure.

Secondly, in terms of payments, etc., how are things today, basically, let's say, what they were six months back, specifically with regards to central government, state government, etc.

Oh, central government projects,

payments are not an issue. You know, Central Vista just started, we are doing Varanasi, Darbanga, these are airport authority, India project. There is a project that we are doing, which is a central university in Himachal, where, you know, we haven't been paid for the last five months because The project has gone over budget, our bills are lying certified, but the payments are not coming through. Other than that, one project, central government projects, we are not having any issue. State government, as Sabbir mentioned, you know, Assam, due to elections, our bills are not getting... Signed off, and payments were not coming. But as of 15 days ago, that process also seems to be getting streamlined, and we started receiving major chunks of our outstanding views.

Sure.

And lastly, I mean... When we look at the business over the last three, four years, in general, one would say volatility has increased in terms of, I mean, labor is a perpetual problem, but whether it is NGT, whether it's supply chain issue, or even approvals, etc., those have become difficult and it is impacting everyone. So, how? Are we kind of incorporating it in our risk management framework, especially when bidding for newer projects, so that we can at least contain the impact of some of these issues in future projects?

So, one thing, the more obvious thing that, you know, our experience over the last year, year and a half, Whatever the impact on our bottom line we've seen, the empirical data shows, we are actually now putting that as a part of our costing while bidding for future tender. You know, say for instance, we know there is a huge shortage of carpenters, bar binders, as I mentioned earlier. Our bid prices are now incorporating this. We have virtually doubled our shutting prices or steel prices and other such similar items where labor is in extreme short supply. Secondly, we are seeing that staff cost. Now, this has become the new normal. You know, our project staff cost used to be about 3.5%, 4%, 4.5%. Now, with increased focus on, extreme increased focus on safety measures, especially with large developers and even government clients, you know, our safety budget, we've increased from about 1 percentage point to nearly 3 percentage point. Our staff costs, we've now started taking in excess of 5%. So all this is being incorporated in our bids going forward. And, and, and we feel that, you know, this is something that all large construction companies have begun doing. And this is how we feel going forward in our newer jobs, you know, getting these higher rates, quoting and getting these higher rates will help us get back to our historical high margins.

Sure, sir. Thanks and all the day. Thank you.

Thank you. The next question. Go ahead. Mr. Shai, your line has been unmuted. Please go ahead with your question.

Yeah, can you hear me now? Sir, my question is on the AIMS Jammu part. So, of course, $29,000 has not been recognized into the revenue.

Do we have anything in terms of unbuilt revenue or inventory or any other asset item related to this income that you were talking about? In Jammu? For Jammu per day? No. No. The project is now closed.

Okay, so we have booked everything in the expense, but this 29 crore has not been a thickness into the revenue because of some issue.

Yes, so I think what you seem to be asking is, is there a potential for any further hit?

No. Good.

Thank you so much, sir.

Thank you. The next question is from the line of Parth Thakkar from JM Financial. Please go ahead.

Thank you for the opportunity. Sir, depreciation was higher in the first quarter. So can we expect this to be recurring in the nature or it was just a one-time thing?

Yes, yes, that could be recurring. Because the higher capital condition in last two, three years, that now that could be recurring.

Okay. And can we expect the margins to be double-digit, double-digit in FY28?

In FY?

As I said, we aspire to get there, and we are, you know, hopefully, whatever our empirical data has shown us over the last year, year and a half, we are trying to factor that in, in our costing and bidding. So, your guess is as good as mine, but as Parve said and Shravan also said, you know, this is becoming a number of issues which keep cropping up, like the NGT or labor shortage for that matter. So, elections around the year in some part of the country or the other. So, there are a number of headwinds, which sort of, you know, two, three years ago, these used to be occurring only one or two months in a year. Now, something or the other happens every other month.

So, it's very difficult to give a projection or prediction.

Okay, thank you for those more of my questions.

Thank you. The next question is from the line of Mahesh Patil from ICICI Securities. Please go ahead.

Yeah, hi sir. So mostly my questions have been answered. Just one query. I think last call we discussed that 89% of our order book has escalation clause for the materials, right? In terms of labor also, can we quantify it? How much percentage of our order book value do we have disclosed, and for the remaining, we have to kind of get it done, especially for NCR.

We don't have that data as of now, but we can reach out to Satbir. We will get back to you. Bye.

Send mail to me, please.

Okay, Satbir. Thanks.

Thank you. The next question is from the line of Shubham Harney from Koon Artha Investment Advisors. Please go ahead.

Hi, sir. Thanks for the opportunity. My first question is, how many months of increased labor cost impacted in numbers?

Sorry, I don't understand your question.

Could you clarify?

So, labor cost increase is in mid of the quarter. Let's say for one month or one and a half month, we got impacted by increased labor cost. So, it is a one month or two month time period or for the whole quarter labor cost has been improved?

No, no, whole quarter and going forward, you know, the labor cost, once the labor price gets increased, it doesn't come back down.

No, no, that's clear to me, but in the current quarter, for the whole three months, increased labor cost is there.

It is.

Okay, so this would be a new base.

Yes.

Got it. Second, on NGT impact, so in last con-call, you have said that Defense Central Lista will start, so NGT impact would be minimum for the current year.

Yeah, on that particular project, the impact, that work will go on there. The impact will only be limited to... If at all, because we are trying to get special permissions, will be limited to raw material coming in from other parts of the country.

Okay. So, earlier also, the same assumption was there, correct?

Yeah, yeah. Central Vista, the work per se on the ground does not stop.

And can you move labor from other projects in NCR to Central Vista?

Which we will, we will definitely do that.

Got it. And my last question is on EBITDA margin. So, 2.6% impact is roughly due to J&K, sorry, AIMS-Jammu issue, 2.6%, while the rest is of raw material and increased labor cost, correct? There is nothing else.

And increased stopping cost also.

Okay, so increased staffing and labor cost will continue, and material price will vary, basically.

Yes, and material price will vary, and a lot of material costs or volatile material costs is a pass-through, like cement, steel, that's a pass-through. So the major impact, which is what I've been stressing from the beginning of the call, is on account of labor.

Got it. When could we, since this labor cost, material cost, increased material cost, what is the time lag between increased cost and what usually our customers will give that increased labor cost to us?

I think I did say earlier that it would take over the next two quarters for us to... Sort of, for the client to agree or get the client to agree to compensate us.

No, material cost, so already client has agreed, correct? I'm asking on material cost, what is the timeline? And what is the timeline to that path through?

So, there are two formulae for this. On the private sector side, you know, there is a base price. For cement and steel, any increase from that base price is compensated to us with every bill. So the lag is about 30 days, right? And as regards the government contracts, the escalation is based on wholesale price index, which is released every quarter. So every quarter, an escalation bill is proffered, and based on the index published, and that the government pays.

You got it. Thank you, sir.

Thank you.

Thank you. The next question is from the line of Vaibhav Shah from JM Financial. Please go ahead.

Yeah. So, just one thing you mentioned initially in the call that you are in talks with the clients regarding this higher labor cost. So, it is for the 90% of the book where it which is not which is variable price in nature.

Primarily, we are in talks with our clients in NCR, you know, few of our large, where the impact has been sizable, and we are sort of talking to them to showing them what the actual costs are and telling them that it will be very difficult for us to continue to work on old pricing.

Sir, but if they don't agree, so they, so it is not necessary that they may comply to this, right? So, or it is in the clause.

I agree with you. It's not contractually, strictly going by the contract, they may not.

Okay, so, sir, in, so we know that the labor rates are here to say, you mentioned that we don't expect it to come back down once they are increased now. So, in that case, for the NCR book, There could be a sizable impact on the margins from where we had bidded when you won the project?

So, wherever the impact is sizable, we've already told the client that, you know, so there are two parts to this compensation. One is for the job already executed in this quarter where the impact is already being felt by us. The other is going forward and the potential for the impact on the balance contract. So, we are telling the client, either we are giving them various options that, you know, one is the impact till now. They are within their rights to say no. Going forward, we are telling them that either they agree to supply the labor, there are various options that we are discussing with them. And all I can say at this stage is that the clients are looking at what we are saying favorably. Because they have realized that today, their contracts, today, one major... Thing which can make or mar a project is labor. And labor is in extreme, especially skilled labor is in extreme short supply.

Okay. Okay. Got it, sir. Okay. Thank you.

Thank you. The next question is from the line of Madhurrati from Countercyclic Investments. Please go ahead.

I'm trying to understand that due to one reason or the other, if we look at our numbers, till FY24, the growth was really strong. Sir, but after that, even though our order book has, unexecuted order book has doubled over the last two years, but somehow the execution is just not moving due to either labor or this or that, sir. But basically, labor is a core thing. It's a part of our business. So, I mean, if there is a shortage and everything, NGT and so on, sir, I mean, these are all routine matters. Now, so the concern is I hope it is not the case that we will have to pay some penalty to our customers for not executing the projects on time.

Alualia has not paid any penalty to any customer. If you were to go through, we would be more than happy to share historical data, especially over the last two years or three years, where projects have been delayed, but it's been amply proven and accepted by the client that they've been delayed for no fault of us. And it's not only Alualia contracts. If you were to do a deep dive, All into the historical project completion. or dates of all our peers, you will see that the extreme, there are a number of factors leading to headwinds as far as project execution is concerned. Labor is one thing, and this labor shortage has been building up over the last four, five, six, seven years. Projects have become more and more complex. Projects have increased in scale. There are changes happening as we move along, executing a project on a month-to-month basis from the client side, you know, which clients are recognizing. That is why extension of time is granted on projects, be it on private projects or government sector projects. So, if you've been covering this sector, you would know all this is a part and parcel of this industry. While we, when we bid for a project, we factor in some delays, but, you know, as I said, there have been a few black swan events over the last two to three years, which are part of the historical data. The impact has been... That has been felt on our bottom line has been more than we could have predicted. And it's not only us. If you do a peer-to-peer comparison, I think we've been showing better numbers than some of our peers.

Now, sir, if we compare BL Kashyap, which is operating in our geography, is a fraction of our size, has balance sheet nowhere compared to us, drowning in debt, they have grown in the first quarter, their margins, their EBITDA actually has also grown. So, I am not able to understand.

Their base is very small. What I am trying to tell you is you do a comparison which is spread over a larger tract of time. You do a comparison with, say, if you want to do BL Kasha, compare the results for the last two years at least. Right? Their base is very small.

When we were at that base, our margins were, some of your peers would tell you, our margins were 12-13%.

Sir, in fact, that was my another question that I remember that few years back when I had asked that why our margins have declined from low teams to single digits. So you had said that once the private sector orders become the majority of our order book, then our margins will expand to the previous levels of low teams. Sir, but now our private sector is 62% of our order book, but still our margins have actually declined to single digits.

As I said, you know, there are a number of factors or newer factors which have cropped up in the last two, three, four years, labor shortage being one, and as I said, increased costs. Projects have become much more complex, increased staffing costs and other IDC costs. These are some things which have hit our margins. Which are leading us to going forward, you know, when we are bidding for large projects, we are factoring this in.

Sir, now, lastly, sir, if we look at our stock price, since 2008, till now, the stock, then the stock price was 350 rupees, today to 795. So, the stock price has grown at less than 5% CAGR, and there have been no dividends also. Sir, so, after such a huge underperformance also, we have a cash-rich balance sheet, the stock price has halved since F5.

We are a dividend-paying company. I think we've been paying dividends for the last 3 to 4 years. Thank you.

Sir, it is 0.07% dividend yield. It is practically irrelevant. My point is different, sir. My point is that when our stock price has grown at sub-5% CAGR for the past 18 years, and we have surplus cash on balance sheet, then why aren't we doing share buyback?

I think I had answered this question during the last comment. This sector is facing extreme volatility, right? Our focus is on growing our business. We don't want to use our war chest to buy back our share. At the moment, we want to go forward as it is we are at an inflection point. We are growing rapidly. We have a healthy order book. We want to digitize. We want to become more efficient. We want to invest in machinery to counter or offset the labor paucity. So all that, you know, share buyback is not really only annual for us. It's not a part of our plan. I did explain this in detail last time around also.

Understood, sir. Thank you very much.

Thank you.

Thank you. The next question is from the line of Pariksit Kanpal from HDFC Securities. Please go ahead.

Yeah, hi, Shoghat. So my question is more on industry and generic question. So just on the NCI market, this is 50% off of our order book. So just wanted to understand how much of our labor cost or how many labor is deployed in that market? And are all these labor's currently in minimum wages? Because you said that there is a demand supply issue also. So I would understand that there would be a certain percent of the labor which will be above the minimum wages. So, if you can help us understand, like, The quantification in terms of how many would be under, just about the minimum wage, how many would be above that, and what was the total quantifiable impact in terms of crores and the profitability of the habitat in this quarter because of labor issue NCR.

Thank you.

Put a number, this may not be extremely accurate, but it will be there and thereabouts. We would have close to about 10,000 to 12,000 people working for us, which I would categorize as labor, you know, both unskilled and skilled. Now, 70% of this labor would be skilled, which would constitute bar binders, carpenters, masons, electricians, plumbers, and so on and so forth. While the unskilled labor would be at the threshold of the minimum wage, the skilled labor would be in excess of that. Excess of the skilled wage declared by the government. It is the skilled labor which is in extreme short supply. Demand and supply conundrum that I mentioned. The impact on our projects in NCR, per se, would vary. On our total top line, I'm talking about the impact, again, a detailed figure that we can get back to you on if you write to him, but it could vary from 2% on some projects to about 5% of the turnover, where the material is pre-issued by the client.

Do you think in this quarter, particularly in this quarter, what is the quantifiable impact on EBITDA because of the labor increase, the minimum wage increase?

So, on a, I had a company level, it is about the percentage and a half, 1.5%.

So this is a permanent, now this is permanent in nature. So we start off if there is no explanation given on this account from the customer. So we have a 150 basis point hit on the NCR order book because of the labor issues as of now. Is it the right assumption?

There will be a hit if there is no escalation given, but it would be to the tune of about 1%, because in some of these contracts, escalation is a pass-through, and in some of the contracts, the escalation kicks in after a certain amount of time has elapsed on a particular project, which varies from six months to a year.

So, Matt, damage is about 100 basis points if the client doesn't give us any escalation. So, we have a hit of about 100 basis points. So, I think, I mean, I think we took a lot of time debating this. I think if this was quantified, it would have been helpful earlier. So, and how do you intend to cover up this, like productivity, cost, savings, other measures? So, how much do you think if the client doesn't give us any escalation? So, any off-lays, any growth which will cover? Do you think you can cover a part of this?

Again, you know, it's very, what is happening, as I said earlier, client is recognizing this. So what client is doing, even if they are, while we feel on some of the projects, some of our larger clients will look at this favorably, but even if they don't, what they've already started doing, the guardrails of this world, the DLFs of this world, the signature globals of this world, they've started announcing incentives, which are linked to Progress or stage-wise timely completion, you know, you cast a certain number of slabs in a month, they give incentive, right? So which to some extent may offset some of these higher costs.

Again, part of it through the productivity gains are at the site levels, which could be ahead of schedule. So, part of that could be...

That's why a lot of you, as I mentioned earlier, should be more than open to share. You should do a deep dive. This labor problem is a huge problem, right?

Yeah, yeah.

While some of us, so I'm sure you would have, you cover this sector and you've been doing it for a number of years, we would be more than happy to take you to project sites and show you how we are being impacted. Some of our peers may have recognized that impact. This quarter, they will also feel it going forward. Different government teams are facing it at different times.

The bigger question right now is, one was, what was the motivation of the Haryana government to do this? And if other states start doing it, then it becomes a broader level issue on the entire order book, which can exacerbate our overall margin impact. So if you can help us understand why this happened first, and then also earlier in the call, you said 70% of the labor is killed. I assume that the hit would not have been there. It would be at the labor, which is at the borderline level, right? So, if you can help us understand whether, what was the motivation behind this and why could this, why was the hip so high if it was on you to the part of the labor force because the. Sorry, go ahead. Sorry. Yes, I'm saying it was out of the 100 level, you said 70 is still, where anyways, it's a market determined pricing. So I assume it will be push and pull which will determine where it is, not the common mandated minimum wages. It will be more like where the part was exposed to the minimum level of wages, where you had to align with the government policy at given escalation. So what was the motivation of the Ariyana government and specifically whether other states can also now limit this actually for the borderline cases?

So, your first question, what was the motivation of the government? The Haryana government, over the past one month, has cracked down on RMC manufacturing plants, and today, 90% of the plants are shut down in Haryana. Right? What is the motivation behind it? Who can say? Right? With governments, it's very difficult to say. Similarly, they have, at such a time, increased the labor pricing. While the developer lobbies are talking to the government, they may agree to sort of reopen some of these plants, but I don't think there's going to be a rollback on the labor pricing. It's never happened. It's a very sensitive political issue. So, it's very difficult for us to comment. Second thing is, push and pull on the skilled labor is right, but it's, as I said, it's demand and supply. There is a huge shortage of skilled manpower, and whatever skilled manpower is there, the skill levels are down. The buildings are becoming more and more complex, right? So, it's productivity that leads to low productivity on the project. That's why the cost, our costs are rising. That's why I'm saying that you guys should, you know, maybe it would be prudent for you guys to, we would be more than happy to take you to our project and show you how it's very difficult to sort of explain all this on an investor call. But at ground zero, we can show to you how the impact is happening.

Just this last question, can you replace, I mean, is it only for the labor domiciled in Haryana state, or if you can say pull out labor from AP or D&R or some other states, do you still have to pay them the minimum wages? So how does it work?

This is all migrant labor. Labor which works in a particular state. This labor is coming in from Vyar or for Bengal or Odisha or for Madhya Pradesh.

It's not Haryana labor. Okay, it's not a domiciliation, it's more like a... I still don't understand your motivation, but anyway, I'll take it offline. Thank you.

Yeah, thank you.

Thank you. Ladies and gentlemen, due to time constraints, we will take that as a last question for the day, and I would now like to hand the conference over to the management for closing comments.

Thank you so much, everybody. As I said, any further queries, please reach out to us, and we'd be more than happy to explain the ground realities to some of you, even if you want to sort of visit our project site, to get more clarity. Thank you so much. See you on the next call.

Thank you. On behalf of Ambit Capital Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect the lines.