Nagarjuna Construction Company Ltd (NCC) has been one of the star performers in the infra sector with the stock gaining 50 per cent in one year. The company has been reducing debt by monetising assets to clean up its balance sheet in the past few months. Speaking to BTVi , YD Murthy, Executive Vice-President - Finance, says the debt level was ₹1,883 crore at the end of Q1 and it will come down by another ₹150 crore at the end of FY17. The new arbitration rule will help release more funds. The company is on track to meet the order book target of ₹12,000 crore for FY17, he said. Excerpts:
The big story on NCC has been debt reduction and the asset monetisation drive. Can you share the details? What is the outlook on reducing the debt at the end of FY17?
Our peak debt level in 2014 was around ₹2,800 crore. We had gone for a rights issue in October 2014 and all the rights issue money was utilised towards the debt reduction in the standalone balance sheet. Simultaneously, we have decided to monetise some of our matured BOT (build-operate-transfer) assets. We have been successful in selling the power assets of 1,320 MW in Nellore to Sembcorp. The transaction was completed in the 1st quarter of this year and the money has also been received. The definitive agreement has been signed for one road asset — the Bangalore Elevated Tollway — and the transaction will be concluded in the next 1-2 months. So, we have been successfully monetising our assets and reducing the debt. The debt-equity ration is at 5:1. Our debt-equity ratio is comfortable for the lender as well as the rating agency. Also, in the current year there could be further reduction of debt around ₹150 crore compared with last year.
The debt level was ₹1,883 crore at the end of Q1; at the end of the year, there could be further reduction of ₹100-150 crore.
How does this translate into your savings as far as costs are concern?
Last year, we were able to save on finance costs, including interest cost, bank guarantee commission and LC (letter of credit) commission, by ₹67 crore, which has gone to the bottom-line. In the current year also we are looking at similar savings of about ₹70 crore, which will add to the bottom-line.
The government had recently revamped the arbitration and funding rules, which is a big relief to the construction sector. Do you have any money stuck in arbitration projects? Are you going to see any relief in the near future?
Yes, we have got nearly ₹200 crore worth of arbitration awards in our favour, but the money has not been paid by the client. After the notification of the Cabinet decision, we will be able to get about ₹150 crore from various government agencies in the next 2-3 months or more than that. And more than that, the pending arbitration claims will be fast-tracked. That is the new dispensation as per the amended Arbitration Act. And they could be closed in the next 1-2 years. That also will give us a lot of relief in terms of getting the money in the next two years.
Your order book target is about ₹12,000 crore in FY17. We are almost at the end of Q2 right now. What has been the order inflow in this quarter and what’s the likelihood of meeting the target?
In the first quarter, we have already got orders worth ₹3,600 crore, which is in line with the target for the year. In the first two months of the second quarter, we have an order accretion of ₹1,500-2,000 crore. More order is expected this month. And I am confident that we will achieve the annual target.