As cities continue to grow in size across India, Nalin Gupta, Managing Director, J Kumar Infrastructure, is highly optimistic about the growth in metro-rail projects across India. Excerpts from an interview with BusinessLine:

What kind of traction do you find in metro projects in India? What is your plan over the next five years, apart from the current execution in Delhi and Mumbai?

We entered metro projects in 2010. Both elevated and underground metro segments have huge potential in terms of overall business perspective. Since 2000, we have constructed close to 270 km in Delhi Metro across three phases. Since 2010, metro work is going on in more than 10 cities. We expect the pace of construction to double over the next five years. Our order book is currently close to ₹10,000 crore. In that, close to ₹7,000 crore is from Mumbai Metro and ₹500 crore from Delhi Metro. Besides, in Mumbai alone, we expect to work for the next 10-15 years. We are already present in Mumbai, Navi-Mumbai, Delhi and Ahmedabad. But, we would like to keep ourselves geographically concentrated to have optimum utilisation of man and machinery.

Your company’s return on equity (ROE) is around 8 per cent. This seems to be on the lower side. Do you expect this to improve over the next few years?

Last year, the top-line of the company was around ₹1,400 crore. For FY17, we expect a top-line of around ₹1,700 crore. We also expect around 7 and 18 per cent of net profit margin and operating margin growth, respectively, in FY17. The ROE decreased because of the qualified institutional placement (QIP) that happened almost a year back. But, over the next few years, we do not intend to dilute equity further. Hence, we expect the ROE to improve going forward.

Your debt-to-equity ratio (D/E) is around 0.25. Is this not conservative for an infrastructure company?

We consider this as a positive. Banks are happy to provide fund and non-fund-based allocation at much more comfortable levels. We went for QIP to keep D/E at a comfortable level. Now, over the next 2-3 years, we have a lot of leverage available if we plan to raise debt.

Government contracts are pretty high in your portfolio, and working capital days is around 180. So, isn’t this very high?

By choice, we have decided to have around 90 per cent portfolio allocation from the government sector. Having major order book in the government sector ensures timely payment. In private sector, the level of bad debt is high. Secondly, the working capital of 180 days will come down to 150 days. There are two strong reasons behind this high working capital. In engineering procurement construction (EPC), there is no backward loading for item- rate contract projects — like our Ahmedabad metro, where we do 10 cubic metre of work and get paid for that. But, in case of lump-sum contracts, while elevated system has a better cash flow, we expect the working capital to improve from backward loaded underground metro project.

What financial and business contracts do you have with your international business partner?

We have partnered for a joint venture with China Railway Third Group (CRTG). It’s one of world’s largest construction companies from China. The equity sharing ratio is 74 per cent J Kumar infrastructure and 26 per cent CRTG. CRTG comes with technical know-how and share its knowledge in the elevated and underground metro system construction. We do the EPC part.

What is the current status of promoters’ pledge shares? Can you explain the sudden spike in the pledged shares earlier?

Pledging was done to increase the non-fund-based limits from banks. With the growth in order book and the sudden spike in non-fund-based limits, we were required to pledge shares worth 10 per cent (approximately ₹700 crore as bank guarantee) of the order obtained.

Currently, only 27 per cent of promoter holdings are pledged.

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