In May this year, Gammon Infrastructure had announced plans to raise close to Rs 200 crore from a rights issue. Chief financial officer of the company, Parag Parikh tells CNBC-TV18 that they seek to completely
retire the debt of the company through this issue. “The debt that we have today is combined to an extent of close to Rs 180 crore and effectively it will make us a zero debt company,” he said.
This move will help the company strengthen its balance sheet and open up the option of taking on more debt for future projects.
Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.
Q: As an infrastructure player, are you getting worried about additional capex being deferred and that rates will start hurting long term growth in the country?
A: Yes a lot of corrective measures have been taken over the last 1.5 years to curb inflation and in that process we do see smaller slowdown impacting the industry. One significant impact which has actually hurt the infrastructure industry is the rising interest rates. There have been close to a dozen hikes over the last 1.5 years and that certainly has affected our industry where nearly 70-80% of projects are being financed by debt.
Having said that, one will also need to be aware that it is at these times when infrastructure is being seen as one of the sectors which will gradually be one of the first ones to pickup in terms of newer opportunities. When we see the next two months in terms of various infrastructure opportunities, the number of evaluations of qualifications which are going across various projects with various clients are in upwards of Rs 70,000 crore. So that’s the kind of opportunity at the stage of qualification and evaluation which is being done at this juncture.
Along with that, there are also a few set of projects from a qualification stage which are moving up. If you look at the next 45-60 days, there are easily opportunities of upwards of Rs 12,000 crore just primarily between roads, ports and urban infrastructure and a little bit of power.
Q: Just a few details on the rights issue. What is the debt on your books and how will it change once your rights issue is done?
A: We have already filed our draft prospectus for the same. In fact one of the objectives of our rights issue is to retire the debt which is there on our books. Primarily the debt that we have today is combined to an extent of close to Rs180 crore. Our rights issue is planned for a maximum of Rs 200 crore and effectively the objective of the rights issue is to completely retire this debt.
Q: So you would be zero debt?
A: That’s right. So it puts us into a debt free status. It also strengthens our net worth, balance sheet in terms of future qualifications and it does give us an ability to raise further debt in the future as and when we win projects.
Q: What’s the promoter’s stake in Gammon?
A: Gammon India owns close to 74% in Gammon Infrastructure.
Q: What's the order book status looking like?
A: Primarily today our order book consists between the sectors of roads, ports as well as power. If I were to add in all the three segments together, we will be at an order book of upwards of Rs 10,000 crore. Of this, projects which have got completed as well as which are under construction but being built so far will be upwards of Rs 3,500 crore.
Q: Can you give us an idea of how slow the slowdown is? What is the rate of growth of the order book that you are normally used to and what has it come to?
A: As I mentioned, there are various opportunities coming across the sector of infrastructure. So one does not need to worry about a slowdown in opportunities. I think the slowdown is impacting a rise in interest rates and therefore every infrastructure entity is a little more cautious in terms of winning projects and raising the necessary financial resources for the same.
It may also have an impact on existing projects where interest rates go up. So to that extent, people are becoming a little wary and cautious. But on the same hand, there are enough of opportunities and it’s just a matter of timing yourself right.
Q: So your pace of growth of order book has not declined?
A: That’s right. In fact it would be prudent to say that at this juncture the industry does again have slew of opportunists coming over the next six months and you should expect all players of the industry picking up a pie of this opportunity.
Q: A quarter ago, the complaint was that there were too many players due to which margins got jacked. How will margins for Gammon itself progress? What is the recent trajectory? Have you seen a pressure on margins and in the second half of the year will you see more pressure?
A: From a margin perspective, we primarily have five projects which are under operations today. We have a couple of annuity projects which are under operations, a toll bridge at Cochin, a toll road in Nashik and a port project at Vizag. In most of these, the revenue lines are fairly stable and so is the case in terms of margins. So we don’t see any great change at least for this part of the year in terms of margins pressures.
I think it all boils down to what sort internal rate of returns one pitches for the newer opportunities. It is a very good time to win projects when interest rates are high because your expectations of returns will only become higher. Over a period of 20-30 years of these concessions as and when interest rates go down, you might have an opportunity to actually maximize returns at the investor level.
Q: For FY13 growth, you will perhaps need some more equity. Do you think there will be more project level dilutions and securitization of your cash flows or would you anticipate some more equity raising?
A: Our strategy would be to optimize across the multiple levels of capital raising that’s possible. So yes to that extent securitization and partial-full divestment into SPV’s is a very normal phenomenon for infrastructure companies. As the pipeline grows, you will continue to have some sort of capital raising even at the holding company.
At this juncture of course there are no such plans except for the rights issue. Securitization as these projects get commissioned and stabilize becomes a very normal routine process of raising capital.
Q: You’ll had got a show cause notice from the Delhi metro. What is the status?
A: That’s more for Gammon India, it is not element to Gammon infrastructure.
....more info
retire the debt of the company through this issue. “The debt that we have today is combined to an extent of close to Rs 180 crore and effectively it will make us a zero debt company,” he said.
This move will help the company strengthen its balance sheet and open up the option of taking on more debt for future projects.
Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video.
Q: As an infrastructure player, are you getting worried about additional capex being deferred and that rates will start hurting long term growth in the country?
A: Yes a lot of corrective measures have been taken over the last 1.5 years to curb inflation and in that process we do see smaller slowdown impacting the industry. One significant impact which has actually hurt the infrastructure industry is the rising interest rates. There have been close to a dozen hikes over the last 1.5 years and that certainly has affected our industry where nearly 70-80% of projects are being financed by debt.
Having said that, one will also need to be aware that it is at these times when infrastructure is being seen as one of the sectors which will gradually be one of the first ones to pickup in terms of newer opportunities. When we see the next two months in terms of various infrastructure opportunities, the number of evaluations of qualifications which are going across various projects with various clients are in upwards of Rs 70,000 crore. So that’s the kind of opportunity at the stage of qualification and evaluation which is being done at this juncture.
Along with that, there are also a few set of projects from a qualification stage which are moving up. If you look at the next 45-60 days, there are easily opportunities of upwards of Rs 12,000 crore just primarily between roads, ports and urban infrastructure and a little bit of power.
Q: Just a few details on the rights issue. What is the debt on your books and how will it change once your rights issue is done?
A: We have already filed our draft prospectus for the same. In fact one of the objectives of our rights issue is to retire the debt which is there on our books. Primarily the debt that we have today is combined to an extent of close to Rs180 crore. Our rights issue is planned for a maximum of Rs 200 crore and effectively the objective of the rights issue is to completely retire this debt.
Q: So you would be zero debt?
A: That’s right. So it puts us into a debt free status. It also strengthens our net worth, balance sheet in terms of future qualifications and it does give us an ability to raise further debt in the future as and when we win projects.
Q: What’s the promoter’s stake in Gammon?
A: Gammon India owns close to 74% in Gammon Infrastructure.
Q: What's the order book status looking like?
A: Primarily today our order book consists between the sectors of roads, ports as well as power. If I were to add in all the three segments together, we will be at an order book of upwards of Rs 10,000 crore. Of this, projects which have got completed as well as which are under construction but being built so far will be upwards of Rs 3,500 crore.
Q: Can you give us an idea of how slow the slowdown is? What is the rate of growth of the order book that you are normally used to and what has it come to?
A: As I mentioned, there are various opportunities coming across the sector of infrastructure. So one does not need to worry about a slowdown in opportunities. I think the slowdown is impacting a rise in interest rates and therefore every infrastructure entity is a little more cautious in terms of winning projects and raising the necessary financial resources for the same.
It may also have an impact on existing projects where interest rates go up. So to that extent, people are becoming a little wary and cautious. But on the same hand, there are enough of opportunities and it’s just a matter of timing yourself right.
Q: So your pace of growth of order book has not declined?
A: That’s right. In fact it would be prudent to say that at this juncture the industry does again have slew of opportunists coming over the next six months and you should expect all players of the industry picking up a pie of this opportunity.
Q: A quarter ago, the complaint was that there were too many players due to which margins got jacked. How will margins for Gammon itself progress? What is the recent trajectory? Have you seen a pressure on margins and in the second half of the year will you see more pressure?
A: From a margin perspective, we primarily have five projects which are under operations today. We have a couple of annuity projects which are under operations, a toll bridge at Cochin, a toll road in Nashik and a port project at Vizag. In most of these, the revenue lines are fairly stable and so is the case in terms of margins. So we don’t see any great change at least for this part of the year in terms of margins pressures.
I think it all boils down to what sort internal rate of returns one pitches for the newer opportunities. It is a very good time to win projects when interest rates are high because your expectations of returns will only become higher. Over a period of 20-30 years of these concessions as and when interest rates go down, you might have an opportunity to actually maximize returns at the investor level.
Q: For FY13 growth, you will perhaps need some more equity. Do you think there will be more project level dilutions and securitization of your cash flows or would you anticipate some more equity raising?
A: Our strategy would be to optimize across the multiple levels of capital raising that’s possible. So yes to that extent securitization and partial-full divestment into SPV’s is a very normal phenomenon for infrastructure companies. As the pipeline grows, you will continue to have some sort of capital raising even at the holding company.
At this juncture of course there are no such plans except for the rights issue. Securitization as these projects get commissioned and stabilize becomes a very normal routine process of raising capital.
Q: You’ll had got a show cause notice from the Delhi metro. What is the status?
A: That’s more for Gammon India, it is not element to Gammon infrastructure.
....more info
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