Rohan Suryavanshi Discusses Dilip Buildcon's Growth Amid Pandemic Challenges on NDTV Profit

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00:00 One stock that's grabbing our attention this morning once again is Dilip Bilkon. It's been

00:03 fairly active in trade over the last couple of weeks on back of order wins and in with

00:08 lots happening with this one. Like we did tell you the stocks up about 2.5% on back of a 2000

00:14 crore order win this morning. Let's not forget we've been calling this Dilip Bilkon 2.0. After

00:21 over four years we did get a chance to talk to the management of Dilip Bilkon where we began by

00:27 asking about the company's business outlook, the quarter gone by, order wins and more. So listen

00:32 into what Rohan had to say as I caught up with him yesterday. Today you know post during COVID

00:39 we obviously suffered a huge bunch of losses because our business model was around owning

00:46 our own assets, having our own people and building all the projects that we were doing on our own.

00:52 During COVID obviously once we had people sitting idly on our sites but we were still paying them

00:59 their salaries, our equipment was sitting idle, we were still paying the EMI's. So all of them

01:03 caused huge losses to the company. Post which we decided that we need to rethink our business

01:09 model and we need to kind of focus on being more asset light at the standalone level. So I think

01:14 that's where the whole thought process started. So one of the things was we wanted to be asset

01:18 light. Earlier we used to invest around 500 to 700 crores of money every year in just buying

01:25 new equipment and we have a nice big asset bank because of which we are able to function across

01:32 20 different states in India. So today we're doing work in almost eight, nine different sectors,

01:39 whether it's roads, bridges, tunnels, water supply, dam, irrigation projects, metro projects,

01:46 airport projects or mining. And all of these sectors we do it with our own equipment and our

01:50 own people. But when we were kind of thinking about we need to now consolidate our gains,

01:56 we need to build stronger from where we have, we took a hit on Arjun and now we need to kind of

02:01 sort of take the next couple of years where we're focusing on our cash flows, reducing our debt.

02:08 So that was the strategy. So number one we stopped investing in new equipment or almost

02:13 only like replacement capes of 50, 100 crores every year. Second thing that we did was we wanted

02:18 to focus on building both short term cash flows along with that long term cash flow. For the long

02:25 term cash flows, we identified our asset businesses. One was the road asset business, which

02:31 we had where we were building these assets and selling them to fund. And the second was the coal

02:38 asset business that we had. So we decided that we need to keep some of these in-house and not

02:43 like monetize them as soon as they're completed. So in that regard, we are setting up our own

02:48 inuit for the road business along with an investor, Alpha Investments. So overall,

02:56 that was the kind of strategy that focused on reducing debt, don't do new investments,

03:01 and focus on finding a mix of long term cash flows and short term cash flows.

03:07 So you're obviously making it much sharper and operationally better. Let's start, we'll talk

03:12 about the inuit in a minute, but let's start monetizing those assets and creating the long

03:16 term cash flow. But let's talk about guidance. You've managed to do about what, 70% top line

03:21 growth, margins are looking also fairly healthy. If we have to look ahead in the next couple of

03:26 quarters out, what is the sort of revenue guidance could you share with us? And in terms of margins

03:32 as well, this 12 to 12 and a half, 13% is possible, or is there an upside risk on both revenue and

03:38 margins? So, in our sector, it would be very unwise to give quarterly guidance, because when you're

03:46 doing these large infrastructure projects, whenever we give our guidance, we usually give

03:50 our guidance in terms of years. So this year we had guided at the start of this financial year,

03:55 we said that we will grow about 5 to 7%, and that's where we are kind of going to be at.

04:01 So about 10 and a half thousand crores in terms of top line is what we are targeting.

04:06 Even the margins you rightfully said would be around that 12, 13% kind of range that we had

04:13 also indicated at the start of the year. The biggest thing that we had indicated at the start

04:18 of the year was that we would reduce our debt from the net debt levels of about 2300 crores or so,

04:27 we'll reduce it by 800 to 1000 crores. But in the first nine months, we've already reduced about

04:34 500 crores. And we're very confident that we will reduce it by the numbers that we had indicated.

04:40 So by the end of the year, we would have a net debt of 13 to 1500 crores, that would translate

04:45 to a debt inbid of one is to one time, then a debt equity of 0.25 times. Now going forward,

04:52 the year after, if I were to give you a rough estimate, we have only said we will grow around

04:58 that same 5-7%. We are not chasing growth, because growth without business model came with a lot of

05:03 capital investments. And because we are now focusing on cash flow, sort of cash flows,

05:09 reducing that we are not looking at some massive growth. In fact, the growth will come from the

05:14 bottom line. Now, again, next year, I could say that we are targeting about other 800 crores of

05:21 debt reduction. So which will bring down our debt reduction to I mean, the year like when we look at

05:28 FY26, we should be around like when we end FY25 rather, we will be somewhere in the range of 500

05:37 to 700 crores of net debt at an 11,000 crores or so of top line with a 12-13% kind of EBITDA that

05:47 we've indicated. So that's that I should say would be the broad numbers. You know, Rohan, I'm very

05:53 intrigued to ask you because this is a tough business and to be or aim to be debt free is

05:59 the goal, the objective itself is noteworthy. You've successfully reduced your debt significantly

06:06 like you indicated. Give me a sense of what are you undertaking to improve your debt levels? Are

06:12 you I don't know, you're addressing your debtors quicker, cash flows improved? Are you doing an

06:17 equity infusion? How have you managed to reduce debt? And how do you plan to do that and come down

06:22 to being a net zero, net debt zero company? So a bunch of things that we've done, you know,

06:30 a like I said, reducing investments that we are making. So that frees up a bunch of cash not

06:35 making investment in equipment and the equity investments that we have to make for our PPP

06:40 projects are now kind of tied up with our deal with Alpha. So we are getting a whole bunch of

06:46 capital from them as well for our for buying that 26% stake in the inward. And also, you know,

06:54 they're also investing in the company's warrants that we should plan. So in total, we've done a

07:01 deal of about less than 2000 crores with them. And that capital will keep coming over this year and

07:09 the next couple of years. So that will be an additional kind of capital that will come and help

07:15 us in reducing our debt. Then the internal cash flows are also pretty strong. We, you know, all

07:20 the different businesses are not doing well. In the last two, three years, COVID, like I mentioned,

07:24 you know, a we had cost escalation, because of you know, all those idle costs. And then there

07:29 was also material costs, which went through the roof. So all those things that cost, you know,

07:35 eventually for us, for our profitability to kind of be low. Now, we're not seeing any kind of

07:42 situation like that. The economic outlook for India while it seems pretty good, globally,

07:50 the economic outlook is not good. So I don't think there should be a lot of inflation in terms of

07:54 material pricing as well. So taking some comfort out of that also, because we've diversified our

08:00 business fairly from from different different sectors. Earlier, we used to be almost 80 90%

08:05 in the business today, our business constitutes only less than 40% of our total revenue. So I

08:12 think all the different different sectors where we have kind of diverse deployed our assets,

08:17 the cash flows coming from them, and then the cash flows coming from outside

08:21 are all in total helping us achieve this goal. Right. So for now, if I've got this right,

08:28 Alfa Alternatives is invested in 18 road assets. Is that correct, Rohan?

08:32 They will eventually invest in 18 road assets. This year, we will put eight assets into the

08:38 InVID. These are the assets that are completed. And over the course of the next two years,

08:43 we're building other 10 road assets. The total AUM of these 18 assets,

08:48 direct and equity total put together would be somewhere in the range of 13 to 15,000 crores,

08:54 the eventual valuation. So that would be the initial InVID size that both of us are going.

08:59 So about 6000 crores of equity or so equity value, where we will be owning 76%. Now,

09:09 so two years down the line, when all of this is complete, when we have all the assets put in,

09:13 it would give a free cash of 500 crores plus to debill every year. So that would sort of be a big

09:21 support to debill besides its already EPC business. Right. So yeah, so Rohan, you're clearly not

09:27 buying any more equipment, like you said, and you're operationally being able to manage this

09:31 efficiently right now. With that free cash flow that you indicated to us over the next one to two

09:36 years, would that money be used for expansion? You also talked about going into different

09:42 geographies, reducing concentration risk. And we've heard about the project wins in states like

09:46 Goa as well. Do you want to talk to us about that a little bit more? And also, what will be the end

09:51 use of this free cash flow? So firstly, in the next two years, most of the free cash flow is

09:58 going to just reduce the debt, whatever we're just making it a completely debt free company

10:04 at the standalone level. We will continue to take bets and debt on the consolidated basis,

10:10 obviously, for all the asset business, the debt comes on the consolidated basis,

10:14 and on the SPV specific SPV level, so we are comfortable doing that. So we'll continue doing

10:20 besides that. We are already in 20 states and the sector that I mentioned earlier, we are looking at

10:28 opportunities in all those sectors. So wherever we find there'll be an opportunity where it'd be a

10:33 good place to deploy capital, we would definitely do that. I think so. But the next two years,

10:37 most of the capital would kind of go to reduce that besides the equity commitments that we

10:42 already kind of have. And what is your order pipeline looking like right now?

10:49 Rohan, I mean, the biggest story in India right now, elections around the corner is

10:53 infrastructure and the proxy to play the India infrastructure story is through companies like

10:58 yourself. You want to give me a sense of, you did say that revenue growth is what we are aiming is

11:02 in that 7 to 8 percent range, but conversations that are currently underway, order wins,

11:08 how is that piece looking? So in an election year, always the ordering is slow. If you look at

11:15 historically speaking, all the election years we've seen, you know, a gross dip in ordering,

11:24 but post-election, it picks up pretty healthy. If I talk about NHI alone has floated about one and a

11:31 half lakh crores worth of orders that we are obviously looking at. But most of these would

11:39 come out post-elections. We'll be pretty prepared for those biddings as well. Besides the road

11:45 business, there is water, mining, metro, and like I said, all the other different, different things

11:51 that we kind of doing. So all those areas should give a good impetus. And as you also mentioned

11:59 that the government is very focused on building infrastructure. So I think they want to make sure

12:06 that, you know, building long term asset, which is very, very important for a growing country like

12:11 ours, which has ambitions of the $5 trillion economy. So I think we're very confident that

12:18 we will see a lot of orders coming in the next financial year as well. And currently,

12:25 already we have visibility for the next two years, 21,000 crores of orders already in hand.

12:30 And with our current run rate, two years of visibility is pretty much sorted.

12:34 Now very lastly, Rohan, we've talked about Dilip Bilkon 2.0, and you look at those valuations,

12:40 clearly you're an investor favorite in this infrastructure space when compared to your peers.

12:46 Next leg of growth, right? And I want to understand that. Of course, you're fixing

12:49 the house, you've fixed the house significantly already. Everything's going as planned.

12:54 The two things that I'd lastly want to know is what keeps you awake at night when you think

12:59 about Dilip Bilkon's growth, and where will the next leg of growth come from? You know,

13:03 you've got various verticals, various geographies, but anything else that we don't know and we should

13:08 know? So this is a very tough sector to be in, and all the different verticals that we've also

13:14 gone, it's not a very easy job to build infrastructure in India because it's highly

13:18 regulated, you have to coordinate with a lot of government agencies. So, you know, the asset that

13:25 people get to enjoy, they don't realize the pain and the sweat, the blood that goes behind it.

13:29 It is, you know, the biggest challenge that we also face when we're building any kind of

13:34 infrastructure is actually managing stakeholders, you know, getting the government to do everything

13:39 on time. Hopefully, you know, and over the years that has kept on improving, the government

13:44 agencies have tried to be more coordinated. I can only hope and wish that the central government

13:51 also takes notice of that and focuses on better coordination amongst all the different agencies

13:57 so that these infrastructure projects, which usually get delayed a lot. And if you look at

14:03 the last 20-30 years of infrastructure project building in India, probably 75% of them have gone

14:10 over the stipulated time that the government initially envisaged. And eventually it led to

14:15 cost escalation. So that's, you know, making sure that all the different parts are fitting beautifully,

14:22 that probably is the biggest concern always. Nothing that is specifically keeping me up now,

14:29 I think COVID was probably that time. But going forward, I think there are so many different

14:33 levels of growth. I'm not particularly fussed about it. And also, I'm excited about this journey

14:40 that we have embarked upon, where we are looking at building different asset classes, and also

14:45 building partnerships with, you know, financial partners such as Alpha. So those are the things

14:51 that I'm currently very excited about. And I think there is, you know, all this transformative

14:57 journey that we have undertaken should showcase a very different Dilip Pilpaon in the next two years.

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