Vascon Engineers Q1: Profit Declines; Revenue Higher
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00:00Hello and welcome. Thank you for tuning in to the SMID show. I am Harsh Saita. With me
00:12is Mahima Vachrajani, our first management for the day. We have Mr. R. Vasudevan, Chairman
00:17at Vascon Engineers to talk to us about both Q1 numbers as well as the FY25 overall outlook
00:23as well as beyond of course. Welcome. Good morning, sir.
00:27You know, quick check on what, how Q1 has really panned out for you. Margins have shrunk
00:33a little bit, impacting your numbers somewhat, even though revenues have gone up. Just talk
00:39us through how the quarter has gone for you and how does it stack up with regard to your
00:45full year guidance?
00:46See, the quarter has been fairly good for us, though the financial result doesn't seem
00:53to send across that message. It's mainly because, you know, we are a company today of both
01:00real estate and EPC. We had a third branch of GMP, which we sold off in the last quarter.
01:08So now predominantly we'll be focusing on real estate and EPC. And as you all know,
01:14real estate accounting comes in spurts. And this quarter we didn't have, and neither we do expect in the next two quarters,
01:25much of real estate really to contribute. But back end of the year, we expect good amount
01:31of contribution coming from real estate. So we'll keep the trend. We, in spite of GMP
01:38getting out, which is actually cut a 300 crore bottom top line of ours from the overall
01:46top line, consolidated top line. But we still will be in the same numbers as what we did
01:52last year because of the real boost in EPC business and some amount of contribution coming
01:57from real estate. So that's how it looks right across. And the bottom lines also will, you
02:03know, automatically bottom line increase because of this one time sale of GMP plus
02:09the bottom line contribution coming in from real estate overall should give us a good
02:14bottom line as well. Right. So, Mr. Mastevan, right now, real estate is just six crores
02:20of your total revenue. And as compared to FY24, FY23, real estate revenues were more.
02:27And this quarter you've done roughly six to seven crores. So I want to understand that
02:31when you're saying that, you know, real estate will bring in more revenues. Can you help
02:35us quantify as to how much of a top line and bottom line addition it will make? Yeah. See,
02:41real estate, as you know, for us in the past, if you track this during the past, we had
02:47gone very slow on real estate last three, four years and we picked up in the last year,
02:51we picked up business in real estate since from last year. So last year we had some contribution
02:58coming in at the end of the year. And this year also we'll expect some amount of contribution
03:05coming in at the end of this year, financially as well. Going forward, the real estate, both
03:13top line and bottom line contributions from 25, 26, 26, 27 would be substantial in nature
03:21and the real growth story of PASCON in RE will really pan out during those two years.
03:29So we still have a small contribution this year. And from next year onwards, we really
03:34will have a decent contribution. When I said this year, we expect about 150 crores plus
03:41from real estate business. Next year, we should expect it to double, close to double that
03:47type of figure as we go forward.
03:52Understood. And Mr. Vasudevan, GMP was a chunky business for you. Of course, GMP going away,
03:5925 to 30 odd percent of your top line, if I recall, goes away. How much of that gets replaced
04:06by real estate? You said 150 odd crore. So what should your overall top line in FY25 look like?
04:14So see, our EPC growth story has also been a very good, we have an order book of more
04:21than 3,500 crores now. And this 3,500 crores out of which each year, this year itself will
04:28do about 1000 crores of EPC business alone, forget about real estate contribution. So
04:35the EPC business is contributing substantially. We have a fair good amount of order book backlog
04:43and in next six months or so, we expect to pick up another 1,000, 1,500 crores of backlog.
04:53The mantra within the company we are saying is we should touch about the top line of
05:001,500 crores and 150 crores in FY26. Okay. So 1,500 crore in FY26, FY25,
05:09any thought at all where the number goes? It should be around the same figure as without
05:15the DMP being there, it should be around the same number. Understood. And Mr. Vasudevan,
05:19just want to try and also break this down. Real estate is a slightly chunky business in that
05:24sense. Correct. So how does, would you want to bring in stability there in terms of numbers,
05:31because we will not see that going into FY26 from you, given the chunkiness of,
05:36chunky nature of the business. Would a demerger or any other possible situation be something that
05:44you may consider to try and deal with that chunkiness in terms of numbers? See, actually,
05:52the question of being demerger is based on certain other reasons rather than on the chunkiness of
05:57business. Chunkiness of business is the nature of business itself. But what happens, you know,
06:03once we are set in the line of growth in real estate, then the chunkiness will be taken care
06:08of because of the cyclical contribution coming in together. Unless there are, as long as you have a
06:14fair amount of decently sized projects, suddenly you have one very big project and another,
06:20then you have two, three smaller projects, then these chunkiness sorts of affect you.
06:24But as long as you have projects, which are almost of similar volumes, similar sales,
06:30similar price range, then the chunkiness is not that much affected. So, we are not worried about
06:37the chunkiness of the business because we will have a wide spectrum of products coming across
06:44and in different locations. So, we are not worried about the chunkiness, but
06:50otherwise, we expect that the steadiness, though it won't be as steady as an APC business,
06:59but the steadiness should be fairly better off than what it is today. Today, it's almost like
07:04for us a restart up in real estate business. So, that's why we don't get those contributions. But
07:10once every year we start getting contributions from some projects or the other, we should not
07:15be worrying about it. Right. Okay. And so, considering that you're going big on real
07:20estate business, going forward, what will be the blended margins like, you know, in terms of EPC
07:26plus real estate business? Currently, your margins did take a hit from 9% to that 8% mark.
07:31Yeah. See, EPC is going to give us, you know, 14 to 15% editor margins going forward.
07:40Real estate should give us around 25%. So, net we expect that we should be doing about 20%, 20-22%
07:49going forward. Okay. And in terms of your order book, your order book stands at roughly 3,400
07:55crores. What will be the execution timelines be like? And in the current quarter, how much of an
08:02addition has taken place? Because your target for the year is roughly 1,500 odd crores.
08:07So, we have picked about 350 crores in the current quarter, 350 and once found 50 crore contribution,
08:14400 crores in this current quarter. Then we expect this 1,500 crores to happen before the
08:20end of third to fourth quarter before that period. So, that 1,500 crores is not a
08:28challenge now. We had challenges in terms of, you know, bank guarantees and stuff like that. Those
08:32have all overcome with the liquidity coming in from, you know, likely to come in from the GMP sale.
08:41So, we are not going to be constrained with those bank guarantee limits and stuff like that. So,
08:47we are on path in getting those orders lined up. Okay. And the 13% margin that you have
08:54guided for will happen in FY25 or that will be over FY26 and FY27?
09:00FY26 and 27. Okay. And in terms of the order book, the execution timelines for the current
09:07order book as well as the additions in the order book that has taken place?
09:12See, roughly, our experience have been that we carry out about one-third of the order book size
09:19every year. So, essentially, you can say the order book length is 3 years. Although the
09:25contract period are generally 2 years, but generally some amount of delays do happen in
09:30some of the projects. So, average we end up doing about 35% of our order book. So, that is how we
09:37are confident that this year that we will do more than 1000 crores of our backlog of order book.
09:42Going forward, we will increase our order book size to take those 25% growth which we have,
09:48you know, targeted at. Okay. Mr. Vasudevan,
09:51with regard to CAPEX and debt, what plans going forward?
09:57CAPEX will be there to a certain extent as we grow because much of our capability of CAPEX
10:04which we had with us is almost getting exhausted now. And so, some amount of CAPEX will have to be
10:11pumped in. And what was your second question? Sorry.
10:17Debt, sir. Debt. Debt, we do not
10:21intend increasing much. It is going to be bank guarantees and performance guarantees which will
10:28require collaterals and stuff like that. So, we will require a certain amount of capital,
10:33but that will go more towards these bank guarantees and certain amount of performance
10:39guarantees rather than towards the working capital. Got it. So, no real increase in debt,
10:46is that how one can look at it? Yeah. Yeah, I can look at it that way almost.
10:50Very minimal, temporary short term, you know, funding may be required, yeah.
10:56Okay. And Mr. Vasudevan, in terms of your new orders, you know, you said that you will be
11:02aiming for orders from government agencies. Right now, 82% of your order book is from the government.
11:09Going forward, this 82% will change or how are the dynamics going to be like?
11:13Yeah, we do not want it to be at 82%. We would want it to be around close to bring it down
11:19first initially to 70% and then maybe do to 65% of our order book from government side and balance
11:27from the private sector. We find that balance is always good for the stability and surety of
11:35the top line and the bottom line. Okay. Okay. And you know, the breakup in terms of your
11:44internal and external order book, what is that going to be like going forward?
11:48So, that will increase. So, that itself will bring down the government order book itself
11:54because as our real estate growth happens, our internal order book from our own internal
11:59business is going to increase. So, but that will may contribute to about 10%
12:06from there, but much of it is going to be, you know, by our focus like recently we picked up
12:12an order for IT company Cognizant from in Chennai. So, that was about 450 crores.
12:18We are looking at orders like that to increase the balance towards private sector as well.
12:26Right. So, when it comes to EPC margins, you guided for roughly 12, 13% kind of margin
12:33FY26 onwards. What gives you the confidence that that margin number can be clocked in EPC
12:39because currently your blended lies sub 10%. So, what are the levers that gets you there?
12:46See, as the volume increases, the performance efficiencies are going to increase. That is one
12:54of the lines by which we did and even our order book sizes previously used to be 50 crores,
12:59100 crores. Now, our order book average sizes also become 150 to 200 crores. So, as a result,
13:05the efficiency increases, the utility of the capex items are better. So, these are the points
13:13on which we are hopeful of increasing our margins. Sir, maybe you mentioned this,
13:19maybe I missed it. The blended margin, where would that number lie at FY26?
13:24It should go to 15, 16. Understood. Got it. Okay. Thank you so much,
13:30sir. It has been a pleasure speaking. Thank you.