IRB Infrastructure Developers Ltd Analyst/Investor Conference Call on FY11 results (May 25, 2011; 10.00 A.M.) Moderator: Good morning ladies and gentlemen. Welcome to the IRB Infrastructure Developers’ Conference call hosted by the company on the results for the Financial Year 2011. We have Mr. Virendra Mhaiskar Chairman and Managing Director, Mr. Anil Yadav Chief Financial Officer, Mr. Dhananjay Joshi Chief Operating Officer, Mr. Madhav Kale Head of Corporate Strategy and Planning and Mr. Mehul Patel Group Company Secretary, on the call. After the opening remark by the management, there will be a question and answer session. I now request Mr. Mhaiskar to give you an overview of the Company’s significant development during the Financial Year. Thank you. Virendra Mhaiskar: Good morning to all of you. I welcome you on the conference call to discuss the Financial Year 11 results. This year we have continued with our focus in road infrastructure development. We have five projects under implementation during the year. We have completed 80% of the work on the Surat-Dahisar project, on Kolhapur project we have completed 70% of the work and now the toll-notification is under process. On Jaipur-Deoli, Talegaon-Amravati, and Pathankot- Amritsar projects in we have completed between 10% to 15% of the work depending upon the commencement date of construction on these projects. This has reflected into a 60% jump in the construction revenue year-on-year. We will also be starting the toll collection and construction work on Tumkur-Chitradurga project early next month. The toll notification for the same has already been received. On toll collection front, toll income has increased by 14% year-on-year and gross toll collection for FY11 on daily basis has reached to approximately Rs 2.65 crores. We have seen a muted effect of volatility in the raw material prices since our EPC contracts have sufficient escalation built into it. Also we have not been affected by increase on interest rates since we enjoy fixed rate of interest during the construction phase. Increase in financial expense during the year was due to provisioning for derivative contract entered into by one of our SPVs ie. MIPL, for interest rate currency swap transactions and due to draw down of debt on Surat-Dahisar project. We will commence construction on our hotel project at Kolhapur by 2nd Quarter of FY12. On the airport front we're still awaiting environment clearance as there was a blanket ban on clearing all projects in Konkan region which is likely to get lifted in June post which we should get the clearance. Our order book now stands at approximately Rs. 11,700 crores out of which Rs. 9,700 crores worth of work is to be executed in next 2 to 4 years. Our net debt stands at approximately 3,400 crores and average cost of debt is around 10.75% p.a. For FY11 NHAI has awarded around 5,000 kilometers of rood projects showing more than 50% year-on-year growth, Out of this, IRB was successful in bagging Tumkur-Chitradurga project covering roughly 115 kms. For FY12, NHAI have a very significant outlay of around 7,300 kilometers which they intend to award during the year. This is likely to translate into Rs. 70,000 crores plus opportunity for developers. We are qualified at this point to submit bids for projects worth Rs. 33,000 crores. We surely have the intention and aspiration to remain a lead player and would be targeting orders worth $1.5 billion during the year. As you are aware we have already bagged Ahmedabad-Vadodara project having a project size of around $1.1 billion. We have been observing that there is a lot of competition for the projects in the size Rs. 500 crores to Rs. 1500 crores as there have been many new entrants who have crowded the space. Keeping that in mind the projects, the aggressive bidding strategies adopted by the players we have been selective in bidding and we thought that it would be more prudent to bid for large size projects. We will continue with this strategy in the current year. Our internal working shows that we will be able to meet the funding requirements for all our ongoing projects including Ahmedabad-Baroda project from the internal accruals. Now I would like to hand over to Anil to give out the financial highlights. Anil Yadav: Thank you sir. I will present the financial analysis for FY11 compared with FY10. The total consolidated income for FY11 has gone up to Rs. 2,503 crores from Rs 1,754 crores for FY10 registering a growth of 43%. The consolidated total toll revenue for FY11 has gone up to Rs. 832 crores from Rs. 730 crores for FY10 registering of growth of 14%. Consolidated total construction revenue for FY11 has gone up to Rs. 1,670 crores from Rs. 1,024 crores for FY10 registering a growth of 63%. EBITDA for FY11 has gone up to Rs. 1,158 crores from Rs. 848 crores for FY10 registering growth of 37%. Interest cost for FY11 has gone up to Rs. 357 crores from Rs. 249 crores for FY10 resulting an increase of 43% mainly because of increase in interest expense in Surat-Dahisar project and Mark to market provision for interest rates derivative contract. Depreciation for FY11 has gone up to Rs. 225 crores from Rs. 182 crores for FY10 resulting an increase of 24%. PBT for FY11 has gone up to Rs. 576 crores from Rs. 417 crores for FY10 registering a growth of 38%. PAT for FY11 has gone up to Rs. 464 crores from Rs. 403 crores for FY10 registering a growth of 15%. Post minority interest PAT for FY11 has gone up to Rs. 452 crores from Rs. 385 crores for FY10 registering a growth of 17%. Earnings per share on basic and diluted basis for FY11 has gone up to Rs 13.61 from Rs. 11.60 for FY10 registering a growth of 17%. Now I will present analysis of Q4 of FY11 versus Q4 of FY10. Total consolidated income for Q4 of FY11 has gone up to Rs. 790 crores from Rs. 513 Crores for Q4 of FY10 registering a growth of 54%. Consolidated total toll revenue for Q4 of FY11 has gone up to Rs. 211 crores from Rs. 201 crores for Q4 of FY10 registering a growth of 5% while the consolidated construction revenue of Q4 of FY11 has gone up to Rs. 578 crores from Rs. 312 crores for Q4 of FY10 registering a growth of 85%. EBITDA for Q4 of FY11 has gone up to Rs. 338 crores from Rs. 242 crores for Q4 of FY10 registering a growth of 40%. Interest cost in Q4 of FY11 has gone up to Rs.140 crores from Rs 81 Crores for Q4 of FY10. Increase in interest is due to Mark to market provision on interest rate derivative contract. MIPL, one of the subsidiary of IRB has entered into a six years rate interest currency swap that was the INR, USD and JPY in August 2005 for hedging interest rates based on its then underlying outstanding rupee loan. Under this derivative contract the company was having a protection and fully hedged against any risk on Yen appreciation as long as the Yen did not appreciate beyond 1 USD equal to JPY 77 during the contract period. However, during the month of March 2011, the Yen in intraday trading broke the barrier of 1 USD is equal to 77 and got traded below 77 at 1 USD equals to 76.54 JPY though thereafter on the same day it recovered back to above 80 USD-JPY levels. Due to this, the protection option available to the Company on JPY appreciation got knocked out and as such the Company has during last quarter of FY11 provided for entire Mark to market losses on the set derivative contract amounting to Rs 54.97 crores in its books arising primarily out of the Yen appreciation in accordance with the Institute of Chartered Accountants of India’s announcement on accounting of derivative contract. Towards the derivative transition entered by MIPL, it has earned total carry of approx Rs. 32 crores and have provided for Mark to market loss of Rs. 54 crores as explained above resulting a negative carry of approx Rs. 23 crores. It's needless to mention that IRB has disclosing the set derivative contract in the consolidated accounts every year by way of notes to accounts and following the accounting policies as per announcements made by the Institute of Chartered Accountant every year. Depreciation for Q4 of FY11 has gone up to Rs. 59 crores from Rs. 52 crores were Q4 of FY10 increase of 13%. PBT for Q4 of FY11 has gone up to 139 crores from Rs. 109 crores were Q4 of FY10 registering growth of 28%. PAT before minority interest for Q4 of FY11 stands at Rs. 105 crores as against Rs. 149 crores for Q4 of FY10 resulting a decline of 30% due to accounting of MAT credit for entire FY10 in quarter Q4 of FY10, without considering the MAT credit impact the profit after tax and minority interest for Q4 of FY11 is Rs. 91 crores as against Rs. 76 crores in Q4 of FY10. Now I will present some of the key numbers of the balance sheet. Gross debt for the Company as on FY11 is Rs. 4,626 crores. Cash and bank balance of the Company is Rs. 1,200 crores, accordingly net debt of the Company is Rs. 3,426 crores. Net worth of the Company is Rs. 2,433 crores, gross BOT assets of the Company is Rs. 5,500 crores and gross construction assets is roughly Rs. 500 crores. Net debt to equity is 1.41:1. Thank you. Moderator: Ladies and gentlemen we will now begin the question and answer session. If you have a question please press * and 1 on your pushbutton phone and await your turn to ask the question when guided by the facilitator. If your question has been answered before your turn and you wish to withdraw your request you may do so by pressing the # key. We have our first question from Mr. Madan Gopal from Sundaram Mutual Fund. Please go ahead. Madan Gopal: Good morning sir. Sir I kindly request you to provide some more clarity on this derivative? Virendra Mhaiskar: This was an interest rate currency swap which we entered in August 2005 to hedge the interest rate risk on the underlying rupee loans and as Anil said. This spread was fully protected so long as Yen did not appreciate below 77 to a dollar. On 16th of March this year the barrier has been broken because of intraday Yen trading below 77 and as such we were advised to take an interim provision as per the standards which we have done. Now it is very pertinent to note that if we take a relative view of the situation the carry that we have received on the trades that we had in MIPL, we have received a carry of around 32 odd crores and the provisioning has been around 54 crores. So on a net cash loss basis the loss is likely to be in the range of around 20 crores. Madan Gopal: Do we have an underlying exposure on any of these loans, I think we don't have. So what is the idea behind taking an interest rates swap or foreign rupee underlying loan? Virendra Mhaiskar: No, this is for interest rates hedging and this is only underlying the rupee loan itself. In MIPL, which is having the Bombay-Pune project we have a rupee loan against which was done, it is not without an underlying rupee loan. Madan Gopal: So for an underlying rupee loan you have taken an interest-rate swap to protect against, it is the floating rate loan? How do you benefit now since this knocked out now do you expect the cash loss coming in for the future period? Virendra Mhaiskar: No we have fully provided for the M-to-M. So the trade gets close in August 11. Madan Gopal: So what is the cash output that you expect during the period? Virendra Mhaiskar: Rs.54.97 crores is the provision which we have made depending on the year level that was there on March 31st. Now if the Yen depreciates further as it has been then the M-2-M provision should be marginally reduced. Madan Gopal: Can you give some broad outlook on what kind of growth are you seeing in the traffic growth in Surat-Dahisar and Bharuch-Surat and Mumbai-Pune if it is possible the major projects…… Virendra Mhaiskar: We have already sent out the presentations in which we have given the growth prospects on each of the project. Roughly we have seen the growth is in the range of 5% to 7%. Madan Gopal: This is due to increase in traffic or due to increase in rate? Virendra Mhaiskar: Traffic growth. If you look at the Bombay-Pune numbers there has not been any tariff revision. The tariff revision on Bombay-Pune has only been affected from 1st of April this year. Madan Gopal: What kind of guidance we can expect on construction revenue side for the next year? Virendra Mhaiskar: We have given out a guidance of around 15% to 20% growth on the top line and bottom line for the coming year. Madan Gopal: Margins? Virendra Mhaiskar: Margins are likely to remain the same. Madan Gopal: Thank you sir. Virendra Mhaiskar: Thank you. Moderator: Thank you for your question sir. We have our next question from Mr. Daniel Sawla from Kinu Capital. Please go ahead. Daniel Sawla: Good morning sir. As you said your Kolhapur project is 70% completed so when would we expect the COD would it be in this financial year or maybe in the next financial year? Virendra Mhaiskar: The tolling should start somewhere in July of this year. Daniel Sawla: As you said that you pay fixed interest rate for the under construction projects, may I know what is the average rate for all the projects? Virendra Mhaiskar: The average rates of interest rates we have paid today is around 10.75. Daniel Sawla: That is for the whole projects right? I am asking about the.. Virendra Mhaiskar: Yeah. The under construction projects were around 10.5% Daniel Sawla: If you see the Kolhapur project is getting operational, so that rate would be revised? Virendra Mhaiskar: Yes that rate is likely to get revised. Daniel Sawla: As per the current situation? Virendra Mhaiskar: Yes. Daniel Sawla: Thanks a lot sir. Moderator: Thank you for your question sir. We have our next question from Mr. Manish Kumar from SBI Cap. Please go ahead. Manish Kumar: Thanks for taking my question. You have another contract of Rs 5 billion, could you please give details on that? Virendra Mhaiskar: That’s only an interest-rates derivative there is no currency swap in it. So there is no risk on the trade at all. Manish Kumar: So what will be the in the money and out of the money? Virendra Mhaiskar: We have received in money of around 13 crores on it so far. Manish Kumar: And what will be the rate at which you will be in the money, could you please provide more detail so that we can work out on that? Virendra Mhaiskar: Discussing the whole trade would be little difficult, but as I said it is only an interest rates hedging so we don't see any issue on that trade at all. Manish Kumar: Going forward how do you expect that this contract will have a negative or positive impact? Virendra Mhaiskar: I think that also contract we don't expect in negativity on it that being a simple interest-rate derivative. Manish Kumar: Why we have seen a delay in Tumkur-Chitradurga? Virendra Mhaiskar: Tumkur-Chitradurga notification on toll was only received 10 days back and after that we have to give a 15 days public notice for starting the toll which we have already been published. So the date of start has been tentatively fixed at 3rd of June this year. Manish Kumar: Taking into account the 12 months period, what will be the toll that you're expecting for this from Tumkur-Chitradurga? Virendra Mhaiskar: No we would not like to comment on the revenues at this point unless we start the project. Manish Kumar: No issues. Could you give a breakup of the construction revenue for this quarter as well as for the full-year? Anil Yadav: Basically for this year the revenue is primarily coming from the Surat-Dahisar, Kolhapur and funded contract has contributed approximately 15% and three new projects which have started during the year they have contributed 15% to 20% of the total revenue. Manish Kumar: And the Q4 numbers please because that number is different from what I had, the reporting numbers? Anil Yadav: Q4 numbers also the Surat-Dahisar was major contributor. Manish Kumar: Could you quantify that what will be the amount or percentage? Anil Yadav: Percentage will be roughly 75% from IRBSD and new projects have roughly contributed 20% or so and Kolhapur contributed 5% of the total and in last quarter. We have not had any contribution from the contracts. Manish Kumar: Can you give details of the other income breaking into construction as well as in the BOT? Anil Yadav: For full-year breakup of the other income is 54 crores is coming from the construction and 10 crores coming from the BOT sector. Manish Kumar: And for Q4? Anil Yadav: Q4 of FY11 the breakup is 20 crores coming from construction and 3 crores coming from the BOT. Manish Kumar: Thank you so much if I have more questions I will come back. Moderator: Thank you for your question sir. We have our next question from Saion Mukherjee from Nomura. Please go ahead sir. Saion Mukherjee: Thanks for taking my question. Just wanted to understand you have mentioned your remarked that you can take $1.5 billion worth of projects for the fiscal year, what is the benchmark that you looking at in terms of how many projects you can absorb in a year and as a developer since you need capital what are your views on raising capital, dilutions, etc., sir if you can throw some light and whether you're looking at other segments also or you want to build a portfolio largely around roads and in 3 to 4 years if we see and how do you see the company on it? Virendra Mhaiskar: What we feel today is that there is an intense competition in terms of bidding for road projects particularly for the size 500 crore to 1500 crore so we have decided to primarily focus on large size projects where the competition would be more sane. As a result we have already bagged Ahmedabad-Vadodara which is almost a billion dollars worth of order. So another half a billion is what we can look at in terms of this financial year. Although it would not be a restraining factor for us to bid on the project but strategically the aggressiveness for the projects considering that we already have one project with us will be less going forward for bidding on the large projects. On overall basis if you ask me on a Indian road story the tendering process will peak out in terms of awards by FY15 or 16 and if you look at the overall pie of the road projects that we have which is amounting to total about $70 billion worth of projects IRB would like to have a market share of around $5 billion to $6 billion worth of projects in that. If we take into account Ahmedabad-Vadodara we already have reached total asset size of around $4 billion worth of projects which would get built out by 2015-16 and an incremental $1 to $2 billion over next couple of years should easily take us to the desired number of $5 billion to $6 billion worth of total assets out of the 70 billion that are getting tendered out. So with the strategy in mind we will be moving forward and with regard to the other sectors at this point in time considering the active moment in the road sector we will like to remain focused on the road sector. Saion Mukherjee: This 1 billion to 2 billion incremental projects all this can be funded entirely to your current balance sheet in cash flows? Virendra Mhaiskar: Yes we did some internal working and we are confident that we will be able to fill the growth from our internal accruals itself and do not anticipate any dilution at this point of time. Saion Mukherjee: And since we have seen of late the competitive intensity rising quite a lot in sectors what’s your sense going forward so many projects likely to be awarded? Do you expect that this competitive intensity to remain at the current levels? Virendra Mhaiskar: Being a road focused player for last so many years we have seen this cycle. If I go back to middle of 2008 when Surat-Dahisar was bid out we had a similar kind of intense situation of bidding and we did participate in that, we picked up projects even at that time which are now getting complete. Similarly you had periods like June 2009 when there was absolutely no interest and we could target projects at relatively very good IRR. So this is a cyclic thing which keeps on happening and we have to keep playing it out. So it is very difficult to project at what time this euphoria will subside but we will keep tracking the movement and keep participating. Now that we already have one project, need to cut down on IRR and continue to bid aggressively has lowered down. So we'll strategically keep taking a call and keep moving forward. Saion Mukherjee: You mentioned about 15% to 20% growth this year; this is for the overall business, top-line growth? Virendra Mhaiskar: Yes construction as well as tolling. Saion Mukherjee: Thanks a lot. Moderator: Thank you for your question Mr. Mukherjee. We have our next question from Mr. Abhishek Bhandari from Macquarie Security. Please go ahead. Indrajeet: Hi good morning this is Indrajeet from Macquarie. My first question is if you look at traffic growth for this Quarter and is generally for the years has been on the lower side. Are there any seasonal factors due to which the traffic growth has been below expectation? That is my first question. Virendra Mhaiskar: I would like to say that we have seen 5% to 7% traffic growth across the various projects and as Surat-Dahisar gets completely built-out the traffic diversions which are presently in place should go away and that should also contribute to increase in the overall traffic going forward. Plus as we had explained in the last con-call also that there are several traffic restrictions on Thane-Ghodbunder road because of some flyover project which was going on by MSRDC which also have led to some traffic diversions. So as and when they go away the traffic intensity should become quite considerably is what our view is. Indrajeet: Could in a simplistic way to say the award goes to around 8% to 9% in BOT revenue in quarter 4, what percentage of that would-be, would you still say that only 2% to 3% was coming from an inflation linked and 5% to 7% was in the traffic growth? Virendra Mhaiskar: During this quarter there was no revision on tariff from any of the project. Indrajeet: But year-on-year there definitely would-be revision? Virendra Mhaiskar: So Year-on-Year comparison last year the inflation was around 3% to 3.5% that we got so the balance has to be from traffic itself and that inflation linked tariff movement is only happened in Bharuch-Surat and Surat-Dahisar. Rest of the projects there was no rate revision. Indrajeet: Second thing you mentioned about your construction contracts having pass-through clauses and fully covered and given the intensity of inflation in the last year has that started to impact the eventual equity IRRs of those project which are under construction? Virendra Mhaiskar: I would like to clarify this. The project cost which has been fixed at the beginning of the project we have not exceeded that project cost in any of the projects. We have provided sufficient cushion for the escalation component in all of our projects and that has helped us to tide over this inflation and without compromising on the margins. Now I would like to also clarify that if you look at the Surat-Dahisar project which is now scheduled complete we are likely to see savings on the overall project cost to the tune of around 15% to 20% in the overall project cost. So it is not that the pass through or the escalation is going to dent the IRRs on the project level. We are not going beyond the project cost in any of the project. Indrajeet: Would you want to comment on the recently awarded mega-projects that you had, there is lot of concern in the market about the project being of much load than the benchmark equity IRR. Would you want to throw some sense on what are the efficiencies you expect in that project you could make it eventually if you can 152-16% equity IRR project? Virendra Mhaiskar: The basic premise on which we are projecting a 15% to 16% IRR is on the traffic growth of 7%, 6%, and 5% respectively over the three flaps of the concession period. Now most people are presuming a lower traffic growth which reduces the IRR expectation. Now that is something which we will have to actually experience as we go and start the project. But at the same time we have to consider the inflation and the tariff movement upwards only by 5.4%. There is likely to get positive surprise on that given the inflation situation in the base rate itself. We are quite confident of getting a 16% IRR on the project. Indrajeet: What could be the total construction cost for this project? Virendra Mhaiskar: The construction was would be in the range of around 3300 Crores. Indrajeet: Thanks a lot. Moderator: Thank you for your question sir. We have our next question from Mr. KC Suri from Pan Capital. Please go ahead. KC Suri: Thank you for taking my question. How much amount of the interest which was capitalized during the year? Anil Yadav: We have projects like Talegaon-Amravati, Amristar-Pathankot and Jaipur-Deoli and Kolhapur. For these four projects roughly over the period of time we have drawn Rs 550 Crores and the average interest will be in the range of close to 10.5% that is capitalized during the year. Anil Yadav: For Surat-Dahisar we are charging it off to the profit and loss account. KC Suri: Now with your almost 4 billion assets which you currently have in your kitty when do you see peak returns and what kind of peak returns do you see on the same? Virendra Mhaiskar: $4 billion assets will get clear in by 2015-16 once we have Ahmedabad- Baroda also got built out and the four projects getting completed and the total asset that will get created by 2015-16 at the basis of orders that we have already won. We are confident of delivering at least the 20% return on these assets on a consolidated basis going forward. KC Suri: Thank you so much and all the best. Moderator: Thank you for your question sir. We have our next question from Mr. Vibhor from Alchemy Shares. Please go ahead sir. Vibhor: Good morning sir. I have just two quick queries. As per the presentation if I add up the total debt drawn for all the BOT projects is around 3,600 crores whereas the consolidated balance sheet shows the total debt of 4,600 crores so does that mean there is 1,000 crores debt at the parent level for the EPC segment? Virendra Mhaiskar: We keep on taking short-term loans to get an arbitrage out of the interest rate differential in the short-term and long-term loan, so what we do is as and when the market provides an opportunity we draw short-term loans from bank and infuse that into the SPV for the construction expansion. What happens when we differ the drawing down on the SPV and when these short-term loans are repayable we draw the SPV loans and repay the short-term loans. If you observe there is also 1,200 crores of cash on books. It is a strategy to lower the interest expense by playing on the long-short interest rate difference. Vibhor: Would we be using a major part of this 1,200 crores cash on our book to provide equity support to the Vadodara-Ahmedabad project that we were talking? Virendra Mhaiskar: No, that will be coming from the internal accruals on the tolling side itself. It is purely the arbitrage situation. Vibhor: You mentioned there is going to be subordinated debt of around 500 to 700 crores for the Vadodara-Ahmedabad project. Virendra Mhaiskar: Yes, you are right but that subordinated debt comes into play on the beyond FY 15-16 over a period of four years or five years which will be funded from the project internal accruals of the toll project not from the short term loans. Vibhor: Thanks a lot sir and all the best. Virendra Mhaiskar: Thanks. Moderator: Thank you for your question sir. We have our next question from Mr. Devang Patel from Avendus Capital. Please go ahead sir. Devang Patel: Good morning sir. For the Surat-Dahisar project you were mentioning earlier that we're going to save 15% to 20% of the cost, is there a similar possibility in the Ahmedabad- Vadodara the project, is there a way that we can go back to the drawing board reengineer and bring down the cost and improve our IRRs on the project? Virendra Mhaiskar: It would be very difficult to comment on that today because we are estimating the project to start only in April 2012 and the construction will continue for 3 more years beyond that so whether we will hit all the escalation provisions that we have or if the things cool down whether we can save something it would be very difficult to project at this point in time. Devang Patel: Sir my question on what's happening with NHAI, there are some changes that are happening they are becoming more transparent they given out the schedules for bids on a monthly basis, most probably they will be switching to e-tendering system. Do you think all this helps in better planning for developers, is that something which can bring down competition? Virendra Mhaiskar: I don't know about competition but from a transparency standpoint yes it helps a lot. The setting session for e-bidding is already on and our business development team is involved in getting the training imparted and we are getting ready for that. At the same time they have also initiated a one-time prequalification process for 100 projects where also we have put in our request for qualification. So all these initiatives will surely help in a transparent bidding and less paper work, and faster bidding process. Devang Patel: And there are also talks of them switching to e-auctioning method, something similar to what happened in Telecom. How do you think that would impact competition? Virendra Mhaiskar: No we haven't heard anything of e-auctioning. We have heard only about e-bidding wherein the bid that you submit today in the physical form will be only locked in on e- bidding platform. We haven't heard anything about e-auctioning as such. Devang Patel: Sir a question on your bidding strategy, you mentioned earlier that for the ticket sizes of 500 to 1,500 crores the competition is higher therefore you prefer to stick to the bigger projects. Now that maybe a compulsion because of the macro environment but given that those compulsions were not there would you have preferred to spread your basket and have more smaller projects or is the headache too much in managing more sites? Virendra Mhaiskar: No we don't presume this as a headache that being our bread and butter business but we have to look at its viability and that’s the single standpoint on which we decide whether we want to go ahead or not. Devang Patel: Could you in future then take a relook at this strategy and decide to bid for smaller projects also? Virendra Mhaiskar: Of course yes. If a project makes sense and there is more sanity in the bidding we will surely bid. I'm not saying that we're not bidding on the small size projects; we will continue to bid with our own IRR we may not get it. But we are not saying that we are not going to bid for it. We are saying we will focus more on the large size projects. Devang Patel: Could also talk a bit more about capacity building for the construction business now the numbers of sites are increasing and we have some 7-8 sites, what capacity building do we need to do take care for the next 2-3 years? Virendra Mhaiskar: Yeah in terms of CapEx I don't think we need any significant CapEx on the construction equipment side because of the profile of the project that we have, we have projects which are getting completed very soon from where they will be a good amount of equipment base that will get freed which will be then deployed on the newer projects. So in terms of recycling and repositioning of that equipment I think we are fairly in a good shape and don't need any significant CapEx going forward. Devang Patel: Even in terms of man power resources? Virendra Mhaiskar: Not much of it. Devang Patel: The parent debt you were explaining there is some arbitrage because of which it has gone up. When this 1,000 crores debt of the parent company level comedown how much of this would be EPC debt? Virendra Mhaiskar: It’s not EPC debt as such, what we are doing is as I explained whenever there is arbitrage opportunity, we borrow short-term loans, use that to fund the SPV projects by disbursing those loans down to the SPV loan for the interest bearing basis and further drawdown on the SPV projects thereby saving on the interest cost. As and when the short-term loans are due for repayment we draw the SPV loan which is already a contracted and closed loan, draw from it and repay the short-term loans. Devang Patel: The 10% to 15% execution for the new projects that you have done during the year is the debt drawdown happening for that also or is some execution happening out of parent company? Virendra Mhaiskar: No it is a combination of both and on a quarterly basis we keep drawing on the SPV also. As and when the short-term loan becomes due for repayment the SPV withdrawal will happen. Devang Patel: Sir on the presentation one of the projects that you are bidding for was also an annuity project of over 2,000 crores. Is there a change in strategy where we may look annuity if an opportunity comes back? Virendra Mhaiskar: We have never said that we don't want to bid for annuity, we have also in the past bid for annuity project and we will continue to look at opportunities as they come. If there is viability we will bid on it. Devang Patel: Sir the interest rate swap you were mentioning it comes to an end in August 11. So would that change our interest cost? Virendra Mhaiskar: No what I said first we have provided fully on M-to-M basis in this quarter depending on where the Yen was on 31st of March. After that we have seen the Yen depreciating. So depending on where the Yen is in August 2011 the actual negative carry we will have to be paid. So if the Yen is depreciated then the carry would reduce. Devang Patel: Sir a bit further query on this, Mumbai-Pune is the project where we had fixed cost of interest the others are on floating rate basis, August 2011 when this contract ends do we need to roll it over for a further period and are the other BOT projects which are operational and have some debt those cost of debt will that get revised as the base rates for banks goes up? Virendra Mhaiskar: No firstly on the Bombay-Pune we have a fixed rate which we have entered into in 2009. If you're connecting it with the derivative trade this derivative trade was entered into in August 2005 much before we even went public. And as regard the other loans are concerned the projects which are under construction there we have a fixed reset for 3 years that cover the construction period and the other project loans also are properly covered in terms of reset debts. So we don't have any immediate pressure on interest rate revisions given the present scenario. Devang Patel: Sir my last question, one of the developer mentioned there was some overlay expenses that to incur because of some NGO protest, have we also seen anything similar for our projects in Maharashtra where there is a change in the schedule for periodic maintenance? Virendra Mhaiskar: No we haven't seen anything of that kind. We have been maintaining our roads in excellent manner and we have not been required to provide any additional overlays for any reason whatsoever. Devang Patel: Sir one quick question for Surat-Dahisar and Bharuch-Surat project, in which month do the toll hike become effective? Anil Yadav: For Surat-Dahisar its 1st September every year and for Bharuch-Surat its 1st July every year. Devang Patel: And the toll hike was about 3% to 3.5% for both these projects? Anil Yadav: No. These Projects are linked with the WPI, for Surat-Dahisar WPI for the last financial year is applicable and for Bharuch-Surat financial year end WPI is applicable for rate revision. Devang Patel: What did this translate in terms of? Virendra Mhaiskar: This year we should basically get a very good rate revision is what we see. Devang Patel: And for last year it was 3% to 3.5%? Virendra Mhaiskar: Yes that is because one-year lag because that year the annual inflation was not much higher. Anil Yadav: Because in certain parts of 2009 we have seen some negative WPI also. That was the reason last year we have got roughly 3% to 3.5% of increase in the Surat-Dahisar. Devang Patel: And it will be on the formula of 3% plus? Anil Yadav: No it is straightaway linked with the WPI. Devang Patel: So we could have a 9% tariff hike? Virendra Mhaiskar: We can't comment on that today but it would be a direct transfer of whatever is the inflation number. Devang Patel: Thank you so much. Moderator: Thank you for your question sir. We have our next question from Mr. Vinod Nayar from Pinc Research, please go ahead sir. Vinod Nayar: Sir just to cross check our Bharuch-Surat debt we have reported in the presentation is about 800 crores and last year I think it was 1200 crores is that correct? Virendra Mhaiskar: Yeah we have already repaid a good amount of debt on that project. Vinod Nayar: Can we get the precise amount sir, is it 400 crores? Anil Yadav: No. Bharuch-Surat project we have paid half of the debt i.e. Rs. 600. In the presentation Rs. 800 crores is appearing i.e. 600 is the banker’s loan and 200 whatever the holding company has given to the Bharuch-Surat. Vinod Nayar: Sir so what rate was this loan at earlier and what rate are we got on the new loans? Virendra Mhaiskar: There is no new loan taken we have repaid the internal accruals loan which was possible to be repaid. Rate of interest on balance loan is in the range of 10.75%. Vinod Nayar: Sir in the standalone entity of that other income sir how much is the dividend we are getting from SPVs? Anil Yadav: Yes. dividend in this year we have received close to 49 crores from the subsidiary companies. Vinod Nayar: Sir just want to understand since we have such a big CapEx, how much this CapEx be funded from the cash flows of SPVs and will it be funded by some dividend income going forward? Virendra Mhaiskar: No there is no dividend income that we are anticipating to fund the CapEx. Construction side as I said there is hardly any CapEx required to be incurred. CapEx would be more in the terms of the equity infusion that will keep on happening over next three to four years to fund the SPVs as contracted and that would be coming from the internal accruals of the company. Vinod Nayar: sir basically I want to understand are the cash flows of SPVs can be easily taken into the consolidated entity and put in to other BOT or is that easily possible or there is some board requirement is there or something like that? Virendra Mhaiskar: No I think it is very simply possible in our case, because we own all these SPV 100%, so there is no dividend payout requirement in our case that becomes tricky issue if you don’t own the SPV 100%. And then taking out the cash surplus has become the problematic thing, but as far as IRB is concerned, as we own the SPV 100%, the movement of cash flow is considerably easier. Vinod Nayar: I understood sir, thank you for that. And sir, lastly, you have given a guidance of 15%-20% on the consolidated revenues, purely looking at the order book, so what guidance would you give for the EPC revenues, only for the EPC revenue, benchmark for us? Virendra Mhaiskar: I think I am trying to say that the guidance would be on both the verticals construction as well rolling likely to go by 15%-20% up. Vinod Nayar: Sir 20% for EPC revenues on approximately 12000 crores of order books, it looks on the lower side, any reason why you are so cautious, do you see any execution issues or something like that? Virendra Mhaiskar: We are not seeing any execution issues. The reason for lower guidance is only because the large order which is now forming a part of the order book that is Ahmedabad- Baroda. It's only likely to start from April 12. So if you remove April 12 from 8 at this point then you will see that the growth what we are projecting is quite a robust. Vinod Nayar: But sir, we have three new projects and we have done only 10%-15% of that, so I just want to know, is this growth number in line with the execution of these three projects? Virendra Mhaiskar: Yes. Vinod Nayar: Okay. Thank you so much for taking my question. Moderator: Thank you for your question Mr. Nayar. We have our next question from Mr. Ajit Motwani from Emkay Global. Please go ahead sir. Ajit Motwani: Morning sir. On this interest rate derivative contract, you said the knockoff which happen somewhere around quarter 4 of FY 11, right when that yen headed 76 index? Virendra Mhaiskar: Yes 16th March, 2011. Ajit Motwani: 16th March it happened okay. So have you booked the positive carry in the interest cost of MIPL? Virendra Mhaiskar: Yes as and when we have received the carry, we have booked it. Ajit Motwani: Okay. So last year’s interest cost of 126 crore which MIPL had shown is net of the carry? Virendra Mhaiskar: That's correct. Ajit Motwani: Okay. Would you be able to like how much was positive carry for the year, let's say FY11 or FY10? Virendra Mhaiskar: See the total interest rate derivative transaction which we had in MIPL and the positive carry that we have so far received is in the range of around 32 odd crores. Ajit Motwani: Okay. Virendra Mhaiskar: See this trade was executed in 2005, so we have been getting the carry since then and we have been keeping it aside in the FDR, so cash flow in terms of availability we have around 32-33 crores already earmarked for it and the net loss or net negative outflow would be in the tune of around 21 odd crores, presuming the Yen to remain at what it was on 31st of March. Ajit Motwani: Okay, sure. And any status update on Goa, Karnataka? Virendra Mhaiskar: Goa, Karnataka, we are yet to receive any further detail from NHAI, so we believe it will plan delays for good time to come. Ajit Motwani: Okay, so the issue continues to remain the land acquisition… Virendra Mhaiskar: Yes the state government has not been able to resolve and hand over the land to NHAI as yet. Ajit Motwani: Okay. So at least for this year, you don’t foresee any…? Virendra Mhaiskar: At the moment, we are not into the guidance that we have given, we have not considered Goa turnover at all. Ajit Motwani: Okay. The guidance that you are giving 15%-20% growth on toll side also, and you say this is Tumkur-Chitradurga at net of the royalty that you will get, right? Virendra Mhaiskar: Yes. So that will be a new addition, Kolhapur would be a new addition and the overall growth on the project. Ajit Motwani: Yeah so basically let's assume that we got above 160-170 crores in Tumkur- Chitradurga and 340 crores royalty, so the net revenue on BOT, you are saying would be about 20-30 crores and that's what you are giving in guidance and not really the 170 crores? Virendra Mhaiskar: No, we are only talking about net of revenue share. Ajit Motwani: Net of revenue share. Virendra Mhaiskar: Yes. Ajit Motwani: Okay sir that’s it from my side. Virendra Mhaiskar: Thank you for your question. We have one question from Mr. Vijay from Sparks Capital. Please go ahead. Vijay: Mr. Virendra, my question is pertaining to your EPC segment, you also have a windmill for tax purposes, am I right? Virendra Mhaiskar: Yeah. Vijay: Yeah I just wanted to split of the revenues maybe for the year between pure construction revenues and the windmill revenue and likely for EBITDA also. Virendra Mhaiskar: The windmill is internally funded initiative and we are receiving around 10-12 crores annually on that initiative, that is the only piece of revenue. Vijay: Yeah so there wasn’t much of operating cost, so can I assume about 10 crores or so will be the EBITDA? Virendra Mhaiskar: Yes that is correct, there is no debt on it so it's all coming to the bottom line. Vijay: Sure, and I think current year when I look at it, even when just for the windmill, I see the margins are in the range of about 24% on your EPC. Do you see this continuing in FY12 also? Virendra Mhaiskar: Yes. Vijay: Okay. And one more question regarding your substitution of project level debt with holding company debt for enjoying the interest rate arbitrage. This indeed has a bearing on your IDC, right, because you are taking interest knock on the financials now, so it should bring down your project cost, this very fact should bring down your project cost marginally. Am I right or..? Virendra Mhaiskar: No, what we are doing is when we are borrowing at the parent level, the parent level suppose to take you through, an example is, say the parent borrows at 8% for six months then it would lend to the SPV also at 8%. So at the SPV level, to that extent of 2% or maybe grossing up the TDS 8.5% that 1%-1.5% would be the saving that will attribute at it. Vijay: Okay, it won't be the entire 8%? Virendra Mhaiskar: Yeah. Vijay: Okay. To that extent all debt attributable to the project is going to be capitalized only, except in the case of Surat-Dahisar where it is being expensed out? Virendra Mhaiskar: Yeah, the interest is being expensed out. Vijay: Yeah sure, okay that’s it from my side. Thank you. Moderator: Thank you for your question sir. We have our next question from Mr. Vishal Sharma from BNP Paribas. Please go ahead. Vishal Sharma: Yes Good morning. I have a question on your derivatives just going back to that. This derivative apparently is expanding in August of this year, correct? Virendra Mhaiskar: That’s right. Vishal Sharma: Can you give us a sensitivity of up to what USD Yen rates have you actually provided losses till now mark-to-market and what is the sensitivity on the earnings for every one unit change in the USD Yen exchange rate? Virendra Mhaiskar: If I am not wrong, Anil, the Yen on 31st March was in the range of around 80? Anil Yadav: Sir, it was 1USD ~ 83 Yen. Vishal Sharma: So you provided up to 83, that is what you are saying? Virendra Mhaiskar: That’s right. Vishal Sharma: And what is the sensitivity, let's say the Yen goes from 83 to 85 or 84, or 83 to 82, what will be the earnings impact for every one unit change in that exchange rate? Virendra Mhaiskar: Anil, I think what he wants to know is say from 83 if Yen goes 80, Rs. 3 is again appreciated, how much more provisioning we will have to take, is that right Vishal? Vishal Sharma: Correct, that’s correct. Anil Yadav: We will come back to you in 2 minutes on this question. If you have another question please proceed. Virendra Mhaiskar: We will calculate it and come back to you. Vishal Sharma: Sure and one more question is how much of your outstanding debt is coming up for interest rate renewal during this year? Virendra Mhaiskar: Interest renewal during this year would be Surat-Dahisar. Vishal Sharma: And that is how much? Virendra Mhaiskar: Surat-Dahisar will be around, the total contracted debt is 1900 crores, we haven't drawn so much, because as I said we are likely to close the project at a lower CapEx, so we can say around 1400 to 1500 crores would be coming up for the reset and around 150 odd crores in Kolhapur. Vishal Sharma: And is there a way where you are looking to actually work on getting cheaper interest rates or any possibility along that line? Virendra Mhaiskar: We are exploring, but we don’t have anything concrete at this point in time. Vishal Sharma: Okay. I think that’s all of my questions. I will wait for the… Virendra Mhaiskar: What you basically need to know is for every Rs. 1, Yen… Anil Yadav: Sir, basically for appreciation of 1 Yen will result you close to 2 crores of additional loss. Vishal Sharma: Okay thank you so much sir. Moderator: Thank you for your question Mr. Sharma. We have our next question from Mr. Manish Kumar from SBI Capital. Please go ahead. Manish Kumar: Thank you my questions have been answered. Moderator: Thank you Mr. Kumar. We have our next question from Ms. Pratima from Morgan Stanley. Please go ahead ma'am. Pratima: My questions have been answered, but just one question on the construction margin, I mean the crude prices are going up, would you think the construction margins are sustainable at 20% odd? Virendra Mhaiskar: Given the escalation that we have provided for, yes. Pratima: Okay, so you don’t see any impact of any increase in raw materials on your construction margin? Virendra Mhaiskar: No, at the moment, no. Pratima: Okay that’s it. My other questions have been answered. Virendra Mhaiskar: Thank you. Moderator: Thank you ma'am. We have our next question from Mr. Tarun from Sunidhi Securities. Please go ahead. Tarun: I just want to know what was the quantum of loan on which this currency swap has been taken? Virendra Mhaiskar: Which one? Tarun: The quantum of loan on which this… Virendra Mhaiskar: M-to-M has been provided Tarun: Yeah M-to-M has been provided. Virendra Mhaiskar: 150 crores. Tarun: And one more question on the interest rate front, you said, currently the interest rate is close to 10.75%, in last three months we have see most of the banks have raised their base rates, what is the likely rate that you foresee in the current year or maybe going forward? Virendra Mhaiskar: See as I said, there is no interest rate revision immediately due, it will be only due post round 4-5 months, so at that time, whatever is the market, we will negotiate with the bank and come back to you at that time. Tarun: Okay. And on the tax rate front, are there any further MAT credit which is available or whether we will be charged fully from here on? Anil Yadav: Yeah as far as MAT credit is concerned in Mumbai-Pune project, we are still having, some more credit which will come in later years that will be in the range of 35-40 crores. Tarun: Thank you very much. Moderator: Thank you for your question. We have our next question from Mr. Ravinder from IDFC Mutual. Please go ahead. Ravinder: No the questions have been answered, thank you. Moderator: Thank you sir. Our next question comes from Mr. Navin from Indiabulls. Please go ahead. Navin: Yeah Good morning sir. My question was on Surat-Dahisar project, I just wanted to understand till the end of FY11, you have drawn about 1100 crores of debt on the project. And I believe in equity, you have invested about 300 crores or 270-280 odd crores in the project, so that takes it to about 1400 odd crores so far invested in the project by the end of FY11, is that right? Virendra Mhaiskar: And also the internal accruals from the toll have gone back into the project. Navin: Which will be? Virendra Mhaiskar: Anil how much would that amount be that will be..? Anil Yadav: That will be close to 250-275 crores. Navin: Okay. So what is balance to be invested in this project, I mean you are saying that by the time you complete this project, the debt would be about 1400-1500 crores, so that means about 300-400 crores more to drawn down by way of debt and about 200 odd crores to be further invested by way of equity, is that right? Virendra Mhaiskar: Yes. Navin: Okay, so roughly about 500-600 crores worth of work to be done. Virendra Mhaiskar: See I think 284 crores of balance equity around 400 crores of debt more, so that will be around 700 crores and another 100 odd crores of internal accruals. So our sense is that we should be in a position to close the project against 2835 crores which was anticipated product cost, we should be able to close it around 15%-20% lower than that. Navin: Okay fair enough. Probably that means about 800 crores is kind of construction top-line that one can expect from this project in FY12. Virendra Mhaiskar: It would also include the interest expenses because interest is being charged to the P&L, so the equity and the internal accruals will also be meeting the infrastructure. That won't be the construction element alone. Navin: So construction element would be say somewhere around 700 odd crores? Virendra Mhaiskar: A little less than that. Navin: Okay. And if I look at your three other big projects which are kind of going to pick up in execution in this year, the Pathankot-Amritsar, Jaipur-Deoli, and Talegaon-Amravati. Now all these three projects, our standing order book right now is about 3200 crores. So roughly one would expect 30% kind of execution in these projects in this year, will that be fair assumption? Virendra Mhaiskar: Close to that, yes. Navin: Okay, so roughly 1100 odd crores can be the top-line from these three projects in this year. Virendra Mhaiskar: Yeah. Navin: And to add to that about 700 odd crores to be from Surat-Dahisar, another 100 crores may be from Kolhapur project and another 250 odd crores from… Virendra Mhaiskar: Tumkur-Chitradurga. Navin: Right. So if I add all these up, somehow 15%-20% guidance that you are talking about on the construction side sounds too low. Virendra Mhaiskar: I think we would like stick with our guidance what we have given. Navin: So there is no problem that you are seeing kind of….. Virendra Mhaiskar: Achieving the guidance, I think we are fairly confident. Navin: But in individual projects, the projects that we discussed there you don’t see any problem in execution that is there right now? Virendra Mhaiskar: Except Goa, none. Navin: Except Goa, none. Virendra Mhaiskar: Because Goa is yet to commence. Navin: Sure. And sir, Mr. Yadav, where is your windmill revenue booked in the consolidated accounts, windmill revenues in other income or it's in the revenue? Anil Yadav: Windmill revenue is coming under income from operation. Navin: So that is not part of other income, that’s part of… Anil Yadav: Not part of other income. Navin: Okay, sir got it. Thanks a lot. Moderator: Thank you for your question. We have our next question from Mr. Manish Lodha from Kotak. Please go ahead. Manish Lodha: Thanks for taking my question. I have two questions, one from standalone balance sheet. We see 900 crores of cash in the balance sheet, can you just share your thought when we have gross debt of 700 crores and cash of 900 crores in the balance sheet and it's kind of value destructive sort of cash is there. And second question is as you said that between the ticket size of 500-1500 crores, there is lot of competition, but looking at the project award in last few months, there are two projects got awarded one to IRB, one to L&T, so the kind of IRR we are seeing and the kind of gap we see in the revenue share envisaged by NH-8 and actual revenue share quoted by L1. So are we not seeing that this place is also getting very crowded by steep competition, I mean that space of large ticket size order. Virendra Mhaiskar: You are partially right because that’s our belief too that the competition that we are seeing in the large size project, I am not saying that it is not there, it is definitely there, but this is the competition in the large size project. You can imagine when we are saying that there is overcrowding in the project size 500-1500, what kind of IRR they are getting bid at. So it's at a very scary level and hence we have decided to be more conservative on that size of project. As regard the cash is concerned as the repayments of the short term keeps on coming, it's technically not possible to reduce the cash on hand and repay the debt, because it's a short term debt and as it keeps on getting due for repayment, it will keep on reducing automatically. Manish Lodha: Okay. Thank you. Moderator: Thank you for your question sir. We have our next question from Mr. Rohit Patni from Edelweiss. Please go ahead sir. Parvez: Good morning sir this is Parvez here. Just couple of questions, one when we say that our focus would be towards large size projects. how many large size projects do you expect will be awarded in the next six months because I believe at the RF5 stage there are not too many large size projects most of them would be in the RF3 stage only? Virendra Mhaiskar: You are right at the moment we're seeing the clarity of around 4 to 5 projects of the size say around 2000 plus size and if we have to look at our own strategy then the billion-dollar order book acquisition what we have been talking about I think which achieves our target for FY12. So the pressure on achieving the target is already gone. So we can be more selective in our approach going forward. Parvez: In Kolhapur you mentioned that about 70% of the project is complete, is that correct? Virendra Mhaiskar: That’s right. Parvez: And we expect to start tolling in July, so will be able to complete the balance in the next 2 months or can we start tolling even before completion? Virendra Mhaiskar: No we can't start before completion but by that time we are fairly confident that we will be able to start before it. Parvez: And with regard to the Hotel project what would be the overall project cost? Virendra Mhaiskar: Around 40 crores. Parvez: What is the status of land acquisition in the Tumkur project? Virendra Mhaiskar: Tumkur project there is no land acquisition issue and we are commencing the work from early June. Parvez: When we look at the daily toll collection in the Surat-Bharuch project it is probably at the same level in FY10 and as well FY11 where is in FY11 you had a benefit of toll increase. So what would you attribute this to the fact that the daily toll collection hasn't really changed, has the mix gone in favor of cars and the LCVs or do you see that the overall traffic itself has declined? Virendra Mhaiskar: We are still investigating that but we should be able to come back to you with some definite answers very soon. Parvez: And sir just one last question a couple of housekeeping questions if you could give the debt and the gross block in MRM? Anil Yadav: In EPC arm debt is close to 400 crores. Parvez: And what would be the gross block on MRM? Anil Yadav: Gross block in MRM is close to 500 crores. Parvez: And net working capital in MRM? Anil Yadav: Net working capital on the balance sheet if you will see it will look like close to 500 crores but that gets repaid over 15-20 days. Parvez: So what is a general level of working capital that you operate then in MRM? Anil Yadav: Average working capital ranges from 150 to 200 crores. Parvez: Thanks for taking my questions. Virendra Mhaiskar: Thank you. Moderator: Thank you for your question sir. Our next question comes from Mr. Rakesh Vyas from HDFC Mutual Fund. Please go ahead sir. Rakesh Vyas: Good morning sir. Sir just two questions from my side, first one wanted to understand you highlighted that most of your construction contracts are fixed-rate contracts where the escalation already built-in. So I'm just trying to understand on the Surat-Dahisar project you highlighted there could be 15% to 20% savings, so wasn’t this a fixed contract as such? Virendra Mhaiskar: It is a fixed rate contract plus there is an escalation provision. So the escalation flows from the SPV to the ENC arm on the actual basis. So the way it moves is if it exceeds the total escalation provision that we have in the SPV then the ENC arm takes the knock. If it doesn't exceed the total provision in the SPV then that becomes a saving to the SPV. Rakesh Vyas: So is it correct to assume that the escalation built-in at that point of time was around 15% to 20%? Virendra Mhaiskar: What has happened is on the given project size we have seen considerable reduction in the raw material prices and that is definitely going to result in the kind of saving. Rakesh Vyas: I am just trying to understand sir; this contract was 2,200 crores on fixed contract plus 15% to 20% escalation resulting in 2800. Virendra Mhaiskar: Around 10% will be coming from that. Rakesh Vyas: And secondly on this interest rate swaps you highlighted 150 crores was the loan amount, there are two other outstanding contracts one of 90 crores and other of 500, both of these are only pure interest rate swap as such? Virendra Mhaiskar: Yeah the 90 crores one also has been closed out and we have received a carry of 5.50 crores on that. So that contract is out. Only the 500 crores interest rate swap remains. Rakesh Vyas: And at the current level is there a positive carry from this 500 crores? Virendra Mhaiskar: Yes around 13 crores is what we have received. Rakesh Vyas: And even on the current interest rate levels also there is a positive carry expected, I'm just trying to understand. Virendra Mhaiskar: It’s almost negligible now. Rakesh Vyas: Thank you so much and best of luck sir. Moderator: Thank you for question sir. We have our next question from Mr. Hitesh from MK Global. Please go ahead. Hitesh: Good morning sir. Thank you for taking my question. Sir just wanted to understand the overall hedging policy from IRB point of view. When we see Bombay-Pune it has close to 1000 crores of debt outstanding as on FY10 ending balance sheet. And the normal amount of interest rates swaps that are shown in the balance sheet are just close to 740 crores, is there any un- hedged portion as well in the entire transaction? Virendra Mhaiskar: Yes the balance debt is un-hedged and this interest rate derivatives is something we have already stopped doing long back and these transaction were entered even before we become public limited company. So these are not recent developments. Hitesh: And sir is there any likely would that we will be renegotiating any of this interest rate swaps going forward as well because 150 crores is already getting expired in August? Virendra Mhaiskar: We are negotiating. So if there is positive outcome on any of them we will keep all of you inform. Hitesh: Just wanted to understand if this M-to-M loss that we have provided in FY11 admissible under the taxation loss, will it be taxed? Virendra Mhaiskar: I don’t think it is early. Hitesh: Thanks a lot sir I will wait. Moderator: Thank you for question. Our next question comes from Mr. Manish from Bluechip India. Please go ahead sir. Manish: Sir could you share details on the recently awarded project Ahmedabad to Vadodara? Virendra Mhaiskar: Yes, what exact detail would you like to know? Manish: The construction cost is 36,000 million, so how exactly are you going to fund this particular project? Virendra Mhaiskar: We will fund it out of 74-26 basis. The capitalized cost of the project excluding the IDC and the premium component on NHAI together the project cost would be around 4,900 odd crores of which 600 crores will be debt and the balance will be equity. Manish: What is the debt level on the balance sheet as on date right now? Virendra Mhaiskar: The net debt as of FY11 is around 3,400 crores. Manish: We have order book of around 11,700 crores out of which 9,700 crores we are going to execute or sub-10,000 we're going to execute in next 2-3 years, right? Virendra Mhaiskar: That’s correct. Manish: What are the strategic investment opportunities that we are foreseeing going forward? Virendra Mhaiskar: No there is no strategic investment thing. The investments that the Company would be doing will be towards the equity infusion in the project which we already have. Manish: Thank you. Virendra Mhaiskar: Thank you. Moderator: Thank you for question sir. We have our next question from Mr. Pranav from Religare. Please go ahead sir. Pranav: Good morning sir. Sir just on the state government project you have spoken about any, you bidding for the state government led road projects and what would be the bidding pipeline like? Virendra Mhaiskar: If you look at our detailed presentation we will find that there are certain projects where we have applied for prequalification and we will look at those opportunities depending on viability. Pranav: No but from the competitive scenario is the competition different? Virendra Mhaiskar: Competition is not much different there. Pranav: And these going to fill also be on the similar structure with grants and…. Virendra Mhaiskar: Most of them. Pranav: Second question is to Mr. Yadav in terms of understanding the standalone numbers in terms of the cash flow. What I wanted to know on a 100 crores PBT and hardly any depreciation, we have seen a cash accrual of about 600 crores in the balance sheet. So is it just because the loan sitting in the balance sheet in form of cash or is it what? Anil Yadav: Mr. Mhaiskar has already explained that we have taken some short term loans in the holding company and as and when required we have given to the subsidiary company and to get the benefit of interest rate arbitrage. Pranav: But the similar amount is reflected on the balance sheet in the cash segment that is what the question. These are basically loans which are as of the date of the balance sheet sitting as cash and which have subsequently been put to the subsidiaries. Virendra Mhaiskar: If I understand you right there is a profit from the projects also sitting in the parent level because the cash earned during the year also is within the company group. So that cash plus the short-term loans together is what you are seeing there as a total cash in books of 1,200 crores. The short-term loans balance to be paid as of 31st March are in the range of around 700 odd crores. So out of the 1,200 crores cash the balance 500 is internal accrual. Pranav: If I actually look at your PBT number that is close to 100 crores, if I'm not wrong is that number correct? Virendra Mhaiskar: PBT in standalone? Pranav: Standalone is 100 crores? Virendra Mhaiskar: Yes. because what happens is now we route the construction project through the parent company so there is element of profit booking that happens at the parent company as well so that profit also stays in the parent company. Pranav: The final question is basically on this currency swap, basically as we are placed today there are only interest rate swaps which we are actually have and these swaps are essentially to cap a ceiling rate for interest? Is that the correct understanding? Virendra Mhaiskar: Yes. They are interest rate currency swaps. Pranav: So if I understand the fixed interest portion when we talk about our value which is fixed, these loans are theoretically not fixed but since we have a currency swap underlying….. Virendra Mhaiskar: Because there was currency swap underlying it we had to take this elsewhere unlike the other one where is the interest rate derivative. Anil Yadav: We have fixed rate of interest from bankers only without considering the derivative contract. For eg. Mumbai-Pune Project rate of interest is fixed from last year and that is from banker's only, not taking into the consideration of derivatives. Derivative contract we have taken in 2005. Pranav: So this fixed interest which you have spoken about is anyway fixed at the bank level, currency swap is the historical which already disclosed in 2005 which you could not close in time? Anil Yadav: Correct. Pranav: So it was not a matching against these derivative period. Your interest costs are anyway fixed? Virendra Mhaiskar: Yes. Pranav: Thanks a lot sir. Virendra Mhaiskar: Thank you. Moderator: Thank you for question sir. We have our next question from Mr. Deepak from Merrill Lynch. Please go ahead sir. Deepak: Good morning Mr. Mhaiskar. Just wanted to get an update and as to how is the progress happening on the Surat-Dahisar project. Are we on track to commission it by August? Virendra Mhaiskar: Yes we are completely on track to commission it from August and 80% of the work is already completed now. Deepak: And secondly on Ahmedabad-Vadodara Expressway just wanted to check like Surat- Dahisar there also we will be capitalizing the interest or we will be expensing it out of the P&L during the construction period? Virendra Mhaiskar: The interest on Expressway portion will be charged to the P&L and the premium and the interest on the construction portion will be capitalized and the premium on NH- 8 will be capitalized. Deepak: That’s it from my side thanks a lot. Virendra Mhaiskar: Thank you. Moderator: Thank you for your question sir. We have our next question from Mr. Vaibhav Jain form Religare. Please go ahead. Vaibhav Jain: Sir all my questions has been answered, just wanted one clarification, when you say that next year construction top line will be only in the range of 15% to 20% on the EPC side. Essentially what you're saying is FY13 and FY14 will be sharp rise in construction revenues? Virendra Mhaiskar: That’s right. Vaibhav Jain: Sir would you need any more CapEx on the construction side in terms of increasing fleet of the equipment that you're using? Virendra Mhaiskar: No I don't think so because as I explained earlier the profiling of the project competition is so that we will be having projects becoming due for completion where it will need a lot of equipment and will need redeployment as such the CapEx requirement would be very-very minimal. Vaibhav Jain: That’s it from my side, best wishes for future. Virendra Mhaiskar: Thank you. Moderator: Thank you for your question sir. As there are no more questions I would now like to hand over the conference to Mr. Mhaiskar. Please go ahead sir. Virendra Mhaiskar: We will like to thank all the participants who have joined this conference call for participating in it and we are thankful to them. Thank you. With this we will end this conference call now. Moderator: Ladies and gentlemen this concludes your conference for today. We thank you for your participation and for using Tata Indicom Conferencing Services. You may please disconnect your lines now. Thanks and have a great day.