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Edited Transcript of WABAG.NSE earnings conference call or presentation 13-Nov-19 11:00am GMT

Q2 2020 Va Tech Wabag Ltd Earnings Call

Dec 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Va Tech Wabag Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Rajiv Devaraj Mittal

VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director

* Sandeep Kumar Agrawal

VA Tech Wabag Limited - CFO

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Conference Call Participants

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* Amish Kanani

JM Financial Institutional Securities Limited, Research Division - Associate Director

* Dhananjay Mishra;Sunidhi Securities;Analyst

* Kaushik Poddar;KB Capital Markets;Director

* Nikunj Doshi

Bay Capital Partners Ltd - Managing Partner and Director

* Rishab Bothra

Sharekhan Limited, Research Division - Equity Research Analyst

* Siddharth Rajpurohit

JHP Securities (P) Ltd., Research Division - Research Analyst

* Urvil Bhatt

IIFL Research - Assistant VP

* Vipin Goel;ICICI Securities;Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q2 and F1 -- I'm sorry, good day, ladies and gentlemen, and welcome to the Q2 FY '20 Earnings Conference Call of VA Tech Wabag Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Rajiv Mittal, Group MD and CEO, VA Tech Wabag Limited. Thank you, and over to you, sir.

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [2]

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Thank you. Dear friends, good afternoon. I welcome you all to this earnings call post announcement of Q2 FY '20 results of VA Tech Wabag Limited. Mr. Sandeep Agrawal, our Group CFO, joins me in this earnings call.

First, I would like to start the call with a positive note that in the first 6 months of this current fiscal year, we have posted a positive cash flow generated from operations of INR 119 crores at the consolidated level and INR 46 crores at the standalone level. This is a direct result of our continuous focus on receivables, working capital and cash management in this tough economic scenario. The new projects have started progressing well, and we aim to expedite the pace in the next quarters in order to complete the projects on time, on cost and profitably.

On the next important issues of GENCO as of quarter 2 end, the net receivable from GENCO stood as follows: INR 138 crores from TSGENCO, where we have completed the project and await for TSGENCO's approval for the final payment to be made to us. Tecpro is endeavoring to initiate an arbitration against TSGENCO, which we understand is to be challenged legally by TSGENCO. We also plan to challenge this legally as it delays our payment of dues from TSGENCO.

Another INR 69.5 crores, as you know, is the money that was collected by Tecpro and held under the trust but not paid to Wabag. We had initiated an appeal against the NCLT Resolution passed, and NCLAT has now positively considered our appeal and asked NCLT to revisit the resolution plan.

On the last INR 263 crores are receivables and retention pending to be collected from APGENCO, and this will flow in a progressive manner till we complete the project and achieve the contractual milestones.

As you know, after the election, all the projects in Andhra had gone for a due diligence, and we are happy to announce that few weeks back our project was cleared and an extension of contract was given to complete the balance work. And they've given an extension up to March 2020. And post that, we will do the PGTR and complete our other milestones.

Management is completely focused on the situation, and we are doing our best to ensure that all due monies are collected from GENCOs and Tecpro.

On the other key projects in execution. In our Dangote project in Nigeria, engineering and equipment ordering is nearly complete. Client has issued dispatch clearances for various equipments and dispatches are currently progressing well. Majority of engineering approvals for construction have been released, about 70% of physical progress is completed.

In our Polgahawela project in Sri Lanka, the design phase is complete. All major designs have been approved by the client. The project is now in advanced stage of construction. The transmission and distribution piping is in full swing and with multiple contractors at site across multiple locations. The treatment plant, intake structure and reservoirs are progressing well. Manufacturing of major equipment is on schedule and key equipment deliveries are expected to be completed by end of this quarter. The project commissioning is expected to commence in the third quarter of next fiscal year.

The next major project, the Koyambedu TTRO plant is almost complete along with around 70 kilometers of pipe laying to the industrial corridors in Sriperumbudur. The project, including the piping network, is under advanced stage of commissioning and will be inaugurated by the Honorable Chief Minister of Tamil Nadu during this week. This is a landmark project for the city of Chennai and for Wabag in converting sewage into usable industrial water, thereby reducing the fresh water stress on the city, and that's how we have been doing in Chennai, which is a scarce -- water scarce city and bringing security in terms of water.

In the One City – One Operator project of Agra and Ghaziabad, we are expecting to sign the contract this week, and the O&M activity is expected to start next month. We hope that the success of this model will enable more state governments to replicate the same.

Now coming to our MEA cluster, Middle East and Africa cluster. The first project, which we are doing is in Saudi Arabia. Jubail STP project implemented for MARAFIQ, 50% of our engineering is complete, 60% model review is already over, and the engineering is due for completion in this fiscal year. Purchase orders for all lead -- long-lead items have been placed and manufacturing clearance have been given. Excavation is almost complete, dewatering system is implemented, concrete work for rafts and water retaining units are under progress. We have also collected advance for this project last month.

In our South Doha project, which is done for FIFA 2022, basic engineering is approved, construction activities have been commenced, demolition work is fully done, rehabilitation work is now progressing satisfactorily with 45% of concreting is complete, all long-lead items have been ordered.

In our Zarat project in Tunisia in North Africa, basic engineering package has been approved, and construction activities have commenced. Ordering of long-lead items are progressing satisfactorily. These large new projects along with our recent order in India are expected to pick up pace in the coming quarters. As you know, our order book position continues to be robust and remains strong at INR 11,500 crores, which is about 3x the annual revenue of the company, which gives us confidence and a good visibility for the future.

I now request Sandeep to take you through the financial highlights of the quarter. Over to you, Sandeep.

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [3]

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Thank you, Mr. Mittal. Friends, first, you had an opportunity to look at the results update presentation as circulated and uploaded to our website. However, let me take you through some of the key financial highlights for the half year ended 30th September.

Our revenue from operations from 6 months period ended stood at INR 767 crores on the standalone basis and about INR 1,093 crores on the consolidated basis. EBITDA for the 6 months period stood at INR 95 crores on standalone basis and INR 102 crores (sic) [INR 103 crores] on consolidated basis.

Profit after tax attributable to owners for the 6 months period stood at 37 -- about INR 38 crores on a standalone basis and about INR 30 crores on consolidated basis. We expect that the project progress will pick up faster pace in the next quarters, enabling us to continue to report good results and cash generation. Our constant efforts on cash and receivables management has also started paying off, and we will aim to keep the momentum going on in the same direction.

As already mentioned by Mr. Mittal, we are happy to note that, our cash flow generation from operations for the 6 months period was INR 46 crores on a standalone basis and INR 119 crores on the consolidated basis.

We are working closely with our bankers and are thankful for their continued support in providing non-fund lines for our new projects, which will further improve the cash and working capital position of the company.

Our net working capital has reduced by almost INR 300 crores year-over-year, in line with our constant effort and action to improve the working capital position.

The net debt position at the group level as on 30th September '19 stood at INR 347 crore as against INR 433 crores as on 31st March '19, a reduction of almost 20% as compared to March 2019.

With this, we now open the floor for question and answer.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Renjith Sivaram from ICICI Securities.

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Vipin Goel;ICICI Securities;Analyst, [2]

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This is Vipin Goel on behalf of Renjith Sivaram. Just needed more clarity on the desalination, 400 MLD desalination plant in Chennai. So how big would the opportunity be? And what all will be the major competitors there?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [3]

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Yes, as you rightly said, this is going to be the largest plant not only in India but in the region. So there are not many players who have an experience of that. As you know, as a company, we have done half the size of this in Oman. And we would expect that competition would be very limited because of the size, both from the technical qualification and the financial qualification. That's all we can say. As it is JICA funded project, we would expect Japanese consultant would be leading the technical design, and after prequalification, tenders would come in. So this is opportunity for next fiscal year.

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Vipin Goel;ICICI Securities;Analyst, [4]

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Next fiscal year. Okay. All right, sir. And then on the Mumbai Sewage Disposal project, any progress there on the...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [5]

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You guys -- I think most of you come from Mumbai. With what is happening politically, I don't think I'm qualified to even judge a time frame for this. So unless there is some sort of a political stability, I don't think such large projects will move.

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Operator [6]

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The next question is from the line of Nikunj Doshi from Bay Capital.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [7]

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Just had a question on the guidance that you've given of around INR 3,000 crores plus kind of revenue for the current year. So that means we are expecting double the first half in the second half. So what is the confidence level to achieve that? Because last 2 years, our guidance have not been met.

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [8]

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Yes. You have known, and I think all the calls, we have been telling you how the situation is. See, the plus point compared to last year is we have a great order backlog, and this is not a order backlog, which is only in the book. As I mentioned in my speech earlier, all these orders have finished the initial setting up phase. Because these are major international orders, we have to set-up a permanent establishment branch or a subsidiary in the country to start the project. Then we take anything between 3 to 6 months, and post that, we are a design and build contractor. So design takes another 4 to 6 weeks.

But the good part is that all is over. We are now in the phase of supply and construction. So the revenues are expected to pick up on this project, as we have already seen in quarter 2. It's picking up, and we have already guided you that our H2 will be far superior than H1. And even if you see in the past history of this company, if you move back even 3 years, 4 years, 5 years, always our second half is almost 60% to 65% of the total. And this time, when we have such a good order backlog, our confidence level is pretty high.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [9]

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Okay. And in terms of the margin, would you like to give any guidance on the EBITDA margin for the...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [10]

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See, we generally don't give, but I'm sure you are all smart enough to calculate that. And we have seen already from the first 2 quarters that these new projects are good. They are all in U.S. dollar mostly, with also dollar strengthening, that is also helping us, but the commodity markets are not at the best period. So also, we are expecting buying gains. So we expect the margins to remain robust.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [11]

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Okay. And this APGENCO, in second half, can we expect any kind of inflows? Or it will be...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [12]

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Yes, I think I feel ashamed to now put any more dates on it. Of course, we are working on it to why second half -- even December, January, but I told you, this is not even in my hand or APGENCO's hand. They have to quash what Tecpro is trying to do. It was all there to be done to the Board, but that's what the world is all about. When the money was about to come, somebody is just trying to delay it. And that's the reason we are also going to join our client in filing our objection to this and hope that very soon this will be quashed, and we can get our money. That's all I would like to say because I think I've given you enough dates and things are just not in my control.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [13]

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And just not related to finance, but just a question. Since price has come down so much, is there any creeping acquisition that founders are planning, promoters are planning?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [14]

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See, we don't plan anything. We are still capable of running the company. We feel that we have a great management, a very passionate team. Our execution is our strength. Technology is something what we are valued in the company -- sorry, in this market, in this sector. You know recently GWI rated us sixth company globally in terms of the population. So they do this survey every 2 years. As a CEO, I'm rated continuously 2 years in Top 3 globally. So I think we have the right people, right strength, right capability in the organization. Share price, we don't control. The markets, we don't control.

Yes, we are responsible for our business, and we control that. But if there is any opportunity, we are not closed to it. But if you guys know anything happening like this in the market, which we are not aware, we'll be happy to hear from you.

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Nikunj Doshi, Bay Capital Partners Ltd - Managing Partner and Director [15]

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No, at least creeping acquisitions of some kind can perhaps give confidence to the market?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [16]

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So we as a promoter, I think, we have no plans of doing some creeping acquisition. And as Mr. Mittal said, we don't look at the share price; we believe in our business, which we are trying to deliver the numbers what we are promising.

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Operator [17]

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The next question is from the line of Kaushik Poddar from KB Capital Markets.

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Kaushik Poddar;KB Capital Markets;Director, [18]

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You have given an order intake of INR 45 billion to INR 50 billion for this financial year. So this is mostly from -- I mean the -- you have already got INR 30 billion from India itself, I guess, most of it from India. So the rest of it, I believe, mostly from India? Or you're looking at...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [19]

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It's a combination, we already have some good orders abroad. Some of them we have raised very well internationally in both the geography, Middle East, Africa as well as in Europe. Also, there are some good orders where we are expecting to receive something in this quarter. So we are confident of it that we can get this guidance number. And I think that is good enough to give us 4 years of visibility, at least 3.5 years of visibility in our numbers, order backlog.

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Operator [20]

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The next question is from the line of [Neha Jain from SKS Capital].

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Unidentified Analyst, [21]

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So I wanted to ask 2 questions. Firstly about the Namami Gange mission that you were saying in the last quarter that you said. And secondly, what is your current working capital, which you said you will reduce from 180 days to 100 days in the last call?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [22]

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Yes, I will talk about Namami Gange and Sandeep will give you the working capital details. See, Namami Gange, we have 2 projects. One is about INR 600 crores where the HAM part is about -- where the EPC part is about INR 400 crores. So our investment required in that will be for the INR 400 crores. The other one is about INR 1,200 crores, which is Kankarbagh and Digha, where INR 200 crore is only HAM, the balance is DBO.

So the equity required is very, very small. And the first one, we have finished. We have signed the contract, and we are in the financial close phase. We believe in the next couple of months, the financial closure will take place. We will start the project if we are in discussion with various parties. And within this calendar year, we think everything should fall in place, and we can start the project early next year.

Regarding Kankarbagh and Digha, we feel that the contract should be signed any moment within the next few weeks. And then we will go for the financial close.

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [23]

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[Neha], on the working capital side, the net working capital as on September 2018, like, if you look at 1 year back, it was INR 1,167 crores. And now it has come down to INR 892 crores. That's what I indicated in my address to all of you that net working capital has come down by almost INR 300 crores. And it's a huge number. If you look at the -- in terms of percentage. Yes, in terms of number of days. Last call, also, we talked about that our endeavor is to come down to 100 days. So that we have not achieved yet. But going forward, yes, with the traction in the receivable management and more and more new advances, which we are getting on our new projects, we are hopeful that we should reach that target very soon.

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Unidentified Analyst, [24]

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So what is the current number of days, sir?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [25]

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It's almost similar what we had...

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Unidentified Analyst, [26]

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180?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [27]

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In the month of March, right.

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Operator [28]

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The next question is from the line of Amish Kanani from JM Financial.

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Amish Kanani, JM Financial Institutional Securities Limited, Research Division - Associate Director [29]

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One thing if you take out of our net finance cost and you annualize it and put it on our net debt numbers, the percentage looks very high. So one, if you can just give us some breakup of what the net finance cost is? Is there any component of tax losses that are sitting there? Because otherwise, our finance cost looks very high for a company where...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [30]

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There are no tax losses in the financial cost, okay? Finance cost includes not only our interest cost, but also it includes our bank guarantee and fee costs. So if you look at it on a consol basis, okay, our finance cost is about INR 22 crores and about -- interest cost is about INR 31 crores. That is the breakup. So it's a -- know that we have got a huge order for which we have to serve both the performance bonds as well as advanced bonds, and a lot of them are indirect bonds where our banks in India gives a bank guarantee to a counterpart in the local country like Saudi or Qatar, and then the local bank from that country gives it to the client. It's almost double the fee we have to pay for this performance and advanced bonds. So that's about INR 22 crores. And the interest cost is about INR 31 crores.

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Amish Kanani, JM Financial Institutional Securities Limited, Research Division - Associate Director [31]

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Okay. Okay. So sir, the question is, as we see a ramp-up in our revenue in the second half, a large part of our working capital savings and the cash flow generation seems more because of our contraction in revenue. So the question is, as we ramp up, unless we save on the number of days in our working capital side, which is -- seems -- net working capital seems status quo. How are we kind of planning to manage the overall scale up on the revenue side? And also, what's the scene like on the interest costs, will it balloon accordingly? And third question is, how do we plan to kind of then make sure that net operating cash flow is positive for the year?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [32]

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I will leave this question to Sandeep. Just let me give you the background. We have been operating in this country for last 23 years. I don't know if you know, we have never gone for fundraising. Whatever we have grown and developed the company based on only our internal approvals. And even when we went for IPO about 9 years back in 2010, most of the money raised was given to the investors who had invested in us and given them the exit. We had only taken out of INR 500 crores, only INR 120 crores, which were used for our system and our office development. So no money was put into the business. So in 23 years, we had run this company without raising any capital. And it's the first time, which we are trying to raise some capital to build our book. And today, if you see in the last 6 months, we have generated operating cash and still major advances are yet to come. As I told you, 1 advance came last month, 2 more advances we are expecting in the next couple of months. This will further boost up our liquidity and enable us to overcome this liquidity crunch. So I think this will definitely reduce the net working days also for the company. And I think detailed numbers Sandeep will give you.

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [33]

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So what you were talking about, mainly on the annualized interest cost and finance charges and how will we execute the larger revenue in H2. So to that, my response is that, as Mr. Mittal said, not many advances are expected. Some of them has already come and some more are expected in this quarter and next quarter. So that will help in boosting our execution further.

And at the same time, we are in discussion with banks who look at converting our high-cost debt into CST kind of structure, where you pay very low interest rate because we have a lot of natural hedge in terms of lot of expose we have in our company. So that change in mix of borrowing will reduce.

And as far as your finance service, bank guarantee commissions are concerned, since majority of the bank guarantees have already issued in H1. So relatively in H2, the bank guarantee commissions will be a little lower as compared to H1. So rather, we will have liquidity -- more liquidity in H2 and lower bank charges on the -- yes, I can say lower bank charges in H2. So that will help in reducing my finance cost and advances and other things will be boost to the revenues.

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Amish Kanani, JM Financial Institutional Securities Limited, Research Division - Associate Director [34]

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Okay. Okay. So clarification, what you're saying is large part of the likely ramp up in the revenue, a portion of guarantees is already reflected in the first half?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [35]

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Yes. Yes.

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Operator [36]

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The next question is from the line of [Neetu Jain] from Sundaram Mutual Fund.

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Unidentified Analyst, [37]

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With regard to Andhra, sir, we -- actually you mentioned in -- what is -- I mean, sir, any time lines would you like to mention, sir, with regard to money flow from Andhra to Telangana, sir?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [38]

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As I said, we have missed all our expectations. We should have got our money. It was placed in the Board, everything was positive, except where Tecpro is trying to challenge our arbitration and our client, TSGENCO. We'll go and try to quash that because today, our -- this project leadership was transferred to us about 5 years back, and they were already taken out from consortium of about 3 years back for nonperformance and also their financial difficulties.

So I think we are just waiting for that even to happen, and immediately, we should get all of our TSGENCO because not only we have finished the contract, efforts on defects enlisted there. We have also finished our defects liability period of 1 year after those upon guaranteed trial runs are over.

As far as Andhra, I have already told you, we have got a go ahead to finish the balance work. So in next 6 months, we should be able to finish. 6 to 8 months, after that, we'll do the performance guarantee runs where the customized launch should be ready and the next will be 1 year after that.

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Unidentified Analyst, [39]

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So 6 to 8 -- sorry, the 18 to 20 months is when are we planning -- we would be like a -- it will turn into receivable and our right to claim money will come, correct, sir?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [40]

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That is the last retention, last 10%.

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Unidentified Analyst, [41]

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Okay. Then when you have a right to claim the money will come, sir? Like after 6 months -- 6 to 8 months, sir?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [42]

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As far as TSGENCO, I mean, today, we have a right to claim the money. As far as APGENCO, we still have some work to be done, which I told you next 6, 7 months, we should finish that. So we should get our monthly payments. Once we finish that, we have to do our performance trial runs, then our first 10% milestone should be ready. So that should be in '21, FY '21, first milestone. And 1 year after that, will be the second 10% milestone, which is FY '22.

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Unidentified Analyst, [43]

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Okay. Sir, CFO also had mentioned during one of the analyst questions that we endeavor to bring our working capital down from 180 days to 100 days. Sir, can you throw some light on what are the steps you are taking to do -- achieve that parameter and when you -- like, we can see a thing. Can you highlight, that would be great sir?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [44]

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Yes. So what we talked about that as on March 31, 2019, our net working capital was 130 days, which we said, we will bring it down. Our endeavor is to bring it down to 100 days during the current financial year. So as I was telling the last analyst that we are expecting a lot of advances during the current financial year. At the same time, we have put our task force to collect all the receivables wherever we can and wherever which is pending for some small, small things. And the sales will also go up as compared to last year. This year, that's what we have guided.

So all these 3 will give a lot of traction to our working capital management. And we are also focusing singly on the billing. Basically, if you see in our balance sheet, we do as per Ind AS Accounting and we account for unbilled revenue based on the profit status on the cost of being the effective projects. So that focus is there to convert them into more and more billing. So all these focuses will bring down the working capital days from 130 to almost near about 100 days.

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Unidentified Analyst, [45]

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Okay. Sir, like you want the working capital challenges for the LNG markets, liquidity tightness is there, the SME vendors and all. Sir, like any shrinkage do you see in the trade payables sector, sir? You are currently enjoying an elongated trade payable circle in our part of the working capital. So any risk you see, sir?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [46]

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No, we don't see any risk. As far as impact trade payables, you see a really large number, but actually, these are not as large because trade payables also consist of certain provisions for the cost. If you take out that, then we are hardly some INR 400-odd crores is payable to the creditors, which is in the normal course of business is always there has been since ages in this company. So I don't see any shrinkages or any issue in terms of payments to the trade creditors.

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Unidentified Analyst, [47]

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Okay. Sir, with regard to the ECL provisions, is there any write-off there? Or it's just for corporation purposes, and the backlog is there in the balance sheet just for -- as and when any contingency comes, we will use it write off? We have -- in our cash flow segment, you can see some ECL provision being done.

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [48]

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For ECL, we follow a very prudent policy, very conservative policy in the company. So in fact, this policy before coming -- Ind AS coming into the picture, this company was following even 52,500 which is like after 3 years, we use to provide you 100% of the deals. So after Ind AS, yes, we follow the robust ECL policy, and we provide the write-offs only which we see that it is not coming. Otherwise, on a very conservative basis, we keep on providing receivables. And when we collect, we deliver for it.

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Unidentified Analyst, [49]

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Okay. Sir, like what would be like a write-off or a recovery and any number like, and also the buffer, which is pending in the balance sheet on September. Sir, any number you can provide?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [50]

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Very difficult to say because it's a continuous process. We keep on...

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Unidentified Analyst, [51]

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On September -- on September date, the September 30 balance sheet date.

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [52]

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That is up to balance sheet date, I think we have provided. And we have recovered some amount, maybe some INR 7 crores, INR 8 crores, INR 10 crores maybe we have recovered. So provision will be net of that reversals.

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Unidentified Analyst, [53]

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Okay. Okay. Like what would be the backlog or buffer sitting in the balance sheet, sir, which is at the position, I mean the number you alluded.

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [54]

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So total provision is huge in our books now, which is, I think, more than INR 100 crores or...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [55]

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INR 150 crores.

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [56]

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INR 150 crores around. So now we will see as and when we receive something out of that. Obviously, we will reverse. But otherwise, we carry these kind of provisions in our books.

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Unidentified Analyst, [57]

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Okay. Sir, like -- sir, we had mentioned in our presentation that some of the nonfund has been converted to WCDL loans. Sir, can you explain, sir, what was the thing that increase in trans cost?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [58]

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No nonfund has been converted into WCDL. We never said like that. We -- in our speech, we were thankful to the bankers that they have provided all nonfund-based facilities for our project like guarantees, et cetera, so that we are getting the advances, we are executing the projects. So no nonfund limits have been converted into WCDL.

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Unidentified Analyst, [59]

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Okay, sir. But something you had mentioned in the presentation, that WCDL has increased, which led to the increase in the finance cost? Like what is the -- can you explain, sir?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [60]

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So you are talking about that recent past, RBI came out with certain guidelines, where each company or they wanted all fund-based facility. Should be that certain percentage of that should be in the form of WCDL, WCDL for a particular period. You cannot keep everything on CC, okay? So since our company, we always historically operate on PCFC. So looking at that, some of our facilities are now in WCDL, cash credit as well as PCFC, and that's what I said. We are working with our bankers to convert our mix of borrowing into more towards PCFC, so that my rate of interest comes down than the current interest rate. For that, we are working with all our consortium bankers.

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Unidentified Analyst, [61]

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Okay. So sir, when we will go back to our normal finance cost, sir, like, the normal run rate which was there INR 7 crores, INR 8 crores per quarter?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [62]

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So it's a continuous process. Basically, we are engaged with all the bankers. And as I told you, it cannot happen overnight. Of course, it takes time. But then, yes, it will -- our endeavor is to reduce our borrowing cost continuously.

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Operator [63]

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(Operator Instructions) The next question is from the line of Siddharth Rajpurohit from JHP Securities.

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Siddharth Rajpurohit, JHP Securities (P) Ltd., Research Division - Research Analyst [64]

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Sir, what is our total fund-based and nonfund-based limit and the utilization?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [65]

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So we have appraised limit of INR 4,000 crores. Out of that, fund-based is INR 500 crores, nonfund-based is about INR 3,500 crores. And as far as utilization is concerned our nonfund-based utilization is somewhere between INR 2,500 crores to INR 2,600 crores or maybe INR 2,700 crores. And fund-based will be somewhere around INR 370 crores, INR 380 crores.

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Siddharth Rajpurohit, JHP Securities (P) Ltd., Research Division - Research Analyst [66]

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Okay. Sir, the recent rumors of -- sorry to say, but the default or delay in salaries, sir, so we should like to clear, sir?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [67]

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No. Every organization face some difficulty sometimes. So -- but there is no delay as such. Our majority of the employees, their salaries are up-to-date, maybe some delays happened at the very senior-level employees.

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Siddharth Rajpurohit, JHP Securities (P) Ltd., Research Division - Research Analyst [68]

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Okay. So there's no major kind of thing?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [69]

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No.

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Siddharth Rajpurohit, JHP Securities (P) Ltd., Research Division - Research Analyst [70]

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And just one more question. Sir, this one entry under current asset which is due from customers or construction work, what is this pertains to and why is it under current asset, sir?

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [71]

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That is unbilled revenue, I think, unbilled receivable. As per Ind AS accounting, you must be knowing that you have to account for based on percentage of completion method, and you need to book the cost, and accordingly, you need to recognize the revenue also. So since it is not billed to the customer, it is not appearing in distributor, it is appearing in other current assets and I, a little while back, I told that our focus is to convert more into the level. So that my working capital cycle changes and more and more collection happens.

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Siddharth Rajpurohit, JHP Securities (P) Ltd., Research Division - Research Analyst [72]

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Okay. And what are the balance from APGENCO, sir, now?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [73]

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APGENCO, INR 472 crores.

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Siddharth Rajpurohit, JHP Securities (P) Ltd., Research Division - Research Analyst [74]

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INR 472 crores, okay, sir.

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Sandeep Kumar Agrawal, VA Tech Wabag Limited - CFO [75]

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And this is INR 472 crores is total for Tecpro, APGENCO and TSGENCO.

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Siddharth Rajpurohit, JHP Securities (P) Ltd., Research Division - Research Analyst [76]

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So APGENCO particularly, sir? The INR 300 crores was said last quarter?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [77]

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I think I just said, it was INR 263 crores is from APGENCO, INR 69.5 crores is at NCLT from tax growth and INR 138 crores from TSGENCO.

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Operator [78]

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The next question is from the line of Rishab Bothra from Sharekhan.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [79]

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Sir, what was the main reason for order guidance being cut down? Revenue, I can understand. But what about order guidance being cut down?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [80]

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I think we got our orders enough in hand, and we don't want to book orders when we have enough orders and visibility for next 3 years. And we are going to be very selective and choosy in what we book. That's the reason we said, we will take it by 10% down because our aim will be to focus on cash flow and profitability. And that's the reason we said we will limit some of our bidding and focus on executing the orders in hand.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [81]

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And in the call, sir, you mentioned that management focus always on income business and have to grow the profitability. But somehow, sir -- and you mentioned that is share price is not what we understand. But somehow share price is respective of how business pans out? And in this context, I believe, government is taking its shares, the employees are taking their shares, society is taking their share. But shareholders are not being equally rewarded. And as a analyst, how do we justify our investors whether to continue with the stock or invest in the stock? If you could throw -- or help us understand it better? Because someone said that...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [82]

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You misunderstand what we said. We feel completely responsible for your investments in the company. We feel that it's our responsibility that your investments also grow. We have ensured that when business performance is not okay, a substantial part of every employee of the company goes in variable pay. And we don't pay if the business results are not. It's not that they get a fixed salary irrespective of the performance of individuals or company. We have a very robust formula. There is a certain percentage of fixed salary and certain as a variable. So if the business performance is not right, they don't get. So they also have to focus on business.

As far as the share price is concerned, I don't think it's always reflective of only the business, it would have been very good if some way we can link the share price to the business. It also moves a lot of sentiments in the market, a lot of domestic factors, a lot of global factors, which get into that, a lot of sectorial factors, which get in. So all the companies would invariably get bundled into one cluster. And all that, I think a lot of sentiments play. And today, we have a lot of retail investors. There's a lot of churning happens. There was a time when we didn't have a lot of retail investors. Today, we have a good amount of retail investors. So I think it's a number of factors. So what we can promise you, we will be focused to make sure that the valuation of the company is good. Business is run well. And then the rest, a little bit, we need a luck also with our share prices going up.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [83]

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Okay. And lastly, sir, this fund has to be raised. What price are we comfortable at raising the fund?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [84]

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This will -- time will tell. Nobody expected about a month back that -- where our price would be today. So if I would have given you that number about a month back, my number would be different. Today, if I have to give you, my number will be different. So I think it's better we give the number closer to the time the deal is done. That time we'll fix, but you can be sure that we will definitely do at a premium, whenever the fundraising is done. We don't believe that this is a true price of the company. And hence, we will not do the deal at the present market value.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [85]

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Sir, the resolution is collected in what time? I mean, is this -- the fundraising resolution is valid till what time? And...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [86]

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Until the next AGM.

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Rishab Bothra, Sharekhan Limited, Research Division - Equity Research Analyst [87]

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Till the next AGM, okay.

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Operator [88]

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The next question is from the Urvil Bhatt from IIFL.

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Urvil Bhatt, IIFL Research - Assistant VP [89]

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Just wanted to understand and get more clarity about the expected revenues in 2H. I mean, given your guidance of INR 3,000 crores to INR 3,200 crores, I mean, are you expecting the aggregation to pick up at the current orders that you are working on? Or are you expecting some new orders to start contributing from the next few months? I understand that Namami Gange, one project will start contributing but the other project might take some more time. So I just wanted some more granular clarity on the revenue guidance part.

And the second question is that the EP project, as you said, I mean, has been continued till March 2020. So just wanted to understand how much work is still pending from our side before we start getting the money back? And how much more working capital investment you might have to do in this -- to complete this APGENCO project?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [90]

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Yes, I think this question has been answered earlier also. And even in our earlier calls also, we have made this comment. All these orders, what we have in hand is what's taken to give the guidance. We have not taken any new order to achieve these numbers. The orders have picked up. We told you supplies will start, construction will start in Q2 -- sorry, H2. And H2 is always a higher revenue quarter -- revenue half year than the first half. Hence, we are very confident with the existing backlog we have, we will achieve these numbers.

Regarding APGENCO, there's about INR 100 crores, INR 120-odd crores is the work still to be done, which will be completed. And then there are some milestone payments related to performance tests will be achieved, and the performance test will be done post completing this work. And then we'll start getting the balance. So that will be all collected next year, as we said, including the first retention money.

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Operator [91]

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The next question is from the line of Dhananjay Mishra from Sunidhi Securities.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [92]

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Sir, as per new plan, I mean, whatever milestone you are expecting from APGENCO. So INR 138 crores from TSGENCO should come in FY '20, if it comes. And INR 130 crores in FY '21 from APGENCO and INR 130 crores in FY '22, right?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [93]

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Yes, something of that order of magnitude.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [94]

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Okay. And sir, do we have any other order in AP in water related?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [95]

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No, no, no. We had enough.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [96]

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Okay. So we don't have any exposure in our order book?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [97]

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No, no, no, no.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [98]

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Okay. And sir, what would be the effective tax rate? We have actually a risk deferred tax asset.

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [99]

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We have, and at the moment, we are assessing it, as we have given in our notes in results also. We are working with our auditors and the tax consultants. And over the next 2 quarters, we'll make up our mind. But as of now, we have not changed our tax rate.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [100]

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Okay. And sir, what is the domestic pipeline as of now? I mean, in next -- for next 6 months in terms of order inflow.

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [101]

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(inaudible) favorite topic is water. For first 5 years, we had spent enough on Namami Gange, wastewater, Swachh Bharat. And I think, in this term, he's talking about more water. Water at every tap is his new mantra. So there is a lot of money will get spent on water to ensure that every house has a pipe water. And I would say that the focus of government is definitely on water sectors in coming 2 decades, you'll see enough water opportunities, only we should be smart enough to pick the right ones.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [102]

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Okay. So these big numbers are coming in terms of opportunity like INR 3.5 crore, INR 4 crores or INR 5 crores about the next 4, 5 years. So what would be our -- I mean, in terms of whatever we do in the major lean pipeline and all. So what will be our scope of opportunity in terms of if you have any assessment in terms of an extra [contingency]?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [103]

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Just somebody asked earlier question about desalination plant of 400 MLD. We are a technology company with 100 patents, but we will always focus on treatment plants. Whether they're desalination, whether it's water reuse, whether it's sewage or drinking water or industrial water and wastewater. So our focus is always on treatment plants. If there is associated infrastructures like pumping stations and pipeline, then we do it. Otherwise our focus is always going to be on treatment plants.

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Operator [104]

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The next question is from the line of [Prashant Hazariwala], an individual investor.

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Unidentified Participant, [105]

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Yes, I have 2 questions. One is we are at the right model. So -- but our ROE is too low. So what kind of ROE you are targeting for next year? And another is, when can we see our company as a investor company?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [106]

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Okay. I mean, I'll answer your second question first. And see we -- most of our price plan in India, we have been predominantly a debt-free company. If it was a debt, it was very small, maybe INR 200-odd crores of working capital debt, no long-term debt was this company survive. As I said earlier, we have never raised even capital from the market. We had no long-term debt in our balance sheet, which is even true today.

Now we just have a very small, medium-term loan. Rest all is working capital and PCFC. Yes, in between, because of mismatch of cash because some of our large projects got completed about a year back and these new projects, which we are talking today, have not really picked up. Hence, there was a mismatch, and we had one high on the debt. But as Sandeep told you earlier, we already started coming down. And we are planning to come down further in the next few quarters.

So our debt levels, we will see coming down because we don't like to have debt because the business we are in, we don't want to spend our money on servicing the debt. So I would say, next couple of years, you will see a substantial amount of this debt being repaid.

Regarding ROE, sorry, I will have to come back. I don't have things handy with me at the moment. I will tell my team to get in touch with you and provide you this information.

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Operator [107]

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The next question is from the line of [Nilesh Soni] from IndiaNivesh.

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Unidentified Analyst, [108]

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All my questions has been answered.

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Operator [109]

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The next question is from the line of Dhananjay Mishra from Sunidhi Securities.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [110]

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Sir, just one question. This INR 150 crore, INR 160 crore provision still that we talked about in answering earlier question. So this is merely because of this APGENCO, or we have -- we had done in some other projects earlier?

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [111]

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This is -- as Sandeep explained to you, we have an age-old practice, which is a conservative practice as our aging on the receivables go up, we keep providing for it. This provision, what we have is not only for APGENCO, it includes other projects also.

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Dhananjay Mishra;Sunidhi Securities;Analyst, [112]

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Okay. So majority would be in APGENCO or...

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [113]

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Yes. Definitely. Majority will be for APGENCO.

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Operator [114]

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Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

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Rajiv Devaraj Mittal, VA Tech Wabag Limited - Group CEO, MD, Head of SBU -MBG & Director [115]

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Thank you, everybody, for your active participation in our Q2 FY '20 earnings call. We have uploaded the analyst presentation in our website. In case you have further queries, you may get in touch with our IR advisers, Stellar IR Advisors and they are based in Mumbai. Or you can also get in touch with us directly. Thank you.

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Operator [116]

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Thank you. On behalf of VA Tech Wabag Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.