In an interaction with Kavita Shirvaikar Wholetime Director and CFO, Patel Engineering Limited
We Are Optimistic About Our Future Prospects
What are your views on the Indian infrastructure industry and government spending on the sector?
In the realm of infrastructure development, the government is making significant efforts as it injects substantial financial resources and efforts into various projects. The government’s strategic focus on infrastructure spending is expected to not only stimulate economic activity but also foster innovation, ultimately building a society that is more resilient and connected, ready to tackle future challenges. To maximise the value of capital investment, integrated infrastructure development is in the spotlight. The PM Gati Shakti National Master Plan, a pathbreaking initiative of the Government of India, paves the way for inter-ministerial projects. This in turn will provide efficient connectivity which will be driven by various schemes such as the National Infrastructure Pipeline.
The scheme has a target expenditure on infrastructure development of over USD 1.8 trillion till 2025. The Government of India has upgraded infrastructure development in the last few years by increasing the infrastructure budget by about 75 per cent and by implementing policies to encourage private sector participation. Looking ahead, the future is bright with projections pointing to a robust growth rate in infrastructure investment between FY21 and FY26, with a compound annual growth rate (CAGR) of 11.4 per cent. This surge in government spending on urban infrastructure will further bolster the development and transformation of our cities, paving the way for a more prosperous and sustainable future.
How do you expect the hydropower industry and the irrigation sector to evolve in India for the next few quarters?
Hydropower remains a crucial player in the renewable energy sector, providing nearly half of the world’s low-carbon electricity. India currently has the fifth-largest hydropower production capacity in the world. With a large availability of water bodies, India has enormous potential for hydropower generation. Currently, only around 26 per cent of this potential has been exploited and hence there are vast opportunities to be tapped. Policymakers are recognising its pivotal role in balancing the grid and meeting peak power demands, leading to a positive outlook for the sector.
To further support its growth, the government has implemented various policy measures, including Hydropower Purchase Obligations (HPO) norms and tariff rationalisation with ambitious targets to increase HPO from 0.18 per cent in fiscal year 2022 to 2.82 per cent by fiscal year 2030. With such initiatives and investments, hydropower is poised to thrive and contribute significantly to the global renewable energy transition. India is moving on the path to net-zero emissions. Prime Minister Narendra Modi has pledged India’s commitment to net-zero emissions by 2070 at the COP26 summit. By 2030 India plans to achieve half of its energy generation requirements from renewable source.
Hydropower has now been considered a part of renewable energy and the government has been focusing heavily on hydropower projects. The government has set an ambitious target of establishing renewable energy capacity of 523 GW by 2030 which currently stands at 417 GW, including a substantial 73 GW from hydro sources. Currently the installed capacity of hydropower in India is at 46 GW. So around 27 GW of hydropower is expected to be added in the next seven years. So, we see a lot of work coming up in the hydropower sector in the coming few years. In terms of irrigation projects, the Indian government acknowledges the vital role of irrigation projects, especially micro irrigation projects, in achieving food security, rural livelihood improvement and economic development.
With agriculture being a key component of the economy, investing in irrigation has become crucial to address challenges like water scarcity and irregular rainfall patterns. The government is actively promoting irrigation initiatives to mitigate extreme weather effects, enhance crop yields, and reduce farmers' vulnerability to droughts and floods. Prompted by initiatives like Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) for 2021-26, there has been an outlay allocation of ₹93,068 crore which would benefit about 22 lakh farmers. Modern irrigation techniques aim to bring water security, conserve water resources and improve agricultural productivity. Despite challenges, the government’s unwavering commitment to irrigation projects shows a determination to revitalise the agricultural sector and secure a more food-secure future.
How has the growth in the PEL’s order book evolved over the past year? What are the key factors driving recent growth in the order book?
The order book of the company as on March 31, 2023 has reached around ₹20,800 crore including L1 orders – so far the highest recorded for the company. In the last one year the company increased its order book by around 40 per cent from levels of around ₹15,000 crore in FY22 to current levels of ₹20,800 crore and in the last five years more than doubled its order book from ₹10,000 crore in FY19 to the current levels. The total value of new orders received during the last year was around ₹7,700 crore.
The company has been in the infrastructure sector for more than seven decades now and we have a major presence in the hydropower, irrigation and tunnelling segments. Around 60 per cent of our order book comprises hydropower projects while 21 per cent is from the irrigation segment and another 12 per cent from the tunnelling segment. We also have a presence in road projects and other urban infrastructure projects which comprises the balance of our order book. All our clients are mainly central government PSUs and state government organisations.
Around 55 per cent of our clients comprise NHPC, SJVNL, CVPPL, etc. and as regards the balance of around 45 per cent we work for state governments and municipal corporations like MCGM, Government of Madhya Pradesh, etc. The growth in the order book can mainly be attributed to the rise in the government’s focus on the improvement of infrastructure in the country. In the recent budget, capital investment outlay for infrastructure has been increased by 33 per cent to ₹10 lakh crore and we see many new mega infra projects being announced. With the focus of the government on infrastructure development we are positive about continuing with steady growth in our order book.
In Q4FY23, the company’s net sales surged by 16.77 per cent from last year’s same quarter at ₹1,298.03 crore while the net profit of the company zoomed by more than 290 per cent at ₹84.36 crore. What were the contributing factors for the company’s performance?
The last year was exceptionally good for the company. Our reputation is backed by strong experience and expertise in the infrastructure space for over 74 years. Over the last few years, the company has also considerably scaled up its operations and currently we have around 4,500 employees from around 1,400 employees a few years back and our gross equipment base has also improved to around ₹1,150 crore. Our financial performance reflects our ability to execute projects taking on various challenges while upgrades of digital technology provides tangible business outcomes at speed and scale, including improved productivity and customer experiences to maintain a competitive advantage. In FY23, the company also upgraded its processes and systems, including steps like implementation of SAP for better monitoring of project execution and cost.
With this robust growth in our order book and rapid pace at which the company is growing, we have simultaneously improved the work force, increased the equipment base and also upgraded systems and processes which are being implemented at all project sites to help improve efficiency of the business, achieve better cost monitoring, help with better analysis and forecasting as well as aid us in scaling to new heights. In the last year the company has managed to reduce its debt by around ₹500 crore which shall help improve profitability. With a clear focus on reducing debt and a robust growth trajectory, we are confident in our ability to achieve our financial goals and create value for our stakeholders.
How has the company reduced its debt over the years?
We are pleased to report that our primary objective of reducing debt is well on track. Over the past five years or so, we have successfully reduced our debt from peak levels of more than ₹5,000 crore to the current level of around ₹1,750 crore through a strategic plan that involves monetising our non-core assets and includes realising arbitration awards and claims receivable from the government clients and sale of land parcels and other noncore assets owned by the company. The consolidated debt-toequity ratio has improved from 0.95 in FY22 to 0.61 in FY23. The company is focussed on further reducing debt over the coming years.
What is the company’s future or outlook for the next few years?
During a recent budget announcement, the allocation of infrastructure capital investment has experienced a substantial upswing, surging by an impressive 33 per cent to reach a staggering ₹10 lakh crore. This notable boost is anticipated to bestow a remarkable impetus on infrastructure companies in the years ahead, propelling their growth and development. Consequently, we anticipate a surge in contract opportunities which will in turn fortify our order book position significantly in the upcoming year. Moreover, our company has ingeniously devised a strategic plan to reduce debt by monetising non-core assets. This approach will enable us to enhance our financial position and allocate resources more efficiently.
In FY23, we achieved a major milestone by upgrading our processes and systems, including the implementation of SAP. This technological advancement has greatly improved our ability to monitor project execution and costs, leading to better efficiency and cost management. Additionally, our company has been actively investing in our workforce, expanding our equipment base, and upgrading systems and processes across all project sites. These initiatives will not only enhance the overall efficiency of our business operations but also facilitate better analysis, forecasting and scalability. With a robust growth trajectory in our order book and an accelerated pace of expansion, we are optimistic about our future prospects. These strategic measures and investments position us well to capitalise on the opportunities presented by the increased infrastructure investments, further solidifying our position as a leader in the industry.