"Ex­cel­lence’ Is The Com­mon At­tribute To Any Work We Do"

Su­nil Gutte Man­ag­ing Di­rec­tor, Su­nil Hitech Engi­neers

Dalal Street Investment Journal - - COMMUNICATION FEATURE -

If you had to iden­tify one high­light of the com­pany’s work­ing dur­ing the year un­der re­view, what would it be?

Clearly the fact that we re­ori­ented our or­der book and the cor­po­rate di­rec­tion de­ci­sively to­wards road build­ing dur­ing the year un­der re­view. There was a time dur­ing the last few years when projects re­lated to the power sec­tor ac­counted for 90 per cent of our or­der book. Some­time in 2013, the Su­nil Hitech man­age­ment took a con­scious de­ci­sion: since the power sec­tor was af­fected by pol­icy slow­down, fuel link­ages, de­clin­ing vi­a­bil­ity and in­creas­ing with­hold­ing of our con­tracted rev­enues on ac­count of dis­putes with cus­tomers, we took a con­scious de­ci­sion to mod­er­ate our ex­po­sure to this sec­tor. Even as this de­ci­sion was taken at that point, there was a recog­ni­tion that the re­ori­en­ta­tion would only play out pro­gres­sively across the fu­ture. I am pleased to re­port that dur­ing the year un­der re­view, the Com­pany’s de­ci­sion could be clearly show­cased to share­hold­ers: from a time in 2012-13 when the non-power seg­ment ac­counted for only 20 per cent of our or­der book, we are pleased to state that this seg­ment now ac­counted for 80 per cent of our or­der book as on 31 March 2017.

What is the im­pli­ca­tion of this trans­for­ma­tion?

The im­pli­ca­tions are ro­bust and pos­i­tive. One, there is am­ple rea­son to be­lieve that the road build­ing sec­tor is pos­si­bly grow­ing faster than most in­fra­struc­ture sec­tors in the coun­try. Two, the spreads avail­able in the road build­ing sec­tor are higher than what is avail­able in the other seg­ments. Three, the road build­ing sec­tor pro­vides op­por­tu­ni­ties to ex­tend from EPC en­gage­ment to as­set build­ing with­out stretch­ing the Bal­ance Sheet. Four, there is a case for In­dia’s road as­sets to be treated like a stand­alone in­vestible as­set, if we list the pro­ject on the in­ter­na­tional cap­i­tal mar­kets. Five, for com­pa­nies like ours that seek a list­ing of road build­ing as­sets there could be an at­trac­tive op­por­tu­nity in delever­ag­ing the Bal­ance Sheet, strength­en­ing busi­ness sus­tain­abil­ity. Six, the Hy­brid An­nu­ity Model seg­ment of the coun­try’s road build­ing sec­tor pro­vides scope for an at­trac­tive rev­enue in­crease and vis­i­bil­ity.

How does the com­pany in­tend to grow the road build­ing busi­ness?

At Su­nil Hitech, we be­lieve that our growth is likely to be cat­alyzed through EPC road build­ing on the one hand and HAM projects on the other. We in­tend to suc­cess­fully bid for one HAM pro­ject a year; in four years, we be­lieve that we could pos­sess ₹2500 crore of road as­sets on our books that would not only pro­vide us with road con­struc­tion rev­enues but gen­er­ate steady cash flows and cre­ate at­trac­tive mon­e­ti­za­tion op­por­tu­ni­ties with­out dis­pro­por­tion­ately in­creas­ing our debt. We are op­ti­mistic that a com­bi­na­tion of th­ese re­al­i­ties would en­hance our cor­po­rate sta­bil­ity, strengthen ROCE and en­hance cor­po­rate value.

How does the com­pany in­tend to en­hance stake­holder value?

I will re­peat what I had stated in last year’s re­port: the sus­tain­abil­ity of our busi­ness will be de­rived from con­trolled growth: the sus­tain­able abil­ity to gen­er­ate an an­nual topline growth of 15 per cent with­out strain­ing the Bal­anced Sheet in any way. We be­lieve that the an­nual topline growth will be gen­er­ated from pri­or­ity sec­tors; we in­tend to gen­er­ate a 2x in or­der book of our an­nual rev­enues,

which will keep us grow­ing sus­tain­ably; we in­tend to lever­age the strength of our Bal­ance Sheet and mo­bilise debt at pro­gres­sively mod­er­ated costs; we in­tend to seek in­fra­struc­ture build­ing op­por­tu­ni­ties where we can lever­age our ex­ist­ing com­pe­ten­cies that make it pos­si­ble to gen­er­ate a su­pe­rior re­turn on knowl­edge, peo­ple, and as­sets. In ad­di­tion to road build­ing, we per­ceive such op­por­tu­ni­ties in civil con­struc­tion for the gov­ern­ment (hous­ing, of­fices, in­sti­tu­tions, and hos­pi­tals).

I will also state in a work­ing cap­i­tal in­ten­sive busi­ness, we in­tend to make a bet­ter use of our fi­nan­cial re­sources. Our planned mod­er­a­tion in ex­po­sure to the power sec­tor will help in this re­gard: our sig­nif­i­cant Bal­ance of Plant ex­po­sure in the past con­sumed ex­ces­sive work­ing cap­i­tal and pro­ject de­liv­ery was of­ten tied to de­liv­er­ables by other com­pa­nies. So even as we of­ten com­pleted our por­tion of the pro­ject on sched­ule, de­lays by other ven­dors would re­sult in de­lays in our pay­ments. The phased re­duc­tion in

ex­po­sure to power projects will en­hance our prof­itabil­ity and busi­ness sus­tain­abil­ity, go­ing for­ward.

What are some of the sec­toral re­al­i­ties that pro­vide op­ti­mism?

There are three de­vel­op­ments that one needs to in­di­cate here. One, the Road Min­istry is send­ing out pos­i­tive sig­nals re­lated to the quantum of road build­ing projects be­ing an­nounced cou­pled with larger con­tract sizes. Two, the fo­cus of the Min­istry has shifted from pro­ject an­nounce­ment to projects com­ple­tion, which in­di­cates a sub­tle shift vis­i­bly re­flected in an in­creased pace of road build­ing across the coun­try. Three, the in­sti­tu­tion of a time-bound dis­pute res­o­lu­tion mech­a­nism en­hances the con­fi­dence of sec­toral play­ers who suf­fered for years even after pro­ject han­dover. The sec­tors where we have a larger pres­ence are rel­a­tively clean in that they do not usu­ally at­tract dis­putes and where the pend­ing amounts are usu­ally cleared, re­sult­ing in a faith­ful match be­tween the re­ported num­bers and nitty-gritty.

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