"Excellence’ Is The Common Attribute To Any Work We Do"
Sunil Gutte Managing Director, Sunil Hitech Engineers
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.