K Jalandhar Reddy, Executive Director, KNRCL
AI, drones, robotics, telematics etc are getting introduced in the industry. The government agencies should permit a portion of the technological cost to be absorbed in the project cost to be tendered as this would help the infra industries to shift to automation to a great extent.
Opportunities
The Indian infrastructure construction sector provides a vast opportunity for the construction Industry. The government of India has planned extensive expansion in roads & highways, railways, ports, and in civil aviation. In the Budget for 2019 the government has apportioned a mammoth budgetary support of ₹4.56 lakh crores for the Infra sector.
Challenges
Developers and contractors face several bottlenecks in the tendering phase of projects, impacting their viability and uptake, and creating delays during pre-tendering and construction stages. These include poor quality of engineering, tendering of unviable projects, slow approval process, scope changes, delay in land acquisition, unavailability of skilled and semi-skilled workers, financial constraints leading to 65% of planned capacity getting financial closure, avenues for raising equity, lack of supportive concessional agreement leading to inefficient contracts, ineffective dispute resolution processes as arbitration awards are invariably challenged in a court of appeal.
Efficiency & Accountability
At KNRCL, planning begins before starting the project, including selecting the best construction methodologies, machinery, preparing the construction schedule/program, cost, time, quality, and safety management, and contract administration and organizing resources, including daily and weekly planning through the life of the project to ensure all tasks are completed well within the scheduled time.
Effective communication with project team, subcontractors, suppliers, client, architects, and local authorities are a routine process in a project. For designing, 3D printing software applications have been put to use and new software applications like BIM, Telematics, while new concepts like drones, wearable technology for monitoring project activities and worker safety, are also being explored.
Artificial intelligence & IoT
Artificial Intelligence (AI), Drones, wearable technology, Robotics, Telematics etc are getting introduced. The tendering authorities of different government agencies should also permit a portion of the technological cost to be absorbed in the project cost to be tendered. This would help the infra industries to shift to automation to a great extent. KNRCL is also exploring the possibility of introducing these in the large projects.
Order Book
With an order book of ₹58.1 bn, which includes an estimated EPC value of ₹39.8 bn worth of HAM projects, KNRCL has a book-to-bill ratio of 2.9 x LTM revenue. Execution in new HAM projects is expected to pick up in Q4FY19 and from Q1FY20 – thereby guiding for a strong FY20. Meanwhile, the management is focusing on foraying into areas such as building flyovers, metro-rails and railways to diversify the order book and widen the scope of opportunities.
With a proven track record of timely order execution and healthy infrastructure industry prospects, we estimate standalone revenue to increase to ₹25.0 bn over FY18-20. The EBITDA margin to remain range bound at 15% over FY19-20 EBITDA margin was a strong 20% during the quarter, due to near completion of some projects in FY19. Margin was driven by accelerated revenue recognition of a few high-margin irrigation projects in their final phase and a lower proportion of subcontracting expenses. Over FY19-20, we expect standalone EBITDA margin to be range bound at 15%, as execution of lower-margin irrigation projects is expected tocontribute significantly to overall revenue.
The Indian infrastructure construction sector provides a vast opportunity for the construction Industry. The government of India has planned extensive expansion in roads & highways, railways, ports, and in civil aviation. In the Budget for 2019 the government has apportioned a mammoth budgetary support of ₹4.56 lakh crores for the Infra sector.
Challenges
Developers and contractors face several bottlenecks in the tendering phase of projects, impacting their viability and uptake, and creating delays during pre-tendering and construction stages. These include poor quality of engineering, tendering of unviable projects, slow approval process, scope changes, delay in land acquisition, unavailability of skilled and semi-skilled workers, financial constraints leading to 65% of planned capacity getting financial closure, avenues for raising equity, lack of supportive concessional agreement leading to inefficient contracts, ineffective dispute resolution processes as arbitration awards are invariably challenged in a court of appeal.
Efficiency & Accountability
At KNRCL, planning begins before starting the project, including selecting the best construction methodologies, machinery, preparing the construction schedule/program, cost, time, quality, and safety management, and contract administration and organizing resources, including daily and weekly planning through the life of the project to ensure all tasks are completed well within the scheduled time.
Effective communication with project team, subcontractors, suppliers, client, architects, and local authorities are a routine process in a project. For designing, 3D printing software applications have been put to use and new software applications like BIM, Telematics, while new concepts like drones, wearable technology for monitoring project activities and worker safety, are also being explored.
Artificial intelligence & IoT
Artificial Intelligence (AI), Drones, wearable technology, Robotics, Telematics etc are getting introduced. The tendering authorities of different government agencies should also permit a portion of the technological cost to be absorbed in the project cost to be tendered. This would help the infra industries to shift to automation to a great extent. KNRCL is also exploring the possibility of introducing these in the large projects.
Order Book
With an order book of ₹58.1 bn, which includes an estimated EPC value of ₹39.8 bn worth of HAM projects, KNRCL has a book-to-bill ratio of 2.9 x LTM revenue. Execution in new HAM projects is expected to pick up in Q4FY19 and from Q1FY20 – thereby guiding for a strong FY20. Meanwhile, the management is focusing on foraying into areas such as building flyovers, metro-rails and railways to diversify the order book and widen the scope of opportunities.
With a proven track record of timely order execution and healthy infrastructure industry prospects, we estimate standalone revenue to increase to ₹25.0 bn over FY18-20. The EBITDA margin to remain range bound at 15% over FY19-20 EBITDA margin was a strong 20% during the quarter, due to near completion of some projects in FY19. Margin was driven by accelerated revenue recognition of a few high-margin irrigation projects in their final phase and a lower proportion of subcontracting expenses. Over FY19-20, we expect standalone EBITDA margin to be range bound at 15%, as execution of lower-margin irrigation projects is expected tocontribute significantly to overall revenue.
NBM&CW July 2019
