Armed with Rs 1,530 Crore Order, Shriram EPC Expects a Turnaround in 2018
Shriram EPC Ltd. subsidiary, Shriram EPC FZE, won a Rs 1,530 crore order in Oman, providing much needed impetus to the company that's currently undergoing debt restructuring.
Speaking to BloombergQuint, T Shivaraman, the managing director and chief executive officer of Shriram EPC, said that the order win takes the company's order book for the current financial year to Rs 3,500 crore.
Shivaraman added that the company is confident of a turnaround in the first half of 2018. Shriram EPC's corporate debt restructuring package was approved in September 2014, and earlier this month the company said it will convert 50 percent of its debt into equity.
Here are the edited excerpts from the interview:
How much of the project is the company expecting to complete this financial year? And how much profit do you expect from this particular project?
This order will not have any dramatic impact for this financial year. The completion should be around 10 percent for financial year 2016-17. Most of it will come through in financial year 2018.
We are expecting to generate a profit of 10 percent of the project amount for this particular project.
Does the company have enough resources to support this order inflow of Rs 1,530 crore?
This particular order has been structured in a way to keep the cash flow positive. We will need some financial support, which will be provided by our bankers. It has been already discussed with bankers before taking on this project.
The execution period is 32 months. Will it take that much time or is the company aiming at faster completion of project?
Company's attempt is to crunch the 32-month period by five-six months. Something around 26 months is what we are pushing for, we cannot guarantee it. But it's a good internal target that we are aiming to achieve.
Are there any more orders that the company is expecting in the current financial year?
We have a few more projects from the government sector in India. The order amount is definitely not of this size. But, yes we have few order inflows in the pipeline.
Is company expecting any future contracts, specifically in the Middle East?
We will use this project as a base to get more order inflows and make a permanent presence (in the Middle East). We have few interesting developments from East Africa. We are yet to reach the project tendering phase, but we do have some market development happening. We have some good possibilities there.
The company has been posting losses since December 2012 quarter. What were the key pressure points related to these losses?
We have been hit by the general downturn in the EPC (engineering, procurement and construction) space. The order flows were down, and excessive debt on the balance sheet were the main issues. We are now working with the banks, which allows us to bring down our debt level.
Also some equity will be coming in from the promoters by end of financial year 2017. We are expecting turnaround by end of financial year 2017.
What are the future plans of the company? When do you see the company generating profits?
We are seeing some turnaround in Indian market as we expand in water and road projects. Those two areas we are seeing traction and are expecting more projects in the pipeline.We have an order backlog in steel sector, but we believe there's an upside in this sector. The Oman project will help us to keep alive the steel sector and to keep things moving swiftly.
Profit generation will take some time. Interest burden will prevail for coming quarters. But from financial year 2018, we should definitely see profits coming in.
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