The harsh portfolio!

Its been a few years since I am invested in RKEC projects; as there are no specific threads on RKEC, I am adding my notes from their last few years of operations.

Unexecuted Order book

• Jan 2017: 357 cr.
• Jun 2017: 444 cr.
• Aug 2020: 823 cr.
• Sept 2021: 867 cr.
• March 2023: 1158 cr.
• May 2024: 915 cr.

Problems faced since FY20:

• Abrupt termination of a contract after 85% completion in Purvanchal project without any justification 13.04.2018; political change; 38k power connections to BPL customers; (80 cr.) negative cashflow; Went through legal and arbitration; contract validated and work completed; only 36 lakh remaining amount to be received. Bank of Baroda panicked due to large negative cashflows, added 43 cr. of negative cashflow by increasing 10% margin money; reduced overdraft limit (50 to 37.5 cr.). Consistently been convincing BOB and convinced them in 2022 which reduced margin money; took cash credit from Bandhan bank. Time lost is forever
• Accident in Farakka project leading to loss of 2 lives: was running ahead of schedule, it wasn’t fault of RKEC, reason is yet to be found. This accident was followed by national lockdown due to covid. Project has restarted in FY24. 2.5 km bridge (4 lane bridge), one bridge by June 2024, remainder by Dec 2024 and complete project by March 2025
• Ukraine war: steel price increased, took a 10 cr. hit on one project, in another project it was neutralized
• 200 cr. negative cashflows since (80 cr. Purvanchal fully recovered + 43 cr. BOB recovered + 20 cr. tax issues not recoverable + 30 cr. Farakka project not recoverable + 20 cr. COVID not recoverable; steel price hike, etc.)

AGM23 notes:

• Took more banking relationships (Bandhan bank, ICICI bank, 80 cr. from another national bank, have approached BOB to reduce margin money and increase in cash credit limit)
• 1800 cr. bid – final decision awaited (200-500 cr. size projects), 1500 cr. bids under submission, will have 1000-1200 cr. order book at end of FY24 (achieved 915 cr. in May 2024). Want to have order book of 3x of turnover
• Don’t undertake distress bidding which is being seen in NHAI projects currently
• FY24 margins will see 1% improvement (actually saw 3% drop)
• Tax issues have been resolved and tax liabilities has been provided in books
• They had faced delays in payment of taxes, EPFO. 90% out from this difficult situation and will get out of high cost of loans by H2FY24. Still have little bit of liquidity issues. Focus is on stabilizing co in next 2 years and then go for expansion
• Contingent liability is down to 9 cr. as of today, confident to remove remainder by FY25 (accomplished)
• Have resolved issues that had impacted them and expect considerable growth in next 2-3 years
• 5 projects of 300 cr. completed in FY23 (jetty in Haldia port, freshwater intake for Adani Power in Jharkhand, cruise terminal in Vizag, and 2 other projects in Vizag). No negative remarks in these orders
• 42 cr. arbitration orders won – 16 cr. realized so far, confident to realize remainder amount
• 30 cr. additional credit limit with ICICI bank (80 cr. + 47 cr.). Reduction in margin money by 5%, working capital has been brought down significantly
• 17.6 cr. fixed assets added
• 400 cr. sales in FY24 and better in FY25
• Monthly EMIs < 1cr. in all term loans combined

AGM24 notes

• Seeing growth opportunities in logistics, green energy sectors
• Few more arbitration and claim cases going, this has become routine part of their income stream. 1 arbitration + 1 claim ~ 30 cr. currently outstanding.
• No unresolved issues in Farakka project, have been given extension until 28th Feb 2025. Positive to finish by March 2025. 83% progress currently. Can get additional claim from insurance company for Farakka site
• 400-450 cr. target revenues FY25 (Q1 was good, Q2 may not be good because of monsoon)
• Unexecuted order book in March 2024: 900 cr. (407 cr. Andaman + 100 cr. Andaman + 150 cr. Farakka + 180 cr. Mirawal). These values will increase because of additional works in this projects + inflation (~1000 cr.)
• 600 cr. expected order wins by December 2024 (won 186 cr. until Oct 2024)
• Want to increase unexecuted order book to 2000 cr. order book by March/June 2025 (want to maintain orderbook at 3x of sales)
• Receivables issue: Project in Uppada (near Kakinada) – government funded project taken from another corporate. Exited (4 cr. pending). Other receivables are in normal course of business and fully realizable
• Haven’t paid interest to promoters for borrowings from them, will pay once their liquidity is sufficient
• BOB (main banker) – 10.65% on CC (made proposal to reduce it by 1%); ICICI – 9.5%, Bandhan – 12% (small loans availed during covid)
• Credit limit: BBB/Stable (with positive ) for 390 cr. Using 295 cr. currently. Got new sanctions of 35 cr. from CSB + 80 cr. from Indian bank, positive of getting these sanctions by end of this year. Can reach 600 cr. sales with this (with 400 cr. debt). Demand for bank guarantees have increased
• Will be looking at financial restructuring (including raising money)
• 14-15% PBIT margins, arbitration income was offset by higher one-time expenses (e.g. taxes)
• Gross block increased to 101 cr. (from 51 cr. in FY20). Has also made them more cash strained, bought 2nd half stuff as well for commercial viability

10.03.2023 Infomerics

• Assigned BBB/stable for long term bank facilities (310.86 cr.)
• Activities are managed by Garapati Radhakrishna, Ms. Garapati Parvathi Devi and Garapati Ram Mohan. They are assisted by a team of professionals
• Takes up short to medium term projects (18-36 months) and handle limited number of projects at a time to ensure timely completion
• Unexecuted order book of 1157.6 cr. in March 2023 (to be executed in 2-3 years)
• The average utilisation of fund based and non-fund based working capital limits of the company stood high around ~84.49% and ~85% during last 12 months ending 31st January 2023
• Raw material fluctuation risk is mitigated to some extent with presence of price escalation clause
• Projected to generate cash accruals of Rs. 14.48 crore in FY23

12.05.2023 Infomerics

• Proposed Long Term bank facilities of 70 cr. (in addition to existing 310.85 cr. existing bank facilities)
• Unexecuted order book of 1015.09 cr. which is to be executed within 2-3 years
• The average utilisation of fund based and non-fund based working capital limits of the company stood high around ~83.69% and ~84.62% during last 12 months ending 30th April 2023

24.06.2024 Infomerics

• Rating outlook upgraded to BBB/Positive (from Stable). Additional long term bank facilities proposed for 100 cr.
• Unexecuted order book of 915.14 cr. in May 2024 (to be executed in 2-3 years)
• The average utilisation of fund based and non-fund based working capital limits of the company stood high around ~81.53% and ~78.31% during last 12 months ending 31st May 2024