Highlights of the call:
As on Dec'08, the international order book position in Electro Mechanical Projects stood at Rs 4200 crore. After execution of orders in Mar'09 quarter, the order book position on Mar'09 will be lower because of lower intake of new orders. The management after Oct'08 had adopted a cautious outlook as far as new orders are concerned, as it wanted to see how the situation behaves going forward. The current international order book position will be completed in next 28 months from Mar'09. For the growth from 2nd half of FY'11, the management is optimistic about the order intake for international operations and many tenders have been quoted by the company and the company expects strong order book by the end of H1 FY'10 which will provide for the visibility for period beyond 18 months from now.
The international orders are largely from Abu Dhabi and Qatar. The entire Gulf region, except Dubai have strong GDP and Qatar is further expected to grow beyond 8% in next year even with this financial turmoil that is present across the world. Some of the other details regarding these regions are as- Qatar (GDP of US$68 bn, break even of oil price a US $24), Abu Daubi (GDP of US $193bn and break even of oil price at US$23), Saudi Arabia (GDP of US$376 bn and break even of oil price at US$ 49). As far as Dubai is concerned, it needs lot of financial assistance as there was a big housing bubble developed over there. In Dubai, Voltas has two projects, the Burj Tower, which will be completed by Sep'09, and DIFC project which will be completed by May'09. Both the projects are backed by the Government and are of high prestige. So the company doesn't expect any delay for these two projects.
In Abu Dhabi, the company has two major projects one is the formulae one race track and and other is the retail project which is more like a convention center. Both the projects backed by Government and no delays. Similarly for Qatar, there are two major projects, one is the Barwa Township which is Government backed MEP project and the other is Sidra Hospitals and College project which is actually taken care of by the bride of the Price of Qatar herself. So overall there is no concern for international EMP projects for Voltas.
As far as domestic order book position in EMP business, currently stands around Rs 1000 crore, which will be completed in 10 months. The current enquiry is still slow and liquidity is still tight, however the management expects the situation to improve from 2nd half. Domestic orders are of small execution period less than 1 year. Both put together international and domestic EMP projects will constitute around 2/3rd of Voltas turnover going forward.
The company is also looking to enter the Saudi Market aggressively as there are plenty of resources waiting to get deployed. Also after completing the water treatment project in Singapore, the company is also eyeing that market aggressively.
Even after the raw material prices have crashed, none of the orders were renegotiated in pricing or in any other terms. However, Voltas normally goes for a back-to-back contract and hence all its raw material requirements are also tied up. So there will be no major gain in fall in raw material prices.
As far as Unitary Cooling Product business is concerned 2008-09 was very bad in the sense, there was monsoon started early in some regions which resulted in built up of inventories to the tune of Rs 100 crore as it postponed the demand and from November onwards, industry growth turned negative. For Nov'08, the industry de-grew by 14% for December by 30% and for Jan and Feb around 10%. The margins was under pressure due to high inventory, high working capital requirement, high transportation cost etc. However most of the inventory has been sold off and the management expects the margins to settle down around 4% with proper mix of imports and manufacturing of unitary cooling products. FY'10 should be a better year for this division, however one needs to see how demand flows in the peak season.
For its Engineering division, which now constitutes around 15% of turnover, some positive signs have emerged from Textile and Mining activities. This is largely due to rupee depreciation, which enables textile garments becoming more competitive in exports and against Chinese imports. However the company is less optimistic in this division as it needs to be seen how things improve going forward.
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