Annual Report Analysis - IVRCL Infrastructure:: Edelweiss

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Increase in working capital stretches cash flow

n  During the year, IVRCL Infrastructures (IVRCL) reported net cash flow from operation of INR (539.9) mn [FY09: INR (934.2)] mn, despite PBT of INR 3780.9 mn (FY09: INR 3107.9 mn), primarily on account of higher working capital requirement.

n  Cash conversion cycle deteriorated from 159 days in FY09 to 173 days in FY10, primarily on account of increase in debtor days (including unbilled revenue and retention money) from 169 in FY09 to 205 in FY10. This was, however, partially offset by increase in creditor days and advances from contractee.

n  Debtors more than six months remain high for FY10, at INR 5.5 bn, which is 27.8% of the total debtors (excluding unbilled revenues and retention money; FY09: 27.3%).

Low subcontracting drives EBIDTA; however, provision/interest cost dampens profit

n  IVRCL’s sales increased 15.1%, from INR 50.6 bn in FY09 to INR 58.3 bn in FY10, primarily on account of income from transmission business, sale to sub-contractors and sale of systems, equipment, services and spares.

n  Blended EBIDTA margin improved from 9.5% in FY09 to 11.3% in FY10, primarily due to reduction in sub-contracting activities, which, in turn, lowered the construction and manufacturing costs from 83.6% of sales in FY09 to 81.4% of sales in FY10.

n  PBT margin, however, increased meagerly from 6.1% in FY09 to 6.5% in FY10 as net interest cost increased from INR 1.7 bn in FY09 to INR 2.4 bn in FY10.

n  Provision for doubtful debts, advances and deposits and bad debt written off increased from INR 120.2 mn in FY09 to INR 428.5 mn (11.3% of PBT) in FY10.

n  Auditors have highlighted that during the year provision of INR 1.4 bn on account of withdrawal of the tax relief u/s 80IA availed in earlier years, has directly been adjusted from special reserve, which constitutes 65.5% of PAT.

n  Average borrowing cost (excluding interest capitalised) for the year stood at 8.1% (FY09: 8.0%), details on interest capitalised have not been disclosed.

Subsidiary analysis

n  During the year, IVRCL A&H, a subsidiary, has capitalised interest amounting to 1.1 bn under expenditure incurred during construction period pending allocation (EDCPA); year end balance of EDPCA account is INR 2.4 bn. IVRCL A&H has done capital expenditure of 7.0 bn during the year.

n  During the year, IVR Strategic Resources & Services (ISRSL) and IVRCL Water Infrastructure (IWIL), two wholly-owned subsidiaries, amalgamated with IVRCL A&H. Accordingly, IVRCL A&H has issued 59.5 mn shares to IVRCL, raising IVRCL’s shareholding in it from 62.4% to 80.5%.