Ducon Infra Q3FY17 Concall Summary

Ducon Infratechologies logo

About The Company

  • Ducon Infratechnologies limited is listed company which has 2 verticals, one is IT & other is non-IT infrastructure
  • The digital business or IT space came into the fold of Company from the erstwhile Dynacon Technology and here the Company offers distribution services to its clients relating to the marketing initiatives, distribution, volume procurement and end-to end technical support
  • The Company has forayed into infrastructure. This business will merge into listed entity by way of completion of the ongoing scheme of amalgamation between Ducon Technologies India Pvt. Ltd. and Ducon Infratechnologies Limited
  • Ducon brand has its establishment in the USA since 1938, Globally Ducon is a very renowned name providing advanced custom engineered systems and products in environmental control, material handling, waste incineration, and power transmission and other related industrial lines
  • The Company has supplied systems and equipment to utilities, refineries, cement plants, paper mills, glass, steel, mining and chemical industry.
  • The company has  high reputation among all Fortune 500 companies. Since its inception, the Company has completed over 30,000 projects
  • Since the company is still in merger phase, the results are only for IT vertical


Finalising Highlights

Ducon Infra Q3 financials

IT vertical

  • For the 9 months of the fiscal year 2017, total operating income was approximately Rs. 297 million, which is up 21% over last year
  • EBITDA margin of 7.4%, 140 basis points up from 6% as compared to previous year
  • Net profit grew to Rs. 6.7 million in nine months of fiscal 2017 from close to Rs. 2 million as reported to the previous year
  • In the IT business the company is making efforts towards making it future ready. Stabilizing backend & pursuing new initiatives on the front end to expand reach & products
  • The company is seeing encouraging movement in the direction of cloudbased infrastructure and solution. It is gaining traction in India, and there is a gradual shift in the organization towards OPEX model rather than spending more in-house on CAPEX
  • The company aspires to position as a single company that as a bridge between the cloud technology providers and the end customers by offering a complete bouquet of cloud solutions and services

Non IT Infrastructure

  • For 9 months Revenues were Rs 2780 million with EBITDA margin close to 5%. The margins have improved over the previous year, and company expects to build upon the business momentum
  • The company expects that EBITDA margins will increase once the market kicks in, so a lot of gross profit margin will trickle down to the bottom line, so obviously EBITDA would be much higher. 
  • The company has healthy order backlog of Rs 3000 million & expect execution of the same in the near term
  • The company is seeing much activity in the FGD market currently, company is quite busy with preparing proposals and participating in tenders. The order are of large power plant projects, and a single FGD project value can go into hundreds of crores.
  • It is tough for the company to give exact timeframe, it is hopeful that in due time it shall be able to secure some of these FGD projects
  • The company is actively bidding on infrastructure projects related to power transmission and electrification areas.
  • India intends to spend Rs. 31 trillion in infrastructure development with 70% investments expected in power, roads and urban infrastructure. In the next four to five years the Indian power sector itself has an investment potential of US$250 billion. This provides huge opportunities of business for the company
  • The company expects that net income margins over the period to increase because the fixed cost remains stable and does not increase in proportion to the revenue. The revenue have been between Rs. 300 crores and Rs. 400 crores which is not full scale. So as it increases substantially, the SG&A, general expenses does not increase in the same proportion, a lot of the costs get absorbed, and the net income goes higher
  • The company has 5 new customers which are in electrification and infrastructure projects
  • The company has project managers who are currently doing projects. The infrastructure is ready. The company is doing projects in remotest part of the country has setup site offices, & has set up infrastructure there and execute large projects just like any other EPC business. 

FGD Business

  • FGD systems are a wide variety of systems, and there is a big demand for FGD systems right now, & company is bidding in the range of crores of rupees. For this there is huge requirement of limestone & gypsum. However one can use lime & also caustic soda or sea water. So depending upon the power plant & the locations those agents are readily available so it is not a issue for the company.
  • FGD projects are large projects, there are many components & some of them are propriety components which are sold by approved vendors. So depending on the requirements certain products have to be procured from overseas & some fabricated in India.
  • L&T is looking to tie up with the company because it has technology. L&T does not have technology. Ducon has the technology plus the ability to execute projects. Therefore it competes with such company
  • The company is expecting a bright future & the growth will depend on the growth of India. It depends on how many companies place orders & on the economic climate of India.
  • India did not have regulations for FGD
  • Early success: Reliance Industries for its Dahanu Power Plant installed the first ever FGD in India. That was a global tender with all the multi-nationals and Ducon also participated in that. Ducon being a flat organisation, we was successful in getting that first order, and successfully executed it. After that company got orders from Natco & BHEL which was successfully completed. So the company is major player in the FGD sector as it has most experience in India.
  • The total market size is USD 250 billion 
  • It is tough to comment on cost of per megawatt of FGD as it depends on what kind of FGD it is. So it will differ if itslimestone FGD, it is a caustic FGD, sea water FGD, what is your outlet stack temperature, are you reheating it, you have redundancy, what kind of controls you have
  • DeNOx catalyst gets deactivated after three or four years and then the customer who has bought the DeNOx system will have to buy the catalyst again, a replacement catalyst. Generally they would buy from a company who has installed the first system also. So there is an opportunity for repeat business, continuing recurring business
  • There also the regulations have to be met for DeNOx system as well, and that market also follows, if all the power plants will comply, the question is, of course, how quickly the government will move to make sure they are enforcing these regulations. Based on that it can happen in billion of dollars.
  • The company contemplates that there is no problem of collecting funds. It is standard procedure & company may provide bank guarantees
  • The company has competition from Mitsubishi & Alstom
  • The company sees opportunity in India & finds it economical to do projects in the Middle East countries & even in South Asian countries. Any project where the company feels that Ducon USA has it can subcontract to Ducon India to execute it from there
  • In October 2016 the company said that it is chasing contract worth 10000 crore & it has not lost yet. They are still outstanding, the company has submitted bids & customers are evaluating. these are big investments for customers, hundreds of crores and they have to take their time to do that. So, the proposals are still there, they are outstanding. The company keeps working on newer grids & newer projects
  • Once FGD systems are installed they need not be maintained & nothing has to be done. The client maintains and operates the system as they operate the rest of their facility, whether it is power plants, if it is cement plant, if it is a refinery or a glass plant, depending on all these projects, all these plants require FGD as long as they have a fuel burning boiler on the plant which is burning pet coke, which is burning oil or coal, they need an FGD system. If annual maintenance is required or they need to improve efficiency then the company will have to do it. But as such the company is not involved in operation
  • Right now the company is having best technology. The US company does most of the research & India gets the benefit of all the R&D. The company is not doing any research in India