Where an engineering order meets the balance sheet

In a project business, revenue and cash part company the day a contract is signed. We recognise revenue over time under Ind AS 115, usually by comparing costs incurred with total expected costs, but we can invoice only when a milestone in the contract is reached. The difference sits on the balance sheet as a contract asset: work the client has received and has not yet been asked to pay for. At Ilvara I review every contract asset above ₹5 crore each month, by age and by the event that will release it, and I treat anything older than a year as credit nobody approved. Since 2020 every tender has gone to our bid committee with its monthly cash curve as well as its margin, and no Projects bid leaves with more than a fifth of its value payable after mechanical completion unless the committee accepts the exception in writing. Group contract assets have fallen from 139 days of revenue in 2018–19 to 71 days in 2025–26.

Steel plate is roughly 36 per cent of the cost of a reactor or pressure vessel, and many of our export orders are fixed in US dollars or euros for eighteen months or longer. A fixed price is a short position in steel and a long position in foreign currency, whether or not anyone has written it down. Since September 2020 we have locked plate prices with mills when an order above ₹25 crore is signed, paying advances of 10 to 15 per cent, and booked forward contracts against each export order's milestone dates, designated as cash-flow hedges under Ind AS 109. Domestic orders from public-sector clients usually carry price-variation clauses linked to published indices, so for those we cover only the share of the risk the formula leaves with us. The policy costs us pooled-purchase discounts and ties up about ₹110 crore in mill advances. It has also kept delivered margins close to bid through two violent years for steel.

An Indian engineering contractor cannot bid without bank guarantees: advance-payment guarantees, performance guarantees of around 10 per cent of contract value and, often, retention guarantees that run through the defect-liability period. They are issued against non-fund-based limits our consortium banks sanction on the strength of our balance sheet, and when those limits are full the order book stops growing, whatever the sales team has found. I manage that capacity as capital. Each live tender carries a forecast of the instruments it will need and for how long, a small team recovers instruments whose obligations have ended, and the bid committee sees the commission and an opportunity charge beside the margin. Since 2021 our limits have grown from ₹1,900 crore to ₹2,600 crore without new promoter collateral, utilisation has fallen from 92 to 71 per cent, and our long-term rating has risen from BBB+ to A. I meet the rating agency's analysts twice a year with the forecast our board sees.

Heavy fabrication is lumpy. A new bay, a larger crane or a coastal yard can cost more than a year's profit, and an idle one costs nearly as much as a busy one. I ask every capital proposal to show its return without any government incentive first, against our 15 per cent post-tax hurdle, and only then to add the incentive as a conditional receipt with the thresholds that must be met to earn it. Under Ind AS 20 a grant is recognised only when there is reasonable assurance that the company will comply with its conditions and receive it, and I think a board should apply the same test before it approves the spending. In 2023 that discipline led us to choose a ₹171 crore extension of the Dahej yard, where reactors were backed up twenty-six months, over a ₹460 crore greenfield plant whose return depended on meeting an incentive scheme's thresholds. The Dahej bay earned ₹290 crore of revenue in its first full year.

Ilvara's promoter family also owns Rajyaguru Structurals Private Limited, which fabricates steel structures for our projects, and until 2021 it supplied all of them under an omnibus approval renewed each year. The SEBI Listing Regulations require the Audit Committee's prior approval for related-party transactions, with only its independent members voting, and shareholders' approval for material ones, on which related parties may not vote in favour. Those rules protect the process. They cannot tell a committee whether a price is fair. Since 2021 I have recommended that our committee approve a method rather than a price: the related party bids in the same tender, on the same drawings, against at least three unrelated fabricators, and the committee sees every bid. Rajyaguru Structurals now wins about 58 per cent of the work, at prices about 7 per cent below the old ones. In 2022 I also declined, in a written paper, a request that Ilvara stand surety for a bank loan to another promoter-group company.