Sterling and Wilson Renewable Energy Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
C STERLING & WILSON July 19, 2022 BSE Limited National Stock Exchange of India Limited Phiroze Jeejeebhoy Towers Exchange Plaza Dalal Street Bandra Kurla Complex Mumbai — 400 001 Bandra (East), Mumbai — 400 051 Scrip Code: 542760 Symbol: SWSOLAR Dear Sir/ Ma’am, Sub.: Investors Call Q1 FY 23- Transcript Ref.; Regulation 30 read with Part A of Schedule III of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) Dear Sir/ Madam, In continuation to our letter dated July 11, 2022 and July 14, 2022, please find enclosed the Transcript of the Investors Call held on Thursday, July 14, 2022 at 02:00 P.M. for the Unaudited Standalone and Consolidated Financial results of the Company for the quarter ended June 30, 2022. The same is available on the Company’s website at https://www.sterlingandwilsonre.com/ Request you to take the same on records. Thanking you, Yours faithfully, For Sterling and Wilson Renewable Energy Limited iy Jagannadha Rao Ch. V. Company Secretary and Compliance Officer Encl.: As above Sterling and Wilson Renewable Energy Limited (Formerly Known as Sterling and Wilson Solar Limited) i i jesti Mumbai — 400 043 Regd. Office: Universal Majestic, 9th Floor, P. L. Lokhande Marg, Chembur (VV), Y Phone: (91-22) 25485300 | Fax:(91-22) 25485331 | CIN: L74999MH2017PLC292281 Email: info@sterlingwilson.com | Website: www.sterlingandwilsonre.com “Sterling & Wilson Renewable Energy Limited Q1 FY2023 Earnings Conference Call”
July 14, 2022
Disclaimer: E&OE - This transcript is edited for factual errors. In case of discrepancy, the
audio recordings uploaded on the stock exchange on 14th July 2022 will prevail.
MANAGEMENT: MR. AMIT JAIN - GLOBAL CHIEF EXECUTIVE OFFICER -
STERLING & WILSON RENEWABLE ENERGY LIMITED MR. BAHADUR DASTOOR – CHIEF FINANCIAL OFFICER - STERLING & WILSON RENEWABLE ENERGY LIMITED MR. SANDEEP THOMAS MATHEW – HEAD INVESTOR RELATIONS - STERLING & WILSON RENEWABLE ENERGY LIMITED
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Sterling & Wilson Renewable Energy Limited July 14, 2022
Moderator:
Ladies and gentlemen, good day and welcome to the Sterling & Wilson Renewable Energy
Limited’s Q1 FY2023 earnings conference call. This conference call may contain forward-
looking statements about the company, which are based on the beliefs, opinions and
expectations of the company as on date of this call. These statements are not the guarantees
of future performance and involve risks and uncertainties that are difficult to predict. As a
reminder, all participant lines will be in the listen only mode, and there will be an
opportunity for you to ask questions after the presentation concludes. Should you need
assistance during the conference call, please signal an operator by pressing “*” then “0” on
your touchtone phone. Please note that this conference is being recorded. I now hand the
conference over to Mr. Sandeep Thomas Mathew – Head Investor Relations for his opening
remarks. Thank you and over to you Sir!
Sandeep Mathew:
Very good afternoon everyone. I welcome you all to the Q1 FY2023 earnings call. Along
with me I have Mr. Amit Jain, Global CEO, Mr. Bahadur Dastoor, our CFO, and Strategic
Growth Advisors, our Investor Relations Advisors. We will start the call with an update on
the solar power industry and operational highlights for the quarter by Mr. Amit followed by
financial highlights by Mr. Bahadur, post which we will open the floor for Q&A. Thank
you and over to you Amit!
Amit Jain:
Thanks Sandeep and a warm welcome to all the participants on this call. I would like to
give a quick update on the solar power industry, other allied renewable businesses and
status of our business operations. So to start with the industry updates, there are strong
levers which will drive robust growth globally over the coming years. Stronger policy
support from the government in terms of tax incentives, favorable policies for renewable
sectors coupled with ambitious climate targets announced for COP26 are going to drive
demand for solar energy to new records worldwide.
Solar industry is well poised to grow in long-term as IPPs have huge plans for global
capacity additions. The global tariffs have already corrected upwards with the revision in
prices and a lot of projects are expected to get finalized in FY2023 including in H1
FY2023. Despite the record increase in modules, commodity and freight over the last 18
months, the levelized cost of electricity for solar plants is still cheaper than the traditional
source of energy as well as the renewable source of energy. With the Indian government
accelerating its plan for clean energy transition with Prime Minister Narendra Modi
planning to build 500 gigawatts of renewable energy and ensure that half of our energy
requirements will come from renewable resources by 2030, we expect outstanding growth
in Indian solar power industry in the years ahead.
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India has also announced a roadmap to become a hub for production and export of green
hydrogen made from water and renewable electricity. India has set a 5 million ton green
hydrogen production target by 2030 to help bolster its geopolitical heft and be a game
changer for the country’s energy security. With the government promoting the new age
emission free fuel, Reliance Industries has also shown significant interest in the space. With
this development we expect huge increase in the scale of average project size in Indian solar
industry.
The US utility-scale solar market saw the sharpest decline in the Q1 of calendar year 2022
and experienced its lowest quarter of installation since 2019 and the lowest number of new
projects added to the pipeline since 2017. On June 6, 2022 Biden administration announced
a two year duty exemption for solar products from Cambodia, Malaysia, Thailand and
Vietnam to accelerate execution of projects delayed by Department of Commerce Anti-
Circumvention Investigation. This executive action brings massive relief to the US solar
industry and we expect significant ramp up in the project execution activities going ahead.
In Australia, the recent election has been a game changer in terms of policy support for
renewable energy. The new Labor government has plans to unlock renewables investment,
upgrade the grid and bring federal policy more in line with the states and territories many of
which have more ambitious climate goals.
In June 2022, the EU energy ministers agree to increase the share of European energy
consumption coming from renewables such as solar or wind power to 40% by 2030.
According to BNEF, Europe is expected to add 27 to 33 gigawatts per year for the period of
2022 to 2025 and 36 to 56 gigawatts per year for the period of 2026 to 2030.
As per the International Energy Agency, by 2026, global renewable electricity capacity is
estimated to rise more than 60% from 2020 levels to over 4,800 gigawatts equivalent to the
current total global power capacity of fossil fuels and nuclear combined. Renewables are set
to account for more than 95% of the increase in global power capacity through 2026 with
solar PV alone providing more than half. Our focus is to grab large share of EPC capacity
additions in FY2023. For example US is going to 23 gigawatts of capacity addition, 16
gigawatts of capacity addition in Europe, 3 gigawatts in Australia and 16 gigawatts of
capacity additions in India. It is estimated that solar PV utility-scale market excluding
China is expected to grow at 15% CAGR over the next few years with growth led by
developed markets like US, Europe, Australia as well as Indian market.
I would like to state that with our global reach strong relationship with customers and the
lenders as well as the induction of Reliance group as an additional promoters of the
company, we are well positioned to capitalize on these growth opportunities. Reliance
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Group’s investment in company has led to strengthening of company’s balance sheet and
increased confidence in customers, suppliers, bankers and other stakeholders.
Now coming to our operation and maintenance business, solar O&M portfolio as on date is
5.8 gigawatts. O&M constituted 3.7% of the revenue in Q1 FY2023 and stood at 44 Crores.
Reduction in O&M portfolio is primarily on account of sale of plants by clients to
customers having their own O&M team. We are focusing on increasing international O&M
portfolio through organic and inorganic route. Our enhanced value to customers through
O&M differentiators like drone thermography, strong analytics and predictions, IV curve
tracer, underground cable fault finders, etc., will help us to expand our O&M portfolio.
Now as we take you around our battery energy and storage system businesses. So battery
energy storage system and energy storage system is expected to grow 2x in the next four
years to $12 billion annually. UK and Europe will be the next big consolidated markets with
UK, Germany, France, Italy and Spain being top five countries. With this I will ask Mr.
Bahadur, our CFO to take you through the order book and consolidated financial highlights.
Thank you very much. Over to you Bahadur!
Bahadur Dastoor:
Thank you Amit and good afternoon. Coming to the order book, solar modules constitute
about 55% to 60% to the cost of the solar project and prices of the same had increased by
about 40% from January 2021 to March 2022 driven by higher commodity prices primarily
on account of silicon and supply chain issues such as shortage of shipping containers. Steel
contributes 5% to 10% to the total cost of solar projects while its rates have risen by 25%
during the said period. This has adversely impacted the ROE of solar power projects
resulting in developers postponing the awarding of solar power projects consequently
resulting in order finalization getting pushed to Q2 and H2 of FY2023.
The module prices, commodity prices, and logistics costs which had hardened due to the
Russia-Ukraine war has started to soften slightly. Thus, we expect the tendering activity to
gather momentum which would result in robust order finalizations. We expect to bag major
solar PV EPC projects in our addressable markets in the coming quarters. We expect to bid
for projects constituting 23.1 gigawatts with India having the highest share at 32.5%
followed by MENA and Africa at 19.5% and US and LATAM at 19.1%. We are targeting
around $1 billion of new EPC orders in the international and Indian market in FY2023. We
expect a lumpiness in order inflow with significant consolidation being observed in the
industry with stronger players expected to take larger share of the market in the future and
low level players moving out. Our unexecuted order book as on June 30, 2022 stands at
2,098 Crores which is executable over the next 12 months. Our order bid pipeline remains
robust.
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Now I will take you through the consolidated financials for the quarter ended June 30,
2022. Revenue for Q1 FY2023 has been 1,206 Crores as compared to 1,071 Crores in Q1
FY2022. O&M constituted 3.7% of the total revenue in Q1 FY2023. The region wise
revenue breakup is as follows: Australia contributed 59.79%; America has contributed
21.28% followed by India which contributed 15.02% and the balance 3.9% by MENA and
the Africa region. At a company level, the gross margins remain suppressed primarily on
account of international EPC projects. In the US, labor cost increased due to shortage of
labor supply and in Australia labor cost, site overheads increased due to the loss of
productivity on account of extreme weather conditions. Further there was a significant
translation loss due to adverse movement in the exchange rate of USD/INR and AUD/INR
compared to March 2022. O&M margins were suppressed in the quarter due to one-off final
punch points as well as demobilization costs, incurred in the current quarter relating to large
projects handed over to developers in the previous year. We anticipate O&M margins to
normalize from the next quarter. Recurring overheads for Q1 FY2023 increased 17% to 94
Crores.
As part of the transaction with Reliance Group, the company has signed an indemnity
agreement with SP Group, KYD Group and the Reliance Group on December 29, 2021.
According to the agreement SP and KYD Group would indemnify and reimburse the
company and its subsidiaries for a net amount if it exceeds 300 Crores on settlement of
liquidated damages pertaining to certain past and existing projects, old receivables, direct
and indirect tax, litigations as well as certain legal and statutory matters. These amounts
would be settled on 30th September of each succeeding year on the basis of the final
settlement amounts with customers, suppliers and other authorities. SP Group and KYD
Group are consequently entitled to net off the amounts payable with specific counter claims
levied and recovered by the company and its subsidiaries on its customers and vendors
relating to these matters. As of June 30, 2022 the company and its subsidiaries have made
provisions equivalent to 300 Crores thus there will be no further impact on the results of the
company on settlement of liquidated damages pertaining to past and existing projects as on
the date of signing the transaction documents with RNEL, old receivables, direct and
indirect tax litigations as well as legal and regulatory matters in accordance with the
indemnity agreement.
Coming to the balance sheet, as on June 30, 2022 net worth stood at 596 Crores and cash
and cash equivalent stood at approximately 272 Crores. Our debt grew by 131 Crores with
net-debt to equity ratio at 0.22x. Advance and performance guarantees encashed by four
customers amounted to 588 Crores. With one customer, we have signed the final settlement
agreement and the encashment amount of 319 Crores relating to two projects have been
refunded by the customer. With respect to the balance two customers whose projects are
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completed, the company is in advanced stage of discussion with them and confident of
recovering the amount in the coming quarters.
As on June 30, 2022 we had a negative working capital of 277 Crores as compared to
negative working capital of 302 Crores as at March 2022. Receivables due for more than
one year as at June 30, 2022 stood at 261 Crores compared to 251 Crores due for more than
one year as at March 31, 2022. They comprise related party receivables of 10 Crores, which
is net of 196 Crores that the company needs to pay back to the related party against advance
received for the waste to energy project. With this we can now open the floor to questions
and answers.
Moderator:
Thank you very much. We will now begin the question and answer session. The first
question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Mohit Kumar:
Good afternoon Sir. My first question is on the gross margin, the gross margin for the
quarter is again negative we were expecting a positive gross margin from this particular
quarter so what went wrong and when you expect it to correct going forward, this is the first
question?
Bahadur Dastoor:
So let me take it question-by-question in case you have a second one. As we have explained
the gross margins were suppressed in this quarter primarily due to increase in labor cost in
Australia and US as well as extreme weather conditions in Australia. Due to the same we
continue to see slight erosion in the gross margin. Coming to your question on when the
gross margins are expected to go back to normalized levels we are looking at bidding and
winning almost $1 billion of projects which will help us to take the margins back to its
normalized levels in the near future.
Mohit Kumar:
Secondly on the O&M side, on the O&M side of course last year we did 200-220 Crores is
our run rate for the year if I am not wrong and the margins have been suppressed I think you
mentioned about something about the one off which happened in this quarter, but what is
the normalized run rate for the O&M based on your portfolio which we expect in a year or
what kind of EBITDA margin you are expecting in this particular segment?
Amit Jain:
In the case of O&M again as we had mentioned there was a movement of almost 2
gigawatts worth of projects which were transferred from our existing customer to a new
party who has his own O&M division that led to a loss of revenue and a reduction of almost
2 gigawatts from our O&M portfolio. We had to do certain punches and closure for those
projects in the current quarter which led to a suppression of the margin as a one off event.
We expect the margins to go back from this quarter and onwards, Q2 and onwards back to
its 25%, 30% benchmark for the remaining part of the jobs and hence there is a reduction in
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the overhead run rate. Today in the first quarter we had about 44 Crores which is slightly
lower than the annualized turnover of the previous year but there are other bids which the
O&M team is working on which would help us take it back to where it was. We will keep
you posted in the quarters to come.
Mohit Kumar:
What is the impact of the prices going up solar module, steel and etc., etc., on the project
cost if I have to make a comparison y-o-y?
Amit Jain:
As far as the module prices are concerned they had started correcting and there was
softening in the prices but due to certain recent events in the China market the prices have
again gone up so there is fluctuation in the module prices but hope with the kind of capacity
additions which are coming in China market and globally we expect in coming quarters the
prices will soften and stabilize.
Mohit Kumar:
What will be the module price right now from China and what is the freight cost from
China to Saudi Arabia?
Amit Jain:
As far as the module prices are concerned they are hovering between 26 to 27 cents per watt
peak and freight depends upon the geography where you are working in. If it comes to India
it can be 1.5 to 2 cents and if you are going to other geographies like Australia or USA they
can be somewhere between close to 4 cents per watt peak.
Mohit Kumar:
At current freight cost, am I right?
Amit Jain:
Yes that is correct.
Mohit Kumar:
Otherwise this is just about much, much lower roughly around 1 cent.
Amit Jain:
Yes, the logistic market also corrects itself, so even there would be impact on logistic cost
as well and they will also normalize in the coming quarters.
Mohit Kumar:
Understood Sir thank you and all the best Sir.
Moderator:
Thank you. The next question is from the line of Mr. Faisal Hawa from H.G. Hawa and
Company. Please go ahead.
Faisal Hawa:
There is a Public Limited Company which is on record saying that they have contracts from
you to hire like 3,000 engineers in the coming year. So is this true and what is the utilization
that we would be having for these engineers?
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Amit Jain:
I do not think that is correct information and we are not aware of any such contracts - so I
think that information is not correct.
Faisal Hawa:
Going forward when do we see that we can actually have any kind of orders from
Reliance’s own module factory or kind of where we could be more assured of supply of
modules from them?
Amit Jain:
Reliance is I think they are working on establishing their plans for module manufacturing so
it will take some time and next few quarters when they will be ready with their plant and
manufacturing starts then we will get to know the plan how much support we can get from
Reliance as far as the module supply is concerned. But we expect in next few quarters not
only Reliance but multiple new players will be on the block. So we do not see few quarters
down the line there will be any issue with respect to module supply.
Faisal Hawa:
Thank you so much.
Moderator:
Thank you. The next question is from the line of Rahul Modi from ICICI Securities. Please
go ahead.
Rahul Modi:
Thank you for the opportunity. Sir just I had one question historically we have seen that our
margins have been impacted due to volatility as you also mentioned of the module prices.
So how are we changing or evolving our contracts when we are actually doing and taking
orders to mitigate this risk, because obviously the volatility probably five years back we had
a one way movement which was downwards in module prices so we were beneficiary with
that. So today when it is more of a zigzag pattern so how we mitigating that risk in terms of
the contract? Thank you.
Amit Jain:
As we have elaborated on this particular strategic aspect in our last few calls also. So there
is a two pronged strategy to address this particular issue and we are addressing it with
vendors as well as with our customers. So, vendors we are negotiating much tighter
contracts and asking for a much higher amount of bank guarantee to be backed up which
can assure us that they will stick to their contracts and we can procure the modules at which
we have estimated in our bids. Secondly along with the customer also we are building a
pattern, like if there is a willful default by the suppliers, so there are built in mechanisms in
the contracts which we are negotiating with our clients to provide a safeguard against that
particular movement. So this is a strategy which is being worked both suppliers as well as
the clients to safeguard against any unprecedented price rise in the modules.
Rahul Modi:
Sir in the recent past you have seen any such thing which had to be invoked and any recent
memory of this where the resolution could be found?
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Amit Jain:
Yes, so we are in touch with all of our customers and there is a perceptible change in like
the way the customers also approached. So one of the contracts which we are negotiating
with our key customer in Europe - so the customer is ready to take the risk at which we
agree at the time of getting a notice to proceed on the contract till the last shipment of the
modules. So the market trend is moving towards that direction and some of the customers
which we recently discussed, which are the global big players, that they are derisking EPCs
with respect to the module supply risks. So we see a change in the market with respect to
that. So the customers thinking on those lines are also changing and they appreciate that
EPC risk profile also has to change. So in coming quarters we will see a lot of movement on
that front and which will derisk our business significantly as far as the module price risk is
concerned.
Rahul Modi:
Secondly in terms of the origin of modules that we are taking, are you seeing any change in
terms of the buyers because there are many customers in the US who are actually directly
importing modules as well. So are you seeing any kind of change in the buyers they are
thinking in terms of buying either from China or Sterling & Wilson procuring modules from
the Indian manufacturer because the export order for Indian manufacturers have also picked
up?
Amit Jain:
You are absolutely right. IPP and our clients across the globe they are looking for de-risking
their supply chains. So all the potential players in the market anywhere in the world right
now want to develop and they are working on developing alternate supply chains and the
various players not only in India, Europe and US lot of additional module manufacturing
plants are coming online which will be commissioned in I would say couple of years down
the line and some would be operational as early as last quarter of next year, so we will see
its movement and shift in the supply chain with respect to modules. So all the suppliers are
looking for alternate supply chain so that the whole entire solar capacity addition across the
global can be derisked.
Rahul Modi:
Lastly the Indian market is also short of EPC players that is what we understand now and
the recent bids that we saw they were actually going at a much higher margin at per
megawatt basis. So, any rethinking of your strategy that you would want to look inwards
also, because typically you had a 20% of order book historically towards India - so any
change you are looking there?
Amit Jain:
Yes, definitely you are absolutely correct I would say in that front because Indian market
we expect the Indian market is an inflection point and with the kind of capacity addition
which government has announced and the targets we have plus the new hydrogen roadmap
which has come in would lead to not only the capacity going up and there will be much
bigger plants which are coming online. All the private players in the country they have
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announced their ambition around green hydrogen and they will also be coming out with
mega projects. So considering that we will see that there will be definitely business volumes
will be much more and there are like limited number of EPC - so we see that the margin
profile should improve going forward because the capacity addition and the strong balance
sheet particularly the past track record which is there will come into play. Particularly for
Sterling & Wilson will say the strong parentage which we had earlier from SP Group and
now both SP Group and Reliance put together as our promoters provides lot of confidence
to the banks, investors and IPPs. So it will help us not only domestically and globally as
well. So we will be able to take bigger orders and will be considered by all international
players which are coming to India and all the mega projects corporates which will be setting
up in India will be considered favorably for that and margin profile should also change.
Rahul Modi:
Just I am slipping in last one more question. Incrementally we have seen a lot of bids
coming in on hybrid tenders - so how are we as experts in solar - how do we co-work or
how will the EPC work in such tenders be structured? Thank you very much.
Amit Jain:
Actually we have announced earlier in that as a part of Sterling & Wilson Group, but now a
couple of quarters back that business was moved to solar and we already have skill set and
IT in that particular area so we have strong teams and we are further building on teams to
handle the best part of the projects in India. We are already working on multiple bids not
only in India globally in Australia, UK and Europe with respect to that projects and we will
be handling as we are handling the solar, the EPC part of that we will be taking on both
with or without the supply of battery as per the business model of a particular geography
demand.
Rahul Modi:
Perfect Sir, thank you and all the best.
Moderator:
Thank you. The next question is from the line of Abhinav Bhandari from Soham AMC.
Please go ahead.
Abhinav Bhandari:
Thanks for the opportunity. Just couple of questions. One is do the current results contain
any component which would get reimbursed back because of the indemnity agreement and
secondly as of June 30, 2022 how much amount could be there on the balance sheet which
would get liquidated on September 30. 2022 once the settlement is done under the
agreement? Thank you.
Bahadur Dastoor:
Results do not include any amounts which are reimbursable under the indemnity at a cost.
The company had already made all provisions two quarters ago to reach 300 Crores. So it
has not taken anything into account as such because it will be a pass through. The money
will come against the offset of liquidated damages, etc., which have already been paid for
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by the company. The crystallized amounts are still in process. September 30, 2022 is the
final date wherein the crystallized amounts will be worked out and sent out to the erstwhile
promoters and on that basis they have about one month to make payment against that. It is
right now a moving and accumulating target - not be in a position to give a singular number
at this point in time.
Abhinav Bhandari:
That amount sitting on the balance sheet would be more than 300 Crores at this point broad
idea on that understanding?
Bahadur Dastoor:
Yes, it is more than the 300 Crores which the company has to bear
Abhinav Bhandari:
Got it, thanks that is all from my side, thank you and wish you the best.
Moderator:
Thank you. The next question is from the line of Abhishek from Emkay Global. Please go
ahead.
Abhishek:
Thanks for taking my question. I have two questions, can you elaborate on the region wise
pipeline of the projects and my second question is what are you expecting in terms of the
overall inflow for the year?
Amit Jain:
As far as the region wise bid pipeline is concerned approximately both USA and Australia
the pipeline is 3 gigawatts each, MENA region right now without considering mega projects
in question is 2.5 gigawatts, Africa is 1.5 gigawatts, Latin America is 2 gigawatts and South
East Asia is 1 gigawatt, so total we are talking about international pipeline of 16 gigawatts
and a domestic pipeline of 7.5 gigawatts taking to approximately 23 gigawatt of the total
bid pipeline through which we are working on at this point of time.
Abhishek:
Australia and US both you told 6, India is 7.5 gigawatts correct?
Amit Jain:
Yes, India as we are expecting because of the multiple projects by PSU and private players
announcing so we expect a pipeline which is our addressable market is close to 7.5
gigawatts.
Abhishek:
Your addressable market but the pipeline is for India 7.5 correct am I right?
Amit Jain:
Yes, so my pipeline is my addressable market so that is what 7.5 gigawatts which will be
bidding for.
Abhishek:
Africa you told 1.5, Latin America I was not able to capture the figure.
Amit Jain:
Latin America was 2 gigawatts and South East Asia is 1 gigawatt.
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Abhishek:
Expectation in terms of overall inflow do we have?
Amit Jain:
We are expecting the order inflow of in excess of both the markets put together close to $1
billion both international and domestic put together. But it is going to be lumpiness in the
other booking so we cannot forecast like as we have said the major order booking is going
to happen in H2 this year and there will be lumpiness. So there can be few big orders in the
third quarter or fourth quarter but the total expectation is around $1 billion in this fiscal
year.
Abhishek:
FY2023 you are expecting $1 billion correct?
Amit Jain:
Yes that is correct.
Abhishek:
So FY2024 we can expect the same run rate of $1 billion?
Amit Jain:
It will depend like, at this point of time I will not like to forecast but the way market is
growing we are expecting the market is growing at the rate of 15% CAGR annually and we
see that even Indian market will be growing at much more robust rate. So we can expect we
will follow the market trend, the way market is growing we will also grow at least in the
similar proportion.
Abhishek:
Okay thanks for your answer.
Moderator:
Thank you. The next question is from the line of Mohit Kumar from DAM Capital. Please
go ahead.
Mohit Kumar:
Two questions Sir. Firstly on the green hydrogen side one of the slide talks about a lot of
multiple projects on the gigawatt scale. Is it something which you believe which can get
fructify for us in terms of opportunity in the next 12 to 18 months, I think a large number of
projects which are coming from Australia which are maybe large?
Amit Jain:
So, give you a perspective that all the big players which will be like all the global customers
and the biggest IPPs across the globe they are very bullish on green hydrogen and working
on green hydrogen projects across the world, though the projects only in Australia is getting
more visibility at this point of time. The projects are getting announced big projects in
UAE, Oman, Saudi Arabia and one of the biggest projects in the globe with respect to green
hydrogen has already started is under execution in Saudi Arabia. So, as we see the projects
are already materializing and taking off from the ground but considering Australia the size
of the projects which have been announced in Australia - next 18 to 24 months we will see
forward movement on those projects but it can be definitely in the middle east also there
can be movement on the green hydrogen projects like I can say in 24 months period.
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Mohit Kumar:
Is there any strategy to talk to the large players and get some sense of, is there any chance
that we will have some kind of lumpy order inflow from this green hydrogen in the next 18
to 24 months do you think that is your target?
Amit Jain:
Yes, there is always likelihood because some of our clients, already existing clients are in
this business and they are going to set up the plant. As far as the Australia where the most
of the projects are getting announced we are the number one EPC in that market and despite
all the difficulties and headwinds which are faced by EPC market we are perhaps one of the
players which have delivered even in the COVID period despite the commodity super cycle.
We are on the course of delivering all our projects which have created a very, very strong
brand for us in the market and with Reliance coming in as one of the promoters so we have
the financial strength and the financial I would say credentials to associate with developers
on the project of that state. So that places us favorably to work on those projects but as you
know the projects are in initial stages. We are identifying, we have started discussion but
exact how the things develop can be predicted in next 18 to 24 months period.
Mohit Kumar:
Lastly on the cash flow side given the next nine months, I think do you see any stress or any
need to raise capital or debt over the next nine months to tide out the lack of revenues?
Bahadur Dastoor:
The Company is actively engaged in raising debt for a short-term period to meet its cash
flow mismatches on account of the losses that have been faced in certain projects. We
expect that this will be for a short-term period of about 18 months or less. Right now, that is
being looked upon with various bankers and financial institutions which the company is
engaged with.
Mohit Kumar:
Understood Sir thank you and best of luck.
Moderator:
Thank you. The next question is from the line of Bala from Arihant Capital Markets
Limited. Please go ahead.
Bala:
Sir how do you see competition from Chinese players in Australia and globe how they are
dominating, how they are competing in these contracts?
Amit Jain:
If I have understood correctly because the audio quality was still not good that you want to
understand the impact or how the Chinese competition in various markets which we are
present in. So I would say that the maximum intensity of Chinese competition was faced by
us in Middle East and Africa market and in Australia, Europe and USA there was no
significant competition from Chinese players. As you know the way Chinese contractor and
Chinese vendors - they have not kept up to the contract which they signed for, lot of
contracts have been reneged and in Middle East mega projects what we are witnessing that
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the performance is not up to the mark, the projects are running behind schedule and there is
I think the confidence which was there on Chinese is coming down and all the big IPPs are
looking for alternate EPCs to work on mega projects even in Middle East and Africa
market. So, we see the change in trend coming forward in next few quarters and the
competitive intensity even in the Middle East and Africa market will come down and will
be better placed and be considered favorably by major developers.
Bala:
Thank you Sir.
Moderator:
Thank you. The next question is from the line of Faisal Hawa from H.G. Hawa and
Company. Please go ahead.
Faisal Hawa:
Changing our bankers and getting some more bank guarantee limits and how are we
actually now going to hire if you are saying that there is no demand for the 3,000 engineers
from your end - what is our hiring plan for the coming year and how many engineers we
plan to hire for our EPC ground work?
Bahadur Dastoor:
So I will take the first question on the bank guarantee part. Company is actively engaged
with its consortium of bankers to increase its limits. It does have spare limits available right
now to take care of any short-term requirement, but it is engaged for a much enhanced
number taking into account what we will require for FY2023 and FY2024. Bankers are
looking at it very positively and we expect to meet our requirements once the assessments
are complete. I will let Amit take the second question.
Amit Jain:
To address the global and domestic markets, we are taking an initiative of capacity building
in the organization and we expect to add close to 1,000 personnel to our project
management, engineering, procurement and other execution teams which we will be
building gradually. So that is the plan to address the increase in order book and the mega
projects if they come on the way, that they can be addressed properly.
Faisal Hawa:
Solar modules we are now quoting for any new tenders according to the price which is at
presently being charged - so there could be a possibility that in six months, seven months
when the solar modules market become flooded with more supply and we actually get them
at much lower rate and that could add to the bottomline is that a correct way of thinking?
Amit Jain:
There is always a possibility of that happening, it has happened in the past when we
encashed on downward trend in module prices but it is cyclical and with all kind of module
capacity addition coming online that is always a possibility. That is the part of the business
cycle we have suffered on the negative side. Of course, we will be entitled to take the
positive side of it as well.
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Sterling & Wilson Renewable Energy Limited July 14, 2022
Faisal Hawa:
We are costing out solar modules at the present rates only?
Amit Jain:
Absolutely what are the current rates in the market and which is backed up by the bids from
Tier-1 contractors. If we commit anyway, it will be as per prevailing market prices only.
Faisal Hawa:
You think that the competitive intensity could reduce in the present tenders which are being
sent out?
Amit Jain:
I would say with the market size going up, the multiple bids coming down and the limited
number of EPC players in the market we can see the competitive intensity going down
because order books people will be booking orders and as and when the capacities get
booked there will be of course the market will correct itself and there will be reduction in
competitive intensity.
Faisal Hawa:
You feel that you will now be bidding for much larger ticket size contracts as well?
Amit Jain:
Yes, we were doing that in past as well. As you know we have executed one of the biggest
projects in the world at that point of time. That was the largest commissioned project till
recently. So we had participated in such bids earlier and based on how strategically well
placed we are, we will continue to do that.
Faisal Hawa:
Is there now more clarity on whom we will report to in Reliance and are we now having
some kind of structure of communication?
Amit Jain:
No, Sterling & Wilson remains to be a professionally run company and we report to the
Board. So all the policy decisions are taken in the Board and we report to the Board and run
by the Board of the organization.
Faisal Hawa:
You feel that we can go back to the ROCE and the ROE that we used to have like three to
four years back, just before the IPO?
Amit Jain:
Definitely we are on path of recovery and we will be there and we will update you during
our next investor calls how we are progressing on that front.
Faisal Hawa:
Thank you very much.
Moderator:
Thank you. The next question is from the line of Abhishek from Emkay Global. Please go
ahead.
Abhishek:
Thanks for taking my question. In terms of the region wise pipeline of projects you had told
India 7.5, Australia and US 6. I think somewhere one of the management team had
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mentioned 16. So just want to know 16 gigawatt breakups how does it come to arrive
because excluding India it is 13 if I am right?
Amit Jain:
No excluding India it is 16. So we have stated that total pipeline is around 23 gigawatts, out
of which 16 is the international pie around 15.6 and 7.5 we have stated is the India pipeline.
If you want the exact number USA and Australia is around 6 gigawatts, Europe is 2.5
gigawatts, MENA is 3 gigawatts, Africa is 1.5 gigawatts, Latin America is 2 gigawatts and
Asia is 1 gigawatt.
Abhishek:
Okay South East Asia is 1, Latin America is 2, Africa 1.5, Middle East 2.5 and Europe is
2.5 correct?
Amit Jain:
Yes, that is correct and US and Australia put together is 6 gigawatts.
Abhishek:
So I think the total comes to around 15.5 so I think one more year is there.
Amit Jain:
15.6 and 7.5 so that takes it to 23 gigawatts.
Abhishek:
Sorry can you repeat that I did not hear 15.6?
Amit Jain:
15.6 for international and 7.5 for domestic that takes it to 23.1 gigawatts to be précise.
Abhishek:
so Europe is 2.5 or 2.6?
Amit Jain:
Europe is 2.5, MENA is 2.5, Australia and US put together is 6.1
Abhishek:
Fine okay thanks.
Moderator:
Thank you. The next question is from the line of Harsh Jhanwar from Centrum PMS. Please
go ahead.
Harsh Jhanwar:
Thanks for the opportunity. I just wanted one clarification. So, as I understand when we
book an order we do back-to-back booking of all the modules and imports which are
required. So how do we benefit if the PV module prices are going in downward trend. So it
has done back-to-back on the same time, so we have fixed asset rate right. So how do we
benefit out of if it goes down?
Amit Jain:
Once we are bidding we approach multiple Tier-1 suppliers and upon based on that we bid
to our customers. But if between the time we bid and at the time of the award of the
contract, if there is downward movement by the time we are placing the orders, if there is a
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downward movement, we are able to take benefits of that particular aspect - otherwise we
will go on back-to-back business.
Harsh Jhanwar:
Generally how much is the time gap between bidding and awarding of contract in general?
Amit Jain:
That depends on customers. So it can be like three to six months.
Harsh Jhanwar:
My second question was also more of a clarification. The order book which we already
have will continue to have negative gross profit margins and the new orders which we win
that will have normalized 10%, 12% kind of gross margins and slowly we will see the trend
of gross margin percentage going from negative to positive by the end of FY2023. Is that
understanding correct?
Bahadur Dastoor:
It is not that the order book which is now executable has a negative gross margin, because
all the impacts of the negatives have been taken majorly up to March and whatever new
items came in, in June. So the order book carries a positive gross margin which is a low
single digit margin and future orders will come at our normalized margin. Therefore going
forward if one looks at it the margins are expected to be positive.
Harsh Jhanwar:
Understood Sir thank you so much for clarification.
Moderator:
Thank you. As there are no further questions I would now like to hand the conference over
to Mr. Amit Jain for closing comments.
Amit Jain:
Thank you. With the robust backing of Reliance Group and Shapoorji Pallonji Group, we
endeavor to accelerate our growth trajectory by aggressively pursuing our international
markets where we foresee a huge potential of growth. India too has reached an inflection
point from where we anticipate the growth of solar power industry to garner further pace
and momentum. With our deep-rooted client relationship, global presence, ability to provide
customized solution, strong track record of executing complex and large scale projects
supported by robust balance sheet and strong parentage of Reliance Group and Shapoorji
Pallonji Group, we are confident of regaining our leadership position. I would like to thank
everybody for joining the call. I hope we have been able to address all your queries. For any
further information kindly get in touch with Sandeep Thomas Mathew and/or Strategic
Growth Advisors, our Investor Relation Advisors. Thank you once again and have a great
day. Thank you.
Moderator:
Thank you. On behalf of Sterling & Wilson Renewable Energy Limited that concludes this
conference. Thank you for joining us. You may now disconnect your lines.
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