GVPILNSEQ1 FY23August 9, 2022

GE Power India Limited

6,376words
67turns
7analyst exchanges
5executives
Management on call
Prashant Jain
MANAGING DIRECTOR
Vinit Pant
CHIEF COMMERCIAL OFFICER
Raj Raman
COO, PROJECT PORTFOLIO
Yogesh Gupta
WHOLE-TIME DIRECTOR AND CFO
Brian Selby
GENERAL MANAGER, HYDRO ASIA, GE RENEWABLE ENERGY
Key numbers — 38 extracted
500 gigawatt
the country. In a recent report from the government, India has dropped its target of establishing 500 gigawatts of renewable energy capacity. So, we see in India pressure on the power sector and we see an emp
50%
s readjusted its renewable energy capacity for 500 gigawatts by 2030 giving itself flexibility of 50% power from non-fossil fuel sources in the commitment to the UNFCCC. This is a significant develop
820 gigawatt
his shows that India is keeping its options open for new coal-based power plants in the projected 820 gigawatts out of total capacity by 2030. If excess demand cannot be met from green fuels, we do new coal-f
rs,
r company, GE Power India Limited: As GEPIL continues to improve its challenges on converting orders, we have a strong position in the coal sector and that for servicing existing coal-fired power plan
380%
as inflation. That is what has impacted margins to a large extent. Orders are up this quarter by 380% driven by hydro order, Saundatti. This win is helping GEPIL's backlog to recover. Though overall
18%
are down in the quarter due to upgrade orders getting deferred, the core service orders are up by 18% with improved profitability. Our active opportunity pipeline remains strong in terms of FGD and s
27%
pportunities. Over the past two years and aligned with our strategy, our services revenue grew by 27% in this quarter despite overall lower revenue driven by lower order intake in FGDs. The challenge
8.6 million
to last year, almost 380% which is driven mainly by this hydro order of Saundatti which is about 8.6 million. As far as our order mix is concerned, this quarter we have seen orders are arrived and within si
6 gigawatt
is an upswing in the market. And we have seen that in this year's first quarter, almost more than 6 gigawatt have been ordered as compared to 9 gigawatt in the whole of last year. So, definitely, there is a
9 gigawatt
n that in this year's first quarter, almost more than 6 gigawatt have been ordered as compared to 9 gigawatt in the whole of last year. So, definitely, there is an upswing in the market and FGD order is goi
496 million
he profit before tax for the quarter 1 FY22-23. On the revenue side, the revenue has been down by 496 million and 9.2% if we compare with the same quarter 1 of FY22-23 versus quarter 1 of FY21-22. And if we
9.2%
tax for the quarter 1 FY22-23. On the revenue side, the revenue has been down by 496 million and 9.2% if we compare with the same quarter 1 of FY22-23 versus quarter 1 of FY21-22. And if we compare
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Guidance — 20 items
Prashant Jain
opening
“I have with me Whole-time Director and CFO, Yogesh Gupta; our Head, Commercial, Vinit Pant; ASEAN Sales Head, Brian Selby, Regional Head for Asia; Raj Raman, our COO for Project Portfolio.”
Coming to the Indian power sector
opening
“In a recent report from the government, India has dropped its target of establishing 500 gigawatts of renewable energy capacity.”
Coming to the Indian power sector
opening
“3) Apart from that, we need to continue to optimize the Durgapur capacity with an intense focus on the project execution which is heavily impacted by inflation as well as project delays because of two waves of COVID in the last couple of years and all the old projects are delayed and those are causing pressures in site execution.”
Vinit Pant
opening
“This is again driven mainly by the Saundatti Hydro order, but going forward, as we have been talking earlier also, our focus is clearly, as also Prashant mentioned, to grow our services business and also to focus on TP orders instead of EPC.”
Pipeline
opening
“So, going forward, I think, things are looking up both for FGD and services.”
Moving on to the profitability
opening
“The profit before tax – there has been an improvement on the profitability front if we compare our numbers of the same quarter last year versus the current year and last year as you would recall, we had a negative impact of 850 million on account of the Subansiri project restart in our hydro business domain.”
Moving on to the profitability
opening
“The prime reason for the loss has been the project cost escalations due to inflation and the execution challenges that we are facing.”
There are three focus areas
opening
“This is a particular customer request for which we are exploring options to address the opportunity in Africa and this will be subject to the success with the customer and we expect that we will be able to get some closure around this in mid of 2023.”
Sanjay Doshi
qa
“We just wanted your thoughts to understand given the current run rate of 500 odd crores a quarter and the current mix, do you think that the company will be able to achieve EBITDA break-even?”
Sanjay Doshi
qa
“Do you see any major volatility in this or this should be stable going forward in the same range?”
Risks & concerns — 10 flagged
The reduced supply of coal was largely due to high commodity prices of the imported coal and sudden pressure on the domestic coal when the power supply demand came up.
— Coming to the Indian power sector
So, we see in India pressure on the power sector and we see an emphasis on coal.
— Coming to the Indian power sector
The challenge that we see in the execution challenges in the backlog runoff in boilers is what has impacted the bottom line.
— Coming to the Indian power sector
The profit before tax – there has been an improvement on the profitability front if we compare our numbers of the same quarter last year versus the current year and last year as you would recall, we had a negative impact of 850 million on account of the Subansiri project restart in our hydro business domain.
— Moving on to the profitability
In the current quarter, yes, I do see the challenge on volume; however, considering the big pipeline, I think we will have a couple of quarters by the time we are able to turn around the volume.
— Prashant Jain
That is largely coming in from the Durgapur factory volume runoff which is the boiler factory where we have a challenge and we need to find alternatives and services to grow.
— Prashant Jain
Doshi, the challenge we have is on EBITDA and if we look at the June '22 quarter, the current quarter just ended, we are a negative EBITDA of 428, and if we look at the same quarter of last year, it was 1.218 billion INR negative.
— Yogesh Gupta
That also will materialize and then you will see the impact of those revenues as well in the coming quarters.
— Yogesh Gupta
That challenge on the cash flow is not such a big issue because slowly we will be recovering our retention payments from the FGD contracts that we have executed and we will be completing the future periods to come.
— Yogesh Gupta
This was the challenge that we mitigated by way of collecting payments once we completed the retention milestones.
— Yogesh Gupta
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Q&A — 7 exchanges
Q
I will restrict to two areas. First, on the current quarter and how we should look at the profit and loss account for our company given that we have been slow in new orders and there have been deferments for new service orders. We just wanted your thoughts to understand given the current run rate of 500 odd crores a quarter and the current mix, do you think that the company will be able to achieve EBITDA break-even?
Prashant Jain
In the current quarter, yes, I do see the challenge on volume; however, considering the big pipeline, I think we will have a couple of quarters by the time we are able to turn around the volume. On the other side, we are also looking at optimizing our structure to address our volume. That is largely coming in from the Durgapur factory volume runoff which is the boiler factory where we have a challenge and we need to find alternatives and services to grow. The area is services. In services, we have two sectors. Core service and upgrades. In core services, we are very well on the growth path and
Q
I have 3 questions. First question is regarding this emerging opportunity in coal. There is a new trend emerging, as you mentioned in your opening remarks, globally and in India also. India also changed its target of renewable energy. I just wanted to know in this context, 1) How your company can benefit and what can be the opportunity for you? 2) If you can give the split of your order book and revenue how much is the services part in that and the services is growing. 3) In this quarter, you have done an overhead of 184 crores and it was at similar level in the last quarter. Now that you had
Prashant Jain
On your first question on the coal opportunities, there are new coal opportunities also in India and I just want to remind that the total capacity in the country is still more than 20 gigawatts and the opportunity that we see is in the range of 7 gigawatts. So, there is still more supply than demand. But yes, selectively we will still be able to participate in one-off opportunities and that could provide significant upsides. The crucial part for new-built technology is that we have a large setup to address the new-built demand and we need to find the right setup to have a sustainable volume so
Q
Sir, my first question is that you have been winning a good number of orders. Still at an operational level, the company is incurring losses. When do you folks will start making profits? Which quarter do you hope to achieve a green bottom line?
Yogesh Gupta
Ms. Saraogi, we normally don't give projections for the future like when we will be turning around. Maybe I can just add on the order base. The order that we have booked this quarter is a long- term project from hydro and this project will execute over the next few years. It's a very recent order, and therefore, the revenue evenly spread over multiple years. So, all the project portfolios that we have the project span from the range of…. If it is an industrial utility project, it ranges 2 to 10 years for an order to convert into revenue when you look at the new build project orders. If you are
Q
My question is, in the opening of the presentation, they told the revenue is going down each quarter and the reason they stated is they are not able to get the orders. Since we are operating in several diversified like energy level and services level, still why are we not getting more orders?
Prashant Jain
The company is operating in 3 segments today largely. In terms of the order profile, we have hydro projects, then we have the new build coal projects which includes the FGD boiler, and the third segment is services. What is consistently delivering order intake is services. Hydro, the order is once in a while like the Saundatti order which was booked in the last quarter. The earlier order was about a couple of years ago. These are large projects and the projects usually take time – two to five years – in terms of developing and quotation to the final fructifying of the order and that is what is
Q
My question is, what is the core operating margin of the company? Even if you look at this particular quarter, while you were mentioning that there are some restructuring costs and startup costs for the hydropower projects, etc., if you look at the core operating margin, what would that be? Because, you have also mentioned that the gross margins have improved by 200 basis points. If you look at the core operating margin, what would that be?
Yogesh Gupta
Core operating margin, if we look at purely on the gross margin front, it varies from our different segments. It's reasonably, I would say, good on the services side. On the projects side, it is a higher single digit number. This is where we stand. From gross margin if we look at the structural costs, we come down to this negative scenario and what we are seeing at the PBT level and this time there are no exceptional issues in this quarter, we are about 12.9 or 13 odd percent negative. Basically, what you are trying to say is there are no one-offs in this particular quarter as far as restructu
Q
I joined a little bit late. I have just one question if you have touched upon. You basically responded to one of the callers saying that you expect your cash flow situation to improve over the next few quarters given the order backlog. I just wanted to understand where do we stand on the receivables front regarding our projects that we have already done for some of the PSUs.
Yogesh Gupta
Mr. Mistry, we have mentioned that the cash situation will improve by way of recovering on the retention payments in the coming quarters and not just because of the backlog. As we have been sharing in the past meetings, we had close to almost about 40-50% of retention payments in the first phase of FGD projects that we had taken. This was the challenge that we mitigated by way of collecting payments once we completed the retention milestones. Essentially what we are seeing is that we are at a situation now where at least the retention milestones have kicked in and we don't see any kind of issu
Q
Thank you all for joining and thank you team for clarifying the questions. Looking forward to speaking with you again in the next call. Thank you all, have a good evening.
Management
Speaking time
Yogesh Gupta
14
Prashant Jain
12
Moderator
9
Deepak Narnolia
6
Sameer Mistry
5
Sanjay Doshi
4
Danesh Mistry
3
Vinit Pant
2
Surabhi Saraogi
2
Alok Nath
2
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Opening remarks
Prashant Jain
Very good afternoon everyone. A warm welcome to all of you to the earnings call for the first quarter of the financial year 2022-23. Thank you all for joining us today. I welcome my team as well who is joining me to discuss and share about the operating and financial performance of the company. I have with me Whole-time Director and CFO, Yogesh Gupta; our Head, Commercial, Vinit Pant; ASEAN Sales Head, Brian Selby, Regional Head for Asia; Raj Raman, our COO for Project Portfolio. I would like to briefly touch upon the global economy and then about the power sector in the country and then we will get into the discussion regarding the Financial Results. A brief background about the global economy which has revived from the pandemic is now gradually getting stronger every quarter to touch the pre-pandemic growth levels. However, it is raising headwinds due to rising inflation, especially in the developed economies followed by a surge in crude prices last quarter and that has had a domino
Coming to the Indian power sector
India has been affected by the global power crisis. Due to the extreme temperatures in the country, the demand for electricity went up significantly amidst the reduced supply of coal. The reduced supply of coal was largely due to high commodity prices of the imported coal and sudden pressure on the domestic coal when the power supply demand came up. Seventy power plants across the country operating at very low levels resulted in a power deficit, therefore, increase in the electricity prices as well on the exchanges. The power shortage, as we are aware, was majorly due to supply chain and logistics issues and not due to lack of coal stocks. This year's power shortage has led to some calls to increase India's coal power and mining capacity, thus bringing back the emphasis on coal-fired power plants in the country. In a recent report from the government, India has dropped its target of establishing 500 gigawatts of renewable energy capacity. So, we see in India pressure on the power secto
Vinit Pant
Good evening everyone. I am going to talk about the orders. As Prashant mentioned, there has been a big jump in the orders this quarter as compared to last year, almost 380% which is driven mainly by this hydro order of Saundatti which is about 8.6 million. As far as our order mix is concerned, this quarter we have seen orders are arrived and within sight and also its percentage is higher for EPC. This is again driven mainly by the Saundatti Hydro order, but going forward, as we have been talking earlier also, our focus is clearly, as also Prashant mentioned, to grow our services business and also to focus on TP orders instead of EPC.
On the services side
As I was mentioning, in core services, there has been an 18% improvement in profitability, but we upgrade orders. We are down overall in services, as some of the key upgrade orders have got deferred. This is because in this quarter, there was a huge demand in power and many of the customers have postponed their outages. That was the reason.
FGD
Clearly, we see there is an upswing in the market. And we have seen that in this year's first quarter, almost more than 6 gigawatt have been ordered as compared to 9 gigawatt in the whole of last year. So, definitely, there is an upswing in the market and FGD order is going to pick up now quarter 2 onwards.
Pipeline
Again, there is a very robust pipeline which we can see both for FGD and services. FGD, we have seen on the ground a lot of inquiries are there. Customers, especially private as well as state customers are seriously pursuing the opportunities now. And services both for upgrades as well as core, we have a healthy pipeline. So, going forward, I think, things are looking up both for FGD and services. I would now like to hand over to Yogesh for the next couple of slides.
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