Suzlon Energy Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
16th November 2022.
National Stock Exchange of India Limited, “Exchange Plaza”, Bandra-Kurla Complex, Bandra (East), Mumbai-400051.
Dear Sirs,
Sub.: Call on Q2 Results.
BSE Limited, P.J. Towers, Dalal Street, Mumbai-400001.
In continuation to our earlier communications in the subject matter, enclosed please find the copy of the Transcript, which is also available on the website of the Company (www.suzlon.com).
This is for your information as also for the information of your members and the public at large.
Thanking you,
Yours faithfully, For Suzlon Energy Limited
Geetanjali S.Vaidya, Company Secretary.
Encl.: As above.
“Suzlon Energy Limited
Q2 FY ‘23 Earnings Conference Call”
November 11, 2022
MANAGEMENT: MR. ASHWANI KUMAR – CHIEF EXECUTIVE
OFFICER – SUZLON ENERGY LIMITED MR. HIMANSHU MODY - CHIEF FINANCIAL OFFICER – SUZLON ENERGY LIMITED
MODERATOR: MR. RAHUL MODI – ICICI SECURITIES
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Suzlon Energy Limited
November 11, 2022
Moderator:
Ladies and gentlemen, good day, and welcome to Suzlon Energy Limited Q2 FY '23 Conference
Call, hosted by ICICI Securities. 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 star
and then zero on your touchtone phone. Please note that this conference is being recorded. I now
hand the conference over to Mr. Rahul Modi. Thank you, and over to you.
Rahul Modi:
Good morning, friends. On behalf of ICICI Securities, I would like to welcome you all for the
Q2 FY '23 Conference Call of Suzlon Energy Limited. From the management, we have with us
Mr. Ashwani Kumar, CEO; Mr. Himanshu Mody, CFO. We will begin with the opening remarks
and a brief presentation by the management, followed by a Q&A session. Over to you, Mr.
Kumar and Mr. Mody. Thank you.
Himanshu Mody:
Thank you, Rahul. Good morning, good afternoon, ladies and gentlemen. This is Himanshu
Mody, CFO of the company. During this call, we may make certain statements which
reflect our outlook for the future, or which could be construed as forward-looking
statements. These statements are based on management's current expectations and are
associated with uncertainties and risks under a fully detailed in our annual report, which
may cause the actual results to differ. And these statements must be reviewed in
conjunction with the risks that the company faces. With that, I'd just like to hand over to
my colleague, Mr. Ashwani Kumar to make a brief presentation about the industry and the
company.
Ashwani Kumar:
Good morning, everyone. Renewable energy has been the focus of the government for last
few years. And it's been a great success by government policies and the players within the
industry. The five-point agenda, the government has put for all of us is a target of 500
gigawatts of renewable energy by 2030, reduction in carbon, net zero target of 2070 and in
the energy mix, making it 50% by 2030.
Having said those targets and actually committed it openly to the world. the opportunities
which happened for the -- or which come out for the wind sector is that there is a specific
now target for wind, which is 140 gigawatt -- not only that, I think so in the subsequent
circulars and the policies the government has put, they have actually put a specific wind
RPO, which is the wind Renewable Purchase Obligations going forward.
MNRE is also working towards sorting out other issues like repowering potential, like get
doing away with e-reverse auction -- and also, if you see the focus has shifted over the last
12 months, though it was not publicly announced by anybody. So, over the last 12 months,
the pure solar bids of SECI, which used to be done and on the base of SECI bids have not
come out. So, government has realized that the future is hybrid, round the clock and peak
power.
So, all the bids that have come out over the last 12 months from SECI from Government
of India for purchase of renewable energy or wind or hybrid or RTC, which all of these 3
give enough opportunity for all the wind players to set up capacity. In addition to that,
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November 11, 2022
Government of India announced green energy open access rules a few months back. What
that does is that it allows the interstate transmission of green power from one state to
another. One of the, I would say, one of the fair highlights are one of the features of wind
energy is, whether we like it or not, that it is only in 8 states in India.
So, the other states were not getting advantage of wind energy, except for the utilities who
could buy it through SECI bids. Now with this opening up of green access and the rules
coming out, most of the industrial customers across India can take advantage of wind
energy and purchase wind energy no matter where the projects are installed. And given this
favorable market scenario and opportunities, let me talk about what Suzlon’s strengths are.
Suzlon, as many of you are aware, is over a 25-year-old company. It has been a market
leader in the wind energy capacity. So, we have now close to 19,500 megawatts of installed
wind energy capacity. We are not only active in India. We have presence in 17 countries.
We have around 5,500 people, and our market share in India on a cumulative basis is 33%,
which means one out of three turbines in India are Suzlon turbines. -- where we achieve
this strength is very simple. One, we are end-to-end service providers.
We have a technology leadership, and the technology leadership comes not only because of the
competence of our technology team, but also because we are focused India company. So, unlike
some of our competition, who make turbine for the entire world and therefore, different wind
regimes, our turbines are designed for Indian wind conditions. And as some of you are aware,
the wind conditions differ from country to country and for various geographies.
Our technical design is designed for Indian conditions, and therefore, in terms of efficiencies
and outputs, Indian Suzlon wind turbines have the technology leadership. In addition to that, we
also have very, very strong customer relationships. If you see almost all the customers that have
put wind projects over the last 25 years have been our customers and have been our repeat
customers. This includes global utilities like Enel and Sembcorp, they include the newer setup
platform like Renew. They include the domestic players like Adani, they include other
corporates like Aditya Birla, Bajaj, ONGC, Shree Cement, Torrent and of course, Indian utilities
like Tata Power, Torrent Power, and others.
This set of customers who have been our customers and have given us repeat order gives us the
confidence that we have a good relationship with them. In addition to that, we have a very, very
strong service base. Over 13,000 megawatts of wind turbines in India are operated by us. This
makes us -- if you take it as an operator almost in the top five, maybe third most biggest operator
in India after NTPC and one more.
What that does is that our relationship with the grid our understanding of the grid, our
understanding of the requirement of Indian power systems is much beyond everybody else.
Which also gives us a very, very important insights into our customers because most of these
customers of 13,500 megawatts are all existing customers who have future plans. And it also
gives us knowledge about what has been the wind records all over India and all the good wind
sites over the last 20, 25 years.
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So, it's not only a small wind mast data that we talk about, which most can measure, but also,
record data over the last 20 years. In terms of our manufacturing base, we have our plants in
Daman which is our main nacelle plant. In addition to that, we have blade plants in different
geographies, minimizing the need of transport. We have tower plants, both in in the West where
the maximum thing is. And our capacities, including our subsidiaries, capacities to produce is
over 3,000 megawatts. So, we are well geared without much capex to take advantage of the
opportunity that India offers in the wind turbines.
In terms of our product, we have been consistently developing our product. our current largest
selling product is S120, which is 120 meters rotor and 2.1 megawatt output -- and we are now
commercializing our next product, which is 3 to 3.15 megawatt 144-meter dia and 160 meters
height of product. In terms of our order book as on 30th September was 759.2 megawatts. And
subsequently, we have announced to the stock exchange another 193 megawatts of orders. So,
we have a very strong order pipeline existing as well as under discussions going forward. Given
this background of the company and the macroeconomic scenarios of renewable industry, I now
hand it over to Himanshu to take us through the financial journey over the past few quarters as
well as the current scenario.
Himanshu Mody::
Thank you, Ashwani. Again, good morning, good afternoon, ladies and gentlemen. I would be
using Slide #17 of our investor presentation, which has been uploaded on our website as the
reference point for my discussion during this presentation. As you can see, this is what we like
to title transformation over the last 30 months since March 2020 until September 2022. And this
is, of course, this transformation has been a very well laid out plan and thought process of our
late founder, Chairman, Shri. Tulsi Tanti. If you can see the numbers on the volume side in
March 2020, FY '20, rather, we did 59 megawatts of revenue recognition on the manufacturing
side, which in FY '22 has grown to 808 megawatts in terms of the manufacturing. H1 of FY '23
has been higher than H1 of FY '22. So, the FY '22 momentum that we had caught is fairly on
track for this financial year as well.
In terms of the revenue numbers, a similar story, approximately INR 2,933 crores consolidated
revenue in FY '20 has grown to more than 2.5x to about 6,520 in FY '22. And we are trending
along very well in the first half of FY '23 as well with growth of about 15% to 20% over FY '22
H1. On the EBITDA side, what used to be a negative EBITDA company in FY '20 and a
significantly negative EBITDA company of negative INR 423 crores. We have been able to
deliver a positive EBITDA of INR 828 crores in FY '22. And in this year, first half of this year,
is also trending along the similar lines of the previous year.
On the debt side, which has been the large transformation story for the company, the company
has been through a few cycles of restructuring with its lenders due to the large debt pile up that
had accumulated in FY '19, FY '20, but that has now significantly been reduced from INR 13,000
crores to INR 2,700 crores in H1 of FY '23. Of course, after the successful rights issuance, which
was post 30th September 2022 event, another close to INR 600 crores of debt has been reduced
as of 4th November and the debt post rights issue stands at INR 2,139 crores. This, of course,
brings down the interest costs or the finance costs also significantly down for the company. And
I'm happy to report that after a period of five years, Q2 of this financial year FY '23 is the first
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quarter wherein the company has been able to report a positive PAT on a purely operational
basis.
So, we are well on our way to capitalize further on this transformation. As Ashwani said, the
industry outlook looks fairly bright. And from a financial prudence perspective, the balance
sheet, P&L and the management are all geared up to participate in the growth story here on.
With that, I'd like to conclude my presentation, and we can open the floor for any Q&A that the
callers may have. Thank you.
Moderator:
Thank you, we will now begin the question-and-answer session. Anyone who wishes to ask a
question may press star and one on your touchtone telephone. If you wish to remove your cell
from the question queue, you may press star and two. Participants are requested to use handset
while asking their question. Ladies and gentlemen, we will wait for a moment while the question
que assembles. We have the first question from the line of Chetan Shah from Jeet Capital, please
go ahead.
Chetan Shah:
Just two quick questions. One, in terms of our -- if I go back to our slide where you mentioned
about our installed capacity, could you actually tell us in terms of the operational capacity, how
much exactly is this, I believe, and pardon my numbers, I will check it if I have wrong
information but some portion of our capacity because we're not utilized for last three, four years,
it needs to do some kind of a tweaking to make it fully operational? And if that is true, then what
is the kind of money required to do so? That's my first question.
And second, in terms of the order book mix, which you showed in the slide number 12, there are
three part of the order. If you can give us some flavor of the working capital requirement, both
in terms of bank guarantee and also the operational working capital, how does that back work as
of now? These are the two basic questions I have, sir.
Ashwani Kumar:
Yes, thank you. Let me try to answer the first one, and then I'll -- then Himanshu can answer the
working capital part. So, all of our capacity that we have installed, most of it is operational.
Many of them have done 20 years operational life. What we are doing with those customers is
offering them a solution by which we enhance their life by another five years. Most of our
customers have agreed to it.
And some of them which have not agreed, we have handed it over to them. So those are more
than 20-year-old turbines. Some of these will be used for repowering as the government of India
has announced repowering policy. In terms of your other questions in terms of which I thought
is more on manufacturing capabilities I think -- yes, so we have manufacturing capacities, which
will not require capex or a lot of capex for even our next series of turbines.
So, our 3,150 megawatt of capacity, which is based on 2.1-megawatt model will require very
little capex to increase this capacity. Presently, we are fully geared up in terms of preparedness,
both in terms of our suppliers, our designing our prototyping of our three megawatt turbines
without any capex requirement. On order book working capital, Himanshu, you can trust…
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Chetan Shah:
Just want one small clarification. This new turbine of 3-plus megawatt, is there any time line in
terms of our first prototype will come and how the order flow will happen over there? Apologies
to cut you in between.
Ashwani Kumar:
Yes. So, as I said, the way we -- any new turbine is launched is we start taking smaller orders
first rather than a large order for a utility. The smaller orders have already flown in, in terms of
those are part of the order book that we have disclosed. And the prototype is, as I said, will be
installed in the next couple of months. And the results of that would be -- and as I said,
commercialization in terms of we are already offering it for sale. And in the next calendar year,
they'll be up and running, the 3.x megawatts of turbine.
Himanshu Mody:
So, on the working capital for our ability to be able to deliver this order book after the significant
debt reduction, as I presented a few minutes back, we are very well placed. We have been in
active discussions with a few bankers to provide the working capital facility, and we made
significant progress and certain in-principle sanctions also have been received for the same.
Additionally, our existing lenders also they have a project-specific funding policy under which
they are permitted to provide working capital support for projects such as manufacturing activity
such as ourselves. So, we are fairly well placed to be able to deliver these orders in a timely
manner from a working capital perspective.
Moderator:
We have the next question on the line of Yash Agarwal from JM Financial.
Yash Agarwal:
So, my first question is on the order execution. So last year, second half, I think we did about
520 - 530 megawatts sitting at nearly 1,000-megawatt order book at the moment, what is your
assessment? Or what sort of growth could we see in the second half in terms of order execution?
Ashwani Kumar:
Yes. So, I think you're right on both the numbers in terms of we have a very healthy order book.
And last year, we did 450, 500-plus megawatt over the second quarter. This year also, our
execution team is confident that they will be able to deliver good results in the next two quarters.
So, I didn't want to put a number on it, but I think so, overall, since we have performed better in
first half since last year, we expect a healthy performance in the next two quarters also.
Yash Agarwal:
My second question is, again, on the WTG and the EPC side, which is a standalone entity. So, I
think the first half also, the EBITDA margin on the business is hardly 2% to 3%. So, at the
moment, whatever we are earning EBITDA, so my assessment is on the O&M subsidiary. So
where should this -- what is the target to take it to the EBITDA margin on the execution business?
That is the WTG and the EPC part of it.
Ashwani Kumar:
I think so, given the last few quarters, given the commodity prices variation, EBITDA margins
for most OEMs worldwide have taken a hit. -- or in our own case, it was also limited by the
volumes that we could do. As you could understand that if you are close to breakeven volume,
the EBITDA will be low. As the volumes increase, our EBITDA margin goes up because all
your fixed cost is covered by the breakeven volume. So, we expect this EBITDA margin to grow
in the forthcoming quarters going forward.
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Yash Agarwal:
Is there any breakeven EBITDA number beyond which our margin -- sorry, a volume number
beyond which our margin is in higher single digits.
Ashwani Kumar:
You are all financial analysts; you can calculate that given our numbers so far over the past
quarter.
Yash Agarwal:
I had a few, again, bookkeeping questions. In the annual report, there's the subsidiary called
Suzlon Gujarat Wind Power Park or something, which is actually leaking INR 300 crores for
you. What exactly are the operations done in this? And is this expected to continue -- the sort of
losses that we're seeing there?
Himanshu Mody:
Yes. So that is -- the interest is due to certain intercompany transactions. We obviously going
forward due to implementation of certain merger schemes, you'll see a much more streamlined
balance sheet on a consol and a standalone of SGWPL as well -- and of course, at a consol level,
it has no impact due to it being intercompany.
Yash Agarwal:
And the interest cost for the last.
Himanshu Mody:
Yash, with due respect, I think we have a -- if you have any questions, please write to us off-line
because we do -- to be fair to others in the queue. I request all callers to limit their questions to
two or three, please, so that we do justice to all the other questions. Yash, we can take your
follow-up questions off-line, please.
Moderator:
We have the next question of the line of Gautam C Jain from GCJ Financial Advisors.
Gautam Jain:
My question pertains to your wind turbine revenue. That is highly inconsistent quarter-on-
quarter. And you said in the presentation that the current capacity of India is 40 gigawatt, it go
to 140 next eight, nine years. So what order book we are looking at every year from now to next
six, seven years?
Ashwani Kumar:
So what has happened, as I described in the macroeconomic scenario, there were pre-2017, it
was only state-wise wind capacity addition based on the tariffs given by each of the states. What
changed from 2018-19, a bidding wind regime came, initially as was expected because solar was
very low volume, the most of the bids were solar bids. That has changed over the last one year,
where the solar pure solar bids have stopped and hybrid and wind bids have come.
We expect hybrid and wind bids capacity in terms of opportunity will be close to 3 to 4000
megawatts every year. In addition to that, what has also happened recently is many of the
industries including the PSUs have started putting up wind power projects because of the inter-
state transmission that has been allowed. If you see our order book, there is a significant portion
of captive retail PSUs of almost 285 megawatts.
This number used to be very-very low if you take even two years to three years back. So we
would expect this market segment also to be a very large market segment going forward.
Government in fact, is announcing both for energy consumers, which is the large steel things
having their RPO obligation, including a specific wind obligations.
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Two, government is also saying that many of the existing coal generators by name has to also
generate renewable energy going forward. Having said both of these, we expect this market size
to grow. We are still awaiting the things, but we are under active discussion with many of the
industrial customers in India for these orders. So 140 gigawatt government target is, I would say,
government has put a lot of mind into it. And the wind sector in terms of production capacity, in
terms of the site and execution capabilities is capable of delivering that. It will happen, I would
say, not in a bulk chunk starting immediately, but it will have a steady growth over the next two,
three, four years.
Gautam Jain:
What is our executable capacity, every year or per year?
Ashwani Kumar:
Yes. So presently, given 2.1 megawatt turbine, we can make around 3,000 megawatts we can
supply. This will increase as we increase the turbine size because, as you know, the capacities is
in terms of the nacelle, the big unit. So we produced let’s say, 50 to 60 units per month. And that
can go up, the moment the megawatt size has increased, this capacity will increase automatically.
Gautam Jain:
And my second question pertains to your AMC business, which is quite stagnant for many years.
So how do you see that business stepping up in the future?
Ashwani Kumar:
So the AMC business is stagnant in terms of the increase in megawatt is reflective since the
parent company did not supply much turbines, there was not much turbines added in the AMC
business. Now that the turbine supplies last year was 800-plus megawatt. This year continues to
be a good performance and going forward much more that automatically adds to the growth of
the AMC business.
One of the things that we do because we are end-to-end service provider is that when we supply
the turbine, we ensure that the AMC business remains with us. So automatically, as our turbine
sales grow, AMC growth is also there. However, if you take actually the five year scenario in
pure AMC business, while the top line may not have changed much, the efficiencies and our
work on it ensure that the EBITDA has gone up substantially over the last few years on the AMC
side.
Gautam Jain:
Yea, that’s true. Thank you so much
Moderator:
We have the next question from the line of Piyush Thakkar from Autus.
Piyush Thakkar:
Yes. First of all, I congratulate for a very good results this quarter, we come in profit actually.
So my question is what is the reasonable amount of debt you see if you sit in the balance sheet
can be serviced without any challenge, number one? And how and when we can target to achieve
that actually? My second question is when we are thinking to free our pledged shares actually is
100%, right now?
Ashwani Kumar:
So let me answer the first question, Piyush. I got that. So essentially, if you see our consolidated
debt, as I presented to you earlier, is close to about INR 2,139 crores after the rights issue. And
if you look at the consolidated EBITDA, if you even annualize the EBITDA and you look at the
FY '22 last year, we are sort of close to about a little over 2x debt-to-EBITDA in terms of ratio.
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So I think these debt levels is something that we can more than comfortably service through the
free cash flow that is available with the company. Having said that, of course, we are working
on further optimization plans to see how we can further bring the debt down. And the rights
issue was, of course, the first step in that right direction.
Himanshu Mody:
To answer your second question, the pledge of the shares of the promoters, Lion's share of that
pledge has been done to the lenders of the company, which is REC and IREDA for the facilities
that have been borrowed by the company. So it is the Lion's share of the pledge is for the INR
2,200 crores of borrowing that the company has.
Moderator:
We have the next question from the line of Aman Sonthalia from Mugi Constructions Private
Limited.
Aman Sonthalia:
Sir, what are the noncore assets, which can be monetized?
Himanshu Mody:
So Aman, there are two noncore assets, which we have identified for monetization. One is, of
course, the real estate, which sits on the stand-alone books of the company, which is our
corporate office in Pune, that's an 11-acre campus. Of course, due to COVID and all of these
reasons over the last two or three years, commercial real estate has been slow, but that is an asset
which has been identified for monetization.
And the other, of course, is we've been talking about is SE Forge, which is a 100% subsidiary
of the company. So that is something that we will look. Of course, the timing of monetization of
these assets, we'll have to be tactical about. But those are essentially noncore to the business. SE
Forge can say it's a backward integration for the company's manufacturing facilities. So we will
keep our eye on the ball to see and capture the right timing for monetization of these assets.
Aman Sonthalia:
Sir, one more question that, we are expecting that the market of wind power will be increased
from 40,000 megawatts to 1,40,000 megawatts by 2030. How realistic is the target, sir?
Ashwani Kumar:
From whatever I expect the government to perform. So like government, if you remember, had
given a target of 175 gigawatts by 2022. As of 30th September, as of their own performance, it's
already achieved 166. So, government does plan properly is our view. We, as an industry, will
keep supporting government's vision and ensure these targets are achieved. In terms of the wind
potential of the country, it is definitely much more than 140 gigawatts, if you include all the
wind potential of the country.
So we do not expect either in terms of the availability of sites and wind sites in India. There is a
problem. We do not expect that we, as an industry player and along with our friendly competitors
are geared up to do it. And the third, which is very important, which people tend to forget is that
the ecosystem of wind projects has been developed over years. And unlike some of the other
industries, almost 80% to 90% of the components for wind industries are produced in India.
So in both in terms of our readiness, our self-sufficiency and availability of sites, I think so all
of that is there in India. So that's all, I think, I have to say in terms of now and I've been an
optimistic positive person, we would definitely support government to achieve these targets.
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Aman Sonthalia:
And sir, one last question. What is the margin in AMC business?
Ashwani Kumar:
So margin in AMC business, if you take the EBITDA, et cetera, has been over 40% over the last
many quarters in the last few years.
Moderator:
We have the next question from the line of Ketan Karani from Ketan Karani Global Research.
Ketan Karani:
This is Ketan oven here, congratulations for the good result. And certainly, we share the pain of
demise of Tulsibhai. Coming to the results, I just want to know the noncore asset, as you said,
there are two real estate and SE Forge. Can we just have a ballpark figure of what kind of amount
of money we are looking at? That's the first question. And the one question was what are the
targets of production for the year 2023, '24 and '25, if there has to be internal target? And what
are we looking at if we can be either megawatt or rupees whatever, please think you can clarify
on those lines.
Ashwani Kumar:
So on the first question, why do you want us to go public with our expectations and tell all the
prospective bidders on what our targets of achieving those numbers.
Ketan Karani:
You can be over optimistic also.
Ashwani Kumar:
If I'm over-optimistic, you will say you did not achieve the target you said...
Ketan Karani:
I just want a ballpark figure, if you are looking at INR 1,000 crores or INR 1,500 crores, we also
if you give a range, we know what kind of debt reduction we are looking at. That's the only
reason I'm asking...
Ashwani Kumar:
Let me answer that. I think that part I can answer. It will take care of a significant portion of our
debt current debt today, both these assets combined.
Ketan Karani:
What will be the production targets for -- or maybe the sales targets?
Ashwani Kumar:
In terms of production target, I think so it would be fair to say that whatever the country installs
over the next three years, we will try to achieve our market share of 30-plus percentage in each
of those years, etcetera. Our targets, internal targets are pretty strong. As of now, we have
decided not to give these guidance numbers. But I'm sure, going forward, we will start sharing
this with analysts.
Ketan Karani:
That would be very nice and I certainly would like to end with congratulation for the great
turnaround and hoping for the good days back, which was there 10, 15 years ago. Thank you.
Moderator:
We have the next question from the line of Abhinav an Individual Investor.
Abhinav:
My congratulations as well for a good turnaround in this quarter. I have two questions, probably
both of you for Ashwani. One is our current manufacturing capacity utilization is around 800
megawatt per year against the capacity of 3.1 gigawatt per year. Are we looking to continue with
the current utilization or looking to increase the utilization and deliver on order book faster. And
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the second question is with our debt now coming to sustainable levels. What do we think will
increase profitability from here on?
Ashwani Kumar:
So on the first question, what we did was, while our capacity capabilities remained over 3
gigawatt, we ensured over the last few years that we cut down on our costs to make sure our
breakeven point reduces to a much lower level. So having achieved that, we will grow as the
market grows in India. So far, last year and last to last year and even the last for last two, three
years, Indian wind market has not been much, but that has changed given the number of bids
that have come out in recent months. So we will achieve a much better capacity utilization going
forward. In terms of the…
Abhinav:
Ashwani the second question was with our debt coming to sustainable levels. What do you see
will increase our profitability going forward?
Himanshu Mody:
This is Himanshu here. In terms of debt, as I said, coming to sustainable levels are, as I said, the
first quarter in Q2 is PAT positive after many years, and we expect this trend to continue or even
further better from here.
Ashwani Kumar:
I mean, again, you guys are analysts. You can see, if you take the same Slide 17, our FY '20 debt
of INR 13,000 crores, what is the finance cost of debt versus what will be the finance cost of
INR 2,139 or, whatever interest rates you may choose to keep. And that is definitely the savings
and that is directly to the shareholders.
Abhinav:
I meant that we might not achieve much further savings through debt reduction because it's
coming down to optimal levels now, and I think there would be other avenues to now increase
profitability. That’s what I am trying to understand.
Himanshu Mody:
I agree with you there a bit, in fact, as we also look at further increasing our order book, there
would be an increased uptake on our working capital side also, which may add to the overall
finance cost. But for only that is -- that increase in finance costs would only be linked to the
increased volumes that we may generate. Your understanding is right that further optimization
in the P&L through interest cost may be minimal.
Moderator:
We have the next question from the line of Chetan Shah from Jeet Capital.
Chetan Shah:
Just one small question, in your opening remark, you kind of explained us about the government
opening up of power intrastate from one corner to another corner, and I believe we have some
time line restricted by government up to 26 or something, is that true or this is like can keep
renewing? Just wanted to get a sense on that.
Ashwani Kumar:
So there are two portions of it. One is there is something called green energy open access rules.
These rules basically say that if you put green energy, solar, wind at one corner of India and take
it down on the other corner, you are allowed to do so, and Power Grid and others are making
rules regarding how to apply what to do, etcetera, for doing that. That is allowed now. That is,
doesn't have any time line associated with it. What government is doing in addition to this is for
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the projects that come till 2025, there is a 100% waiver of transmission charges to encourage
green energy and the green energy user usage by industries all over India.
They have given 100% waiver till June 2025, and that waiver will keep reducing every year. So
what they are saying is, please put your green energy now. So I'm just, again, theoretically, if
there is a, I would say, there's an aluminum or steel plant in Jharkhand, which was not a windy-
state, they want to purchase power from a project which is in Gujarat or Tamil Nadu or
Karnataka, they can do so now under the new rules. And as if they set up the capacity before
June 25, they do not have to pay any money to power grid for transmission charges. So it is
encouraging them to set it up before a certain time line. That is what the time line is about.
Chetan Shah:
Sir, just a small clarification, these waiver of charges are perpetual, if I put up a capacity before
2025. Is that the right understanding?
Ashwani Kumar:
Yes. So once you set it up, and most of them like SECI bids, etcetera, once you sign a contract,
then it will remain for the life of that contract. These charges will remain zero.
Moderator:
We have the next question from the line of Sushithal from Samatva Investments.
Sushithal:
I just add some couple of book-keeping question. I just wanted to understand what is the right
now, current order book we have, are you taking this...
Moderator:
Sir, your audio is not very clear. Could you come closer to the mic or go off the speaker phone?
Sushithal:
Okay. Sir, I just wanted a couple of book-keeping questions. I wanted to understand what is the
current O&M gigawatts and turbines which we have right now? And what is the value of the
current order book?
Himanshu Mody:
So we have close to about 12 gigawatts of turbines under our active maintenance. And the sort
of contract validity of those is over five years for most of these. And the average life of these
turbines would be close to about 13 years. So that's the overview on the O&M business in terms
of when assets under maintenance with us.
Sushithal:
And once we receive any new orders, when does the actual O&M kick in? And like when does
the money actually come from this O&M? Like, do you have any grace period so far before
which we start receiving money from the O&M business?
Ashwani Kumar:
Yes. So during the warranty period, we what, we supply, OMS is free for the customer. We build
it in our sales price initially itself. And after two years, for majority of contracts and in some
contracts, it may vary that term. It will then go into full revenue earnings to our OMS business.
Sushithal:
Sir, how do you see the business of O&M like in the last three, four years, a lot of individual
contractors have actually started taking this business. So do you see like Suzlon actually taking
over this business from your erstwhile clients? What does the general landscape look like?
Ashwani Kumar:
So presently, I think we are proud to have that most of Suzlon's customers continue to remain
with us, given our technical expertise and our size of operations. None of the individual operators
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of OMS are not even one-tenth of the size of us. So while they have just come up recently, but I
think we remain the largest of OMS provider for wind turbines, in terms of, in India. Two things
why we are doing that. One is the, given our experience, our performance in terms of the machine
availability, the energy availability to the customer remains better than most things. And second
thing is we are one of the few which provide comprehensive OMS. So what we call retailer
customers, the headache has now shifted from you to us. And that comprehensive OMS service
is what we provide to all our customers. So given these two of our OMS strengths, most of the
customers remain with us. And while some of the new players have come up, which have started
doing OMS, I think so those are much smaller compared to what we do.
Sushithal:
But as an organization, are we strategically looking at acquiring, entering that space aggressively
as well?
Ashwani Kumar:
So in terms of, if you're asking, if we want to operate turbines of other manufacturers, we have
already started doing that at a very small scale. And as that business grows, we will continue to
look for that business also. We have the technical capabilities, having been in the wind turbine
business for over 25 years to operate all the turbines that are currently available. And as and
when we get these opportunities of people wanting to shift their operators, we will look at those
opportunities.
Moderator:
We have the next question from the line of Sudhakar Prabhu from Netesoft.
Sudhakar Prabhu:
I have three questions. So my first question is can you give us some sense on the industry? I
mean, what is the total industry capacity some sense on pricing? Because earlier, I believe to
install 1 megawatt, it used to cost INR 5 crores to INR 6 crores. So how has been the pricing for
the last three, four years, some sense on that?
Ashwani Kumar:
Yes. So the industry's capacity, as I said, the manufacturing capacity remains in India is over 10
gigawatts to 15 gigawatts, all the OEMs put together. The cost of wind turbines have not gone
up from the numbers that you talked about, INR 5 crores to INR 6 crores per megawatt, why,
that is because of the efficiencies done by most OEMs. So, once you have a larger size turbine,
which means only 1 tower producing instead of 1.5 megawatt, which used to be the norm, close
to 3 megawatt, the overall cost per megawatt does not increase too much. Yes, some of the
commodity cycle in terms of steel and other pricing as did go up in the recent past, but those are
starting to look better. The numbers, of course, what you are talking about, what I'm talking
about are excluding tax as well as excluding many of the installation costs, which will vary from
the various sites and other things.
Sudhakar Prabhu:
And sir, in terms of PLF, wind used to do around 20%, 25% PLF, how are the PLF? I mean with
the new generation turbines coming up, do you see the PLF can go up to 30%, 40%?
Ashwani Kumar:
Most of our new generation turbines are between 35% to 40% given the sites.
Sudhakar Prabhu:
And secondly, sir, I believe previously, Suzlon had all the land available, but I think the grid
connectivity was real issue, so how is Suzlon faced right now in terms of grid connectivity? And
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with your existing land bank, what kind of total capacity can Suzlon execute over a period of
years?
Ashwani Kumar:
As I said, one of the Suzlon's strength has been we are end-to-end service provider. So, we have
access to land. We have access to connectivity. What has happened over the last few years is
that the government on their own is setting up all this power evacuation infrastructure. And that
will give us and the industry overall, a much better connectivity situation than it has been over
the past few years. So why the people come to us. One of them is, again, they don't have to go
to a land person separately, an evacuation person separately and installation person separately
and an OMS person separately and buy only turbine from a manufacturer. We are the one which
do end-to-end service, and we continue to have, I would say, the best access to the wind sites in
terms of whether it is in terms of data, land, connectivity, all the things put together than any
other player in the country.
Sudhakar Prabhu:
So, you are saying that your existing land bank is already well connected with the grid capacity
is my understanding right?
Ashwani Kumar:
I think so there is a whole development cycle in any project. It starts off with setting up of a
wind mast. So, while we know that this is a windy site. What we do in terms of we set up a wind
mast first. Suzlon has been a leader in wind mast in India by far. Once the wind mast starts
giving data, that gives us and therefore, any investor, which comes into the wind industry,
enough data on what the likely generation from that site is going to be.
After having the years of wind data, we start acquiring land. The land could be private land,
revenue land or any other land that we start acquiring each one of them have their own processes.
Once we have a good visibility of the land in that area where the wind has been there. We start
applying for connectivity. The connectivity approvals have now been streamlined by power grid
as well as by state transmission companies.
Some of the work they have to do in case they have to upgrade the transmission infrastructure,
which might take 12 to 18 months. So, what this does is that there is no number as such. So, the
number at the initial level of the windy side looks a very, very high number. But it's a rolling
basis pipeline that we keep building. And that has been our strength over the last many years
that the rolling basis pipeline that we keep building, we keep putting new mast, we keep
acquiring new land, we keep acquiring new connectivity and keeping the areas and sites ready
for our customers. I hope that gives you a better understanding of the process.
Sudhakar Prabhu:
It's very clear, sir. And my last question is, sir, on your rights issue. You have -- I mean you have
only made a partial recall of the first right first call. And I believe another INR 600 crores is due.
So, when do you stand to raise this money...
Himanshu Mody:
So difficult for us to commit a timeline. But obviously, as per the prevalent norms, the Board
can give the shareholders a 14 days' notice to call the subsequent call or calls at any point in
time. So, as we get close to the new financial year in the next few months in FY '24, we are also
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getting into our budgeting planning exercises. So as part of that, we will, as management discuss
this with the board and decide at the appropriate time.
Moderator:
We have the next question from the line of Ketan Karani from Ketan Karani Global Research.
Ketan Karani:
Just wanted to know one more thing as the government has already planned for 140 gigawatts
of power from wind power, and that is one of the highest addition among the new alternative
power arrangements. We would be, as you said, to earlier questions, over 30% is our thing was
we are planning to achieve out of that. So that's a huge output, which will be generated by Suzlon.
And there is a possibility that the 140 gigawatt 30% share will increase to 40%, 42% or maybe
45% also, as you are becoming much more stronger with time.
So, what we are seeing is the turnaround already started, will it become a pronounced one though
it's a forward-looking question. I just want to know from a 4- to 5-year perspective only, and
that's nothing to know with next quarter. We are on the right path to becoming one of the best
companies in the world again. Hopefully, we will not commit the same mistakes like what we
want to commit everything. But I believe that this is a possibility. Just wanted to know your
feeling and understanding as you are running the company, what kind of future you visualize for
shareholder wealth creation.
Ashwani Kumar:
Thank you for your kind words, Ketan. The only thing I would say is that there is no better time
to be a renewable energy company in India than now. And we, as management, are fully
committed to utilize this opportunity for the benefit of all our stakeholders and shareholders, I
would say, shareholders’ wealth and shareholders' opinions are very dear to us. Thank you very
much.
Ketan Karani:
Just I would like to conclude by requesting that we let the shareholders also be aware of the
planning, which we are going to undertake whenever it become feasible to you talk about it?
Because I think one of the concerns everybody would be having as a shareholder, as a future
shareholder is. The promoters take it very low and if I just take into account Sun Pharma family
together, then it's okay, but otherwise, I think in the future, if we are -- it will be more happier
to see the promoter work creating wealth for all of us create wealth for themselves also, so by
increasing the stake from 15%, 16% to 26% or maybe 30%. I am a person who will be very,
very happy if the promoters do that.
Himanshu Mody:
That's well noted, Ketan bhai and we will be working on all sorts of strategic initiatives. On part
of the management, I can assure you that there has been a quiet period for Suzlon for the last
few years. But now we will engage actively with all our investors and shareholders. We now
have an active investor relations team that we've put in place who will be in touch with you even
despite outside the quarterly results. And of course, both Ashwani and I remain available to meet
with the analysts, shareholders and investors, not only during the quarterly calls, but even during
the year at any point in time.
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Ketan Karani:
My best of luck to Suzlon. And with the confidence not from my side and hoping to achieve
overachieving what I'm saying, let it be another, again, blue-chip what it was 15, 20 years ago,
all the best to you, all of us, and all the best to all of us and good luck to all of us.
Moderator:
We have the next question from the line of Anshuman.
Anshuman:
Sir, the first question is what is the current cost of borrowing? And given that now we have
become operationally profitable at the bottom line as well. So, what the trajectory that you see
for the cost of borrowing, what you said exactly?
Himanshu Mody:
So Anshuman, currently, the cost of borrowing is approximately about 10%. Of course, this was
the deal which was refinancing that was done in May 2022. Subsequent to that, the interest rates,
as we all know, have increased. And I think we might also face the brunt of that in the short to
medium term. So that's where we are. Of course, this is other than the working capital or the
enhanced working capital costs that also brings certain finance costs into the finance line. Of
course, those would be only as a result of any confirmed order book visibility that we have.
Anshuman:
Sir, do we have any accumulated losses on our books currently? Could you quantify that
number?
Himanshu Mody:
So, there are certain accumulated losses, of course, as a result of the several previous year's
operations. So, it's difficult for me to quantify, but I would say that tax shield is available to the
company for anywhere between two to three year period.
Anshuman:
So, he was trying to understand on that perspective. Sir, one final question. So, sir, given the
thrust on offshore wind and repowering policy also which has recently come up, what is the
opportunity size which you foresee over the next six months to one year, which we are also
targeting?
Ashwani Kumar:
So, the offshore in India is still at a very nascent stage because even the onshore potential is not
being fully utilized in the country. So offshore, I won't say anything will come up in the next six
months to one year. However, government has given a specific offshore target, which is a 2030
target as part of their 140 gigawatts. In terms of the repowering, there was a huge activity in
1999, 2000, 2001, of setting up wind capacities. Those are all, I would say, completing 20 years.
So government has come out, as you may be aware of draft repowering policy last month and
asked for the views once the draft repowering policies become established, each of the states
will start selecting sites for repowering and that will be a good opportunity for us as being the
largest player in the market and especially during the time when these projects were set up, we
inherently have a better sense of what these repowering of 20, 25 gigawatt where and what it is
going to be.
Anshuman:
Sir, do we have the capacity to install offshore. Do you have that capability? And have we ever
done offshore installations?
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Ashwani Kumar:
So Suzlon in its previous history used to own companies and our design and technology team
did contribute to installation of offshore turbines outside of India. We will use that design and
technological expertise as and when the offshore market opens up in India.
Moderator:
Thank you. That was the last question. I would now like to hand it over to the management for
closing comments.
Himanshu Mody:
Thank you, everyone, for the participation and joining the call at a little bit of a short notice. As
I said, going forward, we will be now starting an active IR program. We have now a dedicated
team available. And we will now take the opportunity to speak with all of you on a quarter-on-
quarter basis. And in the interim, if there are any questions, please reach out to us through the e-
mail ID available on our website, and we'll make sure we'll be swift to respond. With that, thank
you very much, and have a good weekend.
Moderator:
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining
us and you may now disconnect your lines.
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