SUZLONNSENovember 11, 2022

Suzlon Energy Limited

8,891words

103turns

14analyst exchanges

3executives

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Management on call

Ashwani Kumar

CHIEF EXECUTIVE

Himanshu Mody

CHIEF FINANCIAL OFFICER

Rahul Modi

ICICI SECURITIES

Key numbers — 40 extracted

500 gigawatt

s 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,

50%

ble 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 opportuniti

140 gigawatt

- 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,

19,500 megawatt

ar-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 count

33%

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 s

13,000 megawatt

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 alm

13,500 megawatt

so 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

3,000 megawatt

e 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 offer

2.1 megawatt

eveloping 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

3.15 megawatt

s 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 w

759.2 megawatt

4-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,

193 megawatt

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

Guidance — 20 items

Ashwani Kumar

opening

“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.”

Ashwani Kumar

opening

“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.”

Ashwani Kumar

opening

“So, we have a very strong order pipeline existing as well as under discussions going forward.”

Ashwani Kumar

“Some of these will be used for repowering as the government of India has announced repowering policy.”

Ashwani Kumar

“And the prototype is, as I said, will be installed in the next couple of months.”

Himanshu Mody

“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.”

Ashwani Kumar

“This year also, our execution team is confident that they will be able to deliver good results in the next two quarters.”

Ashwani Kumar

“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

“So where should this -- what is the target to take it to the EBITDA margin on the execution business?”

Ashwani Kumar

“As you could understand that if you are close to breakeven volume, the EBITDA will be low.”

Risks & concerns — 3 flagged

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?

— Piyush Thakkar

So difficult for us to commit a timeline.

— Himanshu Mody

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.

— Himanshu Mody

Q&A — 14 exchanges

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 y

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 ann

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. My second question is, again, on the WTG and the EPC side, which is a standalone entity. So, I think the first half also,

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

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. Suzlon Energy Limited November 11, 2022 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

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 mone

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. You can be over optimistic also. If I'm over-optimistic, you will say you did not achieve the target you said... 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... Let me answer that. I think that part I can answer. It will take care of a significant portion of our debt cur

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 Suzlon Energy Limited November 11, 2022 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… Ashwani th

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 Suzlon Energy Limited November 11, 2022 the projects that come till 2025, there is a 100% waiver of transmission c

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...

Management

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. 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? Yes. So during the warranty period, we w

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

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 bec

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. 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 concer

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. Sir, do we have any accumula

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.

Management

Speaking time

Ashwani Kumar

Moderator

Himanshu Mody

Ketan Karani

Yash Agarwal

Sushithal

Sudhakar Prabhu

Chetan Shah

Gautam Jain

Anshuman

Opening remarks

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 o

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