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Transcript - GE T&D India Limited Earnings Call for Investors held on November 8, 2019
Please find enclosed a copy of the Transcript of earnings conference call with analysts/ institutional investors held on November 8, 2019 in respect of unaudited financial results for the second quarter and half year ended on September 30, 2019.
You are requested to take note of the same.
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“GE T&D India Limited Q2 FY20 Earnings Conference Call Transcript ”
November 08, 2019
MANAGEMENT: MR. VISHAL WANCHOO – CHAIRMAN, GE T&D INDIA
LIMITED MR. SUSHIL KUMAR – CHIEF FINANCIAL OFFICER, GE T&D INDIA LIMITED MR. GAURAV NEGI – DIRECTOR, GE T&D INDIA LIMITED MR. SANDEEP ZANZARIA – COMMERCIAL LEADER, GE T&D INDIA LIMITED MR. MANIKKAPURATH SIVAPRASAD – OPERATIONS LEADER, GE T&D INDIA LIMITED MR. ANSHUAL MADAAN – COMMUNICATIONS LEADER, GE T&D INDIA LIMITED MR. SUNEEL MISHRA – HEAD, INVESTOR RELATIONS, GE T&D INDIA LIMITED
Page 1 of 16
GE T&D India Ltd November 08, 2019
MR. MANOJ PRASAD SINGH – COMPANY SECRETARY, GE T&D INDIA LIMITED
Page 2 of 16
GE T&D India Ltd November 08, 2019
Moderator:
Ladies and gentlemen, good day. And welcome to the GE T&D India Limited Q2 FY20 Earnings
Conference Call. As a remainder, 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 '*' and then '0' on your
touchtone telephone. Please note that this conference is being recorded. I would now like to hand
the conference over to Mr. Suneel Mishra – Head of Investor Relations. Thank you and over to
you, sir.
Suneel Mishra:
Thank you, Inba. Ladies and gentlemen, good afternoon. Myself, Suneel Mishra, and I manage
Investor Relations for the company. Welcome to today’s conference call with GE T&D India
Limited's management team. We have organized this conference call to present financial results
for the second quarter and half year ended 30th September 2019.
Now, let me first introduce my management available on this call. We have with us our Chairman,
Mr. Vishal Wanchoo; Mr. Sushil Kumar, who is our new CFO. We have also sitting with us our
former CFO and now Director, Mr. Gaurav Negi. We have available on this call Mr. Sandeep
Zanzaria, who is our Commercial Leader; Mr. Manikkapurath Sivaprasad, who is our Operations
Leader. We have also with us Mr. Manoj Prasad Singh, who is our Company Secretary; and Mr.
Anshul Madaan, who is our Communications Leader.
Please note that this conference call is scheduled up to 5 PM. I hope you would have received the
Investor and Analyst Presentation and read out the disclaimer on slide number 2.
I would now request our Chairman, Mr. Vishal Wanchoo, to begin this conference call highlighting
key events of the quarter. Thereafter, Mr. Manikkapurath Sivaprasad will be presenting a slide on
operations and execution. Then Mr. Sandeep Zanzaria will give an update on order and markets;
followed by Mr. Sushil Kumar, who will be speaking on financials.
So I now invite Mr. Vishal Wanchoo to begin the call. Over to Mr. Wanchoo.
Vishal Wanchoo:
Thanks Suneel. Ladies and gentlemen, good afternoon. Thanks for joining the call. I am just going
to start by giving you just a brief overview on the quarter. And as Suneel indicated, we will go
through the details with the subsequent speakers.
So first, I just want to highlight, and I think you might have seen the announcements. We have
new KMPs within the business. First and foremost, we have Sushil Kumar, who is the new CFO,
as Suneel mentioned. He comes to us with about 19 years of experience, 10 years with the
company. So we are pleased to have Sushil in the CFO position with us. I think you saw also that
Sunil Wadhwa has moved out of the company as of the end of the quarter. And we just announced
Pitamber Shivnani as the new CEO, he will be starting effective January 15, 2020. He comes to us
with 32 years of experience in the industry. So we are happy to have him join us in the business.
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GE T&D India Ltd November 08, 2019
The grid market, I think all of you are very familiar with this. A stable market at approximately $3
billion. Clearly, the renewable energy additions are creating an opportunity with the Green Energy
Corridors. So we continue to see opportunity in the market. If you look at the quarter that we just
completed, we had a significant progress made with our high-voltage DC project in Champa. We
have Pole 3 commissioned with Power Grid, this is a significant milestone for the company as well
as for Power Grid. And Siva will address some of the broader execution. We had a good quarter
in execution with 50-plus bays commissioned.
In spite of this, we did have a challenging quarter financially, Sushil will walk us through that,
primarily driven by lower volume due to the HVDC ramp down coming of the Champa project
and some customer project delays. The profitability was impacted by impairment of assets, we will
walk through that, as well as some onetime provisions. Operationally, we were roughly at about a
breakeven level in the quarter, excluding these items that I just talked about. Some of the
challenges that we see, not a new news to anyone, but the liquidity issues and the stress in the
market continue to impact project execution. And of course, there's pricing pressures, which we
have been seeing on a continuous basis.
Given that backdrop, we have outlined our priorities for the future quarter very clearly. First and
foremost is commercial intensity, ensuring that we are winning share in the market, but also share
which gives us the margin levels that we are satisfied with. Operational excellence and execution
is key, I think you might have seen that lean is a huge initiative across the GE company. That's
driven by our new Chairman, Larry Culp. This is something that we are going to be rolling out
more aggressively, really, not just in this region, but other regions as well. This will be a big part
of our operational improvement from a margin standpoint.
And finally, driving improvements in working capital. This is a huge priority for us, a lot of focus
by the team, as well as cost efficiency. Given where we are on volume, we have to explore what
cost efficiencies that we can drive.
So with that, I will turn it over to Siva.
M Sivaprasad:
Thanks Vishal. Good afternoon everyone. Happy to present the key execution achievements of the
quarter. So start with, one 765 kV substation we have for Power Grid at Chilakaluripeta. This is
one of the earliest TBCB projects, which we have won from Power Grid. And against some
challenging timelines, it was completely commissioned in the last quarter. We have also
commissioned 18 bays of 765 kV substation at Bhadla and Bikaner in Rajasthan, again for Power
Grid, and this is for the evacuation of the renewable energy, which is being generated there.
We have done some more commissioning at 400 kV level at various places like Bhiwani and Gaya
at Bihar, and this is again for Power Grid Corporation. In Bhutan, we have commissioned 66 kV
AIS substation extension for Bhutan Power Corporation. And we have also commissioned 50-
megawatt Bhadla site for Azure Power. And this project we have commissioned from start to finish
in four months' time, including the installation, testing and commissioning.
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GE T&D India Ltd November 08, 2019
So, across different geographies, across different technologies, across different voltage levels, we
continue to pursue to meet the customer expectations in terms of delivery of these projects. That's
it. Thanks, and back to you, Suneel.
Sandeep Zanzaria:
Thanks, Siva. I think, as you know that there were Green Energy Corridor tenders, which had come
out from the developers in the last six months. And many of the Green Energy Corridor tenders
after the grid auction has been decided. But the process of various developers taking over the Green
Energy Corridor still is in progress. Some few have been done, but others are still under
negotiation. So the last quarter primarily was driven through the mode of state electricity bills
business which is there, I think from Power Grid side are the tariff-based competitive bidding side.
So the company has won GIS substations in Kerala, West Bengal and Himachal, and then we have
taken an order from Bangladesh from new gas business, we have taken an overall project for the
gas to be pertaining. Apart from this, there have been various project orders which have been won.
The only aspect is that the challenging market condition continues. There is some traction in the
renewable at solar and wind evacuation, which is happening. But that is also taking slightly a
longer time. And probably, we will see that this quarter and next quarter the market is going to
pick up in a much different fashion. So I hand over to Sushil, the CFO of GE.
Sushil Kumar:
Thanks, Sandeep. Moving with the presentation. I am starting with the orders. So for Q2, we
registered Rs. 690 crores of orders. This was flat versus the Q2 of last year where we had Rs. 723
crores of orders. On H1 basis, we registered Rs. 11 billion of orders, this is lower than the last year
where we had Rs. 13 billion of orders, which was mainly on account of softer quarter Q1 where
we had Rs. 4 billion of order because of the non-realization of market and the challenging
conditions that Sandeep did talk about.
Moving to the sales execution. In this quarter, we have a revenue of Rs. 821 crores versus Rs. 993
crores in the last year same quarter. The sales revenue are impacted by HVDC ramp down, which
is visible on the chart. Last year we had 65 crores of HVDC and this year we have Rs. 21 crores
of HVDC. And rest of the impact is largely on account of the delay in the customer projects.
Similarly, on the H1 basis, we have Rs. 15.5 billion of revenue for the H1 versus Rs. 21 billion
last year. Besides the HVDC and the customer project delays, some of this was also related to the
execution timeline of the project as per the projects schedule.
Moving to the profit after tax, the next slide. Last year Q2 we had Rs. 51 crores of profit after tax,
whereas in this year, Q2, we had declared about Rs. 81 crores of loss. In this loss, there are two
exceptional items. One is the deferred tax restatement because of the change in the tax rate
announced by the Finance Ministry, where the tax rate is changing from 35% to 25%. As a result,
the deferred tax asset need to be impaired as per accounting rules.
In addition, we declared the impairment of the assets of one of the transformer manufacturing
facilities. Post tax impact of that impairment is close to Rs. 40 crores. Taking these two items out,
we have operational loss of around Rs. 17 crores. But within this Rs. 17 crores loss also, there are
two one-off items. One of them is the Rs. 7 crores IL&FS related provision, which is mentioned
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GE T&D India Ltd November 08, 2019
in the notes to the account. And the second one is one-off LD provision from one of the customer,
which we believe is a strong case for us, and we are going to contest in the coming months and
quarters.
Had these two one-off items not been there, we could be closer to a breakeven scenario in terms
of profit after tax for the quarter, despite having the lower volumes. On a H1 basis, similar
numbers, excluding the exceptional items or one-off items we would have been a breakeven at the
operational level. So really the major impact for the quarter are the exceptional impairment item
and the deferred tax restatement.
Moving to the overall financial numbers and the summary of the profit and loss accounts. Sales
revenue lower by 17%, resulting with the operating loss of Rs. 6 crores. Excluding that, Rs. 23
crore of one-off items, we would have been at the profitable trajectory to the extent of Rs. 16
crores, roughly. The other number I would like to highlight here is the net borrowing position,
which is now at Rs. 428 crores (net of cash with us), compared to roughly Rs. 20 crores at the end
of March. So we have, in a way, consumed Rs. 400 crores of cash. Of this, part is because of the
dividends that we declared out, around Rs. 50 crores.
Another impact is the on-time payment to our suppliers whereas we didn't experience some of the
realization with customers on time. And the rest is more because of the ramping up of the
execution, because the quarter one execution was at Rs. 700 crore of revenue, quarter two is now
moving up to Rs. 800 crores. As we plan to have more execution in the coming quarters, we need
to build up some of the inventories. There the cash is invested, and we hope to have the situation
improved in the coming quarters.
So that's overall summary of the profit and loss account. We will now open to questions that you
may have.
Suneel Mishra:
Yes. Inba, over for questions.
Moderator:
Thank you very much, sir. Ladies and gentlemen, we will now begin the questions-and-answer
session. Our first question is from the line of Renjith Sivaram from ICICI Securities.
Renjith Sivaram:
Sir, the pain points which we see is one the raw material percentage of sales has increased to 72%.
So this is something which is not dependent on the volumes or the growth. So what led to this
increase in raw mat proportion?
Sushil Kumar:
This is largely on account of the mix, I would say. And in terms of the comparison of raw material
or the gross profit ratio, I think we should be valuating more on a long-term basis. So if we look
at the H1, this is closer to 69% versus the 66% that we had in last year on an H1 basis. So 3% is
really the mix between the quarters, and the rest definitely is something that we need to work upon
because we had lower, execution improvements in this quarter, and we are working to have a better
situation in the coming quarters.
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GE T&D India Ltd November 08, 2019
Renjith Sivaram:
So where should they stabilize?
Sushil Kumar:
At the gross profit level, our endeavor is to have closer to 30% to 32% of gross profit. That's the
long-term indicator.
Renjith Sivaram:
Okay. And regarding this cash flows also, when I see your payables have reduced and also the
other current liabilities have reduced. So what led to this reduction and that has led to increase in
your borrowings?
Sushil Kumar:
Yes. So payables, as I said, is the on-time payment to suppliers whereas we could not collect some
of the receivables from the customers. And the rest of the other liabilities are largely the project
milestone payments, which are not due. And the progress billing is something that we expect to
then achieve in the subsequent quarter. So it's the timing of the milestones, which is leading to a
reduction in the payable through other liabilities, which is the progress collection.
Renjith Sivaram:
Okay. And what is our target in terms of debt level for the full year?
Sushil Kumar:
Our endeavor is slowly to go back to the zero debt position. That's where our aim is. But I think
the journey will be slow. And we will have, let's say, Rs. 100 crores kind of improvement. That's
the target for the quarter. And then we claw back in subsequent quarters on the net debt levels.
Renjith Sivaram:
And this will be largely debt led by prior payable improvement?
Sushil Kumar:
More, I will say, on the receivable side and more execution, where we need to make a
corresponding improvement to the inventory levels and the receivable levels that we have than the
payable levels.
Vishal Wanchoo:
And I would just add that as I covered on the first page, the priority for the business is to improve
our receivable, which include our past years retention payments and the working capital, right? So
that is really what the levers are to improve our cash position. So clearly, the company is committed
to improving the cash position, as Sushil has said, to get to a debt-free position.
Renjith Sivaram:
And this debt-free position, we are targeting by end of this year or will it take some time more?
Because given the scenario...
Vishal Wanchoo:
Sushil has said it will take time. So our goal is really in fiscal year 2020 and fiscal year 2021. We
will continue to see quarter-over-quarter improvements. And our goal clearly in fiscal year 2021
is to be operating debt-free.
Renjith Sivaram:
Okay. And sir, you also mentioned in your opening remarks that Rs. 7 crores of IL&FS provision,
and there was one more exception in provision. So how much was that quantum?
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GE T&D India Ltd November 08, 2019
Sushil Kumar:
So that is onetime operational item hit because of the LD charged by customer to the extent of Rs.
16 crores.
Renjith Sivaram:
Okay. And the two which we have provided, is there any cash or it's a noncash item, right?
Sushil Kumar:
Yes. It's a noncash item for the quarter.
Renjith Sivaram:
Okay. And just, lastly, before I move out, there were some projects from Essel which were under
stress. So what is the outlook on those projects? And what is the quantum of such projects, which
is pending in our order book?
Sushil Kumar:
In the last call, we declared about Rs. 200 crores of the projects which are not moving. The
situation is same as of now in the current quarter.
Vishal Wanchoo:
So we are working or I should say there is work being done on Essel. So obviously, the banks are
involved with Essel. We are hopeful that the project will revive. So we are engaged in those
discussions.
Renjith Sivaram:
How much is the money stuck there?
Sushil Kumar:
Up to Rs. 50 crores is what is stuck with Essel right now.
Moderator:
Thank you. Our next question is from the line of Jonas Bhutta from PhillipCapital. Please go ahead.
Jonas Bhutta:
Just a couple of questions from my side. One of the key highlights was that execution was weak
because of the government basically orders from the client or the go ahead from the clients. So
approximately how much of the revenue would you have lost in this quarter because of this
peculiarity?
Sushil Kumar:
Around Rs. 100 crores to Rs. 150 crores of revenue.
Jonas Bhutta:
Okay. That's helpful. Also, in the Rs. 200 crores of projects that you mentioned which are slow
moving, are there projects which are in the state of Andhra Pradesh, for instance, which today
again are at the risk of slowing down? So do you have exposure to any of the renewable projects
based in Andhra Pradesh? And are they part of this Rs. 2 billion number that you just said?
Sushil Kumar:
No. We don't have a significant exposure to projects in Andhra Pradesh.
Jonas Bhutta:
Okay. So Rs. 2 billion or Rs. 200 crores is the slow moving part of your entire order book? That's
a fair assumption, right?
Sushil Kumar:
Yes.
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Jonas Bhutta:
Okay. And lastly, in terms of prospects, other than the GEC, the Green Energy Corridor, two large
HVDC projects, one in Bangladesh, the other in Kargil, which is somewhat linked to Green Energy
Corridor, nonetheless. Could you just update us on what's happening on those two fronts?
Sandeep Zanzaria:
So for Bangladesh, the discussion between the government has not probably, but have resulted
GE T&D India Ltd November 08, 2019
into that the project has been put under hold because both the governments are not discussing that
whether to put a AC link or a DC link. So Bangladesh HVDC project has been put under hold by
the client. And Leh-Ladakh project is moving as part of the initiative of the government. But I
think because it's a project of a massive size with a different complexity and also because of the
cost structure, so the government of India is reviewing that there are other stakeholders, how to
make that project, for example, cost-effective for the users or for the consumers. So there is a
process time, which is being taken for that. But definitely, we see the traction happening. Maybe
in another three to five months, we expect that the clarity to come on Leh-Ladakh project and the
way it has to be executed.
Vishal Wanchoo:
We do expect that possibly in fiscal year 2021. But still, as Sandeep articulated, there's still some
work to be done on that. So we are not counting on this happening in fiscal year 2021, but it's
possible that it may happen.
Jonas Bhutta:
So based on initial reports, this project is to be executed on this VSC technology, something that
has been used in the Pugalur to Kerala part of the HVDC project? And GE T&D have that
technology in-house to be compliant to bid for that project?
Sandeep Zanzaria:
Yes. So we have the technology compliant with that. In fact, globally, recently, we have executed
two large project fronts with the technology. One is Dolphin Offshore hidden project.There is one
more project in Europe. So two projects have been completed, and there are other projects which
are in pipeline of construction as well. So yes, we have a mature technology, and we meet the
requirement to infill that system as well.
Moderator:
Thank you. Our next question is from the line of Abhishek Puri from Axis Capital. Please go
ahead.
Abhishek Puri:
So first, as per one of the notes to account, this customer receivable of Rs. 657 million is
unprovided for. Is this related to the Essel projects only?
Sushil Kumar:
Yes, it is.
Abhishek Puri:
Okay. I heard you saying Rs. 50 crore is stuck. This is Rs. 65 crores. So which one is what in terms
of the exact number?
Sushil Kumar:
So Rs. 65 crore is the exact number. I mentioned round ballpark number in the earlier question.
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GE T&D India Ltd November 08, 2019
Abhishek Puri:
Understood. Okay. On the project prospects, could you talk about the GEC projects that have come
through and which are in the tendering phase for you? I mean any of the large projects that are
there.
Sandeep Zanzaria:
Yes. So the various projects which have been done by Adani, Sterlite, they are under discussion.
And also from Power Grid, we are expecting an order to come during this quarter.
Abhishek Puri:
Okay. Do they do a back-to-back tie-up at the time of bidding? Or they just take general quotations
and then participate? And then they come back and negotiate with you?
Sandeep Zanzaria:
So it's like different companies have different philosophy. So we are not ready to discuss their
strategies. But it goes for a back-to-back tie-up. Balance other private developers have different
strategies.
Abhishek Puri:
Okay. Do you have any tie-up with Power Grid at this point in time for any of the bids that we
have won?
Sandeep Zanzaria:
Yes.
Abhishek Puri:
Could you let us know which project is that?
Sandeep Zanzaria:
So I think we will not like to disclose it.
Vishal Wanchoo:
We will get back to you on that. Once we confirm, we will be able to disclose that.
Abhishek Puri:
Okay. So any of the tie-ups done with any private players as such, Sterlite or Adani? I understand
all three of them put together have won almost Rs. 14,000 crores worth of projects. I'm just trying
to understand your prospect market, and another Rs. 10,000 crores plus of projects have been put
up for bidding further.
Sandeep Zanzaria:
So we are in active discussions with all of these developers and could not be able to comment
anything until something...
Abhishek Puri:
But there is no back-to-back tie-up?
Sandeep Zanzaria:
I will neither confirm nor deny that.
Vishal Wanchoo:
So I think what you will also see and I think you know this from public knowledge is that we do
have a history of working with these private developers. So we have got good relationships with
them. We are always in discussion with them. The goal is for us to get pre-bid tie-ups during the
event where we can and in the event that that's a strategy on the developer's side. So at this point,
we would not disclose what specific tie-ups we have.
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GE T&D India Ltd November 08, 2019
Abhishek Puri:
Sure. Great. Okay. So I will move on to my last question, which is on the key orders that you've
received in the current quarter discussion. So this is largely from the order that you have received
in Bangladesh. It has come in from your parent company. So how does the transfer pricing works
here in terms of margins or is it a cost-plus bid? Or how does that work?
Sandeep Zanzaria:
This is not a parent company. This is basically another vertical of GE. This is gas power business.
And normally, this comes in order and then they quote inquiries and then we like to win the orders.
Vishal Wanchoo:
Just to answer your question on transfer prices. We do follow the transfer price guidelines. So you
know how they are defined.
Sandeep Zanzaria:
They are all at arm's length.
Abhishek Puri:
Right. And if I may ask one more last question on the three orders that we have received from
states. How are the payment cycles there? What are the contractual terms in terms of retention
money, in terms of the payment cycle? How that is defined? And how is it different from Power
Grid's?
Sandeep Zanzaria:
Definitely states are not as good as Power Grid. But these days because states have also gone for
a big expansion for the state network, even getting retention payment from state is also not such a
big challenge that kind of used to be. And many of these projects are also funded by multilateral
agencies like ADB or KfW and all. So states also have a definitive time line to close their loans.
Abhishek Puri:
Okay. And if I may ask, GIS, all three orders are on GIS. So how is the competitive scenario in
GIS now? Which are the players apart from you are capable of providing this? I know ADB,
Siemens...
Sandeep Zanzaria:
If I really look at GIS, it would be ADB, Siemens, Alstom and HVF, primary competition for GIS.
Abhishek Puri:
Right. So even if it is 132/ 33 kV, I mean, the smaller players do not participate here? Would that
be correct...
Sandeep Zanzaria:
This is the GIS substation on a turnkey basis where GIS product is only a part of the substation.
Moderator:
Thank you. We will take our next question from the line of Payal Verma from Green Portfolio.
Please go ahead.
Payal Verma:
Would you like to tell us about the status of Bangladesh HVDC prices?
Sandeep Zanzaria:
Payal, we just explained that Bangladesh HVDC project is under hold, the discussion which is
going on between two countries about the links which are to be decided whether to have a AC link
or DC link. So presently, it is under hold.
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GE T&D India Ltd November 08, 2019
Moderator:
Thank you. We will take our next question from the line of Renjith Sivaram from ICICI Securities.
Please go ahead.
Renjith Sivaram:
Yes. Just a follow-up on the previous question in that Pugalur bid, which Siemens has won, we
were not qualified. It was only ABB and Siemens which got qualified, and Siemens won that order.
So can you throw some clarity why we were not qualified there? And now why are you confident
that we will get qualified?
Sandeep Zanzaria:
So at that point of time, the qualification requirement had asked that you should have completed a
VSC project. And that was like what about three, four years back. And since then, we have
completed projects of VSC, so now we are qualified.
Renjith Sivaram:
Okay. And in terms of localization, do we have an advantage over Siemens and ABB in that VSC
technology or is it same?
Sandeep Zanzaria:
I would put it as same because we have seen technology. The transformers, etc., are much simpler
to make. And normally IGBTs and all, which are there, are mostly they will be coming from the
parent for everybody whether it is ADB, Siemens or us. So it puts everybody on a equal footing.
Renjith Sivaram:
Okay. And how big that opportunity will be in terms of size?
Sandeep Zanzaria:
It very difficult to comment now because like example 2.5-gigawatt rating may have a different
combination based on what type of a technical solution which is on the solar side. Like if you put
some battery storage, probably you will be able to reduce the size of the HVDC link. And also
depending upon the technical solution chosen by the developer or it has become Power Grid
opportunity then what Power Grid specifies. The overall valuation can vary for the project to a
great extent.
Renjith Sivaram:
Okay. And sir, for the full year, what will be the kind of revenues that we'll be targeting? Half
year, it's a 28% decline. So will it be kind of manage a 10% decline or you feel that things are still
challenging?
Vishal Wanchoo:
Well, it won't be a decline from prior fiscal year, but we do expect quarter-over-quarter revenue to
increase. So we are doing everything that we can, obviously, to fix. And a lot of that is dependent
just, of course, on the execution of the projects that we have in the backlog, again, it goes on a
timely basis, plus any additional orders that we can put through to execute.
Renjith Sivaram:
And in terms of the order intake, can we assume that the same kind of run rate will continue or
you are seeing some risk to that in case of there is a delay in the VSC order finalization? So what's
the output there?
Sandeep Zanzaria:
No, that is we will see order finalization still happen probably as well this quarter or next quarter
because they have a very strict timelines to deliver those projects as well. So we expect VSC order
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will get finalized mostly in this quarter. Otherwise, if there are some residual then it might go
because of some issues of SEB taking over and things like that, it might go next quarter. But we
don't see any further exchange rate.
Renjith Sivaram:
So we can safely assume that the order intake at least will match kind of last year numbers?
Vishal Wanchoo:
Order intake we expect will be softer than last fiscal year wise. But we do expect that the quarterly
profile will be up as you have seen already from quarter 1 to quarter two. So we do expect growth
quarter-over-quarter.
Moderator:
Thank you. Our next question is from the line of Koundinya N from JM Financial. Please go ahead.
Koundinya Nimmagadda: Sir, one big query is, what is the current order book now?
Sushil Kumar:
You mean the backlog?
Koundinya Nimmagadda: Yes, backlog.
Sushil Kumar:
That's Rs. 5,800 crores.
Koundinya Nimmagadda: What is the bifurcation between states and private players between itself?
Sushil Kumar:
So close to 50% is private and the rest is split between center and state utilities.
Koundinya Nimmagadda: Okay. Sir, you said that Champa project is completed. Do we have any more HVDC projects in
the backlog?
Vishal Wanchoo:
We don't have any other HVDC in the backlog.
Koundinya Nimmagadda: Any component of Champa that is pending now?
Vishal Wanchoo:
Yes. There is a component of Champa that is pending. So we did implement Pole 3, and we will
also do the Pole 4 forward.
Koundinya Nimmagadda: Sir, what were the quantum of this amount?
Sandeep Zanzaria:
Rs. 100 crore in the backlog.
Moderator:
Thank you. The next question is from the line of Jigar Shroff from Financial Research. Please go
ahead.
Jigar Shroff:
Sir, one observation. I mean, when do we expect a sustainable profitable performance? Because
as far as the performance in the last couple of quarters, last two, three quarters is gone completely
down, not only in terms of execution, but also in terms of the balance sheet, in terms of debt and
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everything. And so when do we expect a sustainable? Do you think from Q3 onwards things should
improve? And my second question is, I mean, how do you look at the exports opportunity? And
what proportion of sales would be exports in the first half? And any new products or technology,
which you would include for your going heads?
Sushil Kumar:
As already explained during the discussion, our order profile should improve and we should have
quarter-on-quarter growth. Similarly, we mentioned that our endeavor is to improve the execution.
Accordingly revenue should be progressively Rs. 900 crores to Rs. 1,000 crores of execution,
depending on the mix and progress of the project. And with that volume up, definitely the
profitability should improve. I will not be laying out exact number. But our expectation is that the
subsequent quarters should be better than the previous two ones.
Jigar Shroff:
Sorry to interrupt, sir. Should we reach a 9%, 10% EBITDA margin by the end of Q4, sir? If not
3, should we end the year with that?
Vishal Wanchoo:
So we are not going to give guidance on that yet, as Sushil laid out. I mean, clearly, our goal is, is
to improve our cash position. Number two is on our profitability. So we do expect quarter-over-
quarter improvement, as you said. This quarter has been challenging. A part of that, as Sushil
explained, was due to the exceptional items. And that's something that really drove the negative
performance for this quarter. So the goals for the team are very clear in the next twoquarters that
we have to improve our performance in terms of revenue and profitability and cash.
Jigar Shroff:
Should we assume that this was a tough quarter, sir?
Vishal Wanchoo:
For the current quarter and the next quarter, yes.
Jigar Shroff:
And Q3, too?
Vishal Wanchoo:
Yes, the current quarter, 3Q, that we are sitting in right now and Q4.
Jigar Shroff:
No. Sir, Q2, the erstwhile quarter we just got over that was a tough quarter you would say...
Vishal Wanchoo:
Yes.
Jigar Shroff:
In terms of performance?
Vishal Wanchoo:
Correct. Due to what we just walked you through. Just to make it very clear. So the quarter that
we just passed, which is the second quarter, was a tough quarter financially, as you laid out.
Jigar Shroff:
No, was it a tough quarter? In terms of performance, was it the bottom you would say?
Vishal Wanchoo:
The profitability.
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Jigar Shroff:
Yes. Okay. And on exports, sir?
Sushil Kumar:
Our exports are in the range of 12% to 13% in terms of the total execution.
Jigar Shroff:
And do you see that going up as an opportunity, sir?
Sushil Kumar:
Not very significant. I mean we will sustain that and maybe a couple of percentage point
improvement depending on the receipt of the export orders.
Jigar Shroff:
And any new products, I mean, from GE stable that you are looking ahead?
Sandeep Zanzaria:
So basically, what we are trying to do is that with the addition of renewables, so the kind of
challenges which are coming in the grid, so possibly next year we see a host of new opportunities
coming on the compensation side to dilute the grid. So that would be something which we would
be looking actively from the overall group perspective from the GE portfolio like STATCOMs
and HVDCs and other products.
Jigar Shroff:
On the renewable front?
Sandeep Zanzaria:
So basically it's because of renewable capacity addition, the challenge which is faced on the grid
side. So that's why for balancing the grid you require forward approach and things like that. For
that, you have technologies like STATCOM, TPR facilities, so that we will have best technologies.
Jigar Shroff:
Right. And sir, just on the debt side, I mean, we were at about Rs. 20 crores as on 31 March 2019,
which we had about Rs. 428 crores on 30 September, and you said you are targeting just to reiterate
and become debt-free by FY21 end. Am I right?
Sushil Kumar:
Yes. Gradually, yes. So our endeavor is to collect as much as possible in quarter three and quarter
four. It is difficult to know as the timing to be debt free, but we have maximum improvement in
the coming quarters. And during the course of financial year 2021, we aim to be debt free at some
point of time.
Moderator:
Thank you. Our next question is from the line of Sagar Parekh from Deep Financial. Please go
ahead.
Sagar Parekh:
Sir, firstly, did I hear it correctly, you said that order inflow expectation for FY20 will be lower
than FY19? Did I hear that right?
Vishal Wanchoo:
That's correct.
Sagar Parekh:
Okay. So last year was Rs. 3,700-odd crores of order intake. You mentioned that Q3 and Q4 you
will see a significant inflows coming from Green Energy Corridor. So why would you say that the
order, because first half has not been so bad in terms of order intake decline. So why would you
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still say that there will be a decline because if there's Rs. 14,000 crores worth of orders which have
already come in, I mean, already placed to the OEMs? So I just wanted to understand your sense
on that.
Sandeep Zanzaria:
The Rs. 14,000 crores order what you are seeing to be placed to the developer that includes even
transmission line aspects, which we are not participating.
Sagar Parekh:
Correct. So what is our opportunity in that Rs. 14,000 crores?
Sandeep Zanzaria:
It would be about 50% or slightly less than 50% of that.
Sagar Parekh:
So about Rs. 7,000-odd crores, right? That is the bidding size, I mean, bidding opportunity for us?
Sandeep Zanzaria:
Yes.
Sagar Parekh:
Okay. And so assuming about 15%, 20% success ratio that comes to about Rs. 1,400 crores, Rs.
1,500 crores. Okay, okay. Got it. And incrementally, these orders that we are winning, how are the
margins in those orders? Are they better than the current order book or slightly on the lower side?
Vishal Wanchoo:
As we said, we do have margin pressure that we are seeing in the market. That is clear. But at the
same time, what I said is one of the key priorities that we are working on is the product cost count
and efficiencies in our cost position. So this is something that we are watching very carefully. We
want to be in line with what I said earlier in terms of being selective on the projects that we take
on and ensure that the backlog margin what we are booking in terms of new orders that we are in
essentially along the same lines of the backlog margin. So there's a big initiative around cost side
across the various products.
Sagar Parekh:
Right. But even for these new Green Energy Corridor orders, you are still seeing the intensity to
be higher, so the pricing is affected. Am I correct in the understanding?
Vishal Wanchoo:
Yes. There is pricing pressure, yes.
Moderator:
Thank you. As there are no further questions from the participants, I would now like to hand the
floor back to Mr. Suneel Mishra for closing comments. Over to you, sir.
Suneel Mishra:
So thank you, everyone, for your participation. We will conclude today's conference call. And if
you feel to call back, then you contact me or our Communication Leader, Mr. Anshul Madaan, or
you may contact through our website. Thank you.
Moderator:
Thank you, members of the management. Ladies and gentlemen, on behalf of GE T&D India
Limited that concludes this conference. Thank you for joining us. And you may now disconnect
your lines.
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