Ladies and gentlemen, good day, and welcome to the CG Power and Industrial Solutions Limited Q1 FY 2024 earnings conference call, hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask question after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Renu Baid Pugalia from IIFL Securities Limited. Thank you, and over to you, ma'am.
Thank you, Yusuf. Very good evening, everyone. Today, we have with us the management of CG Power to discuss the 1Q FY 2024 results. From the management, we have with us today, Mr. Srinivasan, Managing Director; Mr. Sushil Todi, Chief Financial Officer; Mr. Ramesh Kumar, President, Industrial Division; Mr. Mukul Srivastava, President, Power Systems; and Mr. Ranjan Singh, Executive Vice President, Railways. Without taking much time, I would now like to hand over the call to the management for the opening remarks, after which we can start the session for Q&A. Thank you, and over to you, sir.
Good evening, ladies and gentlemen. Let me first extend a warm welcome to you all for this, the first quarter F of FY 2024 annual earnings call. I am Natarajan Srinivasan, Managing Director of the company. I would like to briefly introduce my colleagues who are with me on this call. Ramesh Kumar, President, Industrial Business; Mukul, Mukul Srivastava, President, Power Division; Mr. Ranjan Singh, Executive Vice President; Sushil Todi, Chief Financial Officer. On the whole, we had a very good quarter. The year-on-year, all the businesses grew in double digits, profit before tax from the quarter grew by about 55%. Profit before tax achieved in Q1 FY 2024 is the highest ever as recorded in quarter one in recent times. A order book continues to be strong.
As of 30th June 2023, the order book, unexecuted order book aggregate to INR 4,909 crores. Company performance: aggregate sales for the quarter were higher at INR 1,666 crores, recording a growth of 13% year-on-year, lower by 1% quarter-on-quarter. Profit before tax was at INR 256 crores, at 14.5% of sales in Q1 of FY 2024, as against INR 165 crores, 10.6% of sales in Q1 of FY 2023, INR 252 crores on 14.1% of sales in Q4 of FY 2023. Margins were higher year-on-year on account of volume growth, softening in input costs, favorable product mix, and procurement efficiencies.
Return on capital employed annualized for this quarter was at 45%, as against 38% in Q1 of FY 2023. Order intake for Q1 of FY 2024 was at INR 2,514 crores, a 47% growth year-on-year, and unexecuted order book, as stated earlier, as on 30th June 2023, stood at INR 4,909 crores, 39% higher year-on-year. Segment wise performance. Industrial systems. Aggregate sales for the quarter were higher at INR 1,258 crores, recording a growth of 13% year-on-year and 5% quarter-on-quarter. Profit before interest and tax was at INR 197 crores in Q1 of FY 2024, as against INR 153 crores in Q1 of FY 2023, and INR 188 crores in Q4 of FY 2023.
Margins were higher year-on-year on account of volume growth, softening in input costs and procurement efficiencies. Order intake for Q1 of FY 2024 was INR 1,395 crores, recording a growth of 27% year-on-year. Unexecuted order book for this division, as of 30th June 2023, was INR 2,035 crores, which is a 12% growth over year-on-year. Power Systems. Aggregate sales for the quarter were higher at INR 512 crores, recording a growth of 13% year-on-year and lower by 14% quarter-on-quarter. Profit before interest and tax was at INR 63 crores in Q1 of FY 2024, as against INR 40 crores in Q1 of FY 2023 and rupees INR 75 crores in Q4 of FY 2023. Margins were significantly higher year-on-year on account of higher realizations and favorable product mix.
Order intake for Q1 FY24 was INR 1,119 crores, growth of 84% year-on-year, and unexecuted order book as of June 30, 2023, stood at INR 2,874 crores, a growth of 69% year-on-year. Consolidated financial results. Consolidated results include the performance of the operating subsidiaries at Sweden, Germany, and Netherlands, that is, Drives & Automation in Group Europe, CG- RCV Products India, and other non-operating and holding subsidiaries. Aggregate sales for the quarter were higher at INR 1,874 crores, recording a growth of 14% year-on-year, and lower by 2% on quarter-on-quarter.
Profit before tax was at INR 263 crores, 14% of sales in Q1 of FY 2024, as against INR 167 crores, 10.1% of sales in Q1 of FY 2023, and INR 262 crores in Q4 of FY 2023. Unexecuted order book at the consolidated Drives & Automation Europe, as on thirtieth June 2023, stood at INR 136 crores. The company, in subsequent to the quarter ended June thirtieth, 2023, has concluded the sale of QEI, LLC for a total consideration of about $10.5 million, free of cash and debt.
between myself and my colleagues, we'll be happy to answer any questions. Unaudited financial statements with detailed notes are available as part of stock exchange filing in the company's website, www.cgglobal.com. Thank you.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star 1 on their touchtone phone. If you wish to remove yourself from the question queue, you may press star 2. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question is from the line of Mr. Mohit Kumar. Please go ahead.
Good evening, sir. Congratulations on an excellent quarter. Thanks for the opportunity. My first question is on the power system. Are you seeing a strong inquiry for power transformers and GIS reactors, given that a lot of transmission policy are for bidding, and also depending on the RDSS side is picking up materially?
Mukul?
Yes, sir.
Please answer.
Yes, sir. Yeah. Okay. Yes, the short answer to your query is yes. There's a strong inflow of inquiries for particularly all the segments, including power transformer, distribution transformers, as well as medium voltage switchgears coming out of RDSS scheme, as you mentioned. For the TBCB projects, also propelling the demand for the AIS high voltage switchgear and also the Gas-Insulated Switchgear in all the segments.
My second question is on the railway opportunity, especially on the signaling side. I believe that there is a significant upcoming opportunity is there for automatic block signaling, electronic interlocking and axle counters, and I believe there is a gap in our portfolio. Am I right in saying that? How are you trying to fill up this gap by tying up with international, you know, vendors?
Yeah. Yes, we do have a gap in this area, and we are pursuing partnerships for working on developing the products as well as approvals for the same. Going forward in the next couple of years, we should be in the line.
Do you think this opportunity is significant, sir? It will start the bidding, the tending will start happening from this fiscal. Is that the right expectation?
Pardon me. Can you repeat it?
Sir, I'm saying, do you think the investment in these, all these three?
Yeah.
the ticket items, do you think it will pick up from this fiscal or next fiscal?
No, it will, it would take more than this and next, because in signaling domain, because it's a safety critical thing, it takes a longer time to get the products made and approved by the system of RDSO and other approvals. It takes a longer time. There is a lot of kilometers of Indian railway lines, where these systems have to be incorporated. Going forward, we see that there would be a demand going forward for a longer period of time, and we would not be found wanting in pursuing the technology with the partnerships that we are pursuing now.
Understood, sir. Thank you, sir. Thank you. Best of luck. Thank you.
Thank you very much. We have our next question from the line of Dhananjay Bagaria from ASK. Please go ahead.
Hi, sir. Congratulations on a good set of numbers. Sir, usually your order book, what is the execution cycle like for both segments? How many months or years does a typical order get executed over?
It depends on product to product, segment to segment. Railways, generally, you can say, about 1 year or so. Similarly, motors, actually, there are short lead items may ranging from 3-4 months, and also there are large industrial motors, which can take much longer time. Transformer switchgears, again, depending upon the power transformers, large size capacity may take about 9-12 months. Switchgears also, similarly, depending upon the range, anything between 3-9 months it will take.
Okay. For motors, there's no, like, thumb rule as such?
No, depends on product to product, it will differ.
Okay. Sure. Sir, in the annual report, we had mentioned something along the lines with the Indian Navy. Has any update on that, or is it too early to speak about?
Indian Navy, for?
The Indian Navy plan to produce two carriers and 35 warships, opportunity for motors and drives.
Yeah, yeah. We are developing some motors for them, and we are in the process of getting approval.
Sure.
That is the opportunity what we have mentioned. We are working on these opportunities.
Okay, sir. sure. I'll come back in for more. Thank you.
Thank you.
We have our next question from the line of Charanjit Singh from DSP. Please go ahead.
Hello, sir. Thanks for the opportunity, and congratulations on the good set of numbers. First question is on the power segment. You see, there's been a significant scale-up in the ordering flow at around INR 1,100 crores. You can give some, you know, split in terms of whether it is coming from industry, Power Grid or state transport. Similarly, on the industrial side, you know, this INR 1,400 crores of inflow, who could be our large customers here? Any kind of color on that?
Sure, Mukul?
Yes, sir. See, the large orders are actually coming from the utilities, and the utilities are being serviced even by the EPC contractors. Practically, such large rating orders, especially the 400 KV line and all that, are governed by the utilities in the country, like transmission or distribution side. This is largely driven by utilities. Is there a breakup, sir? What is the % which is coming from utilities, EPC contractors and private segment?
Sir, we will not be able to share those kind of breakup details.
Okay, sir. Sir, on both the power and the industrial side, what is the current utilization level, and any further capacity additions which you are doing in each of these segments?
Both the power, the transformer and distribution transformer, we have already in our board, has cleared an expansion. From the power transformer, from 17,000 MVA, we moved to 25,000 MVA. Similarly, the distribution transformer, our capacity is less than 7, about 7, 6-7%. We want to go up to at least 10% market share. This will take about next to 12-15 months to implement.
Okay. sir, lastly, from my side, in terms of exports, any, you know, new initiatives, which we are, you know, doing to pick up in the export market?
It is there, right now we are running full capacity to meet even the domestic demand. If it is take to a transformer, there is a you have seen the order book, we are in a position to, not in a position to even cater to the domestic demand. We are not very taking so much steps to about export market at this point of time, always we are in touch with customers. Similarly, in motors, there is a little bit of exports, what we do every year, that we continue to do. Further focus will be done gradually in such a time when you will be able to meet the export inquiries.
Got it, sir. That's all from my side. I'll get back in with you. Thank you.
Thank you. The next question is from the line of Suraj Malu from Catamaran. Please go ahead.
Sir, I'd like to understand what is our revenue split across the segment, the LT Motors, HT Motors, power transformer, distribution transformers, and switch gears?
Within the motor, we don't give the breakup. How much is LT Motors, HT Motors, we don't give the breakup. Similarly, power transformer, distribution transformer, we only support only one segment. We don't give the breakup separately.
Okay, if we can understand the market share?
Market share, I said, in the transformer business, and our market share is less than 10%, so not a big market share. In the motors, LT motors, actually, we have our market share will be close to 35%.
Okay. HT Motors?
We are at 16%.
16. Thank you, sir.
Yeah.
Thank you. Next question is from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Congrats on a good set of numbers. My first question is in terms of what are the key sectors which are driving the growth in the LT and HT motors? Top two-three sectors, if you can?
Yes. Yeah, the water and wastewater, infrastructure, basically, and, some ethanol, all these sectors are doing very well. In general, other sectors also, though they are not very high growth, this year, we saw the good growth in sugar also.
With respect to the HT Motors, sir?
HT also. Both the LT and HT together, I am telling you. It goes hand in hand for all the applications.
Okay. With respect to HT Motors, the mid-tier market share, can we think of it going up to the LT level, LT motor level market share? Is that a possibility?
No, I don't think we will be able to reach that level because the number of players in HT is much more, and capacity is also a constraint as of now. Maybe if we plan to expand our capacity, we'll get back to you on that.
Got it, sir. With respect to the consumer durables piece, how much revenue have we done this quarter? Or what is the revenue target there? Any sense on that?
We don't give the breakup actually, but we are definitely growing much more than the market growth, and we have reached to the level of more than 2% in France and more than 3% in pumps, in market share.
Okay, in terms of profitability at an EBIT level, is it profit breakeven or above breakeven, below?
Above breakeven.
Got it. In terms of supply of motors for EVs, et cetera, what is the progress there, sir?
No, we are definitely working on that very seriously, not only with OEMs, and we are also talking to various technology partners.
Mm.
Most probably, we will have both breakthroughs in couple of quarters.
Okay. Okay. When will we start seeing revenues from that, sir? This year, next year?
Maybe next year. Okay, got it, sir. My final question is.
Sorry to interrupt, Mr. Swaminathan. May we please request you to join to the queue for the follow-up question?
Sure.
Thank you, sir. Ladies and gentlemen, in order to ensure that management is able to address question from all the participants in the conference call, please limit your questions to 2 per participants. Next question is from the line of Bhumika Nair from DAM Capital. Please go ahead.
Yeah, good evening, sir, and congratulations on a great set of numbers. Sir, if I look at it, you know, in terms of order inflows for the IS, industrial systems, you know, why, you're starting to see some bit of a kind of a flattening out of the order inflows. If you see in the last three quarters, it's hovered around the INR 1,300-1,400 crore, kind of an order inflow range. Is it that, you know, while the base ordering remains fairly heavy, now inquiry levels are starting to plateau out, or, is there something to read into this kind of, flattening, last couple of quarters, kind of an order inflow?
Our understanding of this is actually the dealers do not want to stock higher inventories because of the general feeling of volatility in the commodity prices and consequence impact on finished good prices. Underlying demand continues to be strong, while the dealers actually may probably instead of stocking, they may purchase and sale, purchase and sale, like that strategy may follow. This is what we are reading into this.
Okay, okay. With the softening of commodity prices, are we starting to take some, you know, price cuts, or is the industry taking any kind of price passing on the softening of the raw material prices softening?
If it continues to soften like this, further, if the graph is going to downward, then probably we have to do. See, these price revisions, whether increase or downwards, are not done every fortnight or every month, you know, we have to see the trend. If the trend continues to really soften, then probably market will adjust, market will demand, and finally prices may be softened.
Okay. If I may just squeeze in one more question on the, you know, EV space, we were working on kind of doing some technological tie-ups, et cetera. If you can just give an update on where are we in the entire process, et cetera, on that aspect?
We have not reached a stage where we can make any announcements, but that is a part. Everything is a work in progress, once we're able to do something firm, definitely we will have to announce, we'll do that.
Sure. Just one last bookkeeping question on railways, the revenues inflow and backlog for that segment.
The revenue would be for railways is about INR 337 odd crores. Backlog would be about INR 863 crores.
These are on UOB.
Backlog, yes, UOB.
INR 857 crores?
Yeah, INR 863 crores is the backlog of orders.
Okay.
INR 337 odd crores was the revenue of railway. The products that we sold to railway, it is going from industry as well as power together.
Yes. Yes, got it. Great, sir. I'll come back in the questions. Wishing you all the very best.
Thank you, Bhumika. Thank you.
Okay.
Thank you. Next question is from the line of Harshit Patel from Equirus Securities. Please go ahead.
Hi, sir. Thank you very much for the opportunity. Sir, my first question is on our Drives business. I have noticed we have been doing quite well in our European subsidiary. Are we taking any steps to bring that Emotron brand to India? Are we trying to exploit that cross-selling opportunity along with our motors?
Definitely, there is some thinking is there, but right now, they have so much of order book, they are not able to cater to the demand of their own customers there. It requires some preparation at various levels. The products have to be tuned to the Indian market conditions and what the Indian market customer requires, you know, you have to do those things, we are at it. Maybe at some point, this will happen.
I understand. Sir, secondly, on the motors capacity, you have already announced the doubling of capacity in the LT Motors. Now that the large infrastructure projects are picking up, and going by your commentary as well, we have been doing quite well in that area. Why not start expanding the capacities on HT Motors as well?
HT Motor is also there, initially, HT Motor, what, why we thought was because we had never tapped the export market. HT now it is growing very well, that is also on the cards of expanding HT Motors going forward.
Sure. Lastly, an update on the 440 kV Gas-Insulated Switchgear that we were trying to develop. I think you have previously mentioned that we might be able to commercialize that product by the end of FY 25. Just wanted to check if we are on track on that or not?
Of course, yes.
Yes, we are working on various component development of it, and we are on track.
Sure, sir. Thank you very much for answering my questions. All the best.
Thank you. Next question is from the line of Ankur Sharma from HDFC Life. Please go ahead.
Yeah. Hi, sir, good evening. Thanks as always for your time. I have three questions. One, you know, on the last call you spoke about, you know, being pre-qualified for supplies of motors to Nuclear Power Corporation of India, and that you also got some orders from NPCIL. If you could just help us, you know, what is the size of the order that you won? You know, what could be potentially the size of the opportunity? What are the tender either coming out or already out on the nuclear, you know, the motors, which go into the nuclear side?
I think there is some kind of a confidentiality. We cannot disclose more details here. It's a large order, I can say. Opportunities are there in this segment, if you are able to establish as a credible supplier, not only opportunity in India, but also opportunity outside India.
Okay. Any, any numbers you can put? I know not on the order that you won, but either in terms of general market which can open up or the size of tenders which are there up for bidding at this point.
Markets can open up, but it will take time, you know. These are all given the criticality, everywhere there will be a product approval, you have to get yourself approved. It will take long. It is a little bit of a longer term thing. The opportunity is there, definitely.
Okay, fair. Second question was on the power systems business, you know, where for the second quarter in a row, we've seen very, very strong order inflows. I think, you know, in the beginning of the call, as you said, you know, inquiry and ordering overall has been very strong on the transformer side. You know, even our order backlogs have gone up substantially, but clearly conversion of that into revenue seems to be a little soft, you know. Is it just that the execution timelines which are kind of constraining us from delivering higher revenue? Is it capacity constraints? You know, if you'll just help me around that.
No, both actually. These are not something, you know, mass production items. You know, each order has its own specifications, and then it has to be done as a specific order.
Mm-hmm.
Secondly, you know, we have, we are constrained by capacity, you know. Therefore, you know, there is going to be some lag or some lead time to complete and execute these orders.
Okay. Okay. We should see a pickup, right? A significant pickup in the coming quarters, right? Given the way the backlog has moved, right, from the power side?
You know, whatever is the capacity, accordingly, then we can capacity utilization is there with respect to the existing capacity. While we are taking steps to expand the capacity, that is going to take some time.
Mm-hmm. Right.
Otherwise, you know, the run rate, whatever we are doing, maybe here and there may be some increase by 10%-15%, it can happen. Otherwise, there cannot be a big, 10x difference.
Sure. Sure. Okay. Okay, fair. Fair. Just the last one was on the rail side. You know, we've been, you know, saying on especially the propulsion equipment side for both the Vande Bharat and maybe even on the bigger size locos, you know, we've been talking of a tie-up to kind of pre-qualify. I think we've also got some trial orders on the Vande Bharat side. If you could just update us both on the trial orders, when do we kind of complete that and pre-qualify, you know, independently or also on tie-ups with a partner to kind of pre-qualify for some of these orders?
The development order for the execute and then qualify to get a bulk order, it is some time off, and it's not going to happen now.
Okay.
For any of the other ongoing tenders, if we are talking to some people, if some like-minded companies are interested, you know, these Vande Bharat orders are as you know, the volumes are large and then amount is large.
Yeah
There is also a 35-year AFC for all these trains.
Yes.
There are globally, there are only about 10-12 rolling stock manufacturers, of which already three people are already in India. The remaining of them, if they are interested to join, and then if they are like-minded, certainly, we are talking to a few of them. If it comes through, then we can participate as a consortium for these tenders.
That's in work in progress? Okay.
Yes.
You will still... Okay. Okay, sir. Great. Thank you so much.
Thank you.
Thank you. The next question is from the line of Amit Mahawar from UBS. Please go ahead.
Thank you. Congratulations on consistent operational show. I just have 2 quick questions, and also building on Ankur's question. If you basically see the possibility of supplies with the semi-high speed propulsions, you know, how difficult is it for you to scale up capacities? Because, you know, cost leadership is always there. We have a strong track record. We have almost INR 12 billion-INR 13 billion under the railway portfolio. How difficult is it for you to build up, you know, semi-high speed propulsion capability and capacity in the next, say, 2-3 years? Because, you know, the current key players and train builders have a timeline to deliver. I just wanted to understand how difficult is it for us to build the capacities there?
The question is, you know, how difficult it is to build the capacity in propulsion? That is not the problem, actually.
That is not the problem.
Yeah.
It is basically the qualification that is there. Eligibility criteria demands that the people should be a train builders with a proven track record of having supplied globally the number of trains and equipment, in the last 5 time or say, 10 years. Out of which 30% should have been working satisfactorily for more than 3 years. These are the criterias which.
... and the numbers that thereof are the limiting conditions, which create the issue of not being able to take that part of the cake of the business that we are pursuing. We are pursuing through partnerships where we can be a subcontractor or supplier to those who could win the tenders for making the locomotive or the train sets.
Rensen, will, you know, last 10, 15 years of track record, you know, will not help us? Is it a new product which will need a PQ to be set up for us?
Pardon me? Can you be a bit-
I'm saying the propulsions that we've supplied historically, will not help in the qualification. These are going to be very new sets, which will require new PQs. That's one question.
Each is of a different spec. The eligibility of locomotive credentials are not suitable for being in the train set. They are different for that matter.
Fair point. Thank you. Second and last question is, you know, maybe, you know, Mr. Mukul or Mr. Dinesh can answer. On exports, you know, what this company used to do around a decade ago was a very large number, with its switchgear or, you know, medium voltage, high voltage transformers, and motors. You know, in 2025, 2026, is it possible for our factories to support INR 1,000 crore exports? Yeah, that's my last question. Thank you.
The earlier the company's transformer capacity was around 50,000 MVA. Now, many of the capacities have got cannibalized, both in India, the consumer factory is gone, outside factories are gone, and currently our capacity is moving from 17,000 MVA to 23,000 MVA. You know, you have seen the domestic order book, which is quite strong. We need to supply those domestic orders first before think of taking fresh orders for exports.
Fair point, sir. Thank you. Thank you very much and good luck.
Thank you.
Thank you. The next question is from the line of Ashwini Sharma from ICICI Securities. Please go ahead.
Hi, sir. Good afternoon, and thanks for the opportunity. My first question is on the margin. You know, the margin trajectory has been very strong for you. You know, in light of, you know, growing the order inflow, which is very strong for power system, do you think these kind of margins are sustainable going ahead?
Be difficult to answer this question because, you know, 70% of the cost is actually the material cost, where the cost of material fluctuate. We have maintained, if you compare with this Q1 and last Q1, you will see that there's big difference. If you see the margin for last financial year and then compare it with Q1, that will be more or less maintained. There are because of this extreme volatility in market prices, which is what we call it as MSR, material cost to sales. That is not a controlling factor. It'll be difficult for us to answer this question.
Understood, sir. My second question is on, again, on the product portfolio. Within the power systems, like you mentioned about, the signaling side, you're still kind of, you know, you have a gap. Is there any product which you kind of, you know, thinking of, you know, developing over the next three to four years in the power system, where you feel that there is a gap?
Signal, what you mentioned is probably relatable to railways, sir. It's not relatable to power. Power, actually, you know, whatever the market demands, you know, this is all a tender-driven business. In transformers and switchgear, whatever customer wants by way of a tender, we respond to the tender and get the order. I think whatever market requirements are there in terms of transformer and switchgear is very much there in our portfolio. I don't know whether I've answered your question.
Right. The last one, sir, I believe that you are still, you know, kind of building capabilities on the, you know, Vande Bharat portfolio propulsion system. Are you getting inquiries for the same?
No, no, inquiries, the inquiries are not like this. The tender are announced. Earlier, about 100 odd train tenders of propulsion were done by ICF, and these were given to various players, majority of which was to one player, and balance were given. We had taken up a development order. We are in the process of doing the development for the same. As far as the next inquiries and other things are concerned, going forward, we expect next tenders to be also coming out, and we would be eligible only when we have done the development and supplied to the railways. It may take some time, as we have said earlier.
All right, sir. Yep, thanks for the questions asked.
Thank you.
Thank you. Next question is from the line of Arvind Chari, from Quantum Advisors Private Limited. Please go ahead.
Good afternoon. Thank you for giving me the opportunity to speak. Can I get a, like, a brief outlook on the margin segmentally this year and, next year, going forward?
Margin. Just now I answered this question. I don't know whether you listened to that, you know. All our businesses, you know, both power as well as power systems, as well as motors and industrial systems.
Mm-hmm.
Large part of our cost of production is actually material cost. 70% is actually the material cost. Last year and year before, if you have seen, you know, the material prices went through the roof, whether it is be it steel or copper. There are global phenomena due to which these prices move. Therefore, we, on which we have no control. Very many times, we may not be able to pass on this, and even if you want to pass on, there will be a time lag. There are a number of issues, therefore, very difficult to make a statement on the margin outlook for this year or next year.
Okay, thank you.
Thank you.
Thank you. The next question is from the line of Ms. Renu Baid Pugalia from IIFL Securities. Please go ahead.
Yeah, thank you for the opportunity. My first question is, can we have some update on the operational excellence activities that we have now been undertaking for more than 6-9 months? What are the kind of savings that have started accruing to the businesses, both in terms of capacities as well as in terms of financial savings to the EBITDA?
The operational excellence has been going on for last 18 months. Primarily this is led by a Lean initiative, in which wherein we are working with an international consulting firm. The benefit of this Lean initiative will manifest in about two or three forms. One is actually, you know, due to improved layout and improved motions, you know, certain activities can be reduced. Therefore, you know, the way you, your production cycle or your operations are carried on, may go through a change, which for the benefit of the plant. Space will get reduced, some manpower may get reduced. Also productivity will go up. These are the ways by which generally this Lean initiative is helping us.
We won't be able to put through a figure as to how much money has been the savings on account of this activity.
Sure. Secondly, if you look at the motors business, we have already spoken.
Hello?
It seems that we lost the connection for Ms. Renu.
Yes.
Meanwhile, we'll move to the next question from the line of Mr. Rahul Gajare from Haitong Securities India Private Limited. Please go ahead.
Good evening, gentlemen. I've got a couple of questions. One, can you discuss the cash position at the end of the quarter? I understand the same proceed of QA would have received after that. You know, if that has already been received. That's the first question.
As of June, our cash position was quite strong. It was INR 650 crore plus, and the QA sale proceed is not there as of now. It is expected to come in quarter two.
Okay. You know, with respect to, you know, the exit of Siemens, you know, from HT Motors, how do you think that will change the dynamics of the HT Motor industry, given that each Siemens was a, had a leading position in HT Motor? Connected with that, you know, is there any traction on the export business, both on industrial and, power trade?
On the first question, I don't think they'll have any impact. It's only, if you ask me, Siemens, what are doing, is there's only internal. I don't think it'll have any impact. The second question, we did the, on exports, as I said, you know, right now, we are just trying to cater to the domestic demand. There are capacity constraints, and then once the capacity moves up, then we will start looking at exports.
Okay, sorry, I actually joined the call late. Is there an update that you can share on the status of the CapEx, both on industrial and power trade?
Totally, no, the CapEx is actually for motor expansion, about INR 280 crores has been budgeted. Similarly, for the transformer expansion, about INR 125 crores have been budgeted. In addition to that, across the divisions, we'll incur about INR 100 crores of normal capital expenditure. This total expenditure of more than INR 500 crores will be spent this year and next year.
No, in terms of timeline of, the commissioning of the project, that's actually what.
It will progressively be commissioned. You know, all capacities will not come online. Even if it comes online, we'll have an issue. Therefore, we have already said it will take about three years time.
Okay. Thank you very much, and all the best.
Thank you.
Thank you. The next question is from the line of Ms. Renu Baid Bugalia. Please go ahead.
Yeah, thank you. I got disconnected earlier. My second question then was, can you highlight some of the initiatives that the company is taking to drive the services part of the portfolio? Both in terms of R&D as well as engineering services, and how do we plan to monetize these revenue streams over the medium term, given the large installed base which CG has?
Already, you know, the, in the power sector, power systems business, there is a stream already which is reflected in the numbers. We are taking steps in both the businesses, both in motors and others, actually. There are two aspects of the services income, one is sale of spares and sale of repairs, by way of repairs, you know, service income by way of repairs. Both, we are now taking steps to map several other. I cannot discuss minute details as to what we are doing. We, whatever steps we are planning this year, probably will start giving results from next year, and then probably from year after.
Sure. Aligned with this is the other question, that increasingly we're seeing all electrical equipments being a part of a smarter grid or of a smarter process equipment system. What are the investments that we are doing on the technology side to make the products digitally ready, and any new products that we are thinking of to add to our portfolio from a medium-term perspective, which could be next generation in terms of technology and digitalization?
Renu, actually, I discussed earlier the total amount of CapEx that we are planning across businesses. When we See, today, actually, if you replace one machine compared to a vintage machine, that machine will be completely, you know, whatever you said, you know, it will address all the. It will be green, it will be sustainable, it will be algorithm-based, it will be software-based. Earlier, if three persons are required, now it will be one person required. It is standard and given. When we plan the expansion, we are looking at all these aspects. Obviously, when we replace machines or when we go for higher capacity, we go for the tech, in terms of both in terms of technology and in terms of operational convenience, and also in terms of digital. I think we are going for the latest.
It will be individually difficult for me to list each one of the items. These total expenditure, what you have said, it is already built into the expansion, the total overall CapEx, which I mentioned.
Right. My question was also from the reference of not just the manufacturing CapEx, but our end products to our customers. Are we making the products more smarter, digitally connected, and any changes in the mix, our product mix, which would enable the digital revenue stream?
I think you will, you can come over here and then have a discussion.
Sure.
Generally, you know, so in the power business, you know that, you know, we have to conform to the tender specification. Whatever, every order, whether it is transformer or switching gear, it is all won on tenders. Whatever tender requirement, if the customer wants it to be more digitally loaded, then it will be, it will happen, otherwise, we will not get qualified. In the motors, actually, we have introduced smart motors, and then, you know, already, you know, this is work in progress, and we have already shipped some motors using smart cards. I hope I have answered your question.
Sure. Thank you and all the best, sir.
Yeah.
Thank you. The next question is from the line of Aditya Mongia from Kotak Securities. Please go ahead.
Good morning, thank you for taking my question.
Sorry to interrupt, Mr. Mongia. Your voice is not clear. Are you on a speaker phone? Request you to please use the handset.
Sure. Is this better?
Yes, this is better. Please go ahead.
Great. Thanks. Thanks for the opportunity. I wanted to kind of check with you on the opportunity regarding energy efficiency. Are you seeing any trends that are supporting this thesis from the industry, wherein less the share of IE3 and IE4 is going up in India? The related question that I had was that a recent legislation that has been passed in Europe kind of makes energy efficiency even more important over there. In your export inquiries, have you started to see any effect of that materializing? Thank you.
As you rightly said, Europe is standardized now on IE3. In India, IE3 and IE4 is also picking up. I think, almost about 35% shift to IE3, though, IE3 is not mandatory, but there are a lot of industries we are looking for IE4 also. Definitely going forward, there will be a good demand for IE3, IE4.
Yeah. Anything on the export side that you are kind of hearing, which is making you believe that the opportunity may be even larger outside India?
We have IE3, IE4 complete range. Wherever in Europe, they, we are meeting the requirements, wherever the inquiries and distribution network which we have, we are selling through that.
Understood. The second question that I had for you was, more on the services part of it. pardon me, in fact, this been kind of already answered, but, one, area wherein, at least my sense is European, motor companies have done a lot better on the services side. Would you have any near to medium-term, targets and timelines, and how is the progress growing as we see through growing the services portfolio linked to motors?
I think all that I can say is it's a priority area we are working on. We have put specific people. We won't be able to share more granular details.
Got that, sir. Those were my questions, sir. Thanks for your response.
Thank you. Thank you. The next question is from the line of Akash from Dalal and Broacha Stock Broking. Please go ahead. Mr. Akash, your line is unmuted. Please go ahead. As there is no response from the current party-
Yes. Hello?
Yes, sir, please go ahead.
Yeah, I'm...
Yes, please go ahead.
Yes, first of all, I'd like to congratulate on the set of numbers and the performance. My question is-
Sorry to interrupt, Mr. Akash, but there is some background noise from your end. Can you please move to a silent area?
Is it clear now?
Yes, sir, it's better. Please go ahead with the question.
Yeah. My question is just that, for the transformer and switchgear segment, not clear, how does it manage?
Mr. Akash, there is some background noise from your end. May we request you to please move to some silent zone to ask the question?
Hello? Hello.
It seems that there was some disturbance from Akash lines. We will check the connection and get back to Akash. The next question is from the line of Vikas Srivastava from RBC Finance Service. Please go ahead.
My question is on the pumps and the fans. Whatever information is available on the public domain regarding this, two questions: What are the geographical areas we have covered in these products in India? B, when, if you can give some rough idea as to by when do you think it will become a segmental reporting item, where we will get into a position where we'll get to know what the turnover from these two products are in the total turnover?
First question.
Yeah. Area-wise, we call the complete India, because our existing channels and the. We have well spread brand across the country, so we have gone for the entire country now, so there's no place where we don't sell. The second question, I don't know, because the other segments are also going, they have to do a lot of catching up.
No, I believe under accounting standards, you have to start reporting if it's more than 5%, if my understanding is right. I'm assuming that this is a faster growing market than you're only 2%, 3% of, as I heard, of the market today. Just a rough estimate that when do you think we could have, where are we in terms of percentage, if you don't want to disclose it? Some indication as to when will we cross 5%, some indication as a percentage of turnover, whatever you can give us to let us know where are we on today and where will we say 2, 3 years down the line.
Oh, maybe 2, 3 years, you have said now 3 years. I can't put any number, so I can't, because I don't have the number with me. I don't give guidance. If we grow, if we reach that level, we will disclose. That's all I can say.
Can you disclose what our turnover is from these products today, or that is also not possible?
There are fans, geysers, pumps, et cetera, so we don't give a breakup.
No.
It's a very small, sir. Just, as a requirement from a accounting point of view, until we don't touch 10% of the total turnover, it cannot be reported separately, sir. That is the requirement of the accounting standard.
All right. Okay, thank you very much.
Thank you. The next question is from the line of Suraj Malu from Catamaran. Please go ahead.
sir, I just had 2 questions. First of all, in transformer, transformer segment, what is our utilization? Secondly, like, the capacity expansion, like, by when will that be, expanded to 25,000 MVA? Is it, like, 3 years from now, or will it be ready in 1 year?
Mukul?
Yes, sir. Our transformer capacitization is in the range of around 80%. One aspect I would like to clarify that there are repeat inspections and multiple stage inspections of the customers in a manufacturing setup like transformer. Some degree of capacity gets lost because of that repeat inspection. Otherwise, we are around 80%. Our transformer expansion projects are intended to be completed in next 12-15 months.
Thank you.
Thank you. We have a next question from the line of Alok Ranjan from 360 ONE AMC. Please go ahead.
Thank you for the opportunity. Sir, my question is pertaining to the comment that we have made in the annual report, that the export revenue, we can increase the export revenue contribution from 5% to 20% over the next 4-5 years. Also, we are saying that currently the domestic demand is higher, so we can't, you know, cater to the exports. Looks like that when the capacity will come up, obviously, then we can cater to export market. Can we say that we are confident that once the capacity will be there, like by the FY 25, so within 3 years, so let's say by 28, we will be able to ensure our exports contribution from 5% to 20%?
Just associated question to that: we are hearing more about the global supply chain realignment. India is having lower weight in the global supply chain in the industrial products, and it's likely to move up. Is it that thing which is also going to support us in terms of increasing the export contribution to a higher number in three years or something?
To answer your question, this is the aim to which we are working. Beyond that, I won't be able to say. Supposing you say, if you ask a question, are you confident? I mean, this is the aim for which we are working. If we may succeed, we may not succeed, but we put out all our efforts to succeed in this area. I think I will stop at that level. Second question, I could not follow your question, you know. You said something like, you know, change realignment. Realignment, it's China and all, He's more talking about China Plus One. Sir, anyway, our volumes are such, you know, I don't think it's going to have a big impact.
You know, our volume, whatever we want to do, I think whether it is realignment or no alignment, I think we'll be able to do that. That's not a big thing.
Got it. Sir, the second question is about the retrofit business opportunity. We have mentioned that around 2,500 crore opportunity is there in the export market in the retrofit business. Could you please elaborate, how we are going to target that? How much time will it take to gain some sizable number out of it?
Retrofit opportunity in which segment?
Sir, you have mentioned in the annual report in the power segment that there is a retrofit business opportunity closer to around INR 2,500 crore in exports market.
Mukul?
Yes, sir. See, a lot of infrastructure in Europe and USA is very old, almost to the tune of 40-45 years. There, these requirements will come when they will replace the old, very old transformers by the new ones, or with the new standards, new efficiency levels. Now that part, as our portfolio is growing and we are adding the capacity, we also intend to focus on those markets to capitalize on that opportunity. That is what we have mentioned.
Sir, any timeline that we can think about, in terms of how much, share we can get out of this INR 2,500 crore opportunity that you're talking about?
We have already started, quoting for them. A few orders we have already received, from the markets like Greece, and we are working on other inquiries from Africa, from Europe, and from USA.
Got it. Perfect, sir. Last two questions from my side. One is that, if you can help me with, what is our market share in medium voltage switchgear, and also, any progress that you can share on the EV motor and controller, which you said that you are the forerunner in the indigenously developed EV motor and controller for three-wheeler to bus segment? These are the last two questions.
On the MV switchgear side, our market share will be close to around 17%. The EV part, I'll request Ramesh to answer.
Yeah. We have already answered this question. We are trying to tie up with the technology partner for the development of this motor and controller.
Right now, there is no market share.
Yeah. Currently our market share is not there. We are yet to start.
Yeah. Got it. There will be different tech partner for different categories. For the three-wheeler, different, and for the bus segment, it will be different, or it will be same tech partner across?
We really don't know this, actually.
Okay.
It can be the same person and can be different, we really don't know at this point of time.
Got it, sir. Thank you, sir. That's all from my side. Thank you.
Thank you. Ladies and gentlemen, we will take this as the last question for the day. I will now like to hand over the conference over to the management for the closing comments.
I think, I thank all of you for participating in the call. I think we trust we have been able to answer questions to your satisfaction. I also thank IIFL team for organizing this call. Thank you.
Thank you.
Thank you.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.