Ladies and gentlemen, good day, and welcome to the Q2 FY 2023 earnings conference call of CG Power and Industrial Solutions Limited, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital Advisors Limited. Thank you, and over to you, ma'am.
Thanks, Sujita. Good evening, everyone, and welcome to the Q2 FY23 earnings call of CG Power and Industrial Solutions. We have the management today being represented by Mr. Natarajan Srinivasan, Managing Director, Mr. Sushil Todi, CFO, Mr. Ramesh Kumar, President, Industrial Systems, Mr. Mukul Srivastava, President, Power Systems, and Mr. Ranjan Singh, Executive Vice President, Railways. I'll now hand over the call to Mr. Srinivasan for his opening remarks, post which we'll open up the floor for Q&A. Over to you, sir.
Yeah. Thank you. Good afternoon, ladies and gentlemen. Let me first extend a warm welcome to you for the Q2 earnings call. I'm Natarajan Srinivasan, Managing Director of the company. I would like to introduce my colleagues who are with me on this call. Ramesh Kumar, President, Industrial Division, he takes care of the motors and drives business. Mukul Srivastava, President, Power Systems, he is taking care of the transformer and switchgear business. Ranjan Singh, Executive Vice President, Railway business. Sushil Todi, CFO of the company. Company performance for the quarter, all the businesses of the company performed exceptionally well in Q2 FY 2023, contributing to a 17% growth in PBT year-on-year. Sales and PBT recorded in the quarter were the highest achieved in recent times.
Aggregate sales for the quarter were higher at INR 1,588 crore, recording a growth of 17% year-on-year and 2% quarter-on-quarter. PBT was at INR 237 crore, 14.9% of sales in Q2 of FY 2023 as against INR 137 crore in Q2 of FY 2022 and INR 165 crore in Q1 of FY 2023. Margins were higher on account of improved sales realization, favorable product mix, moderation in input costs, procurement efficiencies and better operating leverage. ROCE for Q2 FY 2023 on annualized basis was at 48% as against 40% in Q2 of FY22. Free cash flow generated during the quarter was at INR 221 crore. Now, I move on to segment-wise performance. Industrial systems.
Aggregate sales for the quarter were higher at INR 1,094 crore, recording a growth of 12% year-on-year and lower by 1% quarter-on-quarter. PBIT was at INR 195 crore, 17.8% of sales in quarter two of FY 2023, as against INR 122 crore in Q2 of FY 2022 and INR 153 crore in Q1 of FY 2023. Margins were higher on account of improved sales realization, moderation in input costs, procurement efficiencies and better operating leverage. Unexecuted order book as at 30th September 2022 was at INR 1,649 crore, which grew by 9% compared to INR 1,513 crore as at 30th September 2021. Power systems.
Aggregate sales for the quarter were higher at INR 494 crore, recording a growth of 33% year-on-year and 9% quarter-on-quarter. PBIT was at INR 55 crore in Q2 FY 2023 as against INR 40 crore in Q2 of FY 2022 and INR 40 crore in Q1 of FY 2023. Margins were higher due to favorable product mix and better operating leverage. Unexecuted order book as of 30th September 2022 was higher at INR 1,970 crore, which grew by about 58% compared to INR 1,247 crore as at 30th September 2021. Consolidated results. Consolidated results include the performance of operating subsidiaries in USA in the QEI, Inc. and in Sweden, Germany and Netherlands, drives and automation Europe and other non-operating and holding subsidiaries.
Aggregate sales for the quarter were higher at INR 1,696 crore, recording a growth of 17% year-on-year and 2% quarter-on-quarter. Profit before tax was at INR 241 crore in Q2 of FY 2023 as against INR 144 crore in Q2 of FY 2022 and INR 172 crore in Q1 of FY 2023. Key events in Q2. The board of directors today approved a proposal to expand the manufacturing capacity of motor at its plants in Ahmednagar and Goa at an outlay of INR 230 crore. This project will be implemented in two phases over a period of four years. The board of directors have approved a scheme of arrangement for transfer of INR 400 crore standing to the credit of general reserve to retained earnings account subject to regulatory and statutory approvals.
Unaudited financial results can be accessed in our website. Between myself and my colleagues, we'll be happy to answer questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rahul Kasare from Haitong Securities. Please go ahead.
Yeah. Good evening, sir. Thanks for the opportunity, and congratulations for good performance during the second quarter. I've got a couple of questions. The first one is, you know, we've seen a very good uptake on the gross margin side, which is actually reflected in your industrial margin also. So I wanna know, you know, what are the key reasons, you know, for the sharp uptick that we've seen in the industrial margin, and what is the sustainability of this margin? What are the sustainable margin in industrial that you think the company should be able to achieve? That's the first question.
Will you complete the second question?
Yeah. You know, given that, you have, you know, doubled, you know, you're looking at doubling the motor capacity, would you be going behind exports in a big way? If yes, some thoughts on how do you see the export market, et cetera. That's the second question.
The first one, these margins I just read out in the press note. First is, you know, margins look very high because compared to the previous quarters, last year's comparative number. Last year probably the margins were the lowest because that is the time when we had not raised our prices and passed on all our costs, number one. The input costs were highest. Therefore, first that aberration, it's a statistical aberration. From there, you know, the prices, whatever prices we have revised, you know, still they had to be revised downwards. While there has been some softening of costs, there are a cumulative set of factors. As I said, you know, improved sales realization, favorable product mix, moderation in input cost and procurement efficiencies.
We also mentioned to you that as we become financially strong, we are able to make purchases on cash terms. Instead of giving credit, you know, we pay cash terms to give that some advantage. Cumulatively, the important point to remember is actually the margins figure which you see for the last year's corresponding quarter is a very low number because of extremely unfavorable set of factors. When you take a fixed price contracts and then service it over a period of time, when the input cost goes down, you are at an advantage. When the input cost goes up, you are at a disadvantage. That's one.
Second is, you know what kind of margins you will be able to steadily, you know, I think very difficult to answer. We will try our best to do what best possible. This margin, whatever you see here, it cannot be sustained. That is one. Second, with respect to your question on export, definitely export is on our agenda. We would like to as I said, you know, this proposal for CapEx to increase the capacity is to be implemented over a four-year period. This will address several requirements including exports, increase in domestic market, so then exports, then other opportunities. Everything, exports is certainly on the agenda. The capacity increase has been considered taking into account the overall demand both from domestic and overseas market.
While, you know, industrial margin might not be sustainable, but given that we've reached gross margin levels of almost, you know, 30%+ , so that should be sustainable. Is that right assessment?
No, I can't comment on any numbers or margins, please. Because, you know, stability has to return. Still there is no stability. There are several other issues there. I will not be able to comment anything there.
Okay. My last question is on the railway business. You know, I think in the fourth quarter you had indicated, you know, that railway business was the strongest that the company had seen in several quarters. I wanna know how is the railway business doing right now? And if you can, you know, give us a revenue number and if that can be split between industrial and power, that will be very helpful.
No. Industrial, we don't split and separately give railway numbers. Railway business is doing well.
Okay. Fine. Thank you. That's all from my side. Thanks.
Ready?
Thank you. The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited. Please go ahead.
Thank you very much for this kind opportunity. I've been a shareholder for a while, and when I look at the numbers in this quarter, while the margin performance has absolutely been stupendous, however, on the top line, when we compare it on a Q on Q basis, we find that there was a you know, meaning it could have been more. One of the points that you mentioned was the operating leverage that caused the improvement in the margins. I wanted to understand as to meaning if the sales haven't really increased Q on Q, so how did the operating leverage help? My second question was on the railways business. How is the business looking like qualitatively?
No, no. Qualitatively operating leverage is when you operate at a higher capacity, your cost absorption is becoming better. That is what we meant.
Sir, higher capacity is not reflecting in the sales revenue.
No, production is there, sales revenue is there, cost will get absorbed.
In fact, I also looked at the inventory. Inventory has also not increased significantly. Meaning I could not understand as to how was the business size increased in terms of revenue.
See, we are always talking with reference to the corresponding quarter of previous year. In relative terms, if you see there will be an improvement. That's what we meant.
Okay. Fair point. Sir, on the railways side, how has the railways business been looking up?
Railways, you know, is a steady and solid performer. Continue to do well. But we don't give a separate railways data as separate data, but all the-
Yeah, I understand that. You mentioned that. Qualitatively, meaning it's on a steady state and
No, definitely. No, definitely it's doing better and better. Qualitatively doing well.
Wonderful. Any update on the Vande Bharat initiative where we were trying to, you know, you were working on that project?
We are still exploring avenues and possibilities to see how we can participate. Actually, there is some time away for the tender is currently open. I think it is till fifteenth November. The tender may close, but still we are exploring various opportunities. Nothing is firmed up so that I'll be able to report to you there.
Fair enough, sir. Fair enough. Lastly, on the EV side, I'd noted some reports on the EV chargers play that the company has got into. While we obviously always understood that we were looking at the EV motor side. How is the EV side of the business looking up and some sound bites on the charger side and on the motors?
I am not aware of any move to get into chargers actually. I really don't know from where you are getting this information. On the EV motors, certainly, you know, there are a lot of initiatives which are going on. They are at this point of time, they're all a developmental category. They've not come to a stage where we'll be able to report something solid.
Fair enough. Lastly, sir, like what has been the capacity utilization there in Q2 of FY 2023, that is the current quarter, for which the results have been presented?
For which business?
Sir, which business are you talking about, sir?
Sir, both the businesses, industrial as well as the power system.
Industrial we run at around 80%, and the power we are running between 60%-70%, sir.
Fair enough, sir. Thank you so much. I will get back in with you. Thank you.
Thank you. The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, sir. Thank you for taking my question. Just on the demand side, if you can throw some light, in context of motor industrial parts. You know, I know you don't share numbers, but just on a qualitative aspect, you know, how is the direction looking like right now? Because, if you look at generally being a motor business as a segment, pre-COVID has been generally grows at 8%-10% or, you know, 7%-9%, which you showed this growth. Despite you were saying power, railway is doing quite phenomenal for you, which is somewhat, this segment is showing 11% growth, 8%-10% pre-COVID it used to grow for the sector as such. If you can throw some light, what's the view on demand on the ground level?
That would be helpful. That's my first question.
Yeah. See, actually, generally, if you see the pharma and the chemical like, you know, sugar and all these sectors, even cement. Okay. Except for steel. Steel was because of the export duties and all, steel has been slowed down a little bit. Otherwise, water, all these segments are doing very well, even in infrastructure also. Most of the segments are growing and the demand is being good, you know, for the last two quarters. Even last quarter, it was because of the rains and all, a little bit slowed down. Otherwise, the inquiry bank is good.
Hello?
Yes.
Should I go, sir? Hello?
Yes, please.
Yeah. Okay, I got it. I think there was some noise in the background, so I was not able to understand whether I go ahead or not. Okay. That's helpful, sir. Second, you know, you said there is a change in mix also which attributed to margins. Though the previous participant asked this question that, you know, if you look at Q-on-Q, the revenue growth is actually flattish and, you know, which, I mean, doesn't, I mean, how one should look at on the operational part, but that's a separate case.
Generally, in terms of Power Systems revenue growth, which has been very strong this quarter, how you are seeing that segment in terms of demand and in terms of mix, when you say margin improved, if you can throw some light on the mix part, because generally, the mix has been in favor of Power Systems. If you can throw some light or just a function of pure pricing bunching up in this quarter, which is leading to the margin side.
Far as the demand is concerned, you know, we have said, you know, what is the unexecuted order book, how it has moved from last year to this year, and what is the current unexecuted order book as on 30th September, INR 1,970 crore. Inquiries are strong. That should tell you clearly about the demand outlook from the segment. When we say the product mix, et cetera, you know, here, see this is execution of several orders. Orders, number of orders. Each order will have a different material cost ratio, different margin, et cetera. At the time of tender, we'll take a call as to how important it is. It will be almost impossible to say how, what is the mix like.
We can only say the reason how the mix has helped, et cetera. Sometimes mix is favorable, sometimes it is not favorable. Well, every order is different and unique by itself. It's not a batch processing order. Every order is customer-specific to meet the requirement of customer, individual orders are different. Each order, in some quarters, you get into a situation where almost you have many of the orders have favorable ratios for you. You may still get a lesser margin, still may choose to execute the order.
Getting it.
Yeah, that's the reason.
Got it. That's very helpful. I'll come back in the queue. Thank you so much.
Thank you. The next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Yeah. Hello, sir. Good afternoon.
Yeah.
Thanks for the opportunity. My first question is on the industrial motor side. If you can, you know, give some more color on high tension motors and low tension motors, how has been the trend there? And are you seeing, you know, the high tension motor segment also growth picking up based on, you know, some of the larger end markets how they are performing? That's my first question. Second is on the railways front. We are seeing the tender pipeline, you know, becoming very strong, like the earlier participant also highlighted on the Vande Bharat platform. You know, what could be our opportunity there in terms of when we are looking at, and we'll be also looking at any kind of a tie-ups there to scale up that opportunity?
That's my second question, sir.
I will answer railways and then give it to Ramesh to answer the motor part. Railways actually on the Vande Bharat opportunity, you see, you know, we are not qualified to directly bid for the tender because we don't have experience of building the train set. Therefore, we can participate with somebody who is found eligible, and we have something to contribute. That we are exploring. We don't know whether we will succeed. Secondly, you can also be a supplier, sub-supplier to someone who has got the orders, et cetera. I think that is the opportunity as far as the Vande Bharat is concerned. Ramesh, can you answer this motor?
Yeah. See, the LT and you said LT and HT, how it is differently, you know, looking at the growth. That's what your question was, right?
Yes.
Yeah.
Yes, sir. Yeah.
See, HT, you know, there are two sectors which are very, very strong. One is water and wastewater and the cement industry. These are all fast growing actually. If you see the quarter two, HT growth was much better than the LT. But of course, LT also there are certain sectors which are growing good. But between these two, if you compare, HT was better the last two quarters actually.
Sir, if you can highlight in terms of the growth outlook for HT and LT, what's the kind of growth trajectory you could be seeing from a market perspective?
As per IEEMA, I'll tell you. The HT growth was in the first quarter because the second quarter results have not been declared by IEEMA. As per IEEMA, first quarter growth is about 15% in HT. Sorry. 18% in kilowatt in HT and about 18% again in LT motors also.
Okay, sir. Just lastly, if I may squeeze another question on the exports part. Exports and power systems used to be a you know big segment for us, which actually got now reduced significantly because of the Kanjurmarg plant going out. You know, any thoughts in terms of adding further capacity to boost our export for the power system segment?
I think this is not going to happen immediately. Even if you want, you know, this will either be to get, the kind of investment that you are looking, that you are suggesting, actually it will take time. You know, something has to come. There is no such, immediately. There are a lot of commercial, opportunities which we are pursuing. There are also some, exports orders which we are executing. To answer your question, immediately there's nothing seems to be on the horizon.
Okay, sir. Thanks for taking my questions and all the best for the future. Thank you.
Thank you. The next question is from the line of Romil Jain from Electrum PMS. Please go ahead.
Yeah. Good evening, sir. Am I audible?
Yes, very much. Good evening.
Yeah. Thank you. Sir, you know, the first question is on the incremental CapEx that we are doing, the INR 230 crore CapEx. It is going to add what kind of revenues to our existing base? And that is question number one. Any other CapEx apart from this that we are doing in the next two years? And second is on the EV motors. So just want to understand what is the current progress that we are at because we are a strong player on the motor side. I think we were also trying to tie up with someone on that and what is the current progress timelines, if you can just give some understanding on that.
First on the CapEx, you know, your question was how much the capacity will go.
Revenues will be added, yeah.
Exactly. That will take time, you know. It's over a period of four years. You know, very difficult to say at this point of time. The capacity envisaged actually, if everything is completed, you know, we should probably nearer to doubling, you know, maybe 85% of the. This is very
Okay.
We have to do lot of detailed work. 80%-85% of the capacity can get doubled.
Okay. Okay.
Capacity first you have to utilize, then you have to sell, then money has to be realized. You can make your own assumptions here.
Sure.
On the second EV side, as I said, you know, the earlier question also answered, it is too premature. You know, we are in discussion with a lot of people. We are doing our own in-house development, but nothing is concrete. I will not make any statement here.
Okay. Sir, just last question on this Vande Bharat opportunity. I just wanted a little bit of clarity. I understand we are not directly qualified, and we can only participate with someone who is. Just want to understand what would be our scope of work there. Presently, are we in talks with someone to participate? And if yes, by when can that, you know, in terms of the bid pipeline or the bid timelines, when we can expect something maybe affirmative or negative? Just want to understand the scenario.
Before the tender, if you don't respond, then you are not getting there. That is the only key. The tender is likely to close by 15th November. If you are not,
Okay.
That means we are not there.
That means we would have been participating with someone, but still, if we don't get the tender, we have not been there.
No, no. If you participate, participation means what? Participation in the tender. You have to participate, right?
Okay.
If you are not qualified tender, you will not be accepted. No.
Correct. Right. Right.
Yeah.
We are also planning to supply some products in that entire tender, the second option that you are talking about.
First of all, it depends on who is going to get the order, and if they are able to have it, if the whatever is required, if they have it in their own paper, they may not buy it from us. There are number of issues.
Okay.
In terms of tender opportunities, I mentioned.
Okay. Got it, sir. Okay. Thanks a lot. All the best.
Thank you. The next question is from the line of Ankur Sharma from HDFC Life. Please go ahead.
Hi, sir. Good evening. Thanks for your time. Just one question on the industrial business, you know, order backlog. If I get my numbers correct, you know, this quarter, the industrial backlog is up about 9%, you know, on a YOY basis. Even Q on Q, it's kind of come off, you know, almost like 15%. You know, it's down by 15%. I'm just trying to understand, is this more of a seasonal thing? If you believe as we go into the second half, you know, the industrial order backlog and order bookings kind of pick up again? Or anywhere, you know, you wanna red flag any segments where you're seeing some growth kind of slow down?
Actually, as you rightly said, there is some seasonal effect. Generally the second quarter is a lean for the industrial business because of the rains and all. Over and above that, there was a little bit of, you know, market sentiment issue because of the sudden rise and sudden drop of the commodity. The wait and watch was there a little bit in quarter two. I'm sure quarter three onwards things will fall in place.
Okay. It's just the impact of volatile RM prices and therefore.
Yeah, yeah.
Maybe some destocking by the channel or, you know.
Yeah.
Some delays there, but okay. Nothing to be worried about. Things will kind of pick up as RM prices kind of stabilize. Okay.
Yeah.
Got that. Okay, great. Yeah, that's all from my side. Thanks. Yeah.
Thank you. The next question is from the line of Abhilasha Satale from Quantum Asset Management. Please go ahead.
Hello.
Yes.
Sir, I have two questions about this. When we look at our power 16% growth for the quarter, can you quantify how much is because of the commodity price increase and how much actually is the volume growth? Similarly, if you can throw some light on the overall industry growth in the motor segment in Q2 FY 2023.
Industry growth, sir, my colleague will explain, but we won't be able to give you the breakup. How much is on account of commodity, how much is on sales, etcetera, we won't be able to give. On the industry growth, my colleague will answer this question. See, we anticipated little less because earlier also somebody has asked this question. If I had to give you exact numbers of the industry growth, generally we follow the IEEMA published data. IEEMA published data is available only up till July, so full quarter is not available. If you see quarter one, the growth of, you know, HT motor and LT is almost about 18%. Definitely, there is a slowdown in the quarter two.
As I said earlier question also because of the demand side, there is a little bit less because of the commodity prices. That is how we are anticipating that there will be a drop of growth maybe by 2%-3% unless the published numbers come, then I'll not be able to tell you exact numbers.
Sure. My second question is, you know, regarding the overall industry growth for the motor segment. In last five years or seven years, if we have seen the industry has grown below real GDP growth, as we are seeing the CapEx is picking up, private CapEx is picking up, and you know, you have seen almost like across all the industries, the CapEx cycle is picking up gradually. Do you see this number going up substantially higher over next two, three years? And as you are also doubling your capacity, is it with that vision of improving, you know, industry growth from the whatever they have done in the last five, seven years?
It's only on the assumption that the demand will go up, we are expanding. In one word, I will simplify the answer. There are multiple levers for growth. One is export demand, local demand, so others actually. We expect the demand to go up and the industry to grow. That is why we are expanding.
Okay. Okay. Thanks.
Does this answer your question, Ms. Abhilasha?
Yeah.
Thank you. Participants who wishes to ask a question may press star and one. The next question is from the line of Suraj Navandar from Sampada Investments. Please go ahead.
Hi. Good afternoon, sir, and thank you for the opportunity. I just had one question. Do we manufacture any products that are used in renewable energy segment, like transformers or anything?
Mr. Mukul Srivastava?
Yes, sir.
Please.
Yes, sir, I couldn't hear the question correctly. It was some disturbance. Can you please repeat again?
My question was, that do we manufacture any products that are used in renewable energy segment, like solar parks, where they need transformers. Do we manufacture the transformers needed for renewable energy segment?
Yes. We do manufacture, and these are called inverter duty transformer, IDT. We do make up to 12.5 MVA, which are supplied to various solar parks. They collect energy and from there, 30 KV, they supply to the grid. We do manufacture those transformers.
Any other products that we manufacture apart from transformers, and how is the demand that you are seeing in this space?
The solar power plants are coming. Almost 11 GW of plants are under construction right now, and we do supply the necessary switchgear as well as transformer both for this segment. Ultimately, when the power is generated by the solar panels, finally it is collected and transmitted to the grid through the same method of switchgear and transformer, and we make bulk of these equipments.
All right. Thank you, sir. Thank you very much.
Thank you.
Thank you. The next question is from the line of Rahul Agarwal from L&T Mutual Fund. Please go ahead.
Yeah, good evening, sir. Just so in terms of the expansion that you're doing, if you could give an idea about what kind of sales that could entail. The second question is with regards to your pricing, sorry, margin expansion that we have seen. Have we started taking price cuts now, whether it's a Q3 thing or a Q4 thing? Just these two questions. Thank you.
I think on the first of this expansion, I just answered the question earlier. See, this is expansion. As you know, this phase, the entire thing has to be completed over a period of four years. The revenue actually, you know, it depends on what each phase, what is the capacity utilization, what and how will it get sold, et cetera. But roughly, you know, generally, the entire expansion could be about 80%-90% of our current level the capacity can go up. But you know, details will have to be worked out, you know. We have just made some first cut numbers. Only when we get into details further refinement is possible. Then on the second question, Ramesh?
So-
Price cut. Anything.
Price cut.
Price cut. Yeah. Obviously, you know, so far, the order intake was a little low because of the variation in commodity. Market is expecting price reduction. It all depends on the demand and supply. We decide how much has to be, you know, whether it, these prices can sustain or it will go down a little bit.
We have not started the price cuts as of now.
So far, no, not much.
Okay.
Yeah.
Great, sir. Thank you, and all the best.
Thank you.
Thank you. Participants who wishes to ask a question may press star and one. The next question is from the line of Mayank Chaturvedi from Equirus. Please go ahead.
Yeah. Hi. Good evening, sir. Thank you for the opportunity. Just following up on previous participant's questions on the price cut. I just wanted to know what would be the lag period wherein you start taking price cuts and once, how, when it is realized in the market. Because as I understand, when we are taking price hikes, it takes around a quarter and a half to realize those price hikes. The price hikes start reflecting around, I think, a quarter and a half. How is it the other way around?
I'm not sure whether we'll be able to tell accurately. You know, these are all decisions, several points, factors, you know, influence decision, current market demand, customer expectation, co-competitors' moves. Many things are there, so it may be difficult for us to say how it will happen the way you are asking these questions.
Okay. Are we generally the leader in revising prices at least? Are we the first ones?
Yes, yes.
Okay.
Revising means, you know, increase as well as decrease. Both we are first.
Right. Okay, sir. Thank you, sir. That will be all from my side. Thank you.
Welcome.
Thank you. The next question is from the line of Renjith Sivaram from Mahindra Mutual Fund. Please go ahead.
Yeah. Hi, sir. Congrats on good set of numbers.
Thank you.
Yes, sir, just wanted to understand, like, this, you had some in-between some thoughts of entering this fans segment, and now there is a lot of noise of the tariff change and also. Are we seriously looking at that segment or is it kind of a need to whatever the spare capacity we'll be doing? Any CapEx which we are planning to allocate because this new set of fans require BLDC kind of drivers and also if you can share some of your thoughts on that part of the thing which we had previously elaborated some big plans.
Fans, we are very serious about this business, so there is no doubt on that. The star rating is going to come into effect from 1st January 2023. Now see, BLDC is required only when you go for four-star or five-star, but the market is going to be more percentage of demand will be from the one-star and two-star. Up to three-star you can manage with the induction technology itself. Okay. I don't think immediately a lot of CapEx is required for you know, changeover. We can still manage with the star rating going forward.
Okay. What's our strategy there? How big we want to build and what all are the other things in that segment we are aiming to launch?
We want to be as big as possible.
Okay. Regarding this, previously Crompton used to export a lot of these transformers to Singapore, Europe, and other geographies. Post this factory land from Bombay has been sold. Now, we don't have a facility near the port, so there had been in between some media reports or something like we have been scouting for a land near JNPT or somewhere where we can look at export of transformers. Just wanted your thoughts on that. Like, are we looking to revamp that transformer exports of erstwhile Crompton management by getting some facility near the port?
Nothing of that sort as of now. There are no attempts which are being made currently to scout a place near the port, et cetera.
Okay. Is transformer export at least something which we will be looking at? Because that was a huge business which erstwhile Crompton used to do.
Definitely we'll look at actually. Even now we are exporting a bit, but, as you rightly said, the absence of a facility near the port actually hampers. Unless you have something of that sort, your export cannot be easier. But nevertheless, you know, from our existing locations, whatever is possible we are doing.
Okay. Regarding this, EV motors, what is the overall plan that we have? Will it be a sole supplier to Tube Investments, our sister company? What we will be looking at in terms of EV motors?
One thing, you know, we have to be first ready with our product offerings, which has not happened so far. Secondly, there's nothing like a sole supplier for Tube Investments. If it makes commercial sense for them, they will buy from us. Similarly, if it makes commercial sense for us, we will sell to them. If it doesn't make commercial sense, we will tell them your price is not working out, we will not sell. That is how we operate there.
At what stage we have reached in that EV motor? Because in between we are talking with some Israeli company.
No, we are talking to so many people. As I mentioned earlier, first, you know, you have to get the design, you have to develop the prototype, then the prototype has to be approved, then, you know, you have to develop the product, then you have to testing, then quality, then commercial scale. Many steps are there. I won't be able to tell you exactly in what stage we are in which product.
Okay. Sir, lastly, this 9,000 HP and 12,000 HP electric locomotive orders are there in pipeline, either Alstom or Siemens can win that. In that, do we have any portion where we can be a supplier to these companies, in terms of anything, we can also be beneficiary of that to large orders?
I request my colleague Mr. Manjunath to answer this.
Yeah, your question about 9,000 HP and 12,000 HP locomotive. Yeah, you are right that these tenders are with conditions which are suiting to the backward integrated players like Siemens and Alstom, and they do have their own facilities in India.
The products that we make, whether it is traction machines, converters, propulsion or auxiliary converters and all, where if they feel that they would be requiring these from outside and not being able to meet the demand by their own facilities, then those opportunities can come to us. Actually, as NSS explained, we do not qualify on our own. It has to be bid by the local manufacturers, and we can act as a supplier once one of those win the orders of that type.
Okay. It will be probably a wait and watch till that finalization happen, and then we'll have to check whether they need some local source.
Yeah. In 9,000, the tender has already been opened on 27th of September, and it will be, I mean, scrutinized and concluded in the next two, three months, four months, definitely before the end of the financial year. 12,000 is due in the middle of December. I think there should not be. We have to wait and watch and see how who wins and how we can associate with them. We do supply some of the items to Siemens and Alstom for their other requirements. For these specific requirements, we'll continue to pursue them and we'll look for any opportunity which come to our side.
Okay, sir. Thank you. Thank you so much.
Thank you. The next question is from the line of Harsh Pathak from IDFC Asset Management. Please go ahead.
Thank you. When we look at the unexecuted order book of power division, almost INR 2,000 crore and for industrial almost INR 1,600 crore, as of today, how much of that would be on a fixed price basis?
Pardon?
Yeah, on a fixed price basis, you are right. In power, some contracts may be with their price variation clause.
Would it be fair to assume that on the power side, the fixed portion would be relatively higher than on the industrial side?
No, both are, you know, on what basis, you know, how much, what? I don't exactly follow your question.
As in when the tender comes out, those contracts are indexed or not.
That is why I mentioned you some contracts. Short-term contracts are not indexed. Long-term contracts, some may be indexed, some may say that, you know, you like to make your arrangement, it is fixed. There is nothing. There is no hard and fast rule.
Okay, sir. The CapEx that we announced in last quarter, INR 200 crore, almost INR 80 crore- INR 90 crore goes towards motors for debottlenecking, if I'm not wrong. That is a separate thing, right? Entirely separate than the INR 220 crore that we have announced in this quarter.
Correct. You are right.
Okay, sir. Thank you. Thank you.
Thank you. The next question is from the line of Sagar Parekh from Vana Financial. Please go ahead.
Hi, sir, congratulations on a great set of numbers. Just one clarification. You mentioned that this INR 220 crore of CapEx that we are doing for LT motors will increase the overall industrial capacity by 80%. Is it? Did I hear it right?
You're right, 80%-90%.
If I look at the annual number of industrial revenue of INR 4,000 crore, you're saying that will increase by about 80% at full utilization. Nearly like we can assume about an additional INR 3,000 crore of revenue on INR 220 crore of CapEx.
It is mathematics actually. I tell you, capacity means, you know, for example, stamping capacity will have to go up. Stamping. Stamping will go up. You know, some may be for EV motors, some may be. It is not direct mathematics. It will not work like that. We will have to just to do some more specification. By and large, you know, there will be an increase, definitely, there'll be a substantial increase in the volume. You know, how much it gets into stamping, how much it gets into EV, how much it gets into LT motors, you know, these are all things we need to work out. We won't be able to exactly tell you how much it is going up.
Okay, understood. Still, the asset turnover ratio will be significantly higher for this INR 220 crore of CapEx.
Maybe. I think you are right.
Okay. Understood. Broadly in the next two years, how should we look at overall CapEx at INR 200 crore announced last quarter and INR 220 crore this quarter? Besides this INR 420 crore of CapEx, how should we think of overall CapEx for the company as a whole?
I think, you know, I'll be able to communicate only what has been approved by the board.
Mm-hmm.
Supposing next year business plan, business comes to something more important, if we are able to convince the board and get it approved, we can come back. You know, this is whatever CapEx here earlier we mentioned, this is for the current year business plan and last year business plan we've announced. This is an independent project. Anything over and above, you know, we don't know. The power systems may come with something else, railways may come with something else. We need to think through at that time, you know, only after subsequent scanning and approval by the board, we can communicate. Otherwise, you know, we won't be able to say anything.
Okay. Maintenance CapEx will be how much then on an annual basis?
You know, See, because, you know, when we spend so much on other CapEx, which is normally including, modernization, et cetera, maintenance CapEx may not be much. We can finalize only at that time of the business plan, then only we can come with some numbers.
Okay. My last question on this subsidiary, this CG Power Solutions Ltd., which is under insolvency resolution process under NCLT. We have identified like the assets are pretty big on the balance sheet if I look at it. Could you give us some sense on how you know what are our expectations in terms of can we realize any money from this? What is it exactly? Like, this is some international subsidiary or?
No, no, it's a local subsidiary only. As you know, once an order is passed under the IBC, the entire matter vests with the IRP. We are not, he has taken charge of the company. He will start realizing the value of assets and paying the liability. We don't expect anything from that. In summary, I want to say that we are not expecting any money to get realized from this. The rest of it is left to the resolution professional who will work under the direction and supervision of NCLT.
Okay, understood. No liabilities also, significant liabilities that can come in since it's in NCLT.
Correct.
Got it. How large would be that subsidiary in terms of turnover?
No, it is not a big business.
Okay. No significant impact then on this.
Correct.
Okay. Got it. Great. That's it from my side. Thanks.
Welcome. Yeah.
Thank you. The next question is from the line of Ashwani Sharma from ICICI Securities. Please go ahead.
Yeah. Thank you. Thanks for the opportunity. My first question is, if you look at the other unallocated-
Sorry to interrupt you, Mr. Sharma, but we are unable to hear you. Can you please speak little louder?
Can you hear me now?
Yeah.
Please go ahead.
Yeah. The first question is that if you look at the other unallocatable expenditure, there's been, you know, a sharp drop on a sequential basis. Was there a one-off in Q1 FY 2023? If you can explain that.
No, there was nothing excessive. There's some provision with respect to some management incentive that had been provided in the Q1.
How much was that, sir?
That amount we can't quantify, but that is what it is included in there.
Okay. Secondly, what would be our market share in the transformers today?
Mukul actually there, we can answer this question first.
See both. I mean, we have two transformer, one is power transformer and one is distribution transformer. In power transformer, we are close to 11%, and in distribution we are close to 8%.
If I look at the market size, that would be how much, sir?
Market size of power transformer is quite huge. It must be, I mean, it is in excess of INR 5,000 crore. Distribution close to INR 3,000 crore in India. I'm talking only of India, but we do export, little bit, few numbers also.
Thank you. Lastly, sir, would you like to give any guidance for the revenue guidance for the current year, FY 2023?
No, we don't give any guidance.
All right. Thank you, sir. Appreciate it. Thanks.
Thank you. The next question is from the line of Manish Dhariwal from Fiducia Capital Advisors Private Limited. Please go ahead.
Yeah. Thank you, very much, for this opportunity once again. Also I basically wanted to understand as to, in fact, you know, since the time that we acquired the company and we got on the management, you've had a stupendous run. You know, you kind of got the operations in control, and we've kind of got all the low-hanging fruit. Now it's also been now a couple of quarters. Have you been able to kind of focus on some metrics on which you will measure the growth of this extraordinary organization that now you run? I would like to basically get a handle on those metrics and how we are proceeding on that?
Largely this question is also coming from that I somehow are we kind of seeing some sort of a topping out on the revenue front in the short term till such time that our CapEx converts into manufacturable capacities? Two, also, the market. See, right now we're seeing lot of capital expenditure happening, growth happening. Are we kind of seeing any constraint that may not allow us to participate in that growth going forward? Do we have a free runway ahead of us in terms of our capacity and capability or are there any issues in the short run?
One thing, we already are at about 80%-85% capacity and the industry is high.
Most of your questions are very general and generic, number one. Second is, you must understand that, you know, CG is a 80-year-old organization. Excepting for the problems in the last four years, this company was ran very, very efficiently. They had always maintained a leadership position in the respective businesses, notwithstanding the presence of giants, global giants as competitors. If you take motors, new competitors are Siemens, ABB, and then similarly in the power transformer business. The company had extraordinary capabilities and the teams here had done a great job for several years. The last three, four years, the company got into a problem for no fault of the teams at the plants or operations side because of something happening at the corporate which had their impact. That is one.
Therefore, the company's recovery, that is one of the reasons why the company's recovery has been fast. There is inherent strength in the company, inherent strength in the team. The leaders here are very seasoned, and then they are able to. When there are opportunities given to get rid of the problems, they really seize and drive the company up. That's one. Therefore, you know, to think of different metrics and then something unique, et cetera, there is no magic wand. This already you know, whether it is the implementation of SAP, implementation of systems and the implementation of metrics, everything is well intact here. We continue to grow. After this, you know, after this debacle, you know, we quickly regain the capacity, we regain the market share.
Now we are working on opportunities how we can further consolidate our position. That is one. Second is, you know, in terms of constraints, you know, there are constraints means, you know, there may be several constraints. For example, you want to get into EV, we don't have the technology. If you want to do exports of a transformer, we don't have the facility near the port. Our competitors, like the others in the industry, you know, they have global R&D. They have last four or five years, you know, whatever we have lost out, you know, they have gained, they have consolidated their position. We have to do a little bit of catching up to them, which we are doing. Otherwise, I think everything is in order and intact.
I hope I answered your question.
Thank you very much. In fact, I asked specifically on the qualitative side because on specifics, the organization is not very forthcoming on some quantitative and financial data. Lastly, I congratulate you on your extension for one year as captain of the company.
Thank you. Thank you so much. All your good wishes, boss.
Thank you. Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Ms. Bhoomika Nair for closing comments.
Yes, thank you very much for answering all the questions, and congratulations again for a good performance and wish you all the very best. Sir, any closing comments from your end?
Nothing special. I just wanted to thank each one of you and the participants for their keen interest and the support to the company and us. Definitely a word of encouragement from you will help us work with more vigor and more commitment. Thank you.
Thank you.
Thank you.
Thanks.
Thank you, and wish all of you a very happy Diwali.
Thank you all.