Ladies and gentlemen, good day and welcome to the Schneider Electric's Q2 FY 2023 conference call hosted by Elara Securities Private Limited. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. If you need assistance during the conference call, please signal an operator by pressing star and then zero on your telephone phone. Please note that this conference is being recorded. I'll now hand the conference over to Mr. Harshit Kadakia from Elara Securities Private Limited. Thank you. Over to you, sir.
Thank you, Girish. A very good evening to everyone. On behalf of Elara Securities, we welcome you all to the Q2 FY 2023 and H1 FY 2023 conference call of Schneider Electric Infrastructure Limited. I take this opportunity to welcome the management of Schneider Electric Infrastructure, represented by Mr. Sanjay Sudhakaran, Managing Director, Mr. Mayank Holani, Chief Financial Officer, and Mr. Vineet Jain, Head Investor Relations. We will begin the call with a brief overview by the management, followed by a Q&A session. I'll now hand over the call to Mr. Sudhakaran for his opening remarks. Over to you, sir.
Good afternoon, everybody. This is Sanjay Sudhakaran, Managing Director of your company, Schneider Electric Infrastructure Limited. I hope all of you are doing well, and we will go straight to page number three, where we have a small glimpse about the economic outlook for India. As you can see, India has been performing pretty well during these turbulent times. I think it's one of the most attractive economies, as you can see, globally, probably because India has managed to insulate itself from the energy crisis, which many countries like in Europe are facing. At the same time, the prudent fiscal policies have also paid off in terms of a stable economy. We feel that from the overall macroeconomic statistics that India will continue to have a good run going forward.
However, these things are a little bit unpredictable given the global economic situation that we are facing. There are talks of global recession in the U.S. There are talks of uncertainty in Europe. We've heard about the U.K. issue and things like that. We need to be cautious about the fact that the economy cannot be decoupled from the world economy in general. I think we should look forward to the next few quarters with cautious optimism. We go over to the next slide, which is page number four, taking off from the macroeconomic scenario into what it means for us, for our core segments that we operate in. Power and grid was looking to be a very promising story with the government-linked incentives towards modernizing the grid, et cetera.
There seems to be a little bit of a slowdown in the actual deployment of funds that one would expect into this segment, given the mandate that was given to more or less privatize the power and grid, utilities and also to modernize the grid in that process. However, we feel that even with the time lag, there will be investments flowing into this sector in the next few quarters. We are optimistic about this segment, though there might not be an upside that we have anticipated it to have. On the mobility side, I think, investments in infrastructure continue to grow, especially on the metros, that is urban transportation, tunnel projects, as well as new airport infrastructure that are coming up. On the minerals, mining and metals, I think, the story has been pretty good so far.
However, we can expect some amount of a slowdown in the steel sector, primarily because of the disincentives to this sector that were provided in terms of higher duties on exports out of the country. There is consolidation also happening, as you would have read about, Holcim exiting India and Adani Group taking over. However, there just seems to be sufficient CapEx that is flowing into the cement industry. We expect cement to grow for some more quarters as we go forward. Industry and buildings has been kind of muted, especially due to the COVID. We feel that investments in this area will come back strongly, and vacancy rates are falling across the country in terms of commercial buildings.
People are coming back to offices, so we would expect a rebound in the buildings industry as well. Driven by the data laws, I think, the cloud and service providers or the data center industry continues to flourish with more and more multinational players coming into the country. Also we see good amount of interest among some Indian real estate developers also to capitalize on their land bank and their ability to develop real estate very quickly. We see many joint ventures by real estate companies going into the cloud and service provider segment. We expect this market to grow as well. Overall, I think, for our core segments, the outlook is positive.
Just to give you some glimpse of the kind of orders that we have been bagging, I think we got a pretty large order from Bhutan where we are helping the country with its electrification needs. This is a repeat order, something of the similar magnitude which we had last year. We continue to serve the customers in a very engaged manner despite all the challenges of supply chain as well as COVID. We have managed to get a repeat order for 33 kV and 10 kV package substations. A large order from a global data center customer for 33 kV GIS package. This is the second order, a repeat order from the same customer in quick succession. I think our strengths here have primarily been faster deliveries and making sure that we execute the projects flawlessly.
Positive news here as well. On minerals mining and metals, we have a large order from the steel industry, a fully connected product with integration with software. An intelligent solution in line with our strategy to digitize more and to be able to deploy more and more EcoStruxure solutions with customers. We go to the next slide, which is industry and buildings. This is for a government establishment building operating good infrastructure. And again, in terms of digital and connected, where we have transformers, HV panels, Ring Main Units, and Package Substations, all connected products. And we will be able to leverage cloud analytics here as well as we are creating a roadmap for that as well. This is a good win in the building sector that we can be proud of.
Another area which is of keen interest to us, I would say, is centralized building management, where we continue to deploy our software assets like advisory layers on clouds to be able to move buildings from being managed building by building into more of a central command center. This will help organizations and the building industry to move towards their objective of net zero, being able to manage their assets proactively with predictive maintenance, etc. This is a huge step forward with one of the IT companies that we have done in deploying our asset advisory solutions onto other solutions as well from the Schneider basket, including building management and connected products. We'll go to slide number 10, which is on services.
Here is an acquisition that we, Schneider made globally, which is for a transformer analytics company. It's not a transformer manufacturing company. It's a purely analytics company with sensors and softwares which will help customers predict the life cycle of their transformer assets, be able to take proactive actions and extend the life of the product, as well as make sure that the transformers perform to better uptime and efficiencies. This is a global acquisition which we are actively working in India for pilots, etc, to be able to deploy quickly in the country. Let's go to slide number 11. I think we are at different maturity levels as far as our accelerating digital is concerned. This includes digitizing our products, being able to connect with the cloud, and being able to provide a CapEx to OpEx conversion.
We see that the power and grid sector continues to be highly regulated, because it's a national infrastructure. There are restrictions on connecting to cloud, so our deployment has been slow here. We have many other edge control solutions which need not be connected to cloud, so which we are deploying with these customers here. On the transportation side, we are working with key metro customers to be able to provide them with more and more digitized solutions. We have spoken about certain reference projects that we have won on the steel side in minerals mining and metals, where we are digitizing the entire powertrain. Of course, industry buildings and cloud and service providers also remain our focus as far as digitalization is concerned.
EcoStruxure Asset Advisor, which is a primary software layer, which is on the cloud, which is what provides us with the service stickiness and lifecycle revenues with our customers, which is profitable and accretive to the company, as well as helps our customers in bringing down their operational cost and better efficiency and asset productivity, is the key thing that we are trying to promote and provide in the marketplace. Going to slide 12. All these initiatives on the digital side should be able to take up our revenues in terms of maintenance and digital contracts, which we call as recurring revenues. Recurring revenues we expect from a 12% in 2020 to around 22% in 2025. This is key to executing our strategy on digitization.
This will enable us to be associated with our customers across the life cycle of the product. It will provide us with better stickiness in terms of, customer relationship and also pull through business that will come through from the customer in terms of spares, modernization and other greenfield projects which will follow through a satisfied customer base. Going on to slide 13. What we want to do here is that on services, we want to reinforce the core that is being able to get more and more service contracts, modernization projects and spare parts, with special emphasis on maintenance contracts. We also want to accelerate the growth on digital and consulting services, track our installed base more carefully, and also grow our business through partners to be able to cater to the larger geography within India.
I think these are the six strategic pillars that we are trying to work on the services side. This is the fundamental for our pursuing digitization and cloud services to customers. Your company has been pretty much active in the mind share with key customers. We have held a number of events with key accounts, with the Ministry of Civil Aviation, many power and grid customers such as Ministry of Power, Energy Department, Government of Karnataka, a strong event in Kathmandu, an event in Dhaka, and also a number of events with the airport infrastructure that is coming up with GMR Group, et cetera.
We have been kind of very active in our thought leadership, trying to build a good positioning for ourselves with our innovative solutions and what we can do to decarbonize and digitize the power grid as we go forward. With this, I hand over to Mayank Holani, your CFO, to take us through the financial update.
Thanks, Sanjay Bali, and Good afternoon, ladies and gentlemen. Operator, please move on to slide 16. On orders, for the quarter, we had a slight drop in orders, about 3% lower than the same quarter previous year, owing to the shift in some of the orders, major orders finalization to the next quarter. If you look at the half year or six-month period, we have a good growth of 11.6% in the outside group orders for this financial year. Next slide, please. Moving on to sales. You know, continuing with the momentum we had seen in the previous quarter. This quarter also, we have about 39.5% growth in sales at about INR 420 crore versus INR 301 crore in same quarter previous year.
With this, the sales for half year stands at INR 792 crore, which is about 34% growth versus same quarter previous year. We see a good momentum in almost all the segments that stands. Next slide, please. Now, moving on to the P&L for the quarter. As we still see continued fluctuation in the raw material prices, you know, some of the commodities keeps going up and down. At the overall quarter level, if you see our gross margin is, was 31.1% versus 32.54% in previous year. It also, the mix also plays a role here. The profit after tax, if you will see the, is about INR 87 million versus a loss of INR 87 million in previous year, which is a delta of about 500 basis points.
There is an exceptional item which is a gain of about INR 33 million, which is due to the sale of, we had some assets non-operational, old plant in Naini. It was the plant closed long back that has been disposed of and this exceptional gain is coming due to that. Next slide, please. For half year, our gross margin has improved to 32.4% versus 32.1% in previous year. Profit before exceptional items is INR 193 million versus loss of INR 248 million in previous year first half. If you look with the exceptional items, profit after tax stands at INR 352 million, versus a loss of INR 248 million in previous year. That's it from the P&L side. On finance side, I will close here and leave it open for question and answers.
Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touch-tone phone. You will hear a confirmation tone that you have joined the queue. If you wish to remove yourself from the question queue, you may press star and then two. Participants are requested to un-mute themselves while asking a question. Ladies and gentlemen, we will wait a moment as the question queue assembles.
Our first question is from Prashant Sanghvi of C.K.P. Advisors. Please go ahead.
Thank you, sir, providing the opportunity and a good set of numbers. Is it possible for you to give us a bit more insights into which segments where we see strong traction from here on? How do you see the order win over next 6-12 months?
On the segment side, as I mentioned, I think mobility and, mobility data centers and a mix of, I think, certain portions of the power and grid and cement should be strong as we go forward.
Mm-hmm. Okay. In terms of, you know, if you look at the next 12-18 months delivery opportunity, how do you see that, you know, from the order book perspective?
As we went through the presentation, I have been articulating that the market seems to be doing well and, despite the turbulence in the global economy, I think India should be able to tide over it. Given the fact that we also are well-positioned with a solid product offering with adequate digitization content, et cetera, I think we have every reason to feel positive about now.
Recently, I think, one month back there was an announcement of INR 80 crores in CapEx for increasing capacity. I think there is a more of a, you know, the parent company probably trying to you know, shift from the Germany to India manufacturing plant. Can you little bit further elaborate on that, and do you see more such opportunities?
Yeah. I think there is a factory which is based out of Calcutta, which is primarily making vacuum interrupters. This is a factory that caters to as a core component factory which caters to India as well as for many countries across the globe. I think the rationale behind the investment is primarily to increase our exports out of India and to cater to more and more geographies as well as to cater to the growing demand in India as well. It's a futuristic investment that we're doing given the strong demand that we're seeing across many global markets, and this is an additional infrastructure that we have announced.
How did you conduct?
Yeah. Funding will be based through partly borrowings and partly through internal accruals.
Oh, I see. This will be spread over.
It's also this fund. You see this INR 138 crores CapEx is not going to happen in one go, maybe next quarter or next two quarters. It is, you know, expansion. If you had read the announcement about, you know, three years. That will be fully functional by 2026 end, right? End of 2026. So the financial year 2027. It will be a phased investment.
You mean December 2026, the CapEx will be over.
Yeah, March 27 financial year, definitely.
The factory will start, you know, it's like phase-wide factory will open or, you know, the full, entire CapEx will come out fully from January 2027?
No. The CapEx will start probably from next financial year.
Yes.
Partly some operations may start in, say, 2024-2025 type of, you know, but it will take time, you know, because operating the factory there will be some movement from existing setup also. The fully functional will be by 2027, FY 2027.
I see. Sir, do you see any more such opportunities? Because, you know, there are many companies, especially in Europe, they are basically making more investments or more sourcing from their Indian, you know, subsidiaries because energy cost definitely is becoming a little bit, you know, pain points for the global companies. Are you seeing such opportunities, apart from the Calcutta, what we are looking, you know, over next 6-12 months?
The company is in a constant evaluation phase on their supply chain. As and when they find something viable in terms of investments, I'm sure they will consider that.
I see. I mean, like from global perspective, can you share in terms of the competence of the, you know, our company when they look at the, you know, the other subsidiaries across the globe? You know, which are the areas where we believe that Indian companies are one of the most competitive when it comes to the, you know, reliability of supply as well as, you know, cost competitiveness?
I'd say across the areas, I think there are a lot of engineering services that are being outsourced to India. There's manufacturing base which can be created in India, the investment in Calcutta is a very significant investment in that direction. There can be investments on certain other products as well. We will intimate you as and when those efforts fructify.
Perfect. Great, sir. Thank you and good luck to you. Wish you all the best.
Thank you.
Thank you.
Thank you very much. The next question is from Shivam Agarwal of Kotak Sec. Please go ahead.
Hi, thank you, sir, for the
You mean, capacity utilization, the plant capacity utilization, right?
Yeah.
See, we are, I can say about 80-85% you can say on the overall basis in terms of capacity utilization. Obviously there are fluctuations and if you have more load, the capacity is, you add the shifts and there are also kind of capacities distributed across different product lines. That keeps fluctuating because, you know, sometimes in some quarter or some year you have more load in one product line and then other. It keeps moving around. If the load is more, as you see in the typical December quarter we have a higher volume. Then probably we used to do extra shift.
Okay.
As a five-year planning exercise. What we do is we look at the projected drivers of the market, our new product introductions that are planned, existing business as usual, what is the teaser that can come through that. All this we plot, try and find out as to at what point in time we need to trigger a capacity expansion and what form the capacity expansion could take. It can be in terms of certain amount of outsourcing, certain amount of insourcing, plant and machinery, people, et cetera. This is a very, you know, robust process which is followed by the company every year, where we plan five years in, yeah, for N plus five years.
Understood. If I may just an extension of that just slightly. Given the demand, which is revised quite a bit, and that given the fact that they're already at 88% capacity utilization, do you see any like near to midterm any major expansion plans or do you think as you mentioned earlier that in the December quarter you just end up, you know, extending shifts to make it for the increased demand. Measures like that should take in the near term.
Analysis does not show any immediate trigger to do something.
Okay.
Very radically different. We have a roadmap to be able to cater to the demand, adjusting various other parameters.
Got it. Thank you. That was my question.
Thank you. The next question is from Prajeshbhai Rishi of TCTR. Please go ahead.
Hi. Would like to know of Schneider, your parent. Is it all digital only?
As you know, we have an execution arm, which is in terms of projects and in terms of services. Now all digital offerings are accessible by the execution arm as well as the services arm of the company. We have the ability in terms of products and the capability in terms of integration to be able to deploy these products and services, primarily focused on digitization of the power train.
I didn't get you. What? Digitization of what?
Digitization of the power train.
Okay.
You see, digitization can be processed, digitization can be building automation. We stick to our core, which is digitization of the power train.
Okay. Any conflict of interest between say the distribution and other subsidiaries of parent in India, or it's clearly defined what each can do?
Nothing is pretty much clearly defined.
Okay. How do you see data center as a business opportunity for you? People are talking about like massive growth rates over a period of time. That seems to be energy intensive and, you know, labor, both of which could be good as far as India is concerned.
Yeah, I think that's a very good opportunity for the business as far as medium voltage and solutions are concerned. I spoke about it at length, both in terms of the segment dynamics as well as the digitization opportunity there.
Okay. Sir, any plan to retire the borrowings which you have from the other subsidiaries of parent? Do you have any like strategy in place or something?
We are, you know, it's as you see, we have started back into a profitable zone from last financial year. Rather, this quarter is the fourth consecutive quarter, right, wherein otherwise we used to have, in between you will see the quarter, some quarters with profits and again losses. Once we are back on profitable and growth in terms of, like on a consistent basis, then obviously that will help reduce the borrowings, you know, when we generate the cash from operations.
Okay. Sir, you also said that the CapEx which will be done would be from internal accruals plus borrowings.
Yes.
you know, internal accruals and also the CapEx that will be to retire the borrowings.
See, there are, I mean, different things we are working on. The CapEx is also, as I mentioned, not going to happen on day one, right? It will be spread over the next 3-4 years.
Thank you very much. Ladies and gentlemen, may we ask you if you can restrict your questions to two at a time, and they'll be joined with you. We'll move on to Viraj Mithani of Financial Express. Please go ahead.
Yeah. Good afternoon, sir, and really congratulations on good set of numbers. Am I audible?
Yes, you are.
Yes, yes.
First two accounting questions. One is that our employee cost has been constantly high between 15% quarter to quarter, 18.5 half yearly, coupled with 70% of material cost. I don't understand why our employee costs are so high. Are we expanding or is that we are the only company having such a high employee cost?
Viraj, the employee cost for the quarter, if you see, is high because this quarter there is a cost of employee share options plan which gets booked in this quarter. On an absolute number basis, you'll always see in the September quarter an employee cost going up from the previous quarter. I mean, annually, if you see year on year, the increase is in tune with the normal inflation. While we continue to, you know, work on optimizing and restructuring based on the business evolution.
What would be the ideal and, employee cost will be working in future, Vis? Like, just for a, you know, just to get some fair idea into this.
Viraj, actually, our business is on the cyclical and the H1 is usually lower than H2. If you are looking at the percentage in H1, it's looking a bit high. As a year-end level, if you see, it's not 15% or 17%, it's around in between 12%-13%. Looking at the current opportunities that we are seeing in the market. As of now, we are not seeing any much increase in terms of the employee cost number. Yes, definitely it will help us to increase the sales volume. I hope that way I'm able to answer your question.
Thank you, sir. The next question is from Lokesh Jain of Galaxy International. Please go ahead.
Yeah. Thank you for the opportunity. I just have one question. I just wanted to get a view on what is the kind of EBITDA margin that this business can actually deliver. It has been quite variable and we have been improving. What will be a sustainable EBITDA margin that the business can actually deliver over a reasonably long term? Can we say 10%-12%, 8%-10%, something like that, so it can give a view. What do you think about that?
If you look at the numbers for last few quarters, I mean, the P&L has been impacted a lot by the fluctuations which we have seen in the commodities, right? Which has made it a bit unpredictable and sometimes going up and down. While our focus is to continuously improve, and that's where we do a lot of selectivity in terms of what kind of orders we pick up. Our focus is always on picking up orders with better margin rather than just focusing on the top line. Our focus is to consistently improve EBITDA margin on a year-on-year basis.
Quarterly numbers may vary based on, you know, some mix of different products and projects because that's something which you can't manage on a quarterly basis exactly to the number. Our focus is to improve it on an ongoing basis. Yes, last few quarters, if you see whether it's last two financial years, obviously these are impacted by the supply chain challenges, whether it's electronics or raw material prices and even the freight. That has impacted EBITDA margin, and that's why on a quarterly basis you will see very big fluctuations. I would not quote any number, but we are working on, you know, consistently improving.
That's where if you see the numbers for last two financial years, we have improved in last financial year also by about 0.7%, in spite of the raw material and supply chain issues.
Can you say, so in a normal world, right, which is difficult to say, but say in a normalized world, we can, let's say, look forward to at some point of time, an EBITDA margin of 10%-12% kind of a range it seems. We will be working towards that.
From where we are, 10%-12% is quite a distance. Yeah, we will continue, you know, pushing for a better margin and focusing on it. Yes, it will take time, you know. It's not going to happen, say, in one year or a few quarters, right? One year or two years.
Thank you very much, sir. The next question is from Sanjay Zaveri, Castree Leather Investments. Please go ahead.
Yeah, sir. Thanks for taking my question. Sir, my question was again on the debt side because if you look at our debt compared to other companies, we are pretty much on the higher side. If we want to grow, then our working capital will also increase. We also have a CapEx plan going ahead. Would like to know what kind of, you know, vision we have, where we want to see this debt three, four years down the line. The second thing is, another way to reduce the debt is if we can increase our margin.
On that, already to some extent you have answered, but, would like to know, to what extent, the material prices have to go down or something, or where do you want the execution to reach that our margins reach somewhere around 10%-12%. Still lower than the parent margin, which is around 15%. Some thoughts on that.
You have rightly mentioned that our margins are on the lower side in comparison to the parent side. Yes, we are working towards to minimize the gap as much as we can do, given the Indian market. In terms of the debt we are saying, currently the management has a view to reduce our debt from our operations and if we find any other further opportunity to optimize and reduce the debt, definitely we will work on this and at appropriate time we will communicate to the market.
Just regarding the order intake, is it possible for you to quantify the, you know, roughly the amount of orders that would have spilled over to the current quarter?
That's close to INR 450 million-INR 500 million would have spilled over to this quarter.
Thank you. Next question is from Sanjay Sapra of Kotak Securities. Go ahead.
Yeah. Hi, sir. In this quarter, your raw material cost went up compared to the June quarter, and that despite the fact that key raw materials like copper and most of the things went down. How do you really explain this, sir?
See, even in the last con-call also, we have specifically mentioned that the raw material cost for the last quarter was abnormally low just because of the few of the order, the mix. Secondly, the impact of the raw material up and down will not immediately impact on the quarter because we are in a business where at least you need 3-6 month period to actually execute order and to convert into sale. In this quarter that when we have purchased the material was on a higher side and post that, this impact is coming. Definitely in the future quarters you will see the impact of downside of this, you know, raw material or all the metals that are going down. Because of the cyclical business, this impact is coming.
Secondly, it's also mixed with some of the Forex side because some of the imported material in the Forex is going the opposite side, which has further impact on the raw material side.
Just on the shift change with central, I would assume that you import mostly from Europe. Is that so?
Not mostly, but yes, majority is from-
Majority of products from Europe, but we have import from China as well. U.K, other parts also.
Thank you. The next question is from Manish Goyal, who is an analyst in Multibagger Securities Research & Advisory Pvt. Ltd. Yes, go ahead.
Yes. Thank you so much and very good afternoon, sir. Sir, like we have been talking about, investing digital offerings and, in today's presentation we are speaking about our Vision 2025 on the services. Would it be just possible to give us perspective like how has been journey like in terms of how the revenue contribution has increased, I mean, recent past and how do we see it going forward? Because, we have given a break up about maintenance and digital subscribers revenue increasing from 12%-22%. I believe that is part of the overall services. Maybe if you can give us a perspective, how do we see this revenue shares going increasing going forward and what does it imply for our margin share as well, sir?
That's the first question.
I think the information that is there on the actual data and the vision that we have, we have shared with you. I'm not able to understand.
No, like in overall revenues, what could be our revenue from both digital offerings and services? What we are aiming to grow
Yes, sir.
Like, as a layman for the shareholder, how should we kind of benchmark this or visualize this?
The idea is to grow services share in the overall business to a better contribution and within that to grow digital and recurring to a higher contribution within the services mix. Both the cases because of the higher operating margins should be accretive to the gross margin story.
Sure. Any aspirational numbers like by 2025, what should we kind of expect services revenue to look like?
We don't want to give a forward-looking guidance in that.
Right.
With so much of granularity, so please excuse us for that.
Sure. On employee cost ESOP, you see last quarter, I believe we had INR 8.1 crore as a ESOP cost. What would it be in the current quarter?
It's in the same range, Manish.
Around INR 8 crores. How do we see the supply chain challenges on, say, like, availability of other chemical substance? Is it eased out, and do you see that it probably not hamper our revenue growth going forward? We probably have our peak December quarter coming up, so just want to get a perspective.
We have been managing this crisis all throughout now for almost 6-7 quarters. I think, with the support of our global parent, we have been kind of being able to manage our global relationships with suppliers to be able to manage that. The challenges are real. We have been supported by our customers as well in this journey, so I would like to thank all our stakeholders, whether it is our customers, whether it's our suppliers, our parent company, and everyone for supporting and making sure that we are able to kind of continue to deliver on the top line that we have been projecting.
Thank you, sir. The next question is from Jasdeep Agarwal, who is also an individual investor. Please go ahead. Jasvinder, your line is open. Would you like to ask your Okay. We're moving on to the next question, which is from Piya Diora Sorry, Jasvinder. Can you hear us?
Yes, I am on the call.
Would you like to ask your question, sir? You are in the queue.
I'm sorry, my network is a bit patchy. I have just one question, and this is related to Schneider Electric India Private Limited. Can you please explain me, you know, in layman's terms, what is the big difference in terms of the business of the listed entity and this one?
I didn't get your question. Can you repeat your question?
Sure. There is another listed company which is Schneider Electric India Private Limited, right? Of the group.
Sorry? Schneider Electric India Private Limited is not listed.
No, it is an unlisted company of the group, right?
Yeah. Yeah.
Yes. My only question is I would like to know what is the differentiation in terms of business of the listed entity versus the unlisted. If you could just explain that more in layman terms as an outsider to actually understand the differentiation and the overlap, if there are any.
Schneider Electric India, the unlisted entity holds a number of other businesses which are like the UPS business or, automation business, home and distribution business, low voltage business, et cetera. There are number of entities in India, which belongs to Schneider Electric, not just SEIPL. There are a number of entities in India that cater to different segments of the market. This particular entity is focused on the medium voltage electrification needs of customers.
Mm-hmm.
That is the charter of this company.
There are no overlaps between the listed entity and the unlisted?
There would be a very small overlap between the company in some of the portions that have been acquired from L&T, etc.
Okay.
There will be a very small overlap in that segment, but that's a separate brand that is not operated under the Schneider Electric brand.
When we look at the financials, obviously I've taken this call. When I look at the past 10 years, the revenues today have almost become 3x. The listed entity obviously has only managed about 1.5x in 10, 11 years. Over these 10, 11 years, are there segments that have got interchanged or whatever in the entity?
No, the segments interchange does not affect the business because the medium voltage technology business rests entirely with this company, so it does not rest. You could say these things are not comparable because Schneider has had both organic as well as inorganic growth, and it has a number of product lines that are operating in India.
Thank you very much. Ladies and gentlemen, just a reminder, if you could please restrict your questions to query time, and we will gently come back to you. Our next question is a follow-up from Prashant Sanghvi of CKP Advisors . Please go ahead.
Yeah, hi. Thanks for providing the opportunity again. My question is, you know, the direction of the margin. You say that, you know, your efforts will be to improve the margins. If you have, let's assume, say, a three-year kind of a roadmap, right, how do you plan to improve this margin? One, you talked about the services business is going to increase from currently where are we. What are the various steps we are going to take to improve the margins? Because the capacity utilization is already 80%-85%. So at 80%-85%, if you are operating at, you know, 6% kind of a margins, then basically I'm just trying to understand where the leverage will come from.
There are a number of actions that one plans for this particular activity. One is to probably localize more and more in the country, reduce reliance on imports, enter new segments of the market with newer product introductions, business selectivity, digitization, services growth, recurring growth, transactionalization of the business. There are a number of such levers that are being applied along with the transformation that customers are going through. We must remember that the market is also changing. The market is also asking for more and more solutions which requires decarbonization and electrification and digitalization. I think the needs of the customers are changing, and with the technologies that we have, we should be favorably placed in the market. Those are some of the factors that will contribute to the margin expansion.
Okay. For example, the first driver you said is localization. Currently how much we import versus localization?
It's not just a matter of how much we import versus. The market also will change, right? The market will be going for more and more high-end products. When you localize those products in India and you transfer those technologies into India, the ability to get more margins. The mix change also happens along with localization.
Yeah. You know, I'm just trying to see. I think everybody's just focusing on this call because everybody's up for the fourth quarter, and there's a really great job of management is done. Everybody's just trying to understand that, you know, from here to your roadmap, and I'm sure you will able to meet your target. What are the various things and if you can share a few details on that currently, you know, where are we and what are the exact directionally what we are planning to do with some, you know, probably hard facts. Then that is probably more as a minority shareholder, we get a little bit more color into that.
I'm not sure if I can provide you with more granularity than the overall strategic direction that we are applying going forward. Otherwise, it will look very specific in terms of forward guidance.
Thank you very much, sir. The next question is from Viraj Shah of Jupiter Financial. Please go ahead.
Yes, sir. I would like Am I audible, sir? Yes, sir. I would like to have your some color on your this ecosystem platform in terms of EBITDA and gross margin and growth and your digital consultancy which you talk about in your slide.
Yeah.
If you can give some color.
Digital consultancy is all about certain acquisitions that have been made globally, in terms of our ability to digitize the powertrain and provide customers with insights as to how to optimize the powertrain. We are building that competency within the company to be able to use those, leverage those acquisitions into value propositions for customers. The idea is to have an agnostic consulting with customers to be able to help them optimize, and that increases the stickiness of the customers with us. That is the idea of consulting. What's the second piece of question? I just missed that.
Under consulting, does it mean your margins would be on the higher side? I mean, referring to the same question. It means we'll be having a much higher margin compared to our product right now.
Consulting per se, if you see as a product line might have higher margins, but it is not just the benefit of that which accrues. It is also a benefit of increased customer loyalty, which will come and then being a trusted advisor and having the first right of refusal to a project. These are some of the benefits that come in terms of both top line and margin expansion on the existing products as well.
My next question on ecosystem, can you throw some more light in terms of growth prospects there, margins which we can enjoy? This time we have a shared arrangement with the parent.
Ecosystem margins are per se not measured as a product or a product line. You know, this is a bundled solution that you provide to the customer. When you bundle the products, it is your ability to price up based on the value proposition that you have to the customer. It is not measured directly in terms of what is the margin on this product line and what is the cost that is associated with it and what is the drop-through that you get out of it. It's not measured that way. It's measured in terms of your ability to sell a project to a customer at a particular price and margin. Am I making sense?
Thank you. Thank you, sir.
Thank you, sir. The next question is from Manish Goyal of Series Investment Bank.
Thank you again for the opportunity. If I can break the outstanding order book and the breakup of the same and also separately for order inflow and the revenue.
In terms of backlog is around INR 1,000 crore and ratio is around 63% is system, 21 is transactional, and 16% around is services.
On the order inflow, if you can also give me the Intergroup work orders order inflow and the breakup of transactional inflows, please.
Intergroup will be around INR 90 crore this quarter and breakup is equipment 48%, project 12%, transactional 16%, and the service is around 18%.
For the revenue breakup, please.
Sorry. Equipment is 43%, project 10%, transactional 20%, and service is around 8%. Intergroup will be around 19%.
Sorry. Can you please repeat again?
Equipment is 43%, project is 10%, transactional is 20%, service is 18%, and balance is Intergroup.
Okay. Thank you so much.
Thank you. The next question is from Akshay Kothari of Envision Capital. Akshay? Sorry, your line is open. Would you like to ask your question? Let me move to the next question from Sanjay Zaveri of Stream Energy Business. Please go ahead.
Thanks for taking my question for the second time. Just wanted to know, were there any, you know, revenue mix changes in this quarter because of which the margins declined on a quarter-on-quarter basis?
Yes. There is a mix change impact, obviously because last year, last quarter margin, June quarter margin was abnormally high. If you see it from any of the previous quarters also.
Yes, yes. Okay. This time maybe the services component would be declined and more of, project would have increased.
Yes.
Yes, sure. Okay. Hope you're great, sir. Thanks.
Thank you. The next question is from Chirag Shah of Self Advertisers. Please go ahead.
Yeah, sir. I have just one question and that is related to that order flow, which is, you know, is spillover. Can you share that numbers and what is significant spillover?
Yeah, it's in the range of quarter. It's the opportunity, not the exact order number. It's the opportunity.
Opportunity which was not closed in previous quarters.
Yeah. That was 55% number.
Yes.
Okay. That's all from my side.
Thank you. Ladies and gentlemen, I hand the conference over to Mr. Harshit Kapadia for some closing comments.
Yeah. Hi, thank you, Chris. We would like to thank the management of Schneider Electric Infrastructure, Mr. Sanjay Sudhakaran, Mr. Mayank Holani, and Vineet Jain for giving us an opportunity to host this call. We would also like to thank all investors and analysts for joining the call. Any closing remarks, if Sanjay, sir, that you can share.
I'd like to thank everyone for taking the time out and participating along with us in this discussion that we just had. Thank you, everybody, and have a good day.
Thank you very much, sir. Ladies and gentlemen, on behalf of Elara Securities Private Limited, I thank you for this call. Thank you for joining us, and you may now disconnect your line.