Ladies and gentlemen, good day, and welcome to the Q1 FY 2024 Earnings Conference Call of Suzlon Energy Limited hosted by ICICI Securities.
During this call, the company management may make certain statements which reflect their outlook for the future, or which might be construed as forward-looking statements. These statements are based on management's current expectations and are associated with uncertainties and risks as fully detailed in the Company's annual report which may cause the actual results to differ. Hence, these statements must be reviewed in conjunction with the risks that the Company faces. Thank you.
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 Mr. Ashwani Sharma from ICICI Securities. Thank you, and over to you, sir.
Yeah. Thank you, Michelle. Good afternoon, everyone. On behalf of ICICI Securities, we welcome you to the Q1 [FY 2024] Earnings Call of Suzlon Energy Limited. We have with us the top management of the Company, represented by Mr. JP Chalasani, Group CEO, and Mr. Himanshu Mody, Group CFO. I hand over the call now to the management for their opening remarks, post which we'll open the floor for Q&A. Thank you. Over to you, sir.
Thank you, Ashwani. Good afternoon to each one of you for joining our FY 2024 Quarter one Earnings Call. I hope you had an opportunity to review our results and the investor presentation released [few hours back] . We will now share with you an overview of the industry, and we will walk you through Q1 performance. We will then take your questions.
With good policy initiatives from the government, the wind energy and renewable energy sector has got much needed impetus. The 2030 GOI target of 500 gigawatt of non-fossil fuel-based capacity includes a healthy mix of wind and solar capacities; w ind to the extent of 500 gigawatts and solar to the extent of 300 gigawatts. Idea is to have both solar and wind to coexist and not compete with each other, and this combination gives us the lowest cost of generation to meet the demand.
This helps the diversity of generation sources and is also a healthy from the perspective of grid health. The fact that wind is also available during the late evening and night, when the power demand in India peaks, helps balance the power generation profile and also supports the grid. Initiatives like discontinuation of e-reverse auction for wind, new regime being on single stage, two envelope closed bids basis, are expected to lead to better tariff discovery. There will also be a pooling of tariff for different states, which will reduce the average cost of procurement of power.
The good part is that under the new bidding regime, wind capacity will come up in all 8 windy states, significantly opening up the availability of land and evacuation perspective. The MNRE has also announced renewable energy projects bidding capacity of 50 gigawatt per annum, which would -- w hich includes 10 gigawatts of wind from FY 2024 to FY 2028. There is also a monthly RE bidding plan in place for FY 2024, which will be conducted through renewable energy implementing agencies, like SECI, NHPC, NTPC, and SJVN.
FY 2024 wind bid plan, 2.5 gigawatts each by SECI, NTPC, NHPC and SJVN, t hat's totaling 10 gigawatts. Hybrid projects and C&I market shall further drive up the demand for wind, which will be over and above the 10 gigawatt per annum plan. Initiatives like ISTS waiver extension for COD of projects in June 2025, and gradual phasing thereafter, will boost C&I segment and lead to huge demand of RE projects. Wind repowering potential of 25 gigawatts, and green hydrogen emission targets, RPO, RGO obligations, green open access regulations, et cetera will further boost this sector.
Our cumulative orders of 1,582 megawatt include order book as on June 30, 2023, of [1,4 33] megawatt plus orders announced subsequently 149 megawatt. 1,433 as on June 30th and 149 megawatt thereafter. This is also a well-diversified and healthy order book. Our priority going forward is to pursue quality orders with higher value with better margins. Our focus remains on executing and building our order book. Our service business continues to do well with 14.2 gigawatts capacity under our service. I would also want you to know about the business impact of cyclone which hit Kutch in Saurashtra regions of Gujarat during June 2023. It also affected our OMS operations in a limited manner, and some of the customer's WTG along with transmission lines and other HT network were damaged.
The restoration works are ongoing at the said wind farms, and these are expected to be completed soon. Net of expected insurance claims on a conservative basis, the Company has provided for an expenditure of Rs. 20 crore during quarter one towards the restoration expenditure. With strong fundamentals and strong sectoral tailwinds, Suzlon is now well-equipped to leverage the market opportunity arising from energy transition.
I would now like to invite Himanshu to take you through our financial performance.
Thank you, JPC s ir, and good evening, ladies and gentlemen. I would be using slide numbers 17 to 23 of our investor presentation, which has been uploaded on our website as the reference point for my discussion during this presentation.
Q1 FY2024 has seen us register consistent improvement in all our key parameters. Our balance sheet gets even more stronger, our fundamentals have strengthened with a focus on bottom line based on performance. We are pleased to report that we are ending the quarter with a strong consolidated network of INR 1,297 crore. Our gross debt for the quarter stands at INR 1,806 crore, which is a substantial reduction from little over INR 13,000 crore in March 2020.
Our net debt as of 30th June 2023 is INR 1,223 crore, resulting in a net debt to net worth ratio of 0.9, which is less than 1, which is quite healthy. Our consolidated PAT for Q1 FY2024, before exceptional item, stands at INR 93 crore. This is against Q1 PAT of the previous financial year, FY2023, before exceptional items was -INR 37 crore. And our Q4 PAT of FY2023 was + INR 68 crore. This is all before exceptional items.
With continuous focus on de-leveraging of the balance sheet in the last financial year, we have achieved a substantial reduction in net finance costs, which for Q1 of FY2024 stands at INR 51 crore versus INR 148 crore in Q1 of the previous financial year, resulting in a substantial reduction of 66%.
Being in the capital goods segment, it is important to look at the annual performance of the company rather than quarterly, because in our case, quarterly performances vary cyclically due to mix of orders that we're able to deliver, the climatic conditions allowing us right of way for implementation of projects, installation and balance of plant activity. As a result of which, typically, in the first half of any financial year, we're able to deliver about 30%-35%, whereas H2 is the balance. The economy being on the strong footing, and as JPC sir said, sectoral tailwinds being even more stronger for a renewable -- for a renewed focus on renewable energy, it all augurs well for Suzlon at this time.
With that, I'd like to conclude my presentation, and we can now open the floor for any Q&A that the callers may have. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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, [let's wait] for a moment while the question queue assembles. We have the first question from the line of Abhineet Anand from Emkay Global Financial Services. Please go ahead.
Thanks for the opportunity. The first thing is on the standalone margin. T here is a strong uptick on the gross margin side, whether we see QOQ or YOY. You can just explain whether it is because of some good product mix, or how is it?
Hi, Abhineet, Himanshu here. As I said, in my opening remarks, I urge everyone to look at our overall annual performance rather than quarterly performance. Yes, you are right. There is an uptick in the Q1 margins at the contribution level. That is not necessarily representative of the margins that we may see for the next few quarters. So, I would say that, you know, the margins that we saw in FY 2023 for the full year should be the benchmark or basis of what you assume for FY 2024.
Of course, the endeavor at the management is to keep improving on those margins and with improved supply chain, inventory levels, and increased focus on working capital, we are confident that we'd be able to improve our margins from FY2023 onwards. Having said that, you should not assume the Q1 FY2024 as the benchmark.
Okay. Secondly, sir, this 20 crore impact because of the cyclone is largely impacting the OMS margin, I'm assuming, right?
That's correct, yes.
Okay. I think earlier you guys used to talk, you know, give guidance of around 40% on the margin for OMS. That's a good assumption?
I think if you add back the INR 20 crores that, you know, we should call this exceptional, then we would be at about a little over 40% in operating margins.
Okay. And in terms of order pipeline, if you can see, if you can, you know, throw some light in terms of FY 2024, obviously, you know, ordering for Suzlon has been good than some of the players. For the rest of the year, how is the pipeline looking? I understand there is a large, you know, industry, but from a pipeline perspective, next 3-6 months. H ow are the employees and all?
We are saying, we need to see the traction in order pipelines, both from the -- which is like utility IPP business, and also we're looking at a large interest in terms of the C&S segment, including the retail segment. Obviously, there's a lot of interest, and the interest is also significant because of 3 megawatt having come out. The momentum continues, so I would say that much.
We're looking at FY 2025, as well as, potentially moving ahead some orders, which will get locked in even beginning of [2026], because now the projects, you know, like 24 months-30 months are up, like latest SECI bid is what [awarded] some of the players, these things would have even some part of it coming in FY 2026 as well, even those are happening. We are quite optimistic about the other pipeline and the interest being shown from all sections.
Thank you, sir. Those are my questions.
Thank you, Abhineet.
Thank you. The next question is from the line of Amish Kanani from JM Financial Services PMS. Please go ahead.
Hi, sir. Congrats on a good set of number. So, I have two question. One, you know, if you see, the execution looks relatively low vis-a-vis our order book. If you can explain, you know, what are the challenges on the ground for execution and or, you know, I understand you said first half will be, you know, 30%-35% of the overall. The situation, the way it is, why should we execute so low, when our order book is so high? If you can give us some sense on the execution side. Second question, sir, is, with this 3 megawatt order and also our orders being, you know, a mix of EPC versus non-EPC, if you can give us some sense of, you know, whether our execution can be much faster in the second half of this year.
And, you know, what are the kind of, you know, maybe directionally, if not exact numbers, what are the margin differences at the gross margin level on the WTG side for, you know, the 3 MW versus non-3 MW and EPC versus non-EPC? If you can give us some color, that will be helpful.
Long list, long list, I could say. On the execution side, I'm assuming when you call about execution, you're talking about supply, you're not talking about the commissioning. Because commissioning, we did maybe 3 megawatt, which is significant. It's 25% of the market, what we have in quarter one. [With it], I'm assuming you're talking about supply, not about the commissioning. Am I right?
Yes, sir. 135 megawatt is what I think we are seeing, versus our [outstanding] order book.
There are two factors. The order book looks quite healthy, but if you see our, the presentation as well, right, 50% of it is for 3 megawatts orders. The supply of which will start in the quarter four of this year. As far as 2.1 megawatts are concerned, the supplies will depend upon when did you get the orders. The orders which have been issued and their dispatch schedule comes from quarter two and quarter three, and quarter four. Normally, when you have an order, the site has to be ready and, you know, you should be ready to accept the supplies, and when you do this order, from that angle is what, you know, the schedule happens. Most of this will come in Q3 and Q4, and Q4 gets added up because of 3 megawatt also start coming in.
You know, you must keep in mind, as I said, you know, the climatic conditions, you know, especially during fag end of Q1 and early Q2, implementation hurdles on right of way, as a result of which, H1 is, you know, the sort of sales is more skewed towards H2. To your point on margins, as I mentioned earlier, you should assume FY2023 margins as gross margin as something that we can definitely continue with. Whether we'd be able to better that or not, would be only time will tell with more sort of inventory and working capital and supply chain getting streamlined. That is the base case that you should assume.
Your comparison of 3 megawatts and 2.1 megawatts from the margins perspective, obviously, 2.1 megawatt is an established product where you know, you do cost and everything. 3 megawatt is coming now. In 3 megawatt, [not the turbine], mainly the BOP cost comes down. Therefore, you take advantage of that, and then maybe, you know, you can increase your pricing. Therefore, let's wait and see how the market plays, and it depends upon both internal factors of cost- out, the initial rollout versus as we keep increasing the volumes and the BOP cost reduction for the IPPs.
Right. Sure. Sir, and also EPC versus non-EPC?
Yeah, right today is, it's like 2/3 EPC and 1/3 of a non-EPC type of a thing, but it's changing. With some few new orders coming, I expect that, you know, it would remain as a 50/50 or, you know, 60/40 in terms of EPC and non. Then, and, you know, it's not just the EPC and non-EPC, and we have categories like a supervision alone. You know, there's something called, i n some cases, we have supply and installation. Some places we have supply plus foundation installation, [which everything connect with turbine] . There are different types of contracts are coming in now. And EPC is a pure EPC, where we take t he total, but not the [turnkey]. We have a different contract for supply, for POC, land, et cetera, and each contract doesn't talk to the other one.
That, you know, we said that, we don't have that cross contract LDs coming on.
Sure, sir. I have a few more questions.
Thank you. The next question is from the line of Dhaval from Girik Capital. Please go ahead.
Yeah. Hello?
Yes, go ahead.
Yes, sir. My question is, what execution are we targeting for FY 2024?
Guidance is, it depends upon what is your estimate for the country. Our guidance has always been, you know, we would be reaching around 30%, 25%-30% of the country capacity addition. That's what we did in Q1. If you see our numbers, we are about 25% of the total capacity happen in the Q1, and we expect to maintain that 25%-30% of market share in terms of commission.
Okay. Okay. Given this current, you know, excessive rains, and this flooding situation in a couple of cases, is it causing any hindrance in our execution and, you know, I mean, in the overall operations of the Company?
It is in terms of, like, there are -- we have our clients in that area.
Mm.
who are, where they are supposed to do the balance of plant and all the work. We just do the supply and erection. We have done the erection, but we are unable to commission because the plants are not ready and other things are not ready. Some places, where the erection is still balanced, fair movement is getting impacted. There is some impact, definitely in [Gujarat] . Most of those projects are, n one of them projects are actually EPC contracts. They are more of a supply- cum- erection or supply-cum-supervision. Commissioning is impacted, definitely. Otherwise, we could have done more than what we did in quarter one.
Interesting. In FY2023, we executed say 64 MW, and now, versus that, we have a very healthy order book. S till, y ou know, our Q1 numbers are not very exciting compared to the last year. So that was -- I just wanted to understand in terms of the profitability, what is it? You know, where are we, I mean, why is it, why are we lower than the last year, the top line and also the margins?
Yeah. I answered the previous question. The overall order book is definitely one reference point, and if you look at overall order book, 50% of that is 3 megawatt orders, w hich the supply would start from quarter four. Suddenly you will see the, you know, more quantity coming in because that's a 3 megawatt versus 2 megawatt. The supply of 20 megawatt versus 30 megawatt.
The supply happens, the orders are there. 50% of our order book is capacity, but the supply of that would commence in quarter four. Therefore you will see the surge coming there. Second, as far as the 2 megawatt is concerned, while orders are there, as I said, some time back, it also depends upon when did we receive the order and what is the dispatch clearance which we get from the clients. Because many of these things are, you know, in their scope, and some places the evacuation substation of Power Grid is getting delayed, so they want to readjust the timeline.
Therefore, as we mentioned, not just the numbers, the capacity also, you know, you have seen it earlier as well. You can't really look at quarte- by- quarter and then say that this is what is going to be annual performance. There will be a number of factors.
If I were to understand this 3 megawatt more clearly, so, 50% of order book is 3 megawatt. And assume, you know, we do, say, 800 megawatt of execution for the current year, for example. so 50% of that will happen in fourth quarter. That didn't mean that?
No, no, no. Out of the existing order book, 50% is the 3 megawatt.
Correct.
Okay? We are not saying therefore 800 [assumption]. I'm just quoting your number. 800, if you take it 50% of that will be 3 megawatt. No, we're not saying that. These two are two different things. The 3 megawatt supply will commence in quarter four, so therefore, the volumes will significantly increase in quarter four, because that's where it's coming in. Still then we'll keep on supplying 2 megawatts, but the ratio will not be 50/50 for this year. Order book is 50/50, but the ratio of 2 megawatt and 3 megawatt won't be 50/50 this year. 2 megawatt will be more and 3 megawatt will be less.
Correct. A lot of it, 3 megawatt will be executed in Q4 this year, then Q1, Q2 of next year.
Yeah, FY 20 25.
FY 2025, yeah.
Just to add, you know, also to give you another factoid, if you see FY 2022, total deliveries in FY 2022 was 808 megawatts, and those were all 2-megawatt turbines. Now, in Q1 of FY 2022, we did 116 megawatts of deliveries. I just leave those two data points to address your concerns.
Understood. Understood. Okay. And so, [traditionally], you know, the yield for the customer is higher, and also for us, the profitability should be little higher in 4 mega -- in 3 megawatt turbine. And then your profitability also should be much better in 2025 compared to 2024?
Well, let's see when we come to 2025, obviously, we will have the earnings calls, we give keep seeing the results, we'll keep [discussing].
Okay, thank you, sir. Yeah.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.
Hello?
Yeah, please go ahead. We can hear you.
Thank you very much, sir, for taking my questions. First, I wanted to understand, first up, what is the capacity addition at the industry level we are looking at, maybe this year, any sort of benchmark we have?
This is anybody's guess. Anything towards north of 4 gigawatts.
Come again, north of?
North 4 gigawatts, then up to 5 gigawatts is what is the estimate. Let's say the quarter one, if you look at it, quarter one, we did about 1,140 megawatts.
1,140 was the addition in the first quarter, right? Sorry, I could not read the number, sir.
No, it is between, anywhere between 4 gigawatts to 5 gigawatts. Let's say 4.5 to 5.
4,000 megawatts-5,000 megawatts, around those.
Megawatts, not gigawatts. It is gigawatts, but it is megawatts.
Yeah, around 25%-30% is the market share that we are looking at. Ideally, from 1,000-1,200 is the range that we might look at, right?
It's a simple calculation for your assumption. We gave you both.
Understood. Sir, do we see any risk of that, the 3 gigawatt which is expected to start from fourth quarter, it might spill into FY 2025 itself and nothing comes in FY 2024?
No, we don't see anything because this is already type test certificate has come from the third party, and it's already launched to the RLMM listing. Listing is also expected to come in this quarter. We are fully geared up from the manufacturing point of view. I don't think we see any improvement in terms of...
A clarification, you mentioned that FY 2023 should be the margin from FY 2024. You're talking about the gross margins here or the EBITDA margins?
No, no, we're talking about the gross margins.
We are talking about. And sir, my final question is on your threshold margin. I mean, whenever we typically get the orders, what is the minimum threshold margins at the extra level that we look at?
No,no. It varies, you can't really answer simply by saying that, you know, order- to- order. It depends upon number of things. Is it, you know, taking supply or taking supply comes? You know, whatever risk we're taking is, which stage it is, and a number of other factors, and which time of our production cycle it comes. It's not possible to say that, you know, each order, what margins are. There are number of variables coming in.
Let me just clarify, because, you know, we've said this on a few occasions, in this call. When I say FY 2023 as a benchmark, that is for standalone contribution margins, not for the consolidated.
Standalones, right?
Yes.
Fair enough. I understood. That is it from my side. . Thank you. All the very best.
Thank you. The next question is on the line of Nikhil Abhyankar from ICICI Securities. Please go ahead.
Good afternoon, sir, and thanks for the opportunity. Sir, my first question is regarding, can you just brief us about the idea behind the country that you have just announced? You have significantly reduced our debt in the last three years. What is the rationale behind this fundraising now?
So, the thought process essentially is, of course, as you know, there's gross debt of about INR 1,800 crore. You know, there are certain, you know, CapEx requirements, plus, you know, to ease out the working capital. Of course, there are certain covenants that, you know, there are there from a lender perspective. You know, when a lender looks at, you know, growth of a company, that will be very different from how an equity investor looks at. So long as, you know, the debt continues in the company at these levels, we would be tied to those covenants.
Now, the optionality between before the company management is very simple, that, we continue on a status quo basis, which is, you know, no need to do any fundraise, you know, keep performing whatever working capital they're able to generate and keep delivering basis at, we will still have a decent market share.
If we need to sort of, have a good chance in getting, you know, market share, which is in excess of 30% as we go forward, I mean, not so much for FY 2024, but FY 2025, FY 2026 onwards, then it probably makes sense for us to look at some kind of an issuance that we are thinking of, which enables us to make the balance sheet debt light or near debt-free, and also releases some cash for working capital and CapEx needs of the company over the next few quarters. So that is the intention of the management. Of course, you know, the size and type of issuance, we'll decide in the next few weeks. And b ased on that, as and when we make any progress or development, we will come back to you.
Understood. So, the entire fundraising will be used for debt reduction?
Well, it depends on the size of the [issuance]. As you know, we've taken an enabling approval from the Board of a fundraise of up to INR 2,000 crore, and that is currently pending shareholder approval. Whether we, you know, whether we do up to INR 2,000 means we could theoretically do full INR 2,000 or we could do less. That is something, you know, we will be deciding, as I said, over the next few weeks, and we'll come back to the markets accordingly.
Sure, sure. The final question regarding the C&I segment. What is the kind of response we're getting from the industry, and which segments of the industry are really interested in this space?
Right now, the -- between C&I and retail, put together, whatever you call it, both are C&I, is our order book is more than 50. I think 50% is coming from that segment.
Mm-hmm.
The C&I segment is predominantly one smaller segment where 35 megawatts- 30 megawatts. There's a bigger segment of large industries where they have a captive requirement, which today is happening on fossil fuels. They want to replace that with renewables. Just an example, giving two names, Aditya Birla Group or Tata Steel or the Sterlite. There are various big companies who are trying to do this, and my assumption is that this would further in the next few years, not immediately, further go up, because once the hydrogen picks up. That's a few years away anyway, we all know.
But from this initial C&I segment of replacing the existing captive capacity with renewable gets fulfilled, let's say next couple of years, where you will see a significant uptick in terms of demand, then the hydrogen would pick up by then. You know, renewable energy for hydrogen, thats again, would be more or less like a C&I segment.
Understood, sir. That's all from my side, and all the best.
Thank you.
Thank you. The next question is from the line of Vikram Sharma from Niveshaay Investment Advisors. Please go ahead.
Hi, sir. Thank you for the opportunity. First, we play with INR 90 lakhs per megawatt around...
Mr. Sharma, your audio is not clear. May I request you to use your handset to ask the question, please?
Hello?
Yes, sir. Please continue.
I was asking, we play INR 90 lakhs per megawatt around contribution, and we have to contribute around INR 500, INR 560 around. I wanted to know breakup of INR 500 crore fixed cost and I also wanted to ask, it will remain same if we do, like, 3 gigawatts, if we -- once we add our 3 megawatt capabilities, what will be fixed expenses for the company per annum ?
Let me just try and understand the question, because audio was a little faint. In terms of, you know, contribution margins, as I've said, I'm not commenting on rupees, lakhs, but one should assume mid-teens as a contribution margin, which is what we did in FY2023. As I said, we'll endeavor to improve on that, but you should not take that as an assumption. So far as fixed costs are concerned, yes, our fixed costs are approximately INR 500 crores on the manufacturing side. We won't be able to give a split of that, but that is, you know, various corporate functions, our technology group, R&D team, manufacturing facilities all put together. So, we won't be able to provide a split on that.
You know, for if we even once we get 3 megawatt turbine into a serial production, we don't see a significant increase in the fixed costs, other than what inflationary increases would normally be there.
Sir, second question, what will be our 3 megawatt plus capacity in FY 2025?
Let's see. It's actually -- right now, let's not get into that, because the first requirement is that the waterfalls stabilize and then look at the FY 2025. The-- right now, we are getting in different modes. It all depends upon what is the blade capacity. So I'd say that's where I want to leave it.
Okay. Last question onO&M portfolio side, like, what is our...
Sir, your voice is muffled. We are not able to understand what you're speaking.
Hello?
Sir, this is [bit okay]. Please continue.
Yeah. I was asking, what is our revenue per megawatt on O&M portfolio side, and what is expenses on that side?
Again, if you see the investor presentation, we have given details of the each business and certain broad KPIs. Slide number 20 on the investor presentation, you will get the details, answers to your question.
Thank you.
Thank you.
Thank you. We have the next question from the line of Priyesh Babariya from Max Life Insurance. Please go ahead.
Thank you so much for the opportunity, congratulations on the good set of numbers. Sir, you just mentioned that our cost is around INR 500 crores or so, and it is expected to increase when we execute 3 megawatt portfolio. Are you still collaborating on the same?
No, no, no, that's not we -- what we said. We didn't say the fixed cost will increase. We said, in fact, the fixed cost will not increase, if we add the 3 megawatt portfolio from Q4, the only increase will be on account of normal inflationary cost increases. That's it. INR 500 crores would not see an increase.
Okay. Okay, that's all from my side. Thank you.
Thank you. The next question is from the line of Vineet Gala from Xylem Investments. Please go ahead.
Thank you. You had mentioned about these government orders of 2.5 gigawatts being by these four entities. Sir, recently, NHPC mentioned that, they would want to focus only on solar. How do we see this, and what is the level of commitment, have these four entities already given on, these orders to be [floated]?
See, the directionally, government said that we will do 50 gigawatts per year beginning, and another 10 gigawatt is possible. That's one direction. Second thing is the pure solar is not the recommended route today because solar is already passed. As I said, that last time also we discussed, when you go to 2030, and that's for the 3-year detailed study, if you want to meet the grid demand, not talking about the captive demand, grid demand in 2030, least cost option they said is 300 gigawatts of solar and 100 gigawatts of wind. Okay? Obviously, we all know that in India, we are extremely sensitive to the tariff, and if that is the least cost option, whether you do it, you know, pure solar, pure wind, ultimately it needs to based on RTC.
Therefore, the wind, especially now, if you see the last few months, there is an uptick on the wind because the wind has to catch up. There is two types of hybridization. One happens at the project level, second happens at the grid level. Today, there is more push on the wind to do it. In fact, if you see that SECI had issued the RFS for 2.5 GW of wind, and then the NIT they issued, they're supposed to contract with RFS. I think we always said it is not solar versus wind, it is solar and wind, and what the required for grid stability, plus which gives the least cost condition. So the -- before directionally the government is also saying if we're at 43 gigawatts today, we need to go to 100 gigawatts of wind by 2030.
Therefore, we will first focus on that part of it. If somebody is coming up with pure solar, so be it, but ultimately, at the end of the day, this will meet the global study of 300 gigawatts of solar and 900 gigawatts of wind. Who does pure solar, who does pure wind is not an issue, but directionally, this is where we're going to go. Obviously, when it comes to the C&I segment, it's like again, they will do a hybrid, depending upon the load profile of the capital load, and they will do the other calculations
If you see the profile of wind in terms of demand versus the profile of solar is different. This together is good, and if you look at more wind wise, that wind gives a better profile at the time of peak demand.
Okay. All of this together, given our conversations with the OEMs, from 4 gigawatts of installation sector, how do we see next couple of years panning out, given that these 10 gigawatts worth of orders only from government, and then you have C&I segment. How do we see the installations going from current levels ?
The thing what happens is that the 10 gigawatts of orders, and certification of order into a reality, because you've seen even earlier orders, there's always a lag, how much awarded, how much commissioned, we all know the numbers. We should take these 10 gigawatts, we should take C&I, then the end of it, all this put together, this X megawatts is what we get, you know, out of effective thing in a year. The government is talking about. Let's say, even if you take this target of 2030, you need to do about 7 gigawatts-8 gigawatts a year. That's 43 gigawatts today. Therefore, let's say the range of 7 gigawatts-8 gigawatts is what is the requirement. It depends upon the infrastructure, it depends upon the, you know, availability and supply chain.
Let's say supply chain, not just WTG, because component supply chain, bringing it globally, what's going to happen? All these things will play a role, but the government is hoping that we will reach 7 gigawatt-8 gigawatt shortly.
Fair enough, sir. My last question is on the O&M segment of the market. You mentioned, like we had the cyclone impact of INR 20 crore . Even adjusting the timing on a year-on-year basis, the EBIT margins are off by 10%. So, what is the sustainable margin to look at? You mentioned 40%, but I think most, like, our competitor is doing a much better number than that. I just wanted your view as to how to look at this margin and the sustainable margins thereof.
So, on a, you know, margin, I would say that, you know, EBITDA margin, would be little over 40% is what one should assume. you know, given the scale of the capacity that we have, which is 14 gigawatts plus, already installed, and, you know, of that, close to about 13 gigawatts is revenue generating, whilst about close to 1 gigawatt is under warranty period still. So, I would say that look at the margin profile as being 40%. I don't want to comment on competitor margins. that is, you know, your analysis from publicly available data, but from our perspective, that's what you should.
Yeah, I will also expect you to do look at the margins of comparative competition. Okay. That would give you the real test for this.
Fair enough.
Thanks. A reminder to all the participants, we request you to limit your questions to 2 participants. Should you have a follow-up question, please rejoin the queue. Thank you. We have the next question from the line of Dhaval from Girik Capital. Please go ahead.
Hi. Yeah, hello? Hello.
Yes.
Yeah. Yes, Dhaval, we can hear you.
Yeah, yeah. My question is with regards to the managing the raw material volatility, given we have a lot of, you know, bought out parts for our turbine. Now, from the time you say you have order book currently and till the time you ship out that final turbine, the steel price goes up by 20% the raw material goes up by whatever percent, how does that adjustment take place with regards to passing on? That can eat up a lot of your EBITDA.
Okay, the input cost for any component would depend upon two factors. One is the input price, that's exactly what you said, and second thing is the demand. These two actually take. As a sale is concerned, in all our contracts now, it's a pass-through. The on the steel price, it's a pass-through in our contract. That's where we are hedged that way, and the contract is. That's where the commodity is concerned, and as for the component, other price is concerned, you know, if you're placing your orders, your relationships, so you manage. Therefore, We've been managing this for years, so how do we do with [vendors]? As the steel prices increase, , it's a pass-through in the contract with.
Sir, the current participant has left the queue. We move on to the next question, which is from the line of Eshan Bhargava from Emkay Global. Please go ahead.
Thanks for the opportunity to ask the question. Simple question. What is the CapEx that you envisage for the next two years?
Mine is a simple answer.
Yeah, I wish there was a simple answer to that. well, next two years, I don't think, you know, even we are in a position to project right now. In this year, especially FY 2024, our sustenance CapEx is about INR 100 crores, you know, which we will certainly, of course, continue. In addition to the sustenance CapEx, we envisage an additional CapEx of a little over INR 200 crores to be incurred in FY 2024, that's largely to adding further mold capacity of our 3 megawatt turbine.
Understood. Thank you.
Thank you.
We have the next question from the line of Pradyumna Choudhary from JM Financial. Please go ahead.
Hi, sir. I just want to understand on the O&M side, once we deliver a certain turbine, usually, when does the O&M, the revenue start coming from the same? Like, what's the time horizon, time gap?
From the commissioning date, depending on the contract, there is typically 2-3 years of warranty period, which is, you know, free OMS that is built into the sales price of the turbine. Most of our contracts would have 3 years. Typically from, let's say, 37th month onward from commissioning is when the billing for O&M would start.
Understood. Suppose something is getting commissioned, today, so we can assume that the revenue will start flowing in 2026, O&M revenue?
Depending upon which month. Suppose if July is done, and then obviously, the [next month]
Usually these contracts are for how long?
Contracts are normally for, full life of the, turbine, but then there are review clauses. So, it varies. Somebody says 7 years, somebody says 10 years, somebody says 12 years. Segment-wise, retail, different, but it's for the full life.
Even in the corporate side, that's the idea. Usually, it's for the full life, at least 10 years- 12 years.
Yeah, yeah.
Understood. Thank you, sir.
Thank you. We have the next question from the line of Faisal Zubair Hawa from H.G. Hawa & Co. Please go ahead.
We now have a promoter share, which is, you know, the lowest in the corporate world. How will the promoters ever have any skin in the game, you know, with such a low stake? Secondly, is that, you know, how. If you know there is this huge explosion of orders that comes up from corporate India also going to clean energy, we may again be, you know, short of capital because, will we again go towards the debt route, or, you know, you have something else in mind?
The first one, skin in the game, everyone knows what is skin in the game of Mr. Tulsi Tanti, not just in Suzlon, in the sector as well. Okay? How that been up and down, that's maybe down for different reasons, because of the journey of the Company, and even today, the Chairman and Vice Chairman are the Company promoters, and they have a completely deep interest. It's the one which they started.
I don't think it just depends upon what are the stake, [especially] extent of the invovlement and commitment. And w hen you see the orders flowing, obviously, you know, also from the other industries, you know that what is the understanding, what is the commitment of the promoters to this. Now the second issue.
Yeah.
You want to add?
To further add on to that, you know, one must not forget that, close to INR 250 crores, has been pumped in by the promoters, in the Company in the last two years by way of rights and the preferential allotment. You know, I don't think, if they are willing to commit this kind of capital, so I don't think one should be wanting to question the commitment despite low stake. That's one. On your second point, you know, if there is such an explosion of orders, would we really come back to the capital markets?
Difficult to predict the future, but, you know, I would say sitting here today, my best case assessment would be unlikely, because there are other, pockets of assets within the company, you know, which we would look at value add or monetization, which of course, we've not, lost our focus on. You know, that is something we'll take precedence, should such a capital raise be required in the future.
What kind of capital would these assets be able to raise? And do you feel that these assets would be a better price if there's an explosion of orders?
Very difficult to say. I mean, what kind of capital, say, definitely I cannot answer your question. To your second point, logically, the answer is yes. I mean, you know, if, there are such tailwinds, then of course, the answer is yes. The first one, very difficult to answer.
Okay, thank you.
Thank you. We have the next question from the line of Rohit Bahirwani from Vijit Global Securities Private Limited. Please go ahead.
Yeah, thank you for giving me the opportunity. Sir, can you please provide the value of orders in megawatts that you built to complete in the next three quarters, that is, before [31st] March 2024?
Okay, we said that 1,582 megawatts is the order book as on today, open order book, and we already done 135 megawatts in the quarter one. We also said that the more than 50% of it is for the next year, the balance is for this year. We won't be able to give a guidance of how much we will do, but we would be able to order approximately what it would be.
You are saying more than 50% order book is for the next year, and less than 50% is for this year. Am I right?
Yes, 50% is for next year, 50% is for this year.
Okay. My second question is, though the WTG revenues are down, volumes are down, but the realization seem to have improved, which is around INR 6 Cr. per megawatt. Can we expect this to continue in future as well? Is this realization sustainable in future?
I think the realization, again, you know, I again say what I said in the opening remarks, that one should look at on an annual basis. The realization may have inched up slightly in Q1, but, you know, maybe other than small fluctuations, we should be able to get close to those realization. Of course, it also depends on the order mix of EPC, non-EPC, but all of that remaining same, realization should not waiver much.
Okay. My last question is, why has there been a decline in O&M PBIT, if we compare both quarterly as well as on a YOY basis?
Again, when we said that there has been a one-time cost of about INR 20 crores in the O&M business, on account of the cyclone in Gujarat, t hat has largely led to the decline in Q1.
Okay. Okay, sir. Thank you.
Thank you. The next question is from the line of Suman from Rajiv Capital. Please go ahead.
Hello, everyone. One of the questions have been previously answered, so I'll just ask a futuristic question. We see that offshore wind energy is coming to starting in India. How is Suzlon taking off its view on offshore wind energy? And the second is regarding the debt fundraising, when would we be taking control of shareholders for postal ballot? Any idea? Thank you.
On the offshore, fine. There are talks about offshore, and obviously at some point it might come. Like, we said earlier as well, we would be ready as and when India is going to be ready for offshore. Having said that, offshore is still a difficult proposition for India in terms of tariffs, because we are quite, as I said some time back, we are extremely sensitive to the tariffs. The offshore abroad, like Europe and offshore in India, are different because the incremental generation versus incremental cost is a huge difference. Incremental generation from onshore to offshore is not very high, but incremental cost is very high, so the tariffs are expected to be very high.
Therefore, while we might go on some experimental offshore, but it's still in our view that it's away offshore. Now, having said that, if it picks up, we would be ready with offshore turbines.
Thanks a lot. Yeah, regarding my second, regarding the debt fund...
I mean, firstly, to clarify, the resolution is not for a debt fundraise. That's number one. Secondly, the postal ballot has already gone. It dispatched about two weeks back to all the shareholders. So, by first week of August is when we expect to receive approval from all the shareholders of the postal ballot.
Great. Thanks a lot. That's all.
Thank you. The next question is from the line of Dhaval from Girik Capital. Please go ahead.
Yeah, hello?
Hi, [go ahead].
Yeah, sorry, my call got disconnected. Okay. Repeating the question on this raw material thing, sir. There's a sharp volatility of 15%-20% kind of thing on the steel prices. Does this also hedge us in terms of our contracts for the pass on?
Answer is affirmative , yes.
Okay, great. My second question is on this INR 20 crore hit on the O&M side. If you can quantify, because that's such a large amount, where was this I mean, what is it regarding regarding the cyclone? Like, what was that loss?
What happens in the cyclone, we got the -- we had the transmission line completely collapsed, which is actually supposed to be managed by the Gujarat government agency. The turbines are down, they send that money. Therefore, the insurance coverage is not there. Second, what happens is number of turbines, there'll be small issues like water ingress, et cetera, where you spend some money. The turbine where insurance requires minimum detectable thing, therefore, the client doesn't get insurance. Wherever there's an insurance, we get it. The net of that is what this INR 20 crores.
Okay. Okay, okay. Sir, one clarification I wanted on the fundraising. This fundraising, the equity fundraising will happen in the entirely parent company or something can happen, is considered happening in the O&M subsidiary also?
The resolution right now that has been moved for postal ballot approval by the equity shareholders is for equity issues at the parent company in the list.
Okay. Okay, okay. Okay, sir, the fully diluted number of shares will be, as on today, will be 1,267, right? Is that correct?
Yes, including for ESOPs. About 50 crore shares have been approved by the shareholders on account of ESOPs. After that, adding that 1,267 is the right number. Assuming that all the ESOP shares will get vested and granted, which of course will happen over a period of time. Currently, other than ESOPs, about 1,247 crore shares is the fully diluted capital, of which roughly about 5 crore shares still remain outstanding as partly paid, and about 1,242 crore shares is fully paid up.
Okay. Okay, okay. And sir, what are the other plans for SE Forge in terms of any CapEx would be acquired there? You know, like if, I mean, a kind of opportunity, what we are seeing, [how we are placed there] ?
We expect a significant opportunities for SE Forge. There is a little CapEx what have been met from the -- their own revenue. We don't need to raise any direct CapEx. In SE Forge right now, we're working on is the, like, look at [quantile] , we are looking at the productivity improvement, number of castings per day, and et cetera.
Utilization, right.
Because right now the, our utilization levels are very low, which is about 19%- 20% level. Therefore, the very significant surplus capacity available both in forging as well as foundry. We don't need CapEx, plus also there is possibility of some operations outsourcing. Our focus is now on SE Forge to see that how do we actually capture the market much more. We are just about 2% of the total [twin] market globally. We can get global in play. We -- we're quite, say, you know, the focus on SE Forge now.
Okay. Okay. That's 19%-20% as of quarter one revenue. Quarter one revenue is utilization, right?
Yeah, that's normally been the range for quite some time, not just the quarter one.
Okay, okay. Okay, thanks.
Thank you. We have the next question from the line of Priyansh, an individual investor.
Hello. My first question is regarding this [ISTS] charges, which are going to be, like, incurred with the COD after 30 June 2025 . Kindly advise that how this -- how Suzlon is gearing up for this scenario in two years?
It is not for us to gear up, it's really for the IPP. Obviously there'll be pressure for, you know, commissioning by 30th June 2025 to get 100% listing. Thereafter, it's also CapEx. It's close to 75%, 50%, and 25%, depending upon the commissioning. It's not completely becoming zero post June 2025. The -- especially the C&I segment, there is a lot of urgency for, you know, for meeting the 100%, means taking advantage of the 100% available in ISTS.
Can you please speak slowly so that your voice is clear, sir?
Yeah. See, this 2025 June commissioning is for the 100% payable on ISTS charges.
Yeah.
For this life of the project. It is not one and zero after that, it tapers down to 75%, 50%, and 25%.
Yeah.
As we move ahead.
Yeah. Yeah.
It's like, it becomes, 25% charges, 50% charges, 75% charges.
Yeah.
Because the sunset clause for 100% is June 2025, there is still be more pressure, means there will be more orders, more pressure for commissioning the projects before that time, especially the C&I segment.
No, like, that is totally understandable, and that's totally like an insight. The question is that, do we have this on clause? Because, for example, whatever order now we are receiving. Like, everything may not be commissioned or supported, order will be receiving after six months. Definitely, this like June 25 also. Do we have this clause, like GST, for example, GST, like, will we be able to pass it to customer or not?
No, this, we have a contractual schedule. As far as we are concerned, we have nothing to do with ISTS charges. We will -- we need to deliver as per the contractual schedule, and we don't take any liability with respect to ISTS charges. There could be different reasons the project gets delayed. We don't take any responsibility for ISTS charges.
One thing, sir, like, suppose if you are getting some order, for example, in the September 2024, for example. Definitely, it will be commissioned beyond June. My question is that, whenever you will commission beyond June 2025, the [ISTS] will be recovered from the client or not?
Sir, please understand our business model is to supply turbines to customers who are availing these ISTS benefit. When customer is placing an order to us, as per our delivery and commissioning schedule, we have to deliver and commission the turbine by a certain date. If we, in your example, if we get an order by September 2024, and the order says that we have to deliver and commission the turbine by, let's say, March 2025, then we have to do that. There is no question.
If we agree to that schedule.
If we agree to that schedule. If whether he's able to avail ISTS benefit or not, is his problem, not ours.
Means that it's not a charge to us?
No, no, it's not. It's not. My suggestion would be you connect offline with our IR team, they'll explain this to you.
Okay.
It'll require some detailed explanation.
Number two, sir, is regarding our standalone finances. Standalone finances are definitely, like, not very good, but like, for example, it's a loss only. There is our, let's say, consolidated profit, for example. What action or what steps we are taking to turn around our standalone finances, like reducing the cost or, you know, like, this, actually, whatever, like, what is the plan to bring the standalone profitability?
We are working towards that. We will, of course, keep coming back quarter- on- quarter. I would urge that because, you know, yes, there are, you know, three different subsidiaries, or rather two active subsidiaries, that are adding to the consolidated profitability, and all businesses are very closely connected with each other. We urge you to look at the consolidated numbers. So far as standalone legal entity profitability is concerned, hopefully with time, we should get there. Very difficult for us to comment anything specific.
Like, yeah, with regard to [consol] also, if you see, we are in almost in almost in our segment result, which you can say, this profit is only INR 5 crore only, and ultimately it's loss only. It's coming only from the O&M. What are we doing to have the product sale, generating profit from the product sale? Recently, the raw material was also open. Just like we are not seeing much here. The question is that our core is the product, for example, turbine. There we are not making profit, even in the consol also. Profit is coming, [INR 100 crores to INR 135 crore] is coming only from the O&M only. What are we doing for that?
Like, why don't we reduce this fixed cost? Like, why don't we reduce the ESOP? Because we are in losses, like, we are doing, like, [zero profit]. I will not consider the profit, considering a lot of things. Even if you [more put in] we are too liberal in this also, for example, ESOP. Let us do something, I don't know, something, for example, even in the Wipro, Chairman has taken a 50% hit in salary. Even CEO has taken hit in his salary. What I'm saying, let us do something, like, for only a 2 year, if we reduce the cost, payroll cost, ESOP cost, or other costs, at least the company can turn around.
Like, once it's turned around, definitely its value will be higher, and then, like, we can, -- we can definitely give a raise also.
Thank you. I think, good suggestions, we'll look at them.
Thank you. Ladies and gentlemen, we take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you.
I think, thank you very much for attending the call and taking time out today. For any follow-up queries or questions, me or my IR team are available. You can reach out to us. Our presentation is available on the website. We either will see you in person over the next few months or speak with you during the quarterly two call results. Thank you so much.
Thank you very much, sir. Ladies and gentlemen, on behalf of ICICI Securities, that concludes the conference call. We thank you for joining us, and you may now disconnect your lines.