Ladies and gentlemen, good day and welcome to the Sterling and Wilson Renewable Energy Limited Q4 FY 2023 earnings conference call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, 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. Sandeep Thomas Mathew, Head, Investor Relations for his opening remarks. Thank you. Over to you, sir.
Good evening, everyone. Welcome to the Q4 2023 earnings call. Along with me, I have Mr. Amit Jain, our Global CEO, Mr. Bahadur Dastoor, our CFO, and SGA, our Investor Relations advisors. We will start the call with the key operational highlights for the quarter and industry outlook by Mr. Amit, followed by the financial highlights by Mr. Bahadur. Post which we will open the floor for Q&A. Thank you. Over to you, Amit.
Thanks, Sandeep, and a warm welcome to all the participants on this call. I would like to give a quick update on our business operations and outlook on the solar industry. I am beginning with our order book position. The company announced new orders totaling INR 4,387 crores in FY 2023 compared to INR 719 crore in FY 2022, aided by strong ordering momentum seen in India. All the orders announced in FY 2023 are from the domestic market. In Q4 FY 2023 alone, the company announced new orders for INR 2,155 crores, which is the highest quarterly order inflow the company has seen in nearly three years. We were declared L1 for BoS package of 1,500 MW DC at Khavda, Gujarat by NTPC in March 2023.
In addition, we also received two new domestic orders, one from Serentica for a 260 MW project located in Bikaner, Rajasthan, and second being a 60 MW project from Sembcorp, which is located in Karnataka. Our un-executed order book as on March 31, 2023, stand at INR 4,913 crore, which with nearly 90% of the order book comprising domestic EPC projects which are executable over the next 12-18 months. With the inclusion of Nigeria MoU that was announced in September 2022, our order pipeline will enhance significantly with the project value alone expected to exceed $1.5 billion. We are working with authorities to finalize the D&EPC agreement for the project by Q1, Q2 FY 2024. We hope to continue our order book momentum in FY 2024 and are seeing steady growth in our order bid pipeline.
We expect to bid for projects constituting nearly 23 GW over the next 12 months, with India having the highest share at 62.7%, followed by Middle East and Africa at 27.1%. Our confidence in the bid pipeline is further aided by the limited notice to proceed agreements we have received from projects in Australia, South Africa and the U.S., which provides more visibility on order inflow prospects. We believe the company is well positioned to target orders in excess of $1 billion in FY 2024 over and above the already announced Nigerian project MoU and any other growth company's business.
As stated in earlier calls, we reiterate that lumpiness in order flow is to be expected with EPC company like ours, and the timelines for achieving project closure could vary depending upon a host of factors, including finalization of contractual terms, financial closure, etc. Structurally, however, the underlying trend of the stronger companies expected to take a larger portion of the market in the future and lower level players moving out is beginning to take shape. In terms of execution, while we had a good momentum in the order booking in FY 2023, we had some unforeseen issues in execution of a few international EPC projects. Our domestic EPC business remained largely unscathed, however, and we delivered a positive performance there.
On the international EPC front, we had to deal with the issues ranging from unpredictable weather conditions in Australia to manpower and subcontractor availability issues in the US, which affected project costs adversely. O&M segment was largely impacted by some projects where costs were incurred, but revenue recognition had not commenced. With the last two of our legacy international projects almost complete, we are confident of returning to the path of profitability in FY 2024. In terms of the market outlook, we continue to see positive momentum in the market with continued decline in the solar module prices and favorable regulatory landscape. Indian market appears to be in a bright spot with a lot of ordering momentum gaining pace.
Government recent decision to exempt ongoing solar projects from the mandatory rule of procuring photovoltaic modules from the approved list of models and manufacturers, ALMM, for one year was issued on 10th March 2023. This should help ease constraints with local module availability and provide a fillip to project execution on the ground. The move is significant as India's aim is to install 280 GW solar power capacity by 2030, and we need a strong pickup in execution pace to reach the target. There is a strong pipeline from both private IPPs and PSUs in India currently. PSUs alone have a indicated a pipeline of more than 30 GW in FY 2024, of which NTPC is likely to be a key contributor. On our O&M business, our solar O&M portfolio as of date is approximately 7 GW.
Our O&M portfolio has a tailwind of strong EPC orders, and we are also targeting third-party contracts. O&M is moving faster towards AI-based maintenance monitoring, and digitalization. It is increasingly important for developers to have direct control on their power generation assets like IRR are dependent on it. Due to domain expertise of the O&M contractors, customers are increasingly preferring such third-party services providers who are knowledgeable and accountable. In our case, we have the global expert experience, and we are also bringing the learning of EPC. Between developing the knowledge in-house and going with an outside expert, we think the case is increasingly getting stronger for the latter, which should benefit us in bagging more O&M projects. With this, I will ask Mr. Bahadur, our CFO, to take you through the consolidated financial highlights. Thank you very much.
Thank you, Amit. Good evening, friends. Now I will take you through the consolidated financials for the year ended March 31, 2023. Reported revenue for Q4 was INR 88 crores and significantly lower both year-on-year and quarter-on-quarter. Revenue was impacted during the quarter due to cost increase on account of certain cost provisions made, which impacted the percentage of completion and led to a revenue reversal in ongoing EPC projects. Pro forma results, excluding the impact of provisions, would show revenue of INR 278 crores, gross loss of INR 4 crores, and PAT loss of approximately INR 150 crores for Q4 FY 2023. Provisions made in Q4 FY 2023 were on account of three reasons. Firstly, four international projects which are now virtually completed face cost overruns due to punch point and handover costs amonting to INR 61.43 crores, which have been fully provided for.
One of the international projects currently under commissioning is facing challenges in achieving the desired plant output. After detailed evaluation, the company has decided to carry out replacement of material and ancillary items which are causing the impediment. The cost of reinstallation is multi-fold as compared to the cost of the material itself. The group has reserved its rights with respect to recovery of the cost overrun on account of such replacement from the material supplier and applicable insurance. The group has, on a conservative basis, decided to increase the cost to completion amounting to INR 165.78 crore to carry out the said replacement and reinstallation, so as to achieve the desired output, which has resulted in reduction of revenue and recognition of foreseeable loss for an equivalent amount. The group had commissioned an international project at three sites for a customer.
At one of the sites, certain rectification work had to be carried out, which, whilst not affecting the output of the plant, was necessary from a contractual standpoint. The management is in discussion with the customer to finalize the defect liability quantum. The group has provided for an amount of INR 45.19 crore on a best estimate basis towards maximum cost of rectification and charged the same to direct project cost. With the above provisions, we believe we have adequately provided for all major currently foreseeable losses related to the international projects. Looking ahead, our FY 2024 revenues are largely going to be driven by our current unexecuted order book of INR 4,913 crores, of which 90% are domestic EPC orders, which have historically generated good margins, as Amit earlier alluded to.
We anticipate that consolidated EBITDA should turn green by Q2 FY 2024. The company should revert to normal domestic EPC business margins in FY 2024. We are also optimizing our overhead costs. The company has identified 15%-20% savings, which should get reflected in the coming quarters. Coming to the balance sheet. As on March 31, 2023, our net worth stood at negative INR 240 crore on account of the losses incurred in the fourth quarter. Our net debt now stands at INR 1,967 crore. Cash and cash equivalents stood at approximately INR 48 crore. As on March 31, we had a positive core working capital of INR 38 crore as compared to negative core working capital of INR 140 crore as on December 31, 2022.
Investors should note that the net working capital given above would stand at negative INR 445 crore as of March 2023, were the indemnity receivables to be excluded.
Our process of de-leveraging is likely to commence from the second quarter of FY 2024. We are targeting to significantly reduce debt by Q4 of FY 2024, aided by receivable recovery, indemnity inflows, and negative working capital cycle of the new projects. With this, we can now open the floor to questions and answers.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on 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, we will wait for a moment while the question queue assembles. The first question is from the line of Abhineet Anand from Emkay Global Financial Services. Please go ahead.
Yeah, thanks for the opportunity. I just wanted to first understand, out of this INR 5,000 crore order book, how much is totally clean, without any, you know, issues that, we have currently?
Abhineet, out of the INR 5,000 crores, INR 500 crores are old legacy orders, which are essentially revenue equals cost going forward, since we have already provided for all the losses. INR 4,500 crores are clean orders, which will be executed majorly in FY 2024.
I believe those sums should get completed by one edge of this year or will it prolong further?
Which one? Sorry, could you repeat?
This INR 500 crore. What will be the completion schedule for that?
Most of it will get done in the first quarter of FY 2024, with a little part of it going into the second quarter.
Okay. Secondly, if you can highlight, you know, from the parent, any plan as to, you know, if not in numbers, at least in GWs, what are the plans in terms of ordering and all? I'm talking of Reliance.
Reliance plans are available in public domain and we are actively discussing the rollout plan. But they are still under discussion and have the rollout plan, rollout dates have not been finalized yet. As we are discussing the plan, the rollout is going to be in GW scale size, multiples of GWs, but dates are not final yet.
Last one from me, the Nigerian project, when can, you know, we expect the complete or the firm order coming up, you know?
Discussions are undergoing, and we expect to conclude either in Q1 or early Q2.
I think in your opening remarks you said apart from this, which is basically support for $1.5 billion.
Yes.
I think you are expecting another $1 billion of orders inflow in 2024.
That's absolutely correct. That's what we are expecting.
If I could just, you know, break down in terms of what is the Nigerian order. Second, there would be three more parts, right? One is anything in international, where you are working Australia, U.S., Middle East, et cetera. Second would be lot of projects in India, you had mentioned NTPC asset. Third would be your parent. If you can break down in what's your expectation from these three over a, you know, medium term.
In India, we are expecting close to INR 4,200 crores in this financial year. Besides that, we are targeting three other major markets, South Africa, Australia and other regions. Which is also close to INR 5,000 crores. That's what is our estimate. Put together, we have a very high visibility for all these orders because as I have alluded to in my investor speech that in Indian markets we are very close to closing the orders which are expected in Q1 and Q2 itself. In South Africa and Australia and U.S., we have been shortlisted by our three clients. On three projects we have been issued Limited Notice to Proceed, which is an early phase of the project.
All the projects we have very high visibility and we are pretty confident of booking in excess of $1 billion over and above Nigeria and RIL projects.
Yeah. Thanks a lot. I'm done with questions.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Manoj from Geometric. Please go ahead.
Am I audible?
Yes, you are, Manoj.
Yeah. Yeah. Yeah, Manoj.
My first question is, whatever order you won in the last year, how was the competition you faced in during that? Specifically NTPC order, what kind of competition was there?
I would say NTPC, the tier 1 contractors were there, and it was a reverse auction. We were declared winner of the reverse auction. We'll get to know, like, we don't know what were the other competitive competitors who are in the action. But we are declared L1 in all the 8 packages for 2 NTPC bids we were there.
Okay. Okay. How do you see USA as a market for Sterling in the current year or maybe future?
USA is a good market, we are being very, very selective and redefining our risk profile with respect to USA and all other international markets. Though we are selectively bidding for the projects in all the markets, but we are looking at margins and risk profile of the projects very cautiously.
Okay. Okay. Any figure we have determined as on now how much promoter has to give it with the company according to the agreement as on now?
I will talk about what is the cash block situation. Roughly as of today, the company has INR 1,200-INR 1,300 crores of indemnity assets where the cash has been blocked. Discussions keep happening with the customers, with the authorities and the promoters to see how to settle it as judiciously as possible. Recourse from the promoter is of course the last resort. The idea here is to bring it down to get our cash flows in as fast as possible.
Okay. My last question is, now INR 500 crore of foreign order which is left. As a investor, we are not that much is danger part, but now we see the reversal of sales also happening. Is this more possible in the current year also in some terms of reversal of sale?
No, no. Let me explain that because we had to make this provision in the cost to complete for one of our projects, which was not entirely completed. There's no reversal of sales, which we have tried to explain in the pro forma sheet of our investor presentation. We do not expect any other reversal of sale to happen from now onwards.
Okay. Okay. Can I ask one more question last?
Certainly. Go ahead.
Okay. You said you are going for 15%-20% of cost reduction you have identified, and you have given, 10%-11% gross margin indication as a profit. Are we including that cost cutting in this current, gross margin guidance?
The cost cutting is for overheads, which is after the gross margin.
All right. Okay.
Right? What we are looking at is definitely to reduce these overheads even beyond what we are presently targeting. However, the entire impact of this will take a couple of quarters in this year to fructify. From that point in time, the overheads will be exactly lean in keeping with the revised requirements of the organization.
Okay. Okay. Best of luck.
Thank you very much.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, you may please press star and one on your touch-tone phones. The next question is from the line of Faisal Hawa from H.G. Hawa & Co. Please go ahead.
Yeah. This is, I mean, we have made it a, you know, habit of, you know, having, you know, results which are generally, you know, up and down and of the sales. There's no trajectory to any kind of sales. I mean, how will we ever, you know, have any kind of, you know, uniform sales? Again, this result is a, you know, bolt from the blue.
I will start by answering this, Mr. Hawa, and then Amit can just log into it. Whenever we have found that there is an issue, we have provided for it hundred percent. We do not want to leave it as a dripping tap, which goes on affecting future quarters. The reason for making large provisions, almost INR 165 crores in one project, almost INR 45 crores in another, almost INR 60 crores in a third, is just to ensure that no matter what has to be done, we have accounted for it and taken care of it up to March 2023. We do not want anything affecting our numbers for FY 2024, which we really believe will be a turnaround year. If things go to plan, things will start showing positively from the first quarter itself, the trajectory.
Sir, if you see the previous transcripts, you know, we say this for almost every second, third quarter and, you know. Again, there is a new development which really brings us down. I mean, I clearly feel that, you know, these three write backs of sales should have been actually communicated to the exchange, you know, in between the quarter, you know, because this is a material development, you know. It cannot be done with the results.
Firstly, it was not anything which happened in the middle of the quarter. All three are not resulting in write back of sales. There is only one which has resulted in the write back of sales. Further, our legacy orders are now down to INR 500 crores. There is virtually nothing left. What we have in hand right now are our domestic orders, which even if you go the last three-four years, have always given the gross margins, even in the worst of times.
When the domestic orders itself are so good, you know, why, you know, go to, you know, overseas orders where we always tend to lose money, you know. I mean, with these three orders where we are LNTP, I feel that there's more risk coming our way because we clearly are not able to handle even the overseas risk.
Uh-
I mean, we are continuously, you know, ending up paying money to a customer, you know, for. I mean, I can't see how we can be held responsible for, you know, his project not actually performing and, you know, having to really, you know, do the entire project almost again. You know, it's something which shows some kind of an inefficiency on our, on our part.
Firstly, it is not the entire project. The project is of a very large magnitude. We are talking of the replacement cost of a particular component of that particular project. Because it is overseas. We have said that the cost of material itself is a very small portion. It is the cost of installation. Mr. Hava, anything you redo in a site will at least be four to five times the cost of the initial installation. That is what is causing us the pain point. As regards your question about international projects, I will let Amit answer that.
Mr. Hawa, as I alluded to, first of all, the projects, the legacy projects which we see, they were all booked in pre-corona times and were impacted by, I think, a lot of uncertainties and unforeseen circumstances. Project execution started in COVID, the unpredictable climatic conditions in those zones and the shortage of manpower, complete breakdown of supply chains. All that impacted. These were the only legacy projects which we were carrying out. With this one, this particular quarter, we have practically accounted for everything which we can foresee in these projects, and there is no possibility of carrying out any further losses in these projects. We're now embarking on new order booking. Majority of it's coming from domestic, where we have proven track record and we have always delivered.
As far as the international projects are also concerned, we are very cautious in booking new projects. Risk profiling and margin profile of the project is thoroughly checked, and we are making doubly sure that we are going to deliver high returns even on those projects. That's why there were a little slowdown in last two years in booking international orders. Whichever order, whether domestically or internationally we are booking, margin profile and risk are thoroughly being assessed so that we continue to deliver high margins to our shareholders. That. We are proceeding on that trajectory. I don't see any more losses at all coming out of our portfolio. We have taken care of everything. That's what we are projecting.
Okay. Thank you very much.
Thank you. Participants, you are requested to please press star one to ask a question. The next question is from the line of Bhavik Shah from MK Ventures. Please go ahead.
Yeah. Hello, sir. Thanks for the opportunity. I just want to understand the cost of capital for the borrowings which you have taken. At what rate have you taken the borrowings?
The borrowings range from between 8.9 to about 9.9%. This could go up as the repo rates change, but that is the range at which it is about now. On an average, you could say about 9.5, 9.65%.
Okay. What kind of gross margins or EBITDA margins do you expect in the Indian projects and the overseas projects which you are going to take, and the NTPC projects as well?
Sorry. You will have to repeat your question, please. It was not very clear.
Yeah. Just a minute, sir. Just a minute. Is it better now?
Ladies and gentlemen, the line for the current participant in the queue seems to have disconnected. We will move on with the next question, which is from the line of Iqbal from Nuvama. Please go ahead.
Yeah. Hi. Thank you, sir. Just wanted to understand this reversal of the revenue recognition in more detail. You have mentioned in the pro forma it's around INR 190 crores. However, the second point says around INR 166 crores. What is the remaining amount in this? I just wanted to understand in detail about this the provision that you have made for. That will be very helpful.
See, the cost to completion went up by INR 165 crores. Therefore-
Mm-hmm.
on a percentage of completion, your percentage of completion fell. The only way to recognize this is to reverse the revenue which has been booked in the last quarter. The cost of INR 165 crores has still not been incurred. They have really been made as a provision in the cost to complete. There is a reversal of revenue. To the extent the cost is higher than that, there will be a foreseeable loss which has been provided for.
Okay. Thank you, sir.
Thank you. The next question is from the line of Shantanu from Think Investments. Please go ahead.
Hi. My first question is that, these INR 450-INR 500 crore old orders, right? They were supposed to get executed, kind of, they were supposed to get over this quarter. I don't see any execution on that front. Is there any challenge in finishing those orders? What was the reason that nothing major happened this quarter?
You have to realize, Shantanu, that out of the INR 490 crores approx which is there, INR 165 crores is on account of the cost increase only which has been pushed.
Mm-hmm.
Right? Otherwise, in this particular quarter, if you would have seen the pro forma that we have put in, your turnover would have been INR 278 crores. If you see the slide which we have given for our pro forma profit and loss account. That would be comparable to what we have achieved in the previous quarter, and it's not that nothing has happened in this current quarter.
Got it. Okay. Now, like you mentioned that whatever hits you had to take, you've taken, and your revenue will be cost.
Just for these projects.
Yeah, yeah. Just for these, obviously. Are we like fully sure that this will get over in Q1 and maybe something get going into Q2 , but there is no other problem in executing this?
As per our plan, the bulk of it should get done in Q1, and there would be an overflow into Q2.
Mm-hmm.
Let me not say as of now. We do not envisage anything.
Mm-hmm.
There are no surprises further, we believe.
Okay. Okay. Now coming on to your balance sheet. debt's gone up to INR 2,000 crores, right?
Yes.
This majorly is because of, you know, all these one-offs, et cetera, et cetera. I heard the number of INR 1,200 crore-INR 1,300 crore of indemnity assets, right?
Right.
To, you know, just to come to the bottom line, this money is actually supposed to come into the company.
Right.
It should ideally knock off the INR 2,000 crore odd debt that's been, you know, accumulated over this one and a half years. I want to understand this breakup, you know, of these indemnity assets and the timeline as to how this will come in so that what can be the net debt at, you know, end of FY 2024. This is excluding any, you know, advances that we get for Nigeria project or NTPC. That's purely operational. I just want to understand what sort of money can come in from these indemnity receivables, whatever you want to call it, that can get knocked off to the debt, say, in the next 12 months, FY 2024.
First of all, it is not just the INR 1,200 crores of indemnity receivables for which we needed to borrow.
Mm-hmm.
If you have had a chance to have a look at our notes to the financial statements, you will find that in a particular project in the U.S. we had appointed another subcontractor, and we've taken the first subcontractor to court.
Correct.
There the company has paid $58 million, which is shown as a recoverable.
Mm-hmm.
If you add that as well, you're talking about the INR 17 crore of money which has been blocked, which is closer to the money that is totally borrowed.
Correct.
against the 1,200, that arbitration and claim can go on for about a year at the minimum.
Mm-hmm.
We will know about it at that point in time, even though legal opinion says we have an extremely strong case.
Mm-hmm.
coming to the INR 1,200 crores of indemnity-
Yeah.
We expect to get somewhere around INR 450 crore, a number anywhere between INR 450 crore-INR 500 crore in September 2023.
Okay.
Balance will happen in the next year or thereafter.
Okay. Why would this not come in FY 2024 itself? Like, why will it, the balance go in the next year?
The indemnity agreement is very clear that only when a claim is crystallized, which means it has reached the last stage of appeal.
Mm-hmm.
can it be levied upon the promoter. we believe that-
Okay.
As of right now, there are claims which are crystallized even after October 2022.
Mm-hmm.
September 2022 we had filed our first indemnity claim, money of which we received.
Mm-hmm.
October 22 and onwards also some things have crystallized significantly, and the balance amounts which will crystallize is what we can claim in September 23. I can't claim the entire INR 1,200 crores from the promoters in September 23 because the company is first expected to fight it out.
Mm-hmm.
with the customer and the regulatory authorities and/or any tax authority, and only when it fails is it supposed to go after the promoter.
Yeah. What happens to the interest cost that the company will have to bear for this, say, one and a half year till this gets fully crystallized?
The company will have to bear the interest. Interest is not on the promoters.
Okay.
What, the agreement has done is secured the principal.
Okay. Understood. Understood.
If I had to even charge the interest, then my EBITDA would effectively be my PBT, right?
Mm-hmm. Mm-hmm. Got it. Got it. Okay. Lastly, can you give us an update on what is the status with Nigeria and Reliance both? That will be really helpful.
Yeah. Nigeria, we are in advanced stage of discussions with the NDPHC and Ministry of Power of Nigeria, and we expect to get it concluded either in Q1 or early Q2. That's where we are on Nigeria.
Mm-hmm.
In Reliance, we are in discussion with them, and rollout plans are getting finalized, but we have not been informed of the exact schedule. Discussions are going on, and we are planning.
Okay.
For the execution of the project.
Okay. Just let me get this clear. Nigeria order, say, worst case execution starts in Q2 or Q3. Is that understanding right?
No. E-execution will start in Q4.
Q4.
We're entering a very minor portion of the revenues in Q four.
After the order signing, there is also going to be the financial closure.
Mm-hmm.
post which we will start the work. work on Nigeria-
Nigeria, should start only in Q4 execution, right?
Yes.
Yeah.
Okay. Similarly for Reliance, worst case, will this happen in Q4 or then it will slip into Q1 FY 2025?
As Amit said that there is no plan which has been finalized as of yet.
Mm-hmm.
As we find out, we will keep you all informed.
Okay. Got it. On the NTPC both orders, I believe nothing has started yet on the execution part, right? The first order we got in October, if I'm not wrong. Do we expect that to now start in Q1?
Shantanu, that is incorrect.
Okay.
Work has started at the site.
Okay.
There has not been enough work for us to start recognizing revenue.
All right.
On the first site, work has already commenced.
Okay. On the second, when do we expect that to start?
I think we are expecting to sign the contract, either end of this month or early next month.
Okay.
Because, with the project site is adjacent to the first project, and we have already done engineering for the first project.
Mm.
We will be moving on fairly quickly on the second project.
Got it. Got it.
The revenue recognition will start from Q3 FY 2024.
Got it. Got it. Okay. Okay, that's it from my side. Thank you.
Thank you. The next question is from the line of Vignesh Iyer from Sequent Investments. Please go ahead.
Just, I just want to know our net worth has turned negative, right? Are we planning to raise any funds? I mean, if the promoter is planning to, I mean, put money or maybe, raise any funds from QIB or anything of that sort, I mean.
Nothing has been finalized as of date, Vignesh, for me to provide any further guidance on this.
Okay. So, just to understand the NTPC projects-
Sorry, I just want to add that as far as the standalone net worth is concerned.
Mm-hmm.
It is a very positive net worth over INR 1,000 crores. It is only the consolidated net worth that has gone down.
Right. Understood. Understood. Just to understand on the NTPC project side, this INR 4,900 crore unexecuted order book has NTPC project as well, right? I mean, part of it.
Approximately INR 3,600 crores would be the unexecuted order value on NTPC.
That would be 1.5 GW, right?
That would be 1.5 into 2.
Okay.
Almost 3 G .
Okay. Right. Right. Okay. Fair enough. Just to understand this international project, I mean the one you're talking about in South Africa, Australia and U.S., and as well as the Nigerian project, would it have a similar gross margins like similar to like what it is in domestic?
it would be slightly lower, in terms of the international jobs. Nigeria, however, is a fairly comparable margin project.
Okay. Okay. Sir, another part of it. If, what we've faced due to this legacy project was the increasing cost, I mean. Coming to these new projects, do we have this cost escalation as part of the contract? I mean, and what is the, how much is that cost escalation possible? I mean, in case, suppose, some other big event comes up, similar to Russia-Ukraine war, and there is a problem with procurement of material or something similar. What is the % cost escalation possible on this newer projects that we are signing?
Whatever the newer projects we are signing, we are considering the present prevailing costs, and orders are booked or placed on vendors immediately after we have finalized, so that we are hedged during the execution of the project. We are taking extreme care to move fairly quickly, and we have built provisions to pass out for any extraordinary circumstances to pass on the cost to the customers. The orders are going on back-to-back basis to the vendors so that we are not exposed at all for the variations in the market.
Fair enough. Fair enough. Just to understand this newer projects that you're going to sign, I mean, the INR 5,000 crores value in South Africa, Australia and U.S., and once the MoU is signed with Nigeria, I mean, Nigeria MoU is done, I mean, once that is part of the order book and you have started your work from quarter four, would both of these projects have similar timeline of execution of 12-18 months or it would be a bit more than that?
Only Nigeria will have little more than 18 months. By all other orders will have the same execution timeline of 12-18 months.
Okay. apart from the legacy book, order book, we would only see mainly the revenue being recognized from quarter three, right?
Pardon?
I mean, assuming your legacy order book gets over in Q1 and some part goes to Q2, for the newer order book, I mean, where the gross margins are 10%-12% or a bit lower, would we see the revenue recognition coming mainly only from Q3 of the FY 2024?
If you're talking of the international jobs, then other than the legacy jobs, they will essentially be slightly in Q2 but majorly in Q3 and Q4. If you are talking about the unexecuted order values that we hold for the domestic business, they will start from Q1 itself.
Okay. Okay. Got it. Got it. That's all from my side. All the best, sir. Thank you.
Thank you.
We have the next question from the line of Jayesh Gandhi from Harshad H. Gandhi Securities Private Limited. Please go ahead.
am I audible, sir?
Yes.
Yeah, yeah.
I have a couple of questions. First is on EPC margin. When we say on EPC, gross margin 10% or 11%, are we talking about consolidated or only domestic?
Now, when we have said that we want to return to 10%-11% gross margin, going forward, we are talking about a blended margin across the world for projects that are either in progress or expected to be in progress in Q3 and Q4.
Domestic probably would be a higher margin then according to you, since we are, even if you are going for...
O&M margins also, when we are saying O&M is of course a significantly higher margin towards smaller revenue. We are talking of a blended gross margin across all lines of business and geographies to be where we have indicated them to be.
Got it. 10% is basically EPC as well as O&M, that is what you are including?
Correct.
Okay. second thing is just a confirmation. The listed company is in the business of only EPC and O&M and battery energy storage, right? can we do something else also?
There is nothing that would prevent us from doing something else as long as it is in the renewable space. The mandate which this company has is to do EPC business for renewable energy. Of course, the EPC contracts can include or will include round-the-clock power, where battery and energy storage would be a part of the project cost.
Yes, that's right. Going forward, the mode trend is moving towards hybrid. In addition to solar and battery storage, if it require venturing into BOS for wind and other systems. Company is gearing up to address all other additional solutions, and we'll be ready to provide complete hybrid solutions to the market.
Okay. Now, sir, why I'm asking this is because just two days back, one of, I don't know whether it was a subsidiary or what, Sterling and Wilson project got a transmission order from NTPC. We will never be into the transmission, right?
That's the order booked by Sterling and Wilson Private Limited. That company is part of Sterling and Wilson Private Limited, not part of Sterling and Wilson Renewable Energy.
I got it. Last question is, how confident are we on getting the Nigerian order? Because as I see, we have just entered into an MoU with the Nigerian government. It's just an MoU or are we in an advanced stage now?
We are in advanced stage. It's not just the MoU. The draft contracts have been exchanged. The legal teams are engaged. The final terms of financing term sheet between Exim Bank and Nigerian government is getting finalized. It is not just MoU. We are just about to conclude the contract, and it has slowed down little bit because of elections which were happening in Nigeria. We expect to close the Nigerian order by either the end of Q1 or early Q2.
I got it. Thank you and best of luck.
Thank you. The next question is from the line of Iqbal from Nuvama. Please go ahead.
Yeah, hi. Just wanted to put forth one more question. Actually, there are the unexecuted order books. Around INR 500 crores are the legacy orders, which I believe is now no more a profitability order for the company. Would you be incurring more-- I mean, would you be raising more debt for this company going ahead? I mean, for this project. In short, how much, to what extent the term debt might increase in financial year 2024?
Iqbal, it is not just that debt is the only way that one can fund a project. The Company also has available letters of credit limits which it could utilize. There it will be a mixed bag where you will stretch your payable to ensure that it can be offset against the receivable of an advance from a future project. Company will do everything in its power to keep debt low. If it is required to be borrowed, yes, then there would be an increase in debt.
magnitude of the debt that you might have to borrow would be lesser than the INR 500 crores, which is indemnity, which is receivable, would that be a fair understanding?
The INR 500 crore indemnity receivable will come in Q3.
Right.
The projects that have to be completed, the legacy ones are in Q1 and Q2.
Mm-hmm.
The company will work out the most efficient ways to take care of meeting the cost requirements. Also, let us not forget that on the one hand there is cost, but on the other hand there is also a receivable from customer. There will be definitely a certain amount of borrowing and or LC management which will have to be done to take care of this. We are in the process of working out the most efficient way to do it.
Okay. Fair enough. Thank you, sir.
Thank you. Ladies and gentlemen, that was our last question for today. I would now like to hand the conference over to Mr. Amit Jain for closing comments. Over to you, sir.
Yeah. Thank you. We hope to build on the order momentum of FY 2023 and turn around the financial and operating performance of the company in FY 2024. With the strong support and parentage of promoters, we intend to accelerate our growth trajectory and are confident of regaining our leadership position. I would like to thank everybody for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with Sandeep Thomas Matthew, or SGA, our investor relationship advisors. Thank you once again and have a great day. Thank you. Bye.
Thank you. On behalf of Sterling and Wilson Renewable Energy Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.