Ladies and gentlemen, good day, and welcome to Sterling and Wilson Renewable Energy Limited Q1 FY 2025 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 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, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this 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. Sandip Thomas Mathew, Head of Investor Relations, for his opening remarks. Thank you, and over to you, sir.
Hey, good morning, everyone, and welcome to our Q1 FY 20 25 earnings call. Along with me, I have Mr. Amit Jain, our Global CEO, Mr. Bahadur Dastoor, our CFO, and SGA, our IR advisors. We will start the call with the key operational highlights for the quarter and industry outlook by Amit, followed by financial highlights by Mr. Bahadur, post which we will open for Q&A. Thank you, and over to you, Amit.
Thanks, Sandip, and a warm welcome to all the participants on this call. I would like to begin with a quick update on our business operations and outlook for solar industries. Beginning with our order book, we have started off the first quarter of this financial year on a strong note with INR 2,170 crores of new orders, building on the order booking momentum in FY 20 24, where we closed the full year at approximately INR 6,023 crores of orders inflow. Q1 order inflow was a mix of international and domestic orders. We were able to achieve a strong breakthrough in the rapidly growing South African solar market with two turnkey project wins totaling $140 million.
First was a 140 MW DC project for AMEA Power, which is one of our customers with a long-standing relationship, and the second was an 80 MW AC project with The Energy Group. As we have reiterated in the past, we only judiciously pursue international projects which meet our risk/reward matrices, and these order wins are in keeping with the same philosophy. The pickup in international ordering activity seen in the recent quarters in select international markets like Africa and Europe is a culmination of our effort over the past few years, and we are happy to finally see it paying off. Our India EPC business continues to remain a pillar of strength, and company has received new order and LOIs in three domestic projects worth Indian rupees 1,016 crore during the quarter.
We were able to achieve another breakthrough with Serentica Renewables by bagging a 900 MW DC project in Rajasthan, which is one of the, their largest solar installations in the country. We continue to work with Serentica in multiple other projects across India, and we are happy to be their preferred EPC of choice in this project. We have commenced a pilot project for solar plus battery energy storage systems for Reliance Industries at Jamnagar, Gujarat. We look forward to engaging with them in large PV project installation across the country in near future. With the order wins announced in Q1, setting up a strong base, we remain confident of meeting our order inflow guidance of INR 8,000 crore that we have indicated during the previous conference call.
Further, in terms of execution, we anticipate to see a strong pickup in execution from Q2 onward, and we will be targeting to achieve majority of our execution run rate in the second half of the fiscal year, with which we remain confident to deliver on the revenue guidance of INR 8,000 crore plus as well. We have a strong order book already in place, and plans are in place to achieve the anticipated execution scale-up. Our unexecuted order book currently stands at INR 9,396 crore, with approximately 71% constituting domestic orders. While the share of domestic order has declined this quarter due to higher inflow of international orders, we remain confident of domestic order inflow in the forthcoming quarters, picking up especially as PSU order inflow activity was muted in Q1.
We are, however, seeing a strong pipeline getting built with the new RFPs getting added, which leads to greater visibility on ordering activity pickup during this fiscal year. Coupled with a stronger balance sheet, we are expecting to be able to capture a larger share of the domestic solar EPC market in this fiscal. In terms of pipeline, we are actively pursuing projects totaling 23 GW in India and 5 GW in other geographies, including Middle East, Europe and Africa. I know most of you are anxious to hear about the progress with the Nigeria project. Our teams are continuing to engage at the highest levels to achieve the closure, and while most of our last investor call, the final terms have been negotiated, procedural steps are in progress.
Also, as I have mentioned in our earlier calls, post-order signing, we expect project to take six months to achieve financial closure. We would like to reiterate that lumpiness in order inflow is to be expected with EPC companies like ours, and the timelines for achieving project closure could vary depending on a host of factors, including finalization of contractual terms, financial closures, etc. Our operation and maintenance portfolio outlook remaining strong, and we have seen our portfolio grow to 8.2 GW as of June 2024. The benefit of a large portfolio is expected to bear fruit in the coming quarters, as our EPC pipeline will continue to feed a large portfolio of O&M projects over the next 12-18 months. Now moving to industry outlook. India remains our single largest focus market at the moment.
The government's renewable energy push is driving up auctions, which continues to create a strong pipeline. India saw auction of 35 GW of renewable projects in fiscal 2024, the highest ever in a single fiscal year, and the solar remains at the forefront. The demand for power is expected to continue to increase annually by 7%-8% over the next 3-5 years. For renewable power to provide for this increase, the annual capacity addition become imperative. There is no doubt in our minds that renewable energy going to be a key driver of investments in the power sector in India for the next 6-7 years. The growth of renewable energy installations is anticipated to accelerate as the tendering and commissioning of green energy projects gain momentum. A growing domestic order pipeline is reflective of the explosive market growth that is anticipated.
Such rapid growth typically pushes players to focus more on core competencies and execution. That's where established EPC players like ourselves are likely to gain. Low module prices globally remain ripe for more projects to come on stream, aided by lower LCOEs, which should translate into more work for EPC players like us. With a strong balance sheet, we remain well positioned to tap the strong industry growth in both domestic and international markets. With this, I will ask Bahadur to take you through the consolidated financial highlights. Thank you very much.
Thank you, Amit. We are happy to report a second consecutive quarter of positive EBITDA, PBT and PAT at a consolidated level in Q1 FY 20 25. We achieved a top line growth of 78% year-on-year, with operating revenue of INR 915 crore in Q1 FY 20 25, aided by higher execution in domestic EPC projects. Sequentially, top line declined by 22% due to tight liquidity conditions, which are expected to ease with improvement in credit ratings going forward. At this point, I would like to mention that quarter four is always the highest in a financial year due to push from vendors, contractors, and developers. So it would be incorrect to look for sequential growth in a quarter one as compared to a previous year's quarter four.
As Amit highlighted earlier, our order book continues to grow rapidly, providing higher revenue run rate visibility for the forthcoming quarter. With anticipated ease of liquidity challenges, we still hope to be able to meet our annual revenue guidance, which implies a lot of execution pace pickup, which will be seen in the second half of this fiscal. On the margins front, our reported gross margin was 11% in quarter one. We believe our gross margin will hover in the 10% range, as seen on the domestic EPC margins for the quarter. Our O&M gross margins were enhanced due to one-off income of INR 3 crore, due to backdated revenue receipts and provision reversals.
It is worth noting that in few of the previous quarters, we had taken a conservative stance on accounting for the O&M costs, but not revenue, and had guided that we will be able to bill backdated revenue, which was seen in this quarter. Recurring O&M margin was 23% in the first quarter and has begun to trend towards more steady state margins compared to FY 20 24 margin of 16.7%. On the overhead front, we have continued to make further progress, as seen in the lower quarterly run rate. We do believe bulk of the optimizations we had planned have been incorporated. Reported Q1 EBITDA was INR 37 crores at a 4% EBITDA margin, compared to a full year FY 20 24 EBITDA of INR 54 crores.
Reported Q1 PAT of INR 5 crore, while significantly higher both year-over-year as well as quarter-over-quarter, remains impacted by a non-cash deferred tax asset charge in this quarter of approximately INR 10 crore, as was the case in Q4, due to standalone profitability. Now coming to the balance sheet. Our net borrowing has declined sequentially by about INR 19 crore, and therefore, our net debt stands at INR 97 crore as at June 2024. We do not have any debt repayment till Q3 FY 20 25, and we believe indemnity payments due by November 2024 are largely likely to take care of repayments in FY 2025. 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. Participants, you may press star and one to ask a question. First question is from the line of Puneet from HSBC. Please go ahead.
Yeah, thank you so much, and congrats on turning around. My first question is, if you can give some color on how different are the margins from your international business and domestic business based on the new orders that you are booking?
Yeah. So whatever the... As we have explained in our previous calls-
... That in domestic market, margins remains from 10%-11%, and now we are replicating the same margins for international markets, where the margins remains 10%-12%. So margin, we are very, very careful about the margin profiles, and we are maintaining the same margin profile in both the markets.
Okay. And there was earlier a thought that you would do only the BOS part in the Indian market and not do modules. Does that still remain?
No, we are aware with that. That's primarily because Indian market continues to be a BOS market. But wherever we are taking, we have taken couple of projects in domestic market with modules, but we are taking extreme cautions with Indian projects. We are choosing only Indian module manufacturers, which where we have the long-standing relationships, and they never renege on their contracts. We have taken due care in taking the bank guarantees and used our relationships to get place the orders for modules for the domestic markets. The both orders we have picked up, we have placed the orders on reputed Indian manufacturers, and there is no risk. So we will choose the select-- we'll choose the projects very carefully wherever we have to place the orders with the modules included.
As far as the international projects are concerned, we are very, very choosy and passing on the risk to our customers. We are also taking precautions, as we have explained in our past calls, that we are taking very higher amount of bank guarantees to the tune of 15% from the module manufacturers, and we are choosing a make of three manufacturers, minimum for every project, so there is no execution or price risk remains on the project.
Okay. And, and you're still saying that despite taking, you know, the module linked orders for international businesses, you will still have a 10%-12% margin? On India, without the modules, you will have 10%-12%, gross margin.
That's absolutely correct. The margin profile of the projects will not change, just that the value of the project per megawatt will change-
Yeah.
wherever the modules are included. The values per megawatt will be much higher as compared to the BOS projects.
Understood. Secondly, if you can comment on how big is the RIL's pilot project, and what are you hearing from them in terms of-
It is like, I would like to say it's a reasonable size project, with a good value, and we expect to complete this project within this fiscal year. We are using multiple technologies. This project is very, very important with respect to testing of multiple technologies, and this would become very handy in the rollout of the larger projects with RIL.
And this is already a part of your order book?
Yeah, this is already part of our order book.
So, the INR 1,000 crore order during the quarter would include this, or was it already a part?
Yeah.
Okay.
It's part of that particular order book.
Understood. Lastly, on the overhead side, assuming current business levels, have you reached a stable state of overheads, or is there further room for overheads to go down?
As I just mentioned, we believe we have completed most of the optimization of our overheads, and except for small increments, et cetera, we believe that they are now more or less stable.
Understood. That's very helpful. Thank you so much, and all the best.
Thank you. Next question is from line of Shiwani from Monarch Networth Capital. Please go ahead.
Hi. Thank you for giving me the opportunity, and congratulations on good results. My question is on the order book mix. So the domestic order input, can you give the split of, other than Serentica, from whom the order has come in? And also, for the international order, in Europe order with Plenitude is executed, or if not, then how long will it take to be executed?
See, order with the Plenitude was received in December last year, and project has 18 months of timeline. So project execution has started. We are well on track. We are finalizing. The engineering has been completed, and orders are being placed, and we have started execution on the project. And we are very confident of completing the project ahead of the timelines. So that is the status with the Plenitude projects. As far as our order book is, Indian order book is concerned, it includes Serentica, it includes Reliance, it includes Ampyr. So these are the projects included in our domestic pipeline. And as far as the international project booking in this quarter is concerned, there are two projects from South Africa, one from AMEA Group and another is from The Energy Group.
Okay, sure. My next question is on the arbitration process that's going on for the international order. What's the status on that?
There are a few arbitrations which we are having in USA. We are proceeding ahead with the arbitrations. As and when there is a significant development there, we will inform the markets suitably at that point of time.
Sure. Thank you. I'll be in the queue for any follow-on question.
Thank you. Next question is from the line of Harsh from Nepean Capital . Please go ahead.
Yeah. Hi, good morning. Thanks for the opportunity. So for... I just have two questions. Firstly, on the opportunity on the Reliance project that we have done, what is the future outlook and the opportunity size of that segment? And secondly, we've seen a very significant margin jump in our O&M portfolio. So is it, like, a one-off, or how is that placed? Just two questions from my end.
Yeah.
Thank you.
First of all, with respect to Reliance, to start with, it's a pilot project, as we have stated, and teams are continuously engaged with Reliance on rollout of mega projects in various regions in the country. As you know, the plans are in public domain, and it's moving faster. Teams are engaged at much broader level, and we have specially created a particular SBU for Reliance. So we are hopeful that the mega project rollout will start soon. And teams are fully involved into the discussions, and we'll be at the forefront of the execution.
Thank you.
Bahadur will take answer on O&M margins.
Yeah. As I have mentioned, in my speech, there is one-off income of INR 3 crore due to backdated revenue receipts and provision reversals. For that not to be included, the O&M margins would be close to 24%, which is close now to our steady state O&M margins.
Thank you. Just lastly, a bookkeeping question. You mentioned the South African project. What was the size of the project, and its tax? If you can just repeat that?
One is 140 MW, and another one, second one, is 80 MW project.
140 and 80 megawatt. Thanks a lot.
Yeah.
Thank you. That's all from me. Thank you.
Thank you. Next question is from the line of Rohit from Aditya Birla Sun Life. Please go ahead.
Thank you for this opportunity. So my first question is more to do with the credit limits, non-fund-based limits and fund-based limits. What is the negotiation with the bankers? Where are we at this point in time? Are they, like, unfrozen?
So a few of them are unfrozen with, you know, the rating upgrade, which happened from B to B B+ . Post these results, we will be pushing for a higher upgrade into the investment grade, which gives us the confidence for unfreezing of the rest of the limits.
Among the non-fund-based limits, what is the current level, and how much is it utilized at this point in time?
The total non-fund limits are between INR 5,500 crore-INR 6,000 crore, and roughly INR 3,800 crore-INR 4,000 crore stand utilized.
Thank you. That's it from my side.
Thank you. Next question is from the line of Kunal Shah from DAM Capital Advisors. Please go ahead.
Yeah. Hi, sir. Am I audible?
Yes, you are. Thank you.
Yeah. So, sir, one is on this revenue guidance for FY 2025. I think we are holding on to the INR 8,000 crore mark, right? INR 8,000 crore plus. Now, just could you guide, you know, how it would be phased over the next three quarters? So would, would one assume that, you know, the second half would do something like an INR 6,000 crore sort of a revenue?
You are right that the revenue execution pace will pick up from Q2. We remain very, very confident about the revenue guidance we have given. As you know, Q1 is always muted in the EPC industry, and there is no surprise in that. So revenue pace will pick up significantly from Q2 onwards, and the second half will be very, very strong, with the Q4 being the strongest.
Understood. You know, in terms of sort of factoring in this, would there be an assumption of a rating upgrade that you're expecting now? Because let's say if there is some delay, could there be a spillover? You know, I'm just trying to understand, would there be a delay in terms of the execution of the order backlog, just because of the liquidity conditions?
We are trying to take various other steps. While the effort is obviously on for a further rating upgrade, as I have just mentioned, we are also looking at other contingencies to make sure business does not suffer.
Okay, understood. And in terms of, just from an order backlog, execution timelines, could you guide if you are sort of ... Is it everything on track? Or, you know, could there be some delay in terms of commissioning of those projects, you know? Because that then-
No, we don't see any. Yeah. Yeah, so you are right. We don't foresee any delay in execution of any project. We are delivering projects ahead of time, and we are always meeting our customer expectations. So we are very, very confident and all the projects will be delivered as per the contractual schedules. We don't foresee any delay in any of our projects.
Understood. Thanks. And one last bit on this Nigeria project. So now, you know, with the U.S. elections around the corner, so now, you know, any guidance on, on that particular project and whether it can be delayed post-elections now? Because, you know, the, the same might be perceived as a bit risky, because on the order finalization, especially because of a potential regime change. So, you know, there, there becomes a lot of ifs and buts over there. So could you just guide on, on this particular one?
Yeah, yeah, I will guide on that. First of all, post our last call, contract terms and conditions have been finalized, and we are in the last leg of approval. So that is happening, and which is very, very positive. And there are multiple positive developments which we, which has had taken place, and we cannot share everything on this call. So but project is moving on right track, and we expect it to close very soon. Secondly, with respect to the regime change, we, there is no impact on the project financial closure with respect to the regime change in the U.S. The Exim Bank Board remains in place. Exim Bank of the U.S. has already this project exists in their list, and it's an approved project. So there is practically no risk at all.
We don't see, with respect to the regime change in the project, any uncertainty on that part on this particular project, and we remain very, very confident to close the Nigeria project very soon.
Understood. Understood. Thanks. This is helpful. I'll join back the queue. Thanks, and all the best to you.
Thank you. Next question is from the line of Amish Kanani from JM Financial Capital. Please go ahead.
... Yeah. Hi, sir. Can you give us some sense of, you know, what is the average execution timeline of our order book? Because now, you know, with international order, maybe there are some longer order. As we understand, some project will have 6-9 months, whereas some project might have an 18-month project timeline. So if you can give us some, you know, range of execution or, you know, break up your order book, which is, say, more than 1 year and less than 1 year, that will be helpful?
Yeah.
Within domestic and international, sir.
Yeah. So let me start with domestic. The larger project, larger PSU project, which are in excess of 1 GW, has a typical execution timeline of 18 months. And the IPP projects in India, typically over 200 MW, have a timeline of 10-14 months. So this depends upon the execution targets given by the client. It can vary from 10-14 months. PSU projects remain from 15-18 months. That's the typical range. International projects also remain within the 15-18 months completion targets. So none of our projects exceed the completion time of 18 months, up to 1.5 GW, and the minimum timeline for execution of project is 6-8 months for the smaller size projects. So this is the typical timelines on which we operate, and this is the typical cycle for revenue conversion as well.
Okay.
It all depends upon the size of the project and the completion targets given by the client.
Sure, sir. So in that context, sir, is it possible our current order book as of, you know, first quarter end, how much is more than one year and how much is less than one year? Is it possible or average, can we take your average execution timeline right now as 15 months, sir, to simplify the things?
Average execution timelines, you can take between 12-15 months.
Between 12-15 months. Okay, and both domestic and international flavor is similar, or international will be slightly longer than domestic?
International is slightly longer.
Okay, that, that helps, sir. Thanks a lot, sir, and all the best, sir.
Thank you. Next question is from the line of Nidhi Shah from ICICI Securities. Please go ahead.
Hi, thank you so much for taking my question. I would like to ask you about the macro scenario of the world. So as the U.S. has imposed the ULSD regulation, do you see any other countries, especially say, in the EMEA region, trying to do something like that? Number one. Number two, as of now, we know that these restrictions are purely on modules. Do you think that these restrictions could come in on sales, and would they then affect your projects outside of India?
No, actually, right now we are not executing any project in USA. So, any particular regulatory impact in U.S. markets don't impact us. So we don't see... Like, we are operating in Europe, and we are operating in, right now, as for the international projects, in South Africa. So both the projects are in Europe without modules. So whether any impact on solar modules, that doesn't impact us. Our business is totally risk-free with respect to the modules there. In both the South Africa projects, we don't see that happening because that market doesn't have any domestic production at all. So, in both the projects, we are allowed to import modules from China. So as far as our international market is concerned, we don't see any impact of these regulations on our business and projects which are with us.
In any case, the custom duties and statutory risks are always passed through. We negotiate that very careful in our contracts so that they never impact us. So that is duly taken care of in any eventuality if a risk arises. So we are completely safe from all those contingencies.
All right. Thank you so much.
Thank you. Next question is from line of Jayesh Shah from OHM PMS. Please, go ahead.
Hi, my question is, you know, you're looking at-
Jay, sorry to interrupt you. Can you speak through your handset, please?
Is it audible?
Hello, Jayesh?
Yes, still a little feeble, but if you can be a bit louder.
Hello. Is it better now?
Jayesh, can you speak through your handset? Because it's not clear.
Hello, is it better?
Yes, thank you.
Yeah. My question is, you're looking at executing INR 6,000 crore in second half. You have a bank guarantee or non-funded limits of also INR 6,000 crore. So is that enough? And, even right now, when you've utilized INR 3,000 crore to INR 3,500 crore, last year, your turnover is around that much. So is there a one-to-one correlation between your non-funded limit utilization and sales?
It's not necessary, because generally when you have a project, you will have a 10% advance and a 10% performance bank guarantee. Your advance bank guarantee tends to fall off within a year. As far as your letters of credit are concerned, they are for significant equipments like trackers, steel, inverters, IDTs, et cetera, cables. Now, all of those are for 90-120 days, so there is always a churn of limits. At the same time, as we have mentioned, we are looking at additional limits as well, for which discussions are on with several banks for a sizable portion. There will be bank guarantees which will fall off. There will be LCs which will get paid. Limits are a continuous churn, so there is no one-to-one relationship.
If at best for a particular project, it would range to be somewhere between 45%-50% of the project value at its peak, and then it will fall.
I see. That's very useful. Broadly, the interest charges here would be close to 1%?
... So right now, we are paying slightly higher, much higher than that, and that is because our rating was at a point in time, at a default grade, which is now upgraded to a double B plus, but still below the investment grade. Once it comes to investment grade, which is what we are all working towards, we do believe that the figure that you mentioned will be the charges that will happen going forward. All of these costs are built into our project costs and not as part of interest and finance charges.
Right. Okay, thank you and best of luck.
Thank you. Next question is from the line of V. P. Rajesh from Banyan Capital Advisors . Please go ahead.
Yeah, hi. Thanks for the opportunity. First question about the Nigeria project. Do you foresee this project getting kicked off in this financial year, given the timeline you mentioned, or it is more likely to be in the next financial year?
No, no, definitely, we are saying that we expect to close it soon, and definitely within this financial year. Very, very much within this financial year.
Okay.
The execution, however, will mostly happen in the next financial year.
Right. No, that's what I was trying to understand, that it'll close this year, and then the execution. So the revenues will essentially come to us in the next financial year. Is that correct?
That is right.
Not in Q4. Okay. And then just a longer-term question. You know, given the opportunity you are seeing both in the domestic and the international market, markets, you know, what's your prognosis on the growth that we can see in 3- to 5-year time frame? Are we to expect that you can, you know, at least double in the next 4 years or something? Or, you know, if you can just give some color as to how you think about the longer term and, and relatively how you're building capacity internally for that kind of growth.
As you see, the market is seeing a robust growth within India-
Mm-hmm.
And with the Nigerian opportunity, we foresee a significant growth in our revenues and what the size of the company is. But and we expect that within four to five years, we can very easily double our revenues.
So let's say if you are doing INR 8,000 crore this year, you're saying in 4 years or so, we can definitely look at doubling our revenue, right?
We can easily...
Amit is talking about other than Nigeria and Reliance. Now, once Nigeria comes in and Reliance comes in, obviously there will be a huge growth in the revenue in FY 20 26 as compared to FY 20 25.
Right. No, that's, that's exactly what I was trying to understand, that those orders will come next year in the order books, and therefore, from what you are saying, that we will do INR 8,000 crore this year, at least in the next two, three years, we should see meaningful growth, like maybe you double in three years. That's what I'm trying to get a sense of.
Including Nigeria and Reliance, we will see-
Yes
... a huge growth in FY 2026 itself as compared to FY 20 25. Leaving those two aside, there will be significant growth as well on a year-on-year basis.
Okay. So just to make sure I got this right, you're saying that, without these two, you will double in four years, but with these two, there will be significant growth next year itself. That's sort of the key takeaway.
You're right.
Exactly, exactly. That, that's as Bahadur has done it.
Great. And then just last housekeeping question. You know, on the indemnity payments, could you just refresh where do we stand on that? How much is pending, and what is the likely number in September?
As of right now, we, as we said before also, there are roughly INR 900 crore of indemnity payments which are expected to be received over the next few years. We believe that we should be having a number in a certain range of about INR 200-INR 220 crore have already crystallized, and something more might crystallize from now till that point in time. However, we have to remember that roughly in December last year, there was a reverse indemnity. In essence, the company received money for an item where the company had already claimed from the promoters. So we have to pay back about INR 130-INR 135 crore. So the differential is what is the present crystallized value. It may go up slightly from now till November when the indemnity claims will finally be calculated.
As we said, we expect that the interest on the term debt... Sorry, not the interest, the term debt payments in the second half will be largely met out of the indemnity payments.
The indemnity payment that you're expecting is roughly INR 130-140 crores, and the rest will be coming to us over the following years, right? That's the way to understand it? Roughly.
In that range, yes.
Yeah. Okay. All right. Thank you so much, and all the best.
Thank you. Next question is from the line of Avishek Datta from Anand Rathi Share and Stock . Please go ahead.
Hello, sir. Just wanted to understand, can you just update us on Reliance's overall renewable energy targets of 100 gigawatt? In your interaction with the company, how does it split between solar and other renewable energy sources?
Mm. Yeah. So as you know, the Reliance have the huge rollout plans, and we have already started the pilot project with them. We are engaged in discussions with them for mega rollouts in multiple geographies across India, and that discussions are taking place. But at this point of time, we expect the rollout to start, happen soon, but at this point of time, we are not in a position to share more than this.
...But it will be a mix of solar and battery storage and other renewable sources or what?
Yeah, yeah. It can be a mix, a mix of all the project, but solar will be the majority portion. That's, that's what we expect.
We will partner with them for both, solar as well as solar and battery storage part?
Yeah, we'll be partnering with them both, both for solar and battery storage.
The margin profile will be the same for both the type of projects?
Yeah, we expect the margin profile to be the same as like, which is as per the market for the projects of similar size and nature.
And when you say that the final controls have been finalized for the Nigerian project, what is the final contract value? And has there been any change in the contract term value because of fall in module prices?
No, no, there is no change in the contract value, and all terms and condition and values which we have been indicating to the market remain same.
Can you just refresh us, like, it was quoted as $1.5 billion-$2 billion, that is the range which you're talking about?
Yeah, you, you are right. That's the range.
Any further update on beyond phase one? Because it was earlier quoted as $10 billion opportunity. So have you heard anything more from them?
Well, there is no further update at this point of time, but, as and when there is an update, we will update the market based on the developments which are taking place.
Okay.
Our focus is to close this first phase, then we will start talking, if necessary, about the second and beyond.
That's helpful. Thank you so much, sir.
Thank you. Next question is from the line of Faisal Hawa, from H.G. Hawa and Company. Please go ahead.
So sir, the intensity of bidding in solar projects, particularly for PSUs orders, have really gone up like, like a lot. It seems that we have also lost the Khavda order of second phase NTPC to either Rays Solar or Bondada Engineering. There are lots of smaller companies are now bidding for larger projects. So, what is, you know, is this now that they are going into some kind of a negative territory or something which we will not even touch now? Many companies are changing orders, you know, even to keep up with their market caps. So, will it necessarily mean that even now the Reliance order also will be negotiated on terms, you know, which are on par with these kind of, you know, bidding?
So, thanks, Mr. Hawa, for your question. So I would like to start by saying the market size is pretty huge. So this year, the addressable market, which we are considering for domestic sector, is more than 23 GW, including some of the mega projects, coming from PSUs. So as you—we have seen in mega PSU bids which are coming, the competition is still limited. Very, very limited, and we continue to be very competitive. We work on every project costing and estimates extensively, and we bid accordingly to the risk to reward ratio which any project offers to us. So one or two projects where we felt that risk, risk reward ratio is not in our favor, the margin profile is not matching our expectations, so we have not gone ultra competitive in this project.
But the market, the bid pipelines remain strong, and we have focused projects which we will be continue to bid and win, in line with our, past hit rates. So we are very confident of maintaining and exceeding our order book, so we are not at all worried on that part. So we can address that part because market, market size remains very huge and there is like... And we don't see any impact on our order book because of the new players entering in and some of the players going... Sector bids, and I see the high intensity activity picking up in coming quarters. The Q2 and Q3 will see closures of, multiple PSU bids, where we'll see, us also succeeding in those bids. So that, that's what I'd I'd like to add at this point of time.
And sir, what would be the revenue that you would have lost in the first quarter owing to not having enough BDs?
No, we have not lost any revenue. As you know, as Bahadur has already stated, that Q1 always remain muted, and we have not lost any revenue at all. We remain as within our plan to achieve INR 8,000 crore of revenue in this financial year.
In fact, it is 78% higher than the same quarter last year, Mr. Hawa.
Okay. And sir, even if it doesn't, you know, concern us directly, but, you know, the promoters are continuously pledging shares and also, you know, reducing stakes at various points of time in the quarter causes a lot of disturbance, you know, with not only existing shareholders, but new shareholders as well. So, I mean, can they give any kind of, you know, statement, you know, saying what their strategy is? Because this is, you know, one of the few companies which is having three promoters, so, you know, that itself is something very rare. And then the promoter continuously selling, pledging, and, you know, at least two sets of promoters doing that. I mean, even though it doesn't concern you directly, you know, there needs to be some statement from them regarding this.
So, Mr. Hawa, your concern is well noted. Unfortunately, we as a company cannot comment on what the promoter chooses to do with his stake, for whatever purposes. We will, however, pass on this message to them appropriately.
...And if they choose to come out with a statement, we will leave it to their decision.
Thank you, sir.
Thank you very much. Next question is from the line of Aejas Lakhani from Unifi Capital. Please go ahead.
Yeah, hi. Could you please explain me the reversal of the indemnity? I haven't understood that.
All right. In the past, in the very first year, there was a certain amount of liquidated damages, et cetera, which we had claimed from the promoters. Subsequently, in December of last year, we managed to win an arbitration against a vendor, in which those indemnities were reimbursed back to us. Now, obviously, we cannot profit twice. So since we had already claimed it from the promoter, it remains with the company to be set off against the indemnity claim, which we will now raise in September 2024. So while there is a gross amount of roughly INR 200+ crores, as I mentioned, of indemnity, it will have a negative on account of this, which we had already claimed before. Have I answered your question?
Yes. The only, you know, sort of, claim that I remember that you have received is from Jinko.
That is the one.
Okay, so, so you're saying INR 135 crore of reversal is pertaining to the apportioned Jinko portion, and the rest that they had given were for other orders?
Yes. So till today-
Okay.
In the very first year, they gave somewhere about INR 90 crores; in the second year, it was INR 400 crores. And the company had to bear the first INR 300 crores. So all in all, you can say close to INR 800 crores of indemnity items have been settled from the beginning till date. And out of this, INR 137 is a kind of double dip, which will have to be reimbursed back in this coming indemnity calculation.
Okay. In this coming indemnity calculation, which I think sets forth in October or the likes-
Yes.
Is there anything that has to be claimed from them, or is this just the reversal of 135 is the number as of date?
I already mentioned that as of right now, the number on a gross basis stands somewhere around INR 220 crore.
Okay.
We have roughly INR 135 crore of reversal. The net is the amount that we presently stand as crystallized and claiming. The amount may go up, depending on further crystallizations from now till September thirtieth.
Got it. So is it fair to understand that you, you mentioned the INR 220 crore, so INR 220 crore less INR 135 crore, that's the difference that you will be receiving from them?
As of today.
Got it. Perfect. The other one is that, you know, in our international business, barring what you mentioned, where BG has been taken to 15% and you have implemented more vendors from a replacement standpoint as a bar, so as a part of the contracts, are there any other sort of, you know, cladding that you have done so that, you know, episodes from the past do not repeat themselves?
No, but actually, enough safeguards have been taken, and we don't expect any repeat from the past. We had chosen a mix of the modules, so we are allowed to use for the multiple suppliers, and the MSA's terms and conditions are also very, very tough. So it is not very easy to renege on those contracts. So it's a pre-approved mix of three module suppliers, all tier one, whom we can go to if somebody chooses to renege on. We have sufficient amount of bank guarantees from the module suppliers to cover ourselves, and as such, the module capacity across the world are very, very stable.
So even despite considering that, though, there is no risk perceived based on market condition, but enough care has been taken with respect to bank guarantees, pre-approved list of module manufacturers, so that is in place to address the risk, and we have already finalized the MSAs for the contracts we have got, so there is no uncertainty remains on that particular front.
Okay. The other one was pertaining to Nigeria. So, I think in your opening remarks, you mentioned that, as the orders get closed, there's six months of, you know, time that you are budgeting for financial closure. So on this, I wanted to understand that, you know, I think you've, you've stated earlier that, there is a financial bank which is involved, and you have a domestic partner. So, it seems that all the constituents required are already in place, and so I'm trying to understand that the six months, which is quite a long duration, what, what is the reason for that from a financial closure standpoint?
This project is funded by Exim Bank of the U.S.A. , and it's a, and the U.S. government approvals which are involved. So just because of the multiple agencies from the Nigerian government and the Exim Bank of the U.S.A. is involved, we are projecting a conservative timelines of six months for the financial closure.
Okay.
South Africa took roughly 9 months to close because we have a model in place. South Africa has recently closed 1 Exim Bank-funded project in Angola, and South Africa has taken 9 months to close that project. But since that was the first project, we expect that the timelines for the Nigeria project would be expedited, and we'll be able to close it within 6 months period.
...Perfect, that's helpful. And lastly, you mentioned that, you know, the Reliance execution of the pilot order that you'll be doing in FY 2025, they have multiple technologies at play. So-
Yeah.
You mentioned that larger execution for Reliance will take place in 2026. Is there any chance that since there are multiple technologies at play, Reliance may sort of just wait to see the full impact of how these technologies play out from an, you know, generation capacity before they sort of-
Mm.
-decide on their chosen method, and that could delay, the visibility of orders from Reliance?
No, actually, that's not what we said. We said the revenues in FY 2026 will be significantly higher with the Reliance orders. So we never said that they will come only in FY 2026. Right now, we are working on a small project, which is the pilot project, which is their testing, which is part of any growing organization and any forward-looking organization. They want to test and be on the forefront of evolving technologies. So we should not relate that to the rollout of the future projects. The projects, the future rollout projects on mega projects in multiple geographies are in advanced stage, and we expect some orders to close soon. But we'll not like to give a definite timeline to that. But we never said that the orders will come only in FY 2026.
We expect, like, orders to close soon, some of the mega projects or orders to close soon, but I will not give a timeline for that.
Noted. This will be for the Khavda Reliance, the projects will come from Khavda-
I will not say we are talking for a few geographies with them, and finally, Reliance will take a call which geographies the rollout to start, and that includes Khavda as well.
Got it. Okay. Thank you. All the best.
Thank you. Next question is from the line of Alisha from Envision Capital. Please go ahead.
Hi, sir. Good morning. Thank you for the opportunity. Two questions. One, with respect to, Reliance pilot, have we finished executing the pilot project, or when in this year are we expected to complete it?
We have started the execution, and we expect it to complete within this financial year.
Okay, understood. And earlier, because of what we faced historically, we were more cautious of taking export orders, and while we continue to do that, in the order inflow that we're expecting for this year or going forward, how should we see the mix of exports? Because we did win some in this quarter, and we're talking of maybe bidding for a few more. So, how can we, how should one assume the order book split between domestic and international markets going forward?
As we have regularly stated that domestic market is booming, and our mainstay and strong focus remains on the domestic market. So the mix of the order book will be heavily tilted in favor of the domestic market, and we will work very cautiously and selectively in picking the international orders. So that way, only domestic will dominate, and the international orders will be picked only after a heavy due diligence, checking the margin profiles and whether they're matching or meeting all the criteria of our revised risk matrices. So that's how we'll pick up international projects. Domestic market will continue to dominate and will constitute majority of the order book.
From a resource and bandwidth perspective, is there an internal target that we will probably not let exports cross, like, 10 or 15% of threshold?
Could you please repeat your question?
I was saying that from an allocation of resources and bandwidth perspective, is there an internal target stating where we will not let, say, exports cross, say, 10 or 15% of our order book?
Yeah, it, it's around 20%-30%.
20%-30% of order book will be international?
Yeah, can be 20%-30% order book can be international.
Oh, and all of this we're discussing is excluding Nigeria, because I understand that that can skew the order book.
Come, come again?
I think this is all excluding Nigeria.
This is excluding Nigeria.
Yeah, yeah. This is excluding Nigeria. Of course, this is excluding Nigeria.
Understood. Okay. Thank you, and all the best.
Thank you. Next question is from the line of Aashish from InvesQ. Please go ahead.
Yeah. Sir, a lot of comments that have come on the non-fund based limits that we have. So just to understand it clear, you said that at any stage, approximately 50% of the project value is required to be under BG. Is that correct? And if so, around INR 8,000-9,000 crores would need, say, INR 4,500-5,000 crores of limits on a rolling basis. Is that correct understanding or something wrong here?
No, no, that is not what I said. The bank guarantees are 20% of a project value, typically. In fact, in some of the larger PSU projects, the performance bank guarantee is even less than 5%. The performance bank guarantee is what remains for a period of roughly, let's say, 3 years. The advance bank guarantee falls off once majority of your supplies are completed, which is typically a year. What you need are LC limits for 90 to 120 days for critical equipment supplies. That is a churn. So all in all, put together, I said it could be around 40%-50% at the peak of any project. It does not mean that if I need INR 8,000 crore of turnover, I need to have 50% of the limit at all points in time.
It is a churn. Now, just as today we have certain limits which have been unfrozen and we expect more to get unfrozen, we are also in talks with other banks to get incorporated into our consortium, considering that we are looking at a much larger turnover going forward.
... So, sir, since, so you said that Q1, the reason was not any problem with the availability of non-fund based limits, but mostly seasonal. So going ahead, as our turnover increases, how comfortable are we in terms of the current limits that are there to achieve that INR 8,000-9,000 growth this year? And because rating upgrades will take its own time. So that's what I wanted to understand.
Rating upgrade has taken its time to move out of a default rating.
Right.
Which, you know, while it is recommended at 90 days, it did take 90 days to come out of it. Now, it is up to what the management and discussions with rating agencies to move quickly to an investment grade. One can never say with absolute certainty that a rating upgrade will happen, but management is very, very confident that the rating upgrade should happen very, very shortly. Once that happens, even those banks which are looking for investment grade to start working with us, should start working with us. So we remain confident that we will have the limits for achieving the turnover that we have projected for the year.
Okay. And lastly, if I can conclude on this, basically, next year, our growth will be much more, so we would be needing more of this to be there.
Yes.
So how sure are we that we can go to that extent? Maybe if the turnover reaches maybe 50% growth over FY 20 25, then how do we plan to, and are we comfortable enough to achieve the, that requirement?
Yes, we have to be, because if we are talking of a Nigeria project, which is, let's say, $1.5 billion-$2 billion, you will require limits of roughly $800 million-$900 million, for which we will be in touch with certain senior banks, not only in India but also outside India. There are various options which are available to the company, and we will work on getting those limits in place well in advance.
Okay. Sure. Just a request,
You have to also keep in mind that the projects are negative working capital, so you end up receiving your monies earlier. There is always a churn as far as limits are concerned.
Right. Right. No, so, I don't know how we address this, but any communication on this part, within the quarters, if it is possible, just to give us at least-
Rating upgrades have to statutorily be communicated.
Right.
Once that happens, it is part of the LODR. Once that happens, we will keep you posted.
Sure. Thank you.
Thank you. Next question is from the line of Darshil Pandya from Finterest Capital. Please go ahead.
Hello? Am I audible?
Yes. Can you speak a little louder?
Am I audible now?
Yes, thank you.
Yeah, hi. Thank you for the opportunity. Sir, what would be the interest cost for this year?
The interest cost will be significantly lower than what it was in the previous year. It should be in the region of about INR 50-INR 55 crore, all in put together.
Okay. Sir, can you comment on this deferred tax charge? Can you please throw some light on what measures also we are taking on to, you know, use this?
Deferred tax was created in the past for losses, both business losses and unabsorbed depreciation. However, it was not created on all the losses. It was created up to a point in time, and then management decided not to create any more. A lot of the deferred tax was utilized in the previous year. As of the June quarter, we have utilized about INR 10 crore. We still have another INR 30 crore of deferred tax, which will get utilized, and that is why the effective rate of tax of the company has fallen, because we have a tax shelter, not the entire tax shelter, has a deferred tax created against it. There is only about INR 30 crore more, which would need to be provided. It is a non-cash item. It is a reversal of an accounting entry which was done in the past.
Okay. All right. And so just a request from, I guess, majority of the analysts and the shareholders, if you can, you know, put up announcements for any orders that you received during the quarter. It's like, you know, we are getting an update only after a quarter, so might be helpful for many of the-many of you who are, you know, understanding the company. You know, it would be a good, I guess, choice to, you know, put up this once the company receives the order or something.
Yeah. Yeah, we take that feedback positively, and in future, we're going forward, we'll do that.
Thank you so much, sir. Much appreciated. All the best.
Thank you very much. Ladies and gentlemen, due to time constraint, that will be the last question. I now hand the conference over to Amit Jain for closing comments.
Yeah, I would like to thank everybody for joining the call, and I would like to make the closing remark that with the two back-to-back quarters, that positive quarters, we remain upbeat about the growth prospects of the company. I take this opportunity to reiterate our guidance of both on order book and revenues. We are positively going to meet both the guidance as respect to order book and revenue of INR 8,000 crore plus within these financial years. With this, I would like to close the call, and please kindly get in touch with Sandeep Thomas Mathew, our Strategic Growth Advisors, our Investor Relations Advisors. Thank you once again, and have a great day. Thank you.
Thank you very much. On behalf of Sterling...