CG Power and Industrial Solutions Limited (CGPOWER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to CG Power Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Renu Baid Pugalia, from IIFL Capital. Thank you, and over to you, Ms. Pugalia.

Thank you. Good evening, everyone. On behalf of IIFL Capital, I'd like to welcome the team of CG Power Industrial Solutions for their 1Q FY '27 Earnings Call. From the management team today, we have with us Mr. Amar Kaul, Managing Director and CEO; Mr. Susheel Todi, Chief Financial Officer; Mr. Marais Nel, EVP, Drives and Automation and Industrial Motors Business; Mr. Gaurav Makhija, Vice President, Switchgears and EPD Business; Mr. Ajay Jain, Vice President, Transformer Business; Mr. Dhananjay Bapat, Vice President, Railway Business; And Mr. Jatinder Kaul, EVP Motors Business, India subcontinent. I now hand the call to Mr. Amar Kaul for his opening comments. Thereafter, we can open for Q&A. Thank you, and over to you, sir.

Thanks, Renu and the team. Good afternoon, everyone, and welcome to CG Earnings Call. I'm happy to share with you all that CG had another strong set of results for the quarter ended 30th June 2026. Revenue and PBT exceptional -- excluding exceptional items, crossed new quarter 1 high as our operating momentum continues, reflecting a good start to this financial year. Our Q1 financial year '27 sales grew by 16% year-over-year and PBT grew at 27% year-over-year with 140 bps margin expansion. Further order flow continued to be strong during the quarter. And with the order book rising to 45% year-over-year to INR 17,333 crores and offering multi-quarter revenue visibility. Now as they go deeper to the stand-alone performance, the aggregate sales for the quarter was at INR 3,061 crores, recording a growth of 16% year-over-year. And profit after tax was the growth of 27%, INR 364 crores, which is 11.9% of sales as against 286%, which was 10.8% of sales in Q1 FY '26. Return on capital employed annualized for the quarter was at 23% and the order intake for the quarter was at INR 4,692 crores. An unexecuted order backlog as of 30th June '26 was INR 17,333 crores, which is 45% higher year-over-year. Now if we go deeper into the segments. The Industrial segment Q1 performance. The sales was INR 1,671 crores, which is 6% higher year-over-year with a strong double-digit growth in motors. PBIT was at INR 148 crores as against INR 172 crores in the previous year same quarter. And margin deviation is largely due to one-off provision of about INR 20 crores approximately in the Railway Business. And other than that, it was comparable to -- or a shade better than the last year same quarter. The order intake for the quarter was INR 1,586 crores, and unexecuted order backlog at the end of 30th June '26, was at INR 2,899 crores. Double-digit growth year-over-year motor continues the momentum. If you move to power system performance, the sales for the quarter was at INR 1,402 crores, year-over-year increase of 31%, reflecting strong execution discipline. PBIT was at INR 324 crores versus INR 225 crores versus the same quarter, which was an increase from 21% of sales in the previous quarter to 23% in the current quarter. Strong margin expansion of 209 bps, reflecting a disciplined execution and a strong operating leverage and order intake for the quarter was INR 3,106 crores, and unexecuted order backlog as of 30th June was INR 14,434 crores, which is 59% higher year-over-year. And also gives us revenue visibility spanning several future quarters. With that, we conclude deep dive into the standalone performances and I'll now move to the consolidated performance and -- for information consolidated results, include the performance of the operating subsidiaries in Sweden, Germany and Netherlands, which we call Drives and Automation Europe. It includes also the CG products, the CG semiconductor Private Limited, and also the semiconductor group. And -- so the Q1 '27 performance at consolable. The sales for the quarter for INR 3,281 crores, which is a growth of 14% year-over-year. And profit after tax was 16%, which is INR 308 crores versus INR 67 crores in the previous year same quarter. Margin gains driven by strong stand-alone performance was partially offset by the continued investment in our talent pool for semiconductor business, total semiconductor segment impact of about INR 43 crores, which is 132 bps. Return on capital employed light for the quarter was 20% and order intake for the quarter was INR 5,211 crores. And unexecuted order backlog as of 30th June '26 was 45% year-over-year at INR 18,965 crores. Now moving to some of the key events. CG on 4th of June '26 announced the commissioning of its ESG switch here manufacturing facility. S3 as we call it, it's a unit 2 of that. In Nasik, Maharastra. This is in addition to the S3 Unit 1 manufacturing facility in Nasik itself. And which manufactures EHV circuit breakers in the range of 33 kV to 800 kV. The new facility will manufacture EHV circuit breakers from 33 kV to 245 kV range and expand CG's EHV circuit breaker manufacturing capacity by 80%. So incrementally 7,200 units will be there versus existing 9,000 units annually, which was already there. Now acute with advanced manufacturing and testing infrastructure, including 500 kV and 350 kV high-voltage testing laboratory. The facility has been designed to meet the growing demand for the reliable power transmission equipment across domestic and international markets. CG Semi, which is a subsidiary of CG Power Industrial Solutions announced the commencement of commercial production at its G1 OSAT facility in The launch was held in the August Presence of Honorable Prime Minister of India, Shri Narendra Modi; Honorable Chief Minister of Gujarat, Shri Bhupendrabhai Patel; Honorable minister for Railways, Information & Broadcasting, and Electronics & Information Technology, Shri Ashwini Vaishnaw, and the Number three, S.R. Batliboi & Associates are the statutory auditors of Tube Investments and India Limited, TI, which is a holding company as of date. And they will limit office as auditors after completion of 10 years period. In terms of the provision, it was a rotation of alters with respect to Section 133 of the company 2030. Upon conclusion of the insuring AGM of DI both held on August 14, '26. Consequent to the above CG proposals to align its statutory auditors with those affiliated with the same network as appointed by its holding company TIA. Consistent with the practices adopted by various groups to enable better coordination with the holding company's auditors and bring efficiency and synergy to the audit process. Given the material size of the CG together with its subsidiaries more than 50% to the holding company, consolidated financial statements in view of the foregoing S.R. Batliboi & Associates LLP intend to resign as CG statutory auditor with effect from close to business hours on 14th of August 2026. With this, I'll conclude my opening remarks. Unaudited financial statements, the retail notes are available as part of the stock exchange filing and our on our company website. Thank you for listening in, and over to you, Renu, for Q&A.

[Operator Instructions] The first question comes from the line of Harshit Patel with Equirus Securities.

Sir, my first question is on the power system. Could you give an update on the pricing environment currently, given that all major companies have expanded capacities over here and are expanding further as well. Have you seen prices kind of stabilizing or maybe moving a bit down? Am I audible?

Yes. Thanks, Harshit. Can you hear me?

Yes, sir, I can hear you.

Yes. So fair question. As you rightly said, everybody is trying to expand the capacities because the environment, the demand is pretty high and everybody is trying to take the share out of it. Now is that capacity enough for the whole world? The answer is no. And that's why we don't see any such stresses that you're talking about. So I think the business continues to go. We keep seeing the pipeline is increasing as ever. So that's where we would be.

Understood. Sir, secondly, my question is on the Motors business. I think during January 2026, you had mentioned that you had taken about a 17% price hike 9-month period. What has been the section in the past 5 to 6 months? What more price hikes we have taken? And are they sufficient to cover for the raw material inflation or we will do more price hikes as well going forward?

It's a continuous journey. And even after I talked last time, 17.5%, after that, we have again increased about 5%. And the market is dissolving it pretty well. Is that sufficient? No, because the commodities are so inflationary. We have to keep an eye on it and make sure that we have as much as possible realization of those price increases in the market. So it's a constant journey that we are in.

Next question comes from the line of Atul Tiwari with JPMorgan.

Sir, my first question is on Industrial segment margin. You did mention that there was a INR 20 crore one-off in this stand-alone number. Was there any additional one-off in consol segmental industrial business because the margins handles have been quite weak at consolidated.

So can you repeat your question?

Sir, my question is on the Industrial segment margin at the consol level, right? So the consol industrial margins have been quite weak, 7.6% in this quarter versus 10.2% in the year ago quarter. So there's quite a bit of a dip in the consol numbers for the industry segment margins. What is the reason for that?

That's fine. I think the consolidated -- of course, I think that overshadows a lot of realities of that. As I touched a brief on in the beginning itself is -- so like GGT, for example which I think in consolidated gets rolled up under the same umbrella, which has not even started the operations of which should happen very soon now, hoping in the next few weeks, we should be able to almost -- we are almost there. And so that is a big dent into that when you see the big delta there. So the moment it starts, all that will be taken care of. And number two is, as I mentioned, so there was a onetime of about INR 20 crores for Railways. I think that was a bigger end. The good news is the largest portion of it, which is the Motor, as I said, is consistently going up and up on the double-digit margins and consistently improving on that.

Okay, sir. And sir, on the power system margins, obviously, margins at 23% have been doing very well over the past 2 quarters. So should these levels be sustained over the next few quarters? And is there some possibility of increase beyond these levels?

See, one, we don't give any forward-looking statements, but I always keep saying future is always bright. So we'll keep doing our hard work and the way we are looking at it. But as I mentioned, we don't see the depletion of the pipeline. We don't see any depletion of the -- of course, competition is good always in the market that will continue to be there with more and more players coming in. But yes, we are continuing with our operating rhythm and discipline that -- with which we are executing things.

Okay. And finally, sir, on your transformer capacity expansion, where we are right now, how much is the operational capacity right now? And what would be the breakup of high-voltage transformers in there?

So the power transformer is already about 75,000 MVA, and distribution is about close to 10,000. And with the new plant starting up in the next few months, I think we will add about 45,000 MVA more into that.

Next question comes from the line of Sumit Kishore with Axis Capital.

My first question is on Industrial Systems. In FY '26 and first quarter of this fiscal, you have mentioned that motor is now double-digit growth, but the overall outcome is still a single-digit growth in the segment. How is the Railway segment within industrial performing? What are the -- what is the status of approvals for the Kavach from or from RDSO? And so if you could give us some color around the balance business beyond Motors and margins have also been depressed there. So what is the road ahead for this particular piece?

Yes. Thanks, Sumit. It's a good question. So we have to break it down into -- as Motors, of course, that are been profitable with all the work done, not only last 2 quarters. Consistently been moving up for the last 4 quarters now after initial land that is there. So which means something is consistently working there. Coming back to Railways, as you would have you would remember last few quarters -- last quarter only. I mentioned that I would look at Railways because there's a lot of work which we are doing to clean up the groundwork, build on the technology innovation piece of it. So for railways, I would be either flat or a little bit of growth in that area, okay? But by to surprise by the way, even though we don't give the numbers for each of the business lines, but Railways did much better than what was anticipated. The only downside was this INR 20 crore provision that we had to take for one of the developments that was happening for the last couple of years and because the innovation keeps changing very, very fast. So again, we might still be able to use that material. We do know that at this point of time. But as per the good accounting practices, we are still providing for it. And last question of yours on G.G. Tronics, as I mentioned in the beginning, we have completed all the trials. In fact, the [ 60th ] trial. I personally attended spent 3, 4 hours in the locomotive on the sector that we are in, in Hyderabad. And I think everything has been cleaned up cleared by the Railways. Our accuracy percentage is much higher than anybody else in the competition today. Now there's only -- I say audit has already happened. So we are waiting for that approval and then RDS approval, which hopefully should happen in, I would say, 4 to 6 weeks from now approximately. So the moment it happens, and in the panel, we are gearing up for our manufacturing setup so that every day we are producing in the sets as required by the Railways and start commissioning it.

Okay. While we can't complain on power systems and it's going quite well. But the momentum of top line growth that we have been seeing for some time, not moderated in this quarter. Is there anything to read into the quarterly numbers, given the order inflows, order backlog is up quite nicely?

No, no, it's -- I don't think that's really an issue. I think there can be a lull here and there in a quarter here and there. I think because the business that you see when if you look at transformers, each of the shipments are INR 100 crores or INR 150 crores. So -- and again, as I said, in terms of good accounting practices, even if it is ex works or it is FOB in core terms. So we have to make sure that what happens to the numbers. So I think to start the quarter of 16% growth. I think it's good to start with, of course, the momentum it's going to catch. And that's a meatypically first, second, third and fourth quarter happens. It keeps inching upwards.

Got it. The cadence of losses on CG at zero. We've seen this go up and this is to be expected. But could you give us some sense of how we should be sort of modeling in losses in the ramp-up phase for the GC Semi at zero through this system, that's my last question.

Yes, it's the same thing, what I have been saying. Semiconductor business, our entry has been for a long term. We never expected -- it to be to us its investment. As I mentioned in my face as well. It's -- a lot of it is employee cost. Of course, capital has started now. The production has started there. So we continue to invest into this area. It won't slow down. The good news is that, of course, is already revenue-generating. But will it suddenly start making 20% EBITDA? The answer is no. It may make, but we keep reinvesting money that money back into it. So my input has been always very clear. Is the design company we have. We'll keep investing. We didn't buy that company or start to stay at $70 million -- $60 million, $70 million, $80 million. It's going to go back over the next few years. So we will keep investing into the technology and different segments. So we'll not stay with only radio frequency or SATCOM that we are currently doing. So just stay with us, stay tuned. You'll keep hearing more and more on that as we progress.

Next question comes from the line of Sameer Thakur with AMBIT Capital.

I just wanted to take on if you have any end market commentary, which markets are doing well for low-voltage motors. Is it metals and mining or something sort -- that would be helpful.

Jatinder, you are there on the call, would you like to take it? .

Yes, sure, Amar. Thank you for the question. I hope you are able to hear me. We are seeing the The end market Siemens is doing very well. Metal and Mining is also doing well. for our OEM or business is also doing well. We are seeing these 3 industrial verticals doing extremely good.

Okay. I just wanted to say on this a plant of 45 years. So that could be operational by end of this year, if I'm not wrong. And...

We have not declared that as yet, just wait for a minute, but I think should be happening, although our original plan was 2027. Financial -- '27, '28 financial year, but I think we should do it at least 1 year before. So just with that, we should be declaring that very soon.

And that would be like -- all the capacity like fortify or it would slowly ramp up over 3 years?

It will -- no, no, not 2, 3 years. Those days are gone when 2, 3 years, the whole world will change. So as I said, we plan for -- this kind of plant typically takes about 24 to 36 months. We are doing -- I think we should do, hopefully, in 12 to 14 months. Let's see how quickly we are getting ready and start the commercial production. We'll keep you in fall on that. But the ramp-up typically happens, the first phase in the first quarter will be at least 10,000 GBA. Going to 30,000 in second quarter and third quarter will be peak at 45,000. And again, we are looking at 45,000 only. We are -- right now, Ajay and team are busy working on how do we take it to the next level. So we'll further have plans to it.

Okay. That's helpful. And just a last question, if I can squeeze in. Any material export orders you had this quarter?

Material needs as per the statutory requirement that we had already reported. But yes, the order pipeline has been pretty strong after that also.

Next question comes from the line of Girish Achhipalia with Morgan Stanley.

Exports contributed how much in this and if you can share the year-on-year growth? And secondly, on transformer pipeline, particularly export side, how big is this pipeline currently that we are discussing? And finally, on semiconductor side, I believe Renesas has offtake agreement with you for 40%, if I'm not wrong. Is there -- are there more customers who signed up? If you can help us with those details.

Yes. See, exports, as I mentioned before, the pipeline is very strong. Order inflow is also very strong in numbers. I would say it's practically between last year to this year, we already doubled. It's more than that and the journey continues. So our go-to-market strategy is working reasonably well on that. And coming back to your question on capacity with Renesas, yes, I think not to be exact on 40%, it's close to 50% that they'll pick up. And our business development activity with the rest of the customers is ongoing. And of course, that's -- I mean, in this business, typically, we don't name the details of the customers that we sign up for, so which cannot be shared. But yes, that work is happening in parallel.

Mr. Girish, are you done with the question?

Yes, just exports growth number, sir, if you can have that for the quarter -- the growth for exports?

We are not declaring clear numbers there, as I mentioned. Orders have gone up into that. And for -- order intake, if you look at our -- this thing was about 84% growth as mentioned, it's doubling. So it's about 84% growth.

Next question comes from the line of Aditya Mongia with Kotak Institutional Equities.

I had one on semicon. First of all, can you talk about how the top line is picking up for the Business? It seemed like it's Q-on-Q decline. And secondly, on the CG Semi Business, 50% offtake is being promised by status for the combined G1 and G2 plants. And that will be my first question.

Yes, thanks. I think -- so the growth -- honestly, I think it's -- and they are doing very well. I cannot show in the P&L because we are reinvesting a lot of money into that. But yes, if you look at the top line growth, it definitely will have a double-digit growth. But what is more exciting for me is the kind of orders and the size of orders that we are getting. So hoping if the momentum continues with the last 2, 3 orders that I have seen, we should be at almost crossing -- was almost double of what we had. So that continues that obviously, it is an execution issue or quickly, we can execute and fulfill the requirements of the customer.

Got it, sir. And just to -- one last question on the industrial side. On last call, we were talking about how the competitive intensity is increasing and you're seeing pockets of competitive player coming up. Can you talk more on how has that changed in the last quarter? So what kind of new players are coming into the market?

Yes. So industrial, I think, is a pretty wide area. And that's happening in every area, right? So there's a lot of use of coming in. There's so many opportunities happening in. So I think it's a very long process. As I mentioned in the beginning as well, is we have seen how do we put our acts together. How are we efficient, how are we productive, how are we getting the solutions that are required by the customer. I think that's what we are honing our skills of.

Next question comes from the line of Rahul Gajare with Macquarie.

[indiscernible]

Mr. Gajare, sorry for interrupting. We cannot hear you. Can you speak a little louder?

Yes. Is it any better?

No, still not clear. Can you come a little closer to the mic and speak a little louder?

Yes, I'm trying. Are you able to hear me better now?

Yes, please go ahead. Better now. Please go ahead.

Now after 2 years, we have seen the revenue growing at mid-teens. Any specific reason that you will call out over your if there is any delays or deference? Okay. So that's the first part. And what's your thoughts on the Chinese players being allowed to participate in the government B&D projects, that's on the power side.

So is your question specific to Power business or overall?

Okay. So revenue, we've broadly seen mid-teen growth in the revenue. I can see that there is a specific growth challenge in the industrial business. What is your thought on that? And my second question was on the power and China...