GE Vernova T&D India Limited (522275) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to GE T&D India Limited Conference Call. This is a special meeting organized in respect of some proposals in the upcoming AGM for related party transactions. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suneel Mishra from GE T&D India Limited. Thank you, and over to you, sir.

Thank you, Niren. Ladies and gentlemen, good afternoon. I wish all of you are safe. So welcome to today's conference call with the GE T&D India Limited management team. As we know, this conference call has been organized to present and discuss in some details the proposals in the upcoming Annual General Meeting for related party transactions. Just to remind you that the AGM for company shareholders has been scheduled on August 6 at 3 p.m. through VC/OAVM facility without the physical presence. So now let me first introduce my management team available on this call. We have with us Mr. Pitamber Shivnani, who is our Managing Director and Chief Executive Officer; further, we have Mr. Sushil Kumar, who is our CFO; we have with us Mr. Sandeep Zanzaria, who is our commercial leader; and we have with us Mr. Manoj Prasad Singh, who is the Company Secretary. Please note that this conference call is scheduled up to 4:30 p.m. I hope you would have received the presentation on the topic and the same being uploaded on our website. I will now request Mr. Sushil Kumar, CFO, to begin with his presentation. So over to Sushil.

Thanks, Anil. Good afternoon, ladies and gentlemen. I wish everyone is safe and healthy. So as Suneel mentioned, the purpose of this call is to take our investor community through some of the proposals that we have in the notice to the AGM regarding the material related party transactions. And have a discussion around and answer to the queries if any, so that the investors can vote positively and make an informed decision. So we have made a presentation with about 4 slides. The first slide, which is on the Page 2 of the presentation, summarizes the 3 resolutions, the resolution number 8, 9 and 10 to give the overall picture. And the rest 3 slides have some details, some more information about each of the proposals. First, talking about the overall summary, the resolution number 8 and 9 are with our affiliate company or a related party named GE India -- Industrial India Private Limited or GEIIPL. We have 2 resolutions for approval for this entity. The first resolution is for the intercorporate borrowing and the intercorporate deposits. Both these resolutions were also placed in the last year AGM. Last year, we had INR 1,000 crore approval for borrowing and INR 150 crore for deposits. And we have existing arrangement of borrowing from the cash pool from these -- from the GEIIPL entity and lending to this entity in case of surplus cash. The second resolution with GEIIPL is for the sale and purchase of goods and services for about INR 250 crores and INR 150 crores for various other cost, recharge and services, which are other than the sale and purchase of goods. So overall, for GEIIPL, with 2 resolutions, we are seeking approval for INR 700 crore of borrowing facility, INR 150 crore of deposit facility, INR 250 crore of project and product-related sale and purchase transaction and INR 150 crore for the other services, common services. There is 1 more resolution, resolution 10, with an entity named UK Grid Solutions Limited. We do have regular transactions with this entity. But since last year, the overall transactions were less than the materiality limit, this was not placed to the shareholder for approval. And this year, because of 1 specific anticipated tender, the overall transactions will cross or may cross the materiality limit of around 350 crores, which is representing 10% of the tenor of GE T&D. Accordingly, we have placed this also for the shareholder approval. So about INR 2,000 crore of tender related arrangement, which primarily includes joint and several undertaking liabilities to bid jointly for an upcoming large tender, and we'll discuss more about that in the subsequent slide, indemnity obligation, parent company guarantee, et cetera; and INR 100 crores for sale and purchase of material and components and INR 50 crores for sale and receipt of services. So this is the overall summary of the 3 resolutions. Moving to the next page and specifically talking about the cash pool arrangement, the purpose of -- and I'm now at the Page 3 of the presentation. The cash pool arrangement for the GE entity is an arrangement to meet the short-term loan and the working capital requirement of the group entity. This year, we are asking for INR 700 crores of borrowing and 150 crores of lending. Last year, the approval that we received in the AGM was for INR 1,000 crores of borrowing and INR 150 crore of lending. The drop of INR 300 crore is predominantly on account of lesser need of working capital because last financial year we generated about INR 270 crores of positive working capital and cash flow generation. There are several benefits on the borrowing side. So first and foremost is that this is an additional source of fund and makes an alternate source of arrangement other than the banking lines that we have at the company. The second benefit is that facilities are at the market benchmark rate of interest at around 5.5%. This rate of 5.5% was at the time of sending the AGM notice, but this rate keeps on fluctuating, but always benchmark to the latest current market trends and links to a method of arriving at pricing, which is approved under the transfer pricing laws or regulation and at the arm's length to the company. Other advantage of this kind of arrangement is that it is unsecured, payable on demand and it offers higher flexibility to the company to manage the fund situation and optimize on the interest cost, because once we borrow from a bank, there has to be a minimum commitment on the borrowing of about 7 days, 10 days, 15 days and so on. Whereas for this cash pool borrowing, the day end balance can be transferred to the cash pool or pulled out from the cash pool as a facility. So we just need to pay on the utilization instead of fixed commitment in the case of bank borrowings. So it helps us to reduce the cost of interest to the company. There's no minimum tenor on borrowing. It can be repaid at any point of time. There's no penalty for early payment and so on. And the general terms and conditions are consistent with the cash pool arrangement terms and conditions defined by the General Electric Company for all its subsidiary across the globe. On the lending side, similar benefit. There is a higher flexibility. If we are able to generate positive cash on some of the days, we can deposit this to the cash pool participant. And we can earn interest at around 4%, which is again linked to a benchmark rate arrived under the transfer price mechanism and helps us to earn interest on the surplus cash without making a commitment for minimum tenor with the banks. Similarly, like I said for the cash pool borrowing, a deposit that we make to the cash pool, if the surplus cash is available, again, the day end balance sweep can happen. There's no minimum tenor. There's no penalty for the preclosure of this deposit and earlier withdrawal of the deposit. So these are some of the benefits of -- it's a very good facility available to optimize on the working capital requirement and remove the inefficiencies because if we don't get into this cash pool arrangement, there can be a situation that in some of the banks, there may be a borrowing; and in some of the banks, there may be surplus; and we may have fixed commitment with the banks on either side; and we may not be able to utilize the available funds of the company to offset against the borrowing and minimize the interest cost. So these are the major benefits on the borrowing and lending side. Moving to the next slide on Page 4, which is talking about the sale and purchase of goods and services with GEIIPL. The first element of sale and purchase of goods and services, this is mainly for an anticipated upcoming tender, which we anticipate from December to March. It is for an end customer for a hybrid project. Our company does not have the full capabilities to deliver the hybrid projects, whereas the GEIIPL entity has the capability. And in the overall framework of the contract, our scope of transmission and distribution substation is needed. However, the customer is looking for end-to-end solutions from the bidders. So as a result, we anticipate this kind of order, wherein we may have to supply the goods and services of the [indiscernible] to GEIIPL, and this will be an opportunity where we can leverage the large GE portfolio to increase our order book. So in this case, mainly, it will be for potential wind, hybrid and gas turnkey projects wherein we will bid. Then the other section that we are asking for an approval, and we took the approval last year as well, is for availing and rendering of various services other than the sale and purchase of material or projects. And these are services in the nature of the payment of cost where we have the negotiation at the larger GE level. So for instance, the travel, et cetera related expenses are negotiated to -- by the central entities and some of the common entities holding the center of excellence for better negotiation. And then these rates are basically used for reimbursement of the actual usage by the respective entities. So mainly the travel-related services, IT equipment-related services, manpower training and development cost and sharing of some office space and sharing of our registered office. These are predominantly the sale and purchase of services with GEIIPL. In the last AGM also, we took the approval. And in the current AGM, we are asking for INR 150 crores of approval, because again, this gives the benefit of better negotiation, optimizing and working on the common tools, and brings a lot of productivity to the company. We have highlighted a comment in the bottom in the blue line just to specifically highlight again, although all these facts are given the explanatory statement, that these approval for sale and purchase of goods and services or general services from GEIIPL do not include any transaction in relation to the global engineering operation division of the company. So these were the major transactions that we anticipate with GEIIPL. Moving to the last page. And I'll first talk about the bottom section. We do have regular transaction for purchase of component and sale of component with UK Grid Solutions Limited. Last year, the approval was not taken because the overall transactions were less than the materiality limit. This year, we -- because the overall transaction exceeds, so we are asking or looking forward to a INR 100 crore of approval for sale and purchase of component and about 50 crores of approval for sale and receipt of services. Again, all these transactions, whether for GE Grid Solutions, U.K. or GEIIPL, as I talked earlier, the pricing is determined following the RPT guideline as per the policy of the company at the arm's length following the transfer pricing mechanism. In this year, other than this INR 150 crore of purchase and sale of material and services, we anticipate a large HVDC order to be decided in this financial year. As you know that our company does not have end-to-end technology to meet the HVDC scope, so we generally partner with another group company, which is UK Grid Solutions Limited to deliver the end-to-end solution to our customers, like we did for BGCL, Champa 1 and Champa 2 projects. In this case, while there'll be 2 entity participating, having their own POs and scope with the customer, the customer is looking forward for a binding agreement between the 2 companies that they will be jointly and self really responsible to meet the end-to-end obligation of the requirements as per the contract with the customer. Overall, we anticipate the contract value to be up to INR 2,000 crores. And accordingly, we need to sign a joint and self-reliability undertaking primarily besides the other terms and conditions that we may have to sign with the customer. And for this purpose, because this exceeds the materiality limit, we have placed for the approval of the shareholder. And if we win this order, this will be a significant boost to the order book of the company. So that's it from our side in terms of explanation. Now we can open up for questions, and we'll be happy to answer if you have any questions. And we are looking forward for a very positive response and your approval and support to approve this resolution so that the company can win and optimize on the cost of operations of our business.

[Operator Instructions]

While our investor community is probably defining the questions to be asked to the management, I just like to clarify that except this HVDC order that we anticipate and the hybrid order with the end customer where GEIIPL will be a main bidding entity, and we'll be supporting them, the rest of the transactions are business as usual. And again, this is also business as usual, but these are the one-off large item or event that we see for the year. We are always available even beyond this call. In case any of our investors need any clarification, you can write to us, you can write to Suneel, Manoj as the Company Secretary; or myself as the CFO. I'll be happy to answer to your queries.

[Operator Instructions]

Manoj, in the meantime, if you can help about the timings of the voting line, that would be helpful.

Yes, thanks, Sushil. So the voting, basically, as per the requirements of the law, we have the e-voting process, which will start on 3rd of August morning 9 a.m., and then will be up to 5 p.m. on 5th of August. So that's a remote e-voting option all the investors have, wherein you would have received your details about voting and you would be having your user ID and passwords to cast your vote. The instructions are there in the notice to the AGM also. And thereafter, company would be providing a voting option at the time of AGM -- just after the AGM. A window will be open for half an hour, wherein those shareholders who have not cast their vote while -- for the remote voting, they can cast vote at that point of time. Even if the shareholders who have cast their votes through remote e-voting, they can still participate and attend the AGM, but they would not be really able to cast their vote again. So this is all that we have for the casting of the vote. Over to you, Sushil.

[Operator Instructions] As there are no questions, I now hand the conference over to Mr. Suneel Mishra for his closing comments.

Thank you, Niren, again. Thank you, everyone, for your participation. If you have any other questions, then please feel free to contact me or the Company Secretary, as announced by Sushil, Manoj. So with this, we conclude today's conference call, and thank you again.

Thank you. Ladies and gentlemen, on behalf of GE T&D India Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.