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

Ladies and gentlemen, good day, and welcome to GE T&D India Limited Second Quarter Ended September 30, [ 2021 ] for FY 2022, '21 -- '21/'22. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suneel Mishra, Head of Investor Relations, GE T&D India Limited. Thank you, and over to you, sir.

Thank you, Rutuja. Good day to all of you. I would like to take this opportunity to convey you season's greetings. So welcome to today's conference call with the GE T&D India Limited management team here. As we know, this conference call has been organized to present and discuss financial results for the second quarter of the financial year ended March 31, [ '22 ]. Now let me first introduce my management team available on this call. We have with us, Mr. Pitamber Shivnani, who is the Managing Director and Chief Executive Officer. We have with us, Mr. Sushil Kumar, who has been recently elevated as Whole-time Director, and he is CFO as well. We have with us Mr. Nagesh Tilwani, who is our products business leader; Mr. Sandeep Zanzaria, who is our Commercial Leader. We have with us Mr. Mariasundaram Antony, who is our Project Business Leader. We have also with us Mr. Manoj Prasad Singh, who is the Company Secretary. And we have Mr. Anshul Madaan available on this call, who is our Communications Leader. Please note that this conference call is scheduled up to 4:00 p.m. I hope you would have received the investor or analyst presentation and the same has been uploaded on our website. I hope you have also read the disclaimer as per Slide #2. I will now request Mr. Pitamber Shivnani to begin this conference call highlighting key events of the quarter, then Mr. Maria and Mr. Nagesh Tilwani updating us on operations and factories. Thereafter, Mr. Sandeep Zanzaria will take us to market. Lastly, Mr. Sushil Kumar will give us his insights on financials. I would now invite Mr. Shivnani to begin this conference call with his opening remarks. So over to Mr. Shivnani.

Thank you, Suneel. Ladies and gentlemen, good afternoon. Thanks for joining the call. We hope you and your families are healthy and safe. I would like to start this call by giving you a brief overview about the last quarter and then would request the other colleagues to present in the call their details. But before we update you on quarter 2 results, I would like to share you a couple of announcements. First is about the appointment of Rajendra Sheshadri Iyer on the Board as a director with effect on October 1, 2021. Rajendra is the Managing Director of GE Grid Solutions Global Business Unit grid integration since October 2017. He's based out of London. He has almost 3 decades of expertise in HVDC, high-voltage DC transmissions and project engineering coupled with an international management experience. The Board has also appointed Sushil Kumar, currently CFO of GE T&D Limited, as a Whole-time Director and CFO with effect from January 1, 2022. Sushil has a rich experience of 21 years working with organizations like GE, Alstom, AREVA and Schneider. He has been working with the company for past 12 years and has held responsibilities in various finance domains, including Chief Financial Officer, Commercial Finance, Turnkey Business, Strategy and Business Planning. We are delighted to have both these gentlemen join GE T&D L Board. They bring a wealth of experience and keep knowledge from leading diverse set of business. I would also like to express my sincere gratitude to Emanuel Bertolini and Gaurav Negi, who resigned from the Board of Directors of the company with effect from October 1, 2021 and November 1, 2021, respectively. Their able leadership and wise counsel has always been highly appreciated by all the members of the Board. Coming back to update on Q2 financial year '21/'22. During the quarter, we continued to operate with full rigor. However, the teams had to navigate through a challenging operating environment, including continued supply chain disruption, commodity inflation and continued market pressure. Our teams are working diligently to manage these challenges by actively dual sourcing qualifying alternative parts we've designed and requalifying product configuration and expanding factory capacity. During the quarter, our team commissioned important projects for state utilities as well as private players. This includes commissioning of critical projects of UPPTCL, DVC and Kerala State Electricity Board. My colleague, Mariasundaram, will give the operational update in detail later in the call. As I mentioned in the last quarter call, our biggest priority now is the growth in orders, and we are improving our team abilities to market, sell and service the products we have today. Our order booking in quarter 2 of financial year '21/'22 was INR 6.3 billion, up 18% compared to INR 5.4 billion in quarter ended September '20. So Sandeep will talk about orders in detail, but let me highlight one of them here, which is related to our continued expansion in our neighboring countries. After the three 400 kV gas insulated substation order that we received in Nepal in quarter 4 of last financial year, we have now received multiple contracts by -- from Bhutan Power Corporation to build 4 gas insulated substations in Bhutan on turnkey basis. This is our second big order from the neighboring countries after Nepal, and it is a testimony of our technological providence and strong delivery capabilities. Besides, we have also received USD 4.2 million order for design, supply, erection, testing of 220 kV GI equipment for 9-based substations at Senegal in Western Africa, which further strengthened our export. Q2 has been a challenging quarter, as everyonehas put to pack by the commodity inflation and continuing supply chain disruption and hence, the same has impacted our financials as well. Sushil will cover on the financial aspects. We continue to use lean to improve our operation and our cost structure. We recently organized a week long Kaizen Event at our plants at Padappai, Pallavaram and Vadodara. All the leaders, including me, were personally present at the plant to boost the moral of the teams. Numerous Kaizens were undertaken during the week, and we achieved significant outcome in terms of measures that will help us deliver sustainable lean initiative over a long term to improve safety, quality, delivery and cost. My colleague, Nagesh, will take you through the key outcomes of the event shortly. COVID-19 has altered the world, but it hasn't stopped the steady march of renewable. In fact, during the pandemic, the segment grew faster than in past. The world added more than 260 gigawatts of renewable energy in 2020, up nearly 50% from the previous year. According to the International Renewable Energy Agency, more than 80% of new electricity capacity added last year was renewable, with solar and wind accounting for 91% of new renewables. This is a good news for the planet, but the energy transition to low-carbon sources [indiscernible] involved much more than building new wind and solar farms. As it is evident from outcome of the recently held COP26 summit, immediate action is necessary to achieve climate chain mitigation goals and address the energy trilemma of of affordable, reliable and sustainable energy. During the summit, India has announced a bold target of achieving carbon neutrality by 2070 including production of half of the electricity from renewable sources by 2030. Government has also raised the non-fissile fuel target by announcing 500 gigawatts of non-fissile electricity capacity by 2030 as against 450 gigawatts that was committed earlier. This requires referent integration of more renewable into grid and will undoubtedly bring more investments through India renewable sector and associated grid infrastructure. We are closely tracking these opportunities and stay committed to accelerate India as well as South Asia's energy transition to a clean energy future and in the process, enable a better and cleaner world. With that, I will request now Mariasundaram to provide future insights on the operation during the quarter. So over to you, Maria.

Thank you. Thank you, Pitamber. Good afternoon, ladies and gentlemen. It is my pleasure to really update you on some of the key commissioning, which we have done in line with our purpose of creating the grid of the future and accelerating the energy transition with advanced grid technologies. And some of the key commissioning, which we did during the quarter 2, I would like to highlight was one which is -- which you see on the top left, which is the UPPTCL Hardoi Road. This was a very critical one for the state. And we actually delivered the entire substation in terms of commissioning the 8, 400 kV bays; 4, 220 kV bays and 5, 132 kV bays of GIS and then 2, 500 MVA ICTs and along with 1x63 MVAR Bus Reactor in the last quarter. And it was the critical one because this was crucial for the overall state in terms of their modernization plan -- grid modernization plan. And then I would also like to highlight the one around the [Technical Difficulty]

Sorry to interrupt you, sir. But we cannot hear you. Your voice is breaking in between. Can you please check?

One second. Is it okay now?

Yes, sir. Please go ahead.

Okay. I think should I repeat -- start again?

No. It was just like 3 seconds prior.

Okay. Okay. Let me continue. I think -- sorry for the short disruption there. So I also want to highlight the work which we are doing in Bikaner, which has been one of the big solar parks in the country. And we actually commissioned two substations, one Surya Urja in Bikaner as well as in -- for Adani in BKTL Bikaner K3. And these were very for the overall solar park -- solar power generation there. And this was something which was done in quarter 2. And definitely, we continue to increase our contribution in that area -- in that region -- part of the region for India. And then we also actually, on the Eastern part of the country for Dhanbad -- NKTL in Dhanbad. We actually commissioned the substation there, which was around -- for AIS bays in Dhanbad as well as in the southern part of the country in KSEB [Technical Difficulty] Overall package 1 and Package 4 implementations, which we have been doing with KSEB customer. And then finally, DVC at Burdwan in West Bengal, we also delivered on the substation in Burdwan. So -- and we are definitely excited to continue our focus and operations in terms of enabling the energy transition and we are progressing well in some of the neighboring countries like Nepal, where we have significant amount of execution going on. And then we will be definitely starting our execution in Bhutan as well, continuing our work which we have done already and then focusing on the new orders as well. With that, I would definitely like to give the mic to my colleague, Nagesh, who will update us on the President Lean week, which we did in the month of October. Over to you, Nagesh.

Thanks, Maria. Good afternoon, all. This is Nagesh. So I will just take you through maybe 2 major updates. One, on the spotlight on Pallavaram, our flagship grid automation plant, which is in operational from 1958, one of the oldest plants in GE, largely catering to the global markets, including domestic Asia market, one of the largest units for relay manufacturing. We are having a very strong exports footprint, exporting the relays and diligent devices up to 60 more countries from India. A very strong commitment towards health and safety, over 20 million mandates without lost time accidents. That's a site commitment for the safety of the employees. We have a firm among the first in terms of starting the relay manufacturing in the country as well as on the control and -- engineered solution, which is control and relay panel to serve with the legacy installed base of about 60 years plus. Our TAT time that means the time is about 0.5 minute. That means every 1 minute, we produce 2 relays to serve the country and serve to the global markets. We are the one -- first among in terms of an introduction of digital technology, center of excellence for the IEC61850 protocols and having a legacy of installed base of digital subscriptions and digital base in the country. Over 300 substations, which are run today on our substation automation systems and the protection controls. So that's a spotlight zoom on Pallavaram. Followed by that, as Mr. Pitamber explained, we had a very eventful week, Kaizen President Week, where 3 of our plants were engaged in engaging lean initiatives on Pallavaram, Padappai and [indiscernible] units. And all the 3 plants, the leadership team was driven to work on the shop floor with the teams, with the manufacturing team, with the industrialization team to have a lean initiatives and to get immediate benefit and turnaround of the activities. Zoom on Padappai, where we have worked on a mechanism drives and ME drives what we call it, which is a global line where we were doing about $3 million of revenue in 2022. And the event was to identify a few of the actions which will help reduce the lead times. The current lead time was 18 days. With the lean initiatives, we have reduced the lead times to 2 days. There was a specific focus on ergonomics and overall moment of the goods, which is the strategic movement of the material, movement of the activities that was also considerably reduced. So you see 90% reduction on the lead times, and on travel times about 13% reduction, which was achieved in the 4.5 days of workshop. Padappai, specifically, Mr. Pitamber was also physically driven for engaging with the teams. On the similar event, similar time,frame, we have done the event at Pallavaram,where the focus was on the store side. We are doing about 100-plus substation projects. And the visual management and store handling was addressed during the lean actions. The important outcome was in 15% space optimization, ergonomically improvement in 45%, 44% and kitting cycle time, which is another critical items, about 45% reduction in the kitting cycle time. Similar event was conducted in PTR in Vadodara factory, where the focus was on 765 kV single-ph shunt reactor transformers and the important room was on how do we improvise on -- how we standardize and improvise our material feeding system. And out of 15 Kaizens, identified ergonomically, we have reduced 75% reduction in the replenishment lead times. The leakage was down by 50%, and the spaghetti movement has helped us to get about 45% average reduction in terms of across all the sections. That's the key achievement, I would say, on all the 3 plants. And this was -- the similar event was run across globe on other units of the grid as well. And 3 of the plants were selected from India for the lean initiatives. With that, I hand over to Sandeep for covering the commercial piece.

Thank you, Nagesh, and good afternoon, everyone. So order intake for the quarter, we have booked the orders worth INR 635 crores, primarily -- as Pitamber explained primarily coming from Bhutan, where we won good order to build four GI substations with the highest voltage of 220 kV. Apart from that, continuing our success in Power Grid, we have taken further orders for 765 kV, which is part of the evacuation of the renewable projects, which are being implemented in Rajasthan. Also, we have taken a substantial and a good service order on our installed base of Sardar Sarovar for the 400 kV GIS, where we will be doing -- aimed for maintenance, which is required after some years of service, which is defined as for the product requirements. Apart from that, we have taken a big order for supplying 145 kV GIS to power grid for Arunachal and Manipur project through Sidhartha Engineering. And we have taken GIS orders of 245 kV for Gandhinagar from Torrent Power. So this quarter, we have improved our order intake as compared to last year by about 18%. And when we look at H1, we are -- we have improved the order intake by 12.5%. So there is an uptick in the market after we have seen the impact of COVID at least in the first quarter of this year. But now the market is slowly recovering. And now I hand over to Sushil to take you for the financials.

Thanks. Good afternoon, everyone. So we are on Page #9 of the presentation on the financials. As Pitamber explained in the beginning, we had an underperformance in the quarter because of the unprecedented run in the commodities and the supply chain issues. So overall, we had a revenue of INR 8,517 million for the quarter, which was almost in line with the last year, about INR 200 million shorter than the last year. On the similar lines, on a full half year basis, we had INR 14.8 billion of revenue, compared to INR 15.1 billion, again, about INR 300 million short in the last year. However, on the EBITDA front, the EBITDA was for the quarter about INR 200 million approximately and about -- compared to INR 428 million in the last year. So there was a shortfall of lower EBITDA of about more than INR 200 million for the quarter and similar impact from the profit before tax. So as you see the P&L, gross profit was impacted because of the commodity price increase that we had to absorb the recent surge in the last 6 to 9 months, so more than 30% to 40% average across the world. Overall, for the quarter, we have to take a hit of about 3% of the revenue or approximately more than INR 250 million of the commodity price impact in the cost of quarterly sold. That was one major reason. And the other major reason, if you look at the finance cost, the finance cost has increased compared to last year by about -- approximately about INR 90 million to INR 100 million. This had 2, 3 factors. One was the headcount rationalization, for which additional costs were incurred. The second was onetime home office setup announced to the employees for working remotely or on a hybrid basis. And other smaller factors including the cost. So these 2 factors of commodity price and logistic cost absorption, along with the increase employee cost, resulted into a lower EBITDA and profit -- loss before tax performance versus the last quarter, as well as a similar impact on the half year basis. On the cash front, during the first 6 months, at April to September, we had about INR 350 million of net cash outflow and our debt increased to that extent in the 6-month period for the quarter, the net debt increased by about INR 600 million. So the first quarter was positive for us. And end of September, our net debt was INR 1,966 million. Moving to the next page, which is a detail on the order and revenue flip into export and domestic market. So for the quarter, our 48% of the orders came from the exports segment. And on a half yearly basis, 43% of the orders were from the exports and rest were domestics. On the revenue side, as we have been discussing since last 3, 4 quarters, that most of the increase of growth in the orders we are getting in export, but those orders in last time when -- it catches up in the revenue. So for the quarter, revenues were nearly 25% from exports and 75% from the domestic side. Orders in hand end of September 2021, 63% of the orders are coming from the private sectors or the backlog -- sorry, the backlog is in the private segment, 18% of the backlog is from the state utilities and 19% of the backlog is from the central utilities and the central PSU. So with this, we will now open up for the questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Renu Baid from IIFL.

My first question is to understand on the profitability side. You did mention that almost 3% of sales was a hit because of commodities in the current quarter. Can you help us understand what percentage of the backlog has been impacted by just these inflationary headwinds in -- from steel and CRGO for our portfolio. And is it fully covered in terms of cost of completion provisions or one can anticipate some of these provisions to continue in the second half as execution ramps up?

These are -- the way the accounting policy work and the way the revenue is done and also we apply this for the cost to completion. All the anticipated charges or cost to completion are considered by the end of every quarter. However, as you see that the commodity prices and the domestic supply chain disruptions, they're quite dynamic at present. So if there is further disruptions or further commodity changes, it may impact also. But as of now, it has been fully considered in the EAC. And also, it depends on the timing of -- because of the volatility, it depends on the timing of the placement of the orders on navigation -- on finalization of navigation and shipment versus the volatility in the market. So the market volatilities are difficult to predict. From our side as a management, we have internal efforts to renegotiate prices wherever possible with the private segment customers. We have the action plans to negotiate the pricing back to work with the suppliers and make sure that we make savings in the all other areas to offset this kind of commodity price or the impact on the backlog.

Sir, so basically, when we are expecting execution to ramp up in the second half, especially from certain fixed price projects, which we had won towards the end of last fiscal. Should we expect margins to improve, given the fact that provisions have already been created or probably these orders would be broadly like margin neutral or will continue to have headwinds in terms of gross margins when we recognize them in revenues?

See we have INR 4,100 crores of backlog. And everything is not fully ordered to the suppliers. But we have considered all the cost to complete bases the current prices. And depending on the execution time line, the sourcing is done. Now as of today, we have factored in everything. But tomorrow, if the prices go down and we have better timing replacement of orders, we will gain. But if prices go up and we place the order to supplier or executing that time frame. So any further changes in the commodity prices or logistics costs or any further disruption in the supply chain, those are the factors which are beyond the control of the management and may impact positively or negatively.

Sure. Secondly, if you look at the competitive environment in terms of both the product portfolio for transformers, GI products and projects. Are we seeing that the restrictions in terms of Chinese competitors and the bids from the product customers are actually now in favor of suppliers like us in terms of pricing or how is the demand supply dynamic in competitive outlook across the products and the project portfolio for us?

So if you ask for me, demand supply is still the supply. Basically, there is a gap in spite of Chinese being debarred from quoting the border country. Still, there is a more -- on a supply side, demand is less. But obviously, the prices have become to some extent, I will say, in some of the equipment stable, actually.

Okay. Got it. So should we anticipate that the demand momentum picks up in terms of new order flow inquiries, the gross margins on the backlog should start improving now in your view?

No. Gross margins from the order backlog will not improve. Like you take an example of variable orders -- variable orders, we don't book the material actually. That will be as it is. But firm orders, if the commodity prices go down, then we can get the advantage. But if they go up, then what Sushil said, we may get the hit also.

Just to add on, I think the point is whether we are considering, because in a competitive scenario every supplier is expected to behave rationally and include the current costing in the new grid. And if there is a competitive scenario, obviously, industry gives a particular gross margin, say, 25% to 30%, depending on the cost structure of every supplier. So we have been including the current costing in the new grid. And we will be at a margin that we expect to earn prior to this commodity price surge. This is something that we have been doing. Again, as I said, the future commodity price increase. Now if today, we did have, say, copper 30% higher than 6 months ago. And tomorrow if copper becomes -- and that's our current percentage -- cooper becomes further 30% higher and it's the firm price tender. So that may impact. And if the copper goes down, as an example, the firm price order will expect to gain. One of the -- as I also said to have more and more variable price on track, if possible. And to also renegotiate, the unprecedented events were now anticipated by us as a supplier and the customer.

Sure. I understand that. Sir, broadly, if you look at the market environment, as we are expecting inflow momentum to pick in the second half with acceleration in project awards and tendering from the state as well as certain TBCB-based projects. I think until now, exports has led the inflows for us. So how are we looking the demand momentum for the rest of the year, especially from the domestic markets improving?

So Renu just for the TBCB, yes, we expect that a lot of decisions to be taken from now to March. So there's a good pipeline of TBCB projects, which are expected. So that way, the demand for the domestic will definitely come up. The only thing is that in the state sector, we are still not seeing the demand getting picked up. States have been [indiscernible] in terms of investment on the transmission side. So that's, yes, definitely a negative for the sector. But TBCB, that is about 8 to 10 times, which again to get decided from now to March time.

The next question is from the line of Bhavin Vithlani from SBI Mutual Funds.

And just continuing on the question on gross margins. And on a sustainable basis and if one takes a 2- to 3-year picture end based on the bidding that we are currently submitting and winning orders, back in history, our gross margins used to vary between 30% and 35%. Do you see a chance of that coming back over the next 2 years? Or that's ruled out given the demand supply economics that you highlighted?

So Bhavin, earlier when you are referring to 30%, 35% of gross margin, that was when we were executing Champa Kurukshetra project, which was a high-margin deal. And if you consider the last 2 financial years, which did not really had a significant Champa execution. In the financial year '19/'20, we had a gross margin of approximately 28%. And in the last financial year, we had a gross margin of 26.5%. And in the current half year, H1, despite absorbing the impact of commodities, because we also work on lean and Kaizen events that we explained, we earned still a margin of 29%. So without utility, I think 28, 30, that is a range where we expect that margins continue given the competitive pressure in the industry. However, as we have been explaining in last many calls, that there are a lot of internal efficiency and lean actions being taken, they were normally supposed to give better profitability or improvement in the cost on quarterly basis, but that has been unfortunately offset by the unprecedented market events of commodity price increase. But as of now, 28%, 29%, that's the range, probably, where we can continue for the time.

Sure. That is very helpful. We had taken an approval from the shareholders on the majority of minority with respect to related party on bidding of some of the large HVDC orders. Could you give us an outlook on the HVDC orders that we are expecting, say, over the next 2 to 3 years and what -- any broad timeline on when these projects could be awarded? That will be helpful.

So I think Bhavin, if you primarily see there are about 4, 5 HVDC tenders -- but I would not convert tenders -- but prospects which are there on the horizon. So one would be Adani, one which is still under discussion with Adani. That's in the tender. Apart from that, yes, the Leh-Ladakh and the transmission planning committee has also approved or projected 2 of the HVDCs, one going from Bhadla to UP and one going from Kerala to Indore. So these are basically in the prospective stage where these studies are being done by the government, et cetera. But even if this comes, then we are looking at -- apart from the Adani one we would -- I would -- put a bit upon 1 year from now will be the right time when the first tender will see the light of the day. And looking into the complex process of the size of the HVDC project, even if the first tender comes after a year, then putting a bid, et cetera, that we are looking at the -- at minimum of about 6 to 8 months decision time line from there. So practically, the next financial year would be apart from the Adani we can see the first decision of which we did see to come.

Sure. That is helpful. And last bit is even in the previous call, you had highlighted the target is to take the exports to 30%. And we have seen in the first 2 quarters export has actually been considerably higher than that. So on a long-term sustainable basis, where do we see share of exports in the revenues or orders? And if you could also just give a color in terms of how different is the profitability for the export market versus the India market?

So I think, Bhavin, just to give the answer here, is that, for example, when we compare, for example, Bhutan, Nepal, of course, these are exports. But probably the geographic competition, et cetera, will be the same. So the margins are not as high as when you compare it with the product export order, which goes to, for example, either Africa or the East Asia Pacific and these types of things. So with the Indian market now picking up, we expect at least the share of export orders to drop because, for example, when we look at last quarter, not many decisions were taken in India and with Bhutan coming in, suddenly, you see Bhutan, Nepal, then these come in, it gives the ratio of exports, which we are seeing here. But it's like an extension of the Indian landscape in the neighboring countries. So I think that primarily the question which you are asking is that the high-margin export profile of 30% when we will be able to reach. So I think that should be possible somewhere maybe around few years down the line, primarily because even the other markets also needs to pick up. Today, we are not seeing much of the market picking up in Africa and other places as well after the COVID. So unless until those don't pick up, yes, definitely there is a pressure.

Just to add on, Bhavin, it's very difficult to lay out the numbers or in terms of percentage the split between domestic and export orders. Because obviously, orders will depend on the winning in the market, which has many, many dynamics. What we talked about earlier a few quarters earlier and regularly that we only focus on greater results, and that's what has happened and we have demonstrated. We want to win more and more in both the markets, export as well as domestic to the point that Sandeep explained, that focus is also to increase exports from factories because that product export helps in the better margin. And even if we do the export projects in the neighboring countries, those are many times World Bank, ADB-funded tenders and do not -- we do not face as many challenges as in the domestic market related to payment done. So those are benefits in the neighboring countries. But as I said, we want to do maximize our order book in both the markets.

Just last question from my side. A parent GE announced reorganization of the company into 3 parts. How would that impact GE T&D?

You see GE has announced its plan to combine GE Renewable Energy, GE Power and GE digital into one business positioned to lead the energy transition. And then the purpose to spin off this business in early 2024. GE T&D India Limited continues to be a part of GE Renewable Energy business. As of now, we do not expect any impact, and it will be business as usual for us. We will keep you posted with the update at and when they happen.

The next question is from the line of [indiscernible] Partners.

And I have a couple of questions, and pardon me if we're a bit basic. I'm slightly new to the business compared to the gents earlier. My question is specifically for Mr. Pitamber. And I was kind of going through a track record on -- as to how we evolved under his leadership or at least the vertical that he was managing. And it's quite encouraging to see the margin and the return on capital employed at the trajectory moving up, as investors broadly while we understand GE as you see. But what is disappointing is that in the last few years, the revenues have really not gone anywhere. If you look at net worth on the balance sheet, that broadly remains at it. Obviously, profits have really come off. So what I hope to understand from Mr. Pitamber is how we seize the business 4 years out, especially in terms of part to profitability and return on equity because at the end of the day, as investors, what we really care about is, not this execution capability, but at the end of the day, what it makes sense of the financial numbers. So unless it's really accretive in terms of revenue growth in terms of execution showing up from where you are at INR 3,500-odd crores to INR 5,000 crores and profits coming back and the return on equity in double digits is really obviously, good, but it doesn't really add much value. So could you just explain how one should look at the business 3 to 4 years out?

You see as far as my perspective is concerned, we have four large factories, actually. And we have enough capacity, but unfortunately, last 2 years, because of COVID situation, the order intake has been down. As far as production capabilities, project execution capabilities, there is no doubt. So once like TBCB now market is going to come up. And when opportunities come up, when our orders intake increases, we can definitely churn out more and earn the more profitability and take the more juice of the fixed assets, actually. So in times to come, the situation should improve actually in another 1 year's time also.

And just one further question. There was some discussion on margin profile earlier. And I think broadly, the thought process was that if the raw -- if the commodity prices come down, then we'll remain; and if it goes up, it goes against us. And I'm not -- what I'm really interested, if you can explain, is how we can structurally change the character from our own efforts. See what the external environment does is different, but managerial capability stands out for is how we can manage to do much better than what the external environment deals at the hand. So what really interesting is we can kind of take the gross margins up over time to mix of better execution in terms of either cost efficiencies or like -- was saying about scaling up exports. So could you give us some trajectory how we look at it. I understand you don't want to share a perfect number on gross margin or you might not want to give a financial number to it, but can you give us how we should look at it? Should we only reliant on external environment and our gross margin remain where they are at 20%, 30%? Should we look at the business that way long term? Or should we kind of build in improvement, which actually slows in because of management intensity?

You see, if you see our last year results end of March, we made good amount of profit. And now unfortunately, this commodity price increase, which was not foreseen. So we have 2 buckets of orders. One is variable contracts, where we are fully protected. Another is basically firm contracts. So in firm contracts, we have assumed certain solidarity factors. And then, the increase has been more than that. So there sometimes you get the hit. But obviously, in times to come, once if the commodity prices go really down, we may get the advantage but it is very difficult to predict the future of commodities like CRGO and copper as on date, actually. As far as operation is concerned, we are concentrating a lot on Kaizen, lean concept so as to take more juice and more productivity. The productivity in all our factories have enhanced quite around 15% to 20%, actually.

So over -- assuming raw material prices still are at this point, hypothetically, I know it's not a real-world situation. They are always fluctuating. But hypothetically, they were to remain constant. Over a 3-year window, given the Kaizen lean initiatives and scale up of exports, would it be fair to assume that the margin -- the gross margin level will see a gradual improvement sustainably? Would that be a fair assumption?

Yes, it is a fair assumption, but we don't give a forward-looking statement, actually. And we feel if the prices remain as it is and now we are more taking into cognizance the material cost increase in firm price contract, so the situation should definitely improve.

Understand. And how much of the total orders that we have booked, how much of that would be passed through like you mentioned and how much are where we are kind of stuck in fixed price? Could you share that breakout, please?

We don't have that readily available. Maybe we can cover that in the next investor call.

The next question is from the line of Renu Baid from IIFL.

Just a follow-up from my side. Has there been any FX gain or loss in the particular quarter given that other expenses seem to be a bit softer? So any gain which has come through in this particular quarter for us?

Just on -- so during the H1, we had a gain of about INR 10 crores in the other expenses.

Okay. And would it be broadly in the second quarter or...

The first quarter, as you said, was a loss and this quarter was a gain, and net result is INR 10 crore gain in the H1.

Sure. Got it. Secondly, broadly, I mean, until last quarter, we had seen multiple execution-related headwinds along with supply chain, which had impacted revenue booking across various domestic projects. So have we now started seeing those headwinds easing out? And any comments in terms of how our customers looking at execution timeline? Are we seeing material acceleration of fast track of projects?

You see, there are -- Renu, there are some projects like which PGCIL and other utilities have land issues. So those are getting delayed. So because of that, there is a delay in lifting up equipment also on that front, actually.

Okay. But otherwise, in general, whatever lag we had seen because of the COVID second wave, is that now catching up? And should we see that being compensated in the second half or fourth quarter?

Yes, yes. That is catching up. The situation is improving. I will give you an example, like our XL order Warangal, which was jeopardized. But now Adani has taken over and he converted the order and he released all our pending payments also, and we are executing it well. So those things are moving fast, actually.

Get it. That is right. And broadly, from the perspective on the export side, are we looking at any new market, which could open up, especially in the Middle East, African bucket or Southeast Asian market for some of our products in the global supply chain picture?

No, we are definitely getting some market allocation from our global factories. There is some restructuring in the European factories like what Nagesh presented, we will be starting the drive ME4, and that will add USD 3 million business additional for Padappai in 2022. So similarly, more allocations are coming like instrument transformers and also the drives for the GIS and other things.

The next question is from the line of Jigar Shroff from Financial Research.

Sir, if you could shed some light on this global grid plan, one sun, one world, one grid talk that is going on. I mean, what could be the size and opportunity, I mean, if you could have some study or something on it? How could it be profitable, beneficial to us in terms of order intakes?

I think that it's a bit long term today to talk about numbers because this project has been talked about on the conceptual basis as of now that -- for example, the installed base. Suppose if you build a big installed base of power generating capacity and then if you are able to connect it to the different parts of the world, for example, maybe through a cable to Middle East and also through transmission lines connected towards the East. And then depending upon that, if you are generating them in some part of the world, you will still be having big demand. In some other parts, we will be having the low demand time, et cetera. So this is basically the concept on that. But it is still on the drawing board and today it is not possible for us to convert it into the numbers, et cetera, because there is no concrete, for example, this much capacity for this country and things like it. Once that comes into picture on the drawing book, then the numbers can be put in.

But what have you been hearing in terms of -- I mean, are there some deadlines have been fixed? I mean, it's in the next 6 months, 12 months, I mean, because it's a correlation of countries getting together. I mean, if you could shed some light on that.

That's what I'm saying. Because it's on the drawing board today so no timelines basically because there are multiple issues in terms of, for example, the connectivity with the country, also the scenarios in each country and generation. So many things are to be seen. And then it will also require the political engagement as well. So I am not seeing that in terms of hard convertibility at least for next 2 to 3 years, I'm not sure on that part.

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Just one question. So in our presentation, we have mentioned a lot of emphasis on lean and manufacturing in Kaizen, 90% improvement in manufacturing lead times in some of the product lines. So a hypothetical question, had the commodity inflation not being there, the initiatives we have taken on lean manufacturing and operational efficiency what would have been the benefit of these -- on the financial terms maybe 1%, 2%, 3% of revenues, if you could just tell that?

You see, if the commodity prices would have not increased, we would have definitely gained out of the productivity, higher productivity and these lean and other concepts. But we generally do not give forward-looking statements on these things, how much will be the increase. So we are -- it is very difficult to say. So that is why let us see going forward if there is a downtrend in the commodity prices, that should reflect in our next quarter's profitability.

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Suneel Mishra for closing comments.

Thank you, Rutuja, again. And thank you, everyone, for your participation. With this, we conclude today's conference call. In case if you have any other questions, then please feel free to contact me or Mr. Anshul Madaan on the e-mail ID given on our website. So with this, we conclude the conference. Thank you.

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