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

Ladies and gentlemen, good day, and welcome to the GE T&D India Limited conference call regarding update on Global Engineering Operations Division, GEOD. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suneel Mishra, Head of Investor Relations. Thank you, and over to you, sir.

Thank you, Faizan. Good day to all of you. I would like to take this opportunity to say Happy New Year to all of you. Now welcome to today's conference call with the GE T&D Limited management team. As informed, this conference call has been organized to discuss update on Global Engineering Operations Division, which we also call it GEOD. Now let me first introduce my management team available on this call. Today, we are privileged to have Mr. Mahesh Palashikar, who is our Chairman; we have with us Mr. Pitamber Shivnani, who is the Managing Director and Chief Executive Officer; further, we have Mr. Sushil Kumar, who is the Whole-Time Director and CFO. We also have with us Mr. Manoj Prasad Singh, who is the Company Secretary. We have with us Mr. Anshul Madaan, who is our Communications Leader. Please note that this conference call is scheduled up to 5 p.m. I hope you would have received the presentation sent to you on the topic and the same being also uploaded on our website. So I would now invite Mr. Mahesh to begin this conference with his opening comments. Thereafter, Mr. Pitamber Shivnani and Sushil Kumar will take us through the presentation. I now request Mahesh to take over.

Thank you, Suneel. Hello, everybody. Good afternoon to all of you. You are our esteemed share owners and investors, and it's my pleasure and privilege to welcome you at this discussion. This is the investor call for GE T&D India Limited. My name is Mahesh Palashikar. I lead the Board of Directors as Chairman. First of all, let me please wish the very best to you and your loved ones during the current COVID pandemic situation that we all are facing. I pray for the very best for you and your loved ones in terms of health, safety and protection during the current pandemic. As you know, the purpose of today's call is to update regarding the developments about GEOD business of your company and the various options which the management has been working on and management has been exploring to minimize the impact on the company. This also includes the revised valuation of GEOD and the ongoing effort for its slump sale. You may be aware that we have uploaded a brief presentation on the website and hopefully you had a chance or you are able to do it and have been able to go through the same. With that, I would hand over now to Mr. Pitamber Shivnani, the CEO and MD of your company, and he will now share the further details. Thank you.

Thanks, Mahesh, and good afternoon, ladies and gentlmen. First of all, let me wish all of you a very happy and healthy new year. I hope all of you and your family members are safe and healthy. As you all know by now, that Global Engineering Operations Division provides engineering services to other GE Grid entities outside India through an engineering services team. GEOD provides services such engineering support for tendering, project management and product design to GE Grid entities outside India. Before I invite my colleague, Sushil, to share developments around the lump-sum sale, I'll like to share with you the key highlights of Global Engineering Operations Division. GEOD business is noncore in nature as GE T&D does not provide engineering and product design services as main offerings. Revenue from GEOD business in financial year 2020-'21 was INR 726 million, which is less than 2.7% of our company's revenue. GEOD is a captive service provider for GE Grid Group companies. There are no customer outside GE group. GEOD provides services to more than 15 legal entities within GE Grid Solution Group. There is also no exclusivity from GE Group entities in these contracts' purchase order. There are also no specific patents or license in the name of company in addition to GEOD. The contracts and purchase order from other GE Grid Group companies are issued on a short-term basis. The company continues to have an internal team separate from GEOD to provide engineering support for tendering, project support, et cetera, for its own business. With this, I would hand over to Sushil to share the latest development on the subject. Over to you, Sushil.

Thanks, Pitamber. Good afternoon, ladies and gentlemen. I wish you a very happy new year, and I hope everyone and their family members are safe and healthy. So as Pitamber and Mahesh mentioned that the purpose of today's call is to share update about the GEOD business and the development so far, we have summarized it in the presentation. Hope you have already received a copy. Pitamber already summarized the nature of GEOD business. In terms of financials, as Pitamber mentioned, the revenue for the last financial year was INR 726 million, and this was approximately 2.1% of the revenue of GE T&D India Limited. In terms of EBITDA, this business unit generated about INR 146 million of EBITDA in the financial year '20-'21. And in terms of EBIT, the business had INR 119 million of EBIT for the financial year '20-'21. Moving to the Page 4 in terms of sharing the development so far. As a starting point, in the last quarter of calendar year 2020, GE Grid Solutions globally decided to create a global engineering operating center -- operations center, they call it as GEOC, by expanding its existing capabilities under the legal entity, GE India Industrial Private Limited, with the purpose to develop advanced grid technologies and accelerate the energy transition for different parts of the world for the global needs and with a vision to become the global high-voltage technology player; to develop advanced product design and complex engineering solutions that required -- that are required for their global customers; and the purpose was to consolidate the activities under one center of excellence to increase the efficiency and productivity. And to meet this strategic initiative, they decided that it required a strong and coordinated approach with flexibility, speed and business simplification under the strong leadership of a global Chief Technology Officer, which -- and their team, which has a requisite technical and operational expertise and resources to deliver commitment at the global scale. So having known the development and post this decision of creation of GEOC, the likelihood of company not getting the orders from GEOD business in future was perceived, and in the best interest of the company, a proposal to sell the engineering division to GE India Industrial Private Limited by way of slump sale work placed before the shareholders at a consideration of INR 873 million. However, the resolution was not approved by the requisite majority of the minority shareholders. Accordingly, the related business agreement was terminated. Subsequently, in order to meet their objectives of grid technology and advancement or development of technology and accelerating the need of energy transition requirements, GE Grid Solution informed the company that they want to accelerate their GEOC initiative. And accordingly, the company was formally notified by the GE Grid Solutions that with effect from 30th of June 2021, no new contract for purchase orders will be issued to the company and the existing purchase orders will lapse at the expiry or will be terminated by notice. The management team of this company, our company, has been exploring various options to reduce the impact of excess manpower and assets on the company and various requests were made from the management to the Grid Solutions to extend the date of termination. And while its last communication on the subject on 13th of December 2021, the Global Grid Solutions have extended the date of termination of purchase orders till 31st March 2022. In the meanwhile during the period September to December 2021, the company's Audit Committee approved undertaking one more valuation of GEOD business and appointed M/s BDO Valuation LLP, who are also a registered valuer under the IDBI and -- as the valuer for the business and M/s RBSA who are the category with merchant banker registered as per SEBI guidelines as the fair merchant banker to provide the fairness agreement. So BDO provided a fairness valuation of INR 1,406 million by their report dated 8th of November 2021 and RBSA also confirmed the valuation to be fair to the shareholders of the company by their report dated 8th of November '21. Audit Committee and Board after strong -- have accepted the valuation and fairness opinion post several round of discussions and extensive deliberations with the valuers and the merchant bankers. The management has been further exploring and currently discussing with GE Grid Solutions and GEIIPL regarding the proposed slump sale, and they have, at present, expressed their interest to pursue another slump sale at the revised valuation. Moving to the next page, which is Page 5 and talking a bit about the valuation and the fairness opinion. So M/s BDO Valuation Advisory LLP, they arrived at the valuation using the discounted cash flow method as a primary method. And as in any discounted cash flow valuation, there is a valuation for the explicit period and there is a valuation for the terminal value. So both put together, as on 30th of September, the fair value of the business was arrived at INR 1,406 million. And if we compare that with the trailing 12-month EBITDA, it represents 9.1% of the -- 9.1x as the multiple -- implied multiple. The valuers also corroborated the GEOD's implied multiple with broadly comparable select companies and considered it to be reasonable valuation. We'll move to the last page to share the various scenarios for GEOD business. So the 2 scenarios are perceived in case the company is able to negotiate and conclude the slump sale, then there is a, let's say, in terms of employees, there is continuous employment because the employees will be transferred as a part of slump sale. The assets will also be transferred and the value will be realized. The redundancy of facility with GE T&D will not happen because we'll be transferring or making assemblies of the proportionate facilities and overall impact on P&L and cash is perceived to be positive. Whereas in the other scenario of termination of nonrenewal of contracts by GE and an inability to then enter into a slump sale also, there is a potential situation of loss of employment for the employees and a severance cost of about INR 140 million to be incurred. The assets worth INR 90 million will become redundant. There will be an excess facility or space with the company leading to an annual cost and overall impact on the P&L and cash is going to be negative. So the -- considering these scenarios, we are evaluating and trying our best to find the best solution and are in discussion with GE Grid Solutions and GEIIPL for slump sale of GEOD business. So this is overall update on the GEOD last few months, which we really wanted to share with the investor community. And with this, I now hand over to Suneel for -- or the moderator for taking the question-and-answers.

[Operator Instructions] The first question is from the line of Bhavin Vithlani from SBI Mutual Fund.

At the outset, I would like to thank the Board of the GE T&D for reconsidering the same proposal and...

Mr. Vithlani, sorry to interrupt you, sir, the audio is not clear from your line, sir. Please check.

Am I audible now?

Yes, sir.

Okay. So I would like to thank the Board of Directors of GE T&D for reconsidering the proposal of the sale and appointing a new valuer. It will go a long way in terms of good governance. The question is actually to the Chairman, Mr. Mahesh. And what we would like to understand is the thought process behind formation of GEOC. And in the light of that GE, in any case, owns 75% of the shares of GE T&D India and the talent and the experience already existed in this company at all. So if you could help us understand the logic of forming a new entity, which is outside the listed entity, who would be doing the same work and especially on the grid solution, which is the core of GE T&D?

Thank you for investing your time and joining today. We appreciate it. And I understood your question as to why GEIIPL. So if I can take a couple of minutes, Bhavin, and can provide you the background. The GEOC, which is set up by the Global Grid Solutions that was done in November, December 2020, and there are 2 or 3 very important considerations that the Global Grid Solutions team had when they set it up. First of all, the global situation in terms of energy transition moving from the fossil fuels, moving more and more to the carbon-neutral and renewable energy is a very significant global phenomena, as we know, which is happening everywhere else. Considering this, the Global Grid Solutions had a couple of big objectives that they wanted to focus on. One is that they really now want to advance the grid technology solutions, which will help the global customers for the energy transition needs. This will need different type of grid solutions for balancing the renewable energy and the fossil energy in all parts of the world. So in the global market, Global Grid Solutions wants to be a leading high-technology and cutting-edge solution provider. That is one important aspect. Also, the Global Grid Solutions will focus on developing advanced product design solutions and complex engineering solutions, which the global customers will need as this energy transition happens. Also, the expertise and the capability that will be needed will be led by a global technology team. So there is a very senior talented global leader leading the global technology team as the Global Chief Technology Officer. So the expertise and capabilities that will be needed for serving the global demands, addressing the energy transition needs that Global Grid Solutions needs to support. So considering all of this, they really have a plan that they would now focus on a very sharp and coordinated approach where speed, flexibility, productivity that will be needed to deliver commitments and global scale could be driven by this global technology team. And so the global Chief Technology Officer will be directly accountable for this. They will have the right expertise and the right technical domain knowledge to do this. This is the fundamental reason why GEOC -- Global Grid Solutions had set up the GEOC. The GEIIPL, GE India Industrial Private Limited, is an existing entity and there is already work that the Global Grid Solutions does in that GEIIPL entity even prior. So considering what the global team is now going to do for global energy transition, new technologies, new solutions, the complex engineering offering that we will need to provide to serve our customers for balancing the grid and the expertise and capability that the global technology team will need to bring, all of this could not be done in GE T&D. GE T&D has its own scope and capability in terms of limitation that it has. This is the primary reason the global technology team is looking at establishing all this expertise, which will be serving the global needs of grid solutions. So it's a significant priority for the Global Grid Solutions. And hopefully, Bhavin, I could provide you the context.

Sure. Sir, that's helpful. But -- so the actual question was like in the need of having an engineering setup that is pretty clear. But -- and the question really was in terms of allocating to the company because GE anyway owns 75% of this company and it is the core -- grid is the core of the business. But in any case, that decision has been taken. But what we would like to highlight as a shareholder is more of a -- the comment is not a question that when we look at ESG, which is becoming a very important part in GE, which is having a very great importance in that and a peer company which is listed in India with a similar size of revenue and similar margin is trading at a 3x higher market cap than GE T&D and when they had a corporate action in terms of it was acted completely in favor of the minority shareholders. So -- and that was the only submission that we have. The other question that I had is in terms of when the technology development is on a shift to the other entity, will it impact financials or cost for GE T&D in terms of extra royalty cost or any technology cost because of the engineering division being housed separately?

Yes. So Bhavin, I understand your comment, and I heard your comment, and I'll let Sushil Kumar answer the second question. Just to wrap up on the first comment that you made, I think the GE T&D company is focused on this part of the world and the geography and the capabilities that they have could not have supported what the global energy transition needs need from us as well as the expertise and capability that the global technology team will do. So I think it's a prudent decision for serving the global needs. Sushil, if I can hand over to you, please, on the second question that Bhavin had.

Yes. So Bhavin, as we mentioned, that overall objective of GEOC is to increase efficiency and productivity at the grid solution level. And if that happens, the businesses -- grid solution businesses across the globe will get benefit of productivity and efficiency, largely, but there's no commitment as of now. However, in terms of managing our core business, as Pitamber mentioned, we continue to have separate engineering and other related teams to deliver to the revenues that we generate in India for the customers in India for the core business. So this transition will not have impact on increasing the [indiscernible]. This, however, will have impact because we'll lose the equivalent revenue and EBIT, as I explained in the first page. However, in compensation thereof, if the slump sale goes through, we'll get a fair valuation as of the current date.

[Operator Instructions] The next question is from the line of [ Ashok Jain ] from [ Ayush Capital ].

My first question, sir, is...

This is the operator, Mr. [ Jain ], we are not able to hear you clearly, sir. Please use the handset mode.

Am I audible now?

No, sir. Please use the handset mode, sir.

Okay. Am I audible now?

Sir, the audio is not clear from your line. Mr. [ Jain ], please use the handset mode. Mr. [ Jain ], we request you to please rejoin the question queue. We'll take the next question from the line of [ Dilip Jain ] from [ Ayush Capital ].

[indiscernible]

Mr. [ Jain ], we are not able to hear you, sir. Please use the handset mode. Please go ahead.

Am I audible?

Yes, sir. Please go ahead.

Okay. Okay. GEOD launches [indiscernible]

Sorry to interrupt you, Mr. [ Jain ], now your audio is not clear from your line, sir. Please check.

Is it better?

No, sir. It's not clear from your line. Sir, we request you to please rejoin the question queue. [Operator Instructions] We'll take the next question from the line of [ Ashok Jain ] from [ Ayush Capital ].

Yes. Is my voice clear now?

Yes, sir. Please go ahead.

Okay. If the GEOD slump sale goes through, will the proceeds of INR 140 crores be used for a debt reduction of GE T&D India?

Yes, Mr. [ Jain ], the proceeds will be used for debt reduction and the general corporate purposes.

Okay. So in what proportion will you use the proceeds for debt reduction, may I know, sir?

We'll try to maximize the debt reduction. However, we have not -- because it's still a future scenario, we have not yet planned for how much of this money will go for debt reduction and how much for the general corporate purposes. But yes, debt reduction continues to be one of our main objective, and we have been communicating and improving on this quarter-on-quarter since last 2 years.

Okay. Okay. Very nice. Sir, my next question is, given the recent government push in the HVDC projects area, we recently heard about the Green Energy Corridor, a INR 12,000 crore investment by government. And that there has notably been increased corporate participation by the likes of Adani Transmission, Tata Power, et cetera. So what is your outlook on order wins in the sector in the next 2 or 3 quarters? I just want to know your general outlook, sir, on the HVDC sector and the order wins that we may have in the near future?

Yes. So you see we are really quite active basically...

Mr. [ Jain ], I'll just try to answer this question. The purpose of this call is to specifically share the update on the GEOD business, and that's the communication that has gone to the investor community. On the regular business update, we do have quarterly investor call. The next call will be in the first or second week of February, post we announce our financial results. We are requesting you to join that call and ask the questions on the business, and we'll be very happy to answer and take up your questions.

No problem, sir. No problem. I'll do that.

Mr. [ Jain ], does that answer your question?

Yes, yes. That will be all, sir, from my side. I'll wait for the investor call -- the quarterly call.

[Operator Instructions] The next question is from the line of [ Harshit ], individual investor.

Am I audible?

Yes.

Yes, sir. Actually, I'll request you, like my question is not limited to the business, what has happened today, the development would have taken place today, which I'll join in the quarterly call, sir.

Thanks, Mr. [ Harshit ].

[Operator Instructions] The next question is from the line of Sameer Deshpande from Fair Deal Investments.

Am I audible?

Yes, sir.

Yes. I would like to know if the company receives around INR 140-odd crores for the slump sale, what will be the tax implication? And what will be the net proceeds after tax?

Mr. Sameer, broadly, when we enter into any slump sale transactions, there is a consideration received that enterprise value. And in return, the existing assets and the working capital is transferred to the buyer. So we do have existing assets and working capital. Eliminating the working capital method from the proceeds, the difference, which represents a capital gain to the business, will attract the capital gain tax as per the income tax laws.

Yes. So what would be the quantum, any idea of that?

Sir, last -- I'll not be able to -- at present, we shall not be sharing the financials of September because they are not in public domain, but you can refer to the earlier discussions we had. So there is going to be probably INR 25 crores to INR 30 crore of assets, which are embedded in the GEOD business.

INR 25 crores to INR 30 crores of the assets -- capital gain would be on INR 20 crores to INR 30 crores.

Sir, we have to work on that depending on the date of sale, the assets and liabilities on the date of sale. But broadly, in principle, the net proceeds, which is net of the realization and the assets -- net assets transferred to the buyer, the differential becomes a capital gain, which is liable to capital gain tax on the business.

[Operator Instructions] The next question is a follow-up question from the line of Bhavin Vithlani from SBI Mutual Fund.

What would be the time lines for this like [indiscerniblen]? I believe you'll need an AGM for this. Is there a time line that you could give us?

Bhavin, we are trying as early as possible because we have the POs being extended up to 31st of March. We have yet to close few of the aspects and agree on the slump sale from both sides, from us and the buyer side. And depending on how the things move, we'll try to close it as soon as possible. There will be a postal ballot process and for which a due notice will be given for the investors to vote on that postal ballot requirement.

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

Yes. Thank you, Faizan, 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 free to contact me or our communication leader, Mr. Anshul Madaan. With this, we close the conference. Thank you.

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.