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

Ladies and gentlemen, good day, and welcome to GE T&D India Limited First Quarter ended 30 June 2022 for FY 2022 to '23. [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.

Thank you, Irene. Good day to all of you. Welcome to today's conference call with the GE T&D India Limited management team here. This conference call has been organized to present and discuss audited financial results for the first quarter ended 30th June 2022. 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 is the CFO and Whole-Time Director. We have with us Mr. Sandeep Zanzaria, who is our Commercial Leader. We also have with us Mr. Mariasundaram Antony, who is our Project Business Leader; and we have with us Mr. Anshul Madaan, who is the Communications Leader. Please note that this conference call is scheduled up to 6 p.m. I hope you would have received the investor presentation, and the same has been uploaded on our website. I hope you have also read out the disclaimer as per Slide #2. I would now request Mr. Pitamber Shivnani to begin this conference call, highlighting key events of the quarter. Thereafter, Mr. Maria updating us on operations. Then Mr. Sandeep Zanzaria will take over and take us through order book as well as the T&D grid market. Lastly, Mr. Sushil Kumar will be presenting the financials. So I now invite Mr. Shivnani to begin the conference with his opening words. Over to Mr. Shivnani.

Thank you, Suneel. Ladies and gentlemen, hope 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 our other colleagues to speak on the call. In the first quarter of financial year '22, '23, globally, commodity inflation and volatile, coupled with supply chain disruption, continue to pressurize our operations. However, despite the headwinds, our teams were able to deliver a net profit. We are doing our best to gain a better competitive advantage in all relevant T&D market segments by building a strong lean foundation and taking various initiatives to control the cost and improve margins. During my latest visit to one of our factories located in Pallavaram, Chennai, manufacture grid automation equipment, I have witnessed several of the Kaizen processes being implemented. Across the company, there is a huge trust on using lean to improve safety, quality, delivery and time, SQDC. We continue to believe the improvement underway are built on a stronger fundamentals and thus are sustainable. I'm pleased to share that we recently released our Annual Report for financial year '21, '22, which reflects how we are tackling India's biggest power transmission challenges through innovative solution, advancing grid modernization while leading the energy transition for the country. The copy of the report is available on our website. We also concluded our Annual General Meeting with our shareholders on 10 August, the recording of which will be made available on our website soon. The growth of power sector has been continuous focus area for the government of India. While a lot needs to be done, it's good to see that power sector is finally getting due attention from policymakers. This is evident by the renewed push being given by the government of India on reforming the distribution sector through the Electricity Amendment Bill. Additionally, in the national investment plan of INR 102 lakh crores to help make India a $5 trillion economy by 2025. The power sector has received 25% of the total budget. Moreover, there is a lot of focus on Green Energy Corridor, and that is how our Prime Minister announced 500 gigawatts of green energy, renewable energy by 2030. Initiatives like this will ensure that T&D market will gradually start picking up, and so will opportunities for us. However, we'll continue to pick orders strategically. Our priority will be to pick orders that will help us grow and grow profitable. We strongly believe in profitable and sustainable growth. Before I hand over to Maria to talk on operations, I would like to quickly update you on GE's global plan to launch 3 independent, investment-grade, industry-leading companies, which you would have heard our recent announcements. Few weeks back, we unveiled the new branding of 3 companies: GE Aerospace, GE HealthCare and GE Vernova, which will compromise the portfolio of energy business, including renewable energy, power and digital. GE T&D India will be aligned with GE Vernova business, the name GE Vernova leverages GE's multi-billion dollar global brand and deep customer trust, giving us continued competitive advantage in the region. With that, I will request Maria to provide further insights on the operation during the quarter. Over to you, Maria.

Thank you, Pitamber. Good evening, ladies and gentlemen. It is a pleasure to share with you the operational activities which we did during the quarter. And during this quarter, we were successful in commissioning new substations across the country, as well as extending some of the existing substations. So to give you a brief update on some of the key commissioning which we did during the quarter. On the southern side of the country, in KSEB actually we commissioned 2 substations: one in Vizhinjam, which was the 220/110 kV GIS substation, as well as in Ettumanoor, which is also in KSEB Kerala State Electricity Board, we commissioned 220/110 kV GIS substation there as well. As well as in Thiruvalam in Tamil Nadu, we actually commissioned a 2 PGCIL 4000 kV bus reactors in the substation, Thiruvalam substation. And then also in Andhra Pradesh, in HPCL Vizag, we actually commissioned 5 bays of 220 kV GIS substation in the refinery, along with the line, 220 kV line, as well as associated AIS equipment. On the eastern part of the country, including Bhutan, we actually commissioned the Dagapela substation, which was at the elevation of more than 2,000 meters, we commissioned 40 MVA reactor as well as 220 to 33 kV substation, GIS substations in Dagapela, Bhutan. And then in JUSNL in Jharkhand, we commissioned two 50 MVA reactors as well as 132/33 kV bays, 33 kV bays in Naudiha, in JUSNL. And in Bhubaneshwar, where we made extension of an existing substation in OPTCL, which is Odisha Power Transmission Corporation Limited. And on the western side of the country, we actually extended the base in MSETCL at Nashik, the 220 kV AIS bays. So with this, I think we continue to make strides in terms of enabling the energy transition as well as grid modernization in the country. With that, I will hand over to Mr. Sandeep Zanzaria to take you over through the commercial update.

Thanks, Maria. The order booking for the quarter stood at INR 599.5 crores, which was a 27% growth compared to last year's first quarter. And if you look at -- as compared to the last quarter, which is the Q4, growth of about 9%. The major orders, which have been secured, are the 400 kV transformer package from Aditya group. They are going in for an expansion in the Lapanga site in Odisha. And we've also taken a few GIS orders where the 400 kV GIS bays reactor for NHPC at Parbati. And we have taken the 245 kV and 145 kV GIS from Kalpataru, from KPTCL, and from BHEL. This is mix between the end users of state utility and hydro projects. Apart from that, the Services group has taken few orders from the MPPGCL, for the new bay extension. And of course, the service contracts for 400 kV upgradation at NTPC Kahalgaon. So with this, I will hand it over to Sushil.

Thanks, Sandeep. Good evening, everyone. Moving to the financial, this quarter was a better quarter for the company after 4 quarters of loss in the last year mainly because of volatile commodity prices and significant supply chain disruption. In this quarter, we have been able to generate profit. If you move to the page on financial. This quarter, we had about INR 593 crores of revenue compared to INR 638 crores of revenue in the last year. This was 7% lower, mainly because of the lower orders in hand. However, on the profitability front, we did better. Our EBITDA was at INR 22 crores compared to INR 1.5 crores in the last year, and the EBITDA stood at about 3.8% of revenue. Similarly, on the profit before tax, we generated about INR 10 crores of profit before tax compared to a loss of INR 25 crores in the last year. Overall, in terms of our cash position, this quarter, we have -- our debt increased by about INR 110 crores, and the net debt stood at around INR 1.9 billion compared to INR 0.8 billion end of March. This increase is mainly on account of increase in working capital, which is necessary for execution of the backlog in the subsequent quarter. Generally, as a trend also in the first quarter of the financial year, there is -- in terms of an increase in working capital as a business [indiscernible]. Moving to the next page, which shares the split of orders with the order in hand. So out of about INR 600 crores of orders, around INR 221 crores of orders were from the domestic market, and this represented 70% share. And rest 30% of the orders are approximately INR 179 crores, were from the export market. Similarly, on the revenue side, out of the total revenue of INR 593 crores, a major share of 66% or about INR 393 crores was from the domestic market and 34% of revenue, which is INR 199 crores, was from the export market. End of 30th of June, we had INR 3,600 crores backlog approximately which -- of which about 61% was from the private sector, about 21% from state utilities and 14% from centers duty and rest from others. So with that, we'll now open for the questions.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jigar Shroff of Financial Research.

Can you give some update on the HVDC Adani order that you spoken of which. At your last call you mentioned it was under evaluation, and if you could shed some light on the Leh-Ladakh HVDC opportunity, sir.

So may I ask who is asking the question?

I'm Jigar Shroff.

Jigar, so the Adani HBT project is what we had last quarter, but we lost to the competitor, so that is no more on the radar now. And as far as the Leh-Ladakh project is concerned, the power grid is still looking into the feasibility, the technical feasibility part of the project because there were a lot of adverse conditions, the weather condition and the altitude, et cetera. So those studies and other aspects are being taken up. So once those are formalized, then the Leh-Ladakh project will move forward. As of now, it's slightly -- I would say different.

So should we look at as an FY '24 opportunity, sir?

So I think -- so that it might go to FY '24, but primarily, there is one more HVDC project, which is like the Champa Kurukshetra project, which we have executed. A similar HVDC project might come up in next 2 to 3 months, which would be from Rajasthan to UP for evacuation of renewable power. So that project is we are expecting the approval of the transmission and planning committee to happen sometime in the next 2 to 3 months. And then the ordering, we expect it to happen in maybe next financial year of that project as well.

Sir, what would be the opportunity in sight, sir, in terms of our scope of growth for the Rajasthan, UP Green Energy Corridor, sir?

I would say would be close to about -- about -- we are close to about $1 billion, Indian rupee total -- slightly more than $1 billion will be the total value. So we'd like to just see the -- once the opportunity comes, then we are to see the scope split between our principals and us. But safely think about 60% to 70% will come from Make in India initiative from our local factories and our project growth.

Any other opportunity, sir, you are looking for?

For the HVDC, presently -- there are other HVDC opportunities which are there on the horizon. So there are [ Kevadia ] packages, which are there in Gujarat. There is a pipeline of projects in Rajasthan as well, [ Dhawla ], Fatehgarh. So multiple projects are there, which are under, example, under bidding now.

Our next question is from Aniket Mittal of SBI Mutual Fund.

Just a few questions. Firstly, we've seen a fair amount of improvement in the gross margins for the current quarter. So if you could you just highlight on that, what is leading to that improvement? And how do you see this number going ahead?

This quarter, the margin -- gross margin was quite better. It was around 34%. Generally, as when we book to order, and we have been communicating earlier calls, a quarter shorter period to look at the gross margin. This quarter, margins are better because of the better mix of projects traded during the quarter. Overall, if we have to take a long-term view, let's go back to the financial year 2021, where we had generated about 27% of the gross margin. Last year was lower because of commodity prices, as I explained earlier. So generally, when we book the order, 27%, 28% gross margin is the range. And including the execution, we try to improve it by further couple of percentage points. So I say that around 27% to 29% and maybe going up to 30%, that's where we aim to execute on a long-term, year kind of perspective.

And for the past couple of quarters, we've been seeing a decent amount of impact of commodity prices on our margins. Has that come to an end? Would you state with -- given the way your current order book is lined up and where commodity prices are, are you fairly confident of us remaining within the gross margin band?

Yes. So last couple of quarters or last 3 quarters have been quite challenging in terms of volatility or increase in the commodity prices. I'd say that every quarter, we evaluate the overall impact of commodity prices and take necessary cost accrual in our financials as a part of the accounting policy, which has been done end of March, end of June also. So as of now, on the entire backlog, necessarily commodity prices impact has been taken. The environment actually remains quite volatile. We have seen the certain commodities, the prices have come down in the last couple of months. But there are specific process commodities and specifically, the oil, where the price is going up. Recently, some of the commodities have also started to pick up in terms of the trend. And a lot of this is happening because of changes in the geopolitical environment, the global economic progression and so on. So I believe it's still a time there's volatility exists. We'll have to wait for a few more months to see what is the final trend in terms of the commodity prices. But in terms of our financials, we have duly provisioned for the commodity pricing existing today as of end of 30 June.

Okay. The other question was just on the order book that we have on. It's -- if I look at the -- it was a INR 36.6 billion number that we have. How do I look at the execution period for this? And on the execution specifically, are there any challenges that you see currently ongoing in terms of any of this order backlog being stuck or not as flowing as you want it to be?

We don't have any significant stock project in the backlog. Most of the projects are currently under execution. Depending on the timeline of execution of these projects. Generally it gives us a visibility of 15 months of execution in terms of revenue. But at the same time, the new orders that would be during the next few quarters will [indiscernible]. So we have a backlog of 15 months, and our further endeavor is to continue to focus on increasing the order book and the backlog.

Okay. And the other question was just to understand a bit more on the ordering front, especially on the utility T&D side. I think the ordering on the TBCB has been fairly lackluster for quite some time, at least for the past one year or so. So just what is your understanding in terms of going forward for the next 1 year, how do you see the ordering shaping up, and what are the impediments? Because of which, a lot of these orders have not yet been realized. That would be my last question.

Aniket, there are basically 2 areas where most of the TBCB projects have to be concentrated, so one is Rajasthan and one is Gujarat. So the Rajasthan has now started moving. So Rajasthan was primarily stuck because of the GIB issues. But now with the decision coming from the Supreme Court, we are seeing other traction happening in the TBCB projects of Rajasthan. So the bidding rates are now coming in, and probably in next 1, 2 months, whatever Rajasthan projects are there. Tractions for the developers are going to happen. And then subsequently, all those projects will come for decision-making in the EPC space as well or the OEM space as well. Regarding the Gujarat, projects have been announced and the specific tenders have been floated. But still, there is some delay in the Kevadia area. And of course, we are also waiting for the requisite clearances to come. I think that the matching between the generation and transmission needs to happen, so probably that is slightly delayed. But I think in the next 1 quarter, even Gujarat should also start moving.

Okay, sir. And what would largely be the opportunity size for you within Gujarat? The Kevadia, specifically?

So Kevadia specifically, it would be -- so there are multiple packages for Kevadia, which is coming from the generation side and transmission side as well. But I would say that there will be multiple packages, which will be coming. So depending upon who wins the opportunity price changes, because there are some developers, who are EPC players also. So if they win, then for us the opportunity size is only limited to product. But if a company like Power Grid, then the opportunity size becomes equivalent to the project value. So depending upon that, I think the opportunity value also keeps on changing.

[Operator Instructions] Our next question is from Aashna Manaktala of ICICI Securities.

Sir, you briefly mentioned that you booked the GIS package for NHPC. So how would be the opportunity going forward for the hydroelectric power plant? Are you looking for any other projects similar to this?

So yes, there are actually multiple opportunities which are coming for hydro sector, including the renewable part where hydro is also used as basically to supply the 24/7 power plant power requirement. So there, yes, we are engaged with various customers for the hydro opportunities.

Any project you would like to highlight?

No, nothing specifically that we would like to highlight because there are multiple projects which we are primarily working on.

Okay, sir. And sir, our net debt has increased by INR 1.1 billion, but revenue has remained at a similar level over the previous quarter. So is it the entire amount attributable to the working capital?

Yes, the amount is attributable to the working capital. Most of the increase is in the inventory, which will -- which is necessary as per the project life cycle for execution of revenues in quarter 2 to quarter 4.

Okay. So would we be looking at a similar number for net debt for the full year, then?

No, our endeavor is always to improve. And if we go back a couple of years, at end of March 2022, we had a debt position of about INR 480 crores -- sorry, March 2020. In last 2 years, we have been able to improve our debt position by about INR 300 crores, and that continues to be the endeavor for the management to improve it further. But during the execution cycle of the project, quarter-on-quarter, there are increases in 3 quarters and then reduction in the subsequent quarter. So we'll continue to focus on improvement from this level.

[Operator Instructions] Our next question is from Parikshit Kandpal from HDFC Securities.

Congratulations on a good quarter. So my first question is on the Adani order, which you lost. So if you can just highlight, it was just on account of pricing or anything else like specification, classification and also what's the reason? So if you can just touch upon that.

So I think it was an international competitive bidding. So finally, we have been communicated that we are not the lowest bidder there. But I don't think that -- of course, the technology, everybody that are today in the market. So presuming, it's mostly on the price part of it.

Okay. I mean, what's the difference quite stock, or it was very close bid? Any idea on that.

We do not know what is the difference because it was not a public opening.

Okay. And my second question is on the market side. I think in the AGM, you had highlighted that pre-COVID, the market price was about INR 14,000 crores, which is now expected to go up to INR 22,000 crores. So just wanted to understand how much will be our share, market share typically which we look at in this overall opportunity?

Just small correctional update on this one. I think what Pitamber communicated yesterday was that market dipped to INR 14,000 crores during COVID from a level of INR 21,000 crores, after that it was about 30% growth. And now, we expect the market to be back to INR 21,000 crores, INR 22,000 crores, which will be at the pre-COVID level. And I will ask Sandeep to update, and Pitamber to update on the specific question that you asked with this clarification.

Yes. So basically, the market is obviously going to grow, and this INR 22,000 crores to INR 21,000 crores is the entire market of transmission segment, including transmission lines and all actually. So that is how it is actually.

But the kind of inflows, which has been lagging for us, it's almost INR 600 crores this quarter, which also reflects in the reduced pace of execution this quarter, similar kind of a number. Which is near, like, if we go back to 27%, 28% gross margin, it will just be maybe some minor loss at the PBT level. So how do we expect these 2 things to ramp up for rest of the year, or maybe from mid to -- near to mid-term? How do you see this operating leverage kicking in on account of better order inflows and better revenue visibility and profitability?

So I would say that, okay, the thing is that as the TBCB projects are going to pick up, I think we expect even the order flow numbers also to be slightly better quarter-on-quarter. And because the TBCB projects which are there in the horizon are of much larger value, because many of these projects are like 765 kV GIS, et cetera. So I think the striking of such orders will improve the visibility of even sales or the revenue as well in the coming quarters.

And in terms of improvement in the profitability, besides the good quality of order being the focus of the company, we have also been focusing on the improvement in the cost at various levels. If you see all the main components of costs, like employee costs, other expenses, finance costs. In all the areas, we have been able to improve compared to last year, and that will continue to be an endeavor of the management to further improve the profitability.

Okay. Just one last this for you. Earlier in the call, you spoke about GE Vernova. So you will have a bit on that change in the global companies, so the 3 segments. So how does it change GE India, GE T&D India? What changed? What are the big changes which may happen here? Can you touch upon whether we can get access to more export markets, whether we get more products? So whether we can introduce more products? If you can just touch upon how it will change the life of GE T&D India?

You see, GE Vernova is largely GE Energy, which includes renewable power, digital and grid solution, and we are a part of grid solutions. So automatically, we become the part of GE Vernova. And with the passage of time, we will come to know how it shapes. This GE energy segment is going to spin off in the beginning of 2024. And after that, once it is formed officially and it is a spin-off, we will see how it shapes actually. It is too early to comment anything on this.

Okay. So spinoff means, what will happen after that? Different legal entity or...

It will be a different legal entity, basically traded separately on a U.S. stock exchange and with different Board of Directors. So there are only 3 entities, GE Aerospace, GE HealthCare and GE Vernova.

And sir, any new products you plan to introduce in India beside the current portfolio of products which you have?

So we are basically looking into the market. So one of the products is ATM which we are connecting with various customers. So that's basically the digitization product on the maintenance side, and supporting the customers in terms of -- and digitally enhancing the availabilities and the reliability of the system. So that is one. And globally, of course, we have introduced a number of projects on Green Gas, which is called g3. We are discussing with various customers in India, but we are not seeing a large market as of now. But with -- I think now, the carbon trading, et cetera, opening up in India, this also will create -- we expect this also to create a new opportunities. Because once you have the [ FX-free ] products, I think in the CapEx cycle itself, because of carbon trading, et cetera, the companies would get advantage in buying higher CapEx product like g3 because they will be able to create the certificates. So these are the 2 areas where we are looking for, new areas where we are looking for expansion.

Okay. And just lastly, on the exports, sir. If you can just touch upon how do we see the exports market panning out? And can we further increase our share in export markets and get more orders to supplement kind of underperformance in the domestic markets?

So definitely, the focus is there on export market as well. And of course, what we are also targeting a few countries as well as also the geographies which are there. For example, whether it is Africa, even Latin America. So we are expecting the markets to grow everywhere because of the addition of renewable energy. It's coming globally as one of the new mantras, which is there in all the geographies. As the transmission market globally is going to pick up, definitely, we will be benefited from this thing.

Our next question is from Rahul Modi of ICICI Securities.

Just one question, as most of the others have been answered. So on the cost front, we've seen some reduction in cost this quarter. So sir, can you elaborate a little more on the measures taken there? And what kind of numbers we can see on the cost fund going forward?

We have been continuously working to improve the cost. One of the improvement area which has also been communicated in the last quarter financial was the sale of [indiscernible], which finally got concluded in the month of June. That has helped us in a bit of reduction of the cost. We have optimized the office space at a couple of locations to reduce our other expenses. We have been continuously working to improve the working capital and reducing the borrowing. At the same time, reducing the non-fund-based limit, which helps to improve the finance costs and so on. So multiple measures have been taken. We will continue to further improve our work in this direction to make sure that the cost levels continue to be in line with the revenue that we trade during the quarter.

[Operator Instructions] Our next question is from Amit Mahawar of Edelweiss.

I just have one question. Now since most of the public, we declared tender, but one thing is sure, that we are not L1. I don't know if we are L2, L3, but there are 3, 4 or 5 bidders. So how do we ensure that in the next HVDC project, whether it's power or otherwise, our cost sheet makes us -- convincing anyone in the next upcoming few projects making healthy gross margins. So my question is more on time-bound initiative, both on the gross margin, product margin side and on the overhead side. Maybe do we have yearly target to understand how are we going to cut that? Because if this contract has to be gone by, if you go by this, maybe in the next contracts also, we might also fall in L2 or L3 bracket. So some color on that, sir.

I think as you know, the HVDC is technology where the product -- the projects are quite different one to the other. For example, if Adani is like a VSC-based project, the Rajasthan one is going to be LCC-based project, and Leh-Ladakh is again going to be a VSC-based project. So the technology is different, the project size is different. The competitive strength in terms of, for example, the localization is also sometimes different. And you know that, for example, HVDC projects are more dependent upon, to some extent, dependent upon even global loadings also because of the competence centers of the 3 players. So there are multiple factors which are there which determine the price and the gap of an HVDC project. It is not like a very mature kind of a transformer or AC substation type of a package where the predictability will be very high, that final price is going to land between this value and this value only. But definitely, based on our global experience and all, we do a target costing, and then try to come as near as the target costing as possible.

Okay. And second question is on approaches and targets that the parent has for maybe GE T&D India or the mandate. So specifically, what is the near to medium-term target corridor we have? What kind of export and specific product, the GIS range we have, that you're targeting at least for not more than maybe 1 to 2 years?

So basically, yes, whatever is manufactured in India by us. So whether it is relays, whether it is, for example, GIS, whether the circuit breakers, instrument transformers, some part of our transformer capacity. So every -- even the project business also, everything is used for export. So it's not that we have kind of a limitation in that, that we will be using only this much of our capacity for export. It also depends upon that in the global market, wherever the customers to which whom we are selling. Where India should, for example, as a country, should be an acceptable geography also because for many regions, India, they don't accept products from India and would like products to only come from either Europe or U.S., or many countries have their own, for example, restrictions of buying the product locally. So in those circumstances, yes, but the company keeps on trying to get approvals in more and more utilities globally so that the area can be expanded.

Our next question is a follow-up question from Jigar Shroff of Financial Research.

Just a question, sir. I mean, are the margins better in the export business or domestic business? If you could shed some light.

So it's better in the export segment.

And is it 30%, there is a potential? I mean, it may go up. I think we are consistently hitting 30% of order booking and execution. I mean, you think this can be pushed up further, sir? A portion of exports?

Yes, so the endeavor is to push up the exports, you are right, to take it as a higher percentage of the overall volume.

As there are no further questions from participants. I now hand the conference back to Mr. Suneel Mishra for closing comments.

Thank you, Irene. 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 at our website. Thank you once again.

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