Genus Power Infrastructures Limited (530343) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Genus Power Infrastructure Limited Q3 FY '20 Earning Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Kailash Agarwal, Vice Chairman, Genus Power Infrastructure Limited. Thank you, and over to you, sir.

Good evening, ladies and gentlemen. A very warm welcome. Along with me with this call is Mr. Jitendra Agarwal, Managing Director; and SGA, our Investor Relations advisers. The results and investor presentation are uploaded on the stock exchange and company websites, and you all might have seen that. We are delighted to report our performance for the third quarter FY '20 and are pleased that we have been able to maintain our growth trajectory despite some fundamental challenges in our sector. We have recorded sales of INR 268 crore for quarter 3 FY '20 as compared to INR 290 crores quarter 3 FY '19. We have recorded sales of INR 812 crores, a growth of 8% for 9 months FY '20 as compared to 9 months FY '19. Our EBITDA for quarter 3 FY '20 stood at INR 49 crores compared to INR 38 crores Q3 FY '19, a growth of 47% on a year-on-year basis. And for 9 months FY '20, EBITDA stood at INR 132 crores as compared to INR 91 crores, a growth of 45%. For quarter 3 FY '20, our EBITDA margin has expanded 502 basis points, 18.1% from 13.1%. Similarly, for 9 months, also our margin has expanded by 418 points to 16.2% from 12%. The margin expansion in quarter 3 FY '20 was on account of higher share of export orders, better product mix and effective cost control. Profit after tax stood at INR 27 crores for FY '20 as compared to INR 43 crores for quarter 3 FY '19, a drop of almost 17% year-on-year basis. For 9 months FY '20, profit after tax stood at INR 71 crores against INR 50 crores, with a growth of 43%. The current order book stands at INR 1,118 crores. We are witnessing healthy order inquiries, however, our order flow has remained subdued in 9 months FY '20 as we have been very conservative on selecting our clientele with security of payment becoming a key focal point. We are witnessing demand shift from conventional meters to smart meters, and we are confident of sustaining our margins going ahead as product mix change in favor of smart meters. The Ministry of Power has given an outlay of 1.75 lakh crores for installation of 25 crore with smart meters by March 2023. Thus for the next 3, 4 years, we foresee a lot of traction in our business. A lot of thrust is coming from the central government for deployment of smart meters across India in order to lower [ AT&C ] losses, improving billing efficiencies, reduce discounts, financial woes, and hence, consumer convenience and rationalized power consumption. State electricity boards are also propelled to take action in this direction as improving billing efficiencies has become necessary condition for receiving funding. We have continued to focus on technology upgradation also and operational efficiency to serve our long-lasting relationship with our clients, which has engraved our leadership position. I now welcome questions.

[Operator Instructions] We take the first question from the line of [ Viviya ] Mehta from Anand Rathi.

Sir, congratulations on good numbers. Sir, one thing I would like to ask is the EBITDA margins were improved substantially. So basically, these are orders of the new smart meters? Or of prepaid meters? And these are the initial orders which we are executing?

These are mix of all kind of orders. These were not only EESL. And smart meters and prepayment meters are -- if smart meter can be triggered to a prepaid and postpaid order modes. So when you said prepaid meters, a smart meter can be both. So these are primarily smart meters and some conventional meters also of the high end.

Okay. So this will have more proportion of the state-billed orders on the SEBs? Or what would be these order mainly consist of? Or does that execute within the current...

Both mix. There are a lot of business being done with EESL also. And at the same time, there's equal amount or even more business done with the state electricity boards. So the mix is almost same.

Okay, sir. And I would like to ask another question. Right now, we have seen traction from SEBs like you said on the last call. So which are the states do you see right now tendering? Or are thinking of tendering? And what is the competitive scenario as such? Like are the Chinese getting the bid of the SEB? How is it? If we could just be on the same...

State electricity boards, almost everybody is now having a lot of traction on this smart metering tenders. If I talk of current situation, there's a large tender going on from Himachal, [ Jharkhand ], Chhattisgarh, Madhya Pradesh, Bijar, Karnataka. Very soon, the tender will be out. So almost every electricity board is having a very strong demand in this tender. So almost every state electricity board is having a very strong traction on the smart metering tenders. So there are a lot of opening prices right now. So as such, this -- almost the whole country is going ahead with the smart meters when it comes to opportunities available. What was your second question?

Sir, competitive scenario like earlier there Chinese players...

Chinese players are only bidding at the EESL. But until now, the results of Chinese players have been so bad. The customer is also extremely, extremely concerned of working with the Chinese companies. In the EESL, the number 3, where the Chinese company was involved, they already robbed the tenders. The tender has been spread by EESL because they don't want the Chinese -- because they realized in 2 years there is a serious problem with these people coming into the market. So as of now, yes, they will be our competition and they are a big country. But in India, the way the conventional meters are done, for the smart meters also they're already facing a major, major resistance from the customer.

We take the next question from the line of Vikram Kotak from [ East Land ] Limited.

[indiscernible] you give your view starting them out saying that margins are very healthy, but execution is where you are kind of very careful and cautious. Can you elaborate that this is a short-term phenomenon? Or is this going to remain a little worrisome for you going forward also? And if that's the case, then what kind of growth rate we can expect next year in your numbers?

The major reason of becoming cautious with the customer was looking at the cash flow of the customer also. That was our major concern. Even our working capital cycle has increased quite a lot. So that has been the major reason that we have been very, very choosy in taking the work, completing the project. And we are also taking customer [ gears ] unless you clear the pendings how we will move forward. So we have to give a strong message to that customer also okay, there cannot be only one-way traffic. So that was one of the major reasons. So few of the customers, we have been talking to them on regular basis and they understand it very well. And they also are [understanding] with us, okay, unless we are taking care of you properly, how you will move ahead with the bargain?

And secondly, one more thing I would like to add that, basically, these are [pressure] tactics also because one side the ministers of -- ministry from central is pressurizing them to buy smart meters and they have to change smart meters of INR 45 crores in the next 3 to 4 years. And they don't have any choice on acting on it. They might be slow, they might do the things instead of 3 to 4 years, they might do it in 5, 6 years. But they have -- right now, in any case, they have to buy the smart meters to get aid from the central government.

Central government is very clear in all its...

Right time for us also to make a pressure on them that, okay, we need our cash flow to be improved. And you have to pay that. And they will pay that. We know that. They will pay that. Yes.

But my third question remains that in that scenario, should we taper down our growth expectations?

No, no. Not at all. Basically that...

Not at all.

So should we see a real massive 20%, 25% of growth in the business and the order book?

Yes, yes, yes.

Okay. So it's about -- you can say it's a one-off quarter, there will be a couple of quarter of tactics and as well as you understand...

There is no -- basically, we are -- basically, we are a little conservative in taking orders. There are a lot of orders. It's not like that business is not coming. We are just making pressure on the Boards that -- okay, we will take business when you make our cash flows easy.

Makes sense. Yes, makes sense. Makes sense. So this is a more temporary phenomenon which is a quarter of -- kind of quarter kind of phenomenon? Not the long-term phenomenon, right?

Yes, basically.

And margins side. Do you think the margin is sustained because you are shifting to the smart meter, right?

Yes. Yes, right.

We take the next question from the line of, [ Richard Shah ] from Dhanki Securities.

So the first question would be like within the order book, so INR 1,118 crores, so what would be the breakup of smart meters, traditional meters and EPC?

EPC is very, very low now because we are not focusing much on the EPC business, what we call ECC business. But that is only INR 32 crores, so primarily it is breakup in the commercial meters and smart meters. And as we see the breakup of conventional meter and smart meter, it is, I would say, 40% is the smart meters and 60% is conventional meters.

And out of this INR 71 crore is export orders also.

Yes.

Okay. So this would be both smart and conventional, right?

Export orders is again both smart and conventional. Both.

Okay. And my second question would be like in -- basically, what would -- what is our current bid pipeline? Or any orders in which we are right now?

Currently, if you will see the bid pipeline, unfortunately, there is a -- prices has opened for almost INR 400 crores of tenders. But we are involved in very few, so I'm not very -- [often] with these tenders. But there's already a tender worth INR 1,100 crores quoted for which the decision will come in a couple of months for the prices will get open the tender that have been quoted. And more than INR 1,500 crores tenders will be participated in the next couple of months, which are already out. So already with the tender that you, in the mid of the -- by the end of the -- because there was a slow from the state government also in the last 6, 7 months in coming out with the tender because there was a lot of pressure from the central government that -- whatever you have to do, you have to do in a way where smart meters are coming into the picture. So that is why there was a lump period for 6, 7 months in tenders. As of today, while we are talking, more than INR 1,100 crores are participated. The price bid is not open. More than INR 400 crores are already -- price bid is open. And INR 1,600 crore tenders will be participated in next 30 to 45 days. That is very healthy also.

The business where all business doesn't go to L1. It is distributed between L1, L2, L3. So it's not like that out of that INR 400 crores or so we will get. But we would not get a major share, we'll get a lesser share.

We take the next question from the line of Sanjeev Zarbade from Kotak Securities.

Sir, my question was regarding the EBITDA margin, which have come in at 18%. So because...

Hello? I can't hear you.

Hello?

We've just lost the line for the current participant. [Operator Instructions] Next question is from the line of Priyanka Singh from [indiscernible] Securities.

I have a few couple of questions. So this first one is, like, what is your segment-wise order book for ECC business? And what would be it, like, it's margin profile?

What is -- I do not follow your question properly. I do not follow your question properly.

Hello? Yes. So I'll just repeat. What is your segment-wise order book for the ECC business? And what is the margin profile there?

Segment-wise order book for the ECC business? Total ECC order book is INR 32 crores as of now. And primarily, these are all old orders which we have to complete in the next 3 to 6 months.

Okay. And what would be the margin profile for these orders?

10%. 10%, 11%.

ECC business orders?

Yes, correct.

10%, 11%.

Okay. And how much does EESL contribute to our order book and revenue?

That has been -- as I told you, as of date, the order book is INR 1,118 crores. Out of that, only INR 32 crores comes on the ECC, which is not at all significant.

No, no, they are asking about EESL. How much is EESL out of it?

EESL?

Yes.

Yes, EESL.

Currently the pending order book of EESL?

Yes, correct.

Around INR 200 crores. I don't have on my hand, but it's around INR 200 crores.

Okay. And one question, like, EESL has issued a large tender for smart meters. So how much of that order has been fulfilled by the industry players, including us?

By tender 1, they issued the orders of 50 lakh meters. Out of the 50 lakh meters, they have only received 14 lakh meters. And out of these 14 lakh meters, 10 lakh has been supplied by Genus. So that's why a lot of orders have been canceled. EESL 2, out of the 50 lakh meters, they issued order of 15 lakh meters and 35 lakh meters tender they are [indiscernible]. That is EESL 2. So out of those 15 lakh meters, they have received only 30,000 meters. EESL 3, they issued a tender of 50 lakh meters with [indiscernible]. So now they've come out with an EESL 4 tender where they have made prequalification so stringent that -- and with so many lots so that they can have good Indian manufacturer be part of that tender. They are learning the lesson in a tough way that smart meters is not [indiscernible].

We take the next question from the line of Sanjeev Zarbade from Kotak Securities.

Yes, so my line had dropped. Sir, my question was regarding the EBITDA margin which came in at 18%. And given the raw material to sales ratio was much lower during the quarter. So is there any favorable kind of trend that has helped us, which is kind of temporary and the margins will again level up to 13%, 15% in the coming quarters? If you could give some color on that.

No, no. Basically, it's not only the raw material. It's the product mix. It's the high-end meters which are more supplied. It is more of the smart meter has to do with that. So basically, when you do more high-end meters, you will see that raw material -- you will see that raw material cost is less of them. Raw always you will see in places. So basically, these are the sustainable margins. This is not that a temporary thing that the raw material price has gone down and we have just made because of that. Raw material prices have been stable, but this is because of the high-end orders and high-priced meters that have been supplied.

So this is high...

The level -- that 16% level which we see is a sustainable level. Given there is a scope of improvement, but it won't go down.

So by high-end meters or products, we mean the smart meters that we are delivering? Or other conventional meters also?

I mean primarily, these are smart meters and all the high-end conventional meters like intelligent group meter or intelligent [indiscernible] meter. They're as good as the smart meters, but they're -- we have been doing those from the last 6, 7 years. So definitely, smart meter side is a new category. So those meters are also communication-capable meters which are on the high-end consumers. So that is building a good margin.

And sir, my next question will be regarding the revenue growth. We grew at a -- at quite a brisk pace in FY '18 and FY '19. And in FY '20 section, there has been some moderation in revenue growth. Now even the order book is slightly lower on a year-on-year basis. So going into FY '21, do you see this low single-digit or a mid-single-digit revenue growth happening? Or it will be higher also?

No, no. This is just for temporarily a one quarter which is [ debt ] otherwise, you will see there is a growth trajectory from last 3, 4 quarters. If you see for financial year '19, last quarter also if you see and then first quarter and second quarter. So basically it's -- order book 10%, 20% here and there can happen. I -- if you see it earlier, it has gone up to INR 1,300 crores of -- and now it is at INR 1,100 crores. But even INR 1,100 crores is good for next 3 to 4 quarters. So basically, orders won't be any issues in coming time also.

Great. Sir, my last question is on gross debt levels. If you could just let us know so that -- it is important data point for us.

Sorry?

The gross debt levels.

And can you come again with your question?

I wanted to know the gross debt level, sir.

Gross debt level? Almost at INR 250 crores to INR 270 crores.

Okay. And cash would be?

Cash would be around INR 140 crores, INR 150 crores. Net-net will be around INR 120 crores to INR 130 crores.

We take the next question from the line of [indiscernible] from Global Investment.

Thank you for this amazing type of numbers. As a shareholder, I'm really happy with it. My question is, are you able to hear me, sir?

Yes. Yes.

Yes, we can hear you, yes.

My question is about industry scenario. So how does it look? Are there any prominent new players coming to the market which are squeezing the market -- squeezing the margins? Or what's happening over there?

I'm not seeing any prominent new players coming in the market, because metering industry itself in India is very mature and a very capable industry. And that has been seen in last 1 decade. And few of the Chinese people that came through EESL model, and they try to get up, but the customer side has understood it very well that smart metering has -- requires a lot of localization. But it is a very, very custom-built product and metering needs lot of localization, which as an Indian industry so mature and capable, that we are not having any concerns on these people's efforts and are not seeing any major competition coming from this -- other than outside or any major companies coming within India.

That's perfect. That sounds quite optimistic. My second question is about the gas meters. In the last con call or before that, you have mentioned that you have drilled up the gas meter, but it's still not being marketed commercially. What's the news on this?

On the gas meter side, it's still -- we are working on 2 or 3 proof-of-concepts, because this product is, in terms of security, the product has to be very, very -- the gas is being -- coming to your house. So in terms of safety and security, this product has a huge stringent requirement from the customer. So we are just -- still on the POC situation where we are making sure that our product meets all the requirements of the client. And that is where the stage is. So you see commercially, we're selling these meters in next -- not in this quarter. From next quarter onwards, you will start seeing some numbers from the gas meters also.

And the market over there is more of a tender business? Or it's retail business?

It will be both because a lot of these gas pipelines are being -- all this gas distribution has been taken by Adanis and Torrents of the world. So there will be a lot of business done with them along with IGL and GAIL, which will lead to tendering also.

Okay. Perfect, perfect. And sir, if I can squeeze one more question. My next question is about the related party transaction from the balance sheet, which was on March 31, 2019, we had made certain investments in your [ root ] commodities or something. So I -- just to ask you, is there any other -- any other investments we are planning for the group companies in coming quarters?

No, no. Basically, if you will see last 3, 2 or 4 years balance sheet, you will know that there is no increase in investments on any group companies or any investment other than group companies. So we are just trying to reduce it and at least not increasing it. So that you can see from last 3, 4 years' balance sheet.

We take the next question from the line of [indiscernible] Agarwal from Arc Capital.

I have a question on the export business. So if you see for this quarter, the export business performed very well. So I just wanted to understand, like what can we expect going forward? Is this sustainable?

There's a lot of traction happening and a lot of work happening on our export front, as I have been telling in the last few con calls, earlier also. So I also -- we also see very good future ahead of us, a lot good inquiries and some large entries, a lot of work is going on. So -- I am very positive on that. The opportunity is there, we are working hard on it, and I'm pretty positive on that end. And currently, we are already sitting on order book of more than INR 70 crores, precisely INR 72 crores in our first orders. A lot of inquiries are also we are working upon. All the inquiries in international markets are not tender-based. So there are a lot of client inquiries going on with so many customers globally. So our foothold in the international market has been increased multifold in last 2 years. So I'm pretty hopeful and positive that, yes, export will have good growth.

And like last year, if you see that the total year ended up at INR 64 crores of export. And this year, already INR 67 crores has been done in first 9 years -- 9 months. And already, we are sitting on an order book of INR 72 crores. So you can see that this is a growth of almost more than 25%, 30% in exports also.

Exactly, sir. And sir, what's the margin profile for this order -- foreign order?

Definitely better than the Indian market, and they also provide us very good import, what you call it, dollar hedging [indiscernible]. These are very good by all means.

Okay. Fine. And sir, second that I have on the margin. If you see in the current quarter, they have moved up quite sharply. So based on the current order book, what can we expect in the coming quarters?

Basically, it will -- if you see for the 9 months, it's almost at the level of 16%. And going forward also if average have to take, it's always better to take at 16%. So basically, it depends on sometimes -- for 1 particular quarter, there are more high-end meter supply and maybe next quarter, it is more conventional meter supply. So their mix is always better to take at 16%.

[Operator Instructions] Next question is from the line of [ Raj Joshi ] from [ E ] Securities.

Hello. So my first question is about -- regarding the order book. So our order book growth is slow. So how do you see the FY '20 revenue growth?

We replied earlier also. The order book has been slow because of some principal changes on conventional meter to smart meters [from] the electricity [board]. And we were also very choosy in selecting the customers and taking the orders. That was the main reason. And future there's so many inquiries going on and the way the customer is -- and especially the central government is pressurizing on this margin because in the way the customer is focusing on improving their revenues. We see a phenomenal order book coming ahead. I don't see any problem as such.

And this order book is also -- we are covered for next, at least 9 -- 3 quarters. So there is no worries on that.

Okay. And sir, my -- another question is on the nonmeter segment. So how much we have received the order for the gas or the water or the EV?

I mean absolutely -- these are primarily -- this order book is completely electricity meters.

We take the next question from the line of Manish Goyal from Enam Holding.

Yes. Just on the gas meters. Last week, there was an article in the newspaper where the government has asked Ideal to set up a manufacturing facility for gas meters. And basically, it's anticipated that there will be a demand of at least 4 crore meters from the -- for the gas meters. So do you think that with Ideal setting up its own facility, we will be devoid of the opportunity to supply gas meters?

Ideal primarily has come out with the [ EUI ] with the condition that they can be a big public-private partnership also. And we are also working on that [ EUI ]. The terms are very different and they primarily want to set up this plan for their own consumption. And maximum manufacturing capacity, what they want to build currently is for 1 million meters per annum.

Okay. Okay. Fine. So we would also probably explore the joint venture?

Yes, we are already..

We are already part of the [ EUI ].

Okay. Wonderful, sir. And on the -- so just coming back on the EESL. The existing tender, you mentioned that the fourth tender which will be floated. How big would be that tender, sir?

Fourth tender has already been floated and quoted. There are 9 lots with 50 lakh meters in total. So this time they are trying to do the way the SEB has done. They've made it different laws, they made the picture are very stringent, they've not allowed anybody to come and just quote like this, and that's where a proper meter manufacturer. So no IPAs of the world can quote just like that. So they have also learned the level in a hard way. And this particular tender has 9 lots, and I see a very good opportunity in these tenders.

So these are, again, simple prepaid meters or...

Smart meters. Yes, all smart meters. And every smart meter can be prepaid and postpaid both.

Okay. Okay. And on the existing EESL, you mentioned we have supplied 12 lakh meters out of 20 lakh meters?

Yes.

Okay. So -- and the pending order book is INR 200 crores? So by when do you think that these supplies will get over, sir?

By April, May. We are very much well on schedule. By May end or by the mid of June, we'll complete the supply.

Okay. And by year-end, you did mention that we'll at least end up with the order book of INR 1,200 crores. Is it right?

I've not mentioned that, but I'm very hopeful that it will there.

We take the next question from the line of [indiscernible] from Global Investment.

Sir, one more question. I understand that we are moving our production to Guwahati plant. What's the status on that? And what would be the percentage of production that we'll be moving over there?

Well, we are moving our production to Guwahati. I don't know what does that mean. We already have a plant in Guwahati and we are continuously growing that plant and increasing its portfolio by adding more and more newer products to it. Reason is simple: it gives us better margins and incentives.

[Operator Instructions] Next question is from the line of Amit Shah from [indiscernible] Securities. Mr. Amit Shah, you may please go ahead with your question. It looks like we've lost the line for the current participant. [Operator Instructions] Next question is from the line of Deepak Agarwal from AXIS Mutual Fund.

Hello?

Yes, yes. We can hear you.

Yes, I just want to know the latest [position] on -- at the end of the quarter?

Sorry?

Business position. What's the amount of business?

I could not get you. Your voice is breaking up.

Hello?

Yes.

I want to know the amount of details at the end of December '19.

Current outstanding?

Yes. Yes.

Hello?

Yes. Yes. Trade receivables.

Trade receivables is around INR 500 crores.

We take the next question from the line of Ashok Shah from LFC Securities.

Sir, I had 2 questions. First of all, a question on -- just can you give us some rough idea, at full capacity, what would be our sales with the normal products mix? And what's our outstanding from this if [ EUI ] what's the contract says about interest payment on late payment or not? Hello?

Very frankly, I could not...

Yes we are not getting...

Understand the question properly. First thing what I could understand, you are asking about the current manufacturing capability or capacity, which is like we can comfortably do 10 million meters annually of different product mix.

So it could be around INR 1,000 crore, approximately?

It's nothing to do with the INR 1,000 crores. It's the capacity of 10 million meters of different type of meters. So if you take average of 1 meter for -- and the different segments, then it can be from INR 2,000 to INR 2,500 crores. So basically, with this capacity, we can go up to a turnover of INR 2,000 crores plus.

Okay. And secondly, regarding this outstanding payment which we are getting late from the government side or from this government or other department, so then this has contracts or legal formality of our interest payment also?

No.

No. The government department never pay interest on late payment.

[Operator Instructions] Next question is from the line of Ritesh Bafna from RB Securities.

I would just like to understand what is the current debt on the books that we have, which includes the short-term that is the working capital debt as well?

Basically, there is no long-term debt on the company. Long-term debt is hardly INR 10 crores to INR 15 crores. The total debt -- the gross debt of the company is almost -- is around INR 270 crores. And this is a gross debt, with the company having a cash of around INR 130 crores, INR 140 crores.

Okay. And out of this total debt, what will be the working capital amount? And any short-term debt?

Sir, I told you there is no [indiscernible] debt, only INR 10 crores to INR 15 crores.

No? Okay, okay. And can you give me any color on the working capital scenario? Like what is the number of working capital days as of December end?

It's almost 200 days.

200 days. Okay. And lastly, I would just like to know what are the current utilization levels at our plant? And do we have any CapEx planned during the year? Or this year? Or the next year?

Current utilization is 60%, 65%. And no CapEx planned, at least for the next 2 years, there is no Capex planned. And the normal CapEx which is the operational CapEx, that is going to be had.

Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Thank you, ladies and gentlemen. I'm very happy with the way we think business is shaping up. And we are very hopeful that the government is coming in a very big way and they are talking about a lot of about our 25 crores meters every day. And in case you have any further queries, you can get in touch with SGA, our Investor Relation advisers. Thank you very much. Thanks.

Thank you, everybody. Thank you.

Thank you very much. On behalf of Genus Power Infrastructure Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.

Great.