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

Ladies and gentlemen, good day, and welcome to the Genus Power Infrastructures Limited Q1 FY '21 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as of the 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 now hand the conference over to Mr. Kailash Agarwal, Vice Chairman of Genus Power Infrastructures Limited. Thank you, and over to you, Mr. Agarwal.

Good evening, ladies and gentlemen. A very warm welcome to Q1 FY '21 Earnings Call of Genus Power. I hope you and your family are healthy and safe during these unprecedented times and taking up most care of yourselves. Along with me on this call is Mr. Jitendra Agarwal, who is the Joint Managing Director of the company; and SGA, our Investor Relations Adviser. The results and investor presentation are already been uploaded on the stock exchange and company website. I hope everybody must have taken a chance to look at it. The lockdown resulted in loss of production due to shutdown of operations in the month of April and May, which resulted in suboptimal capacity utilization in Q1 and leading to spillover of our sales to forthcoming quarters. From June onwards, we have ramped up our production capacities, and our current capacity utilization is far better than last quarter. The washout in first quarter, we are very confident that we will be taking care of it in coming quarters and repeating our performance of financial year '20. In this quarter, we have recorded sales of INR 84 crores as compared to INR 269 crores last year, in this quarter. For quarter 1, EBITDA loss stood at INR 2 crores compared to EBITDA profit of INR 39 crores in last fiscal year. We witnessed the operating loss on account of nonabsorption of fixed costs. However, we made every effort to protect our margins by efficiency procuring our raw material requirements, rationalizing our operating expenses and reducing our fixed costs. Net loss stood at INR 3 crores for this quarter as compared to net profit of INR 20 crores last year. Cash PAT stood at INR 2 crores as compared to INR 26 crores last year. The Board of Directors have recommended a dividend of INR 0.10 per equity share on face value of INR 1 per equity share for FY '20, subject to approval of shareholders at the Annual General Meeting. Our current order books stood at INR 1,022 crores, which gives us a healthy visibility of growth for the next few quarters. Bulk of the order inflow has been deferred by 3, 4 months on account of pandemic-led assumptions and is likely to pick-up over the month of November 2020. State electricity boards are in transition phase to draw out the detailed rollout process for shifting procurement from conventional meters to smart meters. Also, we will remain very conservative in selecting our clientele, with security of payment being a key focal point. There is likely to be no significant impact on the demand side due to COVID-19, as the state and central government are presently striving for reforms in the power sector that focus on reducing the Aggregate Technical & Commercial losses by implementation of smart meters. The distribution sector is the weakest link in the entire power value chain and greatly affected -- affects power generation companies. Therefore, 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, reducing DISCOMs' financial problems, enhance consumer convenience and rationalize power consumption. State electricity boards are also propelled to take action in this direction as improving billing efficiency has become a necessary condition for receiving funds. Ministry of Power is likely to make installation of smart meters as a component of regulatory requirements as it will be a part of the proposed National Power Tariff Policy, making the installation of smart meters compulsory. Also, there are reports that due to security concerns, Chinese companies may be shut out of the smart meters program in India. Union Power Ministry is not in favor of state-run energy efficiency, EESL using Chinese meters, given that these are connected to electricity distribution networks, which is a sensitive sector. If Chinese players are forbidden to participate in tenders for smart meters, then it will be a big boost for Indian smart metering industry as Chinese companies used to enjoy export subsidy support from their government, distorting the level playing field. [Technical Difficulty] I repeat, with Ujwal DISCOM Assurance Yojana getting expired in March 2020, the government is considering another reform scheme, namely SAMARTH, formerly ADITYA Scheme, aimed at investing funds in network infrastructure like smart meters. SAMARTH scheme primarily involves the implementation of compulsory prepaid meters of -- for 250 million households with an aim of lowering AT&C losses of DISCOMs to 12%. In its design today, the scheme is planned to install smart meters in the first phase starting from electricity feeders and then reaching consumers. The new scheme is likely to have central funding up to INR 1.1 trillion, USD 16.3 billion, over 3 phases and remaining balance of INR 2.9 trillion, USD 42.5 billion, will be funded by states. Thus we foresee a lot of traction in our business going forward. The proposed electricity bill 2020 may also usher in major distribution reforms. Government is in process of drafting standard bidding document and outlining the terms and conditions for deployment of smart meters across India. Prequalification criteria is likely to become very stringent to facilitate the entry of only quality companies having robust execution track record. The demand is now likely to increasingly shift from conventional meters to smart meters. We are confident of sustaining our margins going ahead as product mix changes in favor of smart meters. Also as proportion of smart meters in the overall pie of meter increases, the margin profile of our business will gradually improve. Our working capital cycle has remained stretched as we are experiencing delays in getting our dues from DISCOMs who have come under further stress due to drastic reduction in power consumption during lockdown. DISCOMs are now also witnessing delays in collection as consumers have deferred payment amidst the crisis in order to conserve cash. Under the Atmanirbhar Bharat Abhiyan economic package, the government of India had announced that it would infuse INR 900 billion into DISCOMs, which is now likely to be increased to INR 1.25 trillion. This enhanced quantum will enable DISCOMs to clear their dues, which may enable us to reduce the stress on our working capital cycle. It is important to note that smart meters have proved their worth during lockdown as it helped curtail the losses of the DISCOMs that had adopted them. For example, in Uttar Pradesh, 95% of smart meter consumers have been billed during the lockdown as against just 29% for the rest. Smart meters have helped DISCOMs in handling the COVID-19-led crisis effectively by enabling auto collection of meters read over the air, reducing the need for manual intervention, remote connect/disconnect and enabling digital payments of bills. The DISCOMs using smart meters have seen 15% to 20% average increase in monthly revenue per consumer according to EESL, showcasing a wide gulf between smart meters users and otherwise, highlighting their remarkable efficiency. Thus installation of smart meters are directly linked to improving the financial health of DISCOMs. Utility companies are estimated to recover their entire investment in smart meters in just 2, 3 years by way of huge savings from decrease in power theft and increase in collections. India energy consumption is set to grow 4.2% a year by 2035, fastest among all major economies. More than 28 crore consumers are grid connected, whose conventional meters will need to be replaced by smart meters. Thus, there is a tremendous growth prospect for us in the years ahead, and we are fully geared up to capitalize on this enormous opportunity. We have continued to focus on technology upgradation and operational efficiency to serve our long-lasting relationship with our clients, which has engraved our leadership position. In smart meters, company also have a lot of opportunity in terms of recurring revenue as facility management system will also be part of the contract. We as a company are specifically targeting recurring revenue as an avenue for swift earnings growth. We also plan to provide our domain-related software to our clients. We can now open the line for Q&A.

[Operator Instructions] Your first question is from the line of [ Dilip Jain ] from [ Ayush Capital Advisors ].

My first question is why has our raw material cost as a percentage of sales increased by 3% approximately in the June 2020 quarter vis-à-vis March 2020 quarter? And this is despite softer commodity prices. That's my first question. I'll go ahead with my second question. As the future prospects are brighter for smart meters vis-à-vis conventional meters, something that you also mentioned in the presentation, our turnover growth may be high in the future. However, with smart meters also being more expensive as compared to the conventional meters, how will you fund the high working capital requirement that will arise in the future during the high sales growth period?

Regarding your first question of -- so basically, you have to understand that we made different types of products, where somewhere the raw material prices is higher and somewhere, at some place, some products, raw material is lesser. So basically, the turnover of this particular quarter is very limited, only INR 84 crores is there. It's because of the product mix. There is a change in raw material cost. So there is nothing that the raw material prices have gone up -- or there is anything changed in raw materials there. It is because of the product mix that has happened and the volume that has happened in first quarter. Regarding your second question, basically, you will see that company is a net debt-free company, and basically, we have a good balance sheet. So if the business grows and the number grows, there won't be any working capital issues to the company.

[Operator Instructions] The next question is from the line of [ Priyanka Singh ] from [ Atidhan Securities ].

I have 2 questions. The first one is what is your current capacity utilization? And are you likely to face any order cancellation because of this pandemic?

Current -- I will take this question. The current capacity utilization for the first quarter?

Correct.

For the first quarter, it is 25% to 30%. And we are not seeing any order cancellation at all from any utility due to the pandemic.

Okay. And can you provide any guidance for FY '20 in terms of revenue or margin, EBITDA margins?

FY '21?

Yes. Sorry, FY '21.

It will be same as we have seen like in '20, except this first quarter, remaining quarters will be doing as we have done in the earlier year.

Okay. And what is the share of smart meters in our order book?

In the current order book?

Yes, sir. As of the quarter?

Current order book, yes.

Current order book, yes. It is more than 65%.

Perfect. Okay. And what is the average cost of smart meters and conventional meters? And like what is the margin delta between the 2 types of meters?

These are all custom-built products, so it is like asking somebody what is the price of a shirt. So it is very difficult, what technology, what product, what kind of requirement is asked by the customer, it completely depends on that. But as a ballpark figure, a single phase meter is around -- conventional single phase meter is around INR 700 to INR 800. And the smart meter can be averaged anywhere from INR 3,000 to INR 3,500, depends on the technology being used.

Okay. And the margin profile between the 2 meters, if you can provide?

Margin profile won't be possible to provide.

It is not possible, yes.

[Operator Instructions] The next question is from the line of Kunal Koladiya from Anova Capital.

Sir, my question was pertaining to our order book like sir, what is the order book pipeline for the forthcoming quarters, if you can give some color on that?

Yes. Today, currently, the live tenders, which we have already bid in last month is around INR 400 crores, precisely INR 380 crores estimated value, which are going live. The tenders which will be quoted in next 30 to 45 days will be INR 952 crores estimated value. So this is what you can see as the current tenders which are live and tenders which will be quoted in the next 30 to 45 days.

And any rough estimate like how much do we expect it to get actually flow in our order book?

Generally, we see a conversion of 15% to 20%. I'm confident that we will do that and maybe better.

Okay. Sir, and just wanted to check like smart meter constituted how much percentage of our total sales in the current quarter?

In the current?

Quarter.

Quarter. That number we have to check. Right now...

We'll have to check the exact number.

We'll get back to you on that.

Out of INR 85 crores, how much is the smart meters?

Yes.

It is quite significant. But exact number, I don't have.

We'll provide you through our Investor Relations.

Okay, sir. And sir, I just wanted to know that how much does the EESL contribute to the current order book, if you can give some idea?

Current order book, EESL, out of the total order book, what we have in hand right now?

Yes.

EESL is around 20%.

20% is EESL, right?

Yes.

Sir, I had one question on our working capital. So like on the working -- our working capital looks already stretched right now. And with the DISCOMs, likely to be under further stress, as you mentioned, due to COVID. So can you please provide the outlook, like what will be the working capital going ahead like in FY '21, full year?

Right now, we are not seeing any trouble that it will be stretched further. So whatever is right now will be like that only because already government is working hard on providing money to the vendors and all. And government is very serious on that. So we don't think it will stretch furthermore.

So you expect it to remain in this range going ahead?

Yes. Yes.

Okay. Sir, and one last question from my end pertaining to our fixed costs. Sir, just wanted a rough guesstimate, like what will be our fixed cost per month? And how are we taking -- how are we undertaking several measures to curtail those fixed overhead expenses?

So basically, fixed cost, as you see, is that, we are reducing the interest costs. We are reducing the salary costs. We are reducing the other overheads and all. So basically, all costs, we are already working on that. So like already we have -- throughout the board, we have reduced the salaries also. We have not taken any remuneration for the directors for the first 2 quarters, this quarter and this ongoing quarter. And we have already reduced our travel things and other overheads and all. Interest, interest rates are also going down. And secondly, we are also utilizing lesser working capital and all from the bank. So basically, all these are the fixed costs, which we are already working on to reduce.

And any rough estimate like what will be the fixed component, like that minimum pay format?

I think if you see this quarter that, that is basically the minimum because already the whole quarter, we have worked on reducing the costs only.

[Operator Instructions] The next question is from the line of [ Esha Chawla ] from [ Arya Securities ].

My first question is what is the share of exports from our total order book? And what would be the likely impact of COVID on our export business going forward?

So the current...

You can go ahead. I'm just telling the total export order is around INR 50 crores out of total order book. Now you can continue.

So as said by the Vice Chairman, the total order book is around INR 50 crores from the exports. So yes, there has been some impact on some of the inquiries going on. But at the same time, a lot of new inquiries have also come off from different parts, which were not expected. So initially, they will be what we would have expected before the pandemic for this financial year in the exports. For sure, I don't see exactly that we will be achieving for the whole financial year, we take it in the total. But in the longer run, it will bring in more opportunities, which we never thought will come in our fold. A lot of things again started working. There was a slowdown from last 2, 2.5 months, but again, a lot of things have started rolling again. And I'm pretty hopeful that 3 months to 6 months down the line, export business will see a better opportunities than better results than what we would have expected. But yes, that will be more visible in numbers in the next financial year than this financial year.

Okay, sir, good to hear. And my next question is that, does the company receive any upfront payment or mobilization at once when we win any contracts?

It depends on the contractor to contractor. Most of the contracts, what we do in India, there is no advance payment.

Okay. Okay. And sir, as you have already mentioned, the management is very selective in choosing clientele with key focus on timely payments. So does it lead us to missing out on any big opportunities?

Not really. But at the same time, we have been very, very choosy in selecting the client because payment cycle is very important.

Okay. Okay. And sir, just one last question. That as you have mentioned in your opening speech that there is a scheme called SAMARTH that is being proposed. So which involves compulsory installation of smart meters of around 250 million households in India. So if you could provide some color on that, that when the scheme is likely to roll out?

So it is under discussion in the government. We have been hearing a lot of news. And if you see the current electricity ad, even that covers a lot of ground on this. So there is a lot of things happening at the government level. They're also working on increasing the overall budget to be infused in the discounts. So which is mentioned by the Vice Chairman in his opening remarks. So SAMARTH is very much part of that. And when it will be rolled out? It's difficult to say. It may happen within a few weeks. It may take some months. But the government is pretty serious about it. And I'm already seeing a lot of tenders getting initiated from almost everywhere in the country. Initially, if you would have -- if I see in the last 30 days, almost every electricity board across the country is either working on the specifications or working on coming out with a tender for the smart meters and with different, different schemes, they are already -- a lot of work is happening. So it is clearly visible that there is a lot of pressure from the top in the DISCOMs to have smart meters in a major way for the electricity boards.

The next question is from the line of [ Rahul Soni ] from [ SMIFS Limited ].

As far as my knowledge is concerned, smart meter is built on 2 kind of technologies: it's RF; and GSM-based. So where is your presence in this technology. And in India, which kind of technology is mostly used?

Yes. I lost your voice in between. So you are asking there are 2 technologies in India for smart meters.

Yes. There is RF technology-based meters and GSM-based meters. So which type of product you are manufacturing? And in India, where is the market for -- out of these 2 products in India? What kind of market is there?

I'll answer it quickly that, first of all, there are not only 2 way of communication when it comes to smart meters. There are 3, 4 different types of ways to communicate. There is also PLC. There is also proprietary RF, open RF, et cetera. Primarily 2 technologies being widely used across the globe is both GSM and RF. And India, being such a large country, we will have market for both. So India will see a lot of traction in both the technologies, whether it is GPRS, GSM, NB-IoT put into one category and the other category being radio -- RF, which will have different versions. Fortunately, Genus is a one-stop shop for any kind of electricity metering and communication. As one bit -- Genus has the highest installed base for both the technologies in the country by far.

Okay. So do this GSM-based smart meters require any installation or tie-up with the telecom companies? Is there any additional cost related to that?

No, no, no. We have -- generally, tri-party agreements are being done. And we have almost 1.2 million GSM-based meters working in India, which have been supplied to the customer, and customer is doing the tri-party arrangement with the telecom companies.

Okay. Sir, one more question. What is the pricing difference in your meters and that from Chinese suppliers? And what is the market share of the China-supplied meters, if you can tell?

Except EESL global tenders, nowhere else, Chinese could enter in India. And even in that, they are facing a huge problem. They have got orders from last almost, I would say, 18 months and not even 10,000 meters have been supplied. With the current scenario, I further see this becoming more and more difficult for Chinese. And when it comes to cost competency, it's apple-to-apple compared, India is in the best position to compete with anybody in the world.

So according to you, it will be a big boost if the Chinese players are forbidden for entering into India.

Definitely, it will help the country. No doubt about it.

[Operator Instructions] The next question is from the line of Manish Goyal from Enam Holdings.

I have a couple of questions. Sir, first, on the recent EESL tender. I believe there were lot of participation from Chinese players. So what is the status on that EESL tender? And what was the order win we had from that tender?