Inox Wind Limited (INOXWIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Inox Wind Q3's FY '21 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore of Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Aisha. Good evening, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the Inox Wind Limited Q3 FY '21 Earnings Conference Call. We have with us today Shri. Devansh Jain, Executive Director; Shri. Jitendra Mohananey, Group Financial Controller; and Shri. Narayan Lodha, Chief Financial Officer. We will begin with the opening remarks from management on the operational and financial highlights as well as the key updates for the sector. This will be followed by the Q&A session. With this, I hand over the floor to Mr. Devansh Jain and team. Over to you, sir.

Thank you, Sumit, for that. Good evening, everybody. I will take you through the operational highlights as well as how we see the sector moving forward and the significant opportunities. And I'll -- then I'll hand it over to Mr. Mohananey to take you through some of the key financial highlights for the quarter, and then we'll open it up to questions. To begin with, the company has become EBITDA positive after 3 consecutive quarters of losses. The business is gradually getting back on track as a result of ramp-up in new supplies. We have streamlined our manufacturing operations across all the plants and are now fully geared for ramp-up in supplies in the ensuing quarters, including Q4. We expect significantly high growth Q4 onwards on the back of new supplies for our existing order books as well as significant commissioning revenues as we ramp up commissioning on the ground. We have very significant repeat orders, which are on the verge of closure, and you could expect announcements on that in the days to come. Multiple repeat orders have also been won over this quarter, which will lead to liquidation of some of our stuck-up inventory, which will free up significant working capital for us. If you recall, we had about 50-odd megawatts of stuck-up inventory, which we've been carrying on for a period of time. That's now been tied up across retail orders, and we are in execution of those orders as we speak. We have a significantly healthy order book, which is upwards of 1,300 megawatts, and as we speak, as I mentioned, we are on the threshold of signing significantly large orders. Over this quarter, we have ramped up executioning and commissioning activities for various projects across Karnataka as well as Gujarat primarily being the Continuum order. We have recently commissioned ReNew's 18-megawatt in Gujarat and some small retail orders and are on the threshold of announcing much larger commissioning in the days to come. Another significant development over this quarter has been -- if people will recall, we had taken Board approval to raise up to INR 100-odd crores by diluting stake in a 100% subsidiary, Inox Wind Infrastructure Services Limited. We are happy to inform that we've received all the requisite approvals for that. And equity allocation for that is now well in progress. We expect to complete this from now until March. We've also achieved a significant milestone by achieving financial closure with PFC for 100 megawatts of our uncommissioned SECI SPVs. This will enable us to free up significant short-term working capital, which has been blocked in a 50-megawatt SP, which was lying uncommissioned due to certain delays at CERC and so on and so forth. Over the next 2 to 3 months, we expect to withdraw -- draw down this entire facility and free up our short-term working capital. Moving on, I'll talk about significant market opportunities. Globally, there has been a huge thrust on renewable energy. Recently, with Joe Biden becoming the President in the United States, we've seen the U.S. rejoining the Paris climate accord. I think buzzwords nowadays are tackling climate change, renewable energy and ESG. And I think we're seeing that across renewable energy stocks globally. We've also seen massive announcements in terms of renewable energy targets being done by various developed countries across the world. Besides that, India, of course, has upped its target to 450 gigawatts by 2030. In fact, China has recently announced a 1,200-plus gigawatt target by 2030. Over the quarter gone by, we've also seen Prime Minister Modi inaugurate the world's largest hybrid renewable energy park at Khavda in Gujarat. That's a 30-gigawatt renewable energy park. We expect that to begin playing out from 2023 until 2028. Many more such hybrid parks are in different stages of development, and we expect more such announcements from the government in the months and years to come. The significant advantage of these hybrid parks is that they are akin to solar parks, which the government had launched. This ensures land power evacuation facilities as well as permissions for building projects are all provided in a one-stop place by the state of the development agency involved. Hybrid tenders are increasingly gaining traction in the country where the minimum capacity of wind will be 33% of the contracted capacity. There is a huge pipeline of projects, which require turbines. We are gradually moving from a -- or we've kind of moved -- shifted from a buyers' market to, as I would call, more or less a suppliers' market, given the fact that with the whole transition in the wind sector, we're down to very few turbine manufacturers. And actually, most -- all of us have virtually cleaned up all our old inventories. So naturally, new manufacturing is taking place at a much, much more competitive product variance as well as higher margins. I won't spend too much time on some other developments which have happened, which we've spoken of various new IPPs, such as O2, Ayana, JSW entering the sector. We've also seen NTPC, Tata Power announce massive renewable energy goals. So all in all, we're looking at a very, very healthy pipeline, a huge growth in the days to come. Our 3.3-megawatt platform is performing -- is progressing well. Various components have now started arriving in India. We've already started work on the foundation and the tower manufacturing as we had mentioned 2 months ago. So in the next 2 to 3 months, we should have the prototype up and then we should be -- we would be carrying out commercial production simultaneously. With that, I'll leave the floor to Mr. Mohananey to take you through some of the financial results.

Thank you very much. Just to take you through key balance sheet initiatives or actions what we have taken during the quarter. During quarter 3 FY '21, the company has raised INR 199 crores by issuing NCDs at 9.5%. The proceeds were utilized inter alia to optimize working capital and retire higher cost debt. It will improve the short-term fund availability in the company. On the front of raising equity, IWISL has already started allocating the equity against multiple expression of interest received by the company. Certain other initiatives are also in progress, which will lead to significant reduction in the financial cost. On the front of financial numbers, the revenue and EBITDA compared to the preceding quarter, revenue of INR 204 crores in Q3 FY '21 against revenue of INR 171 crores in Q2 FY '21; EBITDA profit of INR 8 crores in Q3 FY '21 as against EBITDA loss of INR 33 crores in Q2 FY '21. So these were the key highlights and a broad overview of our operations and financial performance and how we see the sector going forward. I have along with -- I mean, Mr. Devansh Jain and Narayan Lodha to take questions now. Thank you very much.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

And sir my first question is, sir, how do you see the execution panning out given that, I think, we are -- we must be closing -- some of the long issues might have got resolved during last 6 months, especially on the SECI side. So can we expect the execution to jump up now from Q4 or in the next couple of quarters?

Mohit, yes, I think we should see execution jump up significantly. We started supplies from Q3, primarily Q1 was shutdown period, Q2 was peak monsoon, so Q3 is when we started. We've -- as I mentioned, we've recently commissioned the ReNew's 18 megawatt, which in fact is over this quarter, current quarter, Q4, not in Q3. And various commissioning approvals are now being taken by Continuum at this point in time for us to go ahead with commissioning those. We've already executed a significant chunk ready for commissioning. There are some permissions which are awaited, which are routine permissions, which Continuum is expected to get in the next couple of days, and then we begin commissioning turbines progressively.

And secondly, on the Continuum order, which was supposed to happen, I think, by this fiscal year-end, are we on target to commission the entire thing in FY '21?

Well, the entire capacity was not to be commissioned within this fiscal year. But yes, I think a significant part of that capacity should be commissioned within this financial year. At least supplies from our end would be done to that extent.

And sir, anything on the new order inflow? You're talking to various clients, JSW or some other, how the -- can you just throw some light on this?

So Mohit, we have mentioned that we are on the verge of announcing significant repeat orders in the very near future. We've just completed Q3 while we're in the middle of Q4. So I think in the very next few days, I'm sure we should have some announcements coming up of significantly large orders, which we've -- which we are on the verge of closure. Beyond that, it's very hard to talk on specifics. We've also closed multiple retail orders in this quarter. We've not announced them yet. That's something which is work in progress. That takes care of all our old inventory which was left, 50-odd megawatts. So we're extremely enthused about that. We don't have any more old inventory left to tie up or stuck-up inventory of our liquidity to tie up. We are ramping up new manufacturing for supplies across these IPP supplies. And another interesting point, which I'm not sure how much you captured, Mohit, was our stuck-up asset, 50-megawatt SPV, which has been stuck up for a long time, we've achieved financial closure for that across multiple SECI projects from PFC. So depending on CERC order coming out in the near future, depending on what that order is, we'll either commission it as a SECI-1 project or as a SECI-2 project. That frees up almost INR 200 crores to INR 300 crores of liquid cash for us, which has been lying -- blocked since over a year.

That's lying in the inventory, am I right? Do you think that?

Standing, erected, I mean, virtually readymade project.

So is it a part of inventory right now?

Yes. No, well, it's part -- it's built -- it's -- so it's lying in our receivable.

[Operator Instructions] The next question is from the line of [ Abhishek Kumar ] from [ Span Capital. ]

Mr. Devansh? Hello?

Yes, sir, we can you hear you.

Yes, [ Abhishek, ] we can hear you. Can you raise the question? Hello?

[ Abhishek, ] we are unable to hear you.

Yes. Can you hear me now?

Yes, sir.

Yes, we can hear you.

Yes. In financial year '21/'22, in how many megawatts do you think of executing?

Look, in FY '21/'22, we expect extremely significant growth over FY '21/'22. I think, ballparks, we would be looking at almost about 500-odd megawatts in terms of execution.

So that should give you a turnover of around INR 3,000 crores to INR 3,500 crores of turnover?

Well, not exactly because to some extent, a lot of the supplies going forward are equipment supply. So it's not exactly 600 by -- 6 crores x 500, would probably be weighted average of about 5 to 6, so maybe about 2,500 to 3,000.

Okay. And as such the industry, like what sort of return on equity or return on capital employed over, let's say, 2 to 3 years should wind power energy manufacturers or EPC contractor do?

Look, it's hard to give you a return on capital employed and return on equity because primarily, the only 2 listed players are Inox and Suzlon. Suzlon has negative equity. It's a written off balance sheet. From our perspective, our capital has always been lean. We still have about -- don't have the exact numbers in front of me. We had extremely high return on equity in the good old days before the sector shut down, and return on capital is pretty healthy as well. But I think the metrics which we will follow going forward are historical EBITDA margins and PAT margins. And I think that's where we expect to be in the coming financial year.

And would you also be venturing into hybrid power projects with solar and wind together?

Look, so what hybrid means is for an IPP to do wind and solar. We will remain a wind energy player. We don't intend to get into solar. There is no margin in solar simply because the solar panels virtually are imported from China, unless you are Adani and you're selling up a 3 or 4 gigawatt manufacturing plant. EPC is something which we don't like. There's barely any money to be made. In fact, all the inefficiencies or cost overruns in any business happen on the EPC front. So we are not an EPC contractor. We want to play on manufacturing and technology of our [ enterprise. ]

Okay. And does the gas turbine have any role to play in the renewable energy in India as you foresee?

Look, it's too far away. Going forward, you could talk about peaking plants or you could have battery, wind, solar, gas. But from an India perspective, we are way, way, way too far in terms of adding peak load, small gas units and so on and so forth on larger winds projects, too far away.

[Operator Instructions] The next question is from the line of Giriraj Daga from K M Visaria Family Trust.

Yes. Hello, can you hear me?

Yes, sir, we can hear you.

Yes, you are audible. We can hear you.

Yes, sure. So I have a couple of questions. So first, like, let me go back to a little bit and see that we got these orders under the SECI-1, SECI-2, which happened almost 2, 2.5, 3 years back. And then obviously, we were following that it would be followed up by some good amount of business for us. But then it generated a problem of not signing PPA, land acquisition and other things. So what gives you confidence now that we should be able to achieve this execution? Has things moved materially on the PPA side? Are the state has -- or the SECI has been able to sign back-to-back PPA with the other state or the land acquisition parts are clear, the transmission lines are clear? So that is first part of the question. So if you can take one-by-one, that would be okay.

Look, what -- we can go back in time when SECI auctions were carried out, now it's been a long time since then. Fundamentally, what happened was once auctions were announced, you -- for 1 year, you didn't have auction guidelines. So even if you have a readymade project, you could not commission and build out projects, number one. Number two, thereafter, majority of the green energy corridors you need. For example, in our case, in Inox Wind's case, our PGCIL line and grid substation were delayed by over 18 months. The problem had begun when the government shifted from feed-in tariff to auctions, you have to give a grandfathering period. You don't just press a button and expect everything to be ready the next day. Globally, almost 40 countries have transitioned from feed-in tariffs to auctions, and virtually every country had a grandfathering clause. Unfortunately, in India, we never had a grandfathering clause, which led to complete pandemonium and disaster and collapsing of companies across the board on the manufacturing side, be it wind or erstwhile solar manufacturers back in the day. I think what gives us the confidence and what's -- why we see the -- we are at this threshold of massive growth in the wind energy cycle now is simply because regulated -- regulatory obstacles are behind us, green energy corridor obstacles are behind us, transmission line, land acquisition obstacles are behind us. I'm not talking of minor delays or a couple of land points getting stuck, which are routine, which happened even during the FIT routine. Fundamental delays, fundamental disclarity on regulatory issues, fundamental issues in getting PPA approvals, signing PPAs are now behind us. There are no such issues plaguing the sector anymore. In fact, there's a huge pipeline of auctions that PPA has already won, which require supply now, and there is a very limited pool of suppliers in the market. I'm sure some of you who follow the wind energy sector would know Gamesa has virtually exited turnkey development in India. Vestas has exited turnkey development in India. It's virtually down to Inox and Suzlon who are doing turnkey development in India. So going forward, yes, turnkey share is going to probably reduce to 30%, 40%, vis-à-vis 100% or 80%. But even within that, a lot of IPPs require handholding in terms of land acquisition, castings, hybrid in terms of doing foundations, erections, so on and so forth. And Gamesa investors have virtually pulled out of this. So it's a limited pool of manufacturers. Everybody is now working for profits. No one is -- naturally inventory's out, people have burned a lot of money over these past 3 years to survive, and naturally who's survived is now going to rule the roost. So I think quarter-on-quarter, you're going to see very, very significant growth in the wind sector. Honestly, we probably would have seen that in FY '21, had it not been for 6, 7 months of COVID and then the monsoon session, which follows for Q2.

Okay. So just a follow-up there. I understand on the regulatory part. But how -- but so -- what we are hearing is that even in the solar also, the first -- like, last year, when the solar tariff was 2.4, 2.5 and then when they are touching now 2, people are again afraid of signing the 2.5, 2.7, 2.8 kind of a tariff. So where we are in terms of PPA signing under the SECI option and the...

Look, look, look, auctions are carried out by various agencies, yes? There are no central agencies which have carried out PPAs where they've backed out of moving forward after auctions are conducted. At the state level, we've been seeing this for years now, where they take out tenders, they have the right after the tender is conducted to whether move forward or not move forward. So if you're referring to one of the recent solar tenders in Gujarat where they've not moved forward, they have all rights. Nobody has lost money because effectively, it says after the tender is auctioned and you won, thereafter before -- until they sign the PPA, nobody needs to move forward. So no one's money is stuck, no one's inventory is stuck. I mean, it's a small 700-odd megawatt because that was done at about 2.9, and now tariffs are at INR 2-odd. So effectively, if I would be in their place, putting aside morals, I would probably want to work for the state and say INR 1 for the state, which would run into hundreds and thousands of crores over a period of 25 years. So these are one-offs, which happen once in a while in some of the state tenders. This is not prevalent in any of the central tenders. And mind you, 90% of all the tenders or 80% of all the tender -- 80% or virtually all the tenders coming out in the country today are central tenders.

Okay. So out of -- like on Slide #14, you have given 17,000 crore of -- worth of auctions. So you believe the majority, we are -- the regulatory hurdles are behind us for the 17,000 megawatt -- or 17 gigawatts of auction which had happened so far?

Yes. There are no regulatory hurdles burdening these 17-odd gigawatt, of which about 5-odd gigawatt is anyways commissioned or maybe 2, 3 gigawatt does not come in, but barring the NTPC 1,200 megawatt, there is no regulatory hurdle on any of these.

Okay. My second question is related to a 3.3 gigawatt of new WTGs...

Megawatt. Megawatt.

Yes, 3.3 megawatt, sorry. So any idea that what can be the tariff. So earlier, we touched the low of on the vendor on 2.5, so that was the -- our own minimum, 2.45. So do you think we would be able to go further below that number, the 3.3 megawatts of turbine? Or what is that the PLF should be higher about 300 basis point higher compared to the earlier turbines? How do you see that?

Look, you simply move to better technologies, not just a nameplate capacity of 2 becoming 3.3. You move to larger turbine sizes because the cost of energy declines as you move towards larger turbine sizes. Now naturally, the cost of energy decline means that for an x tariff, if on a 3.3 the cost of energy has declined, you make a higher return or you can afford lower tariffs. So I'm not going to spell out what kind of tariffs we can sustain with our 3.3. Fact of the matter is we are the lowest cost producers of turbines in India, probably globally, and we could sustain all the tariffs of SECI-2, 3 without bearing losses on a marginal cost basis. Having said that, our 3.3 is extremely competitive. I think prevailing tariffs should give a very healthy return to IPPs as well as ensure we make our internal margins, which we used to make historically.

Okay. My question next is on financial. So if you can give me the gross debt number and gross receivable number for this quarter that would be helpful.

The gross?

Gross debt and gross receivables. So you gave net debt and net receivable in the presentation, so what is the gross debt and gross receivable number?

I think the gross debt would be upwards of -- would increase by about 150 -- gross debt would be up by about INR 150 crores. We have INR 150-odd crores of liquid cash in the company.

Okay. And gross receivable?

Gross receivables net of write-offs would be about -- approximately INR 700 crores, but we'll have to check that. You'll have to connect with us to get those details. We don't have that readily, but approximately INR 700 crores to INR 800 crores.

Okay. Last thing is that you are guiding about INR 2,500 crores to INR 3,000 crores, and in the PPT you mentioned...

No, no, I'm not giving. That was a broad question. We refrain from issuing guidances in -- on Inox Wind because the past 3 years has been such a disaster in terms of the government. But yes, we would be looking at extremely significant growth. So if you look at the last financial year...

No, my question was that we have given in the presentation that INR 7,800 crore worth of order will be executed in the next 24 months. So I'm not holding you for a year, like FY '22 or FY '23. But do you think in these 2 years put together, we would be able to achieve this kind of a revenue number combined?

Well, we certainly would aim to do so. Back in the day, we were achieving a top line of about INR 4,000 crores. So honestly, we've survived this period and the opportunities are phenomenal today. So I think, broadly, yes, we would like to get back to about INR 4,000 crores of sales per annum. But that's going to happen gradually because as you may understand, ramping up also requires incremental nonfund-based limits from various banks. Some of our bankers have been very supportive over this period. But as you may also be aware, majority of the banks have exited the renewable energy sector, private sector banks. We were always working with private sector banks. So yes, we would need to tie up some amount of nonfund-based limits as we keep moving forward, which I think should not be a problem in terms of getting as we keep ramping up our operations and as we get into a cash profit zone. So yes, but that's something which will take some time to get to that kind of trajectory.

So apart from bank, any other risk you see? Apart from bank funding you highlighted, any other risk which we should be keeping in mind for this number to be achieved?

As of now, no, but yes, routine business risks which anybody goes through, but I don't see any other significant risk.