Premier Energies Limited (PREMIERENE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Premier Energies Limited Q2 FY '27 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.

Thank you, Eric. Good morning. On behalf of ICICI Securities, I welcome you all to Premier Energies Limited Q2 FY '27 Earnings Conference Call. Today, we have with us from the management, Mr. Chiranjeev Singh Saluja, Managing Director; Mr. Nand Kishor Khandelwal, Chief Financial Officer; Mr. Vinay Rustagi, Chief Business Officer; and Mr. Sudhir Moola, Chief Strategy Officer. Now I would like to hand over the floor to the management for the opening remarks post which we'll open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Mohit. Am I audible?

Yes, sir, you are. Please go ahead.

So good morning, everyone. Thank you for joining us today for our Q2 earnings call. I am Chiranjeev Saluja, Managing Director at Premier Energies. And I'm joined today by my colleagues, Mr. N.K. Khandelwal, Group CFO; Sudhir Reddy, Director; and Vinay Rustagi, Chief Business Officer. The company has reported another sterling quarter with total revenue increasing by 38.2% Y-o-Y to INR 2,656 crores on a consol basis. EBITDA and PAT have grown by 17.8% and 30.8% Y-o-Y to INR 760 crores and INR 462 crores, respectively. EBITDA and PAT margins in the solar manufacturing business came in at 29.3% and 17.9%, respectively. The PAT margin has moderated slightly because of increase in depreciation and reduction in other income. Transcon, our subsidiary has reported another good quarter with revenue and PAT of INR 122 crores and INR 18 crores, respectively. EBITDA and PAT margins came in at 15% and 8%. Amongst key business updates, our 7-gigawatt TOPCon cell line has been commissioned. Trial runs are currently underway, and commercial production is expected to start later this month. Our operational sell brands delivered a record capacity utilization in the quarter, showcasing our all-around operational excellence. A highlight of the quarter was new order wins totaling INR 4,001 crores for cells and modules in a highly competitive market, taking our total order book to INR 16,260 crores. The transformer business also saw a healthy intake reflecting higher capacities, taking the total order book in the transformer company to INR 330 crores. I'm happy to update that all our expansion initiatives, including battery energy storage are on track. Solar capacity addition has been steady throughout this year with growth in PM Surya Ghar Yojana compensating for a slight weakness in the utility-scale segment. We expect project commissioning progress to accelerate over the next 6 months, taking the annual capacity addition to around 50 gigawatt AC territory surpassing last year's numbers. More importantly, the long-term outlook for the sector remains compelling with the government looking to reduce dependence on fossil fuel imports and fighting climate change. Recent policy announcements on bolstering transmission and storage capacity additions are expected to unlock the next cycle of growth for the solar sector. Commodity price inflation in wake of the Middle East war has hit the solar sector with material increases in prices of key raw materials and delay in delivery time lines. However, I'm pleased to say that we are navigating this period successfully with careful supply chain management and investments in scale and technology. As new capacity ramp up over the next few quarters, we expect a major step-up in financial performance of the company. At the same time, we are also evaluating several new primary and secondary growth opportunities. Our balance sheet strength as reflected in low cost of capital and a A+ credit rating is a key pillar of our business competitiveness. We remain focused on disciplined growth, leveraging our key operational strength alongside prudent risk allocation. Thank you. We are now open for questions.

[Operator Instructions] The first question comes from the line of Shubham Borade with ICICI Securities.

Congratulations on a good set of numbers. I have 2 questions. First being, where are we in battery manufacturing and what we will be able to localize in the near term to achieve the 40% DCR requirements? And the second will be, what is the status of our approval of new 7 gigawatt capacity from MNRE and has it stabilized?

Sorry, Shubham, we can't hear you. Can you please repeat the second question again?

Yes, the first question was clear. Just repeat the second question.

Yes, sir. What is the status of our approval of new 7 gigawatt capacity from MNRE and has it stabilized? I hope I was audible.

Sure. Okay. I'll let Sudhir Reddy answer the first question on our battery manufacturing plans and localization plans. And the second question, I will take it after him.

Thank you. On the battery energy storage system, we expect to operationalize the battery energy storage system in Q2 2027. And with respect to localization, we are working out on localizing the container manufacturing. We're trying to localize some of the fire suppression systems inside it to achieve the 40% localization that is being asked by the government for the various subsidy programs. And also on the software part also, we have tied up for providing Indian-made EMS for the battery storage systems. So that's our plan on the battery energy storage. I hope that's clear.

Yes. Our plan is to do cell-to-pack and pack-to-container. This is what the manufacturing plant, what we are setting up. On your second question on 7-gigawatt cell line at Naidupeta, we have already made our application to the National Institute of Solar Energy for the inspection of our plant and to get it enrolled in the ALCM. We are expecting the inspection to happen anytime in the third week of November. And the plant is, as we already said, is already commissioned and trial runs are going on. I hope that answers your question.

Yes sir. Yes. And just if I can squeeze in one more. What is status of wafer and ingot manufacturing? And have you placed orders for equipment? And what would be total cost for the project?

Sudhir will answer this question.

Yes. We have started working on the ingot-wafer plant. In fact, it's -- the land has been already procured quite some time back. And also the license and permitting for that place, which is in Naidupeta, very next to our 7 gigawatt plant been in position for that plant. Water allocation has been done, electricity power approval also has been done, and we have laid the power lines to the plant in 169 acres. We hope to commission the Phase 1 by December 2027. And Phase 2, which is additional 5 gigawatts, taking the total capacity about 10 gigawatt by June 2028, which is to more align with the ALMM III and we'll look for guidance from government on that if there is any timing changes.

The next question comes from the line of Apoorva Bahadur with IIFL Capital.

Sir, on this battery manufacturing, I just wanted to double click a little bit more, especially on our partnership with RCT. So it would be very helpful if you can explain like what would RCT bring to the table? Do we -- does the JV have access to its proprietary tech from Wärtsilä?

Sudhir will take this question.

I mean just to give a background, right? RCT is a German company and they have been in the battery energy storage business for quite some time, and they have placed a lot of their battery energy storage solutions, both in Europe and in U.S. as well. So they have both CE and UL certified products in their thing. But that said, our partnership with RCT is going to give us this reach for us into those markets with the battery energy storage solutions going to be manufactured in India. It also gives us access to some of their EMS solutions that they already have and have been doing it for their European and U.S. customers as well. So it gives us both the product access to the product portfolio as well as their customer base that they're currently serving in these 2 markets. We hope to replicate some of their learnings from their already established products in the market into the Indian market.

Okay. And also, sir, the LFP cell imports for these plants, have we tied up for those, which vendor and which geographies -- who from China basically?

Yes. So Apoorva, we're not -- we've been working with Tier 1 manufacturers of cell in China. We have not have a firm tie-up as of date. But as the plan progresses, we will enter into a firm supply arrangement.

Understood, sir. Very helpful. Sir, secondly, I also wanted to know your thoughts on the inventory buildup and sort of the depletion in cash conversion that we are seeing over the last couple of months. How does it resolve? I understand that because we are building new capacities so we would be needing some of the materials, but I think there is a buildup in finished good inventory as well. So would love to know your thoughts on this?

Yes. Hi Apoorva. This is Vinay here. so actually, the buildup is largely on the raw material side. There is no major change in the finished goods inventory. But the buildup is mainly because of 2 reasons. One, of course, there is ramp-up happening in Seetharampur and now with Naidupeta plant also getting commissioned. There is expected to be a big scale-up in operations of the company, both on the cell and the module side. We have to -- in advance of this ramp up, we have to have all the inventory position and the stocks kept up with the company. So when you look at the inventory position, and compare it with the historic revenue performance, the number seems artificially higher. The second thing which has happened in the quarter is that particularly with the war situation, some of the delivery time lines have been impacted. Shipping lines, there is some congestion in some of the ports. So we are basically also been maintaining some extra buffer on the raw material inventory which has led to this slightly inflated position. But I would say this is a temporary nature. As these new plants stabilize, revenue starts coming into the numbers, you will see the numbers fall back to the normal scenario.

So we should expect this by March quarter? Or do you expect a little bit...

I would say, latest by March quarter, yes.

Okay. Okay. And lastly, sir, if you can also share the latest DCR ALMM II price trends. Now I believe that the C&I demand is also around the corner.

Yes. Apoorva, I can take this question. So in the DCR segment, we have got 3 markets which we address. One is the retail market where we have the highest selling point. There, the price prevailing in the market is anywhere between INR 23 to INR 24 per watt on a DCR module. And then the next segment is the KUSUM-C and the C&I market, where we expect realizations to be around 21.5% at the bottom maybe 21%. And then you have the IPP segment, which is now coming in, which is a large IPP. There, we see prices going to as low as about INR 20.5 or even INR 20, if you're talking about up to March '27. Now when you average out all these prices, you get an average of around close to INR 21.5 to INR 22 on the DCR module. When you talk of cells, it's ranging between $0.12 to $0.14 which is mono perk around $12, $12.5 and TOPCon at about $0.14, $0.145. And if you talk of non-DCR module, we are seeing a lot of aggressive pricing there. But as a company, with our high quality BOM and highly automated manufacturing lines, we are able to get a price premium there. So there, we are looking at prices anywhere between INR 12.75 to INR 13.

Just one more thing on this. I think on the DCR price, you said up until March '27. So for these larger projects, maybe for C&I and IPP, the delivery time lines could be further beyond that. So is there a difference in pricing, say, for year-end.

Yes. So for the pricing for IPP, which I stated is all for next year because IPP would not want modules immediately, their planning is well in advance. So there we're looking at around INR 20 for IPP and large C&I. But then there is a mix. You have retail, you have KUSUM-C and you have IPP. So when you average out, we are getting the better realization. And the demand at the retail level is quite strong.

The next question comes from the line of Sumit Kishore with Axis Capital.

My first question is, it's still early days on China's proposed technology export controls. But do you see this -- or how do you comment on the perceived risk of delay or deferment and implementation of ALCM for C&I and ALMM III later by June 2028.

Sumit, I'll ask Sudhir to take this question.

Sorry, Vinay is taking -- let me just step in. Hi Sumit. So I think on the China policy front, this is obviously a draft announcement right now. It is going through a consultation process, and we will know the final outcome, I would say, in the next 3 to 4 weeks. So we kind of showed reserve in terms of comments on what is going to really happen there. Obviously, we are anticipating some kind of controls and we are kind of working with our technology and vendor partners as to finding the best way around some of these restrictions. Bear in mind also that if you look at the Chinese machinery suppliers, for them, the domestic business is almost completely shut down, given that China is now trying to reduce capacity instead of increasing capacity, and all the business for these machinery suppliers is basically coming from the export market and India being the largest of these export markets. So these machinery suppliers are working very closely with the government to try and get some relaxations in terms of the technologies, in terms of orders which have been placed already and other possible areas. So I think we are very hopeful that notwithstanding these restrictions, we will be able to find a way around. But like I said, let's wait for the final policy announcement before we can make any conclusive judgment on this.

Just to add what Vinay said that even the policy is not clear as of now, is talking about some high end, high technology or new technology equipment. Luckily for Premier, we have imported those new age and high-technology equipment for our Naidupeta cell line. So we are at an advantageous situation where those machines are already in our manufacturing line, which have been kind of proposed for a ban. So on cell line, we are fully covered. On ingot-wafer, we will be waiting to hear from the Chinese government after the 15th of November, but we are quite hopeful that there would be a solution, and we would be able to get our equipment well on time.

Sure. My second question is, you commented on realizations across DCR, non-DCR. Could you also sort of give your -- give some color on the EBITDA spread in rupees per watt peak that you are making on cell, cell module and non-DCR module? And how has that moved, say, on a quarter-on-quarter or year-on-year basis?

Yes, Sumit. So unfortunately, we don't give out the spread information on a product-by-product basis. But of course, we have given you indication of the prices, pricing. If I look -- if you look at just the pricing, the cell-in module pricing has been largely stable on the DCR side. Non-DCR pricing obviously has come down quite sharply, some about INR 14 plus, INR 14, INR 15 last year to about INR 12.5 right now. So that has obviously impacted NPCL margin. And equally, we -- the BOM cost in terms of the cell remains largely stable. The wafer pricing from China going up and down a little bit. But on the and -- but then the silver prices again have kind of softened after they went up about 3 to 6 months ago. And then we have seen some changes, recent increases in cost of commodities like aluminum, copper, polymer films, et cetera, which has impacted profitability again on the module assembly business. Beyond that, I can't give you, unfortunately, any specific numbers.

Sure. Just one clarification. When you said that how do the localization rules on BESS really work? So with your existing CapEx earmark for BESS assembly, would that be enough to meet 40% localization guideline? Or would you have to do more CapEx on the manufacturing side?

No. I think [indiscernible]. See, I think to achieve the 40% localization, certain components have to be localized within India. We'll work with those other component manufacturers to localize it. It's not necessary that we have to go ahead and manufacture all these components within India. And some of these are -- there are manufacturers in India. We just have to qualify their product to our designs.

But on an overall basis, the sell-to-pack and pack-to-container will reply for the 40% easily. Yes, we would not need to do any [indiscernible].

Cell manufacturing is not required at this level. For 40% localization, we can manage with other components aside to the BMS and the cells.

The next question comes from the line of Kunal Shah with DAM Capital.

Sir, first of all, like with the 7 gigahertz line now in place, how do you see the ramp-up schedule over year for the second half of F'27? Basically, any guidance on the quantum of production that we can do here on the 7 gigawatt line?

I'll take this question. I think our plan is considering that we will be getting our MNRE inspection we have applied for it, and we should be getting our ALMM/ALCM inspection done and the approval soon. We expect to do about 25% to 30% CUF ramp-up in December on the Naidupeta plant and gradually move towards about 70% CUF by end of March.

Okay. 70% by end of March. So that's the exit rate that you're guiding for, right?

Yes.

Understood. Secondly, sir, on the total order book now, what proportion here would be the DCR because in the module mix shown in the PPT, there would be some component of DCR modules as well, right? So out of the INR 16,500-odd order book, what is the DCR proportion here?

So yes, Vinay you can take this.

Yes, Kunal. So we've given you the breakup between the cell and module business, which is about 48% each of the total order book. And then within the module business, very roughly, I would say, about 20% is also for the DCR business. So in total, I would say about 68% to 70% of the total order book is for the domestic manufacturing business, DCR business.

Got it. And sir, do we sort of retain the guidance of maintaining stable margins when we execute this current order backlog?

So I'll take this question, Kunal. So the orders have been won at the prevailing current price environment. And we are hopeful that we'll be able to maintain margins subject to cost environment volatility. But as of today, while we speak, all the orders are at current pricing environment.

Understood. And lastly, sir, having acquired the [ Transcon ] piece a couple of quarters now. Could you provide some concrete guidance on the scale-up or any sort of milestones here, like how do we sort of see this business scaling up and sort of adding to the overall consol piece?

Sure, Vinay will take this question.

So I think we have said that the 4 GBA part of the Neotrafo capacity is already been commissioned. The company has completed all the type testing for all the full range of power transformers, except for the EHV segment. Now for the larger transformer category, customer acceptance and type testing usually takes some time. I would say about anything between 8 to 12 months depending on different product sizes. And then the conversion to export orders also usually is a long-drawn process. So I would say that we -- in addition to this Neotrafo expansion, we're expecting a gradual ramp up over the next 3 years to about 80%, 90% of the total capacity. With the current capacity and the other 4.5 GBA capacity on the IDP and the other range of power transformers ramping up, I would say, over the next 1 year or so. So in general, we are expecting the business to, like we said last time, more than triple in revenues over a period of 3 years.

The next question comes from the line of Bharani with Avendus Spark.

Can I get to the proportion of...

I'm sorry to interrupt Bharani you're not quite audible. I would request you to use your phone on the handset mode in case if you're using a hands-free device.

Is it better now?

Yes, go ahead.

Yes, Bharani, we can hear you.

Okay. Yes, yes. Sorry for that. I wanted to check the proportion of sales done in the DCR market in the second quarter in the modules segment.

Bharani, I could not hear you, but I think the question was about the percentage of DCR sales in the quarter.

Correct.

So we don't give out any mix between DCR and non-DCR business on a quarterly basis, unfortunately, Bharani?

Sure. My second question is, in the opening remarks, there was a mention of growth prospects both organically and inorganically. So I would like to have some color on what are these inorganic area segments that we are looking at?

So I think in general, what I really want to say -- the sector is placed -- the fundamentals of the sector are extremely attractive with several growth opportunities present both in the solar technology space as well as all the other adjoining areas, whether you look at battery technologies, inverters, green hydrogen, electrolyzers, et cetera. So largely, the focus of the company going forward is going to be leveraging our core strength in solar manufacturing and trying to focus on organic growth. Having said that, we will look at acquisitions very selectively, wherever we feel that we can use these acquisitions to cut our time to market, particularly when the valuations are also very attractive. So I think in general, we are looking at a multiple -- a lot of these opportunities, both in India and even internationally but our focus is on organic growth and closely linked to the solar sector.

Okay. And you're telling internationally, does this involve the erstwhile plan we had to have capacities in U.S.A.? Or is it outside U.S.A. like in Europe or other geographies?

Sorry, Bharani, there's a lot of disturbance in the call. We can't hear you. Sorry, operator is the disturbance only [indiscernible] or is it for all the lines?

No, sir, it is his line. He's speaking a little distant from the microphone and probably not on handset mode.

Is it better now.

Yes, please go ahead.

Please try now.

No. So I was just checking when you said the international geographies, is it the U.S. plan we had earlier that we are restarting or is it completely new geography like in Europe or some other area?

So I think we have been pretty open that U.S. and Europe remain geographies of interest to us. Both these markets, there's a very strong policy push towards domestic manufacturing. And we are focusing -- we are looking at both these markets and evaluating several opportunities. So I think that -- those are the 2 main international areas of interest to us.

Sure. One last question. You mentioned that we had already placed orders for the ingot, the high-tech equipment for the cell line. How about for the ingots and wafers?

For the ingots, we still haven't placed the orders, for the ingot and wafer. Only for the wafers, we had earlier tied up with a vendor, and we had put in a small deposit with them. Those agreements are being registered with the Chinese government under the export control so that these are considered as pre-existing agreements.

The next question comes from the line of Kunal Shah with DAM Capital.

Sir, just one thing. Just recently, right now, there is a news flash about a potential block of GEF at a 7% to 10% discount to the current price. Could you like clarify the stance over here because one of the invested complaints typically have been around the noise around these liquidity events, et cetera, and fundraising, et cetera. So could you just -- could you just provide some thought over here?

Yes. So Kunal, we have also seen some messaging going on. These are all rumors. There is no block, nothing from the promoters. And there is also a rumor, I think, going on that GEF, the private equity player has invested in us, has appointed Citi as a banker, which is also false information. I think these rumors just create confusion. There is no block from the promoters. There is no block planned even in the next couple of quarters or even a couple of years. So from promoter side, we are very clear, no block. And from GEF also, we verified with them. They have not appointed Citi and there is no block.

Understood, sir. This is very helpful. And sir, on the potential QIP also, like could you just provide some clarity there, whether it's just like an enabling resolution or we are sort of actively looking there as well?

Yes. We have time and again stated this that it was just in enabling this solution. We have enough cash flow from operations to fund our CapEx plans, which we have announced. There is no QIB planned in the near future.

The next question comes from the line of Praveen Sahay with PL Capital.