Schneider Electric Infrastructure Limited (SCHNEIDER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Schneider Electric Infrastructure Limited Q1 FY '27 Results and Business Update Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harshit Kapadia from Elara Securities. Thank you, and over to you, sir.

Thank you, Huda. Good morning, everyone. On behalf of Elara Securities, we welcome you all for the Q1 FY '27 Conference Call of Schneider Electric Infrastructure Limited. I think this opportunity to welcome the management of Schneider Electric Infrastructure, represented by Mr. Udai Singh, Managing Director and CEO; Mr. Omkar Prasad, Chief Financial Officer; and Mr. Mohit Agarwal, Head of Investor Relations. We will begin the call with a brief overview by management, followed by a Q&A session. I'll now hand over the call to Mr. Singh for his opening remarks. Over to you, sir.

Thank you, Harshit, and good morning to you all who have joined. I just wanted to take you to the presentation which we had shared last week. I just wanted to take you along a few slides, which we have shared. And I would take you to Page 2 wherein we are so proud to share with you that we have been ranked as #1 as the most sustainable companies in the world, third year in a row. And this is something which actually we are extremely proud of and something which we very truly relate to being a sustainable company. Now I would like you to take you through the next slide, which is -- which enumerates our vision and the mission. And our vision, as you know, stays as that we will lead the new [indiscernible] world, offering our customers and partners, the most innovative connected products and solutions, we will be wait for the power distribution elevated expectations. And we do this by our balanced business model, superior quality and efficient supply chains, which will keep our growth and profitability, with belief and sustainable. What you would also notice at this point in time is that we have slightly modified our vision now and we say that we are your energy technology partner through which we electrify, automate and vitalize every industry business and home driving efficiency and sustainability for all. Taking you to the next slide, which is Page 4 of your presentation, where we are seeing as to how the company has a macroeconomic outlook. And what we see is that India 2030 is injecting on the new infrastructure cycle where the macro outlook is strong. If you look at there are three basic pillars which we have tried to capture for you. One is a GDP forecast itself, which is expected to be anywhere between 6.5% to 7% for the next 4 years. And this is also being driven by two fundamental levers, which is the per capita GDP, which is -- which will grow, if not less, at least 1.5x to 2030 by taking it to about close to INR 4 lakhs, something which we expect the GDP to be at per capita level in 2030. And also very positive for the company, which is the per capita electricity consumption, which is going to be anywhere between 1,800 kilowatt hour to 2,000 kilowatt over 2030. This itself, just to give you a set of perspective, this was in 2014 was about 1,000 kilowatt hour. At the same time, there are certain headwinds, which all of us are seeing and so is our company also facing is the devaluation of rupee, which has gone down. And also, it's about 8% is where the rupee has depreciated since the time we started this year. And also, the commodity prices, if you noticed, has actually also been going up, copper, aluminum, steel and the labor, which we use actually has been going up, and we are trying to see as to how do we mitigate this. We also would like to at he same breath would like to speak about. While there is near-term [indiscernible] which we see, all of us have seen, India long-term investment remains intact, which are primarily driven by four basic fundamental levels. One is electrification. And when I say so, I am talking about these levers, which are pertinent and relevant to the company. The basic electrification needs where we see that the nonfuel pool is going from, say, [ 300 to 500 base ] vision for the country, and we are going -- the nation is going great here. And what I would also like to call about typical, even cyclical example is the energy [indiscernible] where today, it is about 13 gigawatt hour with expected to be [ 200 ] plus by 2030 is the number which we see. Another topic, which I think all of us are very reading it every day is the data center. And the AI and the distalization that the nation is actually embarking on betas in the capacity, as you know, is going to grow up from 1.6 to about 8 gigawatts by 2030, if not more. The E-com users, the generation has been very vibrant about with the young population, which we have, is going to be about 450 million by 2030 and the digital economy itself would continue typically about 20% as we see it by 2030. Now these are the ones which will propel. More and more data centers being put up, and I'm sure you must be reading many announcements, which are coming in the news in recent times. These are all supporting and getting driven by this way, which we hear. Another element is the urbanization, where I'm talking about there's two things on the slide which you have is the EV penetration, which is expected to be about 30%. And which is -- we are today at about 8-ish, but if you read in the papers, you lead the auto story, you will find that this is something which is going to work. And this will bring in a lot of things which has to be made for the nation by us in terms of setting up the EV infrastructure to support this momentum. The second is the Vande Bharat trains. Why I speak about it because today, we have about 160 trains, which are applying in the nation, where government has actually plans for making it about 800, and this becomes important for us because we power these trains by [indiscernible] and that's what we make in Calcutta plant. Another and the last element is the Make-in India drive, which you heard the Honorable Prime Minister yesterday is the focus which has also been coming on the Make-in India initiative. And that's the reason why a lot of people will start manufacturing in India itself, which will open up CapEx requirements and where the company can perhaps do well in leveraging those conditions, which are going to be there. and we are trying to see as to how all of us put together can make many things in India for not only in India for outside and exports and the goods export expertise is supposed to be about $1 trillion by 2030. Now there are various schemes, which I'm sure you are aware, a few we have written down here, which is supporting all these four levers which I spoke about. The skills like the RDS is key, the green energy corridors, the new energy policy, the VGF schemes was, the interstate transmission waivers, the DGDP at the national data center policy, which came out about 6 months ago, which you must have at the India mission, the AI Conclave, which we had in Delhi [indiscernible] The railway CapEx, the high-speed late and the seen schemes, the E-Drive and a lot on PLI schemes which are enabling this, especially the the ISM, which is India semi-conductor mission and other rare earth corridors, which the country has been able to establish. So in nutshell, what does it mean? It means four growth engines, which are driving demand for power infra and for us and which means more power requires smarter grids for better reliability, and that's also another area where we will be able to position ourselves positive. Now while we do this, what we are trying to do in the company itself is trying to find the [indiscernible] strategic pillars for growth. Of them being technology leadership, which is -- which you must have read in the slide before where I spoke about the new mission statement where we want to be for our customers a technology leader and partner. How do we differentiate ourselves in terms of an eye of customers? There's a customer differentiation, where customers still at the core. And our value add would be only how do we improve our services and solutions differently as perceived by customer. And of course, staying cost competitive so that we can not only bring in those technological differentiation but at the right cost so that we can make the company more profitable. I would request you to go to Page #6, where we are trying to share with you a few of these wins in the quarter which went by, especially on starting off with the high-growth segments, which are semiconductors and data centers. If you look at there are two wins which we have captured in this slide, where the left one is win in the semiconductor area in one of the states in Central India, where we have supply transformers, which are fully enabled with these two solutions. And this is the largest front-end fab order which we have received from a customer, which is into this area. We speak about data centers, data center. Again, if you look at the right side, is the media motor panel transformers and automation devices and panels which we have supplied. This has come in from a data center customer where she preferred us being he as a partner who are able to technologically differentiate what we are we are going to provide to them. At the same time, I would like to go to next page, which is Page 7, where we are trying to retain as to what strategically is good for the company. And if you look at, we have actually put on three basic -- as were have worked. First being renewables where we have supplied tranformers in the Solar segment. And this is different because of the volume and the efficacy of the transform which you supply. The center one is a cement plant put up by one private entity here in India, wherein we are supplied, and is one of those first months, which are in the one of the prestigious slurry pipeline project where we are doing it. And the third is essentially in the airport in South India, where we have supplied this [indiscernible] pilot, which is an outdoor first of its kind being done in the airport in India. If I take you on the Page 8, which especially speaks about our technological nuances in the [indiscernible] is the tens we were talking about 2 -- again, 2 segments, one of being energy campus on the left and on the [indiscernible]. In Energy & Campus, we have supplied the integrated energy management system, which is very [indiscernible] for strategically bundling our digital solutions to enhance the reliability and the asset performance. And when I say asset performance, this is one of those differences, which really customers do consider us favorably in terms of bringing the end-to-end life cycle of the product to the customer. And on the right, the smart [indiscernible] transformer monetary solutions. This is something which we have done as 1 of the attachments, if I may say so, which has gone in something which we had supplied earlier on where customer came back to us asking us for the rec enhancement the product might have for better visibility and better preprinted maintenance and predictive maintenance. This is one of the successes which we would like to show and we are very proud of. I will now go on to Page #10, which is, we speak about our company's ESG commitments, and we use [indiscernible] times here. The top 3 is on CO2 emissions, which are four manufacturing sites, we are at 100%. We are a 100% in [indiscernible] source for renewables for plant including [indiscernible] we are super safe workplace 0 recordable incidents in all the sites. The gender diversity, which we have been working on is close to 20%, of the workmen, which actually comprises our women colleagues, we are reaching. And I would -- I'm very proud of actually sharing the fourth tile, which is on skill development. We have actually trained close to about 1,900 skill is -- with the skills in the state of Gujarat with our 16 skill development centers, which we have made. At the same time, we are also talking about [indiscernible] and supporting people in areas, and we have established [indiscernible] and BHS health centers, public centers. where we have done close to about 220,000 beneficiaries where we have been able to reach and help and support them through these communities and the electrification programs. And the last time, before I hand over my financial performance to my colleague, Omkar, is a CRISL rating, where rating we have been awarded as a strong weighted organization with the score of 60-plus at 63 out of 100, just about 3 months ago for the '25. I now would like a request Omkar to take you through the financial performance. Over to you, Omkar.

Thank you. Thank you, Udai, and good morning, everyone. Thank you for joining this call. I will begin with our quarterly performance and the key factors we hand the results. I will start with the synopsis of the key highlights. I will start with the order. The order is what you see then here is the number is [ 915 ]. The good part here, the 915 is the highest ever quarters we booked order even in any other quarter. While you see the growth year-to-year is 0.5% [indiscernible] sequential quarter as growth is in double digits. The sales is a soft start as we say, we started some [indiscernible] Close to 5% growth. But if you look at again sequential quarter, it's in double digits. And this is -- if you look at historically in our company, the linearity, the Tier 1 is average up in the same range where we do almost the soft start in the Q1. Very good news that we still have very strong backlog, which is growth is close to 32% to 33% and around INR 2,100 crores plus macro we are entering into the Q2 which is a good thing. EBIT, I will give you the most clarity. It's lower than last year, the number is INR 32 crores. I will give a little more clarity in the next slide. And the profitability and the PAT, there are no exceptions. I will move to the Slide #13. The sales we talked about is a 5% more moderate growth as Q1 and the see historically linearity that yes, it's the Q1 always a soft start happened after the financial year close. Other income, the no surprises is very near to nothing to specifically call out. When I come to the gross margin. And if you remember, we discussed this in our Q4 earnings call, and this is the external factor where we have a sort attractive commodity in places this is impacting or the gross margin and largely because that the orders which we executed in Q1 is largely coming from last year because the turnaround time of the order is close to the average of 6 months. [Technical Difficulty] Yes. I hope I'm audible?

Yes, Actually, Mohit sir's line got disconnected. Let me join him back.

So can it continue?

Yes, sure.

Source margin, we see that a little bit dip and it is, as we said in the Q4 earnings call that it's continued to impact, it's not impact continued. And we will -- definitely, we are taking a lot of internal actions. Udai sir also talked about, we are taking in more on the cost consistent competitive net actions have been taken on the company and we see that how we can mitigate those things. However, I still -- I want to -- just to highlight that these are the certain things which are very external factor, specifically in the commodity market. When you look at the copper and transformer wire, which is something we buy and then the pricings are at or contours. So that is on the gross margin. When I talk about the fixed cost, employee cost and other expenses, while you see the percentage increase is high, but it's a normal Q1 where we do normal [indiscernible] and all the cost inflations happened in the Q1. And just because the growth -- sales growth, we are at so moderate at 5%. There is something in the Q1 as negative operating leverage. But for sure, that is not going to be there, and you must have saw in the last year that it get even it out throughout the year. It's just because of the [indiscernible] of the sales, you have a higher expenses. into the employee cost of the expenses. In these two, in other expenses, all what I also see is 1 factor of FX because FX also contributed to certain more increase into dollar expenses because the certain recharges and certain imports what we do, we , which has actually -- the value compared to the INR has INR depreciated until also impact from in the other expense. Depreciation is in line as you all approved at the CapEx. Now we started adding capitalization in Calcada plant. The plant started operationalizing from the early DCM and the depression in rating. And most of the growth from the plant over the period, it will animate accelerated. Finance cost, no change. We have not taken any exceptional loan, but this is just in our difference in accounting when you look at the pronounced call the sequential quarter, no change, but there were some accounting change in the -- in the last year Q1 there was a gain coming because of modification of the accounting fair value and there was again sitting in the last few quarters. But in current year, it's normalized interest cost. The no exceptional [indiscernible] Be called out here. So I just want to highlight that this increase is just because of the noncash accounting adjustment. We have a normal tax expenses, and then we have total income, which is 1.9%, is in the Q1 because of the impact on the GM and also we have a negative operating leverage, will try to catch up in the subsequent quotes. Now I just give it back to operator just to -- your questions to clarify further.

[Operator Instructions] The first question is from the line of Dhruv Rawani from Price.

My question is regarding the transmission CapEx. We know that the solar and renewable share in the transmission or generation has gone up to more than 40% and there are challenges in terms of transmission, especially on the evacuation side. So what are products and services, especially under our Electric platform, do we have? Can you just throw some more light detail on that?

Yes, Mr. Dhruv. We actually -- the products which we have, as you know, are transformers. We have equipment which handle and distributes power of 33 kV range. And then we have the control and relay panel, it also becomes an essential part of any power power system, I would say, which we could go to any class of collision. Now especially what we do not have is transmission line conductors, we do not have transformers, which are -- which we call as a high-voltage transformer [indiscernible] Not so much, which are 400 kV and are. So that really is not -- the transmission sector, if I may say so, is not the the real work for us in the transmission space. But when we go in and speak with IPPs who are actually meeting with solar farms, we do a lot there. So what we do essentially is the one to [indiscernible] substation. We do about the energy storage system, which is going to be mandated where people have to have a 24x7 [indiscernible] supply and MIB storage systems, which are battery based. And we also have a set of software, which actually managed -- give you a visual and also enables you to control the power plant. So these are things which the company does, what the company do not do is evacuating high voltage transformers, which is not real product change.

The next question is from the line of Sameer Thakur, from AMBIT.

Would it be fair to assume that the miss is largely driven by lack of operating leverage? If I compare Q2 rather than Y-o-Y, does the gross margins are largely flat if I compare Q-on-Q? And growth in other expenses was most 20% Y-o-Y. That is mostly done by FX or any other parts over there?

Yes. Thank you, Sameer. So this is largely because of operating because our expenses, all the GI, what we call inflation post cost salary and other cost is increased from first up. So largely because of operating, it has started from Q1, and we will of even out throughout the year.

Okay. The operating expenses, that's largely been by FX or any other thing?

No. Operating costs and other expenses, whatever the costs we deal with the out of the country. we have a dent of the FX for sure. But also there's an incremental increasing increase, which is approximately 8% to 10%. That is also there. So it's a mix of both in other expense.

Okay. Now is now half of the quarter is over for Q2. So what are you seeing this quarter so far?

Yes. If you look at historically, when you look at the quarter-to-quarter growth, okay. The Q1 always will soft start, okay -- so the Q2 will be forward-looking statements. We are not giving you the right thing but but the idea is here that historically, we always do better than Q1.

Okay. And I know you are not giving any future statements. But given the backlog growth, what ballpark revenue you have in mind with any range or something you can expect this year?

I can take that question, Omkar. Thank you for in this -- No, the number which you see in this Q1 historically, that's been the case if you compare the other Q1s as well in terms of whatever we do typically for the full year. Now what we have done is we also had some headwinds which impacted this quarter. What I would like to assure you, without giving actual forward-looking numbers is all the actions which are necessary and acquire for retaining and really doing well for the we have already initiated. And what we see is the underlying demand environment and opportunity pipe is healthy for us. The pricing actions in the market has been initiated. It will take some time to really simplify and have an impact. What I can see is that we are we are seeing the forward-looking three quarters, including the one which half of [indiscernible] Gone by is good for us.

And just the last one for myself. It can come in by end market. So what is the exposure we have in Data centers last time, you highlighted that 10% to 12% comes from data centers. I think backlog is again around the same [indiscernible] 40%. As you can comment by end markets, if possible, that would be great.

I can -- what I can state here at this point is more than 1/5 of what is coming is from this new emerging segment is what we hold in our order bank. And that's what we are trying to do as to how do we really manage this mix and try to increase selectively and strategically this mix of orders coming into the emerging segments while staying our focus on the core space.

Okay. And then emerging would be data center, semi, solar?

Yes. So emerging would be at this point in time would be data centers with B semiconductor because India is a very high path in terms of semiconductor, the companies who are invested [indiscernible] money supported by government PLI and we are working -- we are engaging with them very [indiscernible] to would be the -- when solar sales -- Solar, we have been listing for 5, 6 years, we are trying to see it is emerging, but it has already emerged a few years ago. We are trying to see as to how do we really make inroads and stay afloat there and then bring in the new -- really new emerging segments which we see today for the country, which are especially semiconductor reenters.

Okay. And 1 more, if I can squeeze in. So metals and mining, we see many companies are putting up CapEx. And the CapEx growth rate for FY '27 looks pretty high for those companies, which are digitally your customers. So are you seeing action on that as well in metals?

Yes. Yes, we are seeing a traction. So there are -- as I said, opportunities which are in front of us, the pipeline is healthy and which has got a good mix of metals and mining the [indiscernible] segment as we call it.

The next question is from the line of Vinod from Philip Capital.

You just mentioned in your opening remarks that FX attributed to the growth in the other expenses. So if I have to look at neither as a whole, say, on a 12-month basis, how much is imports as part of our COGS?

It will be -- thanks, Vinod. This will be in the range of 10% to 15%, not more than that.

Okay. And is there a natural hedge against that in terms of exports, exports would be a similar number?

Yes, yes. When you talk about the FX currency, to get naturally has because we do have export as well in the same range.

Okay. The second question I had is in your press release, you mentioned that while we understand the commodity headwind and the impact on margins. You also mentioned something about legacy orders. Now Schneider, as I understand, is a company with a book-to-bill of [ 0.5, 0.6 ] so effectively, what you're executing today would be at best order book maybe 1 or 1.5 years back when pricing was pretty good. So why would these legacy orders impact margins in that sense? Can you clarify on the legacy orders, please?

Okay. So when we take -- as I said, legacy orders means the order which booked before December [indiscernible] and these all contracts has a price which we offer to the customer is kind of a farm price in because the reason began was somewhere close to 6 months. So when we have a customer form price and the price of the raw material like copper, oil and all the other costs have increased, we've been able to go back to customers and ask for the revisions. So that's what we're talking about, that this is impacting while some of the contracts which we have a large execution period, where we always embed price [indiscernible] The customers. So that's what we are trying to say that wherever we can't contractually go back to the customer to revise the price or see for the price revisions and large impact on us.

So if I divide order close pre-December, it would be express contracts and post December, you would have price variation closes, and that will frothers execution going forward? Is that the right way to look at it?

Yes. And no, because the internal policy said that we've taken a corrective action we have started putting mandatory as a price variation clause into the all the contract. But wherever we have a tender pay the price base in itself, it's not one of -- the one of the asks or they can't -- even we can't be if the condition not there, partially utilities. So we can't go and have deviation their tenders. So there again, we are giving you the price again with a certain validity. But I would say still, we have a risk there. If there's a dealing [indiscernible] of the projects of the customer, we may have impacting the GM agent. So while we've taken an action, we can't enforce the price variation in all the government tender backed by UPC and others. So that's -- we have a challenge.

So these legacy orders typically would be distribution order or DISCOM order?

It's all mix. So as you can say more on power engage segments, yes.

Okay. And finally, on the DISCOM CapEx, what kind of CapEx run rate you have internally for this year in terms of DISCOM CapEx?

We are talking about the DISCOM CapEx, our CapEx or the DISCOM?

No, give me the [indiscernible] But to be available in the distribution CapEx segment.

Udai?

Yes, yes, I can take this question. Thank you, Vinod. See, I'm sure you would have seen the CapEx, which the company has embarked on. We have typically -- the last is if I know we have actually taken on a CapEx of roughly about INR 500 crores in our three plants, which we have. And how do we enhance the capacities number one. Number two, how can we cut on the imports for which we do from other Schneider factory outside of India. And answer your question, the items which we make in the product manufacture are not exactly for a specific segment. They serve U.S. specific segment. For example, power and grid, which you have asked, we ended at and secondary distribution equipment is mainly for power any and we have been trying to see as to how do we bring up those capacities, which can cater to, especially in the secondary distribution and also in the transformer range also particularly both in large amount goes in power distribution. Now we are in sync with the CapEx, which government has been planning and the [indiscernible] INR 300,000 crores which have been put I think we are trying to see how do we leverage this by these items which we produce ourselves in our factories. Now at the same time, I think you very correctly asked because your question was how many orders were book before to somewhere and what exposure do we have. So we are a bit selective in terms of engaging ourselves in those strategic accounts wherein the the site is clearly visible. The project cycle is low and there are lesser ambiguity in terms of exclusive ease of the contract. So if the TAM is [ 10 ], we will decide to [indiscernible] Only say a number which is less than that, depending on this sufficient and the lenses which we apply on an available. So the to answer this, we are a bit choosy and selective depending on which all contracts we ended.