Supreme Power Equipment Limited (SUPREMEPWR) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Supreme Power Equipment Limited Q3 FY '25 Earnings Conference Call hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ganesh from Kirin Advisors. Thank you, and over to you, Mr. Ganesh.

Thank you. Good evening, everyone. On behalf of Kirin Advisors, I welcome you all to the conference call of Supreme Power Equipment Limited. From management team, we have Mr. Vee Rajmohan, Chairman and Managing Director of the company. With that, now I hand over the call to Mr. Vee Rajmohan. Over to you, sir. Thank you.

Thank you for joining us for the today's earnings call of third quarter of FY '25. It's a pleasure to connect with you and provide an update on our financial and operational performance, key milestones and the path ahead as we continue to innovate and contribute to the power and renewable energy sector with sustainable and cutting-edge solution. Our journey from a modest partnership firm in 1994 to became a company in -- a private limited company in 2005 has been marked by unwavering dedication to quality and customer-centric innovations. Today, we stand one of Tamil Nadu's leading manufacturers of power and distribution transformers recognized for delivering reliable and efficient solution that meet global standards and customer expectations. The increasing focus on renewable energy and the expansion of electrical infrastructure have created a strong demand for power and distribution transformers. This aligns perfectly with our strategic priorities, particularly in solar, wind and power transformer segments. These opportunities allow us to address the needs of both new projects and refurbishment requirement across diversed industries. In Q3 FY '25, I am pleased to share some of our key achievements. We secured a significant domestic order worth of INR 15.95 crores for design and manufacture supply of advanced power transformer with an anticipated execution time line of approximately 5 months. Additionally, we have received multiple orders amounting to INR 4.6 crores, which includes INR 2.7 crores of 220 MVA, 33/11 KV power from a renowned tea estate in Munnar, Kerala. And we received orders from department of electricity, Lakshadweep worth about INR 57.96 lakhs and INR 1.32 crores from domestic clients. Another notable achievement is a new order from TANGEDCO valued for INR 3.6 crores for manufacturing supply and erection of power transformer for transmission industry with completion expected within 3 months. These orders reflect strong market position and reinforce our commitment to delivering excellence in the power sector, power transformer sector. The construction of our state-of-art manufacturing facilities is progressing well with 30% of work completed, this is October status. Once operational, this facility will significantly enhance our production capacity and operational efficiency. Supreme Power Equipment Limited is now an officially recognized vendor for Kerala Electricity -- Kerala State Electricity Board, enabling us to participate in tenders and supply transformers to various clients in Kerala, including governing bodies and private entities. Lastly, our credit rating by CRISIL have further reinforced our financial strength. Our long-term facility has been rated CRISIL BBB minus stable. And for short-term facility, rated CRISIL A3. These milestones highlight our strong performance in the quarter, and our continued focus on achieving operational excellence and sustainable growth. These milestones reinforce our strong market position and our ability to cater to the dynamic needs of the power sector. Our efforts to expand our capability, coupled with our focus on renewable energy, ensures that we are well placed to capture growth opportunities in the industry. I am pleased to share the financial performance of our company for 9 months FY '25 and Q3 FY '25. For 9 months, ended December 31, 2024, we delivered a total income of INR 86.96 crores reflecting a healthy year-on-year growth of 21.44%. And our EBITDA stood at INR 15.21 crores, achieving a year-on-year growth of 12.14%, with an EBITDA margin of 17.5%. The net profit for the period was INR 10.34 crores growing by 10.16% year-on-year with a net margin -- net profit margin of 11.89%. Our earnings -- our earnings per share for 9 months FY '25 stood at INR 4.14, representing year-on-year growth of 10.11%. For the third quarter of FY '25, we witnessed a strong -- witnessed an even strong performance with a total income of INR 30.22 crores, reflecting a remarkable year-on-year growth of 36.25%. Our EBITDA for the quarter stood at INR 4.75 crores delivering year-on-year growth 4.54%, with an EBITDA margin of 15.73%. The net profit for the quarter came in at INR 3.17 crores, registering a year-on-year growth of 8.74%, with a net profit margin of 10.5%. The EPS for the quarter was 1.27, growing by 8.55% year-on-year. With that said, I would like to provide an update on our current order book. As of now, our total order book, stands at INR 91.5 crores. Supreme Power Equipment Limited contributes INR 84.51 crores to this total, while Danya Electric Company a partnership firm, in which Supreme holds 90% stake added INR 7 crores. With the rising demand in the market and steady progress of our new manufacturing facility, we remain optimistic about achieving strong growth for the full financial year. We are focused on expanding our market presence, strengthening relationships with our valued clients and embracing new technologies to support our long-term strategic goal. As investments in power infrastructure from both government and private sector continue to grow. We are well positioned to scale further. Before we proceed to the Q&A session, I would like to sincerely thank all our stakeholders for your trust and support. Your encouragement and partnership have been instrumental in our success, and we deeply value for your continued collaboration. With that, I now open the floor for questions. Thank you once again for being with us today.

[Operator Instructions] Our first question is from the line of Jairaj Jain, an individual investor.

My first question would be like what is an order book as on date? And how much of our order book will be appointed in for like Q4 FY '24?

And now our order book is around INR 90 crores, 90 plus. And out of that 30% to 40% -- 30% will be -- 30% to 40% will be executed this year.

Okay. And can you share any projected revenue booking for balanced order book in advance?

No, this is the order book, which has confirmed order book which I'm saying this, this is INR 90, INR 91 crores order book is a confirmed one. And in pipeline, we have a huge number. But once we get the confirmed order, we have -- we will account it.

Okay, sir. And sir, can you give me like bifurcation like how many orders are in for solar, wind and national -- normal transformers as of today?

Yes, it's almost 8% to 10% is from solar, balance or distribution in power transformer. 15% from distribution transformer and 10% -- and 10% is the IDT and balance is from power transformer.

Okay, sir. And sir, so how many clients have been added for high power transformer?

As of now, the existing clients are -- we are maintaining the existing clients. Once we get into the new facility, definitely, we will increase the larger power transformer clients.

Okay, sir. And sir, as we have seen that results fall in profit margin. So is there any specific reason? Or this could be continued profit range margin? And what can we see as outlook for Q4 FY '24 and other quarters also?

And we are expecting the same percentage as the earlier year. Maybe 0.5 this side, that side. 0.5 this side, that side. So there will not be a big change in profit margin.

Okay. So it will be like a steady profit margin.

Yes.

We have our next question from the line of [indiscernible] from Purpleone Vertex Ventures.

First one, I just wanted to know, sir, for this quarter, particularly, there has been significant drop in the operating margin. It's come down to some 7.5%. If you look at the last quarter, I mean, your December quarter of last year, the same was in the region of about 18%, so what is the reason of the significant -- particularly for this quarter. The previous quarters are still okay, about mid-teens also, but this is about 7.5%.

No, this mainly for dealing with the TANGEDCO, the government supplies, sometimes we get fabulous margin. And sometimes, we may have to undergo this type of drop in margin, this is mainly because of the supply to government.

So what do you expect for Q4 then?

Yes, Q4, we have -- most of the supplies are to the private sector only. So we will try to manage and try to maintain the same margin as last year. Maybe 0.5% this side, that side will go.

But -- so what would have put that operating EBITDA margin at? When you say same margin, how much margin do you...

18 to 20.

Do you think you'll be able to make it up, sir, because this quarter is more like 7.5?

No, no. This -- definitely, we can make it up.

Okay. Okay. Sir, I just wanted to understand the overall landscape for transformer demand is very, very strong in my understanding. Despite a very strong environment, why are we struggling with the margins typically, this is what I -- is it because this particular product is in low demand just out of the entire landscape?

See, actually, the demand is good, especially for larger power transformer and the power transformers. And there are a number of players are less when compared with the distribution transformers. So distribution transformers, number of players are very high. And on that -- so there is a slight difference in margin. And while dealing with the government, we are posting tenders. So we'll be posting tenders with a good margin. And at the time of finalization, we will be given a chance for -- for the price negotiation will be happen. So at that time, we will -- if we are interested in particular thing, we will accept that. So if there's low margin, little margin less also we accept in some cases. This tender was posted 7, 8 months back. So now only it got finalized. So it happens. Sometimes it happens.

Okay.

Larger -- since we have in this INR 91 crores, almost more than one second -- more than 75% is from private. The order book, which we are holding now, more than 75% is from the private and balance of 20%, 25% is from the government side. So I think we can maintain the same margin as earlier.

Okay. So we'll be recouped now in Q4?

Yes, yes, yes. Definitely.

My only suggestion to you, sir, obviously, you've already maintained that, but I'm just trying to say that it's better to try and see whatever best you can procure from the private sector, because this government sector eventually when you sell out the capacity in a strong demand environment at a low margin, it takes over that bit of extra potential from our capacity. So it's sort of better to focus on private in case you can afford? I mean, depending on the...

Yes, sure. Actually, 3, 4 years back, our total revenue, 90%, 80% comes from government only. And strategically, we decided not to expose ourselves fully to the government sector. And parallelly we started doing that. Now we have drastically reduced the exposure towards the utilities, in that way, I think, as we strategically planned, we have achieved. And now it is significantly you can see the difference. The government's order is around 20%, 25%. And the balance, 75% is from private from -- yes, some various sectors.

For the private sector, we can sort of expect about 18% -- 16% to 18% operating margin?

Yes, yes. We can.

Okay. And for next year, so for example, when you're -- what is the sort of pipeline value today that you bid for, sir?

Pipeline is something, magic values are there. But I don't know this is something INR 900 crores we have quoted. It's not that with all the INR 900 crores we will get. Yes. It's -- the probability of winning is at least INR 200 crores to INR 300 crores in next 2 quarters.

Sorry, probability of winning is how much, sir?

INR 200 crores to INR 300 crores. But this is all subject to negotiation and other -- so many other factors.

Understood. But INR 200 crores to INR 300 crores, that will be an order book for what kind of duration sir, for execution?

It will be -- it should in 2 to 3 quarters, 9 months, 9 months.

So almost today that we may close this year, for example, at let's say, about INR 120 crores, INR 130 crores in that region, for example, right? And next year could be in the region of probably INR 200 crores on the lower side, you meant to say?

No. What generally in the meeting, I used to say is 10% to 30%. But definitely, we will go beyond that.

Yes, that's what I'm saying. Because as far what you're saying INR 200 crores to INR 300 crores, let's say, I'm taking it lower end INR 200 crores...

Very optimistically I'm saying this. From this year, as of now, our order book is around INR 90 crores. 1.5 months, 2 months back, our order book was INR 60 crores. INR 40 crores, INR 50 crores like that. Recently, we got INR 20 crores, INR 25 crores order and some small orders added to that. Now we are holding something around INR 90 crores. And on pipeline, we have quoted so many tenders including Punjab Electricity Board, Kerala State Electricity Board. And in Karnataka, also, we have quoted. And these all the tenders which we have quoted, the quoted value is around INR 900 crores. And this taking rate may vary from 10% to 30%.

10% to 30%?

Yes, yes. The success rate or earning rate or whichever case, it may vary from 10% to 30%.

So even if you make 15%, for example, that's about INR 180 crores, more or less.

Yes, we can take it as a very conservative at least 10% or 15%. 10% to 15%.

10% to 15%, exactly. So there is quite a bit of scope. And my only thing is that even if you take 10 to 15 percentage, those you can sort of choose -- pick and choose a relatively higher margin tender? Is it possible?

Correct, correct, correct. I got your point. See, in this INR 900 crores, out of which, 50% will be from the government side.

How much, 1-5, 15%?

50%, 5-0.

5-0. Okay.

Yes. And on that, if we have the L1 status, and they will not -- the utility will not place the full order to us. Sometimes they will place full order on us, and sometimes they will bifurcate the order to too many vendors to maintain more vendors. So it all depends upon the utility officers who decide on the tenders. So it varies. And there is a very strong hope that we can get private orders next year. Definitely, we can show a profit sales revenue can increase 10% to 30%, definitely, I think we can hope for the best next year.

Right. And only one thing, sir, the operating margin will be sort of maintained next year about 15% to 16% or so given that 50% could be from the government?

Yes. See, at that time only, we will be able to decide on that, say, how is the private market, how is the demand, how much order we are having on hand. So based on that, we'll be able to decide.

Okay. Yes. And the new capacity that is coming in, these are all higher. I understand power transformers and bigger capacity transformers. What would be the EBITDA margin on those, operating margins on those?

Sir, actually, when we have started doing manufacturing the larger power transformer, naturally, our overheads will also increase. So that margin -- marginal margin increase will take care of this overhead expenses, additional overhead expenses. So I think we can maintain the same, if not more, we will be able to maintain our may -- I think it may reduce 0.5% of 1% because of increase that is there will be -- yes, yes, yes. Because I'm foresee that there will be a good increase in overheads. As of now, we are working with a team of 80 to 90 people. Whereas if we have started doing there, definitely, we have to increase our workforce to -- at least 100%, we need to increase, 100%, 120%. So naturally, our overhead will also increase in the first quarter. So there will be -- I think the maintaining the same margin, it's almost good.

Okay. So for a full year, you may do gradually going up to -- from INR 300 crores to INR 500 crores in that region, right? You may do that in the next 2, 3 years, possibly?

Next 2, 3 years. Correct.

Yes, correct. So your operating margin will be similar about 16% to 17%?

Correct, correct. It will be maintained. It will be maintained on that way.

Yes. Because my only request is that whilst we are growing in terms of revenue, the profit should also eventually grow. Otherwise, the profit growth will be limited compared to the revenue growth.

No, no. Naturally, it has to grow. But see, when the revenue -- the quantum of the profit will raise, the percentage may reduce. This is what I'm foreseeing.

Okay. Okay. Understood. And sir, last query, at full capacity, when you say INR 500 crores, INR 550 crores kind of revenue, what kind of profit margin do you expect on that?

Actually, we are expecting something around profit before tax should be between 11% and 12%.

Okay. The PAT would be, what, about 10%?

Yes. PAT was [ 5% ]. Yes PAT only I'm telling.

Are you saying profit -- no, profit after tax you're saying?

Yes, yes, after tax.

Will be about 11%, 12%.

Yes, 11%, 12%.

Understood. Okay. And what kind of debt would you go to peak debt? Currently, I see there is hardly any debt.

Now we gone for a term loan for INR 35 crores.

Okay. For the new...

Yes, yes, yes.

Right. And by the end of this year, that means December, we'll be there sort of ready with the new capacity, January [indiscernible] will be accepted in the market right away. Do you need any qualification time or certain...

No, no existing product, we can go for mass production there. And we can start procuring orders for larger power transformer also. And we need to qualify. This plant has to be qualified by the authorities for supplying of bigger transformer. It is a process. We need to do that.

And sir, last question from my side. This substation order that you have received about INR 26-odd crores, what kind of EBITDA margin do you expect on those?

On that, not like this. Definitely, it will be less than the product supply. We are expect -- yes, it is purely planning, procurement and execution that's all. So there is no manufacturing activity there. We need an engineering -- engineering also we need to do on that. If 10%, I think the EBITDA will be around 10%. It will be less.

On those, right. And are you planning to sort of also parallelly grow there? I think your presentation says that, yes.

See, this is the first project -- Yes, yes, yes. This project -- this is the first project we have taken up. And the number of inquiries also we are quoting on that line, and so that we can parallelly increase the revenue without the support of the manufacturing facility. So this is the idea behind that. So we need now to...

Yes, you can leverage your expertise on that simply by -- yes.

Yes. And there is a chance of getting more orders for transformers. See one point solution for the entire thing for installation of substation, transformers and everything on that line everything. So the customer will be very happy by giving the entire one project to single vendor. That too if you manufacture the -- transformer is the heart of the substation, this is main component, the main equipment for the substation. So once they want to offload it, then naturally, customers will be very happy. So it will be a one point solution for them. They can simply place the order...

Your margins also improve possibly?

Yes, that is. And overall, if you say percentage will be less. But since there is no manufacturing activity, generally, these projects, they will operate on 5% to 6%, 7% maximum net profit. So parallelly, this also added -- this also this profit also will be added to our balance sheet without using -- yes, without using much of our manufacturing facility.

[Operator Instructions] We have our next question from the line of Sahil Raj from Samdareeya.

I wanted to know the significance of the new office that you have opened in Cochin. How is it going to play the role in expanding our business?

Yes. Thank you very much for closely watching me, watching us. Thank you very much. And recently, we have opened a marketing office in Cochin to cater and to secure orders in Kerala region. Already, we have posted 7, 8 tenders for supply and installation and replacement of transformers in 6, 7 regions in Kerala. So most of the orders are likely to -- the probability of getting the order are very bright. So in accordance with that, we have already opened office in Ernakulam. So to cater that, we have opened that.

Okay. And geography-wise, do we see more demand in South India? Or maybe you see other demands in North, East or maybe West section?

All over India, demand is very high for transformers and for electrical equipments. All over India, globally is that now the demand is very high.

So we have opened an office in South India. What are we doing for other parts of India. We are going to market it from that office only or something else?

No, no, no. This is especially only for Kerala.