Suzlon Energy Limited (SUZLON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Suzlon Energy Limited Q3 FY '24 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhanshu Bansal from JM Financial. Thank you. And over to you, sir.

Thank you, Sagar. Good evening, everybody. On behalf of JM Financial, I welcome you all to the conference call of Suzlon Energy Limited to discuss the third quarter FY '24 results. We have with us the leadership team of Suzlon comprising of Mr. J.P. Chalasani, Group CEO; Mr. Himanshu Mody, Group CFO. Thank you so much, sirs, for your kind presence and giving JM Financial the opportunity to host the call. With this, I would like to hand over the call to Mr. Chalasani for opening remarks and taking the call forward. Over to you, sir.

Thank you, Sudhanshu. Good evening, and thank you for joining us on our Q3 FY '24 earnings call. I hope you had an opportunity to review our results and investor presentation. We will now share with you an overview of the industry, and we will talk -- we will walk you through our quarter 3 performance. We will then take your questions. India has witnessed a renewed optimism backed by the good policy initiatives from the government with a clearly laid road map for grid connectivity with an approach for accelerating the deployment of wind turbine installations. The 2030 target of nonfossil fuel-based capacity includes a healthy mix of wind and solar capacities. As for the optimal cost generation mix outlook for 2030, the wind capacity in India is required to reach 100 gigawatts as a base-case scenario. On top of this target, there is a sizable demand from C&I segment, which further boost up the demand outlook for wind. In line with the new market scenario, wind capacity additions are now happening across all eight windy states. This can be seen in the order book state mix in the latest investor presentation. There will also be pooling of tariffs, which will reduce the average cost of procurement of power for consumers and, at the same time, will improve economic feasibility of new wind projects across different sites in India. With respect to order book, our cumulative orders of 3,157 megawatts include the order book as on December 31, which is 2,290 megawatts, plus orders announced subsequently of 867 megawatts from Everrenew and Evren. This is a well-diversified and healthy order book from marquee customers. Our endeavor going forward is to pursue quality orders with higher value and better margins. Our prime focus remains on executing and building an order book. The order from Evren, a Brookfield entity, of 642 megawatts is the single-largest order won by Suzlon in India. This shows scaling up of project sizes in India and confidence in Indian market. Our OMS business continues to do well with over 14.5 gigawatts of capacity in wind. The growth of the wind sector will also help SE Forge as their major source of revenue comes from the supply of wind components. With strong fundamentals and strong sectoral tailwinds, Suzlon is now well-equipped to leverage the market opportunity arising from the energy transition. I would now like to invite Himanshu to take you through our financial performance.

Thank you, J.P.C. sir, and good evening, ladies and gentlemen. I will be using Slide #17 to 24 of our investor presentation, which has now been uploaded on our website as the reference point for my discussion during this presentation. Q3 FY '24 has seen us register robust improvement in all our key parameters and fundamentals and strengthened with a focus on the bottom line. We have made deliveries of 170 megawatts in Q3 FY '24. On the P&L front, our renewed focus on bottom line has resulted in substantial reduction in quarterly net finance costs by over 94% on a year-on-year basis. So we stand at about INR 5 crores in Q3 FY '24 versus INR 80 crores in Q3 FY '23. Depreciation of INR 38 crores in this quarter is comparatively lower on account of lower amortization of molds for our S120, which is the 2.1-megawatt models. Consolidated PAT before exceptional items for Q3 FY '24 stands at INR 203 crores versus Q3 FY '23 of INR 78 crores, registering a growth of 2.6x in our PAT. Talking of 9-month performance, consolidated PAT before exceptional items, it has gone up from -- to INR 433 crores in 9 months FY '24 versus INR 98 crores for 9 months of FY '23, registering a 4.4x year-on-year growth on our PAT numbers. We are pleased to report a very strong and healthy balance sheet as of December '23, which demonstrates a very strong position of strength, where our net worth stands at INR 3,626 crores and our net cash position stands at INR 719 crores as of December 2023 vis-à-vis a net debt of INR 1,180 crores as of March '23. So this was a swing of over INR 2,000 crores in a matter of 9 months. The economy, of course, is on a very strong footing, as said by J.P.C. sir. And the sectoral tailwinds that we are witnessing continue to be very strong with a renewed focus on the renewable energy sector. And all of this augurs very well for Suzlon. With that, I'd like to conclude my brief presentation, and we can now open the floor for any Q&A that the callers may have. Thank you.

[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.

It's very heartening to see a strong accretion order book. Sir, my first question is, of course, we have very strong order book. But the execution especially in the Q3 has been only 170 megawatt, while we are having an order book of 3.2 gigawatts. Can we see a higher execution in Q4? And can you give some tentative timeline of execution of this entire order book of 3.2 gigawatts?

Ladies and gentlemen, the line from the management has been dropped. [Technical Difficulty]

Sir, my question was the execution for the Q3 was only 170 megawatts, but you're carrying an order book of 3.2 gigawatts. How do you see the execution in Q4? And how do you -- how one can expect this 3.2 gigawatt to flow into our revenues for the next -- some tentative timelines, yes?

The order book that we have, 3.2 gigawatt, Mohit, what you're seeing, is partly small capacity of participants this year and significant portion is for the next year, that is by FY '25 and also for FY '26. As you know, the orders are becoming long term, anywhere between 18 to 24 months is what the supply completion is happening from the order date. So that's how the orders are. So therefore, this is a split between a small portion this year, a significant portion next year and the following year, FY '26. As far as this year is concerned, yes, we delivered 170 megawatts this quarter. Obviously, the question is that when so much large order book, why only 170? There are two factors for that. One is that we deliver as per the requirement of the project sites. As you know that significant portion of our order book is also non-EPC depending upon the sites we deliver. That's one. There are some clients who rescheduled their requirements because of the likely delay in their evacuation system, the CTU connected system, or some places with the land. Also, we had a little slow progress internally because of the delay in the time of working capital, which has come in -- significant portion is coming in December. So I think put together is what we just created the volumes. But we expect now it to continue to grow because as far as we are concerned, now the working capital is there and the orders are there.

Understood, sir. Are we maintaining the execution guidance of 800 megawatts for this fiscal?

I don't think we ever gave a guidance. This is the expectation of the market. So I will neither say yes nor say no at this stage.

Understood, sir. My second question is on the given -- we have seen a very high pending activity from the PSU side, especially NTPC, Suzlon -- SJVN and NLC. And I think there is a tender out from GAIL for 300 megawatt. This sizable opportunity, are we participating -- are you participating in these tenders?

No, we don't. We are an O&M and an EPC player. We don't participate in the bids directly. We support anyone participating in the bids. Pre-bid tie-up or post-bid, they come to us for [implementation] on this, but we don't directly participate because we are not an IPP. So therefore the -- but you are right, there's a significant amount of bids done till now and as well as being announced. In fact, as we speak, I think there's roughly about 15 gigawatts of bids open today. And then we expect, depending upon the different types of models, about 15 gigawatts of wind would be there in that model. And then for us, it's an opportunity, not as a participant.

Sir, I was referring to the wind OE tenders, which NTPC has 1,000 megawatts...

Yes, we get the OEM tenders. We are looking at them, but right now, we have not yet started participating in the PSU tenders because of some of the requirements of qualification criteria with respect to net worth of the previous ones. So therefore, once we get qualified, we'll bid for that. As our balance sheet is getting strengthened, then we could qualify for that, then we will participate. We used to participate earlier, but in between because of our balance sheet going negative net worth, we don't meet the qualification criteria. So moving ahead, now we will qualify, then we'll start participating. Sorry, I took it as we are talking about tenders, not EPC tenders, I took it otherwise. But in EPC tenders, we would participate in the future. But right now, we're not participating.

Okay. My last question is on the EPC order book, I think, has -- is 25%, if I'm not wrong, that we thought the EPC order book will see a slightly higher accretion. Is there something to -- if you can just please comment on that, why the EPC order book is slightly on the lower side?

See, in fact, if you look at, including what we announced yesterday, it's about 28% is our EPC order book. But having said that, that EPC when we say it is actually the end-to-end. But otherwise, the rest of the portions isn't the same. It's like we do a part. There are 3 categories. We do EPC, we do equipment supply erection and then we do the equipment supply. So there are different categories. So it depends upon what the market wants. So if people want EPC, then we offer EPC. If people want as a supply equipment and do the erection, we do that. If the people want supply erections only, we do that. It's a question of -- we provide à la carte services. It's for them to choose. So what is in the market, we can meet end-to-end requirement. And in fact, we are the only O&M. I repeat we're the only large O&M in India today which offers end-to-end EPC services.

The next question is from line of Rahul Kothari from Grit Equities.

First of all, very congratulations for the amazing results and also for winning such a large single order of 642 megawatts. Congratulations for that. And sir, can you help me understand more on the ecosystem regarding the EPC or we can say BoP system in place? Considering the significant increase in the wind sector, so how is this industry gearing up to cope up with the requirement of the OEM manufacturers? I would like to understand it on three fronts: How Suzlon itself is gearing up for the execution? How IPP players if they are looking to execute on their own? And is there any significant players available to take up this execution tasks?

I will talk about Suzlon and I'll talk about the sector. Obviously, how IPP is scoping up, I'm not the right person to answer the question. As I was answering the previous question, as far as we, Suzlon, is concerned, if anyone wants an EPC scope, we are there to provide EPC scope. And if anyone wants the part of it, then we are there to provide the part of it. We are -- as I said earlier also that we are the only OEM who provides EPC. Other OEMs today are not providing EPC services. So therefore, what's happening is that we -- for post-equipment supply, the balance work to be done, whether you call it as BoP work and things like that, we need to depend upon the other players who are coming up in the market today. But we don't -- in our view, we still don't have enough capacity built up in that, which is what we're really seeing in terms of capacity addition. Even in the first 9 months, we're still struggling at 2.1 gigawatts of capacity addition, when we had much bigger targets for this year. So that is one going to be a constraint moving ahead. One is the capacity building and execution of BoP. And definitely, still there is a concentration of projects in places like Karnataka and things like that. So there are issues with respect to land acquisitions that are delaying it. It's a fact the land availability is delaying plus execution capabilities. So therefore, we are continuing to struggle. And we would continue to struggle for some more time in terms of overall capacity addition in the country.

Okay. And sir, also regarding like this 3-megawatt wind turbine, I understand there would be different height and different set of cranes requirement for this. So considering that an earlier time, there was like 2 gigawatt turbines, so crane requirements were different. So is there still -- like the industry with regards to crane availability still there, is coping up with respect to the growth in the wind industry?

Yes. Answer is yes because the crane supplier companies are also tracking the sector in a big way. And then they know that what model is coming up much in advance. Even when we start launching a new model and putting up the prototype, they know that Suzlon is sending out this model. They sit with us. They understand what is the requirement of the crane. And they get those cranes in time. In fact, right today, we are tied up already for the cranes what we need for the next year. So there are adequate cranes available as long as we're talking to these people in advance and then booking them up. And because we are constantly in this business, we do have a relationship with each of the crane suppliers. So we don't see in our case. Obviously, I can't comment on anybody's case. We don't see that as a constraint, including for 160-meter hub height turbines what we're going to do now, 3.15 megawatt.

Okay, okay. And sir, last question, regarding this hybrid project, I understand lots of projects are also coming in the hybrid in nature with solar and wind together or solar and battery, wind plus battery, et cetera, RTC based. So how Suzlon like participates or provides its products to the other players in such kind of order segment?

Yes. So if you look at annualized 15 gigawatts of orders fixed, which are outstanding today, 9.5 gigawatts is what we call this FDRE bids, fixed dispatch renewable energy bids, which would include the solar, wind and storage system. And then we have about 2.6 gigawatts in pure wind bids. So you don't find the pure solar anywhere. But significantly, the bids are 15 gigawatts measured capacity is for FDRE and pure wind bids. In the 15 gigawatt bid, equivalently 15 gigawatts is required if you want to meet different types of -- 15 gigawatts of wind is required. So when the IPP, let's say, is doing an FDRE or doing a hybrid, wind portion, they approach us and obviously, we'll develop the wind projects for them. No one has come to us till now. If they come in future, if there is a hybrid, to coordinate the whole thing, we are willing to coordinate. But otherwise, we will provide the pure wind portion of it.

The next question is from the line of Raj Rishi from DCPL.

Just wanted to understand your perspective on this supply side. Like demand side, the government is talking about a certain level of capacity addition for the next 5, 7 years. C&I is talking about a certain level. Green hydrogen is there and repowering, et cetera, is there. So that's the demand side, which seems to be very robust. Now as far as the supply is concerned, do you foresee any chance of oversupply in the domestic market in India? Or that's -- I hope -- I just would like to hear you out on this.

I think the demand obviously is expected to be there because you've seen the opportunity itself. Obviously, therefore, demand is not being today subscribed to. If you look at the -- roughly about 13 gigawatts or something, including the greenshoe option of bid out recently, what you put together. But subscription is only about 7 gigawatts. What would decide is not the supply of equipment, the capacity addition would purely depend upon how much can we convert the supply turbines into commissioned capacity. That's where the concern we are facing today in the country. So as I said sometime back, that is what is going to decide as a country, how much we are going to add the capacity. If that is getting slowed down and not ramping up significantly, then obviously, you will have a backward impact on how much will be the surplus required. So basically, the commissioned capacity would actually decide the demand on the supply of equipment but not the demand of the -- greater demand of the C&I customers. That's our clear view.

The next question is from the line of Nikhil Abhyankar from ICICI Securities.

Congrats on a good set of numbers. Sir, my first question is regarding the profitability of WTG segment. So it has been low in the first 9 months. So what exactly is the reason for this, sir? And how will be the trend going forward?

So -- Himanshu here. So in terms of WTG segment, we've always maintained that our break-even points are close to about 600 megawatts. So long as we're able to deliver 600 megawatts in any given year, the WTG business, manufacturing business on its own, will break even at the EBITDA level after meeting the fixed costs. So we continue to maintain that. In the 9 months so far, we've done about 437 megawatts of deliveries. So a large part of the fixed costs have already been absorbed through the deliveries that have happened over the 9 months. And of course, based on the deliveries that we do in Q4 of this financial year, I think the WTG segment is well on its way to have a reasonably decent operating profit on a stand-alone basis.

Okay. So as and when the volumes increase towards the next year, the margins are expected to go up.

That's correct, yes.

Okay. And sir, the second thing was regarding -- it is an industry-specific question. So recently, pure wind tenders have seen -- like if the tender is for, say, 100 megawatts, the bidding is done only for 20, 30, 40 megawatts. So what exactly is the reason for this? What are the problems that IPPs are facing?

I think it is not specific to wind. As I said sometime back, overall 13 gigawatts bidding done, about 7 gigawatts is subscribed. Even if you see the latest hybrid bid UVNL, which is including greenshoe option of 1,000 megawatts, which was the latest bid that happened in end of January, only 200 megawatts got subscribed. So that is not specific to wind. It is generally what's happening is that compared to the bids that are coming in, the subscription level is becoming a little low. That could be because everybody has got already bid out earlier bids and then acquired capacities. And second also is also because there could be a potential diversion of concentration towards the C&I segment and the bid PPS. So that could also be other reason we assume that there is an undersubscription. But that is not specific to the wind.

So what exactly happens to this unallocated capacity, will it get re-tender?

They're coming up, like I said, that now as we speak, there is only 7 gigawatts subscribed. The next 15 gigawatts of this, they're already in the market, which I said that 9.5 gigawatts of FDRE and about 2.6 gigawatts of pure wind base. This FDRE NTPC or NHPC, those bids are there already in the market. Then government will continue to come out with bids. So if they are undersubscribed, fine, the next bid will come again.

[Operator Instructions] Next question is from the line of Deepesh Agarwal from UTI Asset Management Company.

My first question is of the current order book, how much is pure credit supply that is without erection?

See, EPC is about 28% -- 30%, 70% is non-EPC. In that we will have, let's say, almost like 50-50, which is pure equipment supply versus some portion of other erection or some other portions included roughly.

Okay. So would there be a possibility of delays in projects where only credit supply is there because the customer -- erection is dependent on customer?

Yes, yes. So there are, not just the delays, in fact, we're also seeing some of our equipment which got supplies, let's say, 3, 4 quarters back are still getting commissioned. So there are obviously delays. That's a point which I was making earlier. Because as a sector, we are facing headwinds in terms of capacity buildup for doing the BoP work, on-ground work. So not the supply constraint but more so on the project execution side. Because there's hardly any large players in the project execution. As I said that we are the only large OEM which is doing further execution, but others don't do it. They only just supply the equipment and that's all, their job is over.

Sure. Sir, in terms of your delivery commitment to the clients, how much of this 3,157 megawatts would be for next year?

I can't say that because that would actually giving you guidance indirectly. As I said, sometimes back in this 3.2 gigawatts of order book or whatever we said till yesterday, a significant portion of that is for FY '25, and also some portion of that is for FY '26. But specifically to say when it is, it's difficult for two reasons. One is that what schedule we agreed today is different and also when the projects starts getting executed, then what would become the actual delivery schedule is depending upon the client's side and everything would be different. So unless we get closer, so we won't be able to firm up what is likely scheduled for the reasons what we discussed sometime back on the site readiness and project readiness and execution capabilities.

Sure, sure. And sir, last time when we met, you mentioned that despite having 4,500 megawatts, there would be a gradual increase in the capacity. Basically, you'll have to invest in some of the capacity on supply chain, et cetera. So can you help us understand the ramp-up in both erection capacity and project supply capacity, how that is happening now?

No, in the erection capacity, there is nothing that's called the CapEx, which is required. So what is required is your organization bandwidth increases. For each project you open up, then you get a set of leadership and the workforce required there. That we keep expanding from time-to-time, depending upon what capacity we're executing on it. There is no significant CapEx required in terms of project execution. As far as the supply is concerned, currently, whatever CapEx is required, we already committed. Am I right, Himanshu?

Yes, yes. So I mean, on the CapEx side, there is a sustenance CapEx of about INR 100 crores, which historically the company has been incurring. But particularly for the ramp-up that we are seeing to invest in the 3 megawatts molds, we may be looking at a delta CapEx of about INR 250 crores a year, which we are quite comfortable with meeting from our own internal accruals.

Okay. So practically, if the orders are available, we can even go to 4,000, 4,500 megawatt execution in a year?

It's not so simple to say the capacity -- see, manufacturing capacity versus the supply capacity are two completely different parameters. I might -- we might have a 4 gigawatt of supply capacity, but that is when you run this like a flat-out machine, okay? But it doesn't happen that way. If a couple of your supplies are made ready but not taken, not dispatched, then you don't have a place to manufacture the next one. So therefore, there will be -- therefore, one is creating how much of the manufacturing capacity. They're not like a mass production, just produce and send it out. It also depends upon offtake of capacity. Again, we'll come back to the same thing, everything gets decided based on what is the offtake at the project sites. That would decide our manufacturing capacity, that would decide our supply capacity. Yes, if everything is ideal, if whatever we produce is taken out in time, what you say is right.

The next question is from the line of Aadesh Mehta from Motilal Oswal.

Congratulations on a good set of order inflows. I just wanted to understand, since January is already over, would it be possible to know what is our execution run rate for January?

We don't provide it. Unfortunately, we don't provide the guidance. So we've not been providing earlier as well.

Okay. No worries, sir. And sir, in terms of when we are seeing the new tenders, right, we are seeing that the delays have been -- especially the SECI and the NTPC tenders, the delays have been slightly more than what we would have initially expected. And even then, there is some delay in the bidding as well. Sir, can you, as an industry participant, articulate that why the recent FDRE contracts are running in some delays, and even in terms of bidding, not the entire amount has been bidded for?

It's a question of some appetite in the sector today for absorbing the bids. So that's what we were discussing sometime back. Obviously, there is an undersubscription on an overall basis with respect of what type of a bid it is. That could be one. Because the players are currently a bit saturated, are also they are looking at risk of execution. So therefore, they don't want to take the risk beyond the X amount of capacity, which is already bid and taken. Third, one of the reasons also mainly could be because we have these people who are concentrating on C&I segment, which doesn't come to the bidding route. It is outside. In fact, even if you look at our current order book what we have, 50% is C&I. In fact, it's looking more but for the large order what we announced yesterday. Otherwise, our C&I segment is actually remote. So that could also be causing people absorbing less in terms of bid PPS, which is an increase in PPS.

Got it, sir. Sir, while there is a saturation at the developer level, there could be some transition bottlenecks, right? Sir, would delays continue? What is your outlook on how long can these delays continue?

I wish I had an answer -- exact answer for that. The -- see, let's look at this year. This year, it's 2.1 gigawatts done in the 9 months. So our estimate is anywhere between 3.2 to 3.5 gigawatts is what we'll achieve this year, okay?

And when you're saying this year, so in next -- so basically in 3 months, another 1 gigawatt of execution should happen on ground?

1 megawatt of commissioning will happen on the ground, not execution. So execution could be in different phases because some places, it may be impacting heavily, but some places is not ready, so they're not commissioned. So another 1 gigawatt of commissioning will happen, okay, outer limit like 2.1, could move to 3.1, 3.2. That's the best-case scenario of what could happen compared to what we were thinking as a country, we will cross that FY '17 figure of 5.5 gigawatts. But therefore, again what would happen in FY '25, our estimates are, as a country, if we resolve some of this capacity-building issues in terms of BoP, we could do 5 to 6 gigawatts next year.

So FY '25, 5 to 6...

More than the transmission constraints, that would be there, but more than that, it's execution constraints what we're facing in terms of capacity as well as availability of land, et cetera.