Suzlon Energy Limited (SUZLON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Suzlon Energy Limited Q4 FY '24 Earnings Conference Call hosted by ICICI Securities. During this call, the company management may make certain statements,, which reflect that outlook for the future or which could be constituted as forward-looking statements. These statements are based on management's current expectations and are associated with uncertainties and risks as fully detailed in our annual report, which may cause the actual results to differ. Hence, these statements must be reviewed in conjunction with the risk that the company faces. As a reminder, all participant lines will be in the listen-only mode [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.

Thanks, Seema, good evening. On behalf of ICICI Securities Limited, I would like to welcome you all for the Q4 FY '24 and FY '24 Earnings Conference Call of Suzlon Energy Limited. From the management we have with us Mr. J.P. Chalasani, Group CEO; Mr. Himanshu Mody, Group CFO. We'll begin with the opening remarks followed by a Q&A session. [Operator Instructions] Over to you, sir.

Thank you, Mohit. Good evening to each one of you. Thank you for joining us on our Q4 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 walk you through our Q4 FY '24 and full year performance. We will then take your questions. FY '24 has been a remarkable year with standard performance across financial and operational parameters. Largest ever order book of 3.3 gigawatts, with a strong pipeline provides along with a strong revenue visibility. This includes order book of 2.9 gigawatts as on 31st March '24, plus 402 megawatts of order announced in May. This is a well-diversified and healthy of order book. Our endeavor will remain to pursue quality orders with a higher value and better margins. Coming to the sector, India's wind installation also saw a quantum jump after years of impasse. Wind installations for India for FY '24 broke the ceiling to register 3.3 gigawatts of installations, the highest post FY '17. Globally India ranks fourth in total in wind installations with 46 gigawatt of installed onshore wind as of March '24. In this, Suzlon installation registered more than 75% year-on-year growth to 882 megawatt in the year of FY '24. In the current scenario, wind plays a crucial role in energy transition as growth of Indian renewable depends upon wind installations. That's because the industry has seen the transition from hybrid to around-the-clock and has moved to forming dispatchable renewable energy. FDRE tenders, whether it is for the peak or the load following tenders is solidifying wind position in India's energy transition. These kinds of tenders require very high share of wind to meet the foundation profile. Our OMS business continues to do well with over 14.7 gigawatts capacity in India. On SE Forge, performance has also been increasing and continuing to grow and continued growth of the wind sector will further promote SE Forge business as the major revenue comes from supply of wind components. With strong fundamentals in 29 years of strong track record, we firmly believe Suzlon is now well positioned to leverage the market opportunity rising from the energy transition. With this, I now ask Himanshu to take us through the financial performance.

Thank you, J.P.C. sir, and good evening, ladies and gentlemen. I will be using Slide #16 to 23 of our investor presentation which has now been uploaded on our website, www.suzlon.com, as a reference point for my discussion during this presentation. FY '24 has seen us registered robust improvement in all our key parameters and our fundamentals have strengthened with a focus on the bottom line. We have made deliveries of 710 megawatts, which is 7% higher as compared to FY '23, despite which an EBITDA growth of 24% as compared to last year has been registered and a PAT before exceptional item has grown by 428% as compared to FY '23. All of this is a result of several initiatives that have been taken the company over the last -- in the last financial year, which include margin improvements, cost optimization and lower interest costs as a result of repayment of the entire debt. Similarly, in Q4 FY '24 performance, the PAT before exceptional items has seen a Y-o-Y -- staggering Y-o-Y growth of 413% from INR 68 crores in FY '23 to INR 281 crores in FY '24. On the P&L account, renewed focus on the bottom line resulted in a revenue of INR 6,497 crores with a contribution margin of 36%. EBITDA and PAT before exceptional items have been highest that the company has ever reported in the last 7 financial years. Consolidated EBITDA has been reported at INR 1,029 crores with PAT before exceptional items at INR 714 crores for FY '24. We are pleased to report our balance sheet as of March 24, demonstrates a very strong position of strength with a consolidated net worth of INR 3,920 crores, whereas the net cash position of the company as of March '24, stands at INR 1,148 crores. I would like to summarize that the last 1 year for the company has been a year of financial turnaround. I would also like to reiterate that Suzlon has never been in such a strong for footing as it is today. With a fortified financial position and optimized cost structure, the largest ever order book with a strong pipeline in discussion, a completely geared up supply chain to meet the order book demand, regaining confidence of all our stakeholders and a strong management team with an enthusiastic zeal to deliver on all the performance parameters. With that, I'd like to conclude my presentation, and we can open the floor for Q&A that the callers may have. Thank you.

[Operator Instructions] We take the first question from the line of Sumit Kishore from Axis Capital.

The first one is, could you spell out the contribution margin in FY '24 for WTG and the fixed expenses in the WTG business for FY '24?

The contribution margin, Sumit, for FY '24 in the WTG division is about 19.5% whereas the fixed expenses, as we've been saying earlier, close to about INR 600 crores. So our breakeven point as we've been advising in all our earlier meetings and calls remains pretty much unchanged.

19.5% is a brilliant performance. So is this sort of a sustainable level? Or because we have spoken about maybe 16%, 17% levels earlier.

So Sumit, there are 2 or 3 factors that we'll need to keep in mind as we enter this financial year. Number one, we are seeing some early hardening of commodity prices like aluminum, copper. There are certain logistical challenges given the routes in Red sea. So there might be some slight increases in costs. Also, we are -- as we deliver in FY '25, we are now moving to a completely S144 model, as you guys are aware. So for FY '25, because even our suppliers have built up capacity recently, there will be certain cost compulsions and therefore, the COGS will be under pressure for us. Having said that, we, of course, continue to maintain mid-teens guidance and the management endeavor would be to deliver an optimized contribution margin. But very difficult to comment whether the 19.5% is sustainable or not. But we should be there and thereabouts in the 15% to 20% region.

Right. Given your net cash at the end of fourth quarter at INR 11.5 billion, what should we read into the interest expense being higher than the other income?

So the interest expense, specifically in Q4, as you know, in late December, we announced financial working capital tie-up with REC Limited. And as a result of the tie-up, there was a one-time processing fee that was paid to REC in early January. So to the tune of about INR 11 crores, a one-time processing fee for the working capital tie-up has been booked as expense in this quarter. And of course, in addition to that, a lot of LCs and bank guarantees have been issued to our customers and vendors, which has resulted in increase in the interest cost as compared to Q3.

Got it. Last question, for your EPC order book, could you speak about how many footprints for installing wind turbine would you have in control where land and evacuation are in place? And maybe on similar lines for your non-EPC order book?

Yes. See, our EPC is -- in the current order book split is 1/3 and 2/3; 1/3 is EPC and 2/3 is non-EPC projects. On the EPC portion, evacuation in the sense the grid connectivity, we don't control because that's in the scope of the clients. As far as the land is concerned, obviously, it's a critical area even last year, one of the reasons why as a we could still do only 3.5 gigawatts is the land challenges. I'm not going to say it's going to be easy, but the work -- what we have done in the last year, we expect that to be in the H1, it will be a little more easy and then we'll continue to work towards that. And also, as we mentioned earlier, which may not immediately help, but under developmental route what we're taking into other states, which was what we are preparing for towards the end of this year as well as next year that we want to remove the land issue as far as our EPC projects are concerned. And in the non-EPC portion, we keep track of what's happening there on a continuous basis. Land would -- let's accept the fact that in the wind sector, land would continue to be a challenge, and it's a question of to be managed from time to time. So with those challenges is what we will deliver.

The next question is from the line of Parv Jain from Niveshaay Investment Advisory.

Congrats on a good set of numbers. Sir, can you give us a broad idea on expected wind installations for FY '25? And what kind of market share can we expect out of that Suzlon would be holding?

If you guess was as my guess, our expectation -- if you remember in FY '24, we have always been saying anywhere between 3.5 to 4 gigawatts. And our expectation for FY '25 is it could be anywhere up to 5 gigawatts, between 4.5 to 5 gigawatts. And normally, like our always claim was that market share is different figure than what we expect to do. But we've been always in the range of 25% to 30% in our market. So if we look at this year, our market share has been 27%. So we would be...

Can we move to the next question, please?

Sure, sir. The next question is from the line of Mr. Rohit Kumar from Motilal Oswal. Mr. Rohit your line is in the talk mode, please go ahead with your question. As there is no response from the current questionnaire's line, we move on to the next question. The next question is from the line of Subhadip Mitra from Nuvama.

So while you have given us a sense of the market share, I just wanted to understand that from an order inflow perspective, assuming that you are maintaining the 25%, 30% market share, where do you see the market size going? Because our understanding is that there is probably 8 to 10 gigawatt of just pure wind projects, including FDRE, RTC, et cetera, which would have probably got bidded out in FY '24. So hopefully, all of those we'll probably start seeing ordering in the next few months. And then there is also on top of that, a large C&I market. So if I have to, let's say, look at the overall TAM for, let's say, the next 2 to 3 years? How would you look at it?

See, the engine for the business is the orders and the projects, which will actually drive how much ability. And second thing, as I mentioned in my opening comments, currently because most of the bids are either RTC or FDRE bids, how much wind capacity gets started would decide how much is RTC capacity going to get added in the country? That's the first thing. Yes, you're right. Even if you look at even the current year in the first 4 months, there's almost about 12 gigawatts of bids awarded, I think [ 11.2 to 11.8 ] gigawatts. Everything is RTC or hybrid or FDRE, which has an involvement of our calculation is more than gigawatts of that would be the wind company, not about 11 gigawatts, but installed capacity, I'm talking about. You can't match the bid capacity or installed capacity because in FDRE you'll be higher. And there is another 5 gigawatts where the bids are submitted and reverse auction has to happen. Another 10 gigawatts is where bids are announced. There is a huge amount of pipeline, 27 gigawatts what we talk today. And C&I market, and as you know that our share in C&I market is even the current order book is more than 50%, 56% or so. Orders would not be a concern. As a country, how much we're going to do each of the year because market share for me is a little misleading because how much are we prepared in what we should do, but market share might be very high if country has smaller capacity and our market share will be between 25 and 30 if country is doing a larger capacity. Expectation this year is that the -- there are figures being talked today in the beginning of the year, anywhere between 5 and 7 gigawatts. Different people are talking different numbers, even 7 gigawatt number is also out there. But our expectation is that we feel that looking at on the ground constraints at the beginning of the year, obviously, we will keep reviewing and revising it quarter-to-quarter basis would be about 5 gigawatts year. Having said that, now the government has come in, and in fact, the -- even central government started working towards land issues and ROW issues to be resolved. So they're saying that now we will get in because they are also realizing now unless wind moves, RE will not move. With that, we expect that this 5 gigawatts to 6 gigawatts, whatever it happened this year would reach about 7 to 8 gigawatts next year and FY '26. And we should reasonably assume that 9 to 10 gigawatts is what we should reach a level in FY '27. That's our feel.

Understood. So these numbers that you're talking about are in terms of actual execution or installation of capacity, correct?

Additional capacity on the ground.

Additional capacity on the ground, right? So if I were to look at the numbers that you just said that by FY '27, we may look at a 9-gigawatt to 10-gigawatt kind of installation on ground and that means that the ordering for that 9-gigawatt to 10-gigawatt will probably happen in the current fiscal and FY '25, right?

Reasonable to assume that some part of it will also move to next year, but yes.

Understood. And sir, this 9-gigawatt to 10-gigawatt number that you're mentioning would be primarily the auction-based capacity. So the C&I phase will be on top of this.

No, no. I'm talking about our capacity as a country to commission how much we're going to commission. The respective of C&I or the utility PPA-based one. I'm talking about as a country, how much wind capacity we can add. I'm not bifurcating between the two.

I understand, sir.

The next question is from the line of Manoj from Virtusa Consulting Private Limited.

Congratulations on the good set of numbers. It's really good to see the numbers when you see it from now 1,100 negative to the cash flow of 1,100 positive. You have really done great set of numbers. I wish all the very best to the team for the upcoming year. I just have one question, sir. So currently, if you see the order book, we have around 3.3 gigawatts. So when are we expecting to deliver the 3.3 gigawatts.

So the currently, as we just now spoke before this is the orders are now beginning the longer term. This 3.3 currently what we have meant for FY '25 and FY '26. On paper today, what is happening today, we also need to realize is that when a contract gets awarded, they get awarded for a particular year. But then things are moving because the connectivity is getting delays or something else is getting delayed, the clients are moving the schedule. So therefore there is a blur in order versus -- actual schedule in the order versus in reality what is happening. Therefore, that you will also see this order book keeps increasing in the future. That's what Himanshu said that -- we are having discussion with so many order. These will be for predominantly currently what we have is for FY '25 and FY '26. But having said that, some more orders might come for FY '25 as well even this year and orders which will come in again would be FY '26, '27. Because this is -- it's a constantly moving scenario. And what we are also doing is looking at the uncertainty of the projects we are actually saying that, okay, we will build a buffer of 15% to 20% additional order intake for each year compared to our capacity.

Just wanted to understand how much...

That's the reason why last year we could have done more. It was purely because the reason was that some of the clients have moved the deliveries from last year to this year because the connectivity is getting delayed or their transmission line, which connects from the pooling substation to the things are getting delayed. So therefore, we are seeing this on the ground. We -- I think we're still, as a sector struggling to move up the numbers. While we have a 45% growth moving from 2.2 gigawatts to 3.2 gigawatt a year, which is a good movement compared to the 25% between FY '22 and FY '23. Some 25% growth rate to be moved to 45% growth rate. And in fact, we moved from 10% in FY 2023 to 75%. We are all moving forward, but I think there's still work in progress.

I got it, sir. Totally understand. Yes, just one more question. Regarding the challenges we have in the underground to face what are the company's vision on this and how are we going to face those challenges in the upcoming years?

Can you just repeat because there's some.

Sorry to interrupt. Mr. Manoj, are you connected on your phone, sir, I would require to please switch to your handset.

Is my word clear now?

Yes, it's clear.

Okay. So what are the challenges we have down the line, sir to understand about how the organization is going to face that in the upcoming year?

See, when you are -- your business challenges will always remain. The only thing is what we foresee and what you get prepared. Our biggest challenge was the debt which we solved in this year. Second biggest challenge was working capital non-availability. So we solved that issue, working capital non-availability now. We are starting the year with a -- we never started a year with such of an order book. So we resolve that of an order book. Above all, what is important is organization capability to deliver. So last year, we spend significant amount of time of strengthening the organization at the leadership level. So whatever we could do we have done it, but the challenge is on the ground what is going to happen with connectivity, the land and the clients would continue to be there. Those things as and when come, you need to prepared as an organization to respond and then see how best you can mitigate on this. But internally, whatever we could envisage in fact in FY '24 was our year of consolidation creating a launchpad for the future that we have done it. But having said that, will we not face challenges? We will need to face challenges in the external world. And another important thing is that we also -- ramp up was important for us was 3-megawatt new turbines we launched. So we smoothly ramped up and the new turbines were out there, supplied more than 100 megawatts. And some of these capacity commissioned, they're allocating well. So therefore, that initial last year at least we had that new turbine coming, new model coming in ramp-up and how will it behave once it's commissioned. Those things are also over for us today.

The next question is from the line of Ketan Jain from Avendus Park.

Yes, Sir, what is your guidance on deliveries in FY '25?

Ketan, obviously, we cannot provide any guidance, and we have followed that practice earlier and we continue to follow that. As J.P.C. sir said earlier, we believe that in FY '25, installations on the ground will be around 5 gigawatts. And Suzlon market share historically has been what it is. That's for you to see. Will we be able to continue with our market share, strengthen it, lose it, that is something I think we leave each individual investor to -- the only guidance we can provide.

Understand. Also, my next question is what is -- what can the margin difference in EPC order and non-EPC orders?

Again, we don't provide yet the split aspect of the margin difference between EPC and non-EPC orders, we're only giving for the consolidated WTG division, as I said earlier on the call.

Okay. And any improvement we can expect in O&M margin? I think currently it was at 40%.

So again, we maintained always that O&M margin will continue around this vicinity, of course few basis points here and there. But I don't think improvement in O&M margins should be expected. We've always maintained that O&M for the next few years, I would say, 1 or 2 years would be a secular growth on the top line because the nature of the business is such that there is a 3-year free O&M period for the [indiscernible] installation. So by the time the revenue really takes off is when sizable fleets only come into billings. If may take another year or 2 for the whole history to catch up. So I don't think any margin improvement or significant top line improvement on O&M should be expected.

My last question is, sir, what is the utilization factor we can expect in the 5-megawatt turbine? And all the other lower cases, like how different is it?

We don't have a 5-megawatt turbine.

Sorry, the 3 megawatts.

So the -- current, our order book is significantly for 3 megawatts. And as you look over in the investor presentation, 3-megawatt order book is 83% share.

I mean in the wind turbine, the PUF, plant utilization factor.

But that would vary from side to side. So it's -- I know wind is very specific to the site. But basically, what we do is that when we offer for the same site, we offer 3 megawatts or 2 megawatts. Obviously, it is an option to them for both. And cost per kilowatt hours remains the same for both. Because 2 megawatt, if cost out is done as Himanshu was explaining earlier, 3 megawatts is being the first year of operations, the cost would be little higher even for us and for vendors. The rest 2 megawatts is done for quite some time and most got amortized. So in regards to the cost per kilowatt hour, I'm not talking about price of a turbines costs per kilowatt hour today, 2 megawatts and 3 megawatts are same at a given site.

Understood. Sorry, if I can squeeze in one last question. Sir, is there any challenges in transmission capacity creation in India? And if yes, which area is it?

Challenges with transmission capacity -- not capacity, but coming on time would always remain as the issue, because otherwise, today, the transmission network planning is significantly improved compared to let's say, my younger days of 2 to 3 decades back, the amount of planning were done on the CTU grids. The challenges what we are seeing is that time line shifts, like by 3 months or 6 months, sometimes moving the time line in terms of when that will be available is what is shifting . And the second challenge, what we are seeing, which we've now given the feedback to MNRE is that the solar and wind. The solar, the moment any CTU is announced, it is easy for solar to go and book the capacity. For wind, you always need 1.5 to 2 years of a wind data by particular place. So therefore, by the time wind potentially is established, the CTU capacity is booked for solar. So therefore, how do we saw this issue? So there are 2 things which are now being discussed, is that the Ministry agreed in principle to see that we can create a capacity -- a grid capacity in exclusively the wind zones and given reserve for the wind capacity. And second, they are also now looking at the probability of wherever the solar is installed, in substations purely the solar, is there a way that we can without the wind capacity there, because transmission exists, and we don't need to increase the transmission capacity, just add the wind capacity in the places where the solar is already there, depending upon land being available there, depending on the wind potential, but there could be some unlocking of the transmission capacity for wind.

[Operator Instructions] Next question is from the line of [ Ravi Vadaga ] an individual investor.

Yes. Good evening and congratulations on a remarkable year. The first question is, just want to understand our manufacturing paradigm, right, say, our S144 model is for a client A and client B, will they be different? I mean, are these engineered-to-order, configure-to-order, made-to-order, what kind of a paradigm are this? And the second question is, I mean, so what is the path? Now we are at around 270 megawatts, right? 170 was last quarter, 270 is now. What is the path to, say, 750 because that's when our new order intake and your ability to execute ,they will start matching and, I mean, I must say the order book looks good, because our rate of indication is lower than that, so it will keep on delivering. So if you can just give a little bit of color in terms of what is -- what would be the core constraints to move from the present run rate to say -- I'm just putting a 750 megawatts just to have some note, sir.

Yes. On the first point, the each model is specific design and each manufacturer model is a specific design. But thereafter, that turbine remains constant irrespective of which site in India is you are installing, as long as in India, okay? If this turbine has to be installed somewhere else in a different wind regime, there could be some re-engineering to be done. But for India, if you bought a 3-megawatt model, it is the same 3-megawatt for client A, client B, client C, client D. It won't change. We don't need to any modifications client wise. That's the question number one. Question number two is that, as I mentioned earlier, the main engine for supply is orders to be there. And secondly is the project segregation, because projects is what will give you how much offtake will happen. Supply is not a constraint, especially now with our working capital and orders were available. The -- how much can we deliver? Is it 750, is it 500, is it 300? It all depends upon the readiness of the projects' to take. And what we are expecting is that to be gradually. It won't happen immediately. We expect that in a couple of quarters, that would improve. It might not happen immediately, but I think offtake of projects would improve. Orders is not an issue, but offtake of project readiness will improve. I don't want to put a number to it, but I can only say it will change in the next few quarters to come.

Okay. So I mean just a little follow-up on that. The -- I mean, good that it will change. The constraints which are in say Suzlon's purview, right? I'm assuming manufacturing capacity would not be a constraint. So -- but in last quarter call and in the past, you mentioned the whole EPC capacity could be constraint. So what is in our purview, which is something which you guys are looking at in terms of improving so that when -- as and when the things happen, we are ready.

Yes. First of all, if you look at current order book, 1/3 is EPC and 2/3 is non-EPC. In case of non-EPC, the project progress, we can't completely control maybe our scope is only turbine supply and direction or just the turbine supply and supervision. So we will not have a control on whether their land is available, their provisions are ready, the [indiscernible] system is done, their transmission system is not done, we have no control, except we keep tracking because that has an impact on our delivery. We can definitely work on EPC where we have the full control. There, your point is absolutely valid. And in fact, right now, our strategy is that because we are seeing these challenges outside, we should actually try to improve our EPC, move more towards EPC so that we can control the uncontrollable. Even today, obviously, having said that, even we are facing some constraints in terms of EPC because advanced action on the land was not taken in the earlier areas because of various reasons what we've done. The difference what we are doing right now, which impact won't come in this year fully, maybe in the last quarter and the next year onwards it will come, is we are going for what is called a development contract first with the clients. So a client says that, "Okay, I want to develop 500, 700, 1,000 megawatts in this particular area." We say that, "okay, let's find it, all the commercial." I will first issue -- I will issue everything, but I'll give you an NTP for the development. So and what we have done for -- to help that is that we have gone ahead in places like Rajasthan and AP, and we are now trying to enlarge it to other states. We have our rights, exclusive rights to develop wind projects more in geographical area. In Rajasthan, we have about 2.7, 2.8 gigawatts. In AP, we have more than 3 gigawatts. We have a rights to develop. And once we have the clients who are saying that, okay, I want to set up here, we go ahead and start acquiring the land in advance. And we don't get -- our working capital gets stuck in the land because they are giving it other. And then for them also projects onset rate will go away, because that is being done here. That model is what we are working on, but more a significant impact you will see in FY '26 and FY '27 -- FY '26 onwards, and subsequently maybe every single year. That's what we're working on right now and which is very, very important, we feel, because the concrete capacity addition, I'm not saying it with arrogance, capacity addition will significantly depend upon how much we do. In -- when you say FY '17 was the highest we did last time. After that, we did the highest now. FY '17 was our highest. And now this year is after that, we are the highest again, for us. So therefore, when we achieve that, the sector also moves up. So we understand that. And being the leader, we need to shape that, how much wind capacity can get added. So these are some of the steps what we're doing today. But you will see that impact of that maybe in the last quarter but significantly in FY '26 onwards.

Thank you. We take the next question from the line of [ Mr. Mauli ] an individual investor.