Suzlon Energy Limited (SUZLON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Suzlon Energy Limited Q1 and FY '27 Earnings Conference Call. During this call, the company management may take certain statements that reflect their outlook for the future. This could be construed as forward-looking statements. These statements are based on management's current expectations and are associated with uncertainties and risks as detailed in annual report. Actual results may differ. So please statements should be reviewed in conjunction with the risk of the company faces. [Operator Instructions] Please note that this conference is being recorded. [Operator Instructions] We have with us Mr. Ajay Kapur Group CEO; and Mr. Rahul Jain, Group CFO and senior members of the finance team. I now hand the conference over to Mr. Ajay Kapur sir. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and thank you for joining Suzlon's Quarter 1 FY '27 Earnings Call. FY '27 has started strongly for Susan and the Indian wind industry -- even amid global geopolitical tensions in the Middle East and resulting for patient volatility, we have sustained strong execution demonstrating the resilience of our business model and the strength of India's RE opportunity. While Middle East tensions created near-term supply chain disruptions, we have also reinforced the strategic importance of energy security, further strengthening the long-term investment case for domestic RE, especially wind energy. India's economic growth, rapid electrification, AI-led data center expansion, industrial growth, EV adoption and cooling demand continue to drive structural power demand growth. The country's peak power demand has already crossed 270-plus gigawatts, reinforcing the need for large-scale RE capacity additions, especially during nonsolar hours, which is peak demand. This momentum stage for a multiyear growth cycle with annual installations expected to cross 10 gigawatt in the near term and reaching 15 gigawatts by FY '31. With 57 gigawatt already installed and a strong pipeline with STU and PSU bids as well as C&I demand, particularly for wind, India is set to achieve the near-term target of 100 gigawatts by 2030. Repowering also started gaining satisfaction and there is rising customer interest, which gives visibility of several opportunities ramping up in next 2 to 3 years. Now taking you through the business highlights. Suzlon delivered 506 megawatts in quarter 1, making our highest ever first quarter deliveries. This performance was achieved despite temporary supply chain and logistics disruptions arising from geopolitical tensions in West Asia. These disruptions deferred approximately 10% to 20% of deliveries, which is expected to be recovered in coming quarters. Quarter 1 FY '27, Suzlon installations grew 2.3x from 117 to 269 megawatts COD with more than 1,257 megawatts of elected, but waiting for commissioning turbines, this pays the way for uptick in the CODs going forward. Order book is a healthy 6.1 gigawatt reaffirming our market leadership. In the first 4 months of FY '27, we have already secured 1 gigawatt of orders and continue to have a strong pipeline. Order book is not constrained with Devco is not a constraint with Devco model in place with 60% new orders from Devco. Hopefully, this will keep the momentum growing in the coming quarters. Market pricing remains healthy and rational. ASP increased from INR 5.6 crores per megawatt in quarter 1 FY '26 to INR 6.3 crores per megawatt in FY '27, aided by project mix. The successful launch in mid order for S175 in India, alongside the Blue Sky platform, Mark Suzlon's return to advance global markets with S17 and S163, Suzlon is expanding its technology portfolio with high-capacity turbines, and we are pleased to report and deliver superior yields better reliability and lower LCOE, unlocking opportunities across repowering and new build projects worldwide. 4.5 gigawatt manufacturing capacity fully operational expanding footprint with 3 AI-enabled smart factories to drive efficiency and scale. On Suzlon 2.0, it is translating into tangible growth opportunities across multiple adjacencies. On the RE tech side, we have successfully launched S-1755-megawatt turbine and secured the first customer order. On the DevCo, strong market acceptance reflected in 600-plus megawatts of orders booked within the 4 months, which translates to 60% of the business coming from the core engine. Exports expanding global footprint with a growing opportunity pipeline spanning key international markets with opportunities under evaluation in Europe, Australia, Latin America and Southeast Asia. On the BESS, advanced storage ambitions through strategic technology partnership discussions are ongoing. On the solar side, we have identified 20-plus gigawatt serviceable solar asset base leveraging Suzlon's extensive field presence and infrastructure within 25-kilowatt radius areas of Suzlon service locations. Our RE AMS portfolio remained strong with 16.1% plus installed base in India and machine availability crossing consistently above 95%. Reno AUM is consistently growing on the back of steady fleet additions across multi-brand and a healthy pipeline. Foundry and forging continues to scale strongly. Revenues at INR 126 crores and EBITDA at INR 22 crores with continued momentum driven by domestic demand and export growth. Now I invite Rahul Jain, our Group CFO, to take you through our financial performance.

Thank you, Ajay. Good afternoon, ladies and gentlemen. I will be using Slides 20 to 27 of our investor presentation, which has been uploaded to our website as the reference point for my discussion during this presentation. In Q1 FY '27, Suzlon delivered 506 megawatts, marking our highest ever first quarter deliveries in India. Suzlon reported consolidated revenue of INR 3,892 crore in Q1 FY '20, a 23% year-on-year growth with EBITDA at INR 595 crores and PBT at INR 390 crores. Also, a PAT of INR 305 crores was reported during Q1 FY '27. EBITDA impact did get impacted on account of some of the factors. Certain deliveries impacted on account of temporary supply chain and logistics disruptions arising from geopolitical tensions in the Middle East, which impacted fuel ability and movement of critical equipment including cranes, trailers and transport vehicles required for WTG execution. Higher fixed costs reflects investments to support scale, including the Purcari facility. Leadership strengthening and Suzlon 2.0 initiatives. Q1 FY '27 is impacted due to the other factors and in the long term, we continue to grow in line with our ambitions set up for Suzlon 2.0 at 25% CAGR for the next 5 years. We are pleased to report on our balance sheet as of June 26, reflects a position of exceptional strength, with strong consolidated net worth of INR 9,869 crores, our net cash position of INR 2,322 crores, further enhances our financial flexibility and resilience. Adequate working capital limits have been tied up for execution of the current order book. Our integrated business model backed by robust supply chain, strong execution capabilities and industry-leading service network continues to differentiate Suzlon and create a sustainable competitive advantage. With that, I would now like to hand over the call to the operator and open the floor -- open the floor for questions. Thank you.[Operator Instructions] Our first question comes from the line of Bala Subramanian with Arian Capital.

Sir, in Q1, the delivery is around 106 megawatts and but the commission is already 69-megawatt. So I think it implies the cap up nearly 37 megawatts in Q1 alone. So like what is the typical revenue recognition that between delivery erection and commissioning. And in total, I think 973 megawatts erected inventory is expected to convert I think when we can expect, whether it's in Q2 or Q3, you get some clarity on that side.

Okay. So let me try and answer that question, please. Q1, what we saw as deliveries was 506 megawatts. Our total COD in Q1 was about 26 megawatts -- when we look at it from an overall perspective, the position that we have on RR versus commissioning there will -- there is a certain gap and that will continue to remain. We have to also look at the fact that we have 1,257 megawatts of erected machines. Now as the erection completion happen when the COD positions will likely improve going forward as well. So I think it is not the gap to be looked at, but also the RFC stock and the stock of machines that have been commissioned that have been installed ready for commissioning as well. So I think that is the position to be looked at. From a Q3 and Q4 perspective, if you look at it, the seasonality of the business is such that, and historically also we've seen that there is a seasonal trend that works out that plays out. Historically, what we have seen is, let's say, about 35, 40 in H1 versus 60, 65 in H2. I think that trend still remains. Hopefully, that answers your question, sir.

Got it, sir. And sir, my second question is, I think we are making strategic investments in S178 platform, new blade back factories and the Blue Sky European relaunch. So what is the expected payback period for these investments and then we can expect meaningful revenue contributions whether it's in 28 or 29.

So very good question. Rahul already gave you an answer to you earlier on that we have 1,250 erected turbines. So a large part of it is now ready for commissioning. So that should help us improve the COD and commissioning part 1. Part 2, as we migrate to new 5-megawatt series for Indian market, plus 6.3 megawatt S163 for international markets. These are the investments being made. Internationally, it takes anywhere between 18 months to 24 months to seed the market and start the first shipment. So that's the answer for international for our domestic -- we've already got the first order of S175, which will start deliveries end of this year and next year. Also, the other strategic investments we are making in new factories as part of our expansion. I think all these investments pan out over the next 12 to 18 months. And we're very hopeful that the payback for all these are -- is a very fairly short payback. These are not long investments because as soon as the ramp-up happens on the volumes, this already starts paying back.

Okay, sir. Sir, my last question, around the 85 percentage of order book is from PSU and C&I sector. So I'm trying to understand whether it's a PSU dominated order book or structured drag on cash conversion. The payment cycles are improving. So what is the difference between like receivable as for PSU?

Basically, it's a 50-50 mix between PSU and C&I. When we take each order, it has its own uniqueness. Wherever there are payable days both there, the pricing is adequately done in a manner that it accounts for the days. So I think from that aspect, I think we are well covered.

Okay, sir. And the mix will continue or it will change in the coming year, sir?

The evolving -- it's an evolving market. I cannot predict that. But by and large, as part of the journey to RE, we need investments from everyone, including PSUs, who have taken larger targets. At the same time, large corporates are repeat customers for us. You would have seen in our various announcements. So we're very happy to partner with both of them. And I think more or less the same trajectory will continue, but we have a sharp focus on our receivables management, and we are seeing improvement over there also.

Our next question comes from the line of Mohit Kumar with ICICI Securities.

Good evening, and thanks for the opportunity. My first question is, sir, what explains the weakness in EBIT margin during the quarter on especially about WPG. On a per megawatt basis, the EBIT has declined from INR 26 lakh per megawatt to INR 52 lakh per megawatt, while the average selling price has only gone up, right? So can we expect you to correct -- how do you think this -- how should we look at it?

Okay. So when you look at EBITDA numbers, what we are seeing is roughly about a flattish EBITDA from INR 59 crores which was Q1 FY '26 to INR 595 crores in Q1 FY '27. The way to look at it is probably this. There are certain investments that we are making for our 2.2 Suzlon strategy. There is a strengthening of that position starting to happen. So therefore, some of the expenses have to be upfronted, right? Benefit of these expenses will come over a period of time. Therefore, you are looking at a flattish EBITDA. That's 1 of the reasons. Second key reason is the fact that what Ajay also mentioned, given the geopolitical position, there were certain lower, let's say, operating leverage playing out this quarter. as we go out in time and as our operating leverage will move better, some of these positions should be better going forward as well. Also the third element of this is when you look at it from a segment perspective, are WTG or the RE solutions segment versus the REMA segment. there are higher margins in the AMS segment overall. So as your mix changes, there will be some positive or negative depending upon what mix you are at. So that is essentially the reason it.

Understood. My second question is, of course, the LMM on the wind is expected by I think it already got implemented right. So I think the C&I deadline is somewhere 25 are not wrong, right? And the utility is already -- it has already been implemented from August 25 at it happens post in your opinion, are you gaining market share for that? And have you seen the impact on the ground? And second is, do you see that -- we see the LMM expanding into components like yard and pitch drives in the next 2 years. I believe that those drives are now -- they are not covered as of now. So let me answer at a larger level.

First of all, this ALM SOP brings level playing field for the Indian players. Suzlon is fully compliant and well positioned versus import-dependent competitors. The SOP provides clear staged requirements for listing and inspection, plus a new import monitoring system, which is REIMS. I think this helps us. On the second part of your question, we can connect separately. At this moment, maybe we can reach out to you separately and answer that.

Thank you. Our next question comes from the line of Sumit Kishore with Access Capital.

Two questions. The first 1 is that the fixed cost in WTG business in Q1 seems to be at Q4 FY '26 levels despite much lower volume. -- you spoke about the advanced investments that you're making for Suzlon 2 strategy. How should we think about the full year WTG fixed cost here? -- how much of the impact in Q1 was because of the temporary issues around fuel availability, pricing, movement of cranes. So how should we think about the full year fixed cost for WTG business for FY '27.

So Sumit, to answer your question, the way to look at it, is that there are certain onetime costs that have been baked in into the Q1 numbers. like I said in an answer to a previous question as well, the overall position from a year perspective, there will be some onetime or, let's say, investments that we are making for our future positioning of be it for export, be it for the devco model and others. That's something that come through over the year as well. Again, if you look at it, we have always said that our EBITDA margins between 17% to 18% last year was the position that we had taken. My sense is that this year also, plus or minus 1% to 2% from there, we should be able to maintain and put strong positioning, given as we go out and operating leverage plays out in H2, we will certainly see a better positive change to that.

Okay. I mean just the fixed expenses that you have in mind for cultivating exports in Suzlon 2.0, would you like to put a number to that for the first that we can track that?

Not really, Sumit, I don't want to put a number to it. Let me just say that we are judicious we have the ability to do some of these expenses because we are looking at growth as a lever going forward. There will be certain upfront costs. And to be very frank about it as the group CFO, I'm not very worried.

Sure. Just a quick 1 on the 600 2-megawatt Deco EPC contract, what sort of advances have you booked to these contracts? Could you give us some sense of the execution time line versus the non-TAP order book? -- and possibly whether this would be margin accretive.

Very good question. These are similar contracts as we have been doing in the past. -- same commercial term, except that here, we have readiness of available land banks and connectivity, working closely with the customer and the client, which helps in a faster implementation. Other than that, all advances, everything is in the same nature as we have done in the past, and they are value accretive.

Next question comes from the line of Prakhar Porwal with Ambit Capital.

Sir, my first question is a follow-up on the rigs on. On the DevCo, you mentioned margins and turning from the similar levels that you have on the existing audits. But advances exit on these orders because I assume the conversion cycle is 3, 4 years. So are these the projects where land has been acquired and the customer has given an advance for these contracts, the 600-megawatt ?

Yes. So the answer is current sales which is happening is already the advanced sites that we had. Those are the ones we have offered, which are very big. So whatever investments we already made in the land, in fact, they will get unlocked very soon as the advances start coming in and we increase the site progress. The ESP IV decoders, which is also part of the Suzlon 2.0 strategy. Those are yet to be announced, where we have a slightly different strategy. But these are the ones which are more like the current orders, but they have been coming through the pipeline of our DevCo team. As you know, we have been working on it for a while. It's not that we started after announcement. So we're already working for it. These are the more baked ones. And therefore, there is a very high demand also for these sites from our customers.

Sure. My second question is on -- again, on margins. The fixed cost that you mentioned that you're investing mills. So this was not that you are mentioning, what type of fixed cost, if you can mention maybe some of these?

So basically, we have to incur, for example, new plants we are setting up. We're making investment in technology for the new protos that we are working on international and domestic market. part of marketing and international markets to open up the market. These are all those investments, which are inevitable as part of the growth strategy.

And just lastly, on repowering, you mentioned briefly in the opening remarks. If you can highlight some movement in terms of repowering in India that is happening and also maybe on the Investor Day, you discussed about the European opportunity. So because this question is related to the country that was held in the minister had asked wind energy, I mean console to prepare a report for all the potential sites. So maybe anything that you're seeing from there and any type of demand that you expect from that segment?

No. So a very good question. In fact, at a high level, repowering has a potential of close to 25 gigawatts in the country. And what we have done as a significant portion of India's installed wind fleet was commissioned 10 to 20 years ago. using relatively small turbines with lower of heights and lower energy yields. The modern turbines such as the latest generation platform can generate substantially more energy. -- from the same footprint. And therefore, that's where the whole answer lies. And these are also very good wind sites as these are the best, which were taken in the beginning. And for Suzlon, we have already started working on our S88 -- 120 platform. That investments we're already making, it is also part of our Suzlon 2.0 strategy. I think in the next 1 or 2 quarters, I should be able to come out and tell you the pilots and the orders that we already cracked -- but the team is very confident that before we end this year, we would have already logged in confirmed order book from the repowering in India first. Within international markets, Australia, a very promising market. Europe, very promising market, a lot of demand. And the same product that we are launching here in India is what we launch also internationally. So for that permits and all the approvals looking at their local grid and grid requirements are being currently done. These are also the investments which are part of our Suzlon 2.0 strategy.

Next question comes from the line of Shweta Jan with Ana rate, Share in Stock Brokers Limited. Please go ahead.

Sir, coming back to the fixed cost questions on the fall -- so I understand that you will not be able to give me an absolute number with respect to how much of the costs have been upfronted in this quarter. But if you could just help us decipher what margin impact would have been ex of these cores for the quarter? It's just to assess how the entire year would pan off, frankly.

Same question you've asked a different way it. You're also asking -- but okay, so since about INR 40 crores to INR 50 crores is what could be the number across various subheads which I told you. And I think as we ramp up volumes, this should start panning out and should not have such a major impact for the full year.

So this entire INR 40 crores to INR 50 crores would be onetime for this quarter?

See, it's a year-long journey set. It is not a 1-quarter story. We are a is not saying that we have baked everything in the first quarter. It's a year-long journey from where we are coming, but not a big number, I would say.

And the revenues, if I understood correctly the previous answers, we will start actually witnessing something materially next year onwards from the Susan 2.0 version.

So basically, what Rahul was saying, typically, we've been operating at about 17%, 18% margin. Our endeavor will be to remain in that realm. -- can give or take, 0.5% up and down. I mean that's the way we would like to go. You've seen a strong delivery in the first quarter. This is the highest ever in the versus long since inception. -- revenue and 12% on RR. More importantly, 230% on commissioning. And on top of it, another 1,250 elected ready to be commissioned. So I think these are good numbers. I believe they are going to be all value accretive for the business going forward on top of investments for current and future years, I think, which is going to pay us which dividends because if I have to achieve 2021 goals, I need to start, and I think we already started the journey.

Correct. Absolutely SP1 Absolutely. That's fair point. The next is on foundry forgings. I think since last year, we've been tracking and stating that this business is expanding into different verticals targeting aerospace verticals in automobiles, et cetera? But if we see Suzlon share has continuously been inching up on a quarterly basis. Any thoughts with respect to how the utilization can actually ramp up up to 50% or something material number? :p id="1987114994" name="Ajay Kapur" type="E" /> Very good question. This is 1 business which gets more impacted with the geopolitical issues which were happening in the recent past. We're trying to also increase the share of exports. The big customers we found got into the Gulf credit. What the business is looking at is distinct segments, foundry, forging and gearing. And we have started talking to more customers, more order pipeline. In fact, in the coming quarters, you will see the whole strategy panning out beautifully well. And obviously, while Suzlon will be a big buyer, but we want to actually increase the share of non-Suzlon and non-wind and exports. So these are the 3 or 4 KPIs given to them with a very clear 3 business models or foundry, forging and bearing. I'm very confident this business has a lot of promise in time to come.

Thank you. next question comes from the line of SadasiKaluja with Ishan Ventures.

First of all, I would like to ask that there has been a unconfirmed news in the market that there is some kind of foreign holding cap that the company has faced -- can you confirm if there is a cap on the amount of holdings in the company, which can be held back for FPA?

Not really. I don't think there is any such thing that, in fact, I can't place a cap on it. That's the -- that's one.

Yes. As regards to all the capacity. nd there was an interview of JP, sir, which is like which was held at campus, where you said that once the 5-gigawatt machines are like started at production starting the insoles automatically booked from 2,500 megawatts to limegawatts. Am I wrong in borounderstanding of statement?

I'll not give you a number from INR 4,500 to INR 5,500 crore. But if the current capacity, everything shifts to -- let's say the 5-megawatt. Yes, that is the way it has to be looked at that higher -- that takes time now because your current order book, if you see the 1 gigawatt is largely -- so 4, 3 series and some part of it is also where the retail demand and some customers that there was -- so I think it's a mix and it's a transition as it happens. So when you finally transit, it will go up, obviously, you're right.

Okay. So when I go on a 9 comparison of the profit loss account, the majority of expense that has increased in material consumed I'm still trying to understand what would be the expenditures that would have been incurred in -- like would have been moved into material consumption Basically, it is the if you see the same quarter, we were 22% share of EPC. And this year, we have 22% share of there's a substantial shift.

Thank you for the opportunity. Thank you very much -- our next question comes from the line of Raja with MC.

My question is related to the realization that has increased from INR 5.6 crores per megawatt to INR 6.3 crores. As you mentioned in the opening comments, this is a part of the result of the project mix change. If you can throw some light on how should we think about this number as EP business is increasing for the entire year, how should we think about this number?

Basically, you're right. I mean the PC share has gone up from the base year where I said 22% on up to 32%. So that's what is translating into the higher revenue. and also project business.

So this upward movement shall continue going forward as well, sir? Because the scope has increased, so the revenue has increased. -- as our project business will be higher, we will see this number in that range.

Again, -- this is also a segmental number overall is what I would like to say. So the ASPs are in fairly good shape is what we are saying here.

Got it. Got it. And sir, for the asset management business as well, we saw margin expansion in this quarter. So my question was, now do you see that this shall be a sustainable margin level of 18%, 34% going forward as well? This is actually much higher -- but we believe this should be more like higher 30s, 39 -- 28, 29 -- you're seeing the segment revenue.