Techno Electric & Engineering Company Limited (TECHNOE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Techno Electric & Engineering Company Limited Q3 FY '24 Earnings Conference Call hosted by Asian Market Securities Limited. This conference may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. The statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, projections, et cetera, whether expressed or implied. Participants are requested to exercise caution while referring to such statements and remarks. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suraj Sonulkar from Asian Market Securities Limited. Thank you, and over to you, sir.

Thank you, Tushar. Good afternoon, everyone. On behalf of Asian Market Securities, we welcome you all to Q3 FY '24 Earnings Conference Call of Techno Electric & Engineering Company Limited. We have with us today Mr. P. P. Guptaji, our Chairman and Managing Director. I request Sri Guptaji to take us through the overview of the quarterly results, and then we shall begin with the Q&A session. Over to you, Guptaji, sir.

Very good afternoon to all of you. First of all -- well, I welcome everyone to discuss Techno's [indiscernible] for the quarter ended 31st December 2023, and 9 months ending December of the financial year '24. Anything said on this call which reflects our outlook for the future or that could be construed as a forward-looking statement must be reviewed in conjunction with risk that the industry and our company faces. Let me highlight our performance of this quarter, the Q3 financial year '24. As you already know, that we only have left with one segment of business post liquidation of our businesses, that is EPC now and also developing our subsidiary with the data center. The total revenue of the company for EPC stands at INR 364.5 crores. The EBITDA of the company for this quarter is at INR 45 crores, which is up about 92% year-on-year. EBIT for EPC segment quarter stands at INR 44 crores, that is up by 96% year-on-year. Other income is at INR 41.63 crores compared to INR 19.7 crores last year. The profit before tax is INR 80 crores-plus, which is almost double of last year. And PAT is at INR 77.6 crores, which is 150% up from last year. The EPS for this quarter is at INR 7.17, which is up by about 158%. When we look on 9 months results of this year, the revenue is at INR 1,200 crores, that is nearly 132% year-on-year. The revenue for EPC is at INR 1,189 crores, which is 134% up year-on-year. EBITDA is at INR 168 crores, that is almost double of last year. The operating profit for EPC segment stands at INR 160 crores, that is about 125% up from year-on-year. The operating profit margin continues to be at 13.69% for 9 months. The other income is at INR 101 crores compared to INR 52 crores last year. The profit after tax is at INR 200 crore plus compared to INR 91 crores last year. The EPS is at INR 18.85 compared to INR 8.28 last year. The current investment values or cash and cash equivalents as of December end stands at around INR 1,300 crores that is about INR 120 per share. For 9 months, we have huge fresh order intake of almost INR 2,738 crores, and our unexecuted order book as of date now is all-time high at INR 5,441 crores. Other than this, we are also placed L1 in another business of almost about INR 1,700 crores comprising of orders from Power Grid, Business One in partnership with IndiGrid, order from Adanis, business from Tripura and also from DVC on digitalization of distribution network in their command area. I would now like to cover our outlook on this issue. I trust we have been able to tide over the difficult times, successfully build the financial health of the company with a lot of unutilized cash in the books, which is now proving very healthy to us. We expect this growth momentum to continue, which has just begun, and it should continue for '25, '26 in very -- in a similar fashion. I think we have already perfected INR 400 crores per quarter output for last 4 quarters compared to INR 200 crores to INR 225 crores over previous years. We expect from Q4 onwards in the next year, a top line of INR 550 crores to INR 600 crores quarter-on-quarter and which will further rise to INR 800 crore in the year, that is for the year '25-'26. As such, we are very confident that this year, our top line should be anywhere around INR 1,750 crores to INR 1,800 crores and which will include INR 1,600 crores for third parties and about INR 200 crores for our own data center. Similarly, next year, we can safely expect a top line of about INR 2,500 crores, and in '26, about INR 3,000 crores to INR 3,200 crores. Similarly, I will say that, buoyed by the policy initiatives of the government like PLI scheme, the digitization and other labor initiatives, I will say India is at a very interesting venture in energy consumption. Energy is all time high in the country today. And I guess by 2030, we are targeting a per capita consumption of 1,750 to 2,000 units as against 1,250 now. This means business in all segments of energy all around us. And this is going in the manufacturing policy, the digitization policies as well as the very semiconductor industry, auto industry coming back to India as the solution of China Plus One is all very important as well as energy consumption is concerned. In our view, it will fuel an insatiable demand for power and thereby leading to demand for all segments of power, power generation, power transmission, reforms in the power distribution as well as business in the power-consuming industry with CapEx being back. India's power demand is expected to clock no less than 7% CAGR over a period of 5 years, which is at least presently touching around double digit or 10%. This has brought the new focus on renewable energy and as well as, I will say, the government is keen to even bring back the conventional energies to the extent of 80, 90 gigawatt. So we see business happening both in conventional energies as well as renewable energy. The government has already set a target of 500 gigawatt. From the current mix, we can observe that 43% of renewable energy only has happened till date and with a CAGR of 16% and is expected to lead to 64% RE mix by 2030. If we intend -- and I'm sure we will be successfully in harnessing 500 gigawatt of renewable energy. So this also means creating a transmission network to handle this 500 gigawatt of renewable energy, which identifies various transmission, I would say, the networks comprising of almost 4 lakh MVA of transforming capacity and no less than 50,000 kilometer of lines. This is very, very exciting, I would say. Most of these solutions being matched with capacity-to-capacity in renewable power, we will all need high-end application of solutions with 765 kV or maybe now is the time to try 1,000 kV solutions also in the country. And this also the build of the grid to absorb this power, we will need a number of HVDC [indiscernible] as well as we will need a lot of STATCOM solutions to keep the grid health in place while absorbing [ input ] power along with the conventional power, which will also imply that we need to focus on lot of power storage solutions additionally, like pumping storage solutions, battery storage solutions. And all these means a number of solutions. The power grid is also seen that over the next 7, 8 years, they will have a CapEx of almost INR 1.7 lakh crore for. The sector will also see a CapEx of no less than INR 3.5 lakh crore in the next 9, 10 years. And we expect that this will continue in the marketplace to be no less than INR 30,000 crores. We'll share maybe 50%. So this is -- and our market share of Techno also in this segment is no less than 50%. The government is also now encouraging thermal capacity to ensure [indiscernible] and which is likely to be 4%, at present expected and government wants to mitigate by all means this year being an election year, and also to support the lot of enthusiasm due to high-end economic activities happening in the country, and India being the only world's largest growth space at the moment. So this optimism will result in a lot of power pickup in power consumption as well as the company with generation CapEx, with grid CapEx and also strongly backed by distribution reforms in the form of digitization of the DISCOMs and smart metering installations in multiple waves. The government has also amended the Electricity Act, which is also sounding very good now. Now out of smart metering, I will say that almost about 100 million meters are under various stages of award, and around 88% of them may be taken under RDSS scheme where government has allocated INR 3 lakh crores to be spent over the next 5 years. So the builds of about 100 million meters have happened, and we have already backed business worth about 2 million meters. And we would like to build about 2 million meters per year over next 5 years so that our share in the market will be about 5% in this segment. Now I will take up segment by segment line. Coming to FGD segment, although a bit subdued because government is encouraging again conventional power in the country, so FGD will be strongly followed by government in the new capacity and also in the existing powerhouses with the CPSU at state entities. But our takeaway is that the private may like to defer the kind of CapEx for next 2-3 years. So this program of FGD will be studied and will continue over next 10 years in our perspective. We have already got business worth INR 40 crores, INR 50 crores and which will see execution now in the coming years and next year with the BJP government back in the state of Rajasthan now. And we expect to book business worth about INR 500 crores in this segment year-on-year. In the transmission sector, we -- after a long gap, it's strongly in place, and we expect the TBCB bidding happening to almost about 50 to 100 gigawatt now. And a lot of biddings is in that process, in progress. And every month, 3 to 4 concessions are being awarded to power grid or private sector. And wherever the [ AIS ] solutions are involved, we are being preferred as an entity to provide the same over 15 to 18 months, which is the call of the day to match with the generating readiness. The total business in transmission may be around INR 40,000 crores per year, out of which, this station business can be taken, other than HVDC to be around INR 7,000 crores to INR 8,000 crores. And we expect to book this business of INR 3,000 crores year-on-year for next 3 to 5 years. We have already one business worth about INR 1,500 crores in first 9 months, and we are L1 in another INR 1,100 crores business in this segment. So we are hopeful to first ride back INR 3,000 crores business in transmission by close of this year. In the metering segment, I can say we are expecting orders worth INR 2,000 crores year-on-year. We are already executing a smart meter business in the state of J&K for 2.5 lakh meters, which is coming to a complete in the -- by the close of the Q4. And in addition, we have got another order to install about 7.25 lakh meters again in the state of J&K. In addition, we have also backed orders to install 5 lakh meters in the city of Indore as Indore DISCOMs. We are also L1 in Tripura, and we expect the orders very shortly for another 4 lakh meters in this state. We are participating in business in the state of Rajasthan, Jharkhand in smart meters and expect that by the close of the year, we will expect additional business of about 1 million meters more. The overall financial health of the sector is likely to be improving. And if the focus really stands implemented on the renewable power and also this DISCOM reforms, we are confident that there is a huge business for our company not seen before. We will also like to be part of the battery storage solutions or pumping storage solutions as well as for the balance of plant in the conventional powerhouses, which we have carried out successfully for CPSUs and states in multilaterally funded projects over last 3 decades. Data center is another very exciting story. We all believe that digitization and cloud services is the most prominent reason backed by DPDP in the country, has led to a growth of this vertical. And also the consumption of data is growing every day in our country. And I trust, this is a cause of the very energy consumption demand as of today because digitization is highly energy intensive. My takeaway is that, presently, we have about 700 megawatts of data centers in the country, which is likely to be at least 2 gigawatts by '26 and maybe another 5 -- it grows to 5 gigawatts by 2030. India actually offers very attractive energy costs today, apart from stability of supply that is compared to Southeast Asia or Europe. So I trust most of the large operators in this space would like to locate their data center in this -- in India as the location. Additionally, I also believe that AI has also fired this sector very strongly. In monetary terms, in my mind, this sector is no less than $2 trillion in '25 and it may be $5 trillion by '29. The very growth driver in this space is the public cloud adoptions by the large entities at enterprise level. The data localization, data plan, the data protection bill 2023, the very policy initiatives of the government as announced by them. The digital transformation which is taking place in the countries. The technology developments which are happening like rollout of 5G and others and next level of growth, AI, 5G, and we are the increasing adoption of AI and virtual reality will revolutionize the enterprise technology market and benefiting data centers. IoT, big data and cloud computing rising demand for IoT big data and cloud services will continue to drive the industry. Techno is also in the advanced stage of setting up of a data center of 24-megawatt IT load and 40 megawatt of grid load at Chennai, which has achieved significant progress over last 1 year and a little more. And we expect to be ready by no later than March, or maybe a month or 2 more because of the disruption which happened in November, December in Chennai because of the cloud bursting. We are now in the phase of equipping the project with more and more of the power-centric solutions and civil works and supporting -- and building works are nearly ready. The procurement of these items are already in place, and we are hopeful of commissioning if not by March, April at least latest by June '25 -- '24 and complete project by, I will say, no later than the March '25. We are seeing aggressive interest from special partners to enter into a JV for developing data centers in India. We are also noticing the deals happening in this space. We'd like to conclude the same once the project is nearly complete to harness the best value out of this, I'll say. The CapEx in our project is expected to be around INR 1,400 crores that is no more than INR 45 crores per megawatt. And with 60% of CapEx happening in electromechanical work, that gives us the ability to leverage the same in future works for other developers of data centers also. The company is very well placed at the moment and with a lot of merits. We are financially strong with undeployed cash of INR 1,250 crores at the moment. The business is strongly back in our proven areas of competencies of last 3 decades, that is high-end transmission solutions, which we expect to be about INR 3,000 crores per year. Developing transmission solutions with TBCB mode in partnership with financially strong entities and in which a good opportunity in the space of smart meters in OPEC model wherein we want to absorb in-house risk of the project development and revenue stabilization. Thereafter, we will see [indiscernible] as in case of transmission and mid-assets on financial IRR basis. A lot of opportunities in the balance of plant space due to new capacity to be built by CPSUs like NTPC, DVC in thermal power space and also with the state utilities with whom we have successfully performed in the past. Due to induction of AI, the data center business is strongly back, and we expect now we are confident of achieving 250 megawatt by 2030 or maybe more, I would say. And as I already highlighted, it is due to the very energy cost in India, which is not more than $0.06 to $0.08. We are very well placed to capitalize on this opportunity. We are developing data centers in Chennai and Kolkata, next to Nxtra data centers. And we would like to take partners only post-readiness induced. So all this means the company is strongly in growth space by virtue of the energy growth in the country and also the related businesses to the conventional power, renewable power and also power and gasoline industries like data centers. And in addition, the strong reforms happening in distribution with RDSS scheme in place and also digitization of the distribution business. So this means that we can easily expect the business of no less than INR 4,000 crores per year in next 3, 4 years to go. As I already explained, our target for the current quarter onwards now, that is Q4, will be almost INR 550 crores to INR 600 crores from INR 400 crores being experienced and stabilized in the last 4 quarters. And for the year '25-'26, it will further rise to INR 600 crores. '24-'25, it will be INR 600 crores per quarter. And for '25-'26, it will be INR 800 crores per quarter. So we can easily expect the top line of no less than INR 2,500 crores in '24-'25, almost INR 3,000 crores to INR 3,200 crores in '25-'26. EPS of INR 25 in the current year, INR 35 for '24-'25 and INR 45 for '25-'26, respectively. With this background, I would now like to take on the questions from the floor.

[Operator Instructions] The first question is from the line of Ravi Naredi from Naredi Investments.

Guptaji, you are doing really fantastic in our front. Sir, my point is that when we were having INR 1,400 crores cash, the company desired to raise money through QIB, INR 1,250 crores. I believe that company should take that first, then raise the equity. So what is your view on this? Because the equity is always not cheaper than the debt...

Any other question, sir, or this is the only...

Yes, sir. The INR 1,500 crores L1 order, which you recently said in last interview. So what is the status at present? And you announced a lot of orders in this con call. So we may -- which we may receive in due course. So how the company has capability to perform them? These are my questions.

Sir, first of all, let me address your capacity question and then come to the finance and prudence of finance on this side. On the capacity side, Techno has capacity in building balance of plant, I would say such high-end applications, complexities as well as [indiscernible] facilities like applicable in data centers and also distribution for smart meters. [indiscernible] rewards or earnings at the bottom line, but we [indiscernible] brownfield expansion packages from power grid [indiscernible]. We were always operating [indiscernible]. [Foreign Language]. Something [indiscernible].

Hello, Guptaji, there's technical difficulty from your end.

No, sir. It is not from my end. [Technical Difficulty] Parties must keep their lines in silent mode.

Okay. The next question is from the line...

No, no. Let me complete the answer. I have yet not completed. Yes, so we were almost executing 30 location projects of each no more than INR 50 crores, which presently, we expect to raise it to INR 100 crores and then to INR 150 crores per location or maybe even INR 200 crores, but not working at any more than 15 to 16 locations because of the very size of the projects of 765 kV AIS, and they are the largest of the large in the country as a deployment. So all this within the same capability and capacity, we are able to ramp up the top line, number one. Number two, coming to the finance prudence, you see, our company has always been very, very prudent in utilizing the cash and I trust cash is king. It always brings multiple type of benefits, like assurance of payment to our suppliers, procurement at competitive prices, your ability to fund your programs ongoing in the field at time. And it is usually comfortable, I will say. So -- and you must have cash in the books always to take care of any contingency otherwise. So I have been always a debt shy person, and we trust we can earn easily 15%, 18% on this money by multiple and different ways of deploying the same, which is not only meant for growth in the top line and resulting in higher working capital necessities, but also to fund the OpEx model projects, like our partnership with the developing transmission assets in TBCB or developing smart metering solutions. And going forward, we do expect that we can take up more projects in OpEx model with the developers, thereby giving us a better bottom line demand. But definitely, you see the CapEx planned over the next 5, 6 years for us is no less than INR 25,000 crores, if you see holistically. 250 megawatt of data center will mean no less than INR 10,000 crores as a CapEx and also developing 10 million meters in OpEx model will also mean INR 10,000 crores. So it is almost about INR 20,000 crores. Of course, we will take that, but we will be shy to go beyond a debt ratio of 1:1. And we'll also be continuously rolling over this CapEx into exits additionally, so that all the time, we must have cash availability in the company of no less than INR 1,500 crores to INR 2,000 crores to meet any contingency or any delays or payment as experienced so that we are not vulnerable as we experienced in previous 10 years with fatality with a lot of the meters. So we want to make sure that company continue to generate reward of 15%, 18% of the equity as well as keep company financially healthy. Our target is that by 2030, if we have a top line of INR 5,000 crores, my net worth also be known as that INR 5,000 crores, that is what we've achieved and a debt of no more than INR 5,000 crores.

Should we take the next question?

Yes, if this is okay with the first question person.

The first person has been dropped.

Okay.

So the next question is from the line of Subhadip Mitra from Nuvama.

Firstly, many thanks for giving such a detailed explanation and your overview for the sector as well as for the company. If I heard you correctly, I think you mentioned FY '25 sales guidance of INR 2,500 crores and FY '26 at INR 3,200 crores.

You're right, sir. Perfectly right.

And I think, sir, you also mentioned an EPS guidance of INR 35 for FY '25 and INR 45 for FY '26. Did I hear that correct?

Yes, '26, '25-'26. Absolutely right.

Correct, correct, correct. So first, this is immensely helpful. If you could also help us, sir, in terms of the EBITDA margin guidance that you have. I remember, I think in the last call, you had mentioned a range of around 13%, 14%. I believe, for the 9 months of this year, you're already tracking 15%. So would you be upping the EBITDA margin guidance as well?

No, sir. I think we will continue to be around 13%. And depending on commodity cycle because of the global forces as already happening around us, I think we should be conservative. But we will -- it may improve. I think expecting 13% is fair.

I understand. And then will you see scope of the margins going up over the next 2 years given that you're getting larger ticket-sized orders? So maybe there is some operating leverage or economies of scale that can flow?

Sir, it may happen. But to be conservative, it is not good to factor because the very tariff bidding which happens in our country, it puts a lot of pressure on the developer -- asset owners in terms of the tariff and their ability to pay out to EPCs are not that huge that is constantly under pressure as I see. Additionally, we also experienced today, it's a suppliers market on equipment because of the ban on the large end equipment or major equipments forming part of the solutions because of the ban in use of Chinese equipment under DPIIT policies. So all these are challenges inbuilt in it. So I will trust we need to experience the ground.

I understand. I understand. Sir, lastly, what we are hearing from various industry players, including power grid, is that while there is this huge pickup in terms of the plant transmission CapEx, there is acute shortage of certain segments of equipment, for example, whether it is HVDC or it is high-voltage transformers. Do you anticipate any such short-term paucity of equipment which can probably impact your execution on the substation side?

So this is what I shared with you just now, Mr. Mitra, that pressures are there in the marketplace. But Techno's relationships with these very suppliers for last 3 decades and having grown together, and we have been trustworthy payment masters in this space. So our respect is very huge, and that helps us to -- despite challenges, we do get our equipments in time from them by and large as for the requirement of the solution. And that's good, I will say. So it's the time for companies like us to come forward and absorb more of the risks, which we are best placed in the marketplace.

And the next question is from the line of Venkat Subramanian from Organic Capital.

A couple of questions, sir. One, we had taken a few opportunistic orders overseas when the Indian markets didn't appeal to us. Are we kind of defocusing there? And will we come out unscathed from that? And what's your outlook there, sir?

Sir, I will say that we have done little overseas compared to many others in this space. Number one. Number two, our Togo assignment is complete and we have already achieved completion certificates. That project was funded by Exim Bank. We are still struggling to be out in Kabul in Afghanistan, which are -- our comfort zone was that they are funded by World Bank and ADB. So resolutions have to happen. Number of meetings have happened in Doha, and we are very confident. And secondly, these projects are part of CASA scheme. It is not limited to Afghanistan only. So they have to find solutions because 3 more countries around Afghanistan are entangled in it. But the good part is that we are nearly completed about 90% of the work in this project. So it will be foolhardy for anybody not to complete the balance 10%, 15% left in that place. So project completion will happen, and our involvement also is now more than $6 million there, which is very little, I will say. But we are finding good traction now in the Middle East because every country in Middle East is very strongly focused on renewable power, like India, and climatically also so. So we find good space to be part of in Saudi or Oman or similar other countries. Let's see how it works out. So -- but the domestic market is more hot than overseas also.

Sure. Secondly, a couple of conference calls ago, in answer to a question about organizational strength and then enhancing, et cetera, we said we are in the process of inducting and interviewing a lot of people, et cetera. Are we getting the kind of talent that we need to achieve this kind of scale, Guptaji, now?

Absolutely, sir. Because there are 2 things. Firstly, we have strengthened our daily office very strongly. And my son is located there now, full time, for last 3 to 4 years, Ankit, who is driving all IT-laced power solutions like data centers, smart meters or digitalization. And we have picked up very good people in that office. If next time you happen to be there, it's a team of now 100-strong people.

Wonderful.

If you happen to be there in Gurgaon, please visit our office, we welcome you and share our experiences with you. We are also transforming a lot, I can assure you. To catch up, we understand growth brings its own challenges and risks with it. And as conservative we are, we want to be delivering this growth very successfully and prudently in all regards.

Lastly, sir. On this enabling resolution for QIP, knowing the company and knowing you, I read a lot, you probably have spotted some opportunities. It probably will not be very futuristic. Do you want to give some broad color in terms of what this will entail, et cetera? Do we have some specific assets that we are chasing? Because it can't be -- anything that you build either on the data center side, et cetera, will kind of turn itself over. It won't be a continuing investment. A few you will build, and in a typical style, you probably will flip them over, et cetera. So if you take this kind of money with the kind of cash build that we're sitting on, you probably have something in mind. Do you want to kind of give a broad picture to the market?

No, we have a program of CapEx of almost about INR 2,000 crores to INR 2,500 crores per year now, keeping the OpEx model of the smart meter as well as data centers. So the objective is to stay liquid enough and financially strong enough to meet these kind of CapEx year-on-year, either less by some debt, not all debt. But also if you are not able to get exit for a year also, you can be under distress. So we don't want to be in stress or distress situation. The advantage is that, whatever exposure you want to take in CapEx or -- and asked working capital needs, that must be adequately funded. But secondly, whatever approval we are taking, sir, we are beginning the process. It does not mean we do in 1 installment or it may be 2 rounds, depending on investor interest in our space, in our company. So we are still not very decided that this money would get raised tomorrow itself. It is only a beginning of the process. And we may complete this over a year, either as a preferential allotment or as a QIP. Or depending on investor interest in our opportunity and value he is willing to pay, which will be good for all the stakeholders in the company today. And we're also strongly looking on foreign enterprise, FIIs or FPIs, more than -- because domestic participation is already very high in our company.

Indeed, I understand. No, if you're investing almost INR 2,000 crores to INR 2,500 crores in the system on almost on a yearly basis, then one would assume that just a 13% to 15% kind of EBITDA would possibly give us only something like about INR 300 crores, INR 350-odd crores, which is not the kind of metrics that we have worked with in the past. So although the turnover can be higher, probably the flow-through to the bottom line should be a lot higher than 13%, right, which otherwise, it won't meet the previous metrics of ours.

You are perfectly right, sir. But you may see in our documents happening in 2 parts, as you saw in the past. One, some part of return, will be as a value accretive, and some part will be as a OpEx returns in execution return. So it will be a blend of the 2. As you saw when we sold our transmission assets, we generated handsome capital gains. Similarly, when we exited wind assets, we had a handsome capital gain. So this will also be a hybrid model of EPC reward plus your exit reward as a capital gain.

Lastly, sir, since we are thinking along this line...

Yes, just a minute, Venkat, these CapExs are happening in SPVs because that is mandatory. All smart meter work is also happening in SPV only. That is also a requirement of the government. So that post concession period, it goes back to the government.

Right, right. Now just to guide the market more appropriately, if you can kind of actually make a presentation to kind of capture this because, on the face of it, it look as though you will have about 13%, 13.5% kind of margin on all your top line, while some of it actually will come from value accretion. So it might make sense to guide the market accordingly...

Yes. Noted, we will do that, sir. We will take this. No issue.

And the next question is from the line of Gurvinder Singh from Fortuna Investment Advisors.

My question probably continues from what Venkat was trying to get to. As we understood your business, the CapEx-heavy or asset-heavy businesses of smart meter and data center will obviously grow in the overall pie in the next 5 years or so. Just a sense of, philosophically, would you limit the CapEx from the balance sheet of the parent into these SPVs essentially by funding the growth beyond the point from selling stakes in those NBFCs and finding partners? Or would you be philosophically guided to continue to invest and limit the partner's capital there? I mean more a directional question, if you could help...

It's a very delicate balancing of risks versus rewards between yours and me, sir. Our takeaway call is that we don't want any investor to price our -- underprice our assets mainly by assuming that he is part of that project happening, this core project -- construction project management risk or project development risk, number one; and secondly, the very stabilization risk thereafter of the revenue stream. So that when -- like we -- when we parted our assets on transmission, they -- those projects were not part of any construction risk or any revenue risk. So we could exit at about 9% IRR type -- or 9%, 10% IRR, depending on debt cycle happening in the country. But today, when you take a partner when project is in construction phase or delivery phase, any investor looks for a return of no less than 15% or more. So that is very pushing. That belongs to my investors, that belongs to my stakeholders. So we want to -- Techno is sure of that risk. We understand the risk, we are confident of mitigating that risk. So that reward must be part of my balance sheet, whether it is happening in SPV or in the parent. But we will definitely be funding SPV with the debt as long as something with the capital from the parent company. But definitely, those SPV will be parted out once projects are operational to the financial investors or to invest as required. So that we are able to derive or realize the most optimal value out of our learnings, our experiences and as well as out of the -- seeing the business risks out of the DISCOM agreements or regulatory agreements. So we don't want to be underpriced on our assets.

And the next question is from the line of Sarvesh Gupta from Maximal Capital.

So on continuing on the previous question itself, now -- so did -- so the advanced meters, we understand that it is more like an opportunity where, once it is done, then there can be some IRRs linked to it. But in case of data centers, while we have the EPC sort of capability, but we may not have the capability to get the data centers filled with the tenants and up and running. So in that model now, if you are taking a lot of funding in our parent, then how will it help the potential guy who will come to the data center business as an investor?

Sir, in data center, the investor will happen earlier than it's occupied or put to use. Like you can see, we are approached by many investors, but we are awaiting its readiness. So that somebody is not a part of my construction risk. Once it is visibility of readiness and operationability happens, definitely, somebody will become our partner by then. We have capital with us already on understanding levels and still to get into a definite projects between us. So -- and also, we are inducting people from the Silicon Valley as a Director in our Board, which you will see soon happening who have built multibillion-dollar data centers in U.S. and exited. So we are conscious of all these issues and resolving in a professional manner, I can assure you. We are not mounting this which is not digestible by us or not addressable by us.

Understood, sir. And on the fundraising itself. So the way I understand that maybe you will do it in parts over the next 12 months or so after getting the shareholder approval. And this entire money may not be drawn in one go.

Absolutely. And we won't do dilution more than 10% in totality over a year.

More than 10%. Understood, sir. And sir, just one more question. So when I'm looking at your consol and stand-alone statements, I do see that the gross profit in the consol is lower by INR 12 crores compared to the stand-alone. And same time, like in the second quarter, I think -- or in the first quarter of this year, it was INR 26 crore of profits. So how -- what is the policy around doing this EPC business for our subsidiaries? Is it entirely in cost-to-cost basis as of now? But if that be so, then how come we are having some losses in the consol? So if you can explain the policy regarding how we are billing to our subsidiary companies.

No. I think these are accounting issues, and you have to comply to many norms of books of accounts as you build. We are gradually trying to come around. Firstly, consol is happening is no more than data center now in the company, subsidiary. There is no other asset, which is in control, number one. Number two, our aim is not to have more profit in the parent over the asset. We'd like to drive more value out of the CapEx exit, subsidiary asset, asset as a capital gain. But at arm's-length pricing, we have to be prudent under corporate governance norms. And accordingly, we keep benchmarking the price of the contract to parent versus subsidiary. So you can see that the gap is narrowing down.

Understood. And overall, we can expect a 20% sort of an equity IRR, post-tax equity IRR, once we downsell these assets, including the EPC margins?

Yes. Yes, absolutely. As of now, yes. It may be more. The way we are seeing investments at the moment happening in data centers, post AI kind of rush, market is getting fired more than energy also now.

Okay. So that's good to know, sir, that we can get more than 20% post-tax equity IRR. And as I understand, part of it would be back-ended because of the exits that we may get.

Absolutely right.

Thank you. That was the last question. I now hand the conference over to management for closing comments.

Yes. I thank you all for joining the conference call with us. And if you still have any query left with you, please drop a mail to us. And if you happen to be on this side of the city or part of India, you are welcome to drop in our office to visit us and witness for yourself how we work. Our Delhi office is equally large and vibrant now. You can visit us in Gurgaon office also. Ankit Gupta is there located, he can answer all your questions. And with this, I would like to once again thank you all of you and close the conference.

On behalf of Asian Market Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.