Transformers and Rectifiers (India) Limited (532928) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Transformers and Rectifiers India Limited Q2 FY '25 Earnings Conference Call hosted by Nuvama Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Subhadip Mitra from Nuvama Institutional Equities. Thank you, and over to you, sir.

Thank you. Good afternoon, friends. On behalf of Nuvama Institutional Equities, welcoming you all to today's interaction with the top management of Transformers and Rectifiers India Limited. We have with us today Mr. Jitendra Mamtora, the Chairman; and Mr. Chanchal Rajora, CFO and Adviser to the Board. I would now like to hand over the call to the management for their opening comments before we do the Q&A session. Over to you, sir.

Good afternoon, ladies and gentlemen. Thank you all for joining us on Earning Conference Call. We are delighted to have you here as we discuss our company's performance over the past quarter and first half. Following our Board Meeting earlier today, we have promptly released our financial results and investor presentation on the Stock Exchange. We are pleased to let you know that we have a total order book of INR 3,500 crores as on September 30, 2024, out of which about INR 1,700 crores of orders which has flown in, in the last quarter. Looking ahead to the remainder of fiscal year 2025, we have successfully navigated through phases of stabilization, turnaround and growth. We are now focused on consolidation, expansion and achieving sustainable profitability. We have implemented strategic growth initiatives across the organizations, which are already reflecting positivity in our performance. Our revenue targets for the year remain unchanged. We extend our sincere gratitude to each participant for joining our earning call and for your continued support and trust. We hope we have addressed your queries satisfactorily. Moving forward, we are excited about the upcoming milestones. The first phase of new capacity addition of 15,000 MVA will start for commercial production from January 2025. Trial run for fully automated radiators manufacturing facility up to 765 kV has already started. First phase of fabrication unit will be operational from March 2025 or little later, but not later than June 2025. We target to be 100% backward integrated organization by quarter one '25-'26. Negotiation for organic and inorganic growth avenues are at very advanced stage. Furthermore, the visit to Europe last month focused on an increase in export share by more than 25%, strategic tie ups for creating synergies are expected with global giants in the field of renewable oil and gas, as well as special application rectifier transformers. In addition to this, we are proud to have received the order of 420 kV three-phase reactor with synthetic organic ester insulating fluid from power grid and order for an electrical arc furnace for 175 MVA from Arcelor Mittal, Mexico. This is our first large transformer to Mittal Group for arc furnace, and the two other orders for the arc furnaces are going to follow. They are in the pipeline. I recently visited them and appraised them of our capacity and our new expansion plans. They are happy with that, and as I said earlier, the two other arc furnace transformers are in the pipeline beside other auxiliary transformers and large power transformers. Once again, thank you all for your participation and support. We look forward to your continued partnership as we progress into the next phase of our growth journey. I would now like to hand over the call -- the mic to our CFO, Mr. Chanchal.

Thank you, Chairman sir for providing an overview of the current quarter and the first half of the year. I would like to share some key financial highlights to our esteemed shareholders. Before that, I would like to tell all of you that this time, again, we are the first company to declare the result in the record time of the 7 days for this quarter and the first half. This is continuously second time we have been doing this thing. Dear shareholders, I'm pleased to present the accomplishment of our company for the second quarter and the first half of FY '25, which has been one of our strongest quarters in the past decades, marked by sustainable growth and revenue profitability. Financial highlights. In Q2 FY '25, our stand-alone revenue reaches to INR 457 crores, an impressive increase of 75% Y-o-Y and H1 figure stands to INR 773 crores, a milestone achievement with an increase of 86% compared to the H1 last year. We achieved EBITDA of INR 76 crores for quarter 2, a significant rise of 236% year-on-year basis and H1 EBITDA stands at INR 118 crores, increase of 348% Y-o-Y with an operational EBITDA margin of 16.53% for quarter 3 and 15.28% for the H1. Our profit after tax for quarter 2 stood at INR 42.18 crores, showing a robust increase of 1,272% year-on-year basis with a PAT margin of 9.22%. During this quarter, we secured order totaling INR 1,031 crores and total order worth INR 1,729 crores for the H1, highlighting our strong momentum in strong inflows. As of September 30, 2024, our unexecuted order books stands to INR 3,500 crores, which will be executed in the next 18 months' time. Our revenue target for the current financial year remains intact as informed by Chairman, sir also, and our journey towards the USD 1 billion revenue in next 3 years -- next 3 financial year has already started. Throughout FY '24, we have placed significant emphasis on the people management and upskilling initiatives, acknowledging the pivot role of our workforce in our sustained success. We are focused on enhancing technical skills, fostering leadership, readiness and improving overall competence across our manufacturing, sales and engineering division. Our strategic recruitments in key areas such as engineering, sales and digital domains has been aligned with our business objectives. Looking forward, we are optimistic about our prospects for FY '25, anticipating enhancement across various financial metrics. Our strategies are centered in -- centered on achieving a streamless balance sheet by reducing debtors and optimizing inventory management. Our ultimate aim is to transform into a debt-free company in the next few -- sorry, in the near future, supported by clear and actionable plans already underway. In conclusion, we are well positioned to capitalize on the opportunities within India and outside India evolving energy sector and other sectors. With robust corporate governance, advanced technology, superior products and dedicated team, we are confident in our path towards sustainable and profitable growth. I extend my heartful gratitude to our customers, the Board, management, unions and particularly to our committed employees for their unwavering dedication and support. Together, let us continue to cultivate a promising future. Thank you very much. Subhadip, we can have a floor for the questions, please.

Sure sir. Please open it for Q&A.

Sure sir. Thank you very much. [Operator Instructions] The first question is from the line of Nidhi Shah from ICICI Securities.

I'd like to ask a couple of questions on the financials. First one being that we've seen an unusually high other income this quarter. It's generally twice of what we see for the whole year. So one, why is that? And two, how much it will be sustainable on a full year basis? And secondly, we see the margins for last quarter and this quarter are same. So is there little room for improvement?

Nidhi, first question, I could able to hear you properly. Second question, I did not hear. The first question reply is that the increase into this is because of the QIP funds, what we have received is placed into the liquidity fund till we utilize it. So we have received the revenue on account of that. So that is the reason of rise into this income. And as far as sustainability of this is concerned, we are not much focused on the other revenues. We are more focused on the operational revenues, and where we are full confident that this is going to be increased and on sustainable manner, on quarter to quarter and year to year. Can you please repeat your second question?

Yes, my second question was on the margin. So now we've seen that for the last two quarters we have seen 70% EBITDA margin if you take out the other income, is this our target margin or are we hoping to improve margin beyond this?

We are hoping to improve it. This is not our target margin. Our destination is something else.

And then what are we aiming for the full year in terms of margins?

In terms of the margin, we should remain into the same line in the full year.

Okay. All right. And my absolute last question would be what percentage of our order book is currently exports?

It's around 10%.

The next question is from the line of Ganeshram from Unifi Capital.

The first question is just on the export side, right? So I know we are targeting 25% by 2026 from the export side. What I'm trying to understand is what are the markets that we're trying to structure? What the go-to-market strategy is? And who our competitors are? And what is sort of the edge that we have? That's the first question.

Ganeshram see, the competitors are all the multinational companies and from India, if you say for export, it is -- Toshiba is playing a major role in the exports. They do a lot of exports. Their export is to the tune of INR 1,000 crores plus, but mainly into distribution transformers. They are not much into power transformers as far as the export is concerned. So their revenue comes from the transformers for distribution transformers and also for the transformers for the solar parts. So, they are the major competitor from here. And we are targeting the market, Europe market, African market and also the American market.

Got it. Please go ahead.

Ganeshram, to add up what Chairman sir has told you just now, we are -- our target on the export size is more into the special duty transformers, which are our expertise. Like just now in his speech Chairman sir has explained you about the electric arc furnace transformers from Arcelor Mittal. So, these kind of the transformers we are targeting more because we have the expertise on that. And we are the only company who is making these transformers as of now in India.

Okay. All right. So, I understood the picture in terms of a domestic competition, but overseas, the edge that you're providing is more on the cost lines or is there also knowhow involved, right? And if it's mainly on the cost lines, what would be the differential between us and the global peers, something manufactured out of India?

Ganeshram, at the moment, it is not the price, it is -- see technology, we have the technology. Technology is not an issue. Issue is the delivery. You know, so most of the overseas players are occupied for next 2.5 to 3 years. So delivery plays a major role. And the importance will be given to the one beside -- I mean, price, they will not be considering because if I give them the transformer earlier, they will accept my higher price also. So there is no competition as such. Today, it is your capacity to deliver to them in time. That is what it is. So as such, if you ask me, there is no competition. Everybody in the world is fully booked. I don't know about China, but if you look at the European manufacturer, the manufacturer from Turkey, manufacturer from Russia. Russia is, I mean, they are isolated, but otherwise also they are busy supplying to their local requirement. And then American manufacturers, they are booked for another 3 years or more. So now they are talking about the delivery in the year 2029. So if you just say there is no competition -- price wise, there is no competition. We are qualified up to 765 kV transformer with our references. So it is only going to be our capacity to manufacture and deliver them in time.

Understood sir. Okay, that's helpful. So going forward, how are the working capital terms on these exports, right, because considering the shipping angle that you have to export, do we recognize revenue once it reaches the customer or how does that work? And are there any offsets in terms of what we ask from our customers compared to our domestic side of the business?

Ganeshram, as far as working capital side or payment terms is concerned, we have already taken quite a large of initiatives and we are slowly, slowly converting all of our customers into the LC customers, which will help us for the working capital size. As Chairman sir just explained you right now, the pricing is not a constraint, constraint is the timeline. And to meet out the timeline, even the customers doesn't mind to give us the advance also if required, particularly the companies like us. So this is not going to be any challenge in future.

Understood. That's helpful. Maybe I'll keep it to the last question then, just on the new capacity, I think now we're expecting to start it in January, earlier December, right? So was there -- I mean, was it because the equipment didn't reach in time or anything? And was it part of the guidance that we are trying to consider for the full year?

It is because of the heavy rains in Gujarat.

[Operator Instructions] The next question is from the line of Tanay Rasal from Nomura.

Hello, sir. Thank you for the opportunity. Sir as you mentioned that the capacity has been booked, all over the world. So on the supply -- I wanted to see the supply chain constraint. Okay, we are reading that, there are some constraint on the CRGO tank as well as certain types of bushings. So how are you navigating this supply chain? Your thoughts on this?

See, we have already said that we are going for backward integration in a big way. So, one of the projects is for the manufacturing of the tanks for which we have already signed up with the agent to buy the land. And it is finalized and we have already paid them. So it is now within -- by Dussehra, we should be able to get the possession of the land. And as soon as we get the possession of the land, we start fabricating -- we start for the fabrication, and we are going for the ready-to-use for the fabrication kind of a thing. So all the activities will be done at their end, and they will come here and then fix it. So the time taken for the fabrication and the installation takes very less time. So that is one fabrication. And CRGO, as far as the CRGO is concerned, we are in the advanced stage of taking over one of the processing houses in Ahmedabad for processing CRGO. And we have lined up for the supply of CRGO with the major players like -- all the major manufacturers of the electrical steel. So we are assured of our requirement, which is something like -- today, it is something like 1,200 tonnes -- 1,000 to 1,200 tonnes per month. So yearly, it is going to be something like 15,000 tonnes. So we have the contract for the supply of more than this, by which we'll be able to also serve our peers because we are taking over the plant for the processing of the CRGO. And the plant which we are taking over is one of the best in the country. And then the bushing, the bushing also we are in the advanced stage of collaborating with one of the manufacturer. And we will be the first one to manufacture those RIP bushings, which are not manufactured in India as on today. Now for OIP bushing, there are three kind of bushings you get today. One is OIP that is oil impregnated, one is resin impregnated and then one is what they call it epoxy impregnated. There is no paper involved there. So, all one, OIP we are already into it up to 220 KV and 400 kV, we will start with 400 kV shortly. And for the RIP and RIF bushing, we are tying up with another manufacturer who has a track record of last 10 years into the same field. So, we don't want to experiment with our own processes and take little more time. So, we have taken a decision -- conscious decision to go for the collaboration with -- or the technology transfer with one of the established companies. So that was tank, CRGO and bushing, which we have taken care of.

The next question is from the line of Chinmay Kabra from Emkay Global Financial Services.

Congratulations on a good set of numbers. Sir, I think I missed it. So just wanted to get the order win that has happened in Q2 FY '25 and H1 FY '25 on a holistic level?

Chinmay, if you go through my investor presentation, which we have given to the exchange now, you will get the entire detail into that. But just to give you a brief about that, in H1, we have got the orders of INR 1,729 crores across the sectors. And in this quarter, we got the orders of around INR 1,000 crores.

Understood, sir. My second point was till when do we plan to attain the debt free position?

We are working on that direction.

So I mean can we expect that...

I can’t give you the deadline, Chinmay, because it is a very heavy capital-intensive industry. So till the time I reach to my 10% PAT for next two years -- continuous two years, this position will remain. But slowly, slowly we are working on the directions to become the tax-free company.

Understood. And if you could provide a breakup of the revenue between domestic and exports?

As of now I cannot provide you those things. But yes, from my entire order book 10% is the export book. And last year, March '24, our exports was around 10% levels, and this year it is going to be more than that.

Understood, sir. Also just wanted to gain my understanding of the capacity utilization, that is...

Chinmay, can you please come back to question again? Because we have to address almost 50 people now. So, it would be great if you can rejoin later on also.

Sure.

The next question is from the line of Subhadip Mitra from Nuvama Institutional Equities.

Sir, my first question is, given the current order pipeline that is visible to you, would you be guiding for any particular sales growth or margins over the next couple of years?

Subhadip, as I told in my speech that from this year interval, we have started journey towards a billion-dollar revenue company next three financial years. And we are working on that direction that in next three to four financial years, we want to reach there. As far as my order book concern is there, the order book of INR 3,500 crores, which we have right now, this entire order is going to be served in next 18 months' time. And apart from this, we have not taken up any orders from the capacity expansion, which is coming up at this moment. And apart from this, my Changodar unit, which is basically up to 220 KV unit, still 50% is to be filled. So as I told you in my entire conversations that we're targeting for almost INR 3,500 crores numbers for next years, and the journey is continuing towards a billion-dollar revenue. And as far as the margin is concerned, we are consolidating our position not only in terms of the revenue but also from the margin. And as Chairman sir keeps guiding us always and keep telling us that in the good olden days we reached up to the 19% margin levels, so we are aiming for that.

But that you would say is more like a FY '27 kind of a number or can it come faster?

I think it can come faster also, if the way we are going, if things remain continued.

Understood. Lastly, sir, on the working capital, are you seeing any escalation in terms of debtor days of working capital for this particular quarter?

Subhadip, we are trying to reduce it quite this thing. Basically, you need to understand my debtors' composition. In my debtor composition, there is around INR 100 crores number, which is lying with the utilities as the retention money, which basically always comes after the project is completed. So it is basically money which is not due, but my Ind AS doesn't allow me to separate it, that is the reason I have to keep it into the debtors, right? So that's the reason you will find this always into there. And as far as debtor is concerned, please do understand that when I am supplying to utilities, I have the delivery terms on the F.O.R. basis and my payment is due when the material reaches there and accepted by the utilities. And on an average basis, every utility selling time is around 30 days to 35 days. So these major components, if you remove it, my debtor cycle is very less. If you see my industrial customers, almost all of my industrial customers, are either on the LC basis, or on the vendor financing basis, or on the advanced basis. So as I have been guiding in all of my this things that in next two, next three -- by next year, we have a target of around 120 days working capital cycle. And we are working on those directions. And that is probably the best working capital cycle for capital goods industry.

Just one last bit. On potential acquisitions, you did allude to acquisitions possible on the CRGO side and the bushing side, as Chairman sir was saying. Are there any other acquisitions that are on the anvil or any plans that you can throw light on?

No, as bushing is concerned, we are not doing acquisition, we are importing. We are taking up the entire new facility. We are basically tying up the existing manufacturer, who has got the expertise of the technology and machinery. So, he's providing entire knowhow technology and machines to us and for setting -- helping us to setting up the unit here itself. So, it is going to be the complete new facility for us. CRGO is what we are talking about, processing unit. Yes, we are into the very, very advanced stage. We have already signed a term sheet with the party, target company, and pretty soon -- as soon as probably next week, we will be announcing this acquisition. Apart from this, we are working on a very advanced stage on inorganic acquisition. MOU has been signed on that also. And probably in this month or early next month, that will also be completed.

The next question is from the line of Gunjan Kabra from Niveshaay Investments Advisors.

Thank you so much for the opportunity and congratulations for a very, very good set of numbers. So I'll just complete the two questions. With respect to the demand and supply mismatch that is there, so right now the demand is huge, but we are seeing that the top players, if I count like top 10, 12 players including ours, the capacity that is coming up in the market is around maybe say 70,000 MVA. So how are we seeing in terms of the new capacity that's coming up with respect to demand?

Gunjan, I think the same question you had asked me in last quarter also and I replied to this question also. See we don't foresee any overcapacity coming in next two or three years now. And just now that chairman sir, when he was addressing to the export issue also, he said is that right now there is no dearth of orders for anybody. There is ample amount of the orders available for every transformer manufacturer. And we are also working on that level. You can see that right now I have INR 18,000 crores, INR 19,000 crores of inquiries pipeline and everyday inquiries are flowing up. So that's not the constraint at all. And capacity expansion is not coming so soon. As we are the established player, we have the expertise, we have the manpower and everything. To set up a 15,000 MVA, we are taking eight to nine months' time. So, you can imagine for the new capacity people, how difficult it will be. And apart from that, getting the right suitable manpower is going to be more difficult for those people.

Okay. And second is you answered a lot of questions on exports. So here, I wanted to understand that in the beginning when sir said that we are doing tie ups with the oil and gas and electric arc transformers, special duty transformers is what we are focusing on exports. So here in, the energy transition which is happening because of that, the demand for power. So are we focusing on that side also in terms of -- because there is huge expenditure that is being done in the U.S., Europe and Africa as well. So, are we focusing on the export markets, on the power transformers as well?

Yes, Chairman sir has addressed that issue also. And what the oil and other segments, what Chairman has addressed, it is very recently our Chairman and our MD both have visited with our entire delegation to the European market to meet the big giant customers of Europe, and who are the major customers and major name into the world. So, these are from -- some of these sectors and we are working with the strategic tie up or strategic relationship with them to have the orders from them. So this is the area, which we want to target it, apart from the power transformers, as chairman sir has mentioned already, I think you missed that out that, yes, we's are tying up, we are looking for U.S. Also, We are looking for Europe also. And in terms of the all kind of the transformers, which is of our expertise.

Sir, what will be the margins on the export side versus the domestic?

I would not like to disclose that here.

The next question is from the line of Dhruv Agarwal from Niveshaay Investment Advisors.

Is it audible?

Yes.

Congratulations on a very good set of numbers, sir. Most of my queries have been answered, but still I have few questions, sir. Firstly, as like you have added up this new facility of 15,000 MVA, which will start commercial production from January 2025. By when can we expect to reach the maximum capacity utilization? And you were targeting it to be 100% backward integrated organization by Q1 FY26. Would you like to revise your EBITDA margin guidance in near term, sir?

Dhruv, first of all, the new capacity expansion, 100% utilization will be reached by third quarter of next year, right? Second thing is EBITDA margin targets, we wanted to remain at this level same on that level, because what I have just told Subhadip is that covers up the advantage what we will be getting from the backward integration side. Just to add up in that, that will basically give me more advantage on my consol numbers.

On CRGO side, you said you are in the advanced stage of discussion. So, what kind of capacity it would be having, that is whether we would be able to fully use this capacity for internal use, like we won't close the capacity from outside, right, sir?

Dhruv, the capacity this unit has got is around 25,000 ton per year, right. At present, for the next year, I have my requirement of around 17,000 ton to 18,000 ton. So, whatever my requirement will be there, it will be done from this place, and balance we will be selling it to the RPOs because there is huge demand of this. And top of that is chairman sir has just told you, this is the finest facility of this country. So, it has got all approvals in place. So definitely we would like to take the advantage of that. In this also I would like to add up one more point is that for the maximization of this facility and to take the advantage of the present situation, we have already tied up with the electric steel manufacturers for next three years. So on the electrical steel side, our next three years requirement is already tied up with the reputed mills. I would not like to disclose the names here. So on the raw material of this product is being tied up by completely. And apart from that on the copper side also, we have already tied up with the reputed people, with the companies. So next two years, copper requirement is also been taken care.

And, sir, last question I would like to ask is, how is the demand outlook on the IDT transformer side and what kind of margins are there in this as compared to the power transformers? As going ahead, your focus will be on power transmission or it will be on the distribution transformers seeing the huge demand due to the renewable energy and on the socket connected transformer and STATCOM transformer, how do you see the demand outlook, sir?

Dhruv see, IDT transformers are different than power transformers. IDT transformers are huge in numbers. And there the margins will be less, but the cash flow will be much better than in the power transformers because it is all in cash. And so we get the payment, full 100% payment before the transformers are delivered. As soon as it is tested, we get them. And there is no waiting period in the sense that after the transformers are ready for dispatch, they immediately lift it because it is -- the whole project waiting for the transformers to be shipped to the site. So the margins will be little less as there are many players. But because of the quality issues we are getting the preference and we get a percent or two more than the other non-regular suppliers or the large suppliers. As far as the power transformers are concerned, there is a huge demand. STATCOM -- also customers for the STATCOM are also required in plenty. And then we are getting approved by the utilities there. And the Scott connected transformers, which are mainly used by the railways, as far as I know, our design is approved by railways and we have started -- we have already got the orders -- we have the orders, but we have to give one transformer -- we have to get one transformer tested. So that has been done, and it is approved. So now that revenue will also be open for us. And the demand is going to be huge for the railways, mainly because the -- all the entire railways, they are increasing the speed of the trains. And when they are increasing the speed of the trains, the power requirement is more than what it used to be earlier. And so, they have to replace all these transformers. And that is where the Scott connected transformers are in the picture, and are in the demand.

In your current order book, can you just give this breakup of IDT transformer, Scott connected transformers and the STATCOM transformer, like what kind of order book...

Dhruv, we would not like to disclose all these things at this forum. If you want you can connect it to me. I can provide you the details.

But, sir, just last one thing, like going forward are we seeing any huge order from this STATCOM Or Scott connected transformers. Like given the huge TAM that is having in the railway.

In coming quarter itself we are expecting this.

The next question is from the line of Sukant Garg from Equible Research.

My first question is basically regarding the order book. Could you please bifurcate from which major sectors we are receiving this order book from? As you have mentioned there are many sectors in the past PPT.

Sukant, basically if you see my investor presentation PPT, we have clearly mentioned that my present order book is around -- 46% is coming from the industrial customers, 11% is coming from the state transport, and balance 43% is coming from the central utilities. And we talk about the central utility, it is majorly basically the power grid, which is from where we are getting the orders.

And secondly, my second question is when you say that we have an order book of INR 3,500 crores in hand, and we have already got INR 1,031 crores of our new order inflows, that makes it INR 4,500 crores I believe. And by what time we expect the delivery to happen, you know a maximum time of this INR 4,500 crores?

The INR 3,500 crores order what we have is the delivery time of these is the next 15 to 18 months' time.

Okay. And for this INR 1,000 crores?

Which INR 1,000 crores?

The new order inflow of Q1, is that included in that INR 3,500 crores?

That INR 1,500 crores order book includes this INR 1,000 crores order also. The order book of INR 3,500 crores what we have as on the 30th September will be delivered in next 15 to 18 months' time.

The next question is from the line of Ajay Bodke from Padigree Advisory Private Limited.

Congratulations on posting impressive set of numbers, sir. I have two questions. First is, if I look at the cash flow from operations, this deterioration from minus INR 14 crores to around INR 37 crores. And also, on the free cash flow from minus INR 21 crores to minus INR 97 crores. By when does the company expect to be positive on the free cash flow front? That's the first question. And secondly, insofar as ROE and ROCEs are concerned, what are the internal targets that the company has over the medium term for ROE and ROCE? And last submission I have is in the presentation, investors would really appreciate that in addition to the P&L, you also include the balance sheet numbers and the cash flow numbers for the first half and the year-end presentation. That will really be helpful, sir.

Ajay, first of all, your first question is that we are already cash flow positive on operational level also. Second question is that if you want to see my balance sheet, we already hosted our H1 -- H2 balance sheet and profit and loss on the stock exchange. You can download from there, and also from our website. What was the second question? There's one question also I missed, which one was it?

In terms of the targets for ROE and ROCE over the medium term, what are the targets here?

My ROC -- I think my ROC right now is around 11% level, right. And we have set up our internal targets, and we are actually slowly, slowly working on those directions. And last three quarters if you see -- last four quarters if you see slowly, slowly, the things have been improving on those directions also.

The next question is from the line of Darshil Jhaveri from Crown Capital.

A lot of my questions have already been answered. So, sir, I just wanted to know like we have like, kind of aggressive growth targets, like I think you were saying FY '26, INR 3,500 crores, and this year also INR 2,000 crores. So, any kind of risk we see, kind of like something that can be a roadblock or just like how do you see the environment like everything going good, but then is there something that is looming in the corner that can hamper us?

Darshil, basically if I am targeting INR 3,500 crores in next financial year, it is based on the order book, what I have right now and the negotiations, which are basically going to realize in next coming quarter and -- or two is based on that. And we don't foresee any risk into that. Second point is that in terms of the long-term risk is concerned, as far as our concern is there and our industry is concerned, next five to six, seven years, we don't foresee any risk in this industry.

The next question is from the line of Yash Mehta from Aart Ventures.

My question has been answered. Thank you.

Thank you.

The next question is from the line of Ganeshram from Unifi Capital.

So, I'm back. So I just wanted to understand one more thing, right? so we haven't started taking any orders on the IDT transformers yet, right?

Ganeshram, we already have the -- we are already producing the IDT transformers. It is not that it is a new thing. What I said is that we have not started taking orders for our new facility, which we are expecting to come up from the January onwards. Because our Chairman and MD is on a very, very clear -- they have given us a very clear direction until we have 95% completion of the facility no order Will be taken for that. So that is the reason we have not taken the order for the additional 15,000 MVA, which is going to be start from the next -- early next year.

Got it. This is the new capacity where you're saying you can make about 100 transformers a month and it's fully automated that one, right?

Yes.

So, in the INR 2,000 crores guidance that you have sort of given for top line, we don't include any numbers from this?

It is not that.

It's not that. Okay and then one more thing I just wanted to understand, right, on the margin side of things was earlier, we had suggested that margin for the full year would be similar to Q4 of last year, right, but we have already exceeded that in Q1 and Q2 and to sort of hit INR 2,000 crores, the next two quarters will only be stronger from where we are right now, right? So why do we then feel like margin will still end up maintaining at the current levels, what is happening between the top line and EBITDA that we might be missing out? Is it growth in overheads because of the new capacity?

Ganeshram, first of all thank you for reminding me about Q4 and now. And I hope that it is a positive things and positive sign, which is happening, right? You all will appreciate it. I agree on that, fine. Now coming back to your question, Ganeshram, is that margins which are basically we keep disclosing or we keep getting it is based on the delivery terms, delivery of the product what we have in hand. And there are maybe possibility that we might be having some product, which may have a little bit less margin. We might be having some product, which may have the more margin as compared to the other products. So this margin percentage may vary little bit here and there. And being a finance guy and being a Marwari mentality guy, I would like to be on the conservative side as far as the margin is concerned. You will be more happy that if I tell less and deliver more.

The next question is from the line of Surabhi Saraogi from SMIFS Capital.

Hello, am I audible?

Yeah, Surabhi.

Sir, my question is what is the order inflow that you are expecting in H2 and next financial year?

Surabhi, If I want, I can take the order of INR 1,000 crores every month. That is the vicinity I have it.

Okay. And sir can you throw some light on this INR 18,000 crores order pipeline?

What light do you want me to throw in this?

Like at what stage it is and how much out of this do you hope to secure and by when?

Surabhi these orders are at different levels. Few may be on the very, very advanced level, which may be getting in next quarter time, few will be next fourth quarter time or few will be on coming next financial year, but if you see the -- our presence and our expertise side, yes around 25% to 30% order strike ratio is there out of this.

And sir one last question is can you give some outlook regarding revenue breakup for quarter 3 and quarter 4?

We have, I think our Chairman and myself both have told in our speech that guidance, which we have given at the beginning of this year will remain intact.

The next question is from the line of Dhruv Agarwal from Niveshaay Investment Advisors. Sorry to interrupt you sir. May I request you to please use your handset?

Dhruv Agarwal: Better ma'’am?

Yes sir.

Sorry. On the green hydrogen project, sir, where the demand is around 2,300 transformers annually. How is the demand outlook on that sir and going forward how many players, like, would be there in this and from this how much would be still be able to cater from this sir?

Dhruv, as on today we are the only qualified supplier for the hydrogen transformers. What is unfortunately happening is all the projects, which were expected to start early next year has been delayed for some reasons or other maybe because of the viability or the margins, which they expect from that. So the projects are delayed, but we are today the only qualified supplier for the green hydrogen transformers -- for manufacturing hydrogen. So they are the rectifier transformers and we are the only qualified supplier. There is no competition from India as on today. I don't know what is going to happen if the availability of the transformer is not there. If we are unable to supply them in time, they may risk with somebody else or they may import it from China. Otherwise, there is no other manufacturer who is today qualified for supplying those transformers.

Okay. So, sir like right now how is this market right now? Is there any orders coming towards you as you are the only qualified players and what kind of margins are there in this sir?

The margins, you know, all these transformers when they come, they will be large in numbers. So you can't expect more margins than what you are getting today. And we wouldn't like to charge more or increase our margins in those transformers to attract other competitors. We would like to keep our margins safe or at a reasonable level so that no other manufacturer can get into. This is what our strategy is.

Okay. So are there any orders like pitching into the market or is it something like how is the market outlook on this?

All the projects are delayed. We have supplied some transformers to GE for American market. That's all after that nothing has come so far, but it should come anytime. Once they are ready with the -- because the project itself will take their own time. The main thing is the converters, which they want or electrolyzers, all the large players like Adani or Reliance, they want to establish their own plant for manufacturing of electrolyzers. So, it is in very, very preliminary stage I would say as far as India is concerned.

Okay. On international side also there are no such demands or something like that, sir?

We have started receiving the inquiries, but it is at a slow pace.

Okay. Right sir. And just last one question sir, as we are targeting around INR 2,000 crores in FY '25 top line, sir. So till now till quarter 2 we have already done around INR 800 crores of revenue. So the run rate from quarter 3 should be around INR 600 crores. So is it achievable in order to cater for that INR 200 crores of top line sir? Is it achievable to have this INR 600 crores of run rates from quarter 3?

Dhruv, basically the production planning and delivery planning what we do, we do based upon the delivery terms and dispatch schedules. So whatever is the dispatch schedule is there based on that production planning is done and we have the vicinity of the display schedule. So based on that we are coming up with that number and as of now I speak to you, we are firm on those numbers and 100% those will be delivered.

Okay. So we are very confident of achieving the run rate of INR 600 crores from quarter 3, right, sir?

I don't think that I said that we will do INR 600 crores, but I said that we will achieve the target what we are guiding for.

The next question is from the line of Agastya Dave from CAO Capital.

It's great to see the company really turning around now. Sir, I have just two questions. One is a previous participant was asking you about capacity utilization? So can you share those numbers for last 2 years and also for the first half, if you have rough numbers, would do?

Agastya, in last year we have actually delivered around 50% of the capacity utilization. And this year, we are aiming around 75% to 80% capacity utilization level. But I would like to add up one more thing is there, the more we will be delivering the numbers in units, in the higher number, we will be increasing our internal capacity in-house itself. Because the thing is, majority of the orders, what we have right now are of the repeat design levels where the design interventions are not there. So, the production time and the turnaround time will reduce quite largely. So if today, I have the capacity of around 14,000 MVA annualized, this capacity can easily go up to 20% higher with this kind of the operational efficiency things.

So that was exactly my -- the clarification that I wanted to ask. So, this 50% and 75% at what base should we take in terms of MVA? So, basically sir, can you share the volume numbers?

It was based around 37,000 MVA level, right.

And that 75% target is also on 37,000 MVA or are you including 3 months of the new capacity?

Let me tell you, this year when we will be concluding this year, we will be delivering somewhere around 40,000 MVA, and still we will have some capacity to be utilized.

My second question and last question is on the working capital side. So, there is a substantial improvement, it looks like on your receivable side, during the first half, receivables have not spiked. So, sir, as you scale up your revenues and you start approaching your $1 billion turnover numbers, what kind of receivables would you be comfortable with? Because you have also set a target for yourself to become debt free. So, receivables as a percentage of revenues have to come down drastically. So, first of all, what steps are you taking and what level of working capital Should we assume going forward?

Agastya, my wish is to have zero day receivables. But practically that is not possible, right? So that is the one thing. But yes, we are targeting receivable levels of around 90 days in next 3 years' time. The steps what we have done is this, the first and more important steps what we have done, slowly, slowly we are converting all entire industry customers, private industries or industrial customers to the LC basis. And by and large we are successful in that. Almost all the big houses are either on the LC or on the vendor financing for us. Second, what we have done is that where particularly when it comes to the utility, in last year what we have done and early this year, what we have done is that we have started delivering on the zero shortages basis. So that as soon as the transformer reaches there, we got the clearance and our payment gets in process, right? That is one thing. The biggest improvement what we have done is and we could able to do it that we could able to eliminate the customers who are the bad pay masters from our order book. That is helping us in a by and large manner and we are targeting into that. Even if a customer is giving me the 10% margin and his payment term is bad, I would like to not to deal with that customer. So that is, I have a very simple theory. One of my very close friend, who is one of the very big investor into the Investor Industries, he keep telling me that Chanchal, if [Foreign Language] So we work on that direction that we are first focusing on the collection and then we will be doing the business. So that's the same thing.

Sir, this improvement to 90 days, would it be linear or would it be back ended or would it be front ended if I look at the next 3, 4 years?

It will be composite of all.

The last question is from the line of Chandan Kumar who is an Individual Investor. Mr. Chandan, I would request you to unmute your line and speak sir.

First of all, I want to congratulate you on this good performance. My question is, sir, your debtor days is approximately 174 days, which has increased from last year. And cash conversion cycle is also increased from last year, which is 188 days. I want to ask you what measures you are taking to reduce this, sir.

Chandan, I think I have addressed this issue three times already. In this entire conversation, I have addressed this and I also explained that why, what is the composition of my debtor is. So, this issue, I think I have addressed it on the number of times also into my various discussions also. Can you take next question please?

Ladies and gentlemen, that was the last question for today.

You can take the questions from Mr. Raj Saraf and Kunal Bansal because they have been waiting since long.

Sure sir. The next question is from the line of Raj Saraf who is an Individual Investor.

Sir, first of all, I should take the opportunity to congratulate on the blockbuster number you posted. Most of the question has been answered. But I need some more color on this organic and inorganic growth avenue, which you said in the presentation that are in advanced stage. The timelines and the revenue opportunities for that.

Raj, thank you very much, first of all, and I'm sorry that you have been kept waiting on this where you have been very patient on this thing. Raj, this organic -- inorganic acquisition organic growth what we are talking about that. This is timeline as I already told you that it may take a couple of months to get into the entire board into that. But if you see the revenue size, it may add up around INR 700 crores to INR 800 crores revenue on the first year itself in our books.

So, the follow up question for that, sir, if it is going to conclude within this financial year, then there should be a revenue opportunity for this year also. So, we can very well overachieve the guidance you have given for this FY '25. Am I getting it correct?

That might be the possibility.

Thank you very much. I hope you should maintain the same growth trajectory for the company, and we should achieve the new heights.

The next question is from the line of Kunal Bansal who is an Individual Investor.

I have one question with respect to the CRGO. You said that we have already contracts in place for the supply. But as we understand, the price of CRGO is continuously increasing. So, with respect to this, do we face any challenges to our margins?

Kunal, the price has now stabilized. Second point is that since the Government of India has started approving the BIS certification for the other mills also, we do see that the price correction is going to come pretty soon. Second point is very recently they have also given the BIS to the POSCO who is a major player, and POSCO will start supplying the material from the early next month onwards basically from December onwards itself. So, price correction is going to be take place pretty soon in this thing. Third point is that your another question is that we do have the pass-through facility with the most of our customers. So, we don't feel any challenges on this side. It doesn't impact on our margin.

The last question is from the line of Khushi Jain from Padigree Advisory Private Limited.

Hello. Congratulations on your great numbers. I have a very small question. It's regarding your consolidated cash flow statements. When do we expect the consolidated cash flow statement, the net cash from operating activities to be positive, because currently it shows a INR 37.59 crores negative number.

By the end of this financial year, Khushi.

Ladies and gentlemen. We will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Thank you, all the participants. We thank you very much for joining us. And we hope you are satisfied with the queries, which are answered to your satisfaction. Thank you very much.

On behalf of Nuvama Institutional Equities, that concludes this conference. Thank you for joining us and you may now disconnect your lines.