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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Bharat Heavy Electricals Limited Q4 FY '23 Earnings Conference Call hosted by Antique Stockbroking. [Operator Instructions]
Please note this conference call is being recorded.
I now hand the conference over to Mr. Dhirendra Tiwari from Antique Stockbroking. Thank you, and over to you, sir.
Thank you very much. Good evening, ladies and gentlemen. On behalf of Antique Stockbroking Limited, I welcome you to 4Q FY '23 Post Result Conference Call of BHEL. I'm very glad to have with us today Dr. Nalin Shinghal, Chairman and Managing Director; and BHEL management team to discuss these results. We will start with opening remarks from Dr. Shinghal, following which we will open the floor for Q&A. Over to you, sir.
Thank you, Mr. Tiwari. Good evening, everyone. I'm Nalin Shinghal, CMD, BHEL, and I have with me Smt. Renuka Gera, Director, Industrial Systems and Products; and Shri Jai Prakash Srivastava, Director Engineering, R&D, with additional charge of Director Finance. A very warm welcome to all of you and to start with my apologies for the delay due to the Board meeting getting extended. As we are all aware, India is one of the fastest-growing major economies in the world, with a growth rate of 7% in FY '23 and the IIP showcasing an increase of 5.1% over the last financial year. Even in FY '24, India's growth story is expected to remain resilient with a forecasted growth of more than 6%.
While the slowdown in the global economy and the geopolitical disturbances have had some impact on business, the continued expansion by domestic industry as well as huge investment in infrastructure sector will provide major growth opportunities for your company, especially in our core areas of business, thermal power.
Demand for new power plants has picked up with new tenders on the anvil.
Coming to BHEL's performance, the past financial year has been an eventful one for the company. After a gap of about 3 years, demand for coal-based thermal power plants has started picking up due to increase in industrial activity, leading to a huge demand for power.
There has been a growth of 8.87% in the electricity generation in FY '23, which is expected to grow by another almost 8% in the current financial year. With the order for the 2 x 660 megawatt NTPC Talcher thermal power plant, BHEL has reasserted its market leadership position in the segment and is targeting other upcoming opportunities as well.
Being a market leader in the power equipment segment, the company is continuously working to achieve India's commitment of greening its power grid. As a cost-effective and quick solution for integrating renewables to the grid, BHEL is ready with flexible operation solutions for existing coal-based power plants. The company has achieved a significant milestone by successfully demonstrating the flexible operations at the 1 x 600-megawatt Raigad thermal power plant and received 4 more orders in this area.
In the hydro business, we have garnered orders of almost 1 gigawatt. Nuclear business being cyclical in nature. No major package has been ordered by NPCIL during FY '23. However, the complete nuclear power generating segment may see some structural changes in coming times, which is likely to provide good business opportunities for BHEL. Expansion in core sectors like steel, refineries and cement are resulting in demand for capital goods, especially industrial motors, compressors and captive power. With BHEL's vast expertise in this segment, we are well placed to capitalize on these emerging opportunities.
In the transportation area, Indian Railways is pressing ahead with initiatives to upgrade, modernize and decarbonize the railway operations. Both freight and passenger segments are attracting sizable investments, translating into demand for electric locomotives, semi high-speed train sets of different configurations, et cetera. We have received orders for 22 WAG-9H locomotives, 90 sets of IGBT-based 3-phase drive propulsion equipment for WAG-9, 16 sets of 3-phase AC propulsion systems for Calcutta Metro and propulsion equipment and other electrics for 4 Vande Bharat trains, amongst others.
I'm happy to share that FY '24 for the transportation segment of BHEL has commenced on a winning note with a landmark order for 80 Vande Bharat train sets. This is the company's largest ever order of about INR 23,500 crores, excluding GST and has been won in consortium with M/s. Titagarh Wagons Limited.
During FY '23, the company has booked the highest ever orders in defense sector, which also includes the order for 20 upgraded SRGMs from Indian Navy, which is the main gun on the Indian warships. Our relentless focus on improving our order booking in high-margin spares and services business resulted in BHEL booking its highest ever orders of over INR 3,800 crores in this area. These short duration orders are likely to assist in improving the bottom line of the company in the next couple of years. In line with BHEL's long-term focus on cleaner usage of coal, earlier the company had developed and demonstrated the country's first indigenous coal to methanol plant, utilizing BHEL's in-house developed PFBG technology, the only proven technology for gasification of high-ash Indian coal. Now, to commercialize this technology, BHEL has signed an MoU with Coal India Limited for a 2,000 ton per day coal to ammonium nitrate plant. Further, work on the joint venture with CIL is progressing well.
These efforts by BHEL are aligned with the National Coal Gasification mission's objective of gasification of 100 million metric tons of coal by 2030. By supporting this target, BHEL will not only be commercializing our indigenously developed technology but will also be reducing the country's reliance on expensive hydrocarbon imports. BHEL is also exploring areas in the hydrogen value chain and is in discussions with various OEMs for partnerships. Coming to the order booking performance for FY ‘23, we have booked orders worth INR 23,548 crores excluding taxes, which is the highest in the last five years. Out of this, the power sector is INR 13,353 crores and the industry segment is INR 9,537 crores and the remaining is from exports. It is to be noted that these figures are net of GST. It is also pertinent to note that the company's efforts in the industry sector bore fruits and the order booking at INR 9,537 crores is the highest in 13 years. The share of industry sector is at its highest at 40% in the order booking in the last year. Accordingly, the total outstanding order book as on 31st March 2023, stands at INR 91,336 crores net of taxes. The reporting of order book is being done without taxes for better understanding of all stakeholders and is in line with the revenue numbers being reported. It is to be noted that BHEL was in discussions with Indian Railways for finalization of the prestigious Vande Bharat train set order, which could only be finalized after the closure of the financial year. I am happy to say that with this order we have crossed the INR 1 lakh crore order book benchmark without taxes in the month of April 2023. Some of the significant orders booked in FY ‘23 are, 2 x 660 megawatt EPC order of NTPC Talcher Thermal power plant, 850 megawatt Ratle hydropower project for supply of turbines, generators and other auxiliaries. R&M of GSECL Ukai, TPS Unit #3; 7 units of different ratings of STG packages for industrial customers totaling 383 megawatts; 22 numbers WAG-9H locomotives; supply of 20 numbers upgraded SRGMs; supply of centrifugal compressors for refinery applications. Coming to the financial performance, revenue for operations for FY ‘23 is at INR 23,365 crores as against INR 21,211 crores for the previous year, an increase of 10%. Further, seen from the revenue mix perspective, another significant achievement is that the spares business has recorded a growth of 25% plus.
Manpower productivity improved with the revenue per employee going up by 14% at INR 75 lakhs in FY ‘23 as against INR 66 lakhs in the last year. EBITDA at INR 1,231 crores has increased by about 11%. This was aided by the higher operational income and continued stringent budgetary control on administrative expenses in the midst of higher inflation.
During the year, the company also received tax refunds totaling to INR 266 crores, which have helped in the bottom line as well as the net cash generation. The PBT and PAT are also at stable levels at INR 450 crores and INR 448 crores, respectively.
As far as receivables and cash flows are concerned, the company's total receivables stand at INR 36,284 crores as on 31st March '23, as against INR 33,168 crores in the previous year. The trade receivables are at INR 6,544 crores, as against INR 6,229 crores last year and the contract assets are at INR 29,740 crores, as against INR 26,940 crores last year.
Higher milestone achievements are due in FY ‘24 and FY ‘25 which should lead to better liquidation of contract assets and cash realization. Trade receivables are at 102 days of revenue from operations as against 107 days for FY ‘22. Though contract assets have seen an increase, however, overall receivables are at 567 days of revenue from operations as against 571 days in the last year.
Due to higher investment in contract assets, the company's cash position was under pressure. However, the company retained its debt-free status with closing positive cash and bank balance and has enough leverage to invest in CapEx and diversification initiatives. Thank you all once again for joining this conference call. We will take questions now.
[Operator Instructions] We take our first question from the line of Mohit Kumar from ICICI Securities.
Congratulations on winning the largest railway tender in our history. My first question is, sir, on the thermal pipeline. How does the thermal pipeline looking at? Can you just put the number in gigawatt term? And what are the tenders which you expect to close in this fiscal?
Thank you, Mohit. Just coming to the thermal pipeline, we are looking at almost 3,700 megawatt where we are favorably placed. Another almost 6,000 megawatt is under bidding already. And almost 9,000 megawatt to be bid out which of course may go into the next year.
Understood, sir. My second question is, sir, on the railway tender. Can you please explain the scope of BHEL? And the related question is, can you address the question -- address the concern that how will you make money on the Vande Bharat tender given that we have reduced our initial tender value by 12%?
So as far as the scope is concerned, you see we are doing the electrics and the control systems and the bogies. And the mechanical part and the interiors are being done by our partner. Coming to the -- what you said is correct. We are -- it is a very challenging after the reduction that we have had to do in this. It is a challenge. But I think we are confident that we will make it profitable. The suppliers, of course, we will have to look at execution being a clockwork execution. And thereafter, I think the maintenance period will be where -- the 35-year maintenance period is where the profitability is expected to come in this order.
To expect the profit given the supply, the margins will be very low. Is that a fair assumption? And most of the money will be made in the maintenance?
I wouldn't say that, yes, but it is challenging. So you see we are working on our supply chain. We are working on our indigenization, and that is where we need to swing this whole -- the supply a bit also.
Understood. My last question is on the coal gasification while there has been talk of getting 3 trillion and 100 million tons. But on the ground, there are hardly any tender which out in the public domain. Do you expect the first order -- first tender from Coal India to happen in this fiscal?
We are -- that is what we are targeting for. You see, there have been tenders earlier, but then the basic issue has arisen because the technology, all around the international technologies available, and that is where we see a benefit in our technology. So we are looking at the first tender has been done in the current fiscal. And thereafter, the increased subsequent ramp-up.
[Operator Instructions]
We take our next question from the line of Amit Shah from Antique Stockbroking.
Congrats on a good set of first numbers. Firstly, my question is on the order backlog side, you suggested we have an order backlog of INR 1 lakh-odd crores. Any slow-moving orders in the order backlog at this point of time? Secondly, whether you would like to provide any guidance for FY '24 with regards to what is the kind of revenue and execution that we are targeting? And what kind of margins that we'll be looking out for? And thirdly, on the -- you suggested that the receivables and the contract assets on the books are somewhere around about 567-odd days. So what is the target that we have in mind for FY '24 at the end of FY [indiscernible]? So yes, these are 3 questions from my side.
Thank you, Amit. I would first like to say that guidance -- we don't give any revenue or profitability guidance. So I'm sorry, I can't give that. The order backlog, we'll come to the order backlog. We have almost -- you see nonexecutable -- we are looking at almost INR 17,000 crores of power sector and another about INR 290 crores in the industries and INR 560 crores in the international, which are on hold.
So again, the receivable and the contract, say obligation, I would not like to contract -- I would not like to actually give any target figures as to where we would like to be. But that is a very specific thing that we have a dedicated team with the internal activity-wise target as to what they need to move on.
And sir, rest of the order backlog that we have barring this nonmoving orders. By when do we expect the execution or what is the execution time line for this order?
So you see, if you look at the orders at the moment -- what we have on hand at the moment, the new orders, typically, you see Talcher has come in. So we are looking at almost about 4 years for that. The Vande Bharat would be about 78 months from start, a little about -- 6 years plus. If you look at [indiscernible] and the guns, again, it's about 5 to 6 years deliveries for the guns. If we look at the old orders, now a lot of the old orders are now coming to closure. And so as far as the contract assets part is concerned, you see as these orders -- the thermal orders come to a closure then those contract assets start getting realized. So we are expecting in FY '24 as well as FY '25, quite a good number of -- quite good numbers on the contract assets being realized.
And lastly, sir, in this particular quarter, has there been any provision write-back that we have done and even for FY '23, if you can suggest what is the amount of provision write-back?
Provision write-back, you see, we have -- if you look at the current year, we have a creation of INR 1,371 crores and a withdrawal of INR 2,366 crores. This is as compared to INR 1,249 crores creation and INR 3,125 crores withdrawal in the last year.
We take our next question from the line of Atul Tiwari from Citi.
Yes, just 3,700 megawatts of thermal pipeline where you are [indiscernible], which project will we be?
So we are looking at essentially, what we are looking at is the main one. It's not actually, sorry, that is not thermal alone, that is thermal plus hydro. So thermal is the Singareni order, the 800-megawatt Singareni order, and 2,880 is Dibang hydro. And of course, there are smaller R&M orders which are smaller. So...
2,880 is Dibang hydro, okay.
2,880 is demand.
Okay. And sir, this 6,000 megawatts for which the bidding is going on, which are these projects? Will you have one list of that?
Sure. So which are under bidding tender, the bidding is in progress. We are looking at Neyveli TPS 2 -- 2 x 660 and Yumna Nagar TPS 1 x 800, Talabira 3 x 800. Then Adani Bandhaura 2 x 800, which is a BTG. And on the FGD side, we are looking at another almost -- we are looking at Korba, Udangudi, Wanakbori, a number of other FGDs. Total almost 8,000 megawatts of FGDs in progress -- in process.
We'll take our next question from the line of Nikhil Abhyankar from ICICI Securities.
Sir, what is the value -- you just mentioned of the Dibang order. So what is the value of this order?
Dibang, we're looking almost all -- would be almost about INR 2,600 crores plus is the sort of value that you can just looked at. This is the E&M scope.
Understood. Sir, and I just wanted to ask, during, in our Talcher bid, if we compare it with Lara, our Talcher bid was somewhere around 65 million per megawatt, while the Lara was somewhere around 80 million per megawatt. So what was the difference? Was there a huge difference in scope of the project and everything? Can you just explain on that?
There are some differences in the scope, but I think the technology difference also accounts for this.
I'm sorry, sir, I could not hear you in between. Can you please repeat?
There are some differences in the scope. I wouldn't be able to tell you right now the difference in the scope, but there is a scope difference and the fact that, that 1 x 800 and the other 660. So that is also -- there's the contribution of that as well. And then the 2, you see the other point is that, that's the 2 x 660. So with 2 units, the BOP contribution also tends to go down. So that's the other contribution, which will come into accounting.
Understood. And sir, largely, we have got only 1 competitor in the domestic market. So for the projects that we have in '24 coming out of it. So how do you see the competition?
How do you see the...
Competition, I mean...
Competition, as you said yourself, we have only one bidder, and we are going ahead. We are quite aggressively.
Okay. And sir, I did not get your...
Winning them, but not compromising on the profitability that also we have to keep that in mind.
Understood. Sir, just a final question on -- sorry, this number that I missed in the opening remarks, trade receivables and contract assets. Can you just give again?
So, trade receivables is INR 6,544 crores and contract asset is INR 29,740 crores.
Hello?
Did you get that?
Yes, yes, I got that, sir. And just wanted some more clarity on the industry segments opportunity in the, let's say, in the next 2 years.
In the industry segment?
Yes.
So industry segment, we are defense, we are looking at more in our SRGM, that we're upgraded SRGMs. So that is a major area going forward.
Indigenization Initiatives...
Of course, that MOD has -- is focusing on indigenization in a very major way. So we are looking -- working with them for various projects and which we still have to understand what will actually -- a lot of effort is going in because indigenization -- as far as indigenization is concerned, we are very well placed to handle that. So those would be the major ones, then, of course, railways is again an important one going forward.
The captive power plant for industry CFBC...
CFBCs and captive power plants is another area that we are looking to -- which is going to grow in the coming year is what we expect.
We take the next question from the line of Rahul Modi from Nippon India Asset Management.
Sir, one question, which I had was how do you see over the next 2 to 3 years, the revenue breakup between thermal and nonthermal segments going forward, in terms of percentage. Do you see the nonthermal are getting bigger? That is one. Yes. I'll just -- then I'll come back for the second one.
So you see, as I already mentioned in the last year, we were almost 40% industry segment. Current year with a large number of thermal orders coming in, you would again expect thermal to be leading. But going forward, you see that this is a phenomenon, which will be -- we expect to be there for the next maybe 3, 4, 5 years on the thermal side. But our ultimate objective is that the nonthermal business has to be built up. So the target is 50%, and then we have to move beyond that. Long term, we have to be looking at nonthermal. I think that is something which we are very clear about, and that is why we have seen the sort of the diversification that we have worked with.
Hydro and nuclear?
And you see, again, hydro and nuclear will be from the power sector perspective, these will be 2 very major areas for the future. given the net 0 and sustainability targets that we have set for ourselves. And further as I mentioned, we are also looking at the hydrogen value chain.
Right. Sir, in the nuclear the way that you mentioned you have signed a MOU with NPCIL. Now the next 2, 3 projects, which they are looking to develop if they're doing it in the JV with NTPC. So do you see that to be more a nomination basis to you for the [ reactors ]?
No, there is no such provision in the MOU that we have signed. We are initially, you see, there's been a major issue on the nuclear side has been the time that the projects have been taken. It's been under development and its developmental area. So the focus is on getting the -- reducing gestation period, getting those projects on track because that is something which is essential for the growth of nuclear, the way we needed to grow. I think the first focus is there, and then we'll move forward with our relationship to see where else we can expand on that relationship. Geographically, functionally with a lot of lot of lot of [indiscernible] of the scope. There's a lot of things that we can do.
Right. Sir, in terms of defense, as you mentioned that we are looking to grow bigger in terms of our pie. So any global technology tie-ups that you're looking at, which will help us give that boost in the medium term?
We already have 1 technology tie-up with the Leonardo System, which is one of the leading player in the international arena in -- for guns also. And for other areas also, we are trying to tie-up with them. Then indigenous is the major impetus from the government is on indigenization of the technologies. So I think we are focusing -- putting our main focus on indigenizing the components, already government is coming out with many positive lists for indigenization, which we are trying to attempt. And also, I think going forward, we'll be looking at the tie-ups, which we need not disclose now.
That was Director of IS, Ms. Gera, giving the answer.
But for opportunities which are coming, BHEL is sure to participate in this with the partnership under discussions. Like air defense guns...
So, at the moment, we cannot really give you any names, but there are a number of discussions which are on for our partnerships. And we are also, in some areas, looking at our own development. So both things are in progress.
We take our next question from the line of Girish Achhipalia from Morgan Stanley.
A few questions on power side. So contract assets, you said, you expect to reduce for fiscal '24, '25, a, I wanted to understand which plants are these? And currently, as we speak on 31st March the breakup between central, state, private for that at the total receivable level, contract asset plus trade receivables?
So if you look at the total debtors breakup between central and state and private on 31st March, it's 39% central, 41% state, 14% private and 6% international customers. Sorry, what was the second part of your question?
Which are the plants which you expect to see a reduction on contract assets on based on the execution profile that you have for the next 2 years?
So you see one of the very major ones has been -- Patratu has been a very major one where our -- the contract assets, that's in fact a plant which has very adverse payment terms so that there we are going to get a major chunk coming in. Then North Karanpura, Telangana, Bhusawal, Khurja, these are the major plants that we are looking at. And of course, Yadadri, which is the biggest thermal, it's 5 x 800, so it's our biggest project. So these are all coming on line in the next couple of years.
Okay. In terms of provisions that you have made for revenue, which is already recognized and receivables sitting like what is the provision for doubtful debts at this stage? And how much was booked in 31st March 2023, this year ending? New provisions, I mean.
Provision creation, I have already given a figure of INR 1,371 crores, and there has been a write-off of INR 148 crores.
Okay. And these are provisions of all kinds, right, not only towards receivables? These would be towards liquid damages and other things as well?
Yes, yes, this is complete.
Okay. Sir, you mentioned that there are slow moving orders about INR 17,000 crores. Just wanted to understand which are these plants? And what is the discussion right now with the -- about what is the status here?
So if you look at the projects on hold, we are looking, for example, so 1 major project, that's the biggest one, which is on hold at the moment, you see, Uppur -- the Tangedco, Uppur, which is 2 x 800 where there was an NGT order, which is then stayed by the Supreme Court and discussions are still on as to what is going to happen. Then, Ramgarh Stage 4, there we are looking at revival with the discussions are on. So -- if we -- if you look at -- so then if you're looking at the hydro side, we have the Palamuru Rangareddy project, which is where we are expecting the hold to be lifted towards the end of this current year. That is -- there are 3 -- there are 4 different packages in that. So all of them, we are expecting this to be lifted. That's almost 2,000 megawatts.
And then this 9 gigawatt, which you expect to probably be ordered out in FY '26. Give us some color on...
Just -- sorry, just to complete that, Raghunathpur, the revival is already completed. Yes, please go on.
Yes. So I was just asking this 9 gigawatt that you said that you expect to get ordered out in FY '26. Can you provide us some details around what these plans are? And when do you expect the tenders to come out?
Okay. So I've already mentioned about the ones where the bidding is in progress. Now if you're looking at the ones which are looking -- which are the forthcoming tenders, we are looking at Singrauli, NTPC Singrauli 2 x 800; MSPGCL Koradi 2 x 660; GSECL Ukai 1 x 800; DVC Koderma 2 x 800; MPPGCL Satpura 1 x 660; DVC Durgapur 1 x 800; NTPC Darlipali second stage 1 x 800; APGENCO Vijayawada FGD 1 x 800, Santaldih FGD 2 x 250. So these are -- but these are which have been -- the dates are given for the current year, but then we have seen in the past that those dates are not so sacrosanct unfortunately.
Fair enough. Now sir, in terms of just trying to understand Patratu, the things were very different in terms of payment terms. How is the new tender payment terms looking like for you? And just a qualitative assessment, when you're bidding -- sorry, executing the project, which is an 800 unit versus a 660 unit, what is the typical completion time frame? Is it like 48 months for both or 60 months for 1 and 48 for the other?
So as far as the payment condition terms that are concerned after Patratu, they have reverted to the normal payment terms. For the execution time lines, we are looking at almost 48 to 52 months for both -- for the 660 as well as 800.
And can you just remind us what are the normal payment terms, right? I mean if you can just give any ballpark example for like how does it really play through in terms of execution versus cash flows?
So normal payment term would be about 10% advanced. Then between 50% to 60% on the supply dispatch, another 20% on the material receipt certificate being issued and milestone-based about 15% to 20% -- about 10% to 20%.
Fair enough. Sir, last question was on industrial part of the business. So we've done a lot of areas that we are working on. I wanted to understand defense, like what's the opportunity here in terms of pipeline for the next 1 to 2 years? What are the bids that you are -- you would be interested in and if you are favorably placed in any of them?
So Mr. Gera will give you the answer, Director of Industries will give you the answer.
We are mainly going to focus on the guns business, which we have been doing for almost 3 decades for Indian Navy. So we already received a major order in the year '22, '23. Going forward in '23, '24 also, we see almost 20 more guns materializing, which will give us a business equivalent of INR 3,500 to INR 4,000 crores. Apart from that, we are trying to address opportunities for air defense guns, which is already RFP is out, then we are trying to enter into other areas, which I already said earlier for indigenization. And many indigenization efforts, for example, marine gas turbines, et cetera. So I think we are trying our best to get into even the tanks -- the overall business of tanks for that matter.
Electric propulsion.
Electric propulsion, we already have a tie-up. So as soon as we get a chance, we'll be putting our bid for that as well.
[indiscernible] is there?
No, no. He is only talking about defense. I hope I have answered your query.
Yes. Sir, just last bit on Vande Bharat. When does the execution start? And I think how would you be accounting for this project? Would it be like a JV? Or would you be accounting -- I mean would be accounting like a normal thing, but only your share of the business? And when does the execution revenue...
Yes, it is a JV consortium.
It's a consortium...
It's a JV consortium.
It's a consortium [indiscernible] which we are going. And the first train is to be supplied in 24 months.
And second prototype 26 months.
And the second prototype in 26 months.
Yes. So can you break us a contract in terms of how much is a service portion? I believe you guys are 50% on the supply side and service side? Is it similar? Or is it different in terms of economic interest?
[indiscernible] more on the...
Slightly higher on the services side. It's almost equal on the supply and slightly higher on the services side.
And -- so revenue recognition will start only in FY '26, FY -- not so much in FY '24 and '25. Is that the way?
That's right. Yes, that's right.
We'll take our next question from the line of Dhruv Muchhal from HDFC AMC.
Sir, in the opening remarks, you mentioned about flexibilization of coal. You have done some pilots and they have been successful. If you can probably give some more details what are we -- what have you achieved here in terms of, say, probably have they gone -- I mean, can we go now to 40% in terms of -- 40% PLF in terms of coal, how is the ramp-up, ramp-down parameters changed? And also some sense on if, for example, a typical coal plant, 1,000-megawatt coal plant has to go for your package, what would be the approximate cost to change the setup?
So if you're looking at the ramp-up and the ramp-down, so the -- you see up to 50%. So it's the parameter -- the technical parameter given is 3% up to 50% capacity. And after that, 1% up to 40%. So we have -- this is something we have achieved already and we have already demonstrated. And if you're looking at the cost, you see per set, the cost per set is roughly in the range of INR 3 crores for that.
INR 3 crores for...
Per unit. Per unit.
So typically a 600-megawatt unit or any kind of unit -- any size unit?
Yes, up to 600. That is what is...
Sure. And sir, the second thing is in the power sector right now, we are seeing some tightness in terms of supply. The government is also probably encouraging a few new plants. I'm just wondering, is there also a revival in the old plant? I mean, the old under-construction asset that probably are half constructed or not seeing some success. We're not seeing some success and now seeing probably marginal incremental revival because there is incremental more money to be made in the thermal sector, it seems right now. I'm just wondering, is there some incremental or marginal interest that you're seeing probably some early signs to revive some of these plants, which were probably not getting completed?
If you are talking of projects under arbitration and hold, yes, there is an effort in some of these areas to get those units functioning. That process is on. But if you look at the big ones -- and of course, like, for example, Raghunathpur has already come back. And if you're looking at -- but then the other example, of course, is Uppur, which is the biggest one, which is still not seeing the light of the day, where despite so much money having gone in, it's still stuck. So it's happening both ways.
Okay. But nothing meaningful, which is changing in terms of the...
No, I wouldn't say that. You see things have started moving because there were some -- for Raghunathpur, there was no movement. So this movement, we have -- this has happened. Other also we are seeing movement. So that certainly is -- movement is certainly there. I would say movement certainly there.
And also, sir, there's a lot of focus on pumped hydro now. The government has come out with large targets. I'm just wondering what is our opportunity size here? And I mean, do we have a play here, sir? And are you seeing some initial talks with some of the players who are probably trying to enter this segment?
So we are looking at that area, and we have been in discussions and a number of discussions are on. But as yet, we are not in a position to report any success in that.
But the tech that you supply for hydro in terms of the turbines and others will be similar that would be in pumped hydro because I believe it's just a reversible pump that you have to or it's very different?
Yes, you are right in that.
We are working on it.
That's right.
So the opportunity remains for us how it evolves, we'll have to see.
So we are in a number of discussions that I already said. This is going forward, we are looking at this you see because storage is a very major area when you're looking at renewable integration with the grid. Storage becomes a very important area. And pump storage certainly has a very distinct advantage there.
Okay. And the last thing...
We've already in our hydro turbines, we have been supplying reversible turbines, which are going in for pump storage sort of systems. That's a major area going ahead.
And sir, just last thing on contract assets. You mentioned the contract assets are large, only -- primarily for the old orders. So most of these plans that you mentioned, probably North Karanpura, Telangana, Yadadri, all these will probably be commissioned, say, in FY '25 to '26 last probably Patratu will go for '26, '27. They would be commissioned. So how should we look at the absolute amount of contract assets then? I mean, should we see a meaningful, meaningful reduction from this INR 26,000, INR 29,000-odd crores. Because I also understand there will be new orders, so there will be some, I mean, something will go something will come. So I'm just trying to understand where would this settle once assuming -- a hypothetical assuming that all these 4, 5 orders are executed, where would this contract asset settle at then? Approximate some broad range.
So you see Patratu, we are expecting, we are targeting '24, '25 for the complete commissioning of Patratu. Karanpura, again, within the next year is getting commissioned. Unit 1 is already commissioned, Unit 2 is going to get commissioned in this year and Unit 3 early in the next year. And so most of these power plants are in very advanced stages.
So that's the point. So how does the contract asset do settle then? I mean, where does the number settle?
I'm not able to give a specific number at this stage, but I think that will make a fairly significant dent in this number.
Can we see more than half reduction? Or I mean to just...
I wouldn't like to give any guidance on that. Sorry for that.
We take the next question from the line of Rahul Modi from Nippon India Asset Management.
One question which I had was, sir, some directional thoughts on the BHEL's role in the green hydrogen system, which you mentioned that you would evaluate and foray into -- so which part of the ecosystem do you want to be there? And what can be the possible sizing if green hydrogen becomes viable and there in the system?
So you see, we are looking at 2 major elements. One is electrolyzer. And second is the storage. The category 4 cylinders, which are required for the hydrogen storage. These are 2 very major ones. Then in addition to that, there are requirements in the railways for fuel cell-based trains for the smaller chains and things like that. So those are the other areas we are exploring.
Sure. And when do you see some kind of directional movement towards starting work on this?
So we have recently signed an MOU with IGL also, which starts with the cylinders. So that's an area where we expect that we are still in the planning stage, but I think that's an area we would look to stay ahead because that's a very fast-moving area. Hydrogen is going to be world over is a very fast-moving area, and we will -- we understand that, and we are working accordingly to stay ahead in the area.
We take the next question from the line of Subhadip Mitra from Nuvama.
Sir, my question was with regard to your raw material cost as a percentage of sales. Where do you see that settling down at a normalized [indiscernible]?
As you are already aware, we have gone up substantially. We are today at almost 72% as material costs as a percentage of sales, which has 2 elements to it. One is the escalation which has happened in the commodity rates. And the other is the competitiveness of the rates at which the order has been procured -- have been taken. So going forward, you see, this when we are -- in our new bids, the revised commodity rates have been taken in. And we are working to make sure that whatever we get can be done profitably. So a lot of initiatives, we've mentioned that earlier about our cost optimization growth, procurement side, reengineering certain things to bring down our costs. So that's a very major initiative. I expect that in the coming year, these initiatives will kick in along with -- as the new orders come into play, these initiatives will also support us. So I think that's going to be -- both those things will come together to help us.
So can one generally estimate that maybe that number from a 72% odd can come down to probably somewhere around 65%, 67%. Would that be a -- one can think about?
Those would all be guesses. So it's no point giving -- doing guesswork, but 65% is almost where we started from. And our objective would be to come back or to exceed, but then that's again a guess where we can. But there's a lot of effort on these fronts.
Understood. Understood. And secondly, on similar lines, is there like -- I mean, since now you are bidding and there are large orders on the anvil, which has the come on stream in terms of revenues would lead to operating leverage. Would you have a guess sort of target as to where would you see your normalized EBITDA margins going to? Is there some target number in mind?
No. Again, you see, sorry, we don't give any guidance on that front. I'm sorry for that.
Understood. Lastly, when we look at the CEA's draft NEP and the kind of thermal plans of additions that I talked about over there. I believe the number is anywhere between 70 to 20 gigawatts. Now, as you know, some of the numbers we've already talked about. But those in totality would still probably be somewhere around maybe 12 or 13 gigawatts, if I'm not mistaken. So the rest of those projects, which are probably being planned off, are those a little remote in terms of are they still on the drawing board? Or do you feel that a lot of acceleration can happen in terms of ordering for those rest of the projects?
You see just today, we have seen the CEA coming out with the need to urgency to get the -- this bring in capacity, generation capacity. And MOP is working, Ministry of Power has taken a lot of steps on that. So I think this is something which is going to speed up only. It cannot be slowed down, it is going to speed up, that's imperative of the economic growth targets will make sure that this has to speed up.
We will take next question from the line of Pulkit Patni from Goldman Sachs.
Sir, my first question is in line with what Dhruv had also asked. So for the last 2 years, we've been seeing that, that provision write-back is more than the provision that we are making. And historically, if you look at the last 10 years before that, as the top line grows, we make more provisions. How should we look at this number going forward as your top line grows, is it fair to assume that we'll be making more provision than we'll be writing back? Or is that going to be different? That would be my question number one.
You see, this is a recent phenomenon because we've actually worked with a very focused teams, which are working on provision clearance. And a lot of cases, punch point, a lot of deliverables, which were pending as well as settlements, various ways to achieve commercial settlements. So a lot of effort has gone into that. So I think in the next few years, that effort would taper off. So -- but where the [indiscernible] will go because along with that, we are looking at much greater operational -- ensuring the delivery -- project delivery in time. So I think, ultimately, we are objective. As a commercial organization has to be that there will be no net creation of provisions. I mean that's the way we have to go for.
Okay. So let me say that should we assume more write-backs, even -- I understand what you mean, but is there more scope of write-back in the future in the near term based on old provisions that you have?
There is still work to be done. As I mentioned, we have dedicated teams working on this very area to understand what -- where we can -- the revenue that we have. You see the provision creation is done as per the policies already there. So that job is done, but then we have to ensure that wherever possible, we can get that money back. That effort is still on, and it will continue for at least the next few years. So I think I would expect that to continue.
Understood. Understood, sir. Sir, my second question is, as I look at our employee costs, again, for a decade, we've been in the same range. But now as we are looking at diversifying, wanting to do more in railways, in other segments, how should we look at this number in terms of capability building? And parallelly, is there a CapEx number that you want to guide for, for the same capability building in segments other than power?
So you see what's happened is that the employee cost, while the cost itself has been going up, but at the same time, we have had a huge attrition in terms of natural attrition, which is happening in natural wastage retirements. So even the last year, we had almost 1,000 plus. So that -- and you see the recruitment was done at a stage where we were targeting some very major -- there were huge forecasts for the sort of where the thermal was going to go and accordingly, where we would be going.
So that was 1 trend. But as you rightfully said, going forward, we are changing, we are going to new technology areas. We are looking at scaling. So I would say that the objective has to be to improve our turnover per employee. And with that, we should be able to retain or even reduce the cost. Our recruitments are -- we are at a very minimum that we require some lateral induction will be there, but at the bottom level, ET, that sort of recruitment will be there. Focus will be on reskilling. That's a very major area because all our people have to contribute. And as we -- as the industry changes, that becomes a very important area for us. When you talked of the capital part of it, we are identifying across the company, we are taking up the initiative to look at where we need machines to be replaced, old machines, which are where the performance is going down, tolerances have gone down but which are required for the future. So accordingly, our CapEx strategy is being put into place. So that is one part of it.
And the second part of the CapEx is when we're looking at these JVs, when we're looking at as we mentioned about the coal gasification, that sort of CapEx is the second part that we will have to be doing. To both areas, then specifics, if you look at, for example, defense, if you're looking at the guns, the upgraded SRGMs, we already have a major CapEx in progress there, which has to deal with the new sort of technology that we're going to have to do there.
Any CapEx numbers that you would want to guide on?
No, I wouldn't be giving any numbers at this stage.
We'll take the next question from the line of Girish Achhipalia from Morgan Stanley.
Yes, sir. On industrial orders for fiscal '24, which segments are you looking at from a new order perspective? You closed this year at, I think, close to INR 9,500 crores. So in FY '24, is there any specific segments you would expect the bids to get concluded?
Director, IS has already mentioned that the guns, for example, that's 1 major chunk that is specifically being looked at for the current year.
We have started, kick-started this year with Vande Bharat order.
Vande Bharat, of course, is a major one, which has order [ come ].
More than INR 15,000 crores for us.
Yes. Sure. And then if I directionally look at industrial margins at the segment level versus power, industrial margins obviously have been lower. I wanted to understand, is there -- how is the mix likely to impact these margins going forward, given the different sectors that you're targeting within industrials? Qualitatively, would it be right to assume a lower margin next year as you ramp up some of these initiatives? Or qualitatively, would you say that some of the new orders that have come through are actually higher margin? I'm not referring to Vande Bharat alone. I'm just referring to the entire thing. How the mix would play out in FY '24, '25 on margins versus FY '23 for industrial margins?
So if you look at FY '23, the power sector, the margin was 8%, while industry sector was 9%. So industry sector actually has been higher. We actually have to see as we go ahead, depending on what sort of competition is there in each of the segments that we are working on. So a lot of that will and how effectively the cost cutting that we are looking at. Both these things will come together to determine the terms of margins. But we are certainly looking at higher margins in the coming year than we have had in the recent 2 years.
Sir, just a clarification, amongst the different set of orders that you have are bidding in industrial, what kind of subcontracting are you looking at? Are there any specific orders that you would definitely subcontract and take help from the private sector vendors? Or is it going to be all in-house? Can you help us some qualitative comments around how much of it is in-house, which type of contracts like guns and all you've been doing for long? But other than guns, the other areas that you're looking at and maybe some of the upcoming like coal gasification is -- there is also an in-house technology. So I wanted to understand the element of subcontracting that can come through going forward in the industrial part?
You see, we always have to do a lot of procurement from vendors that will continue to happen, and we have a laid down policy for buy versus make decision. Whatever we can make ourselves at -- and is financially viable in the commercial interest of the company, we will make ourselves. And anything which is where we can buy it cheaper or faster to meet the customer requirements, we'll do that. I think that's the broad parameter within which we function. Going forward, I think we should stay at almost the same sort of thing with, of course, Make in India, we're doing. You see, as -- even as you go in to Make in India now there are a lot of MSMEs, which do a lot of work for us, so our subcontracting ecosystem, we have a very major subcontracting ecosystem. And we have to leverage both of them. I mean, there are jobs if we do them in-house, we'll be totally economically unviable. So those things will have to be done -- have to be outsourced, will have to be done through our partners throughout our MSMEs.
Particularly the services, the civil works, the election commissioning...
Civil works, project sites. That all will continue to get outsourced.
Okay. My last question was on your hesitance to give guidance for revenues. Now I understand during COVID, it was impossible. And even last year, you didn't. But what's stopping you back now for fiscal '24? Like, is there a specific reason that you don't want to give a guidance? Just wanted to understand that.
I think actually, it's not a reluctance in that sense. You need to understand basically that a lot of that becomes speculative. So I would be giving you something which is a hard fact, hard thing, which is on paper. And if -- I would certainly not like to give something which can become speculative because then what I say and what happens that -- so as a company, that's the policy that we have really taken that we will not give revenue guidance.
So earlier, we were having these MOUs, right, with the ministry. Is that a practice which has already stopped by the ministry also?
No, that continues. That is done every year.
So we could say that number, right, because that would be anyways that you would have committed to the government?
That is actually not yet signed. And also, you see that figure is a figure which is worked on...
This is based on execution across contracts, right? So I just wanted to understand if you have anyways -- MOU with the government, we could use that number to at least know what direction we're heading...
You know that MOU to the government, yes, can give you that number, but you can make that number out yourself because it's parameterized. So it's a certain percentage of your highest ever revenue or your highest ever figure, there is a parameter to that. So you can actually get the policy circular. And again, those figures, work out the figures yourself even if we don't give those to you.
Absolutely. I mean that's why I wanted to understand why you would not give it. Okay. Anyways, so I'll take it offline.
So the point really is that while you can you can take those parameters and say this is the target you have. But then if we commit something, that's a different situation. That's really what it is all about.
I'll take your next question from the line of Abhineet Anand from Emkay Global Financial Services.
Sir, just wanted to know whether this Raghunathpur has been added in your order or -- because you said that the slow-moving order has already been revived. So has it come back in our order or is it still there?
No, it was already there. So it was an on-hold project, which is now a live project.
So your INR 17,000 crores of power slow moving doesn't include that, right?
No, that doesn't include it. The whole project doesn't include that.
Okay. Second is that on the case Uppur, which is another long one, how does let's assume when the customer -- this project let's assume goes live sometime in future. How does the contract that you set with the customer negotiate again? Or how is it -- how does it work?
Yes. So we will need to renegotiate. So once it -- if it comes to that stage because the cost would have changed, a lot of parameters would have changed. So that the renegotiation would certainly be required.
So what happened in Raghunathpur, can you let us know because that is some example which has reverted back, right?
So yes, Raghunathpur got revived as per the contract terms, there were some bids in there, which we were able to use and we get it revived. That revival has already happened.
Sir, I just wanted to know, is it that the earlier price or is it an increased price? And if it is an increase, I mean, what is that some -- very flavor on that?
No, it is as per the contractual provisions. So there are already some escalation factors based on the contract. And accordingly, it has been done.
Okay. And lastly, this tax refund of INR 266 crores that's for the quarter?
No, that is for the year. In the quarter, we haven't had any refunds.
But where does that reside? In the tax part only or other income?
So out of the INR 266 crores, INR 106 crores is the interest, which is part of the other income and INR 160 crores goes into the tax reversal.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to hand the conference over to Mr. Dhirendra Tiwari from Antique Stockbroking for closing comments. Over to you, sir.
On behalf of Antique, I thank, Dr. Shinghal and management team of BHEL for giving us the opportunity to host the call. Thank you sir very much. I also thank all the participants for participating in the call. Before I close, may I request Dr. Shinghal to give any closing remarks, sir?
Thank you. Thank you, Mr. Tiwari. And thank you, ladies and gentlemen, for your patience hearing and an interactive question-and-answer session. And thank you very much for your interest in BHEL. Goodbye. Thank you.
Thank you, sir. Thank you very much. Now we can close the call.
Thank you very much, sir. Ladies and gentlemen, on behalf of Antique Stockbroking. That concludes this conference. Thank you for joining with us, and you may now disconnect your lines.