CG Power and Industrial Solutions Ltd
NSE:CGPOWER
Earnings Call Analysis
Q3-2024 Analysis
CG Power and Industrial Solutions Ltd
For Q3 FY 2023-'24, the company achieved a strong year-on-year sales growth of 13%, with the Profit After Tax (PAT) before exceptional items also growing by 13%. Looking at the bigger picture, the nine-month period ending December 31, 2023, painted an even rosier picture with sales climbing by 15% and PAT before exceptional items up by an impressive 26%. This financial period saw the company amass sales of INR 1,860 crores, a 13% increase from the previous year, although the Profit Before Tax (PBT) margin experienced a slight compression, dropping from 16.6% to 15.1% of sales. Investors should note that the company's return on capital employed hit 38%, and it generated a free cash flow of INR 246 crores for the quarter.
A significant highlight is the unexecuted order book as of December 31, 2023, which was up by 34% year-on-year, standing at INR 5,556 crores. Segment-wise, the Industrial Systems division reported a modest year-on-year growth of 5% in sales, though the division's profit before interest and tax dipped due to aggressive pricing strategies to defend market share. In contrast, the Power Systems division experienced an impressive 34% year-on-year increase in sales, with a notable improvement in margins credited to a mix of export orders and better operating leverage. The consolidated results, which include subsidiaries in Europe and India among others, also saw sales growth of 13% year-on-year, but the quarter's PBT declined slightly compared to the same quarter the previous year.
The company has taken ambitious steps this quarter in initiating the establishment of an Outsourced Semiconductor Assembly and Test (OSAT) facility, with a projected investment of $791 million over five years. Additionally, a joint development term sheet with K Raheja Group for CG House's redevelopment in Mumbai promises potential future value. The resolution of legacy issues, such as the dissolution of CG Power Solutions Limited, has had a positive financial impact, reflected under discontinued operations, signaling a tidier balance sheet moving forward. Investors might also be intrigued by the tidbit that revenue deferment of INR 35 crores in the Power Systems due to inspection delays and a onetime expenditure for transformer replacement impacted profits, which otherwise could have surpassed INR 300 crores for the quarter.
Management commented on the current market conditions, observing that while certain sectors like HT motors remain sturdy, areas such as LT motors have observed aggressive pricing due to a challenging demand environment. However, there's optimism that the upcoming quarters will see improved demand and normalization of conditions post-election. Additionally, the company is moving towards self-sufficiency in propulsion for the Vande Bharat train sets and is expanding into the semiconductor segment, though no further details regarding partnerships or location were disclosed due to confidentiality considerations.
The company's capacity utilization for motors is currently at around 85%, and similarly high for Transformers. Future capacity expansions are planned to come online in phases, with new Transformer facilities expected to be commissioned by the end of the current financial year. Other expansions, particularly in Switchgear and Motors, may extend into the next couple of financial years. Capacity increases might raise concerns on margins, but the management remains optimistic, stating that despite a drop in the Industrial division's margin for this quarter, the margins for the YTD nine months period is still better than the previous year, suggesting resilience and room for future expansion without significantly harming profitability.
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Ladies and gentlemen, good day, and welcome to the CG Power and Industrial Solutions Limited Q3 FY '24 Earnings Conference Call hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Renu Baid from IIFL Securities Limited. Thank you, and over to you, ma'am.
Very good evening, ladies and gentlemen. Today, we have with us the management team of CG Power and Industrial Solutions with us to discuss the third quarter FY '24 earnings call. From the management team, we have Mr. N. Srinivasan, Managing Director; Mr. Susheel Todi, Chief Financial Officer; Mr. Ramesh Kumar, President, Industrial Division; Mr. Mukul Srivastava, President, Power Systems; Mr. Ajay Jain, Vice President, Transformers Division; and Mr. Chidambaram Balakrishnan, Vice President, Railways division. So without taking much time, I now hand over the floor to Mr. N. Srinivasan for his opening comments, there after which we can start with the Q&A. Thank you, and over to you, sir.
So thank you, Renu. Good evening, ladies and gentlemen. Let me first extend a warm welcome to you all for the Q3 FY '24 earnings call. I'm Natarajan Srinivasan, Managing Director of the company. I would like to introduce my colleagues who are with me on this call. Ramesh Kumar, President, Industrial Division; Mukul Srivastava, President, Switchgear Business; Ajay Jain, Vice President, Transformers Business; Chidambaram Balakrishnan, Vice President, Railways; Susheel Todi, CFO. Company performance. Q3 FY 2023-'24 performance, sales grew year-on-year by 13% and profit after tax before exceptional items grew by 13%. For the 9 months ended 31st December 2023, sales grew year-on-year by 15% and profit after tax before exceptional items grew by 26%. Aggregate sales for the quarter were higher at INR 1,860 crores, recording a growth of 13% year-on-year. Profit before tax before exceptional item was at INR 282 crores, 15.1% of sales as against INR 274 crores, 16.6% of sales last year in Q3 of FY '23. Return on capital employed annualized for the quarter was at 38%. Free cash flow generated for the quarter was INR 246 crores. unexecuted order book as on 31/12/2023, was 34% higher year-on-year at INR 5,556 crores compared to INR 4,136 crores as of 31st December 2022. Segment-wise performance, Industrial Systems. Aggregate sales for the quarter was higher at INR 1,214 crores, recording a growth of 5% year-on-year. Profit before interest and tax was at INR 169 crores as against INR 213 crores in the Q3 of FY '23. During the quarter, a big demand for Motors led to a price war with everyone trying to sell their volume, poach into customers to retain that market share. The company took a strategic call to sell equally aggressively to retain the customers and protect its turf. This had the effect of drop in the margins on the one hand and a market share gain on the other. Unexecuted order book as at 31st December 2020 was 9% higher year-on-year at INR 1,982 crores vis-a-vis INR 1,824 crores as of 31/12/2022. Power Systems. Aggregate sales for the quarter were higher at INR 646 crores, recording a growth of 34% year-on-year. PBIT was at INR 99 crores as against INR 57 crores in Q3 of FY '23. So the profit -- PBIT to sales was 15.3% as against 11.7% in Q3 of FY '23. Margins were higher year-on-year on account of execution of export orders with better margins, favorable product mix and better operating leverage. Unexecuted order book as 31/12/2023 was 55% higher year-on-year at INR 3,574 crores as against INR 2,312 crores as of 31/12/2022.
Consolidated results. Consolidated results include the performance of operating subsidiaries at Sweden, Germany and Netherlands, the Drives and Automation Europe, CG Adhesives Products India, and other nonoperating and holding subsidiaries. Aggregate sales for the quarter were higher at INR 1,979 crores according a growth of 13% year-on-year. PBT was at INR 264 crores in Q3 of FY '24 as against INR 285 crores in Q3 FY '23 and INR 303 crores in Q2 FY '24. Unexecuted order book of Drives and Automation Europe as on 31/12/2023 was 4% higher year-on-year at EUR 17.2 million as against EUR 16.5 million as of 31/12/2022. Key events in this quarter, in Q3. The company had filed an application with the Ministry of Electronics and Information Technology, Government of India, seeking approval to set up an Outsourced Semiconductor Assembly and Test, OSAT facility for the -- and the grant of subsidy for the said project. The estimated investment on the project over a period of 5 years is USD 791 million, and the same is expected to be funded by a combination of subsidy, equity contribution and debt, as required. The application preferred has been pending consideration of Government of India. The company signed a Term sheet with. K Raheja Group for the joint development of the company's property, CG House, situated at Annie Besant Road, Worli, Mumbai. Necessary approvals from the authority are being sought for the redevelopment. During the quarter, the company received order from the Honorable National Company Law Tribunal sanctioning dissolution of the company's wholly-owned subsidiary, CG Power Solutions Limited. The company has given effect to the said order in the accounts and the same is reflected in profit & loss account under Discontinued operation, which is yet another legacy issue that is getting -- that has been resolved. Between myself and my colleagues will be happy to answer the questions. See, on the whole, I think we had a good quarter. But I must also tell you this, there has been a deferment of revenue to the tune of about INR 35 crores in the Power Systems business because of some inspection issues. Inspections were delayed. And then on 31st, we could not dispatch. Maybe at the next 3 days also, we could not dispatch, actually. So -- anyway, this -- under the revenue recognition, this could not be booked as revenue for this quarter -- this month and December and this quarter. This had a profit implication of about INR 16 crores, INR 17 crores. Similarly, there is a onetime expenditure on account of a transformer replacement. For the pending insurance claim, we have booked a provision of about INR 10 crores. This is also onetime. So these -- but for this, our profit would have crossed about INR 300 crores for this quarter. We'll be happy to answer questions. Thank you.
[Operator Instructions] The first question is from the line of Ankur Sharma from HDFC Life.
Just a question starting off as on the Motors business, where you've kind of highlighted a fairly weak demand environment and possible price war. So I'm just trying to understand versus when we spoke last quarter, where are you seeing this weakness? Is it broad-based? Is it any specific segment which is kind of slowed down sharply? Is it government-driven orders. Just some color there. And when do you think you could start seeing some pickup also on this side?
So there are 2 aspects to this question: one is in the Motor, there is a large industrial motors and there is LT motors, then there is FHP. The problem actually the weak demand, which I had mentioned relates to LT motors. So even in the last quarter earnings call, in the television interview, I had mentioned that the stocking by the dealers because there is a fear of inventory getting reduced because of weak demand, et cetera, the dealers have been stocking less. Therefore, this will reflect for the next couple of quarters. So in these quarters, what has happened because of the lesser demand and then aggressive sales by some of the small players and competition who -- I mean -- who doesn't want actually the sales to go down. And therefore, price actually took a beating. And we also actually took a call. We could have remained without selling and then -- but we thought we will sell and then strategy calls we take -- we took actually, on account of which the margins -- the MSR actually have not been as -- have not been normal as it used to be in the earlier quarters. So I think I expect probably the next quarter, generally, this -- normally a good quarter where everyone wants to achieve their budget sales, et cetera. It's better than Q3 and Q4. Maybe post election, things should become completely normal.
Okay. Okay. And just to kind of clarify, the weakness is not as much on the HT motor side, right, which typically goes into larger cement, steel, et cetera. Their demand is better. Is that correct?
Correct. Correct.
Okay, fair. And okay, that's good to know. And secondly, on the rail side as well, any updates there? Because I remember we're looking to -- tie up with a few -- rather tie up on the propulsion side for the Vande Bharat train set. Any update there?
So propulsion, actually, we already -- we are having an arrangement for technology transfer. We are already working through one company in Korea. Propulsion probably will be self-sufficient by -- shortly in about maybe about 6 months' time. Other than that, no other tie-up has happened.
Okay. And just one last one on the OSAT piece. And congratulations on the group and your entry into this segment. Anything more you can share so while we did read about the announcement on the exchanges, which you plan to do. But any further details you can provide? Who have you tied up with or you plan to tie up with? The location of the plant, vendors. Anything more which you can help us?
So I think at this point of time, nothing has been firmed up and all are under discussion. So we are under some kind of a confidentiality class with respect -- we are talking to obviously, some foreign companies which are listed, which have also have their own regulatory requirements. So they need to get back -- they need to get their internal approvals in place and then inform and be ready at some point of time, then we'll be able to share the -- unfortunately, today, we'll not be able to share much details. Anyway, we have only submitted an application. The government will have to clear the application. Thereafter, only the effective steps can be taken. So at the moment, we are able to -- we have clearances from the partners with whom we are talking, then we'll be able to share more details.
The next question is from the line of Nitin Arora from Axis Mutual Funds.
Just continuing what Ankur was asking, let's say, on the power side, the order intake and the order book is very strong. Can you touch base? Is it just also you are seeing some weakness here because of the pre-election or this is something the bidding is still very active and bidding is still very strong here? That's my first question. And second, with respect to the strategic call, and you have been highlighting this to -- I think, on every call that pricing is something which can reverse any quarter, and you also don't know which quarter it will reverse. But here, you think the reversion is in the base now from this quarter or because the slowness might happen, as you said, post election things should normalize. But has there been slowness just related to election? Or are you seeing the clients also cutting budgets, the demand is a problem? How one should read this? That would be helpful.
So I will answer the second question. First question, I want to understand it better, actually. Second question, so based on -- we have extensive discussions with all top dealers in various locations. October, November, our entire team, including me actually visited all the market and then held on discussions with dealers. So LT motors, actually a large part of the sales takes place through dealers, through retail. So we don't get an impression that the budget -- everybody has slashed the budget and there is no underlying demand et cetera. Underlying demand is there, but it is taking piecemeal. Normally, the dealer stocks for 3 months and then sales takes place immediately and that push is not there. So little cautiousness is there because the price -- there is a fear of price getting lower or inventory getting stuck because of this. So we believe that this may be one-off thing and probably the worst is over. Even I feel the realizations will be better for the next quarter.
And your inventory versus your peers or let's say, in the market, how one should read this LT Motors inventory of ours in the market? Has it become lean now? Or is it still quite high?
Our inventory, we have not -- our inventory is normal, as we normally we keep at the same inventory level. But peers inventory, we really don't know. What's your first question?
Sir, on the power side, can you throw some light? I mean, because this momentum has been still continuing a lot. And in this quarter also, order intake has been pretty strong, margins have been pretty strong. Can you throw some light over the next, like, 6 to 12 months, how do you see this segment panning out?
So I think the inquiries on hand is an indication. I think the inquiries in Transformers are close to about INR 10,000 crores, I said earlier. So -- and Switchgear also, there's good amounts of inquiry. I think, I don't see any issue with respect to demand. It's a question of supply and delivery.
So that means your new capacity itself will get prebooked in a way once it comes on stream?
Definitely, definitely.
The next question is from the line of Rahul Gajare from Haitong Securities India Private Limited.
Sir, can you share the volume growth that you [Audio Gap] on the Transformer side?
I'm sorry to interrupt. Mr. Gajare, we had lost your audio in midway. So could you please repeat your question?
Yes, yes. I will, yes. So sir, my question is, can you share the volume growth mainly in the Industrial Motor side and the Power Transformer. That's the first question.
The Power Transformer, we cannot give you the volume growth, okay. We have already stated the numbers and then orders on hand. Ramesh, you can tell the volume growth on Industrial Motors.
See the -- whatever IEEMA is declared, IEEMA is declared up to October in LT Motors, our growth is 29% in volume growth. And in HT, we are growing almost 33%, and Fractional Horse Power Motors also 19%. So this is -- when compared to the total IEEMA growth, it's much, much higher. For example, LT Motors, IEEMA growth is just 10.8%. HT Motors is 1.3% -- actually what they have regarded. And Fractional Horse Power is minus 24%. So when compared to the industry growth, our growths are much, much higher, actually.
Sir -- and this is basically October data that you are sharing? The month of October?
[indiscernible] month of October because generally, there is about 1, 2 month's lag in declaring the data, collecting the data by IEEMA. So I don't see much difference going forward also because our sales is better in November and December when compared to October.
Okay. So now the reason for that question was given that we've seen a limited traction in the revenue growth in this particular quarter. And as Mr. Natarajan also said that there is pressure on the pricing. That is the reason why I was thinking that while the volume growth might be there? Is there -- I mean -- okay, fine. So this is the volume growth you think is there in November and December also. And can you share your -- what is the market share that you have in the motors business right now?
LT, we have 38.8% and FHP, we have 37%. And HT Motors, we are at 19%.
Based on published...
Yes, published data.
38%?
Yes, 38% is published data.
Published?
Yes. 38.8%.
So my second question is this INR 550 crores discontinued operation gains that you have booked in this particular quarter. Is it fair to assume that all of this is coming from CG Power and Solutions only or there is something else also? And afterwards, what will be the cash balance at the end of third quarter?
So this is the entire write-back is coming from CG Power Solutions. There nothing is pending now, CG Power Solutions. We just closed down that entity now as per the NCLT orders. So cash balance at the end of the quarter is around INR 1,300 crores at consolidation levels.
Okay. Sir, given the -- there would be -- are there more entities in the process of dissolution? And if yes, could there be a substantial gain that one can expect from such...
So the major entity, the major issue which was there from CG Power Solutions, that's where this gain has come. Now there are no major entities which are left now. You can see in that segment reporting where we are reporting separately the discontinued operation asset and liabilities.
Right. Okay. Sir, and my last question is on the Power segment. We've seen an increase in the capital employed in the Power segment. Is it possible you can break this item, whatever content that you can provide? And is there any issue or delay in collections? That's the last question I have got.
You have to look at the ROCE of the Power Systems. So if you look at the ROCE, we are well within that better than the last quarter, if you look at it. You have to look at the ROCE number, right, the return on capital employed.
Yes, yes. I thought as much that this is basically the work in progress that is going on with respect to your execution. There are no delays in collections for sure?
Not at all.
The next question is from the line of Suraj Malu from Catamaran.
My question is on the capacity utilization. So could you give a sense of how -- what our capacity utilization is across the board, both on the Power sector as well as on the Industrial Motors' side?
So I think if you look at the Motor side, we are selling more. So we are at around 80%, 85%. And in case of the Transformers, the volumes are also increasing in that business as well. So we are touching around 85%.
Right. And the new capacity which you had announced last quarter. How -- would that come up in a phased manner? Or is there going to be a delay before those capacities come online?
So the -- for the Transformers and Switchgears, they will come [indiscernible]. In Switchgear, there are a number of projects. Let me take Transformers. Transformers actually will be commissioned during this financial year, maybe in the last quarter of the current financial year. In Switchgear, I think a couple of projects will get -- go beyond the next financial -- this current financial year. Motors, actually, we'll do it in stages, one in '24-'25 and some in '25-'26.
The next question is from the line of Ravi Swaminathan from Avendus Spark.
My question is with respect to the supply in terms of motors. Have you seen over the past quarter or 2 more number of motor manufacturers coming into the market looking at the positive demand which was there since COVID, and that has resulted to -- resulted in higher competition? Or is it that it's just the existing players who had been more aggressive in terms of pricing?
So the new entrants have still not made a big entry into the market. They're just working on it. It is the existing and especially Tier 2 small players. They have grown during the COVID times when CG was not in a good -- this one. So their volumes have gone up. Now since the market has degrown, so they are trying to manage to retain their volumes, so they had to drop in the price. It is more of the existing players than the new players.
Got it, sir. And in terms of pricing of LT Motor probably in the past 2, 3 months, that is October to December, how much would it have dropped? And was it just the drop was because of the competitive pricing or your copper prices falling off a bit and that also leading to pricing decline?
It is a combination, actually. So exactly, it will be very difficult to say how much it has dropped. But a combination of raw material drop as well as some additional drop because of the competition.
Got it. And the drop would have been year-on-year, something like a high single-digit number or probably lesser or higher?
Yes, yes, it's a high single-digit number.
The next question is from the line of Bhoomika Nair from DAM Capital.
Most of my questions have been answered. But just you made a comment that, hopefully, fourth quarter is typically better and we can see an improvement in terms of both demand and also pricing as we move ahead. Could there be, in view of the upcoming elections, a little bit of typical -- a little bit of a weakness into the next 2 quarters and then normalizing post that?
So that is the hope and that is the belief. So I think my -- I've been constantly in touch with my team. And today morning, actually, they have told me that the things are looking up. And then definitely -- I mean what I said earlier, the realization is better than -- it will be better next quarter is based on the feedback I received.
Okay. And as our capacity comes up, right, in phases over the next 2 years? And is there -- I mean, even the peers had kind of expand capacity, would this mean that margins may not really come back to the earlier levels that we were at, would there be risk to that number as demand normalizes into, say, down the line 2, 3 quarters?
So just based on 1 quarter one-off thing, I don't want to come to that conclusion. If you see a company as a whole also, YTD, so if you see YTD 9 months, our margins are even better. The EBITDA margin for YTD 16.1% against the '22-'23 EBITDA margin of 15.4% for the company as a whole. If you take similarly the Industrial, so YTD margin is 15.3%. Last year was 16.4%, year before it was 12.7% PBT to sales. EBITDA margin, if you take for Industrial is 15.9%, compared to last year, it was 17.4%, a year before was 13.5%. Last year, as you know, was an exceptional year. We got 19% margin in one quarter, et cetera, which may not get repeated.
I think -- see, probably in this quarter itself, it was held on to not to sell, and then we just held on. See, we are a volume player. When we sell more, the price will further decline. But if I don't sell, my market share can go up. In a weak market, I have increased my market share from 35% to 38%. Therefore, I would think that this is just a one-off thing. There are several levers available for you to keep profitability and improve margins and then keep the way that we have been performing. We will pull all the levers actually and do our best to retain margins.
Sure, sir. This is very helpful. Sir, just on Railways, if you can just give some color on how the revenues are, what the backlog is looking like? And what are you seeing the growth trajectory as we move ahead, if you can just comment on that?
So I will ask Mr. Chidambaram to respond. I think the going has never been good as now in respect of order booking, et cetera. Mr. Chidambaram could you just answer this question.
We are into -- primarily into the rotating machines, motors, which is -- which is different from the other motors. These are traction motors, which are used for pulling and the control system, which goes with the locomotives. So this year, generally, they're booking around 20% on motors and also on the propulsion of the total orders. This year, our order books would be almost 68% higher than the order books we had in April 2023.
Okay. Okay. So could it be possible to share the absolute number of revenues in the 9 months and order backlog as we stand today?
Yes. If I say, we started in March 2023 with the order backlog of INR 800 crores, we would start March -- April 2024 with an order backlog of INR 1,400-plus crores.
Okay. Okay. So that's quite an improvement in the...
Yes, this after completing the revenue of INR 1,200 crores, INR 1200-plus crores. So we have completed INR 400 crores, and we would be carrying forward INR 1,400 crores.
Wow. Okay, okay. So there is a lot of traction in terms of the activity, any large orders which are there in the pipeline that we are bidding for and are hopeful of getting any quantum that one can define which can possibly get finalized?
So Bhoomika, we can disclose only when we get the orders, not on hopes.
The next question is from the line of Amit Mahawar from UBS.
I just have 1 question on exports. Right, So 9 months, how much have we done on new orders in export across Motors and Power Systems? And FY '25, if you can throw some color on how are you looking at exports growth between the 2 segments?
Yes. So the correct figure for the entire -- so we'll come back to you with the figure actually. The exports, we are taking steps especially on the motor side to grow our -- increase our share of exports next year. We are appointing -- we are in the process of appointing people, appointing dealers, stockist, et cetera. So I think we -- many of the moves that we are taking now are expected to bear fruit by second half of next financial year. So far, I think how much...
85% growth in exports in Motors.
What is the absolute amount?
Absolute amount is...
So it will be about INR 250 crores totally. INR 100-plus crores [indiscernible].
For the full year, we have done almost around INR 400 crores plus at company level.
So all put together. So we have done about INR 400 crores so far in exports between all the 3 divisions.
Fair, fair. So INR 300 crores last year has moved to INR 400 crores YTD, if I'm not wrong.
Yes.
Second part of maybe my question was more on the transmission side. Globally, we're getting a color -- a lot of color about the capacity constraint in power transmission equipments and CG Power has a very significant cost advantage on the transmission range. So FY '25, what kind of growth or business can we look at? And maybe the Power division, people can help me.
So I think as you know, we are also expanding our capacities, both in Transformers and Switchgear. But these capacities will not be -- increased capacities will be available only by the end of the year or the last quarter of the year. Therefore, we may not be able to get full advantage of this. Nevertheless, I think we can target about 25% minimum growth on the top line in these 2 lines, both Transformers and Switchgear, power as a whole.
Very helpful. But generally, unlike Motors, in Power, the orders are relatively medium cycle. So clients can always give you order if you're ready to deliver beyond 6, 8 months. So I was just hoping that will help us.
We are -- I mean, we agree with you. Some of the orders we got recently -- some big orders also. So we are working hard to just see how to complete this expansion fast. We are also looking at other opportunities to expand our operations.
The next question is from the line of Subhadip Mitra from Nuvama.
So first question is with regards to the Railways business. Like you did mention that you are looking at a tie-up with a Korean partner, the propulsion system. So am I right in understanding that once this tie-up is in place, you will be able to bid as a propulsion partner and you may only require a partner on the wagon side?
No. So -- Chidambaram, can you answer this question. There will be -- this is not that it will be more because you also need an experience for you, for example, if you want to participate in a tender, it is not enough if you know things. You must have a demonstrated track record of having built a train and having run a train like that. Therefore, without a partner for bidding actually, it will be difficult to enter the tender.
Understood. Sir, any partnerships that are being thought off on that line as well beyond the propulsion side?
See -- while there has been a lot of efforts, nothing has come to a stage where we'll be able to say anything big. So everybody is probably waiting in the wings and therefore, a lot of efforts are going on.
Okay, sir. Understood. Understood. And this will be for the propulsion system, both for locomotives as well as train sets?
Train sets mainly.
Mainly on the train sets [indiscernible]
Locomotive, we already have the technology.
I'm sorry, could you repeat that?
Locomotive, we already have the technology. If you break the technology in 2 parts, the technology which fits on board and technology which is underslung, the technology we will have by March, April next year would be underslung. We already have the onboard technology for locomotives.
Understood. And for the train set, where the PCMS, et cetera is concerned, that's where you will probably need a partner, right?
No, we are buying the technology itself. So we will be manufacturing ourselves with our -- so-called our own technology brought out from a Korean partner.
Ideally, okay. Okay. That answers my question. Secondly, on the Power segment. Now clearly, this has been a lower size as compared to the Industrial piece. But the way we are seeing high-voltage transmission CapEx coming up at the macro level in India and what we hear from power grid, et cetera, is that there is an 18-month waiting period for high-voltage transformers. And there are some players who're even ordering out their high-voltage transformers in anticipation of order wins. So are you expecting then that the inquiries and the potential order wins on the high-voltage transformer side can actually start seeing a pickup, even though your own CapEx might take some time to come?
So Ajay?
Yes, sir. Thanks for this opportunity. Yes, we see a lot of traction in this. The projects have already started coming in. And yes, we have booked some orders anticipating the expansion in the capacity -- the delivery has grown 12 months also. So these projects are already coming now for this year.
Understood. So in your opinion, how large can this market size be on an annual basis?
We are expecting a CAGR of around 10% to 12% in this.
On the high-voltage transformer side?
Right.
Okay, okay. And for the rest of the business, sir, overall, if I have to look at the Power segment, so what I understand is, Industrials has been the largest chunk of your business. Probably going ahead Power and Railways can overtake the industry piece. So just wanted to get some thoughts from you that over the next, let say, 2 to 3 years, how do you see both these high-growth pieces of Power and Railways panning out? And how large a piece can they become in the overall pie?
Can you just -- can you repeat the question, please?
Yes. Sir, can you hear me now?
Yes.
Yes, yes. So my question was that while Industrials has been the larger chunk of your business, I think going ahead, it is the Power and the Railways piece which are probably going to see higher growth, at least based on the macro tailwinds that we are seeing. So in your opinion, can we see Power plus Railways becoming a larger chunk of your overall business, let's say, over the next 2 to 3 years or 4 years vis-a-vis your normal, let's say, low-voltage motors and the rest of the Industrials piece?
So if you ask me, comparing with Industrials, I mean, with Motors, definitely, Motors also will grow. We have -- as you know, we are doubling our capacity for Motors. So once we start exporting and operating -- the enhanced capacity, we are able to operate, Motors also, we'll grow much faster than the other 2 businesses.
Okay. And the expected CAGR in Motors would be 20% plus?
20% and then the Power business may be because the base is low, and then we are only just growing 25% in those businesses.
So Motors around 20% and you're saying Power can be 25% or thereabouts?
Correct.
Okay. And sir, lastly, on margins. Now last year, we've seen spectacular numbers in terms of margins versus peers. So are we anticipating that with higher top line, better operating leverage, can we go beyond this, let's say, 15% kind of barrier and look at a higher number on margins on an overall basis?
So I think this is a stable level, anything higher -- I think as I have said earlier, margins are a combination of input costs, selling price, product mix, all the 3 put together. So -- and then plus, there are internal efficiencies what we try to get because of procurement efficiency, our lean manufacturing. So I think we have -- from a low level, we have come to about 15% -- 15%, 15.5%. So I think 15% to 16% looks to me a stable range.
The next question is from the line of Harshit Patel from Equirus Securities.
I have this 1 question. You have highlighted about the increasing opportunities in the high-voltage equipment space. So have we created a road map to develop a 765kV GIS solution because we see very heightened tendering activities happening in this particular space? So either on our own or through a technology partner, just the way you have done for this propulsion systems, as you have mentioned, I believe we are already working towards that 440kV GIS. You have mentioned that you plan to commercialize that in FY '25. So is that on track and our plans on 765kV?
Mukul?
Yes, please. See, as earlier said, about 400kV GIS project development is on track. As of now, we are not targeting 765kV because the normal lead time for a product like 765kV can be anywhere 3 to 4 years. So as of now, we aren't targeting that part.
The next question is from the line of [ Akash ] from Dalal & Broacha Stock Broking.
So my question was basically in spite of our capacity utilizations staying close to the peak levels, why are our margins going down, especially in the Power segment of the business? The Industrial Systems, we understood that we are trying to protect our market share there, but [indiscernible] on the Power side.
Where are margins going down?
On the Power Systems side.
If you look at margins against the last year quarter, we were at 11.7%. And this quarter, we are at 15.3%. PBIT-to-sales, if you see our press release. So from 11.7%, it is 15.3%, EBITDA actually from 13.5% moved up to 16.6%.
Quarter-on-quarter basis, sir.
Quarter-on-quarter only I'm saying. Quarter-on-quarter, -- so last year was -- so how much -- 17.9% to 16.3%. We can't just ideally compare, it depends on product mix, input cost [indiscernible] last year, we cannot say like that. I think this Power actually is a very decent margin. And I -- generally, I have compared the -- whatever the -- I'm not able to see many other companies having this kind of margin. I have looked at the numbers of other players also. Exactly, we cannot -- each order will be different. In a Transformer or a Switchgear, et cetera, each order pricing will be different because all are tender driven. Prices are common for here. I don't get an extra price. Prices are because if we compete on tender, we get the price. So how margin I get is, how efficiently managed my resources, what are our internal efficiencies, how do I procure, all these things will constitute margins here.
I understood, sir. Sir. Any future guidance for the coming quarters? Will our margin increase, or will more or less remain at the same level?
We don't give guidance to that minute level. Margins -- while we don't expect any margins to come down, but generally, we don't give a guidance on margins.
The next question is from the line of [ Vikas Srivastava ] from RBC Financial Services.
Yes. Question was, if you could throw some light on the consumer business? How it's doing, new products? Whatever -- I know you're not in a position to share too much information, but whatever you can share on the consumer products?
No, we are definitely working on these products. And we have launched geysers, even some new products in this season also in October, and we have done very well with respect to heaters. So we are -- our focus is there. And even in pumps also, we are launching very soon for agriculture and industrial pumps, that a small range of industrial pumps. So our focus is there. We are steadily growing on this product.
By when do you think in the next 2, 3, 4 years, it will become a material enough to be reporting separately segment wise? When do you think -- do you think there's a possibility there?
So one thing, 3, 4 years looks a good time for whatever you said. But if fortunately, unfortunately, if other businesses grow bigger and then that 10% threshold, which is required for separate reporting, we may miss. But anyway, our intention is to grow this business over the time frame which you've indicated.
And any particular regions or products which is information in the public domain, which you could share with us now in terms of pan-India, South, North, East, West and any products, which is -- information which is already available in the public domain?
You are asking about our penetration?
Yes, penetration, geographical as well as product in various parts of the...
We have taken a path for complete pan-India because we are, as a motor industry, we are well known in the industry and our products were there in the market prior to 2015. So it is -- we have not taken a route of -- because generally, what happens, if somebody who is newly launching the product, then it is -- they take some particular region and enter and test it and all. But we have not done that. We have taken the complete range because it's reentry for us. So pan-India, we are penetrating for both the products.
And the route to market is fairly well established now? And is there any confusion in the market with the brand name of another competitor in the market on this? Or is it -- Or what are you facing there?
So not to our knowledge, there is no confusion to our knowledge.
And the route to market infrastructure is in place in terms or do you expect any major investments going forward?
As of now, fairly well placed, but if we have to grow much faster than what we are doing, then we'll have to do that and which we are working on it.
[Operator Instructions] The next question is from the line of Suraj Malu from Catamaran.
Can you please let us know the order intake segment-wise for this quarter?
So we don't provide the order intake. [indiscernible] order book as on the last day we have already given. Other than that, we don't share details.
The next question is from the line of Mohit Kumar from ICICI Securities.
My first question is, can you participate in the 6,000 HP locomotive tender? Do we need a partner to participate? And are we thinking of participating?
Chidambaram?
Yes, we need a partner because this tender particularly ask for locomotive experience. We have all the products that goes into the locomotive, but not the locomotive experienced person. So you need a locomotive OEM to become eligible to participate in the tender.
Understood, sir. My second question is, are you -- as you said, Power Systems is going to stay -- opportunity with Power Systems is going to stay for a much, much longer time. I think you mentioned you are looking to increase your product portfolio. In your opinion, do you think you can develop something in the medium term or tie up with somebody to increase your opportunity basket?
Opportunity basket means?
In a sense, you can talk about the new areas, something like you're developing for 40kV GIS, so something which you're missing in our product portfolio as of now?
So there are several initiatives in the offering, but unless something takes shape, we cannot comment.
Understood, sir. My last question is, how do you think the OSAT, OSAT capital expenditure, which you're talking about USD 791 million, will they front ended? Or do you think this will be mostly spread out?
The expenditure is to be incurred over a period of 5 years.
Spread out, mostly. Okay. Understood.
The next question is from the line of Abhineet Anand from 3 P Investment Managers.
Based on the current capacity that you have for your transformer, switchgear motors, what could -- what can be the max revenue potential and the increased capacity that we are putting by '25, let's assume, what could those potentials go up by?
We cannot answer this question, Anand. This is only a revenue -- an earnings call for this quarter. So this, I think we need some more time to -- when it will come up, on what kind of product because it will be, again, what will you product mix, et cetera. So it will -- we won't be able to answer. I don't want to give you any wrong answer.
But on the current capacity, if you could throw some light?
Current capacity, we are currently operating the -- with Transformer, we are operating, let's say, 75% and then you can calculate, another 25% increase. We do not operate at 100%. Some repair jobs, et cetera, will have to be done, et cetera. So year-on-year, I would say that we have already committed that 25% growth in his possibly indicated. I think that you can take it as an annual sales that is possible at the current level.
As there are no further questions from the participants, I now hand the conference over to Mr. Renu Baid for closing comments.
Thank you, everyone. On behalf of IIFL Securities, I would like to thank the management for the time and our audience for being patient. Sir, any closing comments from your side?
So, as said -- what I've said, we are working hard, and we will continue to work hard to bring the best, that we hope Q4 will be better than Q3. And thank you for all the participating -- for the interest shown by all the participants, and thank you also.
On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.