© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
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 Earnings Conference Call of GE Power India Limited. With respect to its financial results for the quarter ended on 30th September 2023. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Chiranjive Jain, Managing Director. Thank you, and over to you, sir.
Very good evening. A warm welcome to all of you for joining the Earnings Call. I have my team with me today to address the financial results for the quarter through first half of the financial year 2024. I would talk upon the global economy where the global energy sector is making significant strides towards receiving net-zero by 2050, despite an actual increase in power-related emissions in 2023. As reported by our EA, admissions were 1.3% higher in the previous year, retail 13.2 giga tonne CO2 in the power sector. Moreover, with August 2023 recorded as the hottest globally. This year is expected to even exceed 2022 in terms of carbon emissions. Despite the substantial advance pace in clean energy technologies on a global scale, the adverse effects of climate changes are becoming more frequent, severe and disruptive. The crude oil prices are progressing in the first half of current year, has started a cost trajectory again in the face of resilient energy demand and translational dispute. IEA estimates an average growth of 3.2% in global electricity demand in 2025 as the energy crisis awaits. By 2025, Asia is predicted to represent half of the world's total electricity consumption, marking the first time in history, this region will reach such a milestone. Additionally, 1/3 of global electricity demand is expected to be attributed to China. Globally, the rapid advancement of electrifying transportation and [indiscernible] per system. Over 2.3 million electric cars were sold in first quarter, about 25% more than in same period last year. IE expect sales of 40 million units by end of 2023, represented 35% year-over-year increase, with new [indiscernible] accelerating in the second half of this year. Electric vehicles and fuel pumps taking [indiscernible] globally will further accelerate the growing electricity demand. Coming to India. The energy sector faces a critical juncture, efforts are towards deploying clean energy, yet the demand for electricity stronger relies on traditional energy resources like oil and gas. The country is [indiscernible] code is actually underlined as adding redeemer sources at scale, and preparing the group to handle this fluctuate in nature does not happen overnight. At the same time, India's energy demand continues to grow. Over the initial 7 months of the financial year, until October, coal production surged by 13%, reaching 0.5 million metric tonnes compared to about [indiscernible] million tonnes in the same period previous year. Further coal dispatches have levered upward trajectory. Up to October 23, the cumulative coal dispatch reached 541 million metric tonnes in contrast to 483 million tonnes during the corresponding period in FY '20 to '23, denoting an increase of 12%. The growth in power demand in India, as outlined by IEA was evident during the first half with consumption growing 7.8% to about 847 billion units. Most of the growth has come from surge in demand during July, September quarter as opposed to April, June quarter, which is usually the hottest [indiscernible]. Humid weather conditions and scanty rainfall in August and September, yet to serve in electricity demand, with field demand touching 241 gigawatt during the quarter. The Central Electricity Authority has projected big demand to touch 256 gigawatt in '24, '25. On the back of surging demand for coal-base power, the government has extended emergency clause under the Electricity Act 2003, mandating coal-base power plants during the full capacity in June 30, 2020. During the recent quarter, government declared it has not started developing plans to phase out older coal-based power plants after 2030. This announcement is in line with the current power scenario in India, and this resonates with the primary focus of our company service offerings and presents a substantial opportunity for growth in the commuters. How does this impact the performance for your company in first half 2024 for the Q3. I will now share a few moments on that. During the second quarter of '23, '24, there has been no substantial shift in market conditions for our business. We are still seeing that LGD and hydro opportunities PSV are converting slower other than anticipated. For SPV, we have received a level of intent in the second quarter was the [indiscernible] -- this has converted to an order last month, and it is the only at SPV order we have been able to book in the current financial year. I would also like to mention the net of intent we received in the second quarter for manufacturing of pressures [indiscernible] in our factory in [indiscernible]. This is the first time we have received such a letter of intent and then converted into an order, it will [indiscernible] the demand for the [indiscernible]. For the upgrade in pervasive, we have seen that the pipeline has started to convert into others, especially in the [indiscernible] segment. The orders are still small and will take a while to filter the drop that we have from the lower orders from LCD and [indiscernible]. The segment that continues to grow quarter-on-quarter as growth services, where we have good 40% more orders quarter-on-quarter. This once again confirms that our strategy to focus on services has been right move for your company at this time. Our revenue overall is down 17% versus Q2 of the previous year, primarily due to lower orders in the previous quarters as well as project [indiscernible]. Last topic that we mentioned is our income. We are continuing the efforts. The procedure remains long and time consuming, and it is taking longer to convert them into money. So that's the overall summary on the operating performance of the company, and I hand over now to our CFO, Yogesh Gupta, who will take you through the financial performance of the company for this quarter. Over to you, Yogesh Gupta.
Thank you, Prashant. Good evening, everyone. I'm pleased to welcome you all to share the financial and operational performance of the company for the second quarter of FY '23/'24. During the quarter, the company got orders were INR 371 crores against INR 248 crores in Q2 FY '22/'23. [indiscernible] order of INR 444 crores towards the major highlight of this quarter '23/'24. As of September 30, 2023, we have order backlog of INR 3,699 crore which represents active revenue opportunities in hydro, FGD, wireless and service segment. Lower-than-expected industry demand leading to lower order inflow in the last 2 years and quantity [indiscernible] suspension has resulted in lower revenue for the quarter. Revenue for the quarter '24 stood at INR 354 crores from INR 428 crores in the corresponding quarter of the last year. And revenue in Q2 '24 is also lower than the revenue of INR 424 crores in Q1 '24. Cost escalations due to [indiscernible] and efficient balance at size and floor as conversion has led to lower margin for quarter under discussion. Loss before tax for Q2 '24 was INR 62 crores against loss before tax for Q2 '23 of INR 13 crores. The reduced loss is primarily due to onetime provision impact of Solapur fire incident of INR 78 crores, which was booked in Q2 '23. Further, the decrease in loss before tax for Q2 '24 as compared to the loss before tax of Q1 '24 of INR 136 crores is also due to onetime impact of INR 69 crores was the Solapur fire incident. [indiscernible], the focus area for the company continues to be volume increased by fresh order intake, claim settlement and cash collections. We now open the floor for Q&A.
[Operator Instructions] The first question is from the line of Sanjay Kohli from Goldstone Capital.
Good evening, and thank you for the opportunity. If you can tell us a little bit about -- there's been a mention of de-promoterization of the parent. And obviously, this is having a bearing on future plans, which areas this particular company is going to remain in, so connected to this, whether the enormous opportunity in Hydro will continue for our company, whether the company will continue to service GE subsidiaries, which are overseas throughout Asia, whether we'll be a hub. So what is the time line essentially for this de-promoterization. And essentially, what does it really mean? Will the parent retain a certain amount of stake? Because our understanding is that [indiscernible] is also now getting geared up to list in the United States, and they have informed stakeholders of their intention to come out of any fresh thermal, but of course, continue to service the existing thermal side.
Thank you, Mr. Sanjay Kohli. I think you have summarized the current situation of the company with the transition from the GE to GE Revenue -- listing as a separate entity and also making the number [indiscernible] in the areas of operations at [indiscernible]. Coming to the GE Power India Limited, in GE Power India Limited bit remotorization, the time line that was announced was 36 months. And at this point in time, there is no further update regarding the same. So the current mandate which fits, whether the global strategy -- where we [indiscernible] allows a focus on services of all 5 power plants. The second area that you mentioned about hydro.
Hydro and hydro pump storage.
Hydro regarding the opportunities.
What I invested would go. [Foreign Language]
So the pump hydro storage and hydro, I mentioned earlier in the speech, is taking longer than we want to, to convert into orders. The order that we did last year, is on the [indiscernible] is also in the suspension at this point in time. So the orders are not converting as to what we anticipated to be one. So we are watching this very closely, and we'll provide an update to you as we have any update. So does that answer your question?
Investors are quite concerned about this whole situation and pertaining to and in the absence of any update, Obviously, there is a concern as to what will be the way forward for our company. And this is in the light of sales de-growth, which has taken place. So that is the concern. But I'll come back in the queue. And if you have anything further to add to this, most welcome, that's it from my side for the time being.
[Operator Instructions] The next question is from the line of Danish Mistry from Investor First Advisors.
Sir, if you could just give us a little update on what is the receivable situation this quarter? How much have we received from -- on basis our milestone payments, number one, on the receivables side from our debtors. Number 2 is the fact, sir, what is our net debt today? And how much do we think will be our net debt by the end of this financial year? And third question and last question, sir, is that you mentioned about the vessels being produced at Durgapur, Assuming that this LOI gets converted over a period of time, what would be the improvement in the capacity utilization at Durgapur? Because you have done a fair amount of optimization, so I recon, it would be pretty margin accretive for us. And sir, just one more question, sir, if you can just talk a little louder because your voice is very muffled, sir, we can barely hear you, sir.
I will address the Durgapur question first and then I'll pass it over to Yogesh. Durgapur, we have optimized the capacity in effective forms to somewhere between 223 [indiscernible]. This year, we have been able to reach largely from the service is about 150,000 [indiscernible]. So there is still -- that this was a significant progress from service on the [indiscernible]. We see continued growth quarter-on-quarter. We do hope with this pressure vessel and oxygen [indiscernible] as the new products that we've developed. We should add more hours. So for example, the pressure [indiscernible] we add anywhere between 10,000 to 50,000 or 80,000 hours, or more as we get into the market. This the first project, we want to focus on the learnings, focus on good execution and then we will expand in that area. So that is one promising area. The second area that we have been for the [indiscernible] where we have roughly about 20,000 to 30,000 hours, and we have similiar opportunities that we are -- we are working with. If we do see the conversion of these opportunities, we will see probably a ramp-up to reach the existing capacity in 6 to 8 quarters from now. So there will be some underutilization to there, but we are working hard to accelerate such products, which would help us to mitigate the requirement of the factory.
So over to you, Yogesh, for the counter question.
Thank you, Prashant, and thank you for your [indiscernible]. We start with the collection. We collected almost about INR 400 crores in the quarter 1 [indiscernible] and about to June quarter was about INR 190 crores. So full year, we have done almost about INR 900 crores. Moving on to borrowing. Our borrowing as of was [indiscernible] INR 380 crores. And we compared it with June borrowings, June borrowings were INR 473 crores. So our borrowings have gone down to INR 93 crores if you compare with June. And if you compare with March, our net borrowings were INR 292 crores. [indiscernible] crores borrowing as of March '23. Then moving on to like our -- how we have -- like we are looking at [indiscernible], I would not normally don't give any future suggestion from how we are trending. And we have been like putting on the [indiscernible] have different players on account of one project services that we have initiated and sales, the revenue collection has been [indiscernible]. And we have been taking care of all the sale [indiscernible] and exit the project in perfect with the [indiscernible] mandates.
So sir, this borrowing you're saying, is gross or net?
This is gross.
And net -- sir, what would be our net borrowing as of September balance sheet, sir?
What we [indiscernible] there about [indiscernible]
Basically gross -- so let's say, we have gross of, let's say, INR 100, and then we may have cash of, let's say, INR 40. So our net debt would be INR 60, sir.
So this is like we would say our borrowing in September will be about INR 228 crores, if you net it off with the cash that we have in the core account and all other places.
And sir, what would be our September ended receivables outstanding?
September ended receivables are INR 1,900, INR 1,950 crores approximately. This is also lower than if you compare with March. It is going to be lower than [indiscernible].
[Operator Instructions] The next question is from the line of Danish Mistry from Investors First Advisers.
Danish are you there?
Yes, can you hear me? Just a couple of more questions. One is that we've had -- as you've even touched upon in your introductory remarks, you had a couple of unfortunate incidents and fire incidents, including the one at [indiscernible] last quarter. So any sense on when we can get the insurance claims over there because we've already provided for all of them? But any sense when the insurance claims and receivables would start to come in for those particular projects?
This is very difficult to predict. Our previous experience has been a year or few years -- in recovery of such cases, these are complex and take time. So that is what I can say from the previous experiences.
And sir, if I may just take a leap out of the previous caller's question on [indiscernible]. So is it -- so do you have any sense on whether -- when we send the GE promoter wanted to exit. Does it mean that GE [indiscernible] is the final owner of our company?
And we have clarified that in our notification or -- the change from GE to GE [indiscernible] is a global, which is having no bearing on the earlier announced due to motorization strategy of the company.
So basically, that will continue, is the sense, that is there as of the year?
Yes, as of now -- as of the year.
[Operator Instructions] The next question is from the line of Sanjay Kholi from Goldstone Capital.
Sir, this current quarter's operating numbers, we are noticing the consumption materials consumed as a percentage of revenues is in the region of 80%. Can we hope for a visibility in the coming 2 quarters -- that this is a more improved number? And if you can give us a sense to what extent is management targeting to reduce this?
You can come again around the question on conversion? What do you think -- what conversion you [indiscernible]?
I'm talking about the consumption -- the consumption -- materials consumed -- as the percentage of your revenues is quite high. It's very high. Still continues to be quite high, although it's reduced -- there seems to have been some improvement. We've noticed an improvement from about 90% in the corresponding quarter for last year to 80%. But obviously, there would be a hope to improve further. But can we give -- can management give us some kind of definite visibility for the next half?
We do not predict or currently give future guidance. But what I can share with you is we have a mix in the portfolio of large duration hydro projects. The projects have been in the order book for more than 8, 10 or even more 20 years plus, and they have a very long gestation period, and then we have certainly a core of activity and then it changes. So that's one and which has a different material cost to revenue ratio. The second aspect is the backlog from the boilers, which is again a different product. It's a product business from the factory, it has a different profitability of gross margin ratio. And the third one is the service upgrades and service scores and LPG. So since the area that is [indiscernible] still is the service. And that motion, however, today is currently not significant. Therefore, the majority of the [indiscernible] comes from long run projects of either hydro or FGD and therefore, the fluctuation quarter-on-quarter, based on the cost [indiscernible] because it's in a long project, if you have a cost of date in one quarter, then we will see a [indiscernible] and then if you have a close that we realize this within 3 quarters in that kind of significantly changes the impact. Therefore, considering the project nature of the business, what we have been proposing strategy is, to continuously focus on the growth of services, where we have stability in the FDA guidance that we can provide in future. So at this point in time, that is how we are trying to manage the mix of the portfolio. And therefore, it's hard to predict quarter-on-quarter. What would be the gross margin or cost to sales ratio.
First, I would like to add to the specific question on material [indiscernible] where we have -- when we look at the quarter end on June '23, we have INR 69 crores of [indiscernible] almost about 15% of...
Your voice is very faint. If you can just remove the handset, please.
Is it better now?
Yes, better now.
So a specific question to -- with regard to cost of materials, 92% to 76%. In the quarter ended 2023, we have like provision for the fire loss of [indiscernible] which has been mentioned even in the [indiscernible] in Note #3, and we have [indiscernible] in the cost of material. And this prospect [indiscernible] 15% of revenues [indiscernible] see like versus quarter 3 September, there are no such provisions. So we are better off by 15%, which is 10%. [indiscernible]
That is largely, as I said, in large projects in cost update, it does impact and that's what is driving the situation?
Mr. Sanjay Kholi, does it answer your question?
Yes. So as there's growth in services, this metric will get better and better.
Yes. As I said, today, the volume of service mix is less than 30% to be significant and appear in the balance sheet and make an impact, so it will get a while when we get there. The structural cost to be recovered, currently we need volume, and that will not be fulfilled by services alone at least for a few quarters ahead.
And the pressure vessels opportunity, how big is this going to be?
I would say that currently, we want to be focused. It's a new area. We've just entered. We are evaluating the margin attractiveness. It's the first test order. And we will come back with you once we have clean the studies. We want to test it out orders, how does it in margin profitability, we will come back. It's a test, It's a pilot. We have got into that area. It's a largely fair opportunity. I would say it's an opportunity that can support the [indiscernible] if we sit out well. So we will come back with more. At this point, I would not want to go ahead of where we are in the process.
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Prashant Chiranjive Jain, Managing Director, for the closing comments. Go ahead, sir.
Thank you. Thank you all for the questions. And thank you, Deep, for preparation and joining me on the call today. Have a good evening. Have a very good Diwali, and have a very good celebration in the festivity season with your near and dear ones. Have a goodnight. Thank you so much.
On behalf of GE Power India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.