© 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.
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 GE Power India Limited Earnings Conference Call for the Fourth Quarter and Year ended 31st March 2023. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Prashant Jain, Managing Director, GE Power India Limited. Thank you, and over to you, sir.
A very good afternoon, and warm welcome to all of you for joining this discussion on the financial year and the operating performance for the fourth quarter as well as the full financial year '22-'23. I would like to welcome my team who will join me in answering your questions today and update you on the performance.I have with me Yogesh Gupta, our CFO; Vinit Pant, our Chief Commercial Officer; Venkatesh Rao, our Chief Executive Business Operations on -- and Kalpesh, our Hydro Business Finance Manager. At the outset, I would like to start with discussion with some context on the global economic situation.The year financial '23 saw a shift towards a positive trajectory as global energy and commodity prices corrected elevating inflationary pressures. While major economies maintain the cautious stance, trade and investment sentiment turned more optimistic as central banks paused the rate hike cycle starting from the third quarter. Despite tight monetary policies and domestic inflation concerns in some developed economies, the world economy cautiously embarked on a path of recovery benefiting from easing supply chain pressures and a resilient labor market. Nevertheless, the pace of growth is anticipated to be modest as tight monetary conditions and the tighter credit market is likely to act as impediments.Coming to the Indian economy and power sector, despite a tight monetary policy to address inflation, Indian economy review remains steadfast on its growth path. The economy is propelled by robust investments in infrastructure, increased private capital expenditure and strong consumer demand. The central bank's decision to halt interest rate hikes, coupled with improved bank balance sheets, resulting from corporate deleveraging has also contributed to positive developments in the services sector.There are indications of growth in credit and financial markets, reinforcing an environment conducive to investment. Coming to power sector, the onset of summer earlier this year has resulted in a substantial increase in electricity demand. With the concerns surrounding COVID now diminishing, the government has again shifted attention towards expanding renewable energy capacity.This emphasis on renewable energy has not diminished the demand for coal, however. In order to meet the rising demand for coal, the country has made significant investments in enhancing domestic coal production. In the fiscal year, domestic coal output reached almost 900 million metric tonnes, reflecting a growth of 14.7% compared to the previous financial year.Coal-based thermal generation accounts for 75% approximately -- electricity generated. And according to the draft national plan for '22 to '27, coal-based units received that apart from under construction coal-based capacity of 25 gigawatts, the original coal-based capacity would be 17 gigawatts to 28 gigawatts that will be needed until '30, '31.As the government of India is striving to provide affordable electricity on 24/7 basis, the ministry has advised all center, state utilities and private plant operators not to retire any thermal units and urge them to carry out R&M, that is renovation and modernization, for life extension and improved flexibility, reliability and safety of thermal units, considering the expected demand scenario and availability of capacity in the future.For our company, the government's decision to extend the implementation of flue gas desulfurization for all 5 power plants has resulted in a slower order intake than expected. Our strategic focus over the next couple of months will be on growing core services and R&M offerings as well as non-EPC and industrial service business. This is what we have been focusing on for the last couple of years.Now talking about the quarter 4 performance. The fourth quarter has been excellent for service orders. We have been able to achieve 70% more orders compared to Q4 of the previous financial year. And the month of March has got us a record high of 820 million, the strongest core service orders in a single month we've had so far. On the other side, FGD and upgrade opportunities are still converting slower than anticipated. The revenue in the fourth quarter has been 40% lower than in the same quarter of previous year, mainly due to lower orders in the previous quarters and project delays.The executive summary for the full year if I have to focus. The financial year 2022, '23 has been challenging with geopolitical impact on supply chains and high inflation rates. These factors as well as the other regulatory 2-year extension of the implementation time line by the government has resulted in a slower turnaround for the company than we anticipated. Despite the challenging market environment, we have been able to grow our service orders by -- our total orders by 116%, mainly due to strong project runs in services, and this segment continues to grow in the double-digit range.Our revenue is down by 31% and largely due to delays in ordering, which is impacting our backlog. In the past financial year, we have been able to successfully focus on the structure cost and reducing the SG&A. As we discussed in our previous earnings call, we have entire industry sector have made representation to the ministry and customers for exceptional relief for risk factors that are also these contained in the execution of these FGD projects.As a result, we have been granted an extension of time relief from NTPC for a plus 8.5 months project delay due to COVID-19, which is helping our company in mitigating cost escalations on last 2 and 3, the impact you will expect to see in the coming quarters. However, this does not help us in the [ Lot 1 ] projects and for which we will continue to re-present to the ministry and to NTPC.For discussions on the financial operations, I would hand over the call to Yogesh. And after this, we will open the floor for question and answers. Over to you, Yogesh.
Thank you, Prashant. Good afternoon, everyone. I'm pleased to welcome you all to discuss financial and operational performance for the fourth quarter and full financial year ended March 2023.Lower than expected industry demand and subsequent lower order intake in the last few years has impacted revenue and margin for the quarter and also for the financial year. During the quarter, the company got orders worth INR 228 crores against orders of INR 138 crores in Q4 of FY '22. FY '23 order intake stood at INR 1,635 crores against order intake of INR 765 crores in FY '22.As of March 31, 2023, we have a healthy order backlog of INR 3,615 crores, which presents active revenue opportunities in hydro, FGDs and service segment. Revenues for Q4 '23 stood at INR 344 crores, down from INR 591 crores in the corresponding quarter of last year. And the revenue in Q4 of '23 is also lower than the revenue of INR 533 crores in Q3 '23.Revenue for FY '23 stood at INR 1,796 crores, down from INR 2,620 crores in FY '22. Moving on to the loss before tax for the quarter Q4 '23 after the special items was INR 128 crores against loss before tax for the quarter Q4 '22 with exceptional items of INR 145 crores. The loss in Q3 '23 was minus INR 30 crores.The increase in loss before tax for the quarter Q4 '23 as compared to the previous quarter Q3 '23 is due to increase in cost estimates of [ Surajpur ] project to the extent of about INR 12 crores, lower volumes under liquidation, lower capital utilization, delays, inflation and execution challenges at site. Loss before tax for the financial year FY '23 after exceptional items was INR 334 crores against a loss of INR 293 crores in the financial year FY '22.Loss before tax for the financial year FY '23 is mainly due to the following: impact on account of lower volumes, project delays and inflation. Solapur fire incident, almost about INR 100 crores impact. And 70% of this is likely to be recovered from the insurance company in the current year and the subsequent year. Generic risk provision creation, provisions for doubtful debts due to non-receipt of payments from some customers, Durgapur restructuring to the extent of INR 11 crores and ForEx losses.Summarizing, focal areas for the company are volume increased by fresh order intake, claim settlement, cash collections. On the cash, we expect to be debt-free by the end of current financial year.We now open the forum for the Q&A.
[Operator Instructions] The first question is from the line of [ Mohit Kumar ] from ICICI Securities.
First question is on the order inflow, how do you see the order inflow for the FY '24? FY '23, I believe, was still subdued. Do you see FGD activity picking up in FY '24?
Thank you for the question. What we see is there are opportunities. We are ending in certain tenders. However, because the government has extended the time line by 2 years, we're planning to convert those orders into -- the tenders into orders is taking a bit longer. I would ask Vinit to add on this. On service side, as I said, we are seeing a good growth and the teams are faring quite well. On the FGD unfortunately, because of the delays in the exchange in time line, the orders have not converted. Vinit, do you want to add?
Yes. So I would say, yes, Prashant, you are right, the order intake ordering has been slower than anticipated. But at the same time, I would say, as compared to the last financial year overall order intake, order placement has been good this year because we have seen almost 20 gigawatts have been ordered as compared to only about 9 gigawatts last year. So overall, ordering of [ GD ] is higher. But as you pointed out, Prashant, some of the deals which we have been pursuing, we are in a good position, but those have not been converted into an order.But going forward, I think with the time line coming financial year '26, December '26 is the last date for the installation of [Technical Difficulty]. We expect ordering to pick up going forward.
Sir, what we include in the services, can you just please explain? Pardon my ignorance, yes.
Can you repeat?
Pardon my ignorance, what are the things you include in services?
So in the services business, we have the services to the existing coal-fired power plants in terms of superior supply of parts, repairs. That is what we call for services parts repairs as the core services and then there is retrofit and modernization, which we call update. So these are the 2 components and services for the coal-fired power plants. There is a very small amount of internal services that we do for gas and a very small amount of hydro service, but largely the service when we say it's the service for the coal-fired power plants and that business is doing fairly okay.
And is there opportunity for us for repurposing the power plant so that they come down at 40% PLF?
Yes, we do see opportunities, I believe if you [indiscernible].
Is there large opportunity or small opportunity?
No. Right now it is just -- so we are working on certain study. We have discussing with some customers to do the testing part. So right now customers have started with placing orders, carrying out the testing and subsequently, they will start placing orders for making the changes in the equipment. So this is -- we expect this to take off in maybe another 6 months' time now.
And is there large opportunity or small opportunity, sir, in this...
No, I will not say they are very large. It would be a small -- smaller size.
Understood. Last question, what are the impact of Solapur fire incident on our P&L?
Yogesh?
Yes, impact of the Solapur fire incident has been about to the tune of about INR 100 crores is what we have provided for in our books. And once we get the insurance claim sorted out and settled, we would be getting almost 70% of this recovery.
[Operator Instructions] The next question is from the line of [ Dhanesh Mistry ] from [ First Advisors ].
I had just 2 questions. The first is a bit clarification. What is the total outstanding order book that we have in it? And in that outstanding order book, what is the percentage of service orders?
We have INR 36.1 billion. INR 3,615 crores as our order backlog as of 31st March '23. Of this, we have about close to 40% is in the rate for the steam business and about 60% for hydro. And almost about 15% is services in this.
So 15% of INR 3,600 --
INR 3,615 crores is services.
Is the services. Got it. Just -- and is it 40% steam and 60% is hydro?
Yes.
So that would include that -- the Orissa project as well?
Which [indiscernible]?
The Subansiri one, which we restarted.
Subansiri is not Orissa.
Okay. Sorry. Yes.
It is in [indiscernible].
Okay. Got it. But it's included in that project?
Yes. Yes.
Okay. Just one more question I had is that if you were to see our receivables have, I think, reduced a bit as --
Yes.
-- if I see the balance sheet data. So just to understand -- and you did touch upon the fact that you plan to be debt-free. So is it safe to assume that all of it would be through receivables recovery? How much of receivables we can recover this year from this INR 1,900 crores?
We are targeting about -- you can clearly say like we have 2 kinds of receivables. We have dissent and the normal letter. And when we say we will be debt-free, presently we have borrowing of INR 291 crores -- so we are talking of being debt-free by repaying this debt that we have of INR 292 crores approximately from external and internal sources. And the cash that we are targeting is in the range of about INR 1,300 crores [indiscernible].
Recovery?
Yes.
From our customers?
Yes.
Okay. Okay. Got it. And the current cash that we have of INR 213 crores on the balance sheet, is there any part of customer advances in this? Or is this our own cash?
Yes, we have customer advances also in this to the extent of almost about INR 3 crores to INR 35 point some-odd crores. Just give me a sec, I will give you the exact number. Yes. So we have like customer advances in almost INR 35 crores, INR 36 lakhs to be precise. Customer advances from the major customers. And another INR 2 crores, 3 crores you can take from as a -- so total INR 38 crores, INR 2 lakhs, INR 3 lakhs on this cash, yes?
Okay. And -- got it. Just one last question. So if I heard correctly, you're saying that this year we'll get INR 1,300 crores of cash inflow from the receivables. Is that correct?
Receivables and retention. And if we are able to achieve the milestone that we are targeting. So this is what we are targeting to achieve.
Got it. Redemption, meaning what are redemptions?
Retention.
Oh, retention. Retention, yes.
The milestone.
Yes, yes, yes. Milestone retention. I understand.
[Operator Instructions] The next question is from the line of Mohit Kumar from ICICI Securities.
Sir, one clarification, sir. On Subansiri, when do you expect this project to get over? And is this order book, what order book is left will be completely excluded in FY '24? Is that correct?
Yogesh, can you take that please?
Yes. So we expect this project to get completed in August 2024.
The next question is from the line of [ Parshua ], an individual investor.
Can you kindly just give an overview of what exactly a company is doing? And to what avenues are you going to go ahead, being a foreign company?
Vinit?
So we are -- we have shown we are -- FGD is a market which is going to be there. We have seen about 112 gigawatts has already been ordered, but almost 14 gigawatt remains to be ordered. So that is FGD is going to be there going forward. And we are, of course, focusing on cash-accretive deals. We are going to be selective for these projects. But definitely, we see a big market for every day going forward next 2, 3 to 4 years. That is one part.Services, as we have mentioned, we have 2 parts. We -- coal services and then we have the upgrades. Coal services, we have done very well last year, as we have seen, we have grown almost 20% over the previous year. Last quarter, of course, was exceptional, we grew almost 70%. So that is again as the segment we are going to be going to continue and be a strong player. Upgrades -- service upgrades, we have not done well last year because as we have mentioned, the order intake has got deferred for various reasons.But going forward, we are already seeing a lot of market is opening up, especially for NOx deals. We find a lot of orders are getting finalized. There is a lot of pressure to complete the installation by 2024. So I think that is something which is going to be very strong. And so basically, we are going to focus on just to summarize, coal, hydro as -- and gas.
So I'll just continue on that. So the business of the company largely is coal, which is roughly about 80%. When we say coal-fired power plants, we are into newbuild. Newbuild, when we say we do have the factory in Durgapur, which was producing and supplying boiler pressure parts for the coal-fired power plants, where we have the emission control equipments, which is FGD NOx, et cetera, which is a part of the project portfolio.Then we have the other components, which is -- which will be the services of the power plants, which is across the entire power plant, which is parts, repair services and upgrades of coal-fired power plants. This portfolio is roughly 80%. And then hydro, we do [indiscernible] these projects. We do get one large project once in a while. And then usually, the execution time line for these projects is larger.And then the third business is gas, which is pretty much internal captive business. And that business is on [ mobile ] side where we do provide certain services to the global gas companies, but this is at least then 3%, 2% of the revenue. So it's a very small portion of the portfolio
The next question is from the line of [ Ramesh ], a retail investor.
I just wanted to understand like the status of depromoterizations, whether we did we receive any update from the promoter? And second, what would be the like road map from -- for our company in near future? Like if you consider these FGD orders and other pendings, once they are done, then what would be our, like, activity or regular business to support the company as well as to the investors?And the final question, so what would be the reserve like we have once we are planning to go debt-free our company by next month -- sorry, next quarter?
So I'll take the first question on the depromoterization. We will update you as soon as we hear something from the company. The company has announced -- the promoter has announced 36 months for the depromoterization. And at this point in time, we do not have a update on that. In the meanwhile, though, the company's strategy, we know that the newbuild coal demand was bid for the last 4 years. There was a market in FGD.And therefore, the company's strategy was to be an emission-control company, support the market with its FGD technology where the company has a big advantage. The second focus area for the company was to develop and grow the service business, which is constantly on track with almost 15% to 20% growth that we have demonstrated in March and we continue to see a good response on this strategy going forward. That was the second element of the strategy.Hydro is selective orders as we see as it meets our profile of risk margin, et cetera, where we selectively only if it's a private player, then we are taking selective orders in hydro. And gas is a very selective internal capital business where we continue to operate with our cost margin which has been marginally declining because there are not many driven new gas projects that the company has been taking, but this is an internal captive business. So this is pretty much was the strategy with which we wanted to move towards a transformation to say, okay, short term, there is a demand.We enter that demand, and then we start building new capabilities as we see depromoterization actually, then we would enter into areas of business. Unfortunately, due to the delay in FGD demand, we are L1 in certain tenders, but the tenders have not converted into orders because of the extension of time line by the government for 2 years. We have optimized the capacity for Durgapur to 180,000 hours where we have a tremendous capability to offer not only pressure parts for boilers, but also to other metal fabrication industry.So this shop now has no new boiler order pending on the shop floor, but we have been able to roughly build -- get about 100,000 hours loading. The capacity is 180,000 hours. So we've got about 100,000 hours loading on this factory, largely from service and some new non-boiler areas and we are working to expand our offerings into this area so that we can get started more load to the factory.So we have optimized this factory from about, which was roughly a few years ago about 88,000 hours capacity, last year about 250,000 hours capacity down to 180,000 hours capacity. We don't think it makes sense to go further below with this capacity. We need to maintain the competence. And now the focus is on bringing orders and starting to bring back growth. So the strategy for the company in the short term is to ensure that we continue to grow service, we continue to improve our industrial service orders and industrial orders and then to also capture as much FGD as we can in the next couple of years as the demand comes back.This will provide certain -- and also we execute the orders will collect the cash. As we do this and as you move to the next phase, then we will move towards the next phase of strategy. And that is currently the bridge to ensure that we collect cash and become cash positive, and we execute the backlog well and start the new areas of operations into Durgapur and eventually build a bridge to the future. So FGD pretty much is a very important segment of the strategy to build a bridge in the interim towards the future. So that is where we are in the strategic planning process.As regards to your question on the cash collection, of course, the cash that Yogesh mentioned, we will be cash-positive by end of the financial year. And after that, the cash reserve, I think I will ask Yogesh to comment on that.
So basically we would be like starting building up our cash equity beyond 31st March '24. So this we will be -- which will come handy in the future like acquisition of the business and if it all window for some expansion. I hope that was the question Mr. Ramesh.
[Operator Instructions] The next question is from the line of Dhanesh Mistry from First Advisors.
Just one question. This repayment of the borrowing, do you plan to do it by 31st March '24 or before that?
Well, Mr. Mistry, we would be targeting to do it before.
Before?
Yes.
And the INR 1,300 crores also we'll receive by 31st March '24 in terms of receivables and retention?
Yes, basically, in this what we are looking at is there are certain like revenue that we'll be doing. So as for the contractual terms, whatever money due against supply, et cetera, will be also covered. So this is what we are targeting to collect over the period of time in the coming quarters.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Prashant Jain for his closing comments.
I would like to thank you all for joining the call today and I'm happy to be able to address your questions. Looking forward to speak to you in the next call. Thank you all, and thank you to you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of GE Power India Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.