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Good morning. I welcome you all to Q3 FY '21 earnings call. Along with me, I have Mr. Bikesh Ogra, Director and Global CEO; Mr. Bahadur Dastoor, CFO; and Strategic Growth Advisors, our Investor Relations advisers. We will start the call with the operational highlights for the quarter by Bikesh, followed by financial highlights by Bahadur, post which we will open the floor for Q&A. Thank you, and over to you, Bikesh.
Thanks, Vishal, and a warm welcome to all the participants on this call. I'd like to give you a quick update on the impact of COVID-19, key addressable markets and followed by an update on our business operations for Q3 FY '21. As I had mentioned earlier also, the project execution had got impacted in the first half of the year due to COVID-19, and the project execution has picked up across geographies in H2. Our objective and priority continues to be focused around the safety and well-being of our employees, vendors, partners and all the stakeholders in the value chain. We have been consistently taking utmost safety measures, which are in strict compliance and in accordance with the guidelines laid by the respective countries. Our strategy to expand into developed markets of Australia and the U.S. have been bearing fruits. It has also shielded us from geographical concentration risk. We now have a full-fledged management team in Australia and U.S. to cater to the large markets. We are on course to complete our first major turnkey solar EPC project in Australia, which is a 200-megawatt solar plant for customer LSBP by the end of next month. In the U.S., the potential of the market is enormous, and the top 4 to 5 EPC players having presence in that market can each bag orders worth USD 500 million each year. The positive changes in the U.S. government policies towards solar industry in terms of extension of tax credits until 2022, coupled with the government's focus on renewable energy, bodes well for the solar industry players. We are seeing a lot of traction in the U.S. market and expect to witness substantial order inflow from the U.S. market going forward. The Latin America market also remains an important market for us, and we will continue to focus in this market. During Q3, we had bagged an order worth INR 420 crores in Chile. As explained in the earlier call, the European market provides a good opportunity as we expect annual capacity addition of around 6 to 7 gigawatts over the coming years. To address this growing market, we already set up a full-fledged management team at Seville, Spain. We are currently working on large number of potential bids and are confident of acquiring orders in the near term. Our aspiration is to become one of the leading solar EPC companies in this region as well. This surely has become a very promising market for us. Middle East market continues to remain challenging due to intense competition. Despite this, we have recently bagged 230-megawatt worth of order in Egypt valued at INR 930 crores, which is obviously at an acceptable margin, which reiterates our commitment to remain relevant in the Middle East market. We have won this order from one of the leading global IPPs. This project is scheduled to be commissioned by Quarter 1 2022. With this current win, our EPC portfolio has grown to a very significant 10,700 megawatts. We will continue to remain selective in bidding for projects in this region. At the same time, we'll be keeping a close watch on the execution capabilities for the large-size projects, which has been won by our competitors. Solar project along with energy storage and floating solar are also poised to grow substantially in the near future. We have a very strong team and technical partnerships to take up a leading role in these emerging technologies as well. On this note, we have recently emerged as lowest in one of the very large floating solar projects in India. On the solar plus energy storage dispatchable power projects, we have very recently participated in a bidding process for a large utility-scale project in South Africa, which the results would be announced very soon. With the storage prices further coming down, we see more of these kind of projects getting bid in the foreseeable future. Coming to operations and maintenance business, we currently manage around 8.1 gigawatt as our portfolio. We have acquired a substantial amount of third-party operation and maintenance business for India. On the international front, operational maintenance market for those projects with EPC was undertaken by third-party companies is expected to grow in the coming financial year. Our objective is to acquire an additional third-party O&M portfolio of at least 1 gigawatt each in domestic and international market for FY '22. This obviously would be incremental to our regular self EPC executed O&M business. I'm very happy to share that we have recently won our first O&M project outside India on a competitive basis in Oman. On the operational front, despite an extremely challenging business environment, we have seen healthy order inflows amounting to around INR 7,000 crores, which is higher than the last year restated order inflows. This includes a recently signed order for 230-megawatt solar plant in Egypt worth around INR 930 crores. We have LOIs for certain orders in India and America, which we will announce as soon as the orders are signed. Our gross unexecuted order value before adjusting for revenue post December 31 stands at INR 9,674 crores as of 12 February 2021. We expect majority of our current outstanding order book to be executed by end of next fiscal year, depending upon no further worsening of the COVID situation. Thank you. With this, I'll ask Mr. Bahadur, our CFO, to take you through the consolidated financial highlights. Thank you very much.
Thank you, Bikesh, and good morning. I will take you through the consolidated financials for the 9 months ended December 31, 2020. Before we run through the financials, I would again like to reiterate that the company's revenue, order inflows and gross margins could be lumpy due to geographical mix and state of execution of the project in any particular quarter, and hence comparison on corresponding previous period will not be a true reflection of the performance for the quarter and the performance may not be representative for that of the full year. Revenue for 9 months FY '21 increased by 6% to INR 3,716 crores, driven by significant ramp-up in execution of projects in U.S., Latin America and Australia, leading to an improvement in revenue for Q3 FY '21. The region-wide revenue breakup is as follows: Australia contributed 47.3%; Americas, 21.8%; followed by India, which contributed 16.9%; MENA region with 12.2%; and balance 1.5% from Africa. O&M revenue increased by 37% to INR 180 crores in 9 months FY '21 compared to INR 132 crores in 9 months FY '20, with an EBIT margin of 36.9%. O&M business contributes 4.8% of revenue in 9 months FY '21 as compared to 3.8% in 9 months FY '20. At the company level, the gross margin witnessed a decline to 8.7% in 9 months FY '21 due to unprecedented increase in commodity and logistics costs as well as higher execution costs in developed markets due to COVID and labor movement restrictions. Due to these factors, we expect gross margins for the year FY '21 to be in the range of 9% to 10%. Based on the expected geographical mix of UOV at the end of March '21 and the state of execution of projects, we expect the gross margins for FY '22 to normalize again in the range of 10% to 11%. Overheads in 9 months FY '21 reduced by INR 51 crores to INR 240 crores due to rightsizing and cost optimization measures undertaken. Our overheads as a percentage of revenue reduced from 8.3% in 9 months FY '20 to 6.5% in 9 months FY '21 and will go down further in the next year. Additionally, there has been ForEx and mark-to-market loss amounting to INR 47 crores in 9 months FY '21, primarily comprising of INR 24 crores reinstatement on loans given to overseas subsidiary and branch, which is in the nature of an equity contribution, and INR 26 crores on account of mark-to-market loss on forward contracts relating to projects yet to commence or in early stages of commencement. EBITDA and PAT for 9 months FY '21 stood at INR 43 crores and INR 54 crores, respectively. Coming to other comprehensive income. The group had taken forward contracts including cross-currency hedges to hedge the exposure of currency fluctuation in respect of receivables from customers, trade payables and letter of credit relating to a project in the initial stages of execution. The Australian dollar-INR derivative contracts were taken for receivables from customers and Australian dollar to U.S. dollar and U.S. dollar to INR derivative contracts were taken for trade payables and letter of credit payments. The strengthening of the Australian dollar has resulted in the other comprehensive income, having a mark-to-market loss on a notional basis of about INR 175 crores. On utilization of forward contracts on the date of maturity, the effective portion of the cash flow hedge reserves previously recognized in other comprehensive income will recycle to profit and loss account, which will be offset by increase in revenue due to restatement of receivables for that particular project. Coming to the balance sheet. I would again like to reiterate, as for the amended articles of association, the company cannot give loans to promoters or their affiliates post listing. The external term debt outstanding as on February 12, 2021, is INR 332 crores. This is after debt of INR 457 crores paid during the current year-to-date. Since listing last year, we have repaid a total of INR 2,179 crores through internal accruals and money received from group companies on collection of intercorporate deposits. The repayment schedule of external debt over the next 2 quarters involves a payment of INR 213 crores in Q4 FY '21, for which we are in discussion with banks, and balance INR 119 crores payable in Q1 FY '22. We have a cash and cash equivalent of approximately INR 329 crores and a net worth of INR 951 crores as on December 31, 2020. The total intercorporate deposits due including interest stood at INR 1,160 crores as at 12th of February, which, as mentioned by the promoters, will now be paid latest by September 30, 2021. Quarterly interest on ICDs has been serviced in keeping with the promoter commitment. Our net debt-to-equity as on December 31, 2020, is 0.6x. As of December, we had a negative net working capital of INR 35 crores as compared to a positive net working capital of INR 178 crores as on March 2020. On the cash flow front, during 9 months FY '21, we had a net operating cash flow of INR 104 crores as compared to INR 119 crores for 9 months FY '20 and INR 338 crores for FY '20. Cash flow from operations and investing activities has been used to repay borrowings and interest thereon. Receivables due for more than 1 year as at December 31, 2020, stood at INR 549 crores. This includes amount due from a customer under NCLT of INR 71 crores net of provisions. It also includes INR 133 crores from a customer in Argentina, and we are working closely with the customer and lender to the project and have already recovered INR 27 crores during 9 months FY '21. We are also discussing with the customer regarding waiver of LD imposed on the company, as the LD imposed on the customer has already been completely waived off. We have made adequate provision for liquidated damages as per our best estimates. Receivables due for more than 1 year from related parties amounts to INR 216 crores. Receivables due for more than a year has increased from INR 455 crores as at March 2020 to INR 549 crores as at December '20. Increase is primarily on account of the amount due from related parties as explained above. However, we have been able to collect INR 157 crores. That is 35% of amount due for more than 1 year as at March 2020. The company is confident of collecting the balance overdue receivables in due course. As you all would be aware, Shapoorji Pallonji and Company Private Limited, the holding company, has applied for a onetime restructuring facility, which has impacted our ability to fully utilize our existing banking limits and/or obtain fresh banking limits and rollover of the existing facilities. As a result, subsequent to 31st December 2020, the company is facing challenges relating to obtaining funding for cash outflows in respect of timely repayment of borrowings, raising of fresh non-fund limits and other activities. This is expected to impact our annual revenues for FY '21 from what was earlier envisaged. And we expect to close the year with the revenue in the same range as last year. We understand that banks would be willing to support us once the OTR for SPCPL is approved over the next 2 months. With this, we can now open the floor to questions and answers.
[Operator Instructions] The first question is from the line of Anand Lalla from Edelweiss.
Sir, thank you for giving a brief update, specifically on the different markets. My question is related to, primarily, all the geographies. So if you could just give me an update. So what I've also seen when you gave the geographical mix, as we know, the order book mainly comes from Australia, and we sounded very bullish and optimist on the U.S. market as well. So how do -- in the current order book, as we stand, the large order comes from Australia, how do you see that market panning up? And if you are so optimist on the U.S. market as well, do we see the change in the mix of orders coming from -- incremental orders coming from U.S. as well? Plus also, sir, on the Spain side, if my memory serves me right, we've also opened an office in Spain. So if you could also give some idea on that market as well as the entire European market. Plus what I heard correctly -- I'm sorry, my -- the voice was not clear. So I think there will be no revenue growth. We'll be doing the same revenues this year as last year. Correct me if I'm wrong. If you could, sir, as we know that the execution period, the current order book would be anywhere between around INR 10,000 crores. And the execution takes around 12 to 18 months. So if -- can you give some idea, if possible, on the revenue guidance for the next year and also on some estimate on the margin side, how the margins would look?
So I'll -- this is Bikesh. So I'll first answer your question on the Australian and the U.S. market. So yes, this year, we have been -- we have had a substantial chunk of our order book and revenues coming in from the Australian market. And this trend will continue for the coming years as well because now we have established ourselves as one of the leading EPC players in that market. Next year, for Australia, we would be bidding in for anywhere between 1.5 to 2 gigawatts worth of bid. In the U.S. markets, like I mentioned, we have started seeing good traction in the markets there. We have had a couple of years wherein we did a lot of understanding of the market to understand the landscape. And the North American market, we will be bidding for a pipeline of around 3.5 to 4 gigawatts. And we are targeting to win anywhere between 500 to 700 megawatts in the U.S. market as well. So that answers your question on Australia and the U.S. market. In terms of our office opening in Spain, we have now set up a very strong and robust management team there, as I explained earlier. And the European market, primarily for us, comprises of utility scale markets which is in Spain, Portugal, Eastern European market and Greece. And that will give us a total pipeline of around 3 to 3.5 gigawatt next year to bid in, and we are targeting to acquire an order book of around 500 megawatts. So this is primarily about the outlook that we're looking for the next year. In terms of the revenue, as Bahadur mentioned, owing to various constraints on the banking and OTR, we are -- we will be dropping a flat revenue this year. However, for the next year, we are very, very confident that we will be achieving a growth of around 30% and more going by the current order book and what we see foreseeable pipeline that we have. I hope that answers your questions.
Yes. And sir, any guidance on the margin front also because there have been cost savings as well. So can we see an improvement there?
See, on the margin front, Bahadur did mention that we will be marginalizing it between 10% and 11% band. And on the operating side, there will be a leverage because we are doing a lot of cost optimization and rightsizing on the overheads. There would be a definite leverage that we can get on the operating side. We will be able to guide you on that in our Q4 call as exactly what is the kind of leverage that we get on the operating side.
The next question is from the line of Riddhesh Gandhi from Discovery Capital.
You guys had earlier indicated that a lot of the kind of costs are actually passed through to the customers. So just wanted to understand the reason -- understand for the impact on gross margin. I mean shouldn't we be able to pass that on to our customers?
I think if my recollection serves me right, the cost pass-through were primarily on account of the modules -- PV modules. And we continue to -- on most of the projects, on a long gestation projects. The BOP cost, which is the cost of the commodities, the logistics, the shipping, transportation, the costs are on us. The volatility on the costs are on us. So that is where we got impacted because of the immense surge in the commodity price and logistics price because of the COVID situation on the congestion at ports and stuff like that. So therefore, that cost is not attributable to the customer. Only the cost of the PV modules is what is attributable and already pass through to the customer.
Additionally, if you see, there has been a duty reduction in the prices of steel, copper. However, since most of the imports are from free trade zone agreements, we have actually seen that the commodity prices have gone up, and they have not seen a reduction even though duties have come down from 12.5% to 7.5%.
Got it. Understood. And the other question was obviously because of the promoter issues, there's an inability to actually kind of be awarded incremental contracts because of our BGs and all I'm assuming we would have to give to kind of qualify. And there could be a potential impact from clients who are questioning our overall balance sheet and solvency given effectively the qualification in the audit report. So -- and even historically, over the last few years, we have -- we haven't been able to achieve either our revenue gross margin guidance nor effectively with regards to the payback of effectively the loans. What is giving us is the confidence that the next year is going to be a huge growth here of 13% plus, especially given actually, the OTS (sic) [ OTR ] is an -- it takes significantly and actually a longer decline as expected. And historically, we haven't been particularly accurate in our assessment of the promoter level issues and I mean, the consequence is on us.
So I'll answer some of the questions, and then Bikesh will take over the rest. First of all, the balance sheet is strong, but it is banking support that is required. And that has proven to be a challenge more from SP going in for an OTR rather than the promoter issues as far as the loans. The loans are actually -- if you see our term loans, they've actually come down by over INR 400 crores from where we were in March. A lot of it is also due to internal accruals of the company. We expect the SP OTR to be cleared in another 2 months. We have explained that in great detail in the investor presentation as well. Once this is out of the way, we expect the banks to support us again because on a stand-alone basis, the business model is strong. So as of right now, and Bikesh will add to that, we do not see customers questioning our bank guarantee raising abilities because we have given all bank guarantees required to date. The issue for the flat turnover is small letters of credit, which have to be opened expeditiously. Because if they are not opened by, let's say, February end, and there is a lot of transit time for the materials to reach places like Latin America and Australia, we find that we will have an impact on the revenue, which will then overflow to the next year. Bikesh, would you like to add anything?
No, Bahadur, I think you have mentioned it all, but the only thing I'd like to add here is the continued faith and trust of our customers and which is very evident from this order which we have recently bagged in, in spite of having a very stiff time, which I believe is a passing time for us. A couple of months, we will be through with it. We are still having the faith and trust from the customers in terms of our execution capabilities, in terms of our bankability, in terms of our balance sheet. And we strongly feel that in the next couple of months, once we are through with this issue of OTR, the banking fraternity will support us unblinkingly and we'll be able to achieve what we have just now mentioned in terms of our growth on the order pipeline and the business acquisition.
The next question is from the line of Anuj Jain from Globe Capital.
Sir, my question is finally on the margin front. First of all, I mean, as we have booked majority of our 9-month revenues from Australia region and in the earlier calls we have guided that we have better margins vis-Ã -vis Middle East region and the Australia and U.S. market. So I just want to understand what Mr. Bahadur has said that for this year's margin guidance -- he had said it was 9% to 10%. And for the coming year, it would be again normally 11% to 12%. So why is it the same way that margins, which we were enjoying earlier when we have major share in the Middle East region, whereas now we have better revenue visibility in terms of Australia and the U.S. region? Can you please give some color on the same?
Yes. So it is actually the Australia revenues, which are getting pushed back into the next year because of the potential LC issues, which is what is impacting our overall margin. Otherwise, we would have caught up in quarter 3 -- quarter 4, I'm sorry, and we would have achieved what we had set out to achieve. The Australia, as an entity, continues to have great margins. It's only that those revenues are getting pushed into the next year.
So I mean for the full year, you have said that gross margin would be in the range of 8% to 9% or 9% to 10%.
9% to 10%.
9% to 10%. So we can see some major kind of re-rating kind of in terms of margin in Q4? Is it right?
Yes. So margins will not be majorly re-rated. It would see -- if you see right now, your gross margin is at about 8.7%. So we expect the margins of Q4 to be in the range of 10%, which will give us 10%, 10.5%, which will give us anywhere between 9% to 10% as the annual gross margin.
Hello?
Hello. Did you hear my answer?
No, sir.
So I said in Q4, the gross margins would be in the range of 10% to 10.5%, which will give us gross margin of 9% to 10% for the entire year.
Okay. And for the next year, what we can assume?
I have already mentioned in my speech that it would be again rated back to 10% to 11% because we will be done, and most of our Australia revenues will now be there in the next year, which are at significantly higher margins.
So it might get re-rated also is what you are seeing also at the end?
We would right now like to project 10% to 11%. Of course, we will strive to optimize margins as much as possible.
Okay. And in terms of cost side, which you have said that -- like you have mentioned in the investor presentation about the aluminum, copper and material pricing. So majorly, we were impacted by the logistic cost, right, because in terms of material prices, we can pass on in terms of that module prices. That is a factor in. So we were impacted by the logistic cost, is it sale?
No. So modules is a pass-through. But when we are saying commodity prices, we don't mean modules. We were talking about copper and steel, which go into cables, go into the structures. Those are what we call balance of plant costs. Those are not passed on to the customer. So we were impacted by logistics costs as well as commodity pricing, not being modules.
Okay. So now I have heard on the ground that now the cost issues have been sorted out to some extent, which were there in the December month or early January. So is it right to assume that going forward, the impact would be less on the material and logistics side? Is it right to assume?
So I will just give my point of view, and Bikesh will again add further. We -- there could be a softening of pricing after the Chinese New Year or maybe in the first quarter of FY '22. As of right now, we have factored in the hit that we believe would come in on the basis of the increased pricing. Bikesh, if you would like to add anything from a pricing point of view?
Yes. So Bahadur, the point that you're trying to make as an extension of the point, we are definitely looking at softening of these prices based on the fact that there was a lot of congestion at the ports because of the COVID and restricted movements, and that congestion has started to ease out on various ports. And therefore, we would definitely see a softening of these prices as we have understood from the market in another couple of months. And the commodity prices also post the Chinese New Year is what is assumed to be getting softened. So what you said, Bahadur, is absolutely right. So we will definitely see now it getting marginalized in the next couple of months.
The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.
Yes. The first question is regarding the SP Group's OTR. So you mentioned that we are seeing a letter of credit issue and that impacts our execution. I wanted to understand, let's say, if that issue did not get resolved in next couple of months, apart from letter of credit, how it can impact our new order book? I mean let's say, whatever bank facility or BG we have as of now, what kind of order book we can scale up from INR 9,000 crore to what level we can do.
So the bank guarantees are required to be given at the time of the notice to proceed and not at the time of the signing of the contract. As far as the OTR for SPCPL is concerned, it is a process that is happening for the first time, and there are various complexities. All the banks there have already signed the inter-creditor agreements, and the details of the plan are in discussion. And what we have been informed is that it should be over in the next 2 months. So as of right now, we do, at any point in time, have between 5% to 10% of our non-fund limits available. We are hopeful that this will tide us over the crisis until the time the SP OTR issues are resolved.
Okay. Okay. And second, in terms of this cost escalation. So obviously, the freight rates moving up and the container and availability, I understand. But in terms of commodity prices, so don't we hedge back-to-back when we receive the order?
We do financial hedging. We do not do commodity hedging. Because that is something that keeps fluctuating at all points in time. So far, we have not been doing commodity hedging.
But as planning -- looking at such sharp fluctuations recently, are we planning to hedge commodity also back-to-back or?
See, it is a difficult proposition, though it is not being completely rolled out because we are not a manufacturer. So generally, commodity hedging would be more suitable for your manufacturers. However, as a matter of policy, we are looking at options of how to do commodity hedging. So far, we are seeing that it is a 2, 3-month phenomenon, but we will come out with a policy on this.
Okay. And sir, the last question from my side. So now almost 75% of order book is in U.S. and Australia. So due to COVID or any other issue, are we seeing any execution impact over the in terms of labor or anything? Or now it's more or less like the pre-COVID level?
Yes. I'll answer this question. So I would not say it is more or less back to pre-COVID levels. There are broader movement restrictions still in Australia, but we still have been able to manage the resources and the execution in Australia as well as in Chile, which is Latin America per se, which has been our front market for the revenue this year. U.S., also, wherever we are executing the project, we are having not much of difficulty in mobilizing the labor for resources for the execution of the projects. As the vaccination picks up -- surges, I think we would be reaching the pre-COVID levels, I would assume, in the first quarter of next year, and the execution would definitely get more easily facilitated.
The next question is from the line of Shivan Sarvaiya from JHP Securities.
A couple of questions. Sir, one is on the -- so you're actually floating into -- floating solar and into storage. So sir, if you could give some idea on the competition there in the global markets and in India? And how do you see our margins moving due to this 4 years? And would it yet remain in this 9% to 11%? Or there is -- because this is a newer field in this particular -- in solar, you could have a higher-margin there?
No. So when you talk about the competition, the competition would be the same as we see in the EPC space, right? I think it is on an incremental value-add that we are trying to build in. Obviously, we have to build the capabilities and competencies to be able to do the floating solar as well as the storage-based technologies. We won't see much of a margin shift in terms of incremental accruals on margins basis, the competition being the same. But obviously, you'll have to build in the competencies which, along with us, there are a lot of other EPCs who are also building the competency. But then there will definitely -- on the upside, there will be definitely a large scope for the floating solar going forward as well as for the storage plus solar-based projects. Not only in India but globally also because of the fact that the storage prices and the battery prices have been coming down exponentially. And therefore, there will be a lot of dispatchable power projects which would get bid for in the foreseeable future. As I mentioned earlier, one of the large utility scale projects that we are bidding recently is in South Africa, wherein there will be around-the-clock dispatchability for the projects, and that would be continuing to come in from other countries as well.
Okay. Okay. And sir, in terms of the competition currently in our -- in Australia, Europe and America, if you could give some color there. Are the Chinese as dominant as they are in the MENA region?
We haven't seen a major competitive landscape from Chinese in the Australian market. The U.S. market, obviously, we don't have any Chinese EPCs. In Latin America, we do face them once in a while, not as much as they are in the Middle East. So primarily, to answer your question, we see a lot of competition coming in from the Chinese EPCs in the Middle East market. And a sporadic once-in-a-while competition coming from them in the Latin America market. But in Australia, we have seen only 1 or 2 projects wherein the Chinese module manufacturers are also participating in EPCs, only 1 or 2 projects. Barring that, we haven't seen majorly any Chinese competition in any other parts of the globe.
In continuation to this, in the last con call, you had said that the Chinese do not like to or not interested in bidding in projects which are less than 500, 600 megawatt, and they're interested only in the larger projects. Sir, my question was that once these markets like Australia, Europe and America mature, and even in those markets, there is a 1,000-megawatt-plus kind of projects that start coming in, do you see them coming in a big way, the way they have come in the MENA region?
See, I think you have to also appreciate the fact that there is a grid limitation in terms of the large-size projects that get synchronized with the grid. In say, Europe, one is the grid limitation, the other one is the land availability. You can't be having a 500-megawatt single location project in Europe anywhere. You will not have that. The maximum capacity that we can -- that it can go up to maybe 100, 150 or 200 megawatts. And that's really also very scarce and very rare. Likewise in the Australian market also, there are very, very few projects which are outside of the 200 megawatts because of, again, the grid limitations and the grid absorption capabilities. In the Latin America, again, you will have 100, 200 megawatts. We haven't seen -- barring very, very few projects, we haven't seen projects in excess of 200 megawatts. And for the U.S. markets, I think there is a definite pushback for the Chinese, which we hope will continue. And there also, the project sizing is around 200 or 200 to 300 megawatts. So effectively, I think the only place wherein we see large capacity, single location projects coming up is in the Middle East, as I mentioned in the last earnings. I continue to have that view unless there is some dramatic change in the complete grid feasibility of these countries.
Okay. Sir, apart from the size of the project, being a deterrent to the Chinese players, in terms of our business model, how are -- how is our business model different from those Chinese players? So that I'm trying to just understand how we are going to be able to guide our margin if there is a possibility of rampant competition by whoever wants to come in those regions. And we don't face -- what we faced in the MENA region.
No. If you look at our earlier order revenue and forecast, we were focused around 2 or 3 regions or 2 or 3 countries, which had created a lot of concentration risk for us. Now with us being present in 26 countries and our reliance on the MENA region, as I had mentioned earlier, and we keep on mentioning that we are definitely not as much reliant on the MENA region as we were in the past. That has given us that hedge against the margins, against the projects and against the concentration. So we are very, very confident that because we have now spread across so judiciously across the globe, we will not face any, what we call, major risk on our margins. And there is a clear hedge against the concentration that we earlier had a threat of.
Okay. Okay. Sir, and one last question. Sir, the LC issue that is there currently, you said that the Australia revenues could get pushed into the next year. Is there a risk of any delays on our part, which will lead to any penalties being imposed on us because of this on our ongoing projects?
I don't see that risk at the moment. We are still slightly in the comfort zone. The question for the LCs really is about timing. Because right now, the Chinese New Year, and there is a 30, 35-day transit time from China to Australia. In case the materials don't reach on time, we will lose revenue for the year. So even if the LCs are opened 15 days later than what they are, we could see March 31 passing through. However, that time line does not impact the project time line. It impacts the revenue.
The next question is from the line of Devam from ARDEKO.
Yes. If you could just share what would be the rough percentage impact of contribution of aluminum, copper, steel and freight in our cost structure.
So if you talk about the balance of plant, it all depends from country to country. It varies anywhere -- I'm talking about balance of plant, which obviously includes the steel, the cost of the aluminum, the logistics cost, which will vary anywhere between -- our overall project pie, it will vary anywhere between 20% to 25%.
You are saying all of these combined. I mean all these 4 components, aluminum, copper, steel and freight will be 20% to 25%...
No, not the balance of plants, but for the overall pie. Suppose 100 is the cost of the project, 20 to 25 would be the cost of all of these components.
So firstly, when we come to 4Q margins, I heard the management highlight that 4Q margins would come back to around 10% level. So how confident are we of this? Because given that I think these commodities remain disrupted and these contract prices would have been in place much, much before. So with regard to 4Q as well as FY '22, how will gross margins quickly reverse unless you start hedging or unless you take some other intervention?
So the first point is that the Q4 will include a lot of Australia, which also overflows into the next year. So those are at a higher-margin as compared to the projects that we have completed so far. Of course, Q3 also included Australia, to a great deal, but the large margin projects are those which will come in the current quarter and in the next year. And that's the reason. And we have taken most of the impact of the increased logistics costs on our ongoing projects and adjusted our margins. Of course, if there is a significant movement, again, it could possibly happen. We do not think that is so probable at the moment. But we will know once the Chinese New Year comes to an end. If Mr. Ogra would like to add something, he could do. Yes, please. Sorry, I interrupted you.
So, yes, so I was just talking of the -- let's say, let's call them the legacy orders, the orders which were taken before this commodity moves or this trade moves happen. So that would still be, excluding the Australian order -- new orders like -- let's say, new orders are still going through right now. Excluding those orders, still a predominant part of the order book would be lying in those legacy stages.
Those legacy orders are all coming to a close now. So the newer orders, like, for example, in Chile, will commence or has slightly commenced already February, March. We have factored in the commodity pricing already in that margin. Australia also, the ones which were legacy, have almost come to an end. The new ones are the ones taking off with the higher margins.
Because -- so we can be very confident of the fact that if, let's say, the environment around these commodities and freight remains more or less stable or around the current situation, then you should be able to see margins of 10% coming back in 4Q as well as FY '22. That's what you...
Yes.
And on the funding side, basically, we see that because of the OTR-related challenges, and we are facing challenges in utilizing our existing limits as well as obtaining fresh limits. So I mean that would mean that basically a lot of our activity would be curtailed and we might -- like what you mentioned, that our FY '21 revenues and performance might be hit. But how -- because the OTR for Shapoorji is a moving thing, like you mentioned, there are a lot of complexities. So the best case is that it concludes in 2 months. But if it, let's say, stretches further to even impact our FY 2022, is that understanding correct?
We don't expect it to go beyond 2 months. But were it to go beyond 2 months, in any event, we are in discussions with banks. So to answer your question directly, if it goes through further, it all depends on our individual discussions with each bank and the comfort that they draw from the business model. Else, there could be a possibility that there is a disruption there.
And given the fact that what you highlighted, I mean, you guys have a very strong balance sheet at the company level.
Yes.
Is it possible for a lender to take a call directly on the company's balance sheet rather than go down into the group's complexity?
Sir, we are part of the Shapoorji Group. So there is something called the group borrowing limit, which all banks are governed by. So they do look at that. Until the OTR is settled, this overhang will remain because we are part of the SP Group.
The next question is from the line of Dhruvesh from Prospero Tree.
Most of the questions have been answered, but there's one part. In terms of -- I mean, let's say, when we keep hearing the news related to the setup of solar plants, many new players are coming and also giving a very aggressive guidance. I mean, for one, the restart-up projects, we're just talking about already having installed capacity of 4 gigawatts, thinking to reach to 20. Let's say, if all these issues continue with us for 6 to 12 months more, will it not weaken our position permanently in the market, if you can throw some light from a 4, 5-year angle?
So I think like you said, the questions have been answered, we have a very strong fundamentals as a business model. And considering our footprint and our reputation and the delivery capabilities and the way we have grown globally, I think we are very, very confident that this 10.7 gigawatt, which is 10,700 megawatt in the next 7 to 10 years can easily be scalable to around 40 to 45 gigawatts. And therefore, we don't really see a major challenge in terms of what we call the growth. Yes, we are running through overhang. There is an OTR issue which we are grappling with. And like Bahadur -- what Bahadur mentioned, we are mostly through with the processes of the OTR. And next 2 to 3 months is when we will see that everything gets formalized, and we are back to normal, and it is business as usual. So the growth potential for us is phenomenal. When you mentioned about -- Tata is obviously a great company. They have majorly a local presence like -- which is in India. They are not as global as of now as we are. And therefore, our growth potential to grow the market and scale up is quite phenomenal in comparison to, see, most of the other solar EPCs that are present in India.
One follow-up on there, sir. Suppose -- I mean those Tata projects would be local in India, but there will be each local player in each country. And will -- I mean, I'm not arguing, I'm just trying to understand that does it -- because ultimately, even they can get the panels from China and install it in South Africa or in Middle East or in Australia, et cetera, and maybe they will learn from your model and emulate. I mean that is how most businesses try to flourish eventually. So -- and therefore, probably, your margins and all the questions related to margins are coming from that angle. And your guidance is more coming from this 8%, 10%, 11% coming from an angle of existing orders. But what most people would like to understand your thoughts are, how does the margin shape up? Let's say, even if our business doubles and if the margins go down by 2%, 3%, I mean, we are back to a level where we are today. Some thoughts around that.
No. No. So definitely, I think if you look at our complete footprint and more specifically, the Middle East, we definitely could have picked up another 2 to 3 gigawatts of the projects here, and the margins would have been anywhere between 5% to 7%. But we have -- and the customers prefer our inflection as an EPC because we have delivered -- we have a proof-of-concept delivered projects here on budget, in time. But the fact of the matter is, we definitely did not offer those projects because that doesn't fall in our margin profile. And the fact, again, is that we are now opening our newer avenues in terms of U.S., Australia and European markets, which gives us a better margin profile and obviously would keep us in terms of up to the speed in terms of the growth aspiration that we have. So therefore, we do not definitely focus only on the revenue. It is also on the quality of the project, the margin profile. And also the fact that today, when you talk about people emulating us, I think we must also appreciate the fact that today, Sterling Wilson has been a global EPC player from the last, I would say, 5 to 6 years. Every market has got its nuances, every market has got its complexity to enter. We took almost 2 years -- 2.5 to 3 years to enter into Australian market to understand the landscape, to get an acceptance from the lenders. Because these are all projects which are project funded, not balance sheet funded. So you need to have the lenders go ahead. You need to have an understanding of the landscape. You need to have the understanding of the group situation. Likewise, in the U.S., also, it has taken us 3 years to really establish ourselves as an EPC player. And now only we're getting acceptance from the customers. Europe also, we have been -- one is that we have been trying to understand that market from last 1 year. The second is that there are these global IPP players who are having presence in all of the geographies. And we have a network and a relationship with all of them. So they would definitely -- and having executed projects with them in the Australia and U.S. Now once there's a project which comes in Europe, they know that we have a credible partner in Sterling and Wilson. They would definitely want to work with us because they have negotiated contracts with us. We know their -- we have working -- they know our way of working. It becomes a much more accelerated process rather than reinventing the whole wheel by getting a new EPC from a different country, having not worked with them. So the process is a bit complex because of the time line that it involves. And I'm not saying that people will not come in. So there's enough room for people, even if they come in, enough room and enough space and have business available for people, even if they come in, but it takes some amount of time for any EPC or any company to really establish themselves in any another region or any other country.
Fair enough. And one bookkeeping side. Can you -- in a short summary, there is some X amount of money outstanding for more than 1 year for non-related. I think it is related to the Morocco project and one more. If you can explain -- I mean, generally, what we have seen that whenever such thing happens, there has to be some kind of write-downs or bad debt kind of a situation. So where are we standing there? And by when this will be completely out of the books, either in the form of provided or money coming back?
So we have made liquidated damage provisions wherever it is required. We also have claims on those customers. Some of those claims would include an interest element if that goes on. So there is no expected credit loss provision, which is anticipated at the moment. Having said that, we are in discussions with -- and it is less Morocco, it is more Argentina that we are talking about. We are, as I have mentioned, in discussions since their LD is completely waived for them to release our entire funds. However, this could extend until the end of this particular calendar year. I would let Bikesh add further if I have missed out anything here.
No. So Bahadur, you're right. So to your point, I think these are sticky outstandings. And if you have noted, we have selected a portion of these outstandings in this year, around INR 87 crores, we have already collected from Argentina project. And like what Bahadur mentioned, the LDs, which were earlier imposed by the utility on our customer has been totally waived off. Now we are in discussions -- advanced stage of discussion, I would say, with the customer in order for us also to get examples on those LDs. The discussions are ongoing. I won't be really giving you an exact and definitive time line. But I believe it may take, like what Bahadur mentioned, this year, and it may slightly get stressed into quarter 1 also. But we surely envisage that by quarter 1, we would be able to give a definitive conclusion on this particular outstanding.
What is the number, with the Argentinian customer pending, after providing for whatever losses?
The figure is INR 130 crores. Also mentioned in our investor presentation, we thought it would be good to keep the market updated...
I might have missed it.
No, no worries. I'm just drawing your attention.
The next question is from the line of Noel Vaz from Ashika Stockbroking.
I think all my questions have been answered.
Good to hear.
Ladies and gentlemen, this was the last question for today. The next question is from the line of [ Shashwat Tandon ] from [ Shashwat Textiles ].
Yes. I wish to know that like Tata, you have mentioned is also a great company trying to expand very aggressively. Are we also looking to do some projects for the government of India, when they come up after this big scale union budget? Are we looking to do projects in India?
Absolutely. We are an Indian-based EPC. We have a large portfolio of projects available in India, and we continue to take pride in the fact that we will be associated with the Government of India's trust towards the solar, and we will want to contribute as much as possible to the growth of the solar landscape in India. So definitely, there is no doubt that we will want to bid continuously for all the projects that come up for the EPC portfolio in India.
And sir, a small question, all this talk about the freight rates having multiplied by goods being shipped from China. What does it turn out to be a cost per megawatt increase? And I mean there will be a fraction, right? But...
No. It is not a fraction. It all depends on which country. The freight between, say, China and, say, Vietnam is much less than the freight between China and Chile or China or Australia or China to the U.S. So it all depends on country-to-country as to how much is the distance it has to traverse in order to determine the freight rates. So earlier, what we need pay $750 per container -- just to give you a perspective of numbers. So if you used to give $750 per container for any shipment to come in from China into India, now the same container cost is around $3,500 to $4,500. And each megawatt -- just, again, give you a perspective on the containers per megawatt. Each megawatt has around 6 containers. So the cost is significant. If the country is -- the proximity between China and the respective country is small versus the proximity is large, then the container freight rates also accordingly increases.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Bikesh Ogra from Sterling and Wilson Solar Limited for closing comments.
Thank you. The opportunity for solar power industry will continue to remain buoyant, as we said earlier, and grow at a very rapid pace over the next 2 to 3 decades. Most of our clients are looking at significant capacity additions, and we continue to remain confident of the opportunities going ahead. I am hopeful that we have been able to address all your queries. For further information, kindly get in touch with Vishal Jain or Strategic Growth Advisors, our Investor Relations advisers. Thank you once again, and have a great day.
Thank you. On behalf of Sterling and Wilson Solar Limited, that concludes this conference.Thank you all for joining us, and you may now disconnect your lines.