Category
📺
TVTranscript
00:00We are joined by the CEO at Suzlan Energy, J.P. Chalasani.
00:04Good morning, Mr. Chalasani. Welcome to the show.
00:07Good morning.
00:07Yes. First, I want to congratulate you for the big order win.
00:11You know, at first, just give us the details of the order.
00:14How will execution as well as revenue recognition play out with this?
00:19This is 370 megawatts, 370 turbines of 3.15 megawatt each.
00:26And the 3 different projects all in Gujarat to be completed.
00:31And these projects need to be commissioned from December 25 to February 26.
00:37The hosting is to be commissioned by next financial year.
00:40So therefore, obviously, the suppliers will start this year for this project.
00:44And as you were mentioning earlier, 3 projects.
00:47And this has not just the supply contract, it also has the foundation direction contract.
00:53Plus, it also has a 10-year OMS service contract.
00:57And the service contract starts immediately after commissioning,
01:01unlike other places where we have a 2-year warranty period.
01:04And there's a free OMS starts after that.
01:06But in this case, this service revenue starts right from day one.
01:10So there are 3 contracts.
01:12The supply contract, the DOP contract, DOP includes the foundation direction.
01:18And the third one is the OMS contract.
01:20So the revenues would start going from this year itself
01:23because suppliers would come in immediately.
01:25And the other advantage here is that NDPC went ahead and awarded the land acquisition
01:30that we gave the other DOP much in advance to other contractors.
01:33So these sites are much better prepared for us to move ahead
01:36and do the foundations quickly and supply indirect.
01:39I think that's advantage that we expect this process
01:42would be commissioned on or ahead of schedule.
01:46Right, Mr. Chalsani.
01:47I'm harsh also joining in.
01:48I want to quickly try and get your take
01:51with regard to how the timelines for this are expected to play out,
01:56as well as on a per megawatt basis, how would revenue start to trickle through?
02:02So just to try and get viewers, investors to understand that piece.
02:08Yeah, obviously, we don't, as a policy,
02:10we never talk about individual contract value wise.
02:14As I said that the revenue will start coming in,
02:17let's say, from start from towards the end of Q3 onwards,
02:21because suppliers will come in.
02:23And the entire 1165 megawatt will get completed
02:26between December 25 to February 26,
02:30means next financial year, everything will get completed.
02:32So revenues will start from, let's say, end of quarter three this year.
02:36And the entire project will get completed
02:37by the fourth quarter of next financial year.
02:40So the entire project will get completed.
02:43Got it, Mr. Chalsani.
02:45In terms of margin profile,
02:46I know you don't speak on terms of order specific,
02:49but now this entire order is in the S144 model,
02:52and so is over 88% of your order book.
02:55So could you maybe give us the range in terms of
02:58what the margins look like for this model itself,
03:00because it's gaining so much traction?
03:03As I said, unfortunately, we don't give a guidance
03:07on the project wise or the model wise.
03:10So the guidance, whatever we give in the investors conference,
03:14is basically an overall basis.
03:16They say that six quarts per megawatt is an average price
03:19for what we get,
03:20because there are different contracts of different scopes.
03:23So normally, the box out to an average of six quarts per megawatt
03:26is the revenue, which we box out.
03:29And as we also keep saying that whenever we do,
03:34in each year, the moment we do 600 megawatts of execution,
03:38we will recover our full fixed cost for this division.
03:41And thereafter, everything what we sell,
03:44straight flows to the EBITDA.
03:45So therefore, more we do beyond 600 megawatts,
03:47the EBITDA margins will substantially keep increasing.
03:51That's how it is.
03:52The main thing, a couple of advantages here
03:54is that this project is the certainty.
03:57Because of the advanced action, what NDPC has taken it,
03:59because we have always been saying,
04:01I said this in the interview as well,
04:03supply has never been a constraint for us.
04:06So therefore, because of the advanced action,
04:08this project can offtake the bias much quicker
04:11and the project can be completed much quicker.
04:13So therefore, there's a certainty of revenue.
04:15And also, this is our first contract with NDPC.
04:20And the last few years,
04:22we couldn't beat for public sector undertakings
04:24because of our balance sheet.
04:26But now that being corrected, that being strengthened,
04:29so therefore, we'll be able to participate in the PSU.
04:32So as we move ahead, what would happen is that till now,
04:35each time we were saying that even earlier,
04:373.8 gigawatts out of book before NDPC,
04:40we said two third of out of book is C&A.
04:43What will now happen is that henceforth,
04:45while C&A would continue to grow,
04:48our public sector share will continue to grow
04:49because we'll be bidding more and more projects
04:51in public sector.
04:52So I think the major portion of our out of book
04:55would be from public sector and the C&A segment,
04:57where the projects are expected to happen much quicker
05:00compared to some of the utility PPA projects.
05:03All right, Mr. Chalsani,
05:05before I get to the five gigawatt out of book
05:08that you now have,
05:10I wanna try and get in viewer perspective from you
05:14with regard to the kind of opportunity size
05:16this opens up for you.
05:17You've said that now PSUs come to the fore for you,
05:21that opportunity opens up for Suzlon.
05:24So how large is the opportunity for you now?
05:28See, opportunity, let's look at the sector itself
05:33is an opportunity
05:33because we don't exclude ourselves from any opportunity.
05:37Today, the installed capacity is 47 gigawatt
05:40and we need to reach 100,
05:43whatever different estimates,
05:45whether we reach 90 or 100.
05:47And if you want to do 50 gigawatts in the next six years,
05:49that's what is the opportunity what we have.
05:51And in India, we have been number one
05:55in terms of market share.
05:56And we will continue to do that.
05:57So therefore, for us more important than the opportunities
06:02is that the quality of orders what we book
06:05and certainty of execution of those orders
06:07is much more important for us
06:08than simply saying that we are so much a part of book.
06:12That makes a big difference.
06:13Every single order what we take is a quality order,
06:16it has a PPA, it has a financial closure,
06:19it has everything.
06:20So therefore, that project would certainly be happy.
06:22I think that's more important for us.
06:24Otherwise, just counting the opportunity
06:26and saying that so much a part of book
06:28is not going to really help.
06:29Those orders should be in a position
06:31that we should be able to go and execute
06:33it in the limited time period.
06:34Right. So are you being choosy, sir,
06:36with regard to the orders you're taking on?
06:38Are you being choosy about the orders you're bidding for?
06:42Yes, yes and no.
06:44Yes, in the sense is that
06:47we look at the quality of the order
06:49in terms of what stage that person is in.
06:54What stage, if it is only a separate contract,
06:58what stage the land is available there,
07:00you know, whether this project would happen in the timeline.
07:03Otherwise, what happens is we take
07:05and block our manufacturing capacity for the project
07:09and the project gets delayed.
07:10Then we are in trouble because we blocked
07:11and we can't even divert the banks.
07:13So therefore, I don't call it as pick and choose.
07:17We call it as we analyze the project and its timeline
07:20and accordingly we take the projects.
07:23So one way is we do the quality check of projects
07:26more from the point of view of execution capability
07:30and whether the power purchase agreements have been signed,
07:33ESCs have been signed or not.
07:34And those are the factors what we check.
07:37And every single contract what we have in this 5 gigawatts
07:41passes the test.
07:42Right. So just given the kind of opportunity size available,
07:46I'm sure margins would also be playing a factor
07:49to what you bid for.
07:51Is there a number in mind with regard to
07:54what kind of margin or profitability you wish to achieve
07:58on the orders that you bid for?
08:01No, there are two factors.
08:03One is, as I said, that the margins
08:05would significantly improve with increasing quantity.
08:08As I said that, you know,
08:09our breakeven is at 600 megawatts for WTC division.
08:12So more we execute, more money we make.
08:16But as far as just because there is a huge demand
08:19in this country,
08:20you're not going to increase your turbine prices
08:22because at the end of the day,
08:24we all are guided by the tariff.
08:27So because the tariff is what revenue gets fixed
08:29for the IPPs or any company.
08:31So that puts your pressure on to what extent
08:34you can actually put, you know, the turbine price could be.
08:37I don't think just because there is a demand,
08:39more demand, you can keep increasing your prices
08:41of the turbine.
08:42You can't do that.
08:44The tariff is a limiting factor.
08:46So that would limit to what extent you can put it.
08:48But the economy of size, efficiency,
08:50and then more we do,
08:51and more money we make from that point of it.
08:54A bit of margins will increase significantly.
08:56So because we require 600 megawatts.
09:00But expecting that we'll be able to increase our price
09:02is not the right thing,
09:03because which we normally we don't do.
09:04Because for us, what is important is long-term.
09:07In the long-term, wind sector has to sustain.
09:09The tariff has to remain within certain range.
09:10So therefore, we support that.
09:13Gaurav, Mr. Jayasani, you said, you know,
09:15in terms of it's the quantum that matters.
09:17So how much do you expect your margins to grow?
09:20The 17% that you're doing,
09:22do you think that's a reasonable number
09:23for investors to expect going forward?
09:25At least 5 by 25.
09:26I think our guidance has always been constant.
09:29We said that high deals is what we will be.
09:32And we remain with that commitment.
09:35Yes.
09:35Okay, now let's just talk about your larger pipeline.
09:39Now it's filling fast.
09:40There is demand in, you know, in terms of,
09:43so what's the bidding pipeline looking like?
09:44Also kind of give us a perspective.
09:46Last time you spoke to us,
09:48you said that you want to grow the foundry
09:50as well as the, you know,
09:52all the other business verticals to grow independently.
09:55So how are the contracts, you know, broken up there?
09:58Yeah, again, if you look at this contract itself,
10:01as I said, while it is a supply and POP contract,
10:04it also has a 10-year service contract.
10:07So before this entire 1.2 gigawatts,
10:10I'm just approximating, it's 1.165 gigawatts,
10:13would get into our service revenue next year onwards.
10:16So therefore, straight away, the service business would keep,
10:19you know, to that extent, would keep enlarging itself.
10:22This is on feed.
10:23I'm not talking right now about the multiband.
10:25So therefore, in each of these sales, what we make,
10:28that is actually not,
10:30we're not just looking at one-time revenue
10:32of turbine supply.
10:33We're looking at it as a long-term 20-year supply
10:35by service contract.
10:37We hear confirmed contract is for 10 years,
10:39and obviously it is subsequently extendable.
10:42So therefore, that's how the service business increases
10:45as we keep increasing the sales of turbines.
10:48And as far as the housing and funding,
10:51what I talked to last time is that the,
10:55that division is now looking at
10:58expanding significantly into non-wheeled,
11:00and as well as expanding significantly
11:02into export opportunities,
11:04which are coming because of chain applacement strategy.
11:06So that's where that business,
11:08we have a separate strategy for that,
11:09and it's going to grow.
11:11Got it, Mr. Chahaswany.
11:12I also want to talk about your capacity utilizations.
11:15Now, the aspiration is 90%.
11:17So what would it take to reach the 90%
11:19and realistically speaking,
11:20in the next two, three years,
11:22what can one expect?
11:24We just started.
11:25I thought that we had a large entry of 30 minutes recently.
11:28So obviously, I said what I had to say that point of time.
11:32I said that it is not a question of market share.
11:34My answer was that it's not a question of market share.
11:36What we attempt is that if I have an X manufacturing capacity,
11:40can we sell point,
11:41can we utilize to the extent of 0.9X, 90% of it?
11:44So today, that's not happening.
11:45Today, we're at 30, 35%, let's say.
11:48That is what has to increase.
11:49That will increase with the projects,
11:51which are certain to happen in terms of timeline-wise.
11:54So NTPC is one which adds to that strategy
11:58of what we're having,
11:59of enlarging our capacity utilization factor.
12:01Because we know certainly this 1.2 gigawatt,
12:04I'm just again approximating it,
12:06supplies would happen starting from,
12:08as I said, that the end of third quarter this year.
12:11Well, let's say the middle of next year,
12:12because thereafter, it's only election commission.
12:15So the next three to four quarters,
12:16we'll be able to supply this 1165 megawatt.
12:19This is 370 turbines.
12:20There is a certainty.
12:21So therefore, our capacity utilization factor
12:23with such contracts would keep increasing.
12:25And we'll move towards our target of,
12:27can we reach 80% or 90% of capacity utilization?
12:30Right.
12:31And so just give us a view on the bid pipeline.
12:35How is that like?
12:36Both domestic as well as export,
12:37what's the opportunity looking like
12:39in terms of bid pipeline for FY25?
12:42No, there is,
12:44you know that there's 25 gigawatts of order
12:46has been placed on this.
12:48But my session is that today,
12:50that's restricted to NTPC and NTPC order,
12:52because we just recently spoke about it.
12:54Opportunity was large.
12:56There is 25 gigawatts of the pipeline,
12:59which is announced.
13:00There's another 25 gigawatts of orders
13:02in different type places of these things.
13:04I don't think opportunity is an issue.
13:08Issue is actually resolving the issues on the ground
13:10and getting the projects moving is what it is.
13:12But it is not the question of how much is opportunity.
13:16Opportunity is out there,
13:18but converting the opportunity
13:19into on-ground commissioning of the projects
13:21is what is important.
13:22As I spoke, I'll get back to you, Sandeep.
13:25Right.
13:26So, okay, I'll stick to this order
13:27because you've overemphasized on that.
13:30So with regard to the O&M component of this order,
13:33what's the annual revenue that one can expect
13:36once all of this is set up?
13:38Say FY27 onwards,
13:39you've suggested that O&M will kickstart
13:42at the start of the order execution itself.
13:45But just talk us through what that does to your top line
13:48in terms of how does it contribute?
13:51No, obviously it's 370 double.
13:53Today we have 14 gigawatts operations.
13:57That is increasing beyond the 1.2 gigawatts.
13:59So proportionally, that must increase.
14:02And the thing is it's going to increase faster
14:04as in other contracts
14:05where we need to wait for two years.
14:07So I'll just say that we're adding 1.2 gigawatts
14:10to the existing 14 gigawatts.
14:11That's the expectation.
14:12That is the revenue proportionality would go up
14:16from this single contract.
14:19Yes.
14:19Thank you, Mr. Chalasani for joining us
14:21and we wish you all the best.
14:22It was lovely talking to you, sir.