GE Power India Limited (GEPIL) Q4 FY23 Earnings Concall Transcript

GE Power India Limited (NSE:GEPIL) Q4 FY23 Earnings Concall dated May. 29, 2023

Corporate Participants:

Prashant Jain — Managing Director

Yogesh Gupta — Whole-time Director and Chief Financial Officer

Vinit Pant — Chief Commercial Officer

Kalpesh Shah — Hydro Business Finance Manager

Analysts:

Mohit Kumar — ICICI Securities — Analyst

Danish Mistry — First Advisor — Analyst

Parshwa — Individual Investor — Analyst

Presentation:

Operator

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.

Prashant Jain — Managing Director

A very good afternoon and a warm welcome to all of you for joining this discussion on the financial year and the operating performance for the first 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 Executives Business Operations and Kalpesh Shah, our Hydro Business Finance Manager.

At the outset, I would like to start with the 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, alleviating inflationary pressures. While major economies maintained a cautious stance, trade and investment sentiments were 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 empowered 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 a wider credit market have likely act as impediments.

Coming to the Indian economy and power sector, despite a tight monetary policy to address inflation, Indian economy 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 development in the services sector. There are indications of growth in credit and financial markets, reinforcing an environment conducive to investment.

Power sector, the onset of summer earlier this year has resulted in a substantial increase in electricity demand. With confirmed surrounding projects now diminishing, the government has again shifted attention towards its 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 [Indecipherable] reached almost 900 million metric tons, reflecting a growth of 14.7% compared to the previous financial year. Coal based thermal generation accounts for 75% approximately of electricity generated, and according to the draft National Electricity Plan for ’22 to ’27, coal-based units, it is assumed that apart from the construction coal-based capacity of 25 gigawatts, the additional coal-based capacity will 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 central, state utilities and private plant operators not to retire any thermal units and urged them to carry out R&M, that is renovation and modernization for life extension and build reliability and safety of thermal units considering the expected demand scenario and the availability of capacity in the future.

So the government’s decision to extend the implementation of flue gas desulfurization for coal based 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 [Indecipherable] Industrial Service business, this is what we have been focusing on for the last couple of years.

Now talking about the quarter four performance the fourth quarter has been excellent for service orders, and we have been able to achieve 70% newer orders compared to Q4 of the previous financial year, and the month of March has brought us a record-high of INR820 million, the strongest core service orders in a single month have 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, 2023 has been challenging with geopolitical impact on supply chains and high inflation rates. These factors as well as the other regulatory two-year extension of the implementation timeline 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 wins in services, and the 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 earning call, the entire industry [Indecipherable] presentation to the Ministry on customers for exceptional relief for risk factors that as I’ve said we were complaining 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 two and three, the impact you can expect to see in the coming quarters. However, this does not help us in the lot one projects, and for which we will continue to represent 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.

Yogesh Gupta — Whole-time Director and Chief Financial Officer

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 loader of 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 INR228 crores against order of INR138 crores in Q4 of FY ’22. FY ’23 order intake stood at INR1,635 crores. Again, order intake of INR765 crores in FY ’22. As of March 31st 2023, we have a healthy order backlog of INR3,615 crores, which presents active revenue opportunities in hydro, FGD and Service segment.

Revenue for Q4 ’22 stood at INR344 crores, down from INR521 crores in the corresponding quarter of last year. And the revenue in Q4 of ’23 was also lower than the revenue of INR533 crores in Q3 ’23. Revenue for FY ’23 stood at INR1,796 crores, down from INR2,620 crores in FY ’22.

Moving on to loss before tax for the quarter Q4 ’23, after the special items was INR128 crores against loss before tax for the quarter Q4 ’22, with the exceptional items of INR145 crore. The loss in Q3 ’23 was minus INR30 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 estimate of [Indecipherable] project to the extent of about INR12 crores, lower volumes under liquidation, lower capacity utilization, delays, inflation and execution challenges at site.

Loss before-tax for the financial year FY ’23, after exceptional items was INR334 crores against a loss of INR293 crores in the financial year FY ’22. Loss before-tax for the financial year FY ’23 was mainly due to the following — impacts on account of lower volumes, project delays and inflation, Solapur had almost about INR100 crore 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 inflation, provision for doubtful debts due to non-receipt of payment from some customers, restructuring to the extent of INR11 crores and forex losses.

Summarizing, focus areas for the company, our volume increased by fresh order intake, claims settlement and cash collection. 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.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.

Mohit Kumar — ICICI Securities — Analyst

Yeah, good evening, sir. Thanks for the opportunity. Sir, first question is on the 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?

Prashant Jain — Managing Director

Thank you for the question. What we see is, there are opportunities. We are early in certain tenders. However, because the government has extended the timeline by two years, the time to convert these 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 have seen a good growth, and the teams are doing quite well. On the FGD, unfortunately, because of the delays, there will be extension deadline. The orders have not converted. Vinit, would you have anything to add?

Vinit Pant — Chief Commercial Officer

Yeah, so, I would say, yes, Prashant, you are right. The order intake ordering has been slower than anticipated. 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 gigawatt has been ordered as compared to only about it about 9 gigawatt last year. So overall ordering FGD 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 deals are not being converted into an order. But going forward, I think with the timeline coming financial year ’26, December ’26 is the last date for installation of [Indecipherable]. We expect ordering to pickup going forward.

Mohit Kumar — ICICI Securities — Analyst

Sir, what do we include in the Services? Can you just explain again? Pardon, I did not make note.

Prashant Jain — Managing Director

Can you repeat the question?

Mohit Kumar — ICICI Securities — Analyst

What are the things included in services?

Prashant Jain — Managing Director

So, in the services business, we have the service of the existing coal-fired power plants in terms of supplying of parts and repairs. That is what we call services parts and repairs as the core services, and then there is retrofits and modernization which we call as [Technical Issues]. So those are the two components in services for the coal-fired power plants. There is a very small amount of internal service that we do gas and a very small amount of hydro service, but largely the service will be for the service for the coal-fired power plants, and that business is doing fairly okay.

Mohit Kumar — ICICI Securities — Analyst

And sir, any opportunity for us for repurposing the power plants so that they can plan at 40% PLF.

Prashant Jain — Managing Director

Yes, we do see opportunities. Vinit will answer to that.

Mohit Kumar — ICICI Securities — Analyst

Large opportunity or small opportunity?

Vinit Pant — Chief Commercial Officer

Yeah, right now it is — 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 for carrying out the testing, and subsequently they will start placing orders for making the changes to the equipment. This is — we expect this take off in maybe another six-months’ time.

Mohit Kumar — ICICI Securities — Analyst

And you say larger opportunity or small opportunity sir, in this [Speech Overlap]

Vinit Pant — Chief Commercial Officer

No, we will not say they are very large, it would be a smaller size.

Mohit Kumar — ICICI Securities — Analyst

Understood. Last question, sir, what are the impact of Solapur fire incident on our P&L?

Kalpesh Shah — Hydro Business Finance Manager

Yeah, impact of the Solapur fire incident has been to the tune of about INR100 crores with what we have provided for in our books. And once we get the insurance claim sorted out and settle, we will be getting on the [Technical Issues]

Mohit Kumar — ICICI Securities — Analyst

Understood, sir. Thank you. Thank you and best of luck. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Danish Mistry from First Advisor. Please go ahead.

Danish Mistry — First Advisor — Analyst

Hello, good evening, everybody, and thank you for taking the time out to talk to us. I had two questions, the first is a bit clarificatory, what is the total outstanding order book that we have in it, and in that outstanding order book, what is the percentage of service order?

Prashant Jain — Managing Director

We have 36.1 billion [Phonetic] or INR3,615 crores as our product backlog as of 31st March ’23. Of this, of about close to 40% is in the range of the steam business and about 60% for hydro, and about 15% is services industry.

Danish Mistry — First Advisor — Analyst

So, 15% of 3,000…

Prashant Jain — Managing Director

INR3615 crores is services.

Danish Mistry — First Advisor — Analyst

Got it. And you said, 40 is steam and 60 is hydro, that would include the Orissa project as well.

Prashant Jain — Managing Director

Which specifically are you talking?

Danish Mistry — First Advisor — Analyst

The Subansiri one which we restarted.

Prashant Jain — Managing Director

Subansiri is not Orissa. It is in Assam.

Danish Mistry — First Advisor — Analyst

Okay sorry, okay, got it, but it’s included in that project.

Prashant Jain — Managing Director

Yes.

Danish Mistry — First Advisor — Analyst

Okay, just one more question I had, is that, if you were to see our receivables, have reduced a bit 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? Based on how much of receivables we can recover this year from this INR1,900 crores.

Prashant Jain — Managing Director

We are targeting about, we can clearly say, like we have two kinds of receivables. We have special and normal level. And when we say we will be debt free, presently we have borrowing of INR291 crore. So, we are talking of being debt-free by repaying this debt that we have of INR292 crores approximately from external and the incremental [Technical Issues]. And the cash that we are targeting is in the range of about INR1,300 crores [Technical Issues] recovered from the customer.

Danish Mistry — First Advisor — Analyst

Okay, okay, got it, got it. And the current cash that we have of INR213 crores on the balance sheet, is there any part of customer advances in this or is this our own cash?

Prashant Jain — Managing Director

Yes, we have customer advances also in this to the extent of almost about INR35 point somewhat crores. Just give me a sec, I’ll give you that number. We have customer advances, it is INR35.46 crores. Customer advances from the major customers, and another INR2 crores, INR3 crores you can take from other, so total is INR38.46 crores of cash.

Danish Mistry — First Advisor — Analyst

Okay, okay, got it. Just one last question. So, if I heard correctly, you are saying that this year we’ll get INR1,300 crores of cash inflow from the receivables, is that correct?

Prashant Jain — Managing Director

Yes, the receivables and retention. And if we are able to achieve the milestone that we are targeting, this is what we are targeting to achieve.

Danish Mistry — First Advisor — Analyst

Redemptions, meaning what are redemptions?

Prashant Jain — Managing Director

Retention.

Danish Mistry — First Advisor — Analyst

Retention. Yeah, yeah, retention, I understood. Okay, all right, thank you so much [Technical Issues]

Operator

Thank you. [Operator Instructions] The next question is from the line of Mohit Kumar from ICICI Securities. Please go ahead.

Mohit Kumar — ICICI Securities — Analyst

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 executed in FY ’24. Is that correct assessment?

Prashant Jain — Managing Director

Yogesh, do you want to take that?

Yogesh Gupta — Whole-time Director and Chief Financial Officer

Yes, so we expect this project to get completed in August 2024.

Mohit Kumar — ICICI Securities — Analyst

Okay, I understood, sir. Thanks. All the best. Thank you.

Operator

Thank you. The next question is from the line of Parshwa [Phonetic], an Individual Investor. Please go ahead.

Parshwa — Individual Investor — Analyst

Hi, can you kindly just give an overview of what exactly are companies doing, and into what avenues are we going to go ahead being a foreign company.

Vinit Pant — Chief Commercial Officer

Yes, we are, as we have shown, FGD is a market which is going to be there. We have seen about 112 gigawatts has already been ordered, but almost 114 gigawatts remain to be ordered. So, that FGD is going to be there going forward, and we are, of course, focusing on cash accretive deals. We are going to be selected for this project, but definitely we see big market for FGD going forward in the next three to four years, that is one part. Services, as we have mentioned, we have two parts, the core services, and then we have the upgrades. Core services, we have done very well last year. You know, 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 another segment we are going to continue, and we are 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 opening up, especially for lot deals. We find lot of orders are getting finalized. There is lot of pressure to complete installation by 2024, so I think that is something which is going to be very strong. So, basically, we are going to focus on — just to summarize, coal, hydro and gas.

Yogesh Gupta — Whole-time Director and Chief Financial Officer

So, thanks, I’ll just continue on that. So, the business of the company largely is owned which is roughly about 80%. We have coal-fired power plants, we are into new build. [Technical Issues] we do have a plant in Durgapur which was producing and supplying boiler pressure pipes for the coal-fired power plants. Then we have the emission control equipment which is at [Indecipherable] etc., which is a part of the project portfolio. Then we have the other components, which we have to do 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 some hydro storage projects. We do get one large project once in a while, and usually the execution timeline for these projects is larger. And then the third business is gas, which is pretty much in internal captive business, and that business is on [Indecipherable] side where we do provide certain services to the global companies, but this is at less than 3%, a very small portion of the portfolio.

Operator

Thank you. The next question is from the line of Ramesh, a retail investor. Please go ahead.

Parshwa — Individual Investor — Analyst

Hi, good afternoon, thanks for this opportunity. I just wanted to understand the status of the de-promotisation, whether we receive any update from the promoter. And second, what could be done like roadmap for our company in the near future, like if you consider this FGD orders and other pending, once they are done, then what would be our activity or direct 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 debt free our company by next month — sorry, next quarter.

Yogesh Gupta — Whole-time Director and Chief Financial Officer

So, I will take the first question on the de-promoterisation, 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 de-promoterisation. And at this point in time, we do not have update on that. In the meanwhile, though, the company’s strategy — we know that the new-build coal demand was dead for the last four years. There was a market in FGD, and therefore the company’s strategy was to an emission control company and 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 improve 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 the strategy going forward. What was the second element of our strategy. Hydro is selective orders as we see it as it meets our profile of risk margin, etc., very selectively, only it is a private player. Then we are taking selective orders in hydro. And gas is a very selective attractive business, where we continue to operate with our cost cash 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 job business. So, this is pretty much what is the strategy, which we wanted to move towards a transformation. In the short-term, there is a demand we have built-up demand, and then we start building the capabilities as we see de-promoterisation happening, then we would enter into new 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 deadline by the government for two 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 yet, we have been able to roughly get about 100,000 hours loading, the capacity is only 2,000 hours. So, we’ve got about 100,000 hours loading on restructuring, largely from service and some new non-boiler areas, and we are working to expand our [Indecipherable] so that we can start to get more load to the factory. So, we have optimized this factory from about, which was roughly two 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 in is capacity, we need to maintain the competence, and now the focus is on the new orders and strength of 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 order and industrial orders, and then to also capture as much of 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 well and collect the cash. As we do this and as we move to the next step, then we will move towards the next step of the strategy, that is currently the bridge to ensure that we collect cash and become cash positive, and we execute the backlog well, and start be new areas of operations in Durgapur and eventually build a bridgeable future. So FGD pretty much is a very important segment of the strategy, to build a bridge to enter into the future.

So that is where we are in the strategic planning process. As regards your question on the cash collection, of course, the cash you just mentioned, we will be cash positive by end of the financial year, and after that, the cash reserve, I can ask Yogesh to comment on that. So, basically, we would be starting building up our cash pretty beyond 31st March ’24.

Prashant Jain — Managing Director

So, this year, it will come in handy in the future, like acquisition of business and if at all we look for further expansion. I hope that was the question for Ramesh.

Operator

Thank you, sir. [Operator Instructions] The next question is from the line of Danish Mistry from First Advisor. Please go ahead.

Danish Mistry — First Advisor — Analyst

Hi, thank you again for taking my question. Just one question. This repayment of the borrowing, do you plan to do it by 31st March ’24 or before that?

Prashant Jain — Managing Director

Well, Mr. Mistry, we would be targeting to do it before.

Danish Mistry — First Advisor — Analyst

Before, okay, got it. And the INR1,300 crores also will receive by 31st March ’24, in terms of receivables and retention.

Prashant Jain — Managing Director

Yes, this is basically what we are looking at is, there are certain like revenue that will be due as per the contractual terms by whatever money is due against supply etc., will be also covered. This is what we are targeting to connect over the period of time in the coming quarters.

Danish Mistry — First Advisor — Analyst

Got it, thank you so much.

Operator

Thank you. [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.

Prashant Jain — Managing Director

I would like to thank you all for joining the call today, and I’m happy to answer all of your individual questions. Looking forward to speak to you in the next month. Thank you all and thank you team.

Operator

Thank you. members of the management team. [Operator Closing Remarks]