Sterling and Wilson Solar Ltd (SWSOLAR) Q2 FY23 Earnings Concall Transcript

Sterling and Wilson Solar Ltd (NSE: SWSOLAR) Q2 FY23 earnings concall dated Oct. 14, 2022

Corporate Participants:

Sandeep Thomas Mathew — Head, Investor Relations

Amit Jain — Global Chief Executive Officer

Bahadur Dastoor — Chief Financial Officer

Analysts:

Abhineet Anand — Emkay Global Financial Services — Analyst

Faisal Hawa — H.G. Hawa and Co. — Analyst

Siddharth Shah — MK Ventures Capital — Analyst

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Manoj Dua — Geometric Securities & Advisory — Analyst

Shantanu Mantri — Think Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Sterling and Wilson Renewable Energy Limited Q2 FY ’23 Earnings Conference Call.

This conference call may contain forward-looking statements about the Company, which are based on the beliefs, opinions and expectations of the Company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

[Operator Instructions] Please note, that this conference is being recorded.

And I’ll hand the conference over to Mr. Sandeep Thomas Mathew, Head, Investor Relations for his opening remarks. Thank you, and over to you, sir.

Sandeep Thomas Mathew — Head, Investor Relations

Good morning, everyone. I welcome you all to the Q2 FY ’23 earnings call. Along with me I have Mr. Amit Jain, our Global CEO; Mr. Bahadur Dastoor, our CFO; and SGA, our IR advisors. We will start the call with an update on the solar power industry and operational highlights for the quarter by Mr. Amit, followed by the financial highlights by Mr. Bahadur, post which we will open the floor for Q&A.

Thank you, and over to you, Amit.

Amit Jain — Global Chief Executive Officer

Thanks, Sandeep, and a warm welcome to all the participants on this call. I would like to give a quick update on the solar power industry, other allied renewable businesses and status on our business operations.

Now, coming to solar EPC industry and opportunity, the global solar market is growing exponentially. It took around a decade for worldwide solar capacity to reach 1 terawatt from 100 gigawatt in 2012. In just three years, Solar Power Europe predicts global power to more than double 2.3 terawatt in 2025. Solar remains the fastest-growing renewable energy, representing over half of the 302 gigawatt of renewable capacity installed internationally in 2021. With 168 gigawatt of addition, solar installed over 70 gigawatt more than the next greater installer, wind, and more than all non-solar renewable combined. The role of solar in the global energy transition is getting more and more prominent, considering that in 2021 solar alone installed more capacity than all other renewable technologies combined. In 2022, global solar is expected to continue the decade-long record-breaking streak, installing more than 200 gigawatt of solar for the first time.

Solar’s success story over other technology has many reasons, but a key factor is its steep cost reduction curve over the last decade, which has made solar the global cost leader. While the cost of solar has been lower than fossil fuel generation and nuclear for several years, it is also now lower than wind in many regions around the world. Bloomberg NEF estimates for the global LCOE for utility scale, PV stood at $45 per megawatt hour in the first half of 2022. Despite losing some ground, this still marks as 86% reduction since 2010 in nominal terms. Now, wind-solar project are now around 40% lower than BNEF’s global benchmark for new coal and gas-fired power, which are at $74 and $81 per megawatt hour, respectively. The spread with conventional generation technologies is widening considering that the cost of coal, gas and nuclear went up. Despite the record increase in modules, commodities and freight over the last 24 months, the LCOE for solar plant is still cheaper than the traditional source of energy, as well as the renewable source of energy. There are strong levers, which will derive robust growth globally over the coming years. Stronger policy support from the government in terms of tax incentives, favorable policies for renewable sector coupled with ambitious climate target announced for COP26 are going to drive demand for solar energy to new records worldwide.

Solar industry is well-poised to grow in long-term as IPP’s have huge plans for global capacity additions, the global tariffs have already corrected upward with the revision in prices and a lot of projects are expected to get finalized in FY ’23, especially H2 FY ’23. Indian solar power capacity has surged over 17-fold to 59 gigawatts since Hon. Prime Minister Narendra Modi came to power in 2014, the Indian Government has accelerated its plans for clean energy transition with Prime Minister Narendra Modi pledging to build 500 gigawatts of renewable energy with 60% of it coming from solar. This is to ensure that half our energy requirements will come from renewable resources by 2030. Thus, we expect outstanding growth in the Indian solar power industry in the years ahead, the public sector has been called upon to join the cause to with giants such as NTPC, NHPC, SJVN, NLC India Limited, Coal India Limited, etc., crafting solar plants and indicating a strong pipeline. The government is also persuading and incentivizing the private sector to shape India’s clean energy future and make it a sunrise sector, just like IT services after 1991 economic reforms. Major Indian conglomerates have announced investments and commitments to our renewable energy target with about 151 gigawatts of renewable energy expected to be added by private clean energy companies alone.

India has also announced a road map to become a hub for the production and export of green hydrogen made from water and renewable electricity. India has set a 5 million ton green hydrogen production target by 2030 to help boost its geopolitical heft and be a game-changer for the country’s energy security with the government promoting the new-age emission-free fuel, Reliance Industry has also shown significant interest in this space. With this development, we expect huge increase in the scale of average project size in the Indian solar industry.

Utility scale solar market performance was mixed in the second quarter, a total of 2.7 gigawatts were installed in Q2, just 500 megawatts more than Q1, constituting a 25% decrease from Q2 2021 and a 17% increase from Q1 2022. Though, the first half of the year, that moments are at their lowest level since 2019, supply chain constraints and trade policy issues continued to suppress utility scale solar installations. The US utility scale segment experienced a volatile period over the last several months, first the executive order remain new tariffs was a relief, which allows developers to resume activities at Southeast Asian investors could restart module shipment to US. But then UFLPA, The Uyghur Forced Labour Prevention Act implementation led to detention of several module shipments, further constraining supply and hindering project construction. Post that the historic passage of the Inflation Reduction Act, IRA, in August will prove to be a massive growth catalyst for the solar industry. However, due to the near-term supply chain constraints, according to Wood Mackenzie report, most — 77% of the effect of IRA will be materialized in utility scale segment after 2024. The lack of equipment availability has led to a continued project delays, thereby decreasing the 2022 forecast, where 600 megawatt to 8.1 gigawatt, the lowest annual total since 2018. The industry will continue to navigate by UFLPA requirements during the rest of the year and supply is expected to return to a steady state at some point in 2023. More than 30 gigawatt of renewable power projects are expected to be permitted on BLM lands between fiscal years 2022 and 2025. The vast majority of that capacity will be solar power.

In Australia, the torrential rains adversely impacted the solar EPC activity. It is also facing resource shortage of white and blue collar manpower. However, the recent election has been a game-changer in terms of the policy support for renewable energy. The new Labor government has plans to unlock renewable investments, upgrade the grid and bring federal policy more in line with states and territories, many of which have more ambitious climate goals. Labor’s mean energy policy, rewiring the nation includes plan to funnel AUD20 billion into new transmission link to accelerate the uptake of more clean energy. The plan is part of Labor’s pledge to cut Australia’s 2005 level greenhouse emission 43% by 2030, projecting renewable reach and 82% share, which was earlier 69% in the National Electricity Market by then. The government also raised the migration cap in September 2022 to address the issue of skill and labor shortages. Global data says in a new report that solar installation in Australia could grow by a factor of four [Phonetic] by 2030. It estimates that the country will reach a solar capacity of 80.22 gigawatt in 2030 from 17.99 gigawatts in 2020.

In June 2022, the EU energy ministers agreed to increase the share of European energy consumption coming from renewables such as solar or wind power to 40% by 2030. The impact of the Russian war on Ukraine and the accompanying energy security challenges, alongside EU climate goals, are deriving the continent’ renewable transition with 25 of 27 EU member states set to install more solar in 2022 than 2021. As the continent reels from the Russian war on Ukraine, the EU has refocused its attention on the role of renewables in energy security with EU expected to install 39 gigawatt of solar power this year. The real acceleration will happen in the medium-term with upward of 100 gigawatt of annual installations by 2025, paving the way to 1 terawatt of solar by 2023. As per the International Energy Agency, by 2026, global renewable electricity capacity is estimated to rise more than 60% from 2020 levels to over 4,800 gigawatts, equivalent to the current total global power capacity of fossil fuel and nuclear combined. Renewables are set to account for almost 95% of the increase in global power capacity through 2026.

With solar PV alone providing more than half, our focus is to grab large share of EPC capacity additions in FY ’23 like 23 gigawatts in USA, 16 gigawatts in Europe, 3 gigawatts in Australia and 16 gigawatt in India. It is estimated that solar PV utility scale market, excluding China, is expected to grow at 15% CAGR over the next few years with growth led by developed markets like US, Europe, Australia, as well as the India market.

During the recent 45th AGM, Reliance Industries announced plans for starting production of solar cell, battery packs and green hydrogen from the Dhirubhai Green Energy Giga Complex. Reliance plans to commence manufacturing of solar photovoltaic cells and modules by 2024 with an annual capacity of 10 gigawatts, that will be scaled up to 20 gigawatts in a phased manner by 2026. Reliance is already one of the largest producer of gray hydrogen globally and aims to progressively start the transition from gray hydrogen to green hydrogen by 2025. Importantly, Reliance plans to have 25 gigawatts of solar energy generation by 2025 for its own capital needs. We expect to get a meaningful pie of work from Reliance’ new energy goals. I would like to state that with our global reach, strong relationships with customers and lenders, as well as the induction of Reliance Group as an additional promoter of the Company, we are well-positioned to capitalize on these growth opportunities. Reliance Group investment in Company has led to stamping of Company’s balance sheet and increased confidence to customers, suppliers, bankers and other stakeholders.

Now, I will give you the overview of our solar O&M business. Our solar O&M portfolio as of date is 7.2 gigawatt with third-party O&M constituting approximately one-third of the portfolio. While our portfolio has increased vis-a-vis March 2022, we anticipate about 1.8 gigawatt of the portfolio, which is currently under construction commissioning phase to start contributing to the top line by Q4 FY ’23. O&M constituted 5.4% of revenue in H1 FY ’23 and stood at INR82 crores. We are focusing on increasing international O&M portfolio through organic and inorganic route. With more and more processes and procedures digitized in O&M, we are unlocking the value of predictive maintenance and making increased use of it with results in improvement in efficiency and general reduction of our levelized cost of electricity. We aim to further increase our market share in O&M segment by identifying profitable opportunities through global customer mapping. We are also leveraging our strong partnership with global IPPs.

Now, I will present you with the best opportunity, with the increase in clean energy capacity in the grid and its subsequent de-carbonation, ramping up energy storage has become critical and extreme necessity. Moving forward, on a global scale, a 20 times growth is estimated in energy storage by 2030, and till 2040, a 60-time growth has been projected compared to 34 gigawatt of energy storage currently available. According to Vision 2030 report of India Energy Storage Alliance, at least 160 gigawatt hour of energy storage will be needed by India by 2030 to integrate a targeted 500 gigawatt of non-fossil fuel energy, based on its analysis of India’s energy sector and outlining the requirement of energy storage in the country. We recently entered into MoU for an EPC project, which includes battery energy storage system for total installed capacity of 455 megawatt hour in Nigeria. We have added team of battery experts, sales and execution team to capture this market opportunity and we have bid pipeline of 1.4 gigawatt hours across US, Australia, Europe, and LatAm. We see pretty robust growth in this market and with the RTC tenders due from Government of India in coming years, we see a robust growth in Indian market as well with respect to battery energy and storage space.

With this, I will ask Mr. Bahadur, our CFO, to take you through the order book and consolidated financial highlights. Thank you very much.

Bahadur Dastoor — Chief Financial Officer

Thank you, Amit, and good morning friends. Speaking about the order book. In August ’22, the Company emerged as the L1 bidder for the BOS package comprising four blocks of the solar PV plant of NTPC Renewable Energy Limited at Khavda, RE Power Park, Rann of Kutch, Gujarat with an aggregate capacity of 1,570 megawatt DC. The total bid value including O&M for three years aggregated to INR2,212 crore inclusive of taxes. The contract agreement for the project has been signed between the Company and NTPC Renewable Energy in October 2022. In September ’22, the US step down subsidiary of the Company signed a memorandum of understanding with the government of the Federal Republic of Nigeria, along with its consortium partner Sun Africa for the development, design, construction, and commissioning of solar PV power plants aggregating to 961 megawatt at five different locations in Nigeria along with battery energy storage system with total installed capacity of 455 megawatt hour. Financing for these projects is under negotiation between US EXIM, ING and the Government of Nigeria. The transaction is expected to consummate by Q4 FY ’23. Here, I would like to add that Sterling and Wilson Group has a strong presence in Africa and has an excellent reputation in Nigeria for successfully executing projects in the power sector.

Our unexecuted order book as on September 30, stands at INR2,654 crore with nearly 78% domestic EPC which is executable over the next 12 months. Our order bid pipeline remains robust and we are still awaiting results of approximately 19 gigawatt of bids that are likely to be announced in H2 FY ’23. We are on track to achieve and may exceed our earlier given FY ’22 guidance of USD1 billion in new orders other than those of Group companies.

The prices of modules, commodities and logistic costs, which had hardened due to geopolitical tension in the first half of the year have begun to moderate. A lower cost curve is likely to help tendering activity to gather momentum, which should help result in more order finalizations in the second half of FY ’23.

I will now take you through the consolidated financials for the half-year ended September 30, 2022. Revenue for H1 has been at INR1,520 crores as compared to INR2,630 crores in H1 FY ’22. Revenue and margin trajectory in the EPC business is anticipated to normalize from Q1 of FY ’24. O&M constituted 5.4% of total revenue in H1 FY ’23. New site additions to O&M portfolio is likely to start contributing to top line from Q4 FY ’23.

Company level, the gross margin remain suppressed primarily on account of international EPC projects. In the US, labor cost increased due to shortage of labor supply. And in Australia, labor cost and site overheads, increased due to loss of productivity on account of extreme weather conditions. Further, there was a translation loss due to adverse movement in exchange rate between the USD and the INR and the AUD-INR compared to March ’22.

O&M margins were impacted by projects, where O&M costs were incurred. However, revenue recognition has not commenced due to clients delaying final handover. O&M margins were also impacted by non-recurring costs of about INR10 crore during the quarter. While we anticipate revenue to be recognized on a retrospective basis, we have provided for the cost incurred upfront.

Coming to the balance sheet, as on September 30, 2022, the net worth stood at INR338 crores on a consolidated basis and cash and cash equivalents stood at approximately INR428 crores. Our net debt stood at INR885 crores. We expect net debt to decrease with new order inflows and completion of US and Australia projects. Advance and performance bank guarantees encashed by four customers amounting to INR588 crore. With one customer, we have signed the final settlement agreement and the encashed amounts for two projects, totaling to INR350 crores have been refunded by the customer. With respect to the balance two customers, whose projects are completed, the Company is in discussions with them.

As on September 30, we had negative working capital of INR272 crore as compared to negative working capital of INR302 crores as on March ’22. Receivables due for more than one year as at September 30 stood at INR362 crores compared to INR261 crore as on June 30. They comprised related party receivable of INR30 crore, which is net of INR175 crore that the Company needs to pay back to the related party against advance received for the waste-to-energy project.

With this, we can now open the floor to questions and answers.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Abhineet Anand from Emkay Global. Please go ahead.

Abhineet Anand — Emkay Global Financial Services — Analyst

Yeah. Thanks for the opportunity. Just wanted to understand on the Nigeria MoU. Can you give some details in terms of the size, in terms of value and our share given that we have probably bid it with Sun Africa as a partner?

Amit Jain — Global Chief Executive Officer

Yeah. Good morning, Abhineet. So, to start with the Nigeria opportunity, Sun Africa is a very reputed developers, which is developing projects across multiple geographies, including Africa. They’re developing projects in Europe, they’re developing projects in Africa. And then Africa particularly they’re very active in Angola and Nigeria. So they have developed a portfolio of five projects in Nigeria, in which we are cooperating with them and has entered into an alliance to develop and carry out EPC activity on those projects. We have signed the MoU with the Ministry of — Government of Nigeria for construction of these projects and we are in negotiation to conclude the EPC agreement with them.

Abhineet Anand — Emkay Global Financial Services — Analyst

Any color on the order value, sir?

Amit Jain — Global Chief Executive Officer

We have given the values to the tune of, like — we are expecting this — still negotiating, but we expect it to be close to $1.5 billion.

Abhineet Anand — Emkay Global Financial Services — Analyst

Okay. Then that itself takes, as Bahadur did mention, that for the current year we are expected to exceed our earlier guidance of $1 billion of inflows, right, that itself you are saying, and this $1.5 billion that you are saying is our share?

Amit Jain — Global Chief Executive Officer

Yeah, $1.5 billion is share for both the partners.

Abhineet Anand — Emkay Global Financial Services — Analyst

And what’s our share in that, sir?

Bahadur Dastoor — Chief Financial Officer

Our share, Abhineet, would be in excess of about 95% of the total value, rest being on account of development. But as Mr. Amit has mentioned, this is still under various stages of negotiation. The range, though, is what is the number that he has mentioned.

Abhineet Anand — Emkay Global Financial Services — Analyst

Okay. So then it takes to the point that probably our guidance looks to be significantly below what we probably might achieve. Obviously, it’s in negotiation stage. But if I have to just add here that if I look into a two years perspective rather than just one year that what guidance we have seen, what could be a realistic number in terms of inflows that one can have? Two-year or three-year whatever is suitable to you guys.

Amit Jain — Global Chief Executive Officer

Yeah. So, as we are stating in our various conference calls that, domestic market is significantly moving up. We have recently bagged 1.5 gigawatt order from NTPC. The value of that order, net of taxes is approximately INR1,800 crore plus. So — and we have stated the Reliance would be carrying out works of 20 gigawatts and we expect to get a meaningful pie of that work. So that values can be extrapolated from that aspect what kind of inflows can be expected. We are negotiating deal in Nigeria and international and both domestic markets other than these particular projection continue to be robust. So we’ll expect that the value — the guidance of $1 billion, which was provided earlier, we significantly expect to move up and the revenues inflow will grow significantly in next two years.

Bahadur Dastoor — Chief Financial Officer

And Abhineet, to add further, that would be the kind of target that we are aspiring to work down towards the next two to three years. Of course, trying to exceed that as well.

Abhineet Anand — Emkay Global Financial Services — Analyst

Okay, sure. And Bahadur, just on the balance sheet side, if you see, your last one — last first half, basically, almost our net worth has come down from INR600 crores to INR300 crores-odd largely because of the loss that we have incurred. Though, we have a bit of cash, do you think there will be a need of some either raising your debt or equity infusion that will be needed? This year given that inflows will probably happen in H2, so revenues will probably start kicking in 1Q ’24.

Bahadur Dastoor — Chief Financial Officer

There would be some amount of funding that would be required to complete the existing projects. The Company is also internally having discussions in terms of the net worth. We will be able to provide guidance on what exactly needs to be done by the time we have the call for the next quarter. But there will be a certain increase, which will happen right now in the funding requirement, which the Company has more or less tied up with closely existing projects.

Abhineet Anand — Emkay Global Financial Services — Analyst

Okay. Last one from me, Amit did talk about the battery storage part, right? India is still in a nascent stage and there is a lot of growth opportunity that feel [Phonetic] are there. If you can highlight from your international experience as to the pricing what’s in the other parts of the world and what pricing that India is presently having and what can — so per unit, how will the battery power look like, if we use battery storage today in India, and globally what’s happening in the pricing front?

Amit Jain — Global Chief Executive Officer

See — so, as far as the battery pricing is concerned, so the major battery supplier still continued to be from international markets. So, as far as — and the major part of the cost comes from the battery supply part, and — but the EPC portion or the construction portion constitute only 15% to 20% of that part. And the cost of that continues to be $250 per kilowatt hour for the battery supply portion and total EPC part is around $300 per kilowatt hour. The per unit rate depends upon the usage, what kind of usage and what kind of RPC requirement clients have or what kind of grid requirements it would be used for. So, it is extremely variant and various multiple business models are evolving in the West and same will be emulated in India. So the per unit cost of stored electricity or from the best model will be varied as per the use and the customer requirements.

Abhineet Anand — Emkay Global Financial Services — Analyst

Okay, sir. Thanks for the answer. And I will get back in the queue. Thank you.

Operator

Thank you.

Amit Jain — Global Chief Executive Officer

Thank you.

Operator

Next question is from the line of Faisal Hawa from H.G Hawa and Company. Please go ahead.

Faisal Hawa — H.G. Hawa and Co. — Analyst

So, sir, this Nigeria orders, as well as the new NTPC order, what are the kind of estimations we have made for the gross margin in these two projects? And if at all, could you also mentioned what the ultimate EBITDA will be from these projects?

My second question is that, we are now going for a multi-country execution and just also in the case of Nigeria, there are almost like three counterparties involved, the Government of Nigeria, then SunPower and also US EXIM. So, we have these various countries that we operate in and there are various vagaries, like you just said that US employee cost has risen, Australia there are some problems of rain. So, mathematically, how will we see to it that Sterling Wilson is not affected due to this? Because one project failing and our EBITDA margins don’t really allow for any kind of deviation, and there are so many factors, which are just beyond our control. So, how will we do it? Because this is like multi-country and then there are multi-risks.

Bahadur Dastoor — Chief Financial Officer

So, I’ll start out Mr. Hawa and then maybe Amit can pitch in a little later. I’ll try and answer all your questions one by one. See, I wouldn’t want to go down to project level margins and say what kind of margins we are obtaining in Nigeria or what kind of margins are there in NTPC. Suffice to say, it would be close to what we have been historically doing in a range, and that’s what we are aspiring to do. That is to answer your first question.

Second, as far as the un-seasonalities of rain that has happened as well as — in Australia, as well as labor costs, which have gone up, the Company has now strengthened its risk matrices. We earlier used to also take this into account in the case of Nigeria, as well as in the case of NTPC, most of it is subcontracting. It is not something that is going to be self-performed and therefore, all those risks, we would, as an organization also pass on to the subcontractors.

As far as pricing is concerned, yes, while there would be pricing, which is there even for modules in the case of the Nigeria job, the NTPC job is without modules. There are firm commitments, which are being taken from vendors, having learned from all our experiences in the past to ensure that there is no slippage of margins. When we talk of margins, which, Hawa, we always talk of gross margin, because for us, the overheads are basically a total cost across the various entities of this organization. So, we don’t look at EBITDA level margins for projects, that would be at an organizational level. That number is in the range of INR400 crores to INR450 crores and as your turnover increases, which you can see from the order book, your operating leverage is, obviously, going to kick in, which gives you a greater EBITDA margin.

We will, of course, need to be more careful in Australia and US. We will be more selective and risk-averse in these geographies. Though, historically in India and Africa, we have always made good margins even in the toughest of times.

As far as the Nigeria job is concerned, it is funded through US EXIM or it is proposed to be funded through US EXIM, and most of the suppliers would be US suppliers, contracts there are extremely strong. And US EXIM has already done funding of a similar project in Angola of a very large size.

If I have missed anything, Mr. Hawa, please just remind me. And Amit can pitch in here, if I have missed anything.

Amit Jain — Global Chief Executive Officer

So, Bahadur, you have summarized it wonderfully. You have captured practically all the things. So, Mr. Hawa, as you’re saying, in multi-geography, now, as Bahadur alluded to the risk matrices are being reviewed and we are changing our risk profile. So, we’re negotiating the contracts and building contingencies around the inclement weather or labor shortages. So we are bidding selectively and we are like taking care of the risk profile we were taking, so that the margins remains intact whichever geography we are working in. And all the geographies wherever we are working, we have put in very, very strong team so that the execution risk is minimum and we pass on the risk through subcontracting model to our subcontractors.

Faisal Hawa — H.G. Hawa and Co. — Analyst

So, in any of these two contracts, will we have to give some kind of bank guarantees also to the counterparties?

Bahadur Dastoor — Chief Financial Officer

Yes, of course, Mr. Hawa. Bank guarantees are always part of every contract.

Faisal Hawa — H.G. Hawa and Co. — Analyst

So, at least can you tell me what are the gross margins we have targeted in these two projects? Because that gains very much importance because we have to, as investors, also get into our calculations various vagaries that will come through in future. So, whatever steps we may take, but these vagaries are such that many a times even the management cannot budget for them. And you have seen in the past that it is not only the solar modules, many a times one or two projects have affected our entire year’s performance.

Bahadur Dastoor — Chief Financial Officer

So, I would just like to say this much, Mr. Hawa, that the mix for gross margins for all new jobs would be low-double digits combining all contracts together. I would not want to go into discussing project-level margins, at least, my projects.

Faisal Hawa — H.G. Hawa and Co. — Analyst

And, I mean, what is our realistic target for orders now? Because you have already achieved the target for the year. So how many more orders will we take, so that we don’t go too far into the future where prediction of raw materials and all may become much more difficult? Or will we just take all the orders and then just make the counter bookings with the suppliers?

Bahadur Dastoor — Chief Financial Officer

So, I’ll start off by saying that most of the orders that we generally take are having a closure period of between 15 months to two years. So it’s not something that we would take and then sit on the order for the next two to three years, that’s not how the solar business operates. We have presently — so while it is an MoU, you can say that we are looking at exceeding our targets. However, that does not mean that we are shutting shop. We are right now involved in bids, as has been mentioned by Amit, as well as me for a very large portfolio across the world, plus there are a lot of bids coming in India. India has always been our strength, our domestic margins continue to be protected, they were so in March, they are so in June quarter, as well as in September quarter as part of our investor presentation. And it is something that we are aggressively pursuing so long as our blended margins that we internally have are taken care of.

Faisal Hawa — H.G. Hawa and Co. — Analyst

And what is our hiring program for engineers for the next two to three years, for the next one year at least?

Bahadur Dastoor — Chief Financial Officer

So we have mentioned that, Mr. Hawa, that we are looking at increasing our total team size to take care of all of these new ones, new jobs. We are already looking at increasing our domestic headcount to about 1,500 from the present headcount that we had in March of about 467. At the same time, there have been some reductions in places like Australia, where jobs are coming to an end. That is to, of course, be very efficient and lean in terms of our operations. But right now also we are looking at increasing our headcount for design and engineering by about 195 people, construction 615, project management about 120, you will see that the corporate headcount, the back-end is just about 40 people, because as a back-end, we already have enough strength to take care of the projects that we are looking at.

Faisal Hawa — H.G. Hawa and Co. — Analyst

Okay.

Operator

Thank you. The next question is from the line of Siddharth from MK Ventures Capital. Please go ahead.

Siddharth Shah — MK Ventures Capital — Analyst

Yeah. Thank you for the opportunity. Sir, my first question is on the gross margins again. You guided for low-double-digit margins. Just wanted to understand the difference between the projects where you have taken with solar modules and the projects where we are not taking with solar modules. If you can just give us some bifurcations that we know for the — whenever we win project, what kind of gross margins we’ll make on those projects?

Bahadur Dastoor — Chief Financial Officer

We always get margins even on the modules, though, module prices being known to everyone, the profit margin on modules is a little lower as compared to, if you were to take a BOS margin. When we are giving you this number of low-double-digit, it is considering a blend, though, if you were to look at it purely from a BOS perspective, it would be maybe a slight higher number as compared to the one with modules.

Siddharth Shah — MK Ventures Capital — Analyst

Sure. And the captive projects, I mean, the Reliance projects whenever we win, those projects will be also at similar margins at low-double digits broadly?

Bahadur Dastoor — Chief Financial Officer

We hope and expect that there will be, because both parties have to come to a conclusion on what the margins will be. But, yes, that’s our aspiration.

Siddharth Shah — MK Ventures Capital — Analyst

Great, sir. Sir, second question is on the order book now. So, as of now, 12th October, we had the order book of [Speech Overlap]

Bahadur Dastoor — Chief Financial Officer

Just to add that both the NTPC, as well as Reliance will be all BOS, there are no modules in that. Sorry, I missed saying that before.

Siddharth Shah — MK Ventures Capital — Analyst

Yeah. So that will be at literally higher margins from just percentage terms.

Bahadur Dastoor — Chief Financial Officer

Yeah. We will try to upgrade our margins.

Siddharth Shah — MK Ventures Capital — Analyst

Okay. And the current order book as of now, which is booked as INR2,600 crores. So, out of this, how much is the legacy orders where there will be still some losses, sir? And what can be the exchange of these losses, which will flow through our P&L in next two quarters?

Bahadur Dastoor — Chief Financial Officer

So, let me put it in a little bit of perspective. So, out of the order book that we have, we have roughly between INR550 crores to INR600 crores of the legacy orders, where there is no loss, but there is no profit either. They are at more or less a breakeven, because we have — we always account for all the losses up to a point in time. To give you a perspective of this INR500 crores, INR600 crores, it is only about 6% to 7% of the total order values of all of these legacy orders. So today, we are at the fag end of all of this, we are hopeful of closing [Technical Issues]

Siddharth Shah — MK Ventures Capital — Analyst

And at the time of closure, we don’t expect any major liabilities to arise at the end of these projects?

Operator

[Operator Instructions] Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, please go ahead.

Siddharth Shah — MK Ventures Capital — Analyst

Yeah. So, sir, are you suggesting that we’ll not have any further P&L losses or cash flow — cash outflow on the legacy orders from now or we are mostly provided for all the losses?

Bahadur Dastoor — Chief Financial Officer

Losses we have accounted for whatever we had to. And wherever we had any subjectivity, we have given that in the notes to the financials. As far as cash outflow is concerned, yes, we would require to do a certain incremental borrowing to complete those existing projects. So right now we have done borrowings of about INR700 crores, of which we have about INR400 crores lying as a cash and bank balance. Over and above that, there will still be a requirement, because one is accounting for the loss and second is paying for those payables to complete the projects. We will be doing that, part of our borrowing plan, most of it, which is already tied up with participating banks.

Siddharth Shah — MK Ventures Capital — Analyst

So, sir, how much is the cash outflow, which will happen on these legacy projects going forward? I mean, a broad range, if you can share the estimate?

Bahadur Dastoor — Chief Financial Officer

That figure would be in the range of a further INR300 crores to INR400 crores over and above the bank balance that we have.

Siddharth Shah — MK Ventures Capital — Analyst

And this is after the indemnity which — agreement, which we had with the erstwhile — the [Technical Issues], right?

Bahadur Dastoor — Chief Financial Officer

It is after the indemnity claim for crystallized items as on 30th of September 2022.

Siddharth Shah — MK Ventures Capital — Analyst

Okay. Okay. So, sir, broadly — the last question from my side, so broadly we have, say, INR885 crores of net debt and customer advances of, say, INR300 crores — negative working capital of INR300 crores. So we are in a way around INR1,200 crores of borrowing and further INR300 crores is — INR300 crores to INR400 crores is the maximum liability, which can arise. So by the end of this year when we are done with all the legacy projects we can have INR1,500 crores of liability, if we exclude the customer advance? Is that broadly correct, sir?

Bahadur Dastoor — Chief Financial Officer

Yeah. But it also depends on the advances which we will get from the new jobs that we are working on right now, which will go to reduce that. You are looking at it at a gross level. There will always be customer advances from the jobs, which will go to bring it down.

Siddharth Shah — MK Ventures Capital — Analyst

Understood, sir. Great, sir. Thank you. Thanks for the clarification.

Bahadur Dastoor — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Anupam Goswami from B&K Securities. Please go ahead.

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Hello, sir. Sir, my first question is on the NPTC order [Technical Issues]

Operator

Anupam, sorry to interrupt you [Technical Issues]. Hello?

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Yeah. Sir, my first question is on the NTPC order that we have received. So what I was checking, it was about INR1.3 crores per megawatt order. So is it like full EPC contract? Because that’s a bit of low in my understanding. So if you can throw some light on it?

Bahadur Dastoor — Chief Financial Officer

Could you just repeat your question one time, please? I missed the gist of it.

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Sure. So, the NTPC order of INR2,200 crores for 1,600 megawatts, so it’s coming about INR1.3 crores per megawatt. So is it the whole EPC contract that we understand or there is some — any clause or conditions in that, partially, if it is there anything?

Bahadur Dastoor — Chief Financial Officer

INR2,200 crores for 1.5 gigawatt includes O&M for three years and includes the taxes. If you take that out, the value comes — if you exclude all of this out, the value comes closer to about INR1.2 crores per megawatt, which is the average BOS price, it is not a full EPC contract. If one were to do EPC, it would be upwards of INR3 crores a megawatt.

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Right, right. Okay. It’s a BOS.

Bahadur Dastoor — Chief Financial Officer

So this is a BOS. Yes, please.

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Okay. I understand, sir. And sir, how much margin are we commanding on BOS supplies?

Bahadur Dastoor — Chief Financial Officer

I already answered that question a little before, that I don’t want to go to project level margins, but on an average, it is low-double-digit that we work towards.

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Okay. And sir, my last question on the kind of module prices we have. So our EPC contracts, domestic, if we, say, what kind of margins do we see going forward? Do we see any challenges in that to maintain the margins?

Bahadur Dastoor — Chief Financial Officer

So, modules does not have for us an impact as far as domestic is concerned, because almost all our orders in the domestic front are without modules. So the margin profile that I gave you includes what we do in India as well.

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Okay. Okay. And sir, where are we sourcing mostly for our equipments and modules?

Bahadur Dastoor — Chief Financial Officer

Modules, worldwide would, obviously, have China as a great factor. As far as the job that we are working on — in Nigeria, since it is US EXIM funded, we assume that US EXIM will have a great role to play in determining who are the major vendors for that particular job.

Anupam Goswami — Batlivala & Karani Securities India Pvt. Ltd. — Analyst

Okay, sir. Okay, sir. I understand. I’ll join back in the queue. Thank you.

Bahadur Dastoor — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Manoj from Geometric Wealth Advisors. Please go ahead.

Manoj Dua — Geometric Securities & Advisory — Analyst

Congratulations, sirs, on winning lot of orders and bringing the Company on the order front. My first question is, let’s assume go forward two, three years when the Company balance sheet is more strong, hypothetically, if you’re getting INR30,000 crore of order in a particular year. So, is there any capacity constraint in terms of labor or in terms of sourcing? How to think of a — in terms of capacity of taking order? And similarly, how much we are taking orders around $1.5 billion this year hypothetically if the project should you list 15- to 24-month, how much we can execute in a particular year? Can you take an NTPC example in that, it will be very helpful? Thank you.

Amit Jain — Global Chief Executive Officer

Yeah. So, as we explained earlier during the call that we are increasing our capacity, we are increasing our bandwidth to address the increased market size. So this year itself, we are adding people in excess of more than 1,000 people. We are strengthening our engineering, procurement and project execution team to address the increased market size and the increase order book, which we anticipate. So anytime we are negotiating any particular order book, so we have some time in hand and we have a clear visibility in which quarters we are going to book and what would the execution plan look like. So we start working in advance and start adding capacities, like NTPC we have time of like execution time is 18 months, and we have sufficient bandwidth to execute that order in the particular timeframe.

If you see, historically, we have achieved a turnover of around in excess of INR8,500 crores, in particular year, if you adjust that, we can easily handle the turnover of INR10,000 crores to INR12,000 crores without much increase in our overhead, and we have that bandwidth. So we have — we are very, very well-placed to handle an increase in the order book and we are very well placed for that and our organization expansion plan, based on anticipated order books, are well in place.

Manoj Dua — Geometric Securities & Advisory — Analyst

Okay. Thank you. So let me take a summary of that for having more order, we need more employees, so that is the major part, you are saying?

Amit Jain — Global Chief Executive Officer

No. What I said like, we need the employee for execution, but our back-end for the management teams are in place, but wherever we need like the — most of the works will be carried out through subcontractors and where we have a need to execute in-house. So we are very well-positioned for that expansion and we are expanding our engineering team, and we’ll be able to cater through that, but it will not lead to any significant increase in overheads.

Manoj Dua — Geometric Securities & Advisory — Analyst

I understand. So now coming back to my question, any — looks like we are going to have lot of orders from our Reliance Group also and you’re bidding in more area and there is a long tailwind also in this sector. So, if that kind of orders we want, if you are getting INR25,000 crore, INR30,000 crore, we can increase our capacity to — for that, is it possible for organization, Sterling?

Amit Jain — Global Chief Executive Officer

Absolutely it is possible to expand the capacity to that. It is absolutely possible and we are working towards that. And if we foresee that, that kind of order booking is happening, that will be addressed accordingly.

Manoj Dua — Geometric Securities & Advisory — Analyst

Okay, great. And my second question is, for the time being, we can take a fixed recurring over at cost of INR400 crores, is it my right assumption?

Bahadur Dastoor — Chief Financial Officer

Between INR400 crores to INR450 crores over the next two to three years, considering inflation or some little addition to back-end, is the kind of range that we are working towards.

Manoj Dua — Geometric Securities & Advisory — Analyst

Okay. And my last question is regarding this raw material, how much still we are fragile or dependent on China thing? Is this situation improving and what do you see going forward with a lot of capacities being putting in India? Thank you.

Amit Jain — Global Chief Executive Officer

Yeah. So can you repeat yourself again, once again, what’s the question?

Manoj Dua — Geometric Securities & Advisory — Analyst

Okay. My question is, in terms of procuring raw material, how much dependencies still solar industry have on China? And how much it is do you think going forward in two, three years can be reduced as lot of people are putting capacities in India and outside also?

Amit Jain — Global Chief Executive Officer

So as far as the module sourcing is concerned, at this point of time, there is a major dependence on China, because China controls most of the capacity of solar modules. But as you yourself has said, there is lot of capacity addition is happening, not only in India, but major — most of the other parts of the world. So I see lot of capacity is coming online in the next couple of years in India and other parts of the world, which would significantly reduce dependency on China, and we’ll be able to source the modules and all other materials from either India or multiple other markets.

Manoj Dua — Geometric Securities & Advisory — Analyst

Okay. Thank you. I will join back in the queue for other questions.

Operator

Thank you. Next question is from the line of Shantanu Mantri from Think Investments. Please go ahead.

Shantanu Mantri — Think Investments — Analyst

Yeah. Hi. Thanks for the opportunity. Sir, I had two questions. First is, on a — with a broader perspective, so [Technical Issues]

Operator

Shantanu, sorry to interrupt you, but your voice is breaking. May I request you to come in a better reception area, please?

Shantanu Mantri — Think Investments — Analyst

Yeah. Is it fine now?

Operator

Yes. Thank you.

Shantanu Mantri — Think Investments — Analyst

Yeah. So my first question is that, last couple of years our projects in Australia, US, we faced huge losses and now we’re coming to kind of fag end of all those orders. The quantum of these losses were massive, like we’ve just eroded almost our entire net worth. Having said that, now we stand at a point where we have these big orders coming in from Nigeria and we have the whole Indian domestic story. So, my — coming on to my question is that, what are the few big risks you see in this Nigerian order that can affect us or rather what is the comfort you have that whatever we’ve seen in the past will not repeat again? If you can just share like how we’ve changed on our risk analysis, will be really helpful?

Amit Jain — Global Chief Executive Officer

Yeah. So as you have started the question with US and Australia, I would like to point out that the last two years were exceptional for the whole world, because of the pandemic, the breakdown of the entire supply chain, and the entry restriction in those two geographies where we cannot supplement the teams with expertise and workers. So they were very, very different circumstances, and we are over that particular part of the order book is to the fag end, and if you see projects are about to be over.

As you are aware that we have a strong presence in Africa and we have executed projects. Successfully we have won more than 10 countries in Africa. We have already have a huge presence in Nigeria. Our Group companies have carried out projects in Nigeria, Sterling Wilson Solar has already executed on a smaller scale for four projects in Nigeria. So, as far as the African and Nigerian execution piece is concerned, we were very, very confident and we are the one of the most successful contractors in Africa.

Now, coming back to the supplier part, this job is — Nigeria job is funded by EXIM Bank of US and most of the suppliers have — going to be from US or the allied countries and it’s the contract — density [Phonetic] of the contract in those geographies is very, very high. So it’s not the kind of problems which we faced in Australia that the suppliers run it on their contracts, that is not going to happen on the Nigerian contract. And as far as further — as coupled with our execution experience in Nigeria, most of the job — construction jobs will be subcontracted and risk sharing will be done with the subcontracts. So, I feel that as far as the Nigerian piece is concerned, we are very well protected and we have ring-fenced our risks to most of extent for Nigerian projects.

Shantanu Mantri — Think Investments — Analyst

Got it. Got it. Okay. That’s really helpful. And my second question is more on our balance sheet, particularly our debt. So, I see right now we have around some INR850 crores, INR880 crores of net debt. I believe that this will increase by another INR300 crores by end of March. So we’ll be around — somewhere around — this is excluding any advances from the NTPC orders. I don’t want to get into those advances, but on a pure legacy order whatever we’ve executed we’ll end up somewhere around INR1,100 crores or INR1,200 crores odd of net debt. Now, just if we take this number, I wanted to understand, based on the indemnity agreement, what would be the total number that either third parties who have to pay us or in case it comes up on the promoters, what would be the total number that we can expect — obviously, this will happen when the liability materializes. But I just wanted to know that, what would be the inflow to the Company that will knock off against this INR1,200-odd crores net debt, say, probably in the next 12 to 15 months, if you can just give some color on that?

Bahadur Dastoor — Chief Financial Officer

Yeah, I’ll try to answer that question. So, the total indemnity inflows, it should come in either from the promoters or the customers or the authorities would be approximately INR600 crores to INR650 crores on account of liquidated damages, perhaps about another INR300 crores to INR400 crores on other items, including things like receivables or if you have any of your input stuck with the authority. So we’re talking off a ballpark number of items covered in the indemnity to be between about INR1,000 crores to INR1,200 crores.

Shantanu Mantri — Think Investments — Analyst

Okay. Okay. And the timeline for this could be in the next 12 to 15 months or much earlier?

Bahadur Dastoor — Chief Financial Officer

It can’t be, because we have to raise indemnity claims only once in a year.

Shantanu Mantri — Think Investments — Analyst

Okay.

Bahadur Dastoor — Chief Financial Officer

So after considering the INR300 crores, which had to be borne by the Company, the Company has already raised an indemnity claim for 30th September ’22. The earliest we can raise the next claim and the number that I’m talking about is not what is included in the present claim. It is only going to be September ’23. So it will definitely not be all fructified in 15 months. It can be something fructified in 12 months, 24 months, or if there are legal cases, then it may take longer to fructify as well.

Shantanu Mantri — Think Investments — Analyst

Okay. Okay. Okay. But — so maybe the timelines would be different, but on a number-to-number basis, so we have almost INR1,000-odd crores that should eventually come into the Company. And whatever debt we have generated now [Speech Overlap]

Bahadur Dastoor — Chief Financial Officer

INR1,000 crore to INR1,200 crores. And a pretty significant portion may come in, not just from the promoters, but even from the customers with whom we will finalize our LD settlement over the next 12 months.

Shantanu Mantri — Think Investments — Analyst

Right. Sir, any realistic number you would want to give us for next September ’23 that some or maybe not a realistic, but a conservative number that this should definitely come in by September ’23?

Bahadur Dastoor — Chief Financial Officer

So, if it was already crystallized, I would have already taken it in my September ’22 claim. So I don’t want to put out any kind of number conservative, realistic, pessimistic. I’ve given you what is the overall number. We are all striving to see that we recover everything as fast as we can, not necessarily from the promoters, but even from the customers or the authorities wherever it is stuck.

Shantanu Mantri — Think Investments — Analyst

Right. Right. Right. Okay. Okay. That’s it from my end. Thank you so much.

Bahadur Dastoor — Chief Financial Officer

Thank you.

Operator

Thank you. I now hand the conference over to Mr. Amit Jain for closing comments.

Amit Jain — Global Chief Executive Officer

Thank you. With a robust backing of Reliance Group and Shapoorji Pallonji Group, we endeavor to accelerate our growth trajectory by aggressively pursue large market globally, where we foresee a huge potential of growth. India too has reached an inflection point from where we anticipate the growth of solar power industry to garner from the pace and momentum. With our deep-rooted client relationships, global presence, ability to provide customized solutions, strong track record of executing complex and large-scale projects, supported by robust balance sheet and the strong parentage of Reliance Group and Shapoorji Pallonji Group, we are confident of regaining our leadership position.

I would like to thank everybody for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with Sandeep Thomas Mathew or Strategic Growth Advisors, our investor relationship advisors. Thank you once again, and have a great day. Thank you.

Operator

Thank you very much.

Bahadur Dastoor — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]