Sterling and Wilson Solar Ltd (SWSOLAR) Q4 FY23 Earnings Concall Transcript

Sterling and Wilson Solar Ltd (NSE:SWSOLAR) Q4 FY23 Earnings Concall dated Apr. 20, 2023.

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 Service — Analyst

Manoj Dua — Geometric Securities — Analyst

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

Bhavik Shah — MK Ventures — Analyst

Iqbal Khan — Nuvama Wealth — Analyst

Shantanu Mantri — Think Investments — Analyst

Vignesh Iyer — Sequent Investments — Analyst

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

Presentation:

Operator

Good day and welcome to the Sterling & Wilson Renewable Energy Limited Q4 ’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 the 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.

I now hand the conference over to Mr. Sandeep Thomas Mathew, Head, Investor Relations, for his opening remarks. Thank you. Over to you, sir.

Sandeep Thomas Mathew — Head, Investor Relations

Hey, good evening, everyone. Welcome to the Q4 ’23 Earnings Call. Along with me I have Mr. Amit Jain, Global CEO; Mr. Bahadur Dastoor, our CFO; and SGA, our Investor Relations Advisors. We will start the call with the key operational highlights for the quarter and industry outlook 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 our business operations and outlook on the solar industry. I’m beginning with our order book position. The company announced new orders totaling INR4,387 crores FY ’23 compared to INR719 crores in FY ’22, aided by strong ordering momentum seen in India. All the orders announced in FY ’23 are from the domestic market. In Q4 FY ’23 alone, the company announced new orders worth INR2,165 crores, which is the highest quarterly order inflow the company has seen in nearly three years. We were declared L1 for BOS package of 1,500 megawatt DC at Khavda, Gujarat by NTPC in March 2023. In addition, we also received two new domestic orders, one from Serentica for a 260 megawatt project located in Bikaner, Rajasthan, and second being a 60 megawatt project from Sembcorp, which is located in Karnataka.

Our unexecuted order book as on March 31, 2023 stands at INR4,913 crores, which — with nearly 90% of the order book comprising domestic EPC projects, which are executable over the next 12 to 18 months. With the inclusion of Nigeria MoU that was announced in September 2022, our order pipeline would enhance significantly with the project value alone expected to exceed $1.5 billion. We are working with the authorities to finalize the D&EPC agreement for the project by Q1, Q2 FY ’24. We hope to continue our order book momentum in FY ’24 and are seeing a steady growth in our order bid pipeline. We expect to bid for projects constituting nearly 23 gigawatts over the next 12 months with India having the highest share at 62.7%, followed by Middle East and Africa at 27.1%. Our confidence in the bid pipeline is further aided by the limited notice to proceed agreements we have received from projects in Australia, South Africa, and the U.S. which provides more visibilitly on order inflow prospects. We believe the company is well-positioned to target orders in excess of $1 billion in FY ’24, over and above the already announced Nigerian project MoU and any other group company’s business.

As stated in earlier calls, we iterate that lumpiness in order flow is to be expected with EPC company like ours and the timelines for achieving project closure could vary depending upon a host of factors, including finalization of contractual term, financial closure, etc. Structurally, however, the underlying trend of this stronger company is expected to take a larger portion of the market in the future and lower level players moving out is beginning to take shape. In terms of execution, while we had a good momentum in the order booking in FY ’23, we had some unforeseen issues in execution of a few international EPC projects. Our domestic EPC business remained largely unscathed, however — and we delivered a positive performance there. On the international EPC front, we had to deal with the issues ranging from unpredictable weather conditions in Australia, to manpower and subcontractor availability issues in the U.S., which affected project costs adversely. O&M segment was largely impacted by some projects where costs were incurred but revenue recognition had not commenced. With the last two of our legacy international projects almost complete, we are confident of returning to the path of profitability in FY ’24.

In terms of the market outlook, we continue to see positive momentum in the market with continued decline in the solar module prices and favorable regulatory landscape. Indian market appears to be in a bright spot, with a lot of ordering momentum gaining pace. Government’s recent decision to exempt ongoing solar projects from the mandatory rule of procuring photovoltaic modules from the approved list of models and manufacturers, ALLM, for one year was issued on March 10, 2023. This should help ease constraints with local module availability and provide a fillip to project execution on the ground. The move is significant as India’s aim is to install 280 gigawatts solar power capacity by 2030 and we need a strong pickup in execution phase to reach the target. There is a strong pipeline from both private IPPs and PSU in India currently. PSUs alone have indicated a pipeline of more than 30 gigawatts in FY ’24, of which NTPC is likely to be a key contributor.

On our O&M business, our solar O&M portfolio as of date is approximately 7 gigawatts. Our O&M portfolio has a tailwind of strong EPC orders and we are also targeting third party contracts. O&M is moving faster toward AI-based maintenance monitoring and digitization. It is increasingly important for developers to have direct control on their power generation assets like IRR are dependent on it. Due to domain expertise of the O&M contractors, customers are increasingly referring such third party services, providers who are knowledgeable and accountable. In our case, we have the global experience and we also bring the learning of EPC. So, between developing the knowledge in-house and going with an outside expert, we think the case is increasingly getting stronger for the latter, which should benefit us in bagging more O&M projects.

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

Bahadur Dastoor — Chief Financial Officer

Thank you, Amit, and good evening, friends. Now, I will take you through the consolidated financials for the year ended March 31, 2023. Reported revenue for Q4 was INR88 crores and significantly lower both year-on-year and quarter-on-quarter. Revenue was impacted during the quarter due to cost increase on account of certain cost provisions made, which impacted the percentage of completion and led to a revenue reversal in ongoing EPC projects. Pro forma results excluding the impact of provisions would show revenue of INR278 crores, gross loss of INR4 crores, and PAT loss of approximately INR150 crores for Q4 FY ’23.

Provisions made in Q4 FY ’23 were on account of three reasons. Firstly, four international projects, which are now virtually completed, face cost overruns due to punch points and handover costs amounting to rupees INR61.43 crores, which have been fully provided for. Secondly, one of the international projects, currently under commissioning, is facing challenges in achieving the desired plant output. After detailed evaluation, the company has decided to carry out replacement of material and ancillary items which are causing the impediment. The cost of re-installation is multifold as compared to the cost of the material itself. The group has resolved its rights with respect to recovery of the cost overrun on account of such replacement from the material suppliers and applicable insurance. The group has, on a conservative basis, decided to increase the cost to completion amounting to INR165.78 crores to carry out the said replacement and re-installation, so as to achieve the desired output, which has resulted in reduction of revenue and recognition of foreseeable loss for an equivalent amount.

Thirdly, the group had commissioned an international project at three sites for a customer. At one of the sites, certain rectification work had to be carried out, which while it’s not affecting the output of the plant, was necessary from a contractual standpoint. The management is in discussion with the customer to finalize the defect liability quantum. The group has provided for an amount of INR45.19 crores on a best estimate basis towards maximum cost of rectification and charge the same to direct project costs. With the above provisions, we believe we have adequately provided for all major currency foreseeable losses related to the international projects. Looking ahead, our FY ’24 revenues are largely going to be driven by our current unexecuted order book of INR4,913 crores, of which 90% are domestic EPC orders which have historically generated good margins as Amit earlier alluded to.

We anticipate that consolidated EBITDA should turn green by Q2 FY ’24 and the company should revert to normal domestic EPC business margins in FY ’24. We are also optimizing our overhead costs and the company has identified 15% to 20% savings, which should get reflected in the coming quarters.

Now coming to the balance sheet. As on March 31, 2023, our net worth stood at negative INR240 crores on account of the losses incurred in the fourth quarter. Our net debt now stands at INBR1,967 crores and cash and cash equivalents stood at approximately INR48 crores. As on March 31, we had a positive core working capital of INR38 crores as compared to negative core working capital of INR140 crores as on December 31, 2022. However, investors should note that the net working capital given above would stand at negative INR445 crores as of March 23 were the indemnity receivables to be excluded. Our process of deleveraging is likely to commence from the second quarter of FY ’24 and we are targeting to significantly reduce debt by Q4 of FY ’24 aided by receivables recovery, indemnity inflows, and negative working capital cycle of the new projects.

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

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Abhineet Anand from Emkay Global Financial Service. Please, go ahead.

Abhineet Anand — Emkay Global Financial Service — Analyst

Yeah. Thanks for the opportunity. Just wanted to first understand out of this INR5,000 crores of order bid, almost is totally clean without any issues that we have currently?

Bahadur Dastoor — Chief Financial Officer

Abhineet, out of the INR5,000 crores, INR500 crores are old legacy orders, which are essentially revenue equals cost going forward, since we have already provided for all the losses. INR4,500 crores are clean orders, which will be executed majorly in FY ’24.

Abhineet Anand — Emkay Global Financial Service — Analyst

And I assume those ones should get completed by 1H of this year or will it prolong further?

Bahadur Dastoor — Chief Financial Officer

Which one, sorry? Could you repeat?

Abhineet Anand — Emkay Global Financial Service — Analyst

This INR500 crores. What could be the completion schedule for that?

Bahadur Dastoor — Chief Financial Officer

Most of it will get done in the first quarter of FY ’24 with a little part of it going into the second quarter.

Abhineet Anand — Emkay Global Financial Service — Analyst

Okay. And secondly, if you can highlight from the parent, any plan as to — if not in numbers, at least in gigawatts, what are their plans in terms of ordering and all? I’m talking about Reliance.

Amit Jain — Global Chief Executive Officer

So, Reliance plans are available in public domain and we are actively discussing the rollout plans. But they are still under discussion and the rollout plans — rollout bids have not been finalized yet. So, as we are discussing the plan, that the rollout is going to be gigawatts scale size, multiples of gigawatts, but dates are not final yet.

Abhineet Anand — Emkay Global Financial Service — Analyst

And last one from me, the Nigerian project, when can we expect to the country — or the order coming up in our…

Amit Jain — Global Chief Executive Officer

Discussions are undergoing and we expect to conclude either in Q1 or early Q2.

Abhineet Anand — Emkay Global Financial Service — Analyst

And I think in your opinion opening remarks, you said that apart from this basically, upwards of $1.5 billion.

Amit Jain — Global Chief Executive Officer

Yes.

Abhineet Anand — Emkay Global Financial Service — Analyst

You are expecting another $1billion off order inflow in ’24.

Amit Jain — Global Chief Executive Officer

That’s absolutely correct. That’s what we are expecting.

Abhineet Anand — Emkay Global Financial Service — Analyst

So, if I could just break down in terms of, one is the Nigerian order; second, there would be three more parts, right? One is anything in international, you are working in Australia [Technical Issues] Second will be a lot of projects in India. You are working with NTPC itself. And third would be your parent. So, if you can break down in — what’s your expectation from these three over the medium term?

Amit Jain — Global Chief Executive Officer

So, in India, we are expecting close to INR4,200 crores in this financial year. And besides that, we are targeting three other major markets, South Africa, Australia, and other regions. So — and which is also close to INR5,000 crores. So, that’s what is our estimate put together and we have a very high visibility for all these orders, because as we have alluded to in my investor speech that in Indian markets, we are very close to closing the orders which are expected in Q1 and Q2 itself. And in South Africa and Australia and U.S., we have been shortlisted by our three clients and on three projects, we have been issued limited notice to proceed, which is an early phase of the project. So, all the projects we have very high visibility and we’re pretty confident of booking in excess of $1 billion over and above Nigeria and RIL projects.

Abhineet Anand — Emkay Global Financial Service — Analyst

Yeah. Thanks a lot and all the best.

Operator

Thank you. [Operator Instructions] The next question is from the line of Manoj from Geometric. Please, go ahead.

Manoj Dua — Geometric Securities — Analyst

Am I audible?

Operator

Yes, you are.

Bahadur Dastoor — Chief Financial Officer

Yeah, Manoj.

Amit Jain — Global Chief Executive Officer

Yeah, Manoj.

Manoj Dua — Geometric Securities — Analyst

Okay. So, my first question is, whatever order you won in the last year, how was the competition you faced in during that? Especially NTPC order, what kind of competition was there?

Amit Jain — Global Chief Executive Officer

So, I would say NTPC, the Tier 1 contractors are there and it was the reverse auction. So, we were declared winner of the reverse auction. So, we’ll get to know — like, we don’t know what were the other competitors were in the action. So — but we were declared L1 in all the eight packages for two NTPC bids we were there.

Manoj Dua — Geometric Securities — Analyst

Okay. And how do you see U.S.A. as a market for Sterling in the current year or maybe future?

Amit Jain — Global Chief Executive Officer

U.S.A. is a good market, but we are being very, very selective and redefining our risk profile with respect to U.S.A. and all other international markets. So, though we are selectively bidding for the projects in all the markets, but we are looking at margins and risk profile of the projects very cautiously.

Manoj Dua — Geometric Securities — Analyst

Okay. Any figure we have determined as on now, how much promoter has to give it to the company according to the agreement as of now?

Bahadur Dastoor — Chief Financial Officer

I will talk about what is the cash block situation. So, roughly, as of today, the company has INR1,200 crores to INR1,300 crores of indemnity assets where the cash has been blocked. Discussions keep happening with the customers, with the authorities, and the promoters, to see how to settle it as judiciously as possible. Recalls on the promoter is of course the last resort. The idea here is to bring it down [Phonetic] and get our cash flows in as fast as possible.

Manoj Dua — Geometric Securities — Analyst

Okay. And my last question is, now INR500 crores of foreign order which is left, so as an investor, we are not that much is a danger part, but now we see the reversal of sales also happening. Is this more possible in the current year also in terms of reversal of same?

Bahadur Dastoor — Chief Financial Officer

No. So, let me explain that. Because we had to make this provision in the cost to complete for one of our projects, which was not entirely completed, there was a reversal of sale, which we have tried to explain in the pro forma sheet of our investor presentation. We do not expect any other reversal of sale to happen from now onwards.

Manoj Dua — Geometric Securities — Analyst

Okay. Can I ask one more question, last?

Amit Jain — Global Chief Executive Officer

Sir, please.

Bahadur Dastoor — Chief Financial Officer

Go ahead.

Manoj Dua — Geometric Securities — Analyst

Okay. You said you are going for 15% to 20% of cost reduction you have identified, and you have given 10% to 11% gross margin indication as a profit. Are we including that cost cutting in this current gross margin guidance?

Bahadur Dastoor — Chief Financial Officer

Gross — the cost cutting is for overheads, which is after the gross margin. What we are looking at is definitely to reduce these overheads even beyond what we are presently targeting. However, the entire impact of this will take a couple of quarters in this year to fructify. But from that point in time, the overheads will be exactly lean in keeping with the revised requirements of the organization.

Manoj Dua — Geometric Securities — Analyst

Okay. And best of luck.

Bahadur Dastoor — Chief Financial Officer

Thank you very much.

Operator

Thank you. [Operator Instructions] The 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

Yeah. I mean, we have made it a habit of having results which are generally up and down in terms of the sale. There’s no trajectory to any kind of sales. I mean, how will we ever have any kind of uniform sales? Because again, this result is more from the blue.

Bahadur Dastoor — Chief Financial Officer

I will start by answering this, Mr. Hawa, and then Amit can just log into it. Whenever we have found that there is an issue, we have provided for it 100%. So, we do not want to leave it as a dripping tap which goes on affecting future quarters. The reason for making large provisions, almost INR165 crores in one project, almost INR45 crores in another, almost INR60 crores in the third, is just to ensure that no matter what has to be done, we have accounted for it and taken care of it up to March ’23. We do not want anything affecting our numbers for FY ’24, which we really believe will be a turnaround year. If things go to plan, things will start showing positively from the first quarter itself, the trajectory.

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

But sir, if you see the previous transcripts, you say this for almost every second, third quarter, and again, there is a new development which brings us down. And I mean, I clearly feel that these three write-backs of sales should have been actually communicated to the exchange in between the quarter, because it’s a material development. It cannot be done with the results.

Bahadur Dastoor — Chief Financial Officer

Firstly, it was not anything which happened in the middle of the quarter, and all three are not resulting in write-back of sales. There is only one which has resulted in the write-back of sales. Further, our legacy orders are down to INR500 crores. There is virtually nothing left. What we have in hand right now are our domestic orders, which even if you go the last three to four years, have always given the gross margins even in the worst of times.

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

So, when the domestic orders itself are so good, why go to overseas orders where we always tend to lose money? So, I mean, with these three orders where we are LTNP [Phonetic] I feel that there is more risk coming our way, because clearly, you are not able to handle the overseas risks. We are continuously ending up paying money to the customer for — I mean, I can’t see how we can be held responsible for his project not really performing and having to deal — do the entire project almost again. It’s something which shows some kind of an inefficiency on our part.

Bahadur Dastoor — Chief Financial Officer

Firstly, it is not the entire project. The project is of a very large magnitude. We are talking of the replacement cost of a particular component of that particular project. Because it is overseas, we have said that the cost of material itself is a very small portion. It is a cost of installation. Mr. Hawa, anything you redo in a site will at least be four to five times the cost of the initial installation. That is what is causing us the pain point.

And with regards to your question about international projects, I will let Amit answer that.

Amit Jain — Global Chief Executive Officer

So, Mr. Hawa, as I alluded to, first of all, the projects, the legacy projects which we see, they were all booked in pre-corona times and were impacted by, I think, a lot of uncertainties and unforeseen circumstances. Project execution started in COVID and then the unpredictable climatic conditions in those zones and the shortage of manpower complete breakdown of supply chains. So, all that impacted, and these were the only legacy projects which were — we were carrying out. And with this one, this particular quarter, we have practically accounted for everything which we can foresee in these projects and there is no possibility of carrying out any further losses in these projects. We are now embarking on new order booking. Majority of it’s coming from domestic where we have a proven track record and we have always delivered. And as far as the international projects are also concerned. We are very cautious in booking new projects. So, risk profiling and margin profile of the project is thoroughly checked and we are making doubly sure that we are going to deliver high returns even on those projects. And that’s why there were a bit of slowdowns the last few years in booking international orders. So, whichever order, whether domestically or internationally we are booking, margin profile and risk are thoroughly being assessed so that we continue to deliver high margins to our shareholders, so that — and we are proceeding on that trajectory. And I don’t see any more losses at all coming out of our portfolio. So, we have taken care of everything. So, that’s what we are projecting.

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

Okay. Thank you very much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Bhavik Shah from MK Ventures. Please, go ahead.

Bhavik Shah — MK Ventures — Analyst

Yeah. Hello, sir. Thanks for the opportunity. I just wanted to understand the cost of capital for the borrowings which you have taken. At what rate have you taken the borrowings?

Bahadur Dastoor — Chief Financial Officer

The borrowings range from between 8.9% to about 9.9%. This could go up as the repo rates change. But that is the range at which it is about now. So, on an average, you could say about 9.5%, 9.65%.

Bhavik Shah — MK Ventures — Analyst

Okay. And what kind of gross margins or EBITDA-level margins do you expect in the Indian projects or in overseas projects which you are going to take and the NTPC projects as well?

Bahadur Dastoor — Chief Financial Officer

Sorry, you will have to repeat your question, please. It was not very clear.

Bhavik Shah — MK Ventures — Analyst

Just a minute, sir. Is it better now?

Operator

Ladies and gentlemen, the line for the current participant in the queue seems to have disconnected. We will move on with the next question, which is from the line of Iqbal from Nuvama. Please, go ahead.

Iqbal Khan — Nuvama Wealth — Analyst

Yeah. Hi. Thank you, sir. Sir, just wanted to understand this reversal of the revenue recognition in more details. You have mentioned in the pro forma it’s around INR190 crores, however, the second one stays around INR166 crores. So, what is the remaining amount in this? So, I just wanted to understand in detail about the provision that you have made, first, because I believe where you have said.

Bahadur Dastoor — Chief Financial Officer

See, the cost to completion went up by INR165 crores. Therefore, on a percentage of completion, your percentage of completion fell. The only way to recognize this is to reverse the revenue which has been booked in the last quarter. The costs of INR165 crores have still not been incurred. They have really been made as a provision in the cost to complete. Therefore, there is a reversal of revenue to the extent the cost is higher than that, there will be a foreseeable loss, which has been provided for.

Iqbal Khan — Nuvama Wealth — Analyst

Thank you, sir.

Operator

The next question is from the line of Shantanu from Think Investments. Please, go ahead.

Shantanu Mantri — Think Investments — Analyst

Yeah. Hi. My first question is that INR450 crores, INR500 crores old orders, right, they were supposed to get executed — kind of they were supposed to get over this quarter, but I don’t see any execution on that front. So, is there any challenge in finishing those orders? What was the reason that nothing major happened this quarter?

Bahadur Dastoor — Chief Financial Officer

You have to realize, Shantanu, that out of the INR490 crores approx which is there, INR165 crores is on account of the cost increase only which has been pushed, right? Otherwise, in this particular quarter, if you would have seen the pro forma that we have put in, your turnover would have been INR278 crores, if you see the slide which we have given for our pro forma and loss account. So, that would be comparable to what we have achieved in the previous quarter, and it is not that nothing has happened in this current quarter.

Shantanu Mantri — Think Investments — Analyst

Got it. Okay. So, now like you mentioned that whatever hit you had to take, you’ve taken, and your revenue will be cost. So, are these fully…

Bahadur Dastoor — Chief Financial Officer

Just for these projects.

Shantanu Mantri — Think Investments — Analyst

Yeah, just for these projects, obviously. So, are we like fully sure that this will get over in Q1 and maybe some flow — something going into Q2. But there is no other problem in executing this?

Bahadur Dastoor — Chief Financial Officer

As per our plan, the bulk of it should get done in Q1, and there would be an overflow into Q2. As of right now, we do not envisage — let me now say as of right now, we do not envisage anything and there are no surprises further, we believe.

Shantanu Mantri — Think Investments — Analyst

Okay. Now coming onto your balance sheet. So, debt has gone up to INR2,000 crores, right? And this majorly is because of all these one-offs, etc. So, I heard the number of INR1,200 crores to INR1,300 crores of indemnity assets, right? Now to — just to come to the bottom line, this money is actually supposed to come into the company and it should ideally knock off the INR2,000 odd crores debt that’s been accumulated over this one and one and a half years. So, I wanted to understand this breakup of this indemnity assets and the timelines as to how this will come in, so that what can be the net debt at the end of FY ’24. This is excluding any advances that we get for Nigeria project or NTPC. That’s purely operational. I just want to understand what sort of money can come in from these indemnity receivables, whatever you want to call it, that can get knocked off to the debt, say in the next 12 months, FY ’24.

Bahadur Dastoor — Chief Financial Officer

We expect — so, first of all, it is not just the INR1,200 crores of Indemnity receivables for which we needed to borrow. If you had a chance to have a look at our notes to the financial statements, you will find that in particular project in the U.S., we had appointed another subcontractor and we’ve taken the first subcontractor to court.

Shantanu Mantri — Think Investments — Analyst

Correct.

Bahadur Dastoor — Chief Financial Officer

There the company has paid INR58 million, which is shown as a recoverable. And if you add that as well, then you’re talking about INR17 crores of money which has been blocked, which is closer to the money that is totally borrowed.

Shantanu Mantri — Think Investments — Analyst

Correct.

Bahadur Dastoor — Chief Financial Officer

Now, against the INR1,200 crores — so that arbitration and claim can go on for about a year at the minimum. So, we will know about it at that point in time, even though legal opinion says we have an extremely strong case. Now coming to the INR1,200 crores of indemnity, we expect to get somewhere around INR450 crores, a number anywhere between INR450 crores to INR500 crores in September ’23.

Shantanu Mantri — Think Investments — Analyst

Okay.

Bahadur Dastoor — Chief Financial Officer

Balance will happen in the next year or thereafter.

Shantanu Mantri — Think Investments — Analyst

Okay. But why would this not come in FY ’24 itself, like why will the balance go in the next year?

Bahadur Dastoor — Chief Financial Officer

The indemnity agreement is very clear that only when a claim is crystallized, which means it has reached the last stage of appeal, can it be levied upon the promoter. So, we believe that — so, as of right now, there are claims which are crystallized even after October ’22. September ’22, we have filed our first indemnity claim money, of which we received. October ’22 and onwards also, some things have crystallized significantly. And the balance amount, which will crystallize, is what we can claim in September ’23. I can’t claim the entire INR1,200 crores from the promoters in September ’23, because the company is first expected to fight it out with the customers and the regulatory authorities and/or any tax authority, and only when it fails, is it supposed to go after the promoter.

Shantanu Mantri — Think Investments — Analyst

So, what happens to the interest…

Bahadur Dastoor — Chief Financial Officer

[Speech Overlap]

Shantanu Mantri — Think Investments — Analyst

Yeah. So, what happens is the interest cost that the company will have to bear for this maybe one, one and a half years till this gets fully crystallized? Then that…

Bahadur Dastoor — Chief Financial Officer

The company will have to bear the interest. Interest is not on the promoters. What the agreement has done is secured the principal.

Shantanu Mantri — Think Investments — Analyst

Okay. Understood.

Bahadur Dastoor — Chief Financial Officer

If I had to even charge the interest, then my EBITDA would effectively be my PBT, right?

Shantanu Mantri — Think Investments — Analyst

Got it. Okay. Lastly, can you give us an update on what is the status with Nigeria and Reliance both? That would be really helpful.

Amit Jain — Global Chief Executive Officer

Yeah. So, Nigeria, we are in advanced stage of discussions with the NDPHC and Ministry of Power of Nigeria and we expect to get it concluded either in Q1 or early Q2. So, that’s where we are on Nigeria. And in Reliance, we are in discussion with them and the rollout plans are getting finalized, but we have not been informed of the exact schedule. So, discussions are going on and we are planning…

Shantanu Mantri — Think Investments — Analyst

Okay.

Amit Jain — Global Chief Executive Officer

…for the execution of the project.

Shantanu Mantri — Think Investments — Analyst

Okay. So, just let me get this clear. So, Nigeria order, say worst-case execution, starts in Q2 or Q3? Is that understanding right?

Amit Jain — Global Chief Executive Officer

No. Execution will start in Q4 and we will be having a very minor portion of the revenues in Q4.

Bahadur Dastoor — Chief Financial Officer

See, after the order signing, there is also going to be the financial closure and post which, we will start the work. So, work for Nigeria…

Shantanu Mantri — Think Investments — Analyst

So, Nigeria should start only in Q4 execution, right?

Amit Jain — Global Chief Executive Officer

Yes.

Bahadur Dastoor — Chief Financial Officer

Yeah.

Shantanu Mantri — Think Investments — Analyst

Okay. And similarly for Reliance, worst-case, will this happen in Q4 or then it will slip into Q1 FY ’25?

Bahadur Dastoor — Chief Financial Officer

As Amit said that there is no plan which has been finalized as of yet. As we find out, we will we will keep you all informed.

Shantanu Mantri — Think Investments — Analyst

Okay. Got it. And on the NTPC both orders, I believe nothing has started yet on the execution part, right? The first order we got in October, if I’m not wrong. So, do we expect that to now start in Q1?

Bahadur Dastoor — Chief Financial Officer

Shantanu, that is incorrect. Work has started at the site, however, there has not been enough work for us to start recognizing revenue.

Shantanu Mantri — Think Investments — Analyst

All right.

Bahadur Dastoor — Chief Financial Officer

So, the site work has already commenced.

Shantanu Mantri — Think Investments — Analyst

Okay. And on the second win, when do we expect that to start?

Amit Jain — Global Chief Executive Officer

I think we are expecting to sign the contract at the end of this month or early next month. And because with the project site is adjacent to the first project and we have already done engineering for the first project, so we will be moving on fairly quickly on the second project.

Shantanu Mantri — Think Investments — Analyst

Got it.

Amit Jain — Global Chief Executive Officer

And the revenue recognition will start from Q3 FY ’24.

Shantanu Mantri — Think Investments — Analyst

Got it. Okay. That’s it from my side. Thank you.

Operator

Thank you. The next question is from the line of Vignesh Iyer from Sequent Investments. Please, go ahead.

Vignesh Iyer — Sequent Investments — Analyst

Yeah. I just wanted to know your net worth has turned negative, right? So, are we planning to raise any funds? I mean, is the promoter planning to put money or maybe raise any funds from the QIB or anything of that sort?

Bahadur Dastoor — Chief Financial Officer

Nothing has been finalized as of date, Vignesh, for me to provide any further guidance on this.

Vignesh Iyer — Sequent Investments — Analyst

Okay. And so, in order to understand the NTPC projects…

Bahadur Dastoor — Chief Financial Officer

Sorry, I just want to add that as far as the stand-alone net worth is concerned, it is very positive net worth, over INR1,000 crores. It is only the consolidated net worth that has gone down.

Vignesh Iyer — Sequent Investments — Analyst

Right. Understood. Just to understand on the NTPC project side, so this INR4,900 crores unexecuted order book has NTPC project as well, right? I mean, part of it.

Bahadur Dastoor — Chief Financial Officer

Approximately, INR3,600 crores would be the unexecuted order value on NTPC.

Vignesh Iyer — Sequent Investments — Analyst

And that could be 1.5 gigawatts, right?

Bahadur Dastoor — Chief Financial Officer

That would be 1.5 times 2, almost 3 gigawatts.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Right. Okay. So, fair enough. And just to understand this international project, I mean, the one you’re talking about in South Africa, and U.S. and as well as the Nigerian project, would it have a similar gross margins similar to like what it is in domestic?

Bahadur Dastoor — Chief Financial Officer

No, it would be slightly lower in terms of the international jobs. Nigeria, however, is fairly comparable margin project.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Sir, another part of it. So, what we feel due to this legacy project was the increasing cost. So, coming to this new projects, we have the cost escalation as part of the contract? I mean — and what is and how much is land cost escalation possible? I mean, in case, suppose, some other event comes up similar to Russia-Ukraine war or any — there is a problem in the procurement of material or something similar. So, what is the percentage cost escalation possible on this newer project that we are signing?

Amit Jain — Global Chief Executive Officer

So, whatever the newer projects we are signing, we are considering the present prevailing cost and orders are booked or placed on vendors immediately after we have finalized, so that we are hedged during the execution of the project. So, we are taking extreme care to move fairly quickly. And we have built provisions to pass out for any extraordinary circumstances, to pass on the cost to the customers. But the orders are going on back-to-back basis to the vendors, so that we are not exposed at all for the variations in the market.

Vignesh Iyer — Sequent Investments — Analyst

Fair enough. So, just to understand this newer projects that you are going to sign, I mean, the INR5,000 crores value in South Africa, Australia and U.S. and once the MoU is signed with Nigeria, I mean, Nigeria MoU is done — I mean, once that is part of the order book and you have started your work from Quarter 4, would it — would both of these projects have similar timeline of execution of 12 to 18 months or it would be a bit more than that?

Amit Jain — Global Chief Executive Officer

Only Nigeria will have a little more than 18 months by — all other orders will have the same execution timeline of 12 to 18 months.

Vignesh Iyer — Sequent Investments — Analyst

Okay. And apart from the legacy order book, we would only see mainly the revenue being recognized from Quarter 3, right?

Bahadur Dastoor — Chief Financial Officer

Pardon?

Vignesh Iyer — Sequent Investments — Analyst

I mean, assuming your legacy order book spreads over in Quarter 1 and some part goes to Quarter 2, for the newer order book, I mean, where the gross margins are 10% to 12% or a bit lower, would we see the revenue recognition coming mainly only from Quarter 3 of the FY ’24?

Bahadur Dastoor — Chief Financial Officer

If you’re talking of the international jobs, then other than the legacy jobs, they will essentially be slightly in Q2 but majorly in Q3 and Q4. If you’re talking about the unexecuted order values that we hold for the domestic business, they will start from Q1 itself.

Vignesh Iyer — Sequent Investments — Analyst

Okay. Got it. Yeah. That’s all from my side. All the best, sir. Thank you.

Bahadur Dastoor — Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Jayesh Gandhi from Harshad H. Gandhi Securities Private Limited. Please, go ahead.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

Am I audible, sir?

Operator

Yes, go ahead.

Amit Jain — Global Chief Executive Officer

Yeah.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

Okay. Sir, I have a couple of questions. First is on EPC margin, when we say on EPC gross margin 10% or 11%, are we talking about consolidated or only domestic?

Bahadur Dastoor — Chief Financial Officer

Right now, when we have said that we want to return to 10% to 11% gross margin going forward, we are talking about the blended margin across the world for projects that are either in progress or expected to be in progress in Q3 and Q4.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

So, domestic probably would be a higher margin, right, according to you since we are [Speech Overlap] even if you are going through…

Bahadur Dastoor — Chief Financial Officer

[Speech Overlap] O&M margins also. And therefore, when we are saying O&M is of course a significantly higher margin though a smaller revenue, so, we are talking of a blended gross margin across all lines of business and geographies to be where we have indicated them to be.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

Got it. So, 10% is basically EPC as well as O&M, that is what you’re alluding?

Bahadur Dastoor — Chief Financial Officer

Correct.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

Okay. Second thins is just a confirmation, the listed company is in the business of only EPC and O&M and battery energy storage, right, or can we do something else also?

Bahadur Dastoor — Chief Financial Officer

There is nothing that would prevent us from doing something else as long as it is in the renewable space. The mandate which this company has is to do EPC business for renewable energy. And of course, the EPC contracts can include or will include round-the-clock power where battery and energy storage will be a part of the project cost.

Amit Jain — Global Chief Executive Officer

Yeah, that’s right, because going forward, the more trend is moving towards hybrid, so in addition to solar and battery storage, if it requires venturing into BOS for wind and other systems, so company is gearing up to address all other additional solutions. And we’ll be ready to provide complete hybrid solutions to the market.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

Okay. Sir, why I’m asking this is because just two days back, one of — I don’t know whether it is a subsidiary or what, Sterling & Wilson project got a transmission order from NTPC. So, we will never be into the transmission, right?

Amit Jain — Global Chief Executive Officer

So, that’s the order book by Sterling & Wilson Private Limited. So, that company is part of Sterling & Wilson Private Limited, not part of Sterling & Wilson Renewable Energy.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

I got you. And sir, last question, how confident are we on getting the Nigerian order, because as I see, we have just entered into an MoU with the Nigerian government? I mean, it’s just an MoU, or are we in an advanced stage now?

Amit Jain — Global Chief Executive Officer

No, we are in advanced stage. It’s not just the MoU. The draft contracts have been exchanged, the legal teams are engaged, the final terms of financing, term sheet between Exim Bank and Nigerian government is getting finalized. So, it is not just MoU, we are about to conclude the contract, and it had slowed down a little bit because of elections which were happening in Nigeria. Now, we expect to close the Nigerian order by either the end of Q1 or early Q2.

Jayesh Gandhi — Harshad H. Gandhi Securities Private Limited — Analyst

I got it, sir. Thank you and best of luck.

Operator

Thank you. The next question is from the line of Iqbal from Nuvama. Please, go ahead.

Iqbal Khan — Nuvama Wealth — Analyst

Yeah. Hi. So, just wanted to put forth one more question. In terms of the unexecuted order book, around INR500 crores are the legacy orders, which I believe is now no more a profit-making order for the company. So, would you be incurring more — I mean, would you be raising more debt for this company going ahead, I mean, for this project? So, in short, how much — to what extent the term debt might increase in financial year ’24?

Bahadur Dastoor — Chief Financial Officer

So, Iqbal, it is not just that debt is the only way that one can fund the project. The company also has available letters of credit limits, which it could utilize. So, there it will be a mixed bag, where you would stretch your payable to ensure that it can be offset against the receivable of an advance from a future project. So, company will do everything in its power to keep debt low. But if it is required to be borrowed, yes, then there would be an increase in debt.

Iqbal Khan — Nuvama Wealth — Analyst

Okay. Thank you. The magnitude of the debt that you would — the magnitude of the debt that you might have to borrow would be lesser than the INR500 crores, which is Indemnity which is receivable? Is that — would that be a fair understanding?

Bahadur Dastoor — Chief Financial Officer

See, the INR500 crores indemnity receivable will come in Q3. The projects that have to be completed, the legacy ones, are in Q1 and Q2. The company will work out the most efficient ways to take care of meeting the cost requirements. Also, let us not forget that on the one hand, there is cost, but on the other hand, there is also a receivable from customers. So, there will be definitely a certain amount of borrowing and/or LC management which will have to be done to take care of this. We are in the process of working out the most efficient way to do it.

Iqbal Khan — Nuvama Wealth — Analyst

Okay. Fair enough. Thank you, sir.

Operator

Thank you. Ladies and gentlemen, that was our last question for today. I would now like to hand the conference over to Mr. Amit Jain for closing comments. Over to you, sir.

Amit Jain — Global Chief Executive Officer

Yeah. Thank you. We hope to build on the order momentum of FY ’23 and turn around the financial and operating performance of the company in FY ’24. With the strong support and patronage of promoters, we intend to accelerate our growth trajectory and 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 SGA, our Investor Relationship Advisors. Thank you, once again, and have a great day. Thank you. Bye.

Operator

[Operator Closing Remarks]