TECHNO ELECTRIC & ENGINEERIN (TECHNOE) Q2 FY23 Earnings Concall Transcript

TECHNO ELECTRIC & ENGINEERIN (NSE:TECHNOE) Q2 FY23 Earnings Concall dated Nov. 15, 2022

Corporate Participants:

Ankit Saraiya — Whole-time Director

P. P. Gupta — Managing Director

Analysts:

Sandeep Tulsiyan — JM Financial — Analyst

Sarvesh Gupta — Maximal Capital — Analyst

Unidentified Participant — — Analyst

Prolin Nandu — Goldfish Capital — Analyst

Kamlesh Kotak — Asian Markets Securities Private Limited — Analyst

Presentation:

Operator

Ladies and, gentlemen, good day and welcome to the 2Q FY ’23 Earnings Conference Call of Techno Electric & Engineering Limited, hosted by Asian Market Securities Limited.

This conference call may contain forward-looking statements about the company, which are based on 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. Actual results may differ from such expectations, projections, etc., whether expressed or implied. Participants are requested to exercise caution while referring to such statements and remarks. [Operator Instructions]

I now hand the conference over to Mr. Kamlesh Kotak from Asian Markets Securities Limited. Thank you. And over to you, sir.

Kamlesh Kotak — Asian Markets Securities Private Limited — Analyst

Thanks, Pooja. Good afternoon, everyone. On behalf of Asian Markets, we welcome you all to the 2Q FY ’23 earnings conference call of Techno Electric & Engineering Company Limited. We have with us today Mr. P.P. Guptaji, Managing Director; and Mr. Ankit Saraiya, Director representing the company.

I request Shri Guptaji to take us through an overview of the quarterly results and then we shall begin the Q&A session. Over to you, Guptaji. Thank you.

P. P. Gupta — Managing Director

Thank you, Kamlesh. Very good afternoon to all of you. And I once again welcome everyone to discuss our financial results for the second quarter and first half year ending 30 September, ’22. Anything said on this call which reflects our outlook for the future or that could be construed as a forward-looking statement, must be reviewed in conjunction with the risk that the company faces.

Let me quickly highlight our performance, which you may have seen in the papers and papers filed with the stock exchanges. The total revenue for the second quarter stands at INR228 crores. The revenue of EPC is at INR180 crores. Revenue from Wind segment is INR47.5 crores. EBITDA stands at around INR31 crores. The operating profit in the EPC segment is around INR28 crores. We have experienced some pressures in EBITDA due to higher commodity cycles and also partially corrected overseas freight, but still higher debt when we backed the contract. Additionally, some top-line also is compromised to protect the bottom line. The other income stands at INR19 crores compared to INR10.28 crore last year, the PBT is at INR78.43 crores, PAT is at INR59 crores approximately and EPS is at INR5.35.

When we look on in totality for the first half of the year, the revenue is just over INR400 crores, which includes EPC around INR325 crore. Revenue from Wind segment is at INR78.3 crores. EBITDA is at INR120 crores approximately. The operating profit of the EPC segment is around INR50 crores. From the Wind segment is at around INR70 crores. The other income is at INR32 crores compared to INR27 crores last year. The profit before tax for the first half year is at INR127 crores. The profit after-tax is around INR94.5 crores. EPS is at INR8.58. The current investment value of cash and cash equivalents in hand stands at INR1,200 crores, that is almost more than INR100 per share.

During the quarter, we got additional business worth about another about INR400 crores. And additionally, we have booked one more order of Goa TBCB project of Sterlite for INR126.2 crores. We are also involved in the one of the [Indecipherable] projects of J&K for supplying and installing 2.5 lakh meters for INR338 crores. So all put together, the business in hand as of today is around INR3,600 crores and business in pipeline is another INR500 crores, but there are lot more opportunities in our marketplace. We are confident to book additional business of no less than INR1,000 crores to INR1,500 crores by the close of the year as we see all time hike in the company.

Coming on the outlook, as committed in last quarter, we have been able to dine over difficult times and shown growth despite marginal growth last year. We foresee significant growth for this year, but primarily in the coming two quarters, but majorly in the last quarter. We expect the growth momentum to be stronger than this year in the financial year ’24 and ’25. We expect more businesses from the segments like FGD, AMI and data centers. The order book, which I talked earlier do not include our own in-house order of data center, which will be another around INR1,215 [Phonetic] crores.

In the coming years, we expect strong power sector reforms as I have been discussing and part of our printed documents of manual accounts. As power and energy are converging, additionally, there is a significant focus and stress on availability and reliability of power supply, the cost of power and stress on the improvement of overall financial health of the sector. While the focus will continue to be remained on renewable power and its related infrastructure, there is a significant focus of bringing reforms, investing in the distribution segment called RDSS, which are the distribution reforms-cum-system centering.

The transmission infrastructure for the renewable power as required by 500 gigawatt by 2030 will continue to be way of life. Additionally, we may expect our energy storage solutions becoming part of the forward going energy sector. And I see more and more future on logistics, transportation sectors, electric vehicles and what not, all going electric. So a lot of energy-based consumption should grow in the coming years. I’m sure it will be doubled by 2030, if not 2.5 times per capita.

Coming specifically to FGD segment, the segment will continue to be focused. The Government of India has already extended the deadline from December ’24 to ’26. There is a considerable progress with the CPSUs and some of the states — forward-looking states in ordering the projects while implementation, but the same will be further strengthening and happening in SEBs and private sector also in near future. The government and Ministry of Environment and Pollution says that the plants near populous regions and capital towns. We’ll have to comply all the orders by 2024 or maybe earlier, while utilities in less polluting areas may go up to ’26 or beyond depending on further modifications by GA.

The Supreme Court also refused to entertain the Delhi Government’s petition seeking directions to 10 allegedly polluting coal-based thermal power plants in Uttar Pradesh, Punjab and Haryana to immediately stop operations till FGD technology installed to reduce harmful emissions. We have got the orders worth INR1,450 crores for FGD during this year. And this level of business is expected to continue at least for next four to five years as 80 to 100 gigawatt is yet to be ordered out by CPSUs, SEBs and private sector.

In Transmission segment, we largely expect that there will be a status quo in transmission side in the inter-state region, while intra-state region, there will be more emphasis on strengthening transmission networks and adding more transforming capacity. Those are two load centers. Our TBCB bidding of the last lot of 60 gigawatts of renewable energy out of 175 gigawatt has started, and we expect it to be completed before March ’23. In the past, the dates for distributions are getting extended. I trust it should close shortly.

Allocation for strengthening of power system has been doubled to INR29.8 million in union budget ’22, ’23 from INR14.55 million, but government also had this program to spend INR3 lakh crores over the next five years in RDSS scheme and have also extended many kind of situations for state governments and discoms. We are also seeing good interest from wind mills and large investors by making the projects bankable and portable on the financial side, particularly in the renewable power as well as on the transmission side. And it may include AMI segment also going forward.

Metering segment, the government has a plan of installing almost 250 million meters in next seven years with the prepaid and smart metering features, which are automatic and heavy communications on work sites. We are witnessing strengthening of power distribution networks to make them more smarter, reliable and less loss-oriented. The main aim of all these steps is to improve efficiency, contain losses so that the health of the discoms could be improved. We are L1, as already stated, in smart meter order in J&K for 2.5 lakh meters worth INR338 crores under DBF-40 [Phonetic] model.

The government has also gone ahead with the Electricity Amendment Act in August 2022. The government wants to give consumers a choice, a long-awaiting I would say, a choice of power supplies as well as enabling discoms to provide for timely and adequate results, tariff results. It will also seeks to amend Section 42 to facilitate non-discriminatory open access to the distribution licenses. This also seeks to amend Section 40 to facilitate uses of distribution networks by all the [Technical Issue] in that area. Power supplies at Page 14. It also seeks to amend Section 62 to provide a greater revision in tariff over India besides mandatory fixing of sealing and minimum tariff by appropriate commissions. We are hopeful that power sector is at a very critical juncture. And going forward, only it can become better, both to the stakeholders as well as to the consumers.

The Wind, we have generic resolution to exit wind assets. Techno has 129 megawatt of wind power in three buckets, 61 megawatt in Tirunelveli, 51 megawatt in Coimbatore Madampatti area and 18 megawatt in Karnataka. We in view of the present challenges prevailing in power sector due to coal shortage, are having good grade availability as well as offers for our wind assets from local industries for captive power use. In view of this, we have considered prudent to sell a part of the capacity as feasible. The capacity of around 51 megawatt is supposed to be parked in our own SPV to facilitate our data center operations.

COVID-19 has impacted life in multiple ways, but one positive outcome of this is the growth in the digital space. With the growth in digital space backed by trust on data production, it is expected that the third-party — and also the IT services being provided on cloud, it is expected that third-party data center industry will grow significantly from the current levels of 500, 600 megawatt to 2 megawatts in next three years and at least 5 megawatt by 2030.

Till date, most of the data centers are located in Mumbai and now it is happening in Chennai due to the undersea cable available. Calcutta is also awaiting the undersea cable, which is scheduled to be here by March ’23. We see lot of data centers coming around our location in Siruseri Industrial Estate in SIPCOT IT Park by other competitors like Equinix, Symphony, Yota [Phonetic] and others, validating our choice of relocation.

Our data center is progressing very strongly. And as you know already, hitting the 24 megawatt IT load, ultra-scale hyper-density nature features. The project is in full construction as of now. We have already completed all the foundation and ground floor work and approaching to finish it and are now preparing to launch the first flow by end of this month. We have already spent about INR55 crores on the project apart from the capex on the land. We are hopeful of commissioning the project by third quarter of 2023.

Additionally, we will consume renewable energy from our operating wind energy capacity to classify the data center as ESG compliant as is the major requirement of hyperscale customers like Amazon, Google, Microsoft, etc. Furthermore, we are seeing aggressive interest from strategic partners to have a JV for developing data centers in India. We are evaluating the available options and definitely be concluding shortly a way forward.

With a capex of around INR1,300 crores, that is around INR50 crores per megawatt of IT load and 60% to 65% capex constituting electro-mechanical works, which is an in-house expertise of Techno, we’ll be able to leverage on our capability and relationships for executing such works. With the in-house renewable energy, efficient capability and prior experience of developing infrastructure projects in more sectors, we are in unique position compared to many new players in this industry.

With this, I will look forward to participation from my esteemed investors and [Technical Issue] and I am available to all of you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Sandeep Tulsiyan from JM Financial. Please go ahead.

Sandeep Tulsiyan — JM Financial — Analyst

Yeah. Very good afternoon, sir.

P. P. Gupta — Managing Director

Very good afternoon.

Sandeep Tulsiyan — JM Financial — Analyst

Yeah. Thank you, sir. Sir, I think definitely, we have reported very good inflows in the first quarter, but for this quarter, you highlighted there are INR400 crores of additional inflows that have already come in. I presume these INR400 crores is over and above the Goa TBCB Sterlite and J&K INR338 crores is what you mentioned or that includes these orders as well?

P. P. Gupta — Managing Director

No, no. Goa and INR338 crores is not included.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. So can you share the break-up of this INR400 crores and also the exact order backlog at the end of September, please?

P. P. Gupta — Managing Director

Yeah. We got one order from [Indecipherable] for Ladakh. And we also got a order, Tripura Electricity Board for about INR237 crores and PGCIL INR157 crores. So these are around INR400 crores.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. Got it. And the order book, what would that be, sir, at the end of the quarter?

P. P. Gupta — Managing Director

Presently, you can say, it is INR3,600 crores in LTE, which will further grow by induction. In this month, we should get another INR400 crores — INR500 crores rather. But definitely, we expect another INR1,000 crores to INR1,500 crores by close of the year.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. Sir, just…

P. P. Gupta — Managing Director

We should close the year with the order backlog of no less than to my mind around INR4,500 crores this year without data center order. This does not include our in-house.

Sandeep Tulsiyan — JM Financial — Analyst

Understood. Sir, please allow me to just reconcile these order numbers, because it was INR3,200 crores at the end of 1Q. We have received this INR400 crore new orders and we have done roughly INR180 crores of execution. So closing orders should be around INR3,400, right? Otherwise, inflows should be around INR570 crores odd. So are there any more orders or…

P. P. Gupta — Managing Director

Yeah. There are some amendments which continues in so many orders, aggregating under INR150 crores, some by INR30 crores, some by INR40 crores.

Sandeep Tulsiyan — JM Financial — Analyst

Understood.

P. P. Gupta — Managing Director

Yeah. Like [Indecipherable] did, one job was not going forward. Now it has learnt to go forward like seekers. So we were not taking in the order book because they could not acquire the land which they are now ready to acquire. So those kind of orders get revised which were not active.

Sandeep Tulsiyan — JM Financial — Analyst

Okay, understood. And besides this, sir, you also mentioned there is a pipeline of another INR1,000 crores to INR1,500 crores for balance part of the year, which is over and above this INR500 crores pipeline details that you shared. Is it possible for you to share some of the major orders from that? Also, possibly in which area they are coming from?

P. P. Gupta — Managing Director

Sir, basically, I have already said there are three areas now we are targeting other than normal areas. We expect one FGD order and definitely about INR500 crores, at least 10 lakh AMI meter work, number of tenders are in the pipeline and similarly somewhat for the power supply for the ongoing data centers by third entities. And we may also succeed in some of the RDSS factors, which are already in market for above INR25,000 crores as first lot.

Sandeep Tulsiyan — JM Financial — Analyst

Understood. So sir, based on this, how should we look at the overall revenue growth target for the next two years for the EPC division?

P. P. Gupta — Managing Director

I will say at least 30%, 40% a year from ’23, ’24 onwards. Whatever order book we have, we have to execute, sir. They are time-bound. So the best year is going to be ’24, ’25.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. So 25% by next year we should aim to grow in EPC division, right?

P. P. Gupta — Managing Director

Yeah, yeah, absolutely. And I think you can expect INR1,750 crores to INR2,000 crores in ’24, ’25.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. And in the past, sir, you have highlighted that the margins are definitely coming under pressure. And I don’t know, being conservative or the way Techno operates, you have guided that margins, one should lower their expectations versus 15%, 16% where the company used to operate historically. Would you still stick to that 12% odd guidance or based on these orders, would you want to revise it up or downward either?

P. P. Gupta — Managing Director

For this year, I think I would like to keep it 12.5% to 13%, as I stated, but let’s see how the commodity cycle behaves. If China slows down and Europe gets into recession, maybe we have more stable commodity cycle in our country. Particularly, we are troubled more on CRGO transformers, which may have formed with other transformer makers also. CRGO prices are almost 2.5 times to 3 times two years back. So prices have normally reasoned there, because more CRGO is used as a CR — for EV vehicles and other applications, batteries. So let’s see how it would behave.

Nickel is very pricey. That is one element. Steel may remain stable or I don’t know if government removes the ban on the exports and some market cycle may change. But still, I will say that steel is higher by about 10%, 15%, but our present day orders are all based on current costing. So we won’t see that kind of impact. So it should come back in ’23, ’24. I think we should be back to 50%.

Sandeep Tulsiyan — JM Financial — Analyst

Okay, understood. Sir, if I may, a couple of more questions from my side, if I may ask them. One is on the Wind side. What I understand from your commentary is that you are going to carve-out one portion of about 51 megawatt into 100% subsidiary for in-house data center and the balance around 79 or 80 megawatts will be disposed-off. Is that the correct understanding?

P. P. Gupta — Managing Director

Yeah, attempt is like that, sir. Absolutely.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. And second thing was on the data center. If you can just highlight a little bit where we are exactly in terms of forming a joint venture partner. Do you think if we are not able to strike a partnership in the next six months, will the execution timelines get pushed or you will anyways go ahead with and put your own capital for this whole data center of INR1,300 crores? How would that work out, if you can just share some more details on that?

P. P. Gupta — Managing Director

No. Firstly, we are in a fairly advanced stage of a partnership and kind of a term sheet is nearing closer, but we are in a silent period with them. So I cannot share the details on that side. Number one. Number two, but irrespective of whether we are able to have a relationship or not because they have long-term implications for any investment, we are definitely — we’ll be going ahead and completing Phase 1 by the end of second quarter or third quarter of ’23.

Sandeep Tulsiyan — JM Financial — Analyst

Okay, understood. And on the cash balance, sir, I think the buyback that we are currently doing is of course not progressing. I mean, we may not reach the entire target or the capital that we allocated for that. So what is the overall plan? How much of this do you plan to dispose-off? Is there any other alternate method? Will we increase the buyback price or do you want to give out a dividend? Any thoughts on that side to utilize INR1,200 crores?

P. P. Gupta — Managing Director

So firstly, I am not with your view. We have already — as of today, we have already achieved 17.5 lakh shares buyback for INR50 crores. And we are actively in this market. And I’m sure still two months to go, more than two months, we’ll be able to spend the whole of the money. But if any sum is left out post buyback closure, it will be paid out as dividend.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. And one last question from my side, sir, is on the outstanding debtors. Is there anything which is still sticky, slow moving? How much of the balance portion that you used to update every quarter is still pending? And how much is yet to come in from the doubtful receivables?

P. P. Gupta — Managing Director

No, there is no doubtful, sticky years only in Afghanistan in one of the contracts where we still continues to reinforce for last one year. That was ADB-funded project with us, at nearly 80% plus performed. So it’s a Central Asia project. I’m sure World Bank and ADB will come forward to support the project. Along with us, KPTL, KEC, all are involved. And Government of India is also working through the Ministry of External Affairs as well as through its political networks. I’m sure this project will happen, but at the moment, I can say that it is sticky part. Other than that, there is no concern, no large concern, I would say.

Sandeep Tulsiyan — JM Financial — Analyst

What is the value of this order, sir?

P. P. Gupta — Managing Director

This was $35 million value of the order. We have executed already $29 million.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. $35 million?

P. P. Gupta — Managing Director

Yeah, yeah.

Sandeep Tulsiyan — JM Financial — Analyst

Which is still pending, the receivable value, right?

P. P. Gupta — Managing Director

Right. No, as far as [Indecipherable] the pending part is only about INR45 crores.

Sandeep Tulsiyan — JM Financial — Analyst

Pending is INR41 crores?

P. P. Gupta — Managing Director

INR45 crores, you can say.

Sandeep Tulsiyan — JM Financial — Analyst

INR45 crores. Okay. Got it. And on the investment side, any investments where that ICDs or anything you have lend, which is still pending that have to come down or that is entirely…

P. P. Gupta — Managing Director

God grace, we are through. We are all done with last — also received on November 10.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. Got it. And sorry, if I may ask one more thing. On these overseas projects, I think there was some update that you had shared for that project in Afghanistan. If you can just update us on that, what is happening exactly over there?

P. P. Gupta — Managing Director

That is what I’m sharing Afghanistan only. ADB-funded, that’s what I shared with you, $35 million, $29 million executed.

Sandeep Tulsiyan — JM Financial — Analyst

Okay. Got it. Sorry, my bad. I understood. All right, sir. Thank you so much for patiently taking all these questions, and wishing you all the best.

P. P. Gupta — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.

Sarvesh Gupta — Maximal Capital — Analyst

Good afternoon, sir. Sir, first question is on the revenue sort of target for FY ’23. So I think earlier, we were looking at 25%, 30% sort of a growth for this current financial year, but given that we have done only INR400-odd crores in H1. So what kind of number are we targeting for this financial year in the remaining two quarters?

P. P. Gupta — Managing Director

Yeah, it continues to be same, sir, INR1,200 crores, INR1,250 crores. And we should be able to do another INR800 crores minimum, if not more in the next two quarters. The fourth quarter will be really heavy this time. It will be little bulky because a lot of things may happen in those three months, but third quarter will also be better over the last two quarters.

Sarvesh Gupta — Maximal Capital — Analyst

Okay. And on the wind power side, so this remaining 79 megawatt that we want to sell, so what is the — where are we in the sale process because last quarter con call also you had discussed this? So have you made any progress in terms of selling it? And where are we and how much money do we expect to realize in this financial year and how much in the next financial year?

P. P. Gupta — Managing Director

Sir, I think the sales should happen mostly this year only and money to realize. We are finding contracts now for 35 megawatt, out of which we have already received money for 6 megawatts and another 28, 29 megawatts we may get in this month or next month. They are the binding contracts, balance are in negotiations.

Sarvesh Gupta — Maximal Capital — Analyst

So you expect the entire, apart from 51 megawatt, everything else to be sold in this financial year and the money to be realized this year itself?

P. P. Gupta — Managing Director

I wish, but not sure. You can say so. Maybe 20 megawatts here and there.

Sarvesh Gupta — Maximal Capital — Analyst

Okay. And what is the average pricing that we are getting when we are selling these assets?

P. P. Gupta — Managing Director

Around INR4 crores per megawatt plus — INR4 crores plus.

Sarvesh Gupta — Maximal Capital — Analyst

Okay, okay. Sir, you mentioned about the cash balance, I did not hear it correctly. Is it INR1,200 crore plus right now?

P. P. Gupta — Managing Director

Absolutely right.

Sarvesh Gupta — Maximal Capital — Analyst

Understood, sir. Thank you, and all the best. Thank you.

Operator

Thank you. The next question is from the line of Sonia from Dalal and Broacha. Please go ahead.

Unidentified Participant — — Analyst

Hello. Sir, thank you for the opportunity. Sir, firstly, I just want to confirm…

Operator

Sonia, sorry to interrupt. We cannot hear you. Can you please speak a little louder?

Unidentified Participant — — Analyst

Okay. Am I audible now?

Operator

Yes, please go ahead.

Unidentified Participant — — Analyst

Yeah. Thank you for the opportunity. Sir, firstly, I just want to confirm, we have not shared our quarterly presentation this quarter.

P. P. Gupta — Managing Director

Pardon?

Unidentified Participant — — Analyst

Our quarterly presentation, which we generally share every quarter, that has not been shared in this quarter.

P. P. Gupta — Managing Director

We’ll share tomorrow perhaps. It will be put on our website.

Unidentified Participant — — Analyst

Okay, okay. Also, my next question is on the order inflow growth. You were saying that you are expecting around INR2,000 crores orders inflow, fresh order inflow. So I would like to understand like since many things are happening in power sector, the capacity is likely to pick-up as a whole. So what kind of fresh orders inflows we are expecting over next two, three years?

P. P. Gupta — Managing Director

Ma’am, this trend should continue because power sector is a focus area of the government now, more stronger than ever. And definitely, COVID has also impacted and if in manufacturing and industry and we have to become $5 trillion economy, power cannot be lagging behind. So all these areas have become major capex in power which you can measure easily. One relates to this [Indecipherable] side where government is spending INR3 lakh crores. Then AMI metering system solutions, where government want to have about 250 million meters by 2030.

Similarly, climate change. So a lot of valuation issues with the thermal capacities like FGD solutions, [Indecipherable] water pollution systems. They are all going to be futuristic way of life as well as green power target of 500 gigawatt, which I discussed. So you have to build lot of green corridors to transmit the power, balance-out the load consumption and so much of stress on the electric side now going forward on consumerism like logistics, transportation, electric vehicles. It is all becoming a power-driven economy mode than any hydrocarbon-based anymore.

So all this is going to make power consumption to be at least 2 times to 2.5 times of our present consumption, which is no more than 1,200, 1,250 units per capita. So you can understand that power networks have to be strengthened, power has to be metered, power sale has to become 2 times in next seven years. So all this is sounding good and capacities and reliability, availability, sustainability have to be taken care of.

Unidentified Participant — — Analyst

Okay, okay. Thank you, sir. And my second question is on the margins on EPC business. Historically, we have done around 17%, 18% margin on EPC. Now it has come to around 15%, 16%. So I just want to understand, like now currently, it is low. Do you see it expanding in like next three, four years or you expect it to continue at the same level?

P. P. Gupta — Managing Director

Well, this is very difficult question to project and predict because it is all linked to the commodity cycles in our country and inflation. But we are hopeful that commodity cycle, which impacted us strongly last year, and even we sacrificed some of the top-line to save the bottom line, will not be impacting as strongly going forward. But I like to be conservative in giving my guidance. If anything good happens by virtue of Europe going in recession, China slowing down, commodity cycles becoming more easy and affordable, definitely, there is a scope to do better, ma’am.

Unidentified Participant — — Analyst

Thank you, sir. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Prolin Nandu from Goldfish Capital. Please go ahead.

Prolin Nandu — Goldfish Capital — Analyst

Yeah, hi. Thank you sir for taking my question. I just — if I look at your past history in terms of your EPC execution, we have — in all the last five years, we have reported an ROCE of upwards of — on an average upwards of 50%-odd. And now if I look at your order book, the nature of order book is slightly more heavier towards FGD projects, towards these smart metering projects. Do you think going forward with the change in order book mix, will we be able to maintain similar kind of a ROCE number?

P. P. Gupta — Managing Director

Yeah, definitely, because earlier our projects were distributed on a number of locations. So any number of locations is a cost center and definitely adds to the cost. But if you are doing a larger volume of work in one location, it does bring the scale of economy associated with it. So it helps both ways. And we are confident that we’ll be able to retain this kind of margin guidance.

Prolin Nandu — Goldfish Capital — Analyst

Sir, I would more — I mean, to check on ROCE rather than margins, because — and you had also mentioned FGD at least the first round was very competitive. Now if I’m not wrong, things are not as competitive as they were in the past. So my question was more on the ROCE part, not just on the margin part in terms of receiving the money, because there again, we have expertise, right, in terms of — you have always mentioned in the past that it’s not about getting the project, it’s about executing on time and getting the money on time. So in all these parameters, do you think that given the change in the order book mix, we’ll be able to maintain the similar kind of return ratios as well?

P. P. Gupta — Managing Director

You see, ROCE of the capital deployed in EPC business, yes. But we have many verticals, they keep migrating from one vertical to another. So capitals are deployed differently. So all verticals are not getting equally transmitted. But if you are referring only to the element of EPC, yes.

Prolin Nandu — Goldfish Capital — Analyst

Correct. Yes, sir. I was referring only to the element of EPC. Sir, my second question is on data center. Now in the past two, three calls, we have mentioned that there have been some term sheets which we are evaluating. Is it certain milestone in terms of completion which we are waiting for, for us to execute these term sheets and for us to go ahead with these term sheets or is it just that we are looking — because, I mean, as we probably near the completion milestone, the valuation at which these deals will happen will also improve. So are there certain milestones that you want to complete before we close the deal and that’s the reason why we are taking longer for this part?

P. P. Gupta — Managing Director

Ankit, will you like to answer this question?

Ankit Saraiya — Whole-time Director

Yeah, sure. Basically, as far as…

Operator

Sorry to interrupt you, Mr. Ankit, but we are unable to hear you clearly, sir.

Ankit Saraiya — Whole-time Director

Hello.

Operator

Yes, please go ahead.

Ankit Saraiya — Whole-time Director

Am I audible?

Operator

Yes, now you are.

Ankit Saraiya — Whole-time Director

Yeah. As I was saying that these term sheets have been coming frequently to us over the last one, one and a half years since we started interacting with partners, potential partners, But over the period of time as the project is progressing, you rightly mentioned that each as the development risk is reducing and therefore the valuations and terms are also constantly improving. And that much more visibility has also been gained, and therefore, stronger partners are lining up. And we’ve been keeping our patience that at some point of time we will achieve something superior than what has been achieved in the past through these term sheets. And that’s the reason why we are taking our time. And hopefully, we’ll have something onboard once we have a term sheet to our satisfaction and which is reasonable in nature as far as the terms are concerned as well.

Prolin Nandu — Goldfish Capital — Analyst

Okay. That’s very clear, Ankit. But do you want to give some timeline by which we can finalize maybe this year or would it be falling under the next year? I know that it depends on the quality of term sheet, but still timeline with something — some timeline with we are working with?

Ankit Saraiya — Whole-time Director

By the close of this year, we should be completing it.

Prolin Nandu — Goldfish Capital — Analyst

Okay, okay. So by close of this year. Great, sir. That’s it from my side. Thanks a lot for answering the questions. Thank you.

Operator

Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.

Sarvesh Gupta — Maximal Capital — Analyst

Sir, on the data center, one question. I think in the last con call, we had mentioned that the first phase of the Chennai data center we wanted to commission by June 2023. And I think in this call, you have said that it is third quarter of 2023. So do you mean that it has been sort of delayed by another six months from June ’23 to December ’23?

P. P. Gupta — Managing Director

Please, please, I only meant third quarter of the financial year that is ending September. I have said second or third quarter of the year ’23, ’24, that is between June to September, but it may be around June, July only.

Sarvesh Gupta — Maximal Capital — Analyst

Okay, okay. And secondly sir, regarding this previous discussion on the term sheet. I think earlier, you had given us an understanding that you would want to issue the shares to a perspective party strategic partner at the — without a premium because this is more like a long-term strategic investment. But are we now looking for a premium to the book value for this business, and hence, we are getting delayed on the acceptance of the term sheet?

P. P. Gupta — Managing Director

Ankit, would you like to answer?

Ankit Saraiya — Whole-time Director

It has multiple quality of partners which have approached us over the period of time. And it’s very difficult to today say that there is a premium [Indecipherable] because it depends on the entire structure and the potential opportunity that we gain out of that strategic partnership. At this stage, it is little too early to make a remark on it. But as I said that with the passing time and the development is reducing on the project, one can expect better than before.

Sarvesh Gupta — Maximal Capital — Analyst

But we are still intending to offload 51% or more stake in this project, right?

Ankit Saraiya — Whole-time Director

Absolutely.

Sarvesh Gupta — Maximal Capital — Analyst

Thank you. That’s all from my side.

Operator

Thank you.

Kamlesh Kotak — Asian Markets Securities Private Limited — Analyst

Hello. Guptaji, Kamlesh here. One question I just wanted to have your understanding sir is that about the data center. Have we started booking any revenue from that? I mean, the execution part of the EPC part?

P. P. Gupta — Managing Director

No, no, not yet. Not in our books, sir.

Kamlesh Kotak — Asian Markets Securities Private Limited — Analyst

And how much revenue you are expecting to accrue from this first phase commissioning in terms of the EPC revenue for the company?

P. P. Gupta — Managing Director

First phase will be around INR600 crores plus-minus, which we may like to book next year only going forward as far as possible, but we’ll take a call by March — February-March how it progresses.

Kamlesh Kotak — Asian Markets Securities Private Limited — Analyst

Sure. Okay. Thank you. Yeah, that’s it from my side. Pooja, yeah, takeover, please.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

P. P. Gupta — Managing Director

Yeah. I thank you all of you for joining the conference and participating with searching questions, and you are most welcome. If you have any queries still left related to our performance or operations, you are most welcome to mail us on our — to Vishal Jain in our office, our IR person. And also, if you happen to be in this side of the country, then you are welcome to drop-in, and we’ll be very happy to take you around our office and how we work.

I can only say that we have a great future. And despite all challenges in the past, the future is very bright. And we definitely see a growth momentum coming once again in this sector with all multiples which we lost in last three, four years due to sluggishness of the government or COVID. They are all behind us. And with this optimism, I would like to close the conference. And thank you everybody once again for joining. Have a good day.

Operator

[Operator Closing Remarks]