WEG SA
BOVESPA:WEGE3
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
32.34
58.55
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
WEG SA
You don't have any saved screeners yet
Good morning, and welcome to the Conference Call to discuss the Earnings of WEG in the First Quarter of 2023. This call is being webcast with the accompanying slides at our Investor Relations website ri.weg.net. And after it's finished, the audio file will be available at our Investor Relations website. [Operator Instructions]
Any forecasts included in this document or in forward-looking statements that may be made during the conference call about future events, business prospects, operating and financial forecasts and goals, as well as the WEG's potential future growth are simply beliefs and expectations of WEG's management based on information currently available.
Such statements involve risks and uncertainties and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may influence future performance of WEG and lead to results that differ materially from those included in such forward-looking statements. We kindly remind you that this conference call is being held in Portuguese with simultaneous translation into English.
Today, we have with us at Jaragua do Sul, Andre Luis Rodrigues, Financial and Administrative General Manager; Andre Menegueti Salgueiro, CFO and Investor Relations Officer; Wilson Watzko, Controller; Felipe Scopel Hoffmann, Investor Relations Manager.
Mr. Andre Rodrigues, you may start.
Good morning, everyone. It's a pleasure to be with you once again for the WEG earnings conference call. We start with the highlights of the quarter in which the net operating revenue grew 12.7% compared to the first quarter of '22. We delivered one more quarter with positive results in most of our businesses, reinforcing our strategy of product diversification and global presence, which allows us to make -- take advantage of opportunities in our markets.
In Brazil, the positive result comes from the good performance both in short cycle businesses, such as low-voltage electric motors and automation components as well as in long cycle businesses, such as high voltage motors, automation panels and transformers. However, the distributed solar generation business, as expected, had a reduction in revenue in this quarter, mainly influenced by the change in the regulation of the sector that came into force in January of this year.
In the foreign market, we posted good revenue growth, mainly influenced by good demand in the Industrial Electrical and Electronic Equipment area in addition to the good performance of the energy generation, transmission and distribution area, especially in the transmission and distribution business in North America.
The EBITDA was BRL1.7 billion, a growth of 37% compared to the first quarter of '22. The EBITDA margin ended the quarter at 21.3%, an increase of 3.8 percentage points compared to the same period of last year. During the presentation, Andre Salgueiro will give more details about this performance.
Finally, the ROIC, as well as -- as we will see in the next slide reached 31.4%, an increase of 1.7 percentage points compared to the first quarter of 2022. The improvement in non-operating performance supported by revenue growth and improved margins more than offset the greater need for working capital and the increase in investments in fixed assets in the period.
I now give the floor to Andre Salgueiro.
Thank you, Andre. Good morning, everyone. On Slide 5, I present the development of our business areas in the markets where we operate. Starting at Brazil, with positive activity in the Industrial Electronic Equipment area as a result of good demand for short cycle products, such as low-voltage electric motors and serial automation equipment with emphasis on the mining and oil, gas segment.
Long cycle equipment such as medium-voltage electric motors and automation panels also had a good performance, especially in the mining, pulp and paper and oil and gas segments. In the GTD area, despite the good performance of the T&D business, we saw reduction in demand for distributed solar generation, which impacted this quarter's revenue.
The anticipation of orders in 2022 and the entry into force of the new GD legal framework on January 7 of this year contributed to lower revenue of this business. Despite the additional challenges, we believe in the potential for continued development in this sector, especially when also considering centralized solar generation.
In Commercial and Appliance Motors, we observed a resumption of activity with positive demand in sectors such as washing machines despite volatility in demand and inventory adjustments in some important segments such as motors for air conditioning. In Paints and Varnishes, demand continued to be strong with emphasis on the segments of mining and oil and gas.
At external market, we saw good economic and industrial activity in the various regions where we operate with demand for short cycle equipment, spread across the different industrial segments where we operate with emphasis on North America. There was also good performance in long cycle equipment, especially in the oil and gas, mining and water and sanitation segments.
In the GTD business, we continue to take advantage of the opportunities present in the T&D market in North America. In the generation business, we highlight the good performance of our operation in India in addition to the building of a robust backlog for the coming quarters.
In Commercial and Appliance Motors, we saw growth in demand for our products with emphasis on the good performance of operations in North America. In Paints and Varnishes, exports from Brazil to Latin America countries and sales from our operations abroad contributed to this quarter's growth.
Slide 6 shows the evolution of EBITDA, which grew 37% in relation to first quarter of 2022. The EBITDA margin ended the quarter at 21.9%, 3.8 percentage points higher when compared to the same period of last year. This result is mainly a reflection of the accommodation of costs observed in recent quarters together with the change in the mix of products sold, mainly impacted by the difference in the margin of the industrial segment, which showed greater growth in relation to GTD.
Finally, on Slide 7, we show the evolution of our investments. We invested BRL343.4 million in the quarter in modernization of an expansion of our production capacity, machinery and equipment and new products. 49% were allocated to production units in Brazil and 51% to industrial parks and other facilities abroad.
In Brazil, we highlight our investments in the expansion of factories for industrial motors and electric traction motors. And abroad, we continued with the expansion of the motor and transformer factories in Mexico in addition to the expansion of the factory in India for the production of wind turbines.
With that, I finish my part and give the floor back to Andre.
Before we move on to the Q&A session, I would like to talk about some of our latest accomplishments and comment on our outlook for the remainder of the year. Regarding the achievements, I'd like to highlight that we announced investments to expand battery pack production capacity in Brazil, totally BRL100 million over the next years. The investments will be made in Jaragua do Sul industrial park and involve the expansion of the current manufacturing building and the construction of a new factory scheduled for the first half of 2024.
Finally, on the outlook for the rest of the year, we continue with a robust order backlog in the long cycle projects, both the industrial and area and GTD, especially in T&D projects, which will contribute to growth in Brazil and abroad. The accommodation of raw material costs combined with a normalization of supply chains and a more favorable product mix should continue to favor operational dynamics. But it's always important to keep an eye on the global macroeconomic scenario and the possible risks and volatilities both in the local and international scenarios, even so we maintain our growth expectations with positive demand in most of our businesses.
This concludes my presentation. Operator, we can proceed to the Q&A session.
Ladies and gentlemen, we'll now start the Q&A session. [Operator Instructions] Our first question comes from Lucas Marquiori from BTG Pactual.
Hello, everyone. Good morning. Thank you for the call. There is one topic I would like to discuss regarding margins. I think this being the major surprise in the quarter, I would like to understand from the two Andres that there is a bit of cost accommodation as well as improved mix of products. I understand that the lower pressure on costs and maybe at the end of the day, [Technical Difficulty] margin changes and that would fit the discussion at the beginning of the year saying that margins should be going down slowly or in line with last year's margin.
Given the dynamics of the -- favorable dynamics of the industries as a whole, do you somehow think that margin can be flat until the end of the year instead of decreasing? And if so, how much do you expect, how much will come from the improved pressure on cost and how much it comes from mix of products? I would like to hear from you on that. Thank you.
Hello, Lucas. This is Rodrigues speaking. Well, let's talk about the margin. In our release, we said that there were some factors that had a positive impact on the margin, a very positive margin for the company. First was cost accommodation of most of our raw materials. The normalization of the global supply chain also impacted that and it's good to remember, it's worth remembering that the change in the mix of products depending on what we're talking about has a different margin profile.
For example, industrial segment had a larger growth when compared to T&D or GTD, especially in terms of renewable energy, solar and wind because as we always say, the margin for that is lower than the average margin of the company, also the impact on the margin was the prices. The prices were improved of long cycle with the accommodation of the cost of raw materials in the last quarters. And when we are in the movement of increasing costs, the margins are under pressure and when the costs are stabilized, margins tend to increase, so that was positive. Also a better occupation of our plants, our factories, that improves operations and has an impact on margins as well. So, this is an overview of the positive effects on margins.
Well, in terms of prices, this movement can lead to a future reduction. Well, adjustments can be made according to market conditions, but it's worth remembering that in addition to the cost of materials and other costs, there are other costs such as personnel, that also cost increases and the inflation of latest years also include -- is included in that. We also had the normalization of international freight costs, which contributed to that and as these factors are -- go back to normal and according to market conditions, of course, we'll assess future price adjustments on a case-by-case basis. But it's always important to remember that we always try to preserve the company's profitability.
In terms of what we can see about future margins, we are still in the first quarter, so we're cautious in the beginning of the year. There are macroeconomic issues that need to be better analyzed in the future, but if everything continues according to the current performance, it's possible in May, we will deliver better margins or similar to margins that we had in previous years.
Okay. Perfect, Andre. Thank you very much for the call. Good day.
The next question comes from Josh Milberg from Morgan Stanley.
Good morning, everyone, and thank you for the call. My questions refer to the electro-electronic area. First, could you comment on the market share evolution given the granularity about individual products, especially about automation and reducers because I believe you mentioned that there is major room for improvement when compared to your positioning in the past. That's the first question.
Hi, Josh. Good morning. Thank you for the question. This is Andre Salgueiro speaking. When we look at electro-electronic and industrial equipment, as you pointed out well, we have three main blocks of products, industrial motors, automation and reducers. So the company has an important market share in Brazil you are among the leaders in most of these projects. And when we look at the foreign market or external market, we see that the low voltage industrial engines or motors had an important evolution.
We said that during WEG Day, WEG became the second largest market share with 10% in the global market, but when we look at the other markets, especially drives and automation and reducers, our global market share is relatively small, lower than 1% or 1%. So that brings -- talks about the opportunity we have, when we look at the industrial engines as a whole.
We use the market share we have in industrial motors to leverage on drivers and reducers as well as our brand knowledge. So as we evolve and gain market share in the motors engine, our motors business due to the pandemic we had an interval in that development, but it's a very developing sector and so we'll continue with drivers and reducers but it's a gradual process year-on-year, and we'll have to work in order to attain such an evolution.
Okay. Thank you for your detailed answer, Andre. My second question refers to the domestic market. You said that long cycle has helped but sanitation is not one of them, so could you give us an update on the Law 21 and how would be the share of the company for the next quarters? Thank you.
Hi, Josh. This is Andre Rodrigues speaking. Undoubtedly, water and sanitation sector has always been important for WEG and the framework will bring additional opportunities for the company. This legal framework is important for Brazil as a whole. The changes in the format that are being discussed will -- should improve demand for improvements although it could impact on the projects schedule.
We have an updated portfolio of products for this market. We have energy efficient solutions, solutions to control water losses and to regularize the supply of water and these things got a bit delayed. We feel that because orders are a bit below our initial expectation but as I said at the beginning, this legal framework is important for Brazil and although there was a delay in -- it will be important soon.
Okay. Perfect. Thank you very much.
The next question comes from Lucas Laghi from XP Investments.
Good morning. Congratulations on your results. I would like to know about the dynamics of revenue. We saw some investors were a bit afraid of these sequential drop in revenues since the fourth quarter. In the history, there is a seasonal effect, the revenue in the first quarter is usually lower than in the fourth quarter and then it continues to grow under second half of the year.
I would like to understand whether that makes sense for this year and what's the reason for this seasonality that we see that usually the revenues in the first quarter is usually lower and we see that demand seems strong that's the first point. And the second point more specifically regarding the domestic market that's pretty much stable when -- in the quarterly comparison. I would like to understand why the drop in the solar distributed generation and to take -- what was the breakdown of that? Thank you.
Lucas, this is Andre Rodrigues speaking. I think you provided a dynamic correctly. If we look at the variations or the changes between quarters. What you highlighted, that happens. It depends a lot on the long cycle portfolio, the industrial projects that are delivered, the GTD variations. So if we look at the historical average from 2011 until last year from 2011 to 2020, always the last quarter of the year has a better performance than the first quarter of the following year. This is because usually in the last quarter, we concentrate deliveries of projects that creates the seasonality. There is an increase in revenue in the last quarters of the year.
And due to the pandemic and all this dismantling of our supply chains and the dynamics, in the years of 2021 and 2022, there was a change in that dynamic. So the normal trend based in the past is for the first quarter of the year to have lower revenue than the previous quarter, which is the fourth quarter of the previous year. So the right way to analyze that is quarter-on-quarter comparison, so what we had is then show in GTD and Andre Salgueiro could give you more information about this impact on the revenue from solar generation.
Well, we don't break down the specific revenue by business within GTD, but this is the fact that was included in the release. We can say that the solar had a drop in revenue in this quarter, both compared to the first quarter of last year as well as to the fourth quarter. Even the drop compared to the fourth quarter was even higher than when compared to the same period of last year, the first quarter of 2022.
Wind also showed a slight accommodation due to delivery of projects, but it was very similar to the first quarter of last year, but all the other businesses in there had a good performance of growth, hydro electrical especially T&D. So if we exclude solar effect, this business would have grown to low digits when compared to the first quarter of last year, so that can give you an idea of the size of the impact of the solar performance -- in the solar in the performance of this quarter.
That was very helpful. Thank you for your answer. Have a good day.
The next question is from Andressa Varotto from UBS BB.
Hello. Good morning. Thank you for the question. I have two questions. One is a follow up about the solar GD. We said that some projects could have less incentives in GD and migrate to centralized generation. How do you see this opportunity to capture this volume of GD in the centralized generation? Another question is you highlighted in the release, the Indian generation business. So my question is any contribution from wind turbines and could you give us an overview about opportunities in that market? Thank you.
Hello, Andressa. Thank you for the questions. With regard to solar energy, indeed the dynamics for this year will be slightly different and we had distributed generation with a much greater performance than centralized distribution. And in the beginning of the year, there was a change in legislation and so the incentives decreased. In addition to change in the law, there was an increase in interest rate, which also impacted credit facilities for the segment, which is important.
And there was a credit crisis in Brazil in the end of last year, beginning of this year, that restricted access to credit in general and that impacted the distributed generation business. But looking at a portfolio for the future, we see a performance of centralized distribution much better this year than last year. So a part of this accommodation that we'll see in distributed generation will be offset in -- by centralized distribution, especially in the second half of this year where we have a more concentrated delivery of centralized distribution projects happening.
As for your second question about the impact of India wind turbines, we are still in the certification process of our machine in India. It's going very well, but we need a few more months in order to finish this process. What happened in India was a result of the good demand for equipment related to the generators and wind turbines that we also produce in India.
Thank you very much. The next question comes from Pedro Fontana from Bradesco BBI.
Hello, Andre Salgueiro. Congratulation on the results. Thank you for taking my question. You've mentioned some of the avenue growth -- growth of avenue for the company generators in India. WEG is also working on electric mobility projects. So I would like to see the -- your long term view for opportunities for growth in coming years? Thank you.
Hello, Pedro. This is Salgueiro speaking. Thank you for the question. Actually, there is a slide in the presentation in which we talk about the growth avenues. There are three. I will focus on two that fit your question. First one is about internationalization and that is closely related to the fact of gaining market share and space in products that we are already have in our portfolio, but improving our market share in the global market.
So when I talk about the strategy of motion drive, that's a practical example that we do have important share in industrial motors and now, we like to increase sales of reducers and automation. But this is only an example, there are other products that are in our portfolio, hydro and thermal generation, T&D, wind, solar. For all the products, there is some internationalization strategy. We don't want to go global on everything, but in areas that have a better outlook. So this is a major opportunity for growth in coming years.
The second one, our new businesses, why new businesses? Because throughout the history of the company, WEG has been able to develop and open new businesses, launch new products and that has -- from time-to-time and that has helped in our long term growth. Today, we are working on the electric mobility business as you mentioned very well as well as powertrain for trucks and buses, recharge station and more recently better.
We also have the digital business [Technical Difficulty] as well as developments regarding energy storage. This is just to give you an example of concrete phases of businesses that are under development or developed. And we have the mission and willing -- we're willing to continue to develop new business, so in the future, we'll enter with new products or new segments that makes sense for us.
Okay. Thank you very much.
Next question comes from Daniel Gasparete from Itau BBA.
Good morning, everyone. Thank you for the call. I have two questions as well. First, regarding the external market. In the opening, you mentioned that you are quite excited about this market. I would like to know more from you about how was the volume, strong fourth quarter, strong first quarter? Is there any bottleneck for delivery of projects? Is this something that will grow?
And the second question is building on Andre's comment about increased margin in long cycle. We are looking at your construction agreement's margins, there is significant increment in that margin, close to 15% now moving to 21%. I would like to understand in terms of mix or some projects of long cycle with longer, higher margins or maybe wind with higher margins, just to understand whether there was any other effect in addition to the mix of products?
This is Andre Rodrigues speaking, Daniel. First, let's talk about how we see the external market. First, we have two separate long cycle from the short cycle dynamics. in long cycle products, nothing has changed from what we said in the other quarters. The demand is very strong in electro-electronic. Industrial equipment, the demand is very positive.
In T&D, we have been talking for some time now that the demand in United States, Central America and Mexico is very positive for this business. So no major change in long cycle business and the outlook for the future is very positive. We start one more year with the order backlog that's very well built. And now we just have to execute on it and deliver throughout this year.
When we move to the short cycle, we have to analyze by region. Starting with North America, where we have a very positive performance both in industrial and low voltage motors as well as in commercial motors, so far the dynamic has been positive. It is natural that at some point in time, there will be an accommodation, but it will happen at a higher level then happen next year. So remembering that the visibility of a short cycle is three months forward, so it's a positive outlook.
When we move to Asia, there was an increase in the closing of China that had some consequences for WEG and for everyone that operates in that country. So first half of last year was very positive and in the second half of the year, there has been a reduction in the prospect of opening of the country. And now with that opening, if it takes place, the -- there is a recovery. So if we compare the first half of this year and the first half of last year, obviously, there will be a reduction, because last year was very positive and that is expected to continue grow -- growing.
And with this opening, the second half of this year, we'll be able to recover the lower trend in the first half of this year. Let me move to Europe, we should analyze that there's always been a concern in Europe with the energy and energy -- Europe was able to reorganize itself with the -- in the energy sector, but the war continues. So we do expect some volatility and that should continue in coming months, that applies to the dynamic of short cycle, so in North America, it's positive dynamics.
Asia, we can also say that we opened the low voltage motor factory in India, which will be in future growth, so Asia is in a recovery process and -- but we should be a bit more cautious regarding Europe in about the future outlook. Gasparete, regarding the construction contracts that you mentioned in '22, in fact to go terms that is theoretically the long cycle business. We have reported a good dynamics in that and when that happens, the margin tends to expand because the demand is positive and you have full capacity and it's more important for the customer to have the product available, so pricing improves.
I'd say that this will happen in a period for more than one year and it's now reflected in a more structural way in the earnings. At first, it was reflected in the building of the backlog and now it comes to results. So in terms of mix, there has been no significant change, but not everything is a long cycle, but for most of long cycle, especially in the solar wind and new energy wind turbines, another large scale machinery. So there is an improvement in pricing with time and also there is a movement of cost accommodation. So as we evolve and new contracts are signed, the profitability increases. So this is -- explain the change in the margin of '22, when we look at the figures of '20 -- the first quarter of '23 when compared to last year.
Excellent. Thank you very much. Have a good day.
The next question comes from Bruno Amorim from Goldman Sachs.
Good morning, everyone. Thank you for the question. I would like to make a follow up on solar. There are several dynamics impacting that line of business and you emphasized pre-buy many of the purchases that was made this year, were made last year and we discussed that already. And also in this segment, there has been changes in the regulation. You explained that despite that the segment continues to be attractive.
So now, I would like to learn more, how much of this change was from pre-buy when compared to the decrease in the demand versus majorly a pre-buy was that would be buying this first quarter of last year because if so, we can make it fit for the next year those that are supposed to buy in '24 will buy in 2024, so that will have growth for next year. So just how much from what we see now is temporary and maybe there will be a structural downward trend in the demand for this sector? Thank you for your request.
Well, it's difficult to break down that exactly. What we can say though is that we do foresee an impact, the reduction in revenue and we also noticed a strong increase in revenue during last year, which means that in a way, there was a pre-buy effect, so a part of the revenue that was we expected for this year happened in last year. But there is also an important portion, not a significant, but there are the new plants from 1 mega to 5 mega that more affected by the change in the regulation. So this type of project will continue throughout this year because there are this periods where people or projects that entered until January 7, so something will happen this year although in this lower volume.
But then, in the future, this project tends to disappear and a part of them were applied to Andre's answer that will migrate to centralized distribution because they were doing smaller projects to benefit from that incentive, and now they will migrate to centralize energy distribution. In solar, in general, there will be an accommodation this year due to decisions made last year. When we look at the business in the medium and long run, structurally speaking, we believe that it has -- all conditions are favorable. And another important aspect is interest rate and credit facilities that also had an impact.
And let's see how that evolves and the fact that the energy price, I mean the reservoirs are very high. We're operating with Green Flag, Green Tariff. So if you calculate, that calculations that you made a down payment and fund -- financed paying small amounts with what you saved in the energy bill, that no longer happens. So when the market for credit and interest rate decreases and there is more credit available in the market then that could make sense again. So all of that has to be analyzed, but let's see how this will evolve towards the future.
Just a quick follow up. Thinking about the -- for this year. This segment of small projects tends to be reduced more significantly throughout the year maybe for next year. So first quarters starts through the bottom, so it will drop a bit more still before it has to go up. Is this the trend or not necessarily?
I'd say that the second quarter, we'll have to wait. There may be a movement of some implementation but for the second half of the year when we start having a larger deliveries of centralized distribution, there should be a growth when compared to previous quarters.
Okay. Thank you.
Next question comes from Regis Cardoso from Credit Suisse.
Thank you. If you allow me, I have more follow ups, if you allow me. One of them is about ramp up of wind plant in India. What should we expect in terms of ramp up? This is a plant that will be fully operational in the second half of this year. It's still under this certification process but I would like to have an idea about terms of ramp up period, is it a gradual ramp up or it will be fully operational quickly?
The other topic is, there is a competitor of yours that left the engines and motors, do you have any data about that, that you could see here? And do you see an opportunity on the same type of market In Europe where maybe they were stronger? This is another follow up topic.
And the third topic is about the backlog of projects. You were commenting on the seasonality of the fourth quarter. Now, thinking about the T&D, on the long cycle, do you expect any growing or seasonal distribution throughout the year we should keep an eye on? Thank you.
Hi, Regis. This is Andre Rodrigues. Let's talk about the wind farms in India. As Andressa -- as I told Andressa, we are now in the certification process. We are starting our investments to expand the medium and high voltage factory in India to start to produce this wind turbines in the future. So for this year, we don't have any revenue expectation for wind.
Our plans were always to certify the machines until the end of this year to start the commercial development to have the leverage throughout 2024, but there is no expectation of revenue even for the future. This is the new business we are starting in the country, so we don't doubt the wind potential of India, but WEG is always very cautious when it starts the new business. We have to develop suppliers for us, tower assembly, so it's natural that the first levels of contract will be low.
So we will start to restructure our business, so we don't have an expectation of revenue from wind business in 2023. As for the movement in the competition. Yes, undoubtedly, one important competitor left in the United States, the NEMA and we became the second in market share last year. This was a reflection not only of this movement, but of all the work that WEG has done to develop new markets to have a stronger international presence.
And being at the same level of quality and technical assistance as international companies, there is no doubt that this is happening at WEG. We look at the dynamics of certain market, so we know what's going on and we know about our performance. So yes, it is a result of the increased market share.
As for the backlog, we do see a backlog of long cycle projects that is significant for this year. This dynamic has not changed. It's robust and positive backlog and we're adding new projects, especially in T&D, we have a very healthy portfolio or the clock both in Brazil and abroad.
And that's also reflected in the investments we're making. We're investing in Brazil to increase the production capacity of transformers and in Mexico and United States to increase the production capacity given the positive T&D demand scenario, not just for this year but in the long term we have industrial projects, important projects, mining, oil and gas, pulp and paper projects.
In addition to T&D, we do have a built backlog portfolio or backlog for wind and we do have an important backlog for thermal generation projects to happen during this year. And the centralized distribution for solar is also positive for this year. So in terms of backlog, we have a good outlook for the next quarters.
Thank you. So about this last point, is there any seasonality concentration in the last quarter? Any different dynamics?
I'd say that from the order backlog, there is not so much seasonality. Seasonality depends on the investment decision made by customers that could happen anytime during the year, but it's natural that you commit to deliver projects until the end of the year. So there is always some concentration of project delivery at the end of the year. This is why in one of the previous answers, Andre explained that this dynamic in the drop of revenue in the first quarter of the year when compared to the last quarter of the previous year happens. So we -- that explain the movement and then the deliveries continue to grow as the year evolves.
Okay. Thank you very much for your answers.
The next question comes from Andre Mazini from Citibank.
Hello, Rodrigues and Salgueiro. Thank you for the call. My question is about the battery pack chain. How do you -- how is that positioned and there is the manufacturing of a cell, the module and the pack. I want to understand you're concentrating on the pack, only on the final part. Do you -- what are the partners that you used to buy to sell the module.
LG came from South Korea for Sonic and you are positioned only in the end of this change and the other is about powertrain. The powertrain, the car companies are still finding whether to have a powertrain built in house, especially the lag market, are you -- do you believe there are more planning to outsourcing and the light vehicles are still making up their minds? How is that decision processed in terms of electric mobility happening?
Thank you for your questions, Mazini. As for the battery packs, we do have some exposure in that business for some time and we've announced for this quarter an additional investment of BRL100 million to increase our production capacity of battery packs in Jaragua do Sul. Like you said, we don't intent to produce the battery cells. We will buy them as we are -- we continue to buy them from the market.
Unfortunately, I cannot give you the number, the names of our partners due to contract issues, but they come from Asia and we assemble the packs here in Brazil. We place the cells in the pack and all the cabling and the electronics and ventilation systems. We arrow that and provide a complete solution to our customers. The main focus is electric mobility market, especially electric buses in Brazil in coming years.
But we can also use that to develop the batteries that will need or that are being connected to the energy storage projects. These are the new fronts. This is a relatively new business and will develop in coming years. As for powertrain, we are focused on heavy vehicles. The delivery -- it's a partnership we've had for some time and recently, we have made some partnerships to develop electric buses in Brazil. So our focus is on heavy vehicles with some specific applications and lower volume, but major focus is on heavy vehicles.
And given your comment that heavy vehicles tend to outsource the production of components more, as we see happening here in Brazil. So we end up making the most of this opportunity to develop -- by developing powertrain for these vehicles. When we move to light vehicles, the car companies, some of them are developing their own powertrains, others are outsourcing that, but this is not our focus. So probably, what will happen is the mix but I don't know how much will be made by the car companies themselves or car manufacturers and how many will be outsourced, it's hard to say.
Okay. Thank you very much for your answers.
The next question comes from Gabriel Fraser from Bank of America.
I would like to give some color on MP 1152 in Congress as well as if you have any calculation of the impact of this that you could share with us? Thank you.
Hello, Gabriel. This is Andre Rodrigues. Well, we're keeping a close eye on this bill of law that changes the rule for transfer of right in Brazil. Well, first, it's a provisional measure. It's expected to become the bill of law by the beginning of June and that will be mandatory starting in January of 2024. There is a movement to make it mandatory in January of '25, but from we heard, it will be '24. There is a change in the current transfer price and cost plus margin with arm's length basis.
The arm's length concept allows for five ways for harmonization and there could have -- an impact on the effective rate if it's -- if it passes and is implemented as it is now. The portion of our operations that will be impacted is shown on the difference -- on rates in our financial statements. It's very early to disclose how an estimate of how much that will have because there are many uncertainties in terms of passing that bill and what are the five types of methodologies, which one will be implemented.
But anyhow, we do believe that part of the existing benefit will be reduced but we will continue to make sales even after this bill of law passes. And we have to wait to see whether it passes and throughout June, if there is a decision made until the end of June, we can be able to give you -- we will be able to give you more information in the next call.
Okay. Thank you very much.
Next question comes from Jonathan Koutras from J.P. Morgan.
Good morning, Rodrigues, Salgueiro. I have simple question. If expectation of BRL1.6 million for 2023 is maintained? The second one, Brazil, we have seen in the past, the wind turbine segment, would that happen in the margins with this segment? Thank you.
Hi, Jonathan. Regarding CapEx, WEG's plan is always a long term plan. So BRL1.6 million that we foresee for this year, I don't know if we'll be able to execute all this volume of CapEx, but there is no change in the projects where we estimate to invest in. This year, we expect to change the profile of investments, lately has been concentrated in the external market. This year the original plan is for 55% to be Brazil and 45% abroad.
When we say Brazil, the focus is on increasing capacity in expanding the industrial factory related to electric mobility. As Salgueiro said, this is a business that's gaining strength in the company as well as an investment of BRL100 billion in battery packs. Also in this investment, given the good demand for distribution business, we expect to increase the production capacity of our factory. We do have an area for that and in the transformers that -- there is also the demand for that equipment.
Abroad, the focus is on Mexico, especially to increase the capacity of T&D components to supply our plants in the United States with an increase in capacity of WTU in the U.S. that's in course. Last year, we opened a new plant, in parallel, we also will increase the capacity of our Portugal plant. These are the most important investments. Also India, we will increase the plant for medium voltage plan to start producing the wind turbines. So today, there has been no change in our original plans in terms of CapEx for this year.
Jonathan regarding recent announcements about some competitors in the wind generation business. These are recently -- relatively recent news. I think it's too early to say that this is affecting the demand for the next quarters but if you look at the medium and long term, you have a competitive environment with fewer players that is positive, but we cannot say we see an effect of that on our portfolio or on the demand for the next quarters so far.
Okay. Thank you very much and congratulations on your results.
This ends the Q&A session. We would like to turn the floor over to Mr. Andre Rodrigues for his final remarks.
I would like to thank you all for attending this call again, and we will see each other in the next conference call in July. Thank you very much.
The conference call from WEG has now ended. We thank you all for attending and have a good day.