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Bharat Heavy Electricals Ltd
Earnings Call Analysis
Q4-2024 Analysis
Bharat Heavy Electricals Ltd
Bharat Heavy Electricals Limited (BHEL) has aligned itself with the booming Indian economy, particularly in the power infrastructure sector. For the fiscal year '23-'24, BHEL recorded its highest-ever order book at approximately INR 78,000 crores. Significant orders include 9.6 gigawatts (GW) from the power sector and INR 22,000 crores from the industry segment. Major new orders consist of EPC assignments for several supercritical power plants and large electrometrical packages for hydropower projects. The achievements in project execution are noteworthy, with over 7 GW executed globally and milestones reached in Bangladesh and other locations.
For FY '24, BHEL's revenue from operations came in at INR 23,893 crores, marking an increase of 2% year-on-year. The profit after tax was INR 260 crores. Despite these positive figures, the net cash from operating activities showed a negative flow of INR 3,712 crores, primarily due to increased receivables and decreased payables. This has led to concerns about working capital management.
The power sector remains the backbone of BHEL's order book, with 10 GW already tendered out, and an additional 27 GW in the pipeline. BHEL anticipates orders to continue annually at 10–12 GW, expecting completion by 2032. Challenges in the industrial segment include fluctuating EBIT margins due to project-specific provisions. Efforts are ongoing to ensure timely execution and improve payment terms to enhance profitability and cash flow.
As of April 1st, BHEL's outstanding orders are around INR 131,600 crores, with INR 92,559 crores from power sector projects. Despite high order inflows, there was only a modest increase of INR 1,244 crores in advances, reflecting delayed milestones in payments. Legacy orders worth INR 50,000 crores are still impacting margins, though these are expected to phase out by the next financial year.
BHEL is focusing on diversifying its portfolio, with initiatives in sectors such as transportation, defense, and solar energy. Notable projects include 22 electric locomotives for Indian Railways and 100-MW Raghanesda solar project. Strategic partnerships are also being formed, such as with Coal India Limited for a coal-to-ammonium nitrate plant and Hima Middle East for railway signaling. BHEL aims to balance its power and industrial sector order books to a 50-50 ratio in the long term.
BHEL faces ongoing challenges in maintaining consistent gross margins, which have been on a declining trend over the past seven years. Profitability is expected to improve through better payment terms and timely project execution. Moreover, the firm is heavily engaged in bringing new vendors and retaining existing ones to ensure seamless execution of upcoming projects.
The management projects a Compounded Annual Growth Rate (CAGR) of 12% to 15% in revenues over the next years, driven by the robust order book. Revenue recognition from large projects like the Vande Bharat train will commence by mid-2025. BHEL's focus remains on executing its current orders efficiently while aggressively pursuing new growth opportunities in various sectors.
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Ladies and gentlemen, good day, and welcome to the BHEL Q4 FY '24 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.
Thank you, [indiscernible]. Good evening. On behalf of ICICI Securities, I welcome you all for Q4 FY '24 and FY '24 Earnings Conference Call of BHEL. We are very pleased to have with us today Mr. K Sadashiv Murthy, Chairman and Managing Director and BHEL management team to discuss the results. We will start with brief opening remarks from CMD sir following which we'll open the floor for Q&A. Over to you, sir.
Good evening, everybody. I'm K Sadashiv Murthy, CMD BHEL, with additional charge of Director Finance. I have with me Shri Jai Prakash Srivastava, Director, ER&D; Shri Krishna Kumar Thakur, Director, HR; Shri Tajinder Gupta, Director, Power; Mrs. Bani Varma, Director, Industrial Systems and Products. Also, along with me, my senior colleagues from business sectors, finance and corporate strategic management are also present here. A very warm welcome to all of you.
The Indian economy is growing steadily, leading to a robust growth of power infrastructure sector. BHEL is also aligning itself to be a part of the nation's growth journey. Let me start by giving you the highlights of our order book for FY '23/'24. We have received orders of 9.6 gigawatt last year from our power sector division, totaling to around INR 52,000 crores. All these thermal sets are of 800-megawatt rating. Our industry sector segment also witnessed the highest ever order book inflow of INR 22,000 crores. With the above, we recorded BHEL's highest ever order book of around INR 78,000 crores in FY '23/'24.
Some of the major orders which we have received last year are, EPC orders for Talabira, Yamuna Nagar, Singrauli, and Lara supercritical power plants. BTG package for Mahan and Raigad supercritical power plant from Adani Group. Electromechanical package of the 2.8 gigawatt Dibang hydropower project, the largest in the country.
Spares and services business of around INR 3,500 crores, 80 Vande Bharat trains for railways, 20 super rapid gun mounts for naval ships, 10 extra high-voltage substation packages, power transformers, and the other equipment in the transmission business. Gas turbine rotors and parts from UAE in the international business. Also remote monitoring and diagnostic services from BPCL Mumbai in Industry 4.0 solutions segment.
Now coming to our accomplishments in the project execution field in FY '23-'24. We have completed execution of over 7 gigawatt projects globally last year. Out of this, 5 gigawatt of power generation capacity was added to the grids and around 2 gigawatt was commissioned and synchronized.
Some of the key achievements include inauguration of Unit 2, 660 megawatts of Maitree super thermal power project in Bangladesh, jointly by the honorable Prime Ministers of India and Bangladesh. Dedication of North Karanpura and Talangana thermal power plants to the nation by the Honorable Prime Minister of India. Capacity addition for Unit 3 of Kakrapar atomic power project. Trial operation of Unit 1 of Palamuru-Rangareddy hydro project.
In transportation, supply of 22 electric locomotives of 600 HP to the Indian Railways. In solar business, commissioning of 100-megawatt Raghanesda phase 2 and 8-megawatt Amrit [indiscernible] solar project.
In the new growth areas, successful implementation of flexible operations for Adani's Raigad project, WPDC of Sagardighi and Tata Trombay plants. Talking about our diversification efforts and strategic partnerships, we are continuously updating ourselves and forging alliances and partnerships for addressing new business opportunities. Some of them are joint venture agreements with Coal India Limited for setting up a coal to ammonium nitrate plant of 2,000 TPD. Strategic partnership agreement with [ Messrs ] Hima, Middle East, Dubai, for addressing railway signaling business.
Now let me give you the highlights of our financial performance. BHEL's revenue from operations for FY '24 is INR 23,893 crores, an increase of 2% over the last year. Profit after tax for FY '24 is INR 260 crores. Thank you all once again for joining the conference. The house is now open for the interaction, please.
[Operator Instructions]
The first question is from the line of Jonas Bhutta from Birla Mutual Fund.
Couple of questions. Firstly, sir, can you list out the list of projects, power projects, that are expected to be awarded or tendered out over the next 1 to 2 years, if you can list each project? And what's the size. That's my first question, and then I have 2 more.
You want to know the list of projects, which are -- which will be awarded?
Yes, which are in the pipeline, can be awarded in the current financial year or probably the year after, so FY '25/'26, is at all you can go back?
It will start with 1 Darlipali Stage 2 and Sipat super thermal power plant, Stage 2, Phase 3, that is from NTPC. Second one is Koradi 11 and 12. One more is Singnrauli, the Neyveli thermal power station second expansion, Ukai 7, Koderma Phase 2, Korba West, Amarkantak 6 and Satpura 12. Last 2 were from NTPC Madhya Pradesh. So these are the power plant projects, which are in line and tenders are -- either they are out or they are coming out in the market.
So the total pipeline in terms of megawatt and rupees crores would be how much, sir?
Around 10 gigawatt.
Okay. Got it.
Most of the projects are 800 megawatts, few are of 660.
Got it. Second question was on the balance sheet. So while we've won almost INR 75,000 to INR 78,000 crores of orders, and most of -- and half of them came in the first half of the year. Why is it not reflective in the customer advances. I'm seeing your cash flow statement and there is just a change of roughly INR 1,200 crores on the customer advance, where one would have assumed that this INR 78,000 crores of orders would have come with some bit of advances.
In fact, I think more than INR 3,000 crores of advances have been received last year. And all these orders are means all these advances and orders have come in the later part of the year with second -- with third and fourth quarter only.
Understood. And lastly, if you can give a breakup of the contract assets and receivables as you do every quarter.
And that's my final question.
One moment. Okay. As on -- okay, as on 31st March '24, our trade receivables are approximately INR 8,000 crores and contract assets are approximately INR 27,000 crores. So total is INR 34,000 crores to INR 35,000 crores.
INR 22,000 crores is the contract assets, right?
Contract assets are INR 26,700 crores.
The next question is from the line of [indiscernible] Capital.
Sir, can you throw some light on the FGD opportunity that we are sitting on. As per some reports, there's a 97 gigawatts to be ordered, which is a INR 60,000 crore opportunity. Can you share some insights on this opportunity and how BHEL is shaping up for this?
You're talking specifically to FGD projects.
Yes, sir, FGD. Desulfurization.
Okay. Mr. Sisodiya, our ED Power Sector Marketing will speak out.
Approximately 130 gigawatt of the FGD project has been tendered out. Out of this, BHEL share is roughly 30% also. State sector has also come up forward also. But majority of the state sectors are yet to give a tender inquiries for setting up the old power station, sir. Am I clear?
Sure, sir. Sir, my question was, there's a report, it mentions that 97 gigawatts is yet to be ordered and the opportunity size is almost INR 60,000 crores. So wanted to understand in the coming years, are we looking at tapping this opportunity -- big opportunity?
Yes, definitely. As you rightly said, around 100 gigawatt will be bidding out will be there. And that's what our Executive Director was telling, normally earlier used to be a market share of around 30%, and we are targeting this area.
Sure, sir. Sure. So my next question is.
I think you rightly pointed out we bagged the last year the super rapid gun mount order and kind of [indiscernible] into the defense space, what are our thoughts for the defense space? I understand we've kind of explored an SPV or a JV with a Germany's rain metals. How are we progressing in those SPVs? And anything that you can share from a futuristic forward?
One minute. Mrs. Bani Varma, our Director, I think will talk.
So in defense, what -- am I audible to you?
Yes, you're audible.
So in defense, I mean there are certain initiatives. In fact, defense is an area that we are definitely focusing on -- so like [indiscernible], you know that now we have got a large volume of orders over the last one and half years only. I mean just to give you a sense of the orders we were getting, like in 30 years, we've got orders for 44 guns and in 1.5 years, we've got orders for 38 guns. So that's the scale at which we are looking at the [indiscernible] business.
Other than that, what we are looking at in the defense spaces, one is air defense guns. That's a very major big ticket opportunity for which we have already [indiscernible] by the Army. We have already submitted our bid also for this and here, we have to give a prototype, so for which, we have tied up with an OEM, again, a European OEM. And along with them, we are preparing our prototype, which would be delivered in this financial year. And on basis of that, I mean the technical trials will [indiscernible] trial to take place, and we are hopeful that we will be successful in that. So that's a very big area that next opportunity that we are looking at.
Other than that, there is marine gas turbines. Again, that's one area for the Navy. This is a new area for us, where we have already again tied up with another company in Europe, and we have already submitted our bid for these, and hopefully, this financial year or probably early next financial quarter, this bid is going to be open.
Other than that, we are looking at strategic equipment for the Navy. I will not be able to say, explain exactly in much detail because it's very highly confidential. But that is one area where BHEL is doing everything by its whole, that is the engineering competence that we have, that has been used by the Indian Navy to develop some very unique kind of a one-of-a-kind strategic equipment that we are working on. That's a very big area that we are looking at.
And other than that, in the airports, we have got orders from [indiscernible] for 83 for compact heat exchangers for the [indiscernible], another 93, I think [indiscernible] got an order for it, they'll be ordering on us. So this is a very good opportunity that our Vizag plant is doing. And so these are the main areas that we are looking at. So we have been -- I mean, [indiscernible] metals, I'm not sure, but we are definitely looking at different partnerships to carry this business forward.
Sure. I appreciate the elaborated answer. So my last question, we were exploring a tie-up with TERI in the battery energy storage system. Any update that you can share in that regard?
We had -- we had executing impact an order of I think, 4 megawatts or so, [indiscernible] -- I'm not exactly very sure, but 3 substations, steady, we are already under execution. So there will be, I think, they'll be completed, I think, in this quarter. So -- but that is only for the -- specifically for 3 substations.
Other than that, we are trying to now because this is a big opportunity. I mean like 47 gigawatts is expected by 2030. So we are now exploring this [indiscernible] other customers so that we can do [indiscernible] packaging for the best projects and address this opportunity in that manner.
I appreciate your answer. I'm wishing you all the best for the next quarter.
We have the next question from the line of Girish from Morgan Stanley.
I just have 2 clarification questions. This ECL provisioning accounting change that has happened, which is INR 699 crores for 9 months ending, if you have continued the same accounting practice, is it fair to assume that it will be another INR 200 crores, INRÂ 250 crores of provisioning? And that was one question.
And the second one was that for the year ending FY '24, if you can break up the total provisions and any breakup of provisions that you can share for the full year basis?
See, this provisioning details, they are already in the balance sheet. Total impact is INR 1,093 crores in the financial year and balance details we will share offline.
Okay, sir. And just 1 follow-up. In terms of your order backlog currently, can you quantify for us like what quantum of your power projects have a proper pass-through in terms of raw materials so that we can understand the underlying profitability and in the forceable future how that can turn out to be?
Well see, as of 1st April, our order outstanding is around INR 131,600 crores approximately, out of which basically power sector orders are INR 92,559 crores.
And out of this INR 92,000 crores, INR 52,000 crores orders are received in this financial, whatever previous financial year.
Sir, is it fair to say that.
Around INR 40,000 crores.
So fair to say that INR 52,000 crores will have raw material pass-through variation clauses in place and the balance INRÂ 40,000 crores could be at legacy prices?
No, no. See, normally, whenever we book the order, both type of order comes to us, fund price contracts as well as PDC. So it will be a mix of things. Whatever order book we are executing, that also is having some [indiscernible] clause. And this INR 52,000 also, there is a mix of things. Fund price contracts are also there and price variation clauses are also there.
Can you break it up, like how much would be having a complete pass-through?
We don't have that figure. We can share afterwards readily, we don't have that figure.
Okay. And in the next 12 months, which is FY '25, how should we think about order bookings with your non-power segment? What is the aspiration here in terms of realistically in terms of how much order inflow can you have? And any large orders that you want to call out? On the non-power side.
Our basically long-term perspective is we want -- like if we see the last previous year, it is 70:30 ratio, 65% or 65%, 70% is from power sector and balances from industry sector. And our perspective is we want to go for 50%-50%, 50% on the power sector, 50% from the industry sector. And from industry sector as our main areas will be transmission, transportation, defense. These will be the 3 major areas, which we are targeting.
The next question is from the line of Madanagopal from Sundaram Alternate.
Are you able to hear me, sir?
Yes, yes. Yes, Mr. Madanagopal.
First on just the previous caller, you mentioned that you are targeting railways and transmission. If you can elaborate a bit on both these segments on what kind of products that we'll be supplying to. I understand in railway, you got the order for Vande Bharat, where you'll be supplying the traction motors and other profession related products. Do you get the similar opportunity for the [indiscernible] factors also [indiscernible] factors also?
We are having -- see, we are already supplying propulsion, traction motors, all those things to all the railways. That is existing business itself. And in Vande Bharat, these are our input materials.
So you expect in the future when the Vande Bharat orders increased, you get additional orders from these [indiscernible].
Definitely definitely.
And in transmission, there is a large momentum in orders coming through. What are our scope of work here, particularly in the 765KV transformer, what kind of market share that we envisage?
Mrs. Bani Varm will...
Transmission is definitely going to be a big area, especially with the 500 megawatts of RE transmission also [indiscernible] so the main area what we are seeing here is the HVDC. In fact, the high value and high margin -- not high margin, I would say, fair margin areas are this HVDC. And we are seeing over the next 2 years, 4 major HVDC projects, which are going to be tendered out. The first one is the [indiscernible] that has already -- the bid has been submitted this month itself. Then after that, there is another second one before which the tender is also out that is Khavda Nagpur again for which we are submitting our bid and then there are 2 other projects, [indiscernible] HVDC projects, which are [indiscernible] which are also on the anvil.
For the first 2 projects, we have already tied up with our partners, with an international partner, with an OEM, and we have already submitted our bid for the first project. For the second 1 also, we are in advanced stage. So this is from the HVDC side. Other than that, we are also looking at [indiscernible] substation for 400 as well as 765 kV substations and complete substations as well as they're also doing, giving the loose products like our transformers, et cetera, GIS, AIS-based equipment, all those are also being supplied. So yes, this is a big opportunity, and these are the items that will be supplying there.
And my second question is on the execution front. If you look at number of [indiscernible] particularly in the balance of plant, space, and the power generation, a lot of players have left the space. Now as we got the new orders in the last 1 year, how are we planning to avoid delays and execution getting into, say, execution of the new projects that you got. Because many of these players, particularly if I look at the [indiscernible] plant, a lot of these players who used to be there are now no more interested in doing the EPC project of those.
How are we going to handle this scenario as we start executing the new projects?
You are very true. Our first and the foremost thing is we want more and more vendors, new vendors should join. So, for that, we are -- full dedicated teams are working to bring the more and more new vendors and at the same time, as you rightly said, people have left the thing also, we are having a continuous contraction with them. So that while interacting, we can say that why they have left the job or whatever is there, we want to hand hold them and we should bring them in. So we are working on both the things, existing vendors who are there, who have now stopped working, we are interacting continuously with them, and we want more and more new vendors should come. Otherwise, as you rightly said, so much order book we have to have our partners.
We are also looking at our policies to bring a lot of comfort for our vendors.
Exactly. That is the main point. In the past, we have [indiscernible] 1 lakh of orders, again cash flow used to be an issue and also margins used to be a problem. Have we bid in the new projects sufficiently enough to address these issues for our vendors so that we will provide them sufficient margins and cash flows for them to come back into the system.
See, that's why I said that we are working on both the things, as far as new vendors are concerned, we are trying to get new vendors. And the existing vendors also, we are trying to interact with them. What were the issues why they are there and we are trying to bring them back.
The next question is from the line of [ Khadija Mantri ] from Capri Global.
So my first question is that the government plans to add 88 gigawatts by 2030 to -- on the thermal side. So, by when do you think these orders -- all these orders would be awarded and how much has already been tendered out? And what is left? And so do you think that we can assume 6 to 7 gigawatt on an annual basis?
See, all these orders, what government plan is by 2032, they want to finish this ordering of 80 gigawatt, 80-plus gigawatt, whatever is there. And what we are expecting is, every year, there will be definitely around 10 gigawatt ordering will be there. So, to have a breakup, 10 gigawatt is already tendered out, 27 gigawatt is under tendering, and after that 40 more gigawatt. So what we are expecting is in the next few years, every year, there will be around 10 to 12 gigawatt ordering will be there, and by 2032, this ordering will be completed.
Okay, sir. And so the installation -- the capacity installation would go beyond 2032.
Exactly. Ordering will be done by '30 to '32.
By '32, this capacity installation will be completed.
Okay. Okay. I got it. And second, sir, in Industrial, I see that our EBIT margins have dropped. So is there any reason or it is just project specifics and we shouldn't read too much into it?
No, no. It is basically due to some provisions that got like that. It is nothing much to be related to it. It is just -- means in this financial year due to some provisions, it got like that.
Okay, sir. And also for Vande Bharat trains -- Sorry, sir, I could not follow you.
It is a project specific. As you rightly said, it was due to some projects.
Okay. Okay. So on a consistent basis, how should we look at EBIT margin for the industry sector as such?
See, we cannot give the guidance on EBITDA margins basically.
Okay. Okay, sir. And also, sir, the revenue growth has been...
The product profile of industry sector, there is a huge variety of products that are there. Products as well as projects, which is having transportation, defense, transmission, various products, so that's why we cannot say that which line will be how much EBITDA margins will be there. Actually, it is a mix -- mixed basket.
Okay, sir. And -- are we -- I mean, can you give a sense about the execution in FY '25 since we have a large order book now? And in the past 2 years, the revenue has been consistent at about INR 24,000 crores. So this year, can we see a decent growth?
See, basically, as far as capacity addition is concerned, around 10 gigawatt capacity addition we will be doing. And exactly is we cannot say what will be the revenue guidance, but definitely, we are targeting some INR 12 crores to INR 15 crores, 12% to 15% of CAGR year-on-year because we are having an order book, whatever order book we are having, we have to execute also. This we are trialing by seeing the age of the orders as well as the execution potential.
Okay, sir. And also just one last question. Vande Bharat train order, the execution has started from [indiscernible] for the propulsion systems?
You see first prototype there -- it was for around 24 months is the first prototype. So it has not yet happened. The process is on. Basically, it is under manufacturing at various places at BHEL. Bhopal, Jhansi, Bangalore, it is under the process of manufacturing.
Okay. So the revenue recognition you're saying would take another 18 to 24 months.
Yes, yes. -- from June '25 contractual delivery will start -- from June '25, means next year onwards.
The next question is from the line of Mr. Subhadip Mitra from Nuvama.
So 2 questions from my side. Firstly, if I look at your overall contract assets and trade receivables, how much of these would be for the older NTPC plants which are under execution? And by when do we look at these order dues getting cleared?
See, we can share this information off-line because customer specific will not be in a position to share.
But an overall idea as to.
Going to say that whatever older NTPC projects are there, we are targeting the execution by next financial year, all those projects will be executed. Whatever earlier NTPC projects we were having, we are targeting that everything execution will be finished by next financial year.
And then by end of FY '25, by March of 2025.
Very, very true.
Understood. And typically, the cash inflow for those projects, if it follows within 1 to 2 quarters? What are the payment?
Within quarter, we can say, within a quarter. All those -- if some of the things are milestone-related, we finish the milestone in 1 particular quarter. Next quarter, we'll get the cash.
I understand. So you should be certainly looking at your cash flows and your working capital situation getting better by March?
100%. True.
Sir, secondly, with regards to the balance of plant, right? So while BTG is the bread and butter for BHEL, I understand much of the balance of plant also BHEL has started manufacturing in house. But, are there any key components which are still not manufactured in-house for which there is still a dependence on outsourced vendors or vendor base. Any particular components that you would like to highlight?
Yes. Our Director, projects Pavan, Mr. Tajinder Gupta will talk.
The assets for balance of plant, as on it, we are not exactly manifesting anything to integrate the systems. -- like DM plant, ASP, CSP, we are dependent on the -- still on the other OEMs. And in future also, we are working on some [indiscernible]
in house, but I think that is still [indiscernible] normally outsource kind of things. So we are still manufacturing BTG only.
Ok, what about the [indiscernible] .
That is a part of BTG and it is getting manufactured at Ranipet.
So, if I understand you correctly, [indiscernible] plant, those are the key areas of outsource dependence.
[indiscernible] now a days like FCR, your FGD. FGD FCR, these [indiscernible] own manufacture thing. But as well as pure [indiscernible] earlier also like, again as a DM plant, [indiscernible] that's we are not doing. That's we are outsourcing only.
And do you see any challenges in terms of the vendor base over there? Like, I think one of the earlier questions was also around that. That's probably, many of the vendors over the last decades have moved out of these businesses. So do you see this as becoming a hurdle or a big challenge? or you see that most of the people will come back or..
[indiscernible] is there. But, right now, we are working on it. We have formed a corporate central [indiscernible] cell also for that in Noida. So we are doing things centrally. We are relaxing [indiscernible] also. And we are liking our terms also. We are [indiscernible] ensure that financial [indiscernible] in better than earlier. So, I think [indiscernible] we are getting [indiscernible]. People who were away, now they are coming back. So the other [indiscernible] better response. Many vendors are coming to us for the inquiries. So I think challenges there, but things will improve, surely.
I understand. And sir, lastly, with regard to the, let's say, the larger NTPC bulk orders that we are winning, one, are you seeing those having the commodity cost pass-through clause typically because I believe all NTPC orders will probably have similar counts. And secondly, are you seeing better terms in terms of payments and advances for [indiscernible]?
Yes, definitely. Now I mean earlier, there were 1 or 2 on projects were there. But now we are seeing the change in payment terms. What we are getting now is with the change in payment terms and all with the variation clause.
Perfect, sir. That answers all my questions.
The next question is from the line of Sumit Kishore from Axis Capital.
Could you tell out the executable order backlog in powering industry out of the total order book of INR 1.31 lakh crores? Are there any slow-moving contracts or nonmoving contracts?
See, in INR 1,31,600 crores, roughly around INR 7,000 crore to INR 8,000 crores are nonmoving orders. Balance around INR 124,000 crores are all executable orders. And if you want a breakup of those things, around INR 88,000 crores is from power sector, rather INR 92,000 crores is from power sector and around INR 31,000, INR 32,000 is in industry sector.
Sure. What is historically, you used to share the MOU target for excellent rating in terms of revenue. Could you please share it for FY '25 or give us a sense of your MOU target?
This is still to be finalized. And what we are expecting is by the month of June or July, we will be signing the MOU with DPE. It is not yet finalized. It is under discussion.
Okay. And what were the net provisions in FY '24?
Around INR 1,093 crores -- net provisions, one moment, INR 1,037 crores, INR 1,037 crores.
So this was a net impact on your P&L?
One minute, Mr. Sumit, you were asking net vacation?
No, no. Net creation of provision after -- not the gross number, net number, which is impacting your other expenses in the P&L.
INRÂ 1,037 crore.
Got it. Got it. And just trying to understand, this was a year of low single-digit top line growth. Your net cash from operating activities was minus INR 3,712 crores versus minus INR 740.7 crores in FY '23. So basically, the cash flow seems to suggest that your receivables as listed in the cash flow filed on BSE has gone up by close to INR 2,469 crores. Your payables have come down by INR 962 crores. And despite having a record year on order inflows, the advances have gone up only by INR 1,244 crores. Given that this was a record year of order inflow, I know previous participant had also asked. But this is not making sense to me. I know there has been a big focus on reducing trade receivables -- so I don't understand. Could you please give a more detailed answer on how the working capital performance is?
You are very right Sumit ji. Basically, what happened that major order booking, whatever happened in the last quarter. February, March, we started getting the advances in this financial year. See, most of the ordering, as I was telling earlier also, ordering happened in Q3 and Q4. We have collected the advance more than INR 3,000 crores this financial year, this previous financial year. And major whatever ordering which has happened in the last quarter in February and March. And those advances, we started getting in this Q1 of this financial year.
And because advances were now, not like earlier that along with the order itself, they will give the advance. Now what people started giving is, advanced -- initial advance will be very less. After that, some progressive payments will be there, like after ordering of some equipment or like that. So all those things we started getting in Q1. That is the reason that you are finding that after so much ordering with order booking also, still advances are not like that.
It is milestone-linked.
So has there been a tightening of the clause on advances or in general, a tightening of clause on award of contracts, which we should be aware of.
No, no, no tightening, nothing like that -- nothing like that. Rather, this is what happened -- whatever -- we got a better payment terms. What I would like to say is -- projects, which we have got in suppose February and March, and if they are having some initial milestones that after ordering, we will give so much 5% advance. Those orderings we could complete in the first quarter, in April, and then we got the advance, like that it has happened.
Okay. And on payables, why have the payables come up?
The payables have come down.
The payables have come down, which is not helping your working capital because...
If you see -- you are seeing the net payables have come down. If you see last year, our cash outflow towards material is highest. So that is what we will be getting the execution in this Q1 and Q2. So last year, if you see the absolute terms like payables, means my cash outflow towards material is highest.
Okay. So also, briefly on profitability. If I look at gross margins, let's forget about the provisions which are nonlinear. This is the seventh straight year from FY '18, where your gross margin has been declining on a year-on-year basis. So FY '18, I mean, depending on how you calculate, you are at 44% -- you are 29.7% in FY '24. So basically, in your calculation, look at the trend. Last 7 years, gross margin has been coming off year-on-year. So is this the bottom? Is this trajectory going to turn? Or is this the new normal?
This trajectory will be going to turn.
And that is going to happen because...
See, because that's what I want to say. In last few years, 2, 3 years, the commodity prices and all those things which have gone in COVID period, our supply chain got disturbed, and there was a delay in the execution also. So all these things when we start executing and as I said earlier also, we are trying to bring the new -- more and more vendors, whatever -- who are vendors have left the field, we are trying to bring them back. So, once we talk all these, we will start working on all these things, then automatically, vendors will -- vendors are also discussing that we will give a better prices. So we are trying to handle the vendors so that we will have a better prices. We will improve the execution also so that all these will contribute to the improved gross margin.
And finally, the 10 gigawatt of order prospect...
I request you to please rejoin the queue for follow-up questions. The next question is from the line of Koundinya Nimmagadda from Jefferies.
A couple of questions from my end. Sir, starting with the nameplate capacity. I mean we all know that 40 gigawatts and 20 gigawatt nameplate capacity. But if the industry were to execute 10 gigawatt per year, what is the on-ground capacity and realistic capacity that BHEL has and be industry as a whole is as if you can throw some color on that, please?
BHEL, I want -- I would like to confirm that we are having a capacity of around 10 gigawatt every year. Year-on-year, we can do it. Earlier, we have demonstrated up to 12 gigawatt also in previous years. But we are -- what we are seeing is, we can always have a capacity addition of 10 gigawatt.
And what is the total capacity you have, sir? I mean 10 gigawatt if you can execute? And what is the total capacity BTG plus the BOP if you can put together?
BOP, as we were telling, we are taking from the market. So BTG only we are manufacturing inside the plants.
Yes, sir, I get that. The reason I asked this question is that as you rightly alluded some of the vendors are left, so in that context, what is the realistic..
So we are not foreseeing any issue in that as Director Power was telling. We have already reached out the vendors, vendors are now coming. And last 2, 3 months, what we are seeing is more and more vendors are coating our tenders. So we are not foreseeing much of an issue.
And for the industry, where would that number be, sir, against [indiscernible]?
I don't know.
Sure, sir. Sir, my second question is on the order.
Yes. Yes, please.
My second question is on the profitability front. I mean this was asked in different forms earlier as well. I mean for the new orders, I mean, what is it that your -- I mean what are the different kind of checks that you're building so that the orders are profitable at the PAT level, at EBITDA level as well? And also cash flow level? I mean as per to working capital. If you can throw some color because 10 gigawatt is a great number, but ultimately, it should also result into cash flows. So if you can provide some more color on that, please?
See, it is -- I want to say in one line, it is a timely execution. That is one of the major things that we are seeing. If we see -- as I have made it clear that payment terms have improved by customers, so now it is the only question of timely execution. Automatically, profitability will increase and cash flow also will increase.
So if I were to ask you [indiscernible] every INR 100 crores of EBITDA, how much in the cash flow from operations [indiscernible] EBITDA to CFO conversion, if you were to look at it that way. How do we stand?
Not give that -- sorry, we cannot give that guidance.
Not the guidance, I mean, what is that you're targeting. I'm just trying to because some of your industry peers [indiscernible] payment terms [indiscernible].
We can discuss offline, but we cannot be talking that.
Actually, it is a very complex organization with a lot of products. So. It cannot be a certain like this.
Straight answer or simple answer to your question. Sorry.
The next question is from the line of Abhineet Anand from 3P Investment Managers.
Can you hear me?
Yes.
Sir, you talked about 10 gigawatt tenders and you did name the projects as well. Just trying to now this 10 gigawatts you expect in FY '25? Or what is the time period for that?
Yes, FY '25 only, FY '25.
And in a second -- in one of the other questions, you talked about 27 gigawatt is under tendering. So fair to assume that...
27 gigawatt is under construction.
Okay. Sorry, sir. And apart from this 10 gigawatts that you thought, what could be...
It's tendered out.
Yes, it's tendered. So for '26/'27, I mean, you were confident that there could be another 10 gigawatt on an annual basis, right?
Yes, yes. Definitely. That is a minimum thing because they want to complete the ordering by '27.
Okay. And last one, sir, on the gross margin side and one of the participants did ask on that. Just trying to understand on a quarterly -- if you see first 9 months, our gross margin was lower. This quarter, especially 4Q, it seems to be better off than the first 9 months. So is 4Q a more representative or the yearly number more representative? Just trying to understand. There is almost a 300 basis points.
Okay. I will say yearly.
Okay. So the yearly number is more representative for future.
Your point is very correct that Q4 is -- so we are trying to even it out also as per our operations. So guidance should be yearly.
The next question is from the line of Sai Siddhardha Pasupuleti from Kotak Securities.
Am I audible?
Yes, please.
So there has been a few restatement of the financial statements in the quarter, right? I just wanted to ask what would be the effect of the same incrementally in future years? I mean how to take this in terms of the way we look at other expenses.
So basically, in future, it is a onetime thing. We don't foresee anything in future.
Right, sir. So how do we look at the other expenses because there has been a reclassification like how do we look at the other expenses if we see the provisions. Is it the right way to see the previous before the reclassification or after the reclassification?
Other expenses are more or less stable.
The last question for today from the line of Sandeep Dixit from Arjav Partners.
Can you hear me, sir?
Yes, yes. Yes, please.
Sir, my understanding is that a large part of the problem that we faced over the last 2 years was because of legacy orders and the margin compression that happened in them because of the fixed price [indiscernible]. Now, can you -- saving guidance, how much of those legacy orders are still pending on your books? And when will they go away?
As I was telling basically around INR 50,000 crores order book is still there, which was earlier to this financial year. And what we are expecting is other than some defense, nuclear or this Vande Bharat, we will be finishing these orders by next financial year.
Right. But you also mentioned that out of INR 50,000 crores, many of them have a part through. So I don't know this understanding. What is -- out of the INR 50,000 crores, how much would be still at fixed cost [indiscernible].
That data is not readily available with me. You can take it from offline from my group.
Thank you. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
So, thank you. Thank you all for your patient hearing, and we had a really nice interactive session. Thank you once again for attending this session. Thank you all, goodbye.
On behalf of ICICI Securities, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.