Inox Wind Ltd
NSE:INOXWIND
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Inox Wind Ltd
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Good evening, ladies and gentlemen. I'm Momita, moderator for the conference call. Welcome to Q1 FY '22 Earnings Conference Call of Inox Wind Limited hosted by Axis Capital. [Operator Instructions] Please note that this conference is recorded. I would now like to hand over the floor to Mr. Vaibhav Saboo from Axis Capital. Thank you, and over to you, sir.
Yes. Hi, good evening, everyone. On behalf of Axis Capital, I'm pleased to welcome you all for the Inox Wind Q1 FY '22 Earnings Conference Call. We have with us today Sri Devansh Jain, the Executive Director; Sri Jitendra Mohananey, Group Financial Controller; and Sri Narayan Lodha, Chief Financial Officer. We will begin with the opening remarks from the management on the operational and the financial highlights as well as the key updates from the sector. This would be followed by a Q&A session.With this, I hand over the floor to the management. Over to you, sir. Thank you.
Thank you, Vaibhav. Good evening, everyone. I welcome all the participants of this earnings call. The Board of Directors of Inox Wind Limited has approved the unaudited financial results for the quarter ended 30th June 2021, in the meeting which was held today. I trust you would have had an opportunity to go through the results.Now I will request Mr. Devansh Jain to provide you an outlook on the sector as well as the operational highlights.
I thank you. Hi. Good afternoon, everybody. Good to connect with everybody. We'll keep it short and simple. I'll speak a little bit about operations and more about how we see the months and quarters coming by.To begin with, for Q1, the company recorded gross revenues of approximately INR 169 crores compared with INR 97 crores in the corresponding quarter of the last financial year, which is a growth of about 74%. The company has turned EBITDA positive. We've had a positive EBITDA of about INR 2.7 crores on this fairly small gross revenue as compared to a negative EBITDA of INR 26 crores corresponding to the same quarter in the last financial year.This quarter, while we were on track to ramp up further, I think, unfortunately, production and execution was impacted due to the severe second wave of COVID-19, which frankly led to nonavailability of oxygen for industrial applications. Our entire tower production across all our plants were shut down. Consequently, we could not supply complete sets, which is a prerequisite now to collect -- to keep supplying [indiscernible].Production is now in full swing and execution is in full swing across our plants and across all sites. We are well on track to launch our 3-megawatt turbine. Majority of our components are now in India. I think over the next 15 to 20 days, we expect to start assembly and get this product up and running in the coming months of this wind season.Execution is going on well on the Continuum project, our SPV Nani Virani, which has a tie-up with PFC as well as various retail orders across the southern states as well as Gujarat. Consolidated order book is very early, stands at about 1,300 megawatts.Talking about how we see the sector moving forward as well as some strategic initiatives. I will just briefly touch upon -- I'm sure all of you are aware, IWL now has a new holding company called IWEL. The consolidation of the wind business under the new holding company for Inox Wind Energy Limited has been done, keeping in mind we expect to unlock the value of the entire wind business, enable the pooling of various assets and expertise for realization -- synergistic realization efficiencies as well as expansion. And we got all the people together to ensure better management focus and specialization for sustained growth.Moving on, as I mentioned, key actions for us in the months and quarters to come of this financial year are namely, one, we are fully focused on launching the 3.3 megawatt turbine. In fact, not just launching the turbine and then also being ready to start commercial production immediately thereafter. I would just like to reiterate that while we are launching this turbine for the first time in India, globally, given the fact that the technology licenses from AMSC, these turbines have been operating for many years. So we expect this to be a fairly smooth sale in terms of launching the turbine and quickly ramping up commercial production.We are seeing a major thrust in the retail, captive and C&I segment as well as a lot of announcement by the PSU such as NTPC. I'm sure all of you are aware that there is a massive thrust coming in on renewable energy as well as green hydrogen. In fact, the IPCC report was probably one of the strongest statements for this endeavor all through the globe, which directed that we need to move towards net zero emission targets as rapidly as yesterday, if not in the coming few years.We also achieved a milestone in India where we received hundreds -- which there have been various announcements by the government over this week, and there are goals set out. And we believe that we are now on the threshold also of a massive ramp-up for the wind sector. Just to touch base on 2 more points. Given the way the market is developing, we expect to have increased proportion of equipment supply, particularly for the 3.3 megawatt turbine, which consequently will reduce EPC work and a lot of that is associated with that part of the business.And one -- and the last point I would like to mention before I hand over to Mr. Mohananey is we are working on various balance sheet actions, and we expect to announce or implement many of them in the coming quarters and months of this financial year pertaining to retiring high cost debt, reducing financial costs significantly and also leveraging the equity of our wind business to kind of -- be prepared to ramp up our operations as the sector is now looking at exponential growth in the quarters to come.With that, I hand over to Mr. Mohananey.
Thank you very much, sir. Just to cover the financial highlights. As it was told to you, the company is contemplating raising funds by way of NCDs, the proceeds of which will be utilized for retiring the high cost debt and optimize the working capital. We have taken certain other initiatives also, which will lead to significant reduction in the financial cost.On the front of financials, revenue and EBITDA compared to the corresponding quarter, revenue of INR 169 crores in Q1 FY '22 as against revenue of INR 97 crores in Q1 FY '21. EBITDA of INR 2.7 crores in Q1 FY '22 as against EBITDA loss of INR 26 crores in Q1 FY '21. So this is the broad overview of our operational and financial performance and how we see the sector going forward.I have along with me Executive Director, Mr. Devansh Jain; and CFO, Narayan Lodha, to take questions now. Thank you. The question-answer session should maybe start now.
[Operator Instructions] Our first question comes from Mr. [ Chetan Parekh ] from [indiscernible] [ Greentech ].
Hello, my name's Chetan Parekh. I'm working on [indiscernible] in India. My first question is this government is planning for the huge capacity by 2022 and 2030. Do we feel that our capacity is enough to participate with such a huge drive? And secondly, how are these American superconductor turbines, how it is better than other competitors in India? Can you clarify this?
Look, of course, the government has announced a massive target, and we've been -- I'm sure you are well aware that there has been a lot of transition pain over the past 4 years. And finally, policy-related and tariff-related matters are behind us.We are very entrenched in terms of having manufacturing capacity of almost 1,600 megawatts. Frankly, I don't foresee hitting that capacity at our end in the near future. But that's -- if the actual ramp-up on the ground in terms of volume does play out, we are well established to ramp up capacities to 1,600 and even beyond that.Coming to your second question of how this turbine is, I think we've been at the forefront of launching larger turbines during the FIT regime, be it a double-sided induction generator or an integrated gear box and larger rotor diameters. Naturally, over the past 3 or 4 years, we had a lot of inventory, which we had to utilize cleanup and so on and so forth. And we believe now this is the right time to get the new product up and running, given all our -- majority of -- or almost virtually all our [indiscernible] and assets are now supplied and cleaned up.No, it's -- what's relevant to note is over this period, we, at one point in time, almost had [ 50 ] manufacturers. Of course, out of that, 5 or 6 controlled about 85% of the market. But I'm sure [indiscernible] a lot of those erstwhile players have gone bankrupt or shut down over these 4 years. We are probably down to 2 MNCs and maybe 2 Indian companies are -- and then there's a massive market.I think there has been a shortage of supplies. There has also been various sectoral issues, which have to be resolved for a lot of us to get back and move forward. And I think fortunately, all that is now behind us. I think we are on the verge of ramping up. Possibly, if it was not for COVID, we would have seen a significant ramp-up over the past few months. But I think we are now all on a massive ramp-up mode.With respect to the top 2 or 3 players, as I mentioned, they're all virtually on par in terms of technology. At some point in time, we may be 3% or 4% better than them. At some point in time, they may be 2% or 3% better than us. But on a more broad-based platform, the top 2 or 3 players of the sector are virtually always plus/minus for each other in terms of technology.
And in future, are we planning to remerge or list Inox Infrastructure Services Limited on stock exchange?
We keep evaluating options. I think over the past few years, we have demonstrated various actions, be it remerging all the wind assets together into a new holdco and now having a more focused approach. So at the right time, I'm sure our board will consider doing the right things and unlocking further value.
Our next question comes from Mr. [ Mahesh Duk ]. He's an individual investor.
My question is regarding the holdco. So in terms of time line. I just wanted to understand when the process of reverse merger stopped i.e., when this proposal will be presented to the Board to receive this approval to start the whole process?
I'm sorry, this is not in the public domain at this point in time. And I think the Board will evaluate various opportunities at the right point in time. And whenever there is something to report back, we will be out on this.
And the details about the holdco already in our presentation. So you can have a look at them.
Our next question from Mr. [ Mandar Arun Sherbet ]. He's also an individual investor.
I have 3 small questions. First is in the notes. We see that we are buying wind turbine generators from somewhere. So whom are we buying these generators? The second question is with Inox Wind Energy Limited, does this company have any other assets apart from the -- being on holding company for Inox Wind? And the third question. Out of the 26 megawatts that you seem to have been supplied this quarter, how much was for the Nani Virani project?
Thank you for your questions. Again, with respect to the -- so I think coming to your first question of buying turbine. These are older assets lining the system, which are being resold since we have had old assets, which had to be allocated to customers, and I think that's what's coming up in terms of buying and reselling because they were in another SPV, which has been bought in the consolidated picture. It's basically reselling older assets to liquidate old inventories and get receivables back.Number two, with respect to IWEL, yes, there are various other assets. There are certain ICDs and advances given by the holdco to the wind businesses, which have now been merged into Inox Wind as well as certain small operating -- a very insignificant small operating assets, which are part of the holdco.Your third question 26 megawatts, Narayan?
In Nani Virani we have not supplied any turbine. All the turbines are given to either [indiscernible] or [indiscernible].
In this quarter.
In this quarter, the government [indiscernible] customers.
Okay. It seems only 2-megawatts was supplied this quarter, isn't it?
Don't know if you have the pick up at the breakup in [indiscernible]
But it's a mix of Continuum and retail customers. There will be no supplies to Nani Virani.
Yes. But definitely not 2 megawatts is [indiscernible].
Okay. About Nani Virani, can I have one question?
Yes, please go ahead.
On Nani Virani project, so until it reaches the 250-megawatt capacity, do we have revenues coming from -- for the SPV? Do we have revenues coming from the [indiscernible]?
So Nani Virani, it's not a 250-megawatt asset. It's a 50-megawatt asset. And on tranches of 10 megawatts as we keep we are allowed to commission tranches of 10 megawatts, thanks to certain changes in rules during the COVID period. So as we keep producing 10 megawatts, the revenues of the commissioned assets will keep up doing the books of Nani Virani.
Okay. So do we have any other such SPVs apart from Nani Virani because in SECI-1 and SECI-2, Inox Wind itself had bid for 250-megawatt projects.
I think we've gone through that many times earlier over the past few years. We've developed all those projects. We had back-to-back agreements with people to kind of buy it, and that's not consolidated on our books. It's already developed and [ down ] sold them on the various agreements to various investors.
The next question comes from Mr. Riddhesh Gandhi from Discovery Capital.[Technical Difficulty][Operator Instructions] So our next question is from Mr. Gokul Raj from Bavaria Group.
Devansh, this was in respect to the previous participant's question, again. The holding company other than the Inox Wind shell also has, I think, INR 600-crore plus of assets, right? So eventually, whenever the merger happened, would that be used as equity to grow the wind platform more? Is that the -- is that also part of your balance sheet action? Is that the broad thinking?
Well, logically, yes, that would be part of the balance sheet action. But yes, I think that's something which the Board has to evaluate. And when we are -- when we have an official communication, that's a point in time where we can talk about it publicly. But logically, what you may...
Yes, that makes sense. Okay. And [indiscernible], how much of the wind assets [indiscernible] are under construction? How much is it fully constructed? Do you have still any assets which are fully constructed that needs to be done so?
No. We don't have -- I mean, while we have about -- well, we have Nani Virani, but besides Nani Virani we don't have any constructed asset which needs to be down sold. And [indiscernible] Nani Virani, once we construct it then at the opportune time, we will down sell that as well.
Right. And from a more 3-year kind of perspective, what would be the customer composition between IPPs and independents and maybe government PSUs or whatever?
So broadly speaking, I would tend to think that PSUs would be 15% to 25% of the market. The retail cap [indiscernible] D&I customers would be again 15% to 25% of the market and IPPs would be about 50% to 60% of the market.
Okay. Got it. And typically, on the EPC business, [indiscernible] split, how do you see that 3 years from now?
We believe going forward with our 3.3 megawatt platform, about 65% of all businesses, if not more, will be [indiscernible] for that.
The next question from Mr. Riddhesh Gandhi from Discovery Capital.[Technical Difficulty]
Riddhesh, in case you are not able to get the connection, then you can send us the e-mail also. There's no issue.
[Operator Instructions] So our next question from Mr. Paras Nagda from Enam Holdings.
Devansh, I had a question on Inox Wind Infra Services. I guess we raised -- we are raising money at that level, is that right?
Well, at this point in time, what we've done is we've raised some money at the IWEL level, and we've raised some money by allocating equity at the IWISL level.
Okay. So you basically converted INR 600 crores worth of your loan to equity, is that right?
No. No. No. So that was between IWL and IWISL itself. IWL has given advancements to IWISL, which has only been converted into preferential shares to avoid a tax leakage in the system.
They are converted to preferential share. [indiscernible]
[indiscernible] It was allotted as the [ presenter ] allotment.
I cannot hear you, sir.
Okay. It's an equity share. It's not preference. It's equity.
It's a presenter allotment, which has been done for equity shares only.
[indiscernible] okay.
So all the advances with Inox Wind Limited given to IWISL, which has been converted into equity. Frankly, there's no -- I mean that's between the 2 wind companies.
The next question from Mr. [ Vikash Agarwal ]. He's an individual investor.
[indiscernible] I just have a one question that I want to know. I want to know regarding your target in FY '23 targeted execution in megawatt.
Targeted execution in FY '22 or targeted execution [indiscernible] megawatt?
Targeted next year. Next financial year.
Well, unfortunately, we can't give forward-looking statements, but I would tend to think if the market is going to be 3 to 4 gigawatts, our aim would be to get back to our original position of at least 15% to 20% market share.
The next question from Mr. [ Rajakumar ] [indiscernible]. He's also an individual investor.
I have a couple of questions. The first question is I want to know what is the overall the consolidated debt and what is the average cost of funds?
Net debt is about INR 950 crores at this point in time. And our average cost of borrowings, for strategic reasons, we will not be able to disclose.
Okay. Because I'm seeing a finance cost of almost INR 62 crores for the quarter, if it's almost INR 240 crores...
Well, we have [indiscernible] various customers have given on which we are paying interest. So -- and we also have various ICDs given from various -- I think as we move forward, as the holdco structure eases and as we are converting some of this into equity, a lot of those interest costs will go out. So we've mentioned that we are working on various balance sheet actions which we expect to implement over coming months of the financial year.
Okay. And in one of your slides, you have mentioned that based on the current order book, you'll be able to do a revenue of INR 2,400 crores in the next 24 months. So given that kind of a top line visibility, I would like to know when you become EBITDA -- I mean EBT positive, whether it will happen on this financial...
We've not given any projection of INR 2,400 crores. What we put out is the order book, which we expect to execute in a period of 24 to 30 months, which translates to about 1,300 megawatts with thumb-rule is worth about INR [ 7,000 ] crores, number one.Number two, coming to EBITDA positive. We're already EBITDA positive. This quarter, we've gone EBITDA positive with about INR 3 crores of EBITDA -- positive EBITDA. And actually, as we ramp up operations, as the top line increases, this will translate into [indiscernible] EBITDA and eventually back.
No, I asked EBT positive, not EBITDA. So I know you've turned EBITDA positive this quarter.
I don't think we're in a position to answer that question at this point in time.
The next question from Mr. Mandar Arun Sherbet. He's an individual investor.
Yes. One more question about the 3.3-megawatt wind turbine generator. When do we expect -- when can we expect the revenues to start flowing in related to that model?
So Mandar, we would expect that to happen in Q4 of this financial year.
Okay. So nothing in Q3. So you'll be starting commercial production hopefully by September or October, right?
Broadly, I think first, we need to get the [ proto ] up. Once that's up, we will be ramping up production. So maybe you may see some amount of revenues in Q3, but significantly I think we are planning two-fold. We have a lot of 2 megawatts, which we still need to do. And due to some of these COVID delays in Q1, we've not been able to do that. So I think we're going to see a lot more 2 megawatts being supplied over Q2 and Q3 of this financial year.
The next question from Mr. Ketan Gandhi from Gandhi Securities.
One question about supply of our 3.3 megawatts to [indiscernible] the company. I believe we're supposed to start by June this year. I believe it is delayed by 1 year. Is my understanding correct?
Well, it's not been delayed but the internal group company decided to shift from the 2 megawatts turbine to the 3-megawatt turbine, which we accepted. So yes, once we ramp up 3 megawatt, we will start supplies of that product to the group company in this financial year.
You mean to say this financial year only we'll be able to start commissioning?
We'll start supplying from this financial year. I mean the last financial year, we didn't have the 3-megawatt turbine. So we are now launching a 3-megawatt turbine. And once we do that, we will start supplies to the group as well.
The next question from Mr. Gokul Raj from Bavaria Group.
On the holding company, INR 250 crores is the direct ICD, right? So what are the other assets? Just some color on that.
There are certain advances by that entity, and there are some miniscule operating assets. All of that will get -- all of them are aligned in the holdco.
And that would be what, INR 650 crores? Is it that number?
It's about INR 600 crores. So we've got about INR 300 crores of ICD. We've got about...[Technical Difficulty]Yes. So we've got about broadly INR 300 crores of ICDs, about INR 250 crores of advances and about INR 50-odd crores of assets in that entity.
That's very useful. And when do you see -- I think overall, this industry consolidation, the benefits of this [indiscernible] consolidation in terms of margins to start showing up?
Well, as I mentioned over the -- as we are now ramping up operations, unfortunately, Q1 was completely impacted, with oxygen not being available. But we are ramping up operations, and I think we are well on track to do that. So I think we expect a fairly significant revenues over the course of the next 9 months of this financial year.And with that, as you've seen in this quarter, we are EBITDA positive, which is this minor top line. I think we expect to have significant EBITDA profits as we move forward. Having said that, with a lot of the other balance sheet and strategic actions which we are contemplating over the course of this year, we expect to get to [ PAT ] positive situation by end of this year, if not earlier.
Yes. And last question would be a little bit update on the [indiscernible] that Inox [indiscernible] I guess it's [indiscernible] it might be [indiscernible] the projects ramp up. So just...
We carry a project site inventory, which includes evacuations in [indiscernible] of about 5 gigawatts. So I think we are very well positioned there. But I think as majority of the business now is under auctions, [indiscernible] and most of it is where people will now be bidding themselves and building their own transformation lines, to that extent, this will lie as a big buffer in the system, which will primarily be used, I would say, for PSU orders and retail orders on a pan-India basis. Given majority of the secure orders won by IPPs will be equipment supply, we call it.
The next question from Mr. [ Rajakumar ] [indiscernible]. He's an individual investor.
Sir, you mentioned the current borrowing is about INR 900 crores. So I was just looking at your March 21 balance sheet. It shows almost INR 1,450 crores of borrowings between current and noncurrent. So just want to know what is the movement between March quarter and the June quarter?
So what you're looking at is the gross numbers. So effectively, we have INR 950-odd crores of net borrowings, which is about INR 1,100 crores in terms of gross borrowings. And then the ICDs from IWEL are also reflected in that, which I mentioned in my previous answer was about INR 300-odd crores from the group company, which is IWEL, which is the holdco of IWL.
Okay. So including that, what is the -- that number still holds good? Or maybe I need to -- we need to add INR 300 crores to the number you mentioned?
That's the holdco number, which eventually with certain balance sheet actions will kind of get canceled in due course of time. So frankly, we're staring at the INR 950 crores external borrowing. That's what should be relevant for you.
The next question from Mr. [ Niraj Diwan ] from [indiscernible] [ services ].
My question is on Slide #14, which has the list of wind auctions. My query is specifically how much of this capacity is yet to select an equipment supplier? If I exclude RTC 2, Hybrid 4 and SECI 11, which are the last 3 rows, that's about 7.5 megawatts...
We believe about 6 gigawatts is commissioned, I believe about 11, of which we believe about 3 to 4 gigawatts is not going to see light of day. That leaves about 6 gigawatts. And we believe about 3 to 4 megawatts will get to choose equipment supplies.
And this would be in the auctions which happened at the later part? Or these are auctions which happened, say, in the mix part of the earlier section?
Well, mid and later part.
Okay. So roughly about 3 to 4 gigawatt is yet to appoint equipment supplier, which would be a target for Inox Wind.
Well, that's 1 and 2 with so many tenders now continuously coming out, such as Hybrid 4, SECI 11 and so on and so forth. You're going to see a lot more options and actions on the ground. Don't forget, until '19, there was barely anything happening. There were lot of land issues, grids were not ready. Once '20 came in, COVID came in and impacted virtually everything for the whole year. So effectively, you're really seeing momentum and movement happening at this point in time.Let's also not forget, I mentioned we don't expect to see 4 to 5 gigawatts to see light of day from this list because many of them have been made out at atrociously low tariffs. And given most of the equipment has now been cleaned up across all manufacturers, naturally, nobody is left with inventory to dump or just [indiscernible] discounts. Everyone is moving towards manufacturing new goods only if it makes profits, and that's kind of reflected in the tariffs also which you're seeing in the ensuing auctions.
Sure. That's about 3 to 4 gigawatts, which is...
Yes. Pertaining to...
Up to SECI 9 and SECI 10.
And most of these projects would probably have not achieved financial closure, right?
I'm not privy to that, but I don't think that should be rocket science, given that majority of them have been run by some of the larger players, such as Adani, JSW and SECI for whom -- as the tariffs at which they won the latter parts of the tender, which should be very easy to get financial closure if they've not already got that.
Ladies and gentlemen, that was the last question for this call. I would now like to hand over the floor to Mr. Vaibhav Saboo for closing comments. Please go ahead, sir.
Yes. Hi. Thank you, everyone, for the investor Q&A session. I would just ask Devansh Jain and the team to take forward this, if they have any closing remarks. Thank you.
Thanks, Vaibhav. In conclusion, I would like [indiscernible] the sectors now on way to see a significant jump in supplies and execution. There is tremendous interest from old as well as new IPPs, PSUs and C&I investors. The policy and tariff regime has stabilized. And with increasing focus on renewables and green hydrogen, we expect to see a continuous and sustained increase in business as we move forward.Post the COVID second wave, which impacted or which kind of impacted operations, we are ramping up operations and execution on the ground, and we expect to see increased momentum quarter-on-quarter. We have a diverse set of customers across IPPs, PSUs as well as retail and C&I customers. And we expect to have a healthy mix amongst these 4 even as we keep ramping up our business.A key focus for us is now going to be launch of our 3.3 megawatt platform, which we are working on. As I mentioned, majority of our components are already in India. We are waiting for the last 1 or 2 components post which, over the next couple of weeks, we should be on with launching our platform. Our immediate focus thereafter will be to ramp up commercial production of that platform. We believe this will be a game-changing development for the Indian markets, more so given the cost structure at which we operate.Let me remind you that until the sector was back to normal operations and our own inventories are all tied up, it was not prudent for us to launch our new turbine, which otherwise would have led to more standard assets in the system. And I'm happy to say that majority of that has already been cleared, and we are now well on track to get this going.Lastly, to conclude, we are working -- and there were many questions around that. We are working on various actions to further strengthen our balance sheet, and you will be hearing from us soon on some of these actions so that we can fully leverage the upcoming growth in the sector. Thank you for your time and look forward to connecting with you all in the next quarter.
Thank you, sir. Ladies and gentlemen, on behalf of Axis Capital, this concludes your conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may all disconnect your lines now. Thank you, and have a good evening, everyone.