Inox Wind Ltd
NSE:INOXWIND
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Inox Wind Ltd
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Ladies and gentlemen, good day, and welcome to the Inox Wind Q4 and Full Year '18 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions]I now hand the conference over to Mr. Bhavin Vithlani from Axis Capital Limited. Thank you, and over to you, sir.
Thank you, Aniket. On behalf of Axis Capital, we would like to welcome you for the earnings call for fourth quarter and for full year FY '18 conference call for Inox Wind Limited.From the management team of Inox Wind, we have with us Mr. Devansh Jain, Executive Director, Inox Wind Limited; and Mr. Atul Soni, Head of Investor Relations at Inox Wind Limited.Without much ado, I'd like to hand over the call to Mr. Devansh Jain for his opening remarks, post which we'll open the call for Q&A. Over to you Devansh.
I'm just going to start with the opening remarks, and then we'll take over.
Thank you, Bhavin. A very warm welcome to all the participants of this earnings call. The Board of Directors of Inox Wind have approved the 4Q FY '18 results in their meeting, which has recently concluded. I trust you would have had an opportunity to go through the results.Just to give you an overall perspective of the year gone by, the sector saw a turbulent year on back of the painful transition to an auction regime. We saw installations take a dip from 5.5 gigawatts in FY '17 to 1.7 gigawatts in FY '18. However, the silver lining in this year was a 7.5 gigawatt of auctions which took place under various SECI and state auctions. This should provide a base for a strong execution cycle for the industry over the next 12 to 18 months. We look forward to FY '19 being a strong turnaround year with stable execution for whole wind sector. Now during the quarter, we won 350 megawatts from SECI and Maharashtra state auctions, taking the auction based order book to a sector-leading 950 megawatts. Effective April, we have also recommenced operations across our manufacturing facilities in Gujarat, Himachal Pradesh and Madhya Pradesh after a near 4 quarter gap for the execution of SECI orders in this year. We also concluded the OFS in March 2018 to comply with the SEBI listing requirements of having the promoter holding reduced to 75% within 3 years of the IPO.In terms of the financial results, we ended Q4 FY '18 with revenues of INR 203 crores as compared to INR 1,019 crores in 4Q of FY '17. We have an EBITDA loss of INR 30 crores in Q4 of FY '18 as compared to EBITDA profit of INR 230 crores in Q4 FY '17. We had a PAT loss of INR 55 crores as compared to INR 127 crores profit in the preceding year quarter. We view the quarter's result as a reflection of this downturn being witnessed in the wind sector, and we expect start of an upward trajectory for the sector over FY '19.Coming to the operational highlights. We achieved commissioning of 82 megawatts in the quarter, taking our FY '18 total commissioning to 172 megawatts.Now on to the balance sheet trend. We focused unrelentingly during the year on improving our key balance sheet metrics, including receiving the -- including reducing our receivables, reducing our working capital and debt levels.I would like to elaborate that on Slides 9 and 10 of the presentation, which will give details of our focused and receivable reduction during the year. We started the year with INR 2,366 crores of receivables and with INR 480 crores of sales during the year.Taking into account our closing receivables of INR 1,060 crores, we've collected approximately INR 1,800 crores during the year. Additionally, we have also collected over INR 200 crores since April of 2018.Coming to the quarter, we have reduced our receivables by INR 300 crores and by INR 1,306 crores in FY '18. Additionally, we have reduced our net working capital by INR 470 crores in Q4 of FY '18 and by INR 565 crores in FY '18.At the end of Q4 FY '18, in terms of working capital, inventories stood at INR 929 crores, net receivables at INR 1,060 crores, payables at INR 536 crores and Others at about INR 214 crores. This translates into a net working capital of INR 1,239 crores.We expect the inventory levels to come down as execution picks up pace in the following quarters. We also expect the working capital levels to still ease going forward and stabilize going ahead in the auction regime as it ensures better coordinated production, inventory planning and execution of wind projects.On the net debt to equity front, we ended the quarter at an improved net debt to equity ratio of 0.35 versus 0.44 in the preceding quarter.In terms of project sites, we continue to be amongst the largest project site holders in Gujarat, Rajasthan and Madhya Pradesh. We have sufficient project site inventory at year-end for installation of more than 5,000 megawatts. In terms of manufacturing capacity, our blade manufacturing capacity stands at 1,600 megawatts with minor CapEx we can debottleneck on nacelle and the hub capacity from the current 1,100 megawatts.Towers, also we expanded with minimum CapEx, as towers are typically low-technology items, which can also be outsourced. Hence, we would like to reiterate that we are fully geared to manufacture whatever the market demand in the auction regime.In our view, the clarity on the content of auction pipeline, issuance of regulatory guideline and a renewed focus on increasing the renewable energy footprint in the country, all combined to provide an upward trajectory for the sector. Going ahead, we see a journey towards an exciting period of significant and sustainable growth for the Indian wind power sector.So that is a broad overview of our operational and financial performance and how we see the sector going forward.We are now open to taking your questions.
[Operator Instructions] The first question is from the line of [ Ayush Mittal from Mittal & Co. ]
Sir, I want to understand about the receivables that we have, though there has been a reduction, but the receivables are much, much higher than the turnover. So can you tell us more details about them?
I would request you to focus on Slide 9 and 10. If you look at the opening receivables, we are approximately INR 2,366 crores of receivables. Over the course of the year, we've done sales of about INR 470 crores, which takes out total of our opening receivables and sales to about INR 2,800 crores. Our closing receivables are INR 1,060 crores, which means we've collected approximately INR 1,800 crores over the course of the year. If you also look at the note report on Slide 10, additionally, we've collected over INR 200 crores since the beginning till early May, which effectively means we're sitting on about INR 860 crores of receivables which still need to be collected. Please keep in mind, this includes the INR 200 crores of sales, which we did in Q4, which is live -- which is from a leading perspective, absolutely light. So it should reduce that to about to INR 660 crores. And yes, the INR 660 crores, when we look at it from a [ leading perspective, it's old ]. But we have our entire INR 2,400 crores, which was -- are receivables at the beginning of the year, which was stuck up given the temporary downturn in the sector, where all [indiscernible] have been stopped. So all these projects over the course of the year, we've been using this across our Karnataka projects, across our PSUs, Gujarat and in some of our going forward SECI projects. So the balance INR 600 crores, INR 650 crores, which you see something, which is already being implemented across Gujarat majorly and a little bit across Karnataka and is something which we'll collect over the next, I would say, 1 to 2 quarters.
Okay. And can you tell us about the easing of our total debt were like -- how much of the [indiscernible] view for over 6 months? And is it from the -- like, is it from private parties or is it from the state governments that we have to collect?
Well, actually, no. These are not from state governments. We don't sell power. Power is sold to state governments. Half of them are sold to privates, private sector, IPPs as well as PSUs, which, I mean, I don't have the mix of how much is private sector versus PSUs, but I would assume of the INR 660-odd crores, which is left, about 60-40, 40% would be from PSUs, and approximately 60% would be from the private sector. From an aging perspective, honestly, when you look at it, a lot of these turbines have been -- have now been used in the same projects because the projects in which these were intended to be used, never got implemented because the states never went ahead and find those people over the course of the year. So for example, what we spoke in Q3, we had Karnataka sign the PPA over the course of the full year. But finally that PPA got right aside only in Q4. And hence, we were able to implement that project only in Q4. So whatever is left out, which is the INR 650-odd crores, which is approximately 100-odd megawatts is something which we are implementing right now across Karnataka and Gujarat. And these are [indiscernible] from our original [ stuck-up ] sales.
Okay. Okay. And sir, my second question is around the competitive big stuck-up now come into a given sector. There's a lot of concern that the profitability will be [indiscernible] for all the value chain -- whole of the value chain as the data has come down substantially more now. What will be your comments on the margins picture going forward for the company as and when these scale up, get back to the previous levels?
So a couple of things. Number one, while tariffs have declined significantly, it's because -- under the previous FIT regime, people had expectations of IRRs, which were much higher than what they're getting under the auction regime. Why people are willing or have brought down their expectations, do you know? Let's say, 14-odd percent equity IRR under the auction regime vis-à-vis maybe 18% plus under the feed-in tariff regime because under the central auction regime, you've got certainty of -- you've got a central government guaranteed PPA, which ensures payment comes in time. In fact, all of them have a revolving L/C as well in most of these tenders. I'm sure, all of you are aware, in many of the states while there have been no defaults, payment delays have been from 3 months to over 18 months. So while you have this security. Second, you have the security of the transmission network. In many states, there have been a lot of curtailments which is taking place on the state grids. Now if you start curtailing during the hide and seek then profitability is going to go for a loss, whereas under the central auctions, they're connected to the PGCIL where availability is about 99.5%. Now when you factor in complete stability of the grid, and you factor in security of payments, a lot of the investors are willing to take much lower returns, and that's the reason why you are now seeing a completely different class of investors who are sovereign funds, pension funds and very large private equity funds as opposed to earlier, just having isolated appreciation customers, smaller corporates and so on and so forth. From a margin perspective, as you may be well aware, we're probably the lowest cost manufacturer of wind turbines, largest in India, but probably even globally. So yes, to some extent, we take a reduction in our margin or to a great extent, that gets compensated due to the efficient working capital management, which plays out under the auctioning regime. And second, even if there is a minor dip, let's say we were at 15%, and we're at 14% under the new regime, in terms of absolute number, that's much larger because the sector from historically been a 3, 3.5 gigawatt market per annum since the fact that over 1 year, we did 5 gigawatts historically over the past 4 years, the sector has really been a 3 gigawatt per annum sector. It's now already moving to 7.5 to 10 gigawatts per annum. So you have large volumes that any minor blip in percentage will be more than compensated by the absolute profitability.
Okay. I have another question. Going forward, will we see a more smoother execution over the -- between quarters of the projects as this is not like of individual developers who are waiting for the tax benefits in the last quarter?
Yes. Now that we've developed operations, I think over the next 1 to 2 quarters, we'll completely ramp up. And from there, let's say, from H2 onwards, we'll have a completely uniform execution quarter-on-quarter. So there's no March syndrome as this sector used to have in the previous regime. There's nothing called a March syndrome. We're going to have absolutely uniform execution going forward. But of course, there's going to be a ramp up over Q1 and Q2 because as you may be well aware, for the past 4 quarters, the -- all our manufacturing plants have shut down, everything was closed. We've kick started operations effective April. So we're ramping up all our operations over this quarter, and I think as I mentioned from H2, we'll have an absolutely uniform execution plan.
The next question is from the line of [ Deepak Agarwal from Elara Capital ].
First question, can you help us understand on the balance sheet side? So there is a property, plant and equipment with basically your gross flow. Is there substantial jump in the gross flows. So have you done any major CapEx during the year?
Wait for a second. Deepak, let me get back to you on that. I can take it offline with you, but if you have any other questions, then do let us know.
Yes. Sure, we can take it offline, no problem. My second question is now -- it's very good to see that you managed to reduce our receivables significantly. So it would be fair to assume that bulk of the money that you realized has gone for debt repayment because debt is down like some INR 700 crores to INR 800 crores.
Absolutely. Absolutely. It's gone towards debt repayment as well as reducing payables, creditor payables. If you notice, our creditor payables have come down to almost INR 250 crores as well as debt has reduced significantly by almost -- net debt significantly, but other debt by INR 800-odd crores.
And this balance noncurrent debt, especially the long-term debt. When do you expect the repayment to happen? Because the working capital might continue for some time, but non-working capital debt.
Just give us a second.
Yes, this is about INR 350-odd crores.
The INR 350-odd crores is stable over the next 2.5 years.
2.5 years. And that is at what rate?
It's at approximately -- the blended average will be sub-10.
Okay. And I wonder why we need to raise this debt actually during the year?
Well, what we did was, if you noticed, we've reduced borrowings from INR 1,350 crores to INR 480 crores. So we've repaid almost INR 900 crores of short-term liabilities whereas long-term liabilities have only increased by INR 150 crores. In fact, this happened during an unfortunate time when we had the NCLT episode, which was declared illegal by NCLT, our parent company came in and came in with cash support to us which was then showed to the stock exchanges. So this is the money which came in from them at that point in time.
Okay. And my third question is, like, the SECI how the auction calendar happened during the course of last year. And I also believe there is some conditions that they've introduced that you cannot deliver as in the IPP cannot commence operation 15 months prior to the auction because the outer limit is 18 months, but...
No. That's incorrect. Any ways you complete your question, then I'll answer.
Okay. So my feeling is that SECI-1 that ordering happened around May of last year. But bulk of the ordering that we've seen to the equipment suppliers happened from December to March. So that would imply that basically, first 9 months of this year, we will see more of an execution and actual commissioning of plants only for SECI-1 and more of it will be Q4 and H1 of next year for SECI-2, 3, 4?
First and foremost, you can only do it between a 15- to 18-month period is incorrect. While the outer limit of 18 months in SECI-1 and 2, going forward it's 21 months. But if you can commission your plant within 1 month, they are ready to -- they're happy to take it even after 1 month. So it's not that you can only do it after 15 months. Why you see while the auctions and the earlier was -- of the February auction was awarded in May '17? Why already actually effectively started taking place from January '18 is because they were no connectivity guidelines. If you recall, the sector was shut and there were no new auctions till October because there were certain transmission guidelines, connectivity guidelines without which you cannot implement projects. That was announced by SECI last year on 29 September 2017. And then there were a lot of clarifications, et cetera, et cetera, around that, which had to be addressed. A lot of those things got addressed only in January when the draft procedures came out. In fact, the final connectivity guidelines were released on the 15th of May. So with that, the whole loop is now closed. Having said that, with respect to implementation, we're now going to see, as I would believe over H1, entire SECI-1 being executed. And over H2, we're probably going to see SECI-2 being implemented. I think SECI-3, SECI-4, the letter of award still need to be issued. But I think from a SECI-3 perspective, probably going to go into the next financial year.
Okay. But the state portion can happen most...
Certainly. Certainly, state auctions can certainly happen because they were on state transmission networks, nothing to do with the central guidelines.
Okay. And in between this MNRE, sometime in middle of Q4, they opened this -- they relaxed this window for up to 25-megawatt, can still continue in the FIT regime. So do you see some kind of order booking and inflows and come...
So just let me correct it. MNRE sent out a recommendation to all the state governments, carry on with feed-in tariff regime for another 25-megawatt projects. It was a recommendation. MNRE has no locus standi and no powers to direct states to honor or do an FIT regime. It was up to the state governments to keep an FIT regime. Naturally speaking, no state government is going to buy power at INR 5.5 or INR 5 and so on when they can get power from the central pool at INR 2.5, number one. And number two, end of the day, I think all of us, Indians and a lot of other people are smart enough. It's going to be 25 megawatts, any guy would say 10 subsidiaries to put 20 megawatt each under that, take advantage of that. So that was more a recommendation, but obviously it didn't find any favor with any of the state governments.
Because some of your peers, both -- another state who we -- in fact, they are saying that this buy also can be 1,000-megawatt market.
We will be very happy if it happens. As you know, our land bank is of almost 5 gigawatts, across India. It includes Gujarat as well. Gujarat maybe approximately 1,000-megawatt in that. So if this does happens, obviously, we'll be very happy. But at least on the future of it and from what makes sense, I don't think this is ever going to see light of day.
Okay. And my last question is, again, a bookkeeping question. Since most of the manufacturing was shut in FY '18, though still our inventory levels have been increased substantially.
Correct. And I think we answered this in Q1 as well as Q2. All the listings, which has been opened in Jan, Feb, and March -- Jan, Feb and March '17. Of course, nobody knew the sector is going to shut down. So as business was continuing on a normalized basis, right, once they kept coming in for future manufacturing because, don't forget, we had a 1,000-megawatt order book even then. So we had continuous inventories coming for which L/Cs had been opening. Now all these consignments started coming over April, May, June, which have been opened in Jan and Feb. Yes, February stopped opening all new L/Cs. But over Jan and February, all the L/Cs which had been opened, those materials and they were shift started hitting us in April, May and June. So obviously, if you're an L/C [indiscernible] of those L/C then you need to make those payments, and that's the reason why our inventory levels went up.
So these are basically all the generators and other equipments?
The gear boxes, the fastening, electrical control systems, so on and so forth. Now this is all something which is now going to be consumed, and will be recognized as usage, once we start supplying from this quarter under the SECI guidelines -- under the SECI auctions.
Okay, okay, okay. And one question if I can ask this last thing on the technology side. Now we -- last -- if not last con call, some time in the earlier 2, 3 calls, you mentioned that you're working on 3-megawatt turbine for potential launch in FY '19 second half. So are we on track for that...
Well, we're working towards it. As I said, I think we already have a 1,600-megawatt order book. We are focused on executing that. We're working with -- we've a strong relationship with the MSC, we are working with them towards that. We're also evaluating other technologies. And we should be able to get back to you on that over the course of the year.
[Operator Instructions] The next question is from the line of [ Akash Vaid from Emkay Fincap ].
I have got three questions. One, in this new SECI orders that you have gotten, isn't it the retention advances from the client? That's one. Two, on the new orders, what are the EBITDA margins or gross margins that you're expecting? Would they be same as what you have shown in history? And question number three is that on the 100-megawatt project, the receivable that you mentioned. I just missed out what project is that 100-megawatt project?
So question number one was...
Retention.
Retention. So I mean, effectively there is no retention, but typically what happened is that customers let's say pays typically up to 90% on commissioning or 95% upon commissioning. And then you've got short-term performance [indiscernible] it effectively takes you to 6 months to finish off, 3, 4, 5 months. While you may do it in 1 or 2 months, sometimes you have plus, minus. But I think under the auctioning regime, it's going to be much smoother, possibly just 1 or 2 months because there is enough and ample time to implement projects in an organized manner. This should be funded the feed-in tariff regime, where everybody was running and executing projects effectively in Q4, so you had a lot of funds for other issues, blah, blah, blah. So I would -- while there is no retention money. I think the last 5-odd percent, which comes post [indiscernible] will effectively happen in about a quarter's time, number one. Number two, with respect to margins, it's hard for me to give you a clear number with respect to what our margin is. All I can say is historically, we've maintained 15% to 16% margins. Our endeavor is to kind of maintain margins as close as we can to that. But having said that, that could be a slight blip in margins, but that could be more or -- that could be compensated by -- way more by the absolute volume going up, given the size of the market doubling moving forward.
And the third one like, receivable related to 100 megawatt. Is that one project? I just missed out on that.
Three projects. We're implementing about 50 megawatts in Gujarat. We're implementing about 20 megawatts in Andhra Pradesh, and about 20 megawatts in Karnataka.
And these are all private executions?
I mean Karnataka is under the PPA, which we've carried forward, which we had got signed, so that was a 20 megawatt addition on the group capital and 50-odd megawatts across Gujarat is across partly some pending PSU order, some captive orders and some third parties, I'm not sure, if some third parties or -- it's a mix of PSUs and captive and third party or something.
The next question is from the line of Paras Nagda from ENAM Holdings.
Devansh, based on the reported balance sheet that you submitted to the stock exchange, trade receivables are close to INR 1,338 crores on the consol balance sheet. And whereas in the presentation, it is close to INR 1,060-odd crores.
That's correct, Paras. If you look at the presentation, net receivables are receivables minus all the advances we have. Because, again, there is a technicality, while we got advances from certain customers, effective until now, we could not lump them up as receivables because there are certain milestones. But those are money, which customers have paid and now that the turbines are already with them and those are key milestones, et cetera, have been back. This is some of the [indiscernible] each other.
Okay. So technically -- okay, so that were always there in the previous balance sheets also? So that cannot be...
Incorrect. Because when you look at opening INR 2,382 crores, at that time point in time, our advance is only INR 10-odd crores, whereas now our advance are INR 300 crores.
Okay. Got it. And the second question from my side is, what is the kind of captive sales in last quarter as well as for the full year?
For the last quarter, out of the 172 megawatts that we commissioned, captives would be less than 10 megawatt. Captive means you mean third-party captive, correct?
Okay. To our group companies in the sense...
Group companies would have been sold about 40 megawatts.
Okay. This is for last quarter?
Oh, no, no, no. The full financial year, the full financial year of the almost 400-megawatt of inventory that we carried, which was stacked up in receivables, about 40 megawatts was sold to our group customers.
The next question is from the line of Mohit Kumar from IDFC Securities.
So my first question pertains to NTPC. Have you heard something on that? And is there a timeline, which you can share with us?
Well, NTPC called out a bid for about 2,000 megawatts. I think they were deferring it until now because the final connectivity guidelines have not come out. And I think they've had a lot of developers who did not have connectivity represented that they would rather build once there is enough clarity because until now, there's already SECI-1, SECI-2, SECI-3, SECI-4 which had been carried out. Now that the final transmission guidelines have been announced on the 15th of May, I would tend to think that over June, I would resume -- I would tend to think that over June, NTPC will go ahead with their auctioning.
Have you heard from the other states about their -- talking about the more windy states, so the windy states have not floated any bid as of now?
No, no. Honestly, how does it matter? At the end of the day, there's so much coming in from the central government. We ended the year with 7.5 gigawatts of auctions. It is 2x the volume which India did in any normalized year. So and there are -- NTPC, 2 gigawatts, SECI-5, 2 gigawatts, Gujarat has another 500 to 500,000 gigawatt tenders. We already have 5,000 megawatts of tenders coming out, I assume, over the next 60 -- 30 to 60 days. There is so much volume out there. Why would you worry about when will some [indiscernible] take out some tender.
And Mohit, to add to that, actually, if the main states have come out with their main tendering, I mean, Gujarat, Tamil Nadu, Maharashtra. So I mean, these 3 themselves have last year done 1.5 gigawatt of wind auctions. So in our opinion, this will be like a major portion of the windy states in any ways.
And sir, are you planning to participate in offshore wind dispersion of interest?
No, I don't think so. At this point in time, we do not plan to participate under the offshore bidding.
But have you heard anything on the SECI-5 bid?
Sorry?
SECI-5.
SECI-5?
It's hard to disclose that. But we will do -- those are strategic calls we make as and when we move.
No, I'm asking is that time line shared by the MNRE on the SECI-5, their spend, they will be [indiscernible]?
I think, it should be all sometime in June because now that the transmission guidelines have been announced, the auctions will keep start -- don't forget that Jan to April, the auctioned out 6 gigawatts or almost 5 gigawatts. There's so much that's just being auctioned out. [Foreign Language]. Over the past 5 months, they have auctioned out 7.5 gigawatts, that is huge.
Is there any constraint -- transmission constraint? Is that the reason why SECI-3 and SECI-4 LOI has not been issued as of now?
First and foremost, the LOI for SECI-3 has already been issued, that was issued 3 months -- 2 months ago -- sorry, 3 months ago. So it's not that SECI-3 LOIs have not been issued. SECI-4, I know, the SECI-4 auctioning was finished on the 4th of April, correct?
Yes.
That LOI has not been issued. We were waiting for the final connectivity guidelines to come out and what we understand now that this come out over the next 10 to 15-odd days, I think those LOIs will be issued, number one. Number two, with respect to connectivity, those players or those IPPs who do not have connectivity surely are a worried lot or have been a worried lot. Inox Wind has over 1,500 megawatts of PGCIL connectivity, which is paid for, will be submitted majorly NTA long-term open access agreement already in place for the major part of the quarter it is. So first and foremost, we are not affected, but, yes, going forward, you will need more connectivity maybe 2, 3 years down the line. We're also implementing certain projects on value and value also has connectivity. So it's also -- it keeps all the projects, we're doing ourselves and all the projects Adani will be doing, which we are implementing for them, we already have the connectivity.
So what is the connectivity situation in Gujarat as of now? Can it absorb 6 to 8 gigawatts as of now?
Well, as of now, it can absorb about approximately 4 gigawatts. So I think if you are not SECI-1, 2, 3 and 4 and from the split up that we have of all the people, lot of [indiscernible] in Gujarat versus other states. Up till SECI-4, we had adequate transmission capacity. [indiscernible] SECI-4, it does not exist today. But then again, SECI-1 to SECI-4, 4 gigawatts is not going to be implemented in 1 year. We're already expanding [indiscernible] already expanding these and building new substations, and they're offering new connectivity 2 years from today.
The next question is from the line of [ Vipul Shah from Sumangal Investments ].
What type of annuity income we can expect going forward on a regular basis?
So actually, by annuity income are you referring to O&M revenue?
Yes, yes, O&M revenue.
It is something which basically will expand as the year goes by because as your fleet size will keep on increasing, the O&M revenue will also keep on increasing.
So what was that figure in the last -- for March '18 year?
For March '18, what was our O&M revenues?
INR 67 crores. I can get back to you on that number.
I think it was -- while you get back offline, I think it was INR 60 crores, INR 70-odd crores or INR 70 crores, INR 80 crores, I'm not sure. Going forward...
Okay, sir. And...
O&M keeps increasing as the fleet, which is under the free O&M period shifted to the paid O&M period. So every year, for example, next year, we have another 500 megawatts with just of the free O&M period. That would add about INR 40 crores, INR 50 crores to the base O&M revenues. So at this point in time, we have about 2.5 gigawatts of operating fleet, which keeps adding as we keep implementing more on that. On a full year basis, it will be approximately what, INR 230 crores to INR 240 crores per annum.
We'll take that offline by next week.
Okay, sir. So should I contact you offline?
Please drop me an e-mail, I can give you the details.
And sir, since now the market is normalizing, what type of return ratios, I mean, ROCE and ROE we can expect going forward normally over the next 2, 3 years?
Yes, as you know, I mean, we do not give any forward-looking guidance.
No, no, no. roughly, if you can give any ballpark, sir.
Stating roughly would also equate to a guidance.
The next question is from the line of [ Chetan Gandhi from Gandhi Securities ].
Sir, are we taking part in hybrid auctions, which has been announced by SECI recently?
Well, so what the existing hybrid auction talks about is existing wind farms owners can set up solar plants in their facilities. And existing solar park owners can set up wind farms in their facilities. So we don't own any solar facilities where we can put up -- we can put up wind turbines. And at least for all the wind farms which we operate for our customers, we don't intend to put up solar panels at this point in time. Going forward, now that the wind solar hybrid policy has been announced, going forward for all -- there will be incremental options, which will be specific to putting up solar panels within wind farms which we control, I think that's something where we will possibly be bidding to leverage on the common infrastructure which we control and making an incremental profit out of that.
So we are open to that idea?
Yes.
Okay. And sir, what is the -- what do you think the effect of rupee depreciation differently than on the IPPs? And especially for NIPPs?
It's hard to answer for an IPP because it's a function of whether they have a fully hedged loan or whether they have a rupee term loan or what kind of loans they have. This year, there are a lot of IPPs out there who have not completely hedged their foreign loans. They're going to take a significant -- I mean, depending on what rate which they took their loans, they're going to take a beating given the strengthening of the dollar.
But I'm not asking about the future players, not the existing players.
Future -- well, from a -- the interest cost regime in the country started hardening to a certain extent. So you've probably seen interest rates go up by 0.5 percentage point. It might go up by another 25 basis points or so on and so forth. I think at least the big guys, we are working with the big IPPs, they're using a mix of rupee term loan, bonds and also bringing in foreign money, which would be hedged. So they possibly could have a 50 basis points to a 75 basis points eventual increase in interest costs over a 15-year period or a 17-year loan tenure period. But yes...
Chetan, there's actually two ways to look at it. One is for a new IPP. If we were to bring in your dollar into the country, obviously, you'll be getting more rupees for it. To that extent, it's positive for them. The flip side of that is that you have to see how your hedging costs change for the new cost of the currency. So on the one side, basically, let's say, you've got INR 63 to a dollar earlier, now you can get INR 68 or INR 70 or INR 75 whatever it is at that point of time. And on the other side, you have to see the impact on hedging as well your funding and financing cost.
Sure. So I have one more question. Out of total, our auction, how many are fully tied up and how many pending?
Well, we've SECI-1, as we'd announced, SECI-1 and SECI-2 are fully tied up. Now SECI-3, we already have term sheets in place. It's too early to do the contracts because SECI-3 is a long way of -- I don't think customers would pay us advances for SECI-3 today. And SECI-4, while we have in principal tie ups in place, we are waiting for the letter of award to be issued. Post that, those will -- those are going to be tied up as well.
Okay. So if I look at it, sir, we have 100 megawatt of -- 50 megawatt from SECI-1 and 50 megawatt from SECI-2 outside our auction regime?
Correct.
Do we see any chances of getting somebody else's -- some other IPP's order for SECI-1, 2, 3?
Well, not from SECI-1 and 2, but for SECI-3 and 4, I think we would be getting in -- we believe, we would be getting orders from...
It could be significant or minor?
Let's hope for the best.
Let's hope for the best.
Okay. And one, Atul, the same question, which I asked, I mean, how many megawatts were there under O&M last year? I mean, FY '18 and how much is going on for FY '19? I would require that, so I will take offline on that.
Sure.
And sir, what is the revenue recognition policy for O&M revenue? Is it the 10-year period or...
Those are contracts, very good customers ranging from 5 years to 12 years. 5 years to 15 -- 5 years to 15 years or 12 years?
5 to 15.
5 to 15.
So I think there are some accounting guidelines. So if they're for 10 year, you have to -- if 2 year is free of warranty, and you have to -- you will be getting revenue for, say, 8 years. Then you've to divide that whole revenue by 10 and you have to book -- start booking the revenue in first year itself. Is it like that? Or -- I just want to clarify.
Because of [indiscernible] now there is something called straight-lining of O&M, which we do and the process in that is exactly what you explained. So for example, in a 10-year period, if, let's say, you have 2 to 3 years of free-looking period, now in reality or on cash flow basis, you're not making any money in those 2- or 3-year period. But from an accounting perspective, you will be taking it as income, which we would have got across 10 years divided by the number of years that you have. So will you basically book it in all the years, but you get money for, let's say, your total contract minus the free-lookup period.
All right. So in that scenario, our receivables might be included of that amount also?
That's fairly insignificant right now.
It's not a big number as of now.
I think last year, we had a revenue of -- I mean, revenue of 3% of the total revenues so around INR 160 crores, INR 170 crores?
Not sure, maybe [indiscernible].
It was -- I can give you the exact number.
Sure, no issues. I think it's public figure in the balance sheet.
Yes, yes. So it's around 2% to 3%.
INR 60 crores INR 80 crores.
No, no, no. It is 3% of the total revenue FY March '17 ending.
[indiscernible] March '17 was INR 3,315 crores, so 2% to 3% will be INR 66 crores to INR 99 crores.
I will take offline on it.
The next question is from the line of Mayur Gathani from OHM Group.
So can we look at the 950 order book that we have? Can you execute that in this coming year, FY '19?
Well, if the question is can we execute it within the financial year, yes we can. But will we do it is something which is no, not at this point in time.
Because if you have orders then you have to complete it in 12 to 15 months' time, 15 to 18 months' time, so will that time be by March '19 or no? You still have time to take it to March '20 now -- FY '20?
First and foremost, we need to complete SECI-1 and 2 18 months from letter of award and for SECI-3 and 4, 21 months from letter of award. So until now, we've got SECI-1 letter of award, which was issued in May 2017 because the guidelines did not exist. They've verbally already extended itself. People know that we need that extension because we already have the connectivity. So we are really looking at doing that within this financial year. SECI-2 was conducted in October. The letter of awards for which were issued in November. So we got 18 months from November '17, which takes you to middle of 2019. SECI-3 was conducted in February 2018. LOAs were issued in March 2018. You get 21 months from March 2018. So you have time until December '19 to do SECI-3. And SECI-4 LOEs are expected to be issued in June 2018. And 21 months from June 2018 gives you time until March 2020 to implement these projects.
But I'm just looking at that revenue contribution for this year, then it might not be very significant again. It might just see FY '20 will be a bigger year for us.
Well, we're not going to give any forward-looking statements, but yes, we will be having significant revenue recognition as well as execution over the course of this financial year.
Okay. And sir, on the margins front, you mentioned that you will look at 15%, 16%. I mean, that's what you've done in the past. But you will -- will it be so easy for you to get back to that number, I mean, as soon as you start getting the installations?
Well, again, it's not an easy task, but again, being the lowest-cost producers of wind turbines, globally is also not an easy task. We've constantly added in terms of managing our costs, making ourselves more efficient, whether it's admin cost, manpower cost, fixed cost, supply chain costs. So while we are -- we would aim to achieve our historical numbers, there could be a minor blip in terms of what we achieve we service that. What I did mention, though, was volumes will definitely be larger than what used to be under the previous regime. As a result, if there's a minor blip in terms of percentage, it will more than be compensated for -- by the increase in absolute volumes.
The next question is from the line of Kashyap Jhaveri from Emkay Global.
Just wanted to reconfirm, you mentioned SECI-1 execution will start in H1. SECI-2 will be H2, and SECI-3 will most likely be FY '19. Is that correct?
Well, I was referring to the time lines to be able to implement these projects. What kind of time lines we have in hand. Now -- even though, we could even do all of them within this financial year. But what I'm trying to say is, that's not what we intend to do. We will have significant volumes which we'll be implementing over the course of this year and -- but we're going to do it in an orderly manner and in a uniform manner. We are focused on easing -- so we've reduced working capital very significantly over the course of this year. We expect to reduce this much more going further over the next 1, 2, 3 quarters. We want to make it a very, very lean operation, with significant free cash flows.
Okay. And just another verification about the INR 300 crores that you mentioned have been netted off from the receivables which are as per the SEBI format, those INR 300 crores of the money with reference to SECI-1 or 2 orders. Is there advances...
Well, partly, partly. It's partly.
Partly. Okay. Okay. Will you be able to quantify the number?
I cannot quantify that.
The next question is a follow-up from the line of Mayur Gathani from OHM Group.
On the receivables, you mentioned, as on date you'll be looking at around INR 600 crores that are receivables which are there for a long time. So on that, do we see any write-offs or any bad debts? Or do you feel over time you can collect that?
Again, so it's not -- it's stuck for a long time. That's what I was referring to. I mean, when you look at it -- optically, it looks like it's from a long time. So to elucidate, we used to have approximately INR 2,400 crores on 1st of April which is stuck up. And nobody knew the sector would shut down the whole year, and no state will honor PPAs, and we will not be able to collect anything and so on and so forth. So that major part of our turbines we got stuck, which we then put somewhere. Obviously, we collected what we had executed and which were commissioned. We used these turbines in Karnataka. We used it on the PSU orders. We used it under some other third-party sales, so on and so forth. And that's the reason why those stuck-up assets were resold or -- let's say, it was lying in the name of Tata Power and that PPA never happened. And we sold it to somebody else in Karnataka whose name is XYZ Power. The XYZ Power took the turbine, so that did not lead to new sales for us, but that enabled us to get rid of our stuck-up turbines where PPAs are not being honored under a different project. So this INR 650-odd crores, which still remains which optically is old is something which has been given to customers who are new and these projects are being implemented. And that's the reason we've been able to collect INR 2,000 crores over the past 12 months. So to be honest, while yes, there could be some stuck-up amount, probably INR 50 crores. You always have some plus minus going on, on some ROW or some LD or something like that. I don't think that's anything significant which is left, and we believe that over the course of the next few months, we should be able to collect majorly all of it from the customers.
The next question is from the line of [ Manish Kanakia ], an individual investor.
Just want to know, is there any problem with regards to implementation in the Gujarat Kutch area due to some Army issues?
Sorry, I'm not aware about this. I'm not aware about this, at least, not with our projects.
All right. Just want to know how much of the order received in the auction regime one have the -- or have -- any installations have been done in FY '18 from the auction regime?
No, no. Nothing. We've started executing the auction regime orders only effective April. April '18.
All right. And with prices dropping so down, do you see any uptick in orders from captive -- for captive use? Are they negotiating price? And are they giving orders?
Well, I'm sure, there should be, obviously with prices dropping into such levels or more importantly, with tariffs for industrial consumers continuing to increase across states, there's more demand for captive power plants. But to be honest, we are now not focused on that because we have such a large order book. We're really focused only on executing all our projects in Kutch. Between our projects and Adani projects, I believe for the next 3 to 4 years, we have more than enough to implement on this one site. We really don't want to go after those 2, 4, 5, 8, 10-megawatt orders.
Can you tell me now? Because now your connectivity was announced on 15th May, all issues are now in place. So now the time gap between a SECI-5 auction to awarding the final contract will be how long? Will it be shortened?
Well, I would tend to assume -- so again, now that you've had multiple SECI options, all the IPPs and the customers already have out there. You know exactly the contracts are replicated. So there's no -- you're not developing these contracts for the first time, number one. Number two, everyone understands how the auctioning regime works, how the PGCIL connectivity works. The only point is there's no urgency from the IPPs at this point in time. Like I said, these closed contracts for SECI-1 and for SECI-2. For SECI-3, we already have the agreement, I would say the term sheets in place. For SECI-4 also, we have the tie-ins in place. But for SECI-4, we don't have the LOA. No one's in a hurry and no one's even going to pay us advances today, and it's wrong to pay advances for a project which will be implemented say, 9 months or 12 months from today. So while a contract can be closed very quickly by any IPP now, SECI-5 is so far away, yes, people still need to implement SECI-1, 2, 3 and 4.
All right. Okay. Just one more. You said in SECI-3 and 4 there are chances of us winning orders, so I do want the number of what we could win, but overall, how many orders are still to be given to any player, even turbine player?
Honestly, I don't have that off the fingertips, but...
I think -- let me put it this way. I think in SECI-3, only 2 players have announced their confirmation with OEMs. And in SECI-4, I don't believe there has been...
LOAs have not been issued, so there can't be any orders...
Yes. So it's too early for SECI-4 because SECI-4 just happened in first week of April.
Yes. We have a -- we have fairly -- like we said, let's hope for the best, but we think we should get a fairly significant number of SECI-3 and SECI-4.
Sir, just to have an idea. Do you think commissioning for this FY '19 overall, for the industry commissioning, will it go back to -- yes, there are orders, but as you say, implementation will take time. So would it reach 4 gigawatts commissioning? Do you assume...
I think so. I think so. Because I believe SECI-1, 2 will surely be implemented. I believe that Tamil Nadu and Gujarat auction, which were carried out prior to the SECI auctions will be implemented, which were roughly 500 -- 500 megawatt each, so that puts about 3 gigawatts on the table. And there will be some captive old assets, which are being commissioned. So I would estimate the full year commissioning to be close to 4 weeks.
Thank you. That was the last question. I now hand the conference over to Mr. Bhavin Vithlani for closing comments. Over to you.
On behalf of Axis Capital, we would like to thank the management of Inox Wind for giving us the opportunity to host the call and all the investors for logging into the call. But before we end the call, I would like to hand the call back to the management for their closing remarks.
Thanks, Bhavin. To conclude, the year gone by was a year of painful transition to an auction regime for the Indian wind power sector. Over the course of the year, we have focused unrelentingly on improving our key balance sheet metrics, including reducing our receivables, our working capital and our debt levels.Our biggest focus during the year gone by, obviously, has been reducing receivables, which was a key concern for the larger investment community and banks. And I believe we've achieved -- we believe and hope we've achieved significant success and brought this down to a significant level.With the beginning of the new financial year, we have recommenced manufacturing operations across all our manufacturing facilities across Gujarat, Himachal Pradesh and Madhya Pradesh. It's taken us the past couple of days to get manufacturing back to full shape. That involved about 1,800, 1,900 employees across these 3 plants. Given the fact that this was after a 4 -- nearly 4-quarter gap. So we are now on the full manufacturing to execute the SECI orders which we'll be implementing over FY '19.We are relieved, excited and looking forward to a year of novel operations, with a still further efficient working capital cycle. Due to the fact that under the auction regime, we believe we will have a fairly well-coordinated and uniform manufacturing and production plan and execution of the wind projects. As opposed to the earlier syndrome where you had a March syndrome under the feed-in tariffs regime.We continue to enjoy strong relationships with IPPs in the country and have 2 very significant relationships for all our projects under implementation. And are looking forward to working with all these IPPs and achieving India's target of 60 gigawatts by 2022.We hope that with all the focus that we've put on reducing our receivables and strengthening and lightening our balance sheet, our investors would be with us throughout this journey, would be relieved and happy and certainly, for the remaining INR 600 crores to INR 800-odd crores which is left out, we will continue to remain focused and hope that we will be able to reduce this virtually down to 0 over the next 1 to 2 quarters.Thank you for being a part of our company, and we look forward to reporting back with actual profitable numbers with actual supplies being done to customers going forward. Thank you. Atul, anything?
That's all. Thank you for your time.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.