Suzlon Energy Ltd
NSE:SUZLON
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Suzlon Energy Ltd
Earnings Call Analysis
Q1-2025 Analysis
Suzlon Energy Ltd
Suzlon has reported one of its best quarters in seven years, propelled by strategic initiatives taken over the past three to four years. The company achieved a record order book of 3.8 gigawatts (GW) as of June '24, underpinned by their S 144 WTC model and reinforced customer confidence. This performance highlights Suzlon's 29-year track record and leading market share in India.
For Q1 FY '25, Suzlon recorded revenues of ₹2,016 crores, marking a 50% year-on-year increase. The consolidated EBITDA grew by 86% to ₹370 crores with an EBITDA margin of 18.4%. The company reported a profit after tax (PAT) of ₹302 crores, tripling its prior year figure. This has been their highest quarterly EBITDA and PAT in nearly seven years, greatly strengthening their balance sheet with a strong net worth of ₹4,253 crores and a net cash position of ₹1,197 crores.
Suzlon's operational achievements include the delivery of 274 megawatts (MW) in Q1 FY '25, doubling the output from Q1 FY '24. India's wind sector is estimated to install 5 GW in FY '25. Despite industry-wide commissioning of only 770 MW this quarter, Suzlon remains optimistic about future quarters, expecting delayed turbines to be commissioned in Q2 FY '25. Their Operation and Maintenance Services (OMS) business also continues its success, managing 14.8 GW of capacity in India with over 96% machine availability.
Suzlon remains committed to timely execution of their order book while maintaining high quality and ESG (Environmental, Social, and Governance) standards. The company’s integrated supply chain and project execution capabilities provide a competitive edge that is difficult to replicate.
Suzlon’s focus for FY '25 includes optimizing their costs and enhancing product offerings through innovative in-house R&D. With a strong pipeline under active discussion, full preparation of supply chain logistics, and regained stakeholder confidence, the company is poised for growth and sector leadership, aiming to maintain mid- to late-teen contribution margins.
Suzlon faces challenges like land acquisition issues and substation connectivity delays within India's wind sector. Although project execution obstacles persist, such as the cumbersome land conversion processes in Karnataka, the company anticipates these will be gradually resolved as more advanced preparations and government interventions occur.
The Indian wind sector requires significant capacity additions to meet future energy demand projections, targeting an increase to 100 GW by 2030 from the current 46 GW. Suzlon expects continued growth in this sector with annual installations increasing from 5.5 GW in '25 to 8-9 GW by FY '28. Suzlon's strategy involves addressing market dynamics by leveraging their competitive advantages and preparing for efficient onshore project execution.
While the Indian government has announced 1 GW of viability gap funding for offshore projects, Suzlon considers offshore installations to be 4-5 years away from impacting business significantly. Long-term preparations are underway, leveraging the expertise of their team with experience in offshore projects.
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Ladies and gentlemen, good day, and welcome to the Suzlon Energy Limited Q1 FY '25 Earnings Conference Call, hosted by ICICI Securities. During this call, the company management may make certain statements which reflect their outlook for the future or which could be construed as forward-looking statements. These statements are based on the management's current expectations and are associated with uncertainties and risks as fully detailed in the annual report, which may cause the actual results to differ. Hence, these statements must be reviewed in conjunction with the risk that the company faces.
[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, Dipika. Good evening. On behalf of ICICI Securities Limited, I would like to welcome you all for the Q1 FY '25 Conference Call of Suzlon Energy Limited. From the management, we have with us Mr. J.P. Chalasani, Group CEO; Mr. Himanshu Mody, Group CFO. We'll begin with opening remarks followed by a Q&A session. To be fair to others, request each participant to ask not more than 2 or 3 questions. Over to you, sir. Thank you.
Earnings call. I hope you had an opportunity to review our results and investor presentation. We will now share with you an overview of the industry, and we will walk you through our Q1 FY '25 performance. We will then take your questions.
Even FY '25 continues to -- continue the growth momentum started in FY '24 with unparalleled performance across financial and operational parameters. This is one of the best quarters in 7 years wherein we have outperformed across the various performance parameters. This performance comes as a result of several strategic and transformative steps the company took in the last 3 to 4 years, which we have been reaping from time to time.
Robust, largest ever order book in the history of Suzlon of 3.8 gigawatts as on June '24 is a testament of superior technology, accessibility of our S 144 WTC model and customer confidence in Suzlon. This also reverberates the 29 years of proven track record with 32% market share on cumulative installed base in India. Suzlon also qualifies for government tenders post and would be selectively pursuing these orders, as we mentioned, as we discussed during our last call.
Our endeavor remains to pursue quality orders with higher value and better margins. Globally, India ranks fourth in total wind installations with 46 gigawatts of installed onshore wind as on June 2024. Suzlon continues its growth trajectory with deliveries of 274 megawatts in Q1 FY '25, which is 2x of 135 megawatts in Q1 FY '24. This quarter, industry did close to 770 megawatts of commissioning, which is, obviously, below the expectations. As per our estimates, there are a sizable number of turbines in pre-commissioning phase, which could not be commissioned for different reasons and would be commissioned in Q2 FY '25.
Indian wind sector as per our estimate should achieve installation of 5 gigawatts in FY '25. Our OMS business continues to do well with 14.8 gigawatts capacity in India with the machine availability ensured above 96%. Our top priority would remain timely execution of our robust order book, while upholding the highest standards of quality and ESG. Our pioneering business model of end-to-end offerings for wind energy value chain, fully integrated supply chain, track record of project execution and best-in-class surveys cannot be easily replicated, which provides us with a strong, differentiated competitive advantage.
I would now like to invite Himanshu to take you through our financial performance.
Thank you, J.P.C, sir, and good evening, ladies and gentlemen. I shall be using Slide #16 to 23 of our investor presentation, which is now available on our website as a reference point for our discussion during this call. Q1 FY '25 has seen us register robust improvement in all key performance parameters and our fundamentals have further strengthened with a focus on the bottom line. We have made deliveries of 274 megawatts in Q1, which is more than 2x as compared to Q1 of FY '24.
On the P&L front Q1 FY '25, there has been a renewed focus on our bottom line, which has resulted in a revenue of INR 2,016 crores in the quarter, witnessing an increase of 50% on a year-on-year basis. Consolidated EBITDA of the company stood at INR 370 crores, which is up by more than 86% and with an EBITDA margin of 18.4% on a consolidated basis. PAT for Q1 FY '25 increased by 200% or almost 3x to about INR 302 crores in the quarter. This has made us register highest quarterly EBITDA and PAT in almost about 7 years.
We are also pleased to report that our balance sheet as of June 2024, demonstrates a further position of strength with a consolidated strong net worth of INR 4,253 crores and a net cash position of INR 1,197 crores. The last 1 year in FY '24 has been a year of financial turnaround for us, whereas we focus on our balance sheet and also putting in place the working capital for the company. We would like to reiterate that Suzlon is well positioned for the growth and sectoral leadership to participate in the India energy transition with FY '25 being a focus of performance on the P&L side and working capital side in the company.
Needless to say, we shall be focused on best-in-class product with our in-house R&D team. Our fortified financial position with optimized cost structure shall continue and be a focus area for us. Largest ever order book as J.P.C sir just mentioned, with a strong pipeline in active discussion; a supply chain that's fully geared up in line with our order book commitments to our customers; and regain confidence of all stakeholders, including financial and also suppliers and customers; and a strong bench strength with the management's team that has a renewed zeal to deliver.
With that, I'd like to conclude my presentation, and we can open the floor for any question and answers that the callers may have. Thank you.
[Operator Instructions] The first question is from the line of Sumit Kishore from Axis Capital.
My compliments on a robust Q1 performance. My first question is, could you spell out the reasons for improvement in the WTG contribution margin in Q1? We also noted that your project or segment mix has shifted more in favor of captive C&I retail, even on a sequential basis, now almost 2/3, is the pricing better in this segment versus state or central bids? That would be my first question.
Sumit, on the margin, of course, whilst we've reported close to 23% contribution margin on the WTG segment, it is not something that may be sustainable because this quarter saw a lower activity on the project execution side. So whilst from a readiness perspective, we had about 230 megawatts of turbines ready on the ground for commissioning, but we did only 70 so far because the balance 160 megawatts lies in the scope of our customers, which is out of our hand. Had that kicked in, there may have been certain delta revenue and costs, which may have pulled down the margin a bit. But having said that, needless to say, still the margins would have been in the late teens or maybe around the 20% vicinity. So that's the answer to your first question. On the second one, the mix, of course, is what it is between C&I and IPP. But in terms of our average selling price to the both class of customers, it is pretty similar. There is no visible differentiation in pricing across customer class.
Got it. And my second and last question is, for S 144 how many WTG sets have been delivered or installed so far? So if you could give your experience of how that particular turbine is operating on the field and any other experiences in terms of commissioning this?
We've commissioned close to about 100 megawatts as of now. So everything is in line or better than what anticipated in terms of our different parameters. And in fact, we are also now going through the high wind season so to establish for the fact, we have not seen -- everything has been smooth, touchwood and better than what was expected in terms of the design...
The next question is from the line of Amit Bhinde from Morgan Stanley.
So I had 2 questions. One, with your plan to change the timing of your merger so is the calibration to NTPC getting affected because of that? And second thing that I wanted to ask on similar lines is that you have made a framework agreement with CES. So if you can give some details on that one. That's my first question.
On the NTPC, we did discuss last time. We said that we qualify and we participate in the bid, large bid and we are awaiting some results, and we'll continue to participate in other public sectors as well. So we have...
So without this merger procedure happening still you are eligible for NTPC bids, okay. And on the CEC framework?
This is a framework agreement, which was announced by the CSE as far as they are concerned as and when some of them gets certified into a definitive agreement as per our policy with [indiscernible], we will keep...
Any indication on the size of the framework agreement that you can...
Any framework agreement [indiscernible]. So therefore, let's leave it there. But as far as we are concerned, we have not considered that in our order books and it is only consider in order book as and when each segment of the framework gets converted into a firm contract with an invoice so therefore this is not [indiscernible] 3.8 gigawatt worth order book as announced today.
Got it. And the other question that I had was if you can help us understand how your deliveries would shape up because now captive and IPPs are increasing more than the bids. So then would the delivery time lines be faster? And can we expect a ramp-up in the near next 2, 3 quarters?
Second portion I can't say but that looks like a guidance question but the deliveries would depend upon whether it is an IPP or it's a C&A anyone on this is with respect to the readiness of site. Like remember last time [indiscernible] that the reason why as a country we are not able to move forward much quicker is the execution challenges on the ground. And as we [indiscernible] some time back, in fact, our capacity -- commission capacity would have been 230 not 70. So -- but that balance 160, we could not connect to the grid, while turbine is pre-commissioned, everything is ready, either because the clients connectivity is not there, or client BoP in terms of [indiscernible], things are not ready. So if you add the 160 to 770 of countries and country outside would have been around 930, and our share would have been at 25%, which is what normally we've been maintaining.
So it all depends, it has nothing to do with the like, for example, NTPC awards the BoP contracts in advance, okay? Then after a time gap, the award for the turbines, like what we participated now, for those projects, BoP is already awarded by them. So the [indiscernible] expectation is that, in that case, the preparation is much better. The supplies would be much quicker. So it depends upon -- quarter what mix of projects are scheduled based on that this acceleration happens. The supply is not an issue. Once again I am underlining, supply is not an issue. Issue would be readiness of the project...
Readiness of the project. So your realization of revenue for the bit of the installation part would still be left unrecognized, right? So that would get recognized when the installation happens for this 160-megawatt?
Yes, that's correct. That's correct.
Right. And the last part that I want to understand is the penalty that noticed that was -- like you had put out a press release 3, 4 days ago of $20 million. So that one, would we recognize that in our income statement in this year as a cost in this quarter? Or would you recognizing it after contesting...
No, no, we'll only recognize it only once as and when it fructifies. Right now, it is -- you can say at best, it's a contingent liability, but it's not fructified. We'll, of course -- whilst we've received those notices at our end, we will be, as a company, defending the notices. And only as and when it is paid or fructified is when it will go through the P&L.
All right. Got it. So currently, no provisioning or anything would not be made for that INR 20 crores?
No, no.
The next question is from the line of Rohit Bahirwani, Vijit Global Securities Private Limited.
Congratulations on a great set of numbers for Q1 FY '25. Just wanted to understand the reason for decline in revenue for operation and maintenance? Quarterly, there is a decline of around INR 50 crores to INR 70 crores.
Yes. Rohit, so the reason because in Q4 of FY '24, where our revenue was a little over INR 500 crores on the O&M side. There were certain onetime billing on VAP and VAS sales plus certain contract renewals that got delayed during the year, which was all booked at the time of Q4 before the financial year-end. That caused a fillip or an increase in the Q4 revenue of OMS. So certainly, that is not steady state revenue. So you should not annualize Q4 FY '24 revenue at steady state. What you see in Q1 FY '25 and also other similar quarters is what you would -- you should take as annualized revenue other than any VAP, VAS sales that we do during the year.
Okay. Okay. And just wanted to understand the time line between commissioning of a wind turbine and by when does the operation and maintenance of that coming into the business? Let's say, you have done 274 megawatts in this quarter. So around -- by when can we expect the O&M of this too would start coming?
So there's a difference. I'll just make a small correction. We have done deliveries of 274 megawatts in this quarter. But what was commissioned is 70 megawatts. So I will use 70 megawatts as a reference point. So let's say 70 megawatts has got commissioned in Q1 of FY '25, anywhere between 2 to 3 years is our warranty period that we give to our customers. So which means that Q1 FY '27 or Q1 FY '28 is when this 70 megawatts would start earning revenue from an O&M basis.
The next question is from the line of [ Aashish Upganlawar ], InvesQ.
So we've come a very long way in the last 1.5 years in terms of the entire turnaround of the business, congrats on that. So just to understand the addressable size that Suzlon can achieve. We have on the targets that the government has laid down for itself in terms of 10 megawatts a year and private as it is going on. So for us from here, where do we see the -- maybe the best case for us because execution on the ground remains different from government side plus the issues on the evacuation side. So just some idea on that will help us frame our thoughts on that.
Let's talk about sector that would give you what Suzlon will do because there's always a correlation between how much sector does and now much is run. This year, we are expecting anywhere between 5 to 500 megawatts is what company will do compared to 3,250 what we did last financial year. And our expectation is that this will in FY '26 would go up to anywhere close to 6.5 to 7 gigawatts. And thereafter, from FY '28 onwards, we expect it to be anywhere between 8 to 9 gigawatts. Why we are saying this, also the reason is that one is gradually, we hope these hurdles in the ground will get removed because more and more capable people are coming in, and then there are some advance actions being taken on the land.
And also, the government of India, as we mentioned last time, has now started acting on removing the hurdles for wind. In fact, just 2 weeks back they issued the guidelines and revised guidelines [indiscernible] removing some of the hurdles. So if that is the rate, 5.5 then next year, about 7 and following year about 8 to 9 is what is the opportunity. And then you can always think that what will be our -- where will we be from that point of it rather than me saying that how much is on [indiscernible] and we always know that what is a correlation between what [indiscernible] I will take that as a guidance rather than giving you guidance on the company's strength.
Correct. Sir, what's the executable capacity now as we stand today? And just to understand how much we will have to do in case these numbers on the overall macro of India come until FY '28.
Come again?
So what's the current capacity in terms of how much we can deliver in case the demand side picks up as you said, FY '26, '27. So what is the capacity right now?
Our supply today is -- supply capacity is anywhere between 3.5 to 4 gigawatts we can say per year which will get further expanded, let's say, in FY '26 and FY '27. But then please understand, I keep each time clarifying this. When you talk about the manufacturing capacity, manufacturing capacity is provided you were -- once your missions are constantly loaded. Assuming that month-to-month, there is a load [indiscernible]. It cannot happen that 4 gigawatts means that the first quarter, nothing happens. In second quarter and third quarter, nothing happens. Then this get constrained. Capacity what is lost in the quarter and a month is lost.
So you say 70% better assumption to go with?
Sorry?
70% utilization would be a better assumption to go with? Or we can -- I mean, given the seasonality...
It's your guess versus my guess is with respect to the [indiscernible] on the particular projects, which are scheduled for delivery in that. It could be 100%, and it could be as low as 50% to 60%. It all depends -- it would vary from quarter-to-quarter depending upon which projects are scheduled to be delivered during this quarter. Some projects are well prepared. Like for example, I said that if NTPC within that let's say. There is an advanced preparation by NTPC. So therefore, it's much more predictable for supply of [indiscernible]. This will keep changing. I'm not trying to dodge your question, but it all depends upon quarter-to-quarter we need to keep monitoring...
The next question is from the line of [indiscernible]
Yes, you are Yes. So this guidance you've given for the year of 5.5 gigawatts of execution at the country level, does it include C&I? Or is it only disconnected?
Total wind capacity connected to the grid.
Including C&I?
Yes. Except for those -- if at all, there are any [indiscernible] which are not connected to the grid, they are behind the meter.
Understood. Okay. So this is the total [indiscernible]. And the second question is on the auctioning or awarding of projects. So we know government wants to achieve about 50 gigawatts overall for the year and about 10 to 15 on wind. So where are we on that target in the first quarter, meaning how much has been auctioned or awarded?
Bidding is huge. I think we last count of bidding. In fact, there is a huge amount of bidding completed projects of audit, where they are now chasing the [indiscernible], waiting for the PSS to be signed. So they can move at. And even if you look at currently, as we speak, just in the month of June, different awards because they are about 3.7 gigawatts awarded just in 1 month of June. And today, there is about 7.5 gigawatts of bid submitted and another 13 gigawatts of bids called for are getting about the bids awarded and pending for execution, which is close to 20 gigawatts, okay?
And we already have another 4 gigawatts awarded in the month of June, another 20 gigawatts bids either submitted or called for. So I don't think that -- this is all in addition to the C&I. And in fact, if you look at the order book, 2/3 is C&I and 1/3 is the bid PPS. So I don't think the -- there is any concern with respect to where the government is coming with bidding also there isn't enough volume. What as a country we need to only concentrate on is how much can we commission each year. So I don't think there's any issue with respect to the market availability or not. That is at least for the next few years, at least 2 to 3 years, we really don't need to worry about other opportunities in the market, sector as a whole, including Suzlon.
Okay. That's clear. My final question is clarification [indiscernible] So you mentioned about 274 we delivered, but commissioned is around 70. So that means the revenue is recorded for the entire 270 when the cost is recorded only for the 70, is that how to understand that?
No, no, no. So the revenue is recorded for the entire 274 and the COGS also is recorded for the 274 entirely. For the 70 megawatts commissioning, the corresponding revenue and costs are recorded. whatever is not commissioned, we are yet to recognize costs or revenue associated with it.
And also please be clear that this 274 and 70 has no linkage. It's not that the 70 megawatts is what is out of this 274. Turbines commissioned could have been supplied even a couple of quarters back and commissioned now. So therefore, these 2 are independent of each other. On a quarter-to-quarter basis, we can't compare supply versus COD. So there's a time lag between supply and the commissioning.
The next question is from the line of Nikhil Abhyankar, ICICI Securities.
Congrats on a good set of numbers, sir. So sir, can you just elaborate on what exactly are these difficulties that we are facing in execution? And after that, I'll ask my follow-up on that.
No, it is not -- talked about execution. It has nothing to do with Suzlon. I'm talking about as a sector is the reason why we are not able to cope with 8 gigawatts, 9 gigawatts is fundamentally towards 2 reasons, we can say. One is the availability of land and the pathways. And more importantly, continuous availability of pathways. You might have taken a pathway to take your turbine and everything, but they could be after you've taken it, then again, there could be issues locally with people to do that because please understand that wind projects have started. They are in an open area. They're not in a closed area like what you do as solar or you do [indiscernible]. So that's the major concern today everybody is facing in terms of the land and also because most projects got concentrated in Karnataka today.
So therefore, there is more pressure there. And also the regulations in Karnataka for land acquisition is very cumbersome process. That's 1 state which still has, you need to convert into non agriculture because many other states have changed over saying that, okay, if it's renewable, it's automatic conversion, you don't need to do that. So therefore, the whole process itself is too long in Karnataka. On top of it, everybody is in Karnataka. So the whole state is stressed out for that. That's one reason. Second reason why we are seeing execution is in terms of connectivity is 1 reason where the substations they are [indiscernible] to come in sometimes there's a delay in the substation coming up by a few months [indiscernible]. Third is that the BoP capability building is -- capacity building is still happening in the country because no other OEM does end-to-end except Suzlon.
And even in our case, only 1/3 is EPC, the balance 2/3 is not EPC. That means we're not doing end-to-end. The third-party BoP capacity building is still happening. So therefore, we are seeing the delays in execution of BoP, not at the speed at which is expected. So these are 3 major reasons why we are struggling for capacity addition. But as I said sometime back, there are different actions being taken in all these areas. Yes gradually see -- in fact, our opinion is that there is a significant amount of capacity, which is ready for commissioning even in the Q1, not just ours of 160 in total, which would come quickly onto the grid in Q2.
And sir, just a follow-up on that. So how does the payment cycle work for all these orders? Is the payment done after a certain credit period of the supply or after the installation of the turbines?
So there are various milestones that are defined in our agreement right from advance at the time of execution to dispatch of various components of the turbine and the turbine components reaching up on site. So based on the various milestones defined in the agreement, we receive a chunk of the payment. I mean, I don't want to say the percentage in terms of payment that is received till turbine reaches site. But fair to assume that a large chunk of the payment is received by the company, upon commissioning or erection of the turbines.
Also, please understand our supply contract is different from installation contracts these 2 are independent contracts. So in supply contracts, you have independent payments done, but there could be some payments linked to the commissioning as and when commissioning happens even if that is a separate contract. So supply contract runs independent of installation. That's a separate contract. And in fact, if we have a fully PC, there again, BoP contract is independent. And if we're doing land, land contract is independent. These all contracts are independent. They don't talk to each other in terms of [indiscernible] payment terms, sir.
Okay. And sir, just a final question. A global peer is looking to sell its India business. So will we be looking to acquire?
First part of it, are you looking at it? We are looking at it. It's like everybody looking, we are looking at it. Are we looking to acquire? I don't think so. That's -- let's see what happens. There is no definitive answer, yes or no for that.
The next question is from the line of Dhawal Doshi, Dymon Asia.
Congratulations on a good set of numbers. I'm sorry if I would have missed this point. But can you just touch upon what is the current pipeline looking at in terms of the bids that you've submitted? Secondly, what kind of inflow numbers do we expect to go through as far as this year is concerned, I know you won't give me an exact guidance on this, but some color in terms of how do you see things for this year?
First thing, we don't submit any -- talking about the government run bid. We don't participate in that bidding. Those are IPPs, which are under bids and then IPPs come to us for equipment of their contract. Only bids we participate is that public sector for selecting equipment suppliers [indiscernible] like NTPC, which was the question previously. That's where earlier we were not participating because we were not able to meet the financial criteria. Now we meet that, and we started participating in the bids for NTPC and other public sectors. That's the only bid we participate where there is a bid for equipment supply. The private sector doesn't run a bid, they just invite you to dispatch.
So if I have to rephrase my question, what are the kind of tie-ups that we could have for which either the IPP or Suzlon in itself is under various bidding process, and we could expect some kind of an outcome.
Nobody does, that arena has gone where people used to have a pre-bid tie-up in the initial phases of [indiscernible] maybe up to 5, 6 [indiscernible] pre-bid tie-ups. But now every [indiscernible] is experienced, they know the pricing. So they will talk to you at the most for some budgetary course, but they take their own judgment and what would be the [indiscernible]. If they win the bid, then they'll come and talk to us saying that will you please supply and negotiate a contract. There is no prebid arrangement, per se, in anymore on this. It used to be there earlier. We did have many pre-bid systems, but in the current system, it doesn't exist. So [indiscernible] their own without any pre-bid tie-ups.
Some sense on what could be the order inflow for the year and the time frame over which the existing order book thing needs to be executed.
What is going to come, obviously, you will know whenever it comes, and we keep announcing it. So therefore, you would see that. There is a larger, like Himanshu mentioned it in opening comments, there are a large pipeline, which under discussion on the table, but it is closed contracts signed and we receive confirmed advance, then obviously, we don't take that as an order. So there is no point in talking about how much is under discussion, very substantial amount, which is under discussion.
No. So what I was referring to was the kind of order inflow that we are budgeting or we are targeting some sense of numbers, some growth numbers and the time frame over which the existing 3.8 gigawatt needs to be executed, 2 separate questions.
3.8 gigawatts is between this year and the next year, most of it. Some part of it would be early FY '27.
Okay. And on the order inflow, sir, any targets that you would want to give or...
No guidance on that piece. But again, as I said, that just to reconfirm orders, it's not -- need not be monitored currently. But there are enough orders is question of how much we want to pick up. And that is the reason in the opening comments, we also mentioned that we are looking at orders where we think as a confirmed offtake would be there in a given definitive time line. Our offtake will always be there, but is there a definitive time line and what is the quality of that order. That's important for us now.
Sir, can I squeeze in one more question, if it's okay?
Yes, go ahead.
You mentioned the executable capacity that we have is close to 3.5 to 4 gigawatts, right? Was that number correct?
Manufacturing capacity.
Manufacturing capacity. And we're looking at expanding this probably in FY '26?
No.
What would be that capacity sir, the expansion?
We are looking at -- obviously, that would -- again, you will indirectly draw how much is we are targeting the orders. So therefore, let's leave it there. We are expanding it. So once the expansion is completed, we'll let you know what capacity we are for FY '26.
The next question is from the line of Dhruv Muchhal, HDFC AMC.
Sir, just one clarification. You mentioned that the developers no longer do pre-bid tie-ups. So does the assessment of what PLF they will generate kind of win profile that's all independent by them and then they select the equipment which they have to. Is that how it works?
See, they generally -- see, what happens is that people are now -- some of them are developing their own sites, okay, [indiscernible]. Obviously, they know what is a PLF likely to be there based on the wind data if they have it. There is one set of IPP for like that. Second set of IPPs, they don't finalize with you, but they sit with you or maybe they'll sit with a couple of more suppliers and then ask a budgetary quote saying that do you have a site, what would be the budgetary quote, but not finalize [indiscernible] the order. So they will take some sort of a thing from the market instead and then go ahead and do it.
Okay. Got it. Understood.
Because most of the people today are doing multiple projects. They have been in the sector. So therefore, experience for them is much different today.
Sure. And the second question was on the contribution margins. So probably a bit early, we have started delivering the new turbines. Do we still stick to our guidance. I think the numbers are relatively better than what we were guiding. So -- but do we still stick to the guidance of, I think, INR 90 lakhs per megawatt. Is that -- does that remain? Or do we see an upside to that number based on the run rate that we are achieving and based on the actual deliveries now?
So we're maintaining that our average selling price is close to about -- average is about INR 6 crores per megawatt. It, of course, differs quarter-to-quarter. And based on our margins, which we've said is mid- to late teens, whether that's INR 90 lakhs or close to INR 1 crore would be the contribution margin. So if we sort of end up doing, of course, 20% margins on an ASP of about INR 6 crores, that's about INR 1.2 crores. But there may be a playoff where we may be a little shy of INR 6 crores, but we would have improved margins. So therefore, I don't want to comment on INR 90 lakhs or INR 1 crore, whatever that number is, but that's where we are.
Okay. So ideally we should look at it on a percentage basis. Is that the right way to think of it? Or should it be absolute the way it works?
You should look at it as a percentage basis for overall revenue.
Okay. Okay. And say, for example, if I look at the revenues right now for the quarter, if I just do a division by the deliveries, it's about INR 5.5 crores. I understand it will not -- never be the -- installations and deliveries will never be exact, but assuming the installations are also done all to, I mean, equally, what the realization number would have been? I'm just trying to understand, you mentioned the contribution margin would have been 20%, but what the realization would have been?
No. So as I said, 20% was just a math that I walked you through. I'm not saying that it would have been 20%...
Around that somewhere, yes.
Yes. Around that. And in terms of calculations, of course, if you see our average selling price over the quarters, it's been a little shy of INR 6 crores. So anywhere between INR 5.8 crore to INR 6 crores has been the average, which is what is about close to INR 5.5 crores in Q1 this year. So of course, had the commissioning happened to a larger extent for the 160 shortfall, we would have got close to the INR 5.8 crores to INR 6 crores average.
Got it. Got it. And just last question is, what are the installed -- deliveries that we have done cumulatively? What are the installation spending for our deliveries for -- I mean, you mentioned that system has a lot of this gap, but how much is this for us?
Our turbines, including whatever the latest deliveries what we have done, it would be somewhere, anywhere close to about 800 megawatts is what is pending for some...
That's about close to 700 megawatts, 720 megawatts to be precise is what is pending uncommissioned cumulative out of all the deliveries...
Including the deliveries this quarter.
So 700 megawatts, which have been delivered to the site, but pending for just the grid connection and relative site.
No, no, no. We didn't say that. 700 is delivered, some of them is still -- [indiscernible], which has gone, many of them may not even been erected. So there are different stages. What we talked about was only the 230 megawatts out of this, which we erected and precommissioned all the things, only 70-megawatt has been done. So in the 770, 160-megawatt is what you can actually count as the turbines, which are ready for commissioning, but could not be commissioned because of the constraints in the 720 megawatt.
The next question is from the line of [ Vivek Surekha ].
Am I audible?
Please go ahead.
Yes. So sir, just one question. On the OMS side, are there any plans to list this separately and capitalize on the current scenario?
No, there are no such plans.
The next question is from the line of Yash, Stallion Asset.
So my question is that I think you've made 8% EBIT margins on your WTG segment this quarter. Do you think we have scope for improving the margins further? Or this is a sustainable level?
So a difficult one to say. But yes, I mean, we are seeing that the economies of scale and the volume play is playing out. So whatever historical margins that we've seen, thin margins that we've seen is hopefully a thing of the past. So our sense is that the EBIT margins close to this region should be able to play out over the next few quarters.
Sure. And I just wanted to sort of confirm this again. So you're targeting 5 to 5.5 gigawatt order book this year. Is that what I heard, right? Sorry, I had just joined late in the call.
We said that country -- as a country, we will be adding 5 to 5.5 gigawatts of wind capacity this year, as a country.
Okay. Okay. And you'll maintain your market share of over 30%? Or is there a scope to increase that further?
If I say that I have given you the guidance anyway. Let's hope so.
The next question is from the line of Neha Menon, NVS Brokerage Private Limited.
Sir, congratulations on your performance. I just wanted to get some -- hello?
Yes, please go ahead.
Yes. Just wanted to get some clarity again on -- so regardless of the order book that we have each year, what is our annual installation target or you may say average installation capacity?
It's not an installation capacity, which would vary on various factors outside on this. What we talk about is that what is our manufacturing capacity initially, what is our supply capacity, which is what we mentioned currently, we can supply anywhere between 3.5 to 4 gigawatts, and which is -- which would expand further.
The next question is from the line of Prateek Giri, Subh Labh Research.
Am I audible?
Yes, you are. Please go ahead.
Congratulations on good set of numbers. I have one small query. Recently, we read about NITI Aayog trying to indigenize the wind energy equipments, which are there. So I was just trying to understand, currently, in the entire bill of material, how much cost that [indiscernible] is actually import-dependent?
It's not applicable because we are much above the number what you're talking about. Our import -- our domestic [indiscernible] is much, much higher than what they're talking over. So this is basically meant for other players. That's a nonissue for Suzlon.
[Operator Instructions] The next question is from the line of [indiscernible]
So the question, sir, I wanted to better understand is that you were saying there's a huge C&I pipeline, and you mentioned something between 15 to 20 gigawatts of that pipeline. So can you tell me what is the driving factor for -- which is leading to such a demand?
On the 15 to 20 gigawatts, what I mentioned was the bids invited by the government agencies. So that is the number what I talked about. So obviously, if you look at on the wind capacity side, currently we are at 46 gigawatts. So the requirement to meet on the least cost option, the demand projections for 2030 and in this first option is [indiscernible] to reach 100 gigawatts. So there is a 54 gigawatts of capacity addition has to happen in the 6-year period. So therefore, to meet that is what government is actually planning everything because if you want to meet by 2030, that most of it should be awarded, let's say, that is FY '30. So FY '28, you should complete all the awards. I think our expectation is that awards will be completed even much before that. So -- but then depending on the execution, like last time we mentioned, if not 100, our expectation is we will reach somewhere 90, 95 gigawatt definitely by 2030.
Okay. Sir, the C&I component is also very strong. So what is driving the C&I...
C&I component is the -- simple reason C&I is facing is that most of these large industries want to move away from fossil fuel, if they already have a fossil fuel captive capacity or they are right now driving grid into a captive capacity. People are switching over from fossil to renewables because one is the tariff arbitrage compared to the fossil because you know anyone of them if they have a coal-based capacity, that coal is very expensive for capital plans. They need to buy the coal in the auction. They don't get the rights, the linkage.
So therefore, arbitrage is one. And number two is that if you need to export your product outside of India so this is now becoming more and more restricted. So definitely product has to be green. So mainly the tariff arbitrage, but otherwise also their own targets for carbon footprint [indiscernible]. In fact, you can see that not just here, everywhere it's happening. Even if we look at the U.S., the largest capacities signed today are by people like Google, Meta and Amazon and type of people. So gigawatts and gigawatts of capacities of PPAs, they're signing there to buy. So it's a global phenomenon where everybody is working on this. And the tariff arbitrage is [indiscernible]
I see. And sir, how do you see the impact of pump storage or hydrogen [indiscernible] to storage solutions. How does that help out for wind projects, if you can share...
The pump storage, it's nothing [indiscernible] hydrogen. Hydrogen can also help, but also the -- what we are now moving is that the -- from individual solar and wind we move to the hybrid. And from the hybrid now we are moving to the round the clock, what is called [indiscernible] renewable energy. That means instead of intermittent power supply, the renewable energy, if you want to compete and replace fossil fuel, should also be able to generate on demand the way the fossil fuels generates. Therefore, in the fossil fuel, what happens is that you give your capacity on a 15-minute basis and you respond to that demand on a 15-minute block basis.
So now the similar thing is what the bidding is happening in renewables where you need wind, you need solar unless you need the storage. Current options for storage could be either the battery or the pump storage has to be any other way. But having said that, just because of this store system because we also need a stable power supply for hydrogen, it also helps hydrogen, but it's more pump storage, the storage is basically to make renewable into a -- not an intermittent power supplier, but supplier on demand 24/7.
So you've seen that all these initiatives are basically enabler for the wind sector as well?
Sorry. Come again?
You say that all these initiatives and technologies are also enabling the demand in the wind sector?
Yes. See today, if a load following [indiscernible], okay? When I say load following is that the client is a utility company or if it is a CNA company, can give you what is the load profile on a 15-minute log basis for 8,760 hours in a year, and we are supposed to set up capacity. If your PPA is for 200 megawatts to supply on this basis, like your wind capacity concerned requirement would be anywhere between 2.1 to 2.4x. So that's the extent of wind capacity of what you need to meet to make the power and [indiscernible] basis. If it is only the [indiscernible], not the load following type of [indiscernible], then it would be anywhere between 1.4 to 1.5x.
So today, what is happening why wind has to grow is that every single project what is being executed or what is being bidded out are combined projects of wind, solar or wind, solar and storage. So therefore, the project can only get commissioned provided wind also gets commissioned because it's an integral part of a project. So therefore, today, we reach a stage where how much wind capacity is commissioned would decide the total RV capacity getting commissioned. That's why wind is becoming critical. That's the reason you see more and more attention of government towards moving the bottlenecks for wind sector.
The next question is from the line of Depesh Kashyap from Invesco MX.
I'm looking at Slide 22, I just want to understand what causes this volatility in the contribution margin? Is it the mix of O&M and WTG?
Yes, Depesh. So as the share of business of the WTG goes up in the consolidated pie. The contribution margin on a consolidated basis will, of course, keep reducing because, as you know, the contribution margin in O&M is at almost about 65%, 66%, whereas in WTG for this quarter, it has been about close to 23%. So in the overall revenue pie, the more the WTG business, the consolidated contribution margins would keep reducing.
Understood. And the fixed expenses that are below this, right, employee and other expenses, I see that other expenses are constant year-on-year. So how do you expect them to grow? Like will it be fair to take 10%, 15% increase year-on-year?
Yes, I think that's a fair estimate, about a 10% increase because, of course, correction and sort of operating cost plus certain employee cost. In addition to that, we are also incurring some onetime operating expenses this year and even getting our systems and processes right by engaging various consultants. So that may attract some small CapEx and onetime P&L costs as well, which may look a little -- the fixed costs may look a little inflated for this year. But I think those are onetime costs for a long-term benefit of the organization. Although they may not move the needle significantly, but your assessment is correct. About 10% to 15% increase on the fixed cost is what you should assume.
Understood. And secondly, sir, your current EPC mix is around 33-odd percent, I think, if I remember it correctly. How do you expect it to grow with your order book that is in the pipeline?
Yes, it's actually growing -- we have been at around 23%, 24%. Now it has come to 33%. As our plan development what we talked about earlier [indiscernible] land development as that keeps increasing so that our EPC percentage should increase.
And sir, how should we think about the working capital then? Because I think the working capital days have been a little stickier, they have not been coming down. So as the EPC contribution increases, do you expect it to worsen further? Or how do you -- how should we think about it, sir?
So yes, whilst these two are not directly related Depesh, but working capital is something that we said we are working on constantly. And you may not see a significant improvement quarter-over-quarter as in 1 or 2 quarters. But directionally, we are striving towards improving the working capital mix. So as I've always maintained, we don't want to give a target and as to what the NWC will be and by when. But rest assured, we are working on optimizing the working capital mix for the company.
The next question is from the line of Manoj, Individual Investor.
Congratulations for the good set of numbers. I have a couple of questions. One is regarding revenue [indiscernible] so how it impacts our market share? How much we can take it [indiscernible]?
Sorry, your voice is muffled, Manoj. Very difficult to hear you.
Is it better now?
No, we cannot hear you.
Is it still...
Yes. Now, it's better. Let's try one time.
So the first question regarding the exit of Siemens Gamesa in India, okay, how much market share will it increase in case of Suzlon? And the other one is regarding the offshore business, we have a government has announced a viability gap funding regarding that offshore business. So can you throw some light on the offshore development project, how are we going to develop that in the future?
Siemens Gamesa will not have an impact on our market share because we were never under pressure because -- the recent past about market share. So therefore, I don't think anything is going to happen because of their exit. As far as the turbine supplies are concerned, okay, I'm not talking about the service business, I'm only talking about the supply business. As far as offshore is concerned, yes, there is a 1,000-megawatt viability gap funding, but this is -- these projects bidding and ultimately actual pre-commission is 4 to 5 years away. So therefore, right now, for the immediate future of next 4, 5 years, the offshore is not going to move the needle for Suzlon.
But that's the future, right?
Yes. No, the future -- it all depends. Like we explained earlier, the offshore in India is different from offshore outside India. In case of India, the generation gap between onshore to offshore is not significantly different compared to what is in Europe and other places. Generation gap not being very [indiscernible] of not being much different, but the cost being very high. So therefore, cost of generation today, as we see today in the offshore is very high, anywhere between INR 7 to INR 8. So therefore, that sort of levels at this stage, I don't think you could actually go and sell the power unless there is a viability gap funding and viability gap funding can come only for initial set of projects to encourage offshore to happen.
So offshore to become a significant potential for us or for any player is still far away. So while we are prepared, we are not saying that we will not get prepared, and we are preparing because we do have an experience of offshore as part of when REpower was part of us. In fact, they are including our current Chief Technology Officer, everybody is well experienced in offshore. We are prepared for that. But for a guidance purpose, I don't think it's going to change anything much in the near future.
The next question is from [indiscernible] which will be the last question for the day.
I've been a long-term investor -- retail investor for Suzlon, it's good to see the comeback from Suzlon from pre-COVID era to post-COVID era. Having said that, on a slightly negative turn, please excuse me, this is a repetitive question, Suzlon has been receiving a lot of penalty from the customs, et cetera. So what has been done in this regard to prevent this happening? I understand they will be appealed in courts. And just a follow-up on that, has the appointment of the legal firm Khaitan being finalized?
So let me take both the questions. So, so far as penalties are concerned, of course, a lot of these relate to the past. So at our end, we are now working internally to make sure that all our systems are automized and it's system-driven so that there is no room for any human error and such penalties are at least minimized, if not totally eliminated. So that is the endeavor where we are working on is installing all the relevant software, ERP tools and sophisticated tools that are available on whether it's GST -- any indirect taxes for that matter.
Having said that, I just want to add is that it is not something suddenly increased. What you are seeing is a new regulation where anything happens, you're supposed to inform [indiscernible]. So therefore, that's why you're seeing this for every single company. It is not something suddenly we started getting penalties, any company for that matter of fact. It's a regulation today, if you get a notice you need to inform.
So of course that is one. On the Khaitan, the Khaitan was appointed. And as we inform the stock exchanges at the end of our Board meeting, the report was presented by Khaitan to our Board. And they have found no noncompliances whatsoever in the company. There are certain suggestions that Khaitan has made for recommendations, I would say, for improvement and best practices adoption, which the company shall consider for implementation in a phased manner over the next few quarters. But the report has been absolutely clear without any red flags or any noncompliances being reported in the report and the same has been presented to the Audit Committee and board 2 days back. The same has also been disclosed by us to the exchanges.
Does that include grievances from the independent director as well, if I may ask this?
This is specific to that only.
Ladies and gentlemen, I would now like to hand the conference over to the management for the closing comments.
Thanks, everyone, for joining this, and we would continue to keep interacting with you. And even post this conference, if there are any further questions, any further information required, my colleagues from IR are always available. And we are also always available for any specific information you people need. Thank you so much for joining us.
Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.