Suzlon Energy Ltd
NSE:SUZLON
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Suzlon Energy Ltd
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Ladies and gentlemen, good day, and welcome to the Suzlon Energy Limited earning conference call.This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Tulsi Tanti, Chairman and Managing Director, Suzlon Energy Limited. Thank you, and over to you, sir.
Thank you very much. So good morning, and thank you for joining us on our quarter 3 FY '19 earning call. The present with me during this call are Mr. J.P. Chalasani, our Group CEO; Kriti Vagadia, our Group CFO; and our Investor Relations team.I hope you had the opportunity to review our results and investor presentation of quarter 3. I will share with you an overview of the industries, and my team will walk you through our 9 months FY '19 performance. We will then take your questions and also to give you the updates about the market.The transition period continues to impact the sector in this autumn. However, there is a very clear visibility for the next 3 years the growth opportunity. The government is strongly committed to reach 2022 target of 175 gigawatt for renewable energy. Not only now, recently, they have also announced the 2030, 500 gigawatts because the India's energy sectors will be -- build more and more on the renewable energy, this space. If you see the last -- the 3 years, the new capacity addition in the country in the FY -- in the calendar year '16 is at 42%, and '17 is 54%. And the 2018 is at 74% new capacity is added in the power sector is only from the renewable. So this target is quite ambitious, but lots of the ground challenge, that requires about 30-gigawatt volume over the next 3 years in the wind sector particularly. And this require 10 to 12 gigawatt of annual, the market size. FY '20 is -- positions to be the year of huge volume based on the already concluded auctions. The 10.7 gigawatt of auction have already concluded until date, and large portion of it is likely to be commissioned in FY '20 only. We expect the FY '20 market itself will be 8 gigawatt-plus size market, which will be 45% higher than the previous peak of FY '17. Over the last 2 years, the teething issues such as the project execution approvals, the financing issues, the land allocations, the state and central coordinations have been resolved. And industry is now moving as -- toward a seamless execution of the project. And that's why we see it next FY '20 will be the execution years for the industries.The new era of the power sectors has emerged because of some of the challenge faced by the industries in the last 2 years, more focusing on the utility stage and central government. The wind-solar hybrid is the huge -- the solutions are coming for the growth. The wind-solar hybrid project enable the faster utilization of the transmissions, infrastructure and lands and improved the grid stability and reduced the variability in the renewable power generation. Just to give an example, if you have 100 megawatts of the grid, wind-solar hybrid, we can able to penetrate at least 150 to 160 gigawatts. So that is giving the good -- the opportunity to utilize the infrastructure. And same time, it will increase the plant load factors in the grid systems, which is extremely good for the utility load management perspectives.The first SECI auction of the wind-solar hybrid has already been concluded. And the second wind-solar hybrid tender is also floated. So the momentum is going on the wind-solar hybrid much and much more.The state like Andhra Pradesh, Maharashtra, Gujarat have already announced the massive plan for the wind-solar, the hybrid, the project. So until now, we are heavily dependent on the SECI auction and SECI, the business. So only one, the supply provider was there. Now with the Andhra Pradesh, Maharashtra, Gujarat and Karnataka is coming forward, even Rajasthan also. And based on their -- the power requirement and their RP obligation point of view, they are moving towards the more wind-solar hybrid plants. And we see that very soon, they will start the auction by state also, which will give us the good -- more opportunity because state auction will be very efficient because they help to plan the resources, land and grid infrastructure, in value, in advance, based on that they will do that auction. So that will be more efficient compared to the SECI.Offshore and repowering is another area, the huge potential that is increasing. The first 1-gigawatt offshore UI has been the huge interest from around 30 investor had shown interest to invest in offshore. Even last -- the last 2 days before, 1.2 gigawatt bid on the onshore has come. And almost 2,400-megawatt investor has given the interest. So the demand side of the investor is very huge and large these days. The challenge is more on the execution side is there. And now the -- lots of issue has resolved, with alignment between center and state. So we see good execution years in 2020.Apart from the auction, country has a very active market for the captive and retail market. And PSU segment, that continue to grow every years because the cost of energy is very, very competitive compared to the conventional and compared to the utility pricing. So more and more industries are focusing to bring their captive requirement, and that enhance their power cost for next 25 years through renewable energy source. And that momentum is also increasing very well. We continue to focus on developing the technology and superior product while containing their cost of the developments. And the vital role in the renewable energy is coming from the technology. And because of the technology, the plant load factor is increasing, and the operating cost is also optimizing. And levelized cost of energy is coming optimum there. So we see the good opportunity in the Indian markets is growing. And that's why the large financial investors' groups are continuously investing in the larger-scale projects. And also, there is a quite good competitive -- the competition in the marketplace is there. It is bringing the qualitative business in the India. So thank you very much. Now I invite my team to take through you our -- the quarter 3 and the 9 months FY '19 performance. Thank you very much.
Thank you, Tulsibhai. Good morning to each one of you. I'm Chalasani here. As mentioned by Tulsibhai, the teething issues of the transition period are now slowly getting resolved. At least efforts have been made by our stakeholders to resolve their issues. Based on the already concluded auctions, there is a reasonable certainty that FY '20 would create a new peak in terms of capacity addition, crossing beyond 5.5 gigawatts, what we achieved in FY '17.Suzlon's strong execution capabilities, full-scope service offering and robust technology enables us to retain our market leadership position in India. We have the largest other wind share from the auction market. Not only the market share is highest, most important is that we also have market customers, who are some of the largest utilities and liability companies in India. I think this is going to play a significant role in moving ahead in the renewable market.In the recent quarter, we got 328 megawatts of order from Adani Green Energy under the bidding regime. We have been successful in improving our order win tally and auction market share. As we speak, even today, ordering for almost 30% of the auction capacity is actively closed. We're in active discussion with our customers for a few of these orders and confident of further increasing our market share. Apart from winning orders, we are successful executing the orders as well. We are the first and the only player who have commissioned a SECI 1 project in full ahead of the schedule. Completion of SECI 2 project is on track and with most of the deliveries completed. Service continues to be our biggest strength. Our operation maintenance business continues to grow in size, with over 15 gigawatts of renewable capacity under maintenance, of which over 12 gigawatt is in India alone. As we stated earlier, we are the second largest wind company in the Indian power sector, next only to NTPC. Despite such large and growing fleet and also with various gating factors, we have been successful in servicing the 100% of the turbines. This has been possible due to our high service standards and continuously improving customers' top line performance and, thus, creating a very high degree of comfort with our customers. We have steadily improved and maintained machine availability of plus 97% of our fleet. Debt reduction, cost optimization and working capital optimization will remain our top priority, for which we are actively engaging with investors. I would now like to invite Kriti to take you through the detailed aspects of our financial performance.
Thank you, J.P.C., and good morning to each one of you.The prolonged transition phase is resulting into deferred execution not only for us but also for the entire industry. For first 9 month of this financial year, we delivered 349 megawatt with gross revenue of INR 3,557 crores, which is 40% lower on Y-o-Y basis as compared to last year. Due to lower operating leverage, our 9-month performance pre-FX EBITDA margin came at a lower 7.4%. You may notice that we continue to maintain tight control of our fixed costs.OMS revenue grew by 6.7% on a Y-o-Y basis to INR 1,429 crores in 9 month FY '19. Strengthening of rupee in the quarter resulted in FX gain. However, rupee continued to remain weak compared to the start of the financial year. Thus, our 9 month FY '19 FX loss stood at INR 382 crores. ForEx loss is primarily due to impact of fluctuation in rupee against dollar on our FCCB and SBLC-backed AERH loans. While our net current asset is reduced to INR 1,667 crore, we firmly believe that our working capital as a percentage of revenue in the auction regime will be significantly optimized.Our gross term debt, including FCCB, is INR 8,307 crores. However, our repayment schedule is back ended, giving us required headroom for operations. Despite the transition with muted operational cash flow, we are happy to announce that we are current on all our debt obligations. Debt reduction is our top priority. And as mentioned by J.P.C., we are actively working towards the same.There have been few question about promoter pledge in last few days. We hereby inform you that the pledge of the shares done by the promoter is primarily as a collateral for borrowing made by the company. The said pledge is not subject to any mark-to-market requirement.Thank you very much. Now we are open for questions.
[Operator Instructions] We take the first question from the line of Puneet Gulati from HSBC.
Number one, just on the data side, if you can give the installations done in sales on -- in megawatt basis.
Come again?
If you can share the data on the installations that you've done and the sales on megawatt basis.
For the auction regime?
Yes -- no -- yes, for the total in Q3.
In Q3?
Yes.
In Q3, the installations, what we have done is -- installations is -- one second. I'll just...
168 is the...
Q3 is 283 megawatts.
283 megawatts installation, okay. And sales?
Sales is 73 megawatts.
Sorry, volume is already given on slide. It is 67 megawatts.
67 megawatts, yes.
67, okay. So when you say volume, that's the sales number, right?
Yes, yes.
Yes, that's correct.
Okay, okay. Secondly, broadly on the industry side, if you look at the last few auctions, both for wind and solar, the government seems to have withdrawn the excess bids on account of not being happy with tariff. How are you seeing the market? Do you think it can slow down from here? Or are you seeing some signs that government will finally relent to higher tariffs as well?
Kind of both are happening. If you see in the government maintaining its stance of -- if you have seen that in the hybrid date, even if quantum which has come is less than the total what is offered, they still wanted to go ahead. And they went ahead and awarded 840 megawatts in hybrid. So therefore, there is intention of the government saying that whatever the bids come will move ahead. So -- and as far as the investors are concerned, as in the opening comments Tulsibhai has said, if you look at the latest bid, which is in the current indication, the fact that we all keep talking about hurdles in implementation of the projects, in the SECI 6 1,200 megawatt what is coming, so you had 2x times the offers that has been received. So therefore, I think that's significant. So everybody was saying that we will not cost 1.3x, 1.4x, but you got double the capacity, double the offers there. So I think down the line, there's an interest -- sorry, go ahead.
This was the SECI 6 you are mentioning?
Yes, SECI 6. So which is the latest statistic what we have as far as the investors' interest is concerned. There have been discussions about the caps should be there, caps should not be there. So we still have the caps here. But as an industry player, we think that cap is not the right thing to be there as long as you are running the reverse auction on this cap. But even with all that, what is important is that you received bids 2x. I think that shows the hunger, that shows the appetite for investors to come in. At the same time, looking at hybrid, government also was to move ahead. And they revised the targets. So therefore, once they revise the targets and that they want to go with more capacity to be added, then obviously, all these things are required.
Yes. Sorry, I'm not updated on the SECI 6. The tariff was -- hasn't been bid so far, right?
No, it is the -- there is a ceiling tariff. So in that, the first round of bidding has happened. I think probably 15th is what -- if I remember right, is the first auction is going to happen.
It is 15th of February.
Yes, 15th of February.
15th of February, okay, okay. Secondly, also -- you also commented that -- yes, so secondly, you also commented that the developers haven't yet closed a lot of orders. And given some of the concerns on banking on NBFC side, what we are hearing is that some of them may probably never be able to close these orders. How are you seeing this?
I think the reason why we keep mentioning in every single call of ours and which, if you notice that I mentioned that even in my opening comments today, with the very, very competitive tariffs being out there, the capability of the developers to close financial year and move ahead projects with funds coming on time is becoming important. Before I think the -- while there is 10,680 megawatts which got awarded to-date. I guess. But I think more than 3,000 megawatts, 30% of it still not finalized for various reasons. One is that depending upon which location are you bidding these projects, and do you have any [ OEM ] there. And second thing is if you got equities there or not; and various other factors to think about. And also, the fact is that because you have a longer time schedule now, still the industry still thinks that the concept of if you're given order, in 6 months' time, you can get commissioned. So those psychological things are still there. So some of the developers are actually taking longer time than what they should take for placing orders. And that will have an impact on actually executing the projects on time.
But are you still able to financially close those projects? Or that has also not happened?
No, without placing any bid order, you can't financially close anyway.
Just to add on 2 topics, so far, we are concerned as a company. Fortunately, we have orders from strong utility companies. And in those cases, we have very less reason to worry about their financial closer. That is number one. Number two comment is that if you look at the list of SECI 6 bidders, there are very, very strong counterparties entering into a bidding regime, certain new names also.
Just overall, to understand, the game of the business is extremely changed. The bidding is 1 process, but 3 things has to be synchronized: A, who is the bidder; b, who is the OEM; C, which is the state you are targeting in the bidding process? If the 3 is properly synchronized, they will be the winner to execute the project. If these 3 is not properly aligned, maybe bid will happen. It's easy job. Anybody can bid and do. And after that, whether the project will come or not, it's dependent of the 3 parameters. So if that is the synchronized, and then it will be the good. And that is why if you see the how many megawatt execution is happening out of the bidding process, we are very clearly leaders in this process on the execution side. The bidding side, so many bidder will be there. But ultimate game of the business and real outcome is the executions. So we are leading these things. If you see that today 1,050 megawatt has commissioned in the current financial year, who is leading that execution? I think that's the more important. It's dependent on state, bidder and OEM. The synchronization is extremely important. And the structure thing is achievable. The challenges for everyone is equal. But who can able to manage their challenge, I think that's the game of the business.
Sure. No, no, clearly, your execution has been better, but unfortunately, the industry has become so slow that you're also running against time. So how is the progress on the monetization of some of the assets? How close are we to see any result?
Kriti?
Yes, on debt reduction-related initiatives, we are closely working with a couple of investors. And we are closely working with our lenders also because it is a solution which require lenders working hand in hand with company. So we are progressing well on these things. And we will have some meaningful result by end of this financial year.
Okay, okay. Lastly, there is also still the old question of developers trying to do O&M themselves. Are you seeing that continuing, or has it slowed down? Any comments there?
We keep hearing in the market, but we are not seeing any of our customers until now even initiating a discussion with us saying that they would like to forget about doing O&M themselves, even reducing the scope of comprehensive O&M at this stage. Because of the -- has been on the other side of the table, that had been run with Kriti before coming here. We had a small capacity of wind, which I keep giving example to everybody. We were running thousands of megawatts of conventional. But when I got the first 40, 50 megawatts of wind, then I couldn't believe it. And people said that we need to go from O&M to wind OEM, which happened to be Suzlon. We hear the problem is these are not within the boundary. So they are open. And you will call the management because you're managing the pathways even during the operating life cycle. You're managing various other things, it becomes very, very important. It's not like a conventional within the 4 walls locked up, and you have your team which is operating, and you're not influenced by the external world is not the case here. So that is the reason the not -- it's not so easy. And second is that we -- what we are doing is that we're constantly working towards how do we improve the performance for the clients. So as long as you keep working with them in tandem of improving their performance, either from the existing missions directly or by giving the value-added products, then there's a mutual interest. So at least for our -- we're the largest, as I said, that more than 12 gigawatts in India, we're not coming close in this such initiation of discussions. There could be some people who must be thinking, but there is nothing happened on the ground.
Okay, okay, that's great. And just one more question. While we understand you're working on reducing debt by monetization of some of your assets, but given where the financial markets are, if that were not to happen, what is the plan B there?
First of all, we are very confident in the time is something -- I know that the financial market is on -- borrowing side is something where there are challenges. But the kind of people where we are talking, we are not worried about their financial aspect due to the size of those people. So that is number one. Number two, that, okay, on a secure line of sight, I would say that my -- all the liabilities are back ended, so I have no reason to worry on that. I'm current on those all liabilities. So far, as convertible bond is concerned, even if there is a 1 or 2 months delay on what I'm talking about, there is a sufficient time available up to July, middle of July to address that issue. So basically, right now, as I would say that, let us stay focused on the trajection, what we are talking about, and see that how qualitatively, value creatively, it is close for all stakeholders rather than worrying about that, okay, whether it will result into default or not. I am working on a positive side rather than working on a negative side.
And also, I think looking at the stage where we are in today, relevance of plan B has come down. Maybe the plan B was there at some point of time. But I think as Kriti said, that we know where we are in. At this stage, I think the relevance of plan B is not there.
Next question is from the line of Nitin Arora from D.E. Shaw.
And I guess I have 2 quick questions. One is a follow-up to the last discussion. In addition to asset sales, I was just wondering if there's a further margin for working capital optimization and some cash release from kind of rationalization of working capital and if you -- if the management could share some thoughts around that, that's one. And the second one would be around some of the operational issues that you alluded to that have kind of been bearing down on sales, so if you could provide any additional color around what those operational issues are and what's been more -- kind of been more meaningful in terms of top line growth muting down and where do you stand currently relating to those issues.
On the working capital, obviously, you will see in our presentation itself, it's what you are saying is what is happening. So it is getting reduced. So therefore, it's there clearly as light in our investor presentation how the working capital is coming down, which has been our target, which is what I mentioned in the opening comments. And as the more and more the SECI volumes get stabilized with the longer time period, we expect this to further happen. On the -- as far as the order scenario is concerned, as we said, that for us, we are the market leaders today in terms of the orders what is finalized. We are about 23%, 24% market share and been the #1 in that. But that the issue were -- we were mentioning the issues is that before we take the order, it's important for us to see the counterparty risk. So therefore, we're a bit choosy. I'm not trying to be egoistic, but I'm trying to say practicality-wise, we're a bit choosy because we're looking at implementability of the project, and time is more important for us. And thus, cash flow and time is important for us. So therefore, we've been choosing the customers who are utility type of customers. And practically every single customer of ours in SECI is utility, both the domestic and international utilities, obviously. So that's where the issues and the point which the -- Tulsibhai was enumerating is that all 3 are together aligned. This is in terms of who is the OEM and who is the counterparty -- the investor, and the third is at which state are you trying to do because, these days, there are some state-specific issues are cropping up. Like for example, we are seeing in Gujarat, because of concentration of projects there, initially, it was only the [ evacuation ] infrastructure which we talked about creating delays. But today, even the land is creating the same. And the third is that if you have so much of concentration coming up in one single location, it would also start competing for resources. The resources will become little. So those are the things which we need to look at when we take these orders. So that's what we said is the operational issues which we evaluate before we're taking order rather than post order.
Right. Sorry I have one follow-up, if I may.
Yes, please.
So -- and again, I don't mean to beat around a dead horse, but maybe there's a different way to ask -- to perhaps kind of phrasing this question. So as it relates to working capital, what I was trying to get at is you said that perhaps a plan B at this point is irrelevant because you are aware of how well you're placed in terms of asset sales. But what I'm trying to get at is even as a tail event, I guess, is further working capital optimization necessary to bolster asset sales and then take care of the balance sheet? Or do you think just asset sales by themselves are good enough, and working capital release is not meaningful either anymore?
No, I think we handle them, too, in different thing, in respect of the asset monetization. The -- optimizing the working capital is a constant effort for us. It's very, very important for us to do that. We're not doing working capital optimization fully from the point of for the transition orders going forward. We are doing it for the purpose of improving the efficiency more on our operations. While the -- while we deal with the clients in terms of starting from the initial what is our -- the payment terms, in terms of that, because the there are various amount of upfront investment these days in terms of your land and evacuation facility for these large projects. And then -- and this doesn't get monetized. Evacuation doesn't get monetized until at least 50% of the project is done, which is a large capacity today. So therefore, the working capital release is an important aspect. Even future -- even let's say that the [indiscernible] costs around that, I don't think our attention towards reduction of working capital will stop. We can't.
Next question is from the line of Mohit Kumar from IDFC Securities.
Sir, how does the execution...
Hello, Mr. Mohit Kumar. Hello.
Will you be louder please?
Mr. Mohit Kumar, we are unable to hear you, sir. Mr. Mohit Kumar, if you can hear us, hello sir, we are unable to hear your questions.
Sir, my question pertains to the execution, there is quite a slowdown in FY '19 in the last 9 months, how do you see the execution in Q4, FY '19 and FY '20 going forward? And what are the various deadlines by which you have reached all, especially SECI 3, where you have a huge order backlog of 785-megawatt, if I'm not wrong?
Yes. See there are about -- and when we talked about FY '20 as a sector before we come to us, and we said that FY '20 is going to be the year of peak till now. The FY '21 could be more than '20. That's different issue, but till now is a simple fact that if you take at the maximum level of this 10,680-megawatt got awarded, we don't see more than, let's say, 1,500 to 1,800 megawatts getting commissioned in this year in the SECI 1 and SECI 2 and some state bidding put together. So therefore, you're getting into the next year, where most of the capacity either to be added or at least supplied of this because the last of this are going which are like '21, but supply has to happen -- are there for the next year. So therefore, starting the year with, let's say, at 9,500 megawatts of this thing, so therefore our expectation was about 7,000 to 8,000 megawatts is what definitely would get commissioned in FY '20. And as far as coming specific us is concerned, yes, obviously, that this year we could outdone more than what we have done currently. The simple reason being that the delays in terms of the land in the last 3 to 4 months in terms of the stalemate regarding in terms of Gujarat has impacted us. This has only moved some of our capacity what we could have up capacity, more importantly some of the supplies, the deliveries moved from this year to the next year, not the commissioning, the deliveries. But as far as the 785-megawatt is concerned, you know that the November '19 is the PPA date for commissioning of this. With assuming that the land issue in Gujarat would get resolved, which they already started the process, would get resolved in this quarter. We are still confident of maintaining the date of this. SECI 1, we maintained. We did have that scheduled. SECI 2 is in the first week of May, and we will definitely do before the PPA date. So therefore, having done SECI 1 and SECI 2, SECI 3 also we are -- in that 785 megawatt, the PAT capacity is -- we're doing an SAA for Adani. We're not doing those [indiscernible]. So therefore, there, the date -- they're going ahead with their work, and then we will supply -- our supplies will commence this quarter and that we will still get commissioned on this. In the other portion, what we're doing it, and we're still reasonably hopeful that we will be able to maintain PPA schedule at this stage. And the SECI 4 event is February 2020. So therefore, there is sufficient time for that. So this hurdle should not impact the schedule at this stage.
And sir, what is the status of 300-megawatt PPA which you are awaiting ratification from the regulator?
In Andhra Pradesh, the -- yes, a lot of water has flown in this quarter in AP finally. The PPAs were examined by the regulatory commission and then they wanted certain modifications to be done. And the modified PPAs -- resigned PPAs have been submitted to the regulator. Regulator has now accepted the petition and allotted the numbers for that. And the first hearing -- public hearing is -- not first, the public hearing is on 23rd of February. All the read is in the website, so for everyone to participate. So the process has started. The public hearing also is scheduled now for 23rd of February. So it's reasonable to expect that optimistic ways end of March, but otherwise I think the -- by April, we should have the carryforward impression.
Sir, last question. How is the bid pipeline looking at this point of time? And how are you worried that -- as the country is almost to the election, the further bids should be delayed by 6, 7 months?
See, the -- as we spoke, we said that already 10,680 megawatts is awarded. And then, there is 1,200 megawatts of SECI 6 is happening, reverse auction is on 15th of February. That would get awarded definitely before March. And then another 1,200 megawatts of hybrid is also announced. And then there is a possibility what we hear from the ministry is that another round of bidding at SECI 7 and which hopefully will be back to 2,000 megawatts because the response for the SECI 6 has been good. Because we were told that if the SECI 6 response is good and then they'll go back to the full capacity of 2,000 megawatts. So the 2,000 megawatts more might come. So our expectation is that the 4,500 megawatts more bidding would happen before March. And then, of course, the state level-wise, Gujarat might run the bid.
And sir, one more small clarification, sir. Is SECI 6 is likely to be set up in other states? Is the Gujarat completely full at this point of time?
I wish I know the competition what they're thinking of because we would know exactly where -- I think after the reverse auction, once that -- and also -- that also you will not know. Initially, you can give any state, but subsequently till the financial close, you don't have option to shift the projects. You would know at the stage where these projects are going to come. But as far as we are concerned, we are trying to be careful not to go in the places where there are hurdles.
Next question is from the line of [ Neha Punjabi from Minerva Advisors. ]
I had 2 questions. One being we've had some sale of assets on the solar power side. And just wanted to understand what kind of reduction in debt the big assets could lead to? And what was the equity that got freed up as well?
No, this debt was not on our books anyway. They were there as asset for sale. So they were not getting reflected in our debt. So therefore, there is no impact on the debt portion of it. And these projects, as we explained earlier, all the solar projects, 340-megawatt what we built and sold. And these were built, and we monetize them much before in terms of -- so we sold 45% stake. As per the PPA, 51% is getting transferred later, but the entire funding for the equity also happened from the people who bought it. So therefore, as far as the company is concerned, so there is equity of the debt has no impact except that the -- whenever we did that, we had that EPC and EPC margins.
Got it, sir. This debt will not reflective in the overall debt of the company?
No, no.
Got it, got it. My second question is there is a pipeline of 10.6 gigawatts. And you've been stating that about 7 to 8 gigawatts would be commissioned next year. Having said that, you have also stated that there are land issues that have -- that are extremely problematic. So on a realistic level, how much do you think would be a capacity that would be commissioned based on the auctions that have already happened?
First thing, let be correct. I don't think I mentioned extremely problematic. I didn't go to that extreme level of saying the problem is unresolvable. And for the last few months, there has been slowdown in the allotment of land in the state of Gujarat. And if you see the 50% of this capacity what is bid out is coming in Gujarat. And now they're trying to resolve that impact. They have come up with a policy for award of land. And the first thing, it's getting resolved. So therefore, our assumption at this stage is that this process will get resolved this month or maximum middle of next month. So therefore, while there is a temporary impact in terms of land and this delayed by few months, but I think the capacity -- some capacity which come this year would go to the next year. But the next year, we still maintain our -- the estimate of 7 to 8 gigawatts clearly.
Next question is from the line of Harshit Kapadia from Elara Capital.
A few questions from my side. Sir, in SECI 3 auction, you have won 785-megawatt. This pertains to largely 1 state or is it divided across the state?
Entire 785-megawatt is in Gujarat, but there are 2 different types of projects: 500 megawatts is what we are doing EPC, where it includes the land and everything is our responsibility; and the 252 megawatts is the SAA, what we call it. It is supply and insulation and commissioning, so for Adani, where we are not doing the land, we're not doing the power supply for them. So there is scope difference. So therefore, there are parallel efforts, where both of us -- they're acquiring land for them and we're requiring land for us, so therefore, it's advantage for us.
Okay. And with the 500-megawatt, where you are doing the EPC, the land, is there all the land issues have been resolved? And you are going ahead with the project? Or there has been some delay in that as well?
No, we are going ahead with the project. First of all, there's no stoppage of the project. There's been a slowdown in terms of the land allotment in the last few months as we mentioned on this, and which is now getting -- as we speak, is getting resolved. So hopefully, this month -- by end of this month, it should get resolved. And then, it will pick up the speed further. It didn't completely stop because we are trying to do some private land acquisition. So at last, we had some land already in our hands, so therefore we are working there.
Okay. And what about the 252 megawatts Adani order, sir?
They are working. They're going ahead. And then with -- as I said some time back, the -- ours is supply and installation, so the supplies will commence this quarter.
In this quarter itself. And sir, within the Q3...
And that will be faster supplies because as you know Tato, we announced just now and supplies are going immediately.
Okay. And sir, on -- your gross margins have improved considerably in this quarter and which is also mainly due to EBIT profit. So can you please explain, sir, what has been the revenue mix? Is it more product-driven, less of EPC? That's one of the reason why and we could see a lower number in next quarter? If -- can you color on that?
No, I think gross margin-wise, I always told you that please try to see us on annual basis because on quarterly basis, if business unit-wise mix is different, the way you explain in this particular quarter where services are higher portion of our revenue because we did only 67-megawatt in a turbine side. So naturally, this will give you a distorted picture on the margin. So 44% is something which you should not be building in any of your projections.
But even on the -- in wind turbine generator per se as well, where the revenue difference is not much, but your PBIT difference is considerably high. So can you please let me explain that?
I think you are referring to segmental result, right?
Yes, sir. Segmental result, sir.
Yes. For segmental result, there is a consistency number. That is what you are trying to say or there is inconsistency in margin?
Sir, there's -- so the loss has turned to profit despite your field volume has not increased considerably on a quarter-on-quarter basis, if I'm comparing that.
Correct. That is generally in the nature of scope. If you have a high year EPC or higher WTG supply and that is why if we get into those detail of what is supply and what is EPC every quarter, here J.P.C. told you that we supplied 67-megawatt, but we commissioned more than...
283-megawatt.
Yes, 283-megawatt. So naturally, there is a gap in supply versus execution. And that is the primary reason for what inconsistency you are seeing in the number.
I think it's purely the -- if you're looking at overall consolidated level mix of business segment-wise revenue and if you're looking at segment-wise at WTG business alone, there are 2 variables: one is the supply and another one is the actual execution EPC. So depending upon whose contribution is more, then the percentage will change. So our margins are higher in supply and that's it.
And sir, with the order book that you have, how much of the orders are for S111-120 for wind turbine?
I think the Chittoor 120, we don't have any orders. We have a few 111 orders, but that's for 140. Otherwise, predominantly our other backlog is for S120.
Next question is from the line of [ Sudhakar Prabhu from Netsoft. ]
Sir, my first question is again on this land thing in Gujarat. I was under the impression that Suzlon has all the land and other infrastructure in Gujarat to execute projects, but somehow -- this is something new to me that you're facing land issue in Gujarat.
Yes, the land what we have -- we were talking about is the state bidding, okay? In the state level, till -- because till 1.5 years back all the projects were happening at the state level. Yes, obviously, you're right, we have the land. We also have the evacuation facility. But now currently bidding in between, these are all the policies which are getting connected to the power grid, national units. So therefore, these are completely different set of land. And even here, the entire land identified applied and it's in the middle of the processes. So that's where it got delayed.
So now -- let I will explain about the Gujarat issue. The whole -- the system has changed earlier FID. FID means you are putting a project and putting in the energy into the state grid. Now it is a successful bidding process. So whatever the state grid is no more useful and state grid-related surrounding sites are not useful for the SECI bidding process. And SECI bidding process, the substation and line is connected to the PGCL. So wherever the PGCL substation is there. So mostly, it's been the -- Gujarat is the maximum capacity available is in the cuts. So almost 10,000- to 15,000-megawatt potentiality in the cuts is there. So that area in the state, it doesn't require much more energy. So Gujarat has -- most of the sites are in the Sogras for the state grid, right? And cuts bidding is coming from the SECI. Out of 10.5 gigawatts, almost 4.5-gigawatt land and bidding has happened in the cuts area particularly, where every party has done. These 4.5-gigawatt has created some problem in the state of the Gujarat, first of all. Because the state government has planned 30,000-megawatt they want to build the infrastructure or the state requirement for the GUVNL to build in the next 10 years 30,000-megawatt to support this energy production for the requirement of the farmers load to reduce the cost of energy because this area is very high windy size and good potentiality of the solar is there. So they have done the planning of 30,000-megawatt to reduce their burden of the cost reduction for the farmers to make that happen. Meanwhile, the SECI has come to bid and 4,500 bid has happened on the same area. So that has cleared the conflict, first of all. And because of that now government has taken 3 to 4 months to resolve that issue. And now they have earmarked certain areas for the SECI purpose and certain areas they have earmarked for their state requirement of 30,000 megawatts. And that all these issues in the last 3, 4 years, as government has worked aggressively and resolved that, now we see in this month, this 4,500 megawatts. It's is not just Suzlon 1 project of 500-megawatt, it's the total industries. Not a single megawatt has been given in the last 4 months. So all the projects of the industries, at a one stock in this month 4,500-megawatt land will be released and people will start working on those. And those project anyway will be installed and commissioned in the next year. So that is the large bunch is coming to resolve the industry's issues.
And for the 4,500-megawatt of land, which is -- which should be available -- which should be made available to developers, is it fully connected with the grids?
Yes. And the 4,500-megawatt, the grid infrastructure PDCL is available. Out of that, 3,200-megawatt immediately can be -- connection is possible. And PDCL is also expanding the capacity and that will be sufficient in the next year almost 4,500- to 5,000-megawatt power utilization is possible. So the both -- earlier was the power irrigation problem for that land issues, so both have resolved. Center and state government is working very aggressively because the priority -- the capacity has to come. And based on that, now it's all matter is resolved and the question of now to start the execution from next month.
Power utilization is concerned, it depends upon who is where. And as Tanti said that, it would be available. There could be timing, but we can only comment upon the projects which we are executing. The SECI 2 we are doing there, which is now -- we will be ready for commissioning the -- shortly in the next few weeks and the power grid substation is getting ready. And similarly for our SECI 3 and SECI 4, we don't see any problem of the power allocation being available by the time we are ready for that. So therefore, I think it is -- it varies from individual contract, individual contract the way they're doing and what is the time length and actually it will be available. Will it match with the project commissioning or not? I think we won't be able to comment. We can comment only about our capacity.
Okay. And your SECI 2 and 3 would be also be in Gujarat -- sorry, 3 and 4?
Yes, SECI 2 is in Gujarat. SECI 3, as I mentioned some time back, is in Gujarat. One other project is EPC, the other project is supply and direction. And the SECI 4, which we're doing for [indiscernible], is also in Gujarat.
Okay, right. And sir, you mentioned that the 700-megawatt of AP contract -- AP framework contract could also be part of your order book by April of '19. In addition to this, what else can we expect in terms of order inflow in the order book?
No, let me just clarify. What I mentioned the April '19 is the tariff finalization with the regulatory commission. So because the public hearing -- we signed the PPAs. PPAs have been submitted to a regulatory commission. They have a public hearing at 23rd of February. So our reasonable expectation is that the process started. The tariff finalization most optimistic is March, but realistic-wise end of April it will happen. So having said that, once that is done, then the framework contracts are to get converted into firm orders. So for that, I have not mentioned any date, but obviously that would happen soon after that at some point of time. But that's the capacity what is available for us which we have been saying always and that's the capacities would come for depending upon the -- we have a time of 2 years to execute those projects from the date of approval of PPA.
Right. And lastly, again coming back...
In addition to that, other pipeline-wise, as I said some time back, the 3,200 megawatts, which has not been awarded, are -- it means no EPC contract has finalized till date of the awarded projects. We are talking to various -- the investors. So therefore, we are targeting some of those projects. Plus we are also working the bid some large investors for the SECI 6, where the bids have gone in with the pre-bid higher. And obviously, we will also look at SECI 7 as well as the second hybrid, what is coming in.
Right. And sir, the SECI 5 order and the NTPC order, has the project been already awarded?
To our knowledge, no EPC contract has been finalized for NTPC and the SECI 5. They're still open.
So they should be finalized by next 6 months -- within the next 6 months or it will take time?
No, we'll absolutely finalize before that to meet. The PPA dates will be July 20, 21, so July 20...
20.
Commissioning date. So therefore, they have to get finalized on.
Okay. And lastly, sir, again coming back to your debt thing. So we've been talking about debt reduction for almost 1 year now. And I understand that it takes times to complete the process. But what is stopping the company from closing the deal? Is it the valuation thing or is it more a procedural thing which is stopping the company from closing the deal?
Let me first start, Kriti will talk about the process, but let me correct about the guidance. We didn't say on the day 1 of this year that we -- this could happen tomorrow.
Sir, I understand that, but see...
We've given yearly guidance saying that in this year our target is to reduce the debt by that. And some time back, Kriti has clearly mentioned that as we've given the guidance, by end of March, we will see a clear progress in that.
Yes, basically -- see, there is nothing stopping. You know that this kind of a transaction is generally takes a lot of time due to a number of steps involved in the process. And unfortunately, I cannot give guidance on each step that where I am right now and what is stopping the process because that will be too much sharing confidential details about the commercial transaction and which can have implications. So basically, you need to rely on the fact that we are seriously working and there are good counterparties with whom we are working and we've already demonstrated the confidence that you will see meaningful progress by end of this financial year.
Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Tulsi Tanti for his closing comments. Over to you, sir.
We appreciate your interest in the company and concern with the respect to the dynamic situation of the industries in the recent past.The industry is the inflation points and growth will pick up from the FY '20 onwards. With 10- to 12-gigawatt of the annual auction expected, India is positioned to meet its long-term target of the 60-gigawatt of the wind industries.By this size of the market, India is becoming the third largest market in the world after the China and U.S. As I said it's remained competitive, more and more states will be encouraged to form up their renewable energy policy and procure more and more wind and the solar hybrid powers.So this is evident from the formation of the various policy with respect to the land allocation or forming of the statewide wind and wind-solar hybrid policies. The government's focus on our renewable energy will drive the business visibility very strongly. As earlier I have said in the beginning, the calendar year FY -- sorry, calendar year 2018, the 74% the new energy capacity added in our country is from the renewable energy. And we see that trend will continue for the next 5 years because we don't have a very strong plan for the conventional energy source at this moment.Also, see the investor interest is very, very strong is there because India is becoming the third largest market in the world and China, U.S. and India. There's very few opportunity for the large investor to invest in China and the U.S. is becoming saturated. So there is a good appetize for the large investor to invest in a big way in India. Just an example of the last current SECI 6, the 1,200 megawatts size of the bid and demand has come out to 2,400, so 2x demand is there. So based on that, now SECI 7 will come approximately 2,000-megawatt size of the bid to satisfy the demand on the market side.No doubt, challenges remain in the initial stage of the power utilization and other thing. I think now it's all that type of the issue is becoming streamlined. And we see the good executions, the strength and capability will grow in FY '20.Suzlon is ideally positioned to benefit from this huge opportunity, and we are able to dominate 30%-plus markets even in the growing market given our -- the core competitive strength. So the competitive integrated business model end-to-end the executions, the stronger project execution experience spanning over the 2 decades, the superior cost competitive domestic manufactured technology displayed through our new generation turbine which offers the higher energy yield and lower the levelized cost of energy.Most of the states -- or windy states, we have our presence and we have a big and large installed capacity to manage the -- such a high growth is coming in the next year. We are fully vertical integrated. Operation is giving our strategy very, very competitive to manage the growth, not only that and they remain the competitive market. We can able to make our margin, also, because of our competitive strength.We have best-in-class service in the last year -- in the calendar year 2018. Our team has delivered 98%-plus uptime of the -- all our turbines, which is a great achievement in Indian market and very large fleet we are operating and managing and optimizing cost and announcing the -- our margin to provide the better and better service to our customers. That is the key driver for the large -- the financial investors to come and join with us to bid in the process. So that is a very clear opportunity we are taking.The technology and innovation, which are our key strengths, will continue to act as a catalyst and that will drive the growth in our renewable energy sector. And at the same time, we are leveraging the domestic manufacturing capacity, which we have at large. So that is giving the good competitive and fast delivery of the projects.The service business will witness the good growth due to the larger volume, in which we will be in the -- then lead to the better margin over the next 5 years.With that, I think (sic) [ thank ] you all for joining us the call today. And we hope all your queries are answered. In case of any further question, kindly get in touch with our IR team.So we appreciate your time and presence with us. Thanks a lot, and we appreciate your supports in the company. Thank you very much.
Thank you very much. Ladies and gentlemen, on behalf of Suzlon Energy Limited, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.