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 Q4 FY '18 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Tulsi Tanti, CMD, Suzlon Energy. Thank you, and over to you, sir.[Technical Difficulty]
[Operator Instructions] We have the line for Mr. Tulsi Tanti reconnected now. Over to you, sir.
Good evening to all, and thank you for joining us on the fourth quarter and full financial year FY '18 earning announcement. Present with me during this call are J.P. Chalasani, our group CEO; Kirti Vagadia, our group CFO; and our Investor Relation team. I hope you had an opportunity to review our result and investor presentations. I will share with you an overview of the industries, and my team will take through the -- our full year FY '18 performance. We will then take your questions.I'm extremely pleased to let you know that Suzlon has returned to market leadership [ modest ] the challenging industry conditions. For third consecutive year, Suzlon has gained market share in Indian wind industries from 19% in FY '15 to now 35% in FY '18. Wind energy is now the major source of power in the country and has entered into the industrialization phase backed by the huge demand. While the transition from the feed-in tariff to the bidding regime impacted financial year 2018, the volume are -- grown exponentially from year one. With the policy and regulation falling in place, the bidding momentum is gathering pace. Already, 7.5-gigawatt of the capacity auction is completed until date. Another 9.5-gigawatt is already announced for the auction in H1 FY '19, and further 6-gigawatt is expected to be auctioned in H2. Thus a total 23-gigawatt of the auction by FY '19 will be completed. And I expect the government and the announcement FY '20 and FY '21 another 10-gigawatt from central government bidding will continue. Top of that, the state government and some of the FiT [ realization ] will also continue. So it's very clear the long-term market visibility for next 3 to 4 years, which is a good opportunity for the manufacturers.We are confident that going forward, the sector will witness the exponential growth with 10- to 12-gigawatt volume each years for the next 4 to 5 years. We believe growth will also come from emerging areas, such as wind-solar hybrid, offshore wind projects and the repowering. Wind-solar hybrid is the future and has a lot of potential in the countries. The complementary generation pattern of the wind and solar enable to better utilize some of the resources and infrastructure. The wind-solar hybrid would not only be the lower cost but more stable form of power. It is a win-win situation. Wind-solar hybrid as a complementary source can give the -- more grid stability and it act like the conventional -- the power systems.The wind-solar hybrid is gaining traction here, with around 5 gigawatts of the wind, the bid pipeline already sanctioned. The Suzlon is one of the few player having demonstrated turnkey capabilities of the both wind and solar, giving us competitive reach. Offshore and repowering are emerging areas, where the government has already started taking steps to unlock the potential in the countries. Apart from the auctions, the company has very active retail capital markets, and the central and state BSU segment will continue to remain strong every years.We are extremely happy to note that Karnataka has recently announced feed-in-tariff for less than 25-megawatt projects for FY '19 at INR 3.45 per unit. This is a very constructive step by the state that will ensure active retail participation and domestic investors' interest in the FiT segment. The same way most of the all state gradually will announce these -- the schemes to give the opportunity for the domestic investor.Thus, there are lots of growth opportunity available in India. The wind market in Suzlon, being the market leader, will be the obvious beneficiary. The technology continues to remain our main focus with the challenging dynamics in the market. The OEMs helped to sit enough to come up with the right product to the -- remain competitive with higher -- the PLM product, which can yield a very competitive rate in the marketplace. During the year FY '18, we have launched 3 new turbines in the market. So S111-140 [ meter tower ] giving 5% to 6% higher energy than our current product of S111-120. Another new product with the same platforms, S120-140 gives, again, 6% to 7% higher energy generations as compared to the S111-140. Also, a new platform here we introduced in turbine is satisfactory in the marketplace is the S128-140, gives the 20% to 22% higher generations than S120-140. And this turbine and rotor is the largest rotor and the biggest turbine in the [ whole country ]. With each new product, we are pursuing the lower cost of energy and also the higher PLF. With S128, we are launching our first 2.6 to 2.8-megawatt platform, moving beyond our standard 2.1-megawatt platform.So we are focusing our effort in material technology and in value engineering with the introductions of the carbon fiber blades, the concrete tower, CTC. This enable us to manufacture more efficient turbine without increasing the costs and to maintain the lower margins. So I now invite my team to take you through our full year -- the performance J.P.C.?
Thank you, Tulsi Baig. Good morning to each one of you, and thanks for joining this call during the market hours. I am pleased that we could deliver a stable financial business for FY '18, especially considering the challenging external environment that the sector went through this year, and most importantly, continue to remain the market leader. During this year, we delivered 1,173 megawatt of volumes in line with our guidance, what we gave on the last call at the end of quarter 3. We achieved 966 megawatts of commissioning on a full year basis. FY '18 performance is a testament of our resilience in challenging markets, competitive edge and agility to adopt to the changing market dynamics, which has completely changed in the last 12 to 18 months. As Tulsi Baig explained, there is a visible traction in the bidding volumes, and industry is poised for a strong growth ahead. As he explained, the 23 gigawatts of auction is expected to be completed by FY '19, and we estimate, out of this, about 4.5-gigawatt commissioning in FY '19 and 10 gigawatts in FY '20 for the country.Wind tariffs after seeing the initial fall seem to be bottoming out which works well for the sector. On the order book front, we are having over 1,900-megawatt visibility as we speak today. 1,203-megawatt is firm order book, of which 1,143-megawatt is from the auction market and the balance, about 60 megawatts, is from the captive segment, which is where we are, again, the market leader.Apart from the above, we have more than 700 megawatts of signed PPAs, approved by the concerned state government available with us. These PPAs are now at the regulatory commission for tariffication. Once ratified, they will be converted into firm orders deliverable in FY '19. Retail, captive and PSU segment is another opportunity which is sizable and stable. And last year, we had issues with the retail market because of effect of availability not being there. Now with -- as Kirti explained, the -- with Karnataka being the first one, coming with effective tariff for less than 23 megawatts, the retail market we expect to pick up this year and captive will substantially increase. In FY '18, we delivered around -- more than 200 megawatts in the captive and PSU segment. They were short regular orders that may not necessarily appear in the opening order book which we are seeing today. We are happy to note that we continue to maintain our leadership in auction regime, garnering maximum orders which are [ finest ] until date. Of the 7.5 gigawatts auction until date, we backed orders about 1.4 gigawatts. But important to note is still around 20% of this 7.5-gigawatt capacity is open in the market for which we are also under discussion with customers, and the expectation is that our order share in this 7.5-gigawatt could further increase. While we are having the largest volume share in bidding, our focus is more on the quality of the order book rather than the market share number. Of 1.4 gigawatts orders that we won to date, all of them top-quality customers, including large domestic and international utilities. Substantially, all orders are a result of our strong PB tie-ups and are on fully turnkey basis. We are not only ahead in taking orders but also ahead in execution. We are proud to say that under SECI 1, we are the only player, I repeat, we are the only player to have met the first milestone of plant to be in position within 6 months of signing of the PPA. Our operational and maintenance business continues to grow in size, with around 15 gigawatts of renewable capacity under maintenance, including 12 gigawatt from India alone. We are now, in India, the second largest O&M company in the Indian power sector next only to NTPC. In FY '19, backed by our strong order visibility, we estimate to grow our revenues by 45% to 55% compared to FY '18 to a level of INR 12,000 crores to INR 13,000 crores, while maintaining our EBITDA margins at around 14%. Debt reduction, cost optimization and working capital optimization will be our top priority for FY '19. I would now like to invite Kirti to take you through the detailed aspects of our financial performance. Kirti, over to you.
Yes, thank you, J.P.C. Good morning to all of you. As I reflect on the performance for FY '18, I'm happy to inform you that we have delivered stable performance despite industry passing through a transition year. During FY '18, we delivered 1,173-megawatt of renewable capacity, while commissioned 966 megawatts contributing to overall revenue of INR 8,292 crores. Our EBITDA margin came in healthy at around 14%, which is in line with our guidance. That is primarily due to our focus on costs to attain the margin despite lower wind volume and despite low-margin solar business contributing 11% of our top line. Our full year manpower expense, which is primarily in fixed and inflationary in nature has reduced by 23% on Y-o-Y basis. Similarly, other expenses, which is almost semi-variable in nature, has reduced as high as 36% on Y-o-Y basis. During the year, as a part of finance costs, we have conservatively provided for INR 294 crores towards Right of Recompense, and a substantial part of that is provided in quarter 4. We are also working towards CDR exit in -- and hopeful to get through in quarter 3 of FY '19, and we already initiated the process for CDR exit.OMS revenue continues to remain stable at INR 1,780 crores. The regulatory uncertainty[Audio Gap]of the past 3 quarters. However, the same started easing off in quarter 4. We are happy to note that during quarter 4, we have managed to reduce net working capital by INR 764 crores. Under the auction regime with elongated project schedule, large-scale-sized projects and minimum regulatory uncertainty and more smoothened-out quarterly distribution of volume will result in better utilization of working capital. Our working capital debt is temporarily high at INR 3,889 crores as of 31st March, but is expected to reduce along with working capital in auction regime. Our net term debt, excluding FCCBs stand reduced at INR 6,037 crores now with a back-ended maturity profile. Only 36% of gross term debt is payable over the next 4 years, while 64% is payable in FY '23 and beyond, allowing the shared room for our operations to grow.However, despite schedule repayment, which is very low, we remain committed to reduce the debt on accelerated basis. In FY '19, we target to reduce our debt by 30% to 40% through a combination of asset monetization and operational cash flow. Thank you very much. Over to you, J.P.C.
We are now open for the questions.
[Operator Instructions] We have the first question from the line of Shrinidhi Karlekar from HSBC.
Sir, you gave guidance on revenue growth and EBITDA margin. Sir, would it be possible to share some color on how much would be the finance cost for the full year FY '19? As well as what will be the trend on the working capital intensity front going through FY '19?
Kirti, would you be able to answer this? Would you take this question?
Yes. On finance costs, excluding the debt reduction initiative what we have talked about, the normal finance cost is expected to be in the range of INR 1,100 crore for the year. And whatever we are reducing from our special initiative, depending on timing, that reduction will be on top of it.
Okay. And then working capital, sir?
Working capital, we tapered down -- if you are asking on an absolute amount, I would say that absolute amount will gradually reduce. But if you are asking in terms of a percentage, then on a quarter-on-quarter basis, it should definitely get reduced somewhere between 500 to -- 500 to...
I just I want -- like on a closing basis in FY '19, what will be your working capital as a percentage of your guided sales? I just wanted that number basically.
Yes, okay.
Sir, basically in auction regime more, what is the percentage of working capital one should assume? I'm just curious to know that number.
Yes, it is fair to assume around 10% of revenue.
10%, okay. 10%. Yes. And sir, if you see on a sequential basis, the Q3 versus -- Q4 versus Q3, there's a jump in wind turbine revenues. But if you see the segment profit, there is a substantial drop. Would it be possible to explain that?
You want to explain?
Yes. Primarily, on a quarter-on-quarter basis, if you are going on a -- quarter 3 versus quarter 4 you are comparing, right?
Right, sir.
Yes, solar is one of the factors.
No, sir, I'm referring to the segment result number where wind turbine generator segment, there, our profits fell from INR 228 crores to INR 62 crores.
If you think about it, it's a combination of which orders you're supplying during the particular quarter.
Okay. So more EPC would have been done. Is that the understanding?
Especially in quarter 4, because if you see our -- most of our commissioning has happened in Q4. And also, the ForEx impact.
ForEx [indiscernible].
Okay. ForEx impact has volume in the second -- okay. And sir, lastly, if you see on the commissioning, the year gone by, you achieved something like a 35% market share. But the numbers you touched upon in the auction regime, it points to something like a 25% market share. So how should one read that? Is it something that you are restricted because of how much you can offer or it's a reflection of a more competitive intensity?
I think the one thing we need to look at is that beyond a point, the percentage starts shifting towards megawatts. Because when you're talking about a 2,000-megawatt market, the market share, versus when you're talking about a 10,000-megawatt market, market share would be different. I hope you understand that.
Yes, I totally understand that.
And then secondly is that when there are 10,000-megawatt markets, you will also have the multiple players coming in and doing that. What guidance we can give you is that we will be the #1 in getting the orders in terms of everyone, and we will continue to be #1 in terms of delivery and commissioning the megawatts on this. I think it's more important to measure from the point of it and measure in terms of the absolute quantum what we will be able to do rather than what is the market share. Because market share would completely depend upon what is the volume. I mean, if the volumes grow significantly, it will be a completely different story. And they're now talking about 7-odd thousand megawatts, what orders got finalized. It's not a small quantity part of the finalized. And in the orders finalized, within that, as I said, the 20% is still to be finalized. In the orders finalized today, our market share is -- we are #1 and our market share is 25%. So before the even increased volume base, when you get -- when you become market leader, #1, get 25% market share, continued market leader, is what we want there.
Fair enough, sir. And then last one...
And then second most important aspect which is very, very important for us, the primary, last year what we mentioned is that, in this city, when there are large contracts of 250 and 300-megawatt, we are very, very, very particular about who is the counterparty planned. Because doing a 50-megawatt project you can choose a different type of a customer, but when you're doing a 250 to 300-megawatt contract, then you've got to be sure about your customer in terms of their credibility, in terms of their financial strength to close things, and then in terms of their absorption capacity, in terms of any shock and also their expectations, are considered. So various factors come into the picture once you're getting into large contracts. So that way, we turned out to be -- all the contracts we have won until now at SECI I to SECI IV are the largest utilities in India and abroad.
On your segmental question, basically, the delta is primarily due to ForEx. In quarter 3, we had a gain of INR 98 crore, roughly; and in quarter 4, we had an FX loss of INR 101 crore. So the delta between 2 is almost INR 200 crores that is primarily due to ForEx.
Okay, sir. The last one, if I may, sir, would it be possible to break your O&M revenue within India and outside India, as well as profit that you generate in that segment within India and outside India?
Yes, I think that you can ask off-line to our IR department.
The next question is from Mohit Kumar from IDFC Securities.
Sir, my first question pertains to guidance. What is the assumption behind the revenue number of INR 12,000 crore? And are we -- and how we are going to ensure that debt will stay at 30% or 40%? Are we assuming that there will be some sale of the -- some sale of asset?
Yes, as far as the revenue guidance is concerned, obviously, guidance comes from the physical targets, what you are expecting to do that. So as -- but again, it comes from the order book, what you have and what is expected to come further and how much of that is deliverable contractually in this financial year. So I think that's what made us to give you the guidance of the -- in fact, if you remember that we gave a guidance even now, today, also saying that though there's so much megawatts ordered, but as for the contractor schedule, we expect about 4.5 gigawatts only to come this year and the significant portion will come in FY '20. So our guidance is based on our contractor schedules, plus our guidance is based on the captive orders we expect from time to time from now on, and it's based on that is what we gave the guidance.
What were the SECI volume assumptions of this guidance which relates to FY '19?
We already completed SECI I, okay? We are the first chaps to complete the entire [ compatibility ] of the office. And there will be -- the office of SECI II also we will do this year, and then part of the SECI III also we'll do. SECI IV, as you know, even today, the LVI is not issued. So therefore, after the LVI is issued, within 3 months, they'll send the PPA, then the contract formally starts.
So how do you plan to reduce the debt, sir, in FY '19?
I think we mentioned that in our -- the mid-year release and also mentioned by Kirti, that we are trying to use a combination of things of asset monetization as well as from the operation cash flows.
And sir, the last question, sir, pertaining to O&M. O&M revenue has not grown as expected. It's around -- it's more or less flat Y-o-Y. Is there a specific reason? And can we expect a decent growth in FY '19?
Yes, Kirti you want to answer that?
Yes, you are comparing a full year basis, right?
Right, right.
Yes, full year basis, in the last year, we had one subsidiary of our international which we are not including in this year because we have stopped operation in that subsidiary.
Let me explain...
That is the primary reason.
Sorry?
Let me explain, last year, that we are -- we exited Brazil last year, last financial year.
Is it possible to quantify the subsidiary O&M?
Quantification of that subsidiary revenue?
Yes, sir. So that we can compare Y-o-Y.
That we will give you off-line because that is not readily available. So we will dig out and give you off-line. But on OMS, India revenue is increased by 10%. That is what we can tell you.
So one question more, if I may ask. Sir, what were the one-offs in this particular quarter? There's a portion for recompense, right?
Yes, yes. That is the one-off in quarter as well as for the full year, both.
Sir, the CDR?
That is included as a part of financial costs rather than any exceptional item.
Okay. But that's because you're planning to exit CDR, so we have provided this particular quarter. Am I right?
No, I don't think there is any relevance to the CDR exit, per se. In any CDR scheme, you have a recompense, which is a liability. Technically, it is payable to you when you are exiting CDR, either at the expiry of term or on a voluntary CDR. And in voluntary CDR, it is something which is agreed between the borrower and lender. Here, we have made the provision on a conservative basis, on yearly basis, so as to build up for contract, I would say, as per MRA whatever is the liability, that is something which we are providing. And this is a conservative policy we are adopting.
The next question is from Deepak Agrawala from Elara Capital.
Yes, firstly, just continuing from the previous question, how much of this recompense amount is pertaining to Q4 specifically?
I think 274 is something which we provided in Q4 out of 292 or something.
And any more is expected during FY '19?
I think we need to review on a quarterly basis that what is the utilization of facility and how it is calculated. So on a quarterly basis, sometime it is difficult to give guidance.
Okay. Secondly, the depreciation has picked up quite sharply on Q-o-Q. Like, earlier, you guided that in the first 9 months versus last year, the depreciation would remain around 80-odd crores. And again, it has inched up to 100-odd crores in Q4. Any specific reason?
Yes, there are 2 things. One is some of the IPR and old model which we discontinue, we have a policy that we don't carry that as if it were an asset. And that is why there is a small fluctuation in the appreciation.
So if you are not carrying it as an asset, then the gross loan itself will come down, then the depreciation should...
No, I will provide the depreciation, because basically, I need to have a count.
Okay, sure. And also on the revenue guidance, about 12,000-odd crores, this -- is it assuming around -- let's say, well, 2,000 crores could be further O&M business. So balance, entire 10,000 crores, are we assuming any solar inflow and execution during the course of the year? Or it is purely based on just wind execution?
I think, it's right -- solar has -- in order to be completed, the 340 megawatts of the solar on this. So right now, the -- it doesn't include any expectations in solar.
Okay. And my last question is can you be slightly more -- help us understand on the debt reduction? Because it seems to be a fairly aggressive number of 30% to 40% reduction in a year, especially one of the major FCCB is due only for bullet repayment in 2023. So can you help us understand? It looks to be too high a reduction in -- when it was of just 3, 4 quarters. So any more color if you can offer on that would be helpful.
Kirti, can you put some color onto it?
Sure. See, basically, as we rightly mentioned in a couple of times in this call itself that it is by combination of a reduction in working capital or a flow from operations and, secondly, from asset monetization. Asset monetization, as you are aware, that we have various class of assets, some operating, some nonoperating and some are very valuable assets. However, as a matter of conservatism, I don't want to -- for commercial reason, I don't want to specify that which particular asset we are targeting to sell, but we are confident on the basis of our efforts done in the asset monetization direction that whatever we have guided, we will be confident in our doing it.
The guidance is coming based on what we are currently doing. So therefore, we are quite confident about it.
The next question is from the line of Dhavan Shah from KR Choksey.
I have 2 questions. Firstly, about the Andhra Pradesh order, about 600-megawatt. So that order has not been ratified. So what's our take on that order? And do you foresee that it will be ratified in the next 1 or 2 quarters?
Yes. There are a couple of positive developments what happened from last call to this call on this. The first thing is the APRC, while they're giving the ARR for this year, has clearly stated in the ARR that this -- they recognize this capacity as part of the installed capacity for this year and recognize that there will be a purchase of power from this in the H2 of this year, okay, in the ARR calculations. They clearly mentioned this in their order on this. So therefore, they know that this capacity is going to come this year. And they followed it up with a letter to us saying that now you formally file a tariff application under Section 62. So for this -- because they have not yet finalized that -- what we file -- the control period and things around this. They said, okay, we will look at this and [indiscernible] give it to you. So that application is now being under finalization, and we will be filing that application, let's say, in the next couple of weeks. And we expect thereafter, maybe in 6 weeks' time is what -- they will ratify the PPAs. So therefore, we're reasonably hopeful that the -- if not full, then part of the capacity will definitely come this year.
Got it. So I think we can expect that the execution and commissioning for FY '19 could be equivalent to FY '17 at least, right?
In Andhra?
No, not -- overall consolidated basis.
I know you're asking me this indirectly, but I said some time back also that we give a revenue guidance, not a megawatt guidance. But yes, the -- we -- based on whatever we expect to do it. I don't want to put a number to the megawatts at this stage, depending upon which volumes we do and the watt margins on this. But on Andhra, yes, we have the ability now, because it is clearly accepted, this capacity coming in the state and asked us to submit direct petition, so there is no more uncertainty, except for the time for the fixing the tariff.
Got it. And my last question is about the hybrid contracts. So I think the MNRE came out with around 2,500 megawatt of hybrid project. So what's our take on that? And what kind of opportunities are we looking at going at -- if we take 2, 3 years of [indiscernible]?
See, there are 2 things they're talking about right now. One is that they come up with a policy. Obviously, that means they're going to be aggressive in terms of hybrid. And personally, with my experience of the sector, it's the right thing to move in that direction because, as you know, right, today, we already reached [ 30% ] of installed capacity with renewal energy. [ The overall ] energy basis is still at 8%, but installed capacity is 20%. And in fact, in the month of July, it's almost reached 12%, 13% on this. So before -- it's now becoming the main portion of it. They have to know what's on the variability of the generation of the renewable capacity. So they're now moving next step in the direction, plus also optimizing the transmission capacity. So moving ahead, I believe that hybrid is going to stay. There are 2 opportunities there in the market today. One is brownfield, which they said 1,000 plus, 1,000 megawatts is converting existing solar to adding wind 2,000 megawatts and the existing wind to adding 1,000 megawatts solar. That's a brownfield, this thing. And second one is 2,500 megawatts of greenfield capacity. We will be extremely keen, as you know that we, too, have an experience in the setting up the solar assets and wind. And we are right now getting fully prepared for taking these bids on this, getting the maximum market share. And we're also in the process of tying up with some of the -- even the large EPC players in solar because this is going to be a large market, we believe, on this. So we will be very, very serious in the segment, to say that, because it's going to be the future of this country.
The next question is from the line of Jayesh Mehta from D.E. Shaw.
My first question is on FY '19 guidance. Given the strong revenue guidance and the cost optimization program that the company has undertaken over the last 12 months, our EBITDA margin guidance looks conservative. Any particular reason for this?
I think all of us know this is -- as we have been saying earlier also that this is going to be moving ahead high-volume, low-margin market on this. And even when we made 17% EBITDA in FY '17, even that point of time and before the bidding came in, we clearly gave a guidance these are not sustainable EBITDA margins. We already give a guidance of 14% to 15%, even at the -- even in the FY '18, saying that that's a percent of EBITDA margin. What is important is that even in the auction bidding, we're still saying that we'll maintain 14% on this. That was the guidance what we gave in FY '18. That's really because of the confidence we have in terms of reducing the costs so that we don't have significant [ diversion ] of our margins.
Got it. And my second question is on the expense line item provision for right to recompense. Can you throw some more light? As you never used to record that separately earlier. So what made us to have that line separately in the...
Kirti explained it a little bit. He will explain it to you once more.
Yes. Basically, this item is something where there was a provision after -- on a periodical basis, because every quarter end, we, along with our auditor, assess that what is the fair value of ROR liability. Previously, since -- when we migrated from Indian accounting standard to IND AS, at that time, part has gone into balance sheet item, and part has gone into P&L account under financial head. Since across the period, the amount was not so significant, we didn't thought of showing it separately. Since in this quarter, the amount is notably higher, to guide the investor properly, we have decided to give it as a separate line item.
And is it a cash line item? In the sense, is it a cash equivalent or just a provision?
No, it is noncash.
It's just a provision.
It is noncash, and even no bank is taking it as a revenue. So it is purely conservative. Many companies show this simply as a continued liability without even providing.
Got it. Got it. And, sir, last question, it's more like a housekeeping one. In your presentation, the difference between the gross term debt and net term debt is around INR 930 crores. Okay, but when I look at your balance sheet, your cash balance is INR 581 crores. So what is the balance, INR 340 crores in cash and cash equivalents?
I can explain you that in a balance sheet format, various class of cash balance need to be shown differently. So if your money is parked temporarily in a mutual fund, it need to be shown under a different area. So that is the difference. There is no inaccuracy.
No, no, I'm not saying inaccuracy, sir, but I'm not able to find that out, because in your investment line item...
It is -- mutual fund is shown in another [indiscernible].
Well, sir, your investment line item is 0 in the balance sheet.
Sorry?
Your investments are shown as 0 in your balance sheet.
Yes, it is shown in other financial asset. And particularly, the margin FD, or mutual fund investment, those kind of things are shown in the noncurrent asset.
The next question is from the line of Shabad Thadani from Arkkan Capital.
Just a few questions from my side. Are any of the cancellations reported related to the dispute on the tariff in Andhra Pradesh?
No, no. There is nothing, no dispute, there are no cancellations. There's been -- they're put into 3 categories. One is the order to be executed over a period of time from Mytrah. That was the -- executed doing the FiTs, before the bidding auctions came into picture. But subsequently, because of the auctions, there are not going to be in the FiT PPAs, so therefore, there is -- we cancel that. Anyway, we continue to talk to them on the SECI bids, and other bids. But this particular one, which was clearly an FiT-based order is now -- because FiT is not being there, is canceled. Second, the single way that there are few orders which were on FiT-based, especially the last year, because nobody knew that FiTs will be completely [indiscernible] in other places. Everybody thought that FiT would continue. So therefore, there were a few orders based on FiT last year, which the -- because FiTs -- no state is coming with FiTs, we thought there's no point in actually keeping them in the order book indiscernible]. Another category is at the -- in Karnataka, so there is a change in tariff between -- post 31st March of [indiscernible] commission, 3 points on a [indiscernible] base . So there is an option of continuing with this order by reducing the cost of our turbines. The option -- second option in furtherance of that, just shut, close it and sell the same machines in the market -- in the capital market at a much higher price. So we took a commercial call of saying it's better for us to shut close and sell them at a good price in the capital market on this. In fact, of the 77 megawatts, we already sold 20 megawatts, and the balance is in -- on negotiation with various capital vendors.
Understood. Okay. Then secondly, in terms of the solar assets now completed on your balance sheet, I presume that relates to the INR 375 crore of assets held for sale on the balance sheet, right? So if those are likely to be deconsolidated by March '19, how much debt will be removed from the balance sheet? And does that also constitute part of your 30% to 40% debt reduction plan?
No. It is not -- that is not shown in this debt at all. It is not [indiscernible].
So what are the assets held for sale?
Yes, because it's held as an asset for sale, that's not there in our -- the current...
No, held for asset is a net of debt. So that is -- the INR 375 crores is net of the debt. It was something around INR 250-odd crores.
Okay. But that relates to the solar assets that you're planning to deconsolidate in line with the commissioning, right?
That's correct. No, planning to deconsolidate -- in fact, we are in the advanced stage of selling that asset. So in this quarter or at least by next quarter, it will be off the balance sheet.
Okay. And how should we anticipate the sales price for that? Is that likely to be in line with the book value being carried?
I think due to commercial reason, we will not be able to reflect that.
Sure, sure, no problem. Okay. And can you just give us an update on some of the near-term auctions that are currently taking place in the market, the NTPC, the Gujarat state auction, as well as, I guess, preparation for SECI V?
Yes. SECI V is, you know that, finally, the RfS has come in for us today, which is as per that, it's the 10th of July is the submission of the bids. Of course, there also will be previous auctions on this. One of the things they've also done is they have given guidance of substations where the capacity is available. They've given guidance for about 4,000 megawatts for substations in 4 states, out of which about 1,800 megawatt is at a 220 kV level and 2,200 megawatt at a 400 kV level. This is more of a guidance, it is not a filing that you need to bid only on those substations. We are well prepared. We have been talking to various -- the potential bidders for quite some time on this, because now the SECIs are constantly coming, it has nothing to do with the SECI V or SECI VI. We are in regular touch, and we have a right today between NTPC and SECI, we are talking to different people almost to the extent of 2,000 megawatts worth of this thing. But as we said that always we go on ultimately how to see this PB tie-up with some of them on this. So both for NTPC and SECI, we're in advanced stage, and the same is the case with Gujarat. Gujarat bid is -- NTPC bid is June -- mid-June, and Gujarat is also due sometime in mid-June on this. And the rest of the bids, like hybrid as well as the offshore, has just come. So therefore, we will now start the preparation for that.
So I guess, for at least the 3 near term ones, do you anticipate that you'll be able to maintain or improve your current market share?
Yes. I think the guidance what I gave some time back is that we will continue to be the leading player in terms of how much capacity we take. We hope to continue to be #1. So as I said...
And just one last question for Kirti. If I just look at the numbers, the segment EBIT is provided for the O&M business of INR 317 crores. What is the EBITDA for that business?
EBITDA for OMS business, generally, we don't disclose that number separately.
Okay. Can you just give us an approximation of what the [indiscernible] of margin...
For the margin of OMS, there is no depreciation, so you can -- practically, there is negligible appreciation in OMS. So you can take your own judgment on that.
Next question is from [ Ayush Mittal ] from Mittal and Company.
Sir, one thing I would like to understand is that based on these auctions which have happened over the last 2, 3 months and even the SECI II auction, if we see the timeline for commissioning, it's almost 18 months.
Correct.
So by when do you see, for your company, these benefits of the current order book translating into numbers? Or if you can get -- give us an indication about the current utilization of your plant your capacity, in the current month? Or do you see it scaling up and the benefits flowing into the levels?
We -- as far as we are concerned, SECI I, in fact, we already delivered full. It's done in the last financial year itself on this. We completed the full deliveries on SECI I. And SECI II, they already started execution of this. And the SECI period will not paid until then, so I think even SECI III will start execution this year, and also SECI IV might start towards the end of this financial year for the deliveries. So all 4 what we have it will be in different phases. SECI II, as you know the commissioning is May '19, so basically, all of the deliveries will be completed this year.
Okay. Sir, indication about the current utilization of your plants? How would the same improve going forward?
This year also is going to be a bit of a quarterly change in terms of the loading. Maybe from FY '20 onwards, it will be constant loading. So therefore, it's difficult to say that -- what will be loading. This loading will vary from quarter-to-quarter. We expect that quarter 3 and quarter 4 will have higher loads compared to quarter 1 and quarter 2. Compared to quarter 1 and quarter 2, the utilization levels will be higher in quarter 3 and quarter 4. See, one thing please understand on this. The -- until now the wind industry has never been static for 4 quarters, okay? So your capacity always would be made available for the peak quarter, okay? So therefore, there would always be an issue of some of the lean quarters where your capacity is not being fully utilized. It's a fact. That will happen. And even this year, though with a lot of actions happening on this, there is still -- you will see, as we move ahead, the quarterly commissionings will be different from quarter-to-quarter. So therefore, the utilization will be vary from quarter-to-quarter. In the peak quarter, we'll use fully. Complete planning capacity will be utilized on this. It should be -- even this year, we expect it to be quarter 4. And hopefully, from next year onwards, it is expected to even out quarter-to-quarter basis. Just because in 1 quarter, we are partly utilizing it doesn't mean that we don't need the capacity because we need to be prepared for the annual [indiscernible].
That I -- that we understand, it's more about that in your earlier con call, you had mentioned that going forward in this regime, that things should even out between...
Yes, that is what we expect completely. We still stand by that. We currently are looking at the schedule of orders, the SECI orders, finalize till that. And if you look at the delivery -- look at the PPS schedule -- commission schedule for that and you map that, you will still see in the country that all these things are still getting bunched in the quarter 3 and quarter 4 for this year. And as it is a capacity for this year, we're talking about 4.5 megawatts only. But the next year, we're giving the guidance of about 10 gigawatts, I expect that to even out. We actually are hopeful and believe that this evening out will start this year itself, and we gave a guidance last time. But you know that there were some delays in terms of auctions happened but the bids got delayed, both later.
Okay. The second question is around the INR 2,000 crores proposed to be raised by way of equity-linked instrument. So if I have to think about it like to reach the market cutoff, the company needs almost INR 5,000-odd crores. And if you propose to raise INR 2,000-odd crores based on current valuation rates, it will already we have had huge dilutions and a very bloated equity structure. And if you want to go ahead with this, then again, it's another huge 40% dilution that we are thinking about.
Kirti?
First of all, the re-dilution, what we are taking is something which is enabling re-dilution, which we take every year. It does not mean that I have any immediate plan to raise capital. It is just an enabling provision whenever in case there is an opportunity which is win-win situation for all stakeholders. In that case, I don't lose on a procedural time. That is the objective.
It was there last year also.
But given the current structure of your balance sheet, you need to have some capital balance at a certain time. Is there an enabling need for that?
No, not at this stage.
Not at all.
The next question is from the line of [ Kenrik Tai ] from [ KN ] Capital.
Just to check, the 30% to 40% in debt reduction, does that include working capital debt?
No. Working capital keep on fluctuating depending on operating cash flow of the company. So working capital, we will report the appraisal at whatever level we have.
Okay, okay. And so what's the repayment plan for the FCCB that is due in July next year?
It's fairly long period. So let us wait for a couple more quarter and see that there are -- there's chances that it might get converted also. But we are not solely dependent on conversion. In case there is a situation or a scenario arising for repayment, we are geared up for that.
So the INR 900 crores of NCDs, would that help -- would that be meant for the repayment of this FCCB?
It is -- NCD, basically, that is the replacement of a costly debt with a cheaper debt. So that is the objective of that re-dilution.
So the NCD is meant for repayment of other NCDs? Or is it meant for this FCCB?
No, no, no. It is not meant for FCCB. It is meant for other term debt.
The next question is from Ritesh Poladia from Girik Capital.
Sir, I believe now FY '19 and '20 will have a higher delivery. Under that backdrop, can you really reduce your working capital loan? That's from current level onwards?
Kirti, you want to answer that, or should I?
Yes, we will be able to reduce working capital. It's despite of the fact that there is a higher delivery, because there are a few things which are going to happen. As Mr. Chalasani rightly mentioned that now onward, we are going to have more evenly volumes. Secondly, the [indiscernible] time, which is available with us, is fairly long as compared to what used to be [indiscernible]. So advances also sit -- are going to sit with us for a longer period, and we have a better opportunity to plan the project and deliveries. So in these all circumstances, we believe that there are fair chance of reducing our working capital intensity significantly.
Sir, I believe gross debt excluding FCCB is INR 10,000 crores. And you want to reduce your 30%, 40% debt. So this 30%, 40%, whatever, in your guidance, does that include FCCB portion? Or is it just this out of INR 10,000 crore gross debt?
In earlier question, I explained that it exclude working capital.
Okay. So of INR 6,000 crores term loan, you want to reduce that 30%, 40%.
Sorry?
So you -- the debt reduction of 30%, 40% is off the portion from the term loan side?
No, term debt side, total long-term debt. Working capital will keep on fluctuating, so I don't say that there will not be any reduction on working capital. I will have a limit which I can continue to increase or reduce depending on what is the operational requirement. In current estimates, we believe that there will be a significant underutilization of our working capital also.
Okay. So your -- is it fair to assume that your asset monetization will conclude with about 40%, 50% of this debt reduction of about INR 2,000 crores, INR 2,500 crores?
I would not prefer to go into a specific target for this.
That's a very good evaluation. I think -- I don't think we can discuss that at this stage, where we are in terms of asset monetization.
Okay. One final question. In asset monetization, is that in part is under plan to divest? Or it is something different than O&M?
I think we will come up with clear details once it is effective. Right now, we can say that we are in the process and we have confidence. That is the reason we give this guidance. So further details because of various confidentialities, counterparty executions [indiscernible] right. I think maybe if everything goes well, next call or the following call, we should be able to [indiscernible].
Thank you very much. Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to Mr. Tulsi Tanti for closing comments.
So thank you. With the newly discovered tariff, for wind energy, it's becoming more and more competitive compared to the conventional energy, and that's why we strongly believe that demand of the renewal energy will continue for longer period. And that will give a great opportunity to build more and more capacity.The government commitment is also very strong to reach 275-gigawatt by 2022. And until now, it's only -- 115-gigawatt is still yet to be built. So there is a great next 5 years' opportunity to build the wind and the wind-solar hybrid projects. So that gives us the great opportunity because, in the Indian market in the last 22 years, we are extremely well positioned in all aspect. So that's why it's giving the great opportunity to bring our growth momentum more aggressively. Same time, we have an [indiscernible] experience in the international market. And most of the financial investor and utility companies are entering the Indian market. To do the business, for them, is the -- Suzlon is the first choice. So we are focusing more aggressively to if we want to leverage this volume, the high focus will goes to -- on the execution part, and we are increasing our capacity and capability to execute more projects in the years to time so that we can turn around the working capital more efficiently. And that will give us the same resource to increase the more volumes. That's the priority.So we'll continue to invest in technology, because that is the key success of the going forward. We'll remain competitive. Not only that, we'll increase the PLF and utilize the load with the sites and to remain, retain and maintain the tariff level as possible as low so that market demand size will continue to grow.The second priority is on the management team to focus on the working capital reduction. Now, based on the new cycles of the bidding and 18-month cycles and everything, we are quite confident by accelerating our execution capability and the more volumes, order books [ inventory ] in advance, it will help us to reduce our working capital drastically and that ended -- we hope you will see that will reflect in our books.The third of our priority is the focus on the debt reduction management team has mentioned very clearly. So there is -- some of the good opportunity is there, and we will leverage that and reduce our debt and reduce our financial costs, which can enable us to grow faster and to increase the volume. So going forward, whatever the banking fund, the non-fund facility supports are required, which we can able to increase.The fourth priority is a focus on the wind, solar, offshore and repowering, because these are the new segment is emerging and we are fully equipped. And we are preparing for us, and the offshore will be the new challenge for everyone, and the Indian market has a different -- the environment in auction. But we are working last 5 years on our offshore sites in Gujarat. So we are quite prepared and ready to focus on building utility scale large projects in the offshore market going forward.Another is important because we have a quite good capacity of the manufacturing in project and everything. The way the momentum of the volume is increasing, we are quite confident next financial years, we can able to utilize our majority capacity utilization will happen, and also it will be more even quarter. Every quarter will be quite even, because well in advance, sufficient order book for the full year will be available. So that will help us next financial year. We see the good volume and good stability each quarter-wise, and also it will help us to leverage our lower capacity utilizations, because at this moment, we don't require new order in CapEx. So that will help us to leverage that and to increase our -- the bottom line.So we really appreciate your time and presence with us. So thank you very much, and we'll see you again in the next quarter. Thank you very much.
Thank you.
Thank you. On behalf of Suzlon Energy Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.