Sterling and Wilson Renewable Energy Ltd
NSE:SWSOLAR
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Sterling and Wilson Renewable Energy Ltd
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Ladies and gentlemen, good day, and welcome to the Sterling and Wilson Renewable Energy Limited Q1 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the 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 now hand the conference over to Mr. Sandeep Thomas Mathew, Head, Investor Relations, for his opening remarks. Thank you, and over to you, sir.
Very good afternoon, everyone. I welcome you all to the Q1 FY '23 earnings call. Along with me, I have Mr. Amit Jain, Global CEO; Mr. Bahadur Dastoor, our CFO; and Strategic Growth Advisors, our Investor Relations Advisors. We will start the call with an update on the solar power industry and operational highlights for the quarter by Mr. Amit followed by financial highlights by Mr. Bahadur, post which we will open the floor for Q&A. Thank you, and over to you, Amit.
Thanks, Sandeep, and a warm welcome to all the participants on this call. I would like to give a quick update on the solar power industry, other allied renewable businesses and status of our business operations. So to start with the industry update, there are strong levers which will drive robust growth globally over the coming years. Stronger policy support from the government in terms of tax incentives, favorable policies for renewable sector, coupled with ambitious climate targets announced for COP26 are going to drive demand for solar energy to [indiscernible] worldwide. Solar industry is well poised to grow in long term as IPPs have huge plans for global capacity additions. The global tariffs have already corrected upwards with the revision in prices and a lot of projects are expected to get finalized in financial year '23, including [ in H1 ] FY '23.
Despite the record increase in modules, commodity and fleet over the last 18 months, the levelized cost of electricity for solar plant is still cheaper than the traditional source of energy as well as the renewable source of energy. With the Indian government accelerating its plan for clean energy transition with Prime Minister Narendra Modi pledging to build 500 gigawatt of renewable energy and ensure that half of our energy requirements will come from renewable resources by 2030, we expect outstanding growth in Indian solar power industry in the years ahead.
India has also announced a road map to become a hub for production and export of green hydrogen made from water and renewable electricity. India has set a 5 million tonne green hydrogen production target by 2030 to help bolster its geopolitical heft and be a game changer for the country's energy security. With the government promoting the new-age emission-free fuel, Reliance Industry has also shown significant interest in the space. With this development, we expect huge increase in the scale of average project size in Indian solar industry. The U.S. utility scale solar market saw the sharpest decline in the Q1 of calendar year 2022 and experienced its lowest quarter of installation since 2019 and the lowest number of new projects added to the pipeline since 2017.
On June 6, the Biden administration announced a 2-year duty exemption for solar products from Cambodia, Malaysia, Thailand and Vietnam to accelerate execution of projects delayed by Department of Commerce Anti-Circumvention Investigation. This executive action brings massive relief to the U.S. solar industry, and we expect a significant ramp-up in the project execution activities going ahead.
In Australia, the recent election has been a game changer in terms of policy support for renewable energy. The new labor government has plans to unlock renewables investment, upgrade the grid and bring federal policy more in line with the states and territories, many of which have more ambitious climate goals. In June 2022, the EU energy ministers agreed to increase the share of European energy consumption coming from renewables such as solar or wind power to 40% by 2030. According to BNEF, Europe is expected to add 27 to 33 gigawatts per year for the period of 2022 to 2025 and 36 to 56 gigawatt per year for the period of 2026 to 2030.
As per the International Energy Agency, by 2026, global renewable electricity capacity is estimated to rise more than 60% from 2020 level to over 4,800 gigawatts, equivalent to the current total global power capacity of fossil fuels and [ nuclear ] combined. Renewables are set to account for more than 95% of the increase in global power capacity through 2026 with solar PV alone providing more than half. Our focus is to grab a large share of EPC capacity additions in FY '23.
For example, U.S. is going to 23 gigawatt of capacity addition, 16 gigawatts of capacity addition in Europe, 3 gigawatts in Australia and 16 gigawatt of capacity additions in India. It is estimated that solar PV utility scale market, excluding China, is expected to grow at 15% CAGR over the next few years with growth led by developed markets like U.S., Europe, Australia, as well as Indian market. I would like to state that with our global reach, strong relationship with customers and lenders as well as the induction of Reliance Group as an additional promoter of the company, we are well positioned to capitalize on these growth opportunities.
Reliance Group's investment in company has led to strengthening our company's balance sheet and increased confidence in customer, supplier, bankers and other stakeholders. Now coming to our operation and maintenance business, solar O&M portfolio as on date is 5.8 gigawatt. O&M constituted 3.7% of the revenue in Q1 FY '23 and stood at INR 44 crores. Reduction in O&M portfolio is primarily on account of sale of plants by clients to customers having their own O&M team. We are focusing on increasing international O&M portfolio through organic and inorganic route. Our enhanced value to customers through O&M differentiators like drone thermography, strong analytics and predictions, IV Curve Tracer, underground cable fault finder, et cetera, will help us to expand our O&M portfolio.
Now as we have briefed you around our battery energy and storage system businesses, so battery energy storage system and energy storage system is expected to grow 2x in the next 4 years to [ $12 billion ] annually. U.K. and Europe will be the next big consolidated markets with U.K., Germany, France, Italy and Spain, being top 5 countries.
With this, I will ask Mr. Bahadur, our CFO, to take you through the order book and consolidated financial highlights. Thank you very much. Over to you, Bahadur.
Thank you, Amit, and good afternoon. Coming to the order book. Solar modules constitute about 55% to 60% to the cost of a solar project and prices of the same has increased by about 40% from January '21 to March '22, driven by higher commodity prices, primarily on account of [ silicon ] and supply chain issues, such as shortage of shipping containers. Steel contributes 5% to 10% of the total cost of a solar project, while its rates have risen by 25% during the set period. This has adversely impacted the ROE of solar power projects resulting in developers postponing the awarding of solar power projects consequently, resulting in order finalization getting pushed to Q2 and H2 of FY '23.
The module prices, commodity prices and logistics costs, which had hardened due to the Russia-Ukraine war have started to soften slightly. Thus, we expect the tendering activity to gather momentum, which should result in robust order finalizations. We expect to bag major solar PV EPC projects in our addressable markets in the coming quarters. We expect to bid for projects constituting 23.1 gigawatt with India having the highest share at 32.5% followed by MENA and Africa at 19.5% and U.S. and LatAm at 19.1%. We are targeting around USD 1 billion of new EPC orders in the international and Indian market in FY '23. We expect a lumpiness in order inflow with significant consolidation being observed in the industry, with stronger players expected to take a larger share of the market in the future and low-level players moving out.
Our unexecuted order book as on June 30, 2022, stands at INR 2,098 crores, which is executable over the next 12 months. Our order bid pipeline remains robust. Now I will take you through the consolidated financials for the quarter ended June 30, 2022.
Revenue for Q1 FY '23 has been INR 1,206 crores as compared to INR 1,071 crores in Q1 FY '22. O&M constituted 3.7% of the total revenue in Q1 FY '23. The region wide revenue breakup is as follows: Australia contributed 59.79%, Americas contributed 21.28%, followed by India, which contributed 15.02% and the balance 3.9% by MENA and the Africa region.
At the company level, the gross margins remained suppressed primarily on account of international EPC projects. In the U.S., labor cost increased due to shortage of labor supply. And in Australia, labor costs, site overheads increased to the loss of productivity on account of extreme weather conditions. Further, there was a significant translation loss due to adverse movement in the exchange rate of USD/INR and AUD/INR compared to March 2022. O&M margins were suppressed in the quarter due to one-off final punch points as well as demobilization costs incurred in the current quarter relating to large projects handed over to developers in the previous year. We anticipate O&M margins to normalize from the next quarter.
Recurring overheads for Q1 FY '23 increased 17% to INR 94 crores. As part of the transaction with the Reliance Group, the company has signed an indemnity agreement with SP Group, KYD Group and the Reliance Group on December 29, 2021. According to the agreement, the SP and KYD Group would indemnify and reimburse the company and its subsidiaries for a net amount if it exceeds INR 300 crores on settlement of liquidated damages pertaining to certain past and existing projects, old receivables, direct and indirect tax litigations as well as certain legal and statutory matters. These amounts would be settled on 30th of September of each succeeding year on the basis of the final settlement amounts with customers, suppliers and other authorities. SP Group and KYD Group are consequently entitled to net of the amounts payable with specific counterclaims levied and recovered by the company and its subsidiaries on its customers and vendors relating to these matters.
As of 30th of June 2022, the company and its subsidiaries have made provisions equivalent to INR 300 crores. Thus, there will be no further impact on the results of the company on settlement of liquidated damages pertaining to past and existing projects as on the date of signing the transaction documents with RNEL, old receivables, direct and indirect tax litigations as well as legal and regulatory matters in accordance with the indemnity agreement.
Coming to the balance sheet. As on June 30, 2022, net worth stood at INR 596 crores, and cash and cash equivalents stood at approximately INR 272 crores. Our debt grew by INR 131 crores with net debt equity ratio at 0.22x. Advance and performance guarantees encashed by 4 customers amounted to INR 588 crores. With 1 customer, we have signed the final settlement agreement and the encashment amount of INR 319 crores relating to 2 projects have been refunded by the customer.
With respect to the balance 2 customers whose projects are completed, the company is in advanced stage of discussion with them and is confident of recovering the amount in the coming quarters. As on June 30, 2022, we had a negative working capital of INR 277 crores as compared to negative working capital of INR 302 crores as at March 2022. Receivables due for more than 1 year as at June 30 stood at INR 261 crores compared to INR 251 crores due for more than 1 year as at March 31, 2022. They comprise related party receivables of INR 10 crores, which is net of INR 196 crores that the company needs to pay back to the related party against advance received for the Waste To Energy project.
With this, we can now open the floor to questions and answers.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
First question is on the gross margin. The gross margin for the quarter is again negative. We were expecting a positive gross margin from this particular quarter. So what went wrong? And when do you expect it to correct going forward? That's the first question.
So let me take it question by question in case you have a second one. As we have explained, the gross margins were suppressed in this quarter, primarily due to increase in labor cost in Australia and U.S. as well as extreme weather conditions in Australia. Due to the same, we continue to see a slight erosion in the gross margin. Coming to your question on when the gross margins are expected to go back to normalized levels, we are looking at bidding and winning almost $1 billion of projects, which will help us to take the margins back to its normalized level in the near future.
On the O&M side, we were -- we see -- of course, last year, we did 200-odd -- INR 220 crores [ odd ] run rate for the year, if I'm not wrong and the margins have been suppressed. I think you mentioned about something about the one-offs, which happened in this quarter. But what is a normalized run rate for the O&M based on your portfolio which you expect in a year? So what kind of EBITDA margin you are expecting in this particular segment?
In the case of O&M, again, as we had mentioned, there was a movement of almost 2 gigawatts worth of projects, which were transferred from our existing customer to a new party who has his own O&M division. That led to a loss of revenue and a reduction of almost 2 gigawatts from our O&M portfolio. We had to do certain punch and closure for those projects in the current quarter, which led to a suppression of the margin as a one-off event. We expect the margins to go back from this quarter and onwards, I mean, Q2 and onwards, back to its 25%, 30% benchmark for these jobs -- for the remaining part of [ the jobs ]. And hence, there is a reduction in the overhead run rate. Today, in the first quarter, we had about INR 44 crores, which is slightly lower than the annualized turnover of the previous year, but there are other bids which the O&M team is working on, which will help us take it back to where it was. We will keep you posted in the quarters to come.
Sir, what is the impact of the prices going up, solar modules, steel and et cetera, et cetera, on the project cost, if I have to make a comparison for Y-o-Y?
Yes. So as far as the module prices are concerned, there was -- they had started correcting and there was softening in the prices, but due to certain recent events in the China market, the prices have again gone up. So there is fluctuation in the module prices but hope with the kind of capacity additions, which are coming in China market and globally, we expect in coming few quarters, the prices will soften and stabilize.
What will be the module price right now from China? And what is the freight cost from China to, let's say, Saudi Arabia or any...?
The freight, as far as the module price is concerned, they are hovering between $0.26 to $0.27 per watt fee and freight depends upon the geography you're working in. If it comes to India, it can be $0.015 to $0.02. And if you're going to other geographies like Australia or U.S.A., they can be up somewhere between close to $0.04 per watt fee.
At current freight cost?
Pardon?
At current freight cost, am I right?
Yes, that's correct.
Otherwise, this [indiscernible] much, much lower, roughly around $0.01.
Yes. If the logistic market also corrects itself, so even there would be impact on logistic costs as well and they will also normalize in the coming quarters.
[Operator Instructions] The next question is from the line of Mr. Faisal Hawa from H.G. Hawa and Co.
Can you hear me?
Very clearly, Mr. Hawa.
You're audible, please go ahead.
So there is a public limited company, which is on [ record ] saying that they have like contracts from you to hire like 3,000 engineers in the coming year. So is this true? And what is the utilization that we would be having for these engineers?
I don't think that, that's the correct information, and we are not aware of any such contract. I think that information is not correct.
And sir, so going forward, when do we feel that we can actually have any kind of orders from Reliance's own modules [indiscernible] kind of where we could be more assured of supply of modules from them?
So no, no. Reliance is -- I think they are working on establishing their plants for module manufacturing. So it will take some time. And next few quarters when they will be ready with their plant and manufacturing start, then we'll get to know the plan, how much support we can get from Reliance as far as the module supply is concerned. But we expect in next few quarters, not only Reliance, multiple new players will be on the block. So we don't see a few quarters down the line, there will be any issue with respect to module supply.
Mr. Faisal Hawa, do you have any other further questions?
No more questions.
[Operator Instructions] The next question is from the line of Rahul Modi from ICICI Securities.
Sir, just I had one question, sir. Historically, we've seen that our margins have been impacted due to the volatility, as you also mentioned, of the module prices. So how are we changing or evolving our contracts when we are actually going and taking orders to mitigate this risk? Because obviously, the volatility probably 5 years back, we had a 1-way movement, which was downwards in module prices. So we were beneficiaries of that. But today, when the -- it's more of a zigzag pattern. So how are you mitigating that risk in terms of the contract?
See, as we have elaborated on this particular strategic aspect in our last few calls also, so we -- there is a 2-pronged strategy to address this particular issue. And we are addressing it with vendors as well as with our customers. So vendors, we are negotiating much tighter contracts and asking for a much higher amount of bank guarantees to be backed up, which can assure us that they will stick to their contracts, and we can procure the modules at which we have estimated in our bids.
Secondly along with the customer also, we are building a pattern, like if there is a willful default by the suppliers. So there are built-in mechanisms in the contract, which we are negotiating with our clients to provide a safeguard against that particular movement. So this is a strategy which is being worked both with suppliers as well as the client to safeguard against any unprecedented price rise in the modules.
Sir, in the recent past, you've seen any such thing which had to be invoked for year to go by, any recent memory of this, which -- where the resolution could be found?
Yes, yes. So we are in touch with all our customers, and there is a perceptible change in like the way the customers also approached. So one of the contracts which we are negotiating with our key customer in Europe. So the customer is ready to take the risk or the -- at which we agree at the time of getting the notice to proceed on the contract till the last shipment of the modules. So the market trend is moving towards that direction and some of the customers which we recently discussed, which are the global big players that they're derisking EPCs with respect to the module supply risks. So we see a change in the market with respect to that. So the customer thinking on those lines are also changing. And they are -- they appreciate that EPC risk profile also has to change. So in coming quarters, we'll see a lot of movement on that front and -- which will derisk our business significantly as far as the module price risk is concerned.
Sir, secondly, in terms of the origin of modules that we are taking, are you seeing any change in terms of the buyers whether it is because there are many customers in the U.S. who are actually directly importing modules as well. So are you seeing any kind of change in the buyer's way of thinking in terms of buying either from China or Sterling Wilson procuring modules from the Indian manufacturers because we export orders for Indian manufacturers have also picked up? So just wanted to...
Yes, you are absolutely right. So IPPs and our clients across the globe, they are looking for derisking their supply chains. So all the potential players in the market, anywhere in the world, right now want to develop, and they are working on developing alternate supply chains. So -- and the various players, not only in India, Europe and U.S., a lot of additional module manufacturing plants are coming online, which will be commissioned in, I would say, a couple of years down the line and some would be operational as early as last quarters of next year. So we'll see its movement and shift in the supply chain with respect to modules. So all the suppliers that are looking for alternate supply chain so that the whole entire solar capacity addition across the globe can be derisked.
And sir, lastly, sir, the Indian market is also a sort of short of EPC players. That's what we understand now. And the recent bids that we saw, they were actually going at a much higher margin for at least a per megawatt basis. So any rethinking your strategy that you want to look inwards also along with -- because typically, you had a 20% kind of an order book historically towards India. So any change you are looking there?
Yes, definitely. You are absolutely correct, I would say, on that front. Because Indian market, we expect the Indian market is at an inflection point. And I would say, with the kind of capacity addition which government has announced and the targets we have plus the new hydrogen road map, which has come in, it leads to not only the capacity going up and there will be much bigger plants, which will be coming online. All the private players in the country, they have announced their ambition around [ clean ] hydrogen and they will also be coming out with mega projects. So considering that, we see that there will be definitely [ witnessed ] volumes will be much more and there are like a limited number of EPCs. So we see that the margin profile should improve going forward because the capacity addition and the strong balance sheet is particularly the past track record, which is there will come into play. Particularly for Sterling Wilson, we'll see the strong parentage, which we had earlier from SP Group and now both SP Group and Reliance put together as our promoters did provide a lot of confidence to the banks, investors and IPPs. So it will help us not only domestically and globally as well. So we'll be able to take bigger orders and will be considered by all international peers, which are coming to India and all the mega projects, corporates, which will be setting up in India will be considered favorably for that and margin profile should also change.
Perfect. Sir, just I'm slipping in last one more question. Sir, incrementally, we are seeing a lot of bids coming in on hybrid tenders. So how are we, as experts in solar, how do we cowork or how will we be EPC work in such [ tender restructure ]?
Yes. So actually, we have announced that earlier that was a part of Sterling Wilson Group, but now a couple of quarters back, that business was moved to solar. And we already have a skill set and IP in that particular area. So we have strong teams, and we are further building on teams to handle the best part of the projects in India. We are already working on multiple bids, not only in India, globally in Australia, U.K. and Europe with respect to best projects. And we'll be handling, as we are handling the solar, the EPC part of that, we will be taking on both with or without the supply of batteries as per the business model of a particular geography demand.
[Operator Instructions] The next question is from the line of Abhinav Bhandari from Soham AMC.
Just a couple of questions. One is, do the current results contain any component which would get reimbursed back because of the indemnity agreement? And secondly, as of 30th June, how much amount would be there on the balance sheet, which would get liquidated on 30th September once the settlement is done under the agreement?
The results do not include any amounts which are reimbursable under the indemnity [indiscernible]. The company has already made all the provisions 2 quarters ago to reach INR 300 crores. So it has not taken anything into account as such because it will be a pass-through. The money will come against the offset of liquidated damages, et cetera, which have already been paid for by the company. The crystallized amounts, Abhinav, are still in process. 30th September is the final date wherein the crystallized amounts will be worked out and sent out to the [indiscernible] promoters. And on that basis, they have about 1 month to make payment against that. It is right now moving and accumulating targets, not be in a position to give a singular number at this point in time.
Okay. But fair to assume that it would be -- so that amount sitting on the balance sheet would be more than INR 300 crores at this point? Broad idea on that understanding.
Yes. It is more than the INR 300 crores, which the company has to bear.
[Operator Instructions] The next question is from the line of Abhishek from Emkay Global.
I have 2 questions. Can you elaborate on the region-wise pipeline of the projects? And my second question is, what are you expecting in terms of the overall inflow for the year?
Okay. So as far as the region-wise bid pipeline is concerned, approximately both U.S. and Australia, the pipeline is 3 gigawatt each. MENA region is right now without considering mega projects in [ question ] is 2.5 gigawatts. Africa is 1.5 gigawatt, Latin America is 2 gigawatts, and Southeast Asia is 1 gigawatt. So total, we are talking about international pipeline of 16 gigawatt and a domestic pipeline of 7,500 [indiscernible] taking to approximately 23 gigawatt of the total bid pipeline, which we are under -- working on at this point of time.
Yes. Australia and U.S. both you told 6, India is 7,500 [indiscernible], correct?
Yes, India, yes, we are expecting because of the multiple projects by PSU and private players announcing, so we expect a pipeline, which is our addressable market is close to 7.5 [indiscernible].
Your addressable market, but with the pipeline is, for India, 7,500 correct, am I right?
Yes, yes, yes. So my pipeline is my addressable market. So that is for 7.5 gigawatts, which we'll be bidding for.
Okay. 7.5 gigawatts. Okay. Africa, you told 1.5, Latin America, I didn't -- I was not able to capture the figure.
Latin America was 2 gigawatt and Southeast Asia is 1 gigawatt.
Southeast Asia is 1 gigawatt. Okay. And what expectation in terms of overall inflow do we have?
We are expecting the order inflow of in excess of both the markets put together, close to $1 billion, both international and domestic put together. But it is going to be lumpiness in the order booking. So we can't forecast like as we have said, the major order booking is going to happen in H2 this year and there will be lumpiness. So there can be a few big orders in the like third quarter or fourth quarter, but total expectations is around $1 billion [indiscernible] fiscal year.
FY '23, you're expecting $1 billion, correct?
Yes, that's correct.
So FY '24, we can expect the same run rate of $1 billion?
So it will depend, like at this point of time, I will not like to forecast, but the way market is growing. We are expecting the market is growing at the rate of 15% CAGR annually, and we see the -- even Indian market will be growing at a much more robust rate. So we can expect -- we will follow the market trend. The way market is growing, we'll also grow at least in a similar proportion.
[Operator Instructions] The next question is from the line of Mohit Kumar from DAM Capital.
Two questions, sir. Firstly, on the [ clean ] hydrogen side, one of the slide talks about a lot of multiple projects on the gigawatt scale. Is this something which you believe which can get fructify for us in terms of opportunity in the next 12 to 18 months, given especially Australia is, I think there are a lot of number [indiscernible] which are coming by Australia, which are very, very large.
Yes, yes. So to give you a perspective that all the big players, which like our all the global customers and the biggest IPPs across the globe, they are very bullish on green hydrogen and working on green hydrogen project across the world, though the projects only in Australia is getting more visibility at this point of time. The projects are getting announced, big projects in UAE, Oman, Saudi Arabia. And one of the biggest projects in the globe with respect to [ clean ] hydrogen has already started -- is under execution in Saudi Arabia. So as we see the projects are already materializing and taking off from the ground. But we see the -- considering Australia, the size of the projects, which had been announced in Australia, next 18 to 24 months, we'll see start -- there's [indiscernible] movement on those projects. But it can be definitely in the Middle East also, there can be movement on the [ green ] hydrogen projects in like I can say 18 to 24 months period.
Is there any strategy to talk to the large players and get some sense of -- is there any chance that we will have some kind of lumpy order inflow from this green hydrogen in the next 18 to 24 months? Do you think that you are...?
Yes, there is always a likelihood because we are -- some of our clients, already existing clients are in this business, and they are going to set up the plants. As far as Australia, where the most of the projects are getting announced, we are the #1 EPC in that market. And despite all the difficulties and headwinds which are faced by EPC market, we are perhaps one of the players which have delivered even in the COVID period despite the commodity cycle -- this commodity super-cycle. We have -- we are on the course of deliver all of our projects, which have created a very, very strong brand for us in the market. And with the Reliance coming in as one of the promoters, so we have the financial strength and financial, I would say, credentials to associate with developers on the project of that scale. So that places us favorably to work on those projects. But as you know, the projects are in initial stages, we're identifying, we have started discussion. But except how the things [ develop ] can be predicted in the next 18 to 24 months period.
Last on the cash flow side, given the 9 months -- next 9 months, I think do you see any stress or any need to raise capital or debt over the next 9 months to tight out the lack of revenues?
Yes, Bahadur will take that question.
The company is actively engaged in raising debt for a short-term period to meet its cash flow mismatches on account of the losses that have been faced in certain projects. We expect that this will be for a short-term period of about 18 months or less. Right now, that is being looked upon with various bankers and financial institutions, which the company is engaged with.
[Operator Instructions] The next question is from the line of Bala from Arihant Capital Markets Limited.
Sir, like, how the Chinese players are [ compitating ] in current situation because Chinese players are occupied [indiscernible] countries like Middle East, but in Australia and U.S...?
Can you be a bit louder? We are not able to hear you clearly.
Mr. Bala, you'll have to be a little more audible.
I would request Mr. Bala to use a handset.
Sir, right now, am I audible?
Yes, still like -- better than last time.
Sir, how do you see competition from Chinese players because they were occupied [indiscernible] countries like Middle East, and they have supplied at lower prices [indiscernible]. In Australia and U.S., they have minimum base contracts. How they are dominating, how they are competing [indiscernible]?
Yes. So if I've understood correctly, because voice was -- the audio quality was still not good that you want to understand the impact or how the Chinese are -- Chinese competition in various markets, which we are present in. So I would say that the maximum intensity of Chinese competition was faced by us in Middle East and Africa market. And Australia, Europe and USA., there was no significant competition from Chinese players. As far as the -- as you know, the way Chinese contractor and Chinese vendors, they have not [ kept ] up to the contracts which they signed for, a lot of contracts were [ managed ]. And in Middle East, mega projects, what we are witnessing that the performance is not up to the mark. The projects are running behind schedule.
And there is, I think, the confidence which was there on China is coming down, and all the big IPPs are looking for alternate EPCs to work on mega projects even in Middle East and Africa market. So we see the change in trend coming forward in the next few quarters and the competitive intensity even in the Middle East and Africa market will come down and will be better placed and be considered favorably by major developers.
[Operator Instructions] The next question is from the line of Faisal Hawa from H.G. Hawa and Co.
On changing our bankers and you're getting some more bank guarantee limits and how are we actually now going to hire, if you are saying that you are -- there is no demand for the 3000 engineers from your end, what is our hiring plan for the coming year? And how many engineers do we plan to hire for our EPC groundwork?
So I will take the first question on the bank guarantee part. The company is actively engaged with its consortium of bankers to increase its limits. It does have spare limits available right now to take care of any short-term requirement, but it is engaged for a much enhanced number, taking into account what we will require for FY '23 and FY '24. Bankers are looking at it very positively, and we expect to meet our requirements once the assessments are complete. I will let Amit take the second question.
So as with respective -- to address the global and domestic markets, we are taking an initiative of capacity building in the organization, and we expect to add close to 1,000 personnel to our project management, engineering, procurement and other execution teams, which we'll be building gradually. So that's the plan to address the increase in order book and mega projects if they come on the way that they can be addressed properly.
Solar modules, we are now quoting for any new tenders according to the price, which is at presently being charged. So there could be a possibility that in 6 months, 7 months when the solar modules [indiscernible] with more supply. And we actually get them at much lower rates and that could add to the bottom line. Is that correct way of thinking?
Yes, there is always a possibility of that happening. That has happened in the past when we encashed on downward trend in module prices, but it is cyclical and with all kind of module capacity addition coming online, that's always a possibility. And when that's the part of the business cycle we have suffered on the negative side, of course, we will be entitled to take the positive side of it as well.
In solar modules, costing according to what is presently being charged by the...?
Pardon, I didn't get your question. Could you repeat that again?
We are charging solar modules -- we are costing out solar modules at the present rates only?
Absolutely. Absolutely, what are the current rates in the market, and which is backed up by the bids from Tier 1 contractors. If we commit anywhere, it will be as per prevailing market prices only.
Competitive intensity has also decreased in most of the tenders are being now put out because so many people who may have suffered losses just like we have suffered.
Could you come again?
Intensity has decreased in...
Sorry to interrupt, Mr. Faisal Hawa, I would request you to use your handset.
Certainly. So do you feel that the competitive intensity could reduce in the present tenders which have been sent out [indiscernible] losses?
Yes. So I would say with the market size going up, the multiple bids coming down and the limited number of EPC players in the market, we can see the competitive intensity going down because order books -- people will be booking orders. And as and when the capacities get booked, then, of course, the market will correct itself and there will be reduction in competitive intensity.
Is there any thinking within the management to also bid for larger ticket size orders?
Come again, please. Again, I could not hear you properly.
Can you hear me now?
Yes, much better.
Yes, I just tried something -- So do you feel that we will now be bidding for much larger ticket size contracts as well?
Yes. We were doing that in past as well. As you know, we had executed one of the biggest projects in the world at that point of time that rather the largest commission project till recently. So we had participated in such bids earlier. And based on how strategically well placed we are, we'll continue to do that.
And is there now more clarity on whom we will report to in Reliance? And are we now having some kind of structure of communication?
No, no. Sterling Wilson remains to be a professionally run company and we report to the Board. So all the policy decisions are taken in the Board, and we report to the Board and run by the Board of the organization.
And do you feel that we can go back to the ROC and the ROE that we used to have like 3 to 4 years back just before the IPO, and that could be back again...
Definitely, definitely, we are on path of recovery, and we'll be there. And we'll update you during our next investor calls how we are progressing on that route.
The next question is from the line of Abhishek from Emkay Global.
In terms of the pipeline-wise, region-wise pipeline projects, you had told India 7.5, Australia, U.S. 6. I think somewhere one of the management team had mentioned 16. So just wanted to know 16-gigawatt breakup, how does it come to [indiscernible] excluding India, it is 13, if I'm right, gigawatt?
No, no. Excluding India, it is 16. So we have stated that total pipeline is around 23 gigawatts, out of which 16 is the international [indiscernible] around 15.6 and 7.5 we have set as India pipeline. USA, if you want the exact number, USA and Australia is around 6 gigawatts, Europe is 2.5 gigawatt, MENA is 3 gigawatt, Africa is 1.5 gigawatt, Latin America is 2 gigawatt and Asia is 1 gigawatt.
Okay. Southeast Asia is 1, Latin America is 2, Africa 1.5, Middle East 2.5 and Europe is 2.5. Correct?
Yes, that's correct. And U.S. and Australia put together a 6 gigawatt, yes.
6. So I think the total comes to around 15.5. So I think 1 more here and there is there. Yes, okay.
Yes, 15.6 and 7.5, so that takes you to 23 gigawatts.
Sorry. Sorry, can you repeat that, I didn't hear it. 15.6 and?
15.6 for international and 7.5 for domestic, that takes 23.1 gigawatts to be precise.
23.1. Okay, yes, fine. You have 15.6 so -- Europe is 2.5 or 2.6?
Europe is 2.5, MENA is 2.5. Australia and U.S. put together is 6.1.
Okay, 6.1. Yes. I was -- fine, fine. Okay.
[Operator Instructions] The next question is from the line of Harsh [ Jhanwar ] from Centrum PMS.
I just wanted one clarification. So as I understand, when we book an order, we do back-to-back booking of all the modules and inputs which are required. So how do we benefit if the PV module prices are going in downward trend. So it is done back-to-back now on the same time. So we have fixed our spread, right? So how do we benefit out of if it goes up?
Once we are bidding, we approach multiple Tier 1 suppliers. And upon -- based on that, we bid to our customers. But as the case -- between the time we bid and at the time of award of the contract, if there is a downward movement, by the time we are placing the order, if there is a downward movement, we are able to take benefits of that particular aspect. Otherwise, we'll go on back-to-back basis.
Okay. Okay. Understood, sir. And generally, how much is the time gap between bidding and awarding of contract in general?
That depends on customers, so it can be like 3 to 6 months.
Okay. Understood. Understood. And sir, my second question was also more of a clarification. So the order book, which we already have will continue to have negative gross profit margins. And the new order book -- new orders, which you win that will have normalized 10%, 12% kind of gross margins. And just slowly, we'll see the trend of gross margin percentage going from negative to positive in FY '23 -- by the end of FY '23. Is that understanding correct?
Mr. Bahadur will provide you more details on that one.
See, it is not that the order book, which is now executable as a negative gross margin because all the impacts of the negatives have been taken majorly up to March and whatever new items came in, in June. So the order book carries a positive gross margin, which is a low single-digit margin. And future orders will come at our normalized margin. Therefore, going forward, if one looks at it, the margins are expected to be positive.
Thank you. As there are no further questions, I would now like to hand the conference over to Mr. Amit Jain for closing comments.
Thank you. With a robust backing of Reliance Group and Shapoorji Pallonji Group, we endeavor to accelerate our growth trajectory by aggressively pursuing our international markets where we foresee a huge potential of growth. India too has reached an inflection point from where we anticipate the growth of solar power industry to garner further pace and momentum. With our deep-rooted client relationship, global presence, ability to provide customized solution, strong track record of executing complex and large-scale projects supported by robust balance sheet and strong parentage of Reliance Group and Shapoorji Pallonji Groups, we are confident of regaining our leadership position. I would like to thank everybody for joining the call.
I hope we have been able to address all your queries. For any further information, kindly get in touch with Sandeep Thomas Mathew and/or Strategic Growth Advisors, our investor relationship advisors. Thank you once again, and have a great day. Thank you.
Thank you. On behalf of Sterling and Wilson Renewable Energy Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.