Sterling and Wilson Renewable Energy Ltd
NSE:SWSOLAR
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Sterling and Wilson Renewable Energy Ltd
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Good morning. I welcome you all to Q2 FY '21 and H1 FY '21 Earnings Call. Along with me, I have Mr. Bikesh Ogra, Director and Global CEO; Mr. Bahadur Dastoor, CFO; and Strategic Growth Advisors, our Investor Relation advisors. We'll start the call with the operational highlights for the quarter by Bikesh followed by financial highlights by Bahadur, post which we will open the floor for Q&A. Thank you, and over to you, Bikesh.
Thanks, Vishal, and a warm welcome, and good morning to all the participants on this call. I hope and wish that you continue to stay safe and healthy during these challenging times. I'd like to give you a quick update on our operations across geographies. Besides, I'll also add some insights on our market reach and the order book position. As I had mentioned in our earlier call, our project execution which had got impacted due to COVID-19 earlier part of this year has now picked up significantly across all geographies. Furthermore, we have also commenced construction at most of the project sites, which we have recently won. Our current operating efficiency has improved substantially and now stands in excess of 90%. We expect to reach pre-COVID efficiency levels in Q4 of this year, subject to no further lockdowns in geographies where our projects are under execution. Needless to mention again, besides our efficient project execution strategy, our objective and priority is the safety and well-being of our employees, vendors, partners and all stakeholders in the value chain. We continue to, therefore, take utmost safety measures, which are in strict compliance and in accordance with the guidelines made by the respective countries. As also stated earlier, we have been seeing very positive traction in terms of significant order inflows from newer geographies like Australia and America. We have established ourselves as one of the leading solar EPC players in these geographies and are executing projects for some of the leading global independent power producers. Our strategy to expand our operation in these markets continues to bear fruits and which is visible in the form of strong order inflow pipeline. These developments spell a very promising trajectory for the company, especially at a time when the Middle East market has been experiencing intense competitive pressure on the margins. In the newer markets where we recently won the projects like Americas and Australia, the margin profiles are far better in comparison to the Middle East market. Europe has been one of the promising markets for the solar PV installation. The European market, after a hiatus of 4 to 5 years, is now showing promising signs for solar power and is expected to witness a surge in addition of approximately 7 gigawatts annually in the capacity addition. According to the solar power Europe EU market outlook, Spain was Europe's largest solar market in 2019, adding around 4.7 gigawatts of capacity followed by Germany, the Netherlands, France and Poland. To capitalize on this large market opportunity, we have reinforced our management teams over the last few months and recently set up a new office in Spain. With most of our marquee global clients also based of Europe -- out of Europe, we are well poised to deliver a positive outcome in this market as well. Solar projects along with energy storing and floating solar are also poised to grow substantially in the near future. We have a very strong team and technical partnerships to take up a leading role in this emerging field as well. On this note, we have recently emerged L1 in one of the very large floating solar projects in India. Moving on to our market reach and order book position. During these challenging times as well, we have been able to secure large orders and strengthen our order book. We have signed 1.4 -- approximately 1.4 gigawatt EPC contracts amounting to around INR 5,696 crores in H1 FY '21, which has already surpassed the whole of FY '22 -- FY '20 restated order book, which obviously excludes the non-contracted EPC projects like Saudi and Phase 2 of Montenegro. All these projects have a time line of around 14 to 18 months from the contract signing to commercial operations. Post September, we have signed 86 megawatt in Chile for around INR 420 crores, which takes our order book in excess of INR 6,100 crores until November 12, 2020, which is around 133% of the restated financial year '20 order book. With this order inflow of around 1.4 gigawatts year-to-date, our portfolio size has reached an impressive 10.5 gigawatt scale. Besides of the above, we are under contract signing process of -- for a couple of large projects in Middle East and U.S. We will announce them separately once all the contracts are signed. Our UOV as of November 12, 2020 stands at INR 9,564 crores versus the restated UOV of 6,000 -- INR 5,756 crores at the same time last year. Our O&M business also continues to see strong traction. As of November 12, 2020, our contracted O&M portfolio stood at around 8 gigawatts, and our O&M revenue in H1 FY '21 grew to around INR 121 crores compared to INR 77 crores as of H1 financial year '20. That is an approximate growth of around 57%. Third-party O&M also comprises 61% of our total O&M portfolio as of September 30, 2020. We plan to keep growing the O&M business, both in domestic as well as international markets for not only the in-house EPC, but also for the third-party customers by leveraging our O&M strength and the relationship with leading IPP developers. Thank you. And with this, I'll ask Bahadur, our CFO, to take you through the consolidated financial highlights. Over to you, Bahadur.
Thank you, Bikesh, and good morning, friends. I will take you through the consolidated financials for the half year ended September 30, 2020. Before we run through the financials, I would like to reiterate that being an EPC company, the revenue, order inflows and gross margins could be lumpy due to geographical mix and stage of execution of the project in any particular quarter. And hence, comparison on corresponding previous period will not be a true reflection and performance for a quarter may not be a representative for the full year. Revenue for H1 FY '21 has been at INR 2,405 crores and was marginally lower compared to H1 FY '20. Now there is a significant pickup in execution of projects. The region-wise revenue breakup is as follows: Australia contributed about 50%. Americas contributed 26%, followed by India, which contributed 12%, MENA region with 10%, and balance 2% by Africa. As Bikesh mentioned earlier, our O&M revenue has increased by 57% to INR 121 crores in H1 FY '21 compared to INR 77 crores in H1 FY '20, with an EBIT margin of 38.4%. The contribution of O&M business to total revenue grew by 180 basis points to 5% in H1 FY '21 as compared to 3.2% in H1 FY '20. At the company level, the gross margin stood at 9.6% in H1 FY '21. The gross margins were higher in H1 FY '20 due to higher-margin projects closure in MENA and the Southeast Asia region. We expect the gross margins for the year FY '21 to be in the range of 10% to 11% as guided in our Q1 earnings call. Overheads in H1 FY '21 reduced to INR 44 crores -- reduced by INR 44 crores, sorry, to INR 163 crores due to cost efficiency measures undertaken. Our overheads as a percentage of revenue reduced from 8.5% in H1 FY '20 to 6.7% in H1 FY '21. Additionally, there has been ForEx and MTM loss amounting to INR 47 crores in H1 FY '21, primarily comprising of INR 24 crores reinstatement loss on loans given to overseas subsidiary and branch which is in the nature of equity contribution and INR 12 crores on account of MTM loss on forward contracts relating to projects yet to commence. Consequently, EBITDA for H1 FY '21 stood at INR 26 crores due to lower margins and ForEx and MTM loss. PAT for H1 FY '21 stood at INR 32 crores. Coming to other comprehensive income. The group had taken forward contracts, including cross-currency hedges to hedge the exposure of currency fluctuation in respect of receivable from customers, trade payables and letters of credit. The Australian dollar INR derivative contracts were taken for receivables from customers and Australian dollar to U.S. dollar and U.S. dollar to INR derivative contracts were taken for trade payables and letters of credit payments. The strengthening of the Australian dollar has resulted in other comprehensive income having a mark-to-market loss on a notional basis of INR 63 crores. On utilization of forward contracts on the date of maturity, the effective portion of the cash flow hedge reserves previously recognized in other comprehensive income, will recycle into profit or loss account, which would be offset by increase in revenue for restatement of receivables and payables. Now coming to the balance sheet. I would again like to reiterate that as per the amended Articles of Association, the company cannot give loans to promoters or their affiliates post listing. The external term debt outstanding as on September 30, 2020, is INR 580 crores. Since listing last year, we have repaid a total of INR 1,931 crores through internal accruals and money received from group companies on collection of intercorporate deposits. The total repayment of external debt over the next 2 quarters is INR 580 crores, with INR 485 crores to be paid in quarter 3, for which we are in discussion with banks and balance INR 95 crores payable in quarter 4. We have a cash and cash equivalent of approximately INR 517 crores and a net worth of INR 1,042 crores as on September 30, 2020. Our net debt-to-equity as on September 30, is 0.4x. As of September, we had a negative net working capital of INR 72 crores as compared to a positive net working capital of INR 178 crores as on March 2020. Improvement in working capital was driven by a combination of higher collections, efficient management of working capital and advance from customers. The total intercorporate deposits and loans stood at INR 1,617 crores as a debt, including interest accrued up to September, which, as mentioned by the promoters, will now be paid latest by 30th September 2021. On the cash flow front, during the quarter, we had a net operating cash flow from operations of INR 242 crores as compared to INR 165 crores for H1 FY '20 and INR 338 crores for FY '20. Cash flow from operations was higher on account of higher collections coupled with efficient management of working capital despite lower profitability. Cash flow from operations and investing activities has been used to repay borrowings and interest thereon. With this, we can now open the floor to questions and answers.
[Operator Instructions] The first question is from the line of Rohan Soares, an Individual Investor.
Congratulations on a very good balance sheet performance in the first half. I just wanted to know on the receivables side, what is the more than 1 year vintage receivables now?
I'll take that question, Bikesh. The total modern 1 year receivables is slightly in excess of INR 500 crores, which when offset against provisions and liquidated damages, which are accounted there against, is about INR 97 crores, which is a reduction. So INR 445 crores is the net receivables for value exceeding 1 year -- for a period exceeding 1 year.
INR 445 crores, and that includes about again, INR 93 crores from IL&FS?
Yes, you're right. That includes INR 70 crores from IL&FS because I said INR 445 crores after provisions. IL&FS, which is INR 93 crores, has a provision of INR 21.5 crores against it. So in the INR 445 crores, INR 70 crores is the IL&FS number.
The next question is from the line of Narottam Garg from CWC Advisors.
Congratulations on getting the recovery and reaching high-efficiency levels. My question was on -- just to understand the accounting of the MTM. So there -- when the profit on the forward contract, actually flows in the recognized revenue, will it flow through the P&L or through the balance sheet?
So Narottam, the mark-to-market losses, which are lying in other comprehensive income will move to the P&L. At the same time, you will have a receivable which is at a higher value because the Australian dollar has increased. This mark-to-market loss, which has gone into the P&L is also slightly on account of the advance, which we had received, advances, we don't restate and, that's why in the P&L, we had a one-sided effect. Worried to have been a revenue because for our Neon project, we had no revenue up to September. We would have had our revenue as well as receivables being restated, offsetting the mark-to-market, which would then flush out through the P&L.
Okay, sir. Just to be clear when you actually book the revenue, the impact of the gain of the derivatives will come through the P&L only, right? And to that extent will have to get it?
Yes. So there will be a debit to the P&L, offset by an increase in ForEx gain on account of the receivables being recorded at a higher value.
Okay. One more question again, on the receivables side, it has been in 1 year. What was the collection total on those accounts during this quarter?
I'll just revert to you on this question. Just give me a few minutes. I'll answer that question subsequently.
The next question is from the line of Anuj Jain from Globe Capital Market Limited.
Congratulations for a decent set of numbers. My question is regarding only 1 item in the P&L account, that is direct project cost, which comes at INR 461 crores vis-à-vis INR 257 crores on Y-on-Y last year. So can you please explain because this is not in line with the increase in revenue. So there is a significant jump. Can you please?
The margin, which is now 9.6% as against the margin, which was much higher in the H1, that is obviously offset due to the increase in the direct project costs. The direct project cost is the summation of the materials as well as the installation costs. One has to see both these items put together, the purchase, the direct project cost and the cost of construction material stores and spare parts. That is because in some quarter, you may have larger amount of materials, which go into a project. At some other quarter, you may have the installation of those materials that is happening. So one has to always look at both of them together and then take it to arrive at the gross margin.
So we can say in this particular quarter, we have booked some cost, but we are not accounted for the revenue, which might come in the latter half of the year?
No, no, no, not at all. So as I was explaining, revenue is accounted as a top-up on both the cost of materials as well as the direct project cost. Both of these components is what goes to make the cost of the project. The total project cost is broken into 2 parts: material and installation. Installation works is what is shown as direct project cost. Cost of materials is what is shown under cost of construction materials, stores and spare parts. So it's a combination of both, which has to be utilized. You should not look at just 1. And revenue is from both of them.
So this quarter, our costs have gone up. We can simply say.
Well if you look at the direct project cost. You have to also see that the cost of construction materials in stores and spare parts has gone down. So as I said, in one quarter, you may have higher value of installation. In another quarter, you may have a higher value of materials, which are being supplied. You need to combine both of them. And that's how you arrive at the gross margin, which we are guiding to be between 10% to 11%. It is 9.6% for the half year. That means 90-odd percent is the total project cost made up of 2 components: material and the direct project cost.
The next question is from the line of Mayur Gathani from OHM Portfolio.
Sir, on the net receivables, which are more than a year old, can you tell me what period it is like more than 1 year means how many, is it 2 years, 2.5 years old? Can you throw some more light on that?
It is slightly over 1 year old.
Okay. So within 18 months -- probably the max is 18 months?
Yes. 12 to 15 months.
Okay. Fine. And so what is the likely thing of this? This is a usual figure that will remain also? I mean, is this the normal course of business that we will always have this kind of a figure with -- because 12, 15 months, is not much of a time?
So see, let me break it up into at least 2 major components. So you have IL&FS, which is about INR 93 crores gross and INR 71 crores net of provision, which is under NCLT. The other major party that is there is the Argentina project, which is about INR 116 crores. That same number was about INR 133 crores in March. We have recovered some money in Argentina in the last -- in the half year gone by. So that is also under discussion with the customer. There was an LD which was levied on the customer by the offtaker. That LD has now been completely waived by the offtaker. And we are in discussions with the customer to recover our money.
Okay. And tell us something more on the O&M business, sir. I mean, is it how -- what percentage of the execution that you do the O&M business comes to you because you get third-party contracts and you lose some of the O&M business that you would have probably got, but because you were executing it.
I'll let Bikesh take that question from a business perspective.
Yes, Bahadur. So on the O&M business, the EPCs that we normally do, more than 90% of the EPC gets translated into the O&M business for us. It's only 10% of the business for the customers, which have an existing conventional power plant that the O&M business, they undertake themselves. And in terms of the third-party O&M business, I think it has been growing at a very fast rate for us in the domestic market, that's in India. And for international markets, because of the COVID, we really couldn't scale it up the way we wanted. But we have really started now looking at a lot of our international customers who are working with us on the EPC side as a third-party business also, and we hope that this business in the next 12 months on the third-party side will also grow substantially.
Okay. So what you're saying is the third-party business mostly comes from India as of now, and you're working on exploring this abroad as well?
Yes. So the third-party business -- EPC business, that...[Technical Difficulty]
Hello.
I think Bikesh has dropped off. We get about 51% of our total O&M portfolio is from third-party projects. We, as Bikesh was explaining, we have almost all of our own EPC projects under O&M, unless the customer is a large enough energy giant who does his own O&M. It is a good annuity business with better margins. I think Bikesh has just dropped off, he will try to come onboard again. Is there anything else on this question?
No, I'm good. And on the purchases, sir, I mean, on all the orders do you end up purchasing? Or is it supplied by the...
By the customer, you mean?
Yes.
So there are certain regions where we do what is called BOS, Balance of Supply. Majorly in the U.S. and in India, the modules are procured by the customer. We do only the balance of supply.
Okay. No, what I meant...
Sorry Mr. Gathani. Sir, sorry to interrupt but for any follow-up request would you rejoin the queue please. The next question is from the line of Pallavi Deshpande from Sameeksha Capital.
Just wanted to understand 2 questions here. One is on the -- some more color on the outlook for your order book. And second would be on escalation clauses given that module prices are going up, what are -- how well protected are we on that in terms of our contract?
So I'll just see, if Bikesh is back on the line. Yes, he is.
Yes. I am back on line, yes. So in terms of the outlook, I will combine both the quarters -- last 2 quarters put together, and we would be pitching in for around a 9 to 9.5 gigawatt worth of opportunities, which will get won or lost in these 2 quarters. And going by our historical conversion rate, we would be clocking in around 14-odd percent of conversion rate for these orders. And these orders are spread across geographies, Australia, Europe, Middle East, North America, South America, Asia and Africa as well as India. So this 9.5 gigawatt is spread across all of these geographies. And in terms of the escalation on the contract in terms of the module pricing, as I had mentioned earlier also, most of the contracts, which are long-gestation contracts, the module prices are being finalized by our customers and any upside or downside movement is to the customer's account. So any volatility on the module prices is to the customer count for the shorter duration of the projects -- for the longer-gestation of the project. For shorter-gestation of the projects, which is where in the modules are required within a period of 3 to 6 months, we have a back-to-back contract with a module supplier, and we get hedged against any volatility with these contracts. So therefore, any escalation on the module prices is being securitized through these 2 means.
[Operator Instructions] The next question is from the line of Shivan Sarvaiya from JHP Securities.
A couple of questions. Sir, one is on the gross profit margin. You said that in your -- you said that it is about 10% to 11%. That is what you all are looking at. I just wanted to ask, considering we are having an order book, which is 76% from Australia and the U.S. market, don't you think that -- and considering that there are much higher-margin projects compared to the MENA region, and we -- our base was much higher last year in the MENA region project. Don't you think that this can be better in terms of the gross profit margin?
So yes, the attempt is always there to improve much as we can. But as of right now, from what we foresee in the next 6 months, that is the annual guidance that we are giving. At the same time, one has to keep in mind that if you see historically, you will see that when we did the FY '19 numbers, for 9 months, we were at 9.32%. But the year-end, we closed at 11.94% and also if you see the profits which were there in FY '18, for 9 months, we were at 11.8%, but we closed at 10.94%. So management makes an estimate which is on the basis of what are the profits and revenues, which are there for the entire year. And on this basis, as of right now, we are guiding the number to be between 10% to 11%.
Sir, but the understanding is correct, right, that the margins in Australia and America are far better than the MENA region, that holds true, right?
Yes, absolutely. Bahadur, I'll take this. So yes, you're right. The margins, there's an intense pressure on the margins in the Middle East region in comparison to geographies like Latin America and Australia, where the margin profile is much higher in comparison to the Middle East region.
Okay, sir. And sir, if I go back to my notes of the previous con call, sir, you all have stated that you all are confident of a better performance in FY '21 compared to FY '20. So sir, just considering that we are already about 11, 12 months into the year, if you could give a broad sense that considering we did about INR 5,500 crores of top line last year, would it be near to the INR 6,000 crore, INR 6,500 crore mark, we would be in that region?
So as we had mentioned in our last call, and we reiterate that we will be in the low double-digit growth trajectory and in comparison to the last year's revenue figures.
Okay, sir. And sir, you mentioned in your opening remarks that the efficiency levels have reached 90%. So, was that correctly heard?
That was correctly heard. Yes. We have projects running in almost all the geographies now as we are talking. And we hope that they'll reach to 100% efficiency level by Q4 of this year.
I would like to just answer the question from Narottam which I had missed. So for the amounts of receivables, which were more than 1 year as of March, we have collected INR 136 crores against those. And it is only because of addition of new amounts which have come in more than 1 year that the total amount has gone up. So it is not entirely sticky as such. About INR 136 crores was collected in the last half.
The next question is from the line of Piyush Chheda from Serendip.
Congratulations for a good set of numbers. On the sticky receivables, just wanted to know what is our process to make sure that we don't get more of these in future?
The receivables are on the basis of various projects which are undertaken. There are always certain discussions with customers, which happen more towards the end of the project. And if there are some liquidated damages, et cetera, which are levied by the customer, they are generally discussed and a decision taken towards the end of the project. And that is why sometimes the amounts go up to almost a year. As I had explained, if you see the total amount of revenue of INR 2,400 crores, the real ones which are there in the last 1 year, which were there are Argentina and the IL&FS. Other than that, the amounts are smaller in nature and are in the process of getting settled. Generally, this happens in the case when you enter a geography for the first time, where you may not be fully aware of what is required in that. However, the management team takes care of all of that towards the end of the project. Bikesh, you can add anything in case I have missed out.
No, Bahadur. I think, like what you said, and just to reiterate, I think what happens is, obviously, our intent and endeavor is always to enter into projects which are financially closed with these IPPs. And therefore, the stickiness on these payments get mitigated to a very large extent. But then if there are certain delays which are attributable to a customer or not attributable to Sterling & Wilson, there are discussions which pan out for a period of almost 6 to 8 months, and because obviously payments get stuck. And that is the only specific reasons why these payments are set up for this period of time. But over a period of time, these get liquidated. And there may be new projects that may have the same process or the same problems. But over a period of time, this keeps on getting liquidated and the cash gets -- getting collected.
Second question, in general terms, I mean, what are you seeing in terms of the margin profile for incremental bidding? Does it match up to where it was 2 years ago? Or have margins gotten squeezed over the last 24 months?
So it all depends on which geography you're talking about. And if you talk about Middle East, yes, the margins have got squeezed from what they were 2 years back. But in terms of our expansion into other geographies, the margin profile has relatively gone up like I mentioned earlier, in countries like -- geographies like Latin America, in Australia. Europe also, we see -- we would see definitely relatively better margin than what it is in the Middle East.
The next question is from the line of Dhruv Shah from Ambika Fincap.
I have 2 questions. First is, you said that we cannot almost 14% of the orders we submit for. So how much of this order would be coming from China, if you can just give us a broad sense? And are you seeing any anti-China wave around Australia and Europe?
See, I think we have mentioned this in the past also, China is not our addressable market. We have not taken any orders inflow as a pipeline from China. And when you talk about Europe and U.S., U.S. surely, there is an anti-China wave that is there. In the European market, normally, what happens, if you have a look at the concentration of Chinese EPCs around the projects, wherever there are large capacity projects in excess of 300-plus megawatts, we see a lot of Chinese EPCs giving in a lot of focus around there. But in Europe, the project sizes varies between 50 and 100 megawatts. Therefore, we don't really see a lot of Chinese influx coming into the European market as such.
Okay. But in Middle East, you might be seeing a lot of competition, right, from Chinese players?
Yes, Middle East, there has been a lot of competition wherein projects have been picked up at ridiculously low pricing levels by these Chinese EPCs. Now what has happened is that we have executed the world's largest plant in Abu Dhabi. The projects have just started for the other projects with the Chinese EPC one. We will have to see how the projects evolve, how the project execution pans out with these Chinese EPCs. And incidentally, on this note, I think the Phase 2 of the project, which was won by a particular Chinese EPC has been canceled with that EPC even before the beginning of the project, and it has been awarded to the next Chinese EPC. So effectively, we'll have to see how it pans out because the proof of execution is not still there with these guys in this region, in the Middle East region.
And to answer your other question, generally, our strike rate is between 14% to 17%.
Okay. But our competition wouldn't be Chinese. That's what you meant, right, the Chinese players, I mean?
See sporadically, we have faced the Chinese competition like in Middle East, there is a lot of Chinese competition. I mentioned in my speech that there is 1 project which we are on the process of contract signing in the Middle East. That was against a Chinese competition, but we won against them, and that's the project in Egypt. So on and off, we do face Chinese competition in certain regions, in Middle East. In Latin America, we do come across with them in 1 or 2 projects, the projects that we bid in there. But mostly, the Chinese competition that we encounter is in the Middle East and then in the Southeast Asia.
Okay. My second question is on the margins on the O&M front. What kind of margins are sustainable because we have seen a huge drop in H1 to H1? I know that you had mentioned that margins would be around 38% to 40% for the whole year. But is there any guidance in the O&M business you want to guide for?
So the 35% to 40% guidance was for the O&M business. And O&M, unlike a project goes on the basis of the difference between revenue and cost. So if there is a lesser amount of cost, the margin is higher. But on an overall O&M contract basis, we feel that the gross margins are between 35% to 40%. That's the guidance we have given before as well. This is gross margin, sir. These are gross margin on that.
The next question is from the line of Mayank Bhandari from B&K Securities.
Sir, can you please repeat like what was the number you had told that you would be picking in terms of orders in the next 2 quarters?
It would be approximately 9.5 gigawatts.
9.5 gigawatts. And the conversion you are expecting?
In terms of percentage, as Bahadur just mentioned, 14% to 17%.
Okay. It's 14% to 17%. And sir, particularly, how is the opportunity in the -- from the Indian market in this? How much you would if you can rate in geography wise?
Yes. So if I break this geography-wise, India market would contribute to -- to a very large extent, would be approximately 3, 3.5 gigawatt out of this total 9.5 gigawatt would be the opportunities and pipeline that would be piston in India. The balance would be a mix of all other geographies like Australia, Europe, Middle East, North America, South America, Rest of Asia and Africa.
Okay. Okay. And sir, any -- currently, what is the -- is there any big projects which is expected, which has execution actually issues in any of the geography or any -- like, have we got all the financial closure for all the projects? Or like is there any issues exhibited any project you are expecting currently, any large project?
No. As a policy change, like we mentioned last time, we have only -- we are only declaring the projects which have had financial closure and the contract signing being done. So as of this moment, we don't see any project other than Saudi and Montenegro, which we have stated earlier, the projects which would be restated. Other than those 2 projects, there are no projects that have any threat of being suspended or are under whole. All of the projects that we have mentioned till date are having a financial closure and the contract has been already signed. And incidentally, just to add, we have not -- we've got certain LNTPs for a couple of projects in Middle East and U.S. But we have not declared them since we have not signed the contract still. And as I mentioned in my remarks earlier, the projects are under contract signing, and we will declare them once the contracts are signed in those particular geographies.
Okay. Sir, can you please, like, if you can tell us something about the cost rationalization in terms of -- you had you undertaken some cost specializing reserves in last quarter, so -- and the impact of that?
So I will start off and then Bikesh may add further to that. So a lot of rationalization has taken place in terms of manpower restructuring, excess travel, which was anyway no longer a possibility, thanks to COVID, and also combining our offices in the world, combining departments to see that there is less of overheads in the middle. We have done all that, and that is what has brought down. If you see the overheads, we have come down by about INR 42 crores in this half as compared to the previous half. Of course, that is not a benchmark. It's not necessary that it will be the same multiplied by 2. But yes, there is a significant reduction in overheads, and we are continuously striving to do that even as we speak. Bikesh can add further if he has anything I may have missed.
No, Bahadur, I think you said it all. The only thing that I would like to mention and an expansion of what you said is the fact that when you talk about the manpower rationalization, there has been a blend which we have created in terms of some of the international and the domestic operations have merged together. And whatever is the excess in terms of back-end project management teams, they have got rationalized, and which has brought down the cost, one of the reasons which has been able to bring down the costs besides of the various other reasons that Bahadur mentioned.
Okay. Sir, in terms of the manpower rationalize...
Mr. Bhandari. Sir, sorry to interrupt.
Sir, the employee -- this employee benefit expense has also gone down to INR 53 crore, INR 54 crore, from INR 56 crore. So this manpower rationalization would be part of this only, right? I mean -- so I should assume that this will be sustainable going forward?
First of all, one has to keep in mind that the employee cost is also determined by what was the full year cost. So last year, we had invested in certain teams in Australia and U.S., which have borne fruit and given us the orders that we have received in the current year. At the same time, yes, there has been rationalization, and that is what has brought down the overall employee cost. We hope to continue this rationalization even in the future to keep the cost on a tight leash.
The next question is from the line of Karthi Keyan from Suyash Advisors.
A couple of things. One, can you talk a bit about the floating solar project in terms of what is the in-house experience there and what external support to be required there in terms of execution?
So on the floating solar project, see, we have got a past experience, although not of the same scale that we have currently been L1 on. And we definitely will not need a major support from an external sources other than the fact there are floaters which we have to tie up a partnership with and basis, which I think the execution would be all done in-house. There won't be any external support that would be required other than the partnerships on the floater side in terms of the technology association.
Interesting. And how different is the capital cost compared towards a conventional solar?
I'd say around 15% to 20% more than the conventional ground mounted solar.
And efficiency, if you can highlight?
So efficiencies also depends on which area you're talking about, the weather conditions, anywhere between 15-odd percent, 15- to 17-odd percent more.
So it's cost-neutral technically, roughly?
Yes. See, what is happening is...[Technical Difficulty]
Sorry, I lost you. Hello?
We lost the line for Mr. Ogra. Trying to reconnect him.
Yes.
We have the line for Mr. Bikesh Ogra connected. Over to you, sir. Mr. Ogra, your line is in talk mode.
Guys, I think we are not able to hear Bikesh. We'll just wait a minute, and just could you reconnect please.
Yes, Mr. Ogra. You may proceed.
Can you hear me?
Yes.
Yes. So if you take a look at how we have been suffering on account of the land acquisition in India and with this readily available reservoirs and still water bodies, I think this has given a phenomenal boost. There will be a phenomenal boost on that front in terms of the floating solar projects coming up in India. And that is one of the major pluses that we have in terms of executing these projects without having to really bother much about the land acquisition and stuff related to that.
Exactly. The other question was related to your O&M contracts. I remember you mentioned in the past some time that incremental O&M revenue per megawatt is higher. So can you talk a bit about the trends on that side and how should one model be backlog?
When you talk about incremental O&M revenue, what exactly do you mean by that?
No, I remember the average used to be INR 4 lakhs to INR 5 lakhs per megawatt, and that's increasing something to that effect. So I'm just trying to understand what the trends are currently? Or the newer orders within India and outside? And how do you see that evolving?
So I think it is not linear, INR 4 lakhs to INR 5 lakhs across geographies. It varies from -- today, India is at around INR 1.5 lakhs to INR 2 lakhs, and it goes up to almost INR 5 lakhs to INR 6 lakhs across geographies. Like in Australia, the orders are at INR 5 lakhs, INR 5.5 lakhs. In Middle East, it is around INR 3.5 lakhs, INR 4 lakhs. So it is not a linear margin profile across geographies, and it all depends on which country you're talking about. And if we aggregate it, all put together, it comes to the 35% to 40% band that Bahadur spoke about.
The next question is from the line of Avinash Wadhwa from M3 Investment.
Am I audible?
Yes sir, you are.
Yes, you are.
Just taking the thing on the floating power -- floating solar a little forward. Of the projects installed every year, what proportion would floating power be? And is it that, that there is something changing in the landscape that the trend towards floating power -- solar would be more pronounced going forward?
Yes. I think one is on the efficiency side, which obviously is relatively higher than the ground mounted, that's one. And as I mentioned, it will become more and more pronounced. And India has a visibility of around 10 gigawatts of floating solar power to be installed over the period of next 5 to 10 years. And the fact being one of the primary reasons the land acquisition, which is a major frustrating factor out here would get mitigated to a large extent, and then, therefore, they will be pronounced capacities, which will come on the floating solar.
Okay. So Bikesh, the -- I would imagine that the acquisition of land should have always been a constraint in the installation of solar power, right? So if that be the case, floating solar should have come in much earlier. Why -- is there something in the technology cause of which floating solar is coming into installation leader in the game?
Absolutely, you're right. So we have recently seen technology getting evolved, wherein the floating solars, floaters and the mooring system, the anchoring system has just come into prominence of late only. It hasn't been really, very, very prevalent over the last 3, 4 years. We have seen this technology now coming up very prominently, not only in India. We've seen a lot of these installations happening in China. We've seen a lot of installations happening in Southeast Asia. And therefore, we see a lot of pronounced installations coming up as the technology advances and as the technology gets more and more commercially viable.
Okay. You also touched upon the storage rate, the storage technology. And I would imagine you have cost of batteries at the back of your mind, are you discerning any trend with respect to that? And if the battery costs were to fall, as is now anticipated, what would be the implications of that for your business?
So that implication would be phenomenal once the battery prices start coming down, and we anticipate that to happen in the next 3 to 4 years' time. And you would have already seen and noticed that there are some tenders, which are around the clock, dispatchability power tenders, which have come out in not only in Indian solar space, but also globally, there are a lot of tenders happening around that. So once these storage prices or the battery prices come down to a level wherein we are able to create around the clock dispatchability mechanism, I think there will be a huge disruption in the solar addition in terms of -- and the fact that there are a lot of coal plants and gas plants which are getting retired, they will get replaced with these round-the-clock battery-backed storages and solar and storage based systems.
Okay. Also, one...
Mr. Wadhwa. Sorry to interrupt but for any follow-up request would you rejoin the queue please. The next question is from the line of V.P. Rajesh from Banyan Capital.
2 clarifications. One, regarding the debt. You have said you will be paying off the debt by Q4. Are you planning to replace it by working capital? Or should we assume by the end of this year, all the debt will be repaid?
So the repayment of debt, as I explained, is still in discussion with banks. The amount which is payable in this quarter is also under discussion. It may be up to March. It may be beyond March. It will also be largely dependent on the inflows from the promoters -- the group companies for the intercorporate deposits. But to answer your question, if we remain working capital negative and if we receive the monies as it is planned to be, we should be debt-free at that point in time.
Understood. And regarding your accounts receivable beyond 12 months, I'm sorry, I missed the point, whether your expectation is that incrementally, it will start coming down or you think because there will be new projects which will have that kind of payment terms, it may continue to be, let's say, at INR 500 crore levels, which is due beyond 12 months?
It should not be. We expect it to come down. These are on account of a few large projects where there are large receivables, which are there. We do not have such -- it's nothing to do with the payment terms because the payment terms are, as has always been standard. This is more on account of LDs on account of time overruns, which were between the offtaker and the customer. As I had explained, the customer has got his LD completely waived. We are in discussions to get that out. Of course, there is one item which is in NCLT. We will see how that progresses. But as a business model, we do not see it reaching these levels once these matters are resolved.
Understood. And just one final clarification on this amount. I know it is difficult for you to say, perhaps comment on this, but do you foresee more provisioning coming on this by the end of this year, especially with IL&FS and some of these projects that will be in that bucket.
So it is something we will be having ongoing discussions with the auditors. But yes, it is quite probable that if IL&FS does not progress, we can expect further provisions to be made on that count.
The next question is from the line of Ritika Garg from Aequitas.
Sir, I wanted to know which part of this cost rationalization is actually sustainable. I understand that the overheads have come down from 8.5% to 6.7% for the H1. But what is sustainable? Or what is -- yes, what percentage is sustainable?
So I will start off a bit over here. Just because we have reduced about INR 40-odd crores as compared to the previous first half, does not mean every half, we will be reducing INR 40-odd crores. So it is something which is reaching where it should. There is still room for improvement. Management is seriously having discussions even now to see what further rationalization can be taken. But I do not want you to consider a INR 40 crore reduction as a benchmark for a half year on half year basis. It's very important to note that. There will be further reductions, which is what we are aiming for, but it will not necessarily be in that magnitude. Bikesh can add anything if he wishes to.
Yes. So Bahadur and Ritika, what -- on a sustainable long-term basis, what we aspire this figure to be as a percentage of revenue is around 3% and 3.5%. That's how we view it as a sustainable long-term percentage.
The next question is from the line of Shivan Sarvaiya from JHP Securities.
Sir, just a question on the medium to longer-term question. Sir, we had a very good run in the MENA region where we bagged some large orders with extremely high margins. And over the last 1 year, we've seen a tremendous pressure out there. Sir -- and we -- in retaliation to that, we have started going into newer geographies to try and get better margins and better projectability. Sir, what is the medium to long-term perspective from the sense that the Chinese players would then start coming in those markets also, and our margins would start getting eroded? So sir, I just wanted your understanding from a medium to long-term perspective on that front. How would you guard your margins if that were to happen?
See, if you take the comparison in terms of Middle East market, Middle East market has always served the capacities, which are very, very large in terms of numbers. You talk about 500 megawatt, 1 gigawatt, 2 gigawatt single project. And what we've seen historically, there is a lot of concentrate and focus by the Chinese EPCs around these projects. Now in the other parts of the globe, we don't see this kind of -- other than U.S., obviously. And U.S., obviously, you know the kind of affiliation they have for China. So other than U.S., we see all other geographies having a project mix of around 50, 100, 150, 200-odd megawatts, wherein the Chinese really don't see any value in terms of participation. It's only if the project sizes are in excess of 500, we see a lot of Chinese pressure there, and that's primarily related to Middle East. That's one. The second is the market potential and the size is so large that even if we have these Chinese competition coming in, in some of these areas subsequently and participate in the lower project, we still will have space for ourselves to really participate and grow the way we have aspire to grow.
Okay. Sir, just a follow-up on that. Is there a difference in the margin profile or the execution profile when a solar power project is in the 100 to 120 or 200-megawatt range and when you are executing something, which is 1 gigawatt, et cetera, like how we did it in the MENA region? Is there a change in the margin profile? Wouldn't those bigger projects have much better margins, much better cost structure?
On the contrary, it's the reverse. Those bigger projects, as we have seen -- obviously, we did a large project. We got decent margins on that project here in the Middle East. But having understood the complete cost structure of the region. When we saw in comparison to what the courts were coming in from all of these EPCs, it was an absolutely and ridiculously low EPC prices, which was not sustainable for us. We have customer relationship in place. We know all of these IPPs. We always used to get a first site of refusal on these projects, but we always said no to them because it was not commercially viable for us to participate in this project. So on these large-sized projects and for very strange reasons, I think these EPCs have picked up the projects on a ridiculously low level of margins. In comparison to smaller projects because 50, 100, 150, where in certain geographies, we have picked projects at 16% margin and 20% margin also.
Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Bikesh Ogra for closing comments.
Yes. Thank you. With our deep-rooted client relationships, global presence and ability to provide customized solutions and a strong track record of executing complex and large-scale projects with a very low gearing, we are confident of navigating current tough times and emerge much stronger. Further on repayment of the loans by the promoter companies during this fiscal and the coming fiscal, which we anticipate our company will become net cash company. I'd like to take the opportunity -- take this opportunity to wish everyone a happy and safe Diwali and a prosperous New Year. I hope we have been able to address your queries. For any further information, kindly get in touch with Vishal Jain, our Strategic Growth Advisors, our Investor Relationship advisors. Thank you, once again, and have a great day.
Thank you.