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 Q3 and 9 months financial year -- FY '20 earnings call. Along with me, I have Mr. Khurshed Daruvala, Chairman; Mr. Bikesh Ogra, Director and Global CEO; Mr. Bahadur Dastoor, who is CFO; and Strategic Growth Advisors, our Investor Relations adviser.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 to all the participants on this call. So I'd like to give a quick update on the market reach, order book position, followed by the recent turn of unfortunate events and its probable consequences.We have seen a very strong traction in the Australian market with 2 large back-to-back orders. This has given us enough confidence that our strategy to pursue that market in spite of initial hiccups has paid off. We're also looking at a couple of promising opportunities in the near term for this market. Further, we have started making inroads in the U.S. and Latin markets -- Latin American markets and have already completed a couple of projects there. We're also currently executing around 522 megawatts of projects spread across 4 locations in Latin America and the U.S. And with all this, we continue to expand and strengthen our reach in Europe, Middle East, North Africa and Southeast Asian markets.Order flow from April 2019 until 12 Feb has been INR 8,550 crores. And the key orders received during this quarter -- during this financial year has been as follows: Middle East, we received orders worth INR 4,500 crores; Australia, we received around INR 1,750 crores; and Chile, we received INR 672 crores. With this, our cumulative portfolio has grown from 6,870 megawatt as of March 2019 to around 9,250 megawatt as of date.Our UOV as of 12 Feb 2019 stood at INR 12,900 crores, which was around INR 7,700 crores as of March 2019, which is a very robust 67% growth and is also well diversified with 90% of the UOV coming from international geographies. Of this UOV, MENA constitutes -- which is Middle East and North Africa, constitute 39%, Americas forms 18%, Europe and Australia constitute 13% each, and followed by India, 10%, and 7% from Africa.Our O&M business continues to see strong traction as well. So our portfolio on the O&M side has increased from 5,550 megawatt as of 31st March 2019 to around 7,468 megawatt as of 31st January 2020. Third-party O&M contract constitute around 40% of our O&M portfolio. And O&M revenue has more than doubled to around INR 132 crores in the 9 months financial year '20 compared to INR 59 crores during the similar period in the financial year '19. We continue to focus on increasing our O&M portfolio as it provides steady cash flow with better profitability margins.While all of this being said, I would also like to update on the recent unfortunate events on account of coronavirus. China, which has always been our major procurement hub for majority of our projects, is dramatically impacted by the spread of this epidemic. We are constantly evaluating the situation and the probable impact of the [ sale ] in the near term. We have started receiving force majeure notices from some of our vendors about production losses. We are keeping a close tab on the developments and shall keep you all posted about the situation. Whilst we clearly see a sluggishness in revenue recognition in the near term and a tepidness in orders getting finalized, what is very reassuring is that all of our contracts are fully safeguarded for these force majeure conditions, and we don't see any liquidated damages being imposed by our clients.Last week, talking about India, which continues to be a key market for us, and our Honorable Finance Minister during her budget speech has put special emphasis on power and renewable sector, which should help to boost the solar power generation in the country. These measures besides various things also include increasing the share of solar power in the railway energy mix. The government has proposed to use the land owned by railway near the railway tracks for installation of solar power projects, which will address one of the key hurdles that is the land availability for any power project.With this, I'll ask Mr. Bahadur, our CFO, to take you through the consolidated financial highlights for the quarter and 9 months. Thank you very much.
Thank you, Bikesh, and good morning, friends. I will take you through the consolidated financials for the 9 months ended 31st December 2019. Before we run through the financials, I would like to reiterate that being an EPC company, the revenue, order inflow and gross margins could be lumpy due to geographical mix and stage of execution of the projects in any particular quarter. And hence, comparison on year-on-year or quarter-on-quarter basis will be inappropriate as well as the performance for a quarter may not be representative for the full year.Revenue for 9 months FY '20 has been at INR 3,514 crores. The revenue in 9 months FY '20 has been lower compared to 9 months FY '19 due to delay in commencement of large new projects in the MENA region coupled with the fact that the 1.2 gigawatt project in the MENA region was at the peak of execution during the corresponding period in the previous year. We expect revenue for FY '20 to be in the range of INR 1,500 crore to INR 2,000 crore for the last quarter, which is lower than the previous year due to module supply issues on account of coronavirus and delay in commencement of a large new project.In terms of geographical breakup of the 9 months revenue, the MENA region and India contributed about 32% each, followed by Southeast Asia with 18%, the Americas with 15% and the balance for Australia and Africa.As mentioned by Bikesh earlier, our O&M revenue has more than doubled to INR 131 crore in 9 months FY '20 compared to INR 59 crore during the similar period in FY '19. The O&M business now constitutes 3.7% of 9 months FY '20 compared to 1% in 9 months FY '19. Gross margin percentage were higher at 13.1% compared to 9.3% in 9 months FY '19. Improvement in gross margin percentage is on account of mix of execution of projects in emerging geographies having higher margins and our efficient procurement policy. Here, I would like to state that historically, we have had annual gross margins in the range of 11% to 13%, and we expect gross margins for FY '20 to be in the range of about 12%.Overheads are higher in 9 months FY '20 on account of full period cost in certain countries like U.S. and Australia, again partial period cost in FY '19. Overheads as a percentage of sales were higher at 8.4% in 9 months FY '20 due to lower revenue. We believe that the team has been built in those geographies, and cost increase going forward would be nominal. Despite higher overheads, EBITDA margin percentage improved from 5.9% in 9 months '19 to 6.7% in 9 months '20 on account of higher gross margins. PAT for 9 months FY '20 stood at INR 175 crore, and PAT margins were at 5%.Coming to the balance sheet. As at 31st December, the net working capital has remained stable. The net working capital stood at INR 251 crores compared to INR 240 crores on 30th of September and INR 234 crores on 31st of March 2019. Our cash flow from operations for 9 months FY '20 stood at INR 119 crore positive compared to negative cash flow from operations of INR 767 crores during the same period in the previous year.I would also like to highlight that as per the amended Articles of Association, the company cannot give loans to promoters or their affiliates post listing. Further, the promoters have repaid INR 1,000 crore since listing. And consequently, the intercorporate deposits and loans to the group companies has reduced to INR 1,650 crore as at 31st December 2019. Further, based on the recommendation of the Audit Committee and the Board of Directors in their meeting held on 31st December 2019, the following payment schedule has been approved for the balance ICDs and loans, INR 500 crore on or before 31st of March, INR 500 crore on or before 30th of June and the balance amount on or before 30th of September 2020. Our external debt post listing reduced by INR 1,340 crore and stood at INR 1,477 crore as at 31st of December. Reduction in debt has been due to collection from the group companies of the intercorporate deposits and loans as well as internal accruals.The term debt outstanding today is INR 1,229 crore, of which INR 480 crore is payable in quarter 4, INR 588 crore in quarter 1 of FY '21, and the balance amount of INR 281 crore is payable in quarter 2 of FY '21. These loans will be paid off or refinanced depending upon the projected cash flow. Cash and bank balance as at 31st December 2019 stood at INR 209 crores. Our network as on 31st December is INR 1,025 crores.Lastly, we are happy to report that the Board of Directors has approved and declared an interim dividend of INR 6 per share on face value of INR 1 per share for the financial year 2019/'20.With this, we will now open the floor for questions and answers.
[Operator Instructions] The first question is from the line of Renjith Sivaram from ICICI Securities.
Just wanted if you can -- you told me Q4 target. So what's the full year revenue target currently now, which we have?
So since we are saying that we will be doing about INR 1,500 crores to INR 2,000 crores, and we have done INR 3,500 crores in the first 9 months, so we will close the year between INR 5,000 crores to INR 5,500 crores essentially due to the impact of the corona outbreak.
Okay. And sir, is there any other alternate arrangement in cases this prolongs -- we have?
So actually what's happening is like why I mentioned that we have -- most of our procurement hub out of China and what has also incidentally happened if this continues in the long run, they have diversified their operations in Malaysia, Vietnam and Taiwan. So if this continues to plague the production, I think we will have an option to really get into those markets to understand if we can get the production done in those markets. So that's not a near-term solution, but we are looking at it. In case it continues to affect the production, then we should look at those markets rather than alternate it.
Okay. And because of this, you are also -- you hinted that you are seeing a delay in terms of order finalization also, is that correct?
See, what's happening is -- that's correct. What's happening is that, right, for a customer, we are not able to commit to whom the time lines on the project, which are very, very critical for the project for our business. Likewise, we are also not in turn getting a firm fix on the pricing from the vendors. So therefore, it is becoming difficult and uncertain for us to really accept orders. People here want us to accept orders at a particular price and a particular time line. But at the back end, we are not really clear about the time and the pricing. So therefore, that is becoming a bit uncertain for us to really also accept those orders.
Okay, okay. So when do you see -- is there any foresight in terms of how this is going to pan out and the things will normalize? Any foresight or we are just waiting for things to normalize?
We're only praying that this gets contained as rapidly as it can so that we can do our business as we've been doing. So it's only a wish that we want that this particular epidemic gets contained as soon as possible. Unfortunately, it's a global issue. The WHO has termed it as an epidemic, which obviously it's anybody's guess as to how it will really get pan out.
We'll move on to the next question that is from the line of Abhishek Puri from Axis Capital.
Just switching on the same question on the force majeure part. If we understand that correctly, the contracts are safeguarded for the delays in terms of time line. Would the cost overruns or delays due to the extended site work will also be compensated under the contract?
See, most of the contracts, as I mentioned, are covered under the force majeure for the time extension. And what is also incidentally happening on the fixed project management cost on the projects, for us, fortunately, are very, very minimalistic. So that vary between 1%, 1.5%. Although we would be definitely asking for an additional cost on account of this force majeure extension of time conditions, but even in the worst case scenario, even there is no cost that gets paid to us, the impact would be around 1%, 1.5%.
Okay. That's helpful. And secondly, in terms of the competitive scenario, how is this coronavirus impacting the competition in -- especially in the Middle East where you are seeing a lot of Chinese companies coming in for the order? Or is it too early to comment on that?
I think it will be too early for us to comment because all of the projects really have not really taken off in the Middle East wherein we have seen Chinese competition coming in. So we are just keeping our fingers crossed as to how this will pan out in -- especially the Middle East region once the projects take off.
Sir, glad to see order book increasing in the current year by almost 2,000 odd megawatt and INR 8,500 crores is the accretion. However, when we look at the advances data from the customers, it looks to be pretty minimal, INR 220 odd crore or so, accounting for only 2.5% value -- contract value. Have the advances gone away in the new contracts? Or are they lower in some of the contracts or we have not received it yet?
So the largest contributor in the order book is Saudi Arabia where the contract is in the final phases of being discussed. And it's only once that is done, that the advance bank guarantee would be issued and the advances would come in. So to answer your question in a pointed manner, none of the contracts don't have an advance. It all has. And all advances have been coming in as targeted. So for some of our projects in Chile, they are expected now. And whatever has to come until March has come in. There is not a single contract without an advance.
And lastly, if you can just quickly touch upon some of the recent opportunities that are coming up for bidding, especially for the large projects, which were pending out of the Middle East market as well?
So if I give you a broad perspective for the next 2 months, what has been lined up for the conclusions, it's around $2.2 billion, which is around INR 15,000 crores. And this is primarily spread across Australia, U.S., Middle East and Africa. So that's how the spread is in the next 2 months, I'd say, that's in March. And we hope that going by our historic rate of the conversion, we hope to be clocking around 17% to 20% of this overall [ pie ]. So that's the near term [indiscernible]
And [indiscernible] 1 year perspective?
Obviously, hoping that it doesn't get -- obviously, there's a sluggishness for the closure. There is tepidness in the market. Obviously, hoping that everything goes on as planned. So we'll have this kind of a closure happening until March.
And in terms of 2020 -- entire 2020 and '21 -- FY '21, I mean, what is the kind of opportunities that you are seeing? I mean will the total big market be bigger than what we have seen in 2020, lower than that?
So what's happening is I think if you think overall macro of the market that has been panning out like in 2018, we had around 100 gigawatt getting built. And out of which, around 40% to 45 odd percent came in from China. Now there has been a dramatic slowdown in the Chinese market. Also, there has been a slowdown in the Chinese market. But if you take 2019, we had around 115 gigawatt got built. And out of which, China was only 25 to 30 [ megawatt ]. So although there is a slowdown in Chinese market, but there's growth in -- there's a spur in the other markets. That being said, what's happening is that Chinese -- now since there is a paucity of work in China, they have started coming out in markets such as Middle East where there's a lot of EPCs -- Chinese EPCs who are participating in opportunities.We don't see, I think, slowness in the growth of the market, considering the fact that last year without China, it was around 75 to 80 gigawatt, and the market would be growing at around 15% to 20% as we had anticipated. And for us, fortunately, now we are present in almost all the markets other than China. So therefore, we would be able to ride on a substantial amount of that growth into our order book.
The next question is from the line of [ Bharat ] from Quest Investment.
Sir, just to understand our business, I mean, from a business perspective, see, until September results, we were very hopeful about Q3 where we were expecting, and that time, even corona was also a [ nonsense ]. But why all of sudden, I mean, there is a slowdown in the revenue billing? I mean -- so what kind of a confidence really you people are working, I mean, to build that investor confidence that what we are talking are making? Corona has [indiscernible] late January. So I'm just trying to guess [indiscernible] future how really we have to look, I mean, what we are talking.
So Mr. [ Bharat ], we have always maintained an annual revenue guidance. When we were talking about December quarter, December quarter also is something which is a function of the ongoing projects. We as management always knew that the turnover for this quarter would be lower because the new projects are all happening only in the last quarter of Jan to March. So this quarter, the guidance, which we had internally, was between INR 1,000 crores to INR 1,200 crores, and that is exactly what it has come up to because the old projects are all coming to an end and the new projects are taking up, except for Chile and Australia, they're all taking up in Jan to March.
Okay. So I mean is it fair that the balance, I mean, that now we are talking of Q4 -- INR 15 billion to INR 20 billion. So otherwise, we would have been in the range of the INR 35 billion to INR 40 billion. So that amount has been impacted because of corona?
Absolutely right. So we would have had an internal target of close to INR 7,000 crores to accomplish as a revenue. So that would mean INR 3,500 crores, as you have rightly said. And because we are doing INR 1,500 crores to INR 2,000 crores, there is an impact of almost INR 1,500 crores to -- INR 1,500 crores on account of the coronavirus.
Sir, if I may, let's say, in your presentation slide where we are giving breakup of this -- on Slide #7, see, unexecuted order contract in progress, so which is around INR 5,100 crore. Sir, I mean, exactly, I'm trying to guess now, what I mean is INR 5,100 crores is representing, and when do we expect that to build, really?
So if this coronavirus has not impacted, a sizable portion of this INR 5,000 crores would have happened in Q4 of FY '20, roughly about INR 3,000 crores, INR 3,500 crores, plus some of the new jobs, which are to commence. Now because this issue has happened, this INR 5,000 crores is actually getting overflowed into the first quarter of FY '21 or maybe the second quarter of FY '21.
Until this corona issue do not resolve, is that fair understanding?
Yes.
Okay. And now in this particular quarter, our other income has showed up, I mean, INR 50 crore, other than interest income. So what exactly it represent? Because I was trying -- because it was around INR 20 crore. The 9 months is INR 66 crore. So INR 50 crore is in this Q3. So what exactly it represent?
So most of it will be the ForEx gain, which, under the accounting standard, we need to show either as other income or overheads. So it is the movement in the dollar versus the rupee from September to December. Now for us, internally, in our [indiscernible], we always take it as part of project cost. But the standard requires that all ForEx gain/losses should be shown either as income or as overhead.
Okay. Sir, on the balance sheet side, roughly around INR 500 crore is due in Q4 and INR 600 crore in Q1. So if in case, I mean, what we have been expecting to receive from the promoter, it is my understanding, though, if it does not happen, what is our strategy to, I mean, meet our obligations?
So we are very confident of receiving from the promoters. They have fulfilled their commitment on 31st of December. And in our regular interactions with them, they have reassured us several times that they will be bringing this money as has been planned. And I will just ask Mr. Daruvala to add a little on that.
Yes. So we have had our discussions with [indiscernible]. We are confident of meeting the time line. So internally, whatever arrangements are required at the promoter level are being done, and this time line will definitely be met.
[indiscernible] most of the overhead that we wanted to build, I mean, has been already -- team is in place in market like Australia and U.S.A. So now can we expect, I mean, if there will be a sustainable kind of gross margin, and in that case, there is room to improve EBITDA margin if our top line, I mean, will start growing?
Obviously, we have done some cash burn for the last couple of years in the U.S. and Australian markets. And we can clearly see now the sprouting of results coming in. Specifically in Australia, we, like I said, we've done some acquisition. And now we are executing around 17 50. We are looking at a couple of very promising opportunities in Australia.In the U.S., in [ the half year ], we've been burning cash. And there, we have built up a substantial management team, which is now bidding in for around 2 gigawatts of projects there, and we are hoping that they will get converted very soon. And therefore, the operating leverage on the overhead will substantially come down as we get the revenues from those markets.
The next question is from the line of from [indiscernible].We'll move on to the next question. That is from the line of Subham Agarwal with Aequitas Investments.
My question was regarding the outlook from India. So kind of orders do we expect from India given the announcement in budget? And in the fourth quarter of this year, we have received some INR 670 crores order from India. What is this order from? If you can give some light on this.
So in terms of the outlook for India, we have been always very, very bullish on this market in terms of our base being here. We see a steady state growth of the projects coming in from the Indian market, and we will continue to stay focused around this market. In the last quarter, the orders that have been booked from the Indian market are INR 700 crore, which is from -- one second.
[indiscernible]
Okay. So it is around INR 670 odd crores order book that we have booked in the last quarter [indiscernible].
Yes. So where have you got the value from?
We got them from a few customers in India. And at this point in time, we would not like to name those customers.
Okay. No problem.
They are part of our regular profile and portfolio. We get them from time to time. So...
Okay, okay. Sir, second question was on the O&M revenue. We have booked INR 54 crores in December quarter, but the margins have fallen from 66% in December [ 18 ] to 24%. Why has the margin decreased? And what do we forecast the margin on a sustained basis for O&M?
For the sustainable margins for O&M are generally about 30%, 35% in India and about 40% internationally. So it depends on the mix of where we have had more O&M in that particular quarter. There are also certain invoicing, which needs to be done now, retrospectively, once we have received the substantial completion certificate from the customers. So that will [ levelize ] things by the year-end. But overall, margins for O&M on an average basis would be in the region of about 35% to 40%, blended.
The next question is from the line of Riddhesh Gandhi from Discovery Property.
Just a question on in case this coronavirus ends up taking a little bit longer than we anticipate, is there a plan B? Or did you expect people to effectively -- actually push back their plans with regards to putting up their plans?
Look, I think what's happening, as I mentioned earlier, people are taking a very cautious view of how it will pan out. There are projects that are there in the pipeline. Like I said, there's $2 billion, $2.2 billion worth of projects that are just about to get concluded. Has this [indiscernible], we would have had closures of around $1 billion by now. But since there is an uncertainty on the time line and there is an uncertainty on the back-end production line, people are taking a cautious view about it. And if the issues get solved in the next month, month and a half, we clearly see a fast traction in terms of the closure of the orders.So when you talk about a plan B, I think what's happening is that in case this gets affected on a long-term basis, there are production places in countries like [indiscernible], Vietnam and Taiwan. And I think we are also exploring and seeing that if those countries can be explored into our supply chain requirements. So we're just keeping our fingers crossed to see how it pan out over the next 15 to 30 days.
Got it. And just following up on a previous question of participants, and we appreciate that you've been speaking to the promoter group with regard to recovery and have given you high degree of confidence. But obviously, you need to understand our degree of skepticism. Just wanted to understand a couple things on this is that, is there any action? And what is the planned action to take in case any of these deadlines are missed?And the other question is given this is effectively like an unsecured loan, isn't it a rate of interest that we are charging materially less than effectively the rate at which the promoter would be borrowing even on its secured basis right now in the market? And so is this actually an arm's length deal?
So I'll take the question. First of all, these were all intercorporate deposits, which were signed off prior to the date of listing. They were built at a 50 basis points differential between the effective borrowing of the company and the lending, which was done. This was in keeping with the group practice. Post November 14, that differential has moved up to 1%. So as far as the company is concerned, it is not losing any money.Secondly, from a debt equity ratio of about 2.3 in September, the debt equity -- the net debt equity ratio has come down to about 1.23, which has given banks a lot of confidence and has also helped us in refinancing or rolling over some of the term debt. So we are anyway in discussions with our banking partners for an alternative, which we hope will not be exercised. But nonetheless, we are anyway positioned partially from cash flow and partially from rollover to take care of this were it not to happen, which we don't expect.
Again, what we are saying is we're not going to take any action on the promoter. We just are internally prepared with how to handle it in case the cash does not come back, is that right?
We will not take action on the promoter. We will certainly take action on the promoter. We are right now preparing for an eventuality because action is one thing and safeguarding the company's interest is another. So right now, we are taking care of that element, but we are in regular discussions as recently as even yesterday when the promoters have reassured us that the money will come, and they have fulfilled their commitment on 31st of December when they brought in INR 1,000 crores.
Got it. And the only other thing I'd add is the 100 bps over cost of capital, I don't think the rate at which we will lend out on a monthly basis should be linked to what our cost of capital is -- it should be linked to the cost of capital and the rate at which we are borrowing. And what we've heard is this is a materially higher rate than what is [indiscernible].
Yes. But the point is that these were all done prior to listing. There is no change in terms except for what the Audit Committee and the Board declared on November 14. So anyway, we are not in the business of lending anything further to the promoter or the promoter group. We are barred from doing that under the Articles of Association. Going forward, it would be a different matter to a nonrelated party. Obviously, it would be at a market price prevailing at that point in time. These were on the rate of borrowing, which we did previously to the IPO.
The next question is from the line of Lokesh Garg from Credit Suisse.
My question relates to Saudi Arabia order. Basically, you announced it in some time, let's say, perhaps early November, and it's almost 3 months now and the order has not yet got a full go ahead. In fact, you seem to suggest that there are some contract terms being negotiated by which you have not even opened the advance guarantees from your end itself. In which case, was this really expected? And in worst case, in your average case scenario, when is this order likely to get fully discussed, sorted and then started?
So Lokesh, this is Bikesh. If you recollect last time also, we had said there is a little bit of delay on this particular order basis, which we had missed our revenue target for this year. And now the project is really moving slightly in an accelerated fashion in terms of the power purchase agreement getting signed between ACWA and the government of Saudi Arabia. So we see that -- we have said last time, in the next couple of months, we would see the project hitting the ground, and we're going all out into the concession activity.
Okay. But isn't that a development, which is a negative surprise related to even on November announcement of limited notice to proceed?
So the limited notice to proceed is already there. We are already working on the new engineering. We are working on the geotechnical surveys of the projects. So all of that is in place. It's only that the full notice to proceed will only come in once they have the power purchase agreement being signed, and that is currently under discussion -- in advanced discussion with the government.
Okay. I also wanted to check with you that the net working capital is roughly INR 250 crore range. But both receivable and payable individually are elevated. So it's a net debt we are seeing. But if you see gross numbers, both of these are roughly INR 2,000 crore, INR 2,200 crore range. What is driving such large receivables given your 9-month revenue line is only INR 3,500 crore?
So receivables are not just a function of revenue. It depends on when you have built it. So a lot of the billing did happen, and that is why INR 2,200 crores. If you have seen March, the figure was INR 1,900 crores at that point in time. There are certain receivables from parties, which are under discussion and negotiations for the final handover and substantial completion. Once that is done, we are expecting this to come down. Of course, there is an amount of INR 150 crores, which is due from ILFS for which we are already in the NCLT.
Okay. Both billing and receivables should happen on a proportionate basis. But then are you suggesting that there is a large component, which happens on a substantial completion time event?
So it depends on when the materials have gone. Because when the material goes up, the billing goes up, which is an event, which happens at a particular point in time. Having said that, I said because we have got ILFS and a couple of other parties, that is why the receivables are at this position. We are in discussions with those customers to bring it down. Of course, ILFS is in NCLT.
Yes. Could you share more details on this couple of other parties from where receivables are pending for longer than expected?
We will take it off-line, and we will -- we would not like to do it on this call at the moment.
Sure. And you also sort of on the positive side seem to attribute that there is margin traction, which is better than expected from emerging geographies. Just to take a little bit more detail, is that referring to Australia?
No, that was referring to Southeast Asia, which was the high-margin geography. And what we will be having going forward is more from Latin America.
Similar profile. Although as we knew probably, the Southeast Asia contracts are sort of getting towards the end, right, which is primarily, let's say, Vietnam contract?
Right. So those are for the results in the 9 months. Latin America is for what will happen going forward.
Okay. And also, given the force majeure type situation in China, does that provide an excuse for any contract cancellation from the supplier end? And in which case are you adequately protected?
So fortunately, for us, all of our contracts that are ongoing, we already opened the letter of credit for our suppliers, and there are some supplies, which have already happened -- are all under shipment also, under transit also. So therefore, we don't foresee any cancellation of orders. Yes, there have been notices, which have been received for the deferment of the supplies, which we have received in the last week -- 10 days. But we haven't really -- we aren't really exposed to any cancellation of contracts or price escalations because all of these are all contracted and supplies are obviously being covered.
[Operator Instructions] The next question is from the line of Mahantesh Marilinga from Finquest Securities.
Just wanted to know the higher margins in Q3 FY '19, was there any particular order there [indiscernible]?
So margins on the basis of orders being executed in a quarter. So that is why we continuously say don't look at quarter-on-quarter. But to answer your question, yes, there were jobs, which were at the stage of closure, and new jobs, which were being done in Southeast Asia at that point time. And that is why in the previous quarter, the margins for the quarter were higher. On an average, of course, you saw that at the end of the year, it fell to 11% to 12%, which is also what we are saying for the current year.
On a steady state basis, taking the normal course of business, annually, what would be the normal margins?
So on an annualized basis?
[indiscernible]
On annualized basis, what we had forecasted would be in the band of 10% to 11%.
Okay. That's EBITDA margin or...
That's the gross margin.
Okay. What about the EBITDA margin? [indiscernible] range?
That's right.
That is -- what Bikesh is just saying is for FY '21.
The next question is from line of Siddharth Rajpurohit from JHP Securities.
Sir, are our contracts having escalation clause?
Pardon me? Escalation you mentioned?
Yes, sir.
So our contracts [indiscernible] for any -- not force majeure extension time. But if there is an extension of time because of customers' issues, then we are getting paid for those costs. But in case of force majeure, the force majeure doesn't entail any escalation of costs, although it does entail an escalation of -- extension of time.
Okay. Because I understand there will be a cost differential if you go to a plan B and source from other countries?
No. If there is a cost differential, if we source from other countries and if the project has to be delivered in the time line that are stipulated by the customer, the customer will have to pay that delta between sourcing it from China and sourcing from India and other countries.
Okay. That clause is there. We will get that much amount of escalation?
It is not specifically covered. As if in case the customer insists on a plan B, it's not specifically covered. But going by our experience that if the customer insists because the time line -- he has to maintain those time lines, then we are entitled to ask him for an escalation of costs because of the delta, which is coming in China versus the other locations.
Okay. And that will be based on negotiation. It could be solved, it could not be solved?
Yes.
Okay. Is it possible for you to guide for the next year, sir, what would be our revenue and margins?
No. It is a little too early. We will be doing a lot of work on this, especially considering what is happening right now. So we will give the guidance at the appropriate time, but not at this stage.
Okay. And what is the fund and nonfund-based limit, sir?
So our fund-based limits from...
[indiscernible], please?
So our fund-based limits from the consortium of bankers is INR 300 crores. As of right now, the utilization is INR 87 crores. The nonfund limit is INR 8,800 crores. Out of which, our utilization is in the region of INR 7,300 crores.
The next question is from the line of [ Chirag Patel ], an individual investor.
My question is on the liability side that whatever contract we execute for our clients, in that case, whatever material we import from Chinese -- I mean from China, is there a guarantee or warranty [indiscernible] that particular company, which is manufacturing this particular component?
So for the contract that we execute, the guarantee of the component would lie with us for a period of 2 years, post which all the guarantees and warranties for the next 25 years would get assigned to the customer, and it will be carrying on those obligation.
For these 2 years as well, it is back to back from the module manufacturer, the inverter manufacturer, et cetera. So it [indiscernible] for 2 years. Going forward, after 2 years, it gets assigned directly from the manufacturer to the customer.
Okay. And in operation and maintenance contract, I mean, the O&M side, whatever O&M or maintenance activity we do for clients, is this the same case with that part also or this differs on that?
So for us, for the operation and maintenance contract, our liability is restricted to the value of the operation and maintenance contract. It doesn't really get affected on the EPC side. So we are restricted in terms of liabilities to the O&M contract.
Okay. There is no period like 2 year or any type of...
Well, it depends on the duration of the O&M contract. There are contracts, which we are executing for 5 years. There are contracts for 10 years. So for that particular [ PDL ], it will be restricted to the value of the O&M contract. And module still become a pass-through. For the module, we don't give any guarantee after 2 years.
Okay. Let's say as you mentioned that in Q4, we might get impacted in -- for turnover due to this coronavirus impact and shutdown is prevailing in China particularly. So is there any other alternative source of supply do we have in the market from...
So we have alternative sources of supplies, which is from Malaysia, Taiwan, Vietnam and all, but those markets primarily are addressing the U.S. requirement. And now if they have to ramp up their supply or their production line basis the Chinese slowdown, I think it will be a period of time before they really start ramping up. We don't see that happening in the next 1 or 2 months.But to your point, yes, there is a long-term -- [ midterm ] plan B available, but that will be the cost [indiscernible] customer insists that we go to a plan B, then we will be asking for the cost delta from our customers.
The next question is on the line of [ Kushal Borlikar ], an individual investor.
I have 2 questions. My first question is on the hedging policy. If you could take us through your hedging policy for the revenue from other geographies as well as your supply.
So generally, we hedge on a net basis after looking at the inflow and the outflow. So to the extent of the margin, essentially, is what is hedged, unless there's a timing difference. If there is a timing difference, even that is hedged. That also forms part whatever revenue we have earned, which we are showing as part of the INR 49 crores in quarter 3.
So you would say all of the net, which is not naturally hedged, is hedged by you [indiscernible]?
That is correct. That is correct.
Okay. My second question is on at a global level, if you could take us through the approximate manufacturing capacity for your components and supplies in, say, China and the other alternate countries, which you mentioned, Malaysia, Vietnam, Taiwan and maybe somewhat in India or any other geographies.
So for the complete value chain, if you look at the solar value chain, I think substantial amount of that value chain comes in from China, which includes PV modules, which includes large portion of steel, which is for the mounting of the module. Then there is inverters, which coming from China. There is, what do you call that, cables and other switchgears that's coming from China. But that being said, I think other than modules, we would have a plan B available for the other geographies. In Europe, we have inverter manufacturers. We have switchgear manufacturers in India. We have got a lot of these cables, switchgear, inverter manufacturers, but primarily modules, which is forming almost 35% to 40% of the overall contribution on the value chain is primarily coming in from China. So there is a plan B available, but that comes with a delta.
Any approximate percentages-wise on modules for other countries?
So existing modules from other countries is done by, say, from China at [indiscernible]. It will come at around 20% to 25% more from the other locations.
I mean percentage-wise capacity? Sorry.
So capacity -- so if you take the capacity overall, roughly around 65% to 67% of the capacity is being manufactured in China. Out of the balance capacity, almost 7 to 8 gigawatt is actually marked for the U.S. market because of the fact that balanced capacity -- the China -- there's a heavy anti-dumping duties in the U.S. market. So therefore, they take it on the other market. So effectively, we are left with hardly 20% to 25%, and that addresses the European market and the markets in Far East.
The next question is the line of Sanjay Dam from Old Bridge Capital Management.
Sir, wanted to understand whether the intensity of ordering can get delayed by a few quarters or so because almost all of Middle East and Africa and related geographies depend on China for [indiscernible] other components.
Whilst we would hope that it doesn't get affected in the near and the long term, I think it would be anybody's guess, and we hope that it is contained and arrested very, very soon. It's anybody's guess as to how long this will pan out, the epidemic. And right now, it's a global phenomenon. I don't think we are in a position to really comment as to what exactly would be time line in which it would get arrested.
Sir, putting it the other way around, if things were to be -- if the cost on the modules front really from other sources than China cost [indiscernible] more, would it the right conclusion that closure of such projects may wait until China normalizes? [indiscernible] particular behavior of the...
I would assume so. That being said, I think it's also important to note in case the customer is hardbound on the time line and he has to finish the project by a particular time and the China doesn't improve, so therefore, he may have to resort to plan B, which is getting in from other countries. And obviously, if we are working with the customer, we include on that particular time line because China not functioning, we will have to ask for an additional cost claim from them.
And going by the way we source our components, would it be fair to say that vis-à-vis other major executors of these projects in Middle East and Africa and Europe, we are not that in any particular competitive disadvantage?
Absolutely not. We don't seem to be at any [indiscernible] like us all other EPCs are dependent on the Chinese supply chain for executing the project, which includes the ECPs from Europe, from Latin America, from Australia. So most of them are dependent on the Chinese. So there's no competitive disadvantage that we see in terms of the disruption happening in China.
So basically, the [indiscernible] would get delayed, but that's about it. Our share -- so basically when you said that in the next 2 months, $2.2 billion of order should get closed, and we should be able to [ back ] 17% to 20% of it, so basically, even if this get delayed, you don't expect any other -- share of ours will be maintained?
Yes, yes. Absolutely. We are definitely going to maintain the share, whatever I mentioned just now. It's only as to when exactly the orders will get concluded. So it may get delayed by maybe 2 to 3 months based on what -- if China doesn't improve. But otherwise, the market share will continue to stay as what we've been maintaining in the historical past.
And you also mentioned that EBITDA margin could see some impact of 1%, 1.5%. So that's vis-à-vis the 6.7% that we [indiscernible] for 9 months of FY '20. Is that right?
So what Bikesh mentioned was that the site costs are 1%, 1.5%. Obviously, that is on the total life cycle of the contract and not for a period of extension. So if it is going to be just maybe 1 month or 2 months, it could be a proportion of that.
We move on to the next question that is from the line of [ Ashok Shah ], an individual investor.
[indiscernible] outstanding similar amount from other investor [indiscernible] currently.
I didn't understand the question.
[indiscernible] you said something is outstanding also from [indiscernible] also. So is this amount is a very big amount or is it a very small amount? Can you quantify it?
We were talking about the receivables, which are the trade receivables in the normal course of the business.
So it is not outstanding for longer time?
No, no. And we make provisions if we feel that there is something that needs to be provided for.
Okay. And secondly, regarding this norm, we are charging very less percentage of [indiscernible] on the promoter at 9%. And again, due to their defaulting on the time for the IPO [indiscernible] and also the company stock price and valuation has gone down, are we putting some extra claim on the promoters to compensate to investors?
The weighted average cost of borrowing versus the weighted average cost of the intercorporate deposits and loans has a 1% differential, which is being that charged as per what the Board of Directors and what the intercorporate deposit term had mentioned. As I have said before, there is no real loss to the company because we are getting compensated for the all-in costs that had been incurred by us for these loans. As well as whenever they get renewed, whatever are the additional charges, we get compensated for it. Since all of these were prior to the IPO and these are ICDs, there is no change, which is now being envisaged in making any of them, especially since the promoters have brought in the INR 1,000 crores, which they had committed and are committed to bringing in the balance on the due date.
But due to the promoter not repaying loan [indiscernible] gone down. Does a class action suit can filed? Or are you -- as a manager of the company or are you planning to file on the promoters or something like -- similar [indiscernible]?
We are not in a position to answer this question at this stage because the promoters have fulfilled their commitments, their revised commitments, which they have asked for. And unless -- and the Board has expected the same.
And also on the similar line, when there is no penalty to be imposed when they default [indiscernible] this point?
I'm sorry. I didn't understand. [indiscernible] default.
Yes. [indiscernible] promoter has defaulted to [indiscernible] the loan on time as it was decided [indiscernible] IPO prospectus [indiscernible] are there any clause included that extra penalty will be imposed besides the interest charges, whatever it is?
So the extra interest was imposed when they did not bring in the money on the due date. However, the underlying documents are all intercorporate deposits, most of which are -- none of which are due as such. They are all actually getting paid well in time. So as far as the company is concerned, we are receiving the money on schedule. Company has also not received any money as part of this IPO proceeds. So there is really nothing much that the company can do in this matter. The Board has taken a decision to charge an additional 1% interest on bringing in the INR 1,000 crores and the balance on schedule, which is what is envisaged [indiscernible]
Was there any objection from the independent director on this matter during the Board meeting?
So this has been well discussed and debated by the independent directors, and they had also taken opinions on the basis of which they came to this particular conclusion.
Okay. There's a strange thing that is happening with a very large group of India. And investor is at a loss in a major way due to default by a larger group of India. I'm sorry to say this matter.
Ladies and gentlemen, due to time constraints, that was our last question. I now hand the conference over to the management for their closing comments.
I'd like to take this opportunity to thank everybody for joining the call. I hope we have been able to answer all of your queries. For any further information, kindly get in touch with Vishal Jain or Strategic Growth Advisors, our Investor Relations advisers. Thank you once again, and have a great day.