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Sterling and Wilson Renewable Energy Ltd
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Ladies and gentlemen, good day, and welcome to the Sterling and Wilson Renewable Energy Limited Q3 and 9 months FY '22 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Jain, Head, Investor Relations for his opening remarks. Thank you, and over to you, sir.
Thank you, Rutuja. Good morning, everyone. I welcome you all to Q3 FY '22 earnings call. Along with me, I have Mr. Amit Jain, Global CEO; Bahadur Dastoor, CFO; and Strategic Growth Advisors, our Investor Relation Advisers. We will start the call with an update on the solar industry and operational highlights for the quarter by Mr. Amit, followed by financial highlights by Mr. Bahadur. Post this, we will open the floor for Q&A. Thank you, and over to you, Amit.
Thanks, Vishal, and a warm welcome to all the participants on this call. I would like to give a quick update on the stake acquisition by Reliance Industries, solar power industry, other allied renewable businesses and status on our business operations. So I will start by giving an update on acquisition by the 40% stake by Reliance Industries. Reliance New Energy Limited, RNEL, a wholly-owned subsidiary of Reliance Industries Limited, has completed acquisition of 40% stake in Sterling and Wilson Renewable Energy Limited via combination of primary investments, secondary purchase and open offer. In December 2021, Reliance Group invested INR 1,100 crores through preferential issue representing 15.46% of post preferential issue equity shares capital of the company. Our cash flow has strengthened the balance sheet and improved the financial profile of our company and has made it net debt free. Post this, in January 2022, under Tranche 1, Reliance Group acquired additional 9.7% stake from Shapoorji Pallonji and Company Private Limited, after which they came out with open offer. The open offer, Reliance Group acquired 4.47% of stake in the company at INR 3.75 per share. In February 2022, under Tranche 2, Reliance Group acquired 1.97 crore shares from SP Group and Mr. Khurshed Daruvala, KYD Group at INR 3.75 per share, representing 10.37% of equity share capital. Post Tranche 2 completion, Reliance Group now holds 40% of the total paid up equity share capital Sterling and Wilson Renewable Energy Limited, while SP Group and KYD Group holding 25.71% and 12.85%, respectively. Reliance Group also has been classified as a promoter of Sterling and Wilson Renewable Energy Limited, along with the existing promoter and promoter group, the Board will be reconstituted to include 2 directors from Reliance Group and additional independent directors. Mr. Khurshed Daruvala will continue to be the Chairman of the Board and lead the next phase of growth of Sterling and Wilson Renewable Energy Limited. Reliance has committed to make India, a global leader in green energy based on the latest and competitive technology and development capabilities. So SWREL, with its engineering talent, deep domain knowledge, global presence and experience of executing some of the most complex projects globally, it become an important part of solar value chain of Reliance Group. SWREL will immensely benefit from Reliance Group integrated new energy vision, which will further strengthen our position as a leading EPC and O&M players globally. This will provide us with great opportunity to accelerate our revenue growth for medium to long term. Now coming to Solar's EPC industry and opportunities, there are strong levers which will drive robust growth globally over coming years. Stronger policy support from the government in terms of tax incentives, favorable policies for renewable sector, coupled with ambition, climate targets announced for COP26 are going to drive demand for solar energy to the new record worldwide. As per the International Energy Agency by 2026, global renewable electricity capacity is estimated to rise more than 60% from 2020 levels to over 4,800 gigawatt equivalent to the current global power capacity of fossil fuel and nuclear combined. Renewables are set to account for almost 95% of the increase in global power capacity through 2026 with Solar PV, alone providing more than half. With the Indian government, accelerating its plans for a clean energy transition, the Honorable Prime Minister Narendra Modi pledging to build 500 gigawatts of renewable energy and ensure that half of our energy requirements seem to come from renewable sources by 2030. We expect outstanding growth in Indian solar power industry in the year ahead. Despite the record increase in module commodities and trade over the last 15 months, LCOE for solar plant is still cheaper than the traditional source of energy as well as the renewables of energy. This is estimated that solar PV, utility scale market, excluding China, 15% CAGR over the next few years, growth led by developed markets like U.S., Europe, Australia as well as the Indian market. I would like to state that with our global reach, strong relationships, with customers and lenders as well as induction of Reliance Group as additional promoter of the company, we are well positioned to capitalize on these growth opportunities. Now one of the other strong core area of O&M, our solar O&M portfolio as of date is 6.2 gigawatt with third-party, O&M constituting approximately 1/3 of the portfolio. Reduction in O&M portfolio during the Q3 FY '22 is primarily on account of sale of plants by clients to customers having their own O&M teams. We are focusing on increasing international O&M portfolio through organic and inorganic route. Our enhanced value to customers to O&M differentiators like drone thermographic, strong analytics and prediction, I-V curve tracers, underground cable fault finders, et cetera, will help us to expand our O&M portfolio. Now I will give you some updates on battery energy and storage business. Battery energy and storage business and energy storage system is expected to grow 2x in next 4 years to $12 billion annually. U.K. and Europe will be the next big consolidated markets, with U.K., Germany, France, Italy and Spain being top 5 countries. We have added a team of battery experts, sales and execution team to capture this market opportunity and have built order pipeline of 1.5 gigawatt hours across U.S., Australia, Europe and LATAM. Coming to the order book. As we have mentioned, in our earlier investor calls, there has been a significant delay in finalization of orders in FY '22 due to unprecedented increase in modules, commodities and fleet costs, resulting in order finalization getting pushed to FY '23. Module price and logistics costs have softened slightly from January '22 onwards, and we anticipate them to normalize by September '22, which will propel the developers to move forward towards order finalizations. We expect to bag major solar PV EPC projects in our addressable markets in coming quarters. Our unexecuted order book as on February 15, '21, before adjusting for revenue post December 31,'21, stand at INR 5,559 crores which is executable over the next 12 months. This excludes solar EPC order amounting to INR 2,030 crores, which may now be unviable for developers, considering increased module and commodity cost for which we are in discussions with our customers. It is important to note that module price risk is limited only to ending partial supply for 1 project, mitigating to 332 megawatts amounting to INR 760 crores. However, unexecuted order value includes an order amounting to INR 1,500 crores relating to Waste To Energy project in U.K.. Post the primary infusion in the company, our focus has shifted to scaling up solar business to meet the high demand, which will be generated due to the strategic investment. The Board of Directors have taken a decision not to pursue this contract at this point of time and focus our energies on our core business. The same shall be executed -- excluded from the unexecuted order value on completion of various formality, including novation of the order. With this, I will ask Mr. Bahadur, our CFO, to take you through consolidated financial highlights. Thank you very much.
Thanks, Amit, and good morning. I will take you through the consolidated financials for the 9 months ended December 31, 2021. Revenue for 9 months has increased by 11% to INR 4,128 crore as compared to INR 3,716 crores in 9 months FY '21. O&M constitutes 4.2% of total revenue in 9 months FY '22. The region-wise revenue breakup is as follows: Australia contributed 59.64%; Americas contributed 30.5%; followed by India, which contributed 8.7%; and the balance, 1.09% by MENA, Africa region and the rest of the world. At the company level, the gross margins were impacted significantly in 9 months FY '22 on back of increased module prices and accounting for liquidated damages costs based on settlements done ongoing with customers. If we were to eliminate these unprecedented price increase and related costs, the normalized gross margins for 9 months FY '22 would have been 0.7%. The normalized margins continue to remain lower on account of carryforward impact of items, which had affected FY '21. As part of the transaction with the Reliance Group, the company has signed an indemnity agreement with the SP Group, KYD Group and Reliance Group on December 29, 2021. According to this agreement, the SP and KYD Group would indemnify and reimburse the company and its subsidiaries for a net amount, if it exceeds INR 300 crores on settlement of liquidated damages pertaining to certain past and existing projects, old receivables, direct and indirect tax litigation as well as certain legal and regulatory matters. These amounts would be settled on September 30 of each succeeding year on the basis of the final settlement amounts with customers, suppliers and other authorities. SP and KYD Group are consequently entitled to net off the amounts payable with specified counterclaims levied and recovered by the company and its subsidiaries on its customers and vendors relating to these matters. As at December 31, 2021, the company and its subsidiaries have made provisions equivalent to INR 300 crores, including INR 158 crores towards liquidated damages during the quarter ended December 31, 2021. There will be no further impact on the results of the company beyond December 31, '21 on settlement of liquidated damages, old receivables, direct and indirect tax litigations as well as legal and regulatory matters in accordance with the indemnity agreement. Recurring overheads for 9 months increased by 10% to INR 261 crores. In 9 months, we have accounted for accelerated mark-to-market loss of INR 21 crores on account of cancellation and rebooking of forward contracts on expiry relating to ongoing projects, which resulted in accelerated accounting of losses. The same has been flushed out from effective portion of cash flow hedge of the OCI, resulting in a negligible impact on shareholders' funds. The same would be reversed in the coming quarters and would be recorded as gaining. Now coming to the balance sheet. As on December 31, '21, net worth stood at INR 1,062 crores. The increase in net worth was mainly on account of the preferential issue to the Reliance Group amounting to INR 1,100 crores. The same was partially offset against loss for the period. As at December 31, cash and cash equivalents stood at approximately INR 858 crores. The borrowings from banks stood at INR 280 crores on account of repayment from proceeds and against collection of ICDs and preference issue made to the Reliance Group. Our company is net debt-free as of December 31,'21, with net bank balances of INR 578 crores. Advance and performance bank guarantees encashed by 4 customers amounted to INR 588 crores, including INR 184 crores bank guarantee encashed in December '21. With 1 customer, we have signed the final settlement agreement and the encashed amount of INR 176 crores has been refunded by the customer in January '22. We are in discussion for similar settlement agreement with another customer of the same group on another project, which is 84% completed and is expected to be concluded in the near future. With respect to the balance 2 customers whose projects are virtually completed, the company is in advanced stage of discussion and is confident of recovering the amount in the coming quarters. As on December 31, we had a negative working capital of INR 637 crores as compared to negative working capital of INR 530 crores as on March 2021. Receivables due for more than 1 year as at December 31, 2021, stood at INR 403 crores compared to INR 412 crores due for more than 1 year as at September 30, 2021. They comprise of related party receivables of INR 166 crores, which includes a receivable of INR 113 crores against which the company has received unconditional assurance of proceeds from sale of plant. The same is expected to be realized by March 2022. With this, we can now open the floor to questions and answers.
[Operator Instructions] The first question is from the line of Abhineet from Emkay Global.
Yes. So on this Waste to Energy project that you said, which we will be not doing as per the Board of Directors' decision. So is there any negative impact of that, that we'll have to take on our books in the coming quarters?
There will be no impact of this in the coming quarters. The project is in the process of getting novated with the joint EPC contractors. The company will be having no impact of this at all.
Okay. And secondly, sir, our unexecuted order book stands at INR 5,500 crores. And if we exclude this INR 1,500 crores, and we are at INR 4,000 crores, which looks like the lowest order book we've had probably in last few years. So just if you can comment how do you see the coming years in terms of revenue because at INR 4,000 crores, it looks -- the quarterly run rate that we have is around INR 1,500 crores. So if you can throw some light on what could be the order visibility where we have bid or something of that sort?
So as we have explained in our previous investor calls that because of the uncertainty in the market and volatility in module and commodity prices that this decision has been shifting and all the major order decision is getting moved to FY '23. So we expect the order pipeline bidding -- bid pipeline remains robust. We expect that in FY '23, it will come back to the levels it was previously and the hit rate and the order book position will be normalized if we don't see any same uncertainty and volatilities in the market.
If you can just spend some time on the pipeline set, geographical pipeline that sometimes you -- company gives what is the pipeline for U.S. and Middle East, Australia. How is it placed today?
Yes. So we have roughly -- like it's around 2.5 gigawatts for U.S.A., some 3 gigawatts by Europe and LATAM, Australia is 2 gigawatts, for Middle East, Southeast Asia, CIS, 5 gigawatts, India, it is around 6 gigawatts. The pipeline -- the total pipeline is around 20 gigawatts of the market which we cater to.
We may also want to add that generally, if you look at the past, our strike rate in India has been high at roughly about 20%, 25% -- 25%. And for the rest of the world, it has been around 14% to 15%. Keeping that in mind as well as the fact of the order book pipeline that Mr. Amit has just mentioned, it gives a good indication of where we should be in '23 once the market again opens. If you were to look at the orders that have been finalized in the 9 months to now, it is barely 2.5 gigawatts this year as compared to 12 gigawatts in the previous year. That itself shows that the market has shrunk to almost 20%, 25% of what it was with the market again slated to go back to a 15% CAGR compared to the previous year, not this one. We can again come back to where we were.
This 2 gigawatts that you are saying is ex of India, sir?
2.5 gigawatts is ex of India, yes.
And any comments on the Indian market, BCD coming in and et cetera? Do you see a significant ramp-up in upcoming the huge amount of capacity buildup expected. So in the next few years, do you see India has been adding maybe anywhere between 6 to 10 gigawatts? So any significant ramp-up from here on the solar side?
See, in India...
That -- sir, you're correct. There will be significant capacity addition in India.
No, no, go ahead, Amit. Sorry.
So you have rightly said there is going to be significant capacity addition in India and our strike rate has actually been very high in India, 25% strike rate for our share, for the market like we cater to. So we expect a significant ramp-up in coming quarters and years in India.
The next question is from the line of Puneet from HSBC.
Yes. My first question is in the terms of nature of contracts that you're signing on the EPC side, are you saying that you're no longer taking any module price risk?
I will start by answering the question, Mr. Amit can join in later. As we have explained in our calls before, we continue to be risk averse in terms of the module price risk. We are not taking those risks as well as passing back risks to our module manufacturers to the extent that it is possible, either in the form of bank guarantees or moving module manufacturers towards joint EPC contractors, those thoughts continue. We are in the market. There are certain market dynamics that have to be followed. But as of right now, the organization continues to push to not take module risk. Amit, if you would like to add anything further?
Yes, sir, if you can add, how are you really doing it in terms of what do you mean by bank guarantees and joint partnerships?
So in terms of bank guarantees, we are asking for higher bank guarantees than what we were asking in the past, thereby protecting ourselves from module price hikes. At the same time, if the contract requires that module needs to be part of the EPC contract and if it is built along with the joint EPC contractor, then in that case, we do not take the module as part of our scope but keep it as part of the scope of the joint EPC contractor, thereby protecting ourselves. That's what I meant by bank guarantees and joint EPC.
Understood. And any thoughts on how you see module prices correcting or going up end of this year?
Yes. So we have already started witnessing correction in module pricing. So they have come down by almost 10% to the levels which they went in December. So we expect going forward till September '22, the normalization in pricing and price correction in modules coming back, so that will give impetus to all the developers, contract finalization and that will see an upswing in the market.
Right. So are you seeing that developers are actually waiting for those prices to fall before they give out contracts to you?
No, actually, there were a lot of bidding like the tariffs were decided through bidding route, and earlier, the module prices are considered at a lower level. So those pricing or when the IRRs are coming down, the decisions have been pushed out that we have witnessed globally. And with this correction in module prices coming back, so it will prompt developers to take decisions, and I see the orders getting decided in coming quarters.
Understood. My second question is on your battery business. What kind of offtake are you expecting going into future? And how are those different from what you signed at solar EPC level? Is there any material risk or pricing risk that you're taking there?
In those contracts also the normal EPC risk would be there, the kind of volatility we have seen in the market last year. So we'll be taking similar precautions as we are taking with the module manufacturers. So -- but the normal EPC risk would remain, but any kind of major volatility or major component we'll protect ourselves.
And in terms of sizing, how should think of one what is the rough pricing for these new battery projects, both in terms of megawatt and maybe rupees per megawatt?
So that depends upon the geography. So that varies a lot where we are executing the project and what kind of technology and what kind of usage we have put into. So that's a highly variable and depends upon the geography and the usage which we are projecting. So -- and various market models are developing, this cost will keep on varying because battery sizes, battery technology is also upgrading and the cost profile is also changing. So that -- I can't give you any exact figures on that count as of now.
The next question is from the line of Ankit Gupta from Alchemy Capital.
Just to have a better clarity. You said around INR 5,500 crores of order book, out of which INR 1,500 crore will be reduced. So around INR 4,000 crores of solar EPC order book. And then Mr. Amit mentioned that around INR 760 crores of order book will be have a module price risk. So for the remaining INR 3,200 crores to INR 3,300 crores of order growth, we can assume gross margins, which were earlier or because we have taken some losses or the gross margin will be 0.9% or 1%, which we have mentioned for the past 9 months?
I'll take this call. So yes, gross margins have dipped significantly. For the remaining UOV, we expect the gross margin to be at low single digit for the rest of the order book for all the losses that we have already taken.
So despite the losses we have taken, then also our gross margins will be in the low single digits only?
Yes, because the margins have been suppressed due to the various module hits that we have taken. So whilst all the -- rest of the order hits have been taken, we will have the carryover effect of the suppressed margins. And hence, while the losses have been taken, the order margins will continue to remain suppressed in low single digits.
Got it. Got it. And sir, just to understand the -- you were telling some indemnity agreement, can you just explain it slightly more, what is it?
Could you just repeat that question, please?
Mr. Amit was explaining some agreement that there will be no more losses from post December quarter because there has been some agreement which we have made that around post INR 300 crores of losses. He was explaining something. I missed it.
Yes, I was mentioning that. There is an indemnity agreement, which has been signed between the company and the promoters, old and new. On the basis of that, for certain categories of items, namely liquidated damages, receivables of old projects, certain legal and regulatory matters as well as direct and indirect taxation for a net amount in excess of INR 300 crores. Once the final settlement has been crystallized, the existing promoters, which means the erstwhile promoters prior to Reliance coming in, the SP and KYD Group will reimburse the company on September 30 of each year for whatever is the amount which is crystallized over and above INR 300 crores. The company has already made provisions on discount up to INR 300 crores. And therefore, anything further on these matters will not impact the results of the company.
Understood, good to know. And last question from my end. The O&M order book has also reduced from around 8.7 to 6.2 gigawatts. And you said that it is because the clients' selling the project. But the O&M agreement must be -- must remain with us only, right? Even if the clients are selling it someone else. So what's the catch here?
So it is not necessary that once it is sold, the O&M agreement will continue because the new developer, if he is having an O&M team within himself, he can choose to do that on his own. Therefore, there is a reduction on the fleet from 8 gigawatt to 6-point-odd gigawatt on sale of certain plants to new owners.
And sir, do we see this risk in the remaining projects also?
In fact, we will see the O&M order book slightly rising as we complete more of our in-house plants. At the present, we don't see this risk.
And last question from my side, we have seen gross margins dip in O&M also, they were consistent around 35%. But this quarter, we have seen a significant dip in O&M also. So why the margins have declined in O&M?
So it is -- O&M is not going on percentage of completion. It is revenue less cost. In the case of O&M for this particular quarter, there are certain costs which have been incurred, but the O&M revenue will come in the next quarter. There are certain small settlements done on closure of these existing jobs which have impacted us. So in O&M, it is a mere debit of costs and revenue is the billing that we do to the customer. This has effectively given a INR 12 crore impact on the O&M margin. Were we to add the INR 12 crores back to the INR 5 crore margin, it would be about INR 17 crores or 35.79%, which is your normalized O&M margin.
The next question is from the line of Anupam Gupta from IIFL Capital.
I have 3 questions. Firstly, just to clarify. So once you exclude the WtE order it's actually a 0 order book in Europe, right? That's the right way to look at it?
Yes. Yes, you're right.
Okay. Second question is on the LDs, which you have settled and you have received some amount in January and you expect further receipts from the balance 3 projects.
That is bank guarantee, Anupam, not LD.
Sorry, yes, bank guaranty. So do you expect to reverse certain provisioning which you have done for those projects and can help the gross margin in fourth quarter or first quarter of next year, or no?
That depends. The bank guarantee amount would be completely recovered. If there are any further LDs, which have to be provided on those projects, those would, as we have explained, not impact the company because it would be covered under the indemnity agreement.
No. So what I wanted to understand is, let's say, you have a very large impact on gross margin in the 9 months. What portion of that can get reversed because your settlement will be done from these 4 customers?
That will depend on the settlement amount, Anupam, which is presently under negotiation. So I cannot say -- we have not provided for any bank guarantees. We have provided for LDs. LDs are separate. So since this entire bank guarantee is also, in a way, covered under the indemnity agreement because it has been recovered against liquidated damages, there will be no further provisioning. It will only be a reversal of -- in terms of cash.
Understood. And lastly, your indemnity agreement, does it only cover the related project transactions of SP Group? Or does it cover every contract which you have entered in the past when SP and Mr. Daruvala were driving the operations?
So it is not every contract which was done in the past. There were certain existing contracts on the day these agreements were drawn up, which were identified, and it is for that as well as old receivables, identified old receivables, more than 1 year old. Also the IL&FS case, in fact, that is a reason why there will be no further impact on the company in terms of IL&FS and that's why the auditors also dropped the qualification, which they had put us while in IL&FS. So all of those items will get covered. Nothing beyond INR 300 crores will hit the company. In this quarter, the provisioning has reached INR 300 crores, and therefore, we believe no further impact.
Okay. So basically, the amount which you have provided in this quarter includes LD for those contracts also which are indemnified?
Yes.
Okay. Okay. So anything beyond INR 300 crores cover all the 4 items which you mentioned, which will not impact you and it still met by SP, just to understand it better?
Yes, it will be met by the SP and KYD Group.
Understood. Okay. Okay. And just lastly on -- so clearly, you mentioned slightly on the order book, but you have only about INR 4,000 crores and given the execution time line, so do we expect, let's say, at least for the next few quarters, you will definitely see a sort of weakness in the revenue?
That depends on order inflow. As Mr. Amit has explained, we are looking at order inflows coming in the next financial year. Domestically, we have signed about INR 600 crores worth of orders. In the domestic market, we continue to maintain about a 25% strike rate. On the basis of order inflows, yes, there would be a gross margin which we are getting right now and minus the running rate of overheads. But it depends on when it will come. So maybe the next quarter or 2 could be weak, considering the gross margins of the existing projects and the overheads. So revenue will be weak at least in the first half of the next year, post which, on the basis of order inflows, we will see it rise.
Understood. And the new orders which you are winning will those be similar to what -- in terms of gross margins of 10%, which you were doing earlier or significantly lower than that?
So as of right now, what we have booked is in our median of margins.
The next question is from the line of Danesh Mistry from Investor First Advisors.
I had a couple of questions. The first one is that these liquidated damages that are there. Are there from any 1 particular geography? And what is the reason behind these liquidated damages?
I will start off, and Mr. Amit will just join in. Liquidated damages can be for a variety of reasons, including majorly for delay in completion of the project. What we have provided is not in any single geography, but in various geographies across the world, where we felt the provision is necessary. Amit, you may add further, please.
As Mr. Bahadur has stated, these are reasons for the delay in projects and not limited to any particular geography.
Got it. But are these linked to essentially the solar panel issue? Or are these basically -- are they linked to the same problem, if we see the solar panel prices went up and supply was short and that's why there were delays? Or was there some other reason behind it?
So there were multiple reasons because in last couple of years, because of COVID, COVID hit us, there were severe border restrictions, the workforces could not be deployed. There was severe -- whole industry faced the severe logistical challenge and the module manufacturing, of course, that's to everybody. But there's a host of other factors besides that, which led to these situations.
Okay. And in Australia, I remember last quarter, we had a situation where one of the vendors went bankrupt and we had to quickly handle the situation. So do we expect anything -- I mean, this is the bankruptcy, but do we do -- are things now settled in Australia, which is one of our major geographies?
Yes, yes, we have settled in Australia, and the project execution is happening besides the challenges which were there and the impacts created by them. We are trying to minimize the impact. The operations are streamlined and we are on course to complete our older projects.
Got it. And whilst we talk on the solar pipeline, but we have also identified other business avenues for our company. So when do we see any pipeline in those avenues that we are finding for?
Yes, the pipeline -- so the other areas which we have addressed is battery energy storage system and energy storage systems, which we see a growth area for us. So -- and there is going to be a robust pipeline around that also. And in the next quarter, [indiscernible] pipeline and targets we want that particular sector as well. So we look forward to it next quarter.
And just one last thing. Now that Reliance is -- has come in, generally, they are quite a good operator. So do you see some improvements or some changes in the cost structure of the company?
When you say cost structure, are you meaning...
Right now, the transaction has got just completed and various discussions are [indiscernible].
So essentially, generally, cost structure can be mainly on the fixed cost side, right? So do you see anything that can change that dynamic?
So that is something we are doing on our own anyway to try and minimize and optimize the overhead as much as possible. So that I'm talking about as far as the fixed structure is concerned. As far as procurement is concerned, we are very sure their scale of procurement will only help us in our project procurements. Sorry, I interrupted you, Amit, but there seems to be a lag. So maybe I missed what you were saying.
Fine. I think you have answered the question, Bahadur. Thanks so much.
The next question is from the line of Mohit from DAM Capital.
First question, sir. Is the -- when you say EPC for solar battery storage system, does it include hydrogen also? Or it is not under our consideration?
I think that's not the area as of now. But we'll be definitely working with our green energy projects with -- yes. So what I'm saying the green hydro and as we have stated, that battery energy storage and solar is going to be our core area, we'll definitely be working with the solar projects associated with green hydrogen. As of now, we have not decided anything to move on the green hydro space.
But are you participating in hydrogen tender of IOCL, green hydrogen tender?
No, we are not participating in that. See, we're working only on the solar projects or renewable parts associated with the green hydrogen. But per se we'll not be associated with a hardcore green hydrogen implementation.
Understood, sir. So is it possible to enter into domestic contracts without module pass-through? I understand that most of the guys who -- most of the PSUs who give out the contract, those are based on your fixed price contract. Is the nature of contracts changing because of industry pressure? Or can you throw some light?
So I think going forward, first of all, we have -- as we have stated that we are not taking the module risk. And wherever the module risk is there, either we pass on to our suppliers or otherwise, we'll not address that particular segment of the market. But definitely, with -- the discussion with not only in India and international markets, we see a trend, the flexibility and an approach of risk sharing coming in, whether the government or the private players as far as the modules are concerned, and discussions are happening on various forums how to mitigate that risk and various risk sharing mechanisms can be developed. And the domestic market as of now for us is mainly BOS, model gets passed through, and we are not taking any model risk in the Indian market.
So given that the new change in strategy, can you expect some -- a different file in the terms of order book in the sense your India will -- your India order book will grow significantly over the time and the other geography will diminish? Is that a fair assumption?
So definitely, India order book because the kind of growth ramp-up, which we foresee in India, definitely, we are seeing an uptick in the order book in India. India ramp-up would be significant, but that will not come at the cost of the geographies. So our strategy and approach is hinting the same. As we stated, our pipeline in various geographies remains robust. And next year, we see a significant movement in the contract closures and order bookings. So there is no compromise or we are not cannibalizing markets, we are doing 1 market at the cost of the other. So the India will grow but at the same time, other international markets will continue to grow, our focus will remain the same.
So how is the Middle East behaving at this point of time? Are you seeing more orders from domestic -- Middle East and Middle East pipeline?
Middle East, as we have already informed, like Middle East continues to [indiscernible] as far as the pipeline is there, Middle East pipeline is strong. But in last couple of years, we had witnessed a very strong completion from Chinese players in the Middle East market. But what we have seen during the price volatility and module price challenges, lot of smaller players are suffering huge losses and people those who are like them, the companies who have booked projects have suffered massive losses. So we see a lot of players getting out of the bad space and Chinese also taking a rational decision. So we see an opportunity for us in that market. Going forward, the strong players who have delivered on projects like Sterling and Wilson and have demonstrated their commitment to their clients will also getting a major opportunity and boost for their operations even in the Middle East and Africa market.
Sir, what was your new expected EBITDA margin in the new orders which you're booking?
Let's talk about gross margin. So in our new orders, the blended gross margin, we intend to keep it the same as what we have given in the past that is between 10% to 11%, which is what we are seeing so far.
The next question is from the line of Sushil Choksey from Indus Equity Advisors.
I would like to know what kind of synergy Reliance brings to Sterling and Wilson with the growth outlook for next 2, 3 years besides procurement, which you highlighted?
I think that first of all, I would like to state that deal has just got completed. Negotiations are happening on various aspects. So it would be too early to give any specific details on that count. But definitely, working with -- having Reliance as a promoter will bring this significant advantages. As we say, that economies of scale and procurement bargaining power, which we already have will come in. So economies of scale will come in but it's too early to give any specific details on this aspect.
So the synergy on procurement is a small part of the business.
And we'll update you next quarter with specific details.
Can you give an outlook what kind of size of EPC on a global basis and India basis, you see that India would implement 25,000, 30,000, 50,000 megawatt per year, next 5, 6 years and globally?
Globally, there will be significant addition. But as we told you that our international pipeline is going to -- continues to be robust, 19 to 20 gigawatt even for FY '23. So that is there. The long-term view, we see the market growing at the rate of 15% CAGR. So we see a robust growth in all the markets, including India and India, we see the 6 to 8 gigawatts in the next 2 to 3 years. And then we see an addition of 10 gigawatts because the latest targets, which has been announced by government of India, that calls for 40 gigawatts of addition per year. We see materialize even in the quick term from 8 to 10 gigawatts, that's the addition in India.
Are we being conservative on the domestic front or it's being practical?
Conservative in what sense?
The estimates of manufacturing, if you hear Borosil Renewables or any other manufacturer?
We have been conservative. So [indiscernible] issues with...
Okay. And who would you qualify as your nearest competitor in domestic and global basis, the top 2, 3 globally?
I'm sorry to interrupt. Mr. Amit Jain, your voice is breaking, sir. [Technical Difficulty]
Globally and domestic. So there are multiple [indiscernible]. There is no such [indiscernible] there and various markets have various challenges like Middle East, Africa, there are Chinese and Europe, there are Spanish companies. So as a company, we cannot qualify that there is 1 single company, which is a significant challenger to us. So it varies from market to market and pretty diverse.
The next question comes from the line of Sanjay Kumar from ithought PMS.
All my questions have been answered. Just 1 confirmation. So given this jump in capacity addition in India, will BCD related custom-duty have any effect on us? Where have we been procuring for our Indian EPC orders? Will that change going forward? Any thoughts on the BCD? That's it.
I think for us, it is BOS market. So there's the impact of BCD on module prices as well. So custom duty will not impact us as far as our contracts are concerned. And there are various arrangements with various developers are working. So I think pipeline will also remain strong in India, and there will be no impact on us like that.
The next question is from the line of Kaushal Dedhia from Axis Bank.
Most of my questions have been answered. I just wanted to ask on this indemnity agreement that has been signed for this INR 300 crores amount. So as I understand, this will be settled in September '22 and then every year going forward. Is that right?
Yes. The first settlement will be in September '22. It will be settled on the basis of a settlement with the customer or authority concern and not on the basis of provision. The company has finished making provisions, so there will be no further impact.
Understood. So sir, how long will this continue? Is there an end date to this?
Well, it will continue for the next maybe 5 to 6 years.
The next question is from the line of Danesh Mistry from Investor First Advisors.
Yes .nAgain, just wanted an update, anything -- any changes on the Argentina receivables issue? I believe you were talking to the client there for quite some time.
Argentina, the matter is under arbitration. It is also an item that is covered in the indemnity agreement. The matter is still at the initial stages of arbitration. So the global settlement, which we were attempting to do has not worked out, we are right now proceeding with the arbitration.
The next question is from the line of Shashwat Tandon from Shashwat Textiles Private Limited.
Actually, my question has been asked earlier. But I will ask you another question to the gentlemen is that, can we expect any local procurement of modules from Borosil Renewables or from Reliance New Energy instead of Chinese modules?
See, we are -- are we talking about the domestic market or the international market?
Sterling and Wilson as a procurement model because I believe we also suffered from the logistics cost of supplying modules from China to Australia when logistics costs went through the roof. So as a strategy, can we think about getting those proceed from Jamnagar if Reliance New Energy sets up a plant for those or Borosil Renewables and your own supply globally.
Procurement from Reliance would be a natural progression of what has happened with the organization, right? So I don't really think I need to answer that question. This is a given. Now that will obviously give us a much more dependable supplier who is also our investor. The point about the domestic market, we do not procure modules domestically. As far as international markets are concerned, we need economies of scale. Someone like Reliance, of course, is a totally different thing. But erstwhile Indian suppliers are not able to compete with the Chinese in terms of scale forcing us to buy with Chinese as procurement from India will increase on the base of supply in India, yes, then that's a completely different question. Amit, if you would like to add anything I may have missed.
That's correct, Bahadur because that totally depends upon the capacity addition in coming years in India. We are see witnessing a movement towards start. That will take some time. Until that time, we have to like work on the international procurement model, which is already in place with us.
The next question is from the line of Niraj Dewan, an Individual Investor.
My question is with respect to Slide #4, strategy. Point #2, you mentioned that you will diversify into project development. So does it mean that you will be bidding for projects in the future in those geographies? What's exactly the thinking behind this?
No. Yes. Actually, what we have seen the trend in the EPC market to improve upon the margins, and the EPC players are opting to develop. So this can be with or without auction to some of the markets like U.S., Australia, you can develop the projects without going for bidding for it, but some of the markets in Europe, you have to go for capacity allocation. And after the allocation of capacities only, you can develop the projects. So it will be -- both the models will be there with bidding and without bidding. And as of now, which we have indicated and we are starting that model in Europe, and it will be started -- get capacity allocation bidding. But there's no tariff stakes or that. It is just the bids for getting the capacities. And having said that, I would like to clarify that we continue to operate on our asset-light model. And this is just to secure exclusive EPC rights and improving our margins, and this development price will be flipped to the ultimate owners before start of the construction. We are not planning at becoming investors at any stage in the asset.
Okay. So you said before start of construction, we'll be flipping it to the eventual investor.
Yes. Yes, we'll be flipping -- because our job is to get the capacity to develop the project, bring it to ready-to-bid stage. And ultimately, yes, we'll be flipping it to ultimate investor.
So this won't entail a large amount of capital commitment in that case?
No, no. It will not entail that kind of capital commitment. It will entail commitment, but not capital costs.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Amit Jain for closing comments.
Yes. So thank you, everyone, for being on call today with us. And now for any clarification, you can -- with us on the call. The robust backing of Reliance Group and Shapoorji Pallonji Group, we endeavor to accelerate our growth trajectory by aggressively pursuing large projects that is in the U.S. and Europe, where we foresee a huge potential of growth. Here we have raised an inflection point from where we anticipate the growth of solar industry to garner further pace and momentum. With our deep-rooted client relationship, global presence, ability to provide customized solutions, strong track record of executing complex and large-scale projects supported by our strong -- robust balance sheet and strong advantage of Reliance Group and Shapoorji Pallonji Group, we are confident of regaining our leadership position. I would like to thank everybody for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with Mr. Vishal Jain, our Strategic Growth Advisors, our Investor Relation Advisors. Thank you once again, and have a great day. Thank you.
Thank you. On behalf of Sterling and Wilson Renewable Energy Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.