Sterling and Wilson Renewable Energy Ltd

NSE:SWSOLAR

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Sterling and Wilson Renewable Energy Limited Q4 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.

[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Thomas Mathew, Head Investor Relations, for his opening remarks. Thank you. Over to you, sir.

[Sandeep Mathew, executive]

Good evening, everyone. Welcome to the Q4 '23 earnings call. Along with me, I have Mr. Amit Jain, our Global CEO; Mr. Bahadur Dastoor, our CFO; and SGA, our Investor Relations Advisor. We will start the call with the key operational highlights for the quarter and industry outlook by Mr. Amit followed by the financial highlights by Mr. Bahadur, post which we will open the floor for Q&A. Thank you, and over to you, Amit.

[Amit Jain, executive]

Thanks, Sandeep, and a warm welcome to all the participants on this call. I would like to give a quick update on our business operations and outlook on the solar industry.

I am beginning with our order book position. The company announced new orders totaling INR 4,387 crores in FY '23 compared to INR 719 crores in FY '22, aided by strong ordering momentum seen in India. All the order announced in FY '23 are from the domestic market.

In Q4 FY '23 alone, the company announced new orders for INR 2,165 crores, which is the highest quarterly order inflow the company has seen in nearly 3 years. We were declared L1 for BOS package of 1,500 megawatt DC at Khavda, Gujarat by NTPC in March 2023.

In addition, we also received 2 new domestic orders, one from Serentica for a 260-megawatt project located in Bikaner, Rajasthan; and second being a 60-megawatt project from Sembcorp, this is located in Karnataka. Our executed order book as on March 31, 2023, stand at INR 4,913 crores, which -- with nearly 90% of the order book comprising domestic EPC projects, which are executable over the next 12 to 18 months.

With the inclusion of Nigeria MOU that was announced in September 2022, our order pipeline will enhance significantly with the project value alone expected to exceed USD 1.5 billion. We are working with authorities to finalize the D&EPC agreement for the project by Q1, Q2 FY '24.

We hope to continue our order book momentum in FY '24 and are seeing a steady growth in our order bid pipeline. We expect to bid for projects constituting nearly 23 gigawatts over the next 12 months with India having the highest share at 62.7% followed by Middle East and Africa at 27.1%.

Our confidence in the bid pipeline is further aided by the limited notice to proceed agreements we have received from projects in Australia, South Africa and the U.S., which provides more visibility on order inflow prospects. We believe the company is well positioned to target orders in excess of USD 1 billion in FY '24 over and above the already announced Nigerian project MOU and any other group companies' business.

As stated in earlier calls, we iterate that lumpiness in order flow is to be expected with EPC company like ours, and the timelines for achieving project closure could vary depending upon a host of factors, including finalization of contractual term, financial closure, et cetera. Structurally, however, the underlying trend of the stronger companies are expected to take a larger portion of the market in the future and lower-level players moving out is beginning to take shape.

In terms of execution, while we had a good momentum in the order booking in FY '23, we had some unforeseen issues in execution of a few international EPC projects. Our domestic EPC business remained largely unscathed, however -- and we've delivered a positive performance there.

On the international EPC front, we had to deal with the issues ranging from unpredictable weather conditions in Australia to manpower and subcontractor availability issues in the U.S., which affected project cost adversely. O&M segment was largely impacted by some projects where costs were incurred but revenue recognition had not commenced. With the last 2 of our legacy international projects almost complete, we are confident of returning to the path of profitability in FY '24.

In terms of the market outlook, we continue to see positive momentum in the market with continued decline in the solar module prices and favorable regulatory landscape. Indian market appears to be in a bright spot with a lot of ordering momentum gaining pace, government's recent decision to exempt ongoing solar projects from the mandatory rule of procuring photovoltaic modules from the approved list of models and manufacturers, ALLM (sic) [ ALMM ], for 1 year was issued on 10th March 2023. This should help ease constraints with local module availability and provide a selective project execution on the ground. The move is significant as India's aim is to install 280 gigawatt solar power capacity by 2030, and we need a strong pickup in execution phase to reach the target.

There is a strong pipeline from both private ICPs and PSU in India currently. PSUs alone have indicated a pipeline of more than 30 gigawatts in FY '24, of which NTPC is likely to be a key contributor.

On our O&M business, our solar O&M portfolio as of date is approximately 7 gigawatts. Our O&M portfolio has a tailwind of strong EPC orders, and we are also targeting third-party contracts. O&M is moving faster towards AI-based maintenance, monitoring and digitalization.

It is increasingly important for developers to have direct control on their power generation assets like -- the IRR are dependent on it. Due to domain expertise of the O&M contractors, customers are increasingly preferring such third-party services providers who are knowledgeable and accountable. In our case, we have the global experience, and we are also bringing the learning of EPC. So between developing the knowledge in-house and going with an outside expert, we think the case is increasingly getting stronger for the latter, which should benefit us in bagging more O&M projects.

With this, I will ask Mr. Bahadur, our CFO, to take you through the consolidated financial highlights. Thank you very much.

[Bahadur Dastoor, executive]

Thank you, Amit, and good evening, friends. Now I will take you through the consolidated financials for the year ended March 31, 2023. Reported revenue for Q4 was INR 88 crores and significantly lower both year-on-year and quarter-on-quarter. Revenue was impacted during the quarter due to cost increase on account of certain cost provisions made, which impacted the percentage of completion and led to a revenue reversal in ongoing EPC projects.

Pro forma results excluding the impact of provisions would show revenue of INR 278 crores, gross loss of INR 4 crores and PAT loss of approximately INR 150 crores for Q4 FY '23. Provisions made in Q4 FY '23 were on account of 3 reasons. Firstly, 4 international projects which are now virtually completed faced cost overruns due to punch point and handover costs amounting to INR 61.43 crores, which have been fully provided for.

Secondly, one of the international projects currently under commissioning is facing challenges in achieving the desired plant output. After detailed evaluation, the company has decided to carry out replacement of material and ancillary items, which are causing the impediment. The cost of reinstallation is multifold as compared to the cost of the material itself. The group has reserved its rights with respect to recovery of the cost overrun on account of such replacement from the material suppliers and applicable insurance. Consequently, the group has, on a conservative basis, decided to increase the cost to completion amounting to INR 165.78 crores to carry out the said replacement and reinstallation so as to achieve the desired output, which has resulted in reduction of revenue and recognition of foreseeable loss for an equivalent amount.

Thirdly, the group had commissioned an international project at 3 sites for a customer. At one of the sites, certain electrification work had to be carried out, which, while it's not affecting the output of the plant, was necessary from a contractual standpoint. The management is in discussion with the customer to finalize the defect liability quantum. The group has provided for an amount of INR 45.19 crores on a best-estimate basis towards maximum cost of rectification and charged the same to direct project cost.

With the above provisions, we believe we have adequately provided for all major currently foreseeable losses related to the international projects. Looking ahead, our FY '24 revenues are largely going to be driven by our current unexecuted order book of INR 4,913 crores, of which 90% are domestic EPC orders, which have historically generated good margins as Amit earlier alluded to.

We anticipate that consolidated EBITDA should turn green by Q2 FY '24, and the company should revert to normal domestic EPC business margins in FY '24. We are also optimizing our overhead costs, and the company has identified 15% to 20% savings, which should get reflected in the coming quarters.

Now coming to the balance sheet. As on March 31, 2023, our net worth stood at negative INR 240 crores on account of the losses incurred in the fourth quarter. Our net debt now stands at INR 1,967 crores. And cash and cash equivalents stood at approximately INR 48 crores.

As of March 31, we had a positive core working capital of INR 38 crores as compared to negative core working capital of INR 140 crores as on December 31, 2022. However, investors should note that the net working capital given above would stand at negative INR 445 crores as of March 23 were the indemnity receivables to be excluded.

Our process of deleveraging is likely to commence from the second quarter of FY '24, and we are targeting to significantly reduce debt by Q4 of FY '24, aided by receivable recovery, indemnity inflows and negative working capital cycle of the new projects.

With this, we can now open the floor to questions and answers.

[Operator]

[Operator Instructions] The first question is from the line of Abhineet Anand from Emkay Global Financial Service.

[Abhineet Anand, analyst]

Just wanted to first understand out of this INR 5,000 crore of order book, how much is totally clean without any issues that we have currently?

[Bahadur Dastoor, executive]

Abhineet, out of the INR 5,000 crores, INR 500 crores are old legacy orders, which are essentially revenue equals cost going forward since we have already provided for all the losses. INR 4,500 crores are clean orders, which will be executed majorly in FY '24.

[Abhineet Anand, analyst]

And I think those should get completed by 1H of this year or will it be prolong further?

[Bahadur Dastoor, executive]

Which one, sorry? Could you repeat?

[Abhineet Anand, analyst]

This INR 500 crores, what could be the completion schedule for that?

[Bahadur Dastoor, executive]

Most of it will get done in the first quarter of FY '24 with a little part of it going into the second quarter.

[Abhineet Anand, analyst]

Okay. And secondly if you can highlight from the parent, any plan as to, if not in numbers at least in gigawatts, what are the plans in terms of ordering and all? I'm talking about Reliance?

[Amit Jain, executive]

So Reliance plans are available in public domain, and we are actively discussing the rollout plan. But they are still under discussion and the rollout plan -- the rollout dates have not been finalized yet. So as we are discussing the plan that the rollout is going to be in gigawatt-scale size, in multiples of gigawatts, but dates are not final yet.

[Abhineet Anand, analyst]

And last one from me, the Nigerian project, when can we expect the concrete or the -- orders coming up?

[Amit Jain, executive]

Discussions are undergoing, and we expect to conclude either in Q1 or early Q2.

[Abhineet Anand, analyst]

And I think in your opening remarks, you said that apart from this, which is basically a source of $1.5 billion.

[Amit Jain, executive]

Yes.

[Abhineet Anand, analyst]

I think you're expecting another $1 billion of order inflow in '24?

[Amit Jain, executive]

That's absolutely correct. That's what we are expecting.

[Abhineet Anand, analyst]

So if I have to just break down in terms of what is the Nigerian model, second, there would be 3 more parts, right? One is anything international, you're working in Australia, U.S. little bit now. Second will be a lot of projects in India, you have definitely initiated and third would be your spirit. If you can break down what's your expectation from these 3 over a medium term?

[Amit Jain, executive]

So in India, we are expecting close to INR 4,200 crores in this financial year. And besides that, we are targeting 3 other major markets: South Africa, Australia and other regions. So -- and which is also close to INR 5,000 crores. So that's what is our estimate put together, and we have a very high visibility for all these orders because as we have alluded to in my investor speech that in Indian markets, we are very close to closing the orders, which are expected in Q1 and Q2 itself.

And in South Africa and Australia and U.S., we have been shortlisted by our 3 clients. And on 3 projects, we have been issued limited notice to proceed, which is an early phase of the project. So all the projects, we have very high visibility, and we are pretty confident of booking in excess of $1 billion over and above Nigeria and RIL projects.

[Operator]

[Operator Instructions] The next question is from the line of Manoj from Geometric.

[Manoj Dua, analyst]

Am I audible?

[Bahadur Dastoor, executive]

Yes, you are Manoj.

[Amit Jain, executive]

Yes Manoj.

[Manoj Dua, analyst]

Okay. So my first question is whatever order you won in the last year, how was the competition you faced during that especially NTPC order, what kind of competition was there?

[Amit Jain, executive]

So I would say NTPC, the Tier 1 contractors were there, and it was a reverse auction. So we were declared winner of the reverse auction. So we'll get to know -- like we don't know what were the other competitive -- competitors were in auction. So -- but we were declared L1 in all the 8 packages for 2 NTPC bids, we were there.

[Manoj Dua, analyst]

Okay. Okay. And how do you see USA as a market for Sterling in the current year or in future?

[Amit Jain, executive]

U.S. is a good market, but we are being very, very selective and redefining our risk profile with respect to USA and all other international markets. So though we are selectively bidding for the projects in all the markets, but we are looking at margins and risk profile of the projects very cautiously.

[Manoj Dua, analyst]

Okay. Okay. Any figure we have determined as of now how much promoter has to give it -- the company according to the agreement as of now?

[Bahadur Dastoor, executive]

I will talk about what is the cash block situation. So roughly, as of today, the company has INR 1,200 crores to INR 1,300 crores of indemnity assets where the cash has been blocked. Discussions keep happening with the customers, with the authorities and the promoters to see how to settle it as judiciously as possible, recourse from the promoter is, of course, the last resort. The idea here is to bring it down to get our cash flows in as fast as possible.

[Manoj Dua, analyst]

Okay. And my last question is now INR 500 crore of foreign order which is left. So as an investor, we are -- not that much is a danger part. But now we see the reversal of sales also have been happening. Is this more possible in the current year also in some kind of reversal of sales?

[Bahadur Dastoor, executive]

No, no. So let me explain that because we had to make this provision in the cost to complete for one of our projects, which was not entirely completed, that's the reversal of sales, which we have tried to explain in the pro forma sheet of our investor presentation. We do not expect any other reversal of sale to happen from now onwards.

[Manoj Dua, analyst]

Okay. Okay. Can I ask one more question, last?

[Amit Jain, executive]

Please, go ahead.

[Manoj Dua, analyst]

Okay. You said you are going for 15% to 20% of cost reduction you have identified, and you have given a 10% to 11% gross margin indication as a profit. Are we including that cost cutting in this current gross margin guidance?

[Bahadur Dastoor, executive]

Gross -- the cost cutting is for overheads, which is after the gross margin. What we are looking at is definitely to reduce these overheads even beyond what we are presently targeting. However, the entire impact of this will take a couple of quarters in this year to fructify. But from that point in time, the overheads will be exactly lean in keeping with the revised requirements of the organization.

[Operator]

[Operator Instructions] The next question is from the line of from Faisal Hawa from H.G. Hawa and Co.

[Faisal Hawa, analyst]

I mean, we have made it a habit of having results which are generally up and down in terms of sales, there's no trajectory to any kind of sales. I mean, how will we ever have any kind of uniform sales? Because again, these results is a bolt from the blue.

[Bahadur Dastoor, executive]

I will start by answering this, Mr. Hawa, and then Amit can just log into it. Whenever we have found that there is an issue, we have provided for it 100%. So we do not want to leave it as a dripping tap, which goes on affecting future quarters.

The reason for making large provisions, almost INR 165 crores in one project, almost INR 45 crores in another, almost INR 60 crores in a third is just to ensure that no matter what has to be done, we have accounted for it and taken care of it up to March '23. We do not want anything affecting our numbers for FY '24, which we really believe will be a turnaround year. If things go to plan, things will start showing positively from the first quarter itself, the trajectory.

[Faisal Hawa, analyst]

But sir, if you see the previous transcripts, we see this for almost every second, third quarter. And again, there is a new development, which really brings us down. And I mean, I clearly feel that these 3 write-backs of sales should have been actually communicated to the exchange in between the quarter because it's a material development. It cannot be done with the results.

[Bahadur Dastoor, executive]

Firstly, it was not anything which happened in the middle of the quarter, and all 3 are not resulting in write-back of sales. There is only one which has resulted in the write-back of sales.

Further, our legacy orders are now down to INR 500 crores. There is virtually nothing left. What we have in hand right now are our domestic orders, which even if you go the last 3 to 4 years have always given the gross margins even in the worst of times.

[Faisal Hawa, analyst]

So when the domestic order itself are so good, why go to overseas orders where we always tend to lose money? So I mean, with these 3 orders where we are [ LTNP ], I feel that there's more risk coming our way because we clearly are not able to handling the overseas risks.

We are continuously ending up paying money to your customer for -- I mean, I can't see how we can be held responsible for project not actually performing and having to do the entire project almost again. It's something which shows some kind of an inefficiency on our part.

[Bahadur Dastoor, executive]

Firstly, it is not the entire project. The project is of a very large magnitude. We are talking of the replacement cost of a particular component of that particular project. Because it is overseas, we have said that the cost of material itself is a very small portion. It is a cost of installation.

Mr. Hawa, anything you redo in a site will at least be 4 to 5x the cost of the initial installation. That is what is causing us the pain point. As regards to your question about international projects, I will let Amit answer that.

[Amit Jain, executive]

So Mr. Hawa, as I alluded to, first of all, the project -- the legacy projects which we see, they were all booked in pre-corona times and were impacted by, I think, a lot of uncertainties and unforeseen circumstances. Project execution started in COVID and then the unpredictable climatic conditions in those zones and the shortage of manpower, complete breakdown of supply chains, so all that impacted.

And these were the only legacy projects which we were carrying out. And with this one, this particular quarter, we have practically accounted for everything which we can foresee in these projects. And there is no possibility of carrying out any further losses in these projects.

We're now embarking on new order booking. Majority of it is coming from domestic, where we have a proven track record and we have always delivered. And as far as the international projects are also concerned, we are very cautious in booking new projects. So risk profiling and margin profile of the project is thoroughly checked.

And we are making doubly sure that we are going to deliver high returns even on those projects. And that's why there were a bit of slowdown in the last 2 years in booking international orders. So whichever order whether domestically or internationally we are booking, margin profile and risk are thoroughly being assessed so that we continue to deliver high margins to our shareholders.

So that -- and we are proceeding on that trajectory. And I don't see any more losses at all coming out of our portfolio. So we have taken care of everything. So that's what we are projecting.

[Operator]

[Operator Instructions] The next question is from the line of Bhavik Shah from [ Amkay ] Ventures.

[Unknown Analyst]

I just want to understand the cost of capital for the borrowings which we are taking, at what rate were we will be taking the borrowings?

[Bahadur Dastoor, executive]

The borrowings range from between 8.9% to about 9.9%. This could go up as the repo rates change, but that is the range at which it is about now. So on an average, you could say about 9.5%, 9.65%.

[Unknown Analyst]

Okay. What kind of gross margins or EBITDA level margins do you expect in the [indiscernible] overseas projects which we are going to take and the NTPC business as well?

[Bahadur Dastoor, executive]

Sorry, you will have to repeat your question, please. It was not very clear.

[Unknown Analyst]

Yes, just a minute, sir. Just a minute.

[Operator]

Ladies and gentlemen, the line for the current participant in the queue seems to have disconnected. We will move on with the next question, which is from the line of Iqbal from Nuvama.

[Iqbal Khan, analyst]

Sir, just wanted to understand the reversal of the revenue recognition in more detail. You have mentioned in the pro forma, it's around INR 190 crores. However, the second point says around INR 166 crores. So what is the remaining amount in this, so I just wanted to understand in detail about this, the provision that you have made, sir. That will be very helpful.

[Bahadur Dastoor, executive]

See, the cost to completion went up by INR 165 crores. Therefore, on a percentage of completion, your percentage of completion fell. The only way to recognize this is to reverse the revenue which has been booked in the last quarter.

The cost of INR 165 crores has still not been incurred. They have really been made as a provision in the cost to complete. Therefore, there is a reversal of revenue. To the extent the cost is higher than that, there will be a foreseeable loss, which has been provided for.

[Operator]

The next question is from the line of Shantanu from Think Investments.

[Shantanu Mantri, analyst]

My first question is that this INR 450 crores, INR 500 crores old orders, right, they were supposed to get executed -- kind of they were supposed to get over this quarter. But I don't see any execution on that front. So is there any challenge in finishing those orders? What was the reason that nothing major happened this quarter?

[Bahadur Dastoor, executive]

We have to realize, Shantanu, that out of the INR 490 crores approx which is there, INR 165 crores is on account of the cost increase only which has been pushed, right? Otherwise, in this particular quarter, if you would have seen the pro forma that we have put in, the turnover would have been INR 278 crores if you see the slide, which we have given for a pro forma profit and loss account. So that would be comparable to what we have achieved in the previous quarter, and it is not that nothing has happened in this current quarter.

[Shantanu Mantri, analyst]

Got it. Got it. Okay. Okay. So now like you mentioned that whatever hits you had to take, you've taken and your revenue will be coursed so are we fully...

[Bahadur Dastoor, executive]

Just for these projects.

[Shantanu Mantri, analyst]

No, yes, just for the -- obviously. So are we like fully sure that this will get over in Q1 and maybe some flow -- something going into Q2, but there is no other problem in executing this.

[Bahadur Dastoor, executive]

As per our plan, the bulk of it should get done in Q1, and there would be an overflow into Q2. As of right now, we do not envisage -- let me not say as of right now. We do not envisage anything, and there are no surprises further, we believe.

[Shantanu Mantri, analyst]

Okay. Okay. Now coming on to your balance sheet. So debt has gone up to INR 2,000 crores, right? And this majorly is because of all these one-offs, et cetera, et cetera.

So I heard the number of INR 1,200 crores to INR 1,300 crores of indemnity assets, right? Now to just to come to the bottom line, this money is actually supposed to come into the company and should ideally knock off the INR 2,000-odd crores debt that's been accumulated over this 1, 1.5 years.

So I want to understand this breakup of the indemnity assets and the timeline as to how this will come in so that what can be the net debt at end of FY '24. This is excluding any advances that we get for Nigeria project or NTPC. That's purely operational. I just to understand what sort of money can come in from these indemnity receivables, whatever you want to call it, that can get knocked off to the debt, in the next 12 months, FY '24.

[Bahadur Dastoor, executive]

We expect -- so first of all, it is not just the INR 1,200 crores of indemnity receivables for which we needed to borrow. If you had a chance to have a look at our notes to the financial statements, you will find that in a particular project in the U.S., we had appointed another subcontractor. And we've taken the first subcontractor to court.

There the company has paid [ 58 million ], which is shown as a recoverable. And if you add that as well, then you are talking about a INR 17 crore of money which has been blocked, which is closer to the money that is totally borrowed.

Now against the INR 1,200 crore -- so that arbitration and claim can go on for about a year at the minimum. So we will know about it at that point in time, even though legal opinion says we have an extremely, extremely strong case.

Now coming to the INR 1,200 crores of indemnity, we expect to get somewhere around INR 450 crore -- a number anywhere between INR 450 crores to INR 500 crores in September '23.

[Shantanu Mantri, analyst]

Okay.

[Bahadur Dastoor, executive]

Balance will happen in the next year or thereafter.

[Shantanu Mantri, analyst]

Okay. But why would this not come in FY '24 itself? Like why will the balance go in the next year?

[Bahadur Dastoor, executive]

The indemnity agreement is very clear that only when a claim is crystallized, which means it has reached the last stage of appeal, can it be levied upon the promoter. So we believe that -- so as of right now, there are claims which have crystallized even after October '22. September '22, we had filed our first indemnity claim money of which we received. October '22 and onwards, also some things have crystallized significantly.

And the balance amount which will crystallize is what we can claim in September '23. I can't claim the entire INR 1,200 crores from the promoters in September '23 because the company is first expected to fight it out with the customer and the regulatory authorities and/or any tax authority and only when it fails is it supposed to go after the promoter -- as a last resort.

[Shantanu Mantri, analyst]

So what happens to the interest cost that the company will have to bear for this 1, 1.5 years till this gets fully crystallized then that...

[Bahadur Dastoor, executive]

The company will have to bear the interest. Interest is not on the promoters. What the agreement has done is secured the principal.

[Shantanu Mantri, analyst]

Okay. Understood.

[Bahadur Dastoor, executive]

If I had to even charge the interest then my EBITDA would effectively be my PBT, right?

[Shantanu Mantri, analyst]

Got it. Got it. Okay. Lastly, can you give us an update on what is the status with Nigeria and Reliance both? That will be really helpful.

[Amit Jain, executive]

Yes. So Nigeria, we are in advanced stage of discussions with the NDPHC and Ministry of Power of Nigeria. And we expect to get it concluded either in Q1 or early Q2. So that's where we are on Nigeria.

And in Reliance, we are in discussion with them. And rollout plans are getting finalized, but we have not been informed of the exact schedule. So discussions are going on, and we are planning for the execution of the project.

[Shantanu Mantri, analyst]

Okay. So just let me get this cleared. So Nigeria order, say, worst case, execution starts in Q2 or Q3. Is that understanding right?

[Amit Jain, executive]

No. Execution will start in Q4. And will...

[Shantanu Mantri, analyst]

Q4.

[Amit Jain, executive]

Adding a very minor portion of the revenues in Q4.

[Bahadur Dastoor, executive]

See, after the order signing, there is also going to be the financial closure -- most of which we will start the work. So work on Nigeria...

[Shantanu Mantri, analyst]

Nigeria, should start only in Q4, execution, right?

[Amit Jain, executive]

Yes.

[Shantanu Mantri, analyst]

Okay. And similarly for Reliance, worst case, will this happen in Q4 or then it'll slip into Q1 FY '25?

[Bahadur Dastoor, executive]

As Amit said that there is no plan which has been finalized as of yet. As we find out, we will keep you all informed.

[Shantanu Mantri, analyst]

Okay. Okay. Okay. Got it. And on the NTPC both orders, I believe nothing has started yet on the execution part, right? The first order we got in October if I'm not wrong. So do we expect that to now start in Q1?

[Bahadur Dastoor, executive]

Shantanu, that is incorrect. Work has started at the site. However, there has not been enough work for us to start recognizing revenue although the first site work has already commenced.

[Shantanu Mantri, analyst]

Okay. And on the second win, when do we expect that to start?

[Amit Jain, executive]

I think we are expecting to sign the contract at either end of this month or early next month. And because we will [indiscernible] with the project site is adjacent to the first project, and we have already done engineering for the first project. So we will be moving on fairly quickly on the second project.

[Shantanu Mantri, analyst]

Got it. Got it.

[Amit Jain, executive]

And the revenue recognition will start from Q3 FY '24.

[Operator]

The next question is from the line of Vignesh Iyer from [ Sequent ] Investments.

[Unknown Analyst]

Yes. I just wanted to know our net worth has turned negative, right? So are we planning to raise any funds? I mean, the promoter is planning to put money or maybe arrange any sum from some [ CIB ] or anything of that?

[Bahadur Dastoor, executive]

Nothing has been finalized as of date, Vignesh, for me to provide any further guidance on this.

[Unknown Analyst]

Okay. And so just to understand the NTPC projects...

[Bahadur Dastoor, executive]

Sorry. I just want to add that as far as the standalone network is concerned, it is a very positive net worth over INR 1,000 crores. It is only the consolidated network that has gone down.

[Unknown Analyst]

Right. Understood. Just to understand on the NTPC project side, so this INR 4,900 crore unexecuted order book has NTPC project as well, right? I mean part of it.

[Bahadur Dastoor, executive]

Approximately INR 3,600 crores would be the unexecuted order value on NTPC.

[Unknown Analyst]

And that would be 1.5 gigawatts, right?

[Bahadur Dastoor, executive]

That would be 1.5 into 2, almost 3...

[Unknown Analyst]

Okay. Right, right. Okay. So fair enough. And just to understand, this international project, I mean, the one you're talking about in South Africa, Australia and U.S. and as well as the Nigerian project, would it have a similar gross margins similar to like whatever it is in domestic?

[Bahadur Dastoor, executive]

No, it would be slightly lower in terms of the international jobs. Nigeria, however, is a fairly comparable margin project.

[Unknown Analyst]

Okay. Okay. Sir, another part of it. So what we've paid due to this legacy project was the increase in cost. I mean, so coming to these new projects, do we have the cost escalation as part of the contract? I mean -- and what is -- and how much is that cost escalation possible?

I mean, in case suppose some other big event comes up similar to Russia-Ukraine war, and there is a problem with procurement of material or something similar. So what is the percentage cost escalation possible on these newer projects that we are signing?

[Amit Jain, executive]

So whatever the newer projects we are signing, we are considering the present prevailing cost, and orders are booked, placed on vendors immediately after we have finalized so that we are hedged during the execution of the project. So we are taking extreme care to move fairly quickly. And we have built provisions to pass out -- for any extraordinary circumstances to pass on the cost to the customers. The orders are going on back-to-back basis to the vendors so that we are not exposed at all for the variations in the market.

[Unknown Analyst]

Fair enough. So just to understand these newer projects that you're going to sign, I mean, the INR 5,000 crores value in South Africa, Australia and U.S. and when the MOU is signed with Nigeria -- I mean, Nigeria, I mean once that is part of the order book and you started your work from quarter 4, would it -- would both of these projects have a similar timeline of acquisition of 12 to 18 months? Or it would be a bit more than that?

[Amit Jain, executive]

Only Nigeria will have a little more than 18 months, but all other orders will have the same execution timeline of 12 to 18 months.

[Unknown Analyst]

Okay. And apart from the legacy order book, we would only see mainly the revenue being recognized from quarter 3, right?

[Amit Jain, executive]

Pardon?

[Unknown Analyst]

I mean, assuming your legacy order book spills over in quarter 1 and some part goes to quarter 2 for the newer order book, I mean, where the gross margins are 10% to 12%, a bit lower, would we see the revenue recognition coming mainly only from quarter 3 of FY '24?

[Bahadur Dastoor, executive]

If you're talking about the international jobs, then other than the legacy jobs, they will essentially be slightly in Q2, but majorly in Q3 and Q4. If you are talking about the unexecuted order values that we hold for the domestic business, they will start from Q1 itself.

[Operator]

We have the next question from the line of Jayesh Gandhi from Harshad H. Gandhi Securities Private Limited.

[Jayesh Gandhi, analyst]

Am I audible, sir?

[Amit Jain, executive]

Yes, yes.

[Jayesh Gandhi, analyst]

Okay. So I have a couple of question. First is on EPC margin. When we say on EPC gross margin, 10%, 11%, are you talking about consolidated or only domestic?

[Bahadur Dastoor, executive]

Right now, when we have said that we want to return to 10% to 11% gross margin going forward, we are talking about a blended margin across the world for projects that are either in progress or expected to be in progress in Q3 and Q4.

[Jayesh Gandhi, analyst]

So domestic probably would be a higher margin, right? According to you since we are going through...

[Bahadur Dastoor, executive]

O&M margins also. And therefore, when we are saying O&M is, of course, a significantly higher margin though a smaller revenue, so we are talking of a blended gross margin across all lines of business and geographies to be where we have indicated them to be.

[Jayesh Gandhi, analyst]

Got it. So 10% is basically EPC as well as O&M, that is what you are alluding to.

[Bahadur Dastoor, executive]

Correct.

[Jayesh Gandhi, analyst]

Okay. Secondly, just a confirmation. The [ Wilson ] company is in the business of only EPC and O&M and battery energy storage, right? Or can we do something else also?

[Bahadur Dastoor, executive]

There is nothing that would prevent us from doing something else as long as it is in the renewable space. The mandate which this company has is to do EPC business for renewable energy. And of course, the EPC contracts can include or will include round-the-clock power where battery and energy storage would be a part of the project cost.

[Amit Jain, executive]

Yes. That's right. Because going forward, the more trend is moving towards hybrid. So in addition to solar and battery storage, if it requires venturing into BOS for wind and other systems, so company is gearing up to address all other additional solutions. And we'll be ready to provide complete hybrid solutions to the market.

[Jayesh Gandhi, analyst]

Okay. Sir, why I'm asking this is because 2 days back, one of -- I don't know whether it is our subsidiary or what, Sterling and Wilson project got the transmission order from NTPC. So we will never be into the transmission, no?

[Amit Jain, executive]

So that's the order book by Sterling and Wilson Private Limited. So that company is part of Sterling and Wilson Private Limited, not part of Sterling and Wilson Renewable Energy.

[Jayesh Gandhi, analyst]

All right. And sir, last question is how confident are we on getting the Nigerian order? Because as I see, we have just entered into an MOU with the Nigerian government. I mean, it's just an MOU or are we in an advanced stage now?

[Amit Jain, executive]

No, we are in advanced stage. It's not just the MOU. The draft contracts have been exchanged. The legal teams are engaged. The final terms of financing term sheet between EXIM bank and Nigerian government is getting finalized.

So it is not just MOU. We are just about to conclude the contract. And it had slowed down a little bit because of elections, which were happening in Nigeria. Now we expect to close the Nigerian order by either the end of Q1 or early Q2.

[Operator]

The next question is from the line of Iqbal from Nuvama.

[Iqbal Khan, analyst]

Sir, just wanted to put forth one more question. [ Given ] that the largely unexecuted order book, around INR 500 crores are the legacy orders, which I believe is now no more a profit [ entering order ] for the company. So would you be entering more -- I mean, would you be raising more debt for this company going ahead? I mean, for this project? So in short, how much -- to what extent the term debt might increase in the financial year '24?

[Bahadur Dastoor, executive]

So Iqbal, it is not just that debt is the only way that one can fund the project. The company also has available letters of credit limits, which it could utilize. So it will be a mixed bag where you will stretch your payable to ensure that it can be offset against the receivable of an advance from a future project. So company will do everything in its power to keep debt low. But if it is required to be borrowed, yes, then there would be an increase in debt.

[Iqbal Khan, analyst]

The magnitude of the debt that you would -- the magnitude of the debt that you might have to borrow would be lesser than the INR 500 crores which is indemnity, which is receivable. Is that -- would that be a fair understanding?

[Bahadur Dastoor, executive]

See, the INR 500 crore indemnity receivable will come in Q3. The projects that have to be completed, the legacy ones are in Q1 and Q2. The company will work out the most efficient ways to take care of meeting the cost requirements.

Also, let us forget that on the one hand, there is cost. But on the other hand, there is also a receivable from customers. So there will be definitely a certain amount of borrowing and/or LC management, which will have to be done to take care of this. We are in the process of working out the most efficient way to do it.

[Operator]

Ladies and gentlemen, that was our last question for today. I would now like to hand the conference over to Mr. Amit Jain for closing comments. Over to you sir.

[Amit Jain, executive]

Thank you. We hope to build on the order momentum of FY '23 and turn around the financial and operating performance of the company in FY '24. With the strong support and parentage of promoters, we intend to accelerate our growth trajectory and are confident of regaining our leadership position.

I would like to thank everybody for joining the call. I hope we have been able to address all your queries. For any further information, kindly get in touch with Sandeep Thomas Mathew or SGA, our Investor Relationship advisers. Thank you once again, and have a great day. Thank you. Bye.

[Operator]

Thank you. On behalf of Sterling and Wilson Renewable Energy Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.