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Techno Electric & Engineering Company Ltd
Earnings Call Analysis
Q2-2024 Analysis
Techno Electric & Engineering Company Ltd
Techno wrapped up the second quarter of FY '24 with notable achievements and strategic decisions that have impacted the company's financials. One of the significant corporate actions was the sale of wind assets in Tamil Nadu during the previous fiscal year, which has led to the presentation of those operations as discontinued. Moreover, Techno has set up a new subsidiary to venture into the data center business, which currently is not generating revenue but holds potential for future contribution. The financial effects of this nascent subsidiary are excluded from consolidated results until it becomes revenue-generating.
Techno has shown a robust year-on-year growth with total revenues from EPC reaching INR 482 crores, marking a 167% increase. EBITDA and EBIT for the EPC segment soared by 133% and 161% respectively, revealing a strong operational performance. The company also enjoyed higher other income and reported increased earnings before taxes (EBT) and profit after taxes (PAT) from continued operations by 103% and 98% respectively. Consequently, the earnings per share (EPS) for Q2 FY '24 stood at INR 6.63, which is indicative of the company's strong profitability during the quarter.
Looking ahead, Techno anticipates securing orders worth INR 2,000 crores to INR 2,500 crores annually in various segments, as seen with recent smart meter projects. The management expresses confidence in the power sector's prospects and Techno's capability to capitalize on the burgeoning demand for data centers driven by digitization and the advent of technologies like AI and machine learning. Moreover, with significant investments in a 24-megawatt IT load data center, there are expectations to begin revenue flow from this segment from FY '24-'25, and more significantly post '26.
The executive team projects that Techno's top line could cross the INR 3,000 crores mark by FY '26, based on the current order intake trends. However, margin projections remain conservative at around 13%, subject to commodity market fluctuations. The company is cautiously optimistic about the possibility of margin expansion beyond FY '24, depending on market conditions.
Techno has a strategic focus on delivering smart metering solutions and is aiming to manage the associated risks in the power sector. With plans to target the execution of 1 million to 1.5 million meters per year, they are setting realistic goals based on long-term sector execution timelines. In data centers, Techno aims to be a major player post '26. With an impressive land bid in Kolkata and the anticipated rise in data center investments in India, Techno is gearing up for robust growth in this segment, simultaneously ensuring its operational transformation and maintaining focus on bottom-line performance.
Techno holds a significant cash reserve of INR 1,500 crores, translating to nearly INR 140 per share, which is earmarked for developing new assets including data centers and smart meters. With a preference to operate debt-free, the company aims to maintain a return on capital employed (ROCE) of no less than 15%, ensuring the productive use of cash to facilitate both current growth and future value creation.
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Ladies and gentlemen, good day, and welcome to Techno Electric & Engineering Company Limited Q2 FY '24 Earnings Conference Call, hosted by Asian Market Securities Limited. 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. Key statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ from such expectations, projections, et cetera, whether expressed or implied. Participants are requested to exercise caution while referring to such statements and remarks. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suraj Sonulkar from Asian Market Securities Limited. Thank you, and over to you, sir.
Thanks, Nico. Good afternoon, everyone. On behalf of Asian Market Securities, we welcome you all to Q2 FY '24 Earnings Conference Call of Techno Electric & Engineering Company Limited. We have with us today, Mr. P. P. Guptaji, Chairman and Managing Director; and Mr. Ankit Saraiya, Director representing the company. I now request Mr. Ankit to take us through the overview of the quarterly results, and then we shall begin with the Q&A session. Over to you, Ankit, sir.
Thank you, Suraj. And good afternoon, and I welcome, everyone, to discuss Techno's financial results for the quarter ended 30th September 2023. Anything said on this call which reflects our outlook for the future or that could be construed as a forward-looking statement must be reviewed in conjunction with the risk that the industry and company faces.
So now let me quickly highlight our performance for second quarter FY '24. It is to bring to your knowledge that we have sold the wind assets of Tamil Nadu in FY '23. With regards to this, the operations for the same has been disclosed as discontinued operations in the results as per accounting standard.
Techno has created a subsidiary to promote business of data center. The company is not operating and not revenue accretive. In the consolidated results, we knock off the financials of this SPV of data center as per the accounting standards. That is the major difference in the stand-alone and consolidated results. As and when this asset becomes revenue accretive to the business, it will start showing its contribution in the results, and hence, it would be good to analyze then.
Total revenues for the company from EPC stands at INR 482 crores, including the execution of data center subsidiary order at cost, up by 167% year-on-year. We expect the similar level of revenue for the forthcoming quarters as well. EBITDA for the company stands at INR 75.62 crores, up by 133% year-on-year. EBIT for the EPC segment for the quarter stood at INR 72.37 crores, up by 161% year-on-year. Other income for Q2 FY '24 stood at INR 28.30 crores compared to INR 19.03 crores last year. EBT from continued operations for the quarter is INR 98.08 crores, up by 103% year-on-year. PAT from continued operations for the quarter is INR 71.42 crores, up by 98% year-on-year. EPS for quarter 2 FY '24 stood at INR 6.63.
Now coming to half year results. Revenue from EPC in H1 FY '24 stands at INR 825 crores, up by 152% year-on-year. EBITDA for the company stood at INR 123 crores, up by 125% year-on-year. EBIT for the EPC segment for H1 FY '24 was around INR 117.67 crores, up by 129% year-on-year. Other income for H1 FY '24 was INR 58.94 crores compared to INR 33.77 crores. PBT for the half year was at INR 170 crores, up by 106%. Profit after tax from continued operations stood at INR 125 crores compared to INR 60.54 crores, up by 107%. EPS for H1 FY '24 stands at INR 11.64. Current investment value, including cash and cash equivalents as on 30th September 2023 stands around INR 1,500 crores, that is more than INR 140 per share.
For H1 FY '24, we had an order intake of INR 611 crores. Post September, we got 2 L1 orders converted that is one smart meter order from Indore for 5 lakhs smart meters for INR 536 crores and one transmission order from PGCIL for INR 765 x 400 kV substation at [indiscernible] for INR 288.32 crores. Thus, our unexecuted order book as on date stands around INR 4,361 crores. Other than this, we are L1 in orders worth INR 3,550 crores, comprising of 1 transmission order from power grid for INR 225 crores, 1 transmission order from Sterlite for INR 200 crores, 1 transmission order from NTPC for INR 227 crores, 2 smart meter orders, 1 from Jharkhand for INR 1,395 crores for 12 lakh smart meters and Jammu and Kashmir for INR 1,041 crores for 7.25 lakh meters, and Tripura for INR 445 crores for 4 lakh smart meters. We have bids in pipeline for over INR 5,000 crores, which is yet to open, and we are hopeful to bag at least INR 2,000 crores worth of orders out of the same.
Coming to the outlook of various business verticals. As committed in last quarter, we have been able to tie it over the difficult times, and we foresee significant growth. We expect the growth momentum has just begun and should continue for FY '24, '25 and '26. We expect larger businesses out of smart meter segment, transmission and data centers.
The FGD segment is a bit subdued because of the energy issue country is facing at the moment. Probably this is the first year when energy demand is going to grow in double-digit growth, which in the last 3 years, we have seen no more than 3% to 4% per year or maybe stagnating. So Government of India has promised another thermal capacity of 30, 40 gigawatts, but it will largely be brownfield and in PSU segment.
We are also seeing strong power sector reforms as government desires to ensure timely payment to the generators as well as watts to contain losses of the discoms. Strongly the amendment of the Electricity Act December '22 is also in place and now central government is trying to take a larger role out of the amendments, ensuring availability and reliability of power supply as well as billing and last mile collection out of the sale of power.
The overall financial health of the sector is likely to improve in the coming years if this focus really stands implemented. While the focus will continue to be on renewable power, by addition of almost 500 gigawatts by 2030 as committed by Government of India. We will definitely need energy storage solutions like battery, energy storage system or pump storage of no less than 20% of this capacity. And this will also have to be additionally supported by many kind of capacitive reactive power management solutions in the grid. And we see significant activities where Techno is fully qualified and competent to provide solutions.
Speaking on FGD segment, the FGD segment continues to be a bit subdued at the moment. However, a lot of work is still pending. Thermal capacity being largely in private sector, probably the owners believe that they may get more time up to 2030 in future. So they are definitely reviewing and waiting for commodity cycle to be subdued further so that the solutions can be rolled back to sub INR 50 lakhs per megawatt as was happening 4 years back. Our orders which we have got in Rajasthan is progressing smoothly. We have got orders worth INR 1,450 crores in FGD segment. This level of business will continue for next 5 to 7 years as 100 gigawatt is yet to be ordered out by CPSUs, SEBs and private sector totaling to a scope of almost INR 1 lakh crore.
In transmission segment, we would say after a long gap the traction in transmission sector is back. [indiscernible] bidding is happening for 50 to 100 gigawatts now, and a lot of bidding is in progress at the moment. And we are finding that every month, 4 to 5 concessions are being awarded to power grid or the private sector. The interstate transmission system for evacuation and grid integration, while 15 gigawatt renewable energy from Ladakh has been proposed with an investment of INR 207 billion, including central support of INR 83 billion. Total bids open for transmission is around INR 40,000 crores, out of which Techno expects to book orders worth INR 3,000 crores over next 3 to 5 years. We have won orders worth INR 610 crores in first quarter, and we are L1 in another INR 940 crores within the segment.
Coming to metering segment or distribution. On the distribution side, we see lot of activity happening going forward, particularly in the area of smart meter. Budget 2023 has also assured as a key measure for the financial health of state distribution utilities by tying 0.5% of the deficit to power sector reforms. This is an added incentive for the states to reform the discoms. We are witnessing focus on strengthening power distribution network to make them smarter and intelligent. The main aim of the government is to improve efficiency and contain losses so that the health of discoms would be improved. Around 22.22 crores meters are under various stages of awarding, totaling to around INR 2.22 lakh crores, out of which around 88% would be under RDS scheme.
Out of the above, around 73.53 lakh smart meters, 9% of total awarded meters have already been installed. We expect to get orders worth INR 2,000 crores to INR 2,500 crores out of the segment every year. We have already got one smart meter order in J&K for 2.5 lakh meter worth INR 338 crores. And one smart meter order in Indore for -- for 5 lakh meters, worth INR 536 crores under DBA-40 model, and we are L1 in orders worth INR 2,900 crores for 23 lakh meters.
We are very hopeful that power sector is at a very critical juncture and something good should happen going forward. Coming to data center. We all believe that digitization and services on cloud is the most prominent reason that has led to growth of data centers, and demand of data centers apart from other reasons, such as 5G and [indiscernible]. Over the last 6 months, the industry has taken a very dynamic position, especially because of the way AI and machine learning has become more prompt and as becoming a way of life so that has especially led to a change in the way data center infrastructure or design is conceived. As the world is moving towards adopting AI on a day-to-day basis, the requirement of infrastructure to cater to those kind of computing requirements will also change, but lead to exponential growth in investments in data center.
Given the kind of land bank we have compared to other countries in Asia Pacific region and adding to it the renewable energy capacity that we have plus the Digital Data Protection bill that has been passed in the parliament, the demand of data centers or the investment in data centers in India is going to increase significantly. And Techno is also in advanced stages of setting up a data center of 24-megawatt IT load of ultra-scalable hyper-density nature. We have achieved significant progress on construction. We have completed the civil works for the data center building. We have already invested INR 222 crores on this project. Procurement of long lead equipment have been completed almost up to 80% or one can say significantly. We are hopeful of commissioning the first phase of the project by March 2024.
We are seeing a significant and aggressive interest from strategic partners to enter into JV for developing data centers in India. We are evaluating the available options and shall conclude a way forward very soon. With CapEx of INR 1,400 crores, that is INR 45 crores per megawatt, about 60% to 65% of this CapEx is invested in electromechanical work, which is an in-house expertise and strength of the company, and we will be able to leverage on the same for executing the work.
With the EPC capabilities and prior experience of developing infrastructure projects, we are uniquely placed because we have great control over cost, time and quality of the project.
With this, we are opening to answer your questions that you may have. So we look forward to receiving questions from you now. Thank you.
[Operator Instructions] Our first question is from the line of Gunjan Kabra from Niveshaay.
Congratulations first.
Sorry to interrupt, ma'am. Maybe request you to use your handset.
Is it better now?
Yes, ma'am. Please go ahead.
Congratulations to the entire team for such superb set of numbers. I had a few questions. First is, I wanted to understand the business size, where will be like in transmission segment [ supposed ]in particular, how much can we execute in year, assuming a project takes around 12 to 15 months. So how much according to our manpower, ecosystem and other bandwidth, how much of the total the book or how much of the total order can we execute in transmission and distribution in a year, I wanted to understand that?
You are through with your question or you have some more?
I have some more questions. Should I ask now or one by one?
Yes, no issue. By and large, we are happy, strong in building transmission, distribution solutions in the country. And at one time, we have done no less than 1,500 crores per year also. I think given the inflation factor and you're projecting I trust we can even expand our ability to do around 2,000 crores per year.
Did I take care of your question, ma'am?
Yes. Also, if you can bifurcate like in Q1 in transmission order book was around how much segment-wise if you can bifurcate, and the EPC segment, how much was executed from FGD and how much from transmission and distribution?
Yes, you can take in Q1, Q2, almost 0% is from transmission. And another you can say, 20% or 15% -- 18% may be from the [indiscernible] work and another 12% from [indiscernible].
Okay. And sir, if we close the order book in FY '24 at around say INR 4,000 crores, INR 5,000 crores, then what kind of revenue from that we can target in FY '25?
Our target will be almost about INR 2,500 crores plus. And this year, we -- as I have already said, we should be anywhere between INR 1600 crores to 1,800 crores stabilizing this execution at INR 400 crores to INR 500 crores per quarter.
Okay. And I also, in this quarter, resulted in higher EBITDA margin in the EPC segment. So was this because we incorporated on profitability from [indiscernible] business, which we used to do on cost basis or is it sustainable at 15% EBITDA margins in this business, 15%, 16%?
No, ma'am, you see our guidance will continue to be 13% plus/minus depending on commodity cycle, quarter-on-quarter, sometimes you see better and also the mix of the job in execution if they are of little more that closing phase projects. So it's all blended question. Commodity but at the moment, if it cooled down. So that we have also helped, but the yearly guidance, we will not like to change from 13%.
Okay. Okay. And last question is, so like in FGD, the demand scenario is subdued. So initially, we were targeting around INR 1,000 crores every year in this segment. And now, what are we targeting in this segment just...
No, we have always targeted around 500 crores to 750 crores all the time because these are linked medium-sized construction projects. So it requires more efforts than compared to station work. But you can take it at the moment around 500 crores per year.
[Operator Instructions] Our next question is from the line of Subhadip Mitra from Nuvama.
Just wanted to reconcile some numbers that you spoke about in the opening comments. So I understand correctly mentioned that in transmission we are looking at a potential annual order inflow of INR 3,000 crores. And for smart metering, you are looking at about INR 2,000 crores, INR 2,500 crores of annual order, is that correct, sir?
I don't think it -- I talked of INR 2,000 crores as a capacity of transmission and distribution work, not the order book. Our order book is market driven at the time. I trust we should be able to take an order intake of about 1,000 crores to 1,200 crores per year as far as transmission is concerned, and another 2,000 crores maybe out of metering work.
So transmission, INR 1,200 crores per annum of annual order inflow and smart metering INR 2,000 crores. Is that correct, sir?
Yes. On an average, but it will keep changing.
On an average, of course. I appreciate it. And similarly, in FGD, what is the annual order inflow that you would be looking at?
FGD, we are having an order of about 1,600 crores already in the hand. In this very year, we don't see any new orders currently.
Understood. But for FY '25 and '26, given that there are a lot more orders on the anvil, is there any number that you would take that as.
You can take around INR 1,000 crores per year as the order book.
Understood. Understood. So on an overall basis, I think you should be comfortably able to be somewhere near the 5,000 crores mark if I put all of these 3 segments together.
Absolutely. It should be like that.
Perfect. Perfect. And given that, clearly, the macros are so strong on the transmission and the smart metering side and the way your order inflows and order book is growing, would you anticipate a higher growth in terms of top line, let's say, over '25 and '26? You did mention, I think, INR 2,500 crores as a FY '25 top line number. So -- can we hazard a guess, that maybe the number will be INR 3,000 crores plus, let's say, by '26?
Yes, you can safely take that because '24 itself, we should be around INR 1,600 crores to INR 1,800 crores. And '25 our target will be less than INR 2,500 crores. So '26 INR 3,000 crores seems feasible as for the order intake form.
Perfect. Very, very useful. And would you again be looking at naturally upping let's say, the margin number, maybe not for '24, but going into '25 and '26, would you see that there is hope for the margin to expand further?
Look, it depends on the commodity cycle. So it is a bit speculative to my mind. The safer is to be around 13% plus/minus. But definitely, we'd like to do better. We'd like to assure we part of 13% plus/minus. We may change it after 6 months maybe, but not now.
Our next question is from the line of Faisal Hawa from H.G Hawa and Co.
Sir, what is our ROCE and ROE for this quarter? Second is, sir, how are we seeing the data center opportunity as a total? So do we see that as a good annuity income where we set up the data center and really give it on rent to the final holder of the data? And third is, how do you see the smart meter opportunity. Genus has also got a very large order. Is there any kind of tie-up that we are looking at for smart meters which would get us these kind of order? And even in data centers, sir, do we have any kind of tie-ups with any foreign majors to take advantage of the data localization policy of the government?
See, let me answer your questions one by one. Particularly, coming to smart meters, our -- we will not like to aim like Genus. We trust the sector that discoms have their own risk element. And we are almost a developer here in this segment and projects are mostly of DBFO in the nature. Their funding us to be also made by the very concessioner in this case. So our target is by and large depending on whether scheme gets executed in country over 5, 7 years or 10 years or 15 years, because generally, power sector, we see the schemes are 4 year or 5 years, but execution carries on for 15 years. So if it is a scheme meant for 5, 7 years, our target will be collectively no more than maybe 5 million, 6 million meters. And if it happens over 10 years, then maybe 10 million meters. And if it is 15 years scheme, then we'd like to target 15 million meters. So our game plan will be more than 1 million meter, 1 million, 1.5 million per year on an average as a target to execute these projects, number one.
Number two, we definitely are more excited about data center, that's a very huge opportunity. It is in the building. Presently, it is more value accretive, but it will be revenue accretive post '26, more strongly but some revenue flow should start from '24, '25, with [specialty], I'm happy to also inform we have also bid [indiscernible] land in Kolkata now in Silicon Valley. It is very next to all the prominent players in the segment like Adani, Reliance and others, SGT and [indiscernible]. So we will be in a place to grow this segment post '26 more strongly we see traction coming out of it. But within renewable power also, we see more technologies becoming part of the solutions, while nitty-gritty renewable into grid more solutions or capacitively active, ability to be part of the group [indiscernible] storage to be part of the group.
So we see a lot of things evolving. We are transforming now and as well as growing, I'd say both. So you have to keep space for transformation and growth also, and new solutions within the space. So we will -- we are not, as you know, as a company, we have never tried to be the biggest, that is not the goal post of Techno. We will always like to be the best as a performer and also better in terms of the margins, bottom line.
Does that answer your question?
Sir, about the ROCE and ROE, what is the ROCE and ROE that we have? And will data centers be like an annuity income for us where we keep getting paid per monthly? And will the revenue come that way or we will be like a EPC provider to the larger companies?
Sir, it can be a hybrid or both, depending on EBITDA. The investor, the equity income goes to him. If we don't get a investor, it becomes buying income. So question is the long post -- goalpost of Techno is, not to be equity income earning entity and more of a business governed by entity in this segment. But in the past also in transmission asset or in the wind assets, we have lived with the equity income also on a regular basis. And we are clearly exposed to these businesses or BBB or equity basis. So that is not the issue, sir. Depending on our asset is more demanding, we'll keep taking a call.
Sir, as you mentioned that we have INR 156 per share of cash on books? Or was it INR 156 crores? And do you have any kind of a plan to utilize this so that our ROCE and ROE really improved?
You see we have almost INR 140 per share as a cash. And total cash in the books is about INR 1,500 crores as of today. And definitely, this is meant to develop these assets like data centers, smart meters and others because we prefer to be debt-free company. And our target to earn ROCE will never be less than 15% on any of these resources in the company. Cash is reality in any company, and we will always keep it productive. Cash, also do not generate money only by investing it, but it create value accretive application also. So we are very prudently utilizing the capital available with us.
But no chance of any buyback or a large dividend as such?
No, not in the present business. There are so much of growth opportunities, so we don't want to spend money after buyback at the moment. But definitely, we will be larger dividend payout company as we have done in the past. Last 5 years, we have paid out no less than -- for 4 years almost INR 500 crores to the investors, both through dividend and buyback. The last dividend payout was almost 300%. It will improve going forward.
[Operator Instructions] Our next question is from the line of Sarvesh Gupta from Maximal Capital.
Congratulations on a very good set of number. Sir, one question was on this L1 of INR 3,550 crores. So by when do we expect this to convert into confirmed number for us?
Out of the INR 850 crores, we have already got [indiscernible] numbers. And the rest of the business, we are hopeful to have it by maybe December, January, it should be there. But INR 850 crores we have already received in last 1 month or 2 months or 1.5 months.
Out of this INR 3,500 crores, sir?
Yes. Yes.
So now what will be the -- including the INR 850 crores, are we like at INR 5,100 crores of unexecuted order book?
No, no, no. The unexecuted order book as told now is about INR 3,600 crores. So if you include this INR 850 crores, it becomes INR 4,300 crores. As of September end, it was INR 3,600 crores. And if you include this INR 850 crores, it will be around 4,400 crores.
L1 excluding this is around INR 2,700 crores?
Yes, absolutely, you are right.
Okay, sir. And the other bid pipeline of this INR 5,000 crore, and we expect to get INR 2,000 crores out of this. So what is the timelines for this, sir?
So it is a loan tendering, we do not have a control as yet to be a participant. Sometimes government closing -- utilities close these programs earlier than expected, Sometimes they take a long time. So it is so difficult to predict. But my takeaway is that we can easily expect order intake of about INR 4,000 crore per year going forward.
Understood, sir. And sir, one question which I had earlier also was on our management bandwidth because now I think we are growing by leaps and bounds. So any color or update you would want to provide in terms of what we are doing to sort of upgrade the organization also, sir, for the huge opportunities opening up?
Yes, it is an ongoing process in the company. And we take at our lowest level almost 40, 50 trainees from good colleges of engineering, diploma holders, [indiscernible] in Pune, and many other good schools. And similarly, we are also necessarily investing with people, we are over relaxed, obviously. So it's an ongoing process, I'd say, at our own in-house development programs are there. So training programs, exposure programs, we do such. Our people got training to institutes to good trainers, we organize programs in-house also. So multiple techniques are being deployed to stay updated, competent and relevant to the business.
Understood, sir. Sir, finally, one more question was on the -- if I look at the pipeline, we see a lot of orders from these states like Tripura, J&K, some of the Eastern states. So is there any geographical risk that you foresee from these sort of geographies? Because like these are not the regular ones. I mean, FGD, we have a big one from Rajasthan, but from the usual larger states, we are getting slightly lesser business, and it seems to be more concentrated around these slightly more, I think where the state governments are probably not in the best of the health or the geographies which are slightly difficult.
I think it is an issue of perception. If you see likely, the more of metering work and digitization in discoms is required by those very states who are presently very inefficient, number one. So more inefficient you are, more prone to performance they are by installing updated solutions. So in a mature state, the chances of reward are always lesser than these kind of states where already revenue collection is no more than 50%, 60%. If 50%, 60% revenue collection becomes 85%, 80% by virtue of installing any solution by us, they will never like to deprive you of or share the benefit with you as a minimal cost of per meter per month or even any solution given to them on the software side. So I trust more inefficient you are, that more prone you are to a better performance in the solutions, but for your information, we'll keep it properly blended like last order of metering this month we have got, it is from the discom of Indore in MP for INR 650 crores.
Our next question is from the line of Ashwani Sharma from ICICI Securities.
Congrats for a great set of numbers. My first question is that you mentioned that you have already spent INR 220 crores in Chennai data centers. So similarly, over the next 2 to 3 years, how much -- what is our CapEx plan in these assets like data centers and smart metering and TBCB. How much can be outflow from our side?
I think, going forward, we should be investing more [ INR 1,000 crores ] in data center and another INR 1,000 crores in meter work.
Sir, may I request you to come a little closer to the speaker phone while speaking.
Could you hear me out, sir?
Yes, that's fine now sir.
What I was saying that INR 500 crores to INR 750 crores in data center for next 1 or 2 years, and another INR 1,000 crores in meter work.
Anything on TBCB side?
Pardon?
Anything on the TBCB front?
TBCB today, we are not very strongly focusing on overall, I will say we are only [indiscernible] here with private developers or power grid. And we are happy with that business with them. So we won't be looking for any investment from our side.
Okay. Sir, what is the kind of return that we are targeting?
On what?
Let's say, on smart metering and data centers?
Yes. Data center is a high-end solution. So obviously, everybody expects more rewards. And smart meter is a little [blooded] business, I will say. So compared to EPC, you will always expect a little more return. It's a greatly distribution, all are not alike in terms of the risk. So you have to blend them with the risk and rewards ratios accordingly, either with technologies or with the financial risk you are taking and developing data set.
Sir, we haven't started booking profits in the data center. Why -- when we can -- we'll be able to start that?
When we are close to the revenue stream, sir. It is no good idea to book profit or bill out costs when it is still in the development stage. So it is value accretive at the moment. So we will acknowledge in our books only when it becomes revenue accretive.
Okay. Sir, on the guidance, I think there has been revision. So just wanted your inputs segment wise for FY '24 and '25. If you could tell us within the EPC, how much will be from transmission, how much will from per year distribution and from FGD?
I think if you please write to us, we'll give you the answers or visit us, no issue because this kind of business is not done with this kind of accuracies or preciseness on many opportunities. Some opportunities you build up for relationships, some you build up for rewards. But overall, our guidance will say that we should look for EBITDA of about 13% at the company level to the top line.
Sir, I was more looking on the revenue guidance, sir?
Revenue guidance I have given already that this year, it is INR 1,600 crores to INR 1,800 crores. Next year INR 2,500 crores. And the year after next will be INR 3,000 crores.
Our next question is from the line of Vinit Anand from 3P Investments.
Yes. So just trying to understand your business model for the data center. I mean, you are investing in it. And obviously, when there will be somebody who leases, you will get the earnings. So what type of investment do you expect INR 220 crore is what you had indicated that we have already put in. So -- and will this be a next 3, 5-year process? Or how is it?
No, no, no. It does not go so long sir. But Phase 1 will be ready by March '24, and our CapEx will be about INR 550 crores in that by March. And thereafter...
Of which INR 220 crores has been done.
Yes. Out of INR 550 crores, INR 220 crores -- I don't know if commitment may be more, almost INR 280 crores, out of which INR 220 crores stands spent on this project. And this will happen over next 4, 5 months. And to complete this project, this whole project is worth about INR 1,200 crores, which will be completed by almost around March '25 in all the phases of the project. These are talking of Phase 1. Then our Kolkata project will catch up. We are also planning a project in Hyderabad. So over the period down 3 years, you can say, the data center CapEx will grow to also 1,000 crores per year by third year.
So every year, starting maybe in the next 2, 3 years, you will spend INR 1,000 crore on data -- building data center across wherever -- whichever region.
Or we will be monetizing and reinvesting or we would like to raise capital at the subsidiary level to fund these expansions grow.
And while you did mention it's a high-end stuff and returns will be better. But any qualitative broader number, what type of returns you're expecting on INR 1,000 crores investments that you'll be making?
Year-on-year, it may range anywhere between 15% to 20% as IRR.
And in the smart metering, you talked about INR 1,000 crore investment. What exactly will be our spending on that, sir?
No, the spending will be 1,000 crores. That's what I said, because these are all DBFOT model where government gives you a grant of no more than 15%. And just 80% you have to invest from your own capital, which is paid out on a per month per meter basis over 94 installments. That is the scheme of the government.
Okay. And so if I have to take the example of a, say, Indore smart meter project that you got for INR 500 crores, INR 600 crores, so that the revenue that you will get initial investment might be anything. Revenue will be spread over 94 or whatever 100 months, right?
Right. 94 months for each meter.
Yes. So -- and for that, let's assume, INR 600 crore project, how much you'll have to invest?
You take it -- you see these are bit complex. If you write to us, we can explain more because it has a tax element of 18%. It has a finance cost of almost 20%. So all those elements once taken off, the core CapEx may be no more than 70% in each or maybe 65%.
[Operator Instructions] Next question is from the line of Keshav Garg from Counter Cyclical PMS.
So firstly, I wanted to understand that out of our total receivables of around INR 670 crores. Sir, how much are due from Tamil Nadu Trade Electricity Board being wind power receivable?
It is about INR 125 crores.
Okay, sir. And sir, apart from that, we have recovered all the dues, et cetera, from the state electricity boards?
Yes, absolutely. And out of INR 125 crores, also they are part of LPS scheme now, which are paid out in a strong -- which is already being paid out for the last 15 months, month on month as a committed payment to REC PFC. This is a scheme of the government to liquidate them over 4 years. And out of this about 1.5 years has already been over.
Sure, sir. And sir, also, sir, FY '21, I remember you used to be very confident that we will do at least 15% operating margin on the EPC side. But after that, the commodity prices went up post COVID. And now again, they have come down. Sir, but then why -- and now the order inflow has also increased so considering that sir, one should have expected that margins might go up from 15%, but you are still giving guidance of 15% only, sir, so that's a bit strange.
There is no strange in it. You must understand, firstly, the tariff post '21 itself has seen a decline of 20%. These are very developers, number one. Number two, all commodities have not cooled down in last 2 years. Still the electronics like semiconductor-based solutions, whether it is PLCC or CRP or your SaaS or DCS, they are almost double the price of what we used to get before '21. So some commodities like steel, copper have bettered. Transformer prices are all time high. Nobody wants to manufacture CRG in the world now. Everybody wants CRNO to make batteries, storage batteries, vehicle batteries. So these pressures on cost as well as on pricing will always be there in a competitive market.
Sir, but now that, sir, for the new orders, when we bid for new orders, sir we must be bidding, keeping in mind whatever the cost of the latest prices are of various inputs. Sir, so even on new orders, once our old orders get executed, sir, then can we expect our margins to revert back to 15%?
Maybe, if commodity cycle [ sports ], availability of electronic [ sports ], you please understand India is transforming now. We are opting more and more renewable power. And these solutions are meant for evacuation of renewable power and integration into our main grid. Similarly, the whole world is now transforming into the renewable power. A lot of progress are happening in U.S., Europe and other countries also. So demand of all these high-end elements of transmission is very high at the moment in the market. And supplies are hardly few. Suddenly it is all supplier-led market. So we are compressed between the ability of developer to afford once he does supply expectation of prices or their timely supplies. So no cycle is always free to EPC. EPC is always a bit of a challenging business and you need ability to make money in this market.
Sure, sir. And sir, lastly, sir, if we look at our cash flow statement consolidated, sir, then for the 6 months of this financial year, sir, our operating profit is down from around INR 123 crores last year to INR 95 crores this year. So now I understand that on consolidated basis, we don't include the data center EPC work that we are doing. Sir, but the point is that apart from that data center work that we are doing in the rest of the EPC business, sir, why is the operating profit for the first half less than last year?
So you are comparing non-comparable, sir, that INR 123 crores includes business discontinued. That is wind business. So you please remove it. So then you will see that the margin has doubled over last year. See our segment results.
The next question is from the line of Vignesh Iyer from Sequent Investments.
My question is on the data center side of it. Just to understand, you did say that it would be a -- revenue would be a mix of -- depending on if you have an investor or not. If I can understand what would be like per megawatt rent that can -- that we will receive per month if we rented out. So we would have some number in hand, right?
Yes. Generally, these data centers are rented out or leased out on per month per KVA basis as an application and rates are generally ranging depending on the type of consumer you have, whether it is enterprise or it is hyperscaler and what sort of capacity he is taking from you or he is a colocation customer. So it can range anywhere from $80 to $110, depending on the type of consumer.
And this is per KVA, right?
Yes, per KVA.
Okay, okay. Because one of our competitors who is into this business, did give an...
So please, these are rentals only. There is no power cost built in it. Power is extra. That is at actuals.
Yes. So I'm talking on the rental side only. One of our competitors gave a number of somewhere around INR 90 lakhs per megawatt per month as a rental. So I just wanted to know if our number matches on megawatt side somewhat nearby to what they are talking.
No, no. These are not -- you can calculate, I've never calculated like that. So I cannot authenticate that, but maybe closer to what we are talking.
Sir, right. Got it. Sir, just one more question. What is our cost of setting up 1 megawatt of data center?
About $5 million.
Okay. And this is $5 million assuming greenfield, right?
Yes, greenfield. Absolutely. It's always greenfield only. Presently, all data centers are happening as greenfield.
Greenfield, as in I meant this includes the land cost entirely, right? I mean...
Yes, yes, yes. everything, land to ready to use. Sir, sometime, it may depend on location. If you go to Bombay, it might be $6 million because land is pricy there, but when you go to Chennai or Kolkata, it maybe $5 million. So land price is a big surprise.
That is true.
Yes, in Kolkata, Chennai, we get land still for a $1 million per acre. In Bombay, you may have to shell out no less than $4 million maybe per acre.
Ladies and gentlemen, that was the last question of our question-and-answer session. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Yes, from the current quarter, I will only like to say that from the current quarter onwards we can expect a top line of INR 400 crore plus quarter-on-quarter in future. As I mentioned in my year close, year beginning statement, I will [indiscernible] happened for the sector and has just happened. And going forward, there seems to be good programs in place and at least momentarily 3, 4 years with -- and also it is the first year when we are seeing energy growth or consumption growth in double digit as against 2%, 3% in the last 4, 5 years. So all good is happening in the energy sector, power sector. All companies are moving whether it is a dater or it is EPC or it is transmitter or it is distributor. All are making -- are being rewarded by this growth. And I wish India travel this journey. It is first time I'm happy to share with you the grid load have touched 250 gigawatts, which used to be no more than 170, 180-gigawatt just a year back on an average.
So I would like to thank you all of you for joining the conference with us. And in case you still have any query related to our performance, please drop a mail to us as we'll be -- or you visit this side of India, please drop in our office, and we'll be happy to receive you, take you around the way we work. And with this, I would like to close the conference. And thank everybody for joining, and wish a very happy Diwali, a very happy festive season for all of you. Thank you very much.
Thank you. On behalf of Asian Market Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.