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Edited Transcript of BHEL.NSE earnings conference call or presentation 9-Aug-19 12:00pm GMT

Q1 2020 Bharat Heavy Electricals Ltd Earnings Call

New Delhi Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Bharat Heavy Electricals Ltd earnings conference call or presentation Friday, August 9, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Manoj Kumar Varma

Bharat Heavy Electricals Limited - Director of Power & Director

* Nalin Shinghal

Bharat Heavy Electricals Limited - MD & Chairman

* S. Balakrishnan

Bharat Heavy Electricals Limited - Director of Industrial Systems & Products and Whole Time Director

* Subodh Gupta

Bharat Heavy Electricals Limited - Director of Finance & Director

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Conference Call Participants

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* Abhishek Puri

Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power

* Aditya Bhartia

Investec Bank plc, Research Division - Analyst

* Aditya Mongia

Kotak Securities (Institutional Equities) - Research Analyst

* Bharat Subramanian

BofA Merrill Lynch, Research Division - Research Analyst

* Inderjeet Singh Bhatia

Macquarie Research - Head of Research

* Koundinya Nimmagadda

JM Financial Institutional Securities Limited, Research Division - Analyst

* Puneet J. Gulati

HSBC, Research Division - Analyst

* Renu Baid

IIFL Research - VP

* Sumit Kishore

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Renu Baid, IIFL Research - VP [1]

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Thank you, Zaid. Good evening, everyone. On behalf of IIFL, I would like to welcome you to the 1Q FY '20 Earnings Call of BHEL. Today, we have with us from the management, Dr. Nalin Shinghal, CMD; and Mr. Subodh Gupta, Director of Finance; and the entire team of BHEL.

Just a brief introduction about Mr. Shinghal. He has recently joined as CMD of BHEL. And prior to BHEL, he has a rich and diverse experience of working in private sector, public sector as well as with government organizations like Indian Railways, Container Corporation, IRCTC and Central Electronics. He has done his B.Tech in Electrical Engineering from IIT Delhi and [PGDBM] from IIM Calcutta. He has been a Commonwealth Scholar and a PhD in Transport Economics from University of Leeds, U.K.. In his prior stint, he has been a turnaround specialist, turning a loss-making company into profit-making company for almost 6 years.

Without taking much time, I would now hand over the call to Mr. Shinghal for his opening remarks. Thereafter, we can continue the Q&A. Over to you, Dr. Shinghal.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [2]

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Thank you, Ms. Baid. Good afternoon, friends. I'm Nalin Shinghal, CMD, BHEL. And I have with me Shri D. Bandyopadhyay, Director, HR; Shri Subodh Gupta, Director of Finance; Shri S. Balakrishnan, Director, Industrial Systems and Products; Shri Manoj Varma, Director, Power; and Shri Kamalesh Das, Director, Engineering and Research and Development. A very warm welcome to all of you.

Dear friends, after achieving universal household electrification, the government is targeting 24/7 electricity supply. As a result, initial signs of demand growth are visible. During Q1 FY '20 itself, demand for electricity has grown at a rate of 7% against 5% in Q1 FY '19 as per CEA. We are hopeful of seeing the beginning of a new growth cycle in the power sector due to improvement in demand, fuel availability and efforts for improved financial health of discoms. For achieving the vision of India becoming a $5 trillion economy by 2025, continuous and dependable power to industry is an imperative. Coal-based generation will certainly be required to be ramped up to balance the intermittency of generation from renewables. We, therefore, believe that new ordering for coal-based power plants should shortly pick up.

The Union budget has increased CapEx allocation for railways, defense, renewables as well as urban infrastructure to double digits. Given that some of these are our focus areas of growth in our nonpower business, this is very encouraging for us.

Coming to events specific to BHEL. As you may be aware, BHEL along with NTPC and IGCAR is developing the Advanced Ultra Super Critical technology, AUSC, for the new generation, high-efficiency and low-emission thermal power plants.

Towards operationalizing the technology, BHEL and NTPC have signed an MoU, performing a JV company to set up a 1x800 megawatt technology demonstration power plant based on AUSC technology at NTPC, Sipat, Chhattisgarh, which will be installed by BHEL. The AUSC plant is designed to be the most efficient power plant in the world, resulting in 20% lower CO2 emissions. The plant shall create market readiness for future fleet of coal-based power plants in India.

BHEL and Concord have signed an agreement for jointly setting up a rail-based logistics terminal at Haridwar. In addition to meeting BHEL's own requirements, the terminal will also cater to the large number of industries located in the neighboring [state pool] as well as other industrial clusters in the vicinity of the terminal. BHEL is proud to contribute to India's space mission by supplying propellent tanks, batteries and solar panels to ISRO for the prestigious Chandrayaan 2 project, powering both the orbitor and the lander. Similar supplies have been made earlier for missions like Chandrayaan-1 and Mangalyaan. BHEL has been supplying lithium-ion batteries to ISRO for almost 2 decades. In fact, all Indian satellites have used BHEL-assembled batteries. As a backward integration, BHEL has now established a facility at Bangalore for manufacturing space-grade lithium-ion cells based on ISRO technologies.

With this, BHEL would be meeting indigenously the lithium-ion cell requirements of batteries for launch vehicles and satellites of ISRO. Besides space applications, this technology has potential for meeting defense requirements like naval ships, aircraft, missiles, torpedoes and combat vehicles.

During Q1 FY '20, we booked orders worth INR 3,892 crores, out of which Power segment is INR 1,913 crores and industry is INR 1,976 crores. Industry sector has shown an increase of about 25% compared to Q1 FY '19. Some of the significant orders received in this quarter are FGD package order of 3x660 megawatt Nabinagar [SCPB] from Nabinagar Power Generation Company Limited in Bihar. Another FGD package order for 4x250 megawatt Nabinagar TPS from Bhartiya Rail Bijlee Company in Bihar. Primary side and secondary side election packages for 2x1,000 megawatts Kudankulam Nuclear Power Plant, 25 WAG-7 electric locos with regenerative braking and multiple power orders for solar PV power plant amounting to 360 megawatt.

Additionally, we are favorably placed in many tenders, including 2x660 megawatt NTPC Talcher, 1x800 megawatt SCCL Adilabad; numerous FGD and boiler modification order from NTPC and its JV; and spares for many projects, et cetera. With this, the total order book as on 30 June 2019 stands at INR 107,806 crores, out of which the power sector is INR 85,789 crores and industry sector is INR 11,959 crores, and INR 10,058 crores is from exports.

Coming to the financial performance. The company has registered a turnover of INR 4,410 crores during Q1 of the current financial year. PBT and PAT for the quarter stand at INR 344 crores loss and PBT and PAT minus INR 216 crores, respectively. Some of the factors that have impacted the turnover in this quarter are: some projects were suspected to have been delayed due to reasons such as land constraints at some sites and local unrest at one site. In a few cases, dispatches could not be made due to delay in customer clearances. The company is putting greater focus on execution of projects where arresting delays will yield faster realization of cash. In addition, delayed realization of orders where we were L1 for long is also a contributing factor.

In respect of debtors, there is an increase of 30% in cash collection during this quarter vis-à-vis Q1 FY '19. Collectable trade receivables have come down by about 5% percent to INR 15,188 crores during the first quarter.

Thank you all, once again, for joining this conference call. We will now take the questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

First question is from the line of Aditya Bhartia from Investec.

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Aditya Bhartia, Investec Bank plc, Research Division - Analyst [2]

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Sir, while you spoke about some of the issues that have impacted execution, sir, just want to understand it a little better. Because we did see our executable order backlog going up quite sharply after Telangana orders had received approvals, but since then we haven't really seen that translating into revenue. So it's not a matter only of this quarter but in last 3 or 4 quarters, revenue growth has been fairly muted. And then in this particular quarter, we have seen revenue decline. So what exactly are the stumbling blocks? And how do you see that getting addressed over the next few quarters?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [3]

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I request Director of Power to answer -- take that.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [4]

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Good evening. I am Manoj Verma. In fact, the execution of power projects in some of these sites at Telengana and TANGEDCO have been affected due to certain clearances of land which were in the process. And besides that, certain clearances of dispatches also have affected the -- in fact, the top line of the planned turnover during this quarter. And certain clearances and acceptance of material, regarding their acceptance by the consultants have also contributed to the factor. So this we are taking care right now in the quarter 2. And I hope these things will now come back to the normalcy in second quarter.

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Aditya Bhartia, Investec Bank plc, Research Division - Analyst [5]

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And when we speak about normalcy, what kind of growth are we anticipating? Maybe if you could give some guidance about how you're seeing it panning out over the course of the year?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [6]

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So we cannot forecast right now, but we hope to improve and come back to the targeted figures which we are predicting for the quarter 2.

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Aditya Bhartia, Investec Bank plc, Research Division - Analyst [7]

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Sure. My next question is on capital employed, which appears to have risen both in Power as well as Industry segments. How exactly have we seen debtor numbers going up, because you indicated that collectable receivables have come down? And also, if you could share cash balance and debt balance as on June 30, that would be helpful.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [8]

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Director of Finance, you can...

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [9]

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Yes. Actually, if you look at the segment as such, Power Sector, the increase is mainly because of inventory increase, as turnover has not happened. But if you look at the production levels, the production was to the tune of INR 5,000 crores. So the turnover could not happen due to customer clearances and the reasons as already told by CMD. So ultimately, that inventory built up is already there with us. So that will happen in the subsequent quarters. I think one of the major reason for increased capital employed.

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Aditya Bhartia, Investec Bank plc, Research Division - Analyst [10]

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Understood. And if you could share the numbers relating to debtors, cash balance and debt balance?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [11]

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Yes. The collectible trade receivables have gone down -- come down as it was INR 15,945 crores at the year beginning, and now it is at the level of INR 15,188 crores, almost with a reduction of 5%. Last year, if you look at the collectible number, last year, the debtor increase was to the tune of almost -- when we had done a turnover of INR 5,700 crores last quarter, the turnover, the debtor was INR 2,385 crore. So the increase was 7% last year in Q1 '18/'19. Now this time, there's a reduction in debtors in Q1 '19/'20, because of 2 reasons: first, there is an improvement in cash collections by 31% as compared to the quarter 1 of '18/'19. And secondly, the turnover has also not happened. Because of that, some impact is there on debtors.

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Aditya Bhartia, Investec Bank plc, Research Division - Analyst [12]

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Sure. I understood, sir. And what is the component of deferred debtors?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [13]

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Component of deferred debtors... contract assets, you can take it around INR 22,662 crores as on 30th June.

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Operator [14]

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Sorry to interrupt. May we please request you to return to the queue for your follow-up questions as we have participants waiting for their turn in the queue.

Next question is from the line of Abhishek Puri from Axis Capital.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [15]

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Sir, 2 questions. One, if you can elaborate a bit on the unbilled revenues part, which is at INR 22,000 crores. And so total debtors outstanding, including the collectible plus unbilled is about INR 38,000 crores. Is that number correct?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [16]

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The total debtors is around INR 37,851 crores. Basically, from last year onwards, we have classified the debtors into 2 categories. One is trade receivables which is due for collection from customers, which has come down to the level of INR 15,188 crores, down by 5%, as compared to the opening balance. Second is contract assets, what we now call as contract assets as per new AS115, which is INR 22,662 crores, which includes 2 elements: one is deferred. The deferred is INR 18,718 crores and the valuation adjustments and others, which are unbilled revenues, INR 3,944 crores. So both are unbilled, basically. Unless we complete the milestones and the related events, this INR 22,662 crores does not become due to customers. So that's why they have been classified as contract assets.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [17]

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Right. And in terms of the revenues that you have booked, obviously, is below your breakeven level, and which is why we have seen EBITDA at a loss on your...

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [18]

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Our parameters got affected is mainly because of the top line. This is there as compared to the last quarter by almost INR 1,300 crores, more than INR 1,300 crores. So the EBITDA number has also gone down because of that reason only. Segmental also got affected. So mainly the...

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [19]

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So would be able to achieve that full year number of INR 33,000 crores, best case scenario?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [20]

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Yes.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [21]

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Basically, that's our number, MoU number, INR 33,000 crores is the MoU number. Secondly, we'll be working towards that number, but now what would happen in next quarter certainly -- we are reviewing those numbers, and we'll come back to you.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [22]

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Okay. And my second question is on the order inflow pipeline. If you can talk about some of the projects which are due for bidding or to be finalized in the next few months or quarters?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [23]

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In the Power Sector, we are hoping to get the clearance -- MoU clearance for Sagardighi, 1x800. And likewise, for Talcher, also, we are expecting clearance from the Government of Orissa, same rating. And then the tenders which are in the offing are Lara, Singrauli, Talabira, and Singareni Collieries Limited. They will be giving a huge market potential of which we are targeting most of the orders, like we have been performing in the last 2 fiscal years.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [24]

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And the Cuddalore one, Neyveli Lignite?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [25]

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Yes, Neyveli Lignite, Talabira is also there, 3x800.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [26]

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Actually, that is also one of the reasons where debtor power is sold, that anticipated orders -- whatever orders we were anticipating in quarter 4 of last year, even in quarter 1 also this year, those did not happen. So some of the turnover's also planned from those numbers. So that could not be achieved. That is also one of the reason.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [27]

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One more I'd like to supplement. This NPCL is targeting this fleet mode of orders to be given for this 700 megawatt. So those that were targeted in the quarter 1 of -- sorry, quarter 4 of last fiscal are now getting dragged to Q3 of current year. So these shifts are affecting the order inflows, which we are hoping that by end of this fiscal year, they will add to the order book substantially.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [28]

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Can I ask one more? On the Industry segment, you have a very strong order book, but the industrial revenues have also declined. So why is that the reason?

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S. Balakrishnan, Bharat Heavy Electricals Limited - Director of Industrial Systems & Products and Whole Time Director [29]

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Yes. I'm Balakrishnan. I would like to respond to this. The order book of Industry sector -- this one is last year. Last year, it was around INR 1,591 crores in Q1, and this has gone to INR 1,978 crores in this year. So there's an upward jump of almost 24%, as CMD had told in his opening remarks also. The dip in the turnover is basically on 3 accounts as was explained by my colleagues also. Basically, there are some results which are attributable to customers, some to our vendors and some, of course, minor internal reasons have also been there. So basically, the issue was with respect to the customer clearances, and in some cases, our imported equipments, which have to come majorly from the modules, which were to come from China. And secondly, the equipments from Stratton, the Netherlands, for our transportation segment, there has been a delay in that. So they couldn't come in the Q1. And hence there has been a dip in the turnover. They are progressively coming now, and we are sure to make it up in our second quarter.

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Operator [30]

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(Operator Instructions)

Next question is from the line of Ankur Sharma from HDFC Life.

We will move to the next question, which is from the line of Puneet Gulati from HSBC.

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Puneet J. Gulati, HSBC, Research Division - Analyst [31]

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Can you give some more color on what is the status of the problems which have resulted in slower dispatch? Have they been resolved now?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [32]

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Yes, as far as it is a Power Sector segment, certain issues, as far as the consultants observations were there, they are on the verge of almost getting cleared. The land encumbrances in case of TANGEDCO, which has been recent decision from court of law, that is also getting resolved through the customer only. And despite this, certain local agitations were there in some of the sites because of this land. So those things are also being pursued by the respective customers. I think these things should finally get consolidated and improved in the current months.

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Puneet J. Gulati, HSBC, Research Division - Analyst [33]

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Okay. So in Q2, do you think all these would be resolved? Or can this spill over to Q3?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [34]

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We are always optimistic, and so we hope in that way.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [35]

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We're trying to get them done.

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Puneet J. Gulati, HSBC, Research Division - Analyst [36]

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Yes. Okay. Secondly, you also mentioned some orders which were -- where you were L1. Is it possible to get more color on why they have been delayed? Lara, Singrauli, what state are they in now?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [37]

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No, those bids have been submitted. At the customer end, they are taking certain time for evaluation. Certain technical bids have been submitted, certain clearances are being evaluated. So they will come down by Q2, Q3. We are quite hopeful on those things.

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Puneet J. Gulati, HSBC, Research Division - Analyst [38]

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Okay, okay. Lastly, can you share what is the net cash balance on your balance sheet for Q1?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [39]

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Director of Finance.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [40]

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Cash balance, actually, if you see, we don't give the number. This number -- that number are a breakup of all the assets we give in the quarter 2 only, balance sheet breakup. There we give only segment assets and liability.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [41]

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My colleague can answer greatly on this number later on, after this concall.

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Puneet J. Gulati, HSBC, Research Division - Analyst [42]

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Okay, okay. Lastly, would it be possible to comment on the nature of profitability in the FGD projects that you won? Is it at par with your...

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [43]

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As far as the FGD orders are there, we have already got 23,000 megawatt of orders for FGD and emission control equipments, of which we are already proceeding right now in the Delhi NCR region with one of the prestigious orders. And likewise, certain clearances are also in the offing from other customers. It's almost consolidating to 41 sets. Roughly, almost 19 gigawatt orders are also getting now in the pipeline where we are L1 and orders are also equally expected. Further, another 30 gigawatt market potential is also there, which -- for which tenders will be floated, and we hope that this year only they will be consolidated. And we are quite hopeful to have a major chunk of these orders.

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Puneet J. Gulati, HSBC, Research Division - Analyst [44]

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Sir, how many gigawatt has been allotted so far in the system?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [45]

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It's almost 40 gigawatt right now, of which 23 gigawatt is with us.

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Puneet J. Gulati, HSBC, Research Division - Analyst [46]

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Okay. Out of 40, 23 is with you. Another 19 gigawatt you said is in L1 stage.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [47]

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Yes.

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Puneet J. Gulati, HSBC, Research Division - Analyst [48]

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And then 30 more is likely to come to the market.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [49]

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They are in the NIT stages.

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Puneet J. Gulati, HSBC, Research Division - Analyst [50]

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Okay. Do you think the profitability of these orders would be at par with what you are currently otherwise running ex of this Q1?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [51]

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We are making a dent in the market of emission control. And I think with the order book we have, we are already leading the segment. And equally put on consolidation basis, it will be earning us quite a good revenue from these orders also. And there will be earning on that.

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Puneet J. Gulati, HSBC, Research Division - Analyst [52]

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Okay. And the profit as well, EBITDA?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [53]

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Yes, profit also we can calculate subsequently. Right now, we cannot give you any forecast.

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Operator [54]

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Next question is from the line of Sumit Kishore from JPMorgan.

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Sumit Kishore, JP Morgan Chase & Co, Research Division - Research Analyst [55]

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My first question is, again, focusing on customer clearances being one of the issues which were an impediment to execution. What is the nature of the clearances you're talking about? I mean are they cash flow issues that customers are facing because of which the projects are getting delayed as well?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [56]

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We'll appreciate that the market of late has been focusing on very crucial terms of payment for the orders which we are executing and will -- they will be in the offing also. So the cash liquidity, precisely, right now the segment which we are focusing is on [leased] state utilities, which are already having a spreads of revenue generation from their previous supply chain management of generation companies and discoms. So likewise, the clearances, I mean to say is, earlier, we were piling up all these equipments in a row at the sites and then going on erecting and commissioning these things. But now the customers have become more specific and smart and they want only in the sequentiality basis. So what all outturn is also pending the -- what we mentioned around INR 5,000 crores, of which INR 44 crores has been declared as the top line, so those things are also now getting cleared by customers to be sent to sites. And besides this, even the sequential items which we are dispatching, those payments are also getting delayed. So capital workability is also becoming a criteria right now. From that point of view, customers are practically holding these things. So these clearances are really becoming a little tight corners.

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Sumit Kishore, JP Morgan Chase & Co, Research Division - Research Analyst [57]

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So would it be fair to say because our understanding was that now state orders account for roughly 65% of the order backlog as of FY '19 end, and given the elongation in execution cycle for these state projects, would it be fair to say that, I mean, there should be some discounting of the growth expectations?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [58]

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Discounting -- actually -- honestly, I don't understand your question. Can you please explain it more?

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Sumit Kishore, JP Morgan Chase & Co, Research Division - Research Analyst [59]

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So basically, given that more than 50% of your order backlog is from state government projects and there are execution delays caused because of the sequence in which they are accepting the equipment. Would it be fair to say that your original targets on growth should be tempered to that extent, given this elongation? Or was that part of your MoU sort of guidance of INR 330 million for the full year?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [60]

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I'll put it this way, rather the kitty of orders executable which we are having, if certain stresses are coming on such accounts, it would have been more comfortable for us to have the order inflow which we are expecting in the first 3 quarters of this calendar year. So it would have given us more freedom and operateability to pick up those things and start parallelly on those orders also. Since those are not happening and order finalizations are taking some more time at the end of the customers, this freedom is little getting suffocation for the process of execution.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [61]

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And if I may add to that, one of the record completion times has been a state order.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [62]

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Yes, that is Kothagudem 1x800.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [63]

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So which has been achieved in record time.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [64]

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46 months of capacity addition.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [65]

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So it's a mixed bag, really.

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Sumit Kishore, JP Morgan Chase & Co, Research Division - Research Analyst [66]

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Sure. And for the nuclear sets which are expected for award this year, what would be the addressable opportunity for BHEL there, in value terms?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [67]

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We are targeting almost 50% plus of the total kitty, which they are going to float likely by Q3 of this current fiscal.

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Sumit Kishore, JP Morgan Chase & Co, Research Division - Research Analyst [68]

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And what could potentially be the rupee billion opportunity for BHEL there?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [69]

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We are targeting roughly INR 5,000 crores plus on that account.

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Sumit Kishore, JP Morgan Chase & Co, Research Division - Research Analyst [70]

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Okay. And finally my last question is on the employee cost, where we saw a slight increase on a year-on-year basis. I mean, just wanted to check on a full year basis, you still expect the employee cost to come off?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [71]

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This year closer to INR 6,000 crores. We have already settled, so this year -- last year, employee cost was around INR 6,300 crores. This year, we are expecting closer to INR 6,000 crores. It will not exceed INR 6,000 crores, it should be less than that.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [72]

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It was the number what we have reported in quarter 1 of '19/'20. You see the increase is just marginal. It is just 2% increase over the number. So even after absorbing the impact of wages also, increases are not that much. Basically, our manpower reduction is taking us -- absorbing the increase in the wages.

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Operator [73]

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The next question is from the line of Koundinya Nimmagadda from JM Financial.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [74]

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Sir, just a couple of data points. Is there any ForEx loss or gain in the current quarter?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [75]

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Yes, it's a gain, basically. There is a gain of almost -- INR 48 crore gain is there. Last quarter, it was INR 85 crores.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [76]

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Okay. Sir, I missed the order book and order inflow numbers. If you can explain with that again? I'm sure...

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [77]

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Order?

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [78]

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Order book and order inflow numbers for the segments, I missed that. If you can provide them again it will be grateful.

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Unidentified Company Representative, [79]

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Roughly 3,800 total order book in the Q1.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [80]

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INR 3,892 crores is the total order book, which is 50% from Power Sector and 50% from Industry Sector in Q1.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [81]

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No, first quarter.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [82]

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First quarter, Q1.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [83]

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(foreign language) Q1? INR 3,892 crores.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [84]

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INR 3,892 crores is the order inflow number, sir?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [85]

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For the quarter 1.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [86]

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Okay. And what's the order book from Power Sector, sir, currently?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [87]

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Currently, the order book from the Power Sector is INR 85,789 crores cumulative, INR 86,000 crores.

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Operator [88]

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Next question is from the line of Aditya Mongia from Kotak Securities.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [89]

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The question which I had was more related to the current employee strength and how much revenues in the best-case scenarios can be supported? And the aim is to get a sense that beyond what revenue line would you start thinking of actually adding employees?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [90]

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You see we are actually having an attrition of about 1,500 per annum. And we are, at the same time, also taking on new employees. I think this process will continue for some time. Effectively, what it results is that we have a reduced employee cost overall because the entry-level employees would be at a lower cost also.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [91]

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Hope not. This will not happen with the same number.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [92]

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The numbers will be lower in any case.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [93]

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The number will be low.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [94]

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No, that I understand. I'm just saying, in an optimistic scenario, that when the ordering from the Power Sector starts growing, at what kind of revenue line would you start thinking of adding employees in a meaningful manner?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [95]

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Yes. There we have got lot of flexibility in operation with regard to manpower. We are recruiting executives to the tune of 100 and 150 per annum gradually. But at the same time, as CMD has already told that there is a reduction of total manpower around 1,500, 1,600 per annum. If we require for short-term projects any number of manpower, we can recruit through fixed tenure appointment or we can go for other lateral recruitment also. That is manpower increase in executive level will not be an issue. And for the worker level, there is always offloading outsourcing of manpower, which is cheaper than regular member of BHEL. So we want to optimize on this manpower, one, because our -- since our top line is a little restricted at this point of time based on the total economy. So moment, this condition prevails, we will always contain the manpower cost in various corrective measures.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [96]

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Sure, sir. Sir, second question was on the interest cost that is on a Q-on-Q basis gone up. Just wanted to get a sense that, are there issues on the payables front also that you're facing right now, wherein you have to support your vendors, that is leading to some deterioration in working capital also?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [97]

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Certainly, there is a pressure on working capital because of the cash flow reasons. Last year, if you see the -- last year quarter 4 of '18/'19, there, the borrowing was INR 2,500 crores. So right now the level of borrowing is almost to the tune of -- by the end of June, it is INR 4,000 crores. So there's an increase of INR 1,500 crore in borrowing in Q4, in this quarter 1 itself. So that has caused a stress on the interest cost, and that is mainly because of the stringent payment terms as Director of Power has already told you, that even customer is now asking more -- they are becoming more stringent in terms of execution. They are asking for sequential executions. So that is also one reason causing a stress on working capital.

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Unidentified Company Representative, [98]

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(inaudible)

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [99]

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First, (inaudible), liquidity is a concern. For general concern, overall, if you look at the industry, it is a major concern right now.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [100]

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Sure, sir. Sir, last question from my side. You obviously talked about a lot of issues related to projects wherein execution is being impacted. Could you quantify as to what share of backlog is getting impacted because of these specific issues and where execution is taking a hit right now?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [101]

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So we could have improved on this top line to the extent of another 10% to 12% had these things were not been there. So that could have been the sequel amount I can say as of now.

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Aditya Mongia, Kotak Securities (Institutional Equities) - Research Analyst [102]

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Sure, sir. Because why I am basically asking this question is that, let's say, 3, 4 years back, when you were seeing this similar kind of quantum of Power Sector revenues, the aggregate backlog was very different and much lower than where we are today. And this is why I just thought to kind of get a sense on you as to -- if you could quantify a number of slow-moving orders in the backlog...

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [103]

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I think it is -- as of now, it is just a temporary phase, which we are -- with all our efforts with customers and various agencies concerned, we are trying to -- so I think the things will be much better in the next quarter.

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Operator [104]

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(Operator Instructions)

The next question is from the line of Renu Baid from IIFL.

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Renu Baid, IIFL Research - VP [105]

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Sir, couple of questions from my end. A, in this quarter, we see overall the other expenses has been pretty lean. So what was the movement of provisions that you saw in this particular quarter? Any write-backs or big jump in the provision that we saw?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [106]

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Renu, if you look at the provision, it has gone down. As compared to the last quarter, the provision has gone down. The reduction in other states what you've seen, it is mainly because of the reduction in provision. Last time, the provision was -- last time, the net provisions were INR 309 crores, quarter 1 '18/'19. Now this time, it is INR 164 crores, basically, mainly, because of withdrawal. More withdrawal has happened in the quarter, in the current quarter. Mainly, we have recovered the money, even that money we have recovered from the private customers. So it is because of that reason that there's an improvement in the provision creation -- net provisions.

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Renu Baid, IIFL Research - VP [107]

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Sure. Any particular accounts you want to highlight from where we're seeing the collection of the old return of...

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [108]

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No, no. I'd not like to highlight the account at the moment, but certainly the recovery has happened and that has given us a benefit in provision we're targeting. And we are even targeting more recoveries in the current year.

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Renu Baid, IIFL Research - VP [109]

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And what was the mix -- sure. And sir, how has been the mix of the receivables across state, private and central sectors?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [110]

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I'll tell. I'll tell. Renu, it's basically 50% state utilities, central PSUs 32%, private customer 12%, and 6% exports.

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Renu Baid, IIFL Research - VP [111]

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Okay.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [112]

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As on March 19. Now as on 30th June, it is state 49%, central PSUs 33%, private customers 12%, exports 6%.

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Renu Baid, IIFL Research - VP [113]

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Okay. Sure. Second question is, on the inflow side, as we understand some of the orders including Talcher and the 1x800 megawatt also has been now in the pipeline almost for a year. So if you can help us a bit more granularity in terms of where exactly are these projects in terms of -- what's holding back them to be converted to LOAs from the L1 level? And any particular time lines that you can assign with respect to these inflows? And along with this, attached is the question that a high share of inflows have been now flowing -- overflowing from last financially -- has slipped from financial '19 to '20. And financial '20, there are already certain projects in pipeline. So in total, for FY '20, do we see a significantly large potential order inflow coming in, basically averaging out the gap that we saw last year?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [114]

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Yes. We'll take the first part of the question. This -- what we were [attending] precisely 2 orders of Sagardighi, which is still now likely on the verge of clearance from MoEF. So if that comes through, I think what we met the customer recently also they have indicated another 2 months or 3 months likely. So we are quite hopeful by Q3, it should be coming, early Q3. And as regards to Talcher, what we are talking, it is, in fact, the customer has got the clearances through their Board, and it is right now -- the state is to give certain clearances which we are again hopefully in the next 2 months also it should be getting through. So I'm quite hopeful that by Q3 start or mid, we will be -- this kitty should be there with us in our -- these orders should be there in our kitty. As regards to the various opportunities which I had mentioned, Lara, Singrauli, Talabira, Singareni Collieries, all these orders -- and the NPCL, which is a major chunk to the extent of high-digit potential, so these are also possibly getting finalized in Q3 (inaudible) Q4 surely. So if that -- those come through the order book closing, we'll be having quite a good potential.

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Renu Baid, IIFL Research - VP [115]

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Right. Because at the end of last financial year, we almost had INR 14,000 crores with L1s from Power Sector alone. So broadly, is it safe to assume that probably this year things fall in place, we could have INR 50,000 crores kind of...

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [116]

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Everything going optimistic, Renu, we will be crossing that figure definitely.

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Renu Baid, IIFL Research - VP [117]

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Sir, everything going realistic. Let's not look at optimistic, right?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [118]

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I think I stand corrected. Realistic could be the better word.

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Renu Baid, IIFL Research - VP [119]

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Yes. And my last question here would be on the execution. For whatever reasons, you've seen constraints with clients, especially the state sector and the way the payment milestones have moved, including revenue execution. There has been slippage in revenues. So for the full year, do you -- and some of these will probably take a few more months and might slip to second half. So do you foresee that the full year MoU guidance, which we had committed probably, there could be certain risk to that? Or you still think its fairly within the comfort zone of clocking the INR 31,000 crores, INR 32,000 crores of gross revenues for the year?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [120]

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Our report card is by virtue of the MoU we signed with the Government of India on behalf of DHI. And last 2 years, we have been on excellent pattern. So I think this year also we should be repeating or excelling the performance. So I think we should be there in that range.

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Operator [121]

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The next question is from the line of Inderjeet Bhatia from Macquarie.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [122]

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My first question is on the gross margin side. This quarter we've seen, though year-on-year is kind of a significant reduction in gross margin, what is the right number in terms of raw material cost to work with for the year?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [123]

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Right now, the percentage of turnover is 59.1% in Q1. So it's a marginal increase over last year, 58.2%, it has come -- it has gone up to 59.1%.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [124]

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So should we work with a similar number for the year? Or is there a scope for reduction from hereon?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [125]

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It depends. Again, we have already told you, it depends on the mix of turnover. If the sharp is more -- if the sharp turnover happens more then the [reduction] will be low. If it is (inaudible), it's like that. It depends on the mix of turnover.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [126]

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Okay. Secondly, on this order inflow, do all the projects where we are currently L1, have all clearances in place, except to say the Board clearance to go head and place the order or give the notice to proceed?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [127]

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We can say broadly, yes, and some are in the pipeline activities, which should also get through shortly.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [128]

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Okay. And there are no environmental clearance issues with any of these things? Because in the past, we have seen the time lines to covert our L1 orders into LOA has kind of been almost like 18 months to 24 months in some of the cases.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [129]

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See, Sagardighi, we have already narrated; it's already in that same boat. And these things are beyond our stretch. We can only pursue the process and support the process outside. So we know that these things should be getting through.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [130]

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Okay. Just last thing is that, apart from these L1 orders that we already have, what do you see in the pipeline? Are there any fresh bids which are kind of being floated, RFPs being floated or likely to be floated? And what do you think would be the size of that?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [131]

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They are also -- just a minute...

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Unidentified Company Representative, [132]

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As on date, there is a potential of almost something like 15 to 16 gigawatt, including thermal as well as hydro and nuclear.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [133]

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Sir, can you -- sir, Hello? Sir, we can't hear you properly.

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Operator [134]

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Sir, can you speak a bit loud, please.

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Unidentified Company Representative, [135]

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Right. So there is a quite a good potential during the current year, almost 16 gigawatt, roughly. Out of that, we are expecting some 8 to 10 gigawatt will be finalized during the current year. Some of the projects are already been narrated by Director of Power and CMD earlier, like Talcher, then Singareni, then Khurja, Talabira, Singrauli, Lara. And we are expecting further some of the tenders like Koradi expansion maybe in the third quarter or so. Similarly, there are certain projects, which are coming into hydro sector also, like Teesta IV that will come and NIT will be floated in Q2 or maybe Q3, most viably.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [136]

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Quotations are there also.

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Unidentified Company Representative, [137]

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And further to that, there are also electrical projects amounting to 6 sets of 700 megawatt DG sets. And of course, there are another 10 states of steam generator in nuclear sector. So with this, there is quite a bit good potential. And if you see further NITs to be floated is to the tune of around 2,000 megawatt. And almost 14,000 megawatt NIT has already been floated in the sector.

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Operator [138]

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The next question is a follow-up from the line of Koundinya Nimmagadda form JM Financial.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [139]

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So my first question is on the FGD side. What will be the cost per megawatt approximately, because we see a huge variation between orders? So just trying to get a sense on why there will be a huge variation, what are the drivers here?

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Unidentified Company Representative, [140]

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Basically, the cost of FGD varies basically -- based on the configuration on the project, location of the project and layout of the project. Now if there is a multiple events, the cost of FGD per megawatt will down as compared to single unit. If you have seen the variation during various tenders, whatever has been floated from last month to last 3, definitely, there has been increase in the price level. And presently, it is varying from almost INR 0.65 crore to almost, even more than INR 1 crore in all the projects whatever NTPC has floated very recently, particularly within the single unit.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [141]

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Okay. Understood. Sir, my second question is maybe a bit long short now, but still, I'm just trying to understand you. You said that we are into manufacturing lithium-ion batteries for space and ISRO and other related stuff. I'm just trying to understand, recently there were some news article, which were saying that [government] is also planning to put some INR 1 billion towards battery storage plants and all. So just trying to understand, are we targeting this area as a potential opportunity going ahead? Or what's your sense on this?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [142]

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Yes, we are targeting this area going ahead as well. So that's the different -- ISRO is a different category, and these are the larger numbers for a range of applications, which are of lower stringency.

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Koundinya Nimmagadda, JM Financial Institutional Securities Limited, Research Division - Analyst [143]

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So does our existing skill set, will that be enough to execute these orders? Or what's our plan? Like are you going -- are we going to enter into JV with some other entity? How does it work, sir?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [144]

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We are still exploring the various options for that.

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S. Balakrishnan, Bharat Heavy Electricals Limited - Director of Industrial Systems & Products and Whole Time Director [145]

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The government policy is asking for -- having a tie up with a party who must be having at least 1 gigawatt, who should have already supplied 1 gigawatt of battery. So it will be -- because of this size, no OEM is available in India. We'll definitely will have to have a tie up.

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Operator [146]

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Next question is from the line of Renu Baid from IIFL.

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Renu Baid, IIFL Research - VP [147]

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Sir, just couple of more questions from my end. A, on the FGD side, you've seen NTPC has now, instead of awarding all the projects of Lot 2, they are going for partial retendering or renegotiation. So how should we look at this? Are we seeing signs that customers, as in the players or the supplier, the equipment suppliers are not being aggressive enough. They have probably now increased the price levels. But customer is still not probably happy with that. And so how should one read it in terms of the phenomena of again and again retendering from the customers, but supply is not being as competitive on the prices side?

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [148]

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The precipitant NITs, which have been annulled and they are now taking it to their Board for reconsideration of the base price, possibly it was not up to the market level, which possibly they will revise those upwards and then again come back with the same quotes in the new tenders. So that time it will be -- people will be there to bid for these. As of now, they were quite low.

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Renu Baid, IIFL Research - VP [149]

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Okay. And what could be the cumulative quantum which would come in the subsequent lots?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [150]

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I told you, in fact, roughly 30 gigawatt potential is there in the current financial year, which we are opening as of now.

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Renu Baid, IIFL Research - VP [151]

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Okay. Sure. Second question is on the working capital side. As an overall, especially in the last quarter or so, the working capital in the current environment has been pretty sticky. So are we seeing pressures on our suppliers, subcontractors, which is putting indirect pressure on our payables and working capital? And could this also be a potential headwind on execution? Or this is broadly being managed evenly out?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [152]

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There is a -- I think this is a issue across the sectors. And we are working on ways of how we can assist our contractors, also improve our own working capital situation by realizing our existing dues. So I think this is something we will have to work together to handle.

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [153]

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We have worked out on the -- almost the past (inaudible) also, which has definitely added to more than 30% of our cash inflow on a like-to-like basis of last year, and we are putting all requests and all measures to push customers also so that these funds are released, enabling us to maintain our capital workflow without affecting our vendors to the extent possible.

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Renu Baid, IIFL Research - VP [154]

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Right. Sir, have you seen a creditor cycle shrinking because of this? Or probably that has been broadly intact?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [155]

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No creditors, I think we are maintaining within the specified range of whatever has been -- for the DOPs. So I -- broadly we have interacted with them in a recent meeting also. So there they have not indicated such pressures. Definitely, they want certain more comforts. But once we get these cash realizations from customers, we will put them to more comfort so that they can deliver much better in their cases.

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Renu Baid, IIFL Research - VP [156]

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Sure. Sir, my last question is on the railway side. At least among the other ministries, rail segment is where even post elections we have seen a lot of push coming through on electrification, other projects, so continuity of order is coming through for us. So from that perspective, how should we look in terms of the order pipeline building up for us in the rail portfolio, including the region datasets as well as the PC and other electrical equipment side? And any insights on the high-speed corridor with respect to the JV that we have for the Japanese partner. So by when can we expect some transition of business from that venture?

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S. Balakrishnan, Bharat Heavy Electricals Limited - Director of Industrial Systems & Products and Whole Time Director [157]

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Yes, railways, basically, is a very important [wealth] area for us, and we are expanding our business in the railways. And last year, as we had told in the concall as well, that the first electrification order was secured by us, and there are 5 more tenders in the pipeline. The second one is -- the NIT is already issued. And we're going to address it shortly. Maybe, I think within a month's time, that tender will come into picture. And we are one of the parties who could participate -- almost 500 have been shortlisted for 5 more tenders. So we are one of them. So there will be 5 electrification tenders in which we will be participating. And the first month is what I'm telling -- it will happen as of 1 month's time. And with regard to the other areas, like the regenerative -- loco with regenerative system, we have already secured an order, and we'll be further pursuing those orders. And we are hopeful to get the order shortly for manufacture of 75 locomotives. And it is in the final stages, and we can expect the order maybe within a month's time. Besides this, the high-speed rail is the one in which -- and the stainless steel coaches for the metros are 2 things for which we have a collaboration with KHI, and we'll be pursuing this with them. There have been a few meetings with the National High-Speed Railways, and the tender is expected in this year, in which we'll be participating with KHI in this. And in this, about 25% of local content has to be there. So we are hopeful to get this 25% share. This will be almost 6 rigs that will have to be done indigenously out of the total 24 rigs. So that will have to be done indigenously.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [158]

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We will close now.

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Renu Baid, IIFL Research - VP [159]

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There's a last question, sir.

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Operator [160]

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We have a next question, which is a follow-up from the line of Inderjeet Bhatia from Macquarie.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [161]

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Just one question. Just one last question. In terms of -- again, sorry to harp on these L1 orders, but is financial closure already in place for all these projects?

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Manoj Kumar Varma, Bharat Heavy Electricals Limited - Director of Power & Director [162]

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Yes, we are taking on the financial closures also. And we have had a dedicated team working on this recently, which we have just constituted. So these things will be taken care.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [163]

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No, no. I'm saying financial closure from the customer point of view.

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Unidentified Company Representative, [164]

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Yes, most of the projects have already been financially closed. Right-to-use of Talcher, there's only one approval awaited from the Odisha Government, which is likely to be taken in the next agency meeting, high-level meeting, including the Chief Secretary of the State. And we hope that clearance will be received during the month of August in this meeting. So definitely after that, it will only be the statement of the orders.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [165]

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Sure. Sir, and one last thing is, given our cash balance, is there any discussions with the government or your parent ministry regarding the larger dividend payout or another buyback on that? If you could just throw some light.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [166]

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I think there is no such thing at the moment.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [167]

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At the moment, there is no such thing, yes.

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Operator [168]

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Ma'am, we have one last -- another question has come up in the queue, shall we take that?

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Renu Baid, IIFL Research - VP [169]

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Yes, just quickly. I think that should be the last question.

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Operator [170]

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Ladies and gentlemen, we will take the last question now, just from the line of Bharat Subramanian from Bank of America, Merrill Lynch.

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Bharat Subramanian, BofA Merrill Lynch, Research Division - Research Analyst [171]

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I just wanted to understand that, as of March 2019, you had a cash balance of INR 75 billion, right? And if that's the case then why are we increasing debt to fund our working capital requirement?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [172]

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Hello? I couldn't get your question, please repeat it.

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Bharat Subramanian, BofA Merrill Lynch, Research Division - Research Analyst [173]

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Sir, as of March 2019, we had a cash balance of around INR 7,500 crores.

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [174]

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Yes.

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Bharat Subramanian, BofA Merrill Lynch, Research Division - Research Analyst [175]

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If that is a cash position available, then why are we increasing the debt to fund our working capital needs right now?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [176]

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It was basically, if you look at the cash balance, it was not INR 7,500 crores, net of borrowings it was closer to INR 5,000 crores, INR 5,046 crores it was the number. So that was the number. Now because basically one -- this is leveraging what we are doing from the market as I have told. The borrowing what we have done up to Q1 is INR 4,000 crores. Increase in borrowing to the tune of INR 1,500 crore.

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Bharat Subramanian, BofA Merrill Lynch, Research Division - Research Analyst [177]

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Sure, sir. So it's the same thing, right? I mean, you had INR 7,500 crores of cash and INR 2,500 crores of debt as of March 2019. That brings to the INR 5,000 crores number that you're mentioning. So if you have the net cash of INR 5,000 crores as of March 2019, why are we -- why have we borrowed additional INR 1,500 crores between March and June to fund our...

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [178]

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This is basically what we're doing a arbitrage. We have whatever money we have, INR 1,500 crores, most of that is -- was in the form of FDs. We are borrowing through short-term commercial papers.

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Bharat Subramanian, BofA Merrill Lynch, Research Division - Research Analyst [179]

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Sir, may I ask what is the rate of the borrowings right now?

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Subodh Gupta, Bharat Heavy Electricals Limited - Director of Finance & Director [180]

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The interest rate is much better in FD as compared to the short-term borrowings in commercial papers. There it is around 6%. There we are having an interest of 8%.

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Operator [181]

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Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Ms. Renu Baid for closing remarks.

Over to you, ma'am.

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Renu Baid, IIFL Research - VP [182]

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Yes. Thank you, everyone. On behalf of IIFL, I would like to thank the management for giving us the opportunity to host the call and the participant who are present, and thereafter, I request Mr. Shinghal for his closing remarks, if any. Thank you, and over to you, sir.

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Nalin Shinghal, Bharat Heavy Electricals Limited - MD & Chairman [183]

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Thank you, ladies and gentlemen, for your patience hearing and a very interactive question-and-answer session. Going forward, the priorities of the company would be, firstly, to focus on timely execution of projects and for improvement of cash flow through our projects which have earlier been closed as well as for the new projects that we are doing at the moment. Secondly, we are also looking at quality first, launching our quality-first initiative across the organization for improvement in quality of products and services. Then we are looking at another initiative on the HR front for HR Excellence project -- initiative across the company. And in addition to that, the diversification and upgradation of our product range for existing areas as well as new growth areas. So these are the major areas we are looking while we are -- as we go forward. And with these, we aim at sustained profitability and growth of the company. I would like to conclude by sharing with you that timely execution and quality will be the keystones. And though difficulties remain, we shall be finding our ways to work around them to attain the best solutions.

Thank you very much. Goodbye.