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Edited Transcript of GET&D.NSE earnings conference call or presentation 11-Feb-20 10:30am GMT

Q3 2020 Ge T&D India Ltd Earnings Call

New Delhi Feb 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Ge T&D India Ltd earnings conference call or presentation Tuesday, February 11, 2020 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Manikkapurath Sivaprasad

GE T&D India Limited - Executive of Business Operations

* Pitamber Shivnani

GE T&D India Limited - CEO

* Sandeep Zanzaria

GE T&D India Limited - Sales Executive & Chief Commercial Officer

* Suneel Mishra

GE T&D India Limited - Head of IR

* Sushil Kumar

GE T&D India Limited - CFO

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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

* Ashwani Kumar

Nippon Life India Asset Management Limited - Senior Equity Fund Manager

* Bhavin Vithlani

* Renjith Sivaram

ICICI Securities Limited, Research Division - Assistant VP

* Renu Baid

IIFL Research - VP

* Subhadip Mitra

JM Financial Institutional Securities Limited, Research Division - Power Analyst of Institutional Equities Research

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to the GE T&D India Limited Q3 FY '20 Earnings Conference

Call. (Operator Instructions) Please note, this conference is being recorded.

I now hand the conference over to Mr. Suneel Mishra, Head, Investor Relations. Thank you, and over to you, sir.

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Suneel Mishra, GE T&D India Limited - Head of IR [2]

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Yes. Thank you, Vikram. Ladies and gentlemen, good afternoon. Myself, Suneel Mishra, and I manage Investor Relations for the company. So welcome to today's conference call with GE T&D India Limited management team. As we know, this conference call has been organized to present and discuss financial results for the third quarter and 9 months ended 31st December 2019.

Now let me first introduce my management team available on this call. We have with us, Mr. Pitamber Shivnani, our new Chief Executive Officer and President. Mr. Shivnani has joined the company with effect from 15th of January 2020. So we welcome him on this call. Further, we have Mr. Sushil Kumar, CFO, sitting with us. Moreover, we have Mr. Sandeep Zanzaria, who is our Commercial Leader. We have Mr. Manikkapurath Sivaprasad, who is our Operations Leader. Moreover, we have Mr. Manoj Prasad Singh, Company Secretary; and Mr. Anshul Madaan, who is our Communications Leader.

Please note that this conference call is scheduled up to 5 PM. I hope you would have received the investor and analyst presentation, and read the disclaimer as per Slide #2.

I would now request Mr. Pitamber Shivnani to begin this conference call, highlighting key events of the quarter. Thereafter, Mr. Manikkapurath Sivaprasad will be presenting slide on operations and execution. Then Mr. Sandeep Zanzaria will give an update on order and market. Followed by Mr. Sushil Kumar, who will be speaking on financials.

I will now invite Mr. Shivnani to begin. Over to Mr. Shivnani.

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Pitamber Shivnani, GE T&D India Limited - CEO [3]

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Thank you, Suneel. Good afternoon, ladies and gentlemen. Thanks for joining the call. I would like to start this call by giving you a brief overview on last quarter. And then I would request my other colleagues present here with me to go through the details.

The grid market continues to be stable at approximately USD 3 billion. In quarter 3 of financial year 2019 and '20, we booked orders worth INR 1,250 crores versus INR 690 crores that we booked during quarter 2 of the same year. A part of this can be attributed to renewable energy additions that are creating new opportunities with green energy corridor. We received good number of orders related to renewable evacuation for few major renewable generating states like Gujarat, Rajasthan in last quarter. Sandeep, my colleague, will talk about them in detail later in the call.

In terms of operation, we did face challenges because of tough market condition and certain projects delay. But still, we were able to maintain the execution momentum and delivered many key projects for our customers in India as well as Bangladesh and Bhutan. Overall, we had challenging quarter financially, though we have done well on orders and collection, but profitability continues to be low, majorly impacted by execution challenges. Sushil will walk us through the financials. On the market side, we continue to witness other challenges like liquidity issues, which is leading to delayed project execution. Plus, there is pricing pressure, continues to aggressive competition, which we have been seeing on continuous basis now.

I understand you will appreciate that all these things are not new and rather have been prevailing for a while. We are consistently working on aligning our priorities with business needs and have outlined our priorities for future quarters very clearly. Increasing commercial intensity continues to be our prime focus, ensuring that we are winning market share with margin levels that we are satisfied with. Operational excellence and execution will remain key to achieve incremental revenues and profit margins. There is a huge focus on lean within the company. Various measures and initiatives are being taken in order to drive improvements in working capital and drive cost efficiency. In coming quarters, you will see these initiatives taking center stage in our bid to improve operations from a margin standpoint.

With that, I will hand over to my colleague, Siva, to talk on operational highlights of quarter 3.

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Manikkapurath Sivaprasad, GE T&D India Limited - Executive of Business Operations [4]

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Thanks, Pitamber, and good afternoon to all of you. So we had, yes, major challenges in the project execution last quarter, mainly due to the external factors. However, the team has been able to deliver many critical projects, and I will take you through the brief highlights.

So we have commissioned 400 kV and 220 kV POWERGRID substation in Bhuj, Gujarat, which is a high priority project for renewable evacuation. We have also commissioned 220 kV AIS at Rejinagar for West Bengal Electricity Board, 400 kV GIS for Wangtoo at H.P. PTL. We have also commissioned 400 kV GIS substation at Prithala, Haryana for Sterlite Power, which is one of the largest TBCB projects under acquisition in a very short time and before schedule; 220 kV AIS substation at Motipur for Bihar; 400 kV AIS substation at Bibiyana for Bangladesh, L&T Power; and then we have also commissioned a project in Bhutan, 400 kV Inter Connected Transformer and 132 kV GIS substation for hydroelectric plant in Bhutan. So we continue to deliver critical projects across India and neighboring countries, and the focus continues on delivering our commitment to the customers.

Thanks and over to you, Sandeep, for Commercials.

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [5]

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So thank you, Siva. So as Pitamber has said that the quarter 3 of 2019-'20 was primarily driven by TBCB market as well as part of the renewables market. And we had quite a good success in TBCB as well as the renewable market. So we could win a deal from Sterlite, quite a big one for the Green Energy Corridor of a 765 kV GIS extension at Vadodara and 765 kV AIS at Lakadia (inaudible) And this is the first 765 kV GIS in private sector under a TBCB scheme, what the company has won. And for JKPDD, we have been discussing for past few quarters where we were the lowest bidder. And finally, in the Q3, we have been able to secure the SCADA/ADMS project from Jammu and Kashmir. The company has also secured a 765 kV GIS extension under TBCB from Phagi. So this is the company's first success for 765 kV GIS from POWERGRID. So we already have some 765 kV GIS under execution, but from POWERGRID, this is the first contract.

And then, again, continuing the success with other developers, apart from Sterlite and POWERGRID, the company has won the package from Adani, TBCB for Khetri as well as the 765 kV shunt reactors at Banaskantha. I think this is the fourth deal -- fourth or fifth deal with Adani what we have won for the first of the -- ongoing year in TBCB projects.

Then when we move to renewable sector. So under solar, we have -- the company has secured 2 major orders from Azure and Avaada. So now the megawatt scale of solar project is increasing, for example, 600 or maybe 1,000-megawatt. There is a 400 kV or 220 kV evacuation need, so a new market is getting developed and the company has achieved a good success in these projects as well. And continuing the success of the automation business, the RT-DAS for 633 towns project what we have won from UPPTCL for 5 DISCOMs, which are there.

So if you go -- so mainly the success is driven by automation, TBCB and renewable space for the company.

If you look at the order intake for the 3 months, definitely, it is down as compared to the third quarter of '18/'19. But the third quarter of '18/'19 was primarily driven by state utility, which was big in numbers like we had orders from UP, Kerala, Jharkhand, et cetera. But the market from state was very, very lean in this quarter and also in the ongoing quarter of Q4. But a major part was offsetted by the TBCB and automation business. So the number landing is INR 1,254 crores for the 3 months, which is there. And if you really compare in the 9 months, apart from INR 690 crores of Q2, the company has been able to secure about INR 1,254 crores, which is a -- so it was like a bounce back into the market, which we had. And as Pitamber said that, this market size remains stable and the order backlog remains at INR 59.6 billion, which is close to about 1.5 years of our revenue. So I now hand over to Sushil.

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Sushil Kumar, GE T&D India Limited - CFO [6]

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Thanks, Sandeep. We move on to the financial section of the presentation. Moving to the sales execution on Page 7. In this quarter, we had a revenue of INR 940 crores versus INR 1,167 crores in the last year same quarter. So the revenues are impacted by HVDC project, which is under near closure. The impact is about INR 65 crores. So last year, we did INR 84 crores on the HVDC, whereas this year, it was only INR 19 crores and the rest of the impact is largely on account of delay in the customer projects that Pitamber highlighted and Siva highlighted, and lower order book for the year. Similarly, on a 9-month basis, we have registered INR 25 billion of revenue versus INR 33 billion last year. So the impact of HVDC, which is visible on the page there, is about INR 1,000 crores and the balance impact is coming due to drop in the revenue for -- again, for the customer project delay, the strategic decision that we took for the sale of 1 of the transformer units, and the lower order intake that we had during the year.

Moving to the Page 8, the profit before tax on the next slide. Last year, in quarter 3, we had INR 88 crores of profit before tax. Whereas in this year, quarter 3, we have declared about INR 49.8 crores of loss before tax. So the quarter was challenging here due to many accounts. Firstly in the ForEx, which is more a timing in nature, where we had an impact of about INR 11 crores. Though we have the exposures fully hedged, but earnings-wise, we have to take charge on account of mark-to-market front for our FX provision. The second being the true-up of ILFS-related exposure that we have communicated in the earlier quarters. The third is the pricing pressure that we have seen in our backlog leading to the lower margin realization. Again, the impact of product mix traded during the quarter. And the last being the reassessment of the inventory carrying cost of the transformer unit being divested.

So on a 9-month basis, we declared a loss of -- loss before tax of INR 121 crores. So this had an exceptional onetime impairment of the asset of the transformer manufacturing facility (inaudible) crores. Without the exceptional items, we had an operational loss of INR 67 crores. So impact is coming from the quarter 3 with the point I highlighted earlier, and also in the last quarter, we highlighted one-off operational items of the LD for one of the projects and ILFS provision of INR 7 crores done in the earlier quarter.

Now moving to the overall financial number on Page 9. These are, again, the published numbers with the stock exchange. The revenue is lower by 20%, resulting into an operating loss of INR 31 crores. The one number I would like to highlight on this page is about the net borrowing position, which is now at close to INR 335 crores, net of cash with us, compared to roughly INR 428 crores end of September. So we have in a way improved about INR 100 crores in this quarter through cash collections -- better cash collections that we had also highlighted and aimed in the last discussion we had with you.

So we'll continue to work in this direction. With this, we'll open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question from the line of Renjith Sivaram from ICICI Securities.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [2]

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Sir, regarding this provision, if you can quantify like how much of provisions which have been made in this quarter?

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Sushil Kumar, GE T&D India Limited - CFO [3]

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Provision for which?

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [4]

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LD related issue. LD related issue.

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Sushil Kumar, GE T&D India Limited - CFO [5]

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LD issues that I talked about was more from a 9-month basis, and this was close to INR 25 crores that we highlighted in the last quarter.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [6]

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Okay. So this quarter, there was no LD-related provision?

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Sushil Kumar, GE T&D India Limited - CFO [7]

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Not that significant. There may be couple of cases, but that was the one-off large project that we highlighted in the last call.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [8]

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And in terms of ILFS or anything else, we have done any provision in this quarter?

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Sushil Kumar, GE T&D India Limited - CFO [9]

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Yes. So if you look at the (inaudible) around -- in this quarter, we made INR (inaudible) crore of ILFS-related provision.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [10]

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Okay. And last quarter, you had mentioned that we had lost some INR 100 crores to INR 150 crores of revenue due to some client-related issues. So is that issue still continuing?

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Sushil Kumar, GE T&D India Limited - CFO [11]

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Yes, that continues for the quarter.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [12]

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Okay. And this is basically what we have made to understand is the Essel project, right?

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Sushil Kumar, GE T&D India Limited - CFO [13]

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Yes, largely.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [14]

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Okay. And of the current order book, if you can break up into how much is from solar, how much is grid automation, if you can give a broad percentage-wise breakup, it will be helpful. Or if you can give it in PGCIL private SEB?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [15]

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So I think there will be some overlap in numbers, which I can tell you, for example, from solar customers and all, it's like close to about INR 175 crores. For private, this includes even the TBCB and also, which includes the -- for example, the renewable customers, et cetera, it's like about -- close to about INR 740 crores and balance would be around state and POWERGRID put together.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [16]

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So this INR 175 crores is pure solar project, right?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [17]

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So pure solar, it means that the evacuation substation of solars are included, like 220 kV substation or a 400 kV substation, which is required for evacuating the power which is getting generated, which is part of our core business.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [18]

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So this is solar generation plus evacuation?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [19]

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Yes.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [20]

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And the INR 750 crores is?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [21]

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That would include like, for example, TBCB, what we would have done from Sterlite, Adani, smaller product deals that we've taken from private sector, EPC contractors.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [22]

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Okay. And is there any POWERGRID in our -- how much will be POWERGRID in our order book currently?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [23]

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In the backlog or in the order, which has been -- just been taken for the quarter?

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [24]

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In the backlog.

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Sushil Kumar, GE T&D India Limited - CFO [25]

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So in the backlog, the central utilities are close to 15% to 18% of the backlog.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [26]

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And state?

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Sushil Kumar, GE T&D India Limited - CFO [27]

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State will be close -- in the range of 25% to 30%. So all state and center put together, it's 40% of the backlog.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [28]

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And rest will be private, right?

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Sushil Kumar, GE T&D India Limited - CFO [29]

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Yes.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [30]

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And what will be the execution cycle for this order backlog which we have?

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Sushil Kumar, GE T&D India Limited - CFO [31]

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So this is slightly above 1.5-year of our annual revenue.

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [32]

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So the orders which we have taken -- what we have taken for Q3, you're talking about that?

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [33]

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Of the current order book, whatever we have.

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [34]

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So that would be close to, I think, about 2 years.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [35]

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Okay. And what is the visibility? How -- for this fourth quarter also, do we expect similar kind of order intake? Or are you seeing a more subdued environment. How will we look at in terms of 4Q in terms of order intake?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [36]

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So we are looking at not -- slightly subdued as compared to Q3 because not much of an activity is happening, neither at POWERGRID nor at state. So the customer end side is like subdued. Probably, we are seeing that there's a lot of TBCB packaging, which are not getting announced. So probably, it will be like Q1, Q2, where the ordering is going to pick up.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [37]

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And sir, lastly, if I can. When we look at our raw material to sales, it is at 75%. So that has increased very high. So what is the reason for this increase in raw mat to sales because that is not depending on our order book growth, it's largely to do with the kind of orders we are executing. So why it is so high? And how do you see this?

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Sushil Kumar, GE T&D India Limited - CFO [38]

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For the quarter, if we talk about -- so compared to last year same quarter, there is an increase of 8%. So out of this 8%, about 2% is the inventory reassessment that I talked about. About 2% is the project cost overhang due to the prolongation of the project that we mentioned. And the rest, 4% is the price and mix. But I'll request that instead of focusing on the quarter numbers, just evaluate more on a long-term 9-month kind of basis, where the number is close to 71% of cost to neutral, and the gross profit is 29%. So that more gives the average view.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [39]

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So is that kind of a sustainable number, which we should be working at? Or do you expect this to -- what's a sustainable number, which you feel that, that from the current order book, which we can do?

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Pitamber Shivnani, GE T&D India Limited - CEO [40]

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So basically, we are working towards reducing this percentage by various actions, like value engineering, sourcing negotiation and lean manufacturing and also taking care of the administrative cost. So our main focus is to reduce the cost part actually going forward with these actions.

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Operator [41]

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We have next question from the line of Subhadip Mitra from JM Financial.

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Subhadip Mitra, JM Financial Institutional Securities Limited, Research Division - Power Analyst of Institutional Equities Research [42]

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Sir, 2, 3 questions from my side. Firstly, part of the order book, what part of the order book do you see as slow-moving? And also, do you see any possibility of further provisionings from any such troubled projects?

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Sushil Kumar, GE T&D India Limited - CFO [43]

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So as we communicated in the last call, we have slow-moving orders of close to INR 200 crores, which is also -- the project is also disclosed and shared with you (inaudible) Essel project. As of now, that is the main thing. But having said that, we will closely monitor the liquidity position of our project and the customer's project that we have taken. And depending on that, if there is any change, we will [be communicating] to the deal.

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Subhadip Mitra, JM Financial Institutional Securities Limited, Research Division - Power Analyst of Institutional Equities Research [44]

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Okay. Secondly, how do you see the addressable market over the next, say, 2 to 3 years, whether it's from TBCB or intrastate CapEx and so on and so forth? And how do you see the market size and market share panning out?

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Pitamber Shivnani, GE T&D India Limited - CEO [45]

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So we expect the market to continue at USD 3 billion, and we expect there are a lot of packages, direct tenders expected to come from POWERGRID and also TBCB packages.

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [46]

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I think -- Sandeep here. So apart from that, even the renewable states like Gujarat and Rajasthan will also be going for an increased capacity enhancement in the transmission center. This year, at least -- not this year, but the coming year, 2021, I think there will be a huge investment plan for Rajasthan, which is -- they are being formulated because of the new policies of transmission which they have come out with. And apart from that, we also see other utilities, state utilities also expanding, for example, like Orissa, Assam, northeast. So there is a lot of investments which are planned. And that also market stability point of view, at least for next 2 to 3 years, we don't see a challenge. Also that with Leh-Ladakh moving and also with other projects moving, possibly, there will be a big uptick on HVDC also maybe in the coming years.

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Subhadip Mitra, JM Financial Institutional Securities Limited, Research Division - Power Analyst of Institutional Equities Research [47]

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So the USD 3 billion is the annual market size of around INR 20,000 crores, INR 21,000 crores. Now of that, your target order inflow would be still around the INR 5,000 crores, INR 6,000 crores number? Or how should we look at that?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [48]

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So see, for example, if you today look at the USD 3 billion market, it's quite -- there is a number of players which are there in USD 3 billion who are -- that is like maybe INR 60 crores, INR 70 crores on a regional basis, et cetera. So we will be targeting -- difficult to give a -- difficult to give a number going forward, but yes, I think we should be targeting a leadership position in that number, that is the target of the company.

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Subhadip Mitra, JM Financial Institutional Securities Limited, Research Division - Power Analyst of Institutional Equities Research [49]

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Okay. I mean just another way of asking the same question would be, is there any target order inflows that one should look at or a guidance that you would give for, say, in FY '21?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [50]

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So not -- it's not -- we will not be able to give the guidance.

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Sushil Kumar, GE T&D India Limited - CFO [51]

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So just one clarification, Subhadip, our order intake has never been [to] the range of INR 5,000 crores, INR 6,000 crores. We have historically been in the range of -- if you look at the average of the last 3 quarters, it is close to INR 800 crores per quarter. So that means we are going towards improvement from this number. So it cannot be substantially higher than where we are because the number of INR 5,000 crores, INR 600 crores is too high.

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Operator [52]

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We have next question from the line of Renu Baid from IIFL.

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Renu Baid, IIFL Research - VP [53]

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Sir, my first question is just if you can give some perspective on the working capital, probably I missed the initial remarks. So how has been the working capital situation? And that execution improving in the current quarter, how has the short-term debt on our books moved?

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Sushil Kumar, GE T&D India Limited - CFO [54]

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So on working capital front, we made a net improvement of close to INR 100 crores. So our debt position, if you look at the Page 9 of the presentation, had come down from close to INR 430 crores in the last quarter end to INR 335 crores in this quarter end. This improvement is driven by better collections and turnaround of inventory. And as we communicated in the last call, we continue to make progress on this area, that is 1 of our aims. And we will aim for like to debt-free in the financial year 2021. Having said that, every quarter may not be positive to that extend because we may need to invest in couple of quarters to execute our business. But our long-term aim remains to be debt-free by the end of financial year 2021.

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Renu Baid, IIFL Research - VP [55]

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Sure. Sir, second question, if we see, for the last almost 2 years, our comments on the competitive intensity and pricing has been fairly, I will say, cautious or negative. Now that within, say, at least the transformer market if you see, there has been reasonable amount of consolidation. A couple of players are out of the market. A number of players are fairly limited in terms of high-voltage, extra high-voltage space. Similarly, on the switchgear side, we have seen fair amount of market consolidation happening, medium and lower voltage switchgear segment. So what would be our take in terms of the competitive intensity panning over the next 12 to 18 months? And the likely impact on the pricing environment?

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Sushil Kumar, GE T&D India Limited - CFO [56]

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So I think, Renu, it is -- what you are saying is right, that maybe 1 or 2 players are out of the market. But then in the last quarter, in the '18 results, we have not seen a similar trend coming out, but like an improvement in the prices. The prices still, for switchgear and transformer, still remains to be quite competitive. But I think we expect that probably with many packages of TBCB and other with short delivery renewable projects coming in, so on the transformer side, we see a slight uptick in the price -- a price improvement happening. But switchgear and all, because there is a huge shift in the market from AIS to GIS, so AIS still remains a challenging market because of the overcapacity in the -- or the over installed capacity in the market.

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Renu Baid, IIFL Research - VP [57]

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Correct. And as in -- Pitamber in his recent comments had mentioned that broadly, the outlook is looking at flattish kind of transmission market for the next 12, 15 months. So as and when we look at the flattish kind of market environment, it would be a combination of some of these Green Energy Corridor, TBCB and that uptick in the state market which he mentioned. Or there would be any exclusions which could add upsides to this end market growth?

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Pitamber Shivnani, GE T&D India Limited - CEO [58]

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You see, normally, the -- when we see the next year ahead, we see a lot of opportunities but some of the opportunities get dragged to the next year, actually. So even if today, we see lot of opportunities of 765 kV but it is not necessarily all opportunities of 765 kV of TBCB will get decided in 2020,'21, actually. So we expect that state utilities and basically, TBCB and POWERGRID, almost a complete basket of the business may remain at USD 3 billion, actually.

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Renu Baid, IIFL Research - VP [59]

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Okay. Right. And sir, coming on the cost side, 2 questions here. A, for the current quarter, there was a footnote also which mentioned that there have been ECL provisions for delay in receivables on a stuck project which is stuck for almost 12, 15 months, 12 months now. Now 1 of your other core project executor in the recent conference call was pretty confident that the project is very well moving and, I mean, there have been activities and the project should be moving by March. So if you can give a bit more insight in terms of what exactly is happening on the Essel project? And what was the quantum of ECL impact in the third quarter numbers that we have recognized on our books because of this issue? And is it just more of a timing delay? And when probably things start moving in next quarter or so, could we see a reversal coming back?

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Sushil Kumar, GE T&D India Limited - CFO [60]

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So the ECL program is in the range of approximately INR 5.5 crores.

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Renu Baid, IIFL Research - VP [61]

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Okay.

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Sushil Kumar, GE T&D India Limited - CFO [62]

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And the overall number that they have disclosed. Regarding the project status, what we understand is that it is under the approval from the government authorities. And once that approval comes, which is expected in this quarter, then the projects will start again with the new sponsors. And we are also hopeful that the approval comes.

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Renu Baid, IIFL Research - VP [63]

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Okay. So probably, it's more of a timing matter now that we were within the time zone of delayed payment, and hence, we had to recognize it. Otherwise, it doesn't seem to be more of a bad debt provision or any of those elements, right? Or is to the structural risk to the entire receivables as of now?

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Sushil Kumar, GE T&D India Limited - CFO [64]

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No. So on this project, as of now, we can say that, yes, we hope that the project will move on, and we are also waiting and dependent on the work of the government authorities. However, as we said, not only for this but the overall portfolio we'll continue to assess the project financing of our customers and the liquidity profile thereon. We are very well aware of the liquidity challenges that the companies and -- specific companies in the infrastructure sector has and any impact at any point of time then will be evaluated accordingly. But as of now, we're adequately provisioned for whatever required for this impact.

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Renu Baid, IIFL Research - VP [65]

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Sure. And sir, my last question is, if you look at financial '21, probably this year is broadly done. Just another 2 more months to go. But given the fact that outlook, our market outlook is expected to be broadly flattish, inflows have been a bit weak this financial year. And we've had execution headwinds across projects and on the cost side as well. So does FY '21 relatively on now weak days looks better off in terms of execution, margin profile? Or you probably see there could be certain headwinds going forward in FY '21, as well as or probably worst could be behind for the company and the financials there?

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Sushil Kumar, GE T&D India Limited - CFO [66]

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So generally, we don't give a guidance figure in terms of financial...

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Renu Baid, IIFL Research - VP [67]

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More of a qualitative judgment in numbers. No numbers.

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Sushil Kumar, GE T&D India Limited - CFO [68]

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Yes, yes, exactly. So exactly what I'm saying is that we don't give guidance but clearly our priorities which have been communicated in the last call also are, growing orders, improving cash. So in this quarter, if you see, we have done relatively well on these 2 fronts. And the third priority is definitely improving the revenue and profitability, which was a challenge in this quarter. Now you understand this is a long-cycle business and whatever cost and liquidity that Pitamber talked about on the productivity, we are working on. There'll be quarter-on-quarter improvement from that front and we are working towards that. I believe very difficult to give a guidance because already we have refrained from full sustainable drivers in the market. So I'm definitely sure the whole team is -- we've been working towards improving from here on.

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Renu Baid, IIFL Research - VP [69]

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Sure. Thank you so much and all the best and just to mention, welcome Pitamber on board.

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Pitamber Shivnani, GE T&D India Limited - CEO [70]

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Thank you.

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Operator [71]

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We have next question 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 [72]

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I'm just trying to understand, on the gross margin front, if you can separately list out what are the one-offs. So if I'm looking at the 9-month trend, we are at close to 29% gross margin as against 33% last year. So we are trending at least 400 to 450 basis point down versus last year. You mentioned separately. So if you can just quantify on the one-offs, the ForEx impact. ECL is INR 5.5 crores, ForEx is INR 11 crores, if I'm not wrong, and LD is INR 25 crores.

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Sushil Kumar, GE T&D India Limited - CFO [73]

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So, Abhishek, the ECL impact comes in the other expense line item. And same is the case with the ForEx. So that goes to -- are the ones which impact the gross profit. On the gross profit side, while you call them as one-off, they are, again, the operational items, not one-off, significant ones that you were highlighting. So in the last call, we highlighted about the LD provision for 1 of the customers to the extent of INR 25 crores. In this call, we have highlighted the inventory -- on the cost reassessment for the transformer business being divested and in some of the projects, cost overall due to prolongation of the cost point of it. So all put together, I would say, is roughly 2% of the gross margin impact in the 9 months.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [74]

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And that 2% is all put together with LD and with the cost overheads?

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Sushil Kumar, GE T&D India Limited - CFO [75]

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Yes.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [76]

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And the reassessment of the inventory as well? Hello?

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Sushil Kumar, GE T&D India Limited - CFO [77]

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Yes, just hold for a second, Abhishek.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [78]

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Sure.

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Sushil Kumar, GE T&D India Limited - CFO [79]

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So there was an announcement happening, so we just had to put you on mute. Yes, you're right, the 2% -- you need to hold for 1 more minute please, sorry for the interruption.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [80]

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Sure. Okay.

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Sushil Kumar, GE T&D India Limited - CFO [81]

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Sorry, Abhishek. So all put together 2%, these exceptional one-off margin impact, and rest 2.5% is the pricing pressure and the mix of projects in the portfolio.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [82]

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Right. Okay. That's quite clear. In terms of the opportunity size that you spoke about when we look at the POWERGRID investment approvals, they are down very sharply in the last 2 years to almost INR 3,500 crores, INR 4,000 crores on an annual basis. Whereas in the current financial year, FY '21 or FY '20, they have increased sharply to about INR 11,000 crores to INR 12,000 crores, including some of the TBCB bids that they have received. So from a Green Energy Corridor perspective, are you looking at better opportunities on this USD 3 billion number being a standard number every year? Or is it -- can it move up and down?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [83]

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I think, definitely, this is an assessment, but it can move up and down going forward depending upon the maturity and the timing the projects are coming. Because at times, we had seen that in TBCB projects also, after the projects have been declared, and finally the bids get awarded to the developers, the time cycle sometimes exceeds like about 8 to 12 months also. So it's still wait and see. The -- for example, the cycle which it takes for qualifying of the bid and then the bid will reascertain and then RA happening and things like that.

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Abhishek Puri, Axis Capital Limited, Research Division - Executive Director of Capital Goods, Infrastructure and Power [84]

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Okay, fair enough. And lastly, in terms of working capital, it is largely -- the reduction of INR 100 crores is largely due to better collections. There is no payables that have increased for you in the current quarter?

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Sushil Kumar, GE T&D India Limited - CFO [85]

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So we work on all the fronts. I don't have the numbers of -- the full numbers between payables and receivables also but largely it is (inaudible) and collections from the accounts receivable.

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Operator [86]

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We have next question from the line of Bhavin Vithlani from SBI Mutual Funds.

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Bhavin Vithlani, [87]

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And the outset, I would like to welcome Pitamber on board. I also had a few questions. And one is a clarification from the earlier question, because you mentioned earlier on the gross margins, there is a 2-point impact due to inventory adjustment of lining and 2-point impact due to cost overruns, which is 4-point impact. I wanted to clarify on this.

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Sushil Kumar, GE T&D India Limited - CFO [88]

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Your question is for the quarter or for the...

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Bhavin Vithlani, [89]

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Yes, for the quarter. For the quarter, where you mentioned 8-point decline in the gross margins and you said 2-point is inventory adjustment for lining and 2-point is the impact for the project cost overruns?

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Sushil Kumar, GE T&D India Limited - CFO [90]

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Yes, you're right.

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Bhavin Vithlani, [91]

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So it's totally 4 points.

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Sushil Kumar, GE T&D India Limited - CFO [92]

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No, I'll explain again. I said 8-point of change, 2% is related to the inventory reassessment, realizable value reassessment. 2% roughly is the project cost overrun due to prolongation of the project. And the balance 4% for the quarter is due to the price and the mix.

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Bhavin Vithlani, [93]

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Sure. Of which you said price is 0.5 points?

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Sushil Kumar, GE T&D India Limited - CFO [94]

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No, I said balance 4% is combination of the price pressure that we did talk about in the earlier call and in this call, and the mix of the portfolio wherein the low-margin projects getting executed in the quarter versus the high margin projects.

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Bhavin Vithlani, [95]

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Sure. Could you talk more on the export side. What's been the export during the quarter, 9 months as a percentage of sales or Y-o-Y growth? And how should we look at exports going ahead? Because in earlier calls, you mentioned about opportunities opening up in SAARC and Africa and some export opportunity that you see in Latin America?

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Sushil Kumar, GE T&D India Limited - CFO [96]

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So in this 9-month period, the export revenue is close to 17% of the total revenue that we traded. This is higher than the average for the last year, where we had close to 14%. So we continue to work in the direction of improve -- or changing portfolio to the export opportunities where we can. I'll let Sandeep talk more on the SAARC opportunities. But it's a continuous process of shifting to the export market realizing wherever we can the better margin export opportunity.

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [97]

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So I think for the SAARC opportunity, Bhavin, we had some very large packages in Bangladesh where we had participated, but -- and those are sizable packages. So we are looking like, for example, overall volume was about close to about $300 million to $400 million. And we had participated in consortium with 1 of the Indian partners to bring competitiveness. But unfortunately, the local companies, along with Chinese consortiums, have been successful there. But of course, that has happened in this quarter, the price is -- bids have opened in this quarter and not in the last quarter. But that was like we were trying to increase our footprint outside India which was there, but in the last quarter, definitely, on the grid automation side, we made a big breakthrough of a not a very large project, but a reasonable sized project in Nepal that was there but our consistent business of product in the Africa market or Latin America market that uniform business remains as it is. So there is no -- I would not say that there is any positive or negative disturbance in that side.

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Bhavin Vithlani, [98]

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Understand. And the last question is 1 of the EPC companies in their earnings call spoke about significant opportunities coming up by the -- the SVCs and the STATCOMs where they guided that fiscal '21 can see large ordering -- fiscal '21 and '22 could see large ordering. Any color from your side on this would be helpful.

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [99]

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Sir, definitely with renewable projects getting added, the requirement of these type of technologies will be mandatary in order to balance the grid. So I think on the -- we see the combination of STATCOM and TCR projects or maybe SVC we can say would be coming up and these projects are also under our radar because some of it will get directly allocated to power grids, some of it will be through TBCB and also some of it will come through the state, but we are constantly monitoring these projects. But time line still remains a challenge but definitely, it's not in the next year -- in the -- 1 year down the line. Definitely, it's going to be a sizable market.

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Bhavin Vithlani, [100]

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How large could the opportunity be?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [101]

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Maybe if I try to put -- everything put together whatever we have on our horizon, it might be in the range of about -- total opportunities put together what we foresee today, it's close to about between $300 million to $400 million.

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Operator [102]

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We have next question from the line of Ashwani Kumar from Nippon India Mutual Funds.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [103]

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My question to Mr. Pitamber is, what is the fundamental steps being taken to really enhance the turnover of the company because for a very long time, you've been struggling between INR 3,000 crores and INR 4,000 crores per annum. And there are a lot of adjustments which are adjustments in the sense write-offs which are happening. So what are the clear steps which are being taken to really enhance because when we look at other companies in the same sector, although India is growing slowly and in some cases, negative also, what is the real step which the company is taking to really take it to the next level?

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Pitamber Shivnani, GE T&D India Limited - CEO [104]

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Yes. Sir, basically, we are working towards the cost side in order to be more competitive. So that is why we are taking up value (inaudible) design to value basically sourcing negotiation, lean administrative so that we are more basically competitive in the market and are able to grasp more order intake. That is the steps we are -- and then we are also working towards lean concept on manufacturing side. So that will enable us to be more competitive and get the better market share actually.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [105]

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That's right. Sir, I mean, in terms of exports, even as (technical difficulty) asked, I mean, this is such a small company in terms of total size. So if you are doing 17%, (technical difficulty) INR 500 crores, INR 600 crores, INR 700 crores, let's say, or slightly more INR 800 crores, probably. Now in a situation when the parent company also is in trouble, the parent shareholders also are in trouble, this will, at some point in time, offer you a bigger opportunity than this $200 million, $300 million, $400 million. So what is the real strategic thinking towards export because you can raise it by INR 200 crores, INR 300 crores, INR 400 crores, but the real opportunity could be bigger. So can you elaborate on this, sir?

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Pitamber Shivnani, GE T&D India Limited - CEO [106]

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Yes, we are also looking at the various product lines where we can enhance export and if we can get the additional markets, actually. So we are getting lot of help on that from our global colleagues, actually, and we are working on that.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [107]

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And if you could just spare a minute on services business. How big is the opportunity? And how much you are into it today. Because your competitors are taking -- although they have a difference, slightly different product profile, but they are using services business also as a tool, so if you could help me understand that?

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Pitamber Shivnani, GE T&D India Limited - CEO [108]

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Sushil, can you reply on service business?

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Sushil Kumar, GE T&D India Limited - CFO [109]

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Services business is in the range of 6% to 7% for us. And in terms of...

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [110]

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So I think -- so for service business, probably you know Indian market. So we are constantly tracking our installed base of service market, but when we come to the -- for example, if you really look our -- at the installed base, this is primarily driven by utilities and customers like -- it is state-oriented. So they have a tendering process under the services market as well. So probably, GIS, et cetera, where GIS or AIS solution where the components or where the service can be given only by OEM, is a market which we constantly track and then we work with our customers. But apart from that, for example, in like transformers, et cetera, the market is open and then anybody can quote for anybody's transformers or service-related products. so we are -- whatever is the service potential, we have a dedicated group for service, and it is completely -- we are exploiting. Also in terms of growth of service business, we are coming up with newer solutions like APM, which is like asset performance management to digitally analyze the asset and then offer solutions of basically timely maintenance, predictability. So the digital solutions is being launched -- has already been launched and we are working with some 2 or 3 important customers for a large opportunity for service. Once that comes in, then that can be expanded to other customers as well.

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Ashwani Kumar, Nippon Life India Asset Management Limited - Senior Equity Fund Manager [111]

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Sure. What kind of time frame do you see basically for all the initiatives which you are taking to be reflected, let's say, in your perspective?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [112]

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So I think that, for example, 2020/'21 should be a time frame where we should be having at least 1 to 2 deals of APM coming our way. And the target is to showcase those models and then expand the APM offerings to other industries or other customers as well. So the target is to stay focused on order in 2021 and deliver the solutions for this to be scaled up in a bigger way.

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Operator [113]

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We have next question from the line of Renjith Sivaram from ICICI Securities.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [114]

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Sir, most of my questions have been answered. Thanks. All the best.

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Operator [115]

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We have next question from the line of Bhavin Vithlani from SBI Mutual Funds.

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Bhavin Vithlani, [116]

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This question is more on the ongoing virus issue with China. And there's nothing that -- on the engineering side that can come without the components from China. But do you see a disruption on the supply chain side if this issue elongates? And would you have -- are you also looking at alternative options given that some of the TBCB orders that you have taken are with stringent time lines?

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Sushil Kumar, GE T&D India Limited - CFO [117]

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Bhavin, it's a bit early to comment, but we are still assessing the situation. And we do have some of the components being imported from China, but it's early to comment thereon.

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Bhavin Vithlani, [118]

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Would you have an alternative source that if these don't come from China, then quickly, in a nimble footed basis, you can source from other markets where GE is present?

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Sandeep Zanzaria, GE T&D India Limited - Sales Executive & Chief Commercial Officer [119]

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Bhavin, I think for certain components, definitely, there are more than 1 sources and some of these sources are located outside of China. But for some components, definitely, we are dependent on Chinese supplier. So we are still assessing the situation as of today. It's early time to tell, for example, when the recovery happens. But parallelly, the teams and the factories are assessing this situation in totality.

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Operator [120]

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Ladies and gentlemen, that was the last question. I now hand the floor back to Mr. Suneel Mishra for closing comments. Sir, over to you.

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Suneel Mishra, GE T&D India Limited - Head of IR [121]

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Yes. Thank you, Vikram. Thanks, everyone. On behalf of management, we thank you to attend this important conference call. And if you have any questions, and please feel free to either contact me or to our communication leader, Mr. Anshul Madaan. Thanks, again.

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Pitamber Shivnani, GE T&D India Limited - CEO [122]

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Thank you.

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Sushil Kumar, GE T&D India Limited - CFO [123]

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Thank you.

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Operator [124]

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Thank you very much, sir. Ladies and gentlemen, on behalf of GE T&D India Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.