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Edited Transcript of INOXWIND.NSE earnings conference call or presentation 8-Nov-19 10:30am GMT

Q2 2020 Inox Wind Ltd Earnings Call

Noida,Uttar Pradesh Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Inox Wind Ltd earnings conference call or presentation Friday, November 8, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Devansh K. Jain

Inox Wind Limited - Whole-Time Director

* Jitendra Mohananey

Inox Wind Limited - Group Financial Controller

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Conference Call Participants

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* Manoj Kumar;IDFC First Bank

* Mohit Kumar

IDFC Securities Limited, Research Division - Analyst

* Paras Nagda;Enam Holdings;Analyst

* Shirish Rane

IDFC Securities Limited, Research Division - Head of Research

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Presentation

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Shirish Rane, IDFC Securities Limited, Research Division - Head of Research [1]

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(technical difficulty)

Thank you, Zed. On behalf of IDFC Securities, I would like to welcome everyone on this call. We have with us Mr. Devansh Jain, Executive Director; Mr. Jitendra Mohananey, Group Finance Controller; and Mr. Narayan Lodha, Chief Financial Officer.

I would request the management to take us through the key highlights of the results, post which we'll open the floor for Q&A. Over to you, sir.

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Jitendra Mohananey, Inox Wind Limited - Group Financial Controller [2]

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Good afternoon, everyone. I welcome all the participants of this earnings call. The Board of Directors of Inox Wind Limited has improved results for the second quarter of the financial year 31st March 2020, in their meeting, which took place today. The financial numbers are being uploaded as of now and will, in the meantime, take you through the overall perspective of the sector and the company.

So I -- okay, so I'll request our Executive Director, Mr. Devansh Jain to give you an overall perspective of the company and the sector. Over to Mr. Jain.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [3]

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Thank you, Jitendra. Hi, good afternoon, everybody. I know we've been a little late in uploading the documents, but the Board meeting was concluded only a little while ago. So I think we'll use this time to take you through what we believe is happening in the sector and how we are poised in that, in which time I would assume you guys would have a chance to go through the presentation, and then Jitendra will take you through that in detail.

We believe the painful transition from the feed-in tariff regime to the auction regime is now virtually over, except a few hiccups like delayed power evacuation, which too is now catching up pace across the country, given the past 2.5 years of legacy issues, which they had to already cope up with. Another minor hiccup, which we believe is now on the verge of getting fixed is project time extension approvals, which the requisite authorities were in charge of these projects, are now in advanced stages of issuing to all the participants, given the fact that there have been delays across SECI-1, 2, 3, and so on and so forth, for various reasons, such as evacuation not being readied by the central grid or land not being allotted due -- by various state governments in the past.

Having said that, I think these issues are all a matter of the past, and going forward, we're expecting a fairly healthy execution cycle and ramp-up in terms of mega wattage in the Indian wind sector.

Recently, one of our competitors also came up with a fairly healthy guidance for the Indian renewable energy sector, given that a lot of the policy issues are now behind us, and there is an increasing traction and momentum in executing and picking up orders as we're moving forward.

One of the key points I would still like to reiterate is as a result of the painful transition over the past 2, 2.5 years, multiple wind manufacturers have either closed down or are facing severe financial strain. This has really resulted in shortage of supplies or wind turbines in the market.

Now we see this as a huge opportunity for ourselves because we think we are ideally poised to leverage from these manufacturers' closures and financial problems and increase and regain the market share and position, which we enjoyed until 2017 when the sector shut down. Given the fact that we're probably the lowest cost producer of wind turbines in India, if not globally, I think we are also well placed to thrive under the auction regime.

Another key aspect, which I'm not -- which I would like to highlight is, over the past 6 to 9 months, tariffs have been inching up, while there have been a lot of auctions which have happened. There have also been a lot of auctions, which have been delayed. It's also a reason because as evacuation catches pace and as the policy issues come again behind us, which they are now, people still need to execute SECI-2, SECI-3, SECI-4, et cetera, which were awarded over a year ago.

Now increasingly, new auctions is where tariffs have stabilized in the range of INR 2.85 to INR 2.95. And that takes care of a lot of the PLF related issues, which may crop up in the future with respect to lower sites, which naturally get compensated by the fact that the manufacturers who have survived are now going to be launching larger and larger turbines. Case in point is our new 3.3-megawatt turbine, which is well on track to be launched in this financial year.

Another thing which we've done over this period, over the past -- well, 1 quarter, which was typically a very low execution quarter given it's seasonally impacted due to heavy monsoons, and given the fact that majority of the things we were doing until then in Gujarat, which also had an obnoxiously high amount of rainfall in Kutch. We've used this period to gain traction in the market. So we spent a lot of this time going to customers, briefing them about what happened, where we are and how we're looking at Inox Wind going forward. And we're seeing a lot of momentum and traction and confidence being shown by customers and working again with Inox Wind. Case in point is we recently bagged a 38-megawatt order from ReNew Power, with whom we already had over 241 megawatts operating until 2017. We've incrementally tied up for an incremental 50 with Adani, with whom we anyways enjoy a fairly strong relationship.

We're working on various other deals across IPPs and AD customers, and I think we will be announcing and releasing some of those in the very near future.

Just to reiterate, due to this huge delay in the central grid connectivity, which was delayed by over 18 months, we had commissioned 4 out of the 5 SPVs we had on the SECI-1, since one of the SPVs required time extension. I'm happy or -- I'm cautiously happy to inform that this is something, which is under positive active consideration. And as I mentioned, these are some of the minor hiccups, which we expect to improve in the very, very near future, and then we should be on track to execute this project as well.

All our future project executions needless to mention, will be on a plug-and-play basis. Since the common infra in Dayapar, Gujarat, which consists of the substation, the transmission line and the bay, is already ready and capable of absorbing total approximately 600 megawatts.

Execution is now back in full swing, given the wind -- given the monsoon period is now past its prime. We have commissioned 50 more megawatts of SECI-1 in this quarter, taking the total commission quantity at 200 megawatts, including the 150, which was commissioned in Q1 FY '20.

I think those are the broad quarterly highlights and what we've done over this quarter. I'll transfer this call to Mr. Mohananey, Jitendra, who will take you through our presentation and numbers in more detail.

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Jitendra Mohananey, Inox Wind Limited - Group Financial Controller [4]

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Yes, thanks, [Dev]. To start with, I'll say that Inox Wind continues to maintain positive EBITDA margin. Given the seasonal impact of Q2 FY '20 due to heavy monsoon in Gujarat and pan India, execution was muted, the period we utilized for optimizing the working capital.

In terms of financial results of the quarter, we ended the quarter with a consolidated revenue of INR 139 crores as compared to INR 260 crores in the previous quarter of financial year '20. We have EBITDA profit of INR 4 crores as compared to an EBITDA of INR 43 crores in the previous quarter.

With the readiness of central grid finally in April 2019, after a delay of over 15 months, Inox is poised to commission future projects in the coming quarter in Dayapar, Gujarat.

On the balance sheet front, I would like to bring to your notice, Slide #10 and 11, I presume that the presentation is uploaded, which gives details of our focus on balance sheet improvement during the quarter and past couple of quarters before that.

Consolidated inventory levels have slightly gone up on the -- account of ongoing project execution. Going ahead, we expect inventory levels to come down, as the execution picks up pace in the coming quarters. Inventories will also be consumed towards future projects now that common infra in place.

There's a reduction in receivables by INR 335 crores in the quarter, also due to continued collection from receivables. At the end of Q2 FY '20 in terms of working capital, inventory stood at INR 1,086 crores, net receivables at INR 723 crores, payable at INR 1,103 crores and other current assets are about INR 123 crores. This translates into net working capital of INR 828 crores.

On the debt equity front, we ended the quarter at a net debt-to-equity ratio of 0.42x as compared to 0.44x in quarter 1 FY '20.

So this is a brief snapshot of our operation. I would like to spend some more time in talking to you about the competitive intensity, order book and financial results. We have a strong order book of 1,230.7 -- sorry, it's 1,268 megawatt having value of over INR 7,200 crores to be executed in a period of next 18 months.

So this is all broad overview of our operational and financial performance and how we see the sector going forward.

I will request that the question-answer session shall be started, and we'll be happy to attend any questions from investors and attendees. Thank you very much.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of [Bhargav Dheeraj], an individual investor.

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Unidentified Participant, [2]

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Devansh, I think you've done some admirable work in turning around the company in the past 1 year or so, and congratulation for that, but my first question is regarding the 3.3 megawatt turbine. So what is the time line on that? And are we ready to launch it in the next financial year or not?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [3]

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I think we're trying our best to get the company back on track. And as I mentioned, I think we are out of the tunnel. The light is now visible, and I think we are gaining traction, and we should be back to hopefully a good, old strong days in the near future. Having said that, we are well on track for the 3-megawatt turbine, and that is something, which we will be launching over this financial year.

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Unidentified Participant, [4]

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So is the [thing] completed? Or do we have all the certifications in place?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [5]

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No, but we don't have the certification yet in place, and the prototype should be up in the next few months, and then we'll undertake certification. But as you're aware, this is a 3-megawatt turbine, which is based on our existing 2-megawatt technology licensed from AMSC, and they've got over 2,000 megawatts running on this existing technology globally for the past 8 to 10 years, being manufactured by various other manufacturers. So it's not something, which is being launched for the first time. It's naturally being launched by Inox Wind for the first time, but this product exists globally.

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Unidentified Participant, [6]

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So my next question is regarding one of your competitors. They have recently announced in their results that they have bagged orders of 1.2-gigawatt in the past quarter. So my question is [Audio Gap] competition -- are we looking to our competitor? Because 1.2 gigawatts seems to be too large and are we lagging behind in bagging orders because we are not hearing anything significant apart from orders from ReNew Power?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [7]

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Well, so to be honest, I think, to some extent, as you may have seen, that, that so-called competitors bagged a very, very large volume, which is nothing but a lot of the volume, which has transitioned from 2, 3 other turbine manufacturers, who've gone bankrupt or on verge to be bankrupt. We are now making a lot of traction in the market. As you may be aware, until July prior to SECI-1 commissioning, we were also in a stuck-up position without any visibility, given the fact that we have a lot of inventory, which we had to fix. We had SECI-1 projects, which could not be commissioned because of the grid. So obviously, over the past 3 or 4 months, a lot of time has gone in BD, Business Development, exercise, marketing efforts, going and briefing customers again that we are back in business. The sector is revived. Those who had to fold up or had to shutdown, have already shutdown. Inox is financially strongly backed. We're getting back in action. And we're now seeing the results where we've closed incremental Adani, incremental ReNew. In the near future, you should be hearing more announcements from us. But yes, that competitor is way larger than us at this point in time. And I think in the next financial year, is when we should be able to do much larger volume based on our new technology.

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Unidentified Participant, [8]

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All right. So one last question, if I have time. So the next financial year, we're looking to execute SECI-3 and 4. So we should be looking at 500 megawatts of order from Adani?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [9]

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Well, I wouldn't like to give forward-looking guidances, but fact of the matter is, people are getting a lot of extension on all the future SECI projects because adequate grid is not ready. It is being readied. So now that the grid has started getting in shape, SECI-1 is done or being done. Then SECI-2 will be done, and so on and so forth. So but yes, broadly speaking, I think we should be doing at least that kind of volume across SECI projects as well as third-party projects, which we are now increasingly getting from -- directly from IPPs.

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Unidentified Participant, [10]

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So how is the grid pipeline for SECI-3 and 4? Is it ready or what is the current information that we have from power grid?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [11]

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Well, we have -- we already have a 500-megawatt FTA, but I think for -- which is for SECI-1 and 2, but I think for 3 and 4, it's going to be readied towards end of FY '20. So I think SECI-3 and 4 is going to be something, which is going to go forward, but we have various other projects, which are ones which we're gaining directly from IPPs, such as ReNew, Adani, connectivity projects, MSEDCL, (inaudible), and so on and so forth. If you notice, going forward, we are reducing our own bidding because we're increasingly going to be taking more and more orders from IPPs directly.

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Operator [12]

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Next question is from the line of Paras Nagda from Enam Holdings.

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Paras Nagda;Enam Holdings;Analyst, [13]

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Devansh, the question is, we do not have the presentation right now and still not uploaded. So I'm looking at the unaudited consolidated balance sheet, which we have posted with the result. The trade receivables there don't show a decline. It was INR 1,629 crores in March '19 and it is INR 1,627 crores as of September '19. Could you give some light on the same, please?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [14]

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So on a consolidated basis, yes, it's virtually the same, but in terms of netting of advances because we -- given the fact that we have various SPVs, which are being developed, as we execute these SPVs, particularly the SECI, one of the SPVs, which we've just closed for SECI-1 and another SECI-1 SPV, which should be closed in the near future. These will become [contracted] and knocked off. So the real way to look at it would be net receivables, net of advances.

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Jitendra Mohananey, Inox Wind Limited - Group Financial Controller [15]

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And there is a movement in receivables. There is a billing on receivables, and there is a collection also from receivables.

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Paras Nagda;Enam Holdings;Analyst, [16]

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Got it. So what are the advances, if you could highlight? Because in the balance sheet, we're not able to particularly pinpoint.

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Jitendra Mohananey, Inox Wind Limited - Group Financial Controller [17]

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These are the advances from customers. We don't have exact breakup of those advances, so we can do it offline, if required. But these are advances against supply and execution.

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Operator [18]

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(Operator Instructions) Next question is from Mohit Kumar from IDFC Securities.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [19]

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Yes. Sir, the industry seems to be in very bad shape. It has been 2.5 years since the last -- since the first auction was conducted. And it looks like the industry is not in a good shape in FY 2020. What kind of industry size you're looking at FY '20? And do you think this thing will improve dramatically in FY '21 to have volumes somewhere around 3- to 4-gigawatt?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [20]

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Well, certainly, I think the fact that for the past 2.5 years, the industry is honestly bled. It's been a phenomenal disaster, which honestly is fairly unheard of in any other sector. You have drop in profitability, you have lesser volumes, but honestly, we are not aware of any sector, which, due to no wrong reason, has been overnight shutdown, which, as you know, have led to the closure of virtually all other Indian manufacturers, excluding Inox Wind, and also a couple of global manufacturers who operated in India. Having said that, I think now the sector is gaining life, as has been said by one of our competitors. We've been seeing the sector is standing -- getting up on its feet. As I mentioned, only a minor few hiccups are left, which are also being addressed rather than having been left unaddressed, such as time extension issues for all these SECI and so on and so forth projects.

The grid finally catching speed with respect to execution going on, so I personally believe FY '20 is still really a consolidation year. And '21, whether you call it calendar -- calendar year '21 for some foreign manufacturers or whether you call it, FY '21 for Inox Wind, I think we should be very, very -- we should be in a fairly robust shape. From a market size perspective, yes, I would certainly look at FY '21 being a 4-to 5- gigawatt market.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [21]

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And sir, my second question regarding the [new] extension which SECI is granting, what kind of extension is possible in terms of time line? At least for SECI-2, SECI-3, SECI-4, are all the 4 people asking extension now?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [22]

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Honestly, this is being done across all the bidders because, while we got, for example, in Inox Wind's case, SECI-1 was delayed because the grid was not ready for 18 months. So at least for those 4 SPVs, which we've already commissioned, we've got time extension. With respect to the fifth SPV, it is under active consideration, I can't say anything beyond that. But with respect to all the future SECIs, whether it's SECI-2, 3, 4, 5, 6, 7, which various other investors and bidders have won, every one has been stuck for some reason or the other, whether it was grid, whether it was MoD approval, whether it was land allotment or, in some cases, the grid existed, but the (inaudible) and the capacity to evacuate power did not exist. So on a case-to-case basis, looking at the facts of every investor, extensions are on the verge of being possibly given to all these investors. And that could range anywhere from 3 months to 2 years.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [23]

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Sir, can you say that transmission evacuation and land issues are behind us to a large extent for the industry?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [24]

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Well, yes to a large extent, but again, so you're now seeing SECI-1 and SECI-2, then you see SECI-3. You're not going to see 1, 2, 3, 4, all being executed within 1 day because the grid, which is catching pace is, for example, in Bhuj, where we've commissioned. They've now got 2,000-megawatt connected. By March '20, this is expected to ramp up to 4,500 megawatt. So now that the grid is started getting readied, the (inaudible) are being installed, the transmission lines are ready to evacuate power. This is incrementally is getting enhanced.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [25]

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Sir, last question on my side, sir. Do you think the -- given the fact there's a very, very low participation, the new SECI bids, which have come up, and despite having a slightly higher tariff, when do we expect this to pick up? And is there any issue with the further transmission evacuation or the tariff is not high -- their tariff is not high enough? May I have your opinion, sir?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [26]

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Listen, I think we look at it as 2 things: one, there's been 15 gigawatts, which had been bid out in the past 2.5 years. What we've seen commissioned to date out of that is possibly 4 to 5 gigawatts. So there's already a 10-gigawatt pipeline sitting in the system won by investors, which has to be executed. You just don't do an auction and investors are just not going to keep bidding and winning tenders to put up to 2 years down the line, 3 years down the line, 4 years down the line or whatever it may be. Those who are sitting with deals for the past 1, 2, 2.5 years, deals need to be executed. So there is now no mad rush to keep building the so-called order book that I have X, in IPP, I have a 1,000-megawatt execution pipeline; Y, IPP, I have 1,000-megawatt tender to be executed. People are executing, people are taking orders, number 1. Number 2, I think, as I mentioned, there is a significant shortage of turbine suppliers and turbine availability in the market.

So people also need to cover this aspect. Please don't forget, in 2017, the erstwhile top 5 manufacturers, 2 have exited, or 3 out of those 5 are virtually exited or bankrupt or stopped operations. So honestly, if 90% of the market was with 5 guys, and 3 out of those 5 are now nonexisting to a great extent, where are the new manufacturers going to come from? All the remaining were anyways too small to pick up anything. And 1 or 2 new entrants, who did come into India, 2 have already folded up globally. Some other guys who've come are very, very new, doing the limited volume.

So that's what I said, we see a significant opportunity to gain more volume market, as we are moving forward. As I mentioned, we've spent the past 3 months also across customers, investors, briefing them what's been happening. Now the sector is back. This is where the traction is gaining. Otherwise everybody put everybody in the same basket, saying, as everybody is facing financial issues and if the whole sector is, then everybody is going to die, no one's going to survive. But the strongest has survived, and the weakest are now on the verge of fold up or have folded up.

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Operator [27]

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Next question is from the line of [Bhargav Dheeraj], an individual investor.

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Unidentified Participant, [28]

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There was one quick question from my side. In the last earnings call, I remember you saying that SECI-2 execution is going to be plug-and-play. But still, this quarter is more or less very muted. Can I know the reason behind that, like what's the reason on -- does it have anything to do with the lockout that happened in the Rohika plant or anything of that sorts?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [29]

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No. So again, let me correct that statement. First and foremost, everything that we're going to do going forward is plug-and-play with respect to our connectivity, with respect to, let's say, the ReNew order or the Adani orders, they're on their connectivity, nothing to do with our connectivity. ReNew, we've recently won, which we are now executing. Adani is under execution. But Q2 is the peak monsoon period and (inaudible) which is unheard of (inaudible) whether we were in Kutch or, for example, even in Tamil Nadu or Karnataka, Q2 historically (inaudible) whether '12 -- 2012, 2015 -- '17, has always, very muted in execution given the impact of the monsoons. And honestly, we are focused more and more on finishing the receivables inventory in our system and the inventory of new turbines in our system rather than more and more manufacturing and dumping turbines across investors or IPPs without execution. So with the monsoon period now over, execution is back in full swing across the various sites we're working on.

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Unidentified Participant, [30]

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Any news on the rumors spread, there is a lockout in one of your manufacturing plants?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [31]

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Yes, factually, that was not a rumor. We took out a press release. We also -- we also had a query from the stock exchange. So our clarification is already in the stock exchange. There was absolutely no lockout anywhere. We've also written to the concerned media line, which took out that article, which in fact said, there is a lockout across all our plants, which was factually incorrect. What we had done is that we had -- we were having interference in one of our plants for some local issue (technical difficulty) with the administrative department, we have simply put a letter to them, so that they could be put in that position, as a result of which that miscreance and that nuisance got sorted out, got killed, and our plants continued to run efficiently.

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Operator [32]

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Sir, there are no further questions in the queue. We have our next question, which is from the line of Manoj Kumar from IDFC Securities.

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Manoj Kumar;IDFC First Bank, [33]

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And I have two questions with me. One is on how H2 will be panning out in terms of execution, like can we see any growth year-on-year on that? And the second one is on, was there any improvement in last 1 month in terms of execution?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [34]

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We certainly see more execution happening, like we put out -- we're executing the 100 megawatts of the Adani connectivity projects. We have various some of our projects, which are now under execution. We are already executing the ReNew project, and we have a lot of smaller deals, which have been post MSEDCL and various other projects, which have now been -- I can't share details at this point in time on that. But that is something which will play out over H2. I'm not sure if we're going to see -- well, there will be a year-on-year growth, given H2 of FY '20 will be larger -- expected to be larger than H2 of FY '19, but I'm not sure in terms of the full financial year, because what we are primarily driven by is finishing off all the receivable inventory in our system and the inventory which we carry. Because we want to move towards the 3-megawatt turbine going forward into the next financial year.

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Operator [35]

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As there no further questions, I now hand the conference over to the management for closing remarks. Over to you.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [36]

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Thank you. Thank you, everybody, for being part of this investor call, and thank you for being interested in the company. As I briefly mentioned in the management briefing, which I gave prior to the beginning of this call, I think we're now seeing life coming back in the sector. We are seeing the -- all the larger hiccup, larger problems, whether it was the regulatory guidelines, whether it was connectivity guidelines, whether it was land issues, et cetera, et cetera, now virtually resolved. We now have minor hiccups such as extension of project timelines, which the government and concerned authorities are proactively on top of, and the evacuation catching pace.

So I think as we look at it, we're looking at this financial year as a consolidation year for us, where we are getting done with all the inventories we're carrying, executing the projects, which were in our system, which were delayed due to the common infra being delayed and we are very gung-ho going forward with respect to launching the new turbine technology over the course of this financial year and playing that into the next financial year. As it's increasingly evident, competition is reducing in the Indian market, given the fact that we are now down to really 3 to 4 players at best. And the pipeline of the deal size outside is fairly large. So I think optimistically, we're very cautious. We're cautiously very optimistic, and we believe that in the next financial year things should really get back to a fairly, fairly rock solid position, which the sector enjoys until the transition from the feed-in tariff regime to the auction regime.

Thank you, and we look forward to connecting with you next quarter.

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Jitendra Mohananey, Inox Wind Limited - Group Financial Controller [37]

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Thank you very much.

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Operator [38]

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Thank you very much.

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Shirish Rane, IDFC Securities Limited, Research Division - Head of Research [39]

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Thank you very much.