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Edited Transcript of INOXWIND.NSE earnings conference call or presentation 7-Feb-20 12:00pm GMT

Q3 2020 Inox Wind Ltd Earnings Call

Noida,Uttar Pradesh Feb 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Inox Wind Ltd earnings conference call or presentation Friday, February 7, 2020 at 12:00:00pm 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

* Narayan Lodha

Inox Wind Limited - CFO

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Conference Call Participants

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* Dhruv Muchhal

HDFC Asset Management Company Limited - Equity Analyst

* Jyoti Roy;Angel Broking;Analyst

* Ketan Gandhi;Gandhi Securities;Analyst

* Mohit Kumar

IDFC Securities Limited, Research Division - Analyst

* Shivan Sarvaiya;JHP Securities;Analyst

* Vaibhav Saboo

Axis Capital Limited, Research Division - Assistant VP of Capital Goods

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Inox Wind Q3 FY '20 Earnings Conference Call hosted by Axis Capital Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Vaibhav Saboo. Please -- thank you, and over to you, sir.

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Vaibhav Saboo, Axis Capital Limited, Research Division - Assistant VP of Capital Goods [2]

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Thank you, Aisha, and good evening, everyone. On behalf of Axis Capital, I'm pleased to host the Conference Call for Inox Wind Limited for the Third Quarter Results FY '20.

From the management we have, Mr. Devansh Jain, who is an Executive Director; Mr. Jitendra, who is the Group Financial Controller; and Mr. Narayan Lodha, who is the Chief Financial Officer. Over to you, sir. Thank you.

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Jitendra Mohananey, Inox Wind Limited - Group Financial Controller [3]

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Yes. Good evening, everyone. I welcome all the participants of this earning call. The Board of Directors of Inox Wind Limited has approved results for the third quarter of the financial year ending March 31, 2020, in the meeting, which was held today. I trust you would have had an opportunity to go through the results.

Now I would like to take you through some of the operational highlights. We successfully commissioned 200 megawatts of SECI-1 at Dayapar, Gujarat. We have also got time extension for balance 50 megawatt of SECI-1 to be executed by March 2020.

On the front of order book, we have bagged fresh order for 250 megawatts from Morgan Stanley backed Continuum Energy. Also, bagged fresh orders for 12 megahertz from various retail customers and many more orders in progress. Our order book as on date stands at 1,470.7 megawatt.

All the future projects -- all the future project execution at Dayapar, Gujarat has got to be on a plug and play basis given the common infrastructure for the same is already in place.

On the front of financial performance, during the quarter, we have commenced execution of new orders along with fresh supplies of WTGs. We have recorded higher revenue and EBITDA compared to preceding quarter. The revenue of INR 173 crores in Q3 FY '20 against the revenue of INR 139 crores in Q2 FY '20. These are anyways consol numbers.

EBITDA of INR 24 crores in Q3 FY '20 against EBITDA of INR 4 crores in Q2 FY '20. Overall, continuous improvement in working capital cycle INR 635 crores in Q3 FY '20 as compared to INR 828 crores in Q2 FY '20. There's a constant reduction in net debt quarter-on-quarter, INR 648 crores in Q3 FY '20 as compared to INR 791 crores in Q2 FY '20. We have robust net debt-to-equity ratio, which stands at 0.34x as compared to 0.42x in Q2 FY '20.

Now let us have a look at significant market opportunity and way ahead Q4 FY '20 and FY '21. Post the painful transition, the sector is now catching up and certain project time extension approvals, which are now being acted upon by concerned authorities.

As a result of painful transition, over the past 3 years, multiple wind turbine manufacturers have either closed down or are facing severe financial issues. This has resulted in shortage of supplies of WTGs in the market. The tariff is also inching up and has stabilized in the range of INR 2.85 to INR 2.95 per kilowatt hours.

Inox is getting -- Inox is gaining traction in the market post the transition period and has recently concluded new deals with Adani, ReNew Power Continuum and certain retail investors. Due to the lower intensity of competition and with our 3.3 megawatts of world-class WTGs, going forward, we expect to get back to normalized profit levels.

Supplies of 3.3 megawatt to commence in FY '21, which will be amongst the most [complicated] WTGs in the Indian market. This will improve our margin and also address any potential issue of lower tariffs.

We'll continue focus on optimization of working capital cycle. Our O&M business gives us a real significant opportunity for monetization and has the potential for significant organic and inorganic growth.

Our O&M business is a strong annuity model. We have multiyear O&M agreements for its fleet across customers. And from that upcoming new financial year, a significant part of the WTGs will be beyond free O&M period.

O&M revenue, as you know, are noncyclical in nature and have steady cash flow generation and higher margins.

Now on the front of balance sheet, I would like to bring you to the notice Slide 13 and 14 of the presentation, which gives details of our focus on balance sheet improvement.

At the end of Q3 FY '20, in terms of working capital, the inventory stood at INR 993 crores, net receivable at INR 519 crores, payable at INR 1,002 crores and other current assets are above INR 125 crores. This translates into a net working capital of INR 635 crores.

On the debt equity front, we ended the quarter at a healthy net debt-to-equity ratio of 0.34 as compared to 0.42 in Q2 FY '20. So this is the broad overview of our operations and financial performance and how we see the sector going forward.

I have along with me, our Executive Director, Mr. Devansh Jain; and CFO, Mr. Narayan Lodha, to take questions now. 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 Mohit Kumar from IDFC Securities.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [2]

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Sir, given the fact that we have roughly 1.5 gigawatt of order book and we haven't executed much in the last 9 months. Do you think that the execution will pickup in the next Q4 and FY '21, how does -- how do you think the numbers will pan out in terms of overall volumes? And what are the time lines of the 1.5 gigawatt we have to commission?

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

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Mohit, thank you for the question. Well, certainly, the past 9 months have been slow in terms of the execution. But if you look at it, we focused very, very effectively on reducing working capital, freeing up cash, strengthening the balance sheet. More importantly, we also needed the great infrastructure to be ready because honestly without that you can't execute orders. That's not just for the Inox grid, but also external grids with various customers are now ordering turbines from us. Their grids are also getting readied in due course of time, some of which are ready and some are playing out over the next couple of months.

So certainly, in Q4, we look forward to much higher number in terms of sales and execution, #1. #2, going forward, in FY '21, we're definitely looking at a much more uniform year-round execution plan. That's all that I would like to say at this point in time.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [4]

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Would it possible for you to say something about the industry size in FY '21?

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

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So at this point in time, what we expect the industry to do in March '20 would be close to about 2, 2.5 gigawatts. I believe, in FY '21, the industry would be close to broadly about 3 to 3.5 gigawatts. That's our expectation at this point in time.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [6]

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Sir, out of 14 gigawatts, how much 14 gigawatt of auction which have happened? How much have already been closed in terms of tendering? Are there orders which are still open at this point of time?

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

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Well, to be honest, well, I may not -- I mean I can only talk from market rumors and limited intelligence information which we have. Of the 14-odd gigawatt, we believe up to 6 gigawatt of orders are unclosed. Even in the remaining 8, which have been closed, of which about 3.5 has been executed. We believe of that 8, minus 3.5 executed and the 4.5, which is yet to be executed. We still believe about 1,500 to 2,000 is technically open because those manufacturers are either shut now or are virtually shut. So effectively, I think it's -- there's potentially, I might say, shortage of supplies in the market at this point in time.

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Operator [8]

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(Operator Instructions) The next question is from the line of Ketan Gandhi from Gandhi Securities.

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Ketan Gandhi;Gandhi Securities;Analyst, [9]

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Sir, can you throw some light on SECI-2 down-selling of the project? It is done? Pending? Or...

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [10]

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Well, we've got multiple investors onboard for SECI-2. Due to confidentiality reasons logic, I cannot list them out. But I think they were very large in our order book. And we have multiple deals across revenue and that will continue amongst others, which are being implemented as we speak or will be implemented in the near future. So down-selling is not a big deal for us at this moment in time. We've already down-sold the entire SECI-1, as you may be aware.

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Ketan Gandhi;Gandhi Securities;Analyst, [11]

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And time line wise SECI-2 has been extended or?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [12]

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Well, we expect -- it has not been extended yet for anyone. But it's expected to be extended for all concerned party because barring one out, I don't think any party has been able to execute it within the time line given various delays such as grid infrastructure, lines and Ministry of Defense approvals. In fact, Adani Green came out with their results 2 days ago as well. They're still executing -- they have yet to begin execution on their SECI-2, 3, 4 projects, for which they're expecting the extension as well.

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Ketan Gandhi;Gandhi Securities;Analyst, [13]

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All right. My next question is, sir, in net receivables, can you breakup gross receivable and advance?

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Narayan Lodha, Inox Wind Limited - CFO [14]

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The numbers are, right now, are not with us, so we can do that off the call, okay?

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Ketan Gandhi;Gandhi Securities;Analyst, [15]

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Okay. And sir, in your presentation, you mentioned there is a real significant opportunity for monetization of the O&M business. So what is your plan?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [16]

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So what we are doing is we've been receiving a lot of interest from various investors to partner us on the O&M side to look at investing a bit on the O&M front. And at this point in time, we are evaluating things internally at the management level. And I think in the near future, we should come back with some kind of a plan what we intend to do on that vertical.

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Ketan Gandhi;Gandhi Securities;Analyst, [17]

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So it's a complete sell-off or partial?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [18]

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No, no, no, we're not selling off anything. We're looking at -- we've been receiving interest from investors as I mentioned. There is no question of sell-off of the O&M business. On the contrary, as you -- as we've mentioned in the presentation, there is a real opportunity for monetization. But we see very significant growth of that vertical, both organically as well as inorganically. As you may be aware, a lot of OEMs have folded up over the past 2 or 3 years. Many of those -- their customers are people who are struggling with respect to servicing of their wind turbines. And many of those customers are our existing customers who approached us to service their turbines. So we are working on a business plan around this vertical. We're very excited about the opportunity there. And as I mentioned, in the near future, you should hear back from us with respect to our plans in that vertical.

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Ketan Gandhi;Gandhi Securities;Analyst, [19]

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Okay. And my last question is, sir, in the total order book, what is the group order book? Group company...

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

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There is no group order book. The group order book is only 60 megawatts. It's only 60 megawatts, which we're implementing for our group company.

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Ketan Gandhi;Gandhi Securities;Analyst, [21]

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Because I think GFL or Gujarat Fluoro has given INR 550 crore advance for...

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

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GFL has only given us INR 350 crores of advances, which is for 66 megawatts, which we're implementing for them.

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Operator [23]

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(Operator Instructions) The next question is from the line of Jyoti Roy from Angel Broking.

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Jyoti Roy;Angel Broking;Analyst, [24]

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Yes. Just wanted to understand a bit on this O&M business, how are these typically these deals structured? I mean, are they structured at a fixed value globally? How are they structured? Are they structured at a fixed value? Or is it -- does it work as a percentage of your actual contract value, which has been executed? How are these deals typically structured?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [25]

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So it's based on the per megawatt rate, right? So typically O&M contracts we have a fixed price, which is escalating at say 5% per watt. These values are signed typically for 10 to 12 years.

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Jyoti Roy;Angel Broking;Analyst, [26]

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Okay. Any rough ballpark, I mean, as to how -- where typically -- how this deal works globally, any particular cost per megawatt?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [27]

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So per megawatt rates are different depending on what the IRRs in those countries are. But typically, in India, it's about INR 8 lakhs to INR 9 lakhs per megawatt, escalating at about 5% per annum.

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Jyoti Roy;Angel Broking;Analyst, [28]

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Okay. Okay, okay. That's one question on that. My -- another question on that unexecuted book has been answered. So just to summarize it, so 6 gigawatt plus another 1.5 to 2 gigawatts are yet to be ordered, right?

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

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That's what we believe. That's what we believe based on market intelligence.

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Jyoti Roy;Angel Broking;Analyst, [30]

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And a final question from my side on that. Grid infrastructure not being ready because this is something which the management has been talking about for quite some time now in FY '20. Now probably you all have got evacuation facility for 250 megawatts from your project. What is the kind of -- if you -- in terms of -- if I have to measure in terms of megawatt for the industry overall, what is the kind of, let us say, evacuation capacity is expected to get ready, let us say, next year? FY '21 for the entire industry, that's what I'm asking.

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

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Look, so for FY '21, as I said, we expect the industry to put up about 3 to 3.5 gigawatts of turbines. I would say, 500-odd megawatts out of that would be retail captive and various other customers, which would be in various states where grid already exists. So 3-odd gigawatt is what we expect to come up on the PGCIL or PGCIL system. Now to some extent over FY '21, the back end of '21, you'll see more grid being readied, but that will not be available for execution over FY '21. So potentially, we may see grid of almost 6, 7 gigawatts being readied by end of FY '21, but we believe about 3-odd gigawatts of central connectivity-based execution is going to happen in FY '21?

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Jyoti Roy;Angel Broking;Analyst, [32]

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Okay. Okay. And the balance will shift to then FY '22?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [33]

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Well, obviously, the grid will keep getting readied in phases and shop floors will keep getting put up, lines will keep getting strengthened under the green corridor, so that's something which -- it's an ongoing business. It's not shifting, but that's now going to be an ongoing business.

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Jyoti Roy;Angel Broking;Analyst, [34]

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So finally, from my side, any -- what is the kind of grid that you expect to now get ready, let us say, over the next 3 to 5 years now that the government has also come out with that NIP, where there is -- they're expecting a significant increase in allocation to your renewables, predominantly driven by private sector. So they would have had a plan, especially with regards to this readying of the grid and evacuation capacity. So has anything been shared with you on that?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [35]

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There's a lot of data in the public domain. Clearly, the government's game plan for the wind sector initial target was to do 60 gigawatts by 2022. We're sitting at about 38 gigawatts at this point in time. So logically, going by that, we should be putting up 22 gigawatts of wind in the next 2 years. I don't think that's happening clearly, #1.

#2, with respect to the 2029 plan, if I'm not mistaken, we've spoken of taking renewables up from 175 gigawatts to 400 gigawatts. While there's no specific breakup of wind and solar in that, I would assume wind would move to 100 gigawatt at least out of that.

So effectively, if you go by those numbers, from a grid readiness perspective, we would be expecting almost 65,000 to 70,000 megawatts of grid just for wind to be ready over the next 8 to 10 years, which would translate into 7,000 to 8,000 megawatts of installation year-on-year.

Now it's a given that the government is willing for installations of 10 gigawatts of wind year-on-year when they came up with this plan. But was actually happened on the ground in the past 3 years is about, on average 1.5 gigawatts.

So the larger macro discussions are very hard to pinpoint and specifically talk. But clearly, the direction of the government is very positive. As I said, now the grid-related issues are now behind us. A lot of the policy-related issues are behind us. I suppose if the tariff is correct to a certain level, which are commensurate for IPPs to boost investments, you'll probably see more investments happening on the ground.

And the fact that if tariffs are conducive for OEMs to have a healthy profit margin, you'll have more supplies in the -- happening in the market. So at this point in time, of the erstwhile topside manufacturers, 3 are virtually folded up. And all the other players are, anyway, is virtually dead. So effectively, you're staring at a situation where even for 3, 3.5 gigawatts there is a shortage of supplies in the market.

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Operator [36]

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The next question is from the line of Dhruv Muchhal from HDFC AMC.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [37]

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Sir, basic, probably, question. Firstly, just if you can share what was the commissioning number in the last 9 months? I believe 200 megawatt?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [38]

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For Inox Wind?

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [39]

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Yes, yes.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [40]

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Nine months will be about 210 megawatts.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [41]

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210. So if I just cumulate the revenue for 9 months that is about INR 570 crores. And per megawatt number would come to around INR 2.7 crores per megawatt. So what am I looking wrongly here?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [42]

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So don't go by the sales because a lot of the commissioning which is happening. So typically, if a turbine cost, let's say, INR 6 crores a megawatt, 75% of that is towards the supply of the turbine, and 25-odd percent is towards the commissioning of the turbine. So effectively, if you've commissioned 210 megawatts if you go by that math, you are typically having sales revenue of about INR 300 crores. And supplies are very, very muted. If you look at it in Q2, we barely had any supplies. Q1 was very lean. Q3 is very lean. We've now started manufacturing new turbines because our entire focus in this financial year has been fixing the balance sheet, clearing up working capital and getting to use all the old inventories, which were sitting in receivables and in our system.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [43]

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Okay. Got it. Sir, also, if you can help me with the order book. If you can please split it out in terms of when is it deliverable, for example, SECI-1 is done? SECI-2, I believe you already have the capacity in terms of -- in Gujarat, the spare capacity. When would SECI-3, as per your estimate, I believe the grid growth, of course, vary, but SECI-3 and SECI-2...

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [44]

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Look. So -- look, so I don't think you should break it up into SECI-1, 2, 3 and 4. While SECI-1 is virtually done and the last FPG has been commissioned over the course of Q4. We also have orders from Continuum, which are going to start playing out. We have orders from ReNew, which we are playing out right now. We have the 3.3 coming up over the course of the next financial year. A lot of it is going to be 2 megawatt next year, partly 3 megawatts. We have a lot more retail orders which are kicking in, which are spread across various wind sites, which are part of our common -- capital work in progress across our 5 gigawatt of land banks. But having said that, from a common infrastructure perspective, look, we have an LTA for 500 megawatts at this point in time, but the common infra can evacuate upwards of 660 megawatts. So effectively, we have the common infrastructure available now, which would be on a plug and play basis, not just for SECI-1, but SECI-2 and potentially SECI-3 -- and in SECI-3 as well. But effectively, what's happening SECI-3 and 4 are a little away because the shop floors and other common infrastructure which has to be readied at the PGCIL end is still some time away. That's expected to be readied sometime in FY '21. So without that, we're not in a hurry to execute that.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [45]

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Okay. Sir, you mentioned 660 megawatts is the spare you have to do a plug and play, right?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [46]

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That's right.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [47]

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Okay. So just probably, again, a basic one. So why can't we upfront the commissioning of SECI 200 megawatt or SECI-3 and SECI-4 of 100 megawatt and start getting the revenue there and then we can plug and play?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [48]

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So if you -- so I mean, logically, if you look at it, the grid got readied in April -- 14th April 2019. We commissioned our substation and our transmission line thereafter in June end. And July 5, is when we commissioned the 4 SPV for SECI-1. We didn't have an extension for SECI-1 until then. So we could not execute that. We got that extension on 28th November. And we are since, December, Jan, we should complete that execution in February executing that. Now logically, while SECI-2 exists, we need to get those extension letters so that those projects can be implemented on the ground. I mean now that's a matter of routine the extensions have been given for genuine reasons such as evacuation, land not available or MoD approval. So once we get that, we will execute that. What we're executing now is the ReNew order. We're executing retail orders. We're executing some leftover of value orders. And we hope to begin execution of the Continuum order in the near future as well.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [49]

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All right. So basically, we were -- so we are awaiting the SECI's extension to start executing on -- at least the other projects, focus, I'd say mainly on Adani and ReNew.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [50]

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SECI-2, but until then, we got the ReNew orders, we had Adani orders, which we had to execute, which we were executing. Now again, that's not commissioning at our end because Adani needs to commission on their grid infrastructure. ReNew's commissioning on its own grid infrastructure. Continuum is something, which will be on ours, which we will implement and we expect to begin execution of that in March or April.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [51]

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Sir, one more question was more on the direction of the industry. There's -- now given that the supply side is relatively tight or you probably have a better bargaining power. Now historically, what is to happen, you used to execute end-to-end, I mean, land, infra everything. But given that you're in a better position now, won't we prefer more of equipment-only orders rather than because probably, I believe, your working capital is much better there. So only equipment-only orders to go ahead? Or that would not be restarting?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [52]

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No, you're right. We're starting looking at mostly equipment. So effectively, even the -- I mean, to be honest, from an Inox Wind perspective, we've so far consumed only 200 megawatts out of the 660-megawatt of common infra, which is already in place. So we have 460 megawatts of common infra, if not more, sitting idle at this point in time, which is going to be used over the next 18-odd months, part one.

Part two, the ReNew order, for example, is equipment supply with a little bit of support. It's their site, it's their substation, everything. The Adani orders, it's their line, it's their substation. We are doing just equipment supply with a little bit of other support services. We are talking to a lot more deals -- for a lot more deals at this point in time, which are pure equipment supply deals. So if you notice, we are now on SECI-9, of course, which has not been subscribed and which has been extended 5 times. We've not bid for projects after SECI-4 because Inox is focusing more and more on profitability, #1, going forward; #2, risk management and contract management. We are happy doing a lesser volume, but focusing more on profitability. Because over the past 3 years, what has happened with OEMs and proof of that pudding is virtually all the Indian OEMs are now bankrupt.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [53]

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But with the industry direction happening back towards the direction of equipment only? Or it is still something...

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [54]

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Well, honestly, all the IPPs are bidding themselves. So there is no question of turnkey, right? Because connectivity is coming in the IPPs name. The line substations have to be built by these guys, so where is the question of OEMs coming in. Like I said, it's really down to 2 or 3 players in the Indian market who are suppliers. And all of us are now focusing more and more on risk management and equipment supply. Because historically, while it was a turnkey job, with feed-in tariff regimes under the auction scenarios, more and more equipment supply. Yes, there are IPPs who want to buy ready-made projects because they don't have the capability or they're too new to be able to build substation transmission lines. And to that extent, we have a large enough pipeline sitting with us, whether it was SECI-1, 2, 3, which is what we'll build out and down sell to these guys.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [55]

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Okay. Sir, last question before I join back. How does the sequencing of order works? If for example, you get an equipment only order? There is a customer advance, I believe. But do you also have to give bank guarantees? And is the trouble given -- currently, probably, we are facing some relatively tighter financial conditions. Is that a trouble to get new orders?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [56]

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Well, I don't think getting new orders is a trouble because there's a shortage of supplies in the market. We are rightsizing ourselves to focus more on risk contract management and new projects only where it's leading to positive return for us. For example, we've virtually now tied up all the old inventory. So we are not in a distress sale position where we're dumping inventory in the market. That's been done. As you've seen in this quarter, we started manufacturing of new turbines. That's happened after a very long time. So effectively, yes, for any -- to start any order, you get advances for which you need to give advance bank guarantees. And I think given where we are now and Inox's position, I can't say we're very strong, and all banks are very, very supportive. But we have a fairly healthy lineup of banks, who have been with us and who are supportive. And I think we're comfortable with respect to our bank guarantee requirements.

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Dhruv Muchhal, HDFC Asset Management Company Limited - Equity Analyst [57]

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Okay. Okay. So I was just wondering in a sense that given that -- given the supply is so constrained, I mean, will the structure not change in a manner that the bank guarantee requirement would also go away and that will give you more scope to do orders.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [58]

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I'm not sure because I don't think any customer will give you a significant advance without a bank guarantee. That's true for any industry. I mean, what if you just take the advance and shut down, then what? What if you take the advance and then back out and don't supply? I mean, it's not a 1% advance. These advances are typically 10%, 20%, 30%.

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Operator [59]

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(Operator Instructions) The next question is from the line of Mohit Kumar from IDFC Securities.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [60]

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Sir, sorry to harp on the -- but sir, in this 1.5-gigawatt of order, do you see -- do you think the -- all the land transmission, evacuation and the MoD, all the 3 things are eased out compared to, let's say, 9 months before?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [61]

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Well, certainly, things have eased out. Because the grid is now getting readied in time, whether now you're 3 months late or 6 months late is a different story. When the auction scenario happened, the grid was not ready, so we were 18 months to 24 months delayed, #1. #2, guidelines for auctions were not increased for more than 1 year. So a lot of those issues are behind us. Now whether the grid gets delayed for some specific customer by 3 months or 6 months ago is a manageable scenario.

If you take Inox's point, at this point in time, our grid is up, is ready upwards of 660-megawatt, which is the central grid. We have a lot of retail grid lying ready in Rajasthan, Madhya Pradesh, Gujarat and Karnataka, where we are taking up retail orders and executing them. But with respect to the central grid, we have over 660 megawatts sitting with us at this point in time, of which we've consumed 200, and we expect to consume the remaining over the next 12 to 18 months.

If you look at the Adani grid, the Adani grid finally got readied also after the SECI-1 deadline passed. And with that grid, they have now of, I believe a, if I'm not mistaken, a 500-odd-megawatt grid in place at this point in time, which will eventually expand up to 750 megawatts, where they will do plug and play.

The ReNew order, which we're executing, is on a grid which is upwards of 200, 300 megawatts, I believe, which is already in place where we're executing this order.

The Continuum order we're talking about is something where they already have their LTA, they will probably be using our lines as we move forward. But I think the overall situation at least to a great extent, okay, it's not eased to the extent of doing 8 to 9 gigawatts a year in the market. But yes, certainly, for 3 to 4 gigawatts per annum, I think, it's fairly healthy.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [62]

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Sir, out of 1.5 gigawatts, how much is the equipment supply and complete EPC? Is there a breakup? And the order pertaining to Adani for 3.3 megawatts of 501-megawatt output, when it would -- is there any issue with the conversion of this LOI into proper agreement?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [63]

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Look, I think we have a strong relationship with Adani. We've done over 300 megawatts of business now with Adani over the past 2.5-odd years. And that's in a scenario where there was nothing much happening. Look, they went out and placed some orders to Suzlon as well. We're aware of that's all stock up. There's one-odd MNC in the market which is supplying where costs are absurdly high, which honestly, does not justify returns for anybody at this point in time.

With respect to the Adani LOI, actually, it's for the SECI-3, 4, and so on, and so forth order win. Because 1 and 2 is something whatever they want, they've already tied up with us. Now for that, we obviously need a better technology so that the cost of energy is sustainable and people make a positive return. For us, it was very important to get behind the grid infrastructure-related issues in the sector, consume a lot of the old inventory sitting in our system as well as stock up inventory in our system. Because honestly, if you launch new turbine technologies in the market, old technologies become untouchable. Everybody would want the new Mercedes. Nobody is going to buy an old Mercedes model, right? So effectively, now that we're at the fag end of tying up our inventories and allocating the old inventories, we are moving out the 3.3-megawatt turbines and we expect to begin commercial supplies of that in the next financial year.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [64]

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Sir, last question on the hybrid. Have we got any order from hybrid capacity?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [65]

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No, we've not won anything on hybrid. But honestly, it's not a question of hybrid because it's IPP to win and then allocate wind farms and solar farms within that simple entity. So it's not -- there's nothing on hybrid. It's just that within one site, we're using solar panels and wind turbine. So until now, I think only 2 people, Adani and SoftBank have won hybrid tenders. SoftBank is facing various issues that I believe they've been discussion with people, but they've not been able to tie up anything. And from market feedback as well as news articles, I believe their Indian portfolio is on the block. Having said that, with respect to Adani, that's still far off in terms of time lines for execution. They first need to implement their SECI-3, 4 projects and then they've got to move to those projects. So I think 3-megawatt turbines are trading very well into that since some of those projects are going to be implemented in Rajasthan.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [66]

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Yes. Yes, I agree that they also have hybrid 3, which where Adani's sitting capacity of 700-megawatt in Rajasthan.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [67]

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That's right. That's right.

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Mohit Kumar, IDFC Securities Limited, Research Division - Analyst [68]

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This is sizable, yes.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [69]

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That's right. But only about 200 or 300 out of that is wind, the remaining is solar.

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Operator [70]

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The next question is from the line of Shivan Sarvaiya from JHP Securities.

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Shivan Sarvaiya;JHP Securities;Analyst, [71]

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Sir, couple of questions. One, there was a news article today, sir, it's stating that the government is looking at stopping to impose certain ceiling tariffs on wind tenders, so if you could give some color on that?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [72]

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No, we are not privy to any such data. I mean, we did read about it in the newspaper as well. But we remain in touch with the Secretary, we remain in touch with the ministry. And to our limited knowledge, we're not aware of any such. I mean, there have been discussions and there have been various industry representations to do away with the caps on tenders. And that's a very, very positive and welcome move, but we're not aware of any such move being implemented by the government at this point in time.

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Shivan Sarvaiya;JHP Securities;Analyst, [73]

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Okay. Okay. And sir, if you could give some idea on the amount of execution that -- and commissioning that could be done in the next quarter -- in the current quarter that we are in Q4 and next quarter -- and the next year?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [74]

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No, we will not be able to give specifics of next quarter. But what we've put out in the public domain is, certainly, we expect to commission the last SPV of SECI-1, which is 50-megawatt. And we have started supplying for the new orders, so that's something which is going to play out. Let me also remind you that a lot of these supplies are now linked to infrastructure, which is not our responsibility. So for example, we still have some supplies going out to Adani, which is based on their group. We have supplies going out to ReNew, which is win to their group. So those are not our commissioning responsibility.

With respect to FY '21, as has been stated, we are really looking forward to FY '21 being our first full year of normalized numbers after a gap of 3 years. While I won't put out specific numbers there, but we have a fairly large order book and we're very excited about FY '21 given most of the trade-related issues and industry policy-related issues have now been resolved.

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Shivan Sarvaiya;JHP Securities;Analyst, [75]

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Sir, when normalized, would it be in the range of like around 400 to 600 megawatts, at least?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [76]

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I would tend to think so.

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Shivan Sarvaiya;JHP Securities;Analyst, [77]

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Okay. Okay. And sir, if you could just tell me the revenue from O&M that we've been getting in the 9 months?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [78]

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Can we? Do we have the data? Full year will be approximately INR 85 crores.

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Shivan Sarvaiya;JHP Securities;Analyst, [79]

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INR 85 crores?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [80]

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85-odd. I don't have the exact numbers, but we have Q2, 3 figures. The full year will be approximately INR 85 crores.

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Shivan Sarvaiya;JHP Securities;Analyst, [81]

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Okay, sir. Next year, sir, the amount of the turbines coming into this fold will be how much in terms of megawatts?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [82]

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Well, you mean, those which would be beyond the free O&M period?

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Shivan Sarvaiya;JHP Securities;Analyst, [83]

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Yes, yes, and including these total which we would be able to service as O&M in the next year.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [84]

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Well, we are servicing the entire 2.8-gigawatt of our fleet at this point in time. 500-, 600-megawatt obviously run shared services only, but we've a 2.8-gigawatt operating fleet at this point in time. I think next year, we would have an O&M revenue of -- next year, I would tend -- so this year, I'm going to give you -- next year, we would have about 1,600-odd megawatts in the paying O&M period.

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Shivan Sarvaiya;JHP Securities;Analyst, [85]

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Okay, sir. O&M above this, of course, yes?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [86]

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Overall, overall, for the full financial year.

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Shivan Sarvaiya;JHP Securities;Analyst, [87]

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Okay, okay, okay. And sir, and the realizations in the 3.3-megawatt, sir, would be drastically different from the current one?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [88]

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Well, I wouldn't say drastically different. But they -- so if you go back to the earlier FIT regime period where typically turbines were INR 6 crores a megawatt, I would tend to think the 3.3-megawatt turbine would be close to that, minus a little bit, obviously, because it's a larger platform, costs go down and cost of energy is declining continuously or now it's stabilized at about INR 2.9 crores, but I would tend to think, ballpark, about INR 6 crores per megawatt would be the right number for this turbine.

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Operator [89]

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The next question is from the line of Jyoti Roy from Angel Broking.

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Jyoti Roy;Angel Broking;Analyst, [90]

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Yes. Sir, my question again pertains to the kind of execution you are seeing. So while you have answered that in a way, 400- to 600-megawatt is what you are looking to execute next year on a normalized basis. But if you could -- I mean, are you actually seeing some movement on the ground for your customers? I mean, they are telling you to execute and because since you have also started manufacturing new equipments.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [91]

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Well, I suppose it's common sense, we would not be manufacturing the equipment, if our customers were not ready to pay. Otherwise, honestly, we could have -- we have a large enough order book where we could have been manufacturing the equipment for the past 9 months. We don't want to manufacture and just sit on inventory and not get paid for it. Given the fact that majority of these customers' infrastructure is now ready or in the final phases, that's the reason why they've asked us to go ahead with respect to manufacturing and with respect to supply. That's also the reason they have a shortage of supplies in the market, #1.

#2, look, we were given a broad range, one of the investors asked us 400- to 600-somewhat committing anything nor am I throwing out a number there. But yes, we certainly look forward to a fairly significant volume in terms of megawatts to be executed in the new financial year. And certainly, it's not going to be 100-, 200-megawatt. But it's too premature to throw out those numbers at this point in time.

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Jyoti Roy;Angel Broking;Analyst, [92]

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So going by whatever you have got from your customers, what is the kind of execution that you are looking, let us say, in probably over Q4 and maybe Q1 and Q2? Do you have any thoughts on that?

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [93]

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You are indirectly trying to again and again come back to what we're going to do next year. I did tell you the industry will do close to 3- to 3.5-gigawatt. So effectively, if you put our market share, you can work out broad numbers. And like I said, it's a -- there's a real shortage of supplies in the market, #1.

#2, with respect to Q4, I already mentioned. What's already in the public domain is we are certainly executing the last SPV of SECI-1, which is 50 megawatts, which is something we expect to commission in the near future within Q4. We are supplying turbines already to Adani, we're supplying turbines to ReNew and we expect to start supplying to Continuum over March or potentially April. This is besides some of the retail orders, which we continuously are building on. So then I don't want to get into megawattage terms. But I did mention, we expect Q4 to be significantly better than any of Q1, Q2, Q3 until now.

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Operator [94]

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And there are no further questions. I would now like to hand the conference over to the management for closing comments.

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Devansh K. Jain, Inox Wind Limited - Whole-Time Director [95]

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Well, thank you, everybody, for joining us on this investor call. I think it's after the long time that while we have been, for the past 1 or 2 quarters post the commissioning of SECI-1, seeing that things are getting back to normal. It's probably after a long period of time, almost 2.5 years, where our confidence levels are very high. We are now at the threshold of very significant growth. It's after a long period of time that we started manufacturing new turbines as opposed to consuming inventories as opposed to consuming stock up inventories and our receivables. We are very excited about the fact that we are gaining more and more traction in the market. Over the past 3-odd months, we've bagged multiple deals, starting from new deals with Adani, to ReNew Power to now Continuum Power. We're in talks with multiple investors for deals, which are fairly, fairly significant.

We started gaining ground on the retail orders. That's a market which is opening up again, given there are very, very good policies on some of these states and capitals and third-party sale is very attractive. We're actually strengthening our team on the ground with respect to the retail vertical. And as has been mentioned, we are in discussions for many, many more deals on the retail side. Those are definitely more profitable and help us consume infrastructure who already exist in many of the states, such as Gujarat, Rajasthan, Karnataka, which was built during the FIT regime period. So helped us liquidate some of our capital work in process as well.

It's fairly encouraging also to note that over the past 3 months, we have gone out to the market, like most of our customers, and reiterated to them we are back in business strongly. Look, over the past 2 or 3 years, given most OEMs have shut down and everybody was struggling for some reason or the other, given the huge transition period came, a lot of the customers needed confidence, a lot of the bankers needed confidence, that we are here to stay and we are strong, and I'm very happy to say that most of the banks now who have been with us and who have supported us are seeing that we are a very strong player with a very, very strong future going ahead. A lot of the IPPs have been waiting and watching very closely how we perform, and they've all started coming back to us gradually. Not just in terms of the deals which we've just closed, but also with respect to deals which are under negotiation with various IPPs.

I think another very important part over the course of this year, what's played out is our O&M fleet has grown, where revenues from the post free periods have now started kicking in. Mr. Mohananey did mention on the call that we are seeing a real significant opportunity in terms of monetizing our O&M portfolio. And we are looking at very, very high organic and inorganic growth on that vertical. So we're very excited about that. We'll share more details around that, hopefully, in the next quarter or in the next couple of weeks and months.

The market is looking up. The grid infrastructure started playing out. A lot of the policy-related issues are behind us. Tariffs are moving up. We are seeing also talks, of course, one of the investors did mention to us and there was a news article today that the government is looking at removing the ceiling tariff on wind turbine. Now that's an industry demand which has been there for a long period of time. We're not sure whether that will happen or not. But if that does happen, I think that would be very, very beneficial for the sector.

I'm sure over the budget, most of you are aware that they've announced for all new power plants, the tax rate has been dropped down from 25% to 15%, which incrementally boosts returns for IPPs.

So overall, a lot of positive things happening in the sector, for the sector, I mean, specifically for those who survived. I mean, it's unfortunately those who perished over the past 3 years, but we're very excited and we are looking at FY '21 as being a very, very strong, fully normalized financial year for us after 3 years.

Thank you for your time, and we look forward to connecting with you on our next quarter call.

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Operator [96]

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Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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Vaibhav Saboo, Axis Capital Limited, Research Division - Assistant VP of Capital Goods [97]

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Thank you.