CG Power and Industrial Solutions Limited analyst Q&A

The first question is from the line of Harshit Patel from Equirus Securities.

So my first question is on capex. Just wanted to check the status of our capex projects for power as well as distribution transformers. Have we finalized the land for the new 45,000 MVA capacity? Also, we were expanding this power transformer capacity at Bhopal location as well from 17,000 to 40,000 MVA. So is this e xpansion complete? Similarly, the status of the distribution transformer capacity expansion at Gwalior?

Super. Thanks for the question. And yes, I will answer the first one. And second, I can divert to Ajay to talk more details. The land for the new plant for 45,000 MVA, that land is almost allocated to us. It will be in Bhopal only. Some formalities are being done. So hopefully, in the next couple of weeks, we should be done with that and start the construction. And regarding our capacity expans ion in existing and distribution transformer, Ajay just give a high -level indication on that.

Yes. So regarding the capacity expansion, so it is in advanced stage now if we talk about the distribution transformers in Gwalior. So some parts will become operational within the next 2 weeks and the whole expansion in -- for distribution transformers will be over by end of June. And for the power transformers expansion in Bhopal from 17,000 to 40,000 MVA, winding shop is already operational, and the ovens will be getting operational within the next 2 weeks, and the whole plant will be operational by middle of June.

Understood. Sir, just a follow -up to that. We were also planning to commission additional HT motors capacity at Bhopal only by the end of FY '25. So any status update on that?

Yes. So I can pass it on to Indraneel to talk about HT capacity in Bhopal.

Yes, we are on track as per the plan, and that's exactly also resulting into, as Amar said, some of the results what we talked about. We are exactly as per plan.

Sure. Sir, my second question is on our railways business. We have garnered a very prestigious order from Kinet as well for the propulsion systems. Now at the beginning of FY '25, we had guided for close to 40% revenue growth for our railways business in FY '25. So have we achieved this kind of growth? And given a very strong order book, what would be our plans for the next couple of years? Would we be able to maintain this kin d of very high growth momentum or because of the high base, the momentum could taper off a little bit. So if you could give us some broad idea about the prospects of the railways business for the next 2 to 3 years, that will be very helpful.

Yes. I think good question, and you are seeing the momentum of that. Although we don't give specific guidance on specific businesses what we grow. But yes, railway has grown in high double-digits already. And with these prestigious orders, which the team is r ight now busy for the R&D and also the execution excellence team, they are working on that. So if you tell me what is the plan for next 2, 3 years is that we are playing between the domestic market, which is very, very important because we stay committed to Indian Railways. And also, we are exploring the export piece of it, which the team -- Chidambaram and team, who is leading this business, they are actually busy building on the R&D capability for that. So we still stay bullish on the railways business.

The next question is from the line of Ankur from HDFC Life.

I had 3 questions. First, on the Industrial segment margins and one of the things you mentioned is because of higher RM prices, there's been some decline there. So if you could just help us, have you taken price hikes? Or are we planning some price hikes within the motor business to kind of offset that increase in RM?

Yes. So fair point, as you know, that for motor business, one of the raw material is copper, and that has been not behaving very nicely. So if you look at the indices, it's gone up substantially. So some bit of it, yes, there's a disciplined way of balancing what can we pass on to the customer. Unfortunately, commodities is on the rising trend. So should w e start -- continue with the question that was asked?

Yes, sir, we have Mr. Ankur on line.

Okay. Super. So I was talking about motor business. As you know, the commodity copper is one of the key input for the motor manufacturing. Unfortunately, that has not been behaving well. There's inflation on that. On the other side, if you see IIP index for the last 4 quarters has been going down. If my numbers are right, from 6.3%, it has gone down to 3. 8%. And then also the IEEMA data shows that last 2 quarters have been declining. In fact, last 3 quarters have been declining in terms of offtake of the motors. So in spite of that, we have been able to balance the 2. When I say balance the 2 means what? One, is that we have been able to gain the market share by getting the right orders. We have been able to pass on some bit of it, whatever inflation has happened due to the commodity, but not everything out of that. So it's a balanced game between the volumes and the margins.

Right. Okay. And since you also touched on demand, if you could just help us how are you seeing demand trends on the motor side as well?

Demand trend domestically is -- if you go by the book, apple -to-apple comparison, it's not so great. But the reason if you see in last quarter, our order bookings for motor has gone up. In fact, consecutively last 2 quarters, motor orders have been going up. It's a combination of a couple of initiatives that we have, and I talked abou t that in the last quarter as well. One is our go -to- market strategy on key account management domestically in India as well as for our exports. So both of our leaders, Indraneel and Marais, they are working together to make sure we have the right product, which practically every quarter, we are launching 2 to 3 new products as well as the channel setup across a couple of countries where we see the potential. So everything is happening in tandem, and that's what is showing us increase in the volumes in term s of orders, not really fully on the revenue right now.

Fair. And just a last question on the consumer business. You did mention that you are making investments to kind of scale that business up. If you could just talk about how big is it right now? What are the kind of targets you have in mind? How is that kind of shaping up?

Today, see, as I said, we don't give the specific number of each of these businesses. But yes, even for the last year, it has grown pretty high double digits. We have put the aspiration, and I'll hand over to Sriram who runs this as well to talk about top 3 things at high level, what we are doing to really scale up this business to different levels.

Yes. Thank you. I think it's a gre at opportunity to share what is actually happening in the consumer front. So the first is this is -- this year, actually, we are starting -- laying a foundation for this business from building an organization structure, building the capabilities within from - - starting from a sales team to the back-end operations to handling the right set of vendors. So I think this year is actually going to be more of laying a foundation for a strong sustainable growth for the future because we see this business having had a break of close to 5 years. So we have to restart the entire engine by building a brand, building a strong go -to-market and then building a strong back-end structure. In the last 6 months, we have been partly successful in getting the organization in pla ce and building a back end in place, we also managed to get a lot of good vendors on Board. So this year, we're also planning to enter into the second category. So the 2 focus category as of now for us is pump and fans. But you must have seen in a couple o f months ago, we have launched air coolers. We are also planning to get into water heaters in a much more aggressive fashion. So you get to see building the -- through innovation. These are the stuff which is actually planning to come up in the future. So we see this business not from a current perspective. But looking at a long term next to 5 years perspective, we wanted to become at least the top 5 players in the electrical consumer durable sector. That's what we are aiming for.

The next question is from the line of Mohit Kumar from ICICI Securities.

My question is on the -- sir, you won a significant order from Kinet. The press release mentioned propulsion kit. What do you mean by the kit? Does it include only motors and transformers? Or does it also include converters? And is it fair to assume that this INR4 billion and INR4.5 billion order will get consumed in FY '26 and the new orders from the same customer can follow through?

Yes. I think as I said, this is for 10 tra insets of Vande Bharat. And this is the beginning of it, depending on successful execution of this, the way we'll begin, so more will follow. And to double-click on what does propulsion system mean, I'll hand over to Chidambaram, who runs this business. Chidambaram, over to you.

Yes. We signed a long-term agreement, which has 8 years of supply, which is as per the MCMA given to TMH from Indian Railway. MCMA is maintenance cum service agreement. And there is 35 years of service tha t they have signed with Indian Railway, we got that back to back. So all these orders we will be getting on an annual basis. First 8 train sets will be supplied in the first year for which we got the order for INR400 crores. And subsequently, the next orde r will come with its own PVC. So it will keep coming for 8 years, which will be supply contract. As Amar Ji said, we will be doing the systems engineering. So everything from pantograph to the motors will remain part of our kit.

Understood. My second question is, sir, how does the central government subsidizes for the semiconductor project, is it based on the milestones on which the government release the money? Will the money be -- will come in tranches or come at the end of the project? And w hat is the capex plan for Semi in FY '26?

Yes. So I'll pass on to Susheel, who's our CFO, to answer that.

So in respect of your first question about how the money is coming from the government, it's based on the Pari -passu. Hope you understand the meaning of Pari -passu, right? It's not about that we invest the money coming in from the government. It's all about Pari-passu. In case of the capex investment for CG Semi, we are thinking probably that the commissions of this project will happen in the next couple of years, the entire commissioning of this project.

The next question is from the line of Bhoomika Nair from DAM Capital.

Sir, my first question is on the Power Systems segment. We've seen a very strong performance in FY '25, both in terms of revenues and margins being at a record high at 21% in the fourth quarter. As we are booking new orders, what is the kind of margin profile that we see sustainable over a period of time? And within this also, if you c an talk about the BTW acquisition, what is the status of that acquisition?

Yes. So on the power sector, I think we see the growth momentum continued. And so I keep talking about, I don't see this demand going down at least for the next 4 to 5 ye ars, not only in India, but globally as well. And that is a very, very conservative estimate that I'm talking about. So when the demand is more than the supply, then obviously, you will have better margins reflecting on that. So that's the answer to your first question, Bhoomika. And the second one on the BTW, I think that's still under discussion with BTW because there is some end date is end of May or something before they can close the deal. So those transactional things are going on.

Okay. On the IS segment, you spoke about the market being weak and we are gaining market share. Would it be possible to call out market share numbers for LT and HT Motors separately? And we were working on several initiatives, par ticularly for HT to kind of scale up the market share out there. What is the progress? How are we looking at further market share gains, if you can talk about that? And perhaps if I can just squeeze in one question on the semiconductor -- we've seen a loss in the fourth quarter. What is that related to given I think Renesas should start reflecting from the first quarter onwards. So what should be the loss number that we should look at? And is this something which is sustainable? If you can just give some color on that, please?

So for the first question on -- a little bit on the market share -- Indraneel, if you can answer that, and then I'll take the semiconductor one.

So basically, if you look at the market or the IEEMA numbers, the market has degrown by around 4% and wherein we have significantly grown to the tune of 12% and which is taking us to overall domestic market share higher double -digit number. So that's on the LIM side. Obviously, as you would see, th is quarter, we have launched new series also to take advantage of increased capacity, and we will expand our footprint not only in domestic but also target the export market.

And any number, sir, for LT, HT, our market share number?

Yes. So I think we don't give specific to that, but generally on the -- and low tension motors, typically, you know that we are the market leaders there. So…

So if you look at -- in that sense, we have grown over last year's market share by around 200 basis points. And particularly, the good part is higher energy efficiency motors, we have improved by around annualized basis 450 basis points. So that's the overall for the LT side. Even the -- if we talk about quarter-on-quarter, that's around 200 basis point improvement.

Okay. Great, great.

Thanks, Indraneel. And on the semiconductor piece, I don't know, Bhoomika, which -- your question was towards Axiro or was it towards CG Semi.

Sir, I mean, in the consolidated numbers, we see a loss of INR14 crores for the quarter and INR22 crores for the year. So just wanted to get a sense on what is that? And from Rene sas numbers, as we understand, will start coming in from 1Q, would that understanding be correct?

So yes. So that is basically -- you see both the businesses are new. These are more strategic investments. So OSAT piece, which is CG Semi, that wi ll be -- obviously, it is running right now. And I think the earliest because there are 2 plants which are under manufacturing, one is the mini plant and the main plant. If my memory goes well with me, the mini plant should be operational by next financial year. And thereafter, subsequently, the main plant will come up. So it will be at least a year or so until we see the production out of that because it's being set up right now. Axiro, yes, we just completed the acquisition. The team is in place. We inaug urated the office and the lab in Bangalore. So that team is getting up to speed. So hopefully, from next quarter or something, we'll see a bit of numbers on that. But again, that's more into design kind of activity. So that we'll see.

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

My question is on this new OSAT project. Recently, what we've been reading in the press that the 2 projects, which are the semiconductor side, it has been kind of under review or there might be cancellation or they are reviewing whether to go ahead or not. So the change in technology is probably impacting the decision-making on the semiconductor side. How do you see this to have any impact on your business? And what are yo ur views on the changing technology? And how do you plan to coup on that?

See, from our point of view, I mean, news will keep floating, but we don't see anything of that sort. We are aggressively going about this. And you would have seen even in my pitch, I talked about the agreement we signed with ISM, which is India Semiconductor Mission, the Ministry. So they have agreed. In fact, out of all the companies, probably we are one of the first ones to reach that stage. The construction is in full swing. Our people are getting trained. In fact, the first batch just passed out after 3 months training in Malaysia. So everything is going at full swing. So we are not distracted at all with any news.

Okay. And say, next 3 to 5 years' per spective, the total kind of a requirement and as per the mission, what are the requirements and the kind of capacities which are coming up. Can you give a little bit broad color on that -- that how do you see the overall competitive positioning on this, the number of projects which are coming up? And from your perspective, how the industry should -- one should look at it? And what kind of ROCE ultimately the company can make on this?

So I think -- I mean, your question is a little more broad. I can talk for 3 hours on the subject. So at high level, what I would say is right now is the investment phase. Also Renesas being our partner, there's an offtake, I think, something close to 40% or 50%. Whatever we manufacture here will be taken back by them. That takes care of it in the beginning itself. And second is also our sales team, business development is already getting in place. We are hiring for that, even though manufacturing is more than a year ahead, but they already started reaching out to diff erent OEMs to make sure that we are getting those inroads right in the beginning rather than waiting once we start manufacturing. So -- so right now, I would say it's a completely in progress or in process phase.

The next question is from the line of Amit Mahawar from UBS.

Amar, is it possible for us to give details on fiscal '25 orders on export versus domestic? And if we can break it into industrial and power for greater clarity? That's all.

Amit, unfortunately, we don't give so much of split to everybody. We generally talk about high- level segments. Overall, how much is the split between domestic and export? Yes, that is possible. Then by segment, industrial and power, that's also possible.

Yes, overall export order intake for '25 would be great.

Do we have overall split of this?

So your question is from what point of view?

Order intake breakup between domestic and exports.

Order intake, it's very negligible numbers in the overall numbers. It's nothing.

For the exports.

Okay. Sure. And my second question is more on the profitability of industrial. Now we have a large piece which is non -rail. I understand fiscal '25, we would have had like 30%, 40% plus growth in railway revenues, which was due to execution of old orders, which also impacted the margins. Even if I remove that, you are gaining share in higher nodes, which is like I3 also. So if you can throw some light on the profitability of motors because if your growth is also happening in I3, I4 moving towards that, why is profitability not coming back in the motors, racks of railways on the industrial part?

No. If you see the profitability of motor, again, the point is, if you look at last 2 quarters, it has actually started. There was a big impact about a year back. Q1, Q2 was actually it was going down and down. And then from Q3 onwards, we picked up. In fact, towards end of Q2, July, August, September, we started making improvements, not only in the go -to-market, but also in the operations piece, and that's what has started showing up the results. So yes, -- as I said last quarter also, we will go back to the margins where we were at. But yes, it's step-by-step journey. So same thing I was talking about is it's a combination, the split, yes. So motors will have some impact and a bit of motors as well. So yes, so any other question on that or?

Got it, Amar. Can I squeeze in a third quick one, if you allow?

Okay.

Yes. See in the light of recent trade tariff negotiations, do you want to review and revisit your export guidance of 20% that was set out? That's it.

So, it doesn't change anything because primarily those tariff issues that you have is on Americas and our exports to the US is very negligible right now. Having said that, yes, the appetite is there. We are refining our 3 to 4 years' plan, but it doesn't stop anything. So nothing changes on the export strategy.

The next question is from the line of Anupam Goswami from SUD Life.

Sir, my question is on the semicon segment that we have taken out separately. How do we see going forward, what sort of expenses will we book on this segment? And when should we expect revenue coming?

So that as Mr. Amar said in the beginning that these are 2 piece of this. One is that Axiro -- which we recently did a complete the acquisition side. So we start booking the revenue from this quarter 1 onwards. So we don't see any expenses coming on account of that piece. The OSAT piece, most of the expenses we usually kept because it's a project, only more about functional and admin cost would be coming on every quarter basis.

Okay. And sir, next question is on the motor side. Now you mentioned about muted IIP data and IEEMA data as well. How do we see it going forward? Do we see a little flattish growth on this side? Or have we increased our capacity as well as capability to gain a higher market share and grow more than the market in there?

See, the market, we obviously will not comment on that. Market is what market is. Important is how are we contributing to that. And that's exactly we stay consistent what we have performed in the last 2 quarters. So we'll continue our journey, which is getting market share gain, and that's what our focus is.

Sir, should we expect the same kind of growth that we have seen this year or the last 2 quarters?

We are not -- see, specific to a particular business that I will not say. I mean we have the projections for the year, and that's what we are working on to grow. So having said that, whether market grows or not, we'll still have -- the strategy we are working on will d efinitely give us incremental growth, a combination of domestic as well as exports.

The next question is from the line of Ashwani Sharma from Emkay Global Financial Services Limited.

Sir, just a bookkeeping question. So in your initial remarks, you mentioned about some impact due to new investments, somewhere in the range of INR15 crores, INR20 crores. Can you confirm that number again, sir?

This is -- if you go to the segmental results, it is reflecting separately, that is semiconductor loss, which is coming around INR15 crores.

That's all. Nothing else, right?

Yes. That is for the quarter 4. For a full year basis, the number is INR22 crores.

The next question is from the line of Vasant Bansai from NBC Investment.

Mr. Amar, you said that you cannot give guidance about the individual segment. But can you throw some light how do you see your business growing in next 3 years, top line as well as t he bottom line?

Yes. So as I said, yes, individual is not there. But yes, each of the business verticals that we have within these 2 segments, we are already done with the annual operating plan, which means we are clear for this year which area, which segments, which will drive the growth not only on the top line, but also on the profitability. So that's a combination of a couple of levers that you have. One is on the -- what will you pass on to the market and that we call top line margin expansion. And so we are very disciplined, getting very disciplined on that, number one. Number two is also operational excellence piece of it. How do we ensure that operationally, we are able to eliminate as much waste in the system as possible because customers don 't pay for that, and that's how you become more and more efficient. So these strategies will continue to grow as we are progressing.

So can you give any number?

For top line -- number for you, you mean the growth or what are you talking about?

Yes. Growth on -- top line growth.

Some specific number, I won't be able to give, but yes, it's high double digit.

Okay. Now the second question is, when I compare your segment results for this quarter vis-a- vis the previous quarter, and I see that in the previous quarter for Industrial segment, margin was 13.5% and for this quarter, it is 11.2%. So there is a drop of 1.3%. So how do you see this margin trajectory going forward?

This can only go up from there. If you see, yes, versus previous year, same quarter, it has gone down, and we have put the reasons also there. One is that commodity inflation, 100% of which was not able to pass on to the customer. And so yes, there is a material labor overhead productivity. That's what we are working on and also opening up the door for new areas or the segments where we have not been present. So that is where the team is busy right now to work on.

Yes. But it includes railway business, which you see growing at around 35%, 40% and which is not very high -margin business because I heard in your previous con call that you are sort of doing a help to the nation by not charging them on a higher side. So the margin on your railway business will be of moderate nature. So in view of that, will you be able to maintain 11%, 12%, 13% kind of margin on your industrial business segment?

Absolutely, Vasant. That's what I said in the beginning. So it's a combination play of different businesses within the industrial vertical. And when I'm talking about what the strategic thing that I talked about, which is getting executed, it is not only in one business motors. It is for motors, it is for Consumer Products division, it is for railways. So all th e leaders are in sync with whatever strategy is. So because our size of business has become reasonably big. So when the company is INR10,000 crores plus, so obviously, the processes and systems take over. And that's what we are driving. So we are pretty co nfident of hitting those numbers.

The next question is from the line of Abhinav from ICICI Securities.

My first question is on the order inflows. So for the railways, can you comment -- quantify what was the order inflow for FY '25? And also any comment on the outlook? Secondly, for the motors, you mentioned that you have strong order inflow for the quarter. Can you quantify the number for the quarter and the fiscal and also bifurcate in terms of high tension and low tension separately?

Thanks, Abhinav. But unfortunately, we cannot share so many details by specific each of the businesses. Yes, we generally stay with the segment.

Any comment on the outlook for railways?

Future is bright. No, on a serious note, yes, as I said, and there was a previous question on the margin as well, railways. So the strategy, as I said, is we are serious and committed for Indian Railways. But yes, a lot of focus. The team is busy on R&D for the exports market. And we are getting there very, very aggressively. Since you talked about railways, so we are probably one of the first companies who got certified by American Association for Railroads. Our -- to talk about some of the items are right now in American locomotives under testing, 3 months have passed. I'm sharing a little more detail than I should be just to make you comfortable. So that is till now, absolutely no issues on that. So that will flow through some of the orders that will come after this testing is completed.

The second question is, what will be the rationale behind acquiring Baoding? And what does the...

Acquiring what?

Baoding, the Chinese company, transformer.

BTW, you mean?

Sorry?

BTW.

Yes, yes, yes. So what will that bring to the table?

Yes. So I think that is still not materialized because as I said to the earlier question, by end of May, we'll get to know whether that is happening or not happening because there are some regulatory issues, et cetera, getting decided. So by chance, if it is coming, so we will have very quickly almost 12,000 to 15,000 MVA capacity added and we can restart the manufacturing. So that adds to overall capacity immediately. So that would be the advantage, and then it can always be scaled up.

The next question is from the line of Bhoomika Nair from DAM Capital.

Just wanted one clarification on this Mini and the Max CG Semicon plant. Can you split it in terms of what is the kind of capacity or capex or some color on what do you mean by Mini and when it's getting commissioned in the next year, what percentage of capex will be done or capacity, et cetera, to just get some understanding?

Yes, Bhoomika, I think that's a litt le longer answer. So you'll have to meet us separately to go through it. So yes, because it's not a straightforward simple question to both questions.

Sure, sure.

The only thing I would say is the good news is because this is the time of Board meeting. So we had the Board meeting for Axiro. We had Board meeting for CG Semi, the CEO of the business made the presentation. Both the projects are on track, which is a good news.

Understood. And just lastly, in terms of given that most of our capacities are now coming on stream or largely commissioned, what is the kind of capex that we'll see on our core business of Power Systems and IS?

Can you rephrase your question in Power Systems specific to what?

No, I was just asking what will be our annual capex for FY '26 on our core CG business?

So that -- it remains in the same range, Bhoomika, around INR300 crores plus.

Sorry to interrupt you, Bhoomika ma'am. But I would request you to rejoin the question queue. The next question is from the line of Alok Ranjan from Millennium Partners.

Sir, just one clarification on this Renesas Radio Frequency component business, which we have acquired. The annual revenue, you men tioned in one of the recent investor presentation is that $56 million in CY '23. What is the revenue number for this business in CY '24? And what kind of run rate we can expect from this business in FY '26 for our company? And what could be the margin for this business?

Susheel here. I think for this year, we expect a similar kind of a revenue. And margins, we are really not talking too much as of this point of time because this is just a transitioning phase. So the complete AOP and everything to be presented by the CEO who is running this business by next Board meeting.

And this will be clubbed with the semiconductor segment, sir, in terms of the revenue and the EBIT margins?

Yes.

Design part?

Yes.

Okay, got it.

On behalf of IIFL, I would like to thank the management for giving us the opportunity to host this call. Sir, any closing comments from your side?

No. Thank you. Thank you so much for coming over and listening to us patiently and always a pleasure to answer the questions. Talk to you very soon. Thank you.

Thank you.

On behalf of CG Power and Industrial Solutions, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.