GE Vernova T&D India Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. The first question is from the line of Umesh Raut from Nomura India.

Congratulations for a very strong set of results. Sir, my first question is on ordering side, especially outlook for domestic orders on the base ordering cell for transformers, switchgears and circuit breakers. So, how do you see second half panning up as compared to H1 considering that in H1, we have seen challenges with respect to industry for ROW issues or slower tendering. So, how do you see outlook in terms of second half? And second, similarly in case of export market, considering that we have approved proposal of closer to INR3,000 crores in terms of ordering from related party, what is the exact update on that outlook in the subsequent second half?

Umesh, we have seen some softness in the pipeline. But I'm expecting it to pick up because the National Committee of Transmission, has identified multiple projects , and we expect this pipeline to be much stronger in the time to come. On the RPT side of INR3,000 crores, the group entities were bidding for a large project. So, the outcome of that has not yet been finalized. That's why, we have not yet received any order or any confirmation, so the opportunities are live still.

Got it, sir. Second question is pertaining to the capex announcement of INR8 billion. So, if you could quantify the capex in 4 heads that you have mentioned in your presentation. How does that is divided in between transformer reactors, Air Core reactors, bushings and GIS and AIS products.

Those final details, probably, we will not be able to share. That's why we have shared an overall number with the breakup of what all activities we will be doing in the capex.

Okay. Got it. And last question is on the data center side. So , for a company what kind of opportunity you see in case of data center, which all products we can supply? And are we qualified for international orders with respect to data center? If yes, which all geographies where you can supply those products for data centers?

If you see a large data centers which are coming they have substations which will get built from 220 kV up till 765 kV. So, on receiving of the power, we are qualified for all the products, which are there. So, if, for example, there are local EPCs, which are participating, then we support them with gas -insulated switchgear, transformer automation system or at times we directly participate for the project as well. For the international market, definitely we are qualified, but today data center market globally, of course, we know that U.S. and all is a big market. But again, U.S. market, as you know, that is a dead tank technology market. So there, most of the market is being fed from the U.S. factories only. Balance other places also, for example, if there's any opportunity which comes to us, we'll be targeting that along with our group companies.

Got it. And how much of addressable market we can cater to an overall data center capex? Any percentage number here?

Yes, yes. So, I suppose data center costs at about, say, INR40 crores per megawatt basis, how much of that total capex we can address in terms of providing our products and solutions?

I don't know about that, but if I give you a guidance, typically, a 200-300-megawatt data center will have close to about INR75 crores to INR100 crores of opportunity pipeline from our side.

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

Congratulations on a very, very strong result. My first question is, sir, while you have done superbly in the first half , is it possible to give some color on the margins in the current order book beyond FY '25? And the related question is, are you are you seeing same kind of pricing power, what you have done in the new orders?

I think Sandeep mentioned in the earlier call that prices are now kind of stable, neither improving nor deteriorating. And in terms of margin, I think we don't give a forward-looking guidance for multiple years. But I said earlier in the call that in this financial year, we should be able to deliver a margin of around mid-20s in this financial year.

And some colo ur on the pricing environment, sir, how do you see -- is it similar? Or is it changing? or is it worsening or improving compared to last year?

I would say that it's not improving, at least the prices are not going higher, or I would say, at the same level, there is slight pressure on that, but not a substantial one.

Understood. My second question is, sir, your parent entity has bought JV stake in Prolec, right? And do you see any implications of this on our business in India and medium term in terms of our offering or to try this for market?

No. So Prolec is dedicated to North American market. So , we don't see any impact of that happening in our geography.

I think reading the transcript, I think it is more about increasing our TAM on the data center side by providing power to rack solution. Is that? Have you heard any conversation around that?

Prolec is a transformer manufacturing joint venture. Prolec has nothing to do on low voltage side.

So that was the outcome, of course, I was reading the transcript of the global industry domination, what is driving this phase capex? Of course, you're doing a large capex compared to your current gross block. How much is export as a driver for these investments? Some color will be helpful, sir.

If you really look at the market scenario, the National Transmission plan and our export potential, we have decided to go ahead with the Capex. This has been thought over meticulously, planned thoroughly, discussed with the Board and then only it has been approved. Going forward, it's very difficult to predict the number which is going to come from export. We expect a strong domestic market for which the Capex is being put. Also, the capex involves a number of multiple products like air core reactor, bushings, transformers and reactors , part of AIS product, GIS product. So , there's multiple products, everything will have a different ratio of export and domestic. So , it's not possible to give a specific number.

The next question is from the line of Amit Anwani from PL Capital.

First question is on the capex. So, I just wanted to understand 2 things. One is your current capacity utilization. And second, with this capex, including 150 plus 800 , what could be the possible peak revenue target you would like to achieve in upcoming years? And third, in the event of HVDC win, will you be requiring further capex or the current expansions would be covering any HVDC wins also?

Thank you, Amit, for asking this question. So different products have different capacity utilization, for example, transformer reactors have a pretty high-capacity utilization. But AIS, GIS, we still have threshold further up in terms of taking more orders and increasing the utilization factor. Of course, capex is also like looking into the market, we are also preparing ourselves for the future because the implementation of capex is also going to take 2 to 3 years. For HVDC today, definitely, we can deliver at least one HVDC order with the existing capacities what we have. But we are preparing ourselves because if we look at the HVDC pipeline, that's a pretty strong pipeline. Regarding peak revenue, peak revenue is a combination of a lot of factors, which include, if you win an HVDC then there's a large part, which comes from third-party sources including engineering and technology part of it. So , I think difficult to give a number of peak revenues, but definitely, if you look at about INR 1,500 crores of quarterly revenue, then we are looking at somewhere between INR5,500 crores and INR6,000 crores of annual revenue this year, which is again going to be close to about a 35% growth over last year. And if you look at our backlog as well , as Sushil said, that it would take last year's order -- the backlog and last year revenue were sitting at close to about 3x of the revenue. I think we still have a lot of headroom to increase our revenue, and that's what this additional capex is going to increase that headroom and let us grow further.

Sure. So, second question on the margin. So very strong margins in Q1, Q2. And I can see a lot is happening on the cost optimization as you have been highlighting the operational efficiency. The other expense was only 10%. Just wanted to understand, and you have guided for some 25 kind of mid-20 EBITDA margin. So, is there any scope with respect to current factories and more cost optimization ? And the newer capex, which is coming, would we have a similar kind of advanced facilities that the expenses would be controlled, some understanding on how we are able to achieve this so far. And is there more headroom with respect to the fixed cost optimization?

Thanks, Amit. So , cost optimization is a journey. I mean in GE, we adopt lean, which means continuous improvement over the achievements that we have already secured. So , this is something that will continue. And as you see, most of the capex invested into our existing facilities, INR8 billion that we announced today is entirely for the existing facility, part of the earlier announcement was for separate new facility. So, considering that we are investing in our existing locations, it is expected to give us more operating leverage because we don't plan to have additional fixed costs. And in the earlier questions Sandeep answered that we are growing at 39% - 40% of the revenue. And in future, when further revenue comes with this capex plus HVDC win and so on. So of course, there will be an operating leverage from now onwards as well.

Right. So, my final question on the order inflow, H1 saw roughly about INR3,200-odd crores, and export is about INR500-odd crores, which is obviously relatively lower since we had very strong intake in H1 last year. But then our spread for H2 is quite high. So, I wanted to understand are we eyeing very strong finalizations as you highlighted that National Committee on Transmission has a very strong pipeline? Just wanted to understand some colo ur because we had a very strong intake FY '25 and H1 indicates H2 should be very, very strong in terms of inflows to continue the momentum? And second, colour on HVDC order status, South Kalamb and South Olepad the value and the nature. Are we bidding together with someone or some colour if you would like to give there, that would be helpful?

South Olepad order is very much active. However, we'll not be able to give any other further details on that, neither on the value nor on the participation part of it because the bids are under evaluation. So, for the second project, which is Barmer to South Kalamb, we expect the tender for the developers to come next quarter. So that's the next year order what we expect based on the finalization schedule what do we see today. For H2, we are looking at a decent pipeline, last year when we had participated and when we have delivered a very strong order number, it had 2 large orders which was the related party transaction order, which was close to about INR2,200 crores and then a few digital orders put together. So, excluding that, we booked order close to, about INR7,000 crores. And we are looking at repeating that, that is the target of the team to repeat at least a similar number of order intake. That will also give us growth in the order backlog by more than like INR1000 to INR1,500 crores.

If I can squeeze the capacity expansion , anything in mind with respect to exports also while setting up this new capex, sir?

So, when we are setting up the plant, of course, we look at the market, we look both at the domestic market as well as the export market. But eventually, the capacities will go where we get the most optimized return on the capex.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

The first question just on the pipeline part. Are you also seeing some refurbishment pipeline s also coming with respect to HVDC existing lines or HVDC lines relating to system upgrade involved? If yes, how big is this opportunity according to you? And second, how we should think about this related party of INR3,000 crores? You think the order finalization should happen by Q4 is what you are eyeing? Or will it happen once this capex gets completed? How should one think about that? That's my first question.

Thank you, Nitin. Yes, there is a market for HVDC and HVAC refurbishment. But the numbers are not that big to make a substantial impact on the order intake. The customers take a pretty long time in finalizing and making a decision. And HVAC, for example, today, we see a few opportunities which are coming in pockets, but that's not a very big business today. As far as the RPT of INR3,000 crores order intake, of course, a large part of it is dependent upon the customer decision-making process, that in any way is not linked to the capex because if it would have been linked to the capex, we would have first taken a capex approval and then we would have gone for the RPT approval. But that if you look at that capex approval -- if you look at the RPT approval, the RPT very clearly said that these deliveries are like up till 5 years. So that's a pretty long cycle what we have.

We expect the decision by Q4 in the current scenario, however, it may change depending on the customer's plan.

Okay. Got it. That's very helpful. And second, with respect to you saying that the pipeline are increasing only, opportunity increasing only . So, you have already bids coming in now going ahead for Q4. Sorry for asking a short -term question. Just to understand that there is nothing which has lost out there. And lastly, we've been following you for a long now. So you have been articulating so far no pricing pressure because despite capacity catching up because opportunity size is increasing and order pipeline is increasing a lot. For example, when you said one HVDC how much capacity gets booked for a transformer companies across if one HVDC gets rolled out. So how one should think going in next year, next 2 years, I know I'm asking something a little longer expected. But do you think opportunity size will be huge enough where you see growth at least for the next 2, 3 years for the sector to remain pretty strong, and that's where it should not -- I mean, obviously, you're such a healthy margin company, 50, 100 basis points doesn't matter here and there. But generally, a sense how one should look at it. So , these 2 aspects and just a short-term question on the momentum in ordering and on the pricing growth for the next year.

So, Nitin, there was a slight lull, but now I think we're seeing again a pickup which is happening. It's not a major one, but at least there is a n uptick, which is happening in the pipeline for the TBCB. When you're looking at capacities, the capacities are not getting added on immediate basis. The capex which has been announced like 3 years, most of the capacities we expect to come in 2 years plus or 3 years' time. And today, a large part of the order intake, what we take, what we do is like a 24-month cycle. That is maximum, what is it, 24 to 27 months or 30 months. So, what you're saying is right, we will see some impact in the next year pipeline and because next year, there will be an additional impact of new capacities coming in like 2 years' time. But if the pipeline remains healthy and more HVDC or more TBCB gets decided, it is going to offset between the pipeline and the additional capacity.

The next question is from the line of Subhadip Mitra from Nuvama Wealth Management. Subhadip Mitra: Many congratulations on an excellent set of numbers. Just wanted to understand that with an order book, which has an export mix of 35%, and we understand that export bit tends to have superior margins. Do we see an annualized export mix in sales remaining around the 30%, 35% mark? And in the same win, can we then assume mid-20s kind of an EBITDA margin could be the new normal?

Subhadip, yes, you're right that our backlog has about 30% to 35% of export mix. And on the long term, we expect that revenue execution should be also in the same proportion, where exports will be around 30% to 35% of revenue. This quarter, it was 32%. We are now doing mid -20s kind of EBIDTA. The endeavour of the management is to maintain a healthy margin. As Sandeep answered that a typical backlog execution cycle is 18 to 27 months. We already have a backlog for the next 2 years with us. So hopefully, we should be able to maintain the EBITDA margin above 20%. Now our focus is to look beyond EBITDA as a percentage and look at more EBITDA as a number. So, as we grow our revenue at 39%, 40%, while the EBITDA may be slightly lower than what we are delivering today, but in value terms, the EBITDA will be higher. This quarter also, if you see the EBITDA percentage is lower than the previous quarter, but EBITDA number is higher than the previous quarter. So that is the effort of the management and with the additional capex, the operating leverage that we earlier talked about, plus counting on the HVDC to come at some point of time, the overall EBITDA as a value will be more focus for us. Subhadip Mitra: Understood. So, if I understand you correctly, you are endeavouring to keep the EBITDA above the 20% mark. So probably somewhere between 20% to 25% is where you would want to keep the EBITDA number.

So, I'll more focus on EBITDA as a value. I think percentage, as I said, becomes less relevant as the volumes keep growing at a higher pace. But yes, our endeavour will be to remain at a healthy margin, not giving a specific number, but will remain healthy. Subhadip Mitra: Understood. Lastly, I just wanted to understand that do you see an HVDC pipeline panning out beyond the current 2 which are getting into bidding. So , beyond the South Olepad project and the Barmer project, do we see maybe another 2 HVDCs coming up for next year, maybe the Lakhadia Alpheta project or the Bikaner project?

Yes, sure, we see that at least 2 projects more in pipeline after the Barmer. And then maybe in a shorter time after the Barmer once gets floated. So maybe one is Lakadia and it's going to be from Rajasthan only the next 2 projects.

Question is from the line of Deepak Pandey from Sagun Capital.

Congrats on a good set of numbers . Just wanted to understand the market size of GIS in India and what sort of demand are you seeing domestically and in exports?

We'll not be able to give you the market size of the GIS offhand because GIS comes in 2 ways that one, it is a part of a project and then a lot of loose opportunities as well. But there is a robust demand for GIS opportunities because of the space limitations and also issues at places like, for example, if you go to places like Khavda and all where the environmental conditions are so harsh that you cannot put in AIS products. So, there are multiple factors which are today driving the demand of GIS product. On the export market as well, we are seeing a much higher traction of GIS happening, including the European countries, etc. And of course, for global market, it depends upon market to market. So, it is very difficult to give overall number for an export market opportunity for GIS.

Got it, sir. And sir, secondly, on the same lines, what percentage of your GIS system BOM is currently being imported versus locally sourced? Is there a number to it that you can provide?

It depends upon different voltage to voltage. So, for example, 145 kV is more localized, 765 kV there's still a process of localization going on. So , it would be like between , on the minimum side, it would be like 55%, 60%. On the higher side, it could be like 75% plus.

75% local only?

Yes.

I have just one. I just wanted to say, what is the current capacity which you have for transformers -- for power transfers in MVA terms, if you can disclose?

So Sameer, that's what I keep on saying that the capacity in transformers in MVA is a very different thing because for example, an HVDC transformer, you might have 500 MVA or 400 MVA HVDC transformer. But if you compare it with an equivalent AC transformer, it might be like a 1,200 MVA or a 1,500 MVA. But if you look at the rating play, it is only 400 MVA. Same thing happens with STATCOM transformers, same thing happens with 3 Phase transformers. And then, of course, reactor is a different volume. For a 3-phase 500 MVA, it's a different revenue realization and the number of hours is different than a 500 MVA 765 kV single phase, which is much easier to build. So that is what I keep on saying that MVA is not the real metrics of tracking a transformer factory. It is more a combination of ratings, which make the revenue mix rather than in MVA capacity.

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

Sir, my question would be while you've seen multiple cycles. And obviously, this cycle has been pretty kind after a very deep-down cycle. In your view, this 20%-plus kind of margin range that one may try and endeavour to maintain. How long can the pricing or demand supply mismatch sustain in the market in your view? Last cycle, it was for about 12, 18 months, the peak profiteering phase. This cycle in your view, could it be like 2 years, 3 years? How long could it continue?

So Renu, what Sushil said that we are not giving a guidance and the endeavour of the management is not to look at now at a 20% or a percentage margin, but it is more like to grow the revenue and then to see what is the absolute delivery of margin, what we are able to achieve on a higher revenue.

So, my question was also from an industry perspective, not just from the Vernova T&D, but many other peers also in similar range. So , any comment from an industry perspective of this peak margin profile on the pricing side? Is it now almost peaked out, will taper down in the next few quarters or the parting may long much longer than what one is expecting?

So, it's difficult to comment, but there are a few factors which let me tell you, Renu, this is what I feel. Pricing up is like difficult now, like other capacities are coming not today, but at least maybe in 2 years down the line and from next year onwards, there will be more capacities coming in. So , it's also going to depend upon the demand, which is going to come into the market. But looking into the government plan of multiple HVDC projects and then also looking at offshore wind, if you are also looking at 36 gigawatts of PSPs, if you look at data centers. So there are various factors. On the demand side, I don't see a slowdown happening like in the previous cycles in a very fast fashion. My assessment is that this time, the demand is going to last much longer. So obviously, I'm not saying that we've reached the peak, but I don't see a very high growth of percentage margins happening, not only -- I'm talking about the industry, I'm not talking about GE Vernova T&D...

Second, in terms of would you have any pipeline of projects internationally, where we are supporting the parent on the HVDC or other project side? Any material large ticket size projects, which you can highlight? Anything notable?

We had taken an approval of about INR3,000 crores for a RPT, which is yet to be decided, that was taken in our AGM. That is what the information, which is available in the public domain. And if there is any other opportunity which will come, we'll go through RPT process where all the shareholders are informed at the same time.

Got it. Got it. And lastly, while I guess there is discussion on the HVDC and other projects. So far, we have not been able to successfully get any project at a reasonable price. You think with few more LCC in pipeline, GE should now be at an advantage to what we secure 1 or 2 of them, given the other peers are already reasonably full of projects in their books?

So, Renu, that's the commercial strategy. So, it's very difficult now to make a prediction that is what's going to happen in future on the HVDC decision -making. But I can just say which we have been saying that HVDC is a focus area for our growth something which we have been maintaining, and we keep on stressing on this.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

Sandeep, congratulations on a great quarter, sir. So , my first question is that the capex, which you have announced, that's almost , including the old ones, totalled to almost $120 million, INR1,040 crores based. So, I think last time, the global capex, which was announced was $600 million, and out of that $20 million was in Grid Solutions. So, I just wanted to understand, I mean, especially in Asia, so where we have other factories in China and Japan and the quantum of capex announced for India seems to be very, very high after many years. So, is there any thought that for Asia at least and part of Europe, India may become a manufacturing hub for the parent company?

So Parikshit, in the various calls, we have been saying that today, because of the global demand for the electrification or for the energy transition, there are a lot of boundaries which are broken, not only buyers, but customers are also accepting the factories from India. So, it's not that we are looking at India becoming a declared hub or this thing for Asia and all, we will see the opportunities coming. For example, if I get a better opportunity in domestic market, why I will go for export. But as we have said that export normally gives a few percentages higher margins, so we'll still maintain a mix between export and domestic market.

So again, related to that, sir, I mean, earlier, you highlighted that domestic maybe the prices have stabilized. So now in the export market versus last quarter, the RPTs which you have signed and the ones you announced in the AGM or other which you are evaluating. is there any positive delta or any comment on the pricing on the export market side?

No, Export market is difficult to comment because it comes from different geographies, where you have different competitions, and export cannot be put in a block of a pricing strategy like the domestic is being done. In domestic also, for example, State Electricity Board is different and Central Utilities is different and like, for example, private customers are different. So , like there is no set rule for that. So similarly for exports, when we have different countries which are there, it's very difficult to put like a block saying that, okay, this is going to be the export percentage or export margin percentage. Australia might be different, Japan might be different, Africa might be different, Bangladesh might be different.

Just the last question is around this . After this India capex, which happened, will it imply that India will become the largest factory, at least in Asia compared to Japan and China? And also if you can comment the product acceptability in Asia and other geographies from India. So, has it improved over the last 2, 3 years because we have seen the rise in the export opportunity even in the RPTs? So, the product acceptability also if you can comment.

So, I'll say that, again, as I've been maintaining, so even without the capex, we have one of the largest facilities in Asia. Regarding when you talk about the acceptability in Asia and all, as we have said in the past, for example, certain countries have a different voltage. For example, a country has a 362 kV or a 500 kV, that is not an Indian voltage is what gets produced in India. So that is different for a different country. For example, wherever there is a 400 kV or 245 kV, definitely, it is going to go. It's not something where, as example, we become the sole source for Asia, but there are different factors which make a decision like the voltage rating, the delivery cycle, a lot of other factors, which helps decide that specific opportunity to be targeted from which factory.

Okay. And sir, any dedicated line being transferred to us in this capex, I mean, have we won any mandates or just for global manufacturing from here?

So, there's nothing like a global line which has been put for, like a line which has been put for a dedicated global application and all, there's nothing like that. It's purely as we have declared in our press release or the presentation, it's a flexible thing depending upon the opportunity, the expanded capacity can be used for domestic market, can be used for exports, either or both.

So, my question is on power stability solutions side, especially on STATCOM. You have earlier mentioned about closer to 20, 25 projects on STATCOM side closer to $1 billion to be awarded in next couple of years. So where exactly we are currently? And is there any delay in terms of transmission from STATCOM opportunity in terms of new orders?

So, Umesh, there is presently a slowdown at least in the STATCOM opportunities. But I think next year, we expect them to bounce back, and we'll have much more opportunities of STATCOM. This year has been a lull for STATCOM opportunities.

Got it, sir. And second, sir, if I look at, say, strategy -wise, parent has also product offering towards grid scale energy storage side. So , in future, in medium term, do we expect to launch any products on those side?

We are not planning anything on that side.

The next question is from the line of Mayur Patel from 360 ONE Asset Management.

So, most of the things got covered. You said there was a lull in demand for a while. That was related to the Indian market or the export market or both markets? That's question number one.

That was in the domestic market.

Okay. And sir, second thing is in addition to what you said the pipeline is such that you can end up having the same base order inflow like the last year, excluding the lumpy ones , is it fair to say, in addition to that, the pipeline also includes the HVDC, one HVDC this year, which you said is under evaluation, and there could be more lumpy orders in export and Indian markets?

Mayur, whatever question you had asked till now, I will answer that. So, we have taken an RPT approval for INR3,000 crores. So, if GE Vernova wins that project, then definitely, we will have that opportunity coming. –The global endeavour is to take the order before Q4. And if we are able to do that, then of course, that's a big order which is going to come in. And as we said that there is one HVDC, which is under discussion or under finalization. If we are able to win that, then that will be over and above what number we are talking.

Sure. Perfect, sir. And just one more, if I can squeeze in. Data center is going to be a huge opportunity unfolding in the Indian market itself based on just the 3, 4 public announcements, which we have seen. Do you expect FY '27 to be a year of some mater ial inflows from data center as a segment for you?

Yes. So today also, we get orders, but you are right that it is not large part of backlog because the number of data centers is not as significant as in U.S. and all. We get orders, but not as significant like a percentage of our overall order intake. It is pretty small. But I expect that I think with the recent announcement, India story of data center is going to become much bigger and bigger. And you are right, we expect '27, '28 to be a much bigger story for data centers.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Ms. Megha Gupta for closing comments.

Thank you, everyone, for joining the call today. We hope the insights provided by our speakers have been informative and valuable to you. We value the trust and support of our investors and analysts and ensure to remain committed to maintain transparent co mmunication and fostering strong relationships. If you have any further questions or require additional information, please do not hesitate to reach out to me or our communication leader. Thank you.

Thank you. On behalf of GE Vernova T&D India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.