Schneider Electric Infrastructure 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 Naysar Parikh from Native Investment Managers. Hello, Mr. Naysar Parikh?

Yes, what I wanted to understand is that you s poke about a bunch of segments at the start. But can you just be a bit more specific and -- with re gard to the kind of order wins that we've had this quarter, just talk a bit about where exactly are we seeing traction? And secondly, margin front, you said that we've kind of gone for orders where the margin is better. But this time -- this quarter, obviously, our margins have been lower. Our gross margins are -- versus the average that we've been seeing have actually been trending lower. So how should we look at gross margins, especially for the remaining part of the year?

I'll start from -- thank you, first of all, and good morning. The orders -- the margin which you see is something which -- on the sale, which has happened. And the orders which you see are for the quarter which has been booked but not yet sold. Now this number, which you see a small drop is more of a time impact. It is not that . And whatever guidance we have actually taken internally for the full year, we are confident that we'll be delivering that margin and profitability for the full year. Now this was to your question number two. And question number one is e ssentially, you were asking, if I'm not wrong, about these 4 segments , which I did speak about sometime earlier on as to how do we see ourselves getting positioned and how -- what sort of traction will these segments give us. Now what we are trying to tell you by that is that how is your company getting prepared for what is seen and anticipated by us in India in coming years and times. Now the business as usual, which have continue d will continue, but it is a step towards getting ourselves future ready in terms of being there ahead of our peers like the way we are till now and the coming new evolving India as well. That was the only thing -- only intent and purpose which we were trying to share with all of you.

Right. Understood. My question was if you could give some kind of your split between your -- the order inflow for the quarter, what segments between data center transmission, etcetera, how -- what segments are driving it? If you can give that mix, that would be helpful?

That mix can be given later by Suparna. But typically, in a quarter, you really can't figure out on a quarter performance in terms of segment split and nuances because typically, what we see a larger duration, which actually rolls up to at least 2 quarters is something to get you a sense in terms of whether -- which segment is accelerating and which segment is actually more flattish. But this Q1 split, Suparna, if you have, you can share. Otherwise, we can get in touch with them later, maybe perhaps.

I'll just add here. See, Power and Grid is our br ead-and-butter business, and that contributes to 40% to 45%. Regarding the other segments, it all depends on what kind of investments are coming and what kind of -- which orders we take, and it is not a very standard mix all the time. So we would refrain from commenting on that. But yes, Power and Grid is a 40% to 45% contributor to our overall business at all -- almost at all times.

Right. And how much would data center be last -- this quarter?

See, data centers, the investments come up, li ke one big investment comes up at one point of time and then it is a little lull for some time. So we cannot really comment on that because there is no established trend as such in our numbers or even in the industry for that matter, I would say.

Okay. No, I was trying to understand because the order wins, obviously, we've seen strong growth. So I was trying to understand from where is -- I understand the 45% of Power and Grid, where is the growth? What is driving that growth and acceleration?

Mainly Power and Grid and related energy sector.

Understood. Okay. And for this year order, in the H2, what is -- what would be your outlook on growth and margins? You don't need to give number s as such per se, but ju st directionally, do you think H2 is looking better than H1 just where you stand both from order inflow and maybe margins as well?

So currently, we'll be completing H1 with the next quarter. And honestly, I need not say, but the orders itself and the backlog that we have, they are strong indicators that we shall have better numbers in the quarters to come.

The next question is from the line of Mahesh Bendre from LIC.

Sir, in the presentation, we have mentioned, I mean, for this quarter, our sales growth was muted. So we have mentioned that the moderate growth on account of spillovers and project delays. Sir, what -- is it possible to elaborate this, sir?

See, 5% growth is what we have witnessed in this quarter, which is perhaps because of one main reason that there are certain projects which got shifted into Q2. And really, if you ask me not a matter of concern because we are talking for larger periods and what gets flips gets consumed and cannibalized in the subsequent quarters. So on overall, as I had said before, we are stay ing with the guidance which we have taken for the full year and which is also evident from the strong 26% growth in order backlog, which we have bagged. So other than that, I mean, nothing to be very particular. In the project business, quarters doesn't really matter much because we talk about larger durations.

So whatever the spillovers and project delays, those will be captured in Q2 and Q3?

Yes.

And sir, quarterly, I mean, the order inflow is very, very strong. I mean this is the best in last 8, 9 quarters, sir. So is the momentum will be continue going forward next 2, 3 quarters?

If you see the data, and this is not specific to your company, but the data typically indicates a decline because if you see all the data, which typically are the financial indicators, if you really ask me, like the GDP is strong. We actually have -- if you remember, last -- Q4 of last year, we hit -- the GDP was upwards of 9%, okay? Where the entire last year, we were 7.1%. We fell to about 6.5%. The guidance of IMF recent is 6.4%. The industrial, the IIP is another indicator which we speak of, which is actually sort of, I would say, on a decline. The GFCF, another indicator also for this quarter has not been great. So in other words, nothing to greatly worry ab out. But in my opinion, as I look on a personal level, it's something which we are sort of stabilizing and not to be too much concerned about the recent announcement -- geopolitical announcements, which has been happening. These are a few abrasions, which eventually will get settled out, I'm sure. And overall, not as bad. It's not as big. We are returning back to the normal set of operations like what we had. In fact, the abrasion, I would call will be the COVID era started '20, very lull in '20, picked up greatly in '21, parts of '22. And now post that in '23, '24, we are sort of stabilizing. So we will get stabilized.

And just the last question. I mean, given what we heard from the tariff from U.S. on India, so there won't be any direct or indirect impact as such for us, major impact?

No. No, not for us as to best of our knowledge.

The next question is from the line of Abhijeet Singh from Systematix.

Sir, any guidance that you would like to give for FY '26 in terms of revenue growth, margin and order inflow?

I would request Suparna to take this if she can.

Well, thank you for your question. But as I said th at while we do not give any guidance on the numbers that we'll be doing for the future, but it is important for you to see that the orders which have been picked up, they will be executed with complete focus in the months to come. And we are -- we just hope that -- I mean, it should be good in terms of the future because anyways, we had a muted Q1.

So my question was based on your understanding th at in Q1, and you can correct me if I'm wrong, we have grown at around 5% in terms of revenue. And if I look at the -- look at some of the peers, in fact, the entire industry, the growth seems to be more than this. So -- and one of the reasons that you mentioned is that there were some project delays on the customer level. So apart from that, is there any other challenge that we are facing in terms of labor, in terms of a market share loss, something like that, that you would like to comment on?

No. See, sales, a little moderate growth in sales doesn't really give the indication that there is loss of orders or there is a loss of market share. It is just that it has been deferred from this quarter to that quarter in our case specifically. Talking of any other challenges like labor, etcetera, thankfully, we do not see any such challenges. So our order execution is quite focused and quite -- we are optimistic in terms of the order execution in the quarters to come for the orders which we have picked up. So no challenge.

So mainly the PNG segment is, I would say, the government or the partnership. So I would -- so that 40%, 45% predominantly pertains to the government. The rest kind of comes from private. Udai, if you would like to add to this?

No, I think Suparna, you have actually shared it. I was just trying to tell Mr. Abhishek that, when you really compare, it is very hard to find in an industry, which is exactly the set of -- and the scheme of things which we are. Now results ha ve been mixed. And I'm sure we have healthy double-digit growth in certain companies, which are from the peer side, not exactly the people who have goals for the quarter, which is lesser than even 5. So I would not like to comment upon the rest . But what I'm saying quarter performance essentially is 3 months perform ance. And as I had said before, we stay confident that the guidance which we have taken internally for the full year FY '26, we would be in a position to deliver it, and that is evident from the order backlog, which we have now created, which is sitting at about INR 1635 crores

Right, sir. So lastly, in terms of...

Sorry to interrupt Mr. Abhijeet, may we request you to join the question queue for your follow- up questions.

Sure.

The next question is from the line of Naman Parmar from Niveshaay Investments.

Firstly, I wanted to understand how is the capex progressing and when it will be getting live, in which quarter in FY '27?

I can give you one answer, which perhaps will su mmarize it all. We is all moving -- all the projects, and there are many full, I would not be in a position to tell you each one of them. But just on a summary note, everything is actually moving as per the plan, and we have actually been taking the right set of actions to deliver the internal execution cycle and execution plan, which we had thought of. So all is moving on track.

Okay. And secondly, on the industry side, so don't you think that a lot of players have increased their capacity? And given that there is a very big demand from the renewable and data centers and all that, but don't you think th ere is a very competitive pressures on the various equipment and that's why the margin has been impacted? Or what's the take on the industry outlook?

No. So because we follow our strategy, we -- and you're right, there are multiple manufacturers who actually have been expanding capacities . We are the ones who actually are niching ourselves out as one of the technology players with whom our customer engages and is happy to connect and transact with us because of the features and the usefulness and the reduction in the total cost of ownership, which we bring to them. And therefore, we are not running after volumes. We are running after technology, and we are also trying to see as to how we really can create a differentiation, as I had said, in terms of those set of customers. And whatever capacities are needed, we already have started working on it and maybe INR 200-plus crores is what we have planned. And this is besides what we started in -- a couple of years ago, which was another about INR130 crores. So that's something which we are trying to do. And we are not eating anybody who's actually trying to enhance and put up manufacturing capac ities. We are pretty strategic in nature and trying to invest and enhance capacities wherever it is needed.

The next question is from the line of Jayesh Shah from OHM Portfolio.

Sir, you have been saying that you would mainta in your guidance. So for the benefit of us, can you exactly tell us what is the guidance that you have been saying that you would maintain?

I'm afraid Jayeshji, it may not be perhaps possible to share the guidance, but it will be something which Suparna would like to add if there is anything which you can talk about, but I guess, no.

Yes, I'll certainly add. When we say guidance, it is the internal targets, etcetera, which we have with us. And of course, because as an organizati on, as Schneider Electric in India, we are all poised for growth in terms of the revenues, in terms of the margin, in terms of the working capital efficiency. I can only say that we are chasing those targets internally. And please be rest assured.

Okay. Just to understand better, and I'm not asking for any numbers. If I look at the first quarter, what is effectively the capacity utilization? And what is the peak level of revenues we can achieve based on the current capacity and after the capex that is going on without giving the time frame. So I'm just looking at a theoretical capa city here if possible. And company is operating at what capacity utilization right now to have this kind of turnover of INR 400 crores -- sorry, INR 600 crores.

I can take that question, Jayeshji. If I would like to tell you, we are ope rating at optimal level. And the second question is -- second question, if I recall right, was when -- as and when the capex comes up, we are gearing to building up those capex and those capacities, which is assumed with which we will be operating at optimum level.

I see. Can you quantify what is the optimal...

Sorry to interrupt Mr. Jayesh, may we request you to join the queue?

No, it's the same question for clarification. So , yes. Yes. Can you quantify when you say the optimum or desired level from where you are, is it 2x, 3x over period once your capex gets commissioned and subject to you getting orders . So I'm not committing you or holding you to it, but just want to understand at a theoretical level as to what is the asset turn that would really be there? And what's the theoretical peak capacity sales?

It would be -- Jayeshji, it's a nice question, but we have actually declared this in our SEBI notifications because there are multiple lines which are being expanded. We have actually said as to where we are and how much we have added. So I think maybe perhaps if I may request you to have a note or we can separately reach out to you in terms of really telling you as to which areas are we expanding and to what times, 1x, 2x, 4x.

Yes, I'd just like to add to this. The capacity expansion is in different lines and would come up at different points of time. Currently, we are in the 85%, 90% capacity utilization. But then I always say that even if we are at that level of capacity utilization, it's not that we will not be able to accommodate another 10%, 15% of business and we grow full capacity because during operations in a plant, it so happens that sometimes with some extra shift, with some small...

Yes, with some debottlenecking. Yes.

Etcetera we are able to generate some additional -- marginally additional volume also. So there's nothing which -- right now from our capacity utilization point, there's no bottleneck. And in any case, the lines will be ready in different points of time. So right now, difficult to say and that is also -- what will be the asset turnover, that's also difficult to say at the moment.

But over 3 years, can we look at something lik e doubling or tripling the theoretical level of operations?

Sorry, we can't comment on that.

Okay, I'll reach out to you separately.

Okay.

The next question is from the line of Anoop Vyod from Hedge Equities.

I would like to know, as you have already said, you have been focusing on the good orders with good margin and quality payment. So by what time we can expect the improvement in margin? Can I get an idea about that?

See, primarily, what we are trying to see and explore and really work on those set of parties with which we are guaranteed for payments. And of course, where we get an opportunity to showcase some technological advantage which we bring to the market. And three, if it is strategic in nature to really showcase the technology, which is aligned to India needs. Now the margin is always a mix, as you will appreciate, is which line are you making? What is the product mix? How much are services? How much is transactional? How much is equipment? How much are projects. And therefore, it is very difficult to comment because quarter-on- quarter, at times, these components and these constituents changes. But on an overall thing, we -- when I said we are chasing the right orders, I meant these qualifying criteria. And two is we are always looking for a right product mix so that we are able to sustain and keep definitive growth in the margins, which we have been previously delivering on that level.

Yes, we have announced to SEBI. It's actually been released and is available on the site. We can separately reach out to you if you so need.

Due to time constraints, that was the last question. I now hand the conference over to Mr. Harshit Kapadia for his closing comments. Over to you, sir.

Thanks, Shruti. We would like to thank the management of Schneider Electric Infrastructure for giving us an opportunity to host this call. We also would like to thank all investors and analysts for joining for this call. Any closing remarks, Udai sir, you want to share with investors?

No, I just would like to thank all of you and really having faith in us, having us move where we have reached till now, I can assure that the management has been taking all efforts to really drive this business. And have a great day. Thank you so much.

On behalf of Elara Securities, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.