Techno Electric & Engineering Company Limited analyst Q&A

The first question is from the line of Sandeep Agarwal from Naredi Investment.

Sir, my first question is regarding the period in various segments like Smart Meter data center and small edge data center business.

You see these two are different businesses altogether. Smart Meter is a concession-based projects. Their period is prefixed by the government itself. That they pay over 94 months we call PMPM Per Meter Per Month post commissioning immediately on achieving SAT or Go Live, they pay us around 15% depending on the location of the project. That is how the demand is in the concession projects. Coming to data center is totally a market-driven activity, and it goes with the market dynamics. By and large, we anticipate a data center payback should be no more than 5 years in my view. But because of the challenge of growing and changing technologies, applications, usages, they are all part of it. Ankit, would you like to add something to it?

No. Sir I think you're on the point, the payback period for data centers is about 5 years.

Follow-up there; per megawatt revenue per annum is INR11 crores to INR12 crores. Is this estimate is correct?

You can take it at around INR8 crores to INR0 crores.

INR8 crores to INR10 crores. Okay. Sir, just another question is just bookkeeping. I want to know the detail of other current asset line item, which is INR814 crores approx.

What is the status of current assets?

Just the detail of current assets INR814 crores.

I think when you get the balance sheet, you will find the details in that. They are in the normal course of business. There is no exception in it. They keep rotation in rotation with the execution as it happens.

It increased from last year, INR250 crores approx to INR814 crores. So just want to know what is...

You are asking on contract assets basically not current assets. The contract asset is basically the investment in data centers and AMI or TBCB schemes. They are yet to be built out. That is what we call contract assets. They are not capitalized in our SPVs, but work on behalf of SPVs by the Holdco in deploying them. So that is a capex you can say indirectly carried out by the company in setting up these facilities like data center, INR400 crores, INR500 crores by now, meters, another INR400 crores by now. So it is that amount here.

We take the next question from the line of CA Garvit Goyal from Nvest Analytics Advisory.

Congrats for a decent execution in the quarter. Sir, earlier you have guided for INR3,600 crores revenue in FY '26. I think in opening remarks, now you said INR3,500 crores. So can you please clarify this?

No, I could not get, INR3,500 crores is INR3,500 crores…

Last con call, I think you mentioned INR3,600 crores?

INR3,500 crores is not a big issue between us. You take it INR3,600 crores,

I was just getting clarification on that. Okay. So that guidance we have given, given the challenges like land allocation and we are doing it very efficiently. So how exactly do you plan to achieve this guidance? Like which segment will contribute the most to this growth? And is it entirely from the existing order book standing today or a portion of it will be via the new incremental orders that we expect in FY '26? So that's my first question.

Look, this role of land acquisition is often perform ed by the asset owner. It is not in our scope, number one. Number two, our job starts once they hand over the land parcel to us. So, most of these orders are already around 3 to 6 months old. And customers as per our information, are fairly advanced acquiring land parcels. And we have taken that into consideration already. But you must take into view that larger execution has happened in last year, it will be in the same in current year also, like 40-60 with the H1 of the current year will be 40% and H2 of the current year will be 60%. So, it will go in the same pattern.

Got it. And which segment will contribute to this majorly out of the total order book?

So, it will all be from transmission, FGD, Meter Deployments, all will be an element of it. By and large if you want to take the break up, you can take transmission will be INR2,500 crores, transmission and distribution FGD INR500 crores, Meter will be another INR500 crores. A million and plus meters will be deployed as I said. So total will be INR3600 crores

Got it. And secondly, on the data center, like you earlier guided Chennai Data center was expected to be by March '25. And similarly, Mumbai was to start construction in April and was expected to be commissioned by August '25. But while you mentioned about Chennai, can you please update on why Mumbai data center is getting delayed now? And further, can you also confirm like earlier, you were speaking about revenue generation from Chennai data center, particularly from Q2 this year. Now that the timeline is intact or not?

Ankit, would you like to answer?

Yes. So firstly, we do expect to start generating revenue in Chennai from Q2 this year. And so that is pretty much as expected. But Mumba i never got delayed because Mumbai was never within our plans earlier. We have very recently got the possession of a location in Mumbai through RailTel only about, you can say, 3 weeks back, and we have almost completed the civil work over there, and we are in line to commission our Mumbai data center by November. So, it was something new that came up to us. It was not a planned location.

We take the next question from the line of Deepak Poddar from Sapphire Capital.

Sir, I just wanted to understand, I mean, in terms of from data center, what sort of revenue we are targeting for this year and next year, FY '26 and FY '27? And what sort of margin we can expect in data center?

You can take conservatively, let me put it, our this year target will be about INR100 crores. And next year target will be at least INR300 crores to INR350 crores.

INR300 crores to INR350 crores. And what sort of margin we can see here?

Generally, EBITDA is very high in these projects. I say you can take around 80%.

Yes, yes.

Okay. And the revenue that you have said in terms of INR3,500 crores and INR4,500 crores, this includes the data center? Or is it over and above this?

You see this year, we have not included. That is why 35 or 36 debate remains, as you must have heard of your colleagues. Next year, it includes up to 350.

Okay. Understood. So next year, your FY '27, your margins you will see a big jump in your margin, right, because of this data center?

Absolutely. It should be. That is why I said which differentiate us from the other T&D players.

And what is the general EPC margin range you look at? I mean this 14%, 15% is what general EPC margin?

14%, 15% is short rather, it should be at least better by 100 notches, 100 bps over last year as commodities have been cooled down, but it depends on Trump and tariffs.

You are talking about margin in EPC, right, 15% to 16%...

Yes. But i t's all commodity pricing. Supply chain is under pressure. A lot of exports are happening on the supply equipment, and export prices are better to the manufacturer than domestic market prices. So all type of challenges are there. But nevertheless, our efficient and productivity will stand us out.

We take the next question from the line of Vikram Datwani from Nuvama Institutional Equities.

Congratulations on a good set of numb ers. Two questions from my side. Sir, could you please give us your expectation of consolidated EBITDA margin for the next 2 years, considering data centers will be revenue accretive. So, how much would that impact your margins positively? That is my first question. And my second question is on the FY '27 EPS guidance. Just wanted to reconcile that INR75 figure, would that also include any monetization of assets or any arbitration awards that you're expecting? Or would that be only from business, and moneti zation will be over and above this figure?

Firstly, you see data center is a new subject to us, and ability to set up we have enjoyed. We have a great marketing team now. But the numbers we will be yet to be experienced to be honest. So, we cannot say the EBITDA as a consol. But overall, you can say as EBITDA, is experienced at 20% should continue on an overall basis at the company level. Whether it comes out of treasury will come down, and data center may add more to it. But definitely, we hav e not considered any monetization that will be over and above this in any case. But there are not great disputes we are carrying in our company with the clients, but something is often a way of life, I will say, that does not impact much financially. But t here may be a significant collection out of the discontinued business. So that will be over and above this, like it has happened in last year also. The EPS of INR4 is happening out of the discontinued business. So we are yet to get some more money from Chennai and data centers.

We take the next question from the line of Samarth Khandelwal from ICICI Securities.

Sir, congratulations on a strong quarter. Sir, I just wanted to understand when we say 1 megawatt of a data center, so 1 megawatt on 100% capacity generation, we say 8.7 million units of kilowatt hours of electricity would be generated. So, in how much time does a 1 megawatt would be the energy cost for a 1-megawatt data center?

Firstly, you see, these are energy-consuming solutions, not generative. So, please correct it. And when we talk of the revenue, generally power cost is a pass -through cost here. What we talk is only a lease rental of the facility provided to the users. Could you get me Mr. Khandelwal?

Sir, I understood. That is why INR8 crores per annum was saving quite low. I just wanted to understand the energy cost.

Energy is a pass -through. We don't make some money, but we don't take it as a part of INR8 crores. That is over and above. Ankit, can you elaborate more to it?

Yes, sure. So in terms of top line or expense, we do not consider energy as a revenue or an expense because it's largely a pass-through to the customer at the cost. So when we talk about a top line of INR8 crores to INR10 crores per megawatt, it is largely out of lease rental. It doesn't include energy, and neither would the expenses would include energy.

We take the next question from the line of Prathamesh Sawant from Mirae Asset Capital Markets.

Sir, just wanted to understand if you can throw more light on the Smart Meter business. So what kind of capex outlay are we seeing over here? How has our execution been so far, and the outlook for the current year?

I will say that we are conservative, and our engagement is very nominal. As I told you earlier, we are having presence of more than 5% in this segment, till date, we have commissioned 7 lakh meters out of a concession received for 2.5 m illion meters by us, and the deadline of -- the schedule is to complete by September '26. In '25, '26, we are targeting to do 1 million meters more. So we are on track. On an average, we do about 400 meters in different pockets. And they are in cost control.

Okay. So sir, how are we funding this project like anything, because it is capex intensive. So, how do we plan to fund it?

You see we are funding internally, number one, from our own resources. As I told you, we have already invested about INR400 crores in this. And another outgo this year will be about INR500 crores on this activity. So we have sufficient accruals. It is out of internal accruals, you can say. We'll be able to take time being. And once the schemes are complete and going, we may like to see exit at that time.

Okay. So we won't be raising any debt for this, sir?

We don't want to raise any debt. We'll be monetizing straight away.

Okay. And we are expecting 15% IRR on these projects, as you mentioned.

Minimum, maybe more.

Okay. And sir, like a few calls back, you had mentioned about the Mumbai data center, so which was like somewhere near St. Regis. So, just any update on that?

Ankit, can you...

Yes. As I mentioned that we've been handed over that location only about 3 weeks back. And we started the construction activities over there. The civil work is almost coming to conclusion, and we'll hopefully commission at least 400 kilowatts of capacity over there by November '25.

Sir, just one last question to you. So, if we look at data center per se as a separate entity, what will be the line item below the EBITDA? Like how do we see the depreciation and the interest cost to that?

They are all internally funded as of now, so there is no interest cost per se. But definitely, there will be depreciation as per the norms.

We take the next question from the line of Ravi Naredi from Naredi Investments.

Sir, we are awaiting investor presentation as you are nice promoter. So, we thought you give maximum disclosure, but we disappoint on this part. First of all, congratulations for ever highest top line and botto m line in history of company. Sir, capex plus investment plan in next 2 to 3 years in Smart Meter, data center or Smart Edge data center, what will be our capex?

For the current year, we have already given in my presentation. That this year we plan to invest about INR1,250 crores, which will comprise of INR500 crores of Meters and INR500 crores in Data Centers and another INR250 crores in our TBCB projects. Similarly, going forward over the 5 years, we have already said we'll be investing about INR10,000 crores, with a larger 80% belonging to data centers. Maybe you did not hear me in my presentation. We said by 2030, we'll be doing INR10,000 crores of capex and 80% will be on data centers by and large. And we intend completing about 250 megawat ts by then, including edge and hyperscale and another, you can say 1000 in Meters and 1000 in TBCB aspect. But depending on opportunities, this may change here and there. But as of now, this is the program with the company.

Sir, the company is now so big. We want to meet personally to you. So, is it available , are you in Kolkata or Gurgaon?

We take the next question from the line of Shreyansh Gattani from SG Securities.

I had a couple of questions. So, one was on the EPC. You mentioned in your opening remarks that to execute on the com pressed timelines, you're getting like additional incentives from customers. So, what exactly are we seeing? Is that in terms of like better working capital, like better receivables? Or is it like additional margin that we are getting? If you could just give some color on that?

You see apart from all these benefits out of productivity or efficiency, [inaudible 58:24] Sorry dear, there was a disruption.

No problem, sir.

Can you repeat your question, sir?

Yes. So, my question was, you mentioned in your opening remarks that you're getting some additional incentives for executing in the compressed timeline. So just wanted to get some color on that. Like, whether it's like better pay receivables that you'll be getting? Or is it going to be like in terms of higher margins as such?

No, the incentive is an additional payout over and above the contracted price. 2% to 5% of the contract value, but we account it in our books only as and when received.

Got it, go it. So, would that mean like we would see higher margins for this financial year because of this incentive?

Yes. Obviously, if it happens, yes, for that portion of the top line.

Got it, go it. Sir, second question is on the data center side. So just wanted to understand the customer onboarding and customer acquisition cycle. So how long does it take , like once our data center is ready if we have a customer agreement signed, like for them to get onboarded and for us to start generating revenues? So just wanted to understand the whole process.

Typically, once we've onboarded a customer, it can take anywhere between 2 to 3 months for them to move into the data center and for us to start generating revenue against that contract.

Okay. So is there any hardware changes that need to be done or...

No. It is just their own timeline for migrating the equipment to our data center and stabilizing them and also to provision power for their requirement.

Got it, go it. So, for the Kolkata data center , like for Chennai, I remember last year also, we mentioned that we are trying to get customers, but like eventually, we ended up waiting until the end of the completion and now, even after we commission, it will take like 2 months. So, is that something that we are looking to change or is that how the industry is operating like we wait until the whole data center is ready for us to start gathering customers?

So, you see, in this industry, it's difficult to onboard customers unless you have reaching completion of a data center, because with the given options, our customer is always more comfortable moving into a commission data c enter, which is readily available and most of the customers come out with their requirements only about 3 to 4 months in advance of their actual need. So, for that very reason, most of the time, it is -- these activities start towards completion of the project and go on for at least 6 months before the capacity is truly leased out.

Understood. So, just last question…¦

I am so sorry to interrupt, but maybe request that you rejoin the queue for follow-up question.

Yes. Thank you.

Thank you. Next question is from the line of Shrey Gandhi from CR Kothari Stock Broking.

Thank you for the opportunity and congratulations on the great set of numbers. My question is regarding the capex outlier that you mentioned, INR10,000 crores in next 5 years. So how do you plan to fund that capex? And how much time frame are we going to , you know, looking at the fundraising part?

So presently, we are planning to do it a lot of internal accruals and cash available with us by and large. And also, it will be supplemented by monetization of the completed assets to begin with the TBCB followed with Smart Meters. But data center, we like to hold on for a while. And maybe a bit of a debt in data center is ultimately called for at the SPV level.

Okay. And another question is on FGD and Smart Meter side. Are we facing any slowdown in order intake in FGD? And what is the competitive landscape looking like in Smart Meters? Because it is a clustered segment, I think. So, what is your take on it?

As I told you, probably we are one of the smartest players in this segment with the exposure of only 2.5 million meters among, you can say, about 12 million, 13 million meters in executi on by, in the market, maybe not 10 million meters, 100 million meters to my mind in execution by now. And then we'll continue to focus only in the pockets where we are good to deliver time out and also able to deal with the utility properly. So, we are not looking for a business ultimately more than another 2.5 million spread over next 4 to 5 years. So overall, book size may be about 5 million meters by 2030 or '28 or complete of the scheme.

Okay. And on FGD side, is there any slowdown in the order intake? Because of regulatory…

Yes. Regulatory was there. Government was bit confused because the capex involved in setting up these solutions is very high. It's almost INR1 crores per megawatt. So that was a huge detriment to the govern ment. Currently now government has reached it and on selective basis, they want to revise this, comply these requirements on emissions on SO2 or NO2. So, the revised target starts from '27 onwards. And as we all know the generating capacity, majority generating capacity is in private hands. So obviously, the call has to be taken by SCBs and private because the capacity, lot of capacity has happened in already in the central sector. Additionally, I will say that the whatever new generation capacity is coming in market, 70 gigawatt, 80 gigawatt, it is all with FGD only. It is not without FGD at the greenfield level itself. So, we are hopeful of this market to continue at least for next 10 years, but in its own proportion.

Okay, okay. Got it. And another question in regarding the depreciation for data center. You said it will be based on industry norms. So, what will be the percentage if you can share in terms of gross look or maybe for megawatt kind of thing?

I think we are yet to discover that number. We will deep dive and find out, yet we are not ready with this number to speak because it will depend on age of technology more than that, how you value it.

We'll take the next question from the line of Spasht from Indira Securities.

Sir, my question is regarding the data center part. In the last quarter, you said that you are going to use an opex, hello?

Yes, we are hearing you, sir.

So, in the last quarter you said that you are going to use an opex model for the data center part. And the current guidance that you have given about the margin, I'm quite confused. Can you give some light on that?

Ankit have you understood the question.

No, Spasht, your voice wasn't clear. I couldn't get the question.

Okay. So, in the last quarter, you said that you are going to use an opex model for the data center. And with the current, the beta margins that you have given, it is quite confusing to understand how you will be generating a 80% EBITDA with using an opex model. Can you tell me about it?

What do you mean by opex model? I'm not clear what was said in the last quarter. But most of the projects, so let me, most of the projects is undertaken as a capex right now, and it will be capitalized in the books of the respective SPV.

Okay. And just that in the last qua rter, you said that the infrastructure that you're going to use for the data center part, it is going to be operating expenditure part?

No. But it will be funded through either project finance or it will be funded through any other medium. The data center infrastructure.

Sir, the opex model systems are all in concession contracts. Somewhere we are confusing. I have always maintained your Smart Meter and your data TBCB projects are opex model. They are concession. They are government that shows you payment month on month and per meter basis or per month of use basis. But Data Center is your own asset, and you have multiple users deployed in the data center within the overall capacity. So that is a capex model only.

I understood, sir. It's just that the kind of services that you sell in the last quarter, it was quite confusing but how it is going to be for the infrastructure part because right now, as you said, that other customers, it is going to take 2 to 3 months with their requirements about the infrastructure and the power they use. And we are just starting with the highest right density, so it is fine.

You see, there are multiple type of practices in this sector. It is custom to build, build to custom use, general purpose use and then made to use of respective occupiers. So, and depending on the application, the changes have to be incorporated either by the asset owner or by the user. Ankit, can you elaborate more on it?

So, Spasht, if your question is about why does it take 2 to 3 months to onboard a customer, generally because you have to provision the power and infrastructure specific to the customer's requirement. So, once a customer contract has been signed, it can generally take the customer to migrate his equipment to your data center about couple of months and possibly about a month for us to just prepare the data center for his equipment to come and get established, but that doesn't require any additional capex. It's part of the operations.

Okay, sir. And can you tell me about the rate…

I am so sorry to interrupt. May we request you to rejoin the queue ? There are several other participants waiting.

Sure. Thank you so much for the opportunity.

Thank you. We take the last question from the line of Ashish Soni from the Family Office.

So this monetization model for RailTel I am not clear because you said that Gurgaon as data center 75% will be used by RailTel, but I think Bo mbay you're saying it is rather susceptible. So, I'm not clear on that. So, what's the agreement with RailTel on that please?

The agreement with RailTel is a revenue share model. With whatever revenue the data center generates, a percentage o f that revenue goes to RailTel and the remaining of it comes to us through an escrow account. So, the revenues will largely come out of any customer. It can be a third customer, whether a private company or a public company or RailTel itself. So, the data center is open to service all kinds of customers. It is not that RailTel is assuring a revenue or is going to leave the space on back-to-back basis.

Okay. And other thing is, based on your learning from Chennai data center, what are the learnings you want to apply to like Calcutta and the subscription data center in terms of, one is cost because I think I heard it was almost INR450 crores cost. And in terms of technological advancement in this area, if you can give some qualitative aspects, what's the learning you want to apply for Calcutta and subscription data centers in terms of cost and technical advancement in this field?

If you ask me, I think customers in this industry push you for technical advancement because of their unique use cases that they come up with. And in last 1.5, 2 years, we are seeing a lot more demand for AI related services from customers, and which is pushing us to deploy technologies which can accommodate very high dense rack, any racks going above 25 kilow att and on an average about 50 kilowatt, which in Chennai we had designed at 10 kilowatt, though it was even at that time or even today 10 kilowatt rack is considered a higher dense rack and compared to what it used to get designed. So, one is that one may have to plan for higher density racks to get accommodated. And I would believe that we should be able to bring down our project cost by 5 odd percent in comparison to Chennai.

And regarding approach, I think it got delayed. So, anything on that we can improve?

I think that is something which is more like a post major risk over here. One can't do much beyond the particular point. Yes, so these are largely percent driven, yes.

Thank you. Ladies and gentlemen, in the interest of time, that was the last question. I would now like to hand the conference over to Mr. Gupta Ji for closing comments.

Yes. Thank you, ma'am. I thank everyone for joinin g the conference call if you have any questions left with you regarding our performance, please send us an email and we'll be happy to revert. Our contact man is Mr. Vishal Jain in our office, whose details are available on our website. And similarly, if y ou happen to be on either on Kolkata or Gurgaon site, you are welcome to drop in our office for a personal interactive. And definitely, we are very, very grateful and appreciate your participation. And thank you very much.

On behalf of Asian Mar kets Securities Private Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.