Techno Electric & Engineering Company Limited analyst Q&A

The first question is from the line of CA Garvit Goyal from Nvest Analytics Advisory.

Congrats for a good set of numbers. You mentioned about FGD slowdown. And while you also mentioned in the existing order book, we will not be facing any hindrance in the terms of execution. Can you spend a few minutes on explaining the impact of this policy related to FGD on your vision for Techno's scale up over the next 3 to 5 years? That's my first question.

Yes. You see FGD was never a big time focus as a top line growth for Techno in business. We never expected business to be more than INR300 crores to INR400 crores per year out of this segment, and we wanted our presence to be no more than 5% in this marketplace. I think this is a debatable space even now. Although government has under some prudence classified requirements on category A, B and C, believing the cost of deploying the solution is not value driven. The CapEx is a lot more than the benefit achieved out of this facility. So they have classified the country based on populations, 1 million and above, number one, and the powerhouse must be within 10 kilometers as a category. Then they have a B category and C category. The B is not very well defined, but Cs, which are not required immediately. So that is the classification. But if the ongoing projects have already achieved a progress more than 40%, those projects will see the completion depending on the approval from the DISCOMs. That is how the policy is. So government is actively engaged. Meetings have been held at the level of the project utilities. CA has conducted meetings with generators. They have conducted meeting with EPCs, and I'm sure some guideline will follow shortly.

Understood. So is there any risk in the existing order book execution as well, like you mentioned about some approvals. So if approvals are not there, then that means we will be facing some challenges in the execution of existing order book as well? Can that be the case?

No, no, no existing orders have already more than 2-year old with us. And Kota falls -- we have 2 orders, Kota and Jhalawar. Kota is in category A, so it has to see the completion by the very policy. Jhalawar is in category C, which is already complete bey ond 60%. We have shared all the data with the generators with the utilities, DISCOM as well as with CA. NTPC has already taken a call to go ahead with the ongoing projects. So we technically don't see much threat to the other order also at Jhalawar.

Understood, sir. And secondly, on the Chennai data center, you mentioned that is operational now. So can you tell us like what kind of revenue are we anticipating in this year itself from Chennai data center?

Ankit, are you there? Yes. You see you can take a revenue this year may not be more than my - - Ankit will be more able to say accurately, but I trust it will be about INR25 crores.

I think earlier, we were speaking about INR100 crores.

Not this year. You see. Ultimately, this will grow up to INR100 crores. I said today also. Maybe it will be more visible from INR100 crores to INR200 crores next year. And this year, we are in the process of building up of the capacities like Gurgaon, Bombay, Chennai. So these 3 facilities will be ready for deployment. So I will say conservatively INR25 crores, but maybe more. And depending on what you include in it, I'm not including any services or any power cost in it. I'm talking of the [inaudible 0:35:04] revenue, which will have an EBITDA of 80% or more.

Yes, yes, absolutely. They are intact.

The next question is from the line of Ankit Madhwani with StepTrade Capital.

Yes, I just wanted to know the margin profile like the data center will be operational by this year. So what will be the margin for the FY '27?

No, we have already said margin, we don't inbuilt the INR75 crores -- EPS of INR75 will largely be coming out of the EBITDA inclusive of data center in that, obviously. So it is -- depends on how top line is constructed in this business. If you take bare rentals, then it is 80%. But if you include services, power costs, then accordingly, EBITDA goes down to 50%, 60%. So -- but it will be much better than what we get in our EPC business. So it will only be improving.

Okay. Okay. So sir, when we look at your data center business, so what will be the proportionate revenue for FY '26? So can you tell us the weight of the data center?

No, in '26, it will be very negligible. So we are already talked about it in the previous question, maybe INR25 crores to INR30 crores, but it will be a little more significant next year.

Okay. Okay. So 1 year is a waiting period?

Yes, that is '26-'27.

Okay. Understood sir. And sir, FY '27, what would be the tentative number? So when it is significant, but what would be tentative number?

You see, we need to be precise. I think you wait for another 2 quarters. When we take up the results of around maybe Q3 on data center revenue, we will be more precise. But we are definitely targeting a big push because this sector is evolving and changing every moment. Sometimes it looks -- it is so opportunistic, so wonderful and sometimes it takes time to conclude with customers. Customer takes more time to conclude a contract and deploy facilities. So that bit of uncertainties of 3 months here and there always keep playing in the -- forging a relationship and relationship becoming revenue accretive.

The next question is from the line of Rohan Dalal from Batlivala & Karani Capital.

Sir, first of all, congratulations on some excellent numbers that you've shown, and we really look forward to the next couple of years going forward. My question is that we have been -- in the past, you have guided that you're looking for a strategic inves tor for your data center business. Is that still on the cards? Or now are you looking at doing it entirely on your own?

Look, strategic is a very meaningful and very significant world. How strategic a partner is who brings opportunities, who brings capabilities and not merely finance because Techno is capable to finance its operations. So we will keep -- we are exploring. We are continuously in touch with many great global firms as well as Indian companies. So it's a work in progress, I will say, and we have an open mind on it. So we will definitely take you in confidence as and when something significant happens.

Okay. And sir, my next question is I know that in the past, you have offered for -- if anyone wants to come and visit your office in Kolkata, who should we contact if we would like to come?

Vishal Jain is our PR man.

The next question is from the line of Deekshant from DB Wealth.

Congratulations on the good results. So the first question is, could you actually -- from a historic perspective, before 2021, we used to have margins in the range of 24%, 25%. But since 2021, our margins have dipped significantly. So what has been the change in the business that has led to this drop in margins right now?

I think all of you should know, we were the first IPP in wind power and had invested in 200 megawatts. The revenue of wind power had an EBITDA of no less than 80%, but the revenue may be around INR200 crores. So that was contributing a lot more to the EBITDA when put together with EPC business. And same may happen down a year when data center business is clubbed with our EPC business. So EPC business has a different EBITDA than the EBITDA in an asset-based business.

Sir, given our seasonality of business, June quarter has had an actual better margin than the previous year. So -- and so what has been going right for us to give us this margin in a seasonally muted quarter?

No, there is no magical change, again, I will say, because now the -- some revenue of our wind business, number one, has become so insignificant that the auditors decided to take it a 1 segment business and not 2 segment business anymore as we did till previous year. So if you take on EPC business only, the margin will be around 14.5% only, whereas if you put the wind business revenue, which is around INR15 crores, INR20 crores now of the remaining 20 megawatt in our books, then it improves by further 1% more.

Got it. Sir, in our line item, there is a particular line item in our P&L, which is profit from discontinued operations. So could you just give us some light on understanding what this particular number means and why is it declining?

You see a discontinued business is a discontinued business. And realization out of the same is the arrears receivable from the DISCOMs of the power already supplied over previous years. The asset stands monetized and disposed off in '23 by the company now. So those are regulatory disputes as and when we get regulatory favorable orders, those amounts becomes payable by the DISCOMs and we get paid. That is what it means.

No, I've not got your question. Discontinued business never become regular business.

See, regular business will become discontinued business at some point of time, right?

Yes. That is already discontinued in '23. So as said, there is no more power generation, no more regular sale of power. These are the realization of arrears as per the eligibility as per provisions of the PPA we have with the DISCOMs. So DISCOM has its own disputes with us. So we went through regulatory resolutions with the NERC, with APTEL. So those favorable orders as and when are implemented, money is received, we disclosed that amount on receipt basis in our books as a conservative. They were not kept in our books as outstanding of the previous years nor accounted for those entitlements. We already stated that we are conservative and we account all disputes and all these kind of regulatory issues pending in the courts or arbitration or in regulatory courts on receipt basis only.

Got it. Sir, last question is on guidance. So you have mentioned a 40% to 50% guidance for the next at least 2 years. What kind of margins can we expect on this sort of growth? Do you think we can be more than 25% at the end of this?

Look, margins are not so simple to come by. We are a regulated -- part of regulated businesses. As far as EPC is concerned, 14% plus/minus will be the benchmark, as I have always guided and we have achieved consistently. The further improvements will happe n only by our data center business now happening and somewhat out of the AMI business, which are the asset - based businesses of the company. So club together, you may find some improvement year -on- year.

Sir what will be the ballpark number.

Please, as I said earlier, we will discuss this more in Q3.

Okay. Okay. Sir, if I may ask one more last question is on our other assets item. Our other assets item, sir, has improved from last year to 2025. So it has gone from INR400-odd crores to close to INR900 crores, around INR880 crores. Could you just tell us that what are these other assets that we are working on right now? Is this part of the CWIP, but that would be different.

It is -- you rightly worded yourself. It is a CWIP, which will be capitalized in Q2 now out of this for Chennai data center and somewhat more by the end of the year on the AMI and somewhat on the TBCB side as and when commissioned.

The next question is from the line of Pranjal Mukhija from Growthsphere Ventures.

I have to say, sir, congratulations on a great set of numbers. Sir, my -- I had a couple of questions on the smart meter business. So given we understand that H1 is usually slightly low on the softer on the implementation part in smart meters and then the majority of the business and the implementation picks up in H2. So I just wanted to understand like what kind of like on ground -- what is the on-ground situation that you're seeing right now in the market? And do we foresee like installation picking up quarter-on-quarter even from this level?

Yes. We have not faced any problem to be honest, in deploying meters so far. And we almost do about 80,000 to 1 lakh meters a month, and that is what we are obliged to do under these 4 concessions. And it is going as per the program. So we are to complete all this by September '26 or entire 2.5 million meters. And by end of this year, we should be at around 1.7 million to 1.8 million meters, leaving another 0.5 million 0.7 million for next year, 6 months.

Right. And sir, how are we seeing the new announcements that are coming out in states like Tamil Nadu and maybe Karnataka side? Like are we also pursuing those opportunities?

Not seriously, to be honest, because we -- as we always maintained that our exposure will be no more than 3%, 5% in this segment because counterparty risk is a little high because of the DISCOMs and DISCOM reforms are still not very strongly visible, thoug h government is supporting it. So we are conservative on this aspect. Wherever we feel we are getting our good EBITDA, good customer support, we are there. But we are not going to grow this business aggressively.

The next question is from the line of Shivkumar Prajapati from Ambit Investment Advisors.

Congratulations on a great set of numbers. So my question is on data center first. So if I look at the last presentation, last quarterly presentation, I see INR650 million of order in our order book. So the INR25 crores that we are assuming for this year, is it from that? Or is it the additional INR25 crores?

No, it is part of that only what you see.

Okay. Understood. And sir, this Mumbai data center, is it on track? I mean.

It will be commercialized by December.

Okay. Okay. Okay. And sir, one more thing. What would be the depreciation rate for the data center?

This is a very challenging question. In an evolving technology space, how to determine a depreciation is always a management challenge because insulation is a bigger risk you carry than a very physical or operational availability of those assets. So techno logical solution always is a challenge. To my mind, one should not take a life of data center more than 10 years to my mind.

Okay, 10 years. Got it sir. And sir, in last year Q2, we had mentioned to some foreign -- like we are interacting with some foreign entities for our data centers. So could you shed some light like what sort of customers and from what all reasons we are in talks for the data centers?

Yes. So as we mentioned in the beginning of the call that we are in discussions with multiple foreign entities and even domestic entities who can be strategic partner to us. But now that we have successfully started operating our data center in Chennai as well as Gurgaon and have started deploying capacity over there to end customers. We would ideally like to possibly continue deploying that capacity and wait for right valuations because once we have taken the call of boldly going into a market on our own strength, then better to see the entire cycle and then look out for a strategic partner who is willing to give those valuations, which come with an asset which is generating revenue. So it is more wise to now wait and take a more prudent call and a bold call when the time is right. Having said that, we have not stopped discussing with strategic partners. We are already in discussion with them, and we keep engaging with them time to time.

The next question is from the line of Vinod from PhillipCapital.

Sir, I had a question on distribution reforms. So you've seen this industry for a very long period of time. I think recently, the Supreme Court has said that for Delhi, the regulatory assets have to be cleared in the next 3 years. And this could become a role model for other distribution cycles. So do you really think this time, it's very different because we've seen a lot of different distribution reforms in the past, which have faltered. So what's your view on this Supreme Court judgment?

I wish our country was more simple than what you are stating when it comes to the politics of World Bank and power sector have not missed or not seen the market reforms like telecom or aviation or highways, similar sectors. So that's a sad part. It's a pain part that we say -- we go by so much of litigations and court orders. But states, it's ultimately a discretion of the states. We have 2 layers. It's a so -called concurrent list. We have SERCs, CRCs. Rather my biggest pain is the very Electricity Act, it provided 2 things apart from others that we will give a consumer a choic e of the power supplier and we'll also give. Hello. Can you hear me?

Yes, I can hear you now.

Yes. Other than these 2 things like open assess and choice of power supplier to the consumer, we have done everything in this sector. We have deployed best of the capacities, best of the solutions, best of the technologies, but still they are not cost effe ctive because of the inefficiencies of the DISCOMs. So that is a challenge which still persists in our sector, sir. And someday, central government has to take as an economic reforms call that power sector is under GST, number one, which is still not. Number two, I will say that they must by legislative or parliamentary order make it mandatory to have multiple power suppliers in every area of the country as well as openness to the generators. It should be one market, free market, like any other thing. When we say power is a commodity, then it must be dealt like a commodity. Sometimes you cannot say -- some people will say it is essential. Somebody will say it is a necessity. Sometimes we want rules like commodity. So it is a very blended mindset. It's b asically a mindset and behavioral issue in this sector of the local governments.

Sir, on that thought, actually, since you mentioned open access, I think what's happening with state DISCOMs is I think many of the industrial customers are -- the C&I customers are moving out. They are moving into either captive or hybrid kind of renewables. And that is probably -- and they were typically the customer segment that used to cross subsidize the others. So I think the pain is probably going to increase for state DISCOMs than I think what we are seeing today.

So, I'm not getting into those debates. We usually call it a creamy layer in our sector. That is the language we use, sir. But government have to believe can T&D cost be 200% of power generated cost in any country? Tell me. Have you experienced that? You generate power at INR3 to INR4. And still in your house, it comes at no less than INR10. So no citizen asks in this country to the government, who takes away my INR6, sir. So those questions, public have to rise up one day and ask these questions. So that is the challenge. And obviously, when normal efficiency or efficient and competitive solutions are not available to the industry or large commercial sector, they find roundabout ways to achieve it.

Sure, sir.

That is what is happening. Why so much of pain? Why we cannot reduce the cost of the power to 50% and consumption to 2x, you see how much growth it will bring to the sector. Why per capita consumption cannot be INR2,000 in this country if power cost comes down to INR5 to INR6.

Let's hope I think this probably sets because there have been many onetime settlements, which have never remained a onetime settlement.

Absolutely right.

The next question is from the line of Deekshant from DB Wealth.

Sir, our working capital days has been increased. So could you shed some light on what's happening on our total working capital cycle right now?

No, no, no. It was very momentary in June and if you are talking, in July itself, we realized no less than INR250 crores out of these outstandings. So now it is back to normal. In June, customers were a little short of funds and government maybe funds were not released by the government MOP, maybe war was the one reason, I don't know. But now we have got all the money back. Even our balance in the cash in hand is almost INR2,500 crores plus in stand-alone entity.

So do you think that our current years working capital cycle will be in the similar range? Or can we be better?

Absolutely. No, it will be in the similar range.

So sir, last year also, our working capital had increased in 2025. FY '25.

Not at all. Please read our document more with a deep sight with a growth of 50%, the working capital requirement remained the same. Our debtors were at INR600 crores only.

Ladies and gentlemen, that was the last question for today. I now hand over the conference to management for closing comments.

Yes. Suraj, would you like to say.

You say sir.

Thank you very much for joining the conference call. If you have any questions regarding our performance, please send us an e-mail and you are always welcome to drop in our office if you happen to be in Kolkata or in Gurgaon, any part of the time of the year. With this concludes the conference, and we appreciate and respect your participation. Thank you very much.

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