SCHNEIDER — earnings call

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Prepared remarks

Moderator · Conference Operator

MR. HARSHIT KAPADIA –ELARA SECURITIES PRIVATE LIMITED Schneider Electric Infrastructure Limited August 06, 2024 General

Ladies and gentlemen, good day and welcome to the Schneider Electric Infrastructure Limited

Thank you very much.

We will now begin the question and answer session.

The first question is from the line of Sagar Gandhi from Invesco Mutual Funds.

Please go ahead.

Sagar Gandhi

So my question is more on the product side.

While you have highlighted a lot of products in your presentation.

My question is what I can see and understand and part of my limited understanding here is your AIS portfolio.

But what we understand from players in the power transmission space, especially Power Grid Corporation of India is that there is a lot of gaps and supplied associates on the GIS portfolio.

Can you highlight if you have a portfolio there and how differentiated your portfolio is then in that segment?

Udai Singh

Thank you for raising this.

And I'm really surprised if someone has a perception that there is a gap.

There isn't a gap in GIS and GIS portfolio, we do have for quite some time.

And the only thing is perhaps the point which we are trying to make or someone has been saying is we operate up to 36 kilovolt.

That's the range where we are.

There are GIS which are available for ratings, which are beyond 36 kV also where we are not present worldwide.

So our range stays at 36 kV or 33 kV and we have all the variance which are possible with all the technical specifications which are available.

We can -- we do have them, and we have them for quite a while.

Sagar Gandhi

Sir, can you highlight the demand scenario there that you are envisaging?

Schneider Electric Infrastructure Limited August 06, 2024 General

Udai Singh

See, the demand scenario of GIS is, of course, picking up because if I look back and see as to where it was 10 years ago versus where it stands today, we see a lot of change and this change is primarily because of 2 things.

GIS is deemed to be a maintenance free equipment and also pretty optimum in terms of the footprint.

Now with -- as more and more urbanization is happening, the distribution will eventually move to GIS.

I would not say when, but the journey is only commenced.

Sagar Gandhi

Okay.

And sir, within the product market that you've already highlighted, can you highlight -- I mean, you've already done for one or two products, but probably niche areas where Schneider has an edge over other competitors?

Udai Singh

Difficult to highlight such niche areas, but we are working closely and our effort has been in all areas whether you call it niche or unniche as to what more we can bring to a customer which perhaps our friends are not able to bring and how closely we work and understand their requirements which are either stated or unstated.

Sagar Gandhi

Okay.

Thank you so much sir.

Moderator · Conference Operator

Thank you.

The next question is from the line of Praveen Motwani from Bank of India Mutual Funds.

Please go ahead.

Praveen Motwani

Sir I have a couple of questions.

The first is sir Q1 FY '25 growth rate of close to 20% year-on- year.

So if you could just help us to understand what led to this growth which all product segments did well for you in this quarter?

And are these numbers on profitability front are sustainable going forward?

Udai Singh

See we actually have been trying to make a strong order book.

And if you realize that we made this strong because one, to drive the sales in coming quarters and also be clear because we are into project business.

And there's always a level of uncertainty when you handle projects.

So our focus has been backlog building which we have been doing.

And I'm sure you have seen our performance in previous quarters as well.

So this growth we have been able to do because of the backlog which we had.

And if you really ask me, is it cyclic thing?

I would be wrong if I say okay in this segment in this quarter, we did great because if I do, in a segment A in 1 quarter maybe perhaps because of the cyclicity it will come up with some other segment as well in the next quarter.

So we are, in fact, prevalent.

Strongly in all those segments, which are electro-intensive, as we call them.

And it may so happen if you typically see, quarter-wise, it will not be a good, I will say, interception.

But if you look at the year, that's what we perhaps see as to which segment actually was, we were able to do better.

But very generally speaking, I think all electro-intense segments, we do good -- a few go not just higher, few stays at not just lower, but otherwise, it is all balanced.

And the last question is, of course, we are hopeful that we would be able to continue something very similar.

Schneider Electric Infrastructure Limited August 06, 2024 General

Praveen Motwani

Okay.

The second question is, sir, if you can just understand the market of powertrain module.

Is this technology coming from the parent or we have done this product?

Just some color on that front would be really helpful for us?

Udai Singh

It's actually India for India, I would say, it's something which we have tried to understand the needs, which are slightly different than what perhaps people have globally.

And because I think time is the essence, and also because of the emerging the pace at which data centers are evolving in India record that we should be able to do this.

And while I say that, it is always supported by some technology which actually comes from our brands, but it is more getting shaped up because of India for India situations and needs.

Praveen Motwani

Understood.

Okay thank you and all the best.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Mahesh Bendre

Sir, data center, I mean, you showcase the products for data center and data center is into a demand as of now.

So what proportion of our sales for the quarter sales has come from the data center?

Udai Singh

Difficult to say, Maheshji, we're not ready further, but data center is, of course, one of the main drivers of business.

Mahesh Bendre

Okay.

And sir, apart from the existing products, any new products we're planning to launch given the demand in -- across power side and data center side?

Udai Singh

What we are trying to do is we are trying to augment the products which we already have and maybe perhaps upgrade or make it more efficient.

This is our continuous impetus on that.

For example, products which were not having any sensors, we are trying to sensorize because it goes a long way for serving our end users better and they can run the plant much better way.

They can maintain the asset in a much better way.

They can optimize their running costs.

So our effort has been for quite a few quarters, I would say, as I look back and it is still on as to how do we make things more digitalized, how do we make items which are already digitalized more enriched in terms of it so that it can give you more features, more support, more insights.

So this is the work which we are on.

And parallely we're also trying to see if there is something which has not been digitalized yet is there a need of that getting digitalized and whether will it add any value to the user and basis which we are also deciding to digitalize a few of those elements which have not yet digitalized.

Mahesh Bendre

And sir, last question from my end.

Our sales during the quarter grew by 20%, but other expenses have grown by 27%.

I mean, the last 2, 3 quarters, our other expenses are going up.

So is there any one-off or any warranty or related expenses?

Suparna Bhattacharyya

Well, yes, agreed to your point that our sales is growing up a little bit higher than we had anticipated.

There are a number of reasons.

Sometimes there are one-off reasons.

Sometimes Schneider Electric Infrastructure Limited August 06, 2024 General there are cases where we have to take some expenses in our P&L with respect to increasing our efficiency in the long run.

So that is the kind of operational decisions that we take time to time and park them in our expenses.

But our main focus is, again, growth in sales.

And when I say sales, it has to be profitable sales.

So that's what I would like to assure you with respect to our focus.

Mahesh Bendre

But ma'am, what would be the possible reason for this?

I mean, other expenses to go up...

Suparna Bhattacharyya

Yes, as you rightly said that sometimes it's a warranty case, sometimes it's a provisioning case.

Sometimes it's another expense case, which we build.

We often -- because the company you've seen is now doing much better as compared to yester years.

And we are trying to make it sustainable.

So that is why we have some expenses that we incurred just to secure the future and improve the operational efficiency of the company.

Mahesh Bendre

Sure.

Thank you so much.

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Mohit Kumar

Great set of numbers.

My first question is, sir, is it possible to bifurcate the order inflow, the utilities interstate, intrastate and distribution or is the intrastate and distribution and industrial, yes, if possible?

Udai Singh

It may not be ready-made answer, sir, but typically our exposure to the distributions is maybe because we connect directly and indirectly, but typically see about 35%, 40%, I'm not very sure, but this is a typical number which we'll have for industry.

Mohit Kumar

Understood, sir.

My second question, sir, of course, Schneider is very strong in data center offerings and of course the other group companies have other products.

So my question is do you participate along with the group companies to participate in a single data center opportunity.

Is that right understanding?

Udai Singh

Yes, we do, because if we can give them full enterprise solution why not?

That's what customers also look up to us.

So for example, there's something which is sold like any component which Schneider does we sell that also.

Mohit Kumar

My last question sir are you seeing the SCADA demand...

Moderator · Conference Operator

Sorry to interrupt sir Mr. Mohit could you please call back in the question queue for further questions.

Thank you.

The next question is from the line of Sanidhya from Unicorn Assets.

Please go ahead.

Sanidhya

So my question is on the -- can you give me the employee account for FY '23 versus FY '24?

And if possible for Q1 FY '25 as well?

Suparna Bhattacharyya

I didn't get your question.

Can you please repeat?

Schneider Electric Infrastructure Limited August 06, 2024 General

Sanidhya

Employee count for FY '23 versus '24?

Suparna Bhattacharyya

You're talking about the employee expenses.

Sanidhya

Employee count, ma'am?

Suparna Bhattacharyya

Employee count.

So it was 1,267 in June '23 and now it is 1,292.

Sanidhya

Okay.

And secondly on the other expenses side, so last con call also, management gave the commentary that they should be somewhat in line with the current guidance for FY '24.

So it was kind of 11% to the total revenue.

But now we see it rising to almost 13% this quarter.

So should we see a similar trend for the year like 13% or more than that or will it be in line with the previous guidance of near about 10%, 11% of the total level?

Suparna Bhattacharyya

See, as I said that we are building this organization to create this organization to be more sustainable.

We are taking decisions at the operational level and at the strategic level with respect to making the organization stronger.

So we cannot say what is exactly the right to be a percentage of sales, but whatever decisions that we take and take the expenses, that's all justified with a view of short-term or long-term objectives of the organization.

So I would really say please leave that to us and please look at the growth -- the market growth that we are driving, the profitable sales that we are driving and a good value in terms of -- at the PAT level.

So probably I would like to put a focus on that..

Sanidhya

And lastly on the R&D-related expenses for the last year and what are we planning for this year?

Suparna Bhattacharyya

So R&D is generally managed by global and we basically don't do any big R&D activities over here.

So the expenses...

Sanidhya

Any royalty or anything we pass on to the global?

Moderator · Conference Operator

I'm sorry to interrupt, sir.

Could you please fall back in the question queue for further questions.

Thank you.

The next question is from the line of Nil Oswal from Bajaj.

Please go ahead.

Nil Oswal

I'm not sure if I missed this data point, but previously, you've also provided the breakup between equipment, services and projects and transactions.

So can you please provide that breakup?

Suparna Bhattacharyya

So the composition of the quarter 1 sales, basically, we put it into the -- I'll tell you the categories and the proportion of the sales.

For the transactional part, we are 19%; services, 13%; equipment, 39%; projects, 8% and inter-companies -- within group sales is about 22%.

So all these put together make it 100%.

So this is basically the split between the different activities that we do.

Nil Oswal

Understood.

Thanks for the information.

Moderator · Conference Operator

Thank you.

The next question is from the line of Prathmesh Salunkhe from PL Capital.

Please go ahead.

Schneider Electric Infrastructure Limited August 06, 2024 General

Prathmesh Salunkhe

Sir, given the data center growth in the country, the data center capacity is expected to double, plus there is like 5 gigawatts of additional capacity expected in the next 5 to 6 years.

So just wanted to know what would be our addressable market if you could put a number to it?

Udai Singh

Sir, I don't know why data center is always exciting.

But data center, what we -- and I think more than 5 giga, I keep my fingers crossed, it should happen.

And we are now actually be putting about 1 gigawatt as the turn of the year.

And it's very difficult to answer this question.

Why?

Because the way data centers are being developed, it really depends on what sort of redundancy is being sought, what has been their parental design?

What sort of distribution they are taking at which voltage, plus, how they are panning out the various flows in which they want to keep servers.

So it will be very difficult to have a ballpark number saying that you put x money and then you get y money, okay, for a business.

But generally speaking, typically, what I would like to state here is the data centers are actually now coming.

And my sense is it will start coming in those cities as well which they haven't been there until now.

So like, for example, you have a large concentration in Mumbai, we have in Chennai, we have in Hyderabad, we have sorts of in NCR, but we'll see that this actually will get in at other places also.

And there I think the entire tomography will change and all our calculations of someone is investing x crores and which will give us -- your company y crores, that won't apply.

So it will be difficult to answer your question, but then the only right side is the data center is in and is going to be there for quite a while.

Prathmesh Salunkhe

Understood, sir.

So sir, another question was on transformer side.

Considering currently, we have about 7,000, 8,000 MVA of capacity.

Are there any expansion plans on the book, considering the demand scenario right now?

Udai Singh

There's nothing which I'm aware of, no. And we are -- what we are trying to do is there is a demand, and we are trying to find whatever capacity, which you said is slightly more than what we actually have.

But what we are trying to do is we are trying to find out as to who are those users and buyers who really are appreciated for a quality product, which is consistent and also maybe have more levels of digitalization.

So in fact, we are now into something which we call as greener transformers which doesn't have mineral oil, but which has got veg oil.

And also, we are inserting sensors where you can, in fact, have the performance of the transformer actually coming on your mobile through a cloud app.

So this is what we are trying to do.

And there are people who are accepting this and who are really appreciating this and those are the people where we keep on supplying our transformers.

So while the transformer market is growing, and it's not been growing at so much slow pace because the other third-party data will tell you that number, but it's a large market, and we are trying to operate with perhaps similar capacities and serve those customers who really appreciate what we'll give it to them.

Prathmesh Salunkhe

Understood sir.

Thank you so much for answering my questions.

Schneider Electric Infrastructure Limited August 06, 2024 General

Moderator · Conference Operator

Thank you.

The next question is from the line of Apoorva Bahadur from Goldman Sachs.

Please go ahead.

Apoorva Bahadur

Congratulations on good results.

Sir, I wanted to check about the gross margins last, I think previous quarter and this quarter as well has been quite strong around 40% range.

What's driving this strength?

And how sustainable this is?

Suparna Bhattacharyya

So this good quarter, gross margin is basically coming from our product mix, order pricing, operational and operational efficiency with cost optimization.

So that's -- and also, this is kind of, I would say, for the entire product range.

So our continuous endeavors to improve and do profitable sales is actually getting reflected here.

Apoorva Bahadur

This is now sustainable around 30% and 40% should be...

Suparna Bhattacharyya

We think so unless there is something which is beyond our control.

Apoorva Bahadur

Fair enough.

Secondly, I wanted to check about the Kolkata factory.

What's the update over there?

When can we expect commissioning?

Udai Singh

We are working hard to make it work from, say, beginning of next year, next fiscal.

Apoorva Bahadur

Financial year '26 onwards.

Udai Singh

Yes.

So sometime in April is what we anticipate will go on full swing.

Apoorva Bahadur

Understood, sir.

Lastly...

Moderator · Conference Operator

I'm sorry to interrupt sir.

Could you please fall back in the question queue for further questions.

Thank you.

The next question is from the line of Dhavan Shah from Alfaccurate Advisors.

Please go ahead.

Dhavan Shah

So my question is on the powertrain module.

The new products.

So is this only for India market or we are also open for the export business as well?

Udai Singh

We are open for export as well.

Dhavan Shah

And I think you mentioned that we got some 3 orders from the export during this quarter.

One is from Nepal, Australia and Qatar.

So any ballpark number you can share, how much was the export order inflow during this quarter?

And how much does that contribute, I mean, the overall export order backlog as on first quarter '25 and what is the order pipeline from these 3 geographies?

Udai Singh

So you had said -- you were asking about the numbers.

We -- typically, this would be, if I would say maybe about 7% to 8% of backlog, which we hold.

And going forward, we are trying to see -- we are not making it a generic line, but wherever we have an opportunity, we actually want to serve those international customers from India, if they accept India advisory.

Schneider Electric Infrastructure Limited August 06, 2024 General So we are not chasing it because we do have teams outside also, other part of Schneider.

And where we find cases which are getting concluded because you'll appreciate that a lot of these people look up to India as one of the large sourcing basis and have also been making back-end design centers.

So which means that in entire conceptualization, the feed, the engineering is happening here and so is the commercial evaluation, along with the supplies coming out of India.

So these cases were those cases.

And this is -- today, it is about 7% to 8% of backlog.

Dhavan Shah

And how is the order pipeline numbers from this Nepal, Australia and Qatar?

Is there any number you can share or bidding pipeline?

Udai Singh

No, we are not in a position to share that.

Dhavan Shah

Okay sir.

That’s all from my side.

Thank you.

Moderator · Conference Operator

Thank you.

The next question is from the line of Raj Rishi from DCPL.

Please go ahead.

Raj Rishi

Could you elaborate on how AI benefits a company like Schneider especially in India?

Udai Singh

So it's a wonderful question.

I can finish the call with this.

But it's interesting.

You see there are a couple of things which are happening around the demand and supply side.

To tell you very shortly, what we are trying to do is all the manufacturing process, which we have undertaken, we are trying to see as to how does AI enable us to making a more consistent, higher-quality product.

That is number 1 on the manufacturing side.

Second, on the supply side, if you really see, all this AI and especially in data center space, when you use extensive data, I don't want to say how many bites of data, which you know more than me, is actually -- is driving the server capacities.

And therefore, in a very layman term, if you have something which eats more data or consumes more data, you require servers of larger capacities and volumes.

And therefore, the data center business is going to expand much more exponentially as what it was when only 5G were there.

So typically, that is something which helps us to drive that AI thing on the data center side and also on the side of -- within the company when we do manufacturing activities.

Raj Rishi

Okay.

And this would definitely give you an edge vis-a-vis your competitors, right, should be India?

Udai Singh

Yes.

Raj Rishi

Okay.

And sir, just going for -- it's a connected question.

I was just waiting for list and Schneider was listed as the 42nd highest market cap company in the list of tech companies like it was under the category of tech companies.

So would you classify this listed entity as a tech company or that would be incorrect?

Udai Singh

So that will be correct, but I cannot comment upon the 42nd position, which you mentioned.

Schneider Electric Infrastructure Limited August 06, 2024 General

Raj Rishi

No, that's the global level.

So the products which the listed entity has, would you say it's not incorrect to classify this listed entity also as a tech company or somewhat a tech company?

Udai Singh

It depends on who are the set of people who are defining the tech company.

If I was the one who define a tech company I would have perhaps said, yes, it is a tech company.

Raj Rishi

Okay.

Thanks a lot.

Moderator · Conference Operator

Thank you.

The next question is from the line of Shanatnu Pawar an individual investor.

Please go ahead.

Shanatnu Pawar

Am I audible?

Udai Singh

Yes.

Shanatnu Pawar

My first question is towards the guidance on revenue growth for the data center business, particularly both year-on-year and quarter-on-quarter.

And also, I was wondering if you could please give guidance on the order book as well for our data center?

Udai Singh

We do not have a very specific number, so to say, Shanatnu, but what I'm saying is that what we were at this point in time last year, we are better off in this -- I would -- when I look back last 2 quarters, when I see and compared to likewise periods in last year, we are better off in data center because more and more data centers also coming and our numbers are also more in terms of absolute value.

But if you ask me about the absolute numbers that we would not be in a position to share with you as of now.

Shanatnu Pawar

Right.

Thank you sir.

My next question is about the synergies.

Moderator · Conference Operator

I'm sorry to interrupt sir.

Could you please fall back for question queue for further questions.

Shanatnu Pawar

Sure.

Moderator · Conference Operator

Thank you.

The next question is from the line of Shyam Maheshwari from Aditya Birla Mutual Funds.

Please go ahead.

Shyam Maheshwari

Congratulations on a good set of numbers.

I had a question on the export business.

I wanted to understand if these sales are to other, you spoke about exclusive to 3 countries, are these sales to other group entities of Schneider?

And or are there any other geographies that you guys can particularly cater to?

So how is the export strategy here?

Is it largely to the group companies or you can independently win all those in other countries as well?

Suparna Bhattacharyya

So while the business across the world is kind of mandated between the different entities.

We do export orders directly to customers in few cases.

And also, we are quite active in the group company sales overseas.

So it's a mix of both.

Shyam Maheshwari

Understood.

So exports are typically about 10% to 15% of our overall sales with you guys maybe trying to win more orders on your own, do you see this increasing as a percentage of sales?

Is it like a direct strategy?

Schneider Electric Infrastructure Limited August 06, 2024 General

Suparna Bhattacharyya

Yes.

We do explore such orders.

And as I said, while the different geographies have different mandates to in the kind of sales or the revenue or the reporting structure, we do explore these opportunities and if they come, we happily execute that.

Shyam Maheshwari

Understood.

Thank you.

All the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Viraj from Jupiter Financial.

Please go ahead.

Viraj

Am I audible?

Suparna Bhattacharyya

Yes.

Viraj

Okay.

Congratulations on outstanding number to the team.

My question is, when I look at the year-to-year trend, we're broadly growing in double-digit sales and our net margins are inching up.

So now with all this momentum continuing, is it fair to assume we are on that journey path?

I know you don't give guidance, but you can just give direction?

Suparna Bhattacharyya

Viraj ji, every company here today, working in the Indian environment is looking for higher revenues, better growth, better opportunities, profitable growth.

And I will say we are no different.

Viraj

No. I know that, ma'am what's your sense you're looking at the business and the opportunities around?

That's what my question is?

Suparna Bhattacharyya

We do see a lot -- a lot of opportunities coming up with trust and infrastructure, et cetera.

And definitely, we'll pick up the opportunities from the market.

We are building ourselves to gather higher amounts of revenue, be agile and take -- I mean, whatever the market trends are, grab the opportunities and grow the organization.

So that's what I can surely say as a general comment from our side.

Viraj

Broadly order inquiry and other things are robust, right?

Is it fair to assume, right?

Suparna Bhattacharyya

Yes.

We are seeing good traction.

Viraj

Okay.

Thank you ma’am and all the best.

Moderator · Conference Operator

Thank you.

The next question is from the line of Naysar Parikh from Native Capital.

Please go ahead.

Naysar Parikh

Am I audible?

Suparna Bhattacharyya

Yes.

Naysar Parikh

So my question is, can you give a broad split of your sales or orders by different industries?

And what's the outlook between P&D, industrials, data center, whatever mobility, whatever industry is in fact, if you can give us a split and outlook that will be very helpful.

Schneider Electric Infrastructure Limited August 06, 2024 General

Udai Singh

See, I answered this question before. is -- see, our focus has been primarily to work on those industries and the customers -- our customers typically reside on those people who are what we call as electro-intensive.

Therefore, the people who come in there is data centers, is metals, minerals, mines, mobility and of course, power and grid.

Now the composition of this keeps changing.

It keeps changing that typically if you really ask me, 30%, 40% is power and gas, then we have about 10% mobility, maybe about 10%, 12% MMM, maybe about industries and oil and gas put together maybe about 25%.

The data center is basically about 7% to 12%.

So it changes.

It's very difficult to actually navigate and this composition will keep on evolving and changing as we move on.

So it will be very difficult to actually conclude a number, but what perhaps we see as it stands today the power and grid is highest.

The other set of mobility is typically 10%, MMM is about another 10%.

So this composition may change as we move on.

Naysar Parikh

Got it.

And from your order inflow point of view for you the strongest top one, top two sectors right now are?

Udai Singh

As I said, power and grid and maybe industries and building space.

People who actually consume power are the people who buy equipment from this company.

So it's like this.

Naysar Parikh

Okay.

Got it.

Thank you so much.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, that was the last question for today's conference call.

I would now like to hand the conference over to Mr. Harshit Kapadia for the closing comments.

Harshit Kapadia

Thank you, Steve.

We also would like to thank the management of Schneider Electric Infrastructures Limited and opportunity to hold this call.

We also would like to thank all investors and analysts for joining this call.

Any closing remarks, Udai sir, you want to share with investors?

Udai Singh

No, I would like to thank everyone for joining this call and asking us questions which actually help us to navigate our path as we move on.

So I wanted to re-ensure that what we are trying to do is trying to see that we are not lagging in the technology which we can bring.

We are trying to see as to how do we elevate the customer experience which they might have when they use us.

And of course trying to internally organize ourselves so that we can make things and deliver things more profitably while chasing the top line.

So thank you, again and have a great day.

Moderator · Conference Operator

On behalf of Elara Securities Private Limited, that concludes the conference call.

Thank you for joining us and you may now disconnect your lines.

Thank you.