SCHNEIDER — earnings call

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Prepared remarks

Moderator · Conference Operator

MR. HARSHIT KAPADIA – ELARA SECURITIES PRIVATE LIMITED Schneider Electric Infrastructure Limited February 11, 2025 Public

Ladies and gentlemen, good day, and welcome to Schneider Electric Infrastructure Limited Q3

We have a first question from the line of Sanjaya Satapathy from Ampersand Capital.

Sanjaya Satapathy

Congratulations on a great set of number.

So just two questions.

One is that you mentioned your order inflow was a little slow in quarter 3.

How your deal pipeline and future outlook in terms of order going forward?

Udai Singh

No, Sanjaya Ji, this was more of a time effect, I would say, because we are in a business where there are multiple project orders given by multiple stakeholders.

And we intentionally try to pull up some orders, so that we can make the year more robust.

If you ask me, generally speaking, the pipeline is good, is healthy, and we don't see any road block in the pipeline as we see today.

Sanjaya Satapathy

And my last question is that, your other expenses continues to rise fairly strongly like almost 30%, 40% rise, again, in this quarter.

And can we -- can you get a sense like how things will go moving forward?

And will there be the benefit of operating leverage will finally kind of kick in to the company?

Suparna Bhattacharyya

So other expenses, yes, rightfully said that, it is -- it has grown in the 35% to 40% bracket.

Some of the expenses are particularly related to sales with respect to the provisions, etcetera, the accounting entries that we make.

So out of this 38%, so almost 18% goes into such directly chargeable provisions and expenses that we incur.

And apart from that, yes, there has been rise in expenses, but this is mainly with respect to the expenses, which we have incurred internally to strengthen the organization in team building, capability building, having, I mean, expert people to work in the organization.

So that's how we are kind of building internal capabilities in the organization.

Which was somewhere -- till the time the company stabilized, we were not building such expenses, but now we are building your company for the future and increasing these expenses.

And very -- in the near future, you'll see that we'll be able to, I mean, optimize on these expenses with respect to our operations.

Sanjaya Satapathy

That's wonderful.

And if I can just ask the last thing.

There was some expansion which is going on in your Kolkata factory.

What really is the status there?

Schneider Electric Infrastructure Limited February 11, 2025 Public

Udai Singh

So it is on track.

We are trying to make interruptors there and going to be one of the kitchen factory of Schneider Group.

So this is on track.

The way it was planned, it is happening, and it is expected to go live very soon as per the plan.

Moderator · Conference Operator

The next question is from line of Rucheeta from iWealth.

Rucheeta

So major of my question was on the order book, which was already answered.

Second was, sir, on the nuclear part of it.

In the nuclear part, what can be our opportunity size out of this plan of 100 gigawatts?

And where are products -- what products can we supply here?

Udai Singh

So Rucheeta, it's an important question, and a very nice one.

Government has actually, if you must have seen the budget, they are talking about developing indigenous expertise in developing smaller reactors.

So you have -- typically, if you see we have the nuclear power plants, which are capacities of 700 or 800-megawatt energy.

Now we are thinking about making something which is being called as small modular reactors or SMRs, which go up to 300 megawatts, and then micro reactors, which are of a smaller scale, will be typically around 10 megawatts.

This 100 gigawatts is the capacity which is slated to be in year 2047.

Now what is important is the dependency on our own Indian manufacturers who make this.

What it also brings in is the ease at which it can be put, the pace at which it can be put.

And the third, if you would have noticed, government is also trying to think about how to tweak the liability part.

Because that was a major deterrent for enabling private participation in development of nuclear plants in the past.

Now, if you -- the second question which you had asked as to what we can supply there?

The entire -- because finally it's a power plant, whether it's a coal-fired or a gas-based or a nuclear, is one and the same.

What we can do is supply the same set of equipment, same set of softwares, although that would mean that this happens to be slightly more critical and the criticality typically depends on how closer are you as to the reactor core.

So I mean, I would -- I'm afraid that I'll go more technical.

But what it means is, as closer you go to the core, your equipment becomes more -- it has to be more stringent, it has to be more critical and it has to be more robust.

So -- and -- but the long and short, Rucheeta, is that it offers a potential and upside for the company to get engaged with those people who actually will start developing nuclear power plants for India for its own self-reliance.

Rucheeta

Okay.

And sir, earlier, I was just going through a few used cases.

Isn't the small modular reactors more expensive than an alternative power source?

Udai Singh

See, nuclear is by virtue of being nuclear is a shear more expensive.

So it depends on actually how much do you produce, how efficiently do you produce, where do you produce, and at what pace do you put up a power plant.

Because in the past, and that's what I mentioned to you.

In the past, normally, we have seen because of so many regulatory approvals and the nature and the size of the plant itself, it typically used to have an overstretch in terms of the time lines in which the power plants were getting made.

Schneider Electric Infrastructure Limited February 11, 2025 Public For example, today, we are sitting at a capacity of about 8.1 gigawatts.

So just look at the road, the strong growth, which is ahead of us.

It's 10x by year '27.

And also, we're talking about building up 10x in 25 years.

And when the scale picks up and when the technology would be ours, I think, we'll be in a position to make more efficient reactors, I'm sure about that.

Rucheeta

Okay.

So we'll have an opportunity in the small modular as well as the larger nuclear power plants.

Is my understanding right?

Udai Singh

You are right, Rucheeta.

Moderator · Conference Operator

We have our next question from the line of Aditya Deorah from Divisha Alternative Investments.

Aditya Deorah

Sir, our order backlog growth is just 7% for this quarter, on a year-on-year basis.

So are we expecting some slowdown in growth that we are looking maybe for this quarter or for the next few quarters?

Suparna Bhattacharyya

So Aditya, thank you for keeping an eye on the backlog.

Yes, this quarter was a little slow based on the industry situation in terms of orders.

But based on the pipeline that we have, we are hoping that the next order will pick up -- the next quarter, the orders will pick up.

And we shall have a good backlog by the year-end, by the quarter 4 end.

And also, it is worthwhile to note that we pulled in a lot of sales from the orders that we had until Q2. So with the heavy sales, the backlog has certainly reduced, but then the focus to increase our orders in the next quarter will be surely visible to all of you.

Aditya Deorah

Now ma'am, on a trailing 12-month basis, now are generating around INR373 crores -- INR360 crores, INR370 crores kind of an EBITDA?

And in all probability, this number would be higher next year and the years ahead.

Now how do you wish to allocate this capital or this cash flows that you generate over the next few years?

Would your priority be CapEx?

Would it be working capital?

Would it be debt repayment to sister entities?

What would be the priority of the management going ahead?

Suparna Bhattacharyya

Okay.

So until now, I mean, the focus was being -- was always to stabilize the organization.

As you know, prior -- 3 years prior to the current period, we were into losses and the company was stabilizing.

Now with the last 3 years, we have stabilized and funds which we are generating, we are doing better, much better in terms of cash, and it is definitely funding our working capital.

But as you've just seen that we have announced an investment, and we are looking for major expansion and investments in the years to come, and we will use our cash to fund both the working capital as well as the growth strategies.

Aditya Deorah

Perfect.

Sir, just one last clarification.

Did you mention any date of commencement for the Kolkata plant?

Suparna Bhattacharyya

Very soon, in the next few months.

Moderator · Conference Operator

We have our next question from the line of Vinod from PhillipCapital.

Schneider Electric Infrastructure Limited February 11, 2025 Public

Vinod

In your opening commentary, you mentioned that this quarter had a better sales mix, better productivity.

I think, there was also stress on services and better leverage.

So are we seeing the best in terms of our performance?

Or you mean, are we peaking up on margins at this stage?

Suparna Bhattacharyya

See, whenever we are doing business, we always look for seeing better in terms of sales growth, margin growth, optimization of the fixed expenses.

So that way, I mean, this question, I would probably say that we are definitely working for a better future with respect to performance.

Specifically, to talk about saying, every business is always looking for growth.

Vinod

No, I understand that, but I think you checked all the right boxes in this quarter.

So everything right has fallen in place.

So from that perspective, I was just asking.

Suparna Bhattacharyya

No, we are looking for better times ahead for sure.

Vinod

Sure, sure.

And the second thing I just wanted to understand, this probably you've been asked this many times, what is our offering and how is it different from the acquisition you did for L&T's business or the group did from the -- for L&T's business 5 years back?

Is there anything complementing the offering?

Or is there some overlap in the products?

Udai Singh

The application-wise, Mr. Vinod, they are practically the same, because -- and so are the rest.

It's only -- I would say that, it is not an overlapping market.

It is -- there is certain segments where we have been greatly working, and there is a segment where the other team has been working and it is complementary.

There are certain pluses, certain minuses in both the platforms, which customers appreciate and push through its right use and the way they want it to be done.

So if I may have answered your query, it goes like that.

Vinod

Sir, do you also jointly bid for projects and then each of you appropriate your portion of the product or business, is that how it happens?

Udai Singh

No.

Moderator · Conference Operator

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

Viraj Mithani

My congratulations to the Schneider team for outstanding performance and getting company on the solid profit part.

Am I audible?

Suparna Bhattacharyya

Yes, sir.

Udai Singh

Yes, you are audible.

Viraj Mithani

Okay.

Okay.

My first question is regarding how are we -- are we affected by this rupee-dollar movement?

Or it's -- that can be negative?

So are we importing any of the imports in the raw material side or anywhere else?

Is it impacting us?

Suparna Bhattacharyya

So we have a robust hedging policy as per the guidelines within the organization and not really impacted by -- not impacted much over the foreseeable future, because we do have a very robust treasury team, which is -- which helps us cover such currency fluctuations.

Schneider Electric Infrastructure Limited February 11, 2025 Public

Viraj Mithani

Okay.

And my second question is just with this 2030 coming nearby, which is a Paris accord, where every country has signed this green climate agreement.

Do we see the next 2, 3 years, the traction happening?

Are you seeing any signs of improvement in the market since -- in the renewable side or maybe on the greener side?

Udai Singh

Yes, certainly, yes.

Because now if you actually look -- go back and try to see as to how the situation was in India about 4 years ago, I think, there's a lot of sensitivity which has come in buyers, users, consumers about how to become more greener, more efficient in their own areas of operation.

And we -- and this is a very positive move, I would say.

Because now is the sensitivity around the same has increased, which is sort of helping companies like us to partner them in terms of whatever solutions we have, so that we can actually make their -- the operations more efficient in times to come.

Viraj Mithani

Okay.

My next question is this, there was an article about the grid automation in the world.

The grids are getting older and they are working on the probably thermal or carbon-consuming technologies.

And now the automation has also come in.

So how are we benefited in grid since we are a medium voltage.

So are there any benefit in that where we fit in?

Udai Singh

Yes, we are getting benefited, because I think, if I like to clarify your question, there are two things which you said.

One is, we believe that electricity is the most promising green vector in energy space.

So one, we are -- and this is one of the mantras which the company has, as to how do we electrify processes more and more.

Which means that, the processes which are being run in the plants which we have put in India a few decades ago and they are on the fossil fuel, how do we electrify.

That's number one.

Number two is, of course, which you touched upon rightly.

India actually happens to be possessing one of the most robust grids around the globe.

And where it actually needs some more, I would say, upliftment is, how -- when -- we have more and more renewables coming in.

As we speak, we have about, as I was mentioning about 100 gigawatts of renewable already in sight.

We are talking about the green energy corridors where about 40-odd gigawatts is actually being leveraged and channel through that green corridor.

So we are talking about the grid, which actually has these qualifiers, which are required.

Number one, it has to be strong, resilient, transparent and it has to be a rebounding one where you can make an effective load distribution.

And that is where we play a role, because we not only can modernize equipment, which are, as you mentioned, medium voltage.

We can -- we also have a software stack, which actually can be superimposed on the grids to make it more reliable, to make it more predictable, to make it more resilient.

And that is something which India is just, again, I would say, all DISCOMs, the nodal agencies are talking about it.

They have all felt it.

It is coming in pieces, but that's the future which lies in the grids in India.

So your question was absolutely apt.

And we are one of the, I would say, apt companies who actually can address this growing demand of Indian DISCOMs and Indian grids.

Schneider Electric Infrastructure Limited February 11, 2025 Public

Moderator · Conference Operator

We have our next question from the line of Manish Goyal from Thinqwise Wealth Managers.

Manish Goyal

Very hearty congratulations on very strong numbers and historical high margins.

Just a question on the Digital Solutions offering.

What we have that in recent past, we have been seeing a lot of wins over there.

So just want to get your perspective on industry scenario, like is it very competitive to kind of pitch for such solutions and the competition intensity is equally high over there?

And what is the kind of adoption we are seeing from the customers in terms of acceptability of digital products and maybe the EcoStruxure architecture, what you offer?

And then related question is, in terms of like if you can give us some perspective as to how is the revenue share increasing from such offerings like -- and is it really helping us in improving our margins -- gross margins and the EBITDA margin?

And where does it reflect in?

Does it reflect in transactional products or it reflects even in the services business?

Udai Singh

Yes.

So I'll go and try to answer one by one.

First is, India is an evolving and complex landscape and we speak about market.

So if I cannot make a general statement about the -- being competitive, but what happens is, what I can say for sure is that there is a growing demand for these digitalized offerings, because people have realized the consumers, the users, the sites, the projects, they have realized the merit of adopting it.

That is answer to your first question.

Now the second question is, whether where do we apply this?

Now this is -- this gets applied primarily not greatly in transaction, because transaction happens to be the one which is for more masses, not a very specific one.

It is towards items which are more engineered, more customized, the acceptance and penetration of digital solutions is far higher there.

And the third question, yours was, I think, how do we see this happening, which I answered partly in my first reply, which I made to in the first part.

So in times to come, I think, this would be the future.

Because we are -- we have a dearth of -- India is a very typical country, so to say, because we are -- the way at which we are expanding, there will be a growing dearth of skilled people who would actually maintain, and their dependency on AIs and machine learning-based, large quantum computing, etcetera, will go up.

It is a more efficient way of doing things also.

So all this digitalization actually is finally aiming towards that.

Because just to give you a perspective, whatever we do, it actually is taken to the cloud.

And then, if you are a consumer, you you've been given advisory support, which actually typically means that how your asset has been behaving and what health life has it attained?

So -- and this is nothing but, lakhs and lakhs of mean data getting compared with the actual performance of the equipment which we have at your site.

So this is MLL adoption, I would say, and -- which is gaining acceptance and popularity in Indian consumers and users.

Manish Goyal

So here, the revenue would be over a life cycle in terms of -- probably earlier, we did mention somewhere that some of the revenue potential is on subscription based on a recurring basis.

So is it already started reflecting?

Udai Singh

Yes, it has.

It has.

Schneider Electric Infrastructure Limited February 11, 2025 Public

Manish Goyal

Right.

And Ma'am, my question is, again, if you can please give us data points in terms of order inflow for the intergroup, what is the revenue share for the intergroup?

And the breakup of inflows between various segments, revenue breakup that will be very helpful?

Suparna Bhattacharyya

[Inaudible 53:45].

Moderator · Conference Operator

We have a follow-up question from the line of Vinod from PhillipCapital.

Vinod

Sir, you're expanding your transformer capacity from 5,500 MVA to 7,000 MVA at a cost of just INR14 crores.

If you look at some of the competitors who are increasing capacity, the per MVA cost is very different.

So how do we look at the capital cost for a transformer on a per- MVA basis?

Is there any basis to look at this capital cost?

Udai Singh

Sir, I don't know the benchmark which you are comparing with.

I can speak about your company's establishment, which exists today and where we want to take it.

So -- because at multiple places, it may not be right to compare and try to arrive at a project cost per MVA and the investment required for this, because it may be a greenfield versus a brownfield expansion and certain facilities not being there or being there makes it happen.

Because what we are trying to do here is, trying to see as to how do we scale up our existing infrastructure by infusing some facilities and expanding there.

So I think, perhaps what we are trying to do is trying to read some announcements, which have been made regarding people getting into a transformer business and investing.

Vinod

Correct.

Sir, is there any way to look at this capacity?

I just want just to understand the business more.

Udai Singh

Yes.

So as I said, it is actually ramping up by about 1,500 MVA.

And that will require the existing setup to get more invested in large.

Vinod

Okay.

And sir, since everyone in the industry is ramping up capacity, is also -- is the supply chain also ramping up its capacity?

Or you see some kind of a constraint on the supply side till the supply chain catches up with the capacity that you guys have given?

Udai Singh

The suppliers also are for -- like us and like everyone, entire ecosystem is getting for the new demand which India offers now.

So a few things here and there.

Typically, everybody, I would say, a general statement that suppliers and other partners are also trying to see as to how do they catch up with the growing need.

So net-net, everyone is supposed to be gearing up for it.

Vinod

Okay.

But what about electrical, steel and other critical components?

I think, the people are talking about a shortage on CRGO and -- CRGO steel, particularly?

Udai Singh

There is a -- see, there is -- I think, you have picked up one thing, which is maybe perhaps, I would say, which exists today.

And where if you have a proper planning done and you have a regular identified supplier, which actually is allowed by regulation, then it is all right.

But yes, we are now, as you may be knowing that there are people who are trying to make steel by Schneider Electric Infrastructure Limited February 11, 2025 Public themselves in India, and we will be slowly also looking towards them, as they start making the steel, the quality of the steel which we want.

So CRGO, at times in the past, in few quarters, past quarters have been challenged to few of us, and we are going to eliminate it along with government.

I think, there are multiple government agencies, which -- including MHI, who actually is trying to see as to how do we eliminate and come out of this situation, which we -- few of us were in last and last -- quarter before last.

Moderator · Conference Operator

We'll take that as the last question for today.

And I now hand the conference over to the management for closing comments.

Over to you, sir.

Udai sir, any closing comments from your side?

Udai Singh

No, I would like to thank everybody for joining this call and being a great support all this quarter.

And let me assure on behalf of management, that all teams are focused towards delivering, as I mentioned, the vision and the mission which I shared at the beginning of the presentation.

We are working and trying to make Schneider Electric Infrastructure do things which are the first in the nature, which is more focused towards customer needs and requirements, and we abide by all ethics in why we do business.

So all the best, and thank you so much.

Moderator · Conference Operator

Thank you so much, sir.

On behalf of Elara Securities India Private Limited, that concludes this conference.

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