TARIL — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

Ladies and gentlemen, good day and welcome to the Transformers & Rectifiers (India) Limited

Questions and answers

· Research Analyst

“Transformers & Rectifiers (India) Limited Earnings Conference Call” November 03, 2023

Chanchal Rajora

Thank you, Satyen sir and good evening, everyone.

A warm welcome to our earnings call.

I shall summarize the standalone financial highlights for the quarter and half year ending 30 September 2023: During the quarter and half year, the revenue from operations was at Rs 254 crore and Rs 408, a de-growth by 22% and 34% respectively.

The decline in revenue was on account of: Transformers & Rectifiers (India) Limited November 03,2023 ► Non-receipt of dispatch instruction from few customers because of non-availability of their inspection team ► The company experienced short-term mismatch in working capital that caused delay in execution of certain jobs.

Post infusion of funds, we are certain to streamline the operations during Q3FY24 However, in Q2FY24 there is an increase in revenue from operations by 66% as compared to Q1 of the current year.

During the quarter and half year, the EBITDA was at Rs 21 crore and Rs 27 crore, a de-growth by 35% and 51% respectively.

EBIDTA margin is at 8.21% in Q2FY24 and 6.52% in H1FY24.

In Q2FY24 there is an increase in EBIDTA in absolute terms by 263% as compared to Q1 of the current year with an EBIDTA margin of 8.21% as compared to 3.73% in Q1FY24.

During H1FY24, export turnover was Rs 22 crore, comprising 5% of the revenue from operations.

The company has a customer base spanning over more than 25+ countries.

Unexecuted order book as on 30 September 2023 is Rs.2,145 crore, a growth of 57% over H1FY23.

That concludes an update on the financial highlights of the company.

I shall now request the moderator to open the floor for questions and answers session.

Moderator · Conference Operator

Thank you very much.

We will now begin the question-and-answer session.

The first question is from the line of Nilesh Doshi from Green Lantern Capital LLP.

Please go ahead.

Nilesh Doshi

First question is that the order book what you have of Rs.

2000 crores, what is the delivery schedule for this order book like until what period you expect this to be delivered?

Satyen Mamtora

This is in the span of 18 - 20 months.

Nilesh Doshi

The second question is since the first half; we have gone through because of working capital issue.

So, by now how much is the amount which we still yet have to receive from GETCO?

Chanchal Rajora

GETCO started making the payments in the last week of October only.

So, we have a sizable amount pending with them, which we expect to receive in the second half of this year.

Nilesh Doshi

The next is that typically we have been doing about Rs 1,100 crores to Rs 1,300 crores revenue last two years, bearing this first half, is it possible to reach that kind of level in this financial year?

Satyen Mamtora

We are hoping that we should be touching Rs 1,400 crores this year.

Transformers & Rectifiers (India) Limited November 03,2023

Nilesh Doshi

And if you observe your competitors, I think what we have observed is this Q2 result most of them are EBITDA upward of 15% in the transformer division segment.

So, do we see us reaching that kind of margin going forward?

Chanchal Rajora

Yes, Nilesh we are quite hopeful to reach that margin.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Riken Ramesh Gopani from Capri Global.

Please go ahead.

Riken Ramesh Gopani

Sir, I just wanted to understand if you look at the gross margin performance in this quarter compared to either the first quarter of this year or the second quarter of last year it's deteriorated.

So, while I understand that operating margins are impacted by the leverage given the lower top line, but what has impacted the gross margins during the current quarter versus compared to the last same period last year and Q1?

Chanchal Rajora

Riken basically there were certain expenditures which is incurred in this quarter due to the retesting of the certain transformers and that has basically affected our margins in this quarter.

So, there are almost 10 transformers of GETCO we had to bring in to test them.

This has basically put pressure on EBITDA margin during the quarter to some extent.

Riken Ramesh Gopani

But is this what you mentioned the retesting cost, is it sitting in the cost of goods sold line item or is it in the other expenditure?

Chanchal Rajora

It will be sitting into the cost of goods sold item because they are directly related to the transformers which has been supplied to the GETCO.

Riken Ramesh Gopani

It's sort of fair to say that it's a one-off cost related to these retesting.

Chanchal Rajora

Yes, sir.

Riken Ramesh Gopani

Could you give some quantification of this retesting cost?

Chanchal Rajora

I don't have remember the numbers, but yes, if that would have been not there, we would have been crossing our last quarter EBITDA.

Riken Ramesh Gopani

Your EBITDA is better than last quarter, you're saying same quarter last year?

Chanchal Rajora

Corresponding quarter I'm talking about.

Riken Ramesh Gopani

So, that's a significant quantum is what you're saying?

Chanchal Rajora

Yes, sir.

Transformers & Rectifiers (India) Limited November 03,2023

Riken Ramesh Gopani

And sir secondly if you could talk a little bit about the overall opportunity on exports and what is the kind of bids that we have made and what kind of orders do you expect during the current year and what margins do you think you can achieve in the export orders?

Chanchal Rajora

In export market there are three different kind of exports opportunities.

One is the opportunity which is coming on the IDT transformer side that is mainly coming from U.S and Europe and this is a huge opportunity which is basically in the pipeline.

Another export opportunity what we have our regular export base what we do in African markets and the Middle East markets and the third is the export opportunity which is coming from the countries like Russia and Ukraine.

As of now you see in our presentation also, we have around Rs.

900 crores orders which are under the negotiation, and we expect the sizable amount of these orders are going to be come in the near term.

And apart from that today only we have received an inquiry from another African country for Rs.800 crores odd order.

So, that also we expect is a 24-month scenario, but we expect those kinds of orders to keep coming into the system.

Our target is to have around 20% - 25% of the order book from the export market in coming next two years’ time.

As far as the margins is concerned, the export market margins are much, much higher than the indigenous market pricing vis-a-vis the payment conditions from the exports are better.

Riken Ramesh Gopani

And just lastly in terms of what you see as the execution capability in the current capacity without achieving any CAPEX, could you share that what is the size of top line that we can achieve with our current capacity without any major CAPEX?

Chanchal Rajora

Without any CAPEX, we can reach up to Rs.2,500 crores top line.

Riken Ramesh Gopani

And what's our CAPEX plan if you could outline that also?

Chanchal Rajora

We have a CAPEX plan of Rs.

50 crores - Rs.

60 crores in the next financial year and mainly for the IDT and Green transformer side.

Riken Ramesh Gopani

So, sir let's say if you must take this top line to Rs 5,000 crores from here, what kind of CAPEX do you think you would have to put up?

Chanchal Rajora

We haven't evaluated that much as of now.

We are going step by step.

First, we wanted to reach to the first milestone.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Mihir from Carnelian Capital.

Please go ahead.

Mihir

Sir, largely wanted to understand on the GETCO side and we have started to get payments from the end of October.

So, I mean, will we start getting the orders also from GETCO.

I mean that was my first question and when should one see that happening?

Transformers & Rectifiers (India) Limited November 03,2023

Satyen Mamtora

So, GETCO we are currently working on getting the stop deal revoked, it shall take some time.

So, maybe another month or so and we are hopeful that there will be some clarity on this stop deal.

Mihir

Second question was on the Rs 2,100 crores of pipeline which is there, so does this include the international number of Rs 900 crores?

Chanchal Rajora

Rs 900 crores is the orders which are under negotiation.

It is not in our order book.

Mihir

But you are also in tender pipeline of Rs 2,100 crores. right?

Satyen Mamtora

Rs.

2,741 crores is domestic market, and Rs.

994 crores is export market.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Gunjan Kabra from Niveshaay.

Please go ahead.

Gunjan Kabra

I wanted to ask that sales guidance provided in the last quarter was also to grow with respect to Q3 FY23, but why is it that non receipt of dispatch instructions from few customers that you guided to a degrowth in revenue with respect to Q2?

So, is this few customers, is this GETCO only or any other customers, how many customers are there here and what is the value that does not get dispatched this quarter which you expected to get delivered in the next quarter?

Also, this is also the time sir when the transformer sector is doing so well.

So, wanted to understand why is it so they are not getting dispatched or if you can explain it.

Chanchal Roajora

First of all, there is no GETCO delivery instructions in these orders.

Secondly, let me explain to you that there is good demand in transformer industry, but what happened there is a process of dispatching the transformers and before dispatching the transformers there is always a customer inspection, once the inspection is done, then only that transformer is clear for dispatche.

During Q2FY24, a few transformers were made, but since the inspection team was not available and the site was not clear and that is the reason, the transformer has not been lifted by the clients and those are basically will be lifted in this quarter i.e. Q3FY24.

Gunjan Kabra

So, I was saying sir that last quarter also this was one of the reasons for the sales getting declined.

So, is it and if you can quantify what's the quantum of this order which has not got dispatched within this quarter?

Chanchal Rajora

Around Rs.

40 crores- Rs.

50 crores.

Gunjan Kabra

Sir, I wanted to know that last quarter also there was a problem of dispatch from few customers.

So, is this the same customer or if you can quantify the same thing?

Transformers & Rectifiers (India) Limited November 03,2023

Chanchal Rajora

No, ma'am.

These are the different customers.

This is basically a normal phenomenon in the industry, and it just keeps happening ma'am.

Gunjan Kabra

My second question is on margins.

You guided it to be in the double digit number this year, but this quarter also because of the retesting cost the margin were proportionately down.

So, how do you see this moving forward in the next quarter if you can highlight maybe and the guidance that you gave of Rs 1,400 crores this year, which eventually means that Rs 1,000 crores in the next two quarters.

So, when we do Rs 1,000 crores does the EBITDA margins also improve with respect to that and do you think we'll be able to do these Rs 1,000 crores in the next two quarters

Chanchal Rajora

Ma’am as MD sir has just said in the last question, we are quite hopeful to achieve that and if we achieve that, the EBITDA margin will be improved.

I don't want to comment on what percentage we will be achieving it, but EBITDA will be certainly improved.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Riken Ramesh Gopani from Capril Global.

Please go ahead.

Riken Ramesh Gopani

Sir, I just had one follow up which is just trying to get some color on the current order book if we compare to what you have been achieving in terms of gross margin in the recent past, how are the incremental orders in terms of margins and if you could give some color in terms of how the pricing environment and given the current demand environment are we seeing any improvement in the overall margin structure from the current order book, vis-a-vis the order book that you had maybe one or two years back?

Chanchal Rajora

Riken, the present order book what we have is basically based on the RM factors which is much, much better than what we had in the past and that that will add up into our margins as compared to the previous years.

And if you see my presentation the combination of the clients or buyers what we have my dependability is reduced to the state utilities where we had less margins, and it has increased to the industrial customers and the central utilities where our margin factor is much better .

So, we hope that this will add up into the bottom line in the time to come.

Riken Ramesh Gopani

So, it's fair to say that the gross margins themselves have a potential to improve and over and above that you will see a positive operating leverage.

So, that should drive very meaningful improvement in your operating margins?

Chanchal Rajora

You got it right Riken.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Mahendra Jain from Way to Wealth.

Please go ahead.

Mahendra Jain

Sir, as you are saying like within a month or two, we will resolve the stop deal order from GETCO.

So, can we expect anything from GETCO side, any announcement like that or where we are standing in the case of that inspection and how many transformers are yet to be delivered Transformers & Rectifiers (India) Limited November 03,2023 to GETCO..

Secondly, related to this, has the stop deal affected our new business and post this issue, what orders have we received?

Satyen Mamtora

There is only one transformer to be delivered to GETCO that has not yet been dispatched and we are yet to manufacture that transformer also, and I think within a month and a half, they will issue a circular that the stop deal has been revoked or something like that, but they will not be making an announcement.

Once they give us the revocation letter, we shall make the announcement that GETCO has revoke the stop deal.

Apart from that, there is no other business hindrance we have faced post the stop deal notification..

Chanchal Rajora

Mahendra just to elaborate little bit, post the GETCO stop deal we have received substantial amount of orders from the central power utilities.

Mahendra Jain

Are they doing the re inspection to our transformers and how they will be satisfied in a month like what process we are doing?

Satyen Mamtora

All the inspections have already happened.

There is only 500 MVA, which is going to be re- inspected now otherwise re-inspections have already happened and they are satisfied with the performance of the transformers.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Siddharth Shah from MK Ventures.

Please go ahead.

Siddharth Shah

Sir, my question is on the order book order pipeline you mentioned that there are domestic orders of Rs 2,700 crores and exports of Rs 900 crores in pipeline.

So, anything you can guide on what kind of order inflow we'll see in second half because we are planning to execute Rs 1,000 crores in terms of revenues, or will the order inflow be higher than that?

How will it be?

Chanchal Rajora

If you see in last two quarters, we have received orders worth around Rs.700 crores which is added up into my unexecuted order book., We are around 20% to 25% of the domestic order size and export orders to be materialized.

Siddharth Shah

So, that makes it equates to around Rs 1,500 crores to Rs 1,600 crores of order inflow in next six months?

Chanchal Rajora

We are basically targeting around Rs.

2,500 crores order book by end of this financial year.

Siddharth Shah

My second question is on GETCO, so on how much is the balance amount to be received you will see that most of this amount will be cleared by in the second half.

How much is the receivable amount which is due now after what you received in the month of October?

Transformers & Rectifiers (India) Limited November 03,2023

Chanchal Rajora

Siddharth, as I informed earlier GETCO has just started releasing payments from the last week of October , let's say after 20th Oct they have started and they have just released around Rs.33 crores so far and balance is all in the pipeline and we expect that substantial amount of this will be released during H2FY24.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Anil Thakkar from Jalansh Advisors.

Please go ahead.

Anil Thakkar

I just wanted to know the fund-based facility available, and its current utilization fund based, and non-fund based?

Chanchal Rajora

Anil, we have fund-based limit of Rs.

163 crore and presently it's almost 100% utilized and we have non fund based limits of around Rs 650 crore which is majorly used for the bank guarantee purpose and the balance is used for the raw material procurement.

Anil Thakkar

So, after this preferential issue we would have received the funds and that it was used in the working capital and still fund based is also currently 100% utilized, is that correct?

Chanchal Rajora

Yes, sir.

Moderator · Conference Operator

Thank you.

Our next question is from the line of Bijay Shah from TL investment.

Please go ahead.

Bijay Shah

My question is since we have already raised money, we are also expecting GETCO payments.

So, how do you expect interest costs to trend in the second half of this year and what is likely interest cost for FY25?

Chanchal Rajora

Mr. Shah if you see that even in Quarter 2 our finance cost has gone down and coming in back to your question, we are basically expecting a substantial decrease into the finance cost in H2FY24.

Bijay Shah

But can you give some idea that what kind of cost, because it is very difficult for us to calculate because there will be lot of cost which are related to bank guarantees which will not be able to figure out?

Chanchal Rajora

Bank guarantee and LC is going to be remain there.

The substantial reduction what we are expecting is in the bill discounting side because of the working capital limits.

We had to use the bill discounting facilities to pay off to our suppliers, which was somewhere around 10.5%, to 11% and we are basically expecting that will go down drastically.

Bijay Shah

So, maybe next year the finance cost will be in between Rs 30 crores to Rs 40 crores?

Chanchal Rajora

Yes sir.

Transformers & Rectifiers (India) Limited November 03,2023

Moderator · Conference Operator

Thank you.

Our next question is from the line of Mihir from Carnelian Capital.

Please go ahead.

Mihir

Sir, I wanted to understand the working capital on the export side.

I mean how are the working capital terms on the exports business and second question was on the order book, out of the current order book how much is the exports, how much is domestic and how is the raw material cost across both of these divisions of exports and domestic in the order book?

Chanchal Rajora

As far as working capital cycle is concerned into the export order, it is much better than the domestic market because most of the export payments are either on the advance or LC side and we have better margins in the export orders as compared to the indigenous orders.

As far as share of exports in the present order book is concerned, you can see in our presentation it is around 6% of the total unexecuted order book.

Moderator · Conference Operator

Thank you.

Ladies and gentlemen, that was the last question of our question-and-answer session.

As there are no further questions, I would now like to hand the conference over to Mr. Satyen Mamtora for closing comments.

Satyen Mamtora

Thank you everyone for being part of our earnings call and participating in the call.

Thank you for your support in us.

We wish all of you Happy Diwali and Saal Mubarak.

We hope we have been able to address most of your queries.

In case of further queries, you may reach out to our investor relation advisor – Ernst & Young and they will connect with you offline.

Moderator · Conference Operator

Thank you.

On behalf of Transformers & Rectifiers (India) Limited, that concludes this conference.

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