Notes from the Q2 FY17 Con-Call
The numbers for this quarter can be found here, so I will not go through them again. A lot of points were repeated from the previous call.
1) The tone of the call was extremely similar to the one that took place at the beginning of last month. The quarter was focused on bringing down the mismatch in the production of the turbine components. Going ahead, they will be providing synchronised components to all their customers. You can expect a lot of commissioning to take place in H2, with the wind market expected to be at 4-4.5GW this year. Devansh re-iterated the company's aim of being net-debt free by the end of the year.
2) They maintain their annual guidance of supplying turbines worth 1GW.
3) Receivables are going down as new PPAs are being signed in Gujarat. Collections have more than doubled in Q2 over Q1, with H2 expected to be even stronger in terms of collections.
Age of receivables :- Out of the 2,400cr receivables, 2,000cr is under 6 months.
4) IPO proceeds :- Part of it is still not utilised. A portion of this was raised to build a new plant for the production of nacelles, but debottlenecking at the existing facility at incremental capex should allow the capacity expansion to 1,400-1,500 MW. The other portion was meant to be used for certain project sites in Maharashtra and Gujarat, which haven't been used yet due to policy issues in these states. This seems to be a prudent step taken by the management (and a temporary source of other income).
5) Wind auctions :- Expect the first tranche of the 1GW wind auctions to start by end of December.
6) Hybrid power :- The company plans to leverage its already set up wind infrastructure to add solar panels there and take advantage of the hybrid power policy. Since there is hardly a 2-3% margin in solar EPC work(management estimates), the value add will be in the cost saving of the infrastructure already in place, which should add 2-3% more to the margins.
We will need more clarifications on this, specially on its effects on the working capital. While Suzlon has officially entered into the solar space, this approach seems like a more sensible way to take advantage of the hype in solar energy, while not losing focus on its core competence.
7) The company has started outsourcing the production of towers for supplying it in Andhra Pradesh. This will be a recurring theme for the company, as this component is difficult to transport over large distances and can be easily made by third party vendors. This is one reason for the increase in other expenses.
8) The land banks on the books are generally waste lands or other cheaply available land, purchased on an average of 1-2 lakh/MW. Private land is purchased only if the sales for that site are happening in the same year.
9) For a ballpark figure, you can assume that it takes 20 days for the turbine components to reach the sites in the southern states of India.
10) My takeaways :- The management refused to give a revenue guidance for the year, which makes me think that the execution of the stranded towers in Gujarat will significantly add to the execution numbers, while obviously contributing <6cr per MW. I certainly expect this year to be a consolidation period wherein they get their working capital in order to improve sales going ahead. We can perhaps expect better sales in H2, but the year as a whole will see a de-growth for the company, with the profits looking a lot lower due to the increase in fixed costs, while the volumes have not gone up. I am still bullish on this company being one of the best bets in the renewable energy space in the longer run, but changing policies can always be a spoiler.