Key takeaways of the conference call
Order inflow for the quarter is 15200 crore up 5% YOY with the share of power sector orders stand at Rs 13670 crore. The order intake for the 9-month ended Dec 2008 is Rs 44088 crore (equivalent to 13670 MW in volume terms) with the share of power sector being Rs 35511 crore and that of exports being R 3169 crore the balance is industrial.
Order book backlog as end of Dec 2008 was Rs 113500 crore and of which power sector orders having lion’s share of 84%. About 9% is accounted by industry and the balance is exports.
Expect to close the current fiscal with an order intake of Rs 60000 crore and an order backlog of Rs 130000 crore. On Jan 29, 2009 itself the company has bagged orders worth Rs 7000 crore including the Rs 3200 crore order from NLC-TNEB JV and 2 orders from NTPC.
Expects to close the current fiscal with a turnover of Rs 27000-28000 crore. The overall growth rate could be anywhere between 25-30%.
The raw material cost as a % to net sales (net of stock adjustments) was somewhere in the region of 61.5%. This is largely due to high carrying cost of inventories of supplies such as forgings, steel etc. The company feels that the reduction in raw material cost will have a partial effect in Q4 as there are still some more inventories lying with the company and the full impact will be seen only from FY’10 onwards. The company expects the raw material cost as a % to net sales (net of stock adjustments) will come down to 60% in Q4 and further down to around 58.5-59% in FY’10. After all the provisions for wage cost, the company expects a steady increase of around 8% wage increase every year from a base of around Rs 4300-4500 crore of FY’09.
The company has re-assessed the liability on account of pending wage revision @ 40% hike is Rs 1907 crore for a period between Jan 1, 2007 to Mar 31, 2009. Of the total provision the company has provided Rs 549 crore upto Mar 2008 and thus the provision for FY09 was assessed at Rs 1313 crore. The company has provided Rs 839 crore for the nine month period ended Dec 2008. Thus the provision to be made in fourth quarter will be Rs 474 crore. Of the Rs 839 crore of provision made upto Dec 2008, the provision made in first quarter is Rs 328 crore, in the second quarter it is Rs 219 crore and in third quarter it is Rs 292 crore there by totaling to Rs 839 crore.
The company expects there is a chance for this much of provision against wage not required when it is reassessed at the end of the fiscal as the recommendations have come in. Moreover the wage revision is likely to be taken for once in 5 years rather than 10 years earlier resulting in lower provision than the 40% rate at which it was provided for. The company expects the rise to be in the range of 30% leading to over provisioning.
The company normally has in possession 3 month of requirement for indigenous materials and 6 months of requirement for imported materials. As the fourth quarter will be a strong one for the company the company’s inventory level went up. Moreover the company used to place orders well in advance for long lead items such as forgings. The material cost as proportion to sales will be 60% as the end of the year compared to 58% in last fiscal ended Mar 2008. The full benefit of fall in commodity price is expected only in FY10.
The work in progress for the quarter ended Dec 2008 is Rs 643 crore compared to minus Rs129 crore in corresponding previous period. So the company is not facing execution problem. Tthe company ‘s Trichy plant was affected by rains and power cut in the Q3FY09 and TNEB has now exempted the TN plant of the company from power cuts.
In next fiscal the company expects to get an order intake to the tune of Rs 50000 crore. In next fiscal the company expects the bulk orders of 660 MW range finalized. Out of the bulk order the Govt of India proposed that is 11 nos of 660 MW the company being L1 for 6 nos is assured and for others only the company don’t know where it will go. Moreover the company is also expecting some orders from SEBs.
For FY10, the staff cost will increase by at least 8% over likely staff cost figure of Rs 4500 crore (calculated by staff cost of Rs 3145 crore of FY08 + Rs 1313 crore of provision in FY09) of FY 09
Cash on the books is more than Rs 8000 crore. The company had higher working capital requirements and around Rs 2000 crore was infact used for the working capital requirements during this quarter.
Transmission business – The company seeks partners for GIS ratings of 220 KV, 400 KV and transformers of 765 KV ratings etc. The company will announce JV partner by first quarter of next fiscal. The partner could be either European or Japanese.
The company is going big way in the transportation with JV with GE.
The company has consciously reduced the EPC content as it is not adding any value and bring in much profitability. The EPC: BTG product ratio of the order book is 30:70 for current order backlog compared to 40:60 earlier. So the margins and execution of orders will be better going forward.
Expansion 6000 MW to 10000 MW the capex is only Rs 1200 crore, where the company added some tools and other equipments and increased the working shifts. The next capacity addition from 10000-15000 MW is in Capital WIP and would require around Rs 4000 crore of capex and hence the depreciation will increase going forward.
The increase in interest cost according to the management was one off as for short period of time, the company had to borrow funds from banks which currently is fully repaid.
Other income (other operating income + other income) for the quarter is Rs 306 crore as against Rs 265 crore. The other income for the quarter comprise largely interest income of Rs 118 crore, lease rental of Rs 11 crore and miscellaneous income of Rs 116 crore.
There will be a time lag between purchase of material and consumption. Normally there is a gap of 4 months for indigenous material and 6 month for import material on account of transit and processing. With the price of commodity in July-Aug 2008 were at peak that commodity was consumed in Q3 FY09 and that has escalated the material cost in Q3FY09.
Going by the order book the next fiscal will be a good one. With full benefits of fall in commodity price kick in the margin will definitely be better next fiscal.