Sterling & Wilson Renewable Energy: Q2-25 Earnings Call Highlights

Projected an optimistic outlook, highlighting the company's strong order book, improving financial performance, enhanced execution capabilities, and strategic focus on high-growth areas like BESS.

sterlingandwilsonre.com | NSE: SWSOLAR

1. Key Takeaways

1.1 TLDR

• Projected an optimistic outlook, highlighting the company's strong order book, improving financial performance, enhanced execution capabilities, and strategic focus on high-growth areas like BESS.

• Management addressed investor concerns, reaffirming their commitment to achieving the revenue guidance and ensuring sustainable growth in the future.

1.2 Strong Order Inflow and Robust Pipeline:

• Q2 FY25 saw ₹244 crore of new orders, bringing the total fiscal year inflow to ₹4,214 crore.

• The company is on track to meet its ₹8,000 crore order inflow guidance for the full year.

• Unexecuted order value stands at a record high of over ₹10,500 crore.

• A strong pipeline of 23 GW of projects is expected in India over the next 6-12 months.

• Significant growth is expected from both PSU and private IP projects.

1.3 Improved Financial Performance:

• Third consecutive quarter of positive EBITDA, PBT, and PAT at the consolidated level.

• Operating revenue for Q2 FY25 was ₹1,310 crore, representing a 36% YoY and 13% QoQ growth.

• Domestic EPC execution drove the top-line growth.

• Consolidated gross margin at approximately 10%, with domestic margins at 9% (adjusted to 10.5% excluding cost-equal-to-revenue projects).

• O&M gross margin at 28% due to lower expenditure, expected to normalize to around 25%.

• Credit rating upgraded to investment grade (BBB-) by Equity Ratings.

1.4 Enhanced Execution Capabilities:

• Expecting a strong pickup in execution in H2 FY25.

• Engineering, execution, and support teams have been significantly strengthened.

• ₹500 crore loan from IREDA and the credit rating upgrade will support execution.

• Negotiation for open credit with large key vendors is underway.

1.5 Strategic Shift Towards Turnkey Projects:

• Selectively taking turnkey projects, including module supply.

• Focus on sourcing modules from Tier 1 Indian suppliers.

• Strong contracts and relationships with suppliers to mitigate price fluctuation risks.

• Quote: "We have also taken up few turnkey projects strategically and looking to tap into new opportunities like bass with a strong balance sheet." - Amit Jain

1.6 Key Developments:

• Won India's largest battery energy storage project (2x250 MW AC) from JSW.

• Secured a 20 MW floating solar project from JSW, marking the company's third such project.

• Achieved a breakthrough with Brookfield, a leading global renewable IP, for a 633 MW DC project.

• Received repeat orders from NTPC, NG, and MP.

• Awaiting final order signing for the Nigeria project.

• Actively pursuing opportunities in the Battery Energy Storage System (BESS) market.

1.7 Investor Concerns & Management Responses

• Concerns about non-fund based limits impacting execution: Management clarified that the recent rating upgrade would unlock additional limits, and open credit from vendors would further ease liquidity concerns.

• Queries about the progress on Reliance project: Management stated that the pilot project is expected to be completed in this quarter, with a larger rollout expected in the subsequent quarters.

• Questions on employee retention: Management highlighted the company's strong track record in retaining employees and detailed the various initiatives undertaken to attract and retain talent.

• Clarification sought on margin adjustments: Management explained that the adjusted domestic gross margin excluded projects that were yet to reach the revenue recognition threshold and were being accounted for on a cost-equals-revenue basis.

Sterling and Wilson Renewable Energy Limited Q2 FY25 Earnings Call FAQ

1. What is the current status of the company's order book?

The company's unexecuted order value stands at over ₹10,500 crore, the highest in the company's history. Q2 saw ₹244 crore worth of new domestic orders, bringing the fiscal year total to ₹4,214 crore. The company is on track to meet its full-year order inflow guidance of ₹8,000 crore. The robust order book provides strong revenue visibility for upcoming quarters.

2. What is the company's revenue guidance for FY25, and how does the company plan to achieve it?

The company has maintained its revenue guidance of ₹8,000 crore for FY25. Despite a seasonally weaker Q2, the company anticipates strong execution in the second half of the year. Key factors enabling this include a ₹500 crore loan facility, a credit rating upgrade to investment grade, and negotiated open credit with key vendors.

3. How has the company's strategy evolved in response to the changing market?

The company has adapted its strategy to accommodate the evolving market. This includes expanding beyond pure Balance of System (BoS) projects to strategically take on turnkey projects, including module supply, particularly for Public Sector Unit (PSU) projects. The company is also actively exploring new opportunities in areas like Battery Energy Storage Systems (BESS), with a focus on profitable growth.

4. What is the status of the company's large-scale BESS project in Rajasthan?

The company has secured the Letter of Intent (LOI) for India's largest BESS project to date, a 2x250 MW AC standalone plant in Rajasthan by JSW. This project represents a significant milestone, showcasing the company's in-house capabilities and positioning it favorably in the rapidly growing solar and storage market.

5. What is the anticipated timeline for the Nigeria project, and are there any anticipated challenges?

While the final order signing for the Nigeria project is still pending, it is expected soon. After signing, a six-month period is anticipated for financial closure. Despite a slight delay attributed to domestic political factors in Nigeria, the project remains on track with strong support from both the US and Nigerian governments.

6. How does the company manage foreign exchange risks associated with its international projects?

The company's financial statements reflect foreign exchange differences primarily due to translations from international subsidiaries and project execution. While hedging is not mandatory, the company acknowledges the impact of these fluctuations.

Source: Link to Earning Call Recording

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