On this large transformer order for the data center in the U.S. - what more could be there in the pipeline, how much of an opportunity does it open for a company like CG in terms of export orders for data centers?
See, data center -- all of this renewable data center is one of the key vertical for us. So it's not that this order has come by fluke or it just suddenly came up. We have been working on this for last 2 years religiously on these key account management, the vertical focus of the industry, and that has started giving us some of these results. So we are of a firm opinion that derisking strategy of being domestically strong as well as keep divesting a bit on the outside India as well so that there's a focus on both the sides. So you don't put all eggs in one basket.
On the Power Systems margins - for the new orders you are getting in the domestic market, are the margins similar or higher than what you're reporting today?
I would say with the backlog that we have, future is bright.
So roughly similar margins that you are reporting today - we should be able to hold on to these margins. Is that a fair conclusion?
See, I'll not be able to tell you exactly what my backlog margins are, but there's a very disciplined process of order intake to the backlog margin, how dividend stands. So each of the business leaders for each of the businesses are on top of it, the quality of incoming orders, at what quality we are getting in. So I think there's a very disciplined process in place. So I think we are very much in control of that.
On potential re-entry of Chinese players - assuming level playing field, do you see potential pressure on pricing and margins going forward if they come back into the market?
We have not seen anything like that until now, for sure. See, that's why I said, the answer is very simple. Nobody can predict what will happen after 1 year. Important is how do we flex our muscles in the gym to be prepared for the worst case scenario after a year. I think that's what we are focusing on. To me, that's a leading indicator. How do we become more operationally efficient and how do we keep expanding not only in India, outside India as well. So with that focus, I think that's the only way -- to me, that's a leading indicator. So that's where we're focusing on.
On Railways - please elaborate on the margin trajectory and what changed in the segment?
Railways, I think there was a -- I would say it will take a few more months to come back on track because there were a couple of issues in between. If you remember, last quarter, the supplies were stopped for some time and then it started, and there was some service issue which got resolved. So there were a bit of leakage on that. For our U.S. exports, we are going a bit slow, although the number is not very substantial there. But with the duty structure, we have kind of slowed down on these areas. So that also is a bit of impact versus what we had considered for our profitability as well. But I would say, each one of these are momentary to compensate for. And now we have the new leader. Also, whatever leadership changes were required, we have incorporated. So Dhananjay is our new leader for Railways and he's really looking at this business from the fresh pair of eyes. So more to come.
On exports - in the 9-month period so far this fiscal, how much have exports been as a percentage of your sales? How have exports grown YoY versus overall sales growth? You mentioned Power Systems prospect pipeline is up almost 50% YoY - what is the situation on the Industrial Systems and Railways side?
No. The number that I gave you is the overall number. It's not with respect to Power or Industrial, so it's the overall number. So the action is across the segment. So that's why I gave you the overall number. Revenue, we'll start to get, first you have to get the orders. So that's coming. So that depends on execution. So as we keep going forward, you'll see the improvement in the revenue as well.
On the export market - how was competition in the orders you won in the data center market in the U.S.? Is it one-off order or more collaboration with prospective customer? What other geographies are you targeting?
So I'll only share what I'm allowed to share. This INR 900 crore order that you have, and I gave a statement that our export orders are more than 50% up across all the segments, and that does not include this INR 900 crore. That's over and above because that's for current quarter, right? So it's not one odd case or a fluke that has happened. It's a hard work that our leaders, along with their teams, have been doing over the past 2 years and now reaching that stage of reaping the benefits of it. And I think what we have seen at high level, and it's not that only that we are dependent on U.S., so it's across different geographies. It's a very clear laid out go-to-market strategy with very few markets. It's not all over the place. We are not getting to all over the place. Which countries? That, obviously, I am not able to share with you at this point of time. But yes, what we have seen is we are selling basically our speed, the technology and the reliability of the product that we have. I think these are the three things that we have seen that customers are willing to partner with us.
On profitability of these export orders - how much higher margin can these orders give? And is there price escalation clause incorporated in export orders or not?
On the second question, yes, I think we have secured CG's interest for any of these export orders. It's part of the contract. And to your first question, I would say we just started the game here. So as we keep executing and this will come in, you will see the margins and the profitability in the P&L.
Could you give us an update on the EV motor development and safety? Is our product now approved with the three-wheeler OEM, where it was in the testing phase? Also status of the motor and controller for the trucks that we are developing?
Yes. So EV motors and controller, so it's almost done. That is still in progress. And for the trucks, that discussion is still going on because there's some transfer of technologies that we are working on. And as we get close to that, we'll, of course, be announcing it.
What is our current tariff on our products to EU? How do we benefit out of this FTA?
There is no actually tariff yet. No export is there on Mumbai port. No tariff on our product as of now. So whatever we export to U.S., that is based on the FOB prior to the Mumbai port, and the tariff is borne by the company. EU, the free trade agreement is signed today only right? We'll see that we'll come back to you on this. Not any tariff, no.
On the order intake for the Power Systems segment - it has seen 16% growth, a healthy number, but in the previous quarters we had seen significantly higher growth in the order inflow momentum. Are you seeing any signs of at-the-margin slowness in the ordering momentum in the Power Systems segment, especially related to the domestic renewable category?
Thanks, Ravi, for the question. See, a quarter-to-quarter variation will always happen. So we are not seeing any decline or slowdown in the pipeline of the orders that we have. So I think it continues to be as strong as it has been and growing as well.
On the motors piece, could you call out the volume growth in LT and HT motor? We have seen revenue growth of around 8-9%. How much was contributed by price increases and how much by LT and HT motor volume growth? Are you seeing a recovery in demand for LT motors and how is the price increase holding up?
So a couple of answers to your multiple questions. On the market size, yes, there is definitely an improvement versus the last few quarters that I've been talking about. It was negative, if you look at the data. It has crossed the bridge of being flat or a little better than that. But I think the good news, as we shared, is if you are getting 8% up, which means you are either eating through the market share or putting across the value proposition in front of the customers. So yes, it's a combination of the price increase that we did. The realization has been fairly good. We are satisfied with that. Of course, it could not completely cover the increase in the commodity prices. But we are still working on that. And second is also, if you look at, a little bit of stress on PBT also -- we are working aggressively on the I2V piece, which is Innovate to Value. So that activity is also happening in parallel. So both these should help us to come out of these difficult situations. So to your question, answer is, yes, a combination of volume as well as the top line from the price increase.
On commodity price increase and currency depreciation, how much more price increases are required from the fourth quarter onwards? How is it likely to pan out for both Power and Industrial segments? In Power, are fresh orders benchmarked to current commodity prices and passed on to end customers? On Industrial, how much more price increase is needed for both LT and HT Motors?
See, price increase, the thumb rule for the industry is very clear. Any inflation has to be passed on to the customer. So that's the way it happens. So if commodity still doesn't behave well, obviously, there will be forthcoming price increases coming in the market. That's typical to the industrial business that we are in. But if you go to power, most of the business, we have the PVC clauses, which is a price variation clause. So any change in the commodity that happens, we get the compensatory amount on that. So that is an amount to change in the pricing. But yes, that gets compensated, which is a typical industry factor.
On the Power segment - there have been media reports that the government could allow Chinese players to bid for PSU tenders. Your thoughts on this and what are you hearing from the Ministry?
So a lot is going on in that direction. And as we interact with the ministries or with the utility companies and the customers, honestly, as CG, we are not really worried about that even if Chinese players come in. Important is level playing field. I'm a big fan of saying that, with the level playing field, we have to be operationally efficient and then we can compete with anybody, whether it's the Chinese players or Japanese or Indian players. Yes, we have to be competitive. So that, we'll continue to do. But I think an important thing is having that level playing field, which I think as of today, what we see, I don't see a concern on that at all.
Can you elaborate on what you mean by level playing field - that they need to come and set up shop in India, blanket imports, etc.?
Setting a shop in India is not a problem, that's level playing field to me. I'm saying -- when I say level playing field it means that you don't get any special benefit or special privileges or special incentives by the respective governments. Then it will be a problem for the industry, not for us only, which I don't get that feel or that advantage people will have. See, that the government has to decide whether they allow Chinese companies or not. We don't control that. I'm saying even if it comes, basis our conversation with industries, that's the only thing we have to go across, let it be a level playing field. So we control our destiny by being operationally efficient.
What is the outlook for domestic power transmission business over 3-5 years? With the new NEP, do you see a sustained order pipeline and growth extending well above 5 years?
Yes. See, I think if you would have noticed in the last couple of quarters, even in the earnings call, I have always been bullish about it. So last year, also I said next 5 years, up to '29, I don't see a concern that this sector will not grow. Unless something catastrophic happens, then obviously, that's out of control of everybody. Otherwise, the way expansion plans are, the way government is expanding infrastructure, power generation, so I don't see anything slowing down up until 2029. And of course, it can go beyond that as well. But it's a combination of publicly available data as well as what we see in the market.
On the Power Systems - is the price variation clause present in almost the entire order book? And was the large U.S. export order part of the Q3 order inflow?
Yes, almost. No. This has come -- I think you see the date as 16th of January. So this is not added in last year results. This is for the current quarter.
On the OSAT/semiconductor business - could you give an update on the ramp-up of the facility commissioned a few months ago? When is the next bigger facility likely to come online?
So OSAT, as you would have heard last time, the mini plant, which we call M1, has already started, commenced its activity. I think next 2 quarters, we should start sales out of that on a small scale, and then it will keep graduating. I would say, next 2 to 3 quarters, you'll start seeing a decent amount of sales coming. But it's a small plant, in any case. And the new plant, which is the bigger plant, M2, as we call it, that should be ready by end of December 2026. And so I would say Q4 of next financial year is when we start some activity. The lead time for customer approval and validation of the chips doesn't take as much time as the mini plant takes. So yes, there will be some time. I would say, another 1 year or so, it should be operational.
On yields in the mini plant - will you be able to comment on what kind of yields you are getting? Is it in line with whatever you have anticipated?
It's much better than what we anticipated because the business case was much lower. But I think today, we are operating at about 98%, 99% kind of yield, which is a good situation.
Are there any segments where the Chinese players are more likely to come in - extra high voltage or high voltage? Any visibility on which segments they're more likely to enter?
See, even if -- I think your worry is on the Chinese players. So now what are we talking about? I mean you can count on tips. It's probably 1 company that will be in India, and they are sold out for next 2 years. So where is the worry? So even if they start expanding today, to get transformer manufacturing up and running is 24 to 36 months. So you're talking about 2 years plus another 2 years, so 4 years, and we'll talk after 4 years. But that doesn't stop us from being -- should not make us complacent. I think important for us is, how do we keep flexing our muscles to be prepared for the worst, whatever happens.
On the OSAT business - how much of our full capacity already would have a customer (pending clearances) today?
As a percentage, I think about 1/3 of the capacity is our collaboration with Renesas, so that's part of the agreement. So they will pick it up, and there's a lot of discussion going on with multiple agencies. And I think longest lead time we see is auto industry because it's not easy to get those approvals. So that takes a bit of time. So it's a combination of multiple type of customers that we have right now going on.
When the company books a segmental loss in the semiconductor segment, is it all linked to the design business? Or are some costs linked to OSAT also getting expensed out?
No, I think both are separate because design is the Axiro, which I think the Board meeting already happened. So I'm not worried about Axiro because that's already -- we committed about $64 million we'll do for the year. How much? $55 million, $56 million, I think should do that. And I'm very sure with that, we should be able to breakeven, so we don't have to really fund that. CG Semi, it's like a start-up. So I think it's going to take some time until you see that it starts making money. So it's investment for the future. So you cannot expect that from day 1, it will start making money. And we are prepared for that.
On the Power business - what milestones should one be tracking for gauging progress on the exports side? Countries that one will be focusing on, clearances required, whether they're already there or not. How fast can be the scale-up in exports on the power side?
No, I think exports for power has already started picking up. If I look at my -- I'll not go through the numbers right now, but I can give you some reference of the order pipeline. For exports, has gone up by more than 50% in the last 9 months. So April until December last year, to April until December this year, we have more than 50% growth on the exports bookings, which is orders. So that itself shows you that the wheel has started moving in the direction.
On the Kavach part - with the first order from CLW canceled because of 12-month delivery period, where are you on the product development part? Do we expect future orders to replace this existing order?
I think the team is progressing. Of course, there was a delay in initial approval because we are also doing it for the first time. But I think approval process has almost reached the end. The passenger trials are about to start now, which should take another 4 to 5 weeks. So I'm expecting that in this quarter, we should be done with the approvals and commence the supplies as well. And there's already a bigger order, which we have shortlisted, so final order should be coming very soon.
On the data center $99 million order on the Power Systems side - the 12 to 20 months execution period, is it more to do with capacity available or product development phase involved because this is for U.S., maybe a different type of products? These are what, kV class transformers?
See, these are -- none of these transformers are standard transformers. They're customized to the customer. So design is a critical piece of each of these power transformers. And that's also what we discussed and negotiated basis the customer pull as well. So that's the range that we have. And Ajay, you can talk about the capacity or power, what kV these are.
On competition - the transformer industry grew as well as some other players or peers are putting their capacities, most coming in the next 1 or 2 years. How do you see competition going forward vis-a-vis demand? Any pricing pressure or signs coming right now?
So I think, Anupam, if you look at the forecasted data, up to '29, '30 also, the capacity being put in by all the players in this industry including CG and the demand, even if you compare only with India-India, in 2029, this still will be a shortfall. So that answers the question that you're asking for. And this doesn't even add to the capacity gap that we have outside India as well. So I don't see any concern on that in spite of all the companies putting in there. There's enough room for everybody to be playing in.
What is the capacity utilization on transformers and how do you see the ramp-up of the new setup going forward?
So ramp-up is going on. Your question is specific transformer, right? Yes. So I think capacity is going on pretty well. I think just 3 quarters back, we were at 20,000 MVA. We are already 40,000 MVA. And in the next 1 quarter or so, we'll be 65,000 MVA. I think that's the kind of jump we are making. And hopefully, next 2 to 3 quarters, we'll be adding another 10,000 to 20,000 MVA more into that from that facility. So once we get better visibility of that, we'll, of course, announce that.
In the Industrial Systems business, the 310 basis point YoY drop in PBIT margin - how much of this is sticky or temporary? You identified lower price realization and product mix changes in the railway segment, plus commodity inflation. Could you explain how the commodity impact in Industrial Systems will play out?
Sure. I think for power, it's fairly simple with the PVC clause which is there. But in industrial, it's a race against the commodity inflation that you have. But I think we are strengthening our speed of response. If you would look at last 3 quarters, 9 months, we have increased our price by almost 17%, including this month, which will show us the impact in the forthcoming months for the realization. So we have been pretty aggressive on that. And the good news is that the market has been absorbing that price fairly well, much better than our expectation. So we don't have to really drop the prices. So yes, it's a catch-up game right now. But yes, we will find a way to stay ahead of the curve to make sure we are compensating for this gap.
For the data centers order, do we have enough bandwidth to deliver from existing facilities or will there be a combination of existing and new facilities? Also on the price variation clauses for commodities, is there any cap or can you pass on the entire inflation?
This can be done in the existing facilities. I don't think there is;not that I am aware of – if there's any cap on that, but I think it's the actual -- yes, it's on actual. I don't think there's any cap on that.
On Power Systems standalone revenues are up 66% QoQ despite commencement of additional 17,000 MVA capacity fully in third quarter. Is order backlog conversion into execution slower because of longer time lines of transformers?
Not really. I think if you look at the capacity expansion, the speed we are doing it, I don't think I have heard about anybody else doing it. As I said, just 1 year back, you got 17,000 MVA capacity. Today, we are already at 40,000, 45,000 MVA, and in a quarter's time we will be 65,000 MVA. So we are progressing much faster. But that's a good pressure to have because the order pipeline is stronger, and that puts more pressure on us, which is a good, nice pressure. So it's working in parallel, both order inflow versus the capacity expansion.
On the last call you mentioned about 85,000 MVA capacity by FY '28 end. Now within next couple of quarters anticipating 65,000 MVA. Are there any plans of preponement of capex on transformers?
Yes. That's why I said, as we get more clarity. But yes, I'm looking at a minimum of 1 year ahead of the time. What we planned for, what the Board had approved for up to 2028, I'm sure that our team should be able to do it at least 1 year before. But yes, the moment we have more clarity, we'll keep sharing with you as well as with the stock market.
You had announced a capex of about INR 750 crore towards the switchgear business in the previous quarter. What would be the potential revenues from this expansion at full utilization? When do we plan to complete this capex?
That's right. So I think we have taken a step in between. I think after today's Board meeting, we also took the approval for brownfield in between because the new plant will take more than a year to come up. And we can see very strong demand, not only in India but outside India as well. So I think in the next couple of months, we'll be ready with our brownfield, which is close to our existing facility. That will come up, and I think that itself should give us close to INR 400 crores incremental revenue or sales.