SCHNEIDER - SCHNEIDER ELECTRIC INFRASTRUCTURE LIMITED Share Price

The management of Schneider Electric Infrastructure Limited provided an optimistic outlook during the Q2 FY-26 earnings call. The company's order growth for H1 was substantial, showing a 28% increase, while Q2 alone saw a 15.6% rise. Sales growth was reported at 6.6% for H1 and accelerated to 8.4% in Q2, reflecting improved market conditions.

Key forward-looking points highlighted by management include:

1. Economic Growth: The Indian GDP is projected to grow by 6.7% year-on-year, bolstered by robust domestic demand, government CAPEX investments totaling INR 11.2 lakh crores, and private sector investments rising to INR 2.67 lakh crores, up over 20% from the previous year.

2. Investment in Key Segments:

   • Power and Grid: Government commitment to the RDSS scheme with INR 3 lakh crores allocated aims to reduce losses and improve infrastructure.
   • Data Centers: Anticipated significant growth driven by digitization, with increasing mobile data consumption and prominent global players like Amazon and Microsoft planning expansions in India.
   • Renewables: India has reached 500 gigawatts of installed capacity, with reduced GST rates aiding development, predicting strong growth in solar installations.
   • Mobility: Expansion in regional air connectivity and metro projects across 30 cities promises avenues for the company.

3. Awards and Recognition: Schneider has received the "Golden Peacock Award" for ESG performance and has been recognized as one of the top 15 best employers in India, reinforcing its commitment to sustainability and employee satisfaction.

4. CAPEX Plans: The management is committed to executing CAPEX programs, including a significant INR 200 crore investment aimed at expanding production capacities, particularly in the electrical equipment sector.

Overall, the outlook is characterized by optimism about market conditions and a commitment to capturing growth opportunities across critical infrastructure sectors.

Questions and Answers from the Earnings Transcript

Q1: "Execution for the last 2 quarters has been slow. Before that, we were growing 20% plus for many quarters. What do you see as the ignition improving from here on?"
A1: Thank you, Mr. Mahesh. You're right; our business is project-based and cyclical, which affects execution speeds. While we experienced single-digit growth recently, we expect this to improve into double digits soon, as the last quarter tends to involve heavy CAPEX spending. Factors like project readiness and cash flow affect timing, but our strong order backlog should help us regain momentum.

Q2: "What is the status of the expansion plans for the Kolkata facility and the new CAPEX for transformer expansion?"
A2: All expansion programs are on track. We will provide updates as tangible progress occurs. These initiatives are large-scale and may take time, but we've initiated work on each project as planned.

Q3: "The other expenses have increased significantly. Has this affected your CAPEX programs?"
A3: No CAPEX items are being expensed off; these are regular expenses. They are consistent and align with historical spending trends. There's nothing unusual in this quarter compared to previous years.

Q4: "What are your long-term plans for improving profitability as you pursue new orders?"
A4: We consistently strive to optimize costs and manage product mixes. By focusing on transactional and service offerings, we aim to improve margins and ensure sustainable profit growth across all segments.

Q5: "Can you comment on the opportunities in the data center segment and potential contribution to our top line?"
A5: The data center segment offers promising growth opportunities. While the exact contribution over the next few years is hard to predict, we believe it could significantly impact our top line, potentially reaching 15-20% over time depending on demand.

Q6: "With reports of increased government spending on DISCOM reforms, how will this affect your growth?"
A6: The upcoming reforms could open up new opportunities for us, especially as they enhance grid modernization. While government spending of INR 3 lakh crores has already been substantial, we anticipate that software and equipment modernization will further benefit our company, resulting in a stronger position in the market.

Q7: "What is the status of the CAPEX program for your listed entity compared to the unlisted Schneider Electric entities?"
A7: Our CAPEX reflects our operational needs and is aligned with our growth strategy. The variations between the listed and unlisted entities arise from different operational scopes and capacities, ensuring we expand where it makes sense for our business.

Q8: "What are the key products being manufactured for data centers, and how do they fit in the overall CAPEX?"
A8: Our offerings for data centers include all power distribution equipment and related software solutions. The scope of our products can vary based on the project's scale, but typically we capture 2-10% of the overall CAPEX of a data center, influenced by various factors including site location.

Q9: "Can you provide a breakdown of your revenue mix between systems, transactional products, and services?"
A9: For H1, our revenue mix stands at 65% from systems, 20% transactional products, and 15% services. We've seen a positive shift towards services and transactional offerings this year, indicating our focus on more profitable segments.

Q10: "When do you see the operating leverage effecting profitability?"
A10: Operating leverage will materialize as we grow sales at a faster rate than our fixed costs. Historically, we expect to achieve this balance in our full-year results, which will reflect improved profitability.