Adani Power Ltd

NSE:ADANIPOWER

Earnings Call Analysis

Debt Management and Fuel Costs Stabilize

The company has a senior debt of INR 25,000 crores, taking into account the Godda project's debt, which was capitalized till commissioning. Current interest to be incurred is about 9% on INR 30,000 crores, including INR 5,000 crores of working capital. Fuel costs for coming quarters are expected to remain steady without further increases. They have also been using surplus cash flows to reduce high-cost borrowings, with a notable debt prepayment of the Mahan Energen. Moreover, there's no definitive guidance on forward-looking margins, but a sustainable level of performance is suggested. Coal for the Godda project comes through a mix of import and e-auction, around INR 3.5 per mix. Recently, INR 809 crores of senior debt and INR 2,000 crores of perpetual debt have been repaid, including an additional INR 250 crores prepaid in January.

Adani Power Flaunts a Stellar Increase in Profits

Adani Power has exemplified strong financial growth with their profit after tax (PAT) for Q3 FY '24 skyrocketing to INR 2,738 crores from a mere INR 9 crores in the corresponding quarter of the previous fiscal year. This dramatic surge in profitability is not just a one-off spurt but part of a consistent trend, as the 9-month period of FY '24 also saw a substantial PAT boost to INR 18,092 crores from INR 5,484 crores in FY '23. The driving force behind these figures is attributed to the company's successful deployment of quality assets and its operational excellence.

Management Transitions and Debt Repayment Strategy

On the managerial front, Adani Power is preparing for a leadership change as the current CFO transitions to a new role within the group, reflecting the company's practice of nurturing its leadership pipeline. Additionally, the company has been diligent about managing its financial obligations, having reduced the outstanding amount of its perpetual securities to INR 7,435 crores, indicating an effective deployment of surplus cash flows towards debt repayment. To reinforce this strategy, the company has paid approximately INR 2,000 crores in yields on these securities as part of their proactive debt management measures.

Expansion Ambitions Signal Forward Momentum

Adani Power has ambitious plans to extend its operational capacity from the current 15,250 megawatts to 21,116 megawatts, signaling a bold footprint expansion in the power sector. This growth blueprint involves a mix of greenfield projects and targeted acquisitions, attesting to the company's flexible strategy in scaling its operations. An additional 6,000 megawatts of capacity is already earmarked for development as a testament to Adani Power's commitment to meeting rising energy demands.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to Adani Power Limited Q3 FY '24 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.

[Mohit Kumar, analyst]

Thank you, Niraj. Good evening, everyone. On behalf of ICICI Securities, we are pleased to welcome you all to the Q3 FY '24 Earnings Call for Adani Power Limited. Today, we are privileged to join with the management team, Mr. Shersingh Khyalia, CEO; Mr. Shailesh Sawa, CFO; and Mr. Nishit Dave, AVP Investor Relation. We will start with brief opening remarks, which will be followed by Q&A. Over to you, sir.

[Shersingh Khyalia, executive]

Dear friends, good evening, and welcome to the Third Quarter Financial Year '24 Earnings Call of Adani Power Limited. As you all know, the Indian power market is growing steadily and strongly; instead with the [indiscernible] economic growth witnessed after 2020. Power demand in this fiscal year has grown by 7.6% year-on-year till December. Thermal power PLF has also improved and there is a growing realization that coal-fired power plants are a reliable and important part of our energy mix. This favorable situation is also reflected in Adani Power's operating performance for the recently concluded quarter and 9-month period.

Most of our PPA-based capacity, including portfolios capacity as well as merchant capacity has achieved higher PLF. In addition to this, the Godda power plant has ramped up its operations quite satisfactorily and established its position firmly in the Bangladesh power mix. Similarly, the company has also delivered stellar financial performance during quarter 3 of '24, which higher sales volumes and benefit of lower import fuel prices. We have maintained high levels of plant availability, which is crucial for recovery of capacity charges and maintaining stable profitability.

Our regulatory issues have now been almost fully resolved and we now have adequate fuel cost recovery under PPAs. Steps taken by the government of India to increase these forms to make payments on time have worked and improved our cash flow. Mahan power plant, which was acquired by us in quarter 4 of 2022 has turned in its fortunes around and started posting profits by benefiting from our expertise in power sales management, fuel sourcing and power plant operations. We have repaid the entire outstanding sustainable debt of Mahan Energen. Similarly, we have also prepaid other secured and unsecured debt of APL from its cash flows and made the balance sheet lighter. Our capacity expansion program is well underway and the 1,600 megawatt Mahan Phase II ultra-supercritical power plant is fully on track.

We are also moving closer to the acquisition of Coastal Energen under a consortium arrangement, for which, we have received a letter of intent from the Committee of Creditors. On the operation side, we have undertaken an initiative for digital transformation of the business. We are building digitalization and analytics into all aspects of our organization, especially in power plant operations. Our Analytics Center of Excellence has identified more than 90 projects which are being developed and implemented for more efficient, predictable and safe operations along with better analytical and disseminating tools. Coming to responsible and sustainable operations, our power plants continue to perform admirably by operating well under statutory limits for specific water consumption and CO2 emission. We have recently published APL's 9th ESG report following GRI standards, which details our efforts and achievements on various fronts.

In a nutshell, we are building a more agile, responsive and sustainable enterprise for the future. The issues and challenges that we faced earlier are well behind us and we look forward to generating sustainable value for our stakeholders in the coming years that are full of growth opportunity.

With this, I would now like to hand the call over to Mr. Shailesh Sawa, our CFO. Over to Shailesh.

[Shailesh Sawa, executive]

Thank you, Khyalia, and good evening, friends. The CEO has already given you a broad overview of APL's performance during the recently completed quarter. I will provide you with some more insight into it. I hope you have downloaded the analyst presentation for the quarter, which has been published on the stock exchange and our website.

APL achieved a PLF of 68.6% and sales volume of 21.5 billion units for Q3 FY '24 on a consolidated basis as compared to 42.1% and 11.8 billion units, respectively, in Q3 FY '23. The figures for FY '24 include operating and financial performance or incremental capacity of 1,600 megawatt of the Godda power plant, which has come online in Q1 of the current financial year. On a year-to-date basis, APL achieved PLF of 62.4% and power sales of 57.1 billion units till 31st December 2023, in comparison to 46.6% and 39.1 billion units in the first 9 months of FY '23.

Apart from the incremental addition of the Godda power plant, higher volumes were also contributed by the Mundra, Udupi, Raipur, and Mahan plants. A reduction in prices of imported coal has helped us improve the uptake of power from Mundra and Hudatiplan. APL's merchant capacity enjoyed a strong logistic cost advantage because of being located close to the main coal banks of India. This allowed us to gain the maximum benefit from the current surging power demand. As mentioned by the CEO, our plants have posted high uptime on a consistent basis which allows us to claim the capacity charges under PPAs and help us generate a very stable core EBITDA.

Now coming to the financial performance. As you may be aware, our financial results in the past used to incorporate prior-year revenue items, which were recognized due to regulatory orders for recovery of alternative fuel costs, carrying cost and late payables surcharges from discoms. However, in order to give you a clear understanding of our quarter-on-quarter performance, I'll present an analysis of recurring revenues and EBITDA. On a recurring or continuous basis, the total consolidated revenue of APL for Q3 FY '24 grew by 72% to INR 13,405 crores with an 82% growth in sales volumes. The apparent reduction in realized tariff is primarily due to lower prices of imported and alternate coal, which reflect in the energy charges under PPA.

On the other hand, merchant tariffs realized during the quarter improved significantly as we have detailed in our analyst presentation. The fuel cost for Q3 FY '24 increased by only 36% over Q3 FY '23 due to this very reason. This resulted in a strong growth of 242% in our recurring EBITDA to INR 5,059 crores in Q3 FY '24 as compared to INR 1,479 crores in Q3 of the previous year. For the 9-month period, continuing revenue increased by 40% to INR 37,173 crores in FY '24 with a volume growth of 46% as compared to the corresponding period of FY '23. Tariffs under PPA and from merchant sales moved in a similar way to the quarterly change.

Similarly, for the 9-month period of FY '24 also, the continuing EBITDA was higher by 118% at INR 13,516 crores, driven by a strong growth in revenues and a reduction in import fuel prices that was witnessed over the current year. In comparison, continuing EBITDA was INR 6,210 crore for the corresponding period of FY '23. EBITDA as reported, including prior period adjustment has grown by 115% to INR 5,009 crores for Q3 FY '24 as compared to INR 1,996 crores for Q3 FY '23. For the 9-month period of FY '24, reported EBITDA has grown by 92% to INR 22,743 crores as compared to INR 11,851 crores in the comparable period of FY '23. We have utilized the cash flows from operations, including the recoveries of past dues from risk comps very judiciously to reduce debt through prepayments.

We have recently prepaid the remaining outstanding senior debt of Mahan Energen Limited. As a result, the finance cost for Q3 FY '24 reduced by nearly 16% to INR 797 crores versus INR 946 crores in Q3 FY '23 after considering the incremental borrowing for the Godda power plant. For the 9-month period, finance cost was broadly similar to the corresponding period of FY '23 being INR 2,560 crores versus INR 2,588 crores. As both by a consolidated level, our leverage and debt service based on indicators are now very healthy, reflecting a strong credit worthiness setting the path to improve returns and creating growth headroom.

On a continuing basis, profit before tax for Q3 FY '24 was a strong INR 3,261 crores in comparison to a loss of INR 305 crores for Q3 FY '24. After considering onetime items, the reported PBT for Q3 FY '24 was INR 3,210 crores as compared to INR 212 crores for Q2 FY '23. Similarly, continuing PBT for the 9 months of FY '24 was INR 8,006 crores as compared to INR 1,136 crores for 9 months period of FY '23. After considering onetime items, the reported PBT was INR 17,234 crores versus INR 6,777 crores for the 2 periods, respectively. Profit after tax for Q3 FY '24 was reported at INR 2,738 crores as compared to INR 9 crores for Q3 FY '23. For 9 months of FY '24, the PAT was INR 18,092 crores after considering deferred tax credit of INR 858 crores as compared to PAT of INR 5,484 crores for 9 months of FY '23.

As you can see, Adani Power now generates strong profitability and cash flows on the back of gainful deployment of our high-quality assets and operational excellence. It is our endeavor to continue to deliver the company's full potential and create maximum value for our stakeholders.

Lastly, before I hand over the call to the moderator for your questions, I would like to share a personal update. Effective April 1, 2024, I will be transitioning to a new role at group level in group regulatory and engagement function as part of a leadership development initiative that is in progress across Adani portfolio companies. I will be handing over the position of APL CFO to Mr. Dilip Jha, who is currently Finance Head of the Integrated Resource Management Vertical of Adani Enterprise Limited. Mr. Jha has deep and varied experience in the finance field and has been associated with Adani since 2010. I'm sure you will enjoy interacting with him as well. Thank you.

And now over to you, moderator, for Q&A. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Nirav Shah from Geecee Holdings.

[Nirav Shah, analyst]

Many congratulations for a real set of numbers. Sir, a few questions. Firstly, sir, has there been any repayment of unsecured perpetual securities during Q3? I mean, Q2, the balance was INR 9,180 crores, and we are seeing INR 1,000 crores deleveraging approximately on a sequential basis against our EBITDA from INR 5,000 crores. So I just want to understand any repayment of perpetual securities that has happened during the quarter?

[Shailesh Sawa, executive]

Yes. You will give the second question or I should refer now?

[Nirav Shah, analyst]

I think we can take it, yes.

[Shailesh Sawa, executive]

Thank you for your compliments. Yes, for digital outstanding now today is INR 7,435 crores.

[Nirav Shah, analyst]

INR 7,435 crores?

[Shailesh Sawa, executive]

Yes, INR 7,435 crores. So that is what -- so defense is what has been paid out of the surplus cash flows.

[Nirav Shah, analyst]

Absolutely, great. And sir...

[Shailesh Sawa, executive]

I must also emphasis that we have particular securities, we have unsecured support received from the group. And also, we had long term dent, we have 3 baskets of the debt. So we have used cash flow judiciously to keep it balanced. We have repaid -- prepaid secured debt as well, unsecured debt in part of the perpetual securities.

[Nirav Shah, analyst]

Got it. So the actual cash outgo to -- on account of perpetual will be slightly more because there have been an interest component, which will be added? This is you're talking about the principal outstanding.

[Shailesh Sawa, executive]

This is principal and approximately INR 2,000 crores has been paid towards the yield on that.

[Nirav Shah, analyst]

Okay. So total is INR 2,000 plus the INR 1,700-odd crores?

[Shailesh Sawa, executive]

Total go together, yes. It's INR 2,000 crores plus, little above INR 2,000 crores, all included.

[Nirav Shah, analyst]

All included. Makes sense. And sir, what's the EBITDA for the first 9 months for Godda and Mahan? Revenue bid in PAT, if you can just disclose it separately?

[Shailesh Sawa, executive]

Actually, we don't give separately. We have given the consolidated numbers. So that number I've just read out to you for your information.

[Nirav Shah, analyst]

Got it. Got it. And sir, I mean, any update on Amarkantak? I mean, where is the process right now?

[Shailesh Sawa, executive]

Nothing right now. COC has not taken any view on this right now. So process is currently on, and we can't comment on the outcome and the time lines.

[Operator]

[Operator Instructions] The next question is from the line of Nikhil Abhyankar from ICICI Securities.

[Nikhil Abhyankar, analyst]

India is going through kind of a thermal capacity addition, even the government is asking everyone to add thermal capacity. Sir, basically, are we regiving our plans to add thermal capacity in the long run?

[Shersingh Khyalia, executive]

Actually, last time, we already gave a plan that today we have capacity of 15,250 megawatt and we have already saved the plan up to 21,116 megawatts or so. So as of now, we have something approximately 6,000 megawatt capacity addition plans which we have already said. So that is what we have as of now.

[Nikhil Abhyankar, analyst]

Sir, this is purely greenfield or does it also include acquisitions?

[Shailesh Sawa, executive]

This includes 1.1 gigawatt of acquisitions also which we thought probably could be the [indiscernible].

[Shersingh Khyalia, executive]

So it is both. Actually greenfield as well as the new and -- it may interchange also if greenfield is not materializing, it may include the acquisition or some acquisition is not getting materialized, so we may add the new one also.

[Shailesh Sawa, executive]

So that is the target capacity as we speak.

[Nikhil Abhyankar, analyst]

Understood. And sir, regarding Mahan II, so what is the status of the project as -- have the EPC tenders been finalized? And can you just share an update on that as well?

[Shailesh Sawa, executive]

Yes. This is being implemented and the process is in -- the process implementation is in full swing. The broad packages have been all ordered now and see more in the process of being ordered. It is not on EPC basis but on [indiscernible] basis. So PTC has been already ordered with BHEL and that is on the way of being placed.

[Nikhil Abhyankar, analyst]

Understood. And sir, does this quarter's income include any past period adjustments?

[Shailesh Sawa, executive]

Insignificant.

Excuse me, is the moderator online, we lost the contact.

[Operator]

Sir, can you hear me?

[Shailesh Sawa, executive]

Yes.

[Operator]

[Operator Instructions] The next question is from the line of [indiscernible] Jefferies India.

[Unknown Analyst]

Sir, just a couple of questions. So firstly, on the capacity expansion plans. Outside Mahan II, can you help us understand what are the projects where you're looking at greenfield expansions? I'm not speaking about the acquisition part, but the greenfield or brownfield expansions which you may want to look at?

[Shailesh Sawa, executive]

No, we -- our existing facilities have a potential to fund. So other than Godda, we have other 6, 7 plants. We have -- we can think of spanning it. And when Mahan's expansion I is taking place and maybe at Mahan or Raigarh, we can add another maybe [2.2] gigawatt of capacity. So if you look at what has been disclosed by us is about of 4.8 gigawatt of expansions. So this could be at any of our locations. Mahan II is already underway and maybe at Raigarh, maybe at Mahan, again, we can have a Phase III as well there.

[Unknown Analyst]

Understood, sir. So...

[Shailesh Sawa, executive]

Greenfield what we are targeting is 4.8 gigawatts.

[Unknown Analyst]

Understood. And sir, on the acquisition side, I mean, you said Amarkantak which -- discussions are underway. But other than that, do you see any projects which are worth looking at or which -- I mean, where we have certainty of PPA or FSA being tied up or any other assets? I mean, the pipeline which you think what's [indiscernible] even if you count or if you don't want to name the asset, what is the kind of pipeline at an aggregate level that is existing order, if you can help us understand that, please?

[Shailesh Sawa, executive]

We would not like to guess at this point of time.

[Unknown Analyst]

Understood, sir. No issue. Those are my questions.

[Unknown Executive]

So one more point as far as the -- you would have read our announcement of Coastal Power Energen. There, the COC has given us the NOI and now NCLT has -- we have to go through the NCLT process. So that is something which is definitely in the site.

[Operator]

[Operator Instructions] Next question is from the line of Nirav Shah from Geecee Holdings.

[Nirav Shah, analyst]

Just one question on our rating upgrade efforts. So I mean, any update on that, that when can we expect or any update on efforts on the rating update?

[Shailesh Sawa, executive]

You will have to wait for some time for that.

[Operator]

Next question is from the line of Harish from SBI Securities.

[Unknown Analyst]

Congratulations on a great set of numbers. Sir, can you just give a highlight -- I mean, just for the coming quarter, how much interest expense we are expecting to reduce? And can you just throw a light on the fuel cost for the coming quarters, please?

[Shailesh Sawa, executive]

As far as interest is concerned, now we are having a senior debt of about INR 25,000 crores, which also takes into account the debt from Godda project, which was -- the interest on that was getting capitalized till the commissioning time. Now post the commissioning, that interest wasn't getting added. So on the INR 2,500 crores -- sorry, INR 25,000 crores, we will have to incur the interest on that. There are no unsecured debt which are outstanding. So -- plus you can add about INR 5,000 crores of working capital. So on INR 30,000 crores, 9% plus/minus.

[Unknown Analyst]

Okay. Can you throw light on fuel cost for the coming quarters?

[Shailesh Sawa, executive]

It will depend on how index moves. As the index imported, all the indices have settled now. They have come down significantly from last year's level. We'll not be able to comment on that. But in our view, prices have stabilized now. So I think they will remain at steady levels. So we don't see any further increase in the fuel cost.

[Operator]

[Operator Instructions] Next question is from the line of [Aryan from Mehta Equities].

[Unknown Analyst]

Yes. First of all, congrats on a good set of numbers. I wanted to ask that as the things is being asked fairly, are there going forward, any debt reduction plans as of now, could you throw some light on it, please?

[Shailesh Sawa, executive]

Thank you. See, last 12 months or so, we have demonstrated as to how the surplus cash flow has been judiciously used by us in terms of reducing our -- or lightening our balance sheet. We have prepaid Mahan Energen the entire debt now as we speak, the Phase 1 project which was acquired by us is on NCLT process is debt-free now. So as there's no return policy, but as and when surplus cash flow is there, we'll definitely like to reduce the -- wherever we have a high cost borrowing. So that is something which we keep monitoring and then take a decision as the need arises.

[Shersingh Khyalia, executive]

In terms of per megawatt debt, it is less than INR 2 crores per megawatt, which is the best in the industry.

[Shailesh Sawa, executive]

If I can be very precise, it is INR 1.65 crores per megawatt, is our senior debt right now.

[Unknown Analyst]

Right. And I needed to ask that going forward, like our margins are improving subsequently. So moving forward, what can be seen towards the margins, PAT margins like to what extent can we see the prices in it?

[Shailesh Sawa, executive]

I don't think we'll be able to give you any forward-looking guidance on this.

[Unknown Analyst]

Okay. Right. And this is sustainable as of now, what we have achieved?

[Shailesh Sawa, executive]

Right.

[Operator]

[Operator Instructions] The next follow-up question is from the line of Nikhil Abhyankar from ICICI Securities.

[Nikhil Abhyankar, analyst]

Just a couple of questions. Sir, how are we meeting our coal requirement for Godda? Are we importing it or is it e-auction?

[Shailesh Sawa, executive]

It is a mix of both. We are importing as well as we are using e-auctions.

[Nikhil Abhyankar, analyst]

And sir, what are the prices in e-auctions right now?

[Shailesh Sawa, executive]

That keeps changing.

[Shersingh Khyalia, executive]

Something around INR 3.5 per mix.

[Nikhil Abhyankar, analyst]

INR 3.5. Okay. And a clarification on how much debt you have repaid in this quarter, sir, can you just give a split between how much of it was secured, unsecured and perpetual?

[Shailesh Sawa, executive]

Yes. I'll just give you that numbers. Okay. We paid INR 2,121 -- sorry, INR 809 crores in Q3 of the senior debt and INR 2,000 crores of perpetual including yield on debt. In January, also we have prepaid INR 250 crores.

[Nikhil Abhyankar, analyst]

Understood. Okay. And sir, can you give us the quantum of merchant sales plant-wise?

[Shailesh Sawa, executive]

No, that will not be possible.

[Nikhil Abhyankar, analyst]

Okay. And sir, just a final one. What will be the CapEx requirement for FY '24, '25? And we are also in talks to acquire coastal Energen. So what will be the total consideration for it and will it require any more CapEx?

[Shailesh Sawa, executive]

Yes, coastal is around INR 4,000 -- INR 3,450 crores. That is our big to COC, which has been accepted.

[Nikhil Abhyankar, analyst]

How much sir? How much have you mentioned?

[Shailesh Sawa, executive]

About INR 3,450 crores.

[Nikhil Abhyankar, analyst]

Okay. And will it require additional CapEx?

[Shersingh Khyalia, executive]

Maybe very small amounts, not really big amount because plant is well maintained and operational condition.

[Nikhil Abhyankar, analyst]

Okay. So should we -- after acquisition, will it be up and running from day 1 as...

[Shersingh Khyalia, executive]

It is already running. You must -- both units are generating power and supplying.

[Operator]

As there are no further questions, I will now hand the conference over to the management for closing comments.

[Shailesh Sawa, executive]

Thank you, investors. Appreciate your interest in Adani Power Limited. And in case you have any follow-up questions, Nishit and my team, and myself will be happy to respond to your queries. Thank you so very much. Thank you.

[Operator]

Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

[Shailesh Sawa, executive]

Thank you.