JSW Energy Ltd

NSE:JSWENERGY

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the JSW Energy Limited Q2 FY '23 Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions]

Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from DAM Capital Advisors Limited. Thank you, and over to you, sir.

[Mohit Kumar, analyst]

Thank you, Faizal. On behalf of DAM Capital, I welcome you all to the Q2 FY '23 Earnings Call of JSW Energy. From the management, we have Mr. Prashant Jain, Joint Managing Director and CEO; Mr. Pritesh Vinay, Director of Finance; and Mr. Ashwin Bajaj, Group Head, Investor Relations; Mr. Vikash Chaudry, Investor Relations and Crediting Head.

We'll start with a brief opening remarks followed by Q&A. I will now hand over the call to Ashwin Bajaj. Over to you, sir.

[Ashwin Bajaj, executive]

Thank you, Mohit, for hosting the call, and a very good evening, ladies and gentlemen. So welcome to JSW Energy's Q2 Results Call, where we will detail our results as well as our renewable led growth strategy. We have our management team, as Mohit has introduced. So let me hand it over to Mr. Jain for opening remarks, and then we'll take questions. Mr. Jain?

[Prashant Jain, executive]

Thank you, Ashwin. Good evening, ladies and gentlemen. The quarter gone by, we have seen power demand grew by 5.7%, which has moderated 18% power demand growth, which we saw in Q1 in the current financial period. And for the H1, the power demand growth stood at 11.8%. The current quarter also, the power demand is growing at a good pace, but we are expecting that the year should be ending something at around 8% to 8.5% power demand growth.

The total installed capacity for the sector is now at 408 gigawatts with a net capacity addition of 4 gigawatts in quarter 2 and total 8.3 gigawatt capacity addition in H1. All this capacity, which we have added up during the quarter was renewable capacity, 3.1 gigawatt coming from solar and 0.9 gigawatt coming from wind. To date, total installed renewable capacity stood at 165 gigawatts, which is in excess of 40% of the installed capacity.

The merchant volume went down about 18% during the quarter at 20 billion units, with the average tariff at INR 5.4 per kilowatt hour, which is lower than the previous quarter. And now the weighted average for the H1 stood at INR 6.59. The current quarter prices are also running quite low, close to an average of INR 4.5 to INR 5 because of better accessibility of thermal power at this point of time and moderate power demand growth.

In terms of the company, the net transition was 6.7 billion units, which was 2% lower than the last year, which was primarily due to the weak merchant market during the quarter as well as the Ratnagiri 300-megawatt unit was under maintenance.

The EBITDA was at INR 1,098 crores, which was up by 2%. Profit after tax was up by 37%, INR 66 crores. Cash profit was INR 681 crores, higher by 12%.

We've maintained our trajectory of receivables. It was down 19% at 66 days during the end of the quarter. And the current quarter, so we have -- we are doing good in terms of the renewable metrics. So we are maintaining a healthy refillable metrics.

In terms of the projects, now our committed pipeline is 10 gigawatt, and which is going to be completed ahead of our earlier guidance of FY '25. And this is without the new domain which we haven't started, which is the battery storage and storage vertical. So 1 gigawatt hour of battery storage project, which we have recently -- we were the winning bidder in the SECI tender is over and above the 10 gigawatt of the pipeline.

Now the projects are also moving as planned ahead of the schedule. And starting from the current quarter, the commissioning of the [indiscernible] projects will start. And then month on month, we will be seeing the incremental capacities which are coming up.

We are also doing pretty good in terms of the hydro pumped storage pipeline and, which is moving. In addition to that, we have also secured some new projects in -- hydro projects, which are run of the river in [indiscernible]. So in one project, we have already got the -- awarded the LOI. There are some more projects which are in pipeline across the country which we are looking because we feel that, given the new hydro power purchase application, there will be incremental demand, which will be coming up going forward. And after we complete the Kutehr project next financial year, we will be deploying that execution team to undertake new hydro projects going forward.

With this, I end my opening remarks. We are happy to take the question and answers. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Anuj Upadhyay from HDFC Securities.

[Anuj Upadhyay, analyst]

So my question relates to the status on the Mytrah acquisition, sir. If you can provide some update on that.

Secondly, anything on the Utkal in Bharath project. I mean, last call, we had mentioned probably we are relooking to acquire that project. And also, if you can provide some kind of a timeline in tying up the entire capacity of the vision for our captive group plans. That's it, sir.

[Prashant Jain, executive]

Thank you. So with regards to Mytrah, the necessary condition precedents are being implemented, and we are expecting that we will be completing the transaction within the current quarter.

And with regards to the Bharath Utkal, the NCLT had already given it's judgment by approving the plan. And we are working with the lenders to implement the plan. As a part of our decarbonization strategy, we are working on this plant to do the vertical integration to enter into the polysilicon market. And that is our strategy, and we will be based on this 700 gigawatt power capacity, we will be working to do the vertical integration to manufacture polysilicon.

The third part is with respect to the untied capacity. JSW Steel is already -- has already undertaken 5 million tonne capacity expansion at the [indiscernible]. And the scheduled commissioning is sometime in calendar year '25. And so accordingly, our untied capacity will be looked into the group capital model going forward.

[Anuj Upadhyay, analyst]

Sir, can you mention what quantum of untied capacity can be parked for this 5 million tonnes of extended capacity that began again? Just a clarification on Bharath Utkal you mentioned about the vertical integration. So are you saying that project will probably serve the need -- the purpose of captive arrangement? Is my understanding...

[Prashant Jain, executive]

Absolutely, absolutely. On the polysilicon, we are still working out. But a majority of untied capacity will be toward that capacity expansion.

[Operator]

The next question is from the line of Mohit Kumar from DAM Capital Advisors.

[Mohit Kumar, analyst]

First question is the -- on the battery storage win. So what is the status of the LOI? And can you please throw your strategy or give some light on how do you want to schedule your -- the market capacity? I believe there is a 40% which you opened to the market. And how do you see this open capacity to be tied up? Or how you want to participate in the SMB market?

[Prashant Jain, executive]

So we are yet to receive that LOI from Citi. And we are given to understand some time in the current quarter, we will be receiving that LOI. And at this point of time, we are absolutely [indiscernible] ancillary market as well as to tie up with Citi some of the discounts. We have already been received some interest both on discount as well as from corporates wanting to take opportunities with us. And we have factored both the opportunities with this.

And I can give you one color, that ancillary market, it is also equally exciting opportunity. And in some cases, what we are seeing is more remunerative as compared to what we do with the tie up of capacity.

[Mohit Kumar, analyst]

Understood. Storage plant side, of course, you built a large pipeline. When do you think will we be ready to execute something? Is it contingent on getting some PPI -- or is it getting some -- on getting some hydrogen or a hydrogen order?

[Prashant Jain, executive]

No, it's not contingent on that. It's primarily, at this point of time, in the regulatory approvals which are being undertaken. But to give you some color, the first project will be a CapEx project, which will be used for our vision as a plant, and which we are taking the necessary regulatory approval. We will start that construction early next calendar year once we secure the necessary regulatory approval, which is predominantly [indiscernible].

[Mohit Kumar, analyst]

How does the EBITDA or debt to an equity look after the Mytrah acquisition? Some -- do you think we'll need to [ surrogate ] some capital to -- for the growth?

[Prashant Jain, executive]

We have explained in our March call. With this existing pipeline, both for 2 gigawatts and of projects as well as Mytrah acquisition, plus the new acquired pipeline, all put together, we will be below the 4.5, 4.6x debt to EBITDA level. And so we are quite comfortable, and we will be still throwing a lot of cash because right now, we are generating in excess of around INR 2,400 crores to INR 2,500 crores of cash profit, which is very, very healthy, which will be also going to increase with this commissioning of these projects as well as the acquisition, which will have a sufficient -- which will be sufficient to grow our pipeline.

However, if we get any kind of a great opportunity where we feel there is a good transaction which can be value-accretive for all the shareholders as well as there is an option to deploy that particular capital by making substantial growth strides, we will have the means to do it. [indiscernible] capital deployment requirement and that by design, we are returning capital.

[Mohit Kumar, analyst]

Lastly, on the bidding appetite on the solar and wind, I think we have been participating in solar as of now. Is it a no-go area?

[Prashant Jain, executive]

That question is, I think, around people [indiscernible]. So we are not doing any wind...

[Operator]

[Operator Instructions] Next question is from the line of [indiscernible].

[Unknown Analyst]

I just wanted to ask you whether you could [indiscernible] some capacities.

[Prashant Jain, executive]

So yes, we will do an additional pipeline after we complete this project. There are further opportunities which have been already outlined. And so we are looking to that. And at some point of time, next calendar year, we will be -- and in addition to that, we are also working to do further C&I business with the third parties. So of course, beyond the 10 gigawatt, there will be additional pipeline which will be announced next calendar year.

[Unknown Analyst]

Understood. Sir, also after Q1 in the annual report last year, you had booked certain revenue through sale of carbon credits. So I just wanted to know, at that time, you mentioned that the inventory is somewhere around $20 million. So have we booked any revenue through it? That's one. And what is the inventory right now that we're having?

[Prashant Jain, executive]

So after the carbon credit prices dropped dramatically, carbon credits which were trading $7.50, $8, has come down to $2.50 at this point of time, which we also believe is transitory in nature and which will start to go up. So at this point of time, we are holding the inventory. We have not sold any more incremental. Whatever we have sold is also very insignificant. And so Pritesh already mentioned [indiscernible] it will be increased with the fresh accruals also.

[Unknown Analyst]

Sir, and how -- have they increased? And has the Rajasthan participated in the government liquidity fee?

[Prashant Jain, executive]

Repeat the question once again.

[Unknown Analyst]

Sir, has the Rajasthan government participated in the government liquidity fee?

[Pritesh Vinay, executive]

So I can comment here. We may not be privy prepay to state-wise participation in the liquidity. But what we can do comment on is that if you look at our receivables trend as at the opening, on a year-on-year basis, the overall receivables have come down by 19% from a DSO equivalent point of view. But more interesting is that within that, the amount of overdues has actually come down by 23%.

And as we are speaking right now, subsequent to the end of the quarter, there are actually no overdues that we have from the Rajasthan discounts or any other discount. So therefore, whether it is on account of their participation in liquidity scheme of government, we will actually conform to that. But as far as our overdues are concerned, we don't have any overdue at this point.

[Unknown Analyst]

And previously, you also mentioned about our plans to get into polysilicon. So when will we be able to announce anything specifically to that? Or is it concern on any price scheme coming from the government?

[Prashant Jain, executive]

We are working on this, the contents of the project. This is absolutely new. There are various barriers there are the technology barriers, there are the talent barriers. And there are various other challenges in terms of engineering and other things which are building all these blocks. And so we will be announcing it when we are ready with that. And of course, we will be certainly participating in the PLI scheme as and when the final schemes for the final bidding is established.

[Operator]

[Operator Instructions] Question is from the line of Anuj Upadhyay from HDFC Securities.

[Anuj Upadhyay, analyst]

Just a follow-up on the first question, which was related to the polysilicon. Maybe some clarity, sir. I mean are we planning to come out with a complete integrated model manufacturing team, right from polysilicon, the model manufacturing? And if yes, then what is the quantum which we are eyeing basically out there? And are we waiting for the PLI schemes to get launched so that we can up on the quantum? Or yes -- and like you are finding enough to go over with respective of the PLI benefits.

[Prashant Jain, executive]

So there are a number of factors which will be deciding reading all these. That's why we said we'll be talking in due course. So we need to understand that is having a large, ambitious plan for renewable energy growth, which will be in use for the power generation but also electron to molecule. And for that, there will be a large requirement of polysilicon and also the [indiscernible].

And there are huge [ exports ] because, after the new inflation reduction which announced in the United States as well as decarbonization strategy of Europe. There will be a huge requirement of polysilicon both in Europe as well as America. So we working out the controls in terms of [indiscernible] so to meet the export opportunities.

And also, there are various PLI controls, which all we'll do at the credit mining sector, when we will figure out that -- how much is the production capacity and how much is the cost as well. Of course, there will be a certain capacity which will be NPM, and there will be some capacity around polysilicon. So even we are submitting that with various variable, then we will be announcing once we are -- we have participated in the PLI scheme.

[Operator]

The next question is from the line of Rahul Modi from ICICI Securities.

[Rahul Modi, analyst]

Sir, pardon me if I missed this. Can you throw some light on the plans that we are having in terms of the hydro storage for the next 3 to 5 years? And the CapEx that we earmarked, when are we expecting this CapEx will start?

[Prashant Jain, executive]

So we are already having right now, we are at 50 gigawatt hour of storage. And as I mentioned, some time in the next calendar year, first project will start. There, we do not have any issues with respect to lineup or the -- it's the regulatory approval which we will need in that -- during this time. And then we will -- and then it will be -- the first project, it will take 3 years to commission.

And similarly, we have our final DPR is under preparation. So there, it needs to be approved by [indiscernible] to start that process. Second part is that you have to acquire the land, whatever is the private land, if there is a forest, clear it. And the majority of our projects, you have to acquire the land, you have to take a balance role of all the budgets are going to take. And it takes between 20 months to 24 months before we hit the ground.

So first project, we see to hit the ground in the calendar year '23. And thereafter, calendar year '24 onwards, there will be various projects which will be hitting the ground. So it's going to be exciting and we'll be building a large portfolio of hydro projects. So as we explained last time, that it will be required large portfolio of hydro projects. So going forward, this will be very big solution for the grid, which we will be deploying over a period of time.

[Rahul Modi, analyst]

Sir, this is very helpful. So the first project that you are suggesting, is that we'll be starting in CY '23 because of factory and capacity. And if you could -- just what will be the total cost? And you mentioned that the PPA is not needed. Is this already signed? How does the addendum work?

[Prashant Jain, executive]

So basically, Europe is a going [indiscernible] group capital requirement. And so -- and it will be close to 1 gigawatt hour.

[Rahul Modi, analyst]

Okay. And what would be the cost of this?

[Prashant Jain, executive]

So once we are signing the PPAs and everything, we will be announcing that. But typically, I can give you the color. The hydro projects are in the range of INR 4 crores per megawatt to INR 6.5 crores per megawatt. And storage projects are typically between 5-hour storage to 8-hour storage, depending on the type of project and everything, it is there. So you can do the math on your end.

[Rahul Modi, analyst]

Sure. And sir, you will be using your own renewable energy power? Or this will be primarily from the grid to all your custom plants to begin?

[Prashant Jain, executive]

The first project will be integrated for our own requirements. So we are working in our own micro grid in the future, where we will be coming out with a solution where there will be a solar park, there will be a wind park, there will be our own transmission corridor integrated well with [indiscernible] large solution.

[Operator]

The next question is from the line of [ Anshu Manasi ] from ICICI Securities.

[Unknown Analyst]

Sorry if I may have missed this. But sir, you have recently also received a letter of intent for [ Shakti ] hydroelectric power plant. So could you please give us some details on that, the time lines for DPR accreditation, and the cost which we can expect?

[Prashant Jain, executive]

This is one project where we are allocated to some private parties where the DPR is already in place. So [indiscernible] in place. Now we are going to [indiscernible] and we have to revalidate that DPR. We have to reinstate the balance clearance. We'll be participating in various bids or -- filed with the PPA with discounts who are interested to source hydropower. And also being the largest private sector hydro power producer in the country, we are building these kind [indiscernible] a very good capability to execute the project in a most efficient way, of operating the plants in a most efficient way.

Our Kutehr project, which we started the groundbreaking in October 2019, in spite of 3 rainy days, we are going ahead of schedule. We've completed nearly 5% of the tunneling. We are expecting this will be the fastest-ever project in the country in the recent times by any hydropower developer. So with those kind of a capability with hydro power, we are quite upbeat about the opportunities, and that's why we are going through all this.

[Unknown Analyst]

And sir, is there any portion of the generation which we'll have to share it with to the Himachal Pradesh discount?

[Prashant Jain, executive]

Government of India has to come out with a regulation that now, 12% throughout the life of the project and project life is also now decided by the Government of India under the policy of 40 years. So it's a single norm for all old and the future power projects.

[Unknown Analyst]

Okay. And sir, I just wanted to know your view on the coal prices going forward for FY '23. And what do you -- do you believe that the emerging prices will be fair to sell on the exchanges? If you could throw some light on that.

[Prashant Jain, executive]

Sorry, I will not be able to give you any kind of a guide to the coal prices because these are the unprecedented times with a lot of variables and factors.

So during the current situation, it is very tough to make a call. But we -- now if that trend continues, then coal prices will immediately drop. So if -- I'm not sure that pricing will remain elevated when thermal coal prices are elevated. So everything is contingent upon geopolitical situation, so also the natural gas prices. Power demand in perspective, on a normalized business environment case, the thermal coal price will not be more than $100.

[Unknown Analyst]

Sir, are the currently merchant prices favorable for us to sell on the exchanges?

[Prashant Jain, executive]

No.

[Operator]

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

[Ashwin Bajaj, executive]

Thanks, operator. And thanks, everyone, for joining us today. Please reach out [indiscernible]. Good evening.

[Operator]

Thank you. Ladies and gentlemen, on behalf of DAM Capital Advisors Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.