JSW Energy Ltd

NSE:JSWENERGY

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to JSW Energy Q4 FY '24 Earnings Conference Call hosted by JM Financial.

[Operator Instructions]

Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhanshu Bansal from JM Financial. Thank you, and over to you, Mr. Bansal.

[Sudhanshu Bansal, analyst]

Thank you, Nirav. Good evening, everybody. On behalf of JM Financial, I welcome you all to the conference call of JSW Energy to discuss the fourth quarter and FY '24 results. We have the best the leadership team from the company, including Mr. Sharad Mahendra, Joint MD and CEO, Mr. Pritesh Vinay, Director Finance and CFO; Mr. Bikash Chowdhury, Head Investor Relations and Treasury. Thank you so much, sir, for your time presence and giving JM financial the opportunity to post the call.

With this, I would like to hand over the call to Mr. Mahendra for opening remarks and taking the call forward. Over to you, sir.

[Sharad Mahendra, executive]

Thank you Sudhanshu. Good evening, ladies and gentlemen. Thanks for joining us for this quarter 4 and fiscal '24 earnings call. I will start with covering the various aspects of the business, starting with the power demand, how it has shaped up and then the -- in terms of the capacity increase, which we have seen significant capacity addition in the country and various other points.

First, when we start with power demand, we have seen a strong demand growth of 7.5% in FY '24. On a larger base, we have to remember that the growth was in excess of 8% in FY '23 also.

And in the quarter ended March, we have seen a demand growth of 7.4%. And recently, the numbers which have come for April '24, the demand growth has been close to 11%, implying a strong demand into the summer season, which is we are going through right now. And also interesting to note that in FY '24, the peak demand reached a level of 243 gigawatt and is expected as per Ministry of Power and the way we're seeing the demand growth to reach 260 gigawatt maybe in the current summers.

In terms of generation in the country, it increased by 7.1% in FY '24, and we saw an increase of 7.3% in Q4. This is -- and we all know that the hydrology has not been favorable. The large hydro generation has been down by 17% in FY '24. And in quarter 4, we witnessed a decline of 20% year-on-year. While the RE generation was up by 5% quarter-on-quarter and 11% in FY '24. When we see the capacity installations, the installed capacity in the country has reached to 442 gigawatt with a total capacity addition of 26 gigawatts in FY '24 versus 16.6 gigawatt in FY '23.

Renewable capacity addition has seen a record addition of 18.5 gigawatts, which is the highest in a year versus 15.3 gigawatts in the previous year. And the breakup of this is solar capacity addition has been a record increase addition of 15 gigawatts and wind is 3.3 gigawatts in full year of FY '24.

Out of this total capacity of 18.3 gigawatt, 9.8 gigawatts of RE capacity has got added in Q4, out of which solar is 8.5 gigawatts and wind 1.2. So we see a significant increase in the capacity additions, which is happening.

And when we see the bidding environment also, it is very, very conducive, especially I will feel that for serious players like us, and government's aim of 50 gigawatt bidding per annum, which government has announced maybe in the previous year beginning, we have seen tenders worth 47.5 gigawatts, which were announced and auctions were completed for more than 40 gigawatts in FY '24.

Interesting to note that in quarter 4 of FY '24, we witnessed a total auction of 19 gigawatts of RE capacity. And that is the time when we participated when we found the environment to be conducive and out of 19 gigawatt JSW Energy has won 3.4 gigawatt, which is 18% of the total auction which has taken place in the country during quarter 4. And we are seeing a mix of bids which are coming apart from plain solar, plain wind. There have been -- we have been seeing hybrids coming in, RTC, Green Power and now FDRE.

So it is basically the need that are there around the clock and also seeing the pattern of demand patterns hourly basis, FDRE is -- we are seeing is going to be there and very interesting because this is not just a power supply, it's a complete supply of a solution to the required discom of the state on which our team also is working very closely, and we have been successful in winning the first significant portion of the first FDRE bid, which came up in Q4.

When we see the merchant market, merchant market continues to be strong, and volumes in FY '24 increased by 12% and also, though the tariffs were -- average tariff was lower at INR 5.24 as compared to INR 5.94 in the previous year because when we see the API coal prices also on which I will be talking, there is a significant decline in the coal prices also, so which has resulted in that -- the reduction in tariffs is comparatively lower than what the coal prices have come down, which is a positive again for the sector.

Coming to the coal when we see that in FY '23, if we talk of a particular index like API 4, which was in FY '23 at $250 level was at $110 in FY '24. And in April, this index has further slightly come down to $107. Apart from that, power sector outlook, which has been announced when we see a slightly longer term, till FY '32, the national electricity plan clearly says that the demand growth on an annualized basis will be 5.5% year-on-year from between 2024 to 2032, which is a very, very positive in terms of the demand.

Apart from the average demand, the peak demand, which we saw 243 gigawatt in FY '24 and this year, already Ministry of Power has announced and the way the demand growth is happening in the current summer, it is expected to reach 260 gigawatt, the peak demand. And the predictions say that this demand is going to significantly increase in coming years FY '27 numbers announced are to reach approximately 277 gigawatt and by FY '32, at 366 gigawatt. So this is a significant increase in the peak demand, which is going to be there, which is driven by various factors, the way we are seeing the manufacturing growth, which is happening, the urbanization rate at which is happening.

So these are the key drivers and also the country moving towards green energy in manufacturing also. So these are very positive factors for the sector, which we are seeing. And when we see that about -- coming to JSW Energy performance. This year, we reported highest ever adjusted EBITDA and PAT, driven by RE capacity additions and strong thermal performance also. EBITDA for the year was up by 53% at INR 5,837 crores and during the quarter, EBITDA was up by 47% year-on-year at INR 1,292 crores. PAT also witnessed an increase and overall, net generation also has witnessed a significant increase.

Coming to PAT in FY '24, the PAT increased year-on-year by 17% at a level of INR 1,723 crores. And in quarter 4, it grew by 29% at INR 351 crores. So these are the performance in terms of the financial numbers. Overall, net generation if we see as compared to the growth, which I just spoke about, our overall net generation during the year increased by 27% from 21.9 billion units in FY '23 to 27.9 billion units in FY '24. And during the quarter, it increased by 26% and it went from 5.1 billion units in previous year Q4 to 6.4 billion units.

The higher generation was driven by contribution from acquired assets and also -- and greenfield RE capacity additions and higher thermal generations. These are the main drivers for this increased generation. Another positive, which we are seeing in the sector and also for us, our receivables, excluding the acquired RE portfolio stood at 54 days and this, we are seeing a very positive action from the DISCOM side also in a very healthy for the sector also.

Coming to the balance sheet. Our net debt to equity at 1.3x. Net debt-to-EBITDA at 4.5x. And if we exclude the CWIP, the work in progress, which is there, our net debt-to-EBITDA, excluding CWIP, is at 2.9x which, again, clearly enables us for future growth, which we have a plan on which I will be speaking in some time.

As you all are aware that in the beginning of April, we successfully completed our QIP, which is in terms of QIP, this is the largest fund raise for the QIP route and the third largest in the power sector, including the IPOs, which the sector has witnessed. It saw a very high interest for marking global and domestic funds, which also believes in the story of JSW Energy and the way we are planning our growth.

Now to build our robust pipeline. This has enabled us to build a robust pipeline. And as I said that we have already participated in the competitive bid space. And we have been declared for a total capacity at L1 for 3.6 gigawatts, out of which 3.4 gigawatt of LOI and LOA we have already received and which takes us our long-term capacity total -- the work in progress, the commission capacity and the order book to 13.2 gigawatts.

Successful, we have been talking about the Mytrah asset, which we acquired about a year back that we have successfully -- successful in turning around the asset performance and we have increased to generate -- 12% increase in the generation within 1 year of transaction. And we have generated an EBITDA of in excess of INR 1,400 crores to be exact INR 1,403 crores and we are confident of seeing a further improvement in FY '25, when we will get -- we will be able to capture the full wind season also.

This is in line, if you remember the earlier announcement, what we have made to reach in the 24 months' time at this -- at Mytrah, the EBITDA to be in the range of INR 1,600 crores, we are very well on track to achieve that number. In addition to that, our Ind-Barath Unit 1 successfully got commissioned in January, and we generated 196 Mus during this quarter. And we were able to ramp up the capacity. And also this project execution in itself is a record of a stressed asset, which has not been -- has been nonfunctional for a very long period. And in a record time, we have brought it on stream and we have started the generation also. Apart -- another -- Unit 2, we are looking towards commissioning in the current quarter, the second unit of Ind-Barath also, we plan to commission.

Regarding the battery storage, the 1 gigawatt hour project, which we have won, we are happy to announce that part capacity already we have signed the PPA and the site work has already started, ordering has been completed, and we are confident that by quarter 1 of FY '26, which means April to June 2025, we will be in a position to commission this 1 gigawatt hour project. So friends, these are the points from our side.

Now I will open the house for any questions, we'll be happy to answer. Thank you.

[Operator]

[Operator Instructions]

The first question is from the line of Mohit Kumar from ICICI Securities.

[Mohit Kumar, analyst]

Congratulations from successful fund raise. My first question is on the fact that the board has approved raising of funds worth INR 100 million. What is the reason for fundraise. Are you looking to raise the fund in FY '25? Is that right understanding?

[Sharad Mahendra, executive]

See Mohit -- thanks. Mohit see one thing what we have said that -- if you remember that we have said that we have announced a 20 gigawatt by 2030 from present level of 7.28 gigawatt. And in the Phase I, we have said that by FY '25, we'll be reaching a 10 gigawatt capacity. And we are well on track to achieve that on time. Now as I said about the demand environment and the opportunities, which are there, we are sure and also the opportunities for -- inorganic opportunities also existing in the market.

So we keep on -- we are evaluating and we are confident with this kind of opportunities, which exist and the environment also is healthy that we are confident of accelerating that growth of 20 gigawatts, which have earlier set a time line of 2030, we are confident of accelerating that growth, maybe a few years earlier. And so that we are -- we have taken the Board approval to as and when if the opportunity comes, we should be ready to take the full advantage of any opportunity which comes. That is the basical reason.

And my colleague, Mr. Pritesh Vinay will like to add on this.

[Pritesh Vinay, executive]

Mohit, just to -- I mean, Sharad clarified it, but just to put things into perspective, we had been having an enabling resolution for a capital raise since 2016. It is just a different matter that it took us 7, 8 years to actually pull the trigger, given the macro headwinds, et cetera, and the size of the opportunity and the visibility of returns accretive growth. So this is also an enabling resolution, which we are seeking. And we will continue to seek every single year as we have been doing for the last 8 years. That's point number 1.

Point number 2, just to add to what Sharad said, while he did talk about the bidding environment and the demand growth, et cetera, there's also a lot of inorganic play available. As we are speaking, there are a few platforms where the fund life of the financial sponsors are coming to an end. And a number of processes are underway. So who knows? I mean if we get a right opportunity, it will always be good to not be constrained by necessary approvals in place from a capital raise flex point of view. So that's the whole context.

[Mohit Kumar, analyst]

Understood. And given the pipeline that you have right now, what would be the CapEx in FY '25 and FY '26? And can you also give us some color on the capacity addition for the next 2 years?

[Sharad Mahendra, executive]

Yes. Regarding capacity addition Mohit, as we have said earlier, that we'll be reaching 10 gigawatts by FY '25. We are well on track, and we are confident that we will be reaching the 10 gigawatt number by -- in FY '25.

[Mohit Kumar, analyst]

Capital expenditure, if you can give us a number for next 2 years?

[Pritesh Vinay, executive]

Yes. So if I -- so next year is easier to give next 2 years because if we suppose, for example, we participate in more bids and we win good returns accretive bids, that number will move basis that, right? So for the roughly 2.7 gigawatts that we need to complete to hit the 10 gigawatts mark plus the storage -- the battery storage project, we are looking at a total capital expenditure of about INR 15,000 crores in the coming fiscal year.

For the year beyond that, we think that by the end of the current fiscal year, we will be in the right position to guide for the following year. And just to complete the argument for the year that just ended, the numbers that we are discussing, we spent about INR 8,000 crores.

[Mohit Kumar, analyst]

INR 8,000 going to 15,000, understood. My last question is on the -- what is the reason for looking into setting up in wind manufacturing capacity? And what is the time line you're looking at?

[Pritesh Vinay, executive]

So on that, Mohit, we are evaluating the battery cell manufacturing optionality because as Sharad was mentioning in his opening comments, there's a -- to address the intermittency situation from a grid stability point of view, and they are going to need a large amount of storage solutions.

Secondly, more and more, we are going to see complex bids, which will inherently have a battery storage solution bid in for an FDRE type of vendors. And hence we see that there's a long road for stationary storage point of view. So we are seriously evaluating and doing a detailed work on that side. And at the right time, we will take the suitable call and if we choose to pull the trigger on that one, we will come ahead and share all the details of the market.

[Sharad Mahendra, executive]

And Mohit to further add to the number, if you see presently is to which I said some time back, the storage is going to play a key role. And today, in the country, from a battery point of view, you see, there is hardly -- there is almost nil battery storage capacity, which is there. It is only pump storage of 4 gigawatts, which is running, is available. And the projections which are there, it clearly shows that by FY '27, the storage capacity total required will be in excess of close to 16 gigawatt, out of which about 8 gigawatts is expected to be 8 to 9 gigawatts of battery and balances in terms of the pump storage.

So this is a huge opportunity, which we see on working, as Pritesh said, we are evaluating that and rather than depending on the procurement, whether it makes real -- there is a benefit, we'll be moving ahead in this.

[Operator]

Next question is from the line of Sumit Kishore from Axis Capital.

Sumit, sorry to interrupt you, but your voice is breaking.

[Sumit Kishore, analyst]

Okay. My first question is a follow-up on what Mohit asked. If your CapEx guidance for FY '25 is around INR 150 billion. I'm just referring to Slide 13 of the presentation, which mentions that of your total committed CapEx of INR 186.5 billion, about INR 150 billion has already been spent. And in addition, there is a SECI XII of INR 22 billion CapEx. So INR 150 billion seems to include CapEx, which you would do for the 3.6 gigawatt committed capacities as well. Is that right?

[Sharad Mahendra, executive]

Yes, it is right. Correct.

[Pritesh Vinay, executive]

Part expenditure will happen on this pipeline, right, which will be spread out over 2 to 3 years. And the storage CapEx will also happen. So if the sum total plus, there will be maintenance CapEx also for the existing running plant. And all number is a sum total of [indiscernible].

[Sharad Mahendra, executive]

And also of the ongoing projects, which are already there, that also will be balanced CapEx, which is pending that also will be done in the current year. So it's summing total of all.

[Sumit Kishore, analyst]

So would it be fair to say that of this 3.6 gigawatts, which you have won recently, we should be looking at post FY '26 commissioning time line?

[Sharad Mahendra, executive]

Yes, a significant portion, yes, you're right.

[Sumit Kishore, analyst]

Second question is on Ind-Barath. 196 million units were sold in Q4. EBITDA was about INR 300 million. The spread appears to be a bit thin. Is this going to upfront O&M cost being higher and given that this is the early stage of stabilizing the unit.

[Operator]

Participants, please stay connected the line for management dropped. We have the line for the management connected. Sir, please go ahead.

[Sumit Kishore, analyst]

Yes, I was asking a question regarding the Ind-Barath project where 196 million units were sold in Q4 and the corresponding EBITDA was about INR 300 million. Is the spread that you're making right on a per unit basis a thing because of the upfront O&M cost, which would have been higher in the stabilization of the unit? Or if you comment on that.

[Sharad Mahendra, executive]

Whenever a new unit is getting established, there are a lot of the unit comes down, again, comes back that is frequent. So that is one of the reasons where in it impacts definitely. But now the unit has reached almost close to, I will say, a high level of stabilization. So it will be better. But yes, definitely, when the unit commences, this is a normal feature, which happens.

[Operator]

Sorry to interrupt you Sumit. I will request you to come back for a follow-up question.

[Operator Instructions]

The next question is from the line of Atul Tiwari from Citi.

[Atul Tiwari, analyst]

Congratulations on successful capital raising. So my question is on JSW New Energy. Could you share the FY '24 consolidated numbers for JSW New Energy, just revenue EBITDA pack, how much was that?

[Pritesh Vinay, executive]

Atul, I request if you can connect with the IR team, they will be able to help you on the numbers.

[Atul Tiwari, analyst]

Okay. Okay. And the second one is on the breakup of the CapEx of INR 150 billion. So how much of that is for the battery storage?

[Pritesh Vinay, executive]

So once we have signed out the contractual, we are in very advanced stages of finalizing the negotiations with the suppliers. So probably by next quarter, will be the right time when we should be in a position having got the approval of the Board when we would come and share with the markets, what is the final project cost for this one, yes? But it is going to be lower than what it would have been a year ago.

[Operator]

The next question is from the line of Koundinya from Jefferies India.

[Koundinya Nimmagadda, analyst]

Sir, my first question is on the capacity front. So 9.8 gigawatts by end of the current year, that looks fine. If I were to look go back and see, when will the 3.6-gigawatt -- I mean, what would that day be like? Or if I were to ask it different -- in different way, FY '27, where do you see your capacity ending at?

[Sharad Mahendra, executive]

See, when we see the capacity worth 3.6 gigawatt what we have won, maybe it is -- it has been just recently, it has been won. Now the PPA signing process will start. Once the PPA signing process starts, depending on the PPA terms, it's on an average, you can say about 2 years is the time period, which is there. We're well within that from the date of signing of PPA, this entire capacity will get commissioned.

And if we are at 10 gigawatt, very small quantity, as I said earlier, will be a part of this, but then you can add that and take a 2-year time line from the sign of PPA. So that is how we will be -- as we said, the total locked in capacity of 13.2 from the signing date of PPA within 2 years, we will be definitely reaching 13.2 gigawatt.

[Koundinya Nimmagadda, analyst]

Understood, sir. And you also spoke of advancing your FY '30 target? Any time lines you're looking at? Or if it's too early to comment on those lines?

[Sharad Mahendra, executive]

It is a bit early. At the right time, we will definitely communicate as I told you, but we are quite confident with the kind of order book we have in a short span we have built that is one of the major reason and the opportunities, which are there in the coming year also. In the current year, we are quite confident that we'll be accelerating significantly, and at the right time we will inform. It is a bit early to give an exact time line of that.

[Koundinya Nimmagadda, analyst]

Understood, sir. Sir, secondly -- my second question is on the merchant market. I think about last was last year there was CERC [indiscernible] that caps the tariffs for merchant part at about 1.2x available cost on average or 1.6x for any particular time frame. Any -- how do you look at that any specific comments that you'd like to make on the kind of impact?

[Sharad Mahendra, executive]

Again, as I told you that this is something which is a bit too early to comment because this has come just maybe 24, 36 hours back. And also, we have to see that this is a staff paper and that to a draft on which as a industry we have to study and then see the impact. I can only say that the staff paper, what it says, it is unlikely what is mentioned, it will go through. But from our perspective, when we see that, it is only total 15% of the power, which is open power for us, which we sell in merchants. And out of that, also a significant portion is through the bilateral trade on the short term, what we sell.

So we feel even if this happens, which is highly unlikely, I think the impact is not going to be there for us at least to see that because our majority is tied up power in the long-term PPA.

[Koundinya Nimmagadda, analyst]

Understood. Sir, if I may ask 1 bookkeeping question. What is the average merchant tariff that you released in the quarter or FY '24.

[Pritesh Vinay, executive]

I think if you can connect with the IR team, they should be able to -- but I think if I remember correctly, the average [indiscernible] at market price on the exchanges for the quarter was about INR 4.30...

[Sharad Mahendra, executive]

INR 4.69 and our [indiscernible] is significantly higher than that, significantly higher that than that.

[Operator]

[Operator Instructions]

Next question is from the line of Rajesh Majumdar from B&K Securities.

[Rajesh Majumdar, analyst]

So is it possible to share the EBITDA numbers for Mytrah for the quarter and year?

[Sharad Mahendra, executive]

Yes. Mytrah annual number was INR 1,403, this is for the full year the EBITDA number for Mytrah and for the quarter, as just -- and INR 244 crores for the quarter. If you go to our presentation, Rajesh, which is Slide #38...

[Rajesh Majumdar, analyst]

Okay. Sorry, I miss that, yes. And my second question was, sir, when you mentioned INR 15,000 crore CapEx, this is excluding the impact of any acquisition, right?

[Pritesh Vinay, executive]

Yes, sir. We are still to be in a situation where we can have our firm CapEx number without a firm target and site and...

[Sharad Mahendra, executive]

We cannot give any number -- CapEx number for that.

[Rajesh Majumdar, analyst]

In this kind of a market, where there's so many distressed assets, it could be like the number could be more than that, right?

[Pritesh Vinay, executive]

Yes, the opportunity is there, and we are getting the desired returns what we expect, definitely, we keep exploring any opportunity which comes in the market, definitely.

[Sharad Mahendra, executive]

You're right, Rajesh.

[Rajesh Majumdar, analyst]

So in that case, could you give us some ballpark guidance on net debt to EBITDA? Like what is the outside it can go to in case we get into some kind of an acquisition like that? What is the -- like it's 4.5x now and maybe EBITDA will increase this year a little bit. So how much can we go up to in order to fund our growth as well as keep the thing under kind of -- some kind of limit? Is there any kind of ballpark figure you can give on that range?

[Sharad Mahendra, executive]

No, no, ballpark figure is the right question because that's also, I would say, the most important metric to look at what is the leverage profile going to go is going to pan out, like, right? So if you go back and look at all our commentary in the past couple of years, what we have consistently maintained is that we have 3 competitive advantages that we believe that we enjoy over a majority of peers. One is our -- typically our specific investment cost or our CapEx per megawatt tends to be lower than peers. Our OpEx per megawatt tends to be lower than peers.

And we enjoy one of the strongest balance sheet because of which we enjoy one of the highest credit ratings in the private sector, because of which the financing costs that we enjoy for our growth project is one of the most competitive in the industry. So it is very, very imperative for us to retain all these moats from a business -- from a strategy point of view.

So we will go by what is the rating agency guardrails, right? So that it is very important to understand that the high credit rating that we enjoy, what are the guardrails for that. So the way the rating agencies look at this -- that because typically when you start a freeze to one debt-to-equity project with a 25-year visibility of revenue and cash flows, and you solve for a certain debt service coverage ratio it translates to a net debt to EBITDA of about 5x to 5.5x. And that is what the rating agencies are comfortable with.

But what is most important here is the phrase we use is a sustained normalized net debt to EBITDA, which means was that if you have debt sitting on the balance sheet, which is sitting in capital work in progress, they adjust for that because the EBITDA from that is going to be coming on a forward-looking manner, right? So on a headline point of view, what you have seen is a 4.5x adjusted for the debt of -- if you look at slide, we have a slide on the investor presentation deck, where we break it up, the net debt bridge.

There is adjusted for the capital work in progress, Slide #12, it is 2.9x, right? In my view, all of these numbers that you are seeing in the results are as of 31st March. The INR 5,000 crore equity raise happened in the first week of April, right? So that has not been accounted for yet, right? So if I were just theoretically to account for that, what you are seeing at 4.5x is actually well below 4x. It is about 3.7x. And what you are seeing is 2.9x is about 2x, right? So we are a very comfortable, I would say, headroom from a balance sheet point of view to kind of pursue our growth aspiration.

[Rajesh Majumdar, analyst]

And sir, my last question is on Vijaynagar. Why are we still generating an average PLF of only 59% considering the fall in the coal prices, are we not able to get the merchant capacity there running as per our -- what do we need to? And any guidance for that for the coming year?

[Sharad Mahendra, executive]

No. See, as and when the capacities -- the requirements are there, we are -- state is looking for the power. We are generating. There are some issues, which are there related to water supply and all, but that has been taken care. So as and when there is a requirement, we are giving that power. But we are...

[Pritesh Vinay, executive]

See. If I can add to that, there's a Section 11 that has been imposed by state of Karnataka also, right? So the Vijaynagar plant whatever untied capacity is there, we will sell to the state at a certain tariff that has been agreed. So the Section 11 is in place. And therefore, as and when we are able to have excess generation, we are able to feed that into the grid.

[Rajesh Majumdar, analyst]

So do you think the PLF of 59% can improve significantly even Section 11 or merchant, wherever we sell? I mean I think it's more to do with Section 11 now than merchant. But can this improve significantly in the coming year?

[Pritesh Vinay, executive]

We would want to be conservative and not guide aggressively because honestly speaking, if you go back and look at our commentary, at least 1 year, 1.5 years ago, we used to say that look, merchant is something which is so volatile, it's not predictable. And hence, 85% of my capacity, which is tied up under long-term PPA accounts for 95% of EBITDA, right? The needle has chosen to move now.

So while we are very bullish on the underlying power demand growth and we sustained the power demand supply decisive situation, we would expect the firm merchant markets to continue at least over the medium term. But I don't want to, as a management team, want to guide aggressively and say that, no, no, please take your base case as much higher PLF. We are happy if you work with a 58%, 59% PLF. That's not bad enough.

[Operator]

Rajesh, I will request you to come back for a follow-up question.

The next question is from the line of Aniket Mittal from SBI Mutual Fund.

[Aniket Mittal, analyst]

Sir, firstly, on the 6.2 gigawatt MoU that we have with JSW. How does one think of rectifying that MoU into, let's say, PPA going forward?

[Pritesh Vinay, executive]

Aniket, you're right, the 6.2 gigawatt MoU is for the additional RE capacities that they need for their decarbonization targets. This will happen in phases because this is 6.2 gigawatt until 2030, not in one go. In one of the earnings calls before this, we had said that we are in discussions with JSW Steel for the Phase 1 of the 6.2 gigawatt. And we believe that during this quarter, we should be in a position to conclude the discussions and have the board approvals of both the companies in place and then sign the PPA.

And at the right time, we will make the necessary disclosures to the market. But we are reasonably confident that during the current quarter, which is the June quarter, we should be in a position to conclude this, the Phase 1 of the 6.2 gigawatt.

[Aniket Mittal, analyst]

Okay. The second question was just on the bidding that we've been doing in the utility tenders. Traditionally, we've been averse to bidding for in the vanilla solar projects. But I think over the past few months you won certain tenders within those frame as well, which are pure solar projects. So you understand the thought process of it. Are you seeing the equity IRRs or the competition intensity change in the market? And what sort of equity IRRs do you expect for these projects that you recently won?

[Sharad Mahendra, executive]

See, Aniket, you are right that in the past, we have not been present in this competitive bidding with the space. But as we have been saying for quite some time in various calls that we are targeting at least mid-teen IRRs, which were not there, but now at the current tariffs, which are being discovered and the CapEx, which is involved we will be -- definitely, that is one of the reasons, which we have participated. And going forward also with wherever at least the mid-teens IRRs are achievable, we are getting. We will definitely be looking toward in this space also.

[Aniket Mittal, analyst]

Okay. From the team [indiscernible] as well. Just one last question was you briefly mentioned about spinning the FDRE project. I think we've won about 180 megawatts. Could you give us an idea of how the scaling up will happen for that project in terms of wind, solar, battery, I'm just trying to understand how much of that is being built in, in this pipeline of 3.4 gigawatt that you have?

[Sharad Mahendra, executive]

See, if I understood correctly, you want that how this FDRE space bids will come up or the nature of the combination of how this FDRE, what we have won 180-megawatt will be structured.

[Aniket Mittal, analyst]

The nature. How that 180-megawatt will be structured?

[Sharad Mahendra, executive]

See normally, you can say it's a mix depending on the FDRE, it differs from -- it cannot be a standard listing because each state or each DISCOM whoever wants to buy what is their hourly pattern, which we have to cater to. So it is -- the project is designed like that. It is a mix of wind, solar and maybe it is also a storage, so that is how it is designed. But on an average, you can say it is normally 2x in terms of the capacity, if you see. How much is wind, how much is solar, how much of the storage depends on, but this is normally wind heavy -- FDRE is normally wind heavy. Solar portion is lesser. But on an average overall capacity, you can say average 2x.

[Operator]

Aniket. I'll request to come back for a follow-up question.

[Operator Instructions]

Next question is from the line of Nikhil Abhyankar from ICICI Securities.

[Nikhil Abhyankar, analyst]

Just a continuation on the previous question. So do we have any guidance on the best project as to have we tied up the remaining 40%? And are we looking to tie it up with our own FDRE bids?

[Sharad Mahendra, executive]

See, Nikhil, 40% right now, we have not tied up and we have designed the project in such a way that we are seeing the opportunities, as we see that during the -- in the merchant, the peak our -- demand and also the price which is being discovered and the demand growth, what we told -- I spoke about during -- in my opening remarks, we see this as so I think in peak demand, we will be using this in the merchant, in the morning and evening peaks. That is what we see.

And the gap, when we -- I said that the peak demand is likely from 243 gigawatts are going to be 260 gigawatts, this is maybe a particular moment. But during the year, the -- between off-peak and peak, the gap is increasing significantly in terms of the demand also availability and also the prices. So I think 40% of that, we will be keeping it open and selling during the peak hours. Because if you see the off-peak prices as low as INR 2 and peak as high as INR 10. So there is a significant room to take advantage of the situation.

So we'll be keeping this 40% of the capacity open for merchant. Because we have the flexibility that when we have to give, so we'll be giving during the peak hours only.

[Nikhil Abhyankar, analyst]

Okay. And sir, in the previous call, you mentioned that we might even think of adding greenfield thermal capacity. So do you have any update on that?

[Sharad Mahendra, executive]

Can you repeat, Nikhil, we just...

[Nikhil Abhyankar, analyst]

Previously, we also mentioned in the previous calls that we might look at greenfield thermal capacity. So are there any updates on that?

[Sharad Mahendra, executive]

Yes. See, Nikhil, if you see till now also, there is hardly any requirements are coming for the PPAs from anywhere -- any of the states. So -- but we are open to that as and when the opportunity is there, we will look into. But presently, we cannot give exact quantity or exact time lines for this. And also when we see that we are -- right now, our main focus is at the NEO level in the renewable energy space.

[Nikhil Abhyankar, analyst]

Understood. Sir, just a final question. Why exactly are we entering into wind manufacturing?

[Sharad Mahendra, executive]

See, Nikhil, we have to see that how the -- we see that how are the wind capacity additions in India have happened if you see. And what we have identified the various challenges, which have been there wind capacity, which we have added in excess of 3 gigawatts is I think is a high number if we see previous year.

One of the major challenges which have come is the supply chain bottlenecks, so it is basically not that we are looking towards this as a business, but we are looking to derisk our plans of the execution, what we have made to reach 20 gigawatts, it is basically the derisking and also, if possible, to take the advantage of the cost benefits when we are dependent highly on the imports. So it is purely a derisking of the supply chain to ensure that whatever we are planning, we are able to execute on time.

[Operator]

Thank you Nikhil. I request you to come back for a follow-up.

Next question is from the line of Sumit Kishore from Axis Capital.

[Sumit Kishore, analyst]

One more question on Ind-Barath. Now that the Unit 1 has stabilized at present auction prices, roughly, what is the variable cost per unit that you are able to secure in Ind-Barath?

[Pritesh Vinay, executive]

So Sumit, there are 2 modes of sourcing coal for Ind-Barath. One is the Shakti auctions, which is for power plants with no PPAs. And the second is the spot auctions by Coal India, right? These are the 2 primary modes. There's a third mode, which is happening, where some of the people in the neighboring region have a captive mine, and they have a permission to sell about half of that to the commercial role, right? So these are the, I would say, the 3 primary modes.

Now in the first batch of auctions, which we had participated in, which was, say, sometime in the second quarter of fiscal '24 -- second and third quarter. The premiums on the base price used to be higher, right? And therefore, I would say that the landed cost of that batch of fuel was I would say, close to INR 3, between INR 2.7 to INR 2.9 in that range. But there was a Shakti -- the next batch of Shakti auctions, which happened a couple of months ago, right? And this is valid for the current fiscal year. And here, we -- in most of the cases, you got it at the base price with no premium to the base price in those auctions. So -- but that coal is going to come in future during the year, right?

So that coal is going to be much cheaper than that. I would say that it's going to be less than INR 2.5.

[Sharad Mahendra, executive]

And also, as one good new thing which has started is for the first time in the Shakti, apart from the quarterly and the spot options, which were happening this time the -- they came up with bids, which are valid the offtake is for full one year. So a significant percentage of our total requirement for Unit 1 we have been successful in getting at nil premium. So that will start coming maybe from June onwards every month. The quantity will start coming, which will take care of a large portion of our requirement. So -- and that is at nil premium. So as Pritesh said, there, the fuel cost will be definitely under INR 2.50.

[Sumit Kishore, analyst]

Unit 2 stabilization would happen in Q1 or Q2 now?

[Sharad Mahendra, executive]

No, no. Q1, we are expecting the startup -- and sometime, maybe in early part of Q2, we are confident that we'll be able to stabilize the unit. Yes, at least 1 quarter stabilization maybe by mid-Q2, we should start reaching towards the stabilization.

Can we take the last question, please? Operator?

[Operator]

We'll take the last question from the line of Nikhil from AB Bernstein.

[Unknown Analyst]

My first question is regarding the bid for battery storage in Gujarat where JSW had quoted very competitively, so given the battery prices and those kind of bids, do you see your strategy shift back from pump storage more towards battery going forward? Or do you see a need for both...

[Sharad Mahendra, executive]

Nikhil. Now with the battery prices moderating what it was still about 1 year, 1.5 years or 2 years back and also the execution of the project the decision pump storage is normally higher, battery percentage will improve. But seeing that it will be that both have their own benefits. So I think both will exist and battery, that is the reason, as I told you, by FY '27, it is projected that between 8 to 9 gigawatts of battery storage will commission and about 7 to 8 gigawatts of pump storage.

But when we see that this percentage by FY '32, the percentage of pump storage will increase as compared to battery storage, capacity additions will happen in both the spaces. It is because a long period required to complete the project. So both are required. It is not that battery alone can replace this. And we already have MoUs for pump storage also in place on which we are working for PSP also.

[Unknown Analyst]

Understood. My second question is on -- if I wanted to ask you to highlight the single biggest challenge here you've seen in achieving our FY '25, '26 renewable capacity addition plan? What would it be? Would it be wind turbine availability? Would it be modules, land or transmission?

[Sharad Mahendra, executive]

No. See, the thing is these are the 3 key areas where you see we have already the team -- operational team and also at the management level, these 3 are very, very clear areas where any -- we need to focus. And I will tell you that we have -- how we have seen these areas and what we have done is, of course, land definitely is a must. That is the starting point on which we have already started building the required land bank. And when we see that the 2 years completion from the signing of the PPA, we will be ready from that aspect.

Second is also to add, along with land, which we have not mentioned, is the evacuation and the connectivity of the substations on which the CTU is also working, and we are also working. We have applied for the connectivities to match it with the completion of the project that connectivity should be there.

Now coming to solar and wind turbine WTG availability, we don't see that as a challenge, especially from the wind space. There are enough capacities right now, not in India, but the opportunities which are there in outside India, maybe in China also. So we have already locked in significant capacities what we need for wind turbine already and which will take care of our maybe next year requirement also.

And in terms of solar modules, when we say enough capacities are now there in India and the new capacities which are going to get added in the current fiscal by December. There will not be any challenge we see in terms of module availability for us at least and also from wind turbine availability. So we have taken these 3 areas as the identified areas to focus on, and the team is -- and the management is definitely working on that.

[Operator]

I now hand the conference over to the management for closing comments.

[Pritesh Vinay, executive]

Thank you, everyone, for joining this call. And in case there are any follow-ups, please feel free to reach out to the Investor Relations team, and they'll be happy to answer all your queries. Thank you very much.

[Sharad Mahendra, executive]

Thank you. Thank you all. Thank you very much.

[Operator]

Thank you very much. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.