Torrent Power Ltd
NSE:TORNTPOWER
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Torrent Power Ltd
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Ladies and gentlemen, good day, and welcome to the Torrent Power Limited Q1 FY '21 Results Conference Call hosted by IIFL Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harsh Dole from IIFL Capital Limited. Thank you. And over to you, sir.
Thank you, moderator. Good morning. And I welcome you all on behalf of IIFL Security for the first quarter earnings call of Torrent Power. To discuss the numbers in depth. And also share the outlook for rest of the year, today, we have the senior management team of the company, represented by Sanjay Bhai Dalal, who is the CFO; Rishi Shah and Jay. I would first request Sanjay Bhai to give his opening remarks, subsequent to which we can have the call open for Q&A. Over to you, sir.
Thank you, Harsh, and good morning to all the participants in our Q1 earnings call. As usual, I will first give an overview of the performance for the quarter, and then we'll take questions from you all. You would already have the Q1 financial results. So I'll just reside some of the key numbers and give some explanations around them. So the consolidated PAT for Q1 came in at INR 368 crores versus INR 274 crores in the comparative quarter. That is higher by INR 94 crores or about 34%. The PBT number was INR 468 crores versus INR 320 crores in the comparative quarter. That is up by INR 148 crores. That is 46%. Before talking about the numbers, I would like to first deal with the nonrecurring items, which are embedded in these numbers to get a clearer picture of what is the underlying performance. So firstly, in our license distribution business, we won some favorable orders from the regulators with respect to claims, regulatory claims, amounting to about INR 344 crores made up of 2 parts: one is the basic claim of INR 283 crores, and the tax allowance thereon, which we would get of about INR 61 crores. The main item in this one-offs is the carrying cost order, which we won. Now this carrying cost pertained to earlier years and the tax allowance thereon. Since these were in dispute, they were not accounted earlier, and we have now accounted based on the favorable orders which we have won. The other one-off during the quarter was a loss of INR 61 crores, which we incurred because the government asked us to waive the fixed charges for certain category of customers for the month of April in our licensed distribution areas of Ahmedabad, Surat, and Dahej. So we do not expect that this waiver of fixed charges for a certain category of industrial and commercial customers, will be allowed as a true up. And therefore, we have taken a charge on that account. So that is a INR 61 crores impact on PBT because of that. And additionally, of course, there were certain COVID-related donations, which we made, all amounting to about INR 12 crores. So these 3 were the key one-off items during the quarter. Now if I adjust the PBT number for these 3 items, of income and costs, then the adjusted PBT for Q1 comes to around INR 196 crores, which was INR 311 crores in the comparative quarter. That is -- the PBT is now down by INR 115 crores or 37%. The key reasons for the reduction in PBT is, of course, the pandemic induced impacts. So the pandemic initially post unprecedented operational and cash flow challenges in both the distribution and generation segment. We were successful in addressing all the operational and cash flow challenges, and we were able to keep our operations uninterrupted all throughout the lockdown period and, of course, thereafter also. However, the pandemic did adversely have a financial -- did adversely impact the financial performance during the quarter, mainly due to the unanticipated and drastic reduction in electricity demand in all our areas. So just as an overall number, almost the Q1 electricity demand was down by 37% as compared to the comparative Q1. Now this reduction in demand has particularly hit us hard in our franchise distribution segment. So that's one where we -- a straight loss of contribution because of lower demand. Additionally, because of such a drastic reduction in demand and because of the change in the customer mix because this demand drop has happened essentially in the industrial and commercial segment, which are typically low loss -- low T&D loss customers. So because of that, now the low T&D customers have taken much less electricity and the higher loss electricity consumers have continued to consume the same -- at the same level that previous year. That has resulted in an overall increase in T&D losses. So that's another reason which has impacted the financial performance. And lastly, of course, we were -- we had a very good merchant power business last year, particularly in the Q1 of last year. So that also, of course, got impacted both because the overall market volumes were down in merchant power and of course, the realizations are also down. So these 3 are the key reasons why the PBT is down by about -- the adjusted PBT is down by about INR 115 crores. Coming to segment-wise performance. The gas-based generation segment brought in better contributions and has contributed towards the PBT -- PBIT during the quarter, primarily because of 2 reasons, 2 positive reasons. One was that this quarter, our UNOSUGEN plant operated under the long-term PPA, whereas in the comparative quarter, UNOSUGEN plant was not operational under the long-term PPA. So that benefited -- that benefit is there on a comparative basis. Secondly, if you recall, we had provided for INR 1,000 crores impairment in the DGEN assets in Q4 last year. Now that has resulted in a lower depreciation charge on the DGEN plant in this quarter and so will be the case in the subsequent quarter. So because of these 2 reasons, overall gas-based performance has been good. And of course, it is good after absorbing the reduction in contribution, which came from our merchant power business. So on a net basis, the gas-based generation has helped us by improving the contribution during the quarter. Renewable segments, 2 things happened. In this quarter, we had additional 126-megawatt of capacities, which were operational, which was not there in the previous quarter. So that brought in additional revenues. However, we experienced significantly lower wind speeds in this quarter as compared to the previous quarter. And therefore, the PLFs were down. So the net effect of this was the renewable business broadly was stable. It brought in -- at PBIT level, it was more or less at the same level as it was in the comparative period. And of course, this particular segment, there's no particular COVID impact as such because of it must run status. Coming to the licensed distribution business, if you -- so basically license distribution business has a regulatory mode, which is protecting its profitability, and that was seen in the quarter. So the bottom line remained unaffected during the quarter. So it was more or less at the same level as it was in the previous quarter, if you take out the nonrecurring effects out of the performance. But of course, this was in spite the volume and T&D losses both getting adversely impacted in our license distribution business. So the volume reduction even in the license distribution business in Q1 was 36% and the T&D loss also was higher as compared to the previous quarter because of the adverse change in sales mix, which I explained earlier. But because of the cost plus nature of the regulation, the profitability has not been impacted because of this. So coming to the franchise distribution business, this was the most affected segment. So Bhiwandi and Agra both witnessed significantly lower volumes. So in these 2 areas, our volumes were down by 41% as compared to the comparative quarter. And of course, the trade impact of this is the loss of contribution. So that is the key driver. The T&D losses were also higher because of the adverse change in sales mix, which I explained earlier. Collection efficiencies were sharply lower in Q1 in these 2 areas. However, the additional provision which we took in Q4 last year for these areas had the reps of most of the -- losses arising out of doubtful debts because of lower collection efficiency. So not much impact in Q1 on that account. So on an average, Bhiwandi and Agra therefore suffered a significant reduction in PBIT in the quarter. But having said that, in large part of the damage in this segment, Q1 was the -- Q1 is the quarter in which the impact of COVID on these areas will be the highest. Going forward, we see that this should start going down. And by Q4, we should substantially come out of that. Additionally, the Shil, Mumbra, Kalwa area, which was taken over on 1st March, also operated during this quarter. It was not there in the comparative quarter. And of course, we couldn't do much because of lockdowns and other restrictions in this area. So this segment -- this new area also contributed to the lower performance in the franchise distribution businesses. So that sort of gives -- completes the overview of the quarterly performance. I would now request the participants to raise the questions on the performance, and we can go to the Q&A portion now.
[Operator Instructions] The first question is from the line of Bhavin Vithlani from SBI Mutual Fund.
It would be helpful if you could give us some flavor on the franchisee part of the business? What was the performance in terms of -- on the June month and the July month, as a percentage of last year's performance? And you mentioned that by fourth quarter, you expect normalcy to the store. So how should one look at the performance in the next 1 or 2 quarters? The second question is on the capital expenditure front for the license distribution area. Last call, you mentioned that one needs to go back to the regulator and what is the kind of CapEx required given the current situation? The last question is on the new distribution opportunities. It will be helpful if you can help -- are there any circles that you have understand that should be on the ground level that these could be put up for privatization or franchisee level in the next 12 months? These are my questions.
Okay. Okay. So first question was June, July performance on volumes, right, in the franchise distribution business?
Correct.
So June, I can certainly give. July, do we have readily available, July performance? Okay. So let me give you the June actual number. So I'll give you the quarterly for both distribution franchise business. So the distribution franchise business in Q1 experienced a 37% drop in the volume as compared to the comparative quarter, right? Now this includes SMK, which is purely a residential area. And it was not there with us in the previous quarters. If I remove -- we, of course, have the numbers for the previous quarter. But if I remove SMK, which is not where the demand has not really been affected, then for Bhiwandi and Agra together, the volume drop in Q1 was about 41%, all put together. July numbers, I don't readily have, but I'll give you an off the cuff number which we have for July. So for July, distribution franchise business is likely to be down by about 25% as compared to the previous July. And lastly, I'll give you an overall flavor for the whole year, how we are looking at it as of now. And this is a continuously evolving situation, and there are significant risks to demand which are still there. So this number is what is our current estimate. So currently, for the distribution center area, we are -- we feel that we will experience an overall demand drop of about -- see which is the whole year. Whole year [Foreign Language] whole year is about...
20%.
Yes, this is the whole year right? So yes, for the whole year of 2021, it is going to be about a 20% drop. Right. So that's one thing. So it's not that things will become normal. But March will appear to be normal. March will look -- we'll see a positive growth because the competitive math also was affected, and a lot of recovery would have happened. But I think a normal year would be the year thereafter probably.
Fair enough.
So that was one. Second, you said about the CapEx in the license distribution area. So I think one comment you made was that we have to go to the regulator for that CapEx. That's not the care. I mean, the regulator has already approved a CapEx plan in the multiyear tariff orders which he has passed. And of course, now there will be a new multi-year tariff order which will come up from the next year. But we have given a guidance of, I think, INR 1,500 crores per annum CapEx for next 3 years is '21, '22, '23. So INR 1,500 crores of CapEx in license distribution for the next years, that was the guidance we had given. So -- of course, there has been a significant slippage in the -- likely to be a slippage in the current year because of the time lost. So Q1 is more or less loss. And now we are in monsoon. So the work won't -- the monsoon preparedness also has not happened because of the lockdown and other restrictions. So whilst there will be a slippage in the CapEx for the current year, we hope to catch up in the remaining 2 years. So we are continuing to hold the guidance of INR 1,500 crores of CapEx per year on an average in the next 3 years, that is '21, '22, '23.
Okay. So this year would be less than INR 500 crores?
Again, this year, estimates are dicey but I would sort of put it at -- to be honest, in the Q1, we had about INR 100 crores of CapEx, right? So now we had the 3 quarters. Now Q2 typically is a low CapEx quarter because of monsoon. So it is Q3 and Q4. So we are working on a catch-up plan. So if you want a rough number for what would be the whole year, I think it would be around INR 800 crores. That's what we are targeting. And the third question, you said, that what are the new distribution opportunities, right, in the next 12 months? So as a part of the pandemic package for the power sector, the government made bold announcements of privatizing the distribution sector across the country and so on and so forth. So I think that work on that front is happening in the Central Ministry, and there would be something which would come out soon. Right now, we don't know what is going to be the framework in which they are going to privatize, except that they want to first start off with the union territories, which are, I think, Jammu, Ladakh -- Jammu Kashmir, Ladakh, Chandigarh, Puducherry and such other Diu, Daman, these are small -- other than Chandigarh, I think most of them are small areas. So that -- and on the state side, I think right now, there is a process ongoing process in Odisha where the Orissa government is trying to privatize 3 of their distribution circles. So in terms of -- which are the opportunities which are -- today, they are in the market, these are the Odisha distribution circles, and which will come in next 12 months, I think we will have to wait for the government to come out with the framework within which they want to conduct privatization and how states respond to it. What we feel is that, I think states -- some of the states will probably want to go with the franchise distribution model because it's fairly tried and tested. And some may also go with the privatization model. But I think that will be clear only after the framework is announced and then how they respond to it. So difficult to say what will happen in the next 12 months. So far as the company is concerned, we are -- of course, this is a great opportunity for us because it's an area where we are very strong. We have the management capability and the bandwidth to take on new areas. And therefore, we look forward to this as an important growth opportunity for the company.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
Sir, my first question, just wanted to clarify, you said, you have not taken any further provisioning with respect to, let's say, Bhiwandi or Agra, anything going back there with respect to receivables. Anything of that sort is not being taken in this quarter. That's the right understanding, right?
So there is net provisioning of I think around INR 4 crores, which we have taken. And what I said is there was no significant provision, additional provision required because of lower collection efficiencies. So...
Any particular reason, sir, we are not providing there then areas like Bhiwandi, the textile units are shut. People are not there, not coming back. Once they come back, we'll come to their business capability, their areas, their capability of areas to pay you. And I think in accounting terms, there is a concept of ECL, which I think every company is doing it. So any surprise that why auditors are not saying to -- or rather be taking certain provisions? And I mean, where does that content coming from? Just wanted to understand that.
Yes. Okay. I can explain you that. So we also follow the ECL concept. And -- so if you recall, in Q4, we had taken almost INR 50 crores of special provisioning, right, for Bhiwandi and Agra. Now when we -- our normal -- let me tell you what is the normal provisioning policy. So in Bhiwandi and Agra, what we do is that once an account is overdue by 120 days, we make provision for the entire amount in that account, right? What happened in this quarter was that there was an extension of due dates by the government because of which customers legitimately postponed their payments in both the places. So the provisioning policy was adjusted for -- from 120 days to 120 days plus the extension, which was granted by the government. So on that basis, we worked out whatever -- what is the provision we would require. And against that, what is the aggregate provisioning, which we already hold. So since the provisioning of INR 50 crores was already taken in Q4, we -- there was no need for further provisioning required. And that's how this quarter doesn't have a higher provisioning for bad debt, doubtful debt. These are not bad debts. These are doubtful debts because they are done on an aggregate basis on a non-formula basis. On an overall basis in the remaining 3 quarters, each of the quarters we will have some provisioning, but I will have to make the provisioning as and when the sales happen. See ECL concept doesn't allow you to make provision for sales, which is going to happen in Q2 or Q3 or Q4 today. I have to apply the concept to the nets, which are outstanding as on 30th June and see what is not likely to be recovered from there. So that all is properly taken care of. The next question is, will we face some additional losses -- credit losses in the remaining 3 quarters? Most certainly, we will see that. But some of the sales which happened in the next 3 quarters, we may not be able to recover. So we will assess that at the end of each quarter and whatever is the provision required, we will make it, right? So that's the second question. And the third question, just to give a color around the topic I will just share with you what is the collection efficiency in Bhiwandi and Agra. So Bhiwandi, in Q1, our collection efficiency was 85%, which means that whatever we build to the customers, 85% of that we have collected, right, within the due date. It doesn't mean that the rest 15% will not come. But some of it may or may not come, and that has been taken care of in the provisioning. For the whole year of last -- I mean, if I take the last year, that collection efficiency was almost 100%. So there is a deterioration in collection efficiency. Similarly, Agra collection efficiency was 77%, which is a deterioration for around 92%, 93%, which it was there in the last year. So going forward in the remaining 3 quarters, we expect that the collection efficiencies will improve. And at least in Bhiwandi, on an overall basis for the whole year, we will reach around 100% collection efficiency. And in Agra, we will probably reach to the levels we were there earlier, that is about 97%, 98% collection efficiency, right? So -- but that journey from here till then will involve some credit losses, and we will take those as and when they come in the respective quarters when they are required to be taken.
Sir, just one clarification this collection efficiency is on a down volumes of 50%, 60%, right? The volumes are not 100% there. So when I think collection efficiency, whatever it's paying to me.
Right. Yes. So whatever I have build in the quarter and how much I have collected out of that.
Got it. Sir, can you talk about a little more on the working capital side, how is the receivable movement has been done and on the debt side? That's my last question.
Debt side, you said?
Yes, debt and the working capital, the receivables.
Okay. So I'll take the working capital first. So when the lockdown was announced, almost all state governments extended the due dates for payment of electricity bills as a measure of relief to the customers. So for us, it meant that our collections went down to almost 0 in the month of April and May, practical, whole of it. But at the same time, we were directed to continue our operations uninterrupted. So of course, there was a huge cash flow challenge. We very successfully overcome that through a combination of measures. So one was that we had very strong liquidity position in the balance sheet as of March '20. So that came in good stead. It helped us keep our operations going. Number two, we also had a large undrawn credit lines with the banks. And we utilize that to meet our cash flow requirements in this period. So this to put together help us keep our cash flows intact. We also opted for the moratorium, which was permitted by RBI in these months. And all these 3 measures put together helped us manage the working capital well. We could keep the operations going. Pay for all our power purchases, all our fuel purchases, pay all our transmission charges, everything in time and with full rebates, which are allowed for timely payments and keep supplying electricity. June onwards, in the licensed distribution area, we started recovering our money pretty quickly. So we started reversing all these additional borrowings, which we had done in April and May to keep operations going. And we could substantially reduce that in June. I think there has been a further reduction in July. And by August end, we should be back to almost 0 working capital debt. It would mean that the position as on March '20. So that's the working. So I think by September, we should be back to normal so far as our receivables are concerned on an overall basis. And we would have no working capital debt in the balance sheet left. So far as debt is concerned, as I told you, we had operated for moratorium for the month of March, April and May. But in June, we completely reversed all the moratorium, and we paid off all our long-term dues which had fallen due in March, April and May. And also, in addition, prepaid about INR 300 crores of debt, which -- for which we had an opportunity to do in June end. So that's the overall position on that. I can just give you where we are on the outstanding debt position. Do we have that number?
INR 8,400 crores.
So as on June end, we had INR 8,400 crores of total debt outstanding.
Long term debt.
8,000 [Foreign Language] total debt.
Total debt INR 9,300 crores.
So INR 9,300 crores of total debt outstanding, versus INR 8,900 crores of debt outstanding on March '20. So the roughly a INR 400 crores increase in debt, which, as I said, I will reverse it by -- we will be able to reverse it by August end substantially. And on an overall basis, we will end up with a net reduction in debt for the year. A significant benefit has come in form of lower interest rate. So that is also seen in the Q1 numbers.
[Operator Instructions] The next question is from the line of Nishant Chandra from Temasek.
I had 2 broad lines of questions. One, for the customers who are, let's say, either bad credit and all of that, do we have any caution deposit or some sort of an advance against each of these customers because that's the case in the case of retail in some of the other jurisdictions, so I thought I just checked because that access in a way, sort of -- it keeps the customers honest in a way. That's one. And the second one is for some of the facilities that you've extended to the customers, which is, let's say, effort collections and so on and so forth as managed by the government, is there any compensation mechanism that the government or the regulator intends to provide you with?
Okay. So first question, was whether we have any security deposits. So we do have security deposits for the customers, which are available to us in case of loss. So -- but there is -- so that's one part. In licensed distribution area, therefore, we are pretty covered. So we generally may not have significant provisioning ever happening in the licensed distribution area. In franchise distribution areas, these are -- there are baggages, which have come along with this areas when we took over. And one of them was that the security deposits are inadequate, and they were taken ages back, so not adequate as compared to the customer bills, which are there today. So that -- and that is not something which is available with us. It is retained by the licensed operator because the license operator is entitled to collect security deposits. I am only a franchised operator. So he retains the security deposit. But in case of bad debt, he gives me the security deposit. So we do get that. But those are not...
So is it fair, that the coverage of -- the coverage is very poor because of the...
The coverage is not adequate. That's one point. However, there is an additional safeguard, which is available generally to the electricity operator, whether it's franchise distribution or license distribution. And that is the disconnection. So there are rules for disconnection and reconnection. So we would certainly disconnect if the dues are not paid as per the rule. Once the disconnection happens, those dues remain attached with that property. And whenever a reconnection is spot for that property, that the person who wants the reconnection would have to pay that due. So there is always a fair chance of recovering it in future also. And we do recover old dues from disconnected customers when somebody else buys the properties and seeks a reconnection.
Makes sense. Okay. Understood. Okay. And the second one is the compensation on the ROE basis, right? Would the regulator provide any compensation to you?
So there were 2 reliefs which were granted by the government. In the license distribution area, there is Ahmedabad, Gandhinagar, Surat and Dahej. The government of Gujarat announced a relief for high-tension and low-tension, medium demand customers, essentially the industrial customers and commercial customers, that they will not be charged fixed charges for that period, for the month of April. And we do not expect the regulator to allow us a true-up of this cost, this loss. So therefore, we have taken a charge for that cost in our P&L. So Q1 reflects that charge. It's about roughly INR 61 crores in...
Sorry. So the government so or so declared that they'll not be charged, and they are not even compensating that...
Yes. Yes. Yes. So that's the provision, I mean, from an accounting perspective. Vis-à-vis the regulators, the government, we are, of course, seeking compensation for that, saying that this is against the regulations. I mean, you can grant that benefit, but you can't ask us to bear compensate. As and when we receive that, we will bring it into the books. As of now, we have taken the charge, I mean, as a prudent measure. And secondly, you said on the extension of due date. So yes, there, there is an economic cost which we have incurred. So again, in the books, we are not accounting any compensation on that account. However, vis-à-vis the government and the regulator, we will -- we have already made submissions and we'll continue pressing the issue that we must be compensated the economic cost for delay in payments.
Correct. And it is a common thing. It is nothing unique for you. It is for every distribution franchise, you will have incurred that cost. That's the...
Yes, yes. So I think right now is not the time to press the government itself is diverted in fighting the pandemic. But I think when situation normalizes, we would take it up properly, both with the government as well as the regulator that we are suitably compensated for both these matters.
Understood. Just 1 last question, if I can squeeze in is -- I've joined the call late. So I don't know if you've covered your plans on new zones of expansion for either license distribution or franchise distribution because there were a few bids which were expected in the first half of this year. If you can just maybe throw some light on how the company is thinking about those?
So the government had announced a package for the power sector and one of the aspects of that package was the intention to privatize the distribution segment in the power sector. The framework for privatization has still not been announced. Therefore, today, we don't know what is the framework as well as what would be the responses of the states because it is the state who has to carry out the privatization. So difficult to say, but we do know that the government is working on a proper framework. And soon, we will have that framework in place. So once we have that, we would know what are the opportunities which can come this year or next year. Today, that visibility isn't there. The only visibility is there that I think the Union Government is clear that they want to privatize the Union Territories, right?
That's correct. Yes.
But those are small, except for Chandigarh, I think there are smaller areas. But nevertheless, they would be important and interesting because as a company...
You would also be far more cleaner than state SCBs discounts, right?
Right, right, right. So that, of course, yes. And so far as franchise distribution is concerned, I think, again, there is no clear visibility in terms of which areas would be coming up initially. I think most of the states probably are also waiting for seeing what is the privatization framework before taking calls on whether they want to go for privatization, whether they want to go for franchise distribution or whether they want to follow a hybrid model. So I think let's wait for this framework. But as a company, we are preparing ourselves because this is one of the most important opportunity as far as we are concerned because we have one of the areas where we are amongst the best in the country.
Correct. And would that require a lot of capital? Or what is your sense? It would be capital-light or moderately capital intensive?
I would say moderately and well-spaced capital intensive. So moderately capital intensive, but the CapEx will also be well spaced. So you are able to incur CapEx on a modular basis and start generating revenues out of it.It's not like a power plant where you upfront put INR 8,000 crores before you see the first revenue for that time, you spend INR 300 crores and INR 400 crores, you'll start seeing revenue benefit coming out of this. Then you move to the next. And so because it's modular in nature, you can also plan it and replan it to ensure the optimal mix between CapEx and revenue generation associated with it.
The next question is from the line of Abhishek Puri from Axis Capital.
Sir, just wanted one clarification first before I jump on the questions. You said in July, DS volumes are down 25%. Does that include the SMK circle as well?
I can give you without SMK circle. Also yes, it does. But if I exclude SMK -- so let me give you a more granular number for July. Now I've got an actual number for July. So Bhiwandi, we are seeing a minus 41% drop in July. Agra, we are seeing a minus 1% drop only. Bhiwandi, we must remember there has -- there was a reimposition of lockdown also. And SMK is not relevant because there was no comparative July, but we have the numbers for comparative July. So SMK is more or less the same. There is neither any growth or degrowth. So it's Bhiwandi, because Bhiwandi has 90% plus industrial volumes. Agra has, I think, lower industrial volumes. Almost Agra industrial volumes would be around 40%, right? Agra Industrial volumes -- industrial and commercial are around 40%. Bhiwandi is around 90%. So Bhiwandi is taking much longer time to recover, partly because of reimposition of lockdowns also. Agra is coming back quite well.
Right. Okay. Sir, on the gas projects, the gas prices have started to move up a little. I think they have fallen also in March, April since lockdown and they've started to move a little bit from $1.6, $1.7 to $2, $2.1 now. What are the contracts that we have? We have 4 shipments for the current year. Is the pricing fixed for that? Any further shipments that we have booked the pricing is fixed or variable. If you can give us color on that, it will be useful. And similarly, on the merchant sales also for the current quarter, if you can spell-out the volumes, and we can see DGEN has improved quite a lot. But is the spread between fuel costs and tariff, has that been lower for us in the current quarter?
So first question is gas tie-up. So gas, for the current year, I mean 2021, we have tied up and all prices are fixed, right? So that all happened even before the outbreak of pandemic, right? So actually, what happened because of the pandemic, and that was on a normal year basis. Because of the pandemic, the volumes would be much lower, both our long-term off-takers will take lesser volumes, and the merchant power volumes, the normal merchant power volumes although would have gone down. So actually, we were suddenly over contracted for gas. And gas, as you know, can't be stored beyond the point in time. It has to be consumed or disposed of because there's a limited storage available, particularly the import area. So we had to do a lot of juggling to ensure that we do not incur any losses on account of over-contracted gas. And I am happy to report that we have substantially managed the situation without losses. And now for the balance of the year, whilst we are fully covered for gas. At least we are not significantly over contracted. We would be able to utilize all the gas, which we have tied up, imported. And we have rescheduled all the cargoes as compared in the previous period. But based on the rescheduled cargoes, we would be able to operate all our plans based on the new demand as well as fulfiller obligations on the gas contract. So I think your question was whether there is any untied gas for the current year. So no, we have not -- no untied gas for the current year. For the next year also, we have partially tied up some cargoes. And the balance, of course, we'll tie up based on how additional clarity, which we get on the demand situation. Yes. So that was -- what was your second question, Abhishek?
On the merchant volumes and margins that we would have.
Okay. So I can give you some numbers on that. So in Q1 of the current year, we sold almost 921 MUs at an average contribution, net contribution of INR 0.38, right? The comparative is 783 MUs at an average contribution of INR 0.69. So number one, if you see the volumes have gone up, and of course, the contribution has gone down because the prices were down. But the volumes have gone up because we -- as I told you, we were over contracted for gas, we had to dispose of the gas. So we sold a lot of volume on the power exchange. And fortunately, because of the good price at which we have tied up the gas, we could burn that gas and still recover all our marginal cost of selling it on the power exchange. That was one of the ways we manage the excess gas, which we had.
[Operator Instructions] The next question is form line of Dhruv Muchhal from HDFC Asset Management.
[Audio Gap] pending carrying cost claims. So is this amount that you have recorded corresponds to that and there could be further such claims that you are expecting?
No, no, I could not hear your full question, particularly the initial part. Can you repeat it?
Yes, sir. Sir, the carrying cost claims that you have booked. Now in the annual report, you had mentioned that about INR 632 crores of pending carrying cost claims that you have not recorded in the books. So the amount that you have booked in the current quarter, does it correspond to that? And do we expect the balancing amount also to be recovered, I mean, to be booked in some time?
So the number which we have recorded in the Q1 results is only pertaining to some part of that for which we got a favorable order. I think there is still one major item on which we have not yet received any orders. And that is a balance amount of INR 328 crores. So that also relates to the carrying cost, but it is on a different principle on how the carrying cost has to be compounded when it is not -- when gap is not recovered in time. So when that matter gets resolved and if it gets resolved in our favor, that would be an additional recognition in the period in which we get that order.
Got it. And sir, with this order now, I believe you had received another favorable order earlier and -- with this INR 344 crores of order. Is it fair to assume now all the carrying cost issues in terms of the theoretical application of this principle, everything is resolved and GERC will now allow you the carrying costs? Because earlier, I believe it was waiting for the actual order.
Yes. So GERC was allowing us the carrying cost, subsequent to these disputes also in a manner. So with these disputes now, almost all issues on carrying cost, except and compounding part are sorted out. So when the compounding part gets sorted out, then there would be no other issues left on carrying cost. But you must also remember that GERC has powers to frame regulation. And now the MYT regulations are up for renewal from next year onwards. I think from there will be a new MYT regulation from next year onwards. So we have to see what they do in that. But I think we cannot ensure the concept of carrying cost. So -- but what else they do, we will have to see. But otherwise, yes, we are now clean on carrying cost dispute.
So sir, if I take your numbers, so you had about INR 1,000 crores of regulatory assets, which are pending to be received. So on that INR 1,000 crores, now you can recognize this say about 8% or 9% as carrying cost, which -- will you accrue this or you will record this only on cash basis? Or you were already recording this as a part your books?
No, no. So we accrued this but in a slightly different way. So what happens every year, we get a tariff order. Now in this tariff order, there is a gap, which gets added to the ARR, right? And on that gap, they allow us a carrying costs. So that when we get the tariff order, we record that the carrying cost. It typically would give the carrying cost for 2 years. So we will record the amount in each of the years. But we would not record the carrying cost of the gap, which we do our sales true up in the current year. Let me explain it by giving an example. So the year '19/'20, for example, '19/'20, the regulator has not seen the actuals as of now. But we have done a sales true up for '19/'20 based on the actuals, based on the regulations, past practices, et cetera, and arrived at sales actuals gap, which we have accrued. However, we have not accrued any carrying cost on that. Only when the regulator allows that caring cost, we will accrue it.
Got it. Got it. And sir, the last question, just before the COVID thing happened, any sense that you can give what were you expecting in terms of your T&D losses in Bhiwandi and Agra, say 2 or 3 years down the line? Because I am just wondering, we have already reached 10% in Bhiwandi, 11% in Bhiwandi last year and Agra about 12% or 13%. So what is the further scope to squeeze this?
No. So if you look at Ahmedabad, that's around 6%. So -- and Surat is about 3%, right? Now Bhiwandi and Surat in a way are comparable. Surat also has a very large industrial base in our area. And Bhiwandi also has a very large industrial base. So typically, the runway to reduce is still quite long. Because, as I said, Bhiwandi is 90% industrial commercial, 10% residential. So industrial commercial is either low tension, high to medium demand or high tension consumers, where the losses are typically lower once they are controlled. So there is still a lot of room to reduce losses in both Bhiwandi and Agra.
Okay. So Ahmedabad and Surat can be considered as benchmark to gauge Bhiwandi and Agra probably?
Yes. Yes. For us, that is the benchmark. We have to reach that level in all areas.
The next question is from the line of Aniket Mittal from Motilal Oswal Financial Services.
Sir, one question on the TF business. So we've seen a sharp in the T&D losses over there. And in this quarter, you've said that for the DF, we are expecting a 20% decline in the overall volumes for this year. So could you also highlight on the T&D loss trajectory, how could that pan out for the entire year? And also, could you provide a breakup in the consumer mix, let's say, for this quarter versus the last quarter of the previous year?
No, no, no. The first question was?
So first, what I'm trying to understand is, you're saying there's a probability of 20% drop in the TF volume for this year, right, Y-o-Y. So from a T&D or a latency loss perspective, what would that number move like given the fact that we've already seen a sharp increase in T&D loss in 1Q? And I'm just trying to understand the consumer mix, let's say, what was your consumer mix in 1Q FY '21 for the DF versus that in 1Q FY '20?
Okay. So let me give you first the flavor on T&D loss, right? So T&D loss for the year as a whole, we are expecting it to be around 16% in Bhiwandi and about 12.5% in Agra. So Agra, we won't experience any deterioration. We will probably not improve from what it was last year. Bhiwandi, we will experience some deterioration from 12% to sort of 16% kind, right? Now so these are our current -- because there are limitations. I mean, in revenue protection -- carrying out the revenue protection activities, and that has impacted Bhiwandi. But I think in the year thereafter, we will be back to normal. That's how we are looking at this. Now the second question you said was, what is the consumer mix, right?
Yes.
In Bhiwandi, Agra? In Q1, you wanted, particularly, right?
Yes. Let's say, if we can compare Q1 of this year versus Q1 of last year?
I don't have Q1 of last year, but I can give you a whole of last year.
Okay. Sure.
Okay. I have Q1 of last year also. Sorry. So let's take Bhiwandi. So Bhiwandi Q1 last year was 90%. And overall also, it's 90%. 90% is other than residential. So it would, therefore, mean industrial, commercial, then municipal, water works, blah, blah, blah. So that is about 90%. And in Q1 of this year, that is a current quarter, that has been 73%. Agra was 40%. And that in current quarter, it has become 25%. So the mix has changed.
[Technical Difficulty] just how the mix is going and how your Bhiwandi losses are moving?
So the mix has changed. And therefore, the percentage T&D loss is higher. I'll just give you some simple additional explanation. So the percentage is higher because the high T&D loss customer base has remained the same. And the low T&D loss customer base has come down in the mix proportion. So the percentage T&D loss is higher. Otherwise you must also remember that the unit sent out have also gone down because the demand has gone down. So the actual absolute units were lost in T&D are, therefore, relatively lower, both in quantum as well as in value. But nevertheless, there are losses.
Understood. Sir, another question was on this regulatory number itself. So we currently have [Technical Difficulty]. Now given that the new tariff order for '21 is not yet out, how do you see this number moving? Would that be another regulatory gap that will be created this year?
Tariff order for 2021 is already out.
But it does not take into account the fact that power decline, right?
Yes, yes, exactly. So the tariff order is out, but it is based on a normal demand assessment. So now that has completely changed. So what will happen on an overall basis is that we were otherwise expecting a revenue surplus for '20/'21. So '19/'20 also was a year of revenue surplus. '20/'21 also, you were expecting a revenue. When I say revenue surplus, I mean that the stand-alone ARR for the year would be recovered, and there would be additional recovery towards past year. Now the situation for '20/'21 will certainly change. The revenue surplus is not likely to happen. And actually, we will end up with some regular revenue gap, which means that for '20/'21, we will not be able to recover our stand-alone ARR for '20/'21. We will recover less, and there will be a creation of regulatory gap.
So sir any quantification [Technical Difficulty] as to what that cap is?
It is very dicey to give, but I can give you a very, off the cuff number is INR 175 crores.
All right.
One sec. One sec. One sec. No, no, no. How much is it? INR 175 crores, I said. Is it that power purchase.
Surplus.
Okay. So on the power purchase cost there is some surplus. Okay. So I think the overall GAAP is assessed at anywhere between INR 80 crores to INR 100 crores.
Sure. And sir, just continuing on this point. Sir, given the fact that the overall imported prices have gone down. Are we looking at changing our mix? I'm just trying to understand, we would have locked in certain gas prices, certain gas contracts at a higher prices? Are we looking at that to, let's say, benefit somewhat on the power purchase front?
So we have now 2 sources of gas, main sources. One is a contract with RLNG contract with IOC and the second is imported LNG. So the dominant source is imported LNG. So any price reduction happening there, of course, benefits us in terms of reducing our fuel costs. So in terms of tie up, as I said that whilst we have tied up '20/'21, obviously. For the year '21/'22, we have only partially tightened the gas. And one of the reasons we are going slow in '21/'22 is that we want to be sure of what is the kind -- what is the demand scenario emerging for '21/'22 because we do not want to unnecessarily over contract the gas. And the current situation in the LNG market is helping us do that because the prices have been very soft and the pandemic effect are likely to remain soft for the next 3 to 5 years at least. So we will be cautiously tying up gas, and we hope to benefit continuously from the soft LNG market there.
[Operator Instructions] The next question is from the line of Mohit Kumar from IDFC Securities.
I have 2 questions. So first is on sir, is there any first measure clause in Bhiwandi and Agra? Of course, I believe that is not there in the earlier contract. But is there any force majeure Clause like recovering COVID in the Shil, Mumbai (sic) [ Mumbra ], Kalwa.
No. But force majeure, meaning in who's favor. As a...
[Technical Difficulty] of base demand and base demand has gone sharp down. Is it available to us?
No, no, no. There is no protection. There is no force majeure. We took over on March 1, 2020, right? So thereafter, it's our baby. There is no force majeure.
And second on the collection efficiency, you spoke about 85% Bhiwandi and 15% Agra. Is there, I think the [Technical Difficulty] which reported in the PPT, this will account for this collection efficiency, right?
No, no. In PPT, I think we are giving only T&D losses, right? Not the collection efficiency losses. Sorry?
If [Technical Difficulty] T&D loss.
T&D loss. T&D loss. T&D loss. What we are reporting in the PPT is T&D loss, not AT&C loss.
[Technical Difficulty] You have mentioned that there's a 2.5 billion of recovery for the prior period as perhaps the recent judgment for the past year. [Technical Difficulty]
Sir, sorry to interrupt you Mohit. Your voice is cracking. So we are unable to hear you clearly.
Hello? [Technical Difficulty] Sir, can you just please help reconcile 2.5 billion, which you reported in those 3 accounts. Number two, with the 3.4 billion which you spoke earlier? [Technical Difficulty]
Mohit, your voice is still not clear.
No, I have understood the question. I have understood the question.
Sorry, apologies.
No, no. So there are 2 components. One is the carrying cost, or any other regulatory gap which we have got and second is the tax allowance there on. Because when you get the regulatory gap and when you recover it, you will also have to pay tax on it, right? So you will get the tax allowance also under the Gujarat tariff regulation. So there are -- one major item of revenue gap of earlier years was this INR 251 crores of carrying cost. But in addition to that, there were certain smaller amounts, also which we have one in appeal, which I didn't speak about, but that all put together is about INR 34 crores, right, for INR 251 crores plus INR 31 crores. INR 34 crores is the revenue gap which we got. And the tax allowance thereon has to be then further considered. Now the tax allowance is typically 17.47%. So you gross this up with 17.47% and you get the pretax number, which you will get, right, as revenue. And in addition to that, this is offset by the waiver of fixed charge, which is -- which also have included as a one-off item for the month of April, which was a INR 50 crores number on which there will be a tax impact of another INR 10 crores. So that is INR 61 crores. So if you total all of this up, you will get the number which I said.
The next question is from the line of [ Rahul Kohli from SNIFS ].
Sir, my question is regarding your CapEx, which you have announced for INR 1,500 crores for 3 years. In that, I wanted to understand this CapEx is used towards increasing T&D transmission capacities? Or it's like regular maintenance kind of CapEx? I wanted to understand.
So this is the capacity -- this CapEx, which I spoke about is largely is in the license distribution area, which is made up of multiple categories. So something is related to lowered augmentation. Something is related to safety and reliability. Something is related to replacement. There are some special projects which we are carrying out. So it's all related to the network upgradation and network expansion.
Okay. So it includes expansion also?
Yes, yes, net -- load increase and network expansion they are both, they are included.
The next question is from the line of Avinash, Chenna from Spark Capital.
Sir, most of my questions on the demand and CapEx guidance has already been answered. First one is -- a couple of questions. First one, directionally. Sir, [Technical Difficulty] power is not too different from anything like a state Genco. So in that context, just wanted to understand whether generation interests are more important from the state by -- and the PPAs will be a dominant crude? Or will Torrent Power, say, ever think of buying most of the power of all are in day and/or real time market, which were launched recently?
No, I did not get your question. Can you repeat it, please?
Sir, I just wanted to understand the state interest towards generation. Will PPA would continue or Torrent Power to be a -- buying most of the power from day-ahead market or RTM market on exchanges?
So you are talking of the power, which we have to buy to supply to our distribution areas? Is that...
Right.
Okay. So for our license distribution areas, we have to buy certain amount of power on a long-term basis. We have to buy certain amount of power from renewable sources. And normally, the day-to-day fluctuation which happens, because the demand keeps fluctuating depending on so many factors, which are unpredictable. The balancing power we buy from the day-ahead market or the short-term market. So since our obligation to supply power is firm, we have to tie up our base load on a long-term basis. And we have to tie up a certain proportion of power, which has to be some renewable sources. And only the balance power is then tied up from sources like day-ahead market or short-term market, which is typically used to balance the day-to-day fluctuation in demand, which happens, right? And this is all gets sort of regulated by a framework on how power obligations will be serviced by the licensed operator. So we can't really arbitrage between long-term market and short-term market, given the nature of our obligation.
Okay. Okay. Sir, also on exchanges, are we going through a trader or be ourself as a trader member? And also, are we participating on both the exchanges or we are doing this currently on one of the leading exchange players?
So we are a direct member. So we buy and sell directly. We don't go through a trader, right? But whenever we are selling merchant power from a generator unit selectively, we may go through a trader if we are not very comfortable with the counterparty discount, which is buying their power, right? Now as so far as participation in the exchange is concerned, we -- there is only one exchange which is liquid enough, where the prices and volumes are reasonable. So we are on that exchange only IEX.
The next question is from the line of Aniket Mittal from Motilal Oswal Financial Services.
Sir, could you provide us with the segment-wise profitability breakup for this quarter versus last year?
See if I give you -- let me see -- so I can give you an EBITDA level?
Yes, sure. That would be fine.
So if I take gas-based generation, it is INR 204 crores versus INR 187 crores, roughly. If I take -- renewable is more or less the same, INR 185 crores versus INR 175 crores. Distribution is more or less same INR 241 crores versus INR 240-or so crores. And franchise distribution is INR 39 crores versus INR 217 crores at EBITDA level. And then there are various other adjustments. Overall, EBITDA is INR 718 crores versus INR 856 crores.
Without one-off.
Without one-off. These are adjusted, I've taken out all the one-offs.
Yes. That's very helpful. And sir, sorry to hop back on the gas part. So what I'm actually trying to understand is, one, how much of your, let's say, current sourcing of gas happens on a long-term basis? And how much you're doing on the imported front, let's say -- sorry, in terms of the short term basis? And what's the price differential over that? Because just trying to understand, let's say, if you move towards the shorter-term would that help you in lowering your power purchase costs? And in turn, you would lower the regulatory gap that we can have because the tariff would be fixed?
No. So firstly, you must understand that gas-based generation plants are regulated by CERC regulation and distribution circles are regulated by GERC regulations. So the tariff for the gas-based power plants are fixed by the -- under the CERC regulation. And the tariff for the distribution circle is fixed by the state regulation. So far as the gas-based generation plants are concerned, they are agnostic to the fuel price because it is a pass-through cost from them, right? Now if -- that doesn't mean that we should not buy our fuel on a pro rata basis. So we are expected to do that, and we do that. And whenever we buy fuel at lower price, it helps us keep the overall price of electricity much lower. So that helps us in our distribution circle because if our supply of electricity is at a lower price, it helps in recovery of the ARR for that year as well as gap for the previous year. But it does not affect the profitability of either of them because the fuel cost is on a pass-through basis for both segment, right? Now so far as long-term tie-ups are concerned, there is one long-term contract which we have from earlier times when we have started the plant. We had tied up some portion of the gas as RLNG from one of the national oil companies. So that was a long-term contract we had tied up, and that is there. But since that was an approved contract by the regulator, we are allowed to pass-through the costs on a year-to-year basis for that source. The balance source at that point in time of domestic gas, which over a period of time dwindled and it is now no longer available. So we have on -- over a period of time, we have suited the entire quantity by imported LNG. So today, substantial gas comes from imported LNG. No so far as tie-up is concerned, the general framework, which we follow is that we try to tie-up 3 years of gas because fuel security is also one of the considerations, right? But that's not sort of cast in stone. Since last 2 years, the situation in the LNG market has completely changed. And our reading as well as the general consensus is that LNG market will remain subdued for next 3 to 5 years, given the new capacities, which are coming up, given the growth in demand, which was likely to happen and given the impact of pandemic on the demand now. So given that situation, we have sort of shortened our horizon. So today, we are contracted for the current year, yes? And we are only partially contracted for the next year. We keep watching the situation both on the price front as well as on how the demand for electricity pans out before we tie up the additional gas, so that we can have an optimal quantum tied up at the best possible price.
Sure. And sir, one last question, if I may, on Shil. Shil, Mumbra, Kalwa franchise. So how is the performance in this quarter? And from an overall, let's say T&D loss trajectory, I think the T&D losses over there are pretty high. So within a couple of years, what is the trajectory that you're looking at, let's say, from FY '23 perspective?
So if I look at this quarter, this quarter was -- I mean, it's the first quarter since we took up and substantial part was under lockdown. So obviously, we couldn't do much in that area. So that area has turned in a loss for the quarter, right? But not a big loss, it's about INR 17 crores of loss. So far as T&D losses are concerned, it's a high T&D loss area. I think it's about 53% or 54% of T&D losses when we took it over. As to the trajectory, I think we had earlier given a guidance of taking it down to 12% over a period of 15 years. That's how we are looking at it. Now it will all -- where we have of course, plans to do it much faster, but this is how we are looking at it.
Due to time constraints, I would now like to hand the conference over to Mr. Harsh Dole for closing comments.
On behalf of IIFL, I'd like to thank the management for sparing their time and briefing the investors on 1Q and sharing perspective for the rest of the year. Greatly appreciate, Sanjay Bhai. And thank you, everyone, for logging on to the call. Sanjay Bhai, any last remarks that you would want to make before we conclude the call?
No I think we have covered everything. So I'm done.
All right. Thanks, moderator.
And we see all of you in Q2, hopefully, in better times.
Touchwood.
Thank you.
Thank you. Moderator, please conclude the call.
Thank you. On behalf of IIFL Securities, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.