Torrent Power Ltd
NSE:TORNTPOWER
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Torrent Power Ltd
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Ladies and gentlemen, good day, and welcome to Torrent Power Limited Q1 FY '22 Earnings Conference Call, hosted by IIFL Securities.[Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Harshavardhan Dole from IIFL Securities.Thank you, and over to you.
Thank you, Zed. Greetings, everyone. On behalf of IIFL Securities, I welcome you all to the Q1 FY '22 earnings call of Torrent Power.To discuss the numbers in detail as well as the -- share some performance outlook going ahead, we have the senior management team of Torrent Power today. The team will be represented by Mr. Saurabh Mashruwala, VP, Finance; Mr. Rishi Shah, GM Finance; and Mr. Jayprakash Khanwani, AGM, Finance.I'd request Saurabh bhai to make an opening remark, subsequent to which we can have the floor opened for Q&A.Over to you, Saurabh bhai.
Yes. Thank you, Harsh. Yes, good morning to all of you, and thank you for joining the earnings call for the Torrent Power for Q1 FY '22.First, I will [ take you through the ] performance in the quarter, after which phone lines will be opened for Q&A session. I will explain the performance of the company at PBT level, and thereafter tax expenses we will -- taken up.The reported PBT for the quarter stood at about INR 273 crores, as compared to INR 468 crores in corresponding quarter last year. This is a reduction of INR 195 crores, [ which is about ] 42% on a reportable -- reported basis.To understand the underlying performance of the core company, we will take you through the nonrecurring items during the quarter. There are nonrecurring items during both the quarters, this quarter also and the comparable quarter of last year also. We will first talk about the nonrecurring items of the current quarter, nonrecurring items of the current quarter which includes about 21 crores of bad debt provision which we have made in franchised distribution businesses.Economic activity at our distribution franchised businesses continued to recover from the pandemic effects during Q1 FY '22. However, there was some -- same was moderated with the second wave, second COVID wave, as compared to the pre-COVID level. That is FY -- we are talking about Q1 of FY '19/'20. Comparable demand is down by 13%. That's versus degrowth of [ 27% ] witnessed in the comparable quarter of last year. So still we -- our demand in the franchised distribution is lower by 13%, as compared with the pre-COVID level for the Q1. Disruptions caused by the second wave lead to the deferment of recovery [ of areas ] of FY '21, and accordingly, provision of 21 crores was warranted to be made in -- during the course of the quarter. We expect that, going forward next 2, 3 quarters, we would be able to recover the material amount out of these provisions which were made, in case of Bhiwandi and Agra particularly.Now coming to the nonrecurring item of comparable quarter of Q1 FY '21. There are 2 items. As you'll recollect, our licensed distribution business had received favorable orders from the regulator with effect from -- with respect to past regulatory claims of 344 crores. So these are pretax [ out of ] 344 crores. So we -- one-off income of 344 crores, we have booked in the comparable quarter of last year, which was not there in the current quarter. Additionally, the loss of 61 crores was also approved on account of [indiscernible] fixed costs allowed by the government of Gujarat [indiscernible] consumers for the month of April 2020. This is, because of the lockdown, government of Gujarat has given the concessions to industry. And we have accounted 61 crores loss in the Q1 of last year. So what -- put together, the net credit which we have booked in last quarter is [ 283 crores ].Adjusted for the above one-off items in both quarters, Q1 of current year as well as previous year, adjusted PBT for the quarter stood at 294 crores compared to 185 crores in the comparable quarter of last year. This is an increase of about 109 crores on a normalized basis, which is about rise, increase of 59%. So profit on a normalized basis has significantly improved by 59% for the comparable quarter of last year.So we now take you through key highlights on the improvement in the adjusted PBT of 109 crores for the current quarter. So a substantial gain from this -- coming from our franchised distribution business. So there was a substantial reduction in T&D losses, mainly in the distribution franchised business, due to restoration of industrial demand which was significantly impacted last year. So the impact, positive impact, I will say, on the profit is 138 crores through reduction on distribution losses in the franchised business area of Agra, Bhiwandi and SMK.So additionally, there was a gross reduction in finance costs by INR 58 crores. So finance cost was also lower by INR 58 crores. This is attributable to lower rate of interest as well as reduction in overall debt level. We -- the average interest rate for the quarter was [ 130 ] basis points lower than the comparable quarter of the last year. Additionally, we have our debt level average. Debt level also -- was also lower by about 1,100 crores, as compared with June 30, 2020, versus June 30, 2021. [ During the ] last quarter, we have not made any borrowing, additional borrowing, because [ internal accrual were ] pretty strong. So we did -- not resorted to any increased borrowings in last quarter. Our borrowing level, if you look at -- the borrowing level of the -- as on 30th June 2020 was 8,834 crores -- or at least current borrowing level of 7,736 crores, which is a reduction of about 1,100 crores.I mean there are -- these are the 2 positives for the quarter, where franchised distribution has performed exceedingly well and we were able to reduce the interest costs. At the same time, there are some negatives also. For example, first negative was we are not able to sell adequate quantities in the merchant market due to the demand was a bit low and at a lower level. So there was a reduction in the merchant sale and the impact is about [ 25 crores ]. Then we have PPA with [ the ] PTC of about 75 megawatts for the Sugen power project, where as per the contract they have a right to reduce the PPA by [ 25 megawatts ]. So in fact, it's about 4 crores in terms of fixed costs.The next item is there is a lower contribution [ from the -- in the renewable ] business by 11 crores due to lower PLF in the month of March which we have booked. However, the -- during the course of the quarter Q1, comparable PLF is 2% higher, as compared with the FY '21 numbers. [indiscernible] there are 13 crores additional [indiscernible] we have charged to the P&L due to the increased -- higher level of CapEx [ and -- of -- during the past 3 years ]. And about [ 14 crores ] increase in O&M expenses we have accounted, this is mainly because of increased level of operating activities.So demand in both the licensed as well as franchised distribution area have improved by about 38%, as compared with the comparable quarter of last year, but they are yet to reach the pre-COVID level of FY '19/'20 because demand is still lower in Q1, mainly because of the second wave of COVID. And we expect that the year-end demand will be likely to be pre-COVID level of FY '20 -- of '19/'20.Moving over to the PAT numbers. Consol PAT reported for the quarter is -- was INR 209 crores, as compared with INR 368 crores. This INR 368 crores includes a one-off item of about the -- pretax level of about 283 crores. So profit was lower by about 159 crores. This is about roughly 43%.This is the overview -- this completes the overview of the quarterly performance of the company. Now we'll provide with you the update about the projects in pipeline, renewable projects in the pipeline.So on 30th July, the company entered a security purchase agreement with Lightsource [ group ] to acquire 50-megawatt solar project located in Maharashtra, Solapur area. And the important details, key details -- I can, I mean, provide the key details of the acquisition. The enterprise value of the project is about INR 317 crores, which is subject to closing price adjustments. Enterprise value comprises of INR 196 crores of debt and about INR 121 crores of equity contribution. If we [ de-include ] the cash and cash equivalent of INR 22 crores, net equity investment will be around INR 99 crores.The initial project cost of this project was about 6.25 crores per megawatt [ on an AP ] capacity basis. The project PPA is with SECI and for about 25 years. The balance life is about 22 years. Tariff contract is INR 4.43 per unit. The average PLF of last 3 years, if we look at the average PLF, is about 20 -- [ 21.6% on an AP ] capacity basis. We expect the -- going forward, when we take it over, we expect some saving in O&M costs so that it will improve the IRR. And transaction is -- we expect the transaction will be completed in next 60 days time.So we'll provide update about the other 3 projects which are on the pipeline -- in the pipeline. The first is the SECI V project, which was the -- we have got SECI V [indiscernible] we won in the SECI V bidding. SECI -- the -- SECI, [ March '21 ], has given extension for this project -- extension of COD for this project to -- up to February FY 2022. Project size is 115 megawatt. The earlier COD was July 2020. So taking into consideration extension given by the SECI, we are working with [indiscernible] to revive the project. So this project [indiscernible] in FY '19/'20, which because of the extension given by the SECI we are trying to revive the project.As you know, we have signed 2 PPAs of -- on a solar front, 100 megawatts with GUVNL and 300 megawatts with our own distribution [ of TPLD ]. And the land acquisition for both the projects are in progress, and we expect the order to be placed in for the models in a couple of months. As far as AP project is concerned, AP [indiscernible] L1 in the AP project, but currently the project is subsidized.With respect to our [indiscernible] licensed distribution business of union territories Dadra and Nagar Haveli and Daman and Diu, we really have emerged as a successful bidder of 51% stake. We'd like to update the supreme court records [ of the same ] [indiscernible] Bombay high court on the tender process and then a matter that will now be heard by the supreme court very shortly.This will complete the update about the upcoming projects which are on the pipeline.Now I request our coordinator to start the Q&A session. Thank you so much. Handing over to the operator.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
Yes. Sir, my first question, is it possible to give us the breakup of EBIT or EBITDA segment-wise, especially Q-o-Q?
Okay. With the breakup of EBIT on a comparable basis Q1 FY '21 -- '22 versus Q1 FY '22 -- '21 -- '22 as well as '21, [ key assets ] generation has reported EBITDA of 17 crores compared to 92 crores last year. And renewable, for the current quarter, the number is 106 crores versus [ 115 crores ] last year; licensed distribution business, about 209 crores for the current quarter compared to 188 crores for the comparable quarter of last year. Franchised businesses have significantly improved, as we discussed, because of the lower T&D losses we have reported. So number for the quarter is about 141 crores versus 16 crores last year. And on overall basis before one-off, it is 447 crores versus 391 crores, so incremental EBIT of 56 crores for the current quarter.
Sir, question was primarily because we're trying to understand why there is a decline in Q-o-Q in EBITDA given the fact that the -- there is no sharp decline in businesses in the -- especially Q-o-Q.
Yes. We have explained. Because last Q1, we have recognized about 283 crores of one-off items...
[ No, sir, versus Q4 ], Q4 versus Q1.
Q4 versus Q1. [indiscernible].
[indiscernible]
Q4 and Q1 is not comparable because in our business there are very -- seasonal variations are there. Also volumes are lower in Q4 and higher in Q1 because of seasonal variation. And there are impact of T&D losses are also different, so in our kind of business, exact comparison of preceding quarter with the current quarter is not possible. So that is why we always make a comparison with the comparable quarter of the last year.
Understood, sir. Sir, secondly, on this -- you just mentioned that you're trying to revive SECI projects. So are we reviving the entire basket of projects which we have bid? I think SECI [ IV ] and V and [ VI ], which I believe are a substantial number. Or are we reviving only part of the capacity?
This are the 1 project -- 2 project wins that we abandoned, about 499 megawatt of Gujarat projects that we are not reviving, but this 115-megawatt project, we are reviving at this moment.
[indiscernible] not reviving the other ones? That's the reason. Is it particularly bad IRR? Is that...
No. Extension. And there are land issues also there in these 499-megawatt projects. So this project, all issues, we are able to sort it out. And we got the extension also from the SECI, so this project, we are reviving.
Okay, understood, sir. And lastly, sir, on the Dadra and Nagar Haveli. What are the states is -- what are the states which are pending? Post that, we'll be able to take over the asset.
The supreme court [ now will ] hear the case. At the same time, government is also trying to work on the issue of the LOA. So once the LOA is available, then handover process will start.
[Operator Instructions] Our next question is from the line of Ankit Patel from L&T Mutual Fund.
Yes. My question is regarding the solar PPA of -- at INR 1.99 and INR 2.22. Could you tell us, what kind of returns do you expect from these projects? Because these tariffs seem to be going down continuously, and it will be one of the lowest tariffs. What kind of returns, sir, do you expect from these projects?
The initial -- in an earlier call, we said that we are -- the low-teen IRR we are getting from these project. So -- and we are continuously working about the model prices, which is a bit higher currently. So we have some time available and we have some contingency available. So that -- we expect that the model price will revert back to the normal level. So we are expecting low-teen IRR from these 2 projects.
Okay.
Does that answer your query...
Yes, okay.
Next question is from the line of Subhadip Mitra from JM Financial.
A couple of -- these are related queries. I think these are points we've already touched upon, but I think I missed the numbers. So you mentioned that the adjusted PAT for the current quarter is 294 crore versus 185 crores last year. Is that at PBT level, [ or PAT ]?
So PBT number. We talked about PBT numbers. Adjusted PBT number of current quarter is 294 crores versus 185 crores of last year, which is about increase of 109 crores, roughly 59%.
Okay. Secondly, I think you also mentioned the generation EBIT. If you can just repeat those numbers. I missed that.
[ Generation, yes, yes. Generation ] is about 17 crores for the current quarter; and the comparable quarter of last year, 92 crores.
So here the fall is largely due to...
Sorry...
So the reduction that you're seeing in this year on the generation EBIT, 17 crores from 92 [indiscernible], what will be the key reason there?
See, the merchant sales was impacted because of the lower price in -- during the course of the quarter. So merchant sales were lower, and we lost about 35 crores contribution compared to the previous quarter -- compared with quarter of last year. So merchant impact -- sales impact was about 35 crores, [ essential ] impact, I will say. And there was a PPA which I explained. The PPA with [ the ] PTC was about 75 megawatts. There was a condition in the contract that it will be -- they have a right to reduce up to [ 15 megawatts ]. So about fixed cost -- a lower fixed cost is [ 4 crores ] per quarter -- in this -- for this quarter. Plus there are -- increased level of activity has increased the expenses up in the Sugen as well as Unosugen plant also.
Which is with regard to the O&M related to the 13 crore. I think you mentioned 13 crore.
O&M-related costs, yes.
Okay, understood. Secondly, with regard, sir, to the solar projects that are -- that you mentioned, the expectation of [indiscernible]. So in both these projects, the 100-megawatt GUVNL and the 300-megawatt one, the [ planning ] orders, the solar module orders, et cetera, has yet not been placed, correct?
It is not yet placed.
And what will be the deadline for the COD of these projects and, let's say, the deadline by which you need to order the modules?
So Subhadip, the deadline as per current COD is July '22. We are closely watching the module prices in the market. The -- I think -- by latest, I think we will see when we should be ordering the modules, but we are also expecting there could be an extension, because of second COVID wave, given to us by GUVNL, in which case we'll have additional time for ordering the modules. So we are expecting that -- both these factors combining, which there should be a time available for us to book the modules and salvage these projects.
Understood. So typically you need to order the modules at least 6 months before the scheduled COD...
Yes. [ 4 ] to 6 months is the time where you should order the modules, typically. That can be squeezed also, depending on where -- what is the state of readiness with respect to other things.
[indiscernible].
Understood, understood, okay. Last question on my part will be regarding this 15-megawatt (sic) [ 115-megawatt ] SECI V bid. So here what you're mentioning is that the land and transmission and other related activities are already in place. It is reason why you are looking at salvaging this.
Yes. COD is extended. Plus, necessary permissions are in place, and land is also identified. So -- and we have [indiscernible] also.
[indiscernible] acquired [indiscernible] has the land been acquired and handed over? That [indiscernible].
It's identified and in the process of -- we are in the process of acquiring the land.
Next question is from the line of Apoorva Bahadur from Investec.
Sir, wanted to understand basically on this Lightsource feed. We read somewhere that it has some VGF benefits as well. So could you please quantify that number?
Which one? Which benefit? It is about INR 8 crores, INR 9 crores.
INR 89 crores?
No. No. INR 8 crores, INR 9 crores. INR 8 crores to INR 9 crores.
INR 8 crores to INR 9 crores. And that we can earn -- by when do we expect to earn that?
No. So most of the established terms of last year, as and when we receive it, we will have to pass it on to the seller.
Okay. So we won't to retain it? Okay, got it.
Yes. We are not going to retain it.
Okay. Okay. Sir, secondly, on basically this AMGEN expiry coming up. So do we expect an extension over there, given that the government is focused on improving islanding of large cities?
We are not sure right now. But we are in discussion with the government, so we hope extension will be granted. So basically, it's islanding for Ahmedabad, the area, distribution area. So we are in continuous contact with the government. So -- we're to see -- we are hoping that the extension will be granted, further extension will be granted for this project.
Right. It would be for, I mean, shorter term or medium term is 3 to 5 years?
Okay. Yes.
We will wait for that. Fine, sir. So another question on this, this module purchase for our 2 solar projects. So will these be impacted by the ALMM as well because we can now only purchase from this approved list? So will -- is that hindering us in any aspect in terms of obtaining the best price modules?
So after -- if you can see right now, module prices across the globe, they are elevated as of now because of certain sectors. But particularly, this list is not hindering us. The major pain point is the elevated prices.
Okay. So I mean if you can comment early, so basically, are the suppliers in with whom you would like to work, do you see them on this list?
Yes, yes, yes.
Okay. Perfect. And if I may just squeeze in one more question, and that's on the gas price. And how large of a quantity do we have tied up right now?
For current year FY '22, we are largely protected, about 70% of the requirement is tied up. Some quantities, still, we have to tie it up, but we are largely protected. And the current increase in the spot price, we thought we are -- our view is it is not sustainable. So we have time to contract for the next one thereafter. So we'll work on contracting for the next and the next thereafter. Its current price is not sustainable, that is our view.
Okay. So we'll basically wait for the prices to normalize, and then we'll go for further tie up?
Yes.
Next question is from the line of Seetharaman from Spark Capital.
Sir, can you give the merchant units sold in number of units this quarter and in 1Q '21? And also the average cost and average realization for this merchant sales?
Merchant volume last year was 921 MUs.
921, sir?
Yes, 921 MUs last quarter -- last year, similar quarter. And the current year is about 139 MUs.
Okay. Correct. Okay. And the average cost and average realization for merchant sales?
We can draw the contribution about -- average contribution was last about 38 paisa, and current year is about 2 paisa.
Okay. Okay. And sir, on the shipment, what is EBITDA trend? It will be helpful if you do because for comparable purpose you have been giving earlier. So for comparable purpose and bookkeeping purpose, it will be helpful. So if possible, can you share that, sir?
Yes, we can. The EBITDA breakup of Q1 of current year FY '22 versus Q1 of FY '21 is: key assets project EBITDA was, at current quarter, INR 129 crores versus INR 204 crores; renewables is INR 175 crores versus INR 185 crores; the license distribution business, Ahmedabad, Surat, Gandhinagar, and Dahej, is INR 322 crores versus INR 292 crores; and our franchise distribution, which has turned around, and we have reported quite good numbers for the current quarter, INR 168 crores versus INR 39 crores; and overall EBITDA before one-off is INR 776 crores versus INR 707 crores and, on a reported basis, INR 764 crores versus INR 1,004 crores.
Next question is from the line of Aniket Mittal from Motilal Oswal Financial Services.
Yes. My first question is just on the distribution part, especially on Dahej. Just to understand, what's the overall demand looking like and the collection is looking like for this cycle? And from an FY '22 perspective, how do you see the full year demand on AT&C losses over there?
Yes. We have said that the demand for the current quarter, because of the second wave, was down by 13% with the comparable quarter of FY '19/'20. For the quarter, it has improved by about 38% as compared with the last -- similar quarter of last year. So still, here in Q1, at least, we are not reaching to the pre-COVID level demand. Did we expect that the year as a whole -- we established greater recovery during the next 3 quarters. And most likely, we will be reporting the numbers on a pre-COVID level as far as demand is concerned.
So Aniket, just to add to what Saurabh said is if you look at on a month-on-month basis, May was a particularly bad month in this quarter because of lockdowns related to second wave. If you look at June and July, the numbers are improving. And that's why our expectation is that, by end of this year, we would have recouped the degrowth, or we would have arrested the degrowth compared to FY '19/'20 in terms of volume per concern.
Okay. And so -- and in terms of the AT&C loss trajectory, would that be again similar to pre-COVID levels by the end of this year?
I think we expected something better than the pre-COVID level. So AT&C losses, as you see this quarter also, they are in line. And so that's why I think, going forward, there should be some improvement in AT&C losses.
Sure. Okay. And just on the provision part. If I looked at over the past months, I think, now, we've done around INR 130 crores of excess provisions, including the INR 21 crores for this quarter. So just in terms of collection of this excess provision, how do we see that coming out? I mean has the situation that still given the -- your recoup -- or sort of we can get this INR 130 crores recoup in this year itself?
We expect that about 130% or 50% provision ascertained to SMK area. So we expect the Bhiwandi, Agra -- we expect that -- we expect to recover it in the next 3 quarters. SMK area, we are working some new areas where we are working on the SMK. So SMK, there will be some time we'll require to recover this amount. But I think Bhiwandi and Agra, we are hoping that the next 3 quarters, we are able to recover almost material amount, I would say.
Yes. And so not affected. Just one question, actually, to dive into this business increase that we see. So you mentioned that the EBITDA has come at around INR 168 crores versus INR 39 crores over the last year. Now this increase in EBITDA, would it be possible to break this up? As in how much of this would be because of demand increase? And how much of this is because of lower T&D losses?
You are talking of Bhiwandi and Agra, no?
Yes, at an overall level. So at an overall level, you have -- you say the EBITDA came in at INR 168 versus INR 39 crores last year. So that's roughly a jump of around INR 130 crores. Can this be broken up into how much just is because of lower T&D loss and how much is because of higher demand?
What -- T&D loss is about INR 133 crores improvement as it -- compared to that of last year.
So the large improvement is only because of lower T&D loss?
Yes, exactly.
But the demand has also increased 38% Y-o-Y, right?
Demand has also increased. So volume, at the same time, there are -- the overall tariff was lower also in the -- in terms of Bhiwandi and Agra. So lower tariff also has impacted the contributions. It is coming out of the T&D losses.
Okay. Okay. And just maybe one question before I join back in the queue. See, on the SECI V projects and the SECI III projects, we had these certain provisions as well. Now that we are taking the SECI V projects, are we possibly looking at taking the SECI V projects back on as that provision that reversed? And if you could just repeat in terms of the time line also when do we -- what's the extension that we've got for SECI V?
So SECI V, we have got an extension till February '22. As far as provision write-back, I think once we enter into commercial agreements, we will decide at that point in time to write back the provisions.
[Operator Instructions] Next question is from the line of Noel from Ashika Group.
Actually, just one thing. I just want to clarify regarding the gas linkage for the current financial year. So I think, sir, you had mentioned that 70% of the requirement has already been tied up, right?
Yes.
And so this would be at about what rate, developed or?
Cargo, we have both. It is about $4.36 per MMBtu.
Okay. And regarding the -- so the thing is for future bookings have not been made because the current rates are on the higher side. And we get this is unsustainable, so we expect them to lower down.
Yes. Our view is that this price is not sustainable, and we expect the prices will come down.
Okay.
So now we are working on other options to take care of the scenario, which has emerged because of higher gas prices. But we have still some time available with us to work on this. So we'll update everybody once we have finalized the strategy on which we want to book gas for the future years.
Next question is from the line of Dhruv from HDFC Asset Management.
Yes. Sir, this SECI V project, you say the extension is till Feb '22, which is what, almost 6, 7 months from now. So do you think the project can be completed in this short time?
So Dhruv, just to give you an example, we had a couple of projects in Karnataka, Jodhpur and Latur. We did that in 4 months, 3 to 4 months' time. So I think 6 months is sufficient time, and we are already working on various aspects of that. So I think we are confident that we'll be able to do that in 6 to 8 months' time.
Okay. So you have already tied up the, what do we say, the machinery and everything?
We are close to that.
Okay. Got it. And sir, the tariff remains the same? The tariff is, I think, 2.76. That remains the same?
That remains same, yes.
Everything else remains the same.
Okay. Got it. Because the thing is -- so when you had bid this project, the expectation was that the equipment cost will be declining. But now I believe, given how prices have moved, even the U.S. prices, the cost escalation would be quite significant now.
So there are other sectors which have played in favor of us in terms of, let's say, interest cost. At that point in time, interest cost was higher. Now if you see interest costs have gone down significantly. There are certain land, also, we are working on the strategy of how to do that land. So I think, all in all, we can expect that we would be getting the loading IRRs out of this project, and we can [ channel ] this a bit.
Got it, got it, got it. And sir, what would be the approximate capital cost here?
INR 800 crores.
Sir, second question was on the CapEx for the regulated business this year. What are you -- what's the target for this year, regulated distribution?
Yes. So I think, Dhruv, the expectation remains the same, INR 1,500 crores for the entire year, our DL and DF put together. I think distribution license should be INR 1,200 crores. But this would -- there should be some improvement in INR 1,200 crores because of lower CapEx, which we did in last year. There could be some spillover there.
Okay. So upward of INR 1,200 crores?
Yes.
Yes.
Distribution license?
Yes.
And sir, last small thing was on the O&M. So there is a INR 13 crore increase in O&M. So is it a base reset which has happened? Or this is just something which has come in this quarter? I mean are these service contracts restated so that it is closed for the full year?
No. It is because an increased level of activities.
Okay. So nothing -- there's no base reset? I mean this is just for this quarter.
Yes. Yes.
Increased level of activity has decreased the expenses -- O&M expenses.
Next question is from the line of Anuj Upadhyay from HDFC Securities.
Yes. Majority of the questions have been answered. Two from my end. One is related to your SMK losses, it still hovers around [ 43 odd ]. So any road map, sir, of what we target over the next 1 or 2 years? And what kind of CapEx is [ incorporated ] in the plan so you can [ furnish ] for the SMK area to bring it down?
Yes. SMK is our new area, which we took it over from 1st of March 2021. Beginning of the tariff, we -- at the time of tariff -- at the time of COVID set in, we have acquired this area. So last 1 year, we are not able to do much work in the SMK area. But going forward, in fact, we have started changing the network in SMK area. So in next 5 years, I would say, it will be -- we will reach to a very different level of AT&C losses in the SMK area.
Anuj, just to add what Saurabh has said is that it was unfortunate for us to get a handover of a new area at the time of COVID, wherein everything was locked down. Because of it, I think we have waited 1 year to implement the necessary things which we wanted to do in that area. So effective last year, we have been able to do -- there is needful amount of what we would have done. And that's why you're seeing the higher pains coming out of that region. But going forward, I think it should follow what we have done in Bhiwandi and Agra. That's the expectation.
Yes, we can give them an example. For example, Q1 of FY '21, AT&C -- T&D loss was about 53%. And currently, this Q1 is about 43%. So we have achieved a 10% reduction in the T&D losses in SMK area. So this kind of a reduction we have assumed in the last 1 year without investing so much in the CapEx and network building. So next 4, 5 years, when we will work on the network building, then this T&D losses will substantially -- we expect it will come down.
Right, sir. Any number which you can quantify, sir, on the losses for the SMK product?
No. We won't be able to use a segment unit-wise numbers.
Okay, sir. Any -- next question is on the distribution opportunity, sir. We are seeing -- or believe the number that we're seeing is now under Supreme Court level. But any other state where we are seeing a distribution licensee or franchisee opportunity?
Yes. We think the new union territory will be offered by the government. So bidding is going to come from the other -- demand in the union territory. And as a state government also, like UP, are also contemplating to go for the privatization. So we are hoping that a new area will come up for the bidding.
Next question is from the line of Aniket Mittal from Motilal Oswal Financial Services.
So just one understanding on this 25-megawatt reduction in -- in the PPA, I think, that's what happened. I just wanted to -- a little bit, some color on the terms of PPA. You also mentioned that this could -- there's a further backdown of another 25 megawatts that can happen. So if you could provide some color as to what method is done and that you view going forward over here?
As per the contract, 75 megawatts of PPA, they have a right to reduce by 25 megawatts. That is what it has happened in the current year. And the next next -- after 5 years, they have again -- they can able to reduce by 25 megawatts.
So after the 5 years, they can reduce then. And what could be the useful remaining life of this?
So 25 years PPA.
Okay. Okay. All right. And sir, just one question, actually, on the gas tie up. You mentioned that around 70% of your FY '22 volumes have been tied up. But just to understand, what would be the inherent PLF assumption that you're making for in SUGEN and UNOSUGEN when you say that 70% has been tied up?
Around 65% kind of PLF assumptions.
For both SUGEN and UNOSUGEN?
Yes.
Okay. And maybe one last question on SMK.
I think 35%, 65% of a benefit of PLF on Ahmedabad distribution and Surat distribution.
That will be 65% PLF of the entire plant.
For -- okay, of the tied-up capacity, is what you're saying?
No, no, of the entire plant.
Entire plant. Entire plant.
Of the entire plant. Okay. The entire plant for SUGEN and UNOSUGEN. Okay. Got it. And just on SMK, to just understand the impact that's coming on the DF, what is the profitability impact for every 1% T&D reduction over there?
So I think, Anuj, right now, it is difficult to quantify. But on a ballpark number, INR 5 crores to INR 6 crores should be the improvement, but it's too early to comment as of now.
Zed, I had a couple of questions to ask. Can I go ahead?
Sure, sir. [Operator Instructions]Harsh, yes, you may please go ahead with your questions.
So Saurabh bhai, with the expected changes in the Electricity Act, a lot of growth avenues will open up. And that, clubbed with the 3 lakh crore CapEx new scheme, which has been announced by the central government, quite likely that the areas such as smart metering and offering ancillary services or even managing the smart meters for a lot of these distribution companies open up for private play. Would you think that this is a growth area for us? And if yes, how are we gearing for that? Have you identified the areas where you would like to go and implement these smart metering projects? That's part one. And part #2 is basically in terms of offering the ancillary services, such as EV charging, et cetera, at least, in the license area. If you can just update what progress have we made and what revenue model should we adopt here?
Yes. As far as the deal licensing thing, it's -- we look at the very great possibility for players like us. Like we have a very good hold on distribution. So we -- it's a very good opportunity for us because we can expand in our existing area of Ahmedabad, Surat and existing areas also. Plus we can go to the new areas also, and where we think we are efficient. So there are lots of inefficiencies in distribution sector currently. So we can tap these areas, and we can expand in other areas also. So we -- as far as Torrent Power is concerned, we see it as a great opportunity for us to go beyond our territory.
Okay. And any comments on the smart metering initiative, whether you would like to be vendors for some of these [reforms ]? Or that area, we'll just let it go?
Yes. We have not worked on it as of now. But as and when the proper opportunity comes, we will work on it then.
Okay. And any update on the EV charging infrastructure, et cetera, at least in the license area? Any thoughts on that?
No. Right now, we have not worked on it.
Okay. Great. Zed, I think there are a few questions in the queue. Why don't you take them?
Next question is a follow-up from the line of Mohit Kumar from DAM Capital.
So my question is related to gas prices. So gas prices are elevated. So when do you expect -- because we also seem to tie up our gas contract for the next year. How do you see it? And second related question is that -- does the higher gas prices affect our ability to recover fixed charges, especially in UNOSUGEN, given that I think there was some capping?
Our first view is that this higher gas price is not sustainable. And as we say -- as we informed that the current year, almost, we are protected because about 75 -- 70% of the requirement we have covered. Some 30% is still to be covered, but this is okay. On average, we think we are well protected for the current year. And we have time to contract it for the next year and thereafter. So -- and we feel that the gas price will soften, and we have opportunity to cover the gas for the remaining -- for the future years. And RIL also is coming up with the bidding, and domestic gas has also been getting available. So mostly -- almost 20% of gas is -- we are using the domestic gas. So as far as UNOSUGEN is concerned, since domestic gas is available at a reasonable rate, we expect that we will remain competitive in terms of capping.
Sir, what is the kind of opportunity for gas being made available through the other gas fields in the near future? Do you have any numbers, especially in FY '22?
No. I think we don't have those numbers as of now.
Next question is a follow-up from the line of Aniket Mittal from Motilal Oswal Financial Services.
Yes. Sir, my question actually was for some of this Lightsource acquisition, and I just wanted to understand your thought process over there. I mean is there now some sort of an internal target that we are building on renewables? Or is the existing bids from SECI that's coming in extremely competitive, that's why we're looking at this, too? Just some color maybe on what made you look at this acquisition, and our plans for the growth of the renewable portfolio would be helpful.
So Aniket, I think we don't give any guidance per se on the growth in renewables is concerned, but we keep on looking at opportunities which are -- which fits into our scheme of things. As far as this acquisition -- this particular acquisition is concerned, if you see, I think it provides a good equity IRR in terms of the capacity and the tariffs, which we have got. So going forward, we'll be -- we will keep on looking at opportunities available, and we'll also keep on looking at new biddings, which keep -- come up. But as far as guidance is concerned, we would not be giving any guidance per se on the additions in renewable space is concerned.
So the growth will come from inorganic as well as organic also, in renewables.
That's helpful. And sir, on the Lightsource one, I think you did mention that the O&M expenses are fairly high. Because if I look at the FY '20 financials, the EBITDA margin is at only 83%. So just wanted to understand what's the scope, really, in terms of improving the O&M? And what sort of margins can we bump this up to?
So I think we will not be able to comment on it as of now. Post consummation, we'll give you a better picture on what we are looking at on these O&M expenses.
Okay. And just maybe one last question on Dholera. I understand there's a very long-term plan in place over there of around INR 1,200 crores over the year. But how is that focus sort of panning out right now? And from the next 2- to 3-year perspective, what is the CapEx that you're looking at over there?
The Dholera, people have started making inquiries. I mean, we have been told that the -- they have acquired the land for the Metro project. ReNew is also planning to set up their facilities. So we expect that demand will come in Dholera, and many units will come up in the Dholera area.
And in terms of CapEx, because I think, over 10 years, you've got a INR 1,200 crore plan over there. But how could this possibly phase out?
So I think it will depend on the kind of industries which are coming also. We would like to invest once we see clarity or visibility of the demand which is coming up. So I think it's a game of how demand will be there, and then we'll start doing CapEx. So that INR 1,200 crores or INR 1,000 crores over 10 to 12 years, it's difficult to put a number to as of now. But the demand -- if we see a visibility in demand, we'll start putting up required infrastructure in place.
And some of the basic network we have built in, so we expect the demand to come. And then we further -- we make further investment in Dholera.
As of now, there is no investment or CapEx in the Dholera [ infrastructure ]?
We are incurring CapEx, but to -- that is the basic network.
That's the small CapEx which we are doing to set up a basic network of -- a basic network, which will provide construction power to whatever industries which are coming up.
Sure. And maybe just on the CapEx side, could you tell me what was the overall CapEx for this quarter?
What we spent, about INR 250 crores.
I think, Zed, we have completely run out of time. So I'd like to request Saurabh bhai to make closing comments, if at all, any, and then if you can pass on the line to me.
Yes. Thank you very much for the -- for joining the call. And we wish to everybody, stay safe and healthy. Thank you so much, Harsh, for giving us the opportunity to present our company, Torrent Power. Thank you so much.
Well, thank you, ladies and gentlemen, for logging on to the call. And I'd like to thank Torrent Power for giving us an opportunity to host this call. In case some of your questions still remain unanswered, you can drop a line to me or Rishi bhai or to the IR team, and we'll get that answered. Thank you very much, and have a lovely weekend.
Thank you so much. Thank you so much.
Thank you.
Thank you very much, members of management. Ladies and gentlemen, on behalf of IIFL Securities, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.
Thank you.