Torrent Power Ltd

NSE:TORNTPOWER

Earnings Call Analysis

Steady Growth amid Diverse Performance

In the recent quarter, there's been a modest rise in profit before tax (PBT) at 2% year-over-year, resulting in INR 741 crores. The company's improved distribution performance and newly commissioned renewable projects bolstered this growth, even as earnings from liquefied natural gas (LNG) trading and merchant power decreased. The overall profit after tax (PAT) swelled impressively by 46% to INR 531 crores.

Strengthening of Torrent Power’s Financial Performance

Torrent Power Limited presented their earnings in a confident tone, highlighted by a modest rise in profit before tax (PBT) to INR 741 crores for Q2 FY'24, up from INR 725 crores in the previous year, marking a 2% increase. The bottom line was bolstered by the ascent in profit after tax (PAT), climbing by 46% to INR 531 crores, compared to INR 485 crores year-over-year. The financial gains rested primarily on the broad shoulders of the distribution, renewable generation, and licensed franchise distribution sectors.

Improvements Driven by Distribution and Renewables

Robust growth in the distribution sector, spurred by lowered transmission and distribution (T&D) losses and incentivized capital expenditure (CapEx) improvements, contributed an additional INR 66 crores to profits, while the renewables sector enjoyed a INR 75 crores boost, owing to enhanced plant load factor (PLF) in wind projects and the contribution from newly commissioned wind power projects.

Offsetting Factors and Future Expectations

Despite the triumphs of the distribution and renewables sectors, thermal generation faced a setback, with profits dipping by INR 130 crores due to diminished gains from liquefied natural gas (LNG) and merchant power sales. Still, Torrent Power anticipates heightened demand in the power market, readying to capture opportunities to sell gas-based power during peak demand months, buoyed by a foreseeable stable LNG pricing environment.

Operational Highlights and Upcoming Projects

On the operational front, Torrent Power has experienced remarkable power demand growth leading to increased generation output. Their strategies have brought all 1,200-megawatt DGEN power plants online for the first time, meeting both long-term commitments and merchant power needs. Upcoming project developments include solar and wind farms expected for completion by end of FY '24 and March '25 respectively, as well as a notable CNG infrastructure project slated to commission by March '24.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Torrent Power Limited Q2 FY '24 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Saurabh Mashruwala, Chief Financial Officer, Torrent Power Limited. Thank you, and over to you, sir.

[Saurabh Mashruwala, executive]

Thank you, [ Nita ]. Good evening to all of you, and thank you for joining the earnings call of Torrent Power for Q2 FY '24. First, I will take you through the performance of the quarter, after which phone lines will be open for a Q&A session.

[ Next ] the perform of the company at PBT level first and then take the tax expenses separately. Reported PBT for the quarter stood at INR 741 crores as compared to INR 725 crores in the corresponding quarter of last year, an increase of about INR 16 crores, about roughly about [ 2% ] of reported basis. There were no nonrecurring items in both the quarter's current as well as corresponding quarter last year. Underlying business across [ thermal ] generation, renewal generation, [ license ] and franchise distribution showed improved performance in terms of profit, which was partially offset by a lower gain from LNG as well as merchant sales. In current quarter as compared with the corresponding quarter of last year.

Business sectors contribute the growth. There are 3 reasons, 3 factors, which improve the [ BPT ] impacted the profit. For this contribution from the distribution business improved by INR 66 crores due to 2 reasons: First, improvement in T&D losses, increase in ROE on capital -- in capitalize of CapEx and incentive contribute INR 71 crores, which we which was partially offset by the higher bad debt provision, mainly in distribution franchise business due to lower collection as witnessed in the quarter, INR 11 crores.

Second, profitability of renewable business increased by INR 75 crores on account of first, improved PLF from the wind power project. And second, contribution for the newly commissioned [ 1.5 meg or 65 projects ] wind power projects, which is commissioned in the month of July 23.

Third, the performance in 2 [ gains ] from the distribution as well as [ thermal ] generation segment were offset by the reduced profit from the thermal generation by [ INR 130 ] crores on account of lower net gain in the current quarter from sale of LNG and Merchant Power compared to corresponding quarter of last year.

Before moving into the after tax numbers, I would like to highlight that despite the lower LNG merchant gains as [ peaked ] in my [ LV ] commentary, company has been able to grow its bottom line on absolute basis.

Company's consolidated profit after tax impact for the quarter is INR 531 crores as compared to INR 485 crores reported in the corresponding quarter last year. This higher by about 46% growth.

Now moving on to the operating performance of the company. There are 6 factors. First, power demand witnessed a remarkable growth during the quarter, leading to a better generation of the power plant generation of the company. Second, demand from the distribution business of the company witnessed a healthy growth of 6.5% in the current quarter. Torrent Power generation of the company witnessed a increased PLF due to increased demand from both long-term of takers as well as merchant power. Fourth, for the first time, all generating [ look up ] 1,200 megawatt [ DGN power for it ]. Yes, they are part from [ Gas Power ] service and base load for the [ second period ] of times.

We expect the country power demand to show increased growth and merchant power market in certain peak demand or particularly in the month of summer [indiscernible] winter, we will give opportunity we'll offer the opportunity to sell power from the [ gas base ] product in the future, considering the LNG price segment at sustainable level.

The last [indiscernible] renewable generation was higher on account of the better generation from wind power project. We do normalize the wind speed compared to previous quarters. This completes the overview of the quarterly financial as well as operating performance of the company.

Moving on with the -- we now give you the brief update about the current projects, which are in the pipeline. People [indiscernible] solar project is likely to commission by end of FY '24. It is expected that -- it is expected to have improved return for [ file ] considering the referent reduction in solar model prices from the investor market. Segment PPA for [ Simeon ] project was executed in the end of March '23. [indiscernible] Contract for the development of the project has been awarded to [ Switzerland ]. The estimate of the project is March [ 25 ]. The estimate of the project is likely to be extended, considering the procedural delay in adoption of [ Peri by the CRC ].

During the quarter, the company acquired [ 100% ] stake in air power wind farm cost of INR 22 crores. The company is in business or leasing of land or renewal project, is in position of the land, which is suitable for development of 125 megahertz renewal project [ is a hike of ].

Other C&I portfolio company has to 295 megawatt of projects in the development out of which 11-megawatt is commissioned in Q2 FY '24, and remaining projects are going to be commissioned going forward. company's pilot [ protein ] in [ hydro landing ] CNG in EP. This is one of the largest [ travel circuit ] landing project in India is progressing as per the timeline and is expected to commission by March '24.

In Distribution segment, company commission is powered to import [ substation in dollar SIR ], wherein we are the licensee. With respect to Palm [indiscernible] has granted the [ same level for ] 2 sites, and the [ DPR is ] under preparation right now.

That's all for the -- for this quarter. Now I would open the line for the Q&A session. I wish everybody to stay safe and healthy. Thank you. Handing over to the operators.

[Operator]

[Operator Instructions]. The first question is from the line of Mohit Kumar from ICICI Securities.

[Mohit Kumar, analyst]

Three questions from my side. One is on the -- on the renewable pipeline, we see a lot of bidding happening, but on -- but we don't see us participating in this bit you give a conscious decision not to participate in any of the renewable thing which are happening currently? Are we -- reassess this position after some time?

[Saurabh Mashruwala, executive]

We are participating, but we are very conscious about the bottom line also. So we thought that the only solar and wind the stand-on project will not offer the better reason. So we look at the hybrid kind of a project will offer a better return. So return expectation is more important for us than the bidding -- simply bidding the projects.

[Mohit Kumar, analyst]

Do you expect the new [ FTR effects ] will have a lesser competition. Is that a fair assessment?

[Saurabh Mashruwala, executive]

Yes. Hybrid project has a lesser competition, that is what our understanding is, yes. And we offer better returns also.

[Mohit Kumar, analyst]

Second question is on the given that there is a lack of power capacity and the gas power plants in the same should be in demand. Are you -- can we expect the [ DGEN ] to start operating at some point of time at a higher PLF. And did the government conducted a bid in particular for the month of October?

[Saurabh Mashruwala, executive]

Yes, government has connected offer the new tenders. But finally, because of lower demand, we are -- it was not all offered to us. But we expect the [ bidded ] project. In fact, if you look at the summer as well as 3 winter [ picture ], DGEN to offer the DGEN project, we are able to sell power in the merchant market. Wind power because of energy situation in the country, we expect demand for merchant power in the -- during the summer time as well as the inter-year and we expect DGEN project will possibly run during those years.

[Mohit Kumar, analyst]

Understood, sir. My last question is on the -- is it possible to give us the EBITDA breakup for the for the quarter, for the half year?

[Saurabh Mashruwala, executive]

The result which we have announced, in fact, we are starting giving the segment-wise reporting to the EBITDA also.

[Mohit Kumar, analyst]

So EBITDA number, is there -- in the presentation, [indiscernible].

[Saurabh Mashruwala, executive]

It is there in the financial at which we announced segment-wise performance. Distribution, generation, renewables. So you can get from that quarterly numbers as well as half in the [ middle ] yearly numbers.

[Mohit Kumar, analyst]

Are you sure the merchant volume in this particular quarter?

[Saurabh Mashruwala, executive]

Sorry?

[Mohit Kumar, analyst]

Merchant volumes in this quarter.

[Saurabh Mashruwala, executive]

Merchant volume? So more [ 272 ] we are able to play in the merchant market.

[Operator]

[Operator Instructions]. The next question is from the line of Anuj Upadhyay from Investec Capital.

[Anuj Upadhyay, analyst]

You could mention the profitability for this quarter compared [ to depiction ].

[Saurabh Mashruwala, executive]

Sorry, Anuj, come again?

[Anuj Upadhyay, analyst]

The LNG profitability for this quarter compared to the previous year quarter.

[Saurabh Mashruwala, executive]

So, I think this year -- this quarter, there was not much of LNG sales. It was more of merchant sale, which has contributed to profitability. So if you compare the last quarter, it was current quarter, both merchant and LNG come put together, we earn about INR 130 crores less contribution from the LNG's merchant.

[Anuj Upadhyay, analyst]

Okay. So combined contribution you're saying [ INR 13 crores ].

[Saurabh Mashruwala, executive]

Lower as compared with the comparable quarter of last year.

[Anuj Upadhyay, analyst]

Sir. And you mentioned about there could be some delay in the commission of 300 megawatts at [ 2020 project ]. Any indication of how much delay will be after or 2 or something [indiscernible].

[Saurabh Mashruwala, executive]

[indiscernible] was unable to finalize the PPA with the annual PPA, I would say. With the couple of [ this come ]. That is why it -- there will be some delay in the signing the PPA with us also. So maybe quarter or so, they will come back to us what kind of expansion we will give.

[Anuj Upadhyay, analyst]

Okay. Okay, sir. And then the time line is -- you can throw for the 175 megawatts of projects which we have targeting for the merchant market and other PPA projects.

[Saurabh Mashruwala, executive]

Maybe about 15 to 18 months is a duration one can expect.

[Anuj Upadhyay, analyst]

Okay. And sir, are we still sticking to our long-term goal -- long term in the sense, 3 to 4 years kind of a goal to have 5 gigawatt of renewable capacity in [ TP ] because as you mentioned in the earlier question that we are strategically looking into [ wind ] this project. So we don't want to lose on to the earnings of the retained portfolio by adding more project to liquidity -- so obviously, speaking to 5 gigawatts that [indiscernible].

[Saurabh Mashruwala, executive]

Yes, 3, 4 years, yes, our target is switched for 5 gigawatt. Both we are looking [ wind ] projects as well as acquisitions also both things we are evaluating at this moment. So Anuj, [indiscernible] also when we say it, we were always saying that it was always subject to. We're getting the desired returns which we are looking at. So again, that remains that 5 [ gigawatts ] is the aspiration which we want to, but not at the cost of the profitability of the written profile.

[Operator]

[Operator Instructions]. Next question is from the line of Dhruv Muchhal from HDFC Asset Management.

[Dhruv Muchhal, analyst]

Sir, the first question was the demand, electricity demand has been very reasonable across your circles. Sir, if you can share some sense and we see that across India. Also, so if you can share some sense on what is driving this? Probably understand some of it could be residential, but some incremental thoughts from you? So particularly, if I take D&D, which is probably largely commercial and industrial area for you, there also demand growth is about 8% this quarter. So just some sense, some granular details on what your view is driving this demand?

[Saurabh Mashruwala, executive]

The combination of -- if you look at the GDP numbers also and industrial demand, which is very strong right now, which is what is driving the demand across all our distribution sales. So Dhruv, if you look at, let's say, [ D&D ], which is, as you rightly say, it is more of an industrial area, which has showed a growth of 8%. If you look at Agra also, which is more of residential or in the [ bad ] which is more of residential, they have also shown a good growth in terms of volumes is concerned. So as far as the demand for the entire electricity is concerned, I think this is coming from all the angles, be it industrial or be it residential or commercial. Cuts a whole H1 demand, consumption of electricity was about 9.3%. That is what government has announced the numbers. So this is reflected in our performance also in our area of operations.

[Dhruv Muchhal, analyst]

For your area, say, particularly areas which are relatively high industrial, if you split that between industrial and say, residential would the growth be similar between the industrial and residential? Or is there something which is growing more faster and something slower?

[Unknown Executive]

No, no. I think it will be -- it would not be like to generalize that. So if I tell you that one is an industrial area, but it has not shown growth because of it, in particular issues with respect to the industry, which it has. So as far as generalization is concerned, it would be very difficult to generalize that. But yes, if I look at my areas, then all the areas have shown a typical growth, some maybe a couple of percentage higher, some a couple of percentage lower. But as far as residential or industrial is concerned, both of them have shown good growth.

[Dhruv Muchhal, analyst]

The growth within the segments -- I mean, within the areas for these segments, it is reasonable, both for industrial [indiscernible] across it's going. Got it. Got it. Sure.

And sir, the second thing was similar to the renewable base transmission but also we see that the pace of transmission [ builder wording ] is increasing. Sir, how do we think of our participation there? Because I think earlier, we were looking at getting some bids there?

[Saurabh Mashruwala, executive]

So we are participating. But as we said, we always look at the desired returns. So based on the desired return, we generally participate and participate in the transmission project.

I think Dhruv, we participate in all the biddings which happened for renewable or for transmission. Sometimes we are not successful because we are not willing to go beyond certain point in terms of [ rates ] are concerned.

[Dhruv Muchhal, analyst]

So in your view, still the rates in transmission bidding is not as attractive, probably for you, it's not as attractive yet despite the increase in pace for now.

[Unknown Executive]

As of now, yes.

[Operator]

[Operator Instructions]. Next question is from the line of Jiten Rushi from Axis Capital.

[Jiten Rushi, analyst]

Sir, just on the LNG and the merchant side. So in Q2 last year, we had a INR 155 crores of LNG gain. So as you said, the decline is INR 130 crores this closing, INR 25 crores was the earnings from the LGN merchant?

[Saurabh Mashruwala, executive]

Yes.

[Jiten Rushi, analyst]

And sir, what would be the breakup between this two because last in Q1, it was like INR 10 crores from an INR 130 [ crores merchant ] in this INR 25 crores.

[Unknown Executive]

Major part of it is merchant, very small part from LNG trading.

[Jiten Rushi, analyst]

And what was the rate at which you have sold the merchant power?

[Unknown Executive]

Average rate would be around INR 10 -- I think INR 11, INR 10 to INR 11 range.

[Jiten Rushi, analyst]

INR 10 to INR 11. So probably, you are expecting this [indiscernible] continue this quarter? Any additional earnings of [ INR 2, INR 3 crores ] to maintain on merchant?

[Unknown Executive]

I think it would be very speculative to answer that question, whether that will sustain or not. But if you look at certain prices right now because winter setting in, expectation is it will slightly go down and then again, pick up, let's say, somewhere at the end of Q4.

[Jiten Rushi, analyst]

And on the peril licensing, any updates like you were talking about the peril licensing in Maharashtra and other states.

[Saurabh Mashruwala, executive]

Peril licensing, we have completed all compliances, whatever compliances is required. The regulator, we have completed all compliances. We are now just waiting to take this forward for the internal process.

[Jiten Rushi, analyst]

So how long process will take more time from you? Or what is your view?

[Saurabh Mashruwala, executive]

It's difficult to say right now because [ MERC ] has to take it forward in that internal system and for the approval for us.

[Unknown Executive]

Difficult to put a time to it, but it's moving on. It's very difficult to put a time line to it.

[Jiten Rushi, analyst]

And sir, on the [ Palm fighter ] story, obviously, last quarter also, we highlighted some also in the opening remark is moving -- even more allotted some land. So can you just throw some further light on what is the progress now in the [indiscernible] in the last quarter.

[Saurabh Mashruwala, executive]

It's a long-term project, maybe 5, 6 years is required to materialize that -- come the [indiscernible] operating. [ Offset ] that is we have to get the [ MOA ] approval which we have opt-in. The second is at the [ PR ] and then take it forward -- afterwards.

[Jiten Rushi, analyst]

[indiscernible] initial perpetual take another 2 years before the actual [ question ] or execution?

[Saurabh Mashruwala, executive]

Yes, yes. You are right.

[Jiten Rushi, analyst]

And probably after that, the construction we call like 5 -- 4 to 5 years?

[Saurabh Mashruwala, executive]

3 to 4 years, I would say.

[Jiten Rushi, analyst]

Okay. So in all, like 5 to 6 years for commissioning from now?

[Saurabh Mashruwala, executive]

Yes. Yes, yes.

[Operator]

Next question is from the line of Amit from Morgan Stanley.

[Amit Bhinde, analyst]

I wanted to get some sense around the performance in your license and franchise distribution. I know -- I mean you have clubbed both the segments in D&D. So how should one look at it? I mean, what would be a good way to understand how the franchise is performing.

[Saurabh Mashruwala, executive]

We have said in the beginning of the call, saying that the both license and franchise distribution performance is better, and we have improved the performance on by [ INR 66 ] crores a combined basis. That is what -- that is what all we can say.

[Amit Bhinde, analyst]

Great. Right. Okay. In on the PSP part, I mean, what kind of models are we looking at? Are we looking at a leasing kind of model or we would go for regulated bids? Or how would it be?

[Unknown Executive]

I think as of now it's too early to comment on that. We have kept our options open. Once we get nearer to getting those approvals, we'll really see whether we want to go into a leasing part or do RTC project [ energy ].

[Operator]

[Operator Instructions]. Next question is from the line of Bharanidhar Vijaykumar from Spark Capital.

[Bharanidhar Vijayakumar, analyst]

Just wanted to understand from you when you said that the returns are better in the hybrid projects. Could you highlight the reasons according to you? Why this is the case?

[Saurabh Mashruwala, executive]

Hybrid project is a [ high of ] project. In fact, you can able to deliver the higher PLF of, I would say, so which will ensure that the availability of power is higher, I would say. So because of the inherent advantage of [ high cup ] project, retails will be higher.

[Bharanidhar Vijayakumar, analyst]

[indiscernible] cost, you mean?

[Mohit Kumar, analyst]

No. [ High cup ] [indiscernible],.

[Unknown Executive]

So basically, what happens is that in these kind of projects, you'll have to really identify the sites can provide you a higher PLF both on wind and solar. and then only you can give a high [ CUF ] solution to the purchaser, which means that you'll have to identify those sites and be ready when the tenders come. So that the competition itself would be lower because of which returns could be higher compared to pure [ plain filler ] projects of wind or solar.

[Bharanidhar Vijayakumar, analyst]

Okay. Okay. Okay. And does common transmission network and insure, which is required, which will probably come up at a much lesser cost per megawatt. Is that also a reason?

[Unknown Executive]

That would also be one factor, but I think major factor would be lesser competition in which compared to all those cost savings. And evacuation facility will be better utilized in case of hybrid projects.

[Bharanidhar Vijayakumar, analyst]

Okay. And what I'm noticing is that in the recent SECI [ bids ], there is this firm and dispatchable renewable energy kind of bids that are coming up. which mandates storage also to be part of the bid. So are we bidding for those kind of bids?

[Saurabh Mashruwala, executive]

So our interest is to go and try for the hybrid kind of projects.

[Bharanidhar Vijayakumar, analyst]

Okay, only hybrid, okay, okay. And the last question from my side is on the entire gas capacity in the country and especially for us. Now recently, government has been doing a lot of measures to improve power supply in the country and some of the measures also include reviving the stranded assets, be it coal, maybe even not gas. So are you seeing any long-term action that government is planning to do to [ revive ] the entire space, which will also benefit us?

[Saurabh Mashruwala, executive]

Our [ experts ] is the power deficit scenario is going to continue for a couple of months coming. Going [indiscernible] I would say. So we expect that the [indiscernible] better place to deliver the in those years was particular summer [ prorate ] winter for years.

[Bharanidhar Vijayakumar, analyst]

So what you're telling is the temporary measures that the government has been doing that will continue no long-term measures, which will resolve the stranded [indiscernible].

[Saurabh Mashruwala, executive]

Some period of time, we are seeing that situation.

[Operator]

[Operator Instructions]. As there are no further questions, I will now hand the conference over to Mr. Saurabh Mashruwala for closing comments.

[Saurabh Mashruwala, executive]

Yes. Thank you so much. Thank you for attending the Torrent Power's earnings calls. We wish everybody to stay safe and healthy and happy Diwali to all of you. Thank you so much.

[Operator]

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

[Saurabh Mashruwala, executive]

Thank you.

[Operator]

Thank you, sir.