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Torrent Power Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 FY '21 earnings conference call of Torrent Power Limited, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Harshavardhan Dole from IIFL Securities Limited. Thank you, and over to you.
Thank you, moderator. Good morning. Greetings to everybody. On behalf of IIFL Securities, I welcome you all for the third quarter earnings call of Torrent Power. Today to discuss the detailed results with us, share the performance outlook, we have the senior management team of Torrent Power. Today, we have Mr. Saurabh Mashruwala, VP, Finance; Rishi Shah, GM, Finance; and Jayprakash Khanwani, Manager, Finance.I would request Saurabh bhai to make opening remarks, subsequent to which, we can open the floor to the Q&A. Over to you, Saurabh bhai.
Thank you, Harsh. Good morning to all of you. Thank you for joining the earnings call of Torrent Power for Q3. We'll take you through the performance of the quarter first, and thereafter, the call lines will be opened for the Q&A session.Let me first explain the PBT level, and then tax expenses will be taken up separately thereafter. Reported PBT for the quarter is INR 399 crores as compared to INR 315 crores reported in the corresponding quarter last year. This is higher by about INR 84 crores, roughly 27%. Here, we would like to highlight that the -- against the degrowth witnessed in the earnings during the first half of the current year, the company has additional PBT growth of 27% during this quarter. If you recollect the -- our -- during the first half, this pandemic has impacted the franchise distribution business and our volume was lower, T&D losses also shoot-up, it has impacted the collection efficiency. So all 3 drivers of the franchise distribution business has recovered during the course of the quarter, and we have showed the marked improvement in the franchise distribution area.I will now explain the effect of 2 nonrecurring items during the quarter to understand the underlying performance of the company. The first nonrecurring items is, there was a marked improvement -- as I said, there was a marked improvement in the collection efficiency franchise distribution business due to revival of economic activities and increased resilience activities by the company, which has resulted in a recovery of the pass overdue of INR 31 crores for the quarter. So if you recollect in Q1 -- in last year Q4, we have provided about INR 48 crores of bad debt provision. And Q2, we have provided about INR 91 crores of bad debt provision. Roughly about INR 140 crores of bad debt provision we have provided in the -- for our franchise distribution business, out of which we have recorded about INR 31 crores in Q3. And we expect the balance amount, a significant amount, I would say, we will be able to recover during the next 3 quarters.The second nonrecurring item is, as we explained in the last Q2, that there was a INR 42 crores of fuel under-recovery in our UNOSUGEN project that was recovered in Q3. However, another under-recovery of INR 37 crores was generated for UNOSUGEN, which will be also recovered in Q4. So net effect of this adjustment is about INR 5 crores positive gain, positively.So both put together, both these 2 items together, we have a non -- net nonrecurring credit about INR 36 crores for Q3. There was no nonrecurring item for the comparable quarter of the last year. So considering these 2 nonrecurring items, adjusted PBT for the quarter stood at INR 363 crores as compared to reported PBT of INR 315 crores for the corresponding quarter of the last year, which is higher by about INR 48 crores, roughly about 15%.Now this -- so on an adjusted basis, PBT was higher about INR 48 crores. This is on account of -- there are 3 reasons, which has contributed to the rise on the size of the PBT. Possible reduction in the finance cost by INR 45 crores. This is mainly on account of 2 factors. One is the -- our absolute date amount is lower. Average date amount is lower during this quarter as compared with the corresponding quarter of last year. And there is a reduction of rate of interest by 140 basis points, which is -- the 2 reasons have contributed to lower finance cost by INR 45 crores. Second reason of better performance is the, we have added a renewable capacity during the course of -- for the quarter. So our operating capacity for the quarter is higher at 737 megawatt as compared with 663 megawatt comparable quarter of last year. So which has resulted also in improving the PBIT by INR 14 crores.And due to merchant sales were also down. So we -- and there was -- there is an impact on the merchant volume as well as merchant contribution, which has impacted our PBIT by INR 14 crores. So all put together, there is a net increase of about INR 46 crores in the PBT number for the current quarter. As we said that there was -- there has been a marked improvement in the operating performance for the quarter on a quarter-to-quarter basis reflecting improving condition of the economy. This can be reflected from the fact that the year-on-year demand degrowth of Q3, distribution license business, which is for about 1% -- our distribution license business was 1%. And the franchisee degrowth is about 3% as compared with 15% in our license distribution and 18% franchisee distribution of Q2. So there is a marked improvement in the volume within the course of the quarter.Now moving on to the PBT number and PAT number. Consolidated PAT reported for the quarter is about INR 320 crores as compared with INR 416 crores in the corresponding quarter last year, which is lower by INR 96 crores or about 23%. This is mainly on account of the one-off -- onetime credit we have received on account of reduction in the MAT rate from 21.55% to 17.47%. So because of the tax credit available during the corresponding quarter of the last year, you would expect we have recognized, and so that there is a credit during the course of the last quarter.So this completes the overview of the performance. Now we request you to open the Q&A session. I am handing over to the operator for the Q&A session.
[Operator Instructions] The first question is from the line of Subhadip Mitra from JM Financial.
Firstly, just wanted to understand what would be the absolute debt level as of now vis-à-vis last quarter?
The debt level as of now, as on December is about INR 8,400 crores as compared with INR 8,600 crores in -- on September. So reduction about INR 200 crores.
Okay. Secondly, also I wanted to understand that, are we looking at more renewable additions coming up in FY '21 and '22 and then, when you're expecting these to come up? And how much of your equity would -- or the invested equity would go up because of this?
We are keen on solar side, not on the wind side. So solar, on a selective basis, we are evaluating the proposal and we are participating in the bidding. So we have participated in the GUVNL bidding, and we are also participants in the Andhra Pradesh bidding also.
Okay. Is there anything that is currently a work in progress, which you're expecting to come up in the next, say, 12 or 18 months?
A couple of PATs also consider the solar installation, like, for example, our own TPL, our own distribution also to meet their RPO obligation, they are also coming up with the bidding also. Now a couple of it like Madhya Pradesh, Rajasthan also, we are also considering. So we will evaluate each proposal separately and then participate in the bidding.
Understood. But those would be for future bids. But the ones that you have already won like this GUVNL bids, et cetera, so when are you expecting that to get commissioned?
GUVNL is about 18 months. So from the -- the time even is about 18 months to commission the project. And AP is not yet -- AP's goal that we -- on the -- we have announced. But similar to there will be for the AP also.
But I think, just to add to that, it is right now subjudice, so it is difficult to tell when the period will start, so...
Understood. Okay. And GUVNL one you are looking at of 30% kind of an equity?
Yes.
Okay. Last question from my side would be on the distribution side. With more opportunities coming up, how do you see that space opening up? And where are probably the opportunities that you would be look -- seeing?
Government has shown their intent to privatize the Union Territory. So Daman and Diu has already -- everybody has bid. Even Chandigarh also bidding has happened. And we are waiting for more Union Territories to come. So we have submitted the bid in terms of Daman and Diu and Chandigarh also.
Understood. Any indicative CapEx that one might think of about these areas?
Let's see. Once the bidders will be announced -- bidder will be announced and after, the banking plan will be finalized.
The next question is from the line of Mohit from DAM Capital.
Congratulations for a reasonably good quarter, sir. Sir, first question, sir, how is the demand fare in January 2021 for our all the DISCOM area. Can this -- if you not giving the exact figure, can you just give a qualitative-enough picture?
If you look at the -- our Q2 demand, growth was about 15% in the license distribution area and 18% in the franchise distribution area. It was a degrowth. In Q3, it has improved to about 1% -- minus 1% in our -- some license distribution area, minus 3% in the franchise distribution area. We expect that the January demand is almost on a similar level as compared with the last quarter -- compared to our last one -- last year. So roughly same level, I would say.
And has the collection efficiency improved further in January 2021, especially in the Bhiwandi?
As you can see, the collection efficiencies in terms of Bhiwandi and Agra, which was 107% in Q3, which has improved to -- it will be on a similar level, I would say, in the month of January.
Understood. Sir, last question, sir, can you just give a breakup of EBITDA business-wise, which you used to give in previous quarters?
EBITDA business-wise -- you want EBITDA or PBIT?
Anything, sir, EBITDA.
Yes, EBITDA in the gas-based project is about INR 218 crores for the current quarter. In the comparable quarter was about INR 239 crores. And for our renewal business, it is about INR 129 crores for the current quarter and comparable quarter of last year is INR 110 crores. License business, it is INR 327 crores for the current quarter of Q3, and comparable quarter is about INR 322 crores. Our franchisee business is on the INR 197 crores for the current quarter, and the same level, it remains at the same level for comparable quarter last year. The franchisee business has recovered well, and it has reached the same level of the last year. So these are the segment-wise EBITDA breakout of the company.
The next question is from the line of [ D. Anand ] from Way2 (sic) [ Way2Wealth ] Capital.
Sir, 2 questions from my end. First is I think there is an ROE revision due in '23. And is my understanding correct? And if yes, then can you give me a sense of the various business segments that we operate in that might come under this ROE revision?
So ROE is -- there is no -- as of now, there is no -- any mandate from the GERC to -- for the revision of the ROE.
Okay. So this in the foreseeable future, we don't expect any changes in the regulated ROE for any of our segments.
It depends on the new MYT regulations coming in. They have postponed the MYT regulations by 1 year.
So, [ Anand ], it's Rishi here. Just to add to what Saurabh bhai told, so this ROE on generation and on distribution is covered by separate regulators. So our generation is covered by CERC who exactly last year -- in last year, they announced a 5-year MYT regulations, wherein they have not changed the ROE regulation. So for next 5 years, that will remain the same for our generation portfolio is concerned.As far as our distribution portfolio is concerned, it is covered under GERC norms. And our GERC/MYT regulations are supposed to come in this year, which has been deferred for 1 year. But expect -- we don't expect any change in the base ROEs, which have been given to us till date. And if you compare it with all India ROEs, it is one of the lowest in the country. So our expectation is that it should not change as far as ROE for our distribution business is concerned.
And sir, with regards to the broad opportunity in the sector for next, let's say, 3 years, how do you see -- which area do you see maximum capital allocation? And how do you see next 3 years for us as a company?
We are very keen on the decision on Union Territory privatization, so that is 1 opportunity we are looking at Like an opportunity, we are looking at the solar projects, where we have various proposals we are evaluating. And so solar is our next opportunity. And for the transmission -- that's part of the transmission area. These are 3 areas which where we are looking at to invest further capital.
Sir, in privatization, the first one, can you elaborate? Like, is it -- which particular privatization are we eagerly...
So we have participated in the Daman and Diu Union Terriroty. We have also participated in Chandigarh also. And see, the cash -- as far as CapEx is concerned, it is generally spread out CapEx, like -- not like upfront CapEx, like, for example, Bhiwandi and Agra, which we have taken over. Our CapEx spending, these are spread out for a couple of years, I would say, first couple of years. So similar kind of CapEx we have to invest in this kind of Union Territory also. Like, it will be in a phased manner, I would say.
Okay. And in distribution, I imagine, we have some auctions that are planned. Any particular sense on where you haven't mentioned distribution franchisee in those capital location for next 3 years?
Any new franchises, which will come, probably, we'll evaluate it. But as of now, these 2 Union Territories we are looking at.
Okay. And there hasn't been any formal announcement by any state or any particular cities or there isn't a planned road map in terms of privatization.
Not yet. Not yet by any state government as of now.
The next question is from the line of Manali from Centra Advisors LLP.
Sir, I have 1 question. I just want to understand what would be the cost of your gas for this quarter, imported gas?
It is about $5, $5.5 -- between $5 and $5.50.
Okay. Imported gas is on spot, and how much is contracted?
It is -- see, we have contracted a lot of that. So it is -- we do not contract on a spot basis. So it is about $5.50 kind of I think was the cost of gas.
The next question is from the line of Aniket Mittal from Motilal Oswal.
Sir, just firstly, on the DF front. To a clarification from the EBITDA number that you mentioned for DF, which is INR 197 crores at the same level, does this include the INR 31 crores of recovery?
No.
This is an adjusted number.
Okay. This is an adjusted number. Okay. Got it. And just to get some clarity in terms of how do we see demand panning out within the segment for -- the DF segment for FY '22? And our view on the AT&C loss trajectory over there?
The demand for the franchisee distribution business is expected to grow by about 5% to 6%. And I'm just giving you the AT&C loss number for the YTD for franchise distribution for Q3. Then we can talk about what is going to happen for the next year. So YTD number Bhiwandi is about 17.31% AT&C losses. And Agra is about 18.55%. So we expect that these numbers will go down during FY '22, and maybe it would be settle around -- our aim is to settle around 12% to 13% kind of a thing, 12% kind of thing.
12% to 13% for both Bhiwandi and Agra?
Yes.
Okay. And in terms of demand also, given the fact that I think FY '21 has been a muted year for demand, could this number for demand in DF be higher than 5% to 6%? Or is that something that we're looking for FY '22?
So I think it is difficult to give you an exact numbers on demand projections. On an average, if you look at for past, some years the demand has been growing at around 3% to 4% on an year-on-year basis. Now if there is some pent-up demand? There could be an increase in demand for next year, but it is very difficult to tell any numbers per se as of now.
So my next question was on the CapEx front. If I have a look at your recent addition that you made in GERC, you're projecting a CapEx of around INR 1,700 crores for Ahmedabad and Surat. So just wanted to understand the reason for this high CapEx, is it because of some pent-up CapEx that would come on board? And at an overall group level, what is the CapEx that you are expecting for FY '22?
Well, I think if you look at this year, and if you look at the estimates, which we had given earlier also, we are expecting CapEx of INR 1,500 crores, broken up into INR 1,200 crores and INR 300 crores for distribution licensee and franchise distribution business on a year-on-year basis. If you look at this year, our CapEx spend, it would be lower than the numbers which we had given because of lockdowns being enforced and we have not been able to do much of CapEx.And that's why you're seeing a higher CapEx amount in next year, which is basically to take care of the CapEx, which we have not spent in this year. But the estimate remains same that INR 1,500 crores on year-on-year basis for the next 2 to 3 years for our distribution license and franchise distribution businesses put together.
So just to get a sense on the FY '21 then, what's the CapEx that you're looking for FY '21, particularly on the DL front, the distribution license?
Yes, sure. On CapEx front, I'm just giving you the actual numbers up to Q3, is about INR 650 crores for license distribution and franchisee of about INR 125 crores for franchisee distribution. This is the actual number for Q3. We expect that the franchisee will be about INR 900 crores for the full year -- sorry, license business. And the franchisee would be roughly about INR 225 crores kind of a thing. INR 200 crores to INR 225 crores, franchisee business for the year number.
Sure. Sure. And just one on the renewables, given the fact that we are now -- we signed a PPA and we're going to construct this 100 megawatt of plant in Gujarat, what would be the CapEx related to that renewable project? And how would it be phased out in FY '22 and FY '23?
So the CapEx expectation is around INR 380 crores to INR 400 crores for the 100 megawatt solar project, which we have recently won in the -- from GUVNL. And I think the major part of the CapEx will be done in end of Q3, Q4 of the FY '22 and some part will spillover to FY '23.
Okay. So majority of that will come in '20. Got it. And sir, just one word, I want to understand if there's any update on AMGEN. We are now, I think, less than 20 months away from the December '22 deadline. And at the government level, I think there's been a bit of back and forth in terms of the implementation of those norms. So do we see -- is there -- do we see AMGEN having to retire by December '22?
So I think it is difficult to tell as of now. It is a status quo. So we are working or we are discussing this with different people or the learned people. But as of now, there's a status quo. It's difficult to tell as of now anything on that.
Okay. And sir, maybe just a related point to understand from your distribution, let's say, license business. We do procure a decent amount from AMGEN, right? So in a scenario, let's say, where AMGEN retires, would you have to make a call for a new long-term PPA?
We have to invite the competitive bid for the shortfall in distribution -- license distributing area.
Sure. But you would be making a new call for a long-term PPA to get that filled, if in a scenario, let's say, where AMGEN retires?
No. So if you look at the AMGEN capacity, 362 megawatts, it is easy to take it from the merchant market. But we will take a call at point in time, whether to invite for a long-term PPA or right now to carry on -- carry forward with buying it from merchant market or on a short from basis.
And just 1 clarity again on that. Let's say, if you were to make a call for a long term PPA, is there any obligation for you to do that for a renewable plant to meet your RPO obligation? So what I'm trying to understand is, let's say, AMGEN retires and you decide to make a new long-term PPA. Could that necessarily have to be a renewable-led capacity to meet your RPO obligation?
No, no, no. I think the RPO obligations are based on the number of units you sell in a particular area. So if you sell 1,000 units, there are percentages defined from different sources which -- for which we need to comply with. So it has nothing to do with AMGEN retiring, and I'm -- taking up a new PPA. Those are different events.
Sir, the reason why I was looking at it, if I look at your recent tariff order, I think your overall purchases for renewable from an FY '22 perspective that your petition comes to around 11%. So I was wondering if you're planning to increase this 11%, let's say, to 14%, 15%, that could possibly mean that you may have to tie up for long-term PPA on renewals.
No, no. So that is a separate thing. That's why our DISCOM has already come out with a tender for 300 megawatts for solar purchase. So what I'm trying to say is that's a separate event. It is not linked to AMGEN decommissioning or not. In any case, you have to follow that.
Understood. Sir, just 1 question that I wanted some clarity on. I think, like you mentioned, the MYT regulation has been delayed by 1 year. So now we're looking at an MYT regulation coming from FY '23 to '27. And incidentally, I believe the initial license of our Ahmedabad business is valid till 2025. So before the MYT regulation comes in, is there any talk over the extension of this Ahmedabad distribution license?
No, no. So there is no such thing as extension of license. MYT regulations are completely disconnected with the license expiring or not.
Okay. And the reason I think, let's say, the MYT comes in for 5 years, right, it would be cognizant of the fact that who the operator within that area would be. Just wondering...
No, no. One second. So MYT regulation is for all the distribution licensee companies and all the generating companies in that particular area. So whomsoever may be the licensee, it applies to all the licensee holder -- license holders there.
Okay. And sir, I think license in Ahmedabad expire at 2025? So would that get extended?
So as I said, there is no provision of extension of license.
[Operator Instructions] The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.
We've seen some plants are dependent on imported LNG. Can you first, let me know what percentage of our gas is domestically sourced? And also, what is the increase in LNG price? How does it affect us? And typically, long-term contracts that we do well -- how -- for how many months or years?
Jayesh, this is Rishi here. So just to give you an answer on the sourcing part of our LNG. For our PPA liabilities and for SUGEN plant, we have a long-term contract with IOCL for nearly 20% of our requirements. We have also recently bought some gas from Reliance when it was auctioned. So around 20%, 25% of gas comes in from IOCL and Reliance. For balance -- requirements for our PPA liabilities processed from international markets. As far as current sourcing is concerned or current contracts are concerned, we are nearly -- we have nearly tied up for all our PPA liabilities for next year, which is FY '22, at an average price of around $4.
Okay. And one last question from my side is, what is the reason for T&D losses rising?
No. So if you look at Q1 and Q2, the T&D losses have gone up, one -- the major factor being the mix change. So let's say, if you have higher industrial demand and a lower retail volume, you'll tend to have lower T&D losses. But if that mix changes and it goes towards more of retail and less of industrial, the T&D losses tends to shoot up because technically, the high tension steel of electricity would have lower losses compared to a low tension steel. So if you look at Q1 and Q2, that was -- I mean, in that area, industries were under lockdown. And that's why there is no consumption from industries. And that's why the T&D losses were up. If you look at Q3, they have significantly gone down because industries have started coming up back, and that mix is, again, going back to the original levels which we have seen in FY '20.
The next question is from the line of [ Devam Modhi ], an individual investor.
Yes. So first, just wanted an update on the DGEN plant. We understand that it is completely -- I mean, right now, obviously, the 3Q, there is no demand so the PLF is not there. Going ahead, what are the various options in terms of demand rise or whatever it can happen and in which regions. In terms of Gujarat, clearly has a demand/supply equation, which is not going to be friendly for DGEN. How does it shape up on a regional basis for DGEN and how do we look at ramping that up?
So sorry, [ Devam ], I just lost the last part of your question. If you can just please repeat that?
What are the various options before us from, let's say, a 1-year to 5-year perspective to ramp up DGEN? And how does that look going ahead?
So, okay. So DGEN per se, sorry -- as we had discussed this in the last call also, DGEN, we -- on a short-term perspective, we don't expect any long-term PPAs to come in for that plant. So for a short term to medium term, it would operate for a merchant capacity. And so let's say, slightly from a medium-term perspective, after 3, 4 years, we expect that there could be some long-term PPAs, which would start coming in because of various factors playing out in the market. So let's say, higher renewable capacity into the grid would require yet these power plants to be there to -- in fact, base demand also is expected to increase, which will require nonoperating plants to start functioning. So all those factors putting in, I think, on a slightly medium-term basis, we expect that there could be some long-term PPAs, which will start coming in. Right now, if you look at the last 3, 4 years or 5 years, there has hardly been any long term PPAs which have been signed.
So what you mentioned regarding the renewable part, I think you also mentioned in your investment result slide in the presentation that there is a flexible generation point which can come in. So what would be the tipping point? I mean, at what level of renewable generation in a grid would that happen? Because we have been thinking of this since quite a period of time. Till now, obviously, we don't think any such arrangement has come in wherein -- apart from I think NTPC's comsat arrangement. But probably no other such arrangements are coming in. And probably, the government was also supposed to come up with a framework on this. So how is it looking on that front? When -- what -- how much time would it have to lapse before something like that would come in? And what percentage of renewables in the grid needs to be there for something there to be -- something like that to come?
So [ Devam ], basically, it's -- NTPC, what you referred to NTPC was basically a pilot -- on a pilot basis, they had been doing this. So those outcomes will come. And then government -- I think government should form a policy on this. It is difficult to tell when it should -- when it will come out. But bundling of power is definitely possible, and it should work. Now at what levels of renewable capacity into the grid, I think around 15% and more, you will start seeing that the grid becomes -- it becomes not stable. So after that, I think there should be some requirement of this kind of filling reserves available for the grid to maintain its stability.
So probably one incidence of grid instability due to high renewable power would lead to a trigger for doing something like this?
I can't comment on it, [ Devam ], right now.
And generally, just one thought on, if there are electricity futures, which I think MCX has just launched yesterday and the presence of IEX itself, does that help us in any way in terms of launching small volumes on DGEN? Or is that completely immaterial in terms of the volumes right now?
So I think DGEN is right now nonoperational. So it is difficult commercially to start a nonoperational plant for, let's say, 3, 4 hours or 5 hours. You need to have a strong visibility, at least for 15 days or 30 days for RTC power so that it becomes commercially viable to start a nonoperating plant.
Okay. And what kind of volumes, sales and EBITDA can be expected from the Shil, Mumbra, Kalwa over the next couple of years?
So I think Shil, Mumbra, Kalwa, the demand is around 50 megawatts. We should see a -- I mean, grow at 4%, 5% kind of a range. But it's not a small area. So it will not change much.
50 MUs or 50 megawatts?
50 megawatts.
Okay. Okay. And what would be the current gross debt, cash and net debt?
Pardon?
What would be the current gross debt, cash and net debt?
Current gross debt is about INR 8,400 crores as on December. And cash should be about INR 1,000 crores.
Okay. Okay. So this includes the cash equivalent investments also?
Yes, yes.
Okay. Okay. And finally, in the wind asset that we have built at 1.99, what is the expected ROE and what kind of PLFs does it factor?
So we are expecting ROEs in low teens for this project, the PLF of which, we are expecting is around 27%, 28% on [ AC ] basis.
[Operator Instructions] The next question is from the line of [ Jiten Rushi ] from Axis Capital.
2 questions from my side. Sir, can you give us the Q3 T&D loss for Bhiwandi and Agra and also the T&D losses for Ahmedabad and Surat Q3?
Our -- the losses for -- this is a YTD basis because of Q3 is not relevant. So on Ahmedabad, YTD basis is 5.84% for Ahmedabad. Surat is 4.09%.
Sir, that is available on the presentation. If at all possible to give otherwise -- it's okay, sir. No problem. And sir, on this SMK, what was the losses for Q3? And how it is going to be going forward?
SMK, T&D losses is 42%, 42.39% for Q3. And as a -- trajectory would be -- sir, we'll keep on improving that. But right now, this was handed over to us in February of 2020. Post to it, there was an imposition of lockdowns and because of this COVID, we have not been able to do much in that area. But as per our estimate, it will take 3 to 4 years for us to breakeven in this area.
Right, sir. So any similar number for Bhiwandi, Agra for Q3 losses if possible? Or we take it off-line?
Bhiwandi Q3 T&D losses was 14.43% and Agra is 4.7%.
And sir, on the receivables front, obviously, receivable, it seems to have improved. So what would be the receivables that are presented or that are based probably 31 December?
Sorry, can you please repeat again?
Receivables have -- must have improved because we are seeing repayment of gross debt coming down. So what would be the outstanding receivables and the breakup of the overdue amount of more than [ 45 ] days or 3 months to 6 months?
So [ Jiten ], we don't have that number handy. Can we get it to you off-line?
No worries. And sir, on the dividend policy, can you throw some light on the dividend policy? We are seeing that incentive is probably INR 5.5 per share.
We have a dividend policy of distributing 30% of PAT. So that is what we are -- we generally follow the dividend policy, 30% of the PAT we generally distribute in the dividend.
The next question is from the line of Dhruv from HDFC Fund.
Sir, first question was on the -- so if I look at YTD basis, your debt has come down by about INR 500 crores, net debt. So you reported INR 8,400 crores gross and INR 1,000 crores of cash, so about 8,000 -- INR 7,400 crores. And your FY '20 closing was 7,000 -- -- about INR 8,000-odd crores, so INR 500 crores, INR 600 crores. Sir, what would be -- and if I see the cash generation this quarter for the 9 months is about INR 1,500 crores, INR 1,600 crores. What I've done is EBITDA minus finance cost, minus the tax -- cash tax. So I was trying to understand, of INR 1,600 crores, the debt has declined only INR 500 crores. So there should be some CapEx, but what would the remaining part be?
No. As we said, Dhruv, we have done CapEx of around INR 600 crores to INR 700 crores over a -- I mean in this year. So there -- and it is not only related to CapEx. So there were certain cash outflows which have been accrued last year, cash outflow we have also this year.
Okay. If INR 700 crores is the CapEx, then probably largely, it explains because then INR 800 crores is the cash flow generation and debt has declined by INR 300 crores, INR 500 crores, then broadly -- okay, broadly that is what it's around. Sir, second question was on the earlier comment you made that your gas cost is freezed at $4. So this is for FY '22, is it?
So the contracts which we have done as far as liabilities under the PPAs are concerned, for those contracts, our gas cost is $4. Now we also have -- I would say we also have IOCL contract and some small contract with Reliance. That gas cost is not cover -- is not factoring in, in here. That would be higher because it is linked to brand. So it is difficult to throw a light on how that cost will move. But the contracts which we have done for FY '22 and cargoes which were booked, that cost is around $4.
Okay. Okay. So this is the merchant or the ex of long-term contracts that you have that you generally do, that is at $4?
That's right. Not for merchant. This is for my PPA liabilities.
For PPA liability. And sir, any booking that you have done for the merchant capacity in SUGEN and UNOSUGEN, the spare capacity that you have?
None so far, none so far. For the next year.
Nothing yet, okay. Because there's one interesting that we see on IEX, on exchanges is that the peak power prices are again back to around INR 6, INR 5. And so earlier, you used to get advantage of these opportunities. You used to sell on exchanges at the higher prices. So I was just wondering, is that a chance still?
So I think, Dhruv, if you look at this quarter, in this quarter, also, we have sold some small quantities in IEX, mainly coming out of this peak power field. So that can be done from SUGEN and UNOSUGEN. But for peaking power supply, we cannot operate DGEN. So it will not...
Yes, I was wondering from SUGEN, UNOSUGEN only.
Yes, yes. SUGEN, UNOSUGEN has sold some power on merchant basis in this quarter also, and that will keep on happening, depending on how prices move on to merchant market.
But if you don't have that surplus gas available at affordable price, then it would be -- the quantum will not be very significant. That is what I was trying to understand.
So Dhruv, it's difficult. So as far as peaking power is concerned, we -- I mean, it is only -- it can only be done from SUGEN and UNOSUGEN. Now typically, Q1 and Q2 are the best quarters for electricity demand, right, historically. So generally, if you look at DGEN, DGEN has -- we operate DGEN in H1 of every year, at typically a lull quarter so on an RTC basis is concerned. So once we get a good understanding on the demand, we would like to do some gas contracting for H1 of the next year for merchant capacity.
Got it. Got it. And one last confirmation. You mentioned that your interest cost has -- the interest rates have reduced by 140 bps. Is it?
Yes. As compared to the comparable quarter of last year.
Okay. Okay. And this is -- I mean, your long-term loans have reached -- have resettled at 140 bps lower. This is not commercial papers that are one-offs. I mean because...
No, no. These are long-term.
Long-term. Long-term. Long-term.
The next question is from the line of Rahul Modi from ICICI Securities.
Congratulations on good numbers. Sir, just a quick couple of questions. Sir, when is our hard stop in terms of when you would like to contract for gas beyond '23 because of late, we've seen a lot of volatility in the Asia LNG prices. So sir, from a sourcing strategy point of view, sir, how are you looking at it?
So Rahul, if you look at international markets, pre 2 years back or 3 years back, a lot of volumes were traded on a long-term basis. But last 2, 3 years or 4 years, the shift has been from long-term contract to a spot market, so to say. When I say spot, it could be 6 months, 12 months kind of a contracting basis. So earlier, the supply chain itself was very, very inflexible. Now because of super tankers and all liquification and regasification capacities coming up in the country, it has become flexible now. So it is possible for you not to do a long term contract because, essentially, a long-term contract means you are assured of supplies and not of price, right? And ample gas available in the international market, we are -- we consider that we should do more of spot contracting. When I say spot, again, I'm repeating for the sake of repetition, it would be 6 to 12 months kind of a horizon. So we will -- we are continuously monitoring this, and we'll decide at an opportunistic point in time. But the estimate would be that we'll be doing it for 6 months, 12 months kind of a contracting and not for, let's say, 3 years or 5 years kind of contracting because essentially, it's a quality earning -- supply contract rather than a price contract.
Okay. Sure. Sir, just one more question that I had, again, on the debt front. Sir, so we've seen a good enough reduction in the debt cost. So what is the average debt cost for our loan portfolio today?
Was about, what, 7.75% roughly as on September -- as on December '20.
Okay. Sir, you see this going down further? Or is there any scope?
No. It can go down on a small number, but it will not be as meaningful as what you saw in this quarter.
Sure. Right. And sir, from a debt repayment point of view, over the next 2 years, obviously, you have CapEx. But again, you've got some room to further reduce debt from your cash flows. Sir, what is the target that you're looking at to go down in terms of debt over the next 2, 3 years, which is -- which you can do over and above the regulated debt in terms of reduction?
It all depend on our investment plan because some growth capital also will be required. So depending on the investment plan, we try to see that how much debt reduction is possible.
Sir, in terms of scope, I'm saying. So obviously, that will vary. But I'm saying from an outer limit, if we assume that, today, what it is, in terms of work in hand, so what can be a potential repayment over the next 2 years?
So Rahul, I think our annual repayments -- scheduled repayments are around INR 1,000 crores. Now there could be a possibility we might do additional repayment of INR 100 crores, INR 200 crores. But looking at the projects which we have on hand or the projects which are coming up, yes, I think better clarity will emerge once we have final outcomes of all those biddings which we have done.
The next question is from the line of Aniket Mittal from Motilal Oswal.
I think most of my questions have been answered. So just on the motion market front, if you could quantify the volume and the revenue that you've earned in 3Q?
So I think we have sold 48 MUs in 3Q, as from the merchant sales is concerned. And the average realization would be -- our net contribution would be around INR 1.4 per unit.
And how would that compare versus previous year?
I think previous year, it was around 99 MUs with a contribution of around INR 2.
Okay, understood. Understood. And sir, just maybe one last question. I think on the MYT regulations itself. There was a draft MYT that had come out, which I think was talking about a performance-linked ROE to come in place, instead of the base sort of 14% ROE. So they're talking about the spread between a base rate from the performance-linked ROEs. So just wanted your thoughts on the same.
So I think, first of all, that is a draft regulation. So it is difficult to comment anything on that. But if, let's say, if you assume for one moment that, that will come in, our performance parameters, I think we are above those normative layers which have been specified. So for us, I think it will remain a status quo, 14% post tax ROE.
The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.
My question again was coming back to the debt level. Given certain regulatory uncertainties and some projects not being able to generate enough capacity, how do you look at the overall debt levels in a sense that you have to make investments in new projects, but some projects are not getting the delivered returns. So what is your view on debt? That's the only question I have, sir.
So we look at that on a balance sheet basis, first of all. So as far as our cash flows are concerned, we have more than sufficient to take care of the debt repayment or interest payment obligations are concerned. So on a balance sheet basis, we don't have any -- we don't see any issues per se as far as debt servicing is concerned.
No, sir, absolutely not. So I just meant in terms of the financial risk profile that you will maintain because there will be some projects that generate very good returns and some which don't. So...
Okay. So just to answer your question, what we look at is that our net debt-to-EBITDA as a ratio, we would not like it to breach 3.5% on a long-term basis. So that's how we look at it on a consolidated basis.
The next question is from the line of Harshavardhan Dole from IIFL Securities Limited.
Saurabh bhai, I had actually 2 questions. One was actually pertaining to the renewable business. Because some time ago, we had kind of taken a write-down on one of the projects that we had won. And we had taken a call that perhaps the risk reward is not that favorable as of now for the renewable project. And we'll evaluate a better entry time. Now since then, the overall tariffs in this country have kind of collapsed. And on that backdrop, we have actually won a project by quoting one of the lowest tariffs for solar power projects. So I'm just trying to understand what has changed at the margin? And here on, what should be the philosophy or the governing principle for growing the renewable business?
So Harsh, this is Rishi here. So as far as the contract which we have won, the GUVNL contract, if you look at the counterparty, we were always -- meaning we always wanted to have a counterparty, which was good in terms of the risk associated with it. As far as other risks are concerned, because of which we had to take a write-down on some of our wind portfolio or wind contracts, I think the one major risk was land, which I think we have identified for -- I mean we have identified certain pockets of land on which we can do solar projects. So that risk, we have sort of mitigated. As far as tariffs are concerned, if you look at 1.99, by quoting 1.99, we will still be making low-teens IRR. That is mainly coming out of the cost of debt in the country has fallen from earlier levels. So if you look at our current cost of debt, it is around 7.75%. And we are estimating for this project, the cost of debt could be around 8.25% to 8.5%. As far as PLF is concerned, we are improving the technology because of which that we expect that the PLF from this project would be around 27%, 28%. So putting all this together, we expect low-teens IRRs coming out of this project. So as far as risks and returns are concerned, we expect this to be a good project for us to come. As far as renewable strategy is concerned, we keep on looking at projects. And if it's -- and our benchmark return requirements would be around 13% earning in terms of base equity IRRs, which we look at for any project. And as far as solar projects are concerned, we -- as I said, land risks are more or less taken out because of some identification of lands, which we have done. Also some projects come with their own land allocations. So that risk has been taken out by these mitigation factors which we have done. And as far as return expectations are concerned, 13% could be a base level requirement, which we want for any project.
Sure. Very clear. So investors should expect portfolio growth in this -- rather growth in this portfolio on a risk-adjusted basis rather than just return basis. So one should evaluate the risk and then look at the corresponding returns. Will that be a fair statement?
Absolutely, absolutely.
The next question is from the line of Mohit from DAM Capital.
I think operator, if there are no further questions, let's take that as the last question and let's hand over the line to the management for final comments.
As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Yes. Thank you very much for attending the call. That's all. Thank you.
Well, on behalf of IIFL Securities, I thank the management for giving us an opportunity to host this call. I also thank all the participants for dialing in and actively participating in the call. Thank you very much. In case if you have any further questions, drop me a line. I will have it answered through the management. Thank you, and have a great day.
Thank you.
Thank you.
Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.