Torrent Power Ltd
NSE:TORNTPOWER
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Torrent Power Ltd
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Ladies and gentlemen, good day, and welcome to the Torrent Power Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Lalit Malik, CFO, Torrent Power Limited. And over to you, sir.
Thank you. Good evening to all of you, and thank you for joining earnings call of Torrent Power for quarter 3 FY '23.
First, I'll take you through the performance of the quarter, after which phone lines will be open for question-and-answer session. I'll explain the performance of the company at PBT level first and will take tax expense separately thereafter.
Reported PBT for the quarter stood at INR 977 crores as compared to INR 509 crores in the corresponding quarter of last year, an increase of INR 468 crores, that is 92% on reported basis.
There are no nonrecurring items in both the current quarter and corresponding quarter of last year.
I'll now take you through key highlights on improvement in the PBT by INR 468 crores for the current quarter. The improvement in the operating profit is mainly coming from, one, improvement in profitability of gas-based power plant on account of 2 factors. First is the net gain of INR 397 crores coming from sale of LNG, which, as discussed in earlier calls, with elevated LNG prices, it makes commercial sense to sell LNG instead of converting it into electricity.
And second is the gain of INR 35 crores on account of lower depreciation charge in DGEN on account of onetime impairment charge taken in quarter 4 of FY '22 and reduction in depreciation rate in SUGEN. Therefore, in total, including above major factors, profitability of the gas-based power plants improved by INR 435 crores.
Second, moving on to performance of distribution business, pursuant to restoration of industrial demand, which was impacted last year due to COVID-19 pandemic, there was marked improvement in overall contribution from the distribution business by INR 122 crores, major factors of which are given below.
A, gain on account of reduction in T&D losses of INR 45 crores; b, volume and rate gains from franchisee business of INR 19 crores; c, higher ROE and incentives in license distribution of INR 26 crores; and d, higher contribution from new acquisition of DNH and DD of INR 32 crores.
Next, renewable business of the company witnessed an increase in contribution mainly on account of 3 factors: One, profit booked on account of acquisitions consummated during last 3 quarters amounting to INR 21 crores; b, partially offset by lower contribution of approximately INR 3 crores from existing plants, mainly on account of lower PLS and nonavailability of 50 megawatt of SECI I wind power project for part of the month going to [ EHS ] tower failure. Therefore, in total, profitability of renewable power plants has increased by INR 22 crores.
Next, increase in finance cost of INR 71 crores, which is mainly due to increase in average borrowing by approximately INR 2,700 crores; increase in depreciation and amortization expense by INR 18 crores and increase in other miscellaneous expense to INR 15 crores.
Moving on to after-tax numbers. Consolidated profit after tax reported for the quarter is INR 695 crores as compared to PAT of INR 369 crores reported in the corresponding quarter last year, which is higher by INR 326 crores, that is 88%.
This was all about the financial performance of the company during the quarter. Now moving on to the operational performance of the company.
Distribution business witnessed a year-over-year improvement of approximately 3% in overall demand, while the T&D losses for 9 months ended December 22 at Ahmedabad, Surat, Dahej and Bhiwandi have remained stable, losses at Agra and SMK have remarkably reduced mainly due to continued focus on loss reduction and recovery activities.
This completes the overview of the quarterly financial and operating performance of the company.
Now moving on, we'll give a brief update on current projects, which are under pipeline.
One, commissioning of 150 megawatts of SECI V has been slightly delayed owing to delay in construction of EHV line due to factors beyond control, and same is expected to get commissioned by April 2023. Necessary application for extension of SCOD has already been made to SECI.
Second, TPLD 300-megawatt solar project, on the other hand, has picked up some pace as due to recent reduction in module prices. LOA has been issued for procurement of modules. MNRE has also issued a notification to extend the SCOD up to March 2024 for all projects bid before March 2021. This will allow us sufficient time to execute the project.
Next, 300 megawatt of SECI XII wind project maintained status quo. The project was won by the company in quarter 1 FY '23, and LOA for the same has already been received. PPA is expected to be signed in due course.
Next, moving on to distribution segment. The company has made an application for grant of parallel distribution license in various areas of Maharashtra, including Thane and Palghar, Pune and Nagpur. MSEDCL is the incumbent licensee and will continue to remain a licensee. Once the license is granted, the consumers will have an option to choose any one of the licensee of power supply.
That's all for this quarter. Now I would request coordinator to open lines for Q&A session.
[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.
Congratulation on the good set of numbers. Sir, first question is on the -- can you please share the duration of contracts for the LNG, which we have right now? And how much is there for the fiscal? And is there something which are available for the next fiscal also?
Mohit, I'm Saurabh. So as updated in -- during the last quarter, since LNG prices are higher, there is no further contract we executed in the last quarter. But on overall basis, about -- we have a contract exists one the with IOC and Reliance Gas, where about 25% of the CapEx is contracted further however I guess SUGEN and UNOSUGEN [indiscernible].
And then 3 cargoes we have booked every quarter for the next 4 years, which all of -- which will cover another 25%. So overall, SUGEN and UNOSUGEN for the 50% of that capacity for the calendar year. Next 4 calendar years, we have contracted.
Understood, understood. And secondly, can you please share the EBITDA contribution of the businesses during the quarter?
I guess, for the EBITDA for the current quarter is about INR 678 crores versus INR 300 crores for last year the increase of INR 378 crores, as we explained INR 395 crores on account of the LNG, INR 397 crores on account of the sale of gas and the renewal is -- currently is INR 161 crores, versus last INR 114 crores, so increase of INR 57 crores.
License distribution business EBITDA is about INR 427 crores versus INR 372 crores about the increase of INR 75 crores, which include Daman & Diu also, new area which was not the last quarter. And the franchise distribution of Agra, Bhiwandi and SMK have contributed about INR 255 crores in Q3 of current year as compared with INR 206 crores of last year, an increase of about INR 49 crores.
And overall reported PBT EBITDA, I would say, is INR 1,528 crores, which INR 1,000 crores last year. It is increased about INR 528 crores, about 53%.
Understood. Lastly, sir, what has changed in the last couple of quarters that various private companies like us, they are trying to apply for parallel distribution licensee. Is there something of understanding a change of the Electricity Act?
No. We find the opportunity because Maharashtra is a fairly good area, and it's quite regulated area. The regulatory is quite good, I would say, same like Gujarat. And the demand, if you look at the third -- 3 areas, which we've applied for the second license, like Palghar and Thane and Nagpur and Pune. So those are the areas where we find industrial demand is almost 50%.
So we find this area is attractive, and the regulatory mechanism is well placed in Maharashtra, I would say. So we find a good opportunity there to expand our -- to set up our network there. And slowly, slowly, we try to -- we want to capture the market in this area also. These area -- 3 areas, if you look at the, almost some areas larger than Ahmedabad. And so in Pune, for example, Pune, we have already City Gas Distribution. We have City Gas Distribution license in Pune. So we have a good presence in Pune also, and plus Palghar and the Thane because of Bhiwandi and SMK area, we are -- and it's very near to our area.
So where synergies -- there is a synergy, I would say, in case of Palghar and Thane as well as Pune also.
And we can also add our efficiency through our past experience, which will be beneficial for the consumer.
And it's a basically 2 part tariff there is cost of traiff basically on top of it. So it's not like a franchises can have a distribution area. So those are the losses in current distribution area is not like our franchise area, so this is lower. So 2-part traiff is available, cost of tariff is available. That is one other advantage to us.
[Operator Instructions] The next question is from the line of Girish Achhipalia from Morgan Stanley.
Just one question on this acquisition news on renewables. So there was discussion about 350 solar and 750 wind [indiscernible]. Where are we right now in terms of this development happening or not happening? Or have you called it off? Can you just provide some color on this?
Each acquisition you are talking about?
The ReNew power, 1.1 gigawatts.
So basically -- Yes, it's an NBOs. So further progress needs to be made. But currently, the premise and NBOs right now.
The next question is from the line of Anshuman Ashit from ICICI Securities.
Sir, a question on the LNG sale -- the LNG trading, which we have done. So sir, the profits which we are booking from the LNG sales, are we adjusting it into a regulated business because you're buying the power from the market? So how is this adjustment being made?
It's basically merchant LNG, so it's basically independent of the regulated things basically.
Okay. So it is not included in our regulated business. But the gas which we are -- which we were procuring for SUGEN and UNOSUGEN, so I'm just trying to understand because the contracts that we have is for generating for a regulated business. But the sale, which we are making through the trading, that we are not booking or adjusting in our regulated business...
It's a merchant LNG we are using basically.
Okay, sir. We are not using the allocated Okay. Okay. And sir, sir, going forward as well, so this run rate of around INR 400 crores for the quarter, because we currently have around 3 cargoes booked for every quarter, and the...
Target for the calendar year, not every quarter, every calendar year. [indiscernible] '23.
Okay. So will this run rate continue to be on similar levels from LNG sales as indicated?
It depends on the opportunity available. So we -- as you recollect, the spot price of LNG was pretty high in the last 9 months. So we find it actually good to sell LNG rather than generate the power. So -- and as we noticed, the LNG price is coming down. So it depends on the opportunity available.
It may not continue the same way. It all depends upon the pricing and availability.
Sir, what is the threshold price below which we'll go for generation instead of trading?
It's a dynamic situation, so at what price we are getting LNG and what is the market price. We can't put any threshold on LNG business. So basically, it's a dynamic situation. We have to see the opportunity coming in. And then accordingly, we have to work.
Okay. And sir, how has been the receivable situation? So could you give us the number at 9 months in?
Which number?
Receivables.
Receivables, sir.
Receivable numbers, we don't have right now. So we can give off-line, if you want.
Okay. And sir, the CapEx number for 9 months.
That, we can provide. I think the CapEx numbers for YTD 9-month is around INR 2,298 crores. Total Cap.
Okay. Okay. And sir, so the run rate -- so the number which you had told for the next year, so for distribution -- the license distribution business, around INR 1,200 crores. And INR 300 crores was the distribution franchise business.
Yes, that's a [ valid ] number.
[Operator Instructions] The next question is from the line of Nikhil Abhyankar from DAM Capital.
Congrats on the set of numbers. Sir, can you just first tell me what is the current -- the renewable capacity that we have? And what is the under construction capacity?
Renewable capacity, commission capacity, I would say, 1,068-megawatt. And as you -- as we updated in the call, we have about [ 750 megawatt ] capacity under construction.
Okay. And sir, is there any conscious effort on our part to acquire asset rather than developing new assets?
Yes, we are working on the opportunities. As you recollect, we have -- last year, we did some acquisition of about 235 megawatt kind of things, 281 megawatt. So it's basically, we are continuously valuing the opportunity as far as acquisitions are concerned as well as new projects are concerned.
So we won't be developing any projects on our own.
No, we are. I mean, we are developing a 750-megawatt of capacity is under construction.
And sir, can you just give us the RPO obligation for all the license distribution -- distribution license areas that we have?
The obligations. One second. We can come back to on the RPO obligations.
I'm sorry, sir, I didn't get the last thing.
We will come back to you, we do offline. We'll discuss it offline.
Sure, sir. And then just regarding the parallel licensing. So now that you have applied for the license at 3, 4 places, so what are our plans? Will we be setting up a new infrastructure? Or will we be using it with the current distributor?
No. See, second license concept is you have to set a new infrastructure, like Dahej. Dahej is an example where real licenses got a discounts. [indiscernible] I would say. So we have put a new network there in the [indiscernible]. And we capture with all the customers at the Dahej are [indiscernible] with us rather than the take discount. So similar thing, again we have to set up the new network basically.
Understood, sir. And just a final question. I suppose that you have given the second parallel license. So what time line will it be required to cover the entire city area to develop our own infrastructure?
It is a long-term things, I would say. It's not happening -- it cannot happen in a very short period of time. So maybe 5 years plus period is required to set up the network.
The next question is from the line of Rahul Modi from Nippon India Asset Management.
Sir, just to understand the previous person's point of discussion. So when you're setting up a new license, when you're setting up a new network, so does it fall under the regulatory regime or this will be our CapEx? And how will be the risk mitigation in terms of -- obviously, the target will be to be more efficient and have a much better power supply mechanism. So how does the CapEx be -- it will be -- how will it function under the regulatory regime, if you can explain?
It's a regulatory regime Modi, like what we have in Ahmedabad, Ganapati Ahmedabad, Surat kind of areas.
Okay. So it means, sir, for example, if there's someone who's invested INR 1,000 crores already, they've got an asset base and used at up another INR 300 crores. So the customer get charged on this INR 1,300 crores.
Based on our regulatory filings, what we have [indiscernible] like same procedure, what we undertake in the Ahmedabad and Surat area. So we have to submit the ARR. And then that will be determined by the regulators. Same procedure.
Sir, is there any overlap in the network play? How does it work? Because I'm just trying to understand a little better than you are all...
There will be overlap because there will be parallel networking, like state DISCOM network could be there, our network to be there. Separate parallel network will be there.
Okay. So sir, now this cost that gets loaded, for example, what is the incentive of the regulator to allow that? Is it city like Pune, for example, which may be not so inefficient?
So to have a parallel licensee and loading up the cost, because this is not only happening in Maharashtra, you're going in Maharashtra, but it's happening across India. So just to understand this concept a little better, that will it lead to higher tariffs eventually and, obviously, better quality of service. Is that the right way to understand?
Better quality of service, lower cost of power. Those are the benefits consumer will have.
Okay, okay. And sir, as you mentioned that you got an IOCL tie-up for 25%, another 25% you the RIL, so what would be early approx cost that we are getting at the current [ scope ] so?
It is linked with the brand to IOC and as for Reliance are linked with the brand Slope basically, will not actually upgrade over the Slope, but it's basically linked with the brand.
Got it. So just to understand currently, if today, we are supposed to -- we have to use this power, what would be the tariff?
We'll not comment on this right now.
Okay. Sure. Just last question from my side is, sir, your 4,000-plus megawatt target of renewables remain. And if you so, when are you planning to achieve this through organic and inorganic?
So we set up about 2025, 2026 to achieve this kind of capacity.
Okay. That is 4,500 or 4,000, if I'm not sure.
Yes, yes. You are right. Its around 5,000 is what we were looking at in the next 3 to 5 years.
The next question is from the line of Akhilesh Bhandari from ICICI Prudential AMC.
My first question is on the parallel distribution network. So MSEDCL already will have some PPAs they're using to supply power to the critical areas. So do you get -- so how will the allocation of PPAs now work? Do you get to pick and choose some of the PPAs? Or do you go out and sign fresh PPAs? How does that work? And how...
So what you said is the parallel licensing. So it's a -- we don't have to use their PPA. We could do our own arrangement for the distributions not increment of the power. This is not a kind of a sharing of network. We will have a separate network. So their PPA will be independent of our PPA procurement arrangement.
It's like you have your telecom channels. You can have RIL, you can have Vodafone, you can have this. So you had a parallel infrastructure.
We are not sharing their networks. We have planned to set up our independent net.
Just a question on the entire -- general question on the entire thing because the duplication of network and duplication of PPAs for the same area has the potential to make the entire system more inefficient. You're adding more cost structure in a fixed cost environment.
So to get the approval, do you have to show, let's say, some benefit, some big benefit to the user in terms of a tariff reduction in order to get the approval? I mean, what are the merits of ways in which this is decided for the regulator? Just your thoughts on that.
We have demonstrated lower tariff, lower T&D losses, better services. It's kind of a tangible thing we have to demonstrate.
The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
A few questions. The INR 395 crores EBITDA from the LNG, what was this corresponding period last year? And if you could also help us with the data for 9 months for this fiscal and the previous ones, please.
9-month number is about INR 641 crores.
Sure. And corresponding period previous year, please?
It was about [ INR 107 crores ].
Okay. The second question is we have seen a sharp reduction in the AT&C losses at our franchisee. You have earlier in the call communicated about a rule of thumb. Is there a change now for every percentage reduction in the AT&C at the franchisees? Or what will be incremental profit that come flows through to the EBITDA of PBT?
There's no change in their assumptions right now. The same assumption can continue.
Sure. The third question is the confirmation of the previous participant. So in Ahmedabad, we have about 350 per square kilometers of our license areas. And over time, cities have expanded [indiscernible]. Are you also applying for the extended version of the city, which like in [indiscernible] it could be the easiest one to try because you are already present?
So currently, it's too premature to talk about this. But yes, city is growing. We are expanding. Demand is increasing by 5%, 6% every year.
Okay. No, the question was in terms of as the city expands beyond your license area and which may in then fall in the state DISCOM avenue, is that also an opportunity that, in [indiscernible], we could assume that can come to us?
These are opportunity, but city -- it is an opportunity yes for us.
And last question from my side. There have been news reports on promoters bidding for NCLT for -- with Reliance capital. Now historically, our track record has been impeccable in terms of new related party transactions. Can we assume the same to continue?
We're not able to comment on the Reliance Capital at this moment.
Bhavin, its Rishi here, I think your question is more on the -- any Torrent Power linkage with Reliance Capital?
No. The question is the related party transactions till date has been pretty clear. There is no loans. Only related party receives dividends or the remuneration. Can we expect the same to continue or like can entity be used to...
Absolutely.
Absolutely. So this transaction is being envisaged at the parent level, not at any operating company level. And that discipline would definitely be maintained going forward also, which we have seen for the last 20 years. That's a benefit of the Torrent Power. This transaction is independent of Torrent Power. It's our alone nobody is connected.
The next question is from the line of Harsh Dole from IIFL.
My question is actually on the parallel distribution licensing. While it is good to know that we are doing quite aggressive in terms of new areas, have you heard anybody applying for license or parallel license in our [indiscernible] Ahmedabad and Surat businesses.
And in case somebody applies, what is going to be our strategy to ensure that the incremental growth is not lost? And second part is basically, what time lines can we expect form the rollout of the network? And what regulatory approvals are necessary? And at what stage are we?
So Harsh, see if you look at the scenario, so -- we in Ahmedabad and Surat kind of area, we are efficient, okay? Our services are better tariff for competitive T&D losses are lower. So this kind of a parallel licensing will be more effective as the [ fee discounts ] are operating.
Like, for example, whatever area we applied is there. MSEDCL, they are operating, which are inefficient area. So there is no point of -- for any distributor will come in efficient area and compete with us because they will not able to compete with us because of our efficiency of the private sector players.
So this kind of a model will work only where the [ fee discounts ] are operating. And they are inefficient basically, I would say. Their tariffs have inefficient. Their tariff is higher. T&D losses will be higher. So those kind of areas, this kind of a model will work, not in Ahmedabad kind of a model, I would say.
I mean Ahmedabad and Surat, we are at the lowest in terms of the T&D losses also. So therefore, further efficiency on that will be limited for anybody to look at. On the other hand, with the government, there would be opportunity.
So this will be a differentiating factor between current power sector players and the public sector state DISCOM, I would say.
Understood. Very well appreciated. If you can comment on the time line and what regulatory approvals are necessary and at what phase are we?
Time line, it's difficult to say because we have applied for it. So normal process [ MERC ] will do. Like, for example, the invite public comment and will -- they will hear the objections. So all those public -- most standard process, they will undertake. And accordingly, they will do the public hearing kind of a thing. And they will consider all factors, technical capability of the new comers basically, financial capability of new comers and all this factors, they will evaluate and then they will take the decision.
Appreciate it. And if I can squeeze in one more question.
Yes, you can.
So in general, we have seen that the capital costs for the renewable projects have gone up, and the interest rates are what they are. Now in your opinion, do your tariffs or in general view our projects which have been bid out, those have adequate margin of safety to adhere to our capital allocation norm or there is some rethinking in that bidding strategy?
No. As we told all the years, we are expecting load in IRR for this our -- these 3 upcoming projects. So that assumption is continuing. Like, for example, 300-megawatt TPLD project, model size went up to, say, [indiscernible] kind of a thing. Now this coming to [indiscernible] kind of a thing.
So we have contracted it. We have committed -- we have contracted because it is reaching our IRR range. So we have contract with the model for the 300 megawatt, and we are going ahead with the implementations. So things are coming back to the normal level, I would say. So that is why we are exiting these projects.
The next question is from the line of Bharani Vijayakumar from Spark Capital.
Sir, how much of this LNG sale will happen in the upcoming quarters? Will we be able to see this merchant LNG from the 3 cargoes we have won?
We will not able to give any future guidance for it.
So what I'm asking is, in this particular quarter, are we continuing to do it?
Again we will not able to give future guidance. It depends all opportunities available to us at a given point of time.
So right now, there is 50% gas available for generation, right, sir?
For this calendar year, yes, 50% gas is available for SUGEN and UNOSUGEN project.
And the 3 cargoes imported that we have booked that's available until December 2026, correct?
The 3 cargoes which we booked is basically to target our summer requirements. So it is for the Q1 of the next year, every year we are targeting, every year it will be. So every year, 3 cargoes available to next 4 years, 3 multiple or 12, 12 cargoes, I would say. But the current year, 3 cargoes is for meeting the summer requirement.
I'm not able to understand. So can you clearly tell for how much capacity of gas, do we have gas for FY '24, FY '25?
So 50% gas is available for our SUGEN and UNOSUGEN requirement in license distribution area.
Okay. And this is the IOC Reliance gas plus the imported gas?
Yes, exactly.
Yes. Okay. And we are free to sell the imported gas if we don't convert it to electricity.
Yes. That opportunity is available. It depends on the -- what is the cost of the gas versus what kind of tariff we are getting. So it basically depends on the opportunities available.
Okay. Next question is on the parallel distribution licensee. How much of CapEx will be required to create this parallel infrastructure, for example, say, in the city of Pune over the next 5 years?
5 years, I would say one can put the numbers about INR 4,000 crores, INR 5,000 crores CapEx would be there for Pune kind of a city, I would say, for next 5 years.
Okay. So regulated equity would be, say, about 30% of it.
Yes.
Okay. Final question is on the EBITDA. So can you give the EBITDA from the new distribution franchisee areas like Dadra and Nagar Haveli separately?
We're not able to give you. We have given the combined numbers, so combined license, this is the number of EBITDA we have given, which we say that it will be at INR 75 crores -- INR 427 crores current quarter, and you see substitute of last month -- compared to quarter of last year.
[Operator Instructions] The next question is from the line of Rahul Modi from Nippon India Asset Management.
Sir, can you help me with the amount of regulatory assets that have been approved and pending approval? And now how are you getting comfort with the regulator in terms of liquidation, I would say?
[ 1,500 ].
Yes. About INR [ 4,500 ] crores is approved one.
And sir, any liquidation targets of this and the unapproved part?
Unapproved are disputed of about -- it is under disputed one, I would say.
Sir, what would be the amount?
INR 600 crores.
Okay. And sir, any regulators indicated? Any liquidation plans for this?
We are working with the regulator. So we are hoping that it should be over the next 2, 3 years' time.
Okay. So sir, how is the trend? Will it be flat? Have they been increasing or it has been slightly declining?
It is bit -- increasing a little.
Increasing -- little bit increasing.
Just to add on to that, if you look at -- if you remove last year or this year, I mean, there has been a decreasing trend in the regulatory assets. So basically, regulatory assets were going down. But this year, because of higher gas prices and higher all over electricity prices, the regulatory assets have gone up.
So it's difficult to tell you up to what time we'll be able to liquidate these regulatory assets. But if you look at -- to remove this year, then it was a decreasing trend.
[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thanks. We wish everybody to stay safe and healthy. We thank you, and hand over the call to the operator.
Thank you.
Ladies and gentlemen, on behalf of Torrent Power Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.
Thank you.
Thank you.