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Torrent Power Ltd
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Ladies and gentlemen, good day, and welcome to the Torrent Power Q4 FY '20 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aniket Mittal from Motilal Oswal Financial Services. Thank you, and over to you, sir.
Thank you, Nirav. Good morning, everyone. On behalf of Motilal Oswal Financial Services, I welcome you to the 4Q FY '20 Earnings Call for Torrent Power. From the management today we have with us Mr. Sanjay Dalal, the CFO of the company; Mr. Rishi Shah, AGM Finance; and Mr. Jayprakash Khanwani, Manager Finance of Torrent Power. We will begin the session with brief comments from the management. And following that, we will open the session for Q&A. I now hand over the call to the management. Over to you, sir.
Good morning, everybody. This is Sanjay Dalal. I'm the CFO of Torrent Power. So as usual, I'll give you an overview of our Q4 financial performance for about 10, 15 minutes, and then we will start taking questions from the participants. So on the overall basis, the consolidated profit after tax was actually negative INR 290 crores. That means there was a loss after tax of INR 290 crores during the quarter versus INR 18 crores of profit in the comparative quarter. That is lower by about INR 308 crores. To facilitate the understanding of this loss after tax, let's look at the profit before tax number and the tax number separately. So first, I'll just quickly deal with the profit before tax number. So the profit before tax for Q4 was again a loss of INR 693 crores versus INR 220 crores of profit in the comparative quarter. That is we were lower by about INR 913 crores. So there are 3 key one-off adjustments which I want to highlight for a proper appreciation of this number. So the first adjustment is the INR 1,000 crore impairment loss, which we have taken on the carrying value of our 1,200-megawatt diesel power project. As you know, this is a stranded asset and has been operating intermittently. This -- we'll talk about this a little later, but this is actually a noncash book adjustment under the applicable accounting standards. One significant future impact of this impairment is that the depreciation charge will go down by roughly INR 85 crores per annum because of this impairment, which we have taken from next year onwards. So INR 1,000 crores of -- a onetime noncash nonrecurring book adjustment of INR 1,000 crores. The second is a provision of INR 51 crores, which we have taken towards potential damages and other project-related costs arising from expected delays or failure in setting up wind power project, which we won under competitive bidding process in an earlier year. So this refers to the 115-megawatt SECI-V project which we had won. So this provision is similar to the one which we had taken in Q2 for the SECI-III project, and we'll talk more about it in the Renewable section of my comments. And the third one-off adjustment is a INR 48 crore provision for doubtful debts, which we have taken in our franchise distribution business in Q4. So this is a direct COVID impact as a result of dramatic fall in the electricity demand during the lockdown period and subsequent relief provided by the government in the form of postponement of payment of electricity dues. We have experienced a very drastic fall in the collection efficiencies in our franchise distribution areas, particularly Bhiwandi and Agra. So the outstanding debtors as on 31st March were assessed from a collectibility perspective. And in addition to the normal provisioning norms which we follow, we have taken a onetime additional provision for bad debt of INR 48 crores. So if we adjust for these 3 items, the adjusted profit before tax for Q4 is INR 406 crores versus INR 220 crores in the comparative quarter. That is, it is higher by INR 186 crores or about 85%. So on an adjusted basis, the performance has been very good. Now coming to the tax expense part of the P&L account. So in the Q4, the current tax is at INR 74 crores, which is roughly 24% of the profit before tax. I'm ignoring the DGEN impairment adjustment here. So at -- for now, the applicable tax rate is 17.4%. However, our effective current tax rate is 24% because this one-off provisions, which we made, that is for the SECI-V project and the additional provisions of bad debts, et cetera, they are not allowed as a deduction from book profit. And therefore, the effective book profit tax rate is about 24%. In addition to the current tax, there is a deferred tax credit we have taken in Q4 for INR 493 crores. Now this deferred tax credit actually in Q4 is made up of 2 -- actually 3 onetime elements other than the usual adjustments, which happen on account of deferred tax liabilities and assets for the transactions during the year. So one big adjustment was that we had to reverse INR 189 crores of a deferred tax liability created in earlier years on our DGEN plant. And this is a direct consequence of the impairment provision we took. So because of the impairment, there's the deferred tax liability created on DGEN asset, which got reversed in Q4, and that was INR 189 crores of credit. Second was that we had to reassess the future estimates of taxable profits, which we do for the purposes of determination of how much MAT credit we will utilize. So this reassessment had to be done on account of 2 factors. One was that next year, 2021 will have a COVID influence, and obviously, the profitability is likely to be lower than what it was earlier estimated. Secondly, because of the DGEN impairment, the financial model used for the purposes of impairment also had to be used for the purposes of projecting future taxable profit. So with these 2 adjustments, INR 176 crores of additional MAT credits also seem to be accounted because that would get now utilized. So that was another credit which came. And the third element was that INR 79 crores was recognized because of the reduction in MAT rate, which happened during Q2, where the MAT rate was reduced from 21.55% to 17.47% and which created a onetime gain of about INR 464 crores for the year. So out of that INR 464 crores, INR 79 crores was accounted in Q4. So all that put together, the total deferred tax credit for Q4 was INR 493 crores. So that sort of explains the tax portion. Now we -- I'll give you some commentary on the adjusted PBT numbers. So the higher adjusted PBT was driven by improved financial performance in all our operating segments. So gas-based generation performed better because of operationalization of the 278-megawatt of UNOSUGEN PPA from second quarter onwards and because of the higher merchant sales, which we did in Q4. And this is again net of the tariff blow, which SUGEN PPA had to bear on account of reduction in tariffs in SUGEN. So even after the absorption of that reduction in tariff in SUGEN PPA, this segment contributed towards higher PBIT.Renewable segment also performed better on the back of a higher average operational capacity, which was available during the quarter. So this quarter, we had an operational capacity of 737 megawatts versus 577 megawatts, which was operational in the comparative quarter. And the PLFs were also slightly better than the comparative quarter. So on that basis, Renewable segment also brought in additional contributions. So I'll just give a little more color on the SECI-V provision which we have made for INR 51 crores, which I explained as a onetime adjustment earlier. So SECI-V project basically suffered more or less the same issues in land acquisition, which resulted from Government of Gujarat's volte face on its land policy for wind projects. So as a result of that, finally, when the Government of Gujarat came up with a new land allocation policy sometime in November '19, it said that all projects from SECI-V and onwards can be given land only in renewable parks, which are to be developed and not anywhere else. So -- and there are no renewable parks which are under development in Gujarat. So obviously, as a result of this, all our approvals and all project activities into a complete standstill. We approached SECI for an extension of time for this, citing that this should be treated as a change in law. However, SECI has rejected our contention that extension of time is entitled in this case. And because SECI has rejected the time extension and availability of time till COD now -- from now till COD is not adequate to implement the project, we have taken a provision for INR 51 crores on account of the possible liquidated damages and the project-related costs, which we have incurred. We are still in discussion with SECI on this issue. But since on record they have rejected our application for extension of time, we have taken this accounting provision in this quarter. So license distribution business also performed very well in this quarter. In fact, it was a star performer, so essentially, on 3 counts, one is because of continuous new investments happening, the ROE continuously keeps going up. Secondly, because of continuous improvement in efficiency of operations, we have earned higher incentives. And the third factor was that we won some regulatory approvals for past disputed matters, for which we could take credit in this quarter. So all that put together, distribution also brought in excellent performance. And finally, franchise distribution business. So franchise distribution business, Bhiwandi and Agra did extremely well on further reduction in T&D losses and overall, also increase in the volumes. This quarter, for 1 month, that is on 1st of March, we took over the Shil, Mumbra, Kalwa operations formally. So for March, this quarter includes 1 month of Shil, Mumbra, Kalwa operation. And obviously, that was a month of large loss because Shil, Mumbra, Kalwa when we took over had T&D losses of about 55% in March. And no sooner we took over, there was a lockdown. So we could hardly do anything. As a result of that, we have taken a blow of about INR 22 crores for 1 month operation of Shil, Mumbra, Kalwa. So even after that, because of improved performance in Bhiwandi and Agra, overall, the distribution franchise also has turned in a decent performance. So that sort of is a color on various segments -- operating segments. I would now start taking questions from the participants.
[Operator Instructions] First question is from the line of Mohit Kumar from IDFC Securities.
Congratulations on good set of numbers, sir. Sir, I've got 2 questions [ for energy ]. First one is on the capital expenditure for FY '20. And given the COVID situation, do you think we will be able to spend INR 1,500 crores for the calendar -- for the FY '21? Is the number revised? That's the first question.
So I could not get the first part of your question. Can you repeat that, please?
Sir, what was the FY '20 CapEx across the book and breakup? And secondly, have you revised the CapEx expenditure for FY '21, especially on Renewables given the fact that, I think, we have hardly any pipeline left in it, 150 megawatts is the key one, I guess?
Right. Right. Okay. So firstly, the CapEx for financial year '20, I'll just give the breakup for 2 major -- or 3 major segments. One in the license distribution business, we capitalized about INR 812 crores. For franchise distribution, we capitalized about INR 227 crores. And in renewables, we capitalized about INR 836 crores. And then balance was -- balance INR 51 crores was a miscellaneous CapEx in -- pumping and generation and corporate and those kind of stuff. So the total CapEx for the year was about INR 1,926 crores, right? Now coming to the CapEx guidance. So our earlier guidance was an average of INR 1,500 crores over the next 3 years in the license distribution business and about INR 300 crores in the franchise distribution business on a per annum basis. Whilst the guidance remains the same because of the loss of time and some slowdown in activity during the current year, the current year spend has been revised downwards. So I think we are currently hoping to do around INR 1,200 crores to INR 1,250 crores in the license distribution business for 2021 and about INR 350 crores in the franchise distribution business. However, this current year, the situation is still evolving. So these numbers could also further undergo a change. This is our current outlook on CapEx and factors the slowdown with -- on account of loss of time and remobilization as well as our catch-up efforts of whatever we can do. This could change significantly depending on how the situation evolves. On the Renewable, there are now no projects left with these 2 projects having provided for. There was a renewable requirement for our -- renewable power obligation of our DISCOM, for which there was a project which was -- which we had talked about last time, about 150-megawatt of solar projects. This also is now likely to be delayed because of reduction in demand, which is likely to happen in 2021, the renewable power obligation of DISCOM itself might go down. And therefore, this project also kind of can likely get delayed. So does that cover all your questions?
Yes, sir. Yes, sir. Second one with the gross debt number, sir, the -- I think you have paid a substantial debt in the FY '20 despite having this huge CapEx. So can you please tell us what is the gross debt right now? And how much you paid in the fiscal year FY '20? A comparison of the gross debt at the start of FY '20 and at the end of FY '21?
Okay. So at the start of FY -- so 31st March '19 -- 31st March '20, the gross debt was about INR 8,900 crores. Yes?
Yes, sir.
And there were some resets of rate of interest which were due on 31st March. So after that reset, the average rate of interest for the INR 8,900 crores was 8.52%, right?
Yes, sir.
The current maturity in this INR 8,900 crores is about INR 1,050 crores, INR 1,075 crores.
Okay. What was the gross debt at the end of 31st March 2019?
31st March?
2019.
Gross debt?
Yes, sir.
It was INR 9,755 crores.
Okay, sir. Understood, sir. Got it.
So I can give you one more statistic which might be useful to you. So the average rate of interest for '19/'20 was 9.16% on a weighted average debt during the year of INR 9,270 crores. Against that in 2021, the weighted average debt for the year will be about INR 8,900 crores. And average rate of interest, as I said, has already fallen to 8.52%. There are some loans which will now get reset from today till September. So all put together, we are estimating a weighted average ROI of about 8.15% or so for the year. And one more piece of information, which will still be useful is, the normative debt as of March '20 was 2,452 crores. So this is useful because a part of the rate reduction will get passed on.
So this 24.5 -- INR 2,452 crores pertains to the distribution business of Ahmedabad and Surat, am I right, sir?
And SUGEN, UNOSUGEN debt.
Next question is from the line of Rahul Modi from ICICI Securities.
Congratulations for a very good set of numbers despite very difficult times. I hope all of you are safe. Sir, just a couple of questions. Sir, how has the demand now at Bhiwandi, Agra post gradual easing of lockdown over the last 15, 20 days? You're seeing any kind of improvement there?
Okay. So I'll give you a picture of demand, actual numbers for the lockdown period, that is first lockdown. That is 25th March to 31st March, what happened. Then I'll give you what actually happened in April. And then just some color on May. So -- and I'll give you for all our areas because I think there will be questions from others -- covering other areas as well. So Ahmedabad, if you take first, in the period 25th March to 31st March, there was a demand drop of 52%. And in April, that sort of recovered to a demand drop of 42%. If I take Surat, then same similar period numbers were 65% was the immediate demand drop in the lockdown first period up to March and that got sort of recovered to 61% demand drop for the month of April. Dahej was 77% drop, which sort of became 60% in April. Bhiwandi, which was your question, the demand drop in March 25 to 31 period was 65%. And that partially recovered or nominally recovered to 63% in April. Agra, the demand drop was 30% and that actually increased to 34% in April. So overall, if you want -- then for the distribution -- license business, the demand drop was 57% in the March period, 25 to 31 March, and that sort of recovered to a 48% drop in the April period. And in the distribution franchise business, the demand drop was about 54% and that recovered to about 52% demand drop on an overall basis. So for May it shows marginally improving trend as compared to April, as things are gradually getting opened up. Our outlook is that May, June, July, we will see a fairly sharp recovery in demand. However, just to complete the picture, again, this is a very evolving situation, so I will resist from giving any specific outlook or numbers. But our overall scenario sort of factors that till March, each month will actually degrew as compared to the comparative month. But that degrowth number will keep going down. So it will take a good full year for coming back to the level we were prior to COVID at the least. It could be worse also. As I said, it's an evolving situation.
Great, sir. Perfect. Sir, just one more question. Sir, you expect -- sir, in the INR 48 crores impact that you've taken, now sir, you see more such events coming in? Do you see some MSMEs actually not being able to pay, that is the reason we had to take this and you see this, at least for the next 1 to 2 quarters happening more in terms of our regular customers not being able to pay because either they are going bust or something like that?
Okay. So let's discuss this in 2 parts. The distribution franchise business and the license distribution business. So in the distribution franchise business, we took INR 48 crores of provisioning. So this INR 48 crores was based on the debtors' receivables, which are outstanding as on 31st March because the accounting standard requires that we assess those outstanding. And then there is a higher level of credit loss, which you foresee, on a forward-looking basis, you have to provide for them. So we have a standard policy for provisioning against debtor because these are -- these debtors run in lakhs in terms of numbers. So we really can't provide on individual basis. So you look at -- and so we have a broad provisioning policy rules based on the normal provisioning that happens. In addition to that, the INR 48 crores was additional provision, which we took because we saw a very sharp reduction in collection efficiency in March. So to give you an example, the collection efficiency for Bhiwandi in -- for the month of March dropped to 58%. And the collection efficiency for the period April to February was almost 98%. So this 58%, of course, had 2 elements. One element was that the due dates were extended by the government for all the customers. And therefore, many customers did not pay. And the second was that the impact of COVID-19 also would play a role in eventual collectibility of this. So we categorize the debtors, which were not collected into various segments and looking at how that segment was impacted, we have taken a provision. For example, there was restaurant, so we took a higher provision for restaurants outstanding. There was cinema halls, where we have taken, for example, a higher provisioning and so on and so forth. So on that basis, we have provided. In 2021, I think similar situation will continue throughout the year for our distribution franchise businesses. How much that number will be? I think it will require an assessment at every reporting period. So I will not be able to give you a number on that. But to be sure there will be further bad debts in 2020 and -- also in our distribution franchise business. Coming to the license distribution business, we do not foresee any additional bad debts because of the situation. There are 2 reasons. One is that the collection efficiency did not drop significantly in this area even in the lockdown period. And number two, in our license distribution business, we are very well covered by security deposits from customers. And therefore, we are well protected from nonrecovery in these areas. So this is broadly the outlook on collections.
I'll just slip in the last one. Sir, can you help us with the volumes of merchant sales and the kind of margins you are looking at and just the way ahead in that?
Our merchant sales volumes, okay. So you want for the whole year?
Sir, for the quarter and whole year will be very useful.
So if you look at quarter 4, current year, we sold about 318 MUs at net contribution of about INR 0.37. And in the comparative quarter last year, we sold 11 MUs at a net contribution of about INR 0.28. So just to add a color to this, pre-COVID, as you know, the LNG prices had crashed dramatically and LNG was available at a very attractive price. And therefore, we were targeting a very large amount of sale in the merchant power market in the peak season, that is April to July period. And then we had tied up lot of key gas in anticipation of that. However, with the COVID and the demand collapse, we had to therefore start burning that gas because the demand in the merchant power market as well as the prices had come down considerably. Since we had tied up the gas at very attractive prices, we could still sell in the merchant power market, including the day-ahead market at a surplus. So we didn't incur any loss, but we still have to utilize the gas because gas can't be stored beyond a point. And that's how this volume in Q4 is higher. If you look at the whole year, then for the whole year, current year, we sold about -- I don't have the volumes. [ Kuldeep, ] do you have the volumes for the whole year? 1,364 MUs at INR 0.96 net contribution -- sorry, INR 0.82 contribution. And in the comparative year, it was 181 -- hello?
Yes, sir.
Yes. Okay. So in the comparative period, it was 181 MUs at about INR 2.47 of net contribution.
Next question is from the line of Bhavin Vithlani from the SBI Mutual Fund.
Congratulations for a good set of numbers. So first is maybe if you can help us dissect the debt of INR 9,000 crores. So you mentioned INR 2,400 crores pertains to the regulated businesses. So what part would be renewable and what part is the debt on the DGEN side? And specifically on DGEN, what was the debt at the beginning of the financial year?
So the allocation of debt should be seen on a corporate basis, I would say. I mean that is raised with a specific purpose. But over a period of time, I think allocating debt to specific units is not giving any meaningful insight. So we have -- we look at debt on a corporate basis. When I said INR 2,452 crores of normative debt, that is the normative debt. It doesn't mean the actual debt for that unit is the same. It is the debt which the regulator has in his books on account of those units. So the actual debt, according to us, should be seen on an overall basis because what has happened, we have raised money not necessarily in 30:70 at the various points in time because of the surplus money which we had. Secondly, we have prepaid a lot of debt on an ad hoc basis from any of the units depending on where the opportunity for prepayment was the best. So looking at it on a unit-wise basis doesn't make sense. So INR 8,900 crores is the gross debt towards everything. And all of it is long-term debt.
Understood. So maybe...
There is no working capital debt.
Understood. And for fiscal year '19, earlier you had mentioned there was a INR 550 crore of loss because of the DGEN. What would be that number given that you started generating from DGEN?
The loss on account of DGEN this year, just in a minute.
This will be excluding the INR 1,000 crores of provision that you have taken.
Yes, yes, yes, of course. For the current year, we have a loss of INR 536 crores at PBT level and comparative was about INR 575 crores. This includes what we call the interest cost also. But if you want at the PBIT level, which I think is more meaningful, at PBIT level, DGEN was INR 292 crores negative versus INR 320 crores in the previous quarter.
Understood. So the question is on the capital expenditure. So you mentioned that because of the COVID, you are lowering the CapEx. So -- but you had a INR 4,500 crores capital expenditure for the licensed area over a 3-year basis. And reducing it to INR 1,250 crore, I assume that we could -- that will be spilled over to the subsequent years?
So actually, when I said INR 1,500 crores and INR 300 crores were average annual CapEx for the next 3 years, right? That was the plan, and that was the guidance. Now within that, for year 2021, I said that now we are estimating a lower number than the average, which I gave, I think, as INR 1,250 crores and INR 350 crores roughly. Now we are not changing the 3-year outlook on CapEx. We have just changed the 2021 outlook and brought it down a little to account for the loss of time and loss due to remobilization and whatever catch-up efforts we do net of that. But otherwise, on a medium-term basis, I think the CapEx outlook is maintained.
Understand. So like when we look at the regulated equity for this license, INR 4,500 crores, which is INR 1,500 crores into 3 years. Is constant, maybe something has moved from fiscal '21 to fiscal '22. Would that be a correct understanding?
Can you repeat the question, please?
So INR 1,500 crores per year over 3 years, which is INR 4,500 crores CapEx for the license distribution. But would that number be constant? Maybe there could be some spillover from '21 to '22?
Yes. Yes. That's what I meant by saying that we are maintaining the medium-term guidance on CapEx. We will incur all this CapEx eventually, maybe that 3 years can become 3.5 years or whatever at the moment.
Correct. Just last question on my side. So for renewable, something we have actually taken a back step on some of the wind CapEx. But we have a very strong operating cash flow of INR 3,600 crores in the current year. How should we look at the growth on a 3-year basis? So you have clearly outlined the capital expenditure on the license area as well as the franchise area. So how should we look at other growth avenues?
So in terms of other growth revenues, as such, as we said last time -- in the last call also that in the medium term, we are finding it difficult to identify quality growth opportunities in power sector. So license distribution and franchise distribution is an area where whatever growth opportunities come, we will tap. The visibility is low. But if you have read the recent announcements from the Finance Ministry, there is a strong move towards privatization as well as pushing the distribution model as part of the reforms in power sector, which the government plans to do. So we see more growth opportunity -- visibility and more growth opportunities there, which we will certainly pursue. So far as renewable is concerned, we are taking a pause, as I said, part mainly because the financial returns are not making sense. And secondly, because there are too much of risks which are unforeseen and unmanageable. So till that situation improves, we are not factoring that in our growth plan. Transmission is something which we will keep bidding, though we are not giving you any guidance because we have still not won any project there, but that's something which we will pursue. And now -- so with this growth plan in the medium term, there is a possibility that we may have free cash with us. So we'll use that either to reduce debt or pay dividends or a combination of the 2.
Next question is from the line of Ravi S. from Spark Capital Advisors.
So the first question is on the impact of the lower demand on our license businesses. So is this likely to increase the fixed cost component, and hence, we'd have to petition for higher fixed cost per unit for FY '21?
Okay. So the tariff for 2021 has been based on a certain demand, right? And this was prior to COVID. Now because of COVID, that actual demand will come down. So what will happen is that in a perfect scenario if we lead to a lower ARR for us in actual terms than what we are entitled to, and therefore, it will create what is known as a regulatory gap, right? So for the next year, there are other elements also. But to simplify for the next year, the way we foresee and the scenarios which we have made today, we believe that we will be able to at least recover our stand-alone ARR for the next year. What we will not be able to recover is approved gaps of the earlier years, which were otherwise supposed to be recovered in the next year. So they will sort of get carried forward in the subsequent year.
Understood. So the ARR is likely to be lesser because of lower variable charges because of purchasing lower power?
No, ARR will -- the actual ARR realized is nothing, but the electricity, which we bill to the customer. That is our annual revenue, actual annual revenue, right? The ARR, which is assessed in the tariff order is built up from the cost, saying that you are likely to incur these costs, and therefore, this is your ARR, and I'm giving you this tariff based on this demand. That demand sort of has now gone down. So obviously, the recovered ARR will be lower, right? So what I'm saying is that there are 2 components to the assessed ARR. One component is what you are required to recover on a stand-alone basis for cost for that year, that is 2021. And secondly, the gap, which we -- the regulatory approval for the earlier year on truing up is also added to the ARR and allowed a recovery from the tariff of the next year. What we are saying that on current assessment, we feel that we will be able to recover our stand-alone ARR for the next year. What we will not be able to recover is the gap, which we have approved and which we had allowed for recover in the next year. So that is a new gap and will get carried forward in the subsequent year.
Understood. Sir, on the stand-alone ARR, there would be fixed component and variable -- because the fixed component is likely to go up because the...
Fixed component will remain same only. Per unit basis, it's not that important. I use to -- my network cost is INR 500 crores. My power cost is assessed based on demand at another INR 500 crores. Then he says that INR 300 crores is your gap, which I have trued up for the earlier period, so it will give you an ARR of INR 1,300 crores on a certain assumption of demand. Now that demand has gone down, so I will actually bill not INR 1,300 crores, which otherwise, I would have, but I would bill INR 1,000 crores only because of lower units which I'm going to sell. So that INR 300 crores is a new gap, which will get carried forward. But INR 1,000 crores is also my actual cost for the next year. So what I'm saying is that we will recover our actual cost and ROE for the next year. However, we will not recover the past gap, which was otherwise expected to be recovered next year. So it's only a cash flow issue I've got.
No problem. Understood, sir. Final question, you mentioned about the collection efficiency dropping. What about the overall ATMC loss? How much would it have increased in the months of April, May in all the businesses?
So typically, that -- I will talk of T&D losses. Collection is a separate variable and particularly in franchise business, it's also affected by units factor. So on T&D losses, typically, what will happen is that next year, in general, the T&D losses are likely to go up. In each of our areas, except maybe Dahej. And the reason it's simple that the demand growth is largely happening in Industrial and Commercial segment. This segment, as such as a lower T&D loss percentage. So in percentage terms, therefore, the T&D loss will go up. However, for our licensed distribution business, our current assessment is that the actual T&D losses, while they will be slightly above what they were in '19/'20, this will still be below the normative levels, which have been allowed to us. So we can still have savings on account of T&D losses. In addition to that, we are hopeful that our regulator will adjust the normative loss level because the normative loss level was fixed, keeping in mind the normal situation of certain level of industrial and commercial demand and certain level of residential demand. Now that ratio has been disturbed. So we will approach the regulator with a request that kindly adjust the normative level slightly up. So if this plays out the way we see, we will continue to earn the T&D incentive as we have earned it in the past.
Next question is from the line of Manish Bhandari from Vallum Capital Advisors.
Thank you for this opportunity. My question has been answered. Thanks again.
[Operator Instructions] The next question is from the line of Dhruv Mukherjee from HDFC Asset Management.
Sir, on the distribution franchisee business, now we are seeing some decent demand decline. Sir, is there a possibility that we go to the government or the DISCOM for some relief given that many DISCOM will also want the state government for some relief?
It is always possible. Firstly, it's not a decent decline. It is an indecent decline, I would say.
Yes, I mean, yes.
But yes, it's always possible. But if you look at what the government has been doing in form of providing fiscal packages, et cetera. Do you think the government is going to give any large assist to any large private sector operator? No unlikely. Unlikely. We will have a friend for ourselves, and that's how we are managing our business.
Sir, any color on what is happening in May, given that the last layer of lockdown was relatively relaxed, the demand since in the power franchise businesses?
So as I said, that 25 to 31 March, the franchisee business saw a demand drop of 54% as compared to the previous period of 2019. In April, that demand drop sort of slightly recovered and became 52%. May, I think -- we are expecting May, June, July, we are expecting significant recovery. So there will still be a demand drop, but it will not be so large and it will sort of recover steeply. That is how we are seeing it. But as I said, this is an evolving situation, and it's not possible to sort of have any firm views on this. But on an overall basis, for the whole year, I think we will see a net -- on a net basis, we'll still see a demand degrowth as compared to '19/'20, both in our franchise distribution business as well as in our licensed distribution business. How much that degrowth is, is a matter which we can keep debating and building scenarios and it will keep changing. But for sure, there will be a degrowth.
Sure. Sir, on the CapEx number, if I see the cash flow, the CapEx number is about INR 1,300 crores, I think which gives capitalization of about INR 2,000 crores and I think the licensed volume is same. So what explains the difference?
I think it would be capital work in progress and capital advances we are pending capitalization. One sec, one sec, let me check.
So sir, this is also broadly similar, however.
So this -- you are saying that the number of '19/'20 doesn't match with the balance sheet?
No, so you mentioned the capitalization is about INR 2,000 crores. And the CapEx number in the cash flow statement is about INR 1,300 crores.
No, no. So that I think we have to -- no, no, the cash flow statement will not give the correct picture. So the CapEx number, which we -- which I said would include actual capitalization, which has happened; capital work in progress, which is happening; and any capital advances, which we have paid on account of capital expenditure. No, no, no. Secondly, I think the cash flow, there is also an adjustment. The SECI–III CapEx by virtue of encashment of bank guarantees deducted from that number. So that's why the cash flow number is particularly small.
Okay, okay. And sir, last 2 questions, quick one. Sir, on Shil, the area, if you can give some sense on how do you see this spanning in this year?
It's just 1 month, we took over on 1st March. And 22nd March, we first shut down our offices and 26th March, there was a lockdown. So I think there is really no representative this thing, but I think we started off with a 55% T&D loss. And overall, so we will be able to bring it down drastically from 55%. [Foreign Language] on an overall basis, I think the year 2021 with all this fallout from the pandemic also, that area will not be profit accretive.
Okay. So just from T&D perspective, what would be the T&D number in the first year is required for breakeven? If you can give back to your sense.
The T&D number for breakeven of Shil, Mumbra, Kalwa?
Yes, yes. So no, the T&D is 55%.
I think -- what I can give you is that for every 1% reduction in T&D, I think at approximately INR 6.5 crore will be the accretion to the T&D on an annual basis.
Accretion. Okay. On an annual basis. And sir, lastly, what is the regulatory assets at the end of the year?
Regulatory, INR 1,000 crores? So I think it's about how much? About INR 1,400 crores.
Next question is from the line of Abhinav Bhandari from Nippon India Mutual Funds.
Just 2 questions, sir. One is on your both license and franchisee business, how would be the overall industry mix in terms of demand just to understand or rather build in some assumptions from our end on how would be the ramp-up on the demand side? So just to understand the overall industry mix in that overall drop.
Okay. So you wanted for what the franchise distribution?
Yes. For both, if you could say the license as well as franchise.
Okay. So let's see the franchise business. So Bhiwandi, I'll give you the principle is '19, '20, that is still '19/'20. So Bhiwandi roughly, 85% is industrial and commercial. Agra is roughly 30%. Ahmedabad would be roughly 62%. Surat would be 75%.
Sure. So broadly, that explains why you are expecting the Y-o-Y degrowth to remain there till March because that's contingent on how the industry revival or utilization would increase basically.
Right, right.
Got it. Got it. Second, sir, was, if you could -- as you usually give, if you could give a broad EBITDA or PBT breakup for FY '20 across these businesses?
Yes. So we will give you a PBIT number now. As you want EBITDA number, PBIT -- I can give you PBIT, as in that will be more useful.
Sure, sir.
So just take the numbers. I mean not very -- they may be slightly here and there. But ...
No problem.
Okay. So the overall PBIT is about INR 2,562 crores. Gas-based generation is about INR 287 crores. Coal-based generation would be INR 157 crores. Renewable would be INR 433 crores. License distribution would be INR 993 crores and franchise distribution will be about INR 755 crores, right? And these are adjusted for one-offs. So one-offs, I have taken out on this. And then there is other corporate overheads and other electric conveyor belt, et cetera, would be another negative INR 64 crores. So that makes it about INR 2,562 crores. And if you remove the net finance cost, which is about INR 870 crores, adjusted PBT would be INR 1,691 crores. And then there are these one-offs, which would bring you to reported PBT.
[Operator Instructions] Next question is from the line of Mohit Kumar from IDFC Securities Limited.
So on the SECI projects, which we have written off and of course, they are adequate to the few bids, which are on the offer right now. And given that we either -- I'm ensuring that we'll have the land and the tariff discovered is slightly higher than the earlier round. Are you going to participate in the new SECI bid?
No. As we said that right now, we are picking a pause from participating in renewable projects other than what is required by our own DISCOM's RPO obligations.
Understood, sir. Secondly, on the distribution franchisee, is there any clause in the franchisee agreements, which protects us from this kind of situation? Or is...
What kind of situation? The...
COVID had impacted the demand situation, et cetera?
No, no, no. There is no specific such clause. So they have provided -- since our collections have trickled down because of government's orders extending the due dates, both the utilities who are supplying us power for Bhiwandi and Agra have given us some relief and some extended credit period for -- in payment of their bills. So that helps us to manage the cash flow.
Lastly on the regulatory asset, sir, this is INR 14 billion is there anything which is still pending to be judged by the app payer or by update, or if everything is clear right now in INR 14 billion, which has to be recovered from the committee while going forward?
Okay. So I just want to make one correction. The regulatory assets are not INR 1,400 crores, they are about INR 1,050 crores, roughly, which are accounted in the book, that is one. Number two, about INR 580 crores are not accounted in the books because they are under dispute at mainly at app sales. So they are not accounted in the book.
Next question is from the line of Subhadip Mitra from JM Financial.
My question refers to the point that you made that with regards to the distribution license area, on the ARR, you would be able to recover the costs for the current year, however, the spillover of the figures would not come in? You did mention that there is -- this is more of a cash flow issue. So am I correct in understanding that this will not really impact our profit numbers so much, but it only impacts the balance sheet, so to speak?
Yes. It's a cash flow issue. That's true. It doesn't affect the -- because -- I mean, our profitability is driven by cost -- prudent cost of ROE. So that sort of doesn't change our ROE. All of these elements are decrement as per the regulations. So if we do not get that, then the difference is allowed to us in a subsequent tariff year.
Understood. If it is possible for you to certify, what would be, I guess the quantum of previous years, which now probably will get spilled into future years, any ballpark number?
So I told you know that INR 1,036 crores is our regulatory gap, which we have taken on the book. So part of that was to be recovered from the next -- from -- in 2021. That portion would not come.
Next question is from the line of Abhishek Puri from Axis Capital Limited.
Congratulations for good set of results. Sanjay bhai, I just wanted to reconfirm that Shil, Mumbra, Kalwa, 1% reduction leads to how much gain is what you said? Was it about INR 6.5 crores?
Right, right.
Okay. And secondly, in terms of SECI–IV now coming -- SECI–V coming back to that again for the provision that you have done. So we will not be going ahead with this project?
So no. I -- as of now, we are still in discussion with SECI on the time lines. But the reason for the provision was that SECI has already rejected our applications. But for example -- so the time line was, I think we had to commission it by July '20. Now that sort of anyway will get extended by the lockdown period and maybe another 30 days or whatever that may be. So it will go to, say, October or kind. But it is not possible to execute this project in October, there is no land available. The Government of Gujarat policy is clear that SECI–V projects and all the projects thereafter can be set up only in wind parks, which are to be developed. Till today, not a single wind park is under development. No approvals, therefore, are coming through. No land is available. So this project can be executed by that time. And SECI has rejected our extension of times. So all this put to get the calls for an accounting provision which we have made.
Understood. But is that the only provision? Or if we don't decide to go ahead with the project, will there be any further provision for that?
So this is the maximum financial loss. So there is no further downside on account of this project or SECI projects. If at all, that will be only a credit that some part of the provision may come back. We may not actually incur.
Fair enough. Okay. In terms of the distribution franchisee, if we do some broad math, specifically for Bhiwandi, if you take a 40% decline in input energy for the full year. And especially for -- and if the collection efficiency goes down by -- to almost 60%. In that case, EBITDA hit can be pretty significant. So is there a way to go back to the -- in the franchisee agreement that this could be a force majeure clause and we can go back to the regulator and ask for any relief here?
Roughly, so till the Electricity Amendment Act is brought into fore, the regulator will not recognize us as a stakeholder, right? Because we are a franchisee operator. So we are not within the purview of the regulator anywhere. And secondly, the distribution franchise agreement doesn't provide for any such relief. So any reliefs are all on across the table discussion basis. But they would be mainly for the purpose of cash flow management. They would not sort of be in a form where our losses are taken over by their license operator. This position is even worse actually. So no relief from -- no relief, which will impact. The P&L impact is only ours, and we will have to bear it.
Okay. And how long do you think this collection efficiency or this collection impact will continue -- would lockdown opening up need to release of bills? Or is it fair to say for industry in terms of commercial it is not -- the bills are not paid online, and hence, so it is an issue. I'm just trying to confirm it?
So some parts are -- so for the entire deficit on account of lower collection efficiency is not provided for. Only some parts of it have been provided for. So for example, as I said, in Bhiwandi, the 58% collection efficiency remained at 42% amount, it will come in, we sort of segmented into some 15 different customer segments. And then so each -- how each of them has been impacted. And we took a view that some businesses will just not restart. There is a good number of restaurants, which will not operate now. There will be a few cinema halls, which will not start. You know that kind of thing. So -- and accordingly, on a granular basis, we came to a provision of INR 48 crores. I think we will see some more provision in Q1 and Q2, albeit lower amount, but this is just off the top hunch I'm giving you. I have no basis of saying this. But I think Q1 will see additional bad debts, maybe on a lower level and Q2 may also see some bad debts on a further lower level. Thereafter, it should normalize by then.
And I believe you understand the bad debts will be related to fixed cost because those units are not operating, so they won't be drawing any power right now.
Yes. And then whatever little power they may have used.
Okay. And is there any impact of tariff reduction in the State of Maharashtra?
No, not. Our average sales realization is more or less the same. There has been some other increase given in some other heads. So on an overall basis, our sales -- the average sales realization in Bhiwandi have not been impacted.
For Q1 as well? I mean, because I think the new tariffs are applicable from 1st April in Maharashtra?
Yes, yes. For whole of the year. For whole of the year 2020, when I'm saying.
Next question next from the line of Anuj Upadhyay from Emkay Global Financial Services.
So you mentioned that the Kalwa, Shil area led to a loss of INR 22 odd crores during the month of March. Can we get a similar level of figure or proportionate loss for the month of April actually, and similarly for the other centers like Bhiwandi or Agra?
No, Shil numbers, I can't give you.
Okay. Okay. And correct me if I'm -- like, you mentioned that the collection in March for the Bhiwandi was around 58%, and in the April was -- had an increase to 98 % or...
No, no, not 98%. What I said was that Bhiwandi, normal times was operating at a collection efficiency of 98%, that's what I said. So let me just briefly explain what is the concept of collection efficiency. So collection efficiency is the billing for the period and the collection for that period are matched to arrive at how much we have collected, right? And that is treated as a collection efficiency. The difference is not necessarily all of it is loss. Some part will come with a delayed payment charge at a later date also and some part may become loss. So on this concept base, I'm saying that Bhiwandi normally operated at 98% collection efficiency during the period April to February '20 for the -- then if I could just complete the collection efficiency just for March, it dropped to 58%. And 2 reasons, as I said. One reason was that government changed the due dates, and therefore, a lot of people did not pay because they had extra time to pay. And the second reason, which is not explicit, but we are saying that there will be credit losses in this -- in some part of this.
Right, sir. Can we get the collection efficiency for acquisitions?
No. I don't have that number.
Okay. Okay. And sir, of the total payment which you're receiving, that portion would be through digitized mode -- through the digital payment? And of the digital payment, I mean, are we able to collect the entire 100% of that given the franchise given that sometimes 80%, 90% of bad debt here.
So in Ahmedabad, Surat, I think the digital payments are, I don't have the exact numbers what are the payment channels through which we get that number. But Surat which is on the higher side. And we are getting that -- we are getting payments in through those modes in Ahmedabad, Surat. Bhiwandi, Agra is not on so much through digital mode. So there, the collections are sort of, therefore, being billed. The digital mode doesn't mean payment because the due date itself has been changed. The government in Gujarat, for example, has said that all been falling due from 1st March to, I think, 15th May -- will fall due on 15th May only. So good part of them sort of what extended from, I think, 60 days to...
For the first time.
Yes. The average day delay was about 35 -- 30 days average extension. Similar thing happened in Maharashtra and Agra and UP also.
As there are no further questions, I will now hand the conference over to Mr. Sanjay Dalal for closing comments.
So I have nothing further to add. Thank you, everybody, for joining the conference. And I wish all of you stay safe, and we all soon come back to normal and have a much better -- have our Q1 conference in much better environment. Thank you.
Thank you very much. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.