Torrent Power Ltd
NSE:TORNTPOWER
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Torrent Power Ltd
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Ladies and gentlemen, good day, and welcome to Torrent Power Limited's Q4 FY '22 Earnings Conference Call 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. Thank you, and over to you, sir.
Thank you, Nirav. Greetings, everyone. On behalf of IIFL Securities, I welcome you all for the fourth quarter earnings call of Torrent Power. To discuss the results in detail and share the performance outlook, today, we have the senior management team of the company, represented by Saurabh Bhai Mashruwala, VP, Finance; Rishi Shah, GM Finance; and Jayprakash Khanwani, AGM Finance.
I'd request the management to give us a brief opening remark, subsequent to which the floor will be open for Q&A. Over to you, Saurabh bhai.
Thank you, Harsh. Thank you so much. Yes. Good morning to all of you, and thank you for joining the earnings call for Torrent Power for Q4 FY '22. First, I will take you through the performance of the quarter. After which phone lines will be open for Q&A session. Let's go over the performance of the company at PBT level first, and we'll take the tax expenses separately thereafter.
Reported PBT for the quarter before exceptional items stood at INR 597 crores as compared to INR 455 crores in the corresponding quarter last year, which is an increase of about INR 142 crores, about 31% on reported basis.
To understand the earnings performance of the company, we'll take you through the nonrecurring item first in the current quarter as well as comparable quarter of last year.
First, nonrecurring item of current quarter, which includes: number one, reversal of provision of doubtful debt at franchise distribution business of about INR 16 crores due to better collection efficiency and increased vigilance activities during the quarter. Economic activity at our distribution franchise business continued to recover from pandemic effect during Q4 FY '22 as well.
During FY '22, demand at our distribution business, license, as well as franchise distribution business has almost reached to the pre-COVID level.
The second nonrecurring item is reversal of a partial provision of over INR 28 crores out of provision of INR 161 crores made for our 53 projects, wind projects, during Q2 FY '20, that the bank had issued as a security for development of transmission infrastructure having leased by the Power Grid Corporation Limited.
The third nonrecurring item is reversal of partial provision of INR 29 crores out of total provision of INR 51 crores made for 55 projects during Q4 FY '20. The project development activity has already been initiated and is likely to be completed in FY '23. Provision of INR 29 crores has been reversed. Balance provision of INR 22 crores was made towards the land cost incurred initially. The same may have not been reversed for the time being. Now the development activities has been carried out at different sites.
The fourth item is nonrecurring items of about INR 34 crores, recognized as a [indiscernible] for 126 megawatt MSEDCL project on account of settlement with EPC contractors. And the last one is of INR 11 crores is due to renewable energy project, which is acquired in the course of the Q4 FY '22. There are 3 project acquisitions we made; one is Surya Vidyut Limited about 156 megawatt wind capacity, 50 megawatt of Lightsource BP capacity, it's the solar capacity, and 25 megawatt of Visual Percept. So all put together, nonrecurring tax credit of INR 118 crores was booked in Q4 FY '22.
Coming to the comparable quarter of last year. There are 2 items of nonrecurring items of Q4 FY '21. First one is reversal of provisions in franchise distribution business, about INR 13 crores, due to better collection of comparable quarter of last year.
Second, there is a fuel cost under-recovery of INR 38 crores in Q3 of FY '21, which got recovered in Q4. So all put together, 2 items put together, nonrecurring credit of about INR 51 crores we have booked in Q4 of FY '22.
Adjusted for this one-off items, the PBT for the quarter stood at INR 479 crores compared to INR 404 crores in the comparable quarter of last year. This is higher by about INR 75 crores, about 19%.
Now to take you through the performance and key highlights on improvement in the adjusted PBT of INR 75 crores for the current quarter. First, the improvement is coming from the gas based power project because of the 2 reasons. We have incremental gain of INR 25 crores in the gas-based power project. Fourth, gain from merchant business of INR 40 crores, mainly coming from the sale of LNG.
As communicated in the last call as well, with elevated gas prices, it makes commercial sense for us to sell LNG rather than converting it to electricity.
The gain of INR 40 crores is reduced by lower contribution of INR 15 crores on account of fuel savings due to lower PLF, which is partially offset by the lower O&M cost also. In total, there are about 2 factors, profitability of gas-based power plant has improved by about INR 25 crores.
Moving on to the performance of distribution business. Due to distortion of industrial demand, which has impacted the last year due to COVID pandemic, there was an improvement in overall contribution from distribution business, both franchisees as well as license business by about INR 57 crores. So distribution profits of license and franchise distribution business has gone up by INR 57 crores.
And the last one, there was a reduction in finance cost of about INR 13 crore due to lower rate of interest as well as lower average debt level during the course of the quarter. Average interest rate for the quarter was lower by about 17 basis points compared to corresponding quarter of last year. The debt level as of March '22 was higher at INR 9,115 crores as compared to INR 7,808 crores, which is roughly higher by about INR 1,300 crores. This is mainly because of the acquisitions we made during the course of the quarter and there is increase of debt in those SPVs.
So above we completed the explanation of financial performance. Now on operational performance of the company and distribution of business sectors. Normalized demand, registering marginal decrease of only 1% as compared with the pre-COVID level.
Moving on to the after-tax numbers. Consolidated loss after tax reported for the quarter was INR 484 crores as compared to profit of INR 408 crores in the corresponding quarter of last year. It is lower by about INR 892 crores. The loss is mainly on account of impairment charges, which is one-off charges made during the course of the quarter of INR 1,300 crores. And reversal of deferred tax liabilities of INR 370 crores. So net impact of DGEN impairment is over INR 928 crores.
Adjusted for impairment provision, PAT for the quarter stood at INR 444 crores versus INR 408 crores in the corresponding quarter of last year, which is higher than about INR 36 crores, roughly about 9%.
This completes summary of the quarterly performance and operating performance of the company. Now I'll give the update on the current projects which are under pipeline: 115 megawatts SECI-V project, which has received an extension up to September '22 from February '22. If you see, contract for this project has already been awarded and construction work has already been started. And we expect that the commissioning of this project will happen during the course of FY '23.
SCOD of 100 megawatt GUVNL project extended up to October '22. And SCOD of 300 megawatt project, TPLD, which is further extended from February to April '23.
Acquisition transaction executed with 3 companies, CESC, Lightsource BP, and Visual Percept have been consummated over the course of Q4 FY '22.
On April 23, 2022, the company entered into the Power Purchase agreement With SkyPower Group to acquire 50 megawatt solar project in the Sunshakti Power Limited located at Telangana with enterprise value of INR 417 crores. Company doesn't have any debt as of now.
The PPA is executed at INR 5.35 and balance life is about 20 years.
We expect to take over of license distribution business of union Territory of Dadra & Nagar Haveli and Daman & Diu. The area was formally taken over by us from 1st April 2022.
With 51% stake owned by the Torrent Power Limited, the area serves customer base of about 1.5 lakhs with annual sales of 9 billion units and annual turnover of about INR 4,500 crores.
That's all for the quarter. Now I would request coordinator to open the line for Q&A session. We wish everybody to be safe and stay healthy. Thank you so much, and over to the operator.
[Operator Instructions] The first question is from the line of Mohit K. from Dam Capital Advisors.
Good to see that we have been able to maintain our profitability despite various headwinds. But my question is, sir, have you got any tie-up for gas in this year? And most likely, it is going to be spot purchases till the gas market softens up?
For current year, FY '22, we have not additionally -- only 1 cargo very differently we've purchase, on a spot basis. On a medium-term contract, we have not contracted so far. The situation remains same as explained in the last earnings call. So we have not contracted any further except 1 cargo for calendar year '22.
Understood, sir. Since you have taken over Daman and Diu, and Dadra and Nagar Haveli, so what is your expectation of CapEx for the next few years in this particular entity, and can you also give us the regulated equity number of the area?
In terms of Daman and Diu, it's a long-term business. So we look at some long-term perspective and the expectation of CapEx will be about INR 1,000 crores in the next 5, 7 years. It's what we expect to incur and strengthen the network of the Daman and Diu area.
Sir, is it possible to get the breakup of the EBITDA?
For the entire company? Detailed EBITDA, 1 second. For the quarter, I can give you numbers of quarter. So gas-based project is about INR 282 crores versus INR 255 crores. And renewal projects INR 147 crores versus INR 157 crores.
License distribution is about INR 421 crores versus INR 293 crores. Franchise is about INR 167 crores versus INR 184 crores. And total EBITDA before reported is INR 1088 crores versus INR 948 crores.
[Operator Instructions]
Moderator, during the time we have the queue assembled, I'd like to basically ask a couple of questions from my side. Saurabh bhai, if you can just help us understand the philosophy of doing this impairment? How frequent should we expect this exercise to be conducted? And what has been the basis or base underlying price of gas, which has been considered while impairing this asset? I mean, hypothetically, if the gas prices fall below to $10, will you look forward to reverse the impairment or any philosophy or any comments on that?
The impairment exercise is a practice we generally do every quarter. So every quarter we do the impairment exercise along with the PWC, because they are our special auditor.
And generally on Q4, last quarter, we involved a third party also where a third party also get involved and do their valuations and they give their opinion. So that exercise every year we do carry it out. Even last year also, we carried out a similar exercise with third-party evaluation in Q4. And this year also we carried out a similar exercise.
In terms of fuel prices, we take the fuel prices on market price, whatever is available in the forward market. So the brand price we take and we apply some slope and arrive at the fuel price and do the valuations.
And just to add on what Saurabh has said, going forward, we may not expect much of impairment because if you look at the carrying value of the plant now is very negligible in terms of the impairment testing is to be done. So around only INR 600 crores, which is pending for impairment. So going forward, we will not expect much of impairment coming out of this plant.
So our INR 1,000 crores was the residual value, I would say, current carrying value, out of which about INR 600 crores to INR 700 crores is the residual value, which will not be provided. Balance will be INR 600 crores to INR 700 crores still to be left out. So that will be charged to the P&L by way of depreciation going forward.
Understood. Moderator can we take the next question?
The next question is from the line of Anuj Upadhyay from HDFC Securities.
Sir, can you please elaborate further on the gas agreement of the tender which you have? You mentioned that we already went for the one cargo. But in the last call, you had mentioned that we had contracted 3 cargoes each year for the calendar year '22 till '27, which would take care of 25% of the requirement. And now we have contracted another one. So with this, what portion of our gas requirement has been met in debt and our strategy for the balance requirement?
See, we have existing gas tie-up from IOC as well as Reliance, which is meeting about 25% of our requirement. So 25% long-term ties we have already.
So in last calendar year, we floated tender for procuring 34 cargoes. So we secured about 34 cargoes last year from calendar year '23 to '26, about 4 years, every year about 6 to 7 cargoes we have contracted.
With this tie-up from calendar year '23 to '26, this is about 25% of requirement. So total 50% of the requirement we have tied up from calendar year '23 to '26.
For current year, we have about 25% requirement we have tied up. One cargo recently we have contracted. Balance requirement is yet to be tied up for the current calendar year.
So what we can say that from calendar '23 to '26, we have secured about 50% of our requirement.
'23 to '26 calendar year?
Calendar year, yes, for 4 years.
Fair enough, sir. And could you just mention about the CapEx plan? Are we going with around INR 15 billion of CapEx for FY '23-'24 or are there any changes?
CapEx plan remains same. So INR 1,200 crores for our license distribution business, and about INR 250 crores for our franchise distribution business for the next at least 3 years. I can give the update about the current year CapEx, which we have incurred FY '22. License distribution, we are going as per the projections of INR 1,254 crores CapEx we have incurred for FY '22. Franchise incurred about INR 316 crores CapEx. So we are going as per the plan which we have given during the last couple of calls. So INR 1,500 crores CapEx we have incurred over the course of FY '22, and we expect to incur in the next 3 years also.
Fair enough, sir. Lastly, on that 100 megawatt GUVNL tender, sir. Any update on that, sir?
That we have time till October. So we are waiting for module price to soften. So we'll take a call, I think, over the course of next quarter.
Right. In October, in the sense, it won't incur any penalty?
Solar projects, generally, once you start implementing it and contracting the modules, it will not be like a wind power plant or the kind of things. It will be implemented fast for solar projects.
[Operator Instructions]. The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
So I have 3 questions. First, on SUGEN and UNOSUGEN, which are cost-plus projects, could you just help us understand, given the gas tie-ups that we have, would we be able to recover our fixed charges and return on equity?
Yes, SUGEN and UNOSUGEN, since we've PPA yield of INR 662 crores and gas availability, gas is available, but at higher price, so gas is available. So we have to establish the availability of the gas. Once we've established availability of gas, customer comes with the PPA, and we are able to recover the fixed cost of SUGEN as well as UNOSUGEN project also.
Sure. Even for fiscal '23 as well, given the gas situation, we can assume that fixed charges return?
Second follow-up on the same is, there is an element of incentive and efficiency in both SUGEN and UNOSUGEN. Could you just help us with that? What was that number in fiscal '22? And how do you see that number given the utilizations are low currently?
We have numbers of -- because of lower volumes in SUGEN and UNOSUGEN project in Q4, there was some reduction, about INR 15 crores fuel gain loss in terms of SUGEN and UNOSUGEN. That is what I can't share right now with you for Q4.
So Bhavin bhai, just to add on to what Saurabh has said. As far as -- I mean, there are 2 elements involved here. One is SHR savings and the other proportion is O&M savings.
As far as O&M savings are concerned, we are entitled to have all the savings available in that PPA. As far as SHR savings, it is dependent on the PLF at which the plant operates. So since there is a reduction in PLF of both these plants, SHR savings would be lower, but we will be entitled to get our entire O&M savings. So all put together, there is a net charge on the P&L for this quarter of around INR 15 crores.
This is very helpful. The second question I had is on the franchise. We've been seeing very sticky AT&C losses of around 40-odd percent in Shil-Mumbra-Kalwa. Could you just help us understand maybe on a 3-year basis, what is the kind of improvement that one can expect on the utility losses?
See, in terms of SMK area, I can give you the numbers basically. So if you look at the FY '21 AT&C loss number of Shil, Mumbra & Kalwa was about 52%, AT&C losses for the full year. In FY '22, we have achieved about 39%. So there is a significant improvement we have reported in terms of AT&C losses in Shil, Mumbra & Kalwa.
In terms of T&D losses, we have secured a reduction of about 5%. Out of this 12% reduction in AT&C losses, 5% pertains to T&D losses. So we can expect this kind of a reduction going forward at least for a couple of years, I would say.
Sure. The last question is on the Agra and Bhiwandi franchises. On a 3-year basis, is it fair to say that we can reach the losses level what we are seeing on our Ahmedabad and Surat license areas?
In terms of Bhiwandi, for example, the T&D losses, FY '22 end, it was about 11.64%. So we expect some reduction every year, some improvement will be there, 1% to 1.5% improvement we can expect there in Bhiwandi as well as Agra also. But incrementally, since the base itself is reducing, the incremental pace of reduction would get reduced for a period of time.
Next question is from the line of Subhadip Mitra from JM Financial.
So if you could just help us with the regulated equity at Dadra & Nagar Haveli and also give us the regulated equity for the rest of the license business.
So I can give you license distribution business regulated equity as of March '22 for license business for Ahmedabad, Surat and Dahej, the regulatory equity is about INR 3,000 crores. And AMGEN is about INR 434 crores, SUGEN is about INR 916 crores, and UNOSUGEN is INR 533 crores.
Sorry, I missed the last one.
UNOSUGEN is INR 533 crores.
INR 533 crores?
Yes. Okay. So the Dadra & Nagar Haveli regulated equity is not available as of now?
About INR 149 crores regulated equity -- INR 150 crores roughly.
INR 150 crores. Perfect. Got it. Secondly, with regard to the gas price threshold that we have for actually operating the plants. In your opinion, that number is around that $10 per Mmbtu when these plants kind of become economical?
See, it depends on the comparative cost also, like coal also has gone up. So if you look at the realtime situation, because coal is also higher, coal costs has also gone up. So numbers are changing. In fact, it's not across one particular level, I would say.
Okay. I was actually just trying to understand from the UNOSUGEN PPA, if I remember correctly, I think that the cap on the tariff side was somewhere around INR 4.2, so I was just trying to back work based on that. So would that culminate to around a $10 kind of a number? Is that the right number to compare?
If you look at the 4.5 above gas cost is about $9 kind of thing.
About $9. Understood. Okay. Lastly, with regard to the write-offs that we're doing for DGEN, as you mentioned that you're doing it based on the current LNG spot prices. And based on that, you're doing these write-offs. So one can possibly look at a write-back sometime going ahead, assuming gas prices come up.
In the impairment assessment, fuel price as well as whatever assumption in terms of sale, power selling arrangement, we assume about 5 years of average merchant spot price also -- exchange price, I would say. So that also is elevated for the current quarter. So if you see the cost is elevated, selling price is also elevated a bit higher.
So one should not look at the only fuel cost, but one has to look at what price we are going to sell it also. So it's basically a combination of all factors coming and determine the impairment assessment, I would say. Not only 1 factor.
Understood. So you're not really anticipating any large write-backs even if gas prices correct, because already taken higher exchange rate?
Every year, every quarter, in fact, we are reviewing the assumptions. And every year, we engage with a third-party valuer also for this assessment. So ongoing basis, we will do the impairment testing every year, as well as every quarter also we'll review the assumptions.
Understood. Last question from my side. For the UNOSUGEN PPA, so while I think the PPA mentioned the tariff cap of about INR 4.2, INR 4.3, given that today, even imported coal-based prices have a tariff cap of INR 12. In your opinion, does the PPA enable the DISCOM to kind of buy at a higher tariff despite the fact that the cap that is mentioned in the PPA is lower?
Basically, we have to ensure the availability of the plant and availability of the gas for the UNOSUGEN project. Once we establish the availability, we are able to recover the fixed cost.
I understand that, but I'm actually looking at it more from a PLF perspective that assuming that you are able to recover the fixed cost of UNOSUGEN, the PPA has a tariff cap of around INR 4.2, whereas, let's say, the DISCOM requires power. And today, the next best alternative is coming at maybe INR 12. So would that enable you at some point of time to kind of operate the plant, assuming at INR 12 you're able to operate the plant and make money and the DISCOM is also ready to buy at that price. Just trying to look at that scenario.
We've to take the regulators on board on this particular point. Once the regulator is lobbying, definitely, we can generate the power and sell it to the DISCOMs at this price also.
The next question is from the line of Rahul Modi from ICICI Securities.
Sir, my first question is the 1 cargo that we have tied up this year so far. So what would be the average rate at which we would have done that, the gas. And so what are the rates that we are getting? I mean are we seeing any mid-sea discounts? And are we able to buy gas from Russia?
See what we have contracted is around $20 kind of a contract.
Okay, $20. And how is the pricing now, sir, if you are getting into the market?
Around same level, I think, price is. Very recently, we have contracted. The price is currently there around $20, $21 kind of thing.
Okay. Sir, anything on the Russian side. We are able to get some major discounts from Russia?
Not so far, not so far.
Okay. My second question is with regard to the 400 megawatt of the GUVNL and our own distribution renewable bid. Sir, does this fall under the ALMM procurement? Or this does not entail that and we can go ahead and import?
And when you're saying that we'll be looking at the module prices. So if the BCD -- is it a pass-through in our tariff, if at all? How does it work?
Yes, it's basically changing law conditions. So BCD is going to be pass-through.
Okay. So the 40% BCD is pass-through. But as a strategy, sir, you are looking at locally procuring modules or continue to import?
We are evaluating -- we are just watching the -- monitoring the module price locally as well as from the foreign market also. Based on the trend, I think the cost -- we will take a cost [indiscernible] accordingly in the next couple of months, I would say.
So Rahul bhai, what is happening here is that when we did -- for the contract, module prices were hovering around certain levels, which has got inflated to a very high level right now, because of which we are yet to take a decision on whether to implement the project or not.
Now it is very difficult to guess where these prices will end up over a period of time. So right now, giving any color on the implementation of the project would be very difficult.
Sure. That's very helpful. Sir, one more thing is that, obviously, as a strategy, we've acquired many assets over the last 12 months. So clearly, inorganic growth in renewable is one of the strategies. So for the other part of it is the bidding. So how do you look at it? Are we active, non-active given our experiences in the last 2, 3 bids? As a strategy, how do you look at that?
Yes, in both areas -- as far as inorganically as well as organically, we are looking at both the areas. We are also participating in a couple of biddings also for the new projects. And at the same time, we are also looking at M&A piece also by acquiring the operating projects.
Sure, sir, and last question from my side. Given the customer profile of both our license businesses and the franchise businesses. Sir, in terms of percentages, what is the target AT&C losses, or what is the best case AT&C loss that we can't reduce from the current levels of 10%, 11%, et cetera, that we have? How much savings over the years can happen in the distribution area?
As we say, license distribution area, we don't have much -- almost recovery level was 100%. And in terms of franchise area, in terms of our collection efficacy, last year it's almost more than -- in case of Bhiwandi and SMK, it is more than 100% collection efficacy. Agra is about 99% collection efficacy we have achieved last year. So in terms of reduction in AT&C losses in franchise distribution side, as we explained earlier also, we can expect about 1% to 1.5% reduction -- up to certain levels, I would say, not every year, on a perpetual basis, we can expect the reduction.
Sir, that 1% to 1.5%, that certain level that you mentioned, so what could that be ballparked, just to understand?
So Rahul Bhai, if you look at our existing license distribution businesses, they are in the range of 5% to 6% -- or 4% to 6%, I would say. There is significant headroom available for franchise distribution business also to achieve those levels over a period of time. It would be a gradual reduction in AT&C losses. So on a long-term basis, we may expect that they should be also in the same lines with our license distribution businesses, but that pace of reduction will keep on reducing as your base also goes going down.
Right. Sir, lastly, sir, how is the interest rate market faring once we are going in for refinancing or when we've taken fresh loans. Just this is more of a macro question. How is that faring for us and the market? Are we seeing refinancing happening at some higher levels due to the increase in the interest rates, that guidance would be very well.
Interest rate if you look at has moved up very differently. So our rate is linked with our -- our borrowing is linked with the base rate, or lender's base rate. So the moment the lender changes the base rate, yes, our cost will also move up in a similar direction.
So adding to this, if you look at our mix of debt, borrowing, some portion is variable, some portion is fixed. So in fixed rate loans, we don't expect any increase in the borrowing cost. But on the variable rate loans, there would be an increase once the MCLR start increasing over a period of time.
Some portion of it will also be allocated to the license distribution businesses, which will have a pass-through impact. So as far as P&L impact is concerned, there would be a smaller impact in terms of existing loans.
As far as new loans are concerned, because of recent RBI hike in repo and CRR, there would be an impact on incremental borrowings, which will be over a period of time.
Next question is from the line of Puneet from HSBC Global Asset Management.
My only question is you alluded to module prices being high and that you may not execute the project. Is there -- what kind of penalty would you have to pay if you don't execute the project? And what would be any other consequences, if at all?
In the 100-megawatt project, about INR 10 crores penalty is there.
Okay. So that's it. And there's nothing more to it?
Yes.
The next question is from the line of Apoorva Bahadur from Investec.
So continuing on this variable cost set question. So can you please share the amount or the proportion that is due for refinancing in this year?
Can you please repeat the question?
Sir how much of our debt is due for refinancing this year, with basically the variable cost at specific reprice due to an increase?
Apoorva, just to answer that question, most of our loans are long-term loans with an amortizing schedule, which means that every year we'll be paying INR 800 crores to INR 1,000 crores of repayment, but as I told you, some of the loans are variable rate loans, which are linked to MCLR of banks from whom we have tied up. So there may not be a question of refinancing, but since rates are variable, it will increase going forward once MCLR starts increasing because of recent hikes by the bank, central bank.
Okay. Fair enough. And also, I wanted to understand on the gas profit or the profit from gas sales, which we are earning for the last 2 to 3 quarters. Do we need to share any of it with the DISCOMs, especially in the distribution license areas?
No, we don't have to. It's basically a separate line of business.
Okay. Lastly, I think you highlighted that the cost of borrowing is going up for new loans. Now given that we have a couple of remaining projects, which are yet to be executed, I mean, would you like to comment on the viability if the cost of debt increases, and to what level will you continue or intend to execute given that the solar module price is already quite high?
Apoorva, first of all it all hinges on how the module prices behave. If they are within the range, then the next question would be of interest cost. But as you would say -- we understand that these are all long-term 25-year projects. Currently, interest rates are on upward cycle, but going forward we expect that a couple of years it should go down also. So it all depends on the module prices as of now. Interest rates may not be a significant factor contributing to the decision of go/no go.
The next question is from the line of Deepesh Agarwal from UTI.
My first question is, would we be allowed to trade on the gas, which is procured from domestic sources, that is from IOCL or Reliance? Or the trading is restricted only on the imported gas?
Sorry? Can you repeat the question, please?
My question was, so the trading on LNG is restricted only on the imported gas, or you can even trade the domestic gas?
One moment. Yes, we would not like to answer this question.
Okay. Sir, secondly, can you help us with the gross block of your renewable portfolio, which is operational right now?
Gross block of renewable portfolio...
Can we get to you offline? We don't have the numbers handy as of this moment.
Okay. And lastly, can you comment, are there any circles coming for privatization in the next 12 to 18 months?
Government has announced privatization of union territories, Lakshadweep, Pondicherry kind of things. So those are the circles which are going to come for the bidding. Hello? Hello?
Sir, the line for the participant dropped. We move to the next participant. The next question is from the line of Sumit Kishore from Axis Capital Limited.
My first question is in relation to Dadra & Nagar Haveli, and D&D. While the acquisition is effective 1st April, would it be possible for you to share the revenue EBITDA pack for FY '22?
We have yet to get the numbers of FY '22 from the old company, I would say.
Okay. Okay. And second question is on the renewable side. I mean, last financial year the country had managed to add roughly close to about 15 gigawatts of renewable capacity, bulk of it coming from solar.
Hello?
Sir, one moment.
Am I audible?
Yes, sir, you're audible.
Yes. So Saurabh, I was saying that in the last financial year, close to about 15-odd gigawatt of renewable capacity has got added and largely through solar. But now even module prices are high, the imposition of import duties and modules and cells, ALMM also looking in the background. Do you see pace of execution, not only for Torrent on organic basis, but for the country as a whole, seeing some sort of slowdown in the next couple of quarters? And also, if you could comment on the big pipeline that you are seeing for solar right now maybe from 6 months' to 12 months' perspective.
So Sumit, if you look at the prices of modules which are prevailing as of now and the bid levels or the tariffs which are being quoted, as per our understanding, it will be very difficult for anybody to go ahead and implement the project at the tariffs which have been quoted at the current module prices. Expectations are that over a period of time, module prices will start falling again. And then some of the projects will become viable and will get implemented. But it's a very difficult question to answer in the sense that how module prices would behave, how ALLM would work, and how domestic prices would come of modules going forward.
So as of now, we understand that it would be difficult for anybody to implement the projects as the tariffs quoted at the current module prices.
So rationally, I understand the uncertainty, but is it looking like that FY '23 might very well be a year, if the current situation prevails, where solar capacity addition is actually lower than FY '22?
On the second question, meaning things change very fast. So Saurabh mentioned earlier in the call that putting up a solar plant is not that time consuming if you have other infrastructure ready. So if module prices start coming down, you'll see higher implementation. But at these elevated levels, looks difficult.
But the DISCOMs are not ready to budge or there is no parallel discussion happening on sort of existing tariffs and going ahead with the projects in light of the new developments.
These are all bidded projects. So I mean, any ways you can't do anything once the bidding is done, except to reduce it further, where it doesn't look like there is a scope there. And we are not privy to any such kind of discussions.
The next question is from the line of Ankit Mittal from SBI Mutual Fund.
So my first question was actually on AMGEN. If I recollect, I think the initial time line for the retirement was set at December '22, and there were some amount of discussions that you were having with the regulator on the same. So if you could just provide some update, how do you look at the retirement of AMGEN at this point in time?
We are waiting for the clarification from the MoEF. So still it is not decided right now. So as of now -- December '22 is going to be extended, that is what our expectation is. So it's not going to be certain by December '22.
Okay. And what have you've been hearing on that? Because I think there is still a good 4, 5 years of useful life remaining for AMGEN, I think. Correct me if I'm wrong over there.
Looking to the current power situation in the country, we expect that the MoEF will consider the extension of most of our power plants which are efficient, I would say. So AMGEN is one of the most efficient plants, even though it has 4, 5 years of life is available, it's a more efficient player as compared with the other old plants. So we expect that the government will consider extension of those plants, which are efficiently done.
Okay, fair. That's helpful. The other question was just to understand on the regulatory assets. So if you could provide what is the current regulatory asset in both Ahmedabad and Surat. And secondly, I don't think there's a very large tariff hike that's happened this year. And given that the average cost of purchase is going up, how do you see the regulatory gap then moving for the current year?
The regulatory asset is about INR 1,900 crores at this moment, out of which about INR 1,003 crores is already booked in the books of accounts. So remaining is under dispute with the regulator.
And in terms of tariff hike, just tariff hike, they've got even in the last 3 quarters. But it's basically whatever incremental cost is there in terms of power purchase is being passed through, though [indiscernible] mechanism. Very recently, in fact, we have got about 20 basis points tariff increase in their [indiscernible] rate also. So on a regular basis regulatory is considering the increase in the active [indiscernible] pay rate. So it's an ongoing process, basically.
And what would be the regulatory gap for this year? Because like I said, the tariff increase is not commensurate with the power purchase cost increase we'll see this year at least.
Here, you are talking about '22 or '23?
For '23.
I think it is difficult to estimate because it's basically based on what kind of -- at what level we are going to purchase the power, and what is our fuel cost. So it's very difficult to predict what would be the level as on March '23.
And just to add, there would not be any impact on profitability, because carrying cost also is available on the regulatory gap. So it would be a question of cash flow rather than impact on the P&L, if at all there is an increase in the regulatory gap.
That is where I was just trying to understand actually because the dividend for this year is also slightly lower than what we see in '21. Do you see any cash flow which is coming in for the next year, which is where...
The current year's dividend is not because of any cash flow related issues. As you know, we are also in a growth phase, and our stated policy is 40% dividend. Any incremental dividend will depend on how management looks at in terms of growth going forward. Since we are into growth phase, our dividend has been above 40%.
And also, there was a one-off item in the P&L, which also had certain limitations to give additional dividends. So it has nothing to do with the cash flow or cash per se of the company.
Okay. Okay. Got it. And just one last question on Dholera. What is the status over there? What sort of CapEx are we looking to do? Is there any pick-up in the investments that we see within that region over the next, let's say, 5 years or so?
We are seeing some activities in Dholera area also. Some industries are also coming up, setting up the new projects. So as we indicated earlier, we expect about INR 1,000 crores CapEx in the next 7, 8 years in Dholera area.
The next question is from the line of Dhruv Muchhal from HDFC Asset Management.
Sir, one clarification. INR 15 crore impact in the gas generation business on a Y-o-Y basis, that is primarily to do with the fuel savings. So if I have to analyze it, that's about assuming for the rest of the year the plant runs at similar rate, hypothetically, the maximum impact is about INR 60 crores because of the fuel saving. That's broadly right, sir?
Yes. You can assume that way because current impact is for the Q1 -- I mean, the last quarter, Q4.
Yes, yes. Assuming the plants remain at these levels, given how the gas prices are, that is the maximum impact, nothing more than that?
Yes. Yes, you can't assume that way.
Sir, the second thing was, when we look at your tariff orders for Ahmedabad and Surat, the tariff, the CapEx that we have for this year, if I'm not wrong, sir, Ahmedabad is about INR 1,500-odd crores and Surat is another I think INR 100 crores, INR 20-odd crores. So that totals to about INR 1,700-odd crores versus your guidance is about INR 1,200. So last year, I mean FY '21 was COVID, I understand there was a difference. So should we assume that there could be some upside to your CapEx for distribution licenses versus what you have guided, at least from the tariff orders?
Current guidance which we have given about INR 1,200 crores for license distribution and about INR 200 crores, INR 250 crores for franchise distribution business, I think this is a reasonable assumption one should consider.
Okay. And sir, for the next 2, 3 years, should we assume a similar rate for the license distribution, INR 1,200-odd crores?
We are saying about 2 to 3 years, and similar CapEx we have to incur.
That is sufficient. And sir, last thing, a bit of macro here, we are seeing this demand shortage, supply shortage part because of imported coal and many other things. So for us also, there is some shortage in our Ahmedabad and Surat requirement, part of which we buy from exchanges and others. So given how the situation is panning out, do you think -- because if you have to depend on merchant power, there is an expectation that the prices will be high like what we're seeing now. So is there some talks or expectation that you will probably go ahead for a medium-term or a long-term PPA to meet your medium-term requirement as we move ahead and as the power situation continues to get tightened.
And related to that is, if it is possible, does this also create an opportunity for us to probably meet that requirement through a power plant or I'm not sure through some altering power plants, if that's possible.
As far as our distribution area are concerned, license [indiscernible] Till yesterday, we don't have any issue about the power cuts, I would say. We are fully, 24/7 we are supplying power to all our distribution areas.
In terms of our license distribution area, before this power cut started, we have contracted some short-term power process agreement with a couple of suppliers. So we are fairly comfortable in terms of, for our area for supplying power for 24/7.
Sure, sir. So I understand you are meeting the requirement, but the cost of merchant power is increasing as we see. So from a cost angle, is there a consideration that we should go for a medium-term or a long-term PPA, probably the regulators are also inching towards that, is some sense there?
Before this crisis started and before the rates have moved up to INR 12, prior to that we have contracted certain short-term contract for our license distribution area. So we have fairly good power supply available for our license distribution area.
The next question is from the line of Mohit K from DAM Capital Advisors.
Sir, a couple of clarifications. Are we still operating under 2016 regulations? And is there any talk of 2021 regulation to frame in the near future?
Currently, it is under earlier regulations, MYT 2016 regulations. New MYT regulations have not been yet pronounced by the regulator. It is delayed by about 1 year or so. So existing regulations 2016 is currently in operation.
Understood. And sir, on the ancillary markets, do you think the introduction of the ancillary markets will help our gas power plant, especially the DGEN in the medium term?
Participants, please stay connected. The lines of the management dropped. Ladies and gentlemen, please stay connected, I'll be reaching the management back for the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may go ahead.
Yes. So line got disconnected. I'm very sorry for that.
So my question was, do you think the ancillary markets, whenever they get introduced in the fiscal, will help our gas-based power plant to the margin for our opening capacity?
Can you please repeat again?
Sir, given that the ancillary markets are expected to be introduced sometime in this fiscal, do you think this will help our open capacity in material term?
So when you say, ancillary market, what are you referring to?
So CRC is introducing the ancillary markets to supply power and delivery 30 minutes to 2 hour duration. So this market is supposed to be introduced in this year, which should help the power plant, which can ramp up and ramp down very fast?
So Mohit, I think -- yes, so that would be a very useful market for us, but for any power plant ramping up and ramping down for a gas-based power plant can happen if it is working at a base load. Doing a cold start or a hot cold start and supplying for 30 minutes or 2 hours would be very difficult. But yes, for our SUGEN and UNOSUGEN untied capacities, introduction of this market on a -- I mean, we will have a significant opportunity for us. As far as Dahej is concerned, it would be very difficult to tell, because it doesn't operate on a base load compared to SUGEN and UNOSUGEN.
The next question is from the of Bharanidhar Vijayakumar from Spark Capital Advisors.
What is the yearly gains from LNG trading at the EBITDA level that is reflected in the gas generation segment?
So Q4, we said about INR 40 crores.
Yes, sir. So I'm just trying to understand for the full year?
So can we give it to you offline? I have Q4 numbers, so we can give it to you offline.
No problem. So the idea is to understand the difference between EBITDA for FY '21 and FY '22, and that will predominantly be the gains from LNG. That's my question.
So the second question is what amount of equity we would have spent in acquisitions this year for both the CESC and the other acquisition?
So CESC was INR 300 crores of equity value. Lightsource was around INR 100 crores, Visual Percept was around INR 165 crores.
So if you recur our presentation, we have provided those numbers in the presentation itself.
Sure. So the idea behind this is to ask, beyond the CapEx number you have guided, INR 1,200 crores, INR 250 crores for franchise, what would be the kind of CapEx or capital going for acquisition like this in the next 1 to 2 years for renewables especially?
Bharani, first of all, we don't give any estimate, and it will be very difficult to give estimates for any acquisitions per se. We keep on looking at acquisitions. It will be difficult to give you any estimate per se for acquisition-related investments.
The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
So in continuation to the previous participant's question. Could you just help us understand the philosophy behind the acquisition, because the observation is that you are actually going behind smaller assets. So what's the kind of valuation that we are getting in? What's the kind of IRR we are able to generate at the prices that we are able to acquire assets?
In terms of IRR, we generally target about 13% IRR, equity IRR, I would say. So that is what we generally target for evaluation of any acquisitions, and we generally look at -- focus more on the product side.
Just a continuing question. So the acquisition of the CESC assets or the wind assets, which have been performing really poorly vis-a-vis the original expectation. So where are we able to add value to see that the gap in the performance on the PLF can be bridged and consequently facilitate state better returns?
Basically, we can make value addition by way of better O&M activities, better, I would say, availability of the plant. So those are the areas where we will work on it. And we'll improve availability and improve the PLF from the existing levels. So plan is to improve the O&M activities and have an in-house available for the O&M activities on a continuous basis, improve the availability of the plant by resolving the ROW issues. So while doing this, we will improve PLF from the existing levels. That is what the plan is.
Sure. Would you be able to share what's the multiple on the EBITDA that we have been able to acquire? And are we getting -- are these smaller assets available at a much deeper discount than what the transactions that we are hearing for larger assets or larger platforms?
So there would not be a simple answer to that. Each asset would have its own valuation metrics. And we'll have to see how we can bring or add value to that proposition and derive higher IRR. So as far as EV per megawatt is concerned, it is there in our presentation. EV per EBITDA, we currently don't have numbers ready. Again, all these acquisitions, there is certain scope of improvements on the operational side. So current EV/EBITDA may not be a true reflection of what we are envisaging. So once it stabilizes, it will be better to look at EV/EBITDA on that number.
Thank you very much. As there are no further questions, I now hand the conference over to Mr. Harshavardhan Dole for closing comments.
Thank you. On behalf of IIFL Securities, I thank you all for joining us for this call. Special thanks to the management of Torrent Power for letting us host this call. Thank you very much. Really appreciate that. Any final remarks or comments that you would like to make.
Yes. Thank you, Harsh. Thank you for the call. And we thank you all of you, and we thank you for the call and stay safe and healthy. Thank you so much.
Thanks, Saurabh bhai.
Thank you very much. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect.