Adani Energy Solutions Limited (ADANIENSOL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 and 9M FY '26 Earnings Conference Call of Adani Energy Solutions Limited. From the AESL side, we have the following on the call as main speakers, Mr. Kandarp Patel, CEO, AESL; Mr. Kunjal Mehta, CFO, AESL; Mr. Kapil Sharma, Business Head Transmission; Mr. Pushpendra Zala, Business Head, Smart Metering; Mr. Bhaskar Sarkar, Business Head, Cooling Solutions; Mr. Vijil Jain, Head IR, AESL. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vijil Jain from AESL. Thank you, and over to you, Mr. Jain.

Sure. Thanks, Ranju. Just to add, we also have Mr. Kapil Sharma, the Business Head for Transmission business also with us. So thank you for -- I mean, thank you, everyone, for attending the call. Good day, and a warm welcome to the quarter 3 earnings call. So I just hope you got a chance to go through the earnings material, which we uploaded on the website and the exchange. And just to very quickly explain the flow of the call, so we will start with an opening statement from the CEO, followed by Q&A and then a closing remark from the CFO. Let me now hand over to -- hand over the call to K.P. sir for opening remarks. Thank you.

Thank you all investors and analyst friends for joining this call. These are very exciting times for AESL. We have now delivered another strong performance in the last quarter. The adjusted PAT growth, if we take into account the onetime effect of deferred tax of INR 185 crores last year in quarter 3, the adjusted PAT growth is 30 percentage, not only in financial terms, but in other CapEx performance as well as OpEx performance company has done significantly well. In the first 9 months, we have commissioned 3 transmission projects, NKTL Khavda Phase 2 Part-A and Khavda pooling station and Sangod transmission project. In coming months, we are on track to commission another 3 projects. One of them is the landmark HVDC project, where almost the entire project work is completed. The testing and commissioning is going on. The other projects that will get commissioned soon are Khavda Phase 3 A, which is Halvad project and WRSR project. Besides the commissioning of a good number of projects in coming time, we have also won another HVDC project, which is KPS 3, Khavda South Olpad project. Now with this another HVDC project, our project pipeline has reached to about INR 78,000 crores. On a Smart Metering side, we have been doing the -- in line with what we anticipated and projected. So in the current quarter, we have installed meters close to 19 lakh. And now we have reached to about aggregate meter installed count of about 92 lakhs. And by the time we close this year, we will certainly cross 1 crore meter installations. On capital management side as well, you must have noted that Moody has revised rating and improved from negative to stable for 2 of our subsidiaries, Adani Transmission Step-One Limited and Adani Energy -- Adani Electricity Mumbai. As far as operational performance is concerned, we continue to have excellent system availability, which is over 99.7% rate, which has resulted to incentive income of INR 33 crores as well. As far as distribution is concerned, because of weather in this year, the sale has not grown as compared to the last year. But on the operational front, we continue to do excellent work. Now T&D losses are around 4 percentage. To be precise, it is 4.03 percentage, which is a significant achievement looking to the fact that we continue to improve this particular parameter. As far as consumer services and other things are going, we have been doing fairly well there. In fact, the collection as remains close to -- more than, in fact, 100 percentage collection efficiency. And we have been now collecting more than 85 percentage of payment through e-payments. Yes. We already talked about smart meters, where we have already installed 90 lakh meter and reached to 93 lakhs in -- close to 93 lakhs installations. The pipeline also remains strong, so about 100 million meters are yet to be bid out. We expect to continue to maintain our market share, and we will add that pipeline in the metering business as well. As far as C&I business, there are a lot of activity going on. And in fact, we feel that this is going to be one of the major growth drivers besides transmission and smart metering. We have now reached to aggregate load of about 700 megawatts, serving about 14 consumers that was at the end of December. The current count is 31 consumer and load of about 1,300 megawatts. So we are rapidly growing there. And you will see a lot of action on C&I front. As far as Cooling business is concerned, we continue to create that market for Cooling business. You are aware that we are already putting up India's largest district cooling facility of 40,000 metric tonnes of refrigeration at Mundra. As far as financial is concerned, you must have noted those numbers. Income has grown by 16 percentage and consolidated EBITDA has also now reached to INR 2,200 crore quarterly, which is a growth of 21%. The consolidated PBT has also rose by 43 percentage, which is -- and has reached to INR 800 crores level. Now what is the most important thing that is going to happen that as far as transmission and smart metering and C&I business is concerned, there is a strong pipeline and opportunity pool available in the market. So we'll continue to add that. But at the same time, the kind of effort that we are putting in execution, you have seen that result in smart metering side. In next year, we expect to add massive capitalization in transmission as well. And with those, in fact, we are poised to add about 7 projects in next financial year, capitalized 7 projects, which will -- the gross block of those projects will be close to about INR 24,000 crores, INR 25,000 crores. And that will give a massive jump to the EBITDA and profitability of the company. So I think that this is a very exciting time for AESL. And we look forward to hearing from all of you from time to time. Vijil, over to you.

So with these remarks, I now request any questions that anyone would have had. We're happy to take questions from the investors.

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

Sir, my questions are more on the industry side. Of course, we haven't seen too much of attrition in the smart meter -- smart meter order book, right? I think whatever we have won was from the last year. Do you think in the next 12 to 18 months, do you think that there will be some more opportunities for the smart meter from the smart meter side?

So Mohit, thank you so much. As always, you are the opening investment. As far as smart meter bidding is concerned, there are a few states where bidding is yet to happen or yet to conclude. One is Tamil Nadu, that bidding happened, but I think they will reinvite the bid. But there are a few other states like Karnataka, Telangana, they initially were not -- got the DPR approved under RDSS. I believe those states have now filed the DPR with MOP. And on receipt of that approval, they will also come out with bidding. So we expect that significant action we will see in smart metering bidding in next couple of quarters.

Understood. And on the transmission, so of course, we have done phenomenally well in this fiscal. I think you added, I think, INR 40,000 crores, INR 50,000 crores worth of new transmission projects. My question is more about the future. How do you think about the next 12 to 18 months? It seems like the transmission bids have slowed down. Do you think in our opinion that we can do at least INR 60,000 crores, INR 70,000 crore additional bidding in the next 12 months?

So Mohit, the project that has been approved by NCT and those state -- various state STUs, if you add all those projects, it crosses INR 1 lakh crores bidding opportunity. Conservatively, we think that bidding for at least INR 70,000 crores, INR 80,000 crores will happen in the next 12 months.

Sir, last question on my side, sir, why this HVDC or HVDC line is you are thinking about -- we were guided earlier that it will get commissioned in the Q2. It hasn't happened. And what is the new tentative commissioning date?

So all the work is completed there. Testing and commissioning is going on. So we expect that to get commissioned in another 30 to 45 days.

Anything that caused the delay, sir, anything?

So the delay was -- so there were 2 major HVDC that we had to do on that Vasai creek. And there were some working permission related issue because of which it got delayed. And there is also 4-kilometer of stretch of cabling that is to be done in Aarey Colony. There, we took a little more time because that rain get prolonged, and we have to make a very, very focused effort there that while we do that under cabling work, we don't damage any ecosystem. And because of that prolonged rain in Mumbai, it got a little late. Both the terminals are ready. Now the terminal testing and commissions are going on. And the last batch of cabling is also getting ready.

Next question comes from the line of Puneet Gulati with HSBC.

My first question is on your KPS 3 HVDC. What is the cost that you're now penciling for this Khavda Olpad project?

Project costs?

Yes.

That will be about close to INR 19,000 crores.

And on the Bhadla-Fatehpur HVDC, what is the stage of execution there?

So all the contracts have been awarded. Entire route survey has been done. The necessary application for forest and wildlife has also been submitted. In fact, an environment -- the forest clearance for Rajasthan portion has, in fact, progressed significantly and PSC 1 committee has already given approval. Construction at Bhadla site has already began. Most of the basic engineering has been done, and now you will see a lot of progress in terms of execution on the ground. So all the preparatory work has been completed. We are finding some challenges in land acquisition for Fatehpur, but we expect to complete that also in 1 month's time. So significant work has been done there. More than 200 acre has already been acquired.

Okay. It's still due in -- by July '29, right? So land acquisition challenges can still be surpassed. And can you still do it by July '25? Or you think it could be delayed?

Easily, easily. Yes, yes. So because the entire engineering and other things has been done. The contract is also in place. So we will now very soon mobilize the resources, and we'll start construction there.

And you have 4 projects due for completion this calendar year, right? The Khavda 4, Jamnagar, Navinal and Pune 3. Are these all 4 on track?

Yes. So Navinal got a little delayed because the issuance of transmission license from CERC. We already commenced the work and foundation for half of the land has been done. But in absence of that license, we were not getting 164 approval. Now we will get that, but given the progress, even though it is late from original schedule, but we expect it to complete it in the current year. As far as Jamnagar project is concerned, there we are acquiring the substation land, which is government land, so that process is going on. And we already started working on the transmission line. Those ROW order under government policy is under process, and we expect those orders to come out in 1 month to 1.5 months for the entire region. And with those orders, we'll start commencing the execution work as well. But the Jamnagar project has also -- as of now, is delayed by 1 to 1.5 months as compared to the original schedule. But we'll catch up once we have these government approvals.

Okay. And can you just give me the revised time line for all these 4, if you can?

Yes, so HVDC you are talking of Jamnagar and Navinal?

Yes, the 4 due this year, right? So Khavda 4 is also due right now, right?

Yes, yes, Jamnagar and Navinal both will get complete in last quarter of this year. Khavda 4 A, will be -- 1 element will be in the second quarter, one -- another element will be in third quarter and Pune in the first quarter.

And the Pune 3, that's all due for this year, right?

Yes. Pune 3 also will be in the last quarter.

Last quarter of this calendar year?

Next calendar year.

So -- okay, '27?

Next year. Next financial year, not calendar year.

So next financial year. Okay. So more like Feb, March, Okay.

Yes.

And lastly, I've been noticing your smart metering execution has picked up. Anything that has changed from policy support side or anything that you are doing to pick up pace there?

So we have been making all those efforts in picking up that execution rate. So we are installing about 25,000 meters a day. We keep on getting those challenges in the ground, but now having installed so much of meter and with this kind of exposure, our team has been able to do a fabulous work on ground.

Next question comes from the line of CA Garvit with SereneAlpha. Since there is no reply from the line of Mr. Garvit, we'll move to the next participant. And that is Mr. Gaurav Nigam with Tunga Investments.

I have a first question, we are hearing about this policy relaxation on the Chinese side in some sectors. I think most recently, there has been some news about the thermal power side. I just wanted to check, is there anything that we can benefit from? And is there any positive benefit on the transmission side specifically that can come to us on a going forward basis?

So Gaurav, if that happens, obviously, it will help because that will increase our options for equipment sourcing. But even if -- even if it is not done, we are not affected because we have that kind of strategic relationship with all our major OEMs. We have been doing all these projects. And so far, with the restriction on Chinese players, and we will be getting all the supplies at the right time and at an appropriate pricing. So obviously, it will be an incremental advantage. But even if it doesn't happen, we are not affected.

But as of now, is there anything where we are positively getting the benefit or nothing has happened so far?

Come again, sorry?

I was just asking, is there any benefit that we have started getting as of now or that restriction still stayed, sir?

No, it is still there. So there were news items which we came across that government is planning to relax it. We don't know the exact contour of it. But if that happens, then obviously, it will increase options for us.

Understood, sir. And sir, second question was specifically about -- if you look at on the transmission side, I mean, we are seeing lower tendering. I mean first half was slow, we expected third quarter to pick up. I think there is some pickup. And on execution side also, I mean, as you mentioned, there has been some delays. I think we are hearing in the other developer also, there is some delays. So I mean, is there something structurally which is hampering both on the tendering side and the execution side? I mean, how do you think about it? Because I mean, year-on-year, if you look at from last year to this year, there have been both sites there have been significant lowering. So I mean just wondering how do you look at both on the tendering and execution side.

So Gaurav, the challenges in execution is known to all of us. So essentially those are relating to equipment supply or manpower ability or our RoW. But this year, the additional challenge that we faced, especially us because our mainly concentration of project execution is in Mundra, around Khavda and then Gujarat and also in Maharashtra, where rain continued for quite some time. It was abnormal. It continued up to almost Diwali period, and that has affected our execution. As far as manpower ability is concerned, what we have done is that now the stringing manpower was the most critical one. In fact, in last 6 months, we have set up our own training facility at Gorda, where we -- it's a catchment area for people who works on a tower erection and that facility is up and running. Now we will be having 200 people trained available to us from this month. And every quarter, we will have about 400 to 500 people available to us in the stinging, which we will provide to our EPC partner for execution. And with this kind of endeavor, we see that -- we expect that a lot of progress -- significant progress will happen on execution side. Another challenge we remains is ROW and therefore, I mentioned that in Jamnagar and in most of the projects, what we are trying to do is while we start a project, but we focus more on getting those ROW orders from collector, compensation-related order from collectors. So that becomes a benchmark for us for negotiation with the farmer. So with all these efforts, we expect to see a lot of progress in this quarter as far as CapEx is concerned and then next quarter because that also will be a working season. So you'll see a lot of action on that front.

And sir, just your perspective on the tendering side as well, I mean there seems to be -- I mean, year-on-year, there is a drop. So how do you think about that, sir?

So as I said earlier, we expect that about INR 80,000 crores of bidding will happen combined together state as well as central. And that INR 80,000 crores is also a significant number. And if we even continue to maintain our market share, we will have a significant opportunity there.

Next question comes from the line of Sumit Kishore with Axis Capital.

My first question is to better understand the phaseout of capitalization of your works in hand. So of the INR 780 billion works in hand, would it be right to say that roughly INR 400 billion is non-HVDC? And how is the capitalization spread over FY '26, '27 and '28 for this? And you can correct the numbers.

Yes, sure. So based on the time lines which we just mentioned, the Mumbai HVDC and the NKTL project, which will get complete -- I mean the NKTL which just got completed, around INR 10,000-odd crores of capitalization, I mean, will get completed in the next 2 months itself, which will give an additional tariff of around INR 1,600-odd crores. We expect the additional ones, especially the Khavda Phase 3, that is the Halvad project and the WRSR projects that will get commissioned in the next 3 to 5 months period, which will lead to an additional capitalization of close to INR 4,800-odd crores. And then all the 3 projects, which Kandarp mentioned will lead to an additional capitalization of INR 10,000-odd crores by the end of the next financial year. So all put together, we have INR 10,000 crores in the next 1 or 2 months, INR 5,000 crores odd in the next 4 to 5 months, and the balance INR 10,000 crores coming up by the end of next financial year.

FY '27 end?

Correct.

So what is the visibility right now for FY '28 as well on the knowledge pricing side?

I don't have the immediate visibility of FY '28. That would be too far. First thing is that this is something which we have immediately on the end.

Sure. Sure, sir. My second question is relation to the 2 large HVDC projects that you are executing. Broadly, what would be the CapEx phase out as you complete these projects by 2029, 2030 or so, broad CapEx phase out?

Yes. So roughly, the CapEx in transmission per year on an average, there could be a variation year-to-year. But for next 5 years, it would be in the range of about INR 18,000 crores to INR 20,000 crores.

This is including everything, HVDC, non-HVDC, everything.

Correct. On the later years, it might go up as we add new transmission project in our kitty. But given the project pipeline country, it will be about INR 18,000 crores to INR 20,000 crores.

Okay. And specifically for the HVDC projects, would it be fair to say that in the first 2 years of execution, less than 25% of the CapEx will get incurred and bulk of it will be in the latter part?

Yes.

Okay. Okay. And my last question, if you can also shed some light on the phase out of the next HVDC project awards, which is likely, say, until end of FY '27 to name the products and the potential size that we are looking at.

New projects. New HVDC projects likely to come up in FY '27?

Yes. So there are few HVDC projects under bidding pipeline, and we certainly would be participating in those bid sincerely.

Any specific bids that you're aware of that you can just share with us?

Yes, there is one project, HVDC project from Barmer HVDC, which comes up to Maharashtra, South Karad that is the immediate -- yes, that we expect to come in the bidding process.

So can that get awarded by June? Or will it be maybe in the second half of CY '26?

I think that it will be done in the first quarter of the next year.

Next question comes from the line of Manish Somaiya with Cantor.

This is [ Sweta ] here from Cantor on behalf of Manish. Congrats again on another strong quarter. I have 2 questions from me. The first one is on the debt stack. You've had multiple bond buybacks in the year earlier and sort of wanted to understand, given the surplus cash for this year, what is the prioritized use? Is it going to be further bond buybacks? Or is it going to be more CapEx? And also given the scale of transmission and the smart metering ramp-up, what leverage ceiling should we like sort of look at that would essentially force like a reconsideration and equally because you've discussed this before that you'd say like there's going to be no fundraising terms by equity. So I think this is my first question and then we'll get the other one.

Yes. So you're right. So the company did by bond buybacks, and we did bond buybacks in our electricity Mumbai Distribution Company. We did a bond buyback of 120 million last year followed by a bond buyback of 90 million -- 95 million up to the 9 months that we did. We did a 1 buyback of 50 million, and then we again followed it up with a buyback of 45 million. So AEML distribution business because of the surplus that it is generating. And as we have guided, we will continue to delever that company after meeting all its CapEx and its OpEx requirements. So that company has roughly a CapEx of around INR 1,500 crores to INR 1,600-odd crores. And after meeting that CapEx, the company still has that surplus, which we will use to delever the balance sheet. And at the right time, we will continue to do the bond buybacks in that organization. As far as the consolidated debt profile of the company is concerned, we have always guided that we would be in the range of around 4 to 4.5x based on our CapEx cycle. But it would be in that guidance range always.

Understood. Also, given the progress in the newer verticals, can you reshare the margin structure, especially for the C&I business, sort of the expected growth and the capital intensity to scale the vertical? And what are the time lines that you're targeting for this business?

So C&I, especially C&I and district cooling business, like you see in a smart meter, which is the margin as compared to the conventional transmission and distribution business, there are very high margins in smart metering. We expect similar kind of margin structures, both in district cooling as well as C&I business. In fact, C&I business will be a very interesting one where we won't have any CapEx to do. But despite the fact that because of our solutioning capability, the margins would be significantly high of the order of INR 0.75-plus per unit. And that will be a massive segment to -- where we are also very excited.

I have to ask this question, especially on data centers. You have mentioned there's a lot of potential for AESL, especially with the group's tie-ups. And sort of what indicators should we be tracking [Technical Difficulty] for AESL?

Data centers, in fact, we bring a greater amount of value when we deal with the data center because the two things where they find it difficult not only in India, but across the globe is getting the power infra or connectivity and also power supply. Now AESL having presence in both, and we are in a portion to offer them an end-to-end solution. And this kind of approach has been well appreciated. In fact, we have been in discussion with multiple players, big players who are planning to enter into India in a massive way. So it's going to be a very exciting one, especially C&I coupled with our capability of delivering that power infra as well.

Next question comes from the line of [ Pratik Chitalia ] with M&G.

So my question is around how are we going to fund the future CapEx? Are we going to raise the debt or it will be funded through internal accruals? How it will be done?

Sure. So I'll split that basis the business divisions that we have. So in AEML, as I just told, that business, whatever CapEx that is there is being funded through its internal accruals. So is the case with respect to the smart meter business. Smart meter business has a low gestation period. And because of that, it is able to fund its own CapEx. In fact, the -- what we are actually doing is that securitizing the receivables of smart meter based on the meters that we have installed, we are securitizing that meters, and that is funding more internal accruals for my transmission projects. And in case of transmission business, we generally lever these assets up to 70%, 75% at the inception. And then once the asset gets completed, we again launch it into the bond market. So we try to lever it further up to 80%, 85% once the asset gets operational. So based on that and based on the internal accruals and the fund flows that the company is generating, we do not envisage any further equity borrowing, which is required to fund all our under construction projects that we currently have.

Okay. Are we looking at the bond funds, funding through bonds or...

So we look -- for our debt funding, once the asset gets operational, we continue to look various options, which includes domestic bonds, which will include the bonds in the international market as well as bonds in the capital markets across. So yes, we look at but only after the asset gets completed.