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

Ladies and gentlemen, good day, and welcome to the Adani Transmission's Q1 FY '20 (sic) [ 23 ] Earnings Conference Call. [Operator Instructions] Ladies and gentlemen, good day, and welcome to the Adani Transmission's Q1 FY '23 Earnings Conference Call hosted by Edelweiss Securities. We have from the management side today, Mr. Anil Sardana, MD and CEO, ATL; Mr. Vijil Jain, Lead Investor Relations. I now hand the conference over to Mr. Anil Sardana, CEO and MD, Adani Transmission. Thank you, and over to you, sir.

Good morning. Thank you, Mike. Let me also add that I'm joined by my senior colleague, CFO Mr. Rohit Soni; and also other colleagues from the IR and finance team. In terms of very quick information from my side, the Q1 FY '23 had similar robust performance as previous quarters. Let me start with our operational performance. We maintained transmission availability, supply availability, as also achieved distribution losses, which all confirm the fact that the operational aspects are as robust as they ought to be or as we aspire them to be. The 1 million units sold during the quarter at our distribution network were 20% higher year-on-year basis. It clearly shows that the demand profile is now moving up. In addition to that, our commitment on to make sure that we were to return the perpetual debt, which was causing a bit of issues, where it's the rating agencies and some of the investors were paranoid that with the moving share prices, the other alternate means to get quasi equity, our equity would be a challenge. So therefore, we're very happy that we completed the primary equity transaction with International Holding Company wherein they acquired 1.4% stake at a price which is -- which augurs well for investors, augurs well for establishing on ground the worth of the company. And having mobilized about INR 3,850 crores, we could return the perp as well as the accrued interest, because from a cash flow perspective, we were not paying the interest. And to that extent, now there is no additional debt in form of the long-term perpetual debt. And therefore, vis-a-vis the rating agencies, that issue is off the table. We also announced the acquisition of Mahan Sipat transmission line from Essar, and that's in the works as we talk, and we hope to consummate that transaction in sooner times based on the clearances and the statutory approval as our [ applicant ]. The company's quest to be within the top ranking companies in the world on ESG side is a newfound aspiration which I must express to the analyst colleagues. And the company is genuinely putting its might in terms of covering all around areas on environmental, social and governance aspects. We have done a very deep-rooted exercise in terms of benchmarking with some of the world's best-rated ESG companies, not just in the energy sector, but also otherwise, to learn for ourselves as to what exactly we need to be doing to catch up on the gap area, if I might say so. On our side, while that effort will continue, we are very thankful to CRISIL that in their ESG yearbook released in May 2022 recently, they indicated ATL within the top 3 companies in the power sector on the ESG rating. Similarly, our ESG ratings done by S&P Global gave us a much better score; compared to last year, 20 (sic) [ 21 ]% improvement. We are not stopping there. We are now looking at another 20% improvement in the next round. The FTSE rating of 2021, the MSCI rating of 2021 also stay in our radar, and we continue to work towards improved rating. In fact, many of you might have seen that the annual report that we published, we actually set up a record of sorts not by virtue of that record, but by virtue of the pride that we gave so much of disclosures that we ended up with 501 pages of annual report. And it's got all the data, details and our commitments and our trends in terms of various aspects. So on various commonly understood aspects like zero waste to landfill, single-use plastic-free, being water-neutral or water positive, I'm very happy to tell the analyst colleagues that, that's where we put our stakes firmly in the ground with third-party accreditation of having got certified at all our O&M sites, and these are international companies which have accredited us that we are zero waste to landfill now. Similarly, most of our units are now single-use plastic free. You know from July, the country has taken that part. We are very happy that our advocacy has worked to a point that the country has adopted those norms. So we will continue to work on -- similarly on the water side, we are much lower than what is the norm, industry norm. And even in our generating acquisitions, we are far, far lower than what is the industry norm. So we are very happy in the way our team has rallied to pick up threads and make sure that we will come out with benchmark numbers across various aspects of ESG rating. Let me very quickly kind of talk about the results because that's where some of those things that you see in your documents, you always would want to have details in the manner the management views it. First and foremost, because of the 2 special items, one is the mark-to-market, which is a noncash at the AEML level, where we had about INR 115 crore delta between this quarter and the quarter last year-on-year, has also a INR 288 crores of the net of the [ MAT entry ] difference because of having recognized the MEGPTCL order. These 2, if you see, the cash profit at both ATL stand-alone and AEML stand-alone, if I was to convey to our analyst friends, we are on year-on-year positives on both sides, having removed these onetime items. So INR 467 crores, cash profit without 1 time in ATL and stand-alone INR 413 crore last year Q1. AEML INR 263 crore cash profit compared to Q1 FY '22, INR 219 crores. So INR 731 crores against INR 633 crores, an increase of 16% in the cash profit. That's what management considers at [ cycosin ] because that's where our performance [ bets are ]. Now in terms of similar levels of work on revenue as well as revenue, of course, I wouldn't take pride entirely because this is also because of the higher cost of input power, not though higher cost of sales, but it will capture -- get captured in terms of the revenue gap in the distribution business. So -- but the EBITDA on -- our operational EBITDA again consolidated an increase of about 10%, 1,213 versus 1,107 Q1 of FY 2022. So friends, that's the way the details are in the management column, some of the aspects related to disciplining, we have our debt service coverage ratio maintained at 1.9 in entire FY 2022. Fixed asset coverage ratio of 1.3, maintained same as previous year FY 2022, we saw 1.3. Net debt to EBITDA, slight increase, 4.9 because of some of the projects under construction. And net debt to net worth, 2.7 as was previous year. Now the total external debt about -- at the end of Q1 FY '23, INR 27,252 crores. And if I include the sub debt, then INR 29,479 crores. So that's the way the numbers stack up. And just in case you would want to have any details on that, if they differ from the cells that -- your cells that have been [ read in ], you can always let us know and we'll support you. So those are the details that I thought I will share with you. And now I will look forward to your questions, and anything that we would have missed out, we will cover it through your Q&A. Thank you so much.

[Operator Instructions] We have the first question from the line of Mohit Kumar from DAM Capital.

So what's your thought on electricity amendment bill, and the fact that the government is thinking of allowing multiple licenses. Do you think this, is it better? Can you please comment on that?

Mohit, we have discussed on quarter-on-quarter basis.

But earlier, there was [ licensing so this is ] different. Yes, this is different.

No, no, no. Yes, of course, you're right. I'm saying that every quarter, when they get back to the cabinet, they make amends in the act -- draft itself. So eventually, what will make to the parliament and get approved from the parliament, one will have to wait and see because there has been a lot of tinkering that's gone into that part. Now my impression about the act is it's always welcome time to be progressive in terms of making good some of the issues that have been bothering the investor community in terms of large investments in gencos, large investment in transcos because the last mile continues to be indisciplined, if I might say so, at the hands of several state-owned discoms. And at least the good part is that the act amendment looks forward to disciplining them and making sure that they will have to operate through letter of credits. They will have to have advances provided and the empowerment has been given to the SLBC to accentuate that effort. Now in addition to that, there are odd issues with regard to the other gaps that existed in terms of the regulatory commission, the fact that the Aptel does not have teeth in terms of enforcing their orders to the state commissions and therefore, a large amount of content powers are being given. So those are all welcome signs. And in addition to that, of course, the important point about RPO. The fact that there will be suo motu tariff increase in case those RPOs are not met, are all very important aspects in terms of India's commitment on the INDCs as well as the 2030 commitment. I'm not talking about the net zero commitment of 2070, so far into the [ play at are ] now. But I am talking about what's imminent and what's -- it's something that all of us have to be careful about achieving by 2030. So that's my simple answer to the point. We will welcome amendment to get released as soon as possible.

Understood. Second is around the TBCB bidding. Of course, in Q1, we haven't seen any bid. How do you see this panning out in the next 9 months? Are we seeing more bids happening? Or is it something which are holding up the bids right now?

So Mohit, I think there have been headwinds in terms of the fact that the movement related to renewable projects has slowed down. There is now a wave for renewable projects to get accelerated on the quest of green hydrogen. And you must have seen the movement that [ SECI ] has been told to aggregate the requirement of green hydrogen vis-a-vis the urea, vis-a-vis methanol requirement, vis-a-vis ammonia requirement in refineries, as also other requirements as put forth by various users, because green hydrogen and grey ammonia are already in use. And SECI will come out with that aggregated tender for the entire green hydrogen to displace first the import part, so that the import part gets replaced by the indigenous generation of green hydrogen. And this could well be dollar-denominated, so that the cost of RE will reduce. Now why I'm telling you all of this because this will then fast forward very large corridors of transmission because these quantities are going to be humongous. Imagine I'll just to tell you that [Audio Gap] lower of RE. And therefore, corridors to evacuate this kind of an RE and to maintain this kind of an RE is going to be very large. And there'll be aspects like banking at the CTO level and stuff like that, which is a part of the hydrogen vision, details that are already there in front of you. Our sense is that today, close to about 52,000 worth of transmission TBCB assets have been already approved. Out of which, 24,000 only is right now under different stages of tendering. But that number will balloon once the aspect related to RE, as well as aspects related to G&A, both start getting integrated. I would say one will have to wait for a few more quarters before we see the movement on that. But until then, we will have to make do with the orders that we have in hand so that our CapEx guidance that we have given continues to be steadfast, as also that we continue to fill up our order pipeline amongst the tenders that are due in [ evoday ].

Understood, sir. Lastly, sir, have we tendered all the packages for HVDC? Or is still something pending? And when the work is expected to start and when is it expected to commission? And is there a provision for, if I remember correctly, laying a double line in this particular and increase the capacity in the future?

Yes, very, very important question. First of all, the award for the converter station in HVDC links on both sides have been made to a very reputed global company. Those people had made the announcement themselves. The award for the transmission part cable has also been issued. The clearances part has progressed fast. Both sides' land has been completely done. The engineering part has been awarded to a Canadian consultant and detailed engineering part has also to an Indian consultant for tandem working. The work on ground has started in terms of the soil investigation, the initial works like [ mond reward ], filling, all of those works have started. Now your second part of the question was, are we working towards the 2 circuits or single circuits. So we have main single circuit, but all the civil works and the right of way will capture the second circuit also. So that the second circuit once gets approved, will get executed faster and one does not have to lay a new trench nor a new right of way. It will all be worked out in the Phase 1 itself. So that's the answer to your question.

So what is the commissioning time line, sir?

The time line stays steadfast at 48 months from the date that the NERC had approved. And I guess that's 2025 March, if I recall. Yes, April '25, March '25 or April '25.

[Operator Instructions] We have the next question from the line of Apoorva Bahadur from Investec.

Sir, I wanted to understand, I am looking at your presentation. Year-on-year, distribution losses have increased slightly and the collection efficiency is down. Any specific reason to it?

No, no, Apoorva, don't go by those small changes here and there, because those occur because of the denominator being different. So therefore, neither the collection efficiency is worrisome because 99 versus 100, so you don't have to worry about -- be coming up saying that it's kind of dropped. It's going to be -- because as a payment comes on the first day of the next month, that will go to the next quarter. So you -- the collection efficiency has been brilliant, it's great, and distribution losses of 6.95%, again, that's fantastic. So I think team has been doing a splendid job and you don't have to worry about that difference, numbers because these are all just the math part which happens slightly changing the figure, and we have to go by what evolves naturally, but they are all fantastic. Don't have to worry at all.

Good to hear that, sir. Sir, secondly, I think in the last call, you had highlighted that we will be venturing into smart metering as well, right? If there's any update you would like to share on that? How has the progress so far been?

I think, again, a very good question, Apoorva, thanks for asking. I didn't cover it in my first bit. Yes, you are right. There are -- there is an ambitious plan of 25 crore meters that the government of India has floated, and it's also part of the RDSS which Prime Minister recently announced. There are 5 states which have right now joined the bandwagon, out of which 2 states are the North and Eastern states, which is UP and Bihar. And the other 1 state in the Western side, which is -- 2 states on the Western side, Madhya Pradesh and Gujarat, and 2 states in the South, which is Telangana and some of the discoms in Maharashtra, like BEST as also AEML, if I might just add, take the liberty. Now these -- all these companies are participating into smart meter induction now. We have taken a kind of budgetary outlook in terms of the current tenders, and we believe these stack up to something like 10,000 crores worth of smart meters already on offer. And we clearly believe that we will have at least a good share of wallet out of this. And we have been prequalified in Madhya Pradesh, prequalified in Bihar. UP is in the last stages. We are executing 7 lakh smart meters in Mumbai. We have been prequalified in the first round in BEST. So we're moving big time into smart meters, and we will have a large share of wallet because these are all going to be in totex model, where the investment will be by us. We will give month-on-month billing, which will mean that we will be part of their O&M, and we will get our money on a monthly basis. So it will be a very good trickle and with reasonably good margins. So it's on, and it's looking very good.

So we will be owning and leaving these smart meters or also developing and running the back-end income? Am I correct?

Absolutely right. We will be owning them. We will be owning the back end. We will be owning the entire value chain, and we will execute that ourselves, and we will maintain that ourselves.

Great, sir. And how much would be the budgeted capital allocation over here? What's the type of CapEx you see in totality for this scheme?

So right now, we have budgeted that by 2027, though, of course, that looks a bit conservative from our side, but something like 10,000 crores.

Okay. Great. And sir, returns should be similar to our utility business?

This is a nonregulated business, and I would presume better than that.

Okay. Great. This is very useful, sir. Sir, last question from my side, and again, this is only privatization not for the discounts, but for the transport. We are hearing a couple of state governments who are looking at it. And also there was some push on the central side. So sir, do you see this happening? And if this happens, what type of model? Will the entire transco be privatized or will specific assets be monetized?

So Apoorva, you will see both kind of models. Today, you see the monetization that [ power grid ] is doing in which some assets are being monetized. But if you look at the -- look at some of the large transcos, they are looking at all the assets being monetized. So both models will exist. And as you rightly use the -- in your narrative, you rightly said that center has also come out with a draft policy. And states are seeing a lot of meaning in it because they lose no control. Control will still rest with the state transmission utility and their independent system operations, and they will have the advantage that once this is offloaded, the entire spending will be done by the developer who takes over. So it will not reflect in their budgets, and it will give them a lot of advantage in terms of cash generated.

We have the next question from the line of [ K N Nambura ] from JPMorgan.

A couple of questions from my end. Firstly, on the transmission front, you speak about INR 2,000 crores of opportunity, and we also have the C2 plan on the intrastate side. So just trying to understand what is happening on the intrastate part? I mean, is it any step-up from the states with respect to the [ spend soliday ]? And a part of the [ similar which sidonow ] recently, we are seeing transmission projects with [ combined ] storage, et cetera, coming in. So what is Adani Transmission planning? What are the other transmissions plans for here? If you can elaborate a little bit, please?

Adani Transmission will continue to pursue these opportunities, whether it is on stand-alone transmission execution with their substation or it is combined with storage, as you said. Storage, in any case, is a part and parcel of any grid operations, and it's a very needed requirement. Of course, in our country, it's more seen from the point of view of the renewables. But as far as my personal opinion is concerned, large storages should be actually a part and parcel of the grid system instead of people putting UPS in their buildings and their offices and in their facilities. It should be -- the power quality should be the responsibility of the grid operations. So we will welcome this move, and we will certainly participate in all of these and continue to maintain our share of wins as we have done in the past.