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

Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Earnings Conference Call of Adani Transmission Limited hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from DAM Capital Advisors Limited. Thank you, and over to you, sir.

Thanks, Rutuja. On behalf of DAM Capital, we welcome you all to the Q3 FY '23 earnings call of Adani Transmission. We have with us from the management, Mr. Anil Sardana, MD, Adani Transmission; Mr. Bimal Dayal, CEO of Transmission; Mr. Kandarp Patel, CEO of Distribution; Mr. Rohit Soni, CFO, ATL; Mr. Kunjal Mehta, CFO, Adani Electricity, Mumbai; Mr. Vijil Jain, Lead IR. We'll start with a brief opening remarks followed by Q&A. Over to you, sir.

Thank you, Mohit. And once again, welcome to all our analyst friends on Q3 FY '23 call. I hope the audio is clear because I'm getting a bit of my own voice back, but I assume that at your end, it should be okay. Otherwise, just put it in the box, and let us know. Coming back to the results, the entire media release and the exchange information is available with you. So I'm not going to repeat those figures, except to just very quickly add some of those aspects that typically our analyst friends are very keen to understand. Number one, that this sector continues to be growing well. And you are aware of the fact that for a long time, there was a bit of [ hike ] and delays which we have talked in the previous quarter calls related to the issue of Great Indian Bustard. Fortunately, based on Honorable Supreme Court's appointed committee, the issue has been resolved, in the sense that all transmission lines of up to 33 kV in those areas would be converted or added through cables, and all extra high tension above 33 kV would continue to be overhead lines, but would be provided with proper bird diverters, which are of different specifications, which fortunately, Central Electricity Authority has standardized. So all in all, good developments, this is with the entire set of lines, which are core related to renewable energy in the states of Rajasthan, as also state of Gujarat, are therefore going to be rolled out one by one. And we have started seeing some of those lines being put out for bidding. Besides the Interstate Transmission System, which is primarily the city oriented work and CRC governed lines, there are states like Uttar Pradesh, state like Madhya Pradesh, states like Karnataka, Rajasthan, who have also started to compile their intrastate requirements, and they too have started to put out information in different formats for the tariff-based competitive bid projects to come in. So that's about the pipeline in the transmission side. On the retail side, there are 3 aspects I wanted to convey to our friends. Number one is the issue related to the second license. As we are all aware that for a long time, the entire amendment to the Electricity Act has been languishing. And one hopes that in the subsequent sessions of the Parliament, one would see progress. But as stated before, until that happens, we will continue to pursue options of second license because that, in a way, needs various aspects and those aspects being that it does not impair anything related to the existing incumbent, except gives customer a choice in terms of more better tariff, competitive tariff or more reliable power supply. And to that extent, as you would have read yesterday in the India Energy Week inauguration, the Minister for Power mentioned about the fact that it's government's view today that instead of privatization, we will encourage competition. And therefore, second license is nothing but a means to add competition and provide choice to the customer. And to that extent, various regulators are now looking at drafting regulations in terms of the fact how would they govern the second license regime. And that's a welcome value proposition because once that comes in, one would know whether it's going to be ceiling tariff regime or it's going to be similar to what exists today in the city of Mumbai. But more of that later. We welcome this move, and we will look forward to the second license in different locations. And the good part about second license is also the fact that the capital outlay in some of those networks get spread across several years and therefore, offers the geographical advantage to the customers in that India while you continue to unroll, gradually your network to the subsequent and the other geographies. Coming to the smart meters, which we have discussed in the past quarters. This is an evolving area, as we mentioned before. The country is committed to 250 million smart meters to be deployed across the various discounts. And to that extent, most of the discounts are partaking in this government of India scheme. And to that extent, initial tenders that one saw in 4, 5 locations clearly saw the fact that there has been a clear understanding that it is mostly the players who have the experience related to not just hanging the meter at the customer premises but the wherewithal to make sure that in the subsequent 120 months, which is 10 long years, one will be able to provide well informed inputs to the distribution companies. So the value proposition is very befitting and suitable to ATL and its experience in the distribution segment. And for several others who could either be meter manufacturer or players who don't have the knowledge about the network management or customer interface will find it challenging. So we believe this is an area which is suitable to us. There are still some news with regard to UP calling off a particular tender. And to that extent, one does not know the details of that in terms of information. And the first level of engagement suggested that it was on account of various qualification requirements, et cetera, which said that one should have been a meter manufacturer. It has been clarified that the government of India standard bidding documents do not have such requirements stipulated. And therefore, the entire subject is still under review by the respective authorities. Last bit in terms of our growth related to other retail areas, including the fact that there are a lot of customers who are looking for solutions. We will talk about that in the days ahead in terms of how the various new rules about green access, green open access has also various arrangements with regard to the large customers being benefited with green power. How ATL, which is an energy solution provider company, will benefit the customers. And therefore, by virtue of that, they'll be able to participate in more and more network outlay between the customer and the distribution company. So that is about the growth and how the sector is standing out. I just want to touch just about 2 other aspects which our trends are. One is what is Adani Electricity's regulated equity and debt. Thus far, our [ colleagues ] as of December 2022, the regulated equity is about INR 4,500 crores, and the regulated debt is about INR 3,000 crores So that's for you the details because many of you actually run your details based on those inputs. We have talked about ESG. We have talked about various recognitions. I'm not going to talk about that right now, and rather use your questions to add any piece of information if you would have keenness to understand that. So over to you. Thank you, and I look forward to your questions.

[Operator Instructions] The first question is from the line of [ Abhiram Iyer ] from Deutsche Bank.

I have 3 questions. Apologies if I'm taking some time. The first question is what was the gross and debt and cash for both ATL consolidated and AEML as of December? Not regulated debt but gross debt and cash. The second question is, could you just highlight, give us an update on the mid-period tariff review process that's going on? When do you expect this to be completed? And when do you expect any changes to the tariff, if any to come into play to reverse the regulatory balance for AEML? And the third question is post -- in the previous quarter or post December, could you just highlight whether there's been any sort of intercompany loans that's been made outside of the group, outside of the whole ATL Group?

Thank you for those 3 questions. Let me take up one by one. In terms of our net external debt, the number as of Q2 FY '23 is INR 28,348 crores. I repeat, INR 28,348 crores. In addition, there is QIA sub debt, which is INR 2,294 crores. Why I am indicating QIA sub debt distinctly is because this, we used as an equity for each of the tranche for CapEx addition that happens at Adani Electricity Mumbai level because it qualifies accordingly for our contribution of 30% equity. So therefore, we mentioned that astutely. So the net external debt is INR 30,642 crores. But net debt for all purposes of servicing is INR 28,348 crores. Your second question that you asked was related to MTR. The MTR exercise is underway, as you rightly mentioned, which is related to both transmission assets in Maharashtra because those are regulated assets there. As also for Adani Electricity Mumbai, and one is expecting that both these orders should be with us or should be in public domain before end of March, before end of the current quarter. And therefore, the effectiveness of that will happen from the next financial year first quarter. So that is the second part. Third part you asked about, are there any loans from Adani Transmission to any of the related entities. In the group side, there are no loans that Adani Transmission has to group entities outside of ATL.

Got it, sir. I believe these are new loans, no new loans made, right? I believe there are a few existing ones, which obviously already are in public domain.

That's correct. What you said, there are no new loans and the past loans, also which you talked about are in public domain, have been unwinded.

And sorry, sorry, just circling back to question 1. Can you give the same figure for AEML, specifically, the net debt number?

Okay. Just a minute. Give me a minute. Yes, out of this, the debt as of 30th September 2022, for the distribution business is INR 13,789 crores.

This is gross?

That's correct. This is gross.

The next question is from the line of Harsh Shah from Jefferies.

My first question is on the transmission bid pipeline. So what's the current ambition bid pipeline? And what will be bid out in next 12 months? That's my first question.

Yes. Okay. Thanks, Harsh. The -- as I said, the pipeline for transmission through the TBCB could actually be large, but right now, the visibility is about INR 60,000 crores.

Okay. And what -- how much do you expect to be bid out in the next 12 months?

If you're talking about how much Adani Transmission wishes to target, I would twist that point slightly in terms of the fact that we have always aimed to do close to about INR 5,000 crores to INR 6,000 crores CapEx each year so that we are able to fund it from our internal resource generation comfortably. That's what we have maintained in the past. And fortunately, whatever guidance we gave to our analyst friends, we have always done better than that, and we will continue to maintain that during the current year, which is '22, '23, we will stay steadfast on those targets. And for '23, '24, we will have similar targets. So our entire quest to capturing the CapEx from the various possible growth opportunities would be to keep 3 things in mind. Number one, to build the pipeline so that we are able to maintain these CapEx targets. Number two, to aim in such a way that we don't breach our thresholds in terms of returns. And number three, to make sure that we stay investment grade, so that our debt numbers do not breach the internal targets that we have always shared with our analyst friends which is to make sure that net debt to EBITDA remains close to 4.5 or below.

Sure. That was really helpful. My second question is on the distribution reform. As you mentioned in your opening remarks that you are hopeful that being coming up in further sessions, but what do you think broadly, what's your view on that? Do you think it's more likely a post-election event now? Some thoughts on that.

No. I think, very well said. We personally feel that the statements coming out from the powers we clearly allude to the fact that they will encourage competition rather than outright privatization. And the competition could be through various formats. One is to look at the second license format. The other is to look at franchisee options. And the third is to broad base the concept similar to like smart meters. So you could see standard bidding documents coming out where they could ask you to do network management with a particular sense of reliability. They will ask you to do a particular performance on the commercial management with a particular achievement of AT&C losses. So you could see those kind of interventions when the governments of the day suggest that we will encourage competition rather than privatization. So one is conjecturing that, that's what could be the order of how things could pan out. But we, as a company, will continue to pursue second license options because we believe the customer can easily be given much more competitive tariff as also much reliable power through this option, and that's our driver. And that's the reason we will continue to chase that option.

Sure. And lastly, just wanted to know what percentage of our total debt is up for refinancing in next 1 year on the transmission side? That's all. That's my last question.

Nothing in the next 1 year.

The next question is from the line of Apoorva Bahadur from GS.

Sir, 2 questions, firstly, on this pursuing the second license. So wanted to check if this will entail double infra creation. Or is there any regulation which allows for sharing of the transmission network with the existing licensee? And second is, sir, on the Green Open Access side, like I think you highlighted that you see a significant transmission opportunity arising from it. So I wanted to check if the connections for Green Open Access, will it be one-to-one or will it result in a augmentation of the overall grid capacity on the transmission side?

Good question. Apoorva, first question that you asked about the second license. Each of the regulator, state regulator, could come out with distinct set of regulations. As of now, the central framework desire us to our own network. But as you are aware that there is -- there are actual orders in the past, which have given regulators the strength to look at the option of specifies if they would have means through which the incumbent could earn billing charges by offering networks. Now the interesting framework here is, Apoorva, as it works, that assuming that the existing network of the incumbent is reliable, assume for a minute. If it's reliable and they therefore earn billing charges through the second licensee, it's a very good income for the incumbent. But if the network of the existing incumbent itself is not reliable, in which case, there is no point for a second licensee to call back on that network. It is therefore important that the parallel infra is built because that is the whole substantiative point in the manner that this entire provision came in the Indian Act at that time. Now there are many, many areas, particularly in suburban as also some of the outskirts of the urban areas where the networks are in very bad shape. There is very high level of technical losses, there is also a lot of disruption. And many areas where there are dearth of capacities to cater to the growing demands and needs of new residential apartments coming, or new commercial facilities coming or new industrial establishments coming. So all in all, the entire focus of second license is actually to mitigate the pain that the customer could be experiencing. And we are all aware of the fact that there are second round cities where -- and towns where there are large gap in reliability, in competitiveness versus what is possible. And therefore, we are looking at those niches. So that's the first part in terms of what you said. But of course, what will be most important is the regulation of the restricted state regulator, which eventually will determine our models in terms of how we will pursue that part. The second question was...

Sir on the green open access...

The Green Open Access rule. Now the green open access rule, as they have come, provides 2 underlying advantages to the customer community. Number one, that irrespective of their capacity, they can choose to buy green power without paying for ISTS charges from anywhere in India. So number one, that basically means that large customers, particularly, whose capacities are above 50 megawatts, which is the current threshold for taking a CTU connectivity. And those who are already in the CTU connectivity, they can choose to avail green part and therefore, adapt transition. And there are several models to that effect that are possible. We will unfold that as we go along. So it's not just the transmission. And if you can recall my words, which I said in the opening statement, that we will be a energy solution facilitator. And by virtue of that, we will make sure that not only that we provide connectivity option, but we also provide solution to such large customers who are desired of sourcing green electron. That's our forte. That's what we have done that to several group entities, including our data centers. And we will now have the same solution offered to large customers, including data centers and such of the international players, which wish to transit to a larger percentage share of green electrons. So that's a bundle of activity that we are pursuing now.

Understood, sir. Very useful. Sir, just one more question on the dual license side. So I mean I just wanted to check on the power procurement front as well, right? So will there be separate PPAs for the same network area in addition to what's already existing, or will there be like a sharing of the overall power procurement pool like it was proposed in the Electricity Amendment Act?

Yes. I think Apoorva, again, very good question. As of now, unless the new act sets in, each regulator will eventually evolve as to what way would they want to be protective or they would want to encourage competition. When I use the word protective, it is protective of the incumbents. And therefore, the existing PPA could be co-shared in terms of the 1 million units that gets divided between the second licensee and the first licensee. But as of now, if the current norms were to prevail, there is no such requirements. So therefore, a new second licensee will eventually source the power on a competitive basis from the marketplaces, through competitive bidding and otherwise. And make sure that those competitively plays duly blended between green options and other options are offered to the customers. So that's the way today things back out.

The next question is from the line of Monika Gandhi from Aditya Mutual Fund.

Yes, I just want to know what is the current liquidity position of the company? And what are the key maturities in the next 2, 3 years on a consol level.

So Monika, the answer to that part is that the company has declared cash profits each quarter, and that's the reason why we always say cash is the king. And you saw that we had for the quarter 3, INR 955 crores of the cash profit, which was up 34% compared to year-on-year quarter. As of today, the cash position is about INR 3,500 crores, and which is adequate and comfortable for us to fund our existing obligations. The other part that you said, how is the situation likely to be in the next few years, while without getting into specific guidance or numbers, one does not see this trend being bugged. So one would look at the similar trends continuing in the years ahead. albeit with more robustness. Why? one...

No, sir. I wanted to know -- actually I wanted to know how is the repayment schedule for the next 2, 3 years. Not the cash position.

Okay. So in fact why I said cash position because that includes pursuant to repayments. So therefore, that's the reason why I mentioned that. But since you want to know specifically about maturity itself, FY '24, the maturity is about INR 725 crores. FY '25, the maturity is INR [ 949 ] crore. I think that's what is for next 3 years. Yes, I was wanting to convey one message in fact while you interrupted me, but for the other friends, when I talked about robustness in the liquidity, I wanted to mention that when we look at the March MTR order, which is going to be for 2 of the large transmission assets and for our large Adani Electricity Mumbai business. And as you are aware that we had some regulatory effects during the COVID times. So one would look at those being liquidated, and therefore, one would look at cash coming into our offers. And similarly, the recent orders that we had got from ATIL for MEGPTCL transmission system as also Adani Transmission India Limited. One would again look at those coming through the medium-term orders that will come in from the regulator. So I thought it's important to mention that the current rents will be there, but it will be reinforced by virtue of some of these orders.

The next question is from the line of Love Sharma from Lombard.

I just had a quick follow-up on the previous question about debt maturity.

I'm so sorry, Mr. Sharma. We are unable to hear you. Can you pls speaker louder.

Can you hear me now?

Yes.

Yes.

Look I just wanted to -- some follow up on the previous question. For the maturities I think you mentioned, when you see the FY '24 number is INR 725 crores and FY '25, [ INR 949 crores ] is that right?

Correct.

Okay. And can you split it for ATL and the Mumbai AEML?

So AEML, there is nothing.

AEML is all correct. Mostly should be good only. So nothing there. AEML also had some short-term debt, I believe, in the last quarter. I'm not sure what is the current situation there in the current quarter, that short term that has been repaid or extinguished?

Yes. So right now from a cash flow perspective, we are planning it that way, but we typically roll that over.

Okay. And the amount, is it similar to INR 1,000-odd crores?

About INR 1,000 correct. That's correct, Love. Very right.

For AEML? Okay. I understand. And the liquidity you've mentioned, I think, INR 3,500 crores. Could you also split for AEML, what would be the cash position there?

So about close to about INR 1,100 crores -- INR 700 crores. Sorry, my fault. Love Sharma, it's about INR 700 crores.

INR 700 crores for AEML. Got it. And I think just one last question I had was the -- for ATL, you also have this construction facility, which is -- which I'm not sure how the -- when is it due? Is it included in the maturity profile you mentioned, [ INR 725 crores ] [ INR 935 crore ] or is it something...

So they are not due in the next couple of years. They continue for another 3 years. And post that, then we have a takeout loss. So we have only finished 2 of the projects out of it and the balance towards...

Okay. So they only come due only after 3 years from today?

Yes.

Got it. Understood. Okay. One last question. I think on the CapEx side, given I think the noise, which we have been hearing about this with respect to group entities, et cetera. On the CapEx side, is there any change in terms of how you want to spend the CapEx plan for AEML and ATL because they were quite visible amounts? And any plan to think about how the funding mix is likely to be for the -- for this CapEx?

So, Love, as I mentioned, that we have -- we've sort of seen the current black swan event and we have our ears to the ground. So we clearly hear what the messaging is. At the same time, at the ATL level, we have sort of maintained our discipline by being investment grade and maintaining our net debt-to-EBITDA ratios well within the disciplined range. However, we would want to make it further robust. And therefore, we are right now on the drawing board in terms of what should be our perspective in terms of the feedback that we hear from different quarters. We will come back to all of you as the time goes by. But as of now, as you've known, we have maintained very clearly that we will maintain a CapEx profile of INR 5,000 crores each year. And to that extent, we believe we are comfortable to continue with that target in the subsequent years too. So as of now, that's what we are conveyed. But we are also open to the fact that we will once again revisit the entire input that we have received, but at the same time, maintain our growth profile for the simple reason that, that's based on the fact that we stay investment grade, that's based on the fact that we maintain our threshold level. And you have seen that quarter-on-quarter, we've maintained robust performance.