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

Ladies and gentlemen, good day, and welcome to the Adani Energy Solutions Limited Q1 FY '24 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhineet Anand from Emkay Global Financial Services. Thank you, and over to you, sir.

Thanks, Lizan, and good afternoon to everybody. I would first like to thank the management for giving us this opportunity to host the call. Today, we have with us the top management represented by Mr. Anil Sardana, MD; Mr. Kandarp Patel, CEO of Distribution; Mr. Bimal Dayal, CEO of Transmission; Mr. Rohit Soni, CFO; Mr. Kunjal Mehta, CFO, AEML; and Vijil Jain, Head IR. I will hand it over to Mr. Sardana, over to you, sir.

Thank you, Abhineet. Thank you so much. Dear analysts, friends and investors, who are there on the call, welcome to Q1 FY '24 call. Let me start with the name change so that we can then build on that, and you would have got the press note. So therefore, many of the inputs that you already have with you, we will be happy to further take different details of that during the conversation today. We had shared some time back that Adani Transmission, which started in 2015, expanded quite well between 2015 and the current times when it became the largest private sector transmission company in India. Besides that, from 2018 August, we added the first distribution area to Adani Transmission. And then subsequently in 2020, we added another distribution area of Mundra. So over a period of time, the company added the transmission and distribution business. And in the recent times, it saw the opportunity to grow into smart meters into -- meeting some of the energy requirements of open access and captive customers. And in addition to that, we started to see as to how the energy requirements will pan out over a period of time. And it dawned on us that there are going to be areas which will cause tremendous spurt in power demand, particularly that by Government of India policy is related to manufacturing and manufacture in India or Make in India program as it is called. And in fact, we saw advent of some of the large brands and customers in the areas such as data centers, semiconductor manufacturing, aircraft component manufacturing, manufacturing in the value chain related to renewables, manufacturing in the value chain related to change in molecules from hydrocarbons to green hydrogen and different renditions. So it was clear that now the demand for energy will not just necessarily be electrons but also molecules. And also, we need to be mindful of the fact that while the distribution business could grow, but the state-owned enterprises are not going to let go that so easy. So we decided two-pronged approach. One was that we will apply for second license, which we did in 3 areas, which you are all aware, But just to fill you up, it's -- the 2 are the contiguous area to our existing DISCOMs, which is Navi Mumbai contiguous to our Mumbai license, and Saurashtra area contributes to our license in Mundra area. And the third one is where, based on different studies, we added to our portfolio the request for second license in the Western UP, which is from the [indiscernible] all the way to Jewar-Bulandshahr area. So considering the fact that distribution business has already got added in 2018 and '20 and then we started applying for second license and that we were offering energy solutions, both in terms of meeting the open access and the requirements related to captive customers as also we recently added smart metering portfolio, we decided that the name does not manifests the activities that we were performing. We had outgrown the name, Adani Transmission. And for that reason, we deliberated and based on consensus adapted Adani Energy Solutions Limited as the name, which will manifest the current as well as future business of trading and pursuing electrons as well as molecules. So friends, that is what we did during the recent times from July 27, this company is going to be titled Adani Energy Solutions Limited. And therefore, we are happy to have you on the call for this company. Coming to the other part. Let me now go into the next important area that as a team we have been pursuing, which is the ESG part. Amongst the ESG, of course, looking at inclusively, we've been very we -- sorry, I thought we had got disconnected. Can you confirm that my voice is audible?

Yes, sir, we're able to hear you.

Okay. So moving on the ESG front and being exclusive, we focused on the safety aspects and despite a business which is cross country, that is something that we take pride in terms of various initiatives and various aspects of safety that we constantly prolong. And that will continue to be one of our key focus of ESG. However, moving on to the acronym, the way it described itself, the environmental, social and the governance aspects are key to our current operations. We have decided that as an institution, Adani Energy Solutions Limited will continue to aim to be within the top 20 global companies in its utility business with regard to its scorecard. And therefore, several aspects in each of these 3 heads have been taken up to benchmark levels. And that is reflective on the recognition that we have got from different quarters, but it will be important for me to mention that amongst them, some of these scores done by international agencies have been very heartening. In the last quarter, the FTSE score has improved to 4, up from the slightly lower scores than 3. So that's a major movement upwards. And that actually takes us to the top echelons of utility companies globally. I will not typically talk about the other rewards and awards, but I mention one aspect, which is the study done by PFC on behalf of Government of India, where through McKinsey, they did the rating of different DISCOMs in India. And I'm happy to bring to your notice that Adani Electricity Mumbai DISCOM was rated India's #1 power utility. So that's the hallmark of how we are pursuing the agenda on different aspects related to environmental, social and governance criteria. And in addition to that, of course, to make sure that our commitment to bulk sourcing of green electron clearly again is shown in the fact that we have now exceeded beyond 30%, which was our commitment. So the commitment that we gave in the sustainability linked bond has already been met, and we are happy that we will continue to take similar strides and soon cross 50% in the commitment year that we have conveyed before. Moving on to the operational aspects very quickly. I will not take much time because you have already got the press note. But I mention the fact that we continue to grow well, we continue to register and perform solid with regard to the existing assets. Both in the transmission and distribution side, we have demonstrated availability which has earned us every nickel and dime of incentives that we had to earn. And also, we have now reached very close to our target numbers of 2022, which was 20,000 circuit kilometers. Only 19,778 circuit kilometer is either operational or under execution. And very soon, the balance part will also get added to the portfolio. We are trying that this kind of growth will continue and the transmission because there is so much of opportunity in the days ahead in terms of pipeline. We're sitting with already 1 order, which is INR 20,000 crores -- which is INR 200,000 million. And therefore, we are in a very comfortable situation to make sure that the future orders are backed with thresholds of returns in Met. So that will be the key criteria of how we will pursue business in days ahead. So of course, the growth will continue to look up. On the financial aspects, you've got the details with regard to the fact that we have had the first dividend outgo from Adani Electricity to ATL, which in fact, is one of the reasons why the tax outgo of dividend tax was there. And therefore, that was one area that, in fact, in a similar basis suppressed the ATL fact number. But otherwise, on ground, the performance has been as good. The cash profit from both the businesses continue to give us enough meat for us to continue our growth without increasing the debt burden and making sure that we maintain our net debt-to-EBITDA within the discipline that we have talked about and therefore, continue to be investment grade. And that is what we will continue to do even in the days ahead and make sure that we stay steadfast with regard to that promise. On the smart meters, you would have noticed our early success. We already have orders worth 4.6 million smart meters, that close to about INR 58 billion orders in hand. More than double of that is where we already have the pole position of being declared lowest, but we are waiting for the orders. We will share with you as and when those orders get confirmed. So smart meters will continue to be one of our key buildups. So as you see today, we have 4 buildups in terms of growth. One is, of course, the transmission line, where we have healthy orders in hand and a good growth pipeline. The second one is in retail distribution, where we have the ongoing CapEx, which we'll continue of similar levels as we have been doing last -- from last few years. And in addition to that, we have those 3 licenses that we'll look up to. That's the second vertical. The third one will be the smart metering, where all the works related to putting those smart meters, making sure that we have the head end and the back end managed with our experience in our distribution area and also gradually realize the data as we stack it together for a longer period of time for us to then do the analytical work around that and with the permission of the clients then do upselling, cross-selling opportunities across using that data. So that's the third. And the fourth one is the energy solutions, where we will do work around the customers where we can provide them promissory estoppel much lower than the cost of the grid and take the onus of meeting 24x7 requirements, including some of the green electrons in terms of meeting their RPO obligation or enhanced obligation as they would want. In addition to that, some of the gosling areas like cooling solutions, we will provide from in-house because we have a very strong input that we -- that the country will add close to about 100-gigawatt on account of cooling solutions up till 2030, which is a huge demand and away from the cliche aircon concept, we will be able to provide the solutions by actually the flow consumed by customer on managed service basis. So we have started doing that with some of the builders community in the -- in Navi Mumbai. And we will -- we are also doing some of the projects in Ahmedabad, along with Adani Realty. So these projects, in terms of complete aircon solutions on a district level basis will also improve the various hazards, let it to fire, greenhouse gas emissions, et cetera, and therefore, will make us more benign and add to various credits under the UNSDG credit program, CDA program. So those are various aspects I wanted to touch base. And all in all, a good quarter to have got our acts quickly as also a new name, which -- with the enhanced wingspan, as you would have noticed. And therefore, the company is well poised to now work to making sure that we are able to offer comprehensive energy solutions, both in bulk electron, trading or movement as well as retail electron and gradually into the overall energy paradigm. So I'll stop there and look forward to your questions. And based on that, we will be able to perhaps disseminate whatever I may have missed out. Thank you. And once again, I welcome you all. Thank you.

[Operator Instructions] The first question is from the line of Abhineet Anand from Emkay Global.

Thanks a lot for the detailed stuff that you gave. I just wanted to understand the transmission side. Over the next 1, 1.5 years, if you take a view what type of bids are going to be there and slightly then longest term, apart from this 1.5 years, so view on a slightly next 5, 7 years, what could be the CapEx on an all-India basis I'm talking about?

Bimal?

Good afternoon, everybody. I just want to take a step back before answering your question here, maybe add a little more color to what Sardanaji said regarding the quarter from just a quick high-level input that we clocked 99.77% in our operational performance, which added an incentive income of around INR 26 crores this year. It's a great news that not only we are growing, we are maintaining our assets, not only for the period, but horizon of almost -- keeping a horizon of almost 50 years and nothing short. In terms of network addition, we added 550 kilometers -- circuit kilometers during the quarter and reached a mark of 19,778 circuit kilometers. I think if you actually look at one of the things which is important to bring up is that we are continuing to grow faster than the market. I think our internal estimate is that in the first quarter, the overall market grew by 1% and we grew by 4% in quarter 1 as well. And I think this is one thing which we keep on monitoring and that is something to do with little bit of past. The current situation is that we have a healthy pipeline. And in the upcoming quarters, we would be commissioning some 5 important lines, including which is KVTL, Kharghar Vikhroli, the WKT and P2 package in Khavda and Karur which will add another 3,000 kilometers. So it's -- the business looks absolutely robust. Now to answer your question, I think these are very interesting times for the sector itself. On one side, we have the reforms kicking in and a lot of excitement in distribution, including smart meters. There is a consumption figure which is taking place as well as our economy grows and also an interesting global story of energy substitution as well. Now linking both these two is transmission. If you look at the 2030 requirement, we would be probably be evacuating 500 gigawatts of only green power as well. And I think I'm talking about the paper, which came out in November last year itself. In short term, we are looking at a bidding pipeline of INR 45,000 crores this year, maybe in 18 months' time. We would be beeping into INR 70,000, INR 75,000 crores of only the central bidding, which will take place as well. I think there are various estimations going around, let's say, 2030 horizon, anywhere between INR 250,000 crores only at the central level would be needed to be invested in transmission, and I'm not talking about the state level estimation, which would be needed to strengthen the grid. So all in all, very, very busy schedule from all quarters within the sector as well, and we are fairly excited about it. Hope this answers your question. Thank you.

Yes, yes. So one of the things that I wanted to understand is, incrementally, we are adding more RE. So does that as an investment per megawatt or gigawatt whatever it could be for a transmission guy because of the fact that PLS is low in REs, does that increases transmission, which we are not seeing. This 2.4 that you talked about has been type of in the -- by the central agencies? But do you think that it is under -- I mean, slightly understated because of the fact that the amount of capacity that we added gigawatt per circuit kilometer is slightly -- should be slightly more?

Yes. So it is not that trade that you could calculate the impact because from the RE plant, you actually get into a pooling station. And typically, at the pooling station, you are able to utilize the capacities in such a way that the trunk routes are able to get the power supply from either RE or from other sources. So with the result, the utilization of assets is from the pooled station onwards, which is what costs more is much better. So eventually, the way the planners are working is that at the key pooling stations, they are trying to interject different formats of power and not just restricted to RE. But yes, from the RE station to the pooling station, in any case, the lines have to be built by now under the new concept has to be built by the RE developers themselves. And therefore, they will have to make that as a part of the delivered electrons to the pooling station. While the transmission line under G&A, the new concept that the government has evolved, the transmission lines are going to get added because G&A means that any consumer can have the access and a choice to source electrons from anywhere they want and that is the promissory stocking. And therefore, a lot more lines will have to be added into the system. But we are still quite some time away from those times. At the current stage, it will suffice to say, yes, the transmission line cost could get a bit impacted, but not to the extent that the onset will suggest that the RE is going to keep the transmission line begin for 50% to 60% of the time. No, that is not the way the transmission system is designed.

Just last one from me. We have been hearing some issues around the supply side, say, transformers, et cetera, because there hasn't been much capacity -- manufacturing capacity on the transformer side and there is a good amount of lines et cetera. to be added. So if you can comment something on that?

Well, in any growing economy, there will be times when there could be a gap between demand and the planning to get those supplies into the system. So yes, you will, in a pro tem basis and particularly because there are various kind of the embargoes on import from outside due to Make in India programs, et cetera. So you would see some phases in between when you will have pressure on the fact that the demands are not forthcoming or are not available at a competitive price. But that's always a welcoming situation for the simple reason that, eventually, if they -- if those who are making in the country today, will be able -- will get confidence and trust that their products will have offtake and therefore, they will expand capacity. That's the most welcome situation that one is looking forward to. So I guess it's only a temporary phase. We have seen such phases come in the past also, but they soon get corrected. So that's a good part. So we will see more capacity is getting added in India.

[Operator Instructions] The next question is from the line of [indiscernible]

Just one quick question on the dividend from the electricity business. What was the quantum of that? And is that intended to get paid annually just based on the excess available with the distribution account?

The dividend amount was INR 245 crores.

That is to ATS. Total is 350.

You are asking total or to ATS?

So 350 was the total of which you get 74%. Is that right?

That's correct. That's correct. 74.9%, 35.1% as of Q1.

Okay. And the intention is to keep paying out excess available amounts from the distribution account on an annual basis? Or will it be more frequently?

One can always assume that the intention will be to have dividends from our subsidiaries regularly.

The next question is from the line of Nikhil from Bernstein.

My first question is on regulated returns, which have been in debate for some time as the CRC approach period has come. Just wanted to hear the views if any further update or views management has in that?

CRC has come out with a terms and condition for tariff for next controlled period. And there, they have suggested various options as far as return on capital and return on equity is concerned. But Nikhil, you would appreciate that this debate continues to happen even if you see last 2 controlled periods draft regulation, the same was the approach and eventually as long as investment is required into power sector, they would not like to tweak much about rate of return on the investment.

Got it. Understood. My second question is then on new opportunities in distribution. Apologies if I missed it earlier. So there are some places where as I understand Adani Energy is looking to licensing model. Just wanted to understand if any new opportunities are coming as a franchisee or a license model in this area?

So Nikhil, you might be aware that as Mr. Sardana mentioned in the opening remarks, we have already applied for 3 geographies, one in Navi Mumbai, which is adjacent to our existing license area in Mumbai. The second is Mundra Taluka which is adjacent to our existing license at Mundra. And third, we have applied for Ghatampur Nagar district, along with the [indiscernible] Municipal Corporation. And all the 3 applications are at a various stage of approval. So this is the update as far as second license is concerned. We have also evaluated many other areas in the country, but we would take a step one by one. So we would first like to get the license and start operation here in this license area. And meanwhile, we will think of expanding into other areas as well. And as far as opportunities in distribution is concerned, currently, there is nothing on the horizon as far as privatization is concerned. So government of India and MoP wanted to privatize few union territories. We have done bidding for Dadra and Nagar Haveli, and that has been handed toward to Torrent. But subsequently, the Pondicherry has not progressed further. And therefore, we are relying more on a second license route rather than a privatization route.

Understood. Got it. And my last question then is on the funding part. Is there -- has there been any update on that side, either on the QIC or any plans to issue dollar bond, et cetera, would be great if you could share that?

So QIC still work in progress. So we are still working on the document kind of things. So we will update once we have clarity from the investment community. On the fundraising, I think we had closures of major of project CapEx, which we had in last year, the construction facility worth $1.1 billion against that we are drawing. The new projects which we have won in the last 5 to 6 months, they are under various stages of closure. So I would say mostly all would be done at the SPV level. So we are not looking at any major leases on the debt side at the parent level.

[Operator Instructions] Sir, there are no further questions. I now hand the conference over to Mr. Anil Sardana for his closing comments.

So thank you so much for your participation and appreciate your joining us for the Q1 call. Have a safe time, and we look forward to seeing you for Q2 FY '24 call. Take care. Thank you so much.

Thank you, members of the management team. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.