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

Ladies and gentlemen, good day, and welcome to Adani Energy Solutions Limited Q1 FY '27 Earnings Conference Call. From the AESL side, we have the following on the call as main speakers. Mr. Kandarp Patel, CEO, AESL; Mr. Ashok Jagetiya, CFO, AESL; Mr. Raj Kumar Jain, Head Energy Solutions Platform; Mr. Prashant Soni, Head of Finance, AESL. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Soni from AESL. Thank you, and over to you, Mr. Soni.

Thank you. Thank you, and a very good day to everyone. A warm welcome to the Q1 earnings call for AESL. We hope you had an opportunity to review the earnings presentation and financial results that we shared on our website. To outline the flow of the reforms, we will begin with the opening remarks from our CEO, Mr. Kandarp Patel, following which we will open the floor for Q&A session. The call will conclude with closing remarks from our CEO, Mr. Ashok Jagetiya. For those who wish to ask questions, we request you to start joining the question queue a little early to help manage the Q&A efficiently. Thank you. And with that, I would like to hand over to Mr. Kandarp Patel for his opening remarks.

Hello. Good day, and everyone, welcome all of you on this quarter 1Q call. In this quarter, AESL has, in fact, now transitioned into a full-scale utility. So far, we were business -- AESL was getting a significant contribution from transmission, distribution and smart metering. From this quarter, we have fully scaled up and operationalized our Energy Solution business. And with all these 4 business firing on all cylinders and with all of our future growth locked in, now we are -- you will see the numbers and results consistently quarter-on-quarter. Besides scaling up all these 4 business verticals, we continue to make sure that our execution discipline and capital discipline are maintained even in this high-growth period and thereby, reducing our cost of capital and improve consistently our credit quality. So this is going to be our focus going forward. In quarter 1, as you must have seen from the numbers, we have seen significant growth in transmission and energy solutions, and distribution and smart metering is growing at a stable pace. So today, AESL, with all these 4 business operating it at full scale, has become most diversified utility platform, nearly with 28,000 circuit kilometers of transmission lines, leading urban distribution utilities serving Mundra and Mumbai, India's largest smart metering platform and a rapid scaling energy solutions platform across emerging customer demand. One significant thing is that we delivered a quarterly CapEx of about INR 3,498 crores -- close to INR 3,500 crores of CapEx. And that is what we are focusing and we will continue to focus that we continue to deploy all those logged-in opportunity on the ground and complete these projects one by one. We have also now completed the smart meter installation of 1.34 crore or 13.4 million meters cumulatively on the order book of 2.46 crores or 24.6 million. In addition, you must have seen the news that we are acquiring Intellismart. And combined Intellismart and AESL, we'll have a portfolio of about 4.7 crores or 47 million meters. And this contract also has provisions for [ nature ] of growth of volume within the given contract. So we expect that volume to increase beyond [ 4.7 ]. Now the energy solutions platform, which we are talking since last couple of quarters, has now transitioned to a full-scale business, we were incubating that. So we tied up about 5,000 megawatts of capacity on a supply side. And these are mainly green energy supply. And we are now also tying up with various consumers. We have about 350-megawatt of C&I customers. We are also expecting a few long-term contracts very shortly. And thereby, we will keep on scaling up this business. So in C&I business, essentially, there are two parts. One is where we are taking a position on the capacity on a long-term basis. So we contract those capacities on a long term and take that position, and then we sell it in the market. And we also provide energy solution in services to various consumers, like on our [indiscernible], where they have developed the capacity, and we are managing that solution. So there are two different segment in C&I business. So we continue to -- we would want to scale up both the businesses because our essential aim is to provide energy solutions to any customer that is requiring a solution. So typically, those margins on those capacities where we are taking the position would be higher, whereas on the services side, we'll be taking the service as is. And you will see this platform growing significantly going forward. Now therefore, Q1 FY '27 demonstrate that AESL as a full-scale utility platform and with a structured growth opportunity, which is going to be a consistent one; and coupled with our execution record and with energy solutions, we hope that we will continue to do better in terms of results and businesses. So we remain confident delivering sustained and compounding value for all stakeholders. I will stop here, and we will take all the questions, and we will try and answer all the questions and queries from the investors and analyst friends.

[Operator Instructions] The first question comes from the line of Lavina Quadros, Jefferies.

Just wanted to check, can you throw some color on the Smart Meter business, on the Intellismart acquisition in terms of whether a similar return profile as you extended portfolio will be there? And what are the smart meter balance tenders that are left over the next 3, 4 years by the central and state governments?

So balanced portfolio is about INR 10 crores to INR 11 crores or INR 100 million -- INR 220 million. The remaining states are Tamil Nadu, Karnataka, Telangana, a part of Andhra, and there are a few states where [indiscernible]. As far as Intellismart is concerned, we have -- we are before the CCI for approval. And once those all approvals are in place, then we will formally take over that entity. And as far as return profile of Intellismart is concerned, more or less, it will be on a similar line that we have because what we have done in the last 2 years that we have also reduced our CapEx and OpEx utilizing our scale. So we will also have the advantage of that in the Intellismart volume as well. So more or less, profitability of those numbers would be very similar to what we have for AESL.

Okay. And sir, on the Energy Solutions business, longer-term strategy in terms of how much you would want to tie up and have an assured EBITDA per unit, let's say, and how much you think you might open? Just so that we get a good sense on the sustainability on the operating EBITDA that the business has reported.

So Lavina, we will -- certainly would have a situation where most of the tied-up capacity on a purchase side has also tied up on our sales side. So we would not want to have that kind of variability on our P&L. To start with, we contracted this capacity and now we hope to tie up the sales side very soon. So once we have done that -- so essentially long run, we would not want to have -- barring a few percentage of capacity that will remain liquid, rest, we will tie up on both sides.

[Operator Instructions] Next question comes from the line of Ashish with MLP.

Congrats on a good sets of numbers. On the C&I segment, where you said that there will be two types of businesses which we would be doing. One is Energy Solutions, where whether have service charge or a fixed spread. So what is the amount of fixed spend that we could generate on such type of business?

Sorry, can you repeat the question?

Yes. So on the C&I segment and the [ clearing ] segment, we are [ assessing ] two type of businesses. One is an Energy Solution business, where you manage solution for a lot of...

Yes, where we take a position.

And then [ capacity ] position, yes. So what type of spread should we expect with this type of business?

So currently, the spread, obviously, on the solutioning sides -- service side, it can be seen as a spread, but it's basically a service revenue. So unit probably will not be that relevant. But currently, given the number of this quarter, it is about INR 0.03. Whereas on a contract that we will take a position, it will certainly be a much higher volume. But that will depend on a contract-to-contract basis. It will be difficult for me to put a specific number on those transactions.

Understood. Sir, and when we take position because this would be long term, say, 20 years, so once if we say lock in a 3, 4 gigawatt and like this quarter, we have generated around INR 500-plus crores; so is it fair to assume that once we land that and that becomes annuity business for the next 20 years?

Correct. So our objective would be that only. It may not be -- every time you may not have the contract tenure matching to matching 100 percentage. But yes, we will endeavor to do that, then most of the capacity is back to locked-up and we don't create much of the volatility in our numbers.

And so you have some part which is locked in, which generates annuity type of revenue; and then you can have some open positions, which even in a worst -- even in a bad market environment, it might offset the profit -- annuity profit, but it gives us upside that we can have substantial upside?

Correct. Essentially, we would try to convert those revenues into annuity kind of revenue with some bit of open position, which we can take or optimize, depending on the market condition.

And there will be no CapEx, which would be incurred by us by generating the annuity for revenue?

So there may not be any direct CapEx, but we expect that some CapEx we might have to incur to enable those transactions. When I say enabling those transactions, I mean creating those power infra last-mile connectivity for consumer or sometime even for a generator. Yes. So it is not CapEx-based business, but we might incur some CapEx for enabling those transactions.

Okay. And currently, in the last quarter, we sold it over an exchange, right? I mean there was no such facilitation which we have...

Yes. So we sold mainly -- we have about 350 megawatts of C&I customer. Rest, we sold it on an exchange and also in a bilateral contract with the different utilities.

Understood. And if you can share the term, like tenure of the [ bilaterals ] that we have?

Sorry, come again?

If you can share maybe the price and the tenure of the [ bilaterals ] that we are having with the...

Yes, there are a basket of contracts. Some are from 1 month to 13 months. And even those prices are also very different because sometimes we sell it as a bundled power, sometimes we sell it as an individual. So the prices are ranging from INR 3 to INR 13 or INR 15 as well. Because now we also have 3.5 megawatt -- 3,500 megawatt hour of battery storage as well. And we are also utilizing that to create a different product and then sell in the market.

And when we say battery, this is our investment or we have taken the battery capacity on a fixed charge from Adani Green?

We have taken -- like we have contracted wind and solar, we have also contracted battery storage on a long-term basis.

Next question comes from the line of Vishal Periwal with PL Capital.

Congratulations on a good set of numbers. Sir, regarding this solution platform, can you...

Mr. Periwal, sorry for interrupting. Your voice is breaking. Can you come in the range of talk? And can you speak a little louder, too?

Yes, sir. Is this better now?

Yes, yes.

Yes, sorry. So I was saying that INR 590 crores EBIT that we have made in the Energy Solutions as a platform, is it possible, first, like breakup between the Energy Solutions services? What is the proportion in this and the contract that we have in terms of power, the back-to-back and in terms of megawatts? So what could be the breakup between these two?

So the breakup is about INR 570 crores is from the volume that where we have taken a position, where we have a long-term contract. The balance revenue is from power trading and power solution services activity.

Okay. So this INR 570 crores, that's an EBIT number that you mentioned, right, sir?

Yes.

Okay. Fine. And in terms of kilowatt units or maybe like some bit of generation number or probably -- not generation, but what kind of volume that we have done for this INR 590 crores -- INR 570-odd crores, will that be...

Yes, we have done about 3,325 million units in that segment. And in the balance segment where we are providing services, we have done about 9,800 MUs. But that -- again, in that segment, volume is not important. It is basically services.

Okay. Okay. And then is this a fair statement to make that in terms of quarterly, we have done a pretty strong number. But going forward, are these like more like take-and-pay sort of contract, even when we are selling things and this number is sustainable? Or it depends -- or it's more of opportunistic, given like there has been a delayed monsoon and then we get higher margins? So how exactly to look at this particular number panning out for us?

Vishal, this is a very relevant and very important question. Obviously, this year, because of a delayed monsoon, the demand was high and the market prices were also high as compared to the last year. And if you are taking -- keeping your position 100 percentage open, then obviously, all those variability will come into play. See, not only year-to-year variability, but there will also be quarter-to-quarter variability because the average rate in the market during summer period, obviously, would be higher as compared to the monsoon or winter. And even within winter in a few months where irrigation demand will be very high, that number could be a difference. So if you are keeping all those positions open, then you will have those kind of variability. What we are trying to achieve is that we will not want to keep that position open, and we will close it on both sides without much of the time lag.

Okay. Okay. Sure, sir. And maybe one last thing. So in terms of back-to-back contract in this -- the MUs that we have done, what would be the share of back-to-back? And what is more of open and then we have got a high margin because of the...

Yes. Currently, out of the 3,300-odd million units, about 400 or 500 would be on a contract basis, which is with 350 megawatts of C&I customers. But you will see most of the volume getting absorbed in the long-term sale contract very soon. So our focus is to work on that, having done this long-term tie-up for purchase.

Just to slightly add further here, see, while we have the long-term contracts tied up on our supply side, the purchase side, as Kandarp has mentioned, we have 350 megawatts. At the same time, there are long-term contracts which are in very advanced stage, which will cover up most of the capacities which we have signed up on the purchase side. So there is hardly a timing gap, which we are currently seeing, where you are able to see a revenue which is coming from short-term tie-ups with the distribution utilities or from markets. However, it is clearly the time for a long-term offtake contracts also on the purchase side.

[Operator Instructions] Next question comes from the line of Nirmal with Aditya Birla Sun Life AMC Limited.

Sir, my question is on the 13 [ billion ] units that we have -- the assurance that you have received from C&I data center and utilities, so what portion of this is from data center?

So the data center volume today is very negligible. There is only one contract that we are doing servicing for about 20, 25 megawatt. But on a sales side, you will see a lot of long-term substantial contract coming from those big customers and utilities. So we are working constantly towards that, having taken this position, and we will also continue to increase our position in purchase side, and we will accordingly start taking back-to-back our position on a purchase -- sales side as well.

But current...

Is not significant. And we expect to see significant volume in time to come from data center segment.

Okay. Sir, just to follow up on that, so if you can share in terms of demand that is coming from data centers, what sort of power mix are they looking for? I'm asking this, especially in context of the catering to their nonsolar hours demand.

Raj, would you want to take this question?

Yes, sure. Sure. Thanks, K.P. So see, I think there is a large significant plants which you have seen from the group itself. And then obviously, there is -- from a market perspective also, there is a significant capacity additions, which is expected in the data center space. So from the overall demand side, we are looking at a very robust pipeline, where for every gigawatt of IT loads, you are talking about 1.5x of the consumption load. And say, for 1.5 gigawatt of consumption load, we are talking about on -- if we want to supply from renewables, 3.5 to 4x of renewable capacity required apart from significant storage. Now as part of your second question, these guys vary based on their own mandates on the green side. We have seen interest ranging from not being very finicky about how much green to people who really want to adopt a very high percentages of green in their power mix. So it's a diverse market and every customer has their own choices.

Okay. So catering what sort of batteries -- because if we were to install batteries for nonsolar hours and maybe 4, 5 hours of battery, then would that economics be favorable for the offtakers?

Yes. So see, the offtakers understand that for the kind of solutions they are asking, they would need different kind of mix. So it's a pretty mature market. So from that perspective, if someone is looking for a significantly higher share of green, then he understands that he has to pay for the cost of that kind of a storage. So I think that is there in the understanding of all our consumers.

Okay, sir. So just last on here. So going ahead, do you expect the data center demand mainly will be off-grid and on-site? Or it can be on grid supplied by DISCOMs also?

To our understanding, as we see the data center development in India, not many instances or not -- I don't think I have heard any instances of off-grid data centers. All of them are coming mostly on grid scale and in a lot of cases, also on the national grid.

[Operator Instructions] Next question comes from the line of Raman KV with Sequent Investments.

Sir, I just have one question with respect to the Adani Energy Solutions business. Sir, can you just give a brief idea about what is the -- what kind of business does Energy Solution platform cater to? And can you just walk me through how does the revenue -- like the cash flows from revenue to EBITDA? Like what are the main expenses with respect to the Energy Solution platform business?

Yes, sure. Thank you. So that's a very, very interesting question and would set the understanding of the business in a clear manner. So as K.P. mentioned, there are two kinds of businesses which we are currently pursuing here. One is a simple services business and a trading business, where to a lot of companies, we provide simple services of managing their power loads and how do we bring in the optimization of their cost as well as whatever green content they may want. That is a business where volumes are very high, but the margins are supposed to be lower, which is what was the initial number of INR 0.3. However, and this also includes a lot of trading, which we are -- which is basically simply buying and selling in exchanges on behalf of the clients. The second business, which is a larger piece here and which is more an EBITDA generator is the supply stack and the consumption stack. So supply stack, as we have mentioned until now that we have close to 5 gigawatt of supplies, which have been secured on take-or-pay basis from the generator. Now that includes the internal generators as well as external generators, which are more like normal utility PPAs for those guys. And for us, we have to buy that power. Similarly, we have -- as was the query of one of the earlier queries, we have also tied-up storage capacities of 3,500 megawatt hours. So these are again all take-or-pay firm contracts. Against these contracts, we are sourcing multiple consumers. Those consumer categories are, as has been mentioned in our presentation, data centers, utilities and complex contracts as well as the normal conventional C&I contracts and as well as there is certain areas where we also try to optimize the cost of group companies' cost of power. So these are, again, long-term contracts on a take-or-pay basis. Between the two, because we are able to provide complex solution and manage the overall flow in a sustained and certain manner, we are able to have certain margins there. So basically, my revenue is sale to those utilities, then there is a cost of power, which I'm paying to the generator. So that is my cost. So the gap is something which we are able to earn as revenues. As our CEO earlier mentioned, there is -- and there is expected to be both some kind of a time mismatch between the two because we tie up -- we try to tie up capacities in advance versus the consumption because that provides certainty to our consumers when they tie up with us. So there is expected to be certain timing mismatches, sometimes on the slightly higher capacities tied up or -- on the purchase side and sometimes even on the buy side. And the nature could also be different between the two, which provides us the opportunities to be able to trade those capacities in short-term markets, and we are able to garner some margins within that window as well. So this is what the business is all about. So you have a revenue stack, which is based on supplying on a long-term contracts to buyers, augmented by certain short-term revenues; and then cost which we are paying to our suppliers on a long-term basis. On the CapEx side, we do provide certain last-mile infra to some of these consumers. Being a transmission company, it is natural to us that we can do that. And when we provide that transmission infra, that basically builds in as a CapEx to us and there would be certain margins on that as well. So this is how the revenue expense and the CapEx and the margins are stacked up in this business. I hope I could make it clear.

Sir, correct me if I'm wrong, the second part of the business is basically you buy the power from outside and then supply it to your end-use customer. It can be a group company or it can be a nongroup company as well, right?

You're 100% right. It depends on the attractiveness of my solution, which [ enables ] consumer to be able to tie up.

And you have signed long-term contracts to buy the power at a fixed price, right?

Yes, it's right.

So your cost is fixed. The only the -- way the EBITDA will move is if the power demand is -- if the power demand for the end user is high, that time your margins will move towards the upward. And during the non-power demand season, your margins with respect to this segment will have a dip?