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

Ladies and gentlemen, good day, and welcome to Q2 and H1 FY '27 Earnings Conference Call, hosted by Adani Energy Solutions Limited. From 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, Business Head, Energy Solutions Platform; Mr. Prashant Soni, Head Finance, AESL. [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. I welcome you all to Q2 and H1 FY '27 earnings call of AESL. We hope you had an opportunity to [indiscernible] and financial results that we shared on our website. [indiscernible] inflow to the call, we will begin with the opening remarks from our CEO, Mr. Kandarp Patel, following which we will open the floor for Q&A. The call will conclude with closing remarks from CFO Mr. Ashok Jagetiya. For those who wish to ask the questions, we request you to start joining the question to little advance to help us management Q&A efficiently. Thank you. And with that, I would like to hand over to Mr. Kandarp Patel, for his opening remarks.

Hello, good morning, everyone. Thank you for joining Q2 FY '27 all today. This quarter marks another important milestone for AESL evolution. Our performance in this quarter demonstrate that AESL is now becoming mature India's leading integrated infrastructure platform and utility and it is supported by all our four business, which is in a growth mode, that's a Transmission, Distribution, Smart Metering and Energy Solution. Our focus obviously remains on a building long duration utility assets. Currently, we have asset base of about INR 83,000 crores. And we have already locked in CapEx of more than INR 100,000 crore which is -- that we will be delivering in another 4 to 5 years. So as said, we grew almost 1.3, 1.4x from what we have today in next 5 years. In fact, since we have been focusing continuously on CapEx delivery on the ground, and we see now results coming up. The CapEx in this first half of the year in the all-time high, we have deployed about INR 7,850 crores of CapEx in among all our businesses. As far as Transmission is concerned, during this quarter, we added another two projects. One is that [indiscernible] and second one in Sadara. And with these two projects, our order book remains at about INR 87,000 crores. And as we said earlier, we have been focusing on those critical transmission assets, where a large renewable and tender that we are integrating. So these two projects obviously is very, very important for development of Sadara is important for development of PSP projects and [indiscernible] for data center that is coming up in [indiscernible] region. And we will continue to focus on those large and pickle projects like HVDC and this kind of a project where we are enabling renewable integration into the grid and also enabling rapid condoms in our economy. As far as Distribution is concerned, both at AML and MUL, we have been continue to deliver acceptable operational performance. Our Distribution losses in Mumbai has reduced further to 4.29 percentage in the first half. And this despite the fact that consumption has also increased by more than 10 percentage. And we also continue to focus on reliability customers that we sell operational excellence as far as Distribution is concerned. Smart Metering, we have now delivered about 14.8 million meters so far. And around 3 percentage of our order book that we have delivered and balance [indiscernible] we wish to complete in another 12 to 14-month time. As far as C&I and Energy Solutions platform is concerned, we are steadily transitioning from incubation to scale now. During this quarter, the platform delivered revenue of over INR 2,000 crores and EBITDA of over INR 800 crores. And we already have a tie-up of 4 gigawatt of renewables and 3.5 gigawatt of base capacity. So while we are tying up on the supply side, we have also now started tying on a consumer side. We executed a 2,500-megawatt REIT contract with [indiscernible]. And we also expect to further scale up on both sides on our supply as well as consumer side significantly going forward. financially as well, delivered another strong quarter with total income growing over 50%. EBITDA also increasing close to 67 percentage and PAT growing 145 percentage. As we made a commitment, and we continue to focus on the governance and the ESG part, we are happy to say that now in SLP Global Electric Utility category, we are #1 globally, getting 90 out of 100 [indiscernible] where industry average is about 40, and we will continue to focus on those aspects going forward as well. On our funding and balance sheet side significant portion of our debt is also the fixed rate or appropriately. So we don't expect much of the volatility to foreign exchange or interest rate realization in our pillar balance sheet. Overall, in all segments, be it the Transmission, Distribution, Smart Metering or C&I, we see great opportunities going forward. Those opportunity plan remains robust, and we are well positioned to take advantage of the opportunity available to us in the segments. And we will continue to focus on besides , as I said, on CapEx delivery. So this is in upsell and I hope you must have received all the retails and material on our financials. So I thank all of you. And now we'll be happy to take questions from all friends. Thank you.

[Operator Instructions] The first question comes from the line of Manish Somaiya with Cantor.

And congratulations on a strong quarter in first half. I did just a couple of questions. Maybe to kick it off in TeleSmart, when should we expect a transaction to close?

Thank you, Manish, for your question. IntelliSmart the approval from CCI is pending, and we expect this approval very soon. In fact, we had a couple of meetings with them, and they wanted a various information on transactions as well as on the market. We have provided all those information. We also had a role from all the utilities where IntelliSmart has a concession. So we also are required to take their approval. We have secured all those approvals. And we expect the CCI approval very soon. And once we have the CCI approval, we will complete the transaction immediately. So we expect that will happen in the next one month time.

Okay. That's super helpful. And then on the legacy Smart Meter business, you had installations of about INR 1.3 million in the second quarter, it did show that the quarter was a little bit of a slower deployment. Maybe if you can just help us understand how we should think about the second half deployment? And perhaps what's really happening on the ground that might potentially speed up the deployment in the second half?

Yes. So yes, obviously, the deployment on the first half was lower than even our expectation and those reasons were mainly [indiscernible] but we are working on those, and those reasons are obviously registers from people for a smart meter, where we have now ramp up our campaign to educate those customers. The second one was that a few of the distribution companies wanted to focus on a specific type of Smart Meter installation. So point in case was that Maharashtra was expecting us to install mainly in ST consumer meters. And once you target a very specific number, obviously, your -- the speed will reduce because you won't be able to capture the entire geography. And they were wanting to do it for the right reason because they wanted to complete that energy accounting at least for the real-time energy accounting for SP consumer. So we also supported them. But now that they have asked us to deploy all in every meter which are pending. So we expect that speed will increase significantly. And similarly in Bihar, they wanted us to do the tagging of all the customers before we install that meter. And we also have completed those activity now in Bihar and Maharashtra where the pace was low, we expect that to increase significantly.

Okay. And then just lastly on Transmission, if I can just add one more question. I think you said that the second half capitalization should be much better than the first half? And perhaps if you can just help us understand the 2 or 3 projects that really bump up the second half versus the first half.

Yes. So if you see the tech record or the past few years performance, the CapEx performance obviously is a little later in first two quarters compared to second two quarters and mainly because of the weather conditions lot of Transmission CapEx tendered in monsoon and summer. So we expect to do total CapEx of Transmission in the range of about INR 14,000 crore. So we will be doing about INR 8,000 crores to INR 9,000 crores of CapEx in another -- the second half. And we are fully lined up for that all the contracts has been awarded, things have been mobilized, contractor has been mobilized, and you will see a lot of execution activity on the ground scaling up in the second half.

The next question comes from the line of Rohan Mehta, with Strategy.

A couple of questions regarding the Energy Solutions platform. First, so I gather that we have been selling in the merchant market in the previous quarter and now will tie up with MSCDC. So will the margins go down? And second, how do we see the progress of this segment, say, in the H2 and FY '28?

So Rohan, our long-term strategy is to make sure that we have substantial capacity tied up on a long-term basis on both sides. We would obviously not want large exposure of market as far as AESL platform is concerned. So when we started and scaled up this activity, obviously, we started with tying up generating capacity, and we have now started tying up on a consumer side as well. And you must have seen that we have done this long PPA with MSEDCL, which will start operating from last quarter of this year. And we were fortunate enough that between this period where we start our long-term supply. The market was good, and we have been able to earn a good margin. But in the long run, we wanted to have a stabilized revenue profile rather than creating a [indiscernible] based on a market in our P&L.

Okay. And what about the long-term strategy, sir, in terms of volumes?

So in terms of volume, we will certainly continue to scale up this -- and currently, we have about this 2,500 megawatt of MSCBC PPA. We will be doing another PPA with an AEML regulatory approval has already been achieved. So we will be doing that PPA. So we will continue to scale up this volume, and we will reach to about total aggregate capacity on a both side about 7,000 megawatts to 8,000 megawatt of tie-up over a 3 to 4 years.

Next question comes from the line of Mahesh Patil with ICICI Securities.

Yes. So my first question is on our Transmission order book. So we have reported around INR 870 billion of work in hand. So I guess this doesn't include the recently won at project, which is around INR 120 billion?

This includes Wise and Sadara, which is recently won.

Okay. And sir, the Transmission commissioning, right? So H1, I think we haven't [indiscernible] any meaningful capacity. So I see in that data that it's largely due to the ROW issues, some clearances, et cetera, right, including some capacity in Khavda. So are we expecting this project the 3, 4 projects that are delayed in H1 to get commissioned in H2? Or what are we doing to kind of accelerate these projects?

So we recently commissioned 1 year limit of some base grow, which is a [indiscernible]. So we have recently commissioned one of the -- one element of Phase 4 Khavda recently. The work on Khavda, Lagaria and Khavda [indiscernible] also going on, [indiscernible] stacked up because of the ROW problem. And we expect resolution very soon, in fact, it is being discuss at Government of Gujarat as well as our Government of India level very frequently. The other project that we expect to commission would be WRS in this year also -- this year. And probably, we will complete, we are trying to push that project. We might complete the [indiscernible] project in the current year. or maybe it may spill over in the next year, first half. We will be commissioning WRSR and Khavda Phase 4, [indiscernible] so these three projects are the short shot and Navinal probably we might be able to commit. And in Mahan as well, Phase 1 will get commissioned, and the Phase 2 will be in the second -- next year, first quarter. So, Mahesh, you must have seen, despite the ROW challenges, we have been able to scale up our CapEx deployment as far as transmission is concerned. And with the resolution of sales, ROW in Gujarat, we are hopeful that we will be able to scale up even further.

Got it, sir. Sir, my second question is on the Energy Solutions segment. So we've sold around 12.2 billion units this quarter. So can we have the breakup of how much of this is sold through our long-term contracts and how much on short-term basis?

So in quarter 2, we sold about 14,500 million units. Out of this 14,500 million units about 3,500 million units, is the unit that we take a position and sell in the market whether to third party or exchange. So there, we have a long-term tie-up in terms of supply and [indiscernible] market, that is 3,500 million units. The second volume, which is about 9,500 million units where we do power trading. So we sell on a upon, which is 9,500 million units. And there are about 1,500 million unit, where we manage or provide the power management services. So totaling that 3,500 million units INR 9,500 crores and 1,500 million units. So that's a total volume of 14,500 million units that we handled this quarter.

Okay. But sir, this quarter, I was just checking the numbers. Out of 25 we have reported in H1 rate. And in Q1, we had reported 13 around 13 BU. So this quarter, we have sold around 12 BU.

H1 number is [ 28,540 ] and Q2 number is [ 14,583. ]

Okay. okay. And sir, lastly, in the P&L, we have booked some assets, right, from deferred assets of around INR 17 billion. So could you throw some light on what is this exactly?

There are two companies, GCL and APILL, where the company has [indiscernible] go to the new tax regime. And recognize the past paid bad assets in the books of account close to around INR 1,500 crores. So these are Section 62 assets and therefore, corresponding adjustable recoverable assets has also been able has also been created. And to that extent, there is no impact on P&L.

Next question comes from the line of Nikhil Nigania with Bernstein.

My questions are on the Energy Solutions business. Earlier, you had said you plan to scale it up to 7,000, 8,000 megawatts in a few years. Just wanted to clarify, you meant that on the sourcing side or on the power sales side, you wanted to scale it up to that level?

Nikhil, this is Raj. So it's largely on the supply -- say, the consumer tax side, obviously, there will be capacities which will be required to batch that demand, so that would be higher. But yes, this is a consumer tax side, that is what we are targeting.

Understood Raj. And in terms of the NTP, you're targeting, you mentioned the Smart contract. Beyond that, are we targeting small C&I customers as well? Or are you thinking to the large data center kind of facilities primarily?

So we have a diverse set of consumer stack even today. So one, obviously, you have 2,500 megawatt of the MSEDCL thing, 750 megawatt AEML. We are targeting multiple data center customers. We are in advanced discussions with them. Then further, we also have close to 400 megawatts of C&I clients, which are smaller ones as well as we are also managing some of the other demand and provide our services for a competitive power tool various internal consumers. So, we are making it diverse to ensure that the margins reflect the complete solutions.

Got it,. And on the solar side, then, do we also plan to source coal-based generation and pump storage? Or would we largely stick to renewable solar plus base kind of setup solar base?

So the sourcing would reflect weak consumption per se, as we want to match to site. Obviously, the demand from our consumers is also diverse, as you can understand, based on the -- from the mix which we are talking. So it will be having all kinds of sources, including thermal, PSP, renewables base and whatnot. So it will be full diverse, including third-party clients and the market sourcing.

Perfect. And one last question. When the Maharashtra PPA starts, how much of our best already contracted or to be contracted with transition to this PPA?

So I would say this way that within the Maharashtra one, 2,500 megawatts, we have broadly covered 50% right now based on our sourcing. And obviously, we are further in the market discussing with various parties for further sourcing of various types of capacities. That's how we are currently positioned. This Is across the sources, not only the battery.

Okay. Solar plus -- okay got it.

Next question comes from the line of Shirom Kapur, Jeffries.

My first question, carrying on from -- on the Energy Trading business, you, of course, gave the volume breakup. Would it also be possible to share the revenue and EBITDA breakup as you had given last quarter, for the 13 segments within the long-term Trading, C&I trading and Power Management?

See, the average realization as far as trading is concerned, is about INR 5.75. And what we sell on exchange on behalf of others, we get about INR 0.02 to INR 0.03 per unit.

Just just to add further, the total sale is about for the H1 is about INR 3,800 crores. And that's a purchase sale revenue. For rest of the category, we do accounting on a net basis it's only a margin part. So the long-term sale that we have done, sales from a long-term contract, we have done about INR 3,688 crores. And the balance in Other category, Power Trading on the C&I customer and Power Management those revenues which are margins are about INR 52 crores, INR 57 crores and INR 32 crores, respectively.

Got it, sir. And just secondly, on the -- so the EBITDA that you would have on the long-term trading would just be -- so you're saying INR 0.02 to INR 0.03 as a fair estimate to take on the power management in C&I trading and the balance is all coming from the long-term trading. Is that correct?

Yes.

Got it. And just secondly, on the Transmission business. You mentioned that you're expecting to commission 3 projects this year, WRS, Haland, Khavda [indiscernible] earlier you had given a guidance of around INR 15,000 crores of capitalization. So are you revising that downwards given that maybe some projects have been pushed through the next year?

Not immediately because we are still hopeful that we will be able to complete what we plan in the current year. because now we expect the next 6 months will be a fair season for Transmission project working and we expect those constraints which were there relating to ROW in Gujarat, we will be able to sort it out. In fact, we have started handling that and started working on the ground. As I mentioned, we already completed one element of Khavda Phase IV, element second, Cadia is also progressing very fast. In [indiscernible], only 50 locations in pending, and we expect that also to get completed very soon. WRR project is also on a [indiscernible] end of commissioning those. Both the substation on both the site is completed. The line portion is a limited issue or balanced work pending. And now we are doing stinging also the last phase of singing their [indiscernible] we have started realizing drone to avoid ROW problem for a [indiscernible]. So we expect that to complete in the year only. So we don't see a requirement currently as of now to revise the capacity line. And we hope that we'll be able to do it in next 6 months of this year.

Right, sir. Sir, and lastly, on your Smart Meter business, so you earlier guided for about 10 million installations this year itself. You've done 3.4 million in the first half. So just wondering whether you're still on track for meeting that 10 million this year?

So we plan for about 80 to 90 lakh meters this year. And the balance about 40 lakh -- 40 lakh, 45 lakh, we hope that we will be able to complete in the next first next half year.

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

Sir, on this Energy Solution platform, I think the contract where we take a position. Last quarter, we have done almost like 3.3 billion units, where the spread is higher, margins are higher. And this time, we have done 3.5 billion units. So can you give some perspective, like, I mean, at the end of the year, maybe on a quarterly basis, how this ramp-up can happen on this particular portfolio for us.

So I think two points which are very relevant here. One is, as we answered earlier, we are ramping up this particular portfolio, starting end of -- or the last quarter or we would be having capacities going to [indiscernible]. That's where a lot of this capacity, which is currently available with us would be would be deployed towards and the margins would reflect the PPA, which is what is our long-term strategy. And you would see that volumes would -- what you see today are expected to only increase as we ramp up more capacities on the sourcing side. So this is broadly the business model that you would find us be tying up the capacities prior to our deployment. So that's what you would reflect -- you would see in our results.

Okay. So basically, the 3.5 billion quarterly run rate, a jump is expected in quarter 4? And in terms of -- I mean, because if you do that working of INR 0.01 to INR 0.02 in other portfolio that we make, then than we are making more than like INR 2.20 in this particular side of the business. Then in RERTS, the numbers are in similar projecting that is there for us for the Maharashtra one? Or probably it is a little different?

So see, I think one first question on the volume. As I mentioned that there will be a steady increase in our volumes as we increase our tie-ups on both the sides. So what you see today, obviously, there is seasonal weather variations, but at the same time, on a trajectory basis, we are expected to increase the volumes. Now margins is a question of what the underlying tie-ups are on both on supply as well as the deployment side. The margins in the PPAs are reflecting the long-term return profile of those PPAs, and you will see that happening. But we believe that we will continue to maintain healthy margins in our businesses across the diversified consumer base, and that's what you would see.

Okay. Okay. And then just maybe one last question is on the Smart Metering. I think we are now alias already given a clarification target for this year and next year. But in terms of further buildup of order book, I mean are you seeing activity from the ground and tendering opportunity that has kind of -- I mean, probably scaling up or where we are bidding any color that can be provided will be helpful sir.

So on the Smart Metering side, yes, the market right now is still untapped for large capacities to be coming for the auctions. We -- there are already a solid options which are there in market. We are [indiscernible] and we believe oil ramp up because the market is seeing the benefits of it coming in, and we are fully positioned to actually tap that opportunity.

And there will also be an opportunity of [indiscernible] market, on top of what we get through bidding.

Next question comes from the line of Vivek Rajamani with Morgan Stanley.

[indiscernible]

Sorry for interrupting. Your voice is breaking.

Just to kind of clarify on the question on the previous participant. Obviously, the new contracts that you have will scale up from 4Q of 2027 and the portfolio mix will obviously change going into fiscal '28. Could you just give us a sense that from the very strong quarter that we've witnessed, would it be fair to say that there could be some softening as we get into the more cooler period from a merchant perspective? Given that you have more longer-term volumes or the new commence meaningfully from fiscal '28 onwards, is that a fair statement?

So I think, yes, we are -- as we have said in the earlier answer as well, we are transitioning more and more merchant volumes, which are currently available with us to long-term PPAs. We will, again, in future, are likely to have timing mismatches and we will have the volumes available to us or those timing mismatches as we tie up capacity on in advancement of whole department. Now what we realize on that, that machine capacity is based on the market conditions, and we obviously try to maneuver our strategy in a manner that we are able to realize healthy returns on those things. Now within that framework, obviously, there are PPAs which we want to tie up, and we are already have [indiscernible] of PPA, which also have very healthy returns. So with volumes picking up and all of the PPAs coming in, we expect to maintain a very good EBITDA margin in this business.

So Vivek, as I said earlier, in the long run, we would not want major volatility in the brand profitability. And therefore, we would not take a long term or a large volume exposure to market. So we will continue to tie up capacity on both sides on a long-term basis so that we have a stability in revenue as well as profitability. And obviously, to leverage the advantage of having this diverse portfolio of supply as well as numerous side, we will keep certain capacity open, but it will not be a significant one. So what you will see in the long run is a steady and growing cash flow as well as volume and profitability.