Adani Green Energy Limited (ADANIGREEN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Adani Green Energy Limited 9 Months FY '25 Results Conference Call hosted by Emkay Global Financial Services. [Operator Instructions]. I now hand the conference over to Mr. Harsh Maru from Emkay Global Financial Services. Thank you, and over to you, sir.

Thank you, Manav. On behalf of Emkay Global Financial Services, I welcome you all to the 9 months FY '25 Earnings Conference Call of Adani Green Limited. I would now like to hand the conference over to Mr. Viral Raval, who heads the Investor Relations at Adani Green. Over to you, sir. Thank you.

Thank you, Harsh. Good afternoon, all, and thank you very much for joining the conference call today. I hope you would have had the chance to go through our earnings presentation. With me, I have Mr. Amit Singh, CEO of the company; Mr. Saurabh Shah, CFO; Mr. Raj Kumar Jain, Head of Business Development; and Mr. Anupam Misra, Head of Corporate Finance for the group. We also have with us Mr. Ashish Khanna, who will be taking charge as the CEO of the company effective April this year. He will primarily be a listener for this call. Just to explain the flow of the call, we will begin with an opening statement from our CEO, followed by Q&A and then closing remarks. Let me now hand over the call to Amit for his opening remarks. Over to you, Amit.

Good afternoon, everyone. Let me start with giving a bit of an overview on our results. and then we'll take the questions. I'm really pleased to report that we have delivered another quarter of outstanding operational and financial performance. Firstly, I would like to highlight that AGEL contributed to 15% of nationwide new solar capacity and 12% of new wind installations in the year 2024, a remarkable achievement, which truly underscores our leadership in the renewable energy sector. Our energy sales has also increased by 23% year-on-year to 20 billion units for the first 9 months ending December 31. And our revenue from power supply has seen a robust increase of 18% year-on-year, reaching INR 6,829 crores. This growth is a testament to our relentless focus on project execution and operational excellence across all our sites. Similarly, our EBITDA from power supply has increased by 18% year-on-year to INR 6,366 crores, while our cash profit has surged by a substantial 23% year-on-year to INR 3,630 crores. On a year-on-year basis, we've added 3.1 gigawatt of greenfield capacity, marking a massive 37% growth and bringing our total operational portfolio to 11.6 gigawatts, the largest footprint in the country. And I would like to take a minute and talk about our flagship project in Khavda, which is progressing very smoothly while we are developing the world's largest renewable energy plant. And to ensure we continue to ramp up our execution capability, we have focused on three key pillars, which we are seeing good progress. First, we are making sure that we continue to closely align our project execution with transmission readiness and making sure that our forward plans also incorporate around it. Second, we are extending our relationships with suppliers, not only internationally for solar modules, but also domestically as ALMM compliance and ALCM compliance comes into play. And thirdly, we are extending our workforce footprint in Khavda to north of 12,000 people, which is the biggest footprint we've had and is growing for a very sustained and faster execution of both solar and wind projects over the coming years. Furthermore, with our rapid progress we have in Rajasthan and Khavda, as I just described, we are well on our way to deliver a significant new capacity in the final quarter of the current fiscal year. This is set to establish a global benchmark for speed and scale of execution for ultra-large-scale renewable projects in the world. Now in terms of new business development, we have made notable progress in expanding our PPA pipelines. This includes our recent success in the tenders floated by NHPC, UP and NTPC, which you may have already noticed. We remain committed to delivering above-market return expectations while staying aligned with our long-term strategic objectives of 50 gigawatt by 2030. We aim to have 85% of our contracts to be long-term fixed-term PPAs, which will provide stability of cash flows, while we will have approximately 15% of our capacity around C&I and merchant, which is expected to enhance our portfolio returns. We have also now updated our strategy to include large-scale deployment of Battery Energy Storage Solutions, given the significant cost declines we have seen in the last few quarters. BESS will be a crucial solution for grid integration, supporting rapid renewable growth and complements our existing solar, wind and hydro pump storage projects in the portfolio. Lastly, our focus on digitalization, robust capital management and best-in-class governance continues to drive our progress in AGEL Our digital initiative includes implementing advanced analytics to optimize performance, automation across the value chain and really use AI for decision-making to optimize project development, operations, human resources and safety across our sites. Our commitment to strong governance standards stays unwavering. We rank among the top in ESG rankings, reflecting our dedication to environment, sustainability, social responsibility and a transparent governance practice. Thank you for your continued support, and maybe we can now open for Q&A.

[Operator Instructions] We've our first question from the line of Anuj Upadhyay from Investec.

Am I audible?

Yes, you are.

Sir, can you throw some light on your full year capacity addition target for this year and next year? And also, as you mentioned, there is a change in strategy to focus more on the battery storage aspect. So it could be -- I mean, like whether it's a battery or a PSP. Any further statement or discussion on that would be helpful, sir. Would it be like a participation more on the [ FBRE ] tenders or [indiscernible].

Sure, sure. So I'll take it one by one. So I think to answer your first question on our estimated new capacity, which we are targeting to add. Look, I think there are -- before I give the number, which I know you're all anticipating to hear, let me give you a bit of a background. I mean, this year, we had extended monsoon. And this extended monsoon typically hampers project in Khavda in a different way than in other places because of some water logging, which was above what was anticipated. And the intensity of that rainfall was quite high towards the end of the monsoon season. So there is a small shift to the right on the S-curve of our construction program in Khavda. At the same time, we have seen good progress on other sites in other places where we did not have this issue as severe as what we had in Khavda. So when we look at totality, and also there were some regulatory changes, which were introduced in December around trial run and certification program for renewable sector. So when we take it into totality, we feel very strongly that we should be able to deliver approximately 5 gigawatt of new capacity this year. Now -- so this will mean that we will have an incremental capacity of 4.3 gigawatts, which should come out this quarter, by end of this fiscal year. And we have, like I explained to you, a good footprint of resources and manpower already in our project sites, which is working very hard to deliver on those goals. And the remaining capacity, which we had talked about earlier, will be also ready from a civil and electrical point of view. But we anticipate that shortly after -- 4 to 5 weeks after, we should be able to start announce commissioning in early part of Q1 for the remaining target we had given you for this year as well. So, yes, just to kind of repeat, I think we are expecting to close the year with 5 gigawatts of new capacity this year. And the remaining 1 gigawatt plus/minus we talked about for this year will shift to the right, and we're expecting to complete in 4 to 5 weeks after the close of this year because of where we are in our construction and the progress is really, really amazing right now in all our sites. Now we are also making sure that while we are preparing to deliver these new capacities for this year, we are targeting a very strong next year as well. And our ramp-up for that as well has started, and we started making sure that all the early planning, material ordering, engineering design is in flight already. And we will make sure that we increase our run rate from this year to next year by a significant amount. And some of these numbers we will discuss as we go. So I think that would be for next year. But I think when we come to the close of the year, we can give you a better picture on where we are for the next financial year. Now to answer your second question on batteries and how do we look at it. So look, I think the battery prices and costs have come down quite significantly as I think everybody on the call understands it very well. And when you look at it together, combined with solar or combined with any grid input power, the net impact is really, really impressive. So we see a long-term trend of battery installations growing in India, and we want to make sure that we take a leadership position in that. Like we have done always, we will make sure that we approach this space, keeping in mind that we maximize returns. We make sure that we have stable and predictable cash flows. So we will obviously use battery solutions primarily for RTC power demand. We will look at tying up in C&I customers. We talked about earlier, we have a lot of data center companies are working with us. We announced earlier in the year about Google, but we are talking to several others. And we feel that there will be a much -- good -- much better port of call for the initial deployment instead of tenders. But we'll also participate in tenders like, again, you may have seen yesterday in NHPC, we won some capacity. So we will selectively also participate in tenders where battery solutions are required, and we will make sure that we attack that space very aggressively. Does that answer your question?

Yes. Just one thing, sir, this battery storage, which we will be participating in would be for our self-consumption, whether it's data center, RTC or FDI. We are not working on a model where we would be providing a storage facility for any third party, which many of your other peers are working on. Am I right, sir, is this...?

Yes. I think -- look, I think we have -- as you know, we offer all kinds of renewable solutions, solar, wind, hybrid pump storage. We don't have to have a vanilla approach towards storage. We have the engineering capability and footprint available to us to combine it with other sources of renewable power and offer a complete end-to-end solution. And when we talk to our customers, they're looking for end-to-end solutions. So given our capability and leadership in the market, we feel that is an area we would like to operate in, and that will be our primary focus.

Great, sir. And lastly, sir, on the PPA with the data centers or the other segment will fall under the C&I category, right, which we are targeting to have closer to around 10% of our total portfolio, like 85% long-term PPA, 10% C&I, 5% merchant. Am I right, sir, in the segregation?

Yes. I think, look, we look at merchant and C&I interchangeably because some of these capacities can be tied up for bilateral agreements for a short period of time where it is value accretive. And as pricing evolves, we will even look to settle these merchant contracts on long-term PPAs in the future. We are very closely monitoring the growth in the country, the power demand growth. And also, we are very aware of what other companies and developers are making progress. So we see a gap emerging between demand and supply, and we want to be ready to service that gap, and we will take that call at the right time.

[Operator Instructions] We have our next question from the line of Darshan Parmar from Jefferies.

I just wanted to get a sense on the reduction in finance cost and also the deferred tax number. If you could give us a sense on that?

Sure. I think, look, you probably were aware that we had holdco bond, which we have repaid. And there was a large interest expense, which obviously is not in our books anymore. So that is contributing significantly to the drop in interest charges for the current quarter. This also combines with some favorable refinance we had of some of our projects. So overall, there is a slight decrease in interest charges as well. And when it comes to taxes, I think some of the distribution -- Total distribution also benefits from deductions. And hence, that is now reflected in the tax bracket as well. Saurabh, I don't know if you want to add to this on the call.

No. So yes, so in terms of interest cost, as Amit said, that it is more about the holdco repayment plus there were other refinancing and various NCD conversions of the Total. Plus on the tax side, again, we get deduction on the distribution that we give to Total now. So therefore, there is a reduction in the overall tax bracket.

So this is a one-off, right? So what can we accept as a sustainable tax rate going forward?

No. So see, from our perspective, every 6 monthly basis, there will be a distribution, which will continue. So it will be there as an overall thing. But with our profits growing year-on-year, yes, the tax over a period will again keep on adding up. But yes, right now, every 6 months, we have a distribution. So that will keep on happening as a tax deduction.

And what is the normalized interest cost which we can expect?

So normalized interest cost would be in the range of 9% to 9.4% as of now for the current portfolio.

[Operator Instructions] The next question is from the line of Nikhil Nigania from Bernstein.

My first question is on the commissioning plan for this year of 5 gigawatts. If you could give us some color, is this all against the manufacturing-linked PPA? Is this merchant? What is the nature of this capacity? Because there was a plan to push merchant capacity this year in anticipation of transmission charges getting implemented from July '25.

Yes. Nikhil. No, absolutely. Look, I think when it comes to solar and wind split, I think we are targeting 85% of capacity on solar and 15% on wind. And when it comes to PPAs, I think out of the solar, 75% of the PPA will be on PPA and the remaining will be on merchant as well. And we're also -- as you know, the ISTS waiver is applicable until June. So we're also in flight on some projects, which we plan to commission in the first quarter of the year to take advantage of that as well. So -- but that's the split we have. When it comes to wind, all of it is merchant. So 100% of the capacity we are putting together in wind this year and likely next year also will be on merchant.

Got it. Understood. And the PPA part you mentioned would be for the manufacturing linked PPA because that was majority of the pipeline as we understand.

Yes. So a good part of it is that, and I think there are some other projects we are working on, but a good part of that is around that. And as you know, the time lines of that project is also in the future. And they're -- not all the connectivity is ready. So what we will do is make sure that we put these projects together and this -- in the early phase, we are able to supply where we get permission on the grid and supply power to the grid as well. So, yes.

Understood. The related question then on the grid side. So the headwinds we are seeing for renewable broadly, one is, as you said, the grid connectivity for the broader renewable space. Second is restrictions on solar cell imports coming in next year. And third is reluctance from DISCOMs to sign PPAs given the big backlog that has been created. What would be your thoughts on these aspects? And are you facing similar challenges as well.

Yes. No, all three are valid points. I think the first one is on transmission. So I think the transmission delays are very, very visible in some of the areas. And obviously, that has shifted many of the projects to the right. We're working very closely with all the key stakeholders in CTU, in PGCIL and our own sister companies to make sure that we first understand what those delays are like and where possible, we can coordinate with them to align. So that is absolutely something which is the top priority for the government as well. And in many of the public meetings, we have raised this, and they are really, really looking at accelerating this and fast tracking it. But in parallel, I think batteries have come in a good time. I think combining battery and supplying power in -- when the transmission capacity is not used fully and adding more wind as part of our portfolio is a way to derisk transmission tardiness, if you want to call it. So that will be pretty much our approach towards this. But having said that, we have made sure that our numbers, which we have shared with you and are very well aligned with transmission readiness we see on the ground. For example, in Khavda, we have very clear projection for the next 3 years of what transmission progress is, the status, and we are very comfortable that the system will be ready in time for our commissioning because it's a large commissioning we're doing there. So we had to be very careful with that. And the same applies in Rajasthan. So we have that advantage and all the numbers we've shared with you today are linked to that readiness. The second question you asked is the impact of ALMM and ALCM. So look, I think all the current bids we have had did not have ALCM. But it's going to help grow localization, and we are very favorably looking at this. It is important for the country to be self-sufficient and have the ability to produce cells and go from there. So we are looking at it very favorably. So we expect that in the beginning, there will be a small increase in the cost of these by $0.02, $0.03 from a purchase point of view. But it will then again come down and stabilize as the country manufacturing capacity picks up and so on. The way we are derisking it from AGEL point of view is making sure that we build existing and good relationships with our sister company, but also with other suppliers in the country. So today, like I told you in my opening remarks, we have that relationships, long-term relationships where we have tied up some capacity for our supply chain at a very favorable price, and we will be able to benefit from that over the next cycle and give above portfolio returns and above market returns as well. What was the third thing, Nikhil, you asked?

DISCOMs are reluctant to sign PPAs.

Yes, DISCOMs, you're right. I think what has happened is that the DISCOMs are getting -- a lot of PPAs have been signed and a lot of DISCOMs have been doing their own tenders. And then you also see that we have also slightly shifted our strategy and started participating in DISCOM tenders. And a good example of that was how we looked at Maharashtra and UP as well. And we are making sure that there, we don't have these risks. And we are also able to get good pricing and a good framework with them. So Maharashtra, we have 5 gigawatts. And similarly in UP as well, we have a good capacity added to our portfolio. Look, I think jury is out there. We believe that some of these things will get tied up as RPO obligation comes into force by end of this year. MNRE is driving and Ministry of Energy Efficiency is driving that very well. And we believe that DISCOMs will have a good incentive to sign up on these as those RPO obligations come into force more aggressively.

Given all these factors, would you still, I mean, keep the guidance same for next year as well, 6 to 8 gigawatts commissioning at that range? Or should we trim it down in our expectations?

No, we'll keep it the same. I think the range is still the same, and we are looking to ramp up our existing run rate and not reduce it yet.

Perfect. That's helpful. A third question, if I may ask, is in terms of strategy. So two events are happening. One, as you mentioned earlier in the call as well, battery prices have fallen sharply. And second, transmission charges now becoming applicable. These two events, are they driving any change in strategy from Adani Green perspective, for example, on pump storage, lesser optimism on that. And second, even in terms of being asset constituent Khavda towards developments in states as transmission charges come in?

Yes. Look, I think the first thing is that if you look at battery prices, I mean, there's still -- if you look at on an LCOE basis, they're still not -- when you compare a green LCOE, not gray and green, they're still far away. So PSP itself, when you look at the green solutions, when you're looking at matching an hourly availability or supply of green power to some of our customers, they're looking for hourly matching. That is most likely possible at scale with PSPs. And also remember that voltage regulation and voltage management is also important. So I think when you look at the strategy of the country, and we closely mirror that in AGEL, PSPs will have a big role to play because electronic equipments like inverter and batteries don't provide that support. So I think in the whole mix, PSPs will play a role, and we will definitely support the grid to make sure that we play that support role there. Now when it comes to G&A charges and how that is evolving, I think the co-located batteries will become very common going forward. We believe that battery solutions will be there in conjunction with renewable power. And this is very visible in the way the current tenders are being laid out in the market, and we feel that will continue to happen and G&A charges will adjust along that. There will be also acceleration of new renewable projects because of that as well.

Understood. One last question I had. This was on the financial statement. This is regarding noncontrolling interest. That has been quite volatile, which was up sharply last quarter and is a negative number this quarter, which seems surprising given it was mostly on operational assets. So if some color could be shared on that.

Yes. So this number, I think, is an accounting adjustment, the distribution policy and the commercial arrangement with our partner, and this was kind of put in place, and it is now stated there. Maybe Saurabh, if you want to give a color on that?

No. So as I just mentioned that because of the distribution kicking in for the Total payments and because of that, the NCI had to be completely do the reworking and therefore, there is this one-off this thing. After this, just based on the distribution, whatever be the tax that will be constantly being paid because it is -- distribution is allowed as a tax deductible.

No, I didn't mean from a tax perspective. I mean the part itself, the noncontrolling itself, interest itself INR 200 crores of profit was...

The reason is that distribution because of which the overall NCI working was changed and the controlling interest because of NCD conversion to the CCD, there is an NCI control change, which has happened.

We have our next question from the line of Bharani from Avendus Spark.

Am I audible?

Yes.

Okay. Great. So my first question is on the battery storage aspect. Now we have seen a little bit of irrational bidding on the stand-alone battery tender. And there are a lot of new names. So if I were to put it bluntly, probably even nonserious names. Given that fact and irrationality, how do you see the storage costs that are getting discovered in these tenders sustaining? And won't this become a challenge for the overall storage cost, which is right now at around INR 4 per unit from battery, incrementally or increasingly higher in the future, thus decreasing the attractiveness of this battery team?

No, I think you're right. I think there has been a lot of very aggressive competitive behavior in these tenders. And I think we have stayed out of it as well. We're not interested in, first of all, in the vanilla projects. And secondly, we don't -- we're not interested in taking these kind of funds in the market. We are very much very carefully working with the big suppliers of battery systems in the world, and we are aware of the trends and technology progress and improvement. And like I said earlier, we are going to be careful with that. Make sure that we derisk our solution and technology before we jump into it in a big way. So we are -- we have made a lot of progress over the last 6, 9 months, and we continue to look at projects differently than the market to make sure that we don't take unnecessary supply chain risk. So definitely, we will not participate in that fashion. What that does to the market, I think time will show. Look, I think if the battery prices -- and our feeling also is that battery prices will continue to step down as technology improves, the number of cycle grows, the cost -- LCOE cost will come down. Some of these bets people are making, they might work, some of them may not work. So -- but we're not in that business. We take calculated risk, and we want to be assured of our returns. So we will not be -- yes, we'll not be attracted by that.

Okay. Okay. Since you are working in this closely, and I think there is a lack of understanding in the market regarding this or I would say at least a lack of in-depth understanding. So can you just refresh a little bit on what would be the rational cycles one should assume for a typical battery or even a life of a battery or those kind of things and what kind of supply chain risks are there, which one should avoid a little bit on this particular industry would be.

Yes. Look, I think if we look at some kind of analysis we've done, we see that when we look at CapEx, we should look at CapEx of INR 1.3 crores to INR 1.4 crores per megawatt hour and cycles remain between 8,000 to 10,000 cycles, which means that you can expect the battery to last 16-plus years and degradation can be factored between 1.5% to 3%. So look, I think these chemistries and technologies are evolving very, very quickly. And each technology and their pricing also varies quite significantly. So the design of these battery systems, the LCOE varies quite significantly between a project to project. It will not be as straightforward as you would probably be modeling solar modules. So I would hesitate from commenting any further. But those are the kind of assumptions I would use for the here.

So it was not clear when you mentioned what would be the CapEx cost per kilowatt hour...

Per kilowatt hour.

Yes.

Yes, we typically would expect between INR 1.3 crores to INR 1.4 crores per megawatt hour.

Understood. Okay. My second question is on looking at your strategy to install capacities to take advantage of the merchant market. So if I were to just look at one data I was looking that there is this renewable energy certificate registry and in which you registered to get certificate. I see one of Adani Greenfield projects registered there. So in your picking order, where is the attractiveness in the pricing right now? So is it in the merchant market, especially in the evening hours? Or is it in the registry market to take advantage of the renewable energy certificate? And what is the future of this? Like you also mentioned you're closely monitoring the demand-supply situation in the country. In your assessment, is this merchant prices and these sort of markets going to be attractive because there is a recent slowdown in power demand and prices have come down and hence, this question.

Yes. See, there's a lot of noise. So I'm just trying to follow your question. If I understand your question, you're trying to understand where the gap between day and night prices and how that will be in the next few years. Look, I think the evening power has continued to be as you would have noted. And the peak power demand in India is only growing. So definitely, that will stay the course. You also recognize that the day power prices, if you look at the merchant price has come down from year-to-year. So the delta or the gap has kind of stayed where it was. Now -- or maybe it has even grown in some cases. We expect that to continue to be the case as the demand has shifted to solar hours for agriculture and maybe in the future, when smart metering is established well, there will be bigger demand in solar hours. So the gap will always be there. And we believe that gap will become a key way to play and use battery solutions with merchant, and that could be one angle we will look at. But we'll also look at other angles of supplying RTC power solutions to our customers where that is needed. So there are different avenues of how we will monetize. But you're right, I think that will always play a big role where we can essentially time shift the power towards peak pricing. RTCs will play a role, but we feel that, that has been priced in the market already, and that kind of factors into our discussion. But the big role will be the delta, which we talked about earlier.