JSW Energy Limited (533148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JSW Energy Q4 FY '21 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Upadhyay from HDFC Securities. Thank you, and over to you, sir.

Thank you, Aisha. Good evening, ladies and gentlemen. On behalf of HDFC Securities, I am pleased to welcome you all for the Q4 and FY '21 Earnings Conference Call of JSW Energy. I will now hand over the call to Mr. Ashwin Bajaj, who is the Head Investor Relations for JSW Group to take this call forward. Over to you, sir.

Thank you, Anuj, and thanks for hosting the call today. Good evening, ladies and gentlemen. This is Ashwin Bajaj, and it's my pleasure to welcome you to JSW Energy's results call for Q4 and FY '21 and a deep dive into our renewable net growth strategy. We have with us today the management team represented by Prashant Jain, CEO of JSW Energy; and Pritesh Vinay, CFO of the company. We will start with opening remarks by Mr. Jain, and then open the floor to Q&A. So with that, over to you, Mr. Jain.

Thank you, Ashwin. Good evening, ladies and gentlemen. We have seen a very good trend of power demand in the -- during the last year post the pandemic and which reflected primarily the economic activity environment. During the full year, the power demand degrew by 1.2%, but we saw a very progressive trend of power demand improvement. Last year, quarter 1, we saw the contraction of over 16%, which reduced to the contraction of 1% during the second quarter. In the third quarter, the power demand grew by 6.3% and quarter 4, the power demand grew by 8.4%. During the current quarter, April till May, the power demand grew by 21.4%. And during the June, it is growing at 7%. So in the month of April, the power demand grew 38%, but May and June, after the second wave of COVID, we have been seeing the power demand growth was only 7% in the each month, which is an encouraging trend, and we are seeing that the power demand is going to grow better in the coming time. That also reflected in the merchant tariff during the full year. The merchant tariffs came down from average INR 2.83 as compared to INR 3 last year. In case of the company, the total net generation came down by 6% during the complete financial year, of which the long-term power generation went up by 3.7%, whereas the short-term sales went down by 68%, which was primarily due to the depressed merchant as well as benign power market. However, our long-term thermal generation also went up by 8% during the financial year. During the quarter, we increased our long-term PPA portfolio by another 179 megawatts. With this, our Ratnagiri plant is 96% PPA tied up. And also, our long-term total PPA portfolio is now 86% as compared to 81% last year. Now balance capacity also will get tied up as soon as the capacity expansion at JSW Vijayanagar plant is completed, which we are expecting in next 2 to 3 years' time frame. Another highlight of the quarter was also that the CEA has approved operating of our Karcham plant from 1,000 megawatts to 1,091 megawatt in 2 phases, and for which we have also got the connectivity approval, and I'm happy to share today, the ESC also approved this capacity. And then now the minutes have been uploaded in the next 2 weeks' time frame. Once we receive the environmental clearance, we will start running the plant at 1,045 megawatt in the current season and then next financial year, we will be running at 1,091 megawatts. When we talk about the financial performance, in spite of the 6% energy -- lower energy generation, our EBITDA contracted only by 3%, because we were able to do better in terms of the O&M cost and various other recoveries of our certain disputed receivables. Our profit before tax went up by 6% before exceptional items as compared to the last year, primarily because of the lower interest cost. Another highlight -- key highlight, which we really are proud of as a company in the most challenging times is that our receivables went down by 38% year-on-year, and we are with a INR 1,300 crores net receivables, we are at 3 years low in the history, and we are pretty sure that this kind of a trend is going to continue. We reduced our net debt by INR 2,739 crores during the financial year, and our net debt came down to INR 6,206 crores with a weighted average interest cost of 8.21%. This is -- this demonstrate that in spite of only a cash profit of INR 2,000 crores and with a dividend of INR 165 crores and reduction of INR 2,739 crores says that more than INR 900 crores came from the receivable as well as better inventory management. This translated to -- net debt to equity 2.43x and net debt EBITDA below 2x as compared to the industry peers of at -- on an average 5x, which makes it one of the best balance sheets in the power sector in the country. We also did a $707 million of the green bonds to refinance our entire JSW Hydro Energy debt, which has been totally hedged fully and which was done at 4.125%, and I'm happy to share that the -- it received a very good appetite among the investors and the initial book was billed for close to 5x, and that today, the bond is also trading between 3.8% to 3.9%, reflecting very good market condition for our credit paper. As regards to the growth, I'm happy to share today that the Board took a note of -- on the progress of our 2.5 gigawatt of pipeline and Board approved a growth strategy and a growth plan to go up to 20 gigawatts by 2030, which I will be taking you in some time. Before that, I want to give you some update on 2.5 gigawatt pipeline, which we were talking to you in last 2 quarters. The company had secured LOI for SECI 9 and SECI 10 for 1,260 megawatts, of which 540-megawatt PPA had already been signed. And I'm happy to share balance 270-megawatt PPA for SECI 9 and 450 megawatts of SECI 10 will be signed in a couple of weeks' time before 31st of July, because the necessary approvals with the respective discounts have been received by SECI and a back-to-back agreement is expected to be signed in the month of July for entire 1,260 megawatt. Also as we have been talking about the group captive portfolio for supply of solar and wind energy, I'm happy to share that the JSW Energy Board as well as the JSW Steel Audit Committee has approved to sign a PPA for 950-megawatt of green power to be supplied by a mix of solar and wind energy, for which PPA is expected to be signed by middle of August. The 240-megawatt Kutehr power plant PPAs under finalization with Haryana DISCOM and construction on all these projects is on full swing, and I'll be giving you a little update on commissioning schedule when I'm going to talk about the growth strategy. In terms of ESG, I also would like to highlight to you that the company reduced total greenhouse gas emissions by 11% by reducing specific fuel consumption at all 3 plants put together, which demonstrate that the company is taking specific initiatives to reduce its carbon footprint and to become a carbon neutral as soon as possible and also creating a carbon offset by increasing the capacity with the -- by adding more and more capacity in renewable sector. Also we have been maintaining our 100% as utilization as well as 0 water discharge. And we are taking specific initiatives for reducing our carbon footprint by making offset by rainwater harvesting, by green plantation and all those kind of initiatives we are taking. Now I would like to take a few minutes of yours for growth and strategy. I'm sure that you might have seen our presentation, which has been uploaded. And if you can refer that presentation, then I would like to take a few minutes to run through the presentation. If I can ask you to go to the Slide #16, we are talking about our 4 growth strategic pillars: one, number one is the significant market opportunity; the second one is project execution and operational excellence; and third one is the long-term resources; and fourth is the growth capital availability. Now if you move to Slide #17. In last 2 decades, India has seen power demand growth at the rate of 5% CAGR, and that was seen in terms of both base demand as well as the peak demand. CEA has also projected that similar power demand growth in the coming decade. At a 5% CAGR, the base demand from 1,275 billion unit will grow to 2,379 billion units, which talks about close to 1,100 billion unit demand growth. Now this demand growth is directly related with the nominal GDP growth of between 5% to 8% and also rapid urbanization and universal electrification. And if you see the -- with this kind of a demand growth, our per capita power consumption, which is 1/3 of the world average, will be moving up going forward. If you go to Slide #18, the Ministry of Power is talking about the incremental capacity, which will be coming up only by the renewable capacity, and there will be a net capacity addition of renewable energy by the quantum of 356 gigawatt. If you see the -- on an average 32% PLS, this translates to close to 1,100 billion units, what we are talking about, 5% CAGR growth. On an optical basis, sometimes it looks like that India may not be able to add this kind of a capacity in next 10 years' time frame because of -- this is an overstated situation. But on a demand perspective basis, it is actually meeting the 5% CAGR demand growth only in case, because any difficulty in execution of this kind of a capacity, we will be seeing the power shortage in the country. Another important reason to see that this is going to be a reality is that no discount is going to enter into any thermal power PPA going forward because of the RPO obligation, because the current RPO obligation, which is there prevailing for meeting the requirement of 21% RPO by FY '22, all the discounts are in a shortage at this point of time, and they are only entering into the renewable power PPAs and the trend is going to continue going forward. And also, it is very important to note that in the lenders community as well as the investors community, nobody is ready to offer growth capital for a company, which is entering into a thermal power generation. In fact, our -- all leading power producer -- thermal power producers have decided to grow on in the renewable space only. If I go to the Slide #19, when we are talking about this road map with -- by FY '25, we will become 10 gigawatts and FY '30, we will become 20 gigawatt and with this entire capacity, about 30% of the renewable portfolio will become 84% by FY '30. Now how do we achieve this growth and whether this growth is realistic? We talk about in a subsequent slide, if you look at in Slide #20. What we really talk about that -- this 2.5 gigawatt of capacity, there is a complete side of capacity, which will get commissioned in next 24 months' time frame. The blended tariff of this entire 2.5 gigawatt capacity is INR 3.31 and there is a total capital expenditure of INR 15,800 crores. This entire CapEx equity will be funded by the internal accruals. And as far as the commissioning schedule is concerned, close to 200 or more than 200 megawatts will get commissioned in the January to March quarter. And thereafter, every quarter, we will be commissioning between 350 to 400 megawatts and between 1,200 to 1,600 megawatts will get commissioned by March 2023 and balance capacity will get commissioned by June 2023. So by June 2023, this entire 2.5 gigawatt capacity will be up and running. And in fact, the commissioning will be happening on a month-on-month basis. So every month from March 2022 onwards, 100 to 175 megawatts will be coming on stream and getting commissioned. And thereafter, we are building a pipeline and which will be for another 3 gigawatt to achieve 10 gigawatt schedule and thereafter 2 gigawatt every year. If you go to the Slide #21, there is a perspective what we are really talking about that out of this 356 gigawatt capacity addition, which will be added in the next 10 years' time frame, our 15 gigawatt is close to 4% of the total capacity. So we are talking about a very miniscule of the market share, because being a conservative company, we are -- we want to operate in a niche segment, and we wanted to be selective and choosy when it comes to our growth. And that is why you might have seen and observed that we have been -- our PPAs, which we have secured, are on a higher tariff. And we are looking for a little more conservative returns as compared to our peer growth. And that's why we would like to see that we operate in a very niche segment, and we will be looking at mid-teens post-tax equity IRRs on a conservative basis. And on a reality basis, it may be on a higher side. And all our projects, which we are targeting and we are building and bidding for our returns, we always look at P90 CUF, so that we get positively surprise in terms of the actual cash flow, then we would like to do that. In order to give you some color in terms of the value creation, if I would like you to go to Slide #22. And I would like to explain you our current existing portfolio of 4.6 gigawatt, which is generating a return in excess of 15%. And our gross cash accruals are more than INR 2,000 crores consistently, which we are going to deploy for the growth. Another important factor which needs to be seen to read our balance sheet in a little different perspective. Our remaining average life of our PPA, which is 86% tied up is more than 20 years, and our assets life is more than 30 years. Today, our net debt is only INR 6,000 crores, and our depreciation is close to INR 1,200 crores. So when you look at our ROE on the network, there are 2 elements, which really needs to be seen that you need to see the free cash flow, because it might -- life of PPA is 20 years, and if I refinance the entire debt, then actually repayment will be less than INR 300 crores. And whereas my depreciation is close to INR 1,200 crores, so you need to really see that the free cash flow will be in excess of INR 1,700 crores. That's the point number one. The second point is that in terms of my network of INR 14,500 crores, more than INR 4,500 crore is coming from the investments in shares of JPVL as well as JSW Steel, which does not earn anything. So if you knock that off and then you look at the ROE, which is free cash flow on the network will be in excess of 15% to 16%. And if you look at the gross cash accrual need for last 5 years will be in excess of 18% to 19%. Going forward, for all our projects, we will be having the similar kind of rate. Free cash flow is on the network. Therefore, we will be maintaining return on net worth in excess of 15%, 16%. And by levering of our balance sheet, which has been deleveraging because of the no growth which we have seen in last 4 years, with the 10 gigawatt capacity of our EBITDA will be going 2.5-fold and 5x at a capacity of 20 gigawatt and our profit after tax will be 6x the 20 gigawatt capacity. And this will be achieved without any equity dilution, and our net debt to EBITDA will also be below the industry average at all times. If I take you to Slide #23, which talks about the second pillar of our Q1 project execution and operational excellence. We are -- we have executed all of our projects at the lowest gross block in the industry, and that trend is going to continue. For this 2,500 megawatt of the capacity, which is under construction, our capital allocation will be the most efficient in terms of whether it is when you compare with the -- any wind power developers or solar power developer or hydro power developers, so that thing will continue. Second thing is our strong track record, the lowest O&M cost per megawatt, which we are -- we have been consistently reduced -- optimizing. And today, our operations and maintenance cost is lowest in the country by segment as well as on a consolidated basis. And that trend will be seen in the renewable sector also because we will be doing the O&M of all our projects on our own as compared to the industry practice where the OEMs are doing the O&M of their projects, which will be providing another kicker for incremental IRR. If I ask you to come to the Slide #26, which talks about the third pillar of locked in resources. This is a very important pillar, wherein we are talking about that we are -- we have deployed a systematic approach to secure the wind and solar resources and in some specific states. For this 2.5 gigawatt capacity, which is under construction, we have already acquired all the resources. And in addition, we have already locked in another 3 gigawatt of resources by way of various government orders for some specific sites in a specific state, which we are talking about the next pipeline for 7 gigawatts to 10 megawatts, which will be executed between 2023 and '25. And this strategy gives us a very clear visibility to execute the project in time at a lowest possible cost with the minimum IDC and minimum uncertainties. So what we have been doing is that we have been securing all right-of-way connectivity, and we are building all our transmission corridors well in advance. And for example, now the fresh biddings, whatever we will be undertaking in the current financial year will be for the projects, which will be executed from FY '23 to FY '25. So all those resources have been already been locked in. And in the next 12 months, we will be acquiring. So before we are signing the PPA, the resources are acquired, so that you have a complete visibility and control on project execution. The fourth pillar is on the Slide #27 about the available growth capital. There, we are talking about that because of our strong balance sheet and a very good, more than INR 2,000 crores of internal accruals and a very good cash balance of more than INR 2,200 crores. We can undertake this all capacity without any equity requirement. And in addition to that, as we are talking about that, we are having close to INR 4,700 crores of the JSW share, which we are classifying as a nonstrategic equity investment, which we will be -- we can monetize if we want to further accelerate the growth from 20 gigawatts to higher at a faster pace. And also to give you color that we were having a JPVL shares, 90% of the shares we have already monetized in the current quarter, and we recovered some of our investments. And in addition to that, we have a diversified pool of liquidity. So all the 4 pillars, which I explained to you will take our company on a growth path by becoming a big name in the renewable sector by keeping our pedigree of efficient capital allocator, being -- following a conservative approach to give the industry-leading return to all the stakeholders. And to give you one more color that all our existing 4.6 gigawatts, our return on the invested equity is close to 30%. And that's what we are talking about that we will be following the similar kind of approach going forward. With this, I would like to end my comments, and I have taken a lot of time to explain you about the growth strategy, because I thought after the Board took a note of this growth plan, and we approved it, it will be very prudent to explain you in detail, which has been put up in the presentation. Our IRT will be amiable to answer each and every of your questions as and when it is required, and I am opening the forum for question and answer. Thank you.

[Operator Instructions] The first question is from the line of Sumit Kishore from Axis Capital.

Thanks for the detailed presentation. My first question is on your observation that to achieve 450 gigawatt capacity by 2030 and if all incremental capacity were to get added through the renewable route, it would just meet the incremental demand requirement at a 5% CAGR. In your excel spreadsheet, if you were to change the thermal PLF, which has been languishing around 55% in the base year for FY '21, and which was at 75% in [ 2008 ] and if you were to change the gas PLF from 25% to 60%, then the renewable capacity addition requirement comes off significantly. Would you have any comments there?

Not really, Sumit, because you are -- you will continue to see a lot of capacity, which will be getting retired in next 10 years' time frame. And by a conservative estimate, I am expecting that in next 10 years' time frame, close to 60 gigawatts of the capacity will get retired. And because of the lack of investments and getting a older plant and third is the environmental loans, which are coming into the forefront. So that capacity, once it goes out, it will be -- it will not be there. Second thing is that there will be a lot of capacity, which will be used on an intermittent basis in the thermal when the power will be -- the renewable power is not available. At that point of time, the plants will get utilized. But in a day time when the excess thermal power -- excess solar and wind power is coming at that point of time, the power plants will not be running at a full capacity. So that's what I -- my take is on that. So out of the 225 gigawatt, which is the total capacity, you will be seeing by 2030 the net capacity will be very different as compared to what CEA has talked about. I know that CEA paper is talking about close to 290 gigawatt capacity by 2032. But I am -- as per my expectation, this will be lower than 225 gigawatts. It will be even -- I'll not be surprised if it is 175, 180 gigawatt.

Sure. So given the legacy of your own units, let us say Vijayanagar, do you expect to shut down your unit in the next 5 years?

In the changing environment, it's never say no because there are a few things which are being forced today. For example, I'll give you one more color. Now in the Vijayanagar plant, our fuel cost today is INR 4.30 and average fuel price for the last 4, 5 years is in the range of INR 3.50 to INR 3.60. Whereas the PPA signing with the -- to supply the renewable power is much lower than the variable cost. So the company is saving sheerly on the variable cost as compared to the -- while switching over to the renewable sector. So like this, there are different cases, which are being made out. And those are posting not only the environmental concerns. So going forward, a number of things will be at play, and I'm pretty sure that this trend will be surprising a lot of people.

And Sumit, if I may add to that, as Prashant mentioned as part of his opening remarks, one of the visibilities that we have for the future of the Vijayanagar plant is that JSW steel at its last Board meeting announced a capacity expansion by about 5 million tonnes at Vijayanagar, which is likely to get commissioned in the course of the next 2 to 3 years. So post commissioning of that, there is a potential of buying up additional power under long-term PPA with JSW steel once that expansion goes to 18 million tonnes. So a short answer to that also is that we do not envisage any possibility of shutting down the Vijayanagar thermal power plant for a lack of schedule. And second thing is that you need to see what is this thermal power plant doing today. Like in Vijayanagar, we are going to set up close to 825 megawatt of the hybrid power capacity, which will be giving a RTC power of 275 megawatts. Now recently, you might have seen a tender, which came in the March 2020, which was won by Renew. That tender was renewable RTC power tender, which was subscribed at INR 3.55 levelized tariff. Now, and which was at INR 2.90 as the first year and then which was going up a 3% escalation every year, which came out to INR 3.55 levelized tariff. Now that tender highlight was 70% PLF in an individual minimum month and annual PLF was 80%. Similar project we are setting up for Vijayanagar, where we are supplying by a dedicated transmission line, 275 megawatts for which we are setting up with 825 megawatt of the solar and wind combination hybrid power capacity. Now what is that thermal power plant doing? It is working now. The entire capacity at 18 million tonnes will get tied up, and it will work like a battery storage system. At a time when the renewable power is not available because the power flow will be like the whatever the off-gas is that is must use and the renewable power must use when after that balance capacity will be by thermal. Now by doing that, the thermal power plants are working as battery storage system to provide the intermittent power. That's what I made in my initial remarks that the PLF of the thermal power plant will not go up, rather they will be working for the full capacity for -- in supplying the intermittency of power. So you are using making an economically viable solution by using maximum green energy. With this arrangement, JSW Steel will be using close to 78% of their energy via the grid by off-gases as well as the renewable and balance will be only by coal. So this is a new paradigm shift, which will be happening at every location and also in the national grid. I hope I clarified your question.

Yes, sir. And last 5 years, 10 gigawatt of capacity has been retired in the country in thermal. And when I speak to NTPC and CEFC, they tell me they have plants running for 40 years, which they don't want to shut down. So I'll just hope better sense prevails and thermal capacity is shut down.

The next question is from the line of Bhavin Vithlani.

Hello?

Yes, we can hear you.

Okay. Sorry. So the question is the incremental 5 million tonne expansion at JSW Steel Vijayanagar would imply what kind of megawatt of PPA for the Vijayanagar power plant?

It is not crystallized yet, but you can reasonably expect that the majority of the capacity at Vijayanagar will get tighter.

Sure. The second question is on the growth strategy. I do remember you making the company some time back where receivables was a concern and was monitored at the CEO level function. So limited changes has been seen on the distribution side of the business. So any thoughts around that will be useful.

I could not get your question, Bhavin.

The CEO level monitoring on [indiscernible].

At my level? No, it's a company culture. I can -- what we can't really talk about it that there are the multiple reasons for reducing our receivables. But as a company, we have come a long way. It's not only the receivables, but it is also the unit cost. It is also about the -- our inventory management. Everything the company has done phenomenally well, whether it is a manpower productivity improvement, whether it is -- so I think probably on a headline number, you are only seeing the receivable. But if you see my presentation where we have demonstrated our O&M cost year-on-year has gone down for the last 5 years, 4 years in spite of the wage increase by 8% every year. So the manpower productivity has improved rather not only the receivables, but also we have done various other improvements. So it's everywhere the company has come in a long way.

Sorry, let me rephrase the question. So the counterparty risk in terms of poor financials of the DISCOMs, there is limited improvement. I mean there was a liquidity injection by the government, and that has resulted in better receivables, but that seems to be shorter term. So the growth that we are looking at, but the counterparty risk doesn't seem to be reducing. So if you could help us your thoughts on that? And if you could give examples by whether having counterparty as SECI. Were there instances where the default by the counterparty and SECI has been able to mitigate those default risk?

So my take is very simple that we do not have any bad experience with any of the DISCOM, whether it is you name that some of the DISCOM where people are talking about in some DISCOMs in south, people categorize them in a very poor DISCOMs. We have recovered our compensation from those DISCOMs also. For example, in the current quarter results, there is a INR 100 crore compensation, which was sort of offtake, which was due from Telangana and also from Andhra Pradesh, which the power was supplied to them 1 year ago that we could recover the entire compensation not only for the energy supply, but also the compensation for power not taken by them. So it is -- I do not see that the DISCOMs receivable is a bad debt at all, provided -- and I will qualify it by only one thing that you are in a bottom quartile of their purchase basket. So if your power tariffs are competitive, you will be not only paid on time, but if you are not paid on time by 1 quarter or 2 months, you will be paid on the delayed payments surcharge also. So we do not get really disturbed. We are really -- see this kind of a problems where the certain projects were built at a very high tariff. And then where the receivable becomes a big problem for those project developers. But otherwise, low-cost power producers, this is not at all a situation. So we do not see any kind of issue. However, when it comes to the SECI, the credit rating substantially changes, and it helps you to reduce your finance costs. But if we are supplying power directly to the DISCOMs also, I do not see that as any kind of a risk.

The next question is from the line of Mohit Kumar from DAM Capital.

Congratulations on charting out the new growth path, which seems to be very promising. So my first question is, sir, what is the criteria of [indiscernible] into a PPA with a group company especially for the 958 megawatts, how the tariffs will be decided? That's the first question.

So it's a competitive basis, they had invited various bids so -- and in which we also participated and we had negotiated. And so it was decided based on that. And I gave you another color also like, for example, the similar kind of a bid was also called by SECI where there were certain PPA, which entered, and similarly, we are also working on. And I have also given you a color also. And if you see the total blended tariff which has been provided by me, for entire 2.5 gigawatt is INR 3.31. And if I remove the hydro power plant on this, and if I talk about only solar and wind capacity, including SECI and group captive, it will be close to INR 3.08.

So are the opportunities emerging primarily to meet the RP obligations of just the SECI? Or do you think it's more sustainable? It means that there is further more opportunities may be available once the capacity is ramp up at JSW Steel?

So this is not -- nothing to do with the RPO only, because it is towards 2 things as I explained where if you look at the average variable cost itself is close to INR 3.60 for the last 5 years and current fuel cost is north of INR 4, INR 4.30 if I'm talking today is the fuel price. So if you are securing power at INR 3 or INR 3.30, then you are saving on variable cost, plus you are meeting your RPO obligation. So there the economic rationale is totally changing. Why to go for a high cost of power in the name of the thermal power is the same power is available at a lower tariff? And if you can get renewable power with a 80% annualized CUF and minimum 70% CUF on a monthly basis, why do you need a thermal power? That's the change. And that's what I explained that 275-megawatt is the RTC power we are supplying to steel plant by setting up a 825 megawatt of the solar and wind combination.

Understood. Last question, sir. We haven't seen you participating in the solar bids. Is there any aversion to the solar competitive bidding? And if so, why? And secondly, are you looking also at the acquisition, because I believe that the number of power -- number of renewable players who are looking to get out of the smaller capacities. So do we have any plan to acquire the asset to look at the assets?

So like you are agnostic to the company when you look only for return, the same way we are also always looking for returns. So if solar gives me good return, I will go for solar. If wind gives me good return, I will go for wind. So the reason you know that in case if solar tariffs are INR 2, INR 2.20, I cannot give the desired return to all the stakeholders. So I refrain myself. The moment I see the enough returns, I will be attracted towards that theme. So that's one part. Second part is on -- in terms of the acquisition, if I'm getting any good asset on a better return than what I'm building now, I will be certainly acquiring. And if I'm not getting until that time, I will be going for the new opportunities.

The next question is from the line of Atul Tiwari from Citigroup.

I have just a couple of questions more around the renewable plant. So the 2.5 gigawatts of capacity that you talked about, what will be the annual blended PLF on this capacity?

So this annual blended PLF will be north of 33.5%.

33.5%? Okay. And obviously, so you guys have done...

It's on P90 basis.

On P90 basis? Okay. Okay. And obviously, the company has demonstrated excellent track record in terms of managing the own cost of thermal project. So for these projects, broadly what kind of O&M per megawatt we can look at?

So all your modeling exercise, probably you will be in a -- you can get in touch with our IR team. They will be able to provide you these kind of numbers.

The next question is from the line of Aniket Mittal from Motilal Oswal Financial Services.

My first question is just on the group capital part. Could you tell me what's the overall CapEx in the wind solar split that you're looking for that project?

So total CapEx as I explained, is INR 15,800 crores for entire 2.5 gigawatt capacity. For the -- for individual blocks, certainly, you can get in touch with the IR team. They will be providing you by project by project.

Sure. And just confirming this [indiscernible] of group CapEx scheduling, this is for the upcoming Vijayanagar plant, right?

No, it's for all 3 plants. So it is for Salem, Dolvi as well as Vijayanagar, all 3. But in Vijayanagar, we are setting up also this approximately 825 megawatts, which is going to give them 275 megawatts of RTC power.

What I was trying to understand is would it be right for me to assume that this 825 megawatt, rather the commissioning of the 825 megawatt of Vijayanagar would be dependent on when the 5 million tonnes of Vijayanagar company?

No, no. As I mentioned during my presentation also, this entire 2.5 gigawatt capacity will get commissioned by June 2023. Starting from January 2022 every quarter, approximately 200 to 400-megawatt every quarter, it will get commissioned, and we will commission everything by June 2023.

So they are also -- so this commission is also sort of coming with the existing capacity at Vijayanagar JSW Steel...

Yes, yes, the existing capacity will be used. It's a replacement of thermal power plant than RPO. The current load of the -- they are loaded close to 1,100 megawatts.

Sure. that's helpful. And sir, just to understand in one of your statements you mentioned that there is roughly around 5 to 5.5 gigawatts of land and other sources that you've already acquired out in place. Could you help me -- with a bit more color on that? I mean which states have we acquired these resources? And are these largely related to wind resources?

It is in all various states. There are all resources in states, which are there, where we are working. And we are -- we have also signed various MOUs for various states. Also, we got an incentive package from various state governments also. But purposely, we are not trying to disclose all these locations and other things. But we have got necessary orders -- government orders to secure these locations, because these are very, very important. And in due course of time as and when they are certifying in various bids, we will be disclosing the connectivity location as well as the location where the actual project is coming. As we have talked about this 2.5 gigawatt locations we have disclosed, the balance locations will be disclosed as and when they are converted into the big and actual construction graph.

And Aniket, if I may add to that, we have actually been talking about this for the last few quarters in our earnings calls that we are investing in building organizational capability on the one side by onboarding of talent and building competently. And at the same time, we have been busy acquiring resources, which includes both land as well as connectivity resources. So we have been talking about this also. So it shouldn't come to you as a surprise that suddenly we are talking about it.

I'll give you one color for the interest of the audience. Typically, on a renewable power project, the interest during construction is 9% to 10%. In our case, because of acquiring the site in advance during the connectivity right of way and building the EHV line in the substation in advance before even first turbine or a panel is put into the place, your interest during construction can be almost 0. So because you can reduce their IDC from 10% to 3% to 4% and that 3%, 4% can also be offset by generating a revenue during trial production. Because if your turbine is coming on to the foundation and it starts doing power and even if you sell that power to either to your PPA guy or you sell it into the exchange, you will be reducing your project cost by 10%. So that changes the entire dynamics of the power sector and then your return ratios.

Sure. Sir, just one last question. Sorry to hop on this. I think the revenue participant also asked you about the lack of solar. That's what I just want to dwell about the point because this entire target that we're seeing on the renewal front is largely led by solar, and why you've been completely bidding which will bring that hybrid is not really participated on the solar front. Just wanted to dwell on that, is it really the competition intensity solar that is putting at all? Or is it that there is some competitive advantage that you see that JSW Energy has in wind, which is why you're focused on wind?

No. Basically, the tariffs -- see, solar projects are very easy to execute. And people have been projecting a particular panel price and panel price has been dropping more better than their projection. So one side, it is -- project is easy to execute; second side, the people will be making a lot of returns. So that's why there was a -- too much of a competitive intensity and people and the tariffs were coming so low. And -- but we never believed on those kind of a tariff. And second is that all those tariffs are planned on P50 to P75 CUF, which may come for 3 years, but you will be surprised to note that even the radiation as well as wind is cyclical in nature. So if you generate the data of last 30 years, you will realize there are various cycles like you have a commodity cycle in existence. Similarly, there are the solar and wind cycles are also in existence. But when we are building a project for 25 years PPA and then generation doesn't happen that way, then it becomes very tough. So in a way, the tariffs have been the reason we have not been inclined to solar. But if we see solar tariffs becoming reasonable, we will be certainly doing solar, because we are building quite a big resource bank for solar sites also and which is already in our possession. And at some point of time, we will be doing it, and we are quite confident. That's why we have been talking that we are only looking at 4% of the total basket, so that we can be in a niche segment.

[Operator Instructions] The next question is from the line of Murtuza Arsiwalla from Kotak Securities.

So just a question on the renewable prospects also. What is the kind of leverage that you're looking to use? Or would you fund it entirely through debt? And could we look at monetizing the ownership in JSW Steel, given where the prices are, like you said, the return -- cash flow returns from that investment is minimal? Could we look at utilizing those proceeds to fund the renewable prospects? Also, given that wind is relatively higher than solar, we understand the competitive intensity and lower return profiles. But how realistic are our growth targets because SEBs are probably more -- be more inclined to pursue the lower solar tariffs? So you have 2 parts to the question, one is on funding. The other is on the growth prospects between wind and solar.

Pritesh, would you like to take that?

Yes, sure, Prashant. Most of the -- so there are 2 parts of your question. On the first part, look, as Prashant mentioned in his opening remarks, we have pretty much followed very consistently a very conservative and prudent approach and being very, very selective in pursuing growth, right? That has been our track record over the past decade or so. And that is one of the reasons why we are where we are in terms of our balance sheet and cash flows, et cetera. So therefore, consistent with that, he did mention that this entire growth road map that we have laid out first to an intermediate milestone of 10 gigawatt and subsequently to the milestone of 20 gigawatt, we would continue to maintain leverage ratios below the industry average that you are seeing right now. So we think that based on our estimates, we should not exceed 4.5x on a debt to EBITDA at a 10-gigawatt mark. And once we reach 20 gigawatts, we would be inside of 4x debt to EBITDA, which would continue to be below the industry average that we see right now. So that is the first part of your question, that from a balance sheet leverage comfort, et cetera, point of view. The second bit that we talked about was about the wind and the solar combination, right? Look, so as Prashant mentioned, we are agnostic to the space, but we are very, very focused on meeting our internal return thresholds. So we are very, very selective on that. So maybe it means that at a certain point of time, there is one basket where we see returns, and we pursue that. And as things change at a certain point of time when returns become visible in the other basket, we will be open to move into that. As far as investing in capability and preparedness, both in terms of resources, talent, connectivity, et cetera, we are agnostic. We are pursuing both the opportunities. But as Prashant said, that from a phasing point of view, it may be more heavy towards wind at this point of time. But you never say no, as we said earlier, right, things which evolve, and then we will calibrate according to that.

Sure. Just to supplement, Pritesh, any views on monetizing the JSW steel ownership?

Sorry, I'm sorry. I missed out on that. Thanks for reminding that out. No, I think that this entire 20 gigawatts road map does not require any monetization of any of the nonstrategic investments that we have. There are other levers to that as well. In addition to monetizing existing investments, there could be potential getting a strategic partner and equity dilution, et cetera. Those optionalities would be exercised only if there were an opportunity to accelerate the current growth path that we have laid out. So if that were to materialize, then we would not be averse to evaluating -- tapping into any of these eventualities. But that is not required to meet the base case of 20 gigawatts by 2030.

The next question is from the line of Subhadip Mitra from JM Financial.

So my question is, with regard to the fact that we've seen a bunch of tenders on the renewable side where PSAs have not yet been signed either because of tariff or otherwise. So do you see this aversion from DISCOMs towards signing of PSAs or the chase or lower tariffs a potential [indiscernible] for the entire sector as a whole?

So it's a case-to-case basis. So it's primarily prominent in the solar space, where it is happening because every month, the tariff has been dropping, and that brings -- puts up a difficult situation in front of the DISCOM that if they should sign this PPA or after 1 month, we will be able to sign and secure at a lower tariff. So that's the claim. But if you see tariff is not a problem, we have signed SECI 9 at INR 3, and it is the highest ever PPA signed by a single DISCOM for [ 540 ] megawatts, and we have already secured it. So I don't think tariff is an issue. The construct of or the rate of fall of tariff in solar base month-on-month is the issue. So they would like to wait. So it's something like you are seeing stock prices are falling every day. So would you like to buy today or you would like to wait for 3 more days to buy at a lower price. So similarly, DISCOMs have been facing in case of solar.

Understood. And on the same lines, in your view, do you see an incremental demand for all future wind PPAs or future winds tendering coming up? Or is it still more levered towards solar?

The RPO obligation side, there is a deficit in terms of wind at this point of time, and there are enough bids, which have already happened for solar.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

I have 4 questions, so I'll just ask them in sequence. The first one is, in the case of wind and solar, you've mentioned cycles. Is solar more predictable than wind? Or is there any difference between the 2? That's question number one. Question number two, given all the base load kind of issues that you're seeing, of course, demand has come down because of COVID, do you see any upside at all in merchant sales that can happen even before the Vijayanagar plant of JSW comes on scene. That's question number two. Question number 3 is in the SECI projects, which you have signed, and so you've been very careful about counterparty risk, which is a great thing. They have back-to-back PSAs with the various state DISCOMs, but their ability to take power or pay asset, the ability of SECI to pay you? Or is it just independent? That's question number three. And then last question, sorry, is in terms of one the important things for you, like you rightly said is financing costs. And have you been talking to the rating agencies because despite having a very conservative financial profile, your rating is AA-. So given the growth plans, have they been on board also for your growth plans? So those are my questions.

So as far as the pattern is concerned, both are predictable if you are following a P90 profile. But if you are following P75 profile, both are as unpredictable as each one of them, depending upon which cycle they are moving in. So if they are moving in P90 and then you have projected P75, you will be positively surprised, but if you are at P75 cycle, you will be negative supply. So if we are estimating today a P90, whether it is solar or wind, we are agnostic, because 9 out of 10 years, you will be getting that much of generation. That is what P90 is all about. So it's very, very tough and to project that which year, what is going to happen, that's why we are conservative and we follow P90. The second thing is, as far as the merchant opportunity at Vijayanagar, as I explained just now, the fuel price there is, on an average for last 4 years, is in the range of INR 3.30 to INR 3.50. So as and when you see the merchant tariff going up, there will be opportunity. We saw this kind of opportunity in 2019 in October. We are one month, we were selling huge power. We saw the similar kind of opportunity came this month -- this year, in the month of March. At that point of time, there was a huge shortage, we were selling quite a lot of power in from the Vijayanagar. So as and when the merchant tariff goes up, they are north of INR 4 or INR 5, there is an opportunity to sell power from merchant. And I would ask Pritesh to take the next 2 questions for the counterparty risk of SECI as well as the funding part.

Yes. Thanks, Prashant. Vivek, on the counterparty, look -- okay, to put things into perspective, we do not have any PPAs with SECI right now, right? And yet we are at a 3-year low in terms of outstanding. Just to give some more color, while the overall outstanding is down by 38% Y-o-Y, if you look at the quality of the improvement in the collections, it is much more better because the overdues in the same period have actually come down by 50% on a Y-o-Y basis. So the limited point is that as long as it is a competitively priced tariff and the overall performance basket of the offtaker, you are in the bottom 25, 30 percentile, you will be relatively better positioned in the sector. So we are not really the right people to comment on experience with SECI because so far, we are not, right? That is on that question. On the last bit of your question, which is linked to the funding cost or more importantly linked to the ratings. Look, I mean -- all I can tell you is, is that we have a very active engagement with the rating agencies, where we transparently share our growth plans and the performance of the business strategy and our approach to mitigating the various risks that they perceive from their framework point of view. And that continued dialogue will be on. I don't think it would be appropriate for me to comment on the specific rating, because that is an outcome of a very comprehensive and robust internal process of any of the entities again. So I would request to leave it at that. But we are very always available and transparently engaging with all the agencies on a year-on-year basis.

Fair enough, Pritesh. So I just meant the SECI, because a few of your future projects are with SECI, right? The PPAs are with SECI, right?

That's right.

1,260 megawatts is with SECI. But to give you a perspective, when I'm signing a PPA with the DISCOM, the credit profile is inferior than what I'm signing a PPA with SECI in terms of both rating agency and in terms of credit cost, both.

That was the last question. I would now like to hand the conference over to Mr. Ashwin Bajaj for closing comments.

Yes. Thank you, operator, and thank you, ladies and gentlemen, for joining us today. Please do contact us if you have any follow-up questions. Thanks again. Bye.

On behalf of HDFC Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.