JSW Energy Limited (533148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '23 Results Conference Call of JSW Energy, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhineet Anand from Emkay Global Financial Services. Thank you, and over to you, sir.

Thanks, Susan. Good evening, everyone. I would first like to thank the management for giving us this opportunity to host the call. Today, we have with us from the management, Mr. Prashant Jain, Joint Managing Director and CEO; Mr. Pritesh Vinay, Director of Finance; and Mr. Vikas Choudhary, Head, Investor Relations and Treasury, JSW Energy. We will have an opening remark from the management, post which we can have the Q&A. Over to you, sir.

Thank you, Abhineet. Good evening, ladies and gentlemen. And firstly, wish you a very, very Happy New Year to you and your family. So the quarter gone by was a good quarter in terms of the power demand, wherein we saw 6.4% power demand growth year-on-year basis. And for the 9 months, the power demand was robust at 10% year-on-year. In the month of January, for the first 20 days, the power demand has been growing over 15%. So all in all, we have been seeing very good trajectories in terms of the power demand. In terms of the generation, for the quarter 3, we saw the renewable generation up at 14.1%. And for the 9 months, 16.4%, demonstrating that the renewable growth is continuously improving. The total installed capacity is seen at 410 gigawatts. And during the quarter, we saw the capacity addition of 2.5 gigawatts and for the first 9 months, it is 11 gigawatt, which is in contrast to the last year's full capacity addition of 15.5 gigawatt. It appears that we will be little short of the capacity addition as compared to the last year. Now in totality, we are having 165 gigawatt of the renewable capacity, which is close to 41% of the total installed capacity. The merchant prices of the power were down by 7% for the quarter, which was at an average of INR 4.55 in the quarter 3, and volume was down 14% in the quarter 3, whereas the API 4 price was 37% higher, at $227 per tonne. This is what explains that the quarter 3 was quite a different situation where the price of the merchant power was down, in spite of a robust 6.5% demand increase and the fuel price was 37% higher, and that's where the merchant volumes were dipped dramatically. However, in the current month, the thermal coal prices have moderated substantially, and now they are [ reading ] at $170 per tonne API 4 index. Now coming to the operational performance of the company. During the quarter, the net renewable generation was up by 3% and net long-term generation was flat at 4.2 billion units. Overall, net generation was down by 5% at 4.3 billion units, primarily because there was a 230 million units lower merchant sales during the quarter. If you remember last year, October was a substantially super-duper month for the country where the prices were substantially higher and power demand was up at 12%. Because of the higher base effect and extensive range, the power demand growth was negative in the October month this year. And the other thing, which I -- as I explained, the tariff was lower and fuel price was higher because of which there was a delta of 230 million units lower merchant sales. However, during the first 9 months, our generation is up by 2% at 16.8 billion units, which is primarily one more important thing is that in the first 9 months, our merchant sales is up by 65% year-on-year, which is in excess of 450 billion units. But the generation overall increases only 2% because there was no schedule available for our unit #1 from the Maharashtra. And there, the loss of the generation was 550 million units. Otherwise, on a long-term contract basis as well as in the short-term basis, the company has been performing exceptionally well. In terms of the EBITDA for the quarter was INR 727 crore, which was down by 18%, primarily due to the long-term -- lower long-term sales. And for the 9 months, the EBITDA is up by 5% at INR 2,936 crores. The cash profit during the quarter was INR 489 crores, which is a cash return on adjusted net worth of 20%, which we have been retaining. Our receivable trajectory is robust. It is down by 8% at 69 days. Our projects are progressing very well and which will be commissioned on schedule both for hydro as well as wind projects. We have also received LoA for our SECI contract for battery storage project which we will be building in next 18 to 21 months' time frame, and which will be commissioned by October 2034. That's all from my side. With this, I open the forum for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Rahul Modi from ICICI Securities.

Sir, just a couple of questions I had. First was, with regard to some economics, if you could help us with the BESS projects that we've won, in terms of what would be the storage tariff, the cost and how will the entire economics work. That is first. Secondly, some progress on how over the next 2, 3 years, you mentioned that the Ind-Barath project would get commissioned over the next 24 months. So some details on that as to how do you see it scaling up? And would you prefer -- because it's a low-cost project as of now, so would you prefer to sell it on merchant or what would be the strategy like?

Thank you, Rahul. So this is a project, which we are selling at a particular lease rent kind of a construct wherein 60% of the capacity is being sold for 12 years at a INR 10,85,000-odd per megawatt per year -- sorry, per month. And that's how it will be construed and after 12 years, the project will be transferred back to SECI. The 40% capacity is belonging to us, which we are hoping to contract with other DISCOMs as well as supplying these services into the ancillary market. There is a new ancillary market and a policy framework, which has been opened up, and where we see a better potential to earn better returns as compared to what we are getting from SECI and that's how the project has been conceptualized. In terms of the returns, we can guide at this point of time that we will be getting close to mid-teens or little higher returns than that, what we normally get in terms of any generation project. And since we are having number of levers available in front of us at this point of time, so this is what we would like to give you the guidance. But as the projects get commissioned and then other things and operating numbers starts kicking in, then we can see if there are some positive surprises. But in this case, we will be getting 15%, 16% kind of an equity IRR on the project.

Sir, just one follow-up on this. So basically, sir, the DISCOM will give you the grid power and during their peak hours, we will supply it back to them after charging our [indiscernible]

As far as I am concerned, I'm supposed to make it available. The storage capacity should be made available, whether they want to use in one cycle, they want to use 2 cycles, which DISCOM will contract the capacity with SECI, we are not aware about anything at this point of time. So how it is going to work is depending upon the DISCOM requirement. So we make the system available. They can give me the power in the daytime and take it in the nighttime. They can give me the power in the nighttime and can take in the daytime. It depends on them.

Got it. And sir, any indicative tariff just to understand in such projects, what is the tariff which is coming out to be?

So it is -- again depends on the business case and business model. The tariff will be different if the one cycle is used, if tariff will be just half of it, if it is the 2 cycles which is used, tariff will be 1/3 if the 3 cycles are used. So I hope you understand what I'm trying to explain to you. It's a 2-hour storage system. If you are -- you can use up to 8, 10 cycles also, depends up to you. So it's very difficult to talk about at this point of time that what is it it will translate into the storage cost for the end user. So it can fluctuate on the business case basis.

Got it, sir. And 2 more questions, which I had. One on the strategy and progress, how do you see it going through over the next 24 months of Ind-Barath because it's a pithead plant. And secondly, sir, how do you see the spread between the coal prices on imported basis and the merchant panning out for us and overall market over the next 6 to 12 months?

So merchant tariffs are strengthening, and they are now ruling in the range of now INR 6 to INR 6.5 on a daily basis. And fuel prices are moderating. So that's the situation. And you know the thermal coal is directly linked with the natural gas at this point of time because the natural gas prices -- natural gas demand has been migrated to the thermal coal in Europe. And because of which thermal coal prices have been elevated since the Ukraine war came on the front. And now the natural gas prices have moderated and they are back to the pre-war level, and that is what is also reflecting in the thermal coal prices. Now they are not at the pre-war level, but yes, they are very close to that number. And if the natural gas prices continue to slide and then they go up to $3, then I am quite confident in some point of time, the thermal prices, coal prices can also go to $100. So that's the kind of a situation. And merchant power prices are very tough to forecast. But what I can see at this point of time that the power demand is very robust throughout the year and then we are seeing substantial uptick in terms of the power demand and that is what is reflecting in terms of the higher capacity utilization as well as the higher merchant tariffs. So the spreads are better and we are seeing a higher merchant volume in the month of January, what we saw last January. And so I am seeing that there will be a good business case for the merchant power producer in next couple of months.

Right sir and just last, some comments on the Ind-Barath acquisition. How do you see the progress?

Ind-Barath acquisition or the main purpose is to set the plant site and commission both the units. We have a lot of options and opportunities that we be in front of us. One option is that the vertical integration for polysilicon manufacturing, which we have been contemplating and evaluating. Second option is also to look at certain captive requirements for the group for thermal power for our Eastern India requirements. The third option is also the PPA, which a lot of DISCOMs want to do in terms of thermal power, where there are venues bids, which have already been invited by the DISCOMs. So we are evaluating each and every option. And then accordingly, we will be taking a call in the due course while this capacity is commissioned, which is a win-win for all the stakeholders.

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

Sir, for this battery storage system, how much is the CapEx for this 500 megawatt capacity?

So moving the disclosing, we will let you know. We are now funding a couple of orders. And so in the Q4 results, we will inform you the total capital expenditure.

The next question is from the line of Sumit Kishore from Axis Capital.

My question is related to the acquisition of Mytrah RE assets. On the last call, you had mentioned that you expected it to be completed or concluded before end of Q3 and the [ lock box ] stage for the deal, I believe is 1st April 2022. So what is the present status now?

So I agree that we are expecting that there are 17 lenders and most of them are from the public sector and then sometimes few things happened in terms of the lender NOC beyond our control. But those things are -- most of the things are settled out. There are 17 lenders out of 17 lenders, 15 NOCs have come and then 2 are in pipeline, which are expected anytime soon. anytime soon means within days or in weeks. And that's the only thing, which is pending and the moment it happens, and we will be in a position to complete the deal. And as you know, that our balance sheet comes to us from 1st of April 2022 itself. However, the consolidation will take place on the date of closure.

Okay, so the P&L will not get consolidated from 1st April 2022?

No, that will be the -- whatever the adjustment will be done in the [indiscernible] accordingly, consolidation will happen from the greater acquisition.

Okay. And is there any update that you had from the last call on your pumped storage hydro initiatives?