JSW Energy Limited (533148) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the JSW Energy Q3 FY '24 Earnings Conference Call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.

Thank you, Rio. Good evening. On behalf of ICICI Securities, we welcome you all to the Q3 FY '24 Earnings Call for JSW Energy Limited. Today, we are privileged to be joined with Mr. Prashant Jain, Joint Managing Director and CEO; and Mr. Sharad Mahendra, Joint Managing Director and CEO Designate. We also have with us Mr. Pritesh Vinay, Director, Finance and CFO; Mr. Bikash Chowdhury, Head, Investor Relations and Treasury. We'll start with brief opening remarks, which will be followed by Q&A. Over to you, Prashant, sir.

Thank you, Mohit. So good evening, ladies and gentlemen. First of all, this is my last conference call with all of you. And so I would like to start by thanking each one of you as well as the JSW management for giving me this opportunity. And now I'm joined along with me, Mr. Sharad Mahendra, who is going to take over for me effective 1st of February. And if you look at the quarter gone by, the power demand was very robust at 10% in the quarter 3. And for the first 9 months, it was up by 8%. And we, first time, recorded a peak demand of 222 gigawatt in the month of October. The installed capacity in the country is now sitting at 428 gigawatts, with the total capacity addition of 12 gigawatts in the first 9 months, and of which, close to 8.7 gigawatt was the RE capacity, which was added up in 9 months. And during the quarter, 2.1 gigawatts of the RE capacity was added up. Another trend which we have been seeing in this first 9 months as well as which continued in the quarter 3 was lower hydro generation. During the quarter, it was down by 30%. And for the first 9 months, it was down by 17%. Merchant tariffs have started improving now. But during the quarter, it was subdued at INR 5 and which was down 13% year-on-year. But as we are speaking, the merchant tariffs have gone up. They are in the range of now INR 6.5 to INR 6.7 per kilowatt hour. The thermal coal is showing a very declining trend. In the month of October, it was ruling at $130 and continued to slide down to $100 by December end, and then now it is ruling at $94, $95. So that is showing a declining trend at this point of time. In terms of the company, the total generation was up by 43%, which was primarily from all accounts. We saw the long-term sales went up, short-term sales went up, also the RE generation went up. And EBITDA was up 69% at INR 1,229 crores, primarily because of the same reasons. And the interesting part was, as we promised, we have been talking about Mytrah turnaround. On a pro forma basis, Mytrah did INR 1,260 crores of EBITDA, which was equivalent to what it did in the 12 months in the previous year. So the Mytrah turnaround is looking to be quite robust going forward. Sorry, my apologies, INR 1,160 crores. And the total capacity is at 7.19 gigawatt operating, and we are on course to achieve 9.8 gigawatt by December 2024, as we have outlined. And we are happy to share that we commissioned the Ind-Barath, the Unit #1 in the month, and it is progressing quite well. And as we are speaking, this unit is running more than 150, 160 megawatts of the load, and we are expecting to achieve the full load in the current month. And whatever power we are generating, we are doing selling in the short-term sales. And we are quite encouraged for the trends going forward and further during the quarter. The second unit will also get commissioned in the current quarter. And the RE capacity addition program is also moving as per the schedule. And then we are expecting to complete in quarter 1 and quarter 2, both SECI projects as well as group captive projects. So I'm in SECI IX, SECI X and as well as the group captive projects. And also, the hydro projects will get commissioned. And with that, we will be achieving this 9.8 gigawatt. And for Strategy 2.0, we are pursuing aggressively both on the group captive side as well as on the SECI bids. I'm happy to share that of late, in last 3 months, we have been seeing very encouraging trends in terms of the tariffs, which are being discovered in the SECI bids, which has boosted our confidence to tap on this side immediately. And then now we are bidding on -- aggressively on the quantitative side in various bids, which are coming in front of us. So for Strategy 2.0, we will be seeing both group captive as well as the SECI bids and other credible third-party bids which are in the pipeline in the next 2 to 3 months' time frame, and then that will be forming the next pipeline. In terms of the storage projects, the predevelopment activities are going on schedule. And I'm expecting, post-election, there will be a substantial amount of the storage bids, which will be coming going forward. As you might be already seeing that there are increasing number of trends for the more and more wind bids are coming, and then people are -- various states are looking for those kind of opportunities to tap more power going forward. So storage will be also coming on the forefront going forward. And with that, I would like to open the forum for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Anuj Upadhyay from Investec.

Can you provide an update on the module manufacturing capacity, which was expected to [ get shifted ] to Rajasthan? Any update on that one would be helpful.

So thanks, Anuj, for the question. Actually, this is another interesting aspect and which we have been seeing in the business dynamics and which is what is also talking about the agility of JSW Energy. We have seen in the last quarter the panel prices have been dipping close to single digit as we are speaking and now at something around $0.10 to $0.11. So we have been absolutely ready to do the groundbreaking, but we have put the project on hold at this point of time to reevaluate the business viability for some more time. So I do not think that at the prevailing panel prices, it will be making sense at this point of time in spite of paying 40% duty. So we will -- we would like to wait for some more time and then evaluate it again. So at this point of time, we have put it on hold.

Okay. That's helpful. And anything on the pump hydro, sir? I believe you are targeting to commission one project, which is largely captive, currently stands at -- over the next 2- to 3-year plan [ specialty ]?

Yes. So on the captive side, I think in the next 1 quarter, you will be -- we will be announcing the formal agreement signing, and that's the approvals process, which is going on. However, the preoperative activities, we have already started. So we will be able to commission it on schedule, which we have to outline. So in the -- in 1 quarter, we should be in a position to formally sign the agreement.

[Operator Instructions] The next question is from the line of Nikhil Abhyankar from ICICI Securities.

Wish you a very good luck for your future endeavors. Sir, my question was regarding captive thermal capacity that we have. We will be having around 700 additional coming now from next year. So are we looking at similar opportunities in a stressed asset to add thermal assets going forward?

So thanks for the question, and thanks for your kind wishes. We see there are a substantial number of opportunities from brownfield expansion side and in thermal space. So one opportunity we see at the Ind-Barath location itself, there are the opportunity to set up another up to 4,000 megawatts of the capacity. And we are -- those projects are on drawing board stage at this point of time. And very soon, we will be moving for necessary approvals. And as soon as we are in possession of those kind of approvals, we will be starting those projects because -- in a phased manner. And the second opportunity is Rajasthan, where we can expand the capacity by another 1,100, 1,200 megawatts, and Rajasthan state has already announced that particular project. And then with the new government in place, very soon, that expansion will be started. So these are the 2 locations where -- which are going to be the pithead, and these will be low cost because we have all land and water and other infrastructure in place. So -- and we will be able to put up the new plants at a very competitive price very quickly.

Understood. So I believe these projects were not within your 2.0 project, right?

That's right. That will be the incremental capacities which will be coming up.

So in all, we are looking at 5.2 gigawatt of thermal capacity addition?

So I would like to put that as a blue-sky thinking that we see this kind of opportunity is in place. So -- but everything will be unfolded slowly because like there has to be a fuel security, there has to be the environment clearance and other approvals are required. So we need to tap each and everything because right now, we are, on a serious note, we are talking about is that there is a shortage of power in the country, and power demand is growing in double digits. And therefore, it is a huge expectation that more and more PPAs on the thermal side are going to happen, but yet, PPAs are not happening. So in order to do the financial closure of any thermal project, you need a competitive bid to be announced by the state government and do that. But we are preparing ourselves, shovel-ready, approvals ready. And then as and when we see the PPAs are happening, we will be able to latch upon. And then most important thing, what we are preparing ourselves is that we are at a location where our variable costs will be one of the lowest in the country for the future projects. So that's how we are trying to put it.

So Nikhil, if I can comment here, the keyword that Prashant added is phased. It will be phased and modular and not like 5,200 megawatts in one go, right? So based on all the factors that Prashant talked about, they're falling into place. And in a modular way, you take up one phase and do it, let's do subsequent.

And sir, we will be looking to tie up the entire capacity, whatever we add additionally? Or will we like to keep some as merchant capacity as well?

No, it will be case-to-case basis, like the current capacity is on a merchant basis. But eventually, such a large capacity, keeping one merchant is not at all a good idea. So I think we need to create a balanced portfolio. Today, if you are looking at it, we are already having -- we were having 700, 800 megawatts of open capacity, which has now increased by another 350 megawatts and by another 350 by end of this quarter. So you are talking something like 1.4 gigawatts of open capacity, which is already quite a large capacity. So eventually, on a balance sheet size of -- by end of the calendar year '24, you are talking about 14%, 15% is the open capacity. It's quite a large capacity. So I think incrementally, we need to see more on the PPA tied-up side. But for short-term basis, there could be opportunity to add another 500, 1,000 megawatts, but not beyond that.

Understood, sir. I've got more questions, but I will get back in the queue.

[Operator Instructions] The next question is from Rajesh Majumdar from B&K Securities.

Congratulations on a good set of numbers. So sir, I had a couple of questions. One was around the talks around Amarkantak and whether JSW Energy is bidding for this project. Been hearing reports that the bid is going to INR 4,100 crores in the last bid, which we've seen from Adani, and there are some rumors to that effect. That was my first question.

So Rajesh, thanks for the question. And as I always mentioned that we are a growth-oriented company. It is always safe to assume that we are interested in each and every place. Wherever there is any opportunity, we will be looking at that opportunity at all the times and evaluating on a continued basis. So count me in for any opportunity you are hearing.

Right. And when you gave a debt-to-EBITDA range, you obviously take into account whatever new acquisitions or expansions you are beyond the 2.0 plan that we've already outlined, right? Or if you get something that is very attractive, the debt can go slightly more than that what we accounted for in this plan?

So Strategy 2.0 was outlined based on certain -- the covenants keeping in the mind as well as keeping certain headroom in front of us. So -- and everything is contingent upon the kind of the cash flow we are generating, a kind of rating we would like to retain by keeping certain debt-to-EBITDA ratios and other ratios in mind. And we feel, based on our own estimates, that our framework allows us to do better than Strategy 2.0. And I'm also seeing that on cards that Strategy 2.0 could be achieved much, much ahead, and then that's what -- Sharad is also -- is a more aggressive leader than me, and then I see that it is going to happen much ahead of the schedule. And once we complete Strategy 2.0 ahead of the schedule, the more cash will allow us to do more capacity. And Strategy 2.0 was conceptualized without any capital raise or monetization at either at Neo level or at the holdco level. And those are also the opportunities at some point of time when the opportunity arises. So if there are -- there is a lot of headroom to grow beyond that.

Sir, is it possible to outline some of the monetization opportunities, for example, JSW Neo or anything that you have in mind?

So as we have always maintained that we have been mindful about the value unlocking and then doing that at right point of time. And this question has been asked to me 1 year ago also, but today, in hindsight, if you see that if I would have done that monetization 1 year ago, I would have been doing disservice to the shareholders. And today, it is the valuation where we are sitting today and where the power sector tailwind is coming. So I think that it's a dynamic situation. We are always evaluating at the Board level. And at right point of time, certainly, we will do that, and that's what I can assure you, and then we will be keeping the most interesting and most paramount thing for us will be the interest of the minority shareholders that at what valuation, at what time we should do that.

And Rajesh, if I may supplement to what Prashant mentioned, it will also be linked to the end use. So for example, if you look at our delivery and execution, we have not been capital constrained so far, right? So as Prashant is saying that the right balance will have to be struck in terms of the value accretion as well as the need for capital. So at the crossroads of both the points, we'll definitely not mind moving that. Yes.

[Operator Instructions] The next question is from Sumit Kishore from Axis Capital.

My first question is if you could speak about the progress on the LOA, LOIs for the SECI BESS, PCKL and MOUs with JSW Steel for storage and RE capacities.

Yes. So Sumit, BESS, I think within the current quarter, we are expecting it will be formalized. And part of the capacity they have already closed, but part balance they are trying to close within this current quarter. So we expect that this will be done. And then the silver lining for us is that the battery prices are quite attractive now. So that's going to be quite good. PCKL, we have given to understand that by end of next quarter, this will be signed. And also, as I mentioned in my opening remarks, for entire JSW Steel capacity for both storage as well as for the group captive will get signed in -- within 1 quarter. So current quarter and next quarter put together, everything else -- everything will be on the stream.

So you mentioned that even for JSW Steel storage and RE capacity, something could get signed?

Yes. We are expecting...

The first phase of that.

And first phase would be how big in terms of the overall...

So we will announce that with the signing of capacity. So exactly that configuration is being worked out, Sumit. If you go back and look at our disclosures the last time, we have said they will need 6.2 gigawatts of RE generation. And there was a storage capacity.

1.8?

But that was till 2030. So obviously, it can't be expected that, that entire thing will be signed today, right, because there are still both offtake and all of that, right? So also a substantial chunk of that will be in Phase 1, and we'll make the right disclosures once the Boards of both the companies have greenlighted that.

So between 1/4 and 1/3, you can see that, that will be -- yes, it's around 25% to 30% could be in the Phase 1. So Sumit, we need to also understand that post December 2024, we are building the execution pipeline, so -- which is very, very important for us. And that's where we are, you will see everything getting signed and closed in the next 90 days to 120 days.

Got it. And specifically in relation to the hydro projects, water flow is turning out to be a recurring issue now for 3 quarters. Is there something we should worry about? Or is the EBITDA, which is down 6% year-on-year for the quarter, is just a temporary factor?

So very tough call, but it has been always a seasonality. We have seen it, but we are close to achieve the design energy a little bit short. And then the interesting thing, Sumit, these are the 2-part tariff projects where in case there is a structural change in the hydrology, it happens, then there will be the recalculation and revalidation of the design energy, and we will be recouping our fixed cost. So -- and all these are depreciated old projects. So the impact on the DISCOM and anybody will not be there.

Right. But I mean there is no anticipated massive change in hydrology?

Nothing. No structural change, but I'm just giving you -- for a hypothetical question, I'm giving a hypothetical answer. Should it happen, a permanent structural change of lower generation, then design energy will be changed lower, and the EBITDA will be maintained by increasing the per unit cost, and that's what is under the regulation.

So your ROE will be intact?

Exactly.

Just one last question. I mean there have been few bids for some dispatchable RE power in the last few months. Is there any sort of impression that you have in which direction is the bidding activity or renewable projects with storage are taking? And what are the sustainable tariffs that you see in such bids?

So there are 2 things one needs to see. One is the inflationary pressure, which has been happening. So there is a -- cost of the projects have gone up anything between 9% to 14% because of the increase in the commodity prices, construction costs and various other aspects as well as the cost of the capital has also gone up. And because of which, you can see that wind tariffs are sustainable, anything between INR 3.5 to at least to 3 -- a little INR 3.60, INR 3.70, so these are the numbers which I feel are the sustainable numbers. And of course, solar prices are contingent upon the panel prices. So at today's price, I don't know how long they are going to sustain. And so current tariffs are okay at current panel prices. But I'm not sure that what is going to happen in the panel prices going forward. So if the panel prices starts going up, the solar tariffs will have to go up.

And also just to add, Sharad this side, in this FDRE, basically, you have to see that it is a firm dispatch which is a mix of wind, solar and the storage. And when -- whatever the bids which have come or are in the offering, when it has been studied, it is seen, it is wind-dominated because of the requirements of the state at the peak demand, which is there and also the right mix that some states are asking 90% delivery at least. So it is early to say because right now, to go to 100% or 90%, the cost, again, because being wind-dominated and storage-dominated, it becomes a slightly higher-priced power. How long it will go? But this is evolving right now, and states are modifying some of the bids are minimum 80% where the storage requirement reduces also which optimizes the cost. So a right mix is being worked out. But yes, going forward, this is going to be what we see a mix of hybrid and FDRE is what we are also preparing ourselves for.

Prashant, wish you all the very best for coming times.