NLC India Limited (513683) Earnings Call Transcript & Summary

And in Q1, PAF of Barsingsar, we'll come back to you. This is 74 -- 75% PAF.

Okay. Okay. So it is also slowly inching up. Do we think that in this year, it can also reach like 78%, 80%? There is a normative level is -- what PAF for Barsingsar?

Normative is 80%.

Normative level -- normative PAF of our Barsingsar Thermal Plant is 80%, and we are very near to it.

Okay. Okay. Right. So basically then in this year, under-recoveries should be very less as compared to last year then?

Yes, yes. We are expecting that it will be minimized.

Got it. Understood. And for this COVID-19 related thing, reimburse -- basically, the debate, INR 42 crores, that is the full amount which you have given in Q1 or some amount will come in Q2 also?

No, this amount has not been passed on so far. We have mentioned that we have provided for this amount, but we are discussing with the beneficiaries. There are certain issues, and we are just trying to pass on this with the mutual consent basis -- mutual agreement basis. It is a one-time benefit, which is in line with the Ministry of Power guidelines.

Right. No, what I was trying to understand, the INR 42 crores will be the final amount or will there be something more which will be then provided in the Q2 numbers also?

It all depends on the final negotiations, but it is the estimated amount based on the guidelines.

Next question is from Dhruv from HDFC Asset Management.

Yes. Sir, as you mentioned the PAF for others, can you also help with TPS-II expansion, what was the PAF in FY '20?

Yes, TS-II expansion -- our PAF for TS-II expansion was 38.11%.

And sir what it is...

In '19/'20.

Yes. And what is it now?

In the first quarter, the PAF for TS-II expansion, 48%.

Sir, this remains an issue. Sir, any thoughts on what is the progress there? And how fast we can expect to achieve the normative PAF?

Yes. Actually, as you may kindly recall my earlier sharing on this project, we are going to resort to the major overhaul, and we are inviting the bids at -- international competitive bidding with the limited parties. That process is on. And we'll be resorting to major overhaul of these 2 units. And we are expecting that after that, after understanding the problem and getting the proposals from the competent, very reputed parties, we will be able to go for major overhaul, and then we will be able to resume the operations efficiently.

Sure, sir. And is it -- can you share any thoughts on what the project mining -- the cost of the overhaul would be? I understand this will be a bidding process, so you cannot share complete details, but some range of costs that you are expecting.

No, it depends on the -- we have -- we are staging this whole process into 2 parts. One is that they will be understanding the problem, coming and studying this issue. And after that, they will be giving a proposal that what is the problem they have understood and what is the scope of work they will be carrying out. And in the second phase, they will be quoting for that scope. And then we will be opening the bids and going for -- this is going to be a unique tendering. It's not going to be a simple tendering. Therefore, we are consulting our consultants also in this regard, and we're -- in a very focused way, we are having regular follow-up and meetings and progressing satisfactorily on this assignment.

Got it, sir. Got it. And sir, by -- I mean, you have already started the NTT -- the NNTP Unit 1. So any thoughts on the initial run-up? Since the PAF is okay, but for the few -- last few plants that you have commissioned, there have been some issues. So should we -- do you worry on that side that in the new plant there could be some issues given now that has started?

No, no. NNTPS is a proven technology. NNTPS is a pulverized technology. So it is proven, and we don't expect any surprise. And we are going ahead as expected.

Okay. Okay. Okay. Sir, moving to our plant, NTPL, the subsidiary. Sir, last year, there seems to be -- I was just looking at the numbers. It was -- it seems there was some impact there also. So on the PAF level, if you can share the PAF level there for NTPL and what it is now?

Yes. NTPL FY '20, we have in case of current year, current year, the -- you're asking PAT or PLF?

Sir, PAF, PAF, availability factor. I believe there was some under-recovery there also.

Yes. This quarter it is very, very good level, 98%.

PAF level is okay. Great. And sir, last year, there will be some under-recovery? Okay.

Last year, because one of the units was under major repair. There was some explosion. And rotor was sent to BHEL for repair. It took more than 5 months. That's why it happened.

Okay. Sir, coming to TPS-II, now there was an unfortunate incident there -- really 2 incidents. Sir, so any thoughts on the future of this plant? Will it remain shut? What -- the work that you're doing there, if you can share anything that would be helpful.

Yes. Sure, sure, sure. The incidents happened in TS-II were quite unfortunate, and it were -- these incidents were not expected in the normal course. The incidents happened in the -- not in the plant, not in the furnace, not in the boiler, it was in the structure, which was supporting the boiler. So these structures are called girders. Now these girders are made up of big steel and structural design as such that over a period of time the lignite dust has got accumulated and very strangely, the dust particle accumulated in this structure emanated the explosive gases inside the girders. And the incident, which has happened, especially the July 1 incident, it was in the course of taking the rectification measures, remedial measure, which was suggested by the high level committee headed by Mr. Bakshi on the 7th May incident. And while carrying out this remedial measure, in the third unit, after carrying out in 2 units successfully, peacefully, without any problem, in the third unit, it happened when the plant was not in operation. Therefore, this was not expected, and it has -- it is the second incident, which was examined by another committee headed by ex-Director, Technical of NTPC, who has given the report that this is a unique phenomena which has happened, rarely which can happen. In India, such type of structural support system is not there in any of the plant and such type of issue has never risen. So this unique incident, which has happened, it is -- after the incident, we have taken all these safety measures. We have got the audit of the -- safety audit of the plant done. We have got this examined by the explosive experts. And we have -- we are also undergoing the review of the structural strength of the particular unit, Unit #5. And only after ensuring all the safety measures, we are going to restart the units. Out of the 4 units of stage 2, Unit #7 has already been started on 31st August 2020, which is after taking all the precautions. And it is expected that in a short period of time, we will be able to resume the operations after satisfying all the statutory authorities also. And these units are very healthy units. They can perform. They have been winning the awards. At the national level, their performance has been recorded as one of the best plants in the country. And we don't see any problem in running these -- operating these units in the time to come.

Okay. Okay. And sir, when you refer, you are mentioning for all the 7 units and you...

Yes, 7 units means the Phase 1 -- the first 3 units, we did not face any problem. They were not stopped because of this. Regular maintenance activities are going on and they are running perfectly all right. And we have not witnessed any problem in those first 3 units.

Okay. Okay. Maybe second part -- by the end of the year, probably we could -- we should expect.

Yes. Yes. Very shortly we may be able to. One unit is already started and other units gradually will follow in the coming 6 months. This month end, another unit is going to start. So one by one, we will be able to resume the operations.

And sir, coming to the next thing. On the receivable, they have accumulated quite a bit now. I believe in FY '20, you had also done some discounting of receivables. So sir, with the PFC, REC scheme, are you seeing that money coming in? And are you also recovering the late payment surcharge on that amount? And anything that you can share here.

Yes, yes.

How much of the total is Tamil Nadu also in fact? Do you have how much of the total is Tamil Nadu?

Yes. So first of all, I agree with you that there is an unprecedented increase in the dues. And these dues have reached the level of INR 10,938 crore, including NLC and NTPL. And the -- but you are right that we have adopted new mechanism, LC, in the process. This LC mechanism, we have been able to get the realization to the extent of some INR 600 crore. And another set of realization has come from the Atmanirbhar scheme announced by government of India. So far, we have been able to realize the INR 571.82 crore out of that also. But the recovery is slow. The dues have reached the unprecedented level. It is very big worry for us also. And we are making all-out effort to touch base upon with all the top management of the ABs, their CMDs, Director of Finance. Regular meetings are going on, and we are making efforts to realize. Because of the COVID situation and because of the non-recovery of the power dues by ABs from their customers also and some soft stance announced by government of India, we are also contending with slow recovery. But it is expected that with the passage of time, especially under Atmanirbhar Bharat, we are expecting good realization in the time to come.

Sir, how much of the total INR 10,000 crore will be Tamil Nadu? And total INR 10,000 crore -- I believe some part is disputed also. If you can share the disputed amount?

Yes. I will just hand over this to Director, Finance to give you further detail.

Yes. Just to add to what CMD sir had said. Out of this INR 10,000 crore, we have to consider the 1.5 months of dues, 45 days is still not overdue. To that extent, INR 10,000 crore is on accrual basis. The moment you bill it, you are accounting for that. So if you really see what is the overdue that would be close to INR 8,500 crores. Now out of this, of course, there are certain amounts which they have -- the beneficiaries have represented to the appellate tribunal. Those things are being looked into, and we are pretty sure that what we have built is purely as per the lignite pricing guidelines. So we are quite hopeful about that particular thing. And coming back to the recoveries -- recovery part, under the Atmanirbhar scheme, many -- we have been watching the progress about the loan status -- loan sanctioning status. We have got around INR 350 crores put together under that scheme. But many of the states now have the guarantees in place. Tamil Nadu, which forms the largest beneficiary in terms of both this thing, there -- Tamil Nadu had a little problem regarding their exposures with PFC and REC. And so it took them some time to get the consent or the clearance from the Ministry of Power. So I think going ahead in the next 1 month or 1.5 months, we should see a lot of recovery -- a substantial chunks we are expecting to get it. So...

Sir, of the total, how much is the disputed about, if you can -- that amount, that is under litigation?

Disputed is around...

Approximate also would do.

Would be around close to INR 2,000 crores, I would say.

INR 2,000 crores. And sir, the -- given that we are significantly dependent on our work with Tamil Nadu, should we expect that you will recover the late payment such as that you are accumulating on these receivables or there will be some waivers to that?

No. See, whatever late payments just we are billing them is squarely as per the agreed terms of the PPA. However, we realize -- we should realize that since the state electricity boards, the DISCOMs in general and Tamil Nadu, in particular, had their own inherent problem in terms of delay in release of their subsidy and delay in recovery, more so during this COVID period, so first of all, we are targeting the recovery of principal amount. But however, these are legitimate billing in terms of agreed PPA. Whether they will be paying this? Of course, they will be paying it, but we should also be prepared for some kind of -- because under this Atmanirbhar scheme, since they'll be settling a lot of things in bulk by taking loans. So depending on their loan -- raising of loans and clearance of payment, we would look at the possibility of some -- giving some relief to them. So considering the fact that the surcharge we are billing them is at a rate which is deterrent, 18%. So to that -- to some extent, we'll try to give some relief to them. But that all depends on what is the kind of loans they bring to the table and clear it.

Sure, sir. Sir, my urge would be -- as an investor or as an external guy would be that it would be very helpful that you put the ultimate pressure on the DISCOMs because this is a perpetual issue with them. And if you give a relief to them once -- for once, I'd say now, probably they will come back to you later also to give them a relief. And it does not help you because this amount costs you in terms of balance sheet, in terms of hidden interest cost, hidden ROE cost because you're funding this amount to your equity amount and thereby also impacting dividend payout ratios. So sir, it would be -- it's an urge that you probably recover the full amount from them, so that they are also -- they also understand that this cannot be -- this is not a light issue and it is a serious issue. Ultimately, the state governments are responsible for what the DISCOM did. And for that -- publicly listed companies should not be suffering for that.

We'll take your suggestion in the right spirit. In fact, that would be our endeavor. Our endeavor is to collect everything. But under the Atmanirbhar scheme, when they are proceeding ahead and doing that, I was also hinting you that the Ministry -- the government of India has also been kind of advising that some kind of a relief should also be given to them since they are also -- because ultimately, at the end of the day, we are -- cash flow is more preponderant consideration here. So all these billings should translate into cash. So whatever it is required, safeguarding our company's interest and the bottom line and investors' interest, we'll be taking a position.

Sure. Sir, we understand the COVID situation. It's an exceptional situation. And probably for that you might consider something. But at least for the old dues, you should try to recover the full amount because, ultimately, these are state government-banked entities, so they will never be defaulting. You probably just have to force them a lot more. I understand you being a PSU have some restrictions, but the most that you can do that will be helpful, sir.

Yes, Dhruv. Yes, we'll take your point of view, and we are working on those lines only.

[Operator Instructions] Next participant is [ Dinesh B. from CTS ].

[ Dinesh ] here. Is there any anticipated revenue loss in coming Q2 and Q3 as a whole, as general, due to this COVID situation?

COVID situation is continuing. As we know that this is -- there is an impact on the demand. There is an impact on the progress of the project. So -- but it is minimizing. We are progressing well, and we are catching up on not only the operations, but also on the projects. But the general demand/supply scenario that we will have to see. And regulatory changes are also happening, but these are not part of the COVID situation. So the situation is dynamic. We are also monitoring the dynamics and taking all the reasonable steps to mitigate the difficulties and risks. But definitely, improvement is going to be witnessed as compared to Q1.

Next question is Parag Chauhan from UTI Mutual Fund.

Sir, this is Parag again from UTI. Coming to the renewables side, so is there now -- I mean, all our projects which are under construction are already commissioned? Or is there still some pipeline remaining for the renewable projects? And what is the outlook?

No. All the projects, 709 megawatt, they are all commissioned. So there is no project which is not commissioned as of now. So 10 megawatt, 120 megawatt, 500 megawatt, 709 megawatt and the Andaman's 20 megawatt, all the projects are commissioned.

Okay. Going ahead, are there any new projects which we are planning to take up on the renewables side?

Yes, yes. We have an ambitious target of enhancing our portfolio of renewables. In this current year, we have signed an MoU and joint venture has also been signed between Coal India and NLC for setting up the solar power project to the extent of 2,000 megawatt. And we are exploring the possibility, not only for setting up the solar projects on the mining land of Coal India, but also participating in the tender of Solar Energy Corporation of India.

Next question is from Mohit Kumar.

Yes, sir. Sir, a few questions, sir. First is, sir, what are the cost of 20 megawatt solar power, which you commissioned in Andaman and Nicobar Island with battery energy storage? Sir, what is the cost and how much you can store? Can you store 100%, 20%, 30%? Can you just let us know the number? And what is the expected cost per unit?

Yes. I will request Director, P&P, Shri NNM Rao, to give you the replies on this. This was a unique project, which is our right and it has been commissioned. Now Mr. Rao will brief you on.

Regarding Andaman project, it is a 20 megawatt solar project with 8 megawatt hour battery. Means it comes to around half an hour battery backup will be there, that also during daytime. Actually, this battery storage is meant for the smoothening of the power. It is not basically a storage system, though it is called as a storage system because as you know that in Andaman, there is a lot of cloud -- clouds will come very oftenly. So during that time, to avoid the grid disturbance, this battery storage will be helping. So for 5 minutes, 10 minutes, when that cloud cover will go, again, generation will start. During that cloud cover time, this battery will support. So in this -- this is half an hour backup for the total system. And regarding the cost, the total cost of the project is INR 130.77 crore and expected tariff is around INR 6 after we got that VGF from the MNRE. Around 25% we got the VGF from the MNRE. So tariff will be around INR 6.

So is it a lithium-ion battery or is it some other lead acid battery?

No. It is not lead acid. It is a lithium battery, Mohit.

And sir, who are the manufacturer?

It is from South Korea, LG. LG, South Korea.

Understood, sir. Secondly on sir, Talabira-II and III, so I believe the coal must be getting supply to the NTPL or some other power plant. So what is the plan -- what is the ramp-up plan? And what is the kind of the fixed cost recovery or ROE expected from the mines? How much is the equity invested?

Yes. Talabira project, it is -- the total project cost is INR 2,401.07 crore. And so far, we have spent INR 737.86 crore. And the coal production is going to gradually start ramping up to the maximum level that is the peak-rated capacity. I will request our Director, Mines, Shri Prabhakar Chowkiji, to throw some light on this.

If you look at Talabira-II and III coal project, it is expected to reach its peak level of 20 million normative and for that matter 23 million peak capacity by 2025/'26. This year, we have targeted for 1.25 million tonnes. And next year and the year for 2021/'22, it would be producing 4 million tonnes. And there on, it will be 6 million tonnes and so on. So things are in place. All the infrastructural facilities that are being built up are in place, like railway lines, handling rapid loading system. And the clearance that are required to ramp up the production with regard to environmental clearance, with regard to forest clearance, everything is in place. So we are on the right front. We believe that this project would progress well. That's what come to mind in front.

Question is, sir, will we recognize any profit from these mines in this financial year as we go forward? Or will you wait for the commercial operation to -- with commercialization of mines to be declared to recognize any profit?

Yes. The project is under capitalization. And the coal has started being explored. And we are tying up that till such time we are having all the contracts in place for transportation of coal from Talabira to NTPL. We are -- we have signed an MoU with Mahanadi Coalfields Limited, in line with the agreement with Ministry of Coal, to sell the coal to MCL, and they will be auctioning the coal. So as the coal is going to be sold, already agreement is signed, so the first auction is expected shortly. And after this realizable value of coal price, definitely, we are expecting some profit in this financial year also.

Okay. So this is not -- isn't this a cost-plus mine, sir, so that by CERC we can earn only 14%? Am I right in my understanding? Or is there something I'm missing?

No, the pricing of the coal, again, will be decided by CERC. So it is expected that regulatory body will also allow some return to the mining company. On that basis, I am just mentioning this. We will wait for the regulatory body, CERC, to come up with the guidelines. Based on that, we can finalize the figures, and we can get the clear picture in the next few months.

All this Talabira-II and III and all our lignite mines will be covered by the new CERC regulation. Am I right, sir?

Yes, yes. All the lignite mines of Neyveli and Talabira and South Pachwara are expected to be covered by CERC regulations.

Sir, the -- on the, sir, NNTPL, the new power plant of 5 or 1,000 megawatt, sir, are we in -- will we recognize the tariff on provision basis for time being till the time the CERC gives us a tariff? Or is based on expected -- as a fixed cost?

Basically, we have filed the petition of NNTPL. And based on the filing, until such time, CERC gives the decision, we will be charging the tariff as per the -- our filing. And based on the final order from CERC, we will be doing of or adjusting the same.

Okay. Understood, sir. Sir, just on the renewables, sir, can you just give us a top line EBITDA and PAT contribution for FY '20 for the entire capacity of renewables?

Yes. In case of renewable, this is the initial phase of the renewable, which is taking its toll. How they will get connected to the grid, how it will be commissioned, they are the initial problems. Therefore, the profit cannot be expected from the renewable in a much expected level. So in FY '19/'20 -- FY '20, our profit before tax from the total renewable projects was INR 35.77 crore.

Sir, about top line and EBITDA, do you have this number with you?

I think our revenue was INR 517.92 crore. And we will be giving you the EBITDA figures shortly.

Sure. So that will be fine. I'll take it off-line, sir. Sir, last question, sir, on the RTM market. I saw the NLC participating in a big manner compared to the other generators. So does the RTM market has added positively to your profit in FY in June and in Q2? And why we -- why our reliance -- our reliance on RTM market has gone up compared to the other power plants?

Basically, this RTM mechanism has come as a good support, silver lining for us because we are uniquely positioned that in case of our -- both the businesses, which are regulatory in nature, we are able to have some flexibility on the pricing. So from 1st June, this RTM trading has started. And up to the 25th September, today, we have traded 331 million unit, which has generated revenue of INR 76 crore. And in June itself, we achieved 111.2 million unit, earning a revenue of INR 24.12 crore. So average credit price is INR 2.27 per unit per kilowatt hour. And our net realization is INR 2.10 per kilowatt hours.

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to Mr. Mohit Kumar for closing remarks.

Thank you, everyone, for participating in the call. And sir, do you have any comments to make, sir, before we close the call?

Yes. Before closing, I just wanted to thank all our valued stakeholders, our investors, for the opportunity given on behalf of senior management of NLC India Limited. I just want to assure that we are committed, and we will continue to progress on the professional lines and try to achieve the high trajectory of growth which has been set already in our corporate plan. And we will continue to strive our best to meet the expectations of the shareholders. Thank you very much.

Thank you very much. On behalf of IDFC Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.