Power Grid Corporation of India Limited (POWERGRID) Earnings Call Transcript & Summary

On behalf of ICICI Securities, we welcome you all to the Power Grid Q3 FY '20 results conference call. We have with us the senior management of the company, comprising of Shri K. Sreekant, Chairman and Managing Director; Shrimati Seema Gupta, Director of Operations; Shri R.K. Chauhan, Director of Projects; and Shri V.K. Singh, Director of Personnel, along with Shri K.S.R. Murty, CFO; and Ms. Divya Tandon, Company's Secretary. Thank you for the opportunity. Over to you, sir. Thank you.

Thank you, Rahul. I'm Sreekant, Chairman and Managing Director of Power Grid, and welcome you all to the Power Grid Q3 FY 2020 Earnings Call. On this call, we have Mrs. Seema Gupta, Director Operations; Shri R.K. Chauhan, Director of Projects; Shri V.K. Singh, our new Director Personnel; Shri Sanjeev Singh, ED with CMG; Shri Anil Jain, ED, Corporate Planning; and our CFO, Mr. K.S.R. Murty and other officials. On 31st January 2020, the company has announced unaudited financial results for the third quarter. And I hope you have the opportunity to go through them. And let me begin with the performance highlights for the quarter and 9 months ended 31st December 2019. Project execution: The company and its subsidiaries added about 3,566 [ circuit ] kilometers of transmission lines, 3 number substations and 27,985 MVA of transformation capacity during the 9 months ended 31st December 2019. During the Q3, major elements commissioned include Pole III of plus/minus 800 kV Champa-Kurukshetra HVDC project in October '19; 765 kV double circuit Bhadla-Bikaner line, October '19; 400 kV single circuit Singrauli-Allahabad in October '19; Purnea-Farakka portion of 400 kV double circuit Rajarhat-Purnea line in November '19; second circuit of 400 kV Edamon-Muvattupuzha line in December '19; and STATCOMs at Udumalpet and Trichy in December '19. After the quarter ended December '19, we have also commissioned the balance elements of Power Grid tariff-based competitive bidding subsidiary, the [ PSITC ]. This is the -- these elements are the 765 kV double circuit Vemagiri-Chilakaluripet and Chilakaluripet-Kadapa lines in the Chilakaluripet substation. With this, we have 8 TBCB companies which have become fully operational. CapEx during quarter 3 was INR 3,953 crores, which included INR 977 crores of CapEx by the subsidiaries. For the 9-month period, the CapEx on stand-alone and consolidated basis was INR 8,125 crores and INR 10,485 crores, respectively. This year, we are targeting to incur CapEx of INR 15,000 crores on a consolidated basis, and we are likely to meet the CapEx guidance. Capitalization during the quarter ended December 31, 2019, the company capitalized assets worth INR 5,230 crores, excluding FERV, of which INR 60 crores are attributable to TBCB subsidiaries. The total capitalization for the 9-month period is INR 10,917 crores, including INR 253 crores attributable to TBCB subsidiaries. If we add capitalization of approximately INR 2,770 crore in January 2020, on account of PSITSL and other assets, capitalization in the current year till January 20 is approximately INR 13,700 crores. The company envisages a capitalization of INR 20,000 crores to INR 25,000 crores during the financial year '19/'20, on a consolidated basis, subject to completion of some elements of the Raigarh-Pugalur HVDC project. As I mentioned in the previous interactions, there we were facing severe RoW issues in the past. Much of it has been resolved, and the progress has picked up in the project substantially, and we are making all efforts to commission the same in this financial year. The capital work in progress as on 31st December '19, on a consolidated basis, was INR 37,956 crore, including INR 6,279 crore attributable to the TBCB subsidiaries. Coming to operational highlights. Power Grid's total transmission network, including that of its subsidiaries, as on 31st December '19, comprised of [ 1,61,864 ] circuit kilometer of transmission lines, 248 substations and 399,897 MVA of transformation capacity. With the use of state-of-the-art technologies, automation and digital infrastructure, the company continued to maintain very high levels of availability and reliability of its transmission system. The average availability of the Power Grid's transmission system up to December '19 was 99.81%, while the tripping per line during the period was contained to 0.32 trippings per line. Turning to the key financial highlights for the quarter and 9-month period ended 31st December '19. The total income increased by 7%, both on stand-alone as well as consolidated basis. On the stand-alone, the total income for the quarter was INR 9,497 crore as against INR 8,890 crore in Q3 FY '19. On a consolidated basis, the total income increased from INR 8,879 crores in Q3 FY '19 to INR 9,541 crores in Q3 FY '20. For the 9-month period ended December 31, '19, the total income on a stand-alone basis was INR 27,908 crores, which was 7% higher than that achieved in the corresponding period of FY '19. While on a consolidated basis, the total income increased from INR 25,793 crore (sic) [INR 25,973 crore] to INR 28,163 crore, registering a growth of 8%. EBITDA for the quarter was INR [ 8,588 ] crores and INR 8,621 crores on stand-alone and consolidated basis, respectively. For the 9-month period, EBITDA was INR 24,769 crore and INR 25,124 crore, respectively, on stand-alone and consolidated basis. In Q3 FY '20, the stand-alone profit after tax was INR 2,673 crore versus INR 2,332 crore in the corresponding period previous year, registering a growth of 15%. On a consolidated basis, profit after tax in Q3 FY '20 was INR 2,672 crores as against INR 2,346 crores in the Q3 of FY '19, an increase of 14%. For the 9-month period, the PAT on a stand-alone basis was INR 7,629 crores, which is 11% higher than that achieved in the corresponding period of FY '19. And similar growth was there on a consolidated basis as well. Other financial highlights. The company's gross assets as on 31st December '19 stood at [ INR 2,18,838 crore ] on a consolidated basis and [ INR 2,09,163 crore ] on a stand-alone basis. The company's net worth stood at INR 65,188 crore on a consolidated basis and INR 65,042 crore on a stand-alone basis. Total long-term debt as on 31st December was INR 1,44,027 crore on a consolidated basis and INR 1,43,737 crore on a stand-alone basis. The debt-to-equity ratio was 69 to 31. Financial highlights of the subsidiaries. As of 31st December '19, 7 TBCB subsidiaries were fully operational and PSITSL was part operational. Aggregate EBITDA of this TBCB subsidiaries was INR 391 crore, and INR 1,159 crore for the quarter and 9 months ended December '19. For the 9-month period of the current financial year, total income in fact for all subsidiaries on an aggregate basis was INR 1,193 crore and INR 242 crore, respectively. Power Grid has received a dividend of INR 145 crore from its operational subsidiaries for the 9-month period of current year as against INR 71 crore in the corresponding period of the previous year. Total of 11 TP subsidiaries are currently under implementation, of which 7 were secured in this financial year. Of the 11 subsidiaries under implementation, 7 are in the interstate and 4 in the intrastate. Trade receivables as on 31st December on a consolidated basis were INR 5,715 crores and INR 5,539 crores on a stand-alone basis. Book value as of 31st December was INR 124.33 on a stand-alone basis and INR 124.60 on a consolidated basis. The company realized an amount of INR 24,957 crore against a billing of INR 25,721 crore for the 9-month period ended December 31. Other business segments. Telecom. Telecom income in the quarter 3 was INR 174 crore as against INR 176 crores in quarter 3 of FY '19. And for the 9-month period, Telecom income grew about 6% to INR 517 crore. On the operations side, the cumulative backbone availability for the quarter was 99.92%. About 40 new customers were added during the quarter. I will now touch upon the issue of AGR-related license fee demanded by DoT. During our analyst meet in November '19, we had explained as to why the additional demands by DoT were not in line with the license conditions. And therefore, the Supreme Court order was not applicable to Power Grid. Based on the legal advice, we have filed an application before the Honorable Supreme Court for clarification [indiscernible] modification of its order dated 24th October '19, and our next course of action will be based on the outcome of this application. On the Consultancy business, our income for the quarter was INR 143 crore, and for the 9-month period was INR 439 crore as against INR 155 crores and INR 442 crores in the corresponding period of previous financial year. 7 new orders were received during the quarter. These include renewable energy generators and state power utilities. We have entered into an MoU for project management consultancy for transmission system to evacuate power from 1,500 megawatts of solar projects in Madhya Pradesh. During the quarter, Power Grid became the first Indian PSU to be accredited as Registered Education Provider of Project Management Institute. With this accreditation, Power Grid aims to provide various corporate and government agencies with relevant project management skills. And this is expected to provide an additional opportunity for consulting in the area of training and project management. On the international business front, total 15 assignments are -- were ongoing as on 31st December in Nepal, Kenya and Bhutan and other countries. We have secured 5 assignments during the quarter in Nepal and Bangladesh. These assignments were secured amidst stiff competition from global consulting firms. During the quarter, Power Grid opened in Kathmandu its first international branch office. The company also signed a cooperation agreement with Africa50 in November '19 for evaluating opportunities for development of transmission infrastructure in Kenya on PPP model through a joint venture in which Power Grid shall have equity stake. Other businesses, energy management. During the quarter, Power Grid signed an MoU with NIT Warangal to provide sustainable energy solutions in areas like space cooling, heating, water pumping, waste to energy. Discussions were also held for replacement of agricultural pumps under an annuity model in the state of Bihar. EV charging. During the quarter, fast chargers were installed at 2 more locations at Hyderabad, taking the total Power Grid chargers in Hyderabad to 4, and 2 more are under implementation. A charging station is also in operation at Kochi. And recently, Power Grid has also been sanctioned to deployment of 11 number EV charging stations, comprising 55 chargers in Shillong, Meghalaya, under FAME Phase II scheme of the Government of India. Business outlook. As on 31st January '20, the works in hand stood at about INR 61,000 crore, comprising of ongoing and new works [indiscernible] I mean in the RTM framework, about INR 48,000 crore; and TBCB works of about INR 13,000 crores. These include projects worth about INR 3,384 crore assigned to Power Grid on regulatory tariff mechanism in the month of January 2020. Projects in pipeline. For various RE integration in -- of the RE potential zones, the transmission schemes of about INR 42,900 crores are expected to be executed. Of this, INR 14,700 crore of works have already been allocated, awarded till November '19. Subsequently, INR 2,900 crore works have been assigned to Power Grid on RTM basis. And another INR 11,000 crores have been recommended for implementation through TBCB. Of this, bills have been floated for 2 projects, estimated at about INR 1,250 crores. In addition, intrastate transmission works in Jharkhand estimated at about INR 5,400 crore are also under bidding. Awards and recognitions. During the quarter, the company won the D&B Infra award for 2019. With this, I conclude the initial remarks and would be happy to receive your questions.

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

My first question is on CapEx for FY '21. So basically, we looked at the union budget documents, and there it was mentioned that Power Grid has been earmarked with a CapEx of INR 105 billion for FY '21 versus INR 150 billion in FY '20. Your comments, please? And how much would be stand-alone and how much TBCB?

Yes, there is -- INR 10,500 crores is what is the expected CapEx for the 2021. This is on a consolidated basis.

How much of this roughly do you expect to be under TBCB, given that you have about INR 13,000 crores of TBCB projects in hand?

I'll give you that number separately. I mean -- just let the question pass, I'll give you this number separately.

Sure. And after your guidance of capitalization of 200 -- INR 250 billion this year, how do you see it panning out over FY '21, '22 with the works in hand that you have and the fact that CapEx next year is going to fall further?

See CapEx -- capitalization will arise partly from the CapEx and mostly from the works which are currently under execution, the CWIP which we have. Next year, the capitalization will be of the order of INR 15,000 crores. And out of the INR 10,500 crores, about INR 6,000 crores is on account of regulated business -- I mean -- I'm sorry. TBCB is about INR 3,400 crores. The rest will be on a stand-alone basis.

Got it. And when you say capitalization of INR 15,000 crore next year, that is on a consolidated basis? How much of that is expected to be TBCB roughly?

Next year, of the INR 15,000 crore, we'll just give you the TBCB capitalization separately. I'll give you that number, okay?

Sure. And sir, when you said that your works in hand is INR 61,000 crore, could you break that up into ongoing projects, new projects and TBCB projects as you usually do? I couldn't get those numbers.

Ongoing is INR 41,200 crores, new INR 6,800 crores. I gave you INR 48,000 crores as RTMs and INR 13,000 crores as TBCB.

Okay. So this is explaining that breakup. INR 41,200 crores plus INR 6,800 crores plus INR 13,000 crores?

Right.

And finally, in the new wins that you have had since your second quarter analyst meet, could you give some color on how much has been won? And how much is through RTM? And how much is TBCB?

Since the second quarter, we have got around INR 2,900 crores of works. On -- INR 3,384 crores were assigned on regulatory tariff mechanism in the month of January '20. There was no bidding in the TBCB after second quarter.

Okay. So basically the third quarter, INR 2,900 crores was entirely TBCB?

No, no. RTM.

INR 3,300 crores.

You gave 2 numbers. One was INR 2,900 crore.

No, no.

In '20 [Foreign Language] INR 2,900 crores is because of renewal. Yes.

We said, INR 2,900 crores related to renewable energy zones and 438 are -- [ INR 435 crores ] are other ISTS works. Roughly around INR 3,384 crores were assigned to us under RTM.

Okay. This is all RTM. Okay.

The next question is from the line of Abhishek Puri from Axis Capital.

Sir, could you elaborate on the dividend numbers that you have given for the quarter, that is INR 148 crores, right?

INR 145 crores.

INR 145 crores.

[indiscernible] has been received as dividend, which is INR 71 crores more than what we received in the last year.

And this is largely coming in from TBCB? Or is it from -- what will be the TBCB number?

We're talking of operational subsidiaries.

But operational will also have JVs also. This includes for JVs also? Or this is only from TBCB?

We are talking of operational subsidiaries, TBCB.

Right. Okay. That's INR 145 crores in the current quarter?

9 months.

9 months.

9 months. Okay. Okay. Okay. Got it. And secondly, with this new dividend distribution, tax removal from your -- from the company side, what is the thought process there? So the entire amount that was pushed out through tax will also be included in the dividend going forward?

More likely, from the company point of view, you're talking of Power Grid payment of dividend?

Yes.

That is very likely. Because that much of dividend will be reduced from the companies [indiscernible] to the government. I think they will increase the payout. Very likely.

Okay. And lastly, in terms of the utilization of cash going forward. And you are making close to about INR 11,000-odd crores profit now plus depreciation -- similar depreciation, and CapEx rate is going down to about INR 10,000-odd crores. So you'll be generating significant amount of additional cash flows? What are the debt repayment schedule that we have over the next couple of years? And potential to increase dividends?

No, no. Debt repayment will have to be met out of depreciation. Depreciation recovery cannot be used for payment of dividend. Okay? So we will have to balance between whatever is the CapEx and increase the payout of dividend if we have no CapEx to meet. So -- and that has been the trend so far. Successively, we have been increasing. And last year, we paid [ INR 8.33 ] overall dividend. Definitely, we will not like to keep idle cash.

Right. And if I may ask 1 more on the potential pipeline that you mentioned, you've said that INR 14,000 crore is ordered out, and balance is 30,000-odd -- or INR 28,000-odd crores has to be bid out?

Right.

And what is the pipeline? When will it be bid out? And if you can highlight on the other intrastate projects apart from Jharkhand that is available?

See, intrastate, the pipeline is not as usual as we expected. Interstate, we are expecting about INR 12,000 crores [ of works ] in the next 3, 4 months to be bid out.

That's from TBCB or intrastate?

Interstate, TBCB.

Interstate. Okay.

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Could you give us some color on the dividend? Because this year you have paid only INR 2.5.

That was the final dividend of the last year, right? So...

Because you haven't declared any dividend in this quarter, so I was just wondering on...

We will declare in the month of February and pay it in the month of March, more likely. Likely, [ we every time ] pay interim dividend only in the month of March. Similar time lines, you can expect a dividend payout.

Sure. And just going back to the earlier question. Given that your CapEx is declining, and now the dividend distribution tax is also gone, would it be comfortable for you to pay out 60% of your profits because the depreciation takes care of debt repayment?

No, it depends on the -- see, 60% payout is very likely. There should not be any issue.

Okay, fine. Yes. And just a last question. We have seen some intrastate TBCB projects from states like U.P. If you can give some color on a 3-year basis, maybe not 1 year, what is the total opportunity that you are seeing from the intrastate on TBCB? And are you seeing more states going the TBCB route vis-à-vis the regulatory tariff mechanism?

See, states are following 3 models. Some states are doing it themselves. For example, Kerala or even Tamil Nadu, Andhra -- Telangana, they do it themselves. So we don't even know what is the opportunity and what kind of work they are doing. States like U.P., Jharkhand, they are coming out with TBCB project. So Jharkhand, I have told that there is about 2,000 -- INR 5,400 crores, which is under bidding. But this has been under bidding for quite some time now. It is not progressing into award stage. So state project pipeline to predict for 3 years is quite tough. What is likely to come out is very, very difficult.

Okay. And any color on the projects for connecting Leh for the solar or connecting projects for Bangladesh and Sri Lanka?

Bangladesh, nothing much significant is coming up. In fact, there was an HVDC link, which was to be under consideration, but then the Bangladesh government, they -- the Bangladesh Power Department has now expressed that this is no more required. As far as Sri Lanka is concerned, discussions are in progress. Instead of crossing the sea through an undersea cable now, overhead line possibility is being explored. So that is under active consideration of the Joint Working Committee and JAC formed between the 2 governments.

And Nepal also -- Nepal, Bhutan or...

Nepal, already 1 line has been approved between...

Gorakhpur.

Gorakhpur and new Butwal. New Gorakhpur and New Butwal. That has been approved as a joint venture between NEA and Power Grid by the Joint Working Committee. It's a small line. I mean about INR 400 crores is the investment. And then Arun III, there is already 1 line, which is being developed by the joint venture, or the subsidiary of SJVN, which is developing this project. And we are providing the project management consultancy for implementation of this project. So generation asset is not very much visible in Nepal. And generation where the power will flow into India, that is still not clear. So hasn't -- there is immense potential. They talk of 20,000, 25,000 megawatt of hydro potential. And few months back, there was a discussion between our power -- Union Power Minister and the Honorable Prime Minister of Nepal in improving this interconnectivity and promoting the hydro of -- potential of Nepal. So in the long run, more interconnections between Nepal and India, Bhutan and India, India and Sri Lanka are expected.

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

Sir, for the 7 TBCB projects which were operational and which had INR 242 crores PAT, what was the corresponding equity invested in all of them?

I'll just give you the equity investment [indiscernible] TBCB [indiscernible]

[Foreign Language]

All TBCB projects?

[Foreign Language]

30.

30, 30%.

The total investment in all TBCB is about INR 2,500 crores. Of these projects, it will be roughly around 16 -- INR 1,500 crores to INR 1,600 crores.

The next question is from the line of Mohit Kumar from IDFC Securities. As there is no response, we'll move to the next question.

Just a minute. There was a question regarding capitalization next year, how much TBCB and how much RTM? The -- out of INR 15,000 crores estimated, INR 1,250 crore is expected out of TBCB, and the rest will be through RTM projects.

INR 1,163 crores operational.

INR 1,163 crores.

Can we move to the next question now? It's from the line of Apoorva Bahadur from Jefferies.

Sir, I wanted some update on the InvIT that we were planning and we discussed in the last analyst meet. So what has been the update there? And if you have identified which assets will be moving?

The update is that we have engaged the merchant bankers, the lawyers and various agencies. Application has already been made to the SEBI for creation of the trust. At this point of time, we are contemplating to shift some of the TBCB assets to the InvIT, given that there are some taxation and stamp duty issues associated with transfer of RTM assets.

[ Sir, does the size ] will be significantly smaller than, I think, the INR 10,000 crores target that government was probably -- had given?

Not necessarily. Depending on the time line and all, we are expecting to move enough assets to raise around INR 10,000 crores.

Okay. Got it, sir. Sir, some time back, we had formed a JV with NTPC, I believe, in the power distribution space. What has been the progress over there? And if you see some -- any opportunities coming up, given that most likely the Electricity Amendment Act will be passed?

No, there has not been much progress on this JV front.

Okay. Got it, sir. Lastly, if I may know, if there were any one-offs in this quarter's results?

Nothing [indiscernible] has been disclosed. I think there have been a few order impacts which were disclosed.

The next question is from the line of Mohit Kumar from IDFC Securities.

Two questions. The first, sir, what was the trade receivables greater than 45 days? And have you seen it coming off in January?

No, it has been increasing, unfortunately. It is not yet -- it is not on a declining trend yet. And above 45 days, the outstanding is -- I think I'll just [ give ] the number. Outstanding more than -- is INR 3,658 crores.

INR 3,658 crores will get to the 45 days?

Right.

Okay. Out of INR 5,000 crores? That's a significant number.