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

Good morning, everybody. Thank you for joining us for the Q1 FY '22 Post Result Virtual Meeting of Power Grid Corporation of India Limited. On behalf of ICICI Securities, we would like to welcome the POWERGRID senior management led by Mr. K. Sreekant, CMD. Thank you, sir, for sparing your time. From the management along with CMD, sir, we've got Mrs. Seema Gupta, Director, Operations; Mr. V.K. Singh, Director, Personnel; Mr. Taj Mukarrum, Director, Finance and CFO; and Mr. Abhay Choudhary, Director, Projects. I would like to hand over the floor to CMD, sir, who will give a detailed presentation, post which we will have a Q&A session. Thank you, and over to you, sir.

Thank you. A very good morning. I'll just start with a brief presentation on the Q1 results for FY '22. Is the presentation visible?

Yes, sir.

Thank you. We'll be covering over the performance highlights, work in hand. As of 30th June, POWERGRID has grown to have 1,68,457 circuit kilometers, 1,310 and 4,400 -- 4,40,310 MVA transformation capacity at 259 substations. The interregional transfer capacity has grown to 90,090 megawatts, roughly 85% of India's interregional capacity. Market cap has grown to INR 1,23,000 crores, which are the third largest CPSE in terms of gross block. Briefly, in terms of the project execution, this quarter, we have done a CapEx of more than INR 1,100 crores and capitalization of INR 5,642 crores on a consolidated basis. Some of the key projects which got completed, transmission lines, 1,716 circuit kilometers. Ajmer-Phagi, this is a TBCB project completed. Jigmeling-Alipurduar, this is a cross-border interconnection with Bhutan for evacuation of Mangdechhu hydropower, this has been completed. Wardha-Aurangabad, long-standing line, this is the first 1,200 kV line which is, of course, charged initially at 400 kV. Sitamarhi-Motihari, Sitamarhi-Darbhanga are 2 lines under the -- our POWERGRID Mithilanchal TBCB project, these have been completed. Baharampore-Bheramara circuit 3 of second double-circuit line, this is the lead through Bangladesh. And Pugalur-Thrissur HVDC, the Monopole-I has been completed, with this to enter VSC system of 2,000 megawatt has been completed. We added one substation 400/220 kV at Sitamarhi under the Mithilanchal, and various ICTs have been added across the country for about 9,400 MVA. Coming to the operational performance. Availability has been 99.77% in this quarter, above the 99 point -- full incentive threshold. Trippings, flat. We had faced a couple of cyclones in this period, both on the East Coast as well as the West Coast and [ turnaround ] unstacked. There has been significant improvement in our preparedness for these cyclones. And also, we have developed the app in-house for the -- our patrolling. So far, we have been using a third-party app. Now the app has been developed in-house. It will provide greater inputs and also consolidate data analytics going forward. Coming to the financial performance. I'm sure you have seen the results and made an analysis at completion. Income has grown by about 9% on a consolidated basis to INR 10,392 crores, up from INR 9,817 crores. PAT is INR 5,998 crores. This includes the profit we have made on InvIT, which is shown on the slide next. And the -- excluding the exceptional items, that is the -- primarily the InvIT in the current year and the rebate which we gave last year, so if we do exclude these 2 exceptional items on a comparable basis, profits are up to INR 3,341 crores from INR 2,935 crores on a consolidated basis. This is a snapshot of the financials of the InvIT as far as POWERGRID is concerned. We have sold 74% equity holding in 5 SPVs. These SPVs were having 3,698 circuit kilometers and 6,630 MVA and 3 substations. Gross block was INR 7,239 crores. Equity deployed was INR 1,213 crores for the 100%. The Trust was valued INR 9,100 crores for the 74% equity. It had a component of Fresh Issue, INR 4,993 crores. This is primarily the debt provided by POWERGRID to the SPVs. And then for the equity, we transferred 74%. We received INR 4,107 crores, partly by way of units and partly by way of cash. 15% of the post listed units, that is about 1,350 crores, we had 65 crores, 13.65 crores of units we retained, the rest we offloaded. The 74% stake was about INR 898 crores. Expenses is about INR 40 crores. So we recognized a profit of INR 3,170 crores this quarter. These are the financials. Revenue, up 9%. We see a telecom dip of 42% in this. This is primarily because of a settlement we made with the BSNL. We had contracts which were not renewed since '18, '19. So '18-'19, '19-'20 and '20-'21, these 3 years, we had to agree on pricing and enter into a settlement that resulted in a rebate being offered about INR 86 crores. So that is the reason for this dip in the telecom revenue. Other income reduction is mainly on account of surcharge. Operating expenses, commensurate with the revenue growth. And reduction in interest because of debt repayment and reduction in the working capital borrowings as well. The exceptional item is shown. This is primarily this year on account of the profit from the InvIT. And last year, it is from the rebate we offered to the customers. Our consolidated results also are on the same lines. There is nothing different here. Gross block is today on a consolidated basis INR 2,47,421 crores; capital work-in-progress, INR 21,000 crores; INR 1,40,000 crores debt on the books; INR 76,139 crores net worth. EPS is INR 8.60. This includes the onetime InvIT profit. And book value per share is INR 109. Return on net worth is, again, inclusive of the profit from share as -- the InvIT. Some of the inputs you always ask, we try to put it. Surcharge, as you can see, has come down from INR 265 crores last year to INR 55 crores. On the back of payments as well as the reduction in the rate of surcharge, incentive income is more or less flat. Income from subsidiaries, INR 231 crores; dividend [Audio Gap] There is nothing significant in terms of [indiscernible]. Receivables, we have INR 7,619 crores. We have a separate slide on receivables, which we will be talking about. The other 2 segments, which are transmission, telecom, income was INR 97 crores. As I mentioned, INR 86 crores we had to offer rebate to BSNL for the past 3 years to settle the outstandings and the issues with them. Our network availability, 99.99%. We received the CERC approval for formation of telecom as a separate subsidiary. We are going to do it in the current quarter. Consultancy income has picked up a bit on the back of our North East contract which we are doing for the government for the NERSIP projects. The telecom network, I'm very happy to share that we have added roughly 6,300 kilometers of OPGW from DVC as well as West Bengal. So this adds to our network and provides us greater access in the Eastern states of West Bengal and Jharkhand. Commercial performance. Last year, we had, at the end of June, INR 8,243 crores. We were facing the issue of lockdown and COVID, and therefore, the outstandings were much higher. This year, in March, we -- because of our [indiscernible] models as well as the March collection [ buoyancy ], receivables came down to INR 3,583 crores. But end of June '21, we have again gone up to INR 7,080 crores. We had the second wave, therefore, collections were much lower in the month of April and May. June, that picked up. In July, we expect again to pick up. We are taking action in terms of notices for regulation [ pursuits ]. We hope to see a settlement particularly from Uttar Pradesh and J&K where we have large [indiscernible], and they are expecting some loans from PFC, REC, and this is expected to be cleared shortly. Works in hand today, there are about INR 35,000 crores. Normal -- our RTM projects are about INR 18,000 crores; and TBCB, INR 16,800 crores. Interstate transmission network works which are coming up, INR 9,300 crores; and the intrastate, INR 1,500 crores primarily in the state of UP. There are a few projects under intrastate. Besides these, I would also like to talk about the recent distributed -- distribution package, reform package, which has been announced by the government where an outlay of 3 lakh crores -- 3 lakh, 3,000 crores is expected. In that, the GBS support is of the order of INR 96,000 crores or so. So there is an opportunity for the investment of 2 lakh crores to come from either the state utilities or the private sector or the CPSUs. This has distribution infrastructure augmentation, roughly 1 lakh 50,000-odd crores; and smart metering, about another 1.5 lakhs. So we are looking at opportunities in this segment. We have identified a few areas where we can participate along with the DISCOMs or the state utilities in strengthening their infrastructure or augmenting the meters work and take it up with them. So this quarter, we are going to approach several of these state utilities and offer our services to support them in making the investment, also in the consultancy or project implementation. But our focus will be to support them through our low-cost funding options. And finally, happy to share that this year, we have been ranked 68th among the India's top 100 best companies to work by the Great Place to Work Institute. Last year, our rank was outside of this 100, and very happy to share that this year we have improved by more than 30 positions. And we are also recognized one of the best employers among nation builders. So I conclude the presentation here, and we'll be happy to take up your questions. Thank you.

Thank you, sir, for the detailed presentation. We will now begin the Q&A session. [ Divya ] from ICICI will be coordinating along with us. Thank you. [ Divya ], I hand over to you.

Thank you, [ Rahul ]. We take first question from the line of Mohit Kumar from DAM Capital.

Congratulations on a good set of numbers. So my first question is, sir, on the P&L, is the tax impact of gains booked on InvIT is around 20% of INR 32 billion, which has been booked, roughly INR 8 billion? Is that number right?

The tax impact is only on the units which have been sold, and we have provided about INR 350 crores on account of tax for this.

INR 3.5 billion is the tax impact. Am I right?

Yes. INR 3.5 billion on account of the InvIT, yes.

And so the income from the InvIT could get booked as other income. Is that understanding right? And we haven't booked anything in the Q1, but as we go forward in Q2, it will become as a part of other income. Is that understanding right?

No, we have booked everything in Q1. We have disclosed it as extraordinary item in the P&L.

No, no, I'm trying to -- I'm asking that as we go forward, the dividend from InvIT, will that get booked as part of the other income? Or the InvIT -- the entire income of the InvIT will be booked as an associate income in our P&L?

No, it will be booked as other income as and when the dividend is received.

Understood. So lastly, on the TBCB, bidding had been on the lower side in the last -- I think the past 12 months. There was some bidding which happened in the March or, let's say, Jan and Feb. How do you see going forward in the next 12 months and 8 months? How is the activity right now?

As I have shown, about INR 9,000 crores of projects are currently under closed-door bidding. A few schemes have been notified by [indiscernible] recently. Depending upon the progress in the RE, these will be taken up.

Is there something on the intrastate which should happen or should we believe there is some momentum?

In the intrastate, there is a momentum. There is a scheme for Mohanlalganj transmission network of UP. I think UP is the one where we are seeing some movement.

Next question is from the line of [ Seeta Ramanal ] from Spark Capital.

Okay. On the TBCB pipeline that you mentioned, which is close to INR 9,300 crores, can you give the details of the projects, please?

These are mainly for the RE projects in Rajasthan and Gujarat.

Okay. And on the InvIT sale, the sale of 5 assets, we see that the debt is -- that out of the entire enterprise value of INR 9,000 crores, close to INR 4,000 crores -- close to INR 5,000 crores is debt, and close to INR 4,000 crores the equity part of it. So what was the book value of this particular equity, the set of 5 assets that you sold?

The equity deployed was about INR 1,200 crores. But the 74%, it was INR 897 crores.

Yes.

Next question is from the line of Akhilesh Bhandari from IPRU MF.

Any particular time line for further monetization of the TBCB subsidiaries which you have in mind?

We have no plan to monetize any further in the current financial year. Next financial year, again, a similar asset value is likely to be monetized. Depending -- the monetization will also take into account the TSA conditions and completion of assets. So in fiscal '22, '23, we can do maybe another INR 7,000 crores, INR 7,500 crores of monetization. Overall, we are targeting, say, about INR 7,500 crores next fiscal and then INR 15,000 crores for the next 2 years each year.

Okay. Sir, and you mentioned that the collection rate has been improving sequentially. So any number which you can put for June and July what was the collection against the billing?

June and July. July, let me just give that...

130%.

130%.

July is about 130%. June was close to...

90%.

90%.

Okay. Sir, any update on the Leh, Ladakh project? Last quarter, your presentation had a slide on it, but this quarter, there is no slide on it. So any further updates on that?

No, I thought I'll give the slide when it is allotted to us because right now, I can only show a file movement. The DPR has been submitted, and it is in the consideration of the Ministry. And the preliminary thoughts are gearing towards giving it to POWERGRID under the RTM route. Those discussions are still on. There is no slide does not mean it is out of consideration. It is still there very much.

Yes, sir. Sir, on the system strengthening scheme, so any further thoughts on -- you mentioned a couple of things about helping the DISCOMs on a consultancy basis as well. So would you be looking to operate the smart metering assets also? Or that is something which is not under consideration?

It is under consideration. We are -- because in smart metering, there is a requirement of big investment. The government is going to provide 7.5%, 15%, depending on the state, subsidy for the smart metering infrastructure. And balance is supposed to be through kind of TOTEX model where the developer or the utility brings the money. So that is where one option we are looking at it. So that is really under consideration for investment -- increasing our investment program.

Next question is from the line of Sumit Kishore.

My first question is the INR 50 billion of cash that was received in lieu of the debt which was associated with the 5 TBCB assets. I mean that is sitting on your books because I see that debt has not been paid down as I had expected. So what do you intend to do with the cash? Can you basically also help us -- give us a sense of the time line for the special dividend that will come from the overall gain on the InvIT and the capital freed up? And you had made it clear that you will not keep any extra cash. That is my first question.

Yes, you are right. The funds will be utilized for the current year's CapEx. And definitely, we will make a dividend payout. The dividend payout -- we will do one final dividend after the AGM. And last year, we did 2 interim dividends. Similar plan we have for the current year as well.

So 2 -- dividend will be paid in 2 phases, 2 parts?

Two interim dividends last year we did. I expect similar 2 parts this year as well, yes.

Okay. Okay. Sir, the second question is interesting that you mentioned the INR 3 trillion package and the opportunity for POWERGRID. But it is very, very important to understand that incremental capital allocation for POWERGRID will make similar returns that you make in your RTM or the TBCB IRRs that you expect. So could you put some -- throw some light -- you mentioned you will give loans to states to execute this better. I want to clearly understand what is the return on -- in the business model. We would not appreciate any dilution of returns.

Yes. One, we do not intend to provide loans. We intend to provide investment, either as equity or maybe, depending on the structuring, it can be a kind of a leasing model, in which case it will be similar to a loan you may say so. That is one. Number two, we will look for similar returns, but I'm very sure that the RTM returns which we are getting, whether we'll -- we can get only on the equity component. We cannot get on the entire investment into these assets because if we say that we will take the -- on a rough estimate, about 40% of the funds the state utilities will have to find out on their own. And if we say the entire money will be given as equity at 15.5%, nobody will come to us. They will find alternate funding much, much cheaper. So we have to give them something which is attractive and which also makes sense to us in terms of the equity deployed.

So in short, you are saying what will be the return on equity. So what is the threshold for deploying capital -- equity capital?

Equity capital, I think anything above 14% should be fine.

Yes, 14% is fine. And finally, my last question is you mentioned the share of subsidiary profits for the quarter. Just wanted to understand, given 5 significant TBCB subsidiaries are now getting -- not getting consolidated for 74% stake at least for half the quarter, the extent of decline in the TBCB profit that I was expecting on a quarter-on-quarter basis was not visible. So I mean, what are we missing here? Or have the other TBCB subsidiaries which are operational contributed a very large portion of profit?

Okay. One of the subsidiaries which was in loss has turned around. We did some financial restructuring there. It has come out to be profitable.

What is the extent of the swing?

About 20, 25 -- INR 22 crores, INR 23 crores.

Of profit versus loss of how much earlier?

No, no, in the net impact.

Net impact. Which is the subsidiary, sir?

This is POWERGRID NM Transmission Limited. And the Commission, Medinipur-Jeerat System, which added to the profit. Mithilanchal, it added a little bit. Then Jawaharpur Firozabad transmission system, the first intrastate, it added. Then JP, which was our POWERGRID Himachal Transmission Limited, which was a joint venture is now a subsidiary, so it added to the consolidated profits. So there are additions to the companies as well as turnaround of some of the companies also.

Got it. Just a bookkeeping point. I mean, what is the total annual levelized transmission charge for all the operational TBCB subsidiaries on POWERGRID's books now, excluding the 5 which have been transferred?

I'll just give you 100 -- it must be around INR 1,300 crores.

The next question is from the line of Ajinkya Bhat.

Sir, 2 questions on P&L part. The sequential increase in interest expense, is that on account of ForEx considering that you have roughly, I think, about INR 43,000 crores of ForEx debt on the books? Is that what is leading to the sequential increase?

The sequential increase?

Yes. Compared to the March quarter, the interest expense has gone up.

First quarter interest expense has gone up primarily because of our exchange rate variation.

Yes, yes. Okay. So ForEx impact. Second question, the other income on a sequential basis has gone down. Is it predominantly because of the transfer of TBCB subsidiaries to the InvIT? Because if I remember correctly, in 4Q conference call, you had mentioned that you had collected about 95% of PAT of those TBCB subsidiaries as dividend in FY '21.

It has nothing to do with the InvIT. It is because of reduction in surcharge, primarily because of reduction in surcharge.

Okay. But sir, dividend income in 4Q -- what is the dividend income from subsidiaries in 4Q?

You are right. Last quarter -- okay, March quarter, we received INR 133 crores more on account of dividend which is not there, plus INR 86 crores reduction in surcharge. These are the 2 major causes of reduction in other income sequentially.

[Operator Instructions] Next question is from the line of Puneet Gulati.

My first question is on the new distribution support that you [ license ] to give for distribution companies. Would you need to build any further capabilities to team or processes for that? Or is the company prepared to give this sort of support to distributions?

We have been working in the distribution space in constructing the distribution infrastructure. So we have a team and the project execution capabilities in terms of distribution [indiscernible]. We also have a team which has been designing and providing consultancy in the smart metering and smart grid systems. We are now restructuring ourselves to organize all this into one single package and provide the services to the distribution entities. So really, other than actual implementation of these systems, [indiscernible] systems, in any case, we have to buy, integrate and provide them. We have the capabilities required for the services or the augmentation of network. [ NVCs ] will be new distribution scheme.

There might also be a need for credit assessment here. Is that also...

The credit assessment has to be done by us in terms of where to put the money because it is very paradoxical, the funds are mostly required by the utilities which are not that healthy financially. Opportunity is there, so we have to choose among them the ones which are better and have some kind of payment security mechanism for this.

And [indiscernible] the tripartite work there as well in these [indiscernible]?

If it is on the balance sheet of POWERGRID, perhaps it will work because it talks of outstanding view. So it may work. It is not tested.

Okay. Understood. My second question is on the balance 26% stake that you're still holding some of the TBCBs which went into InvIT. What is the time line for transfer for those? I think sometime...

January '22.

Sorry? January '24.

Sorry, February '22 to January '24, progressively, the 5 assets will be [indiscernible]. There are 5 companies with different TSA conditions and the lock-in period.

Next question is from the line of Apoorva Bahadur from Investec.

Sir, wanted to understand the smart metering piece. Do you intend to also provide the back end and the O&M services here or just the capital support?

So we will provide the investment for the entire back end as well as the metering infrastructure. The day-to-day operations will be mostly carried out by the utility or sometimes the service provided this contract because they do the [ end ] support.

Okay. And sir, the IT just needs to be created on the back end on data collection and analytics, basically?

Yes.

Could be done by us?

We -- I think we'll be only doing the system design. The actual implementation we have to catch all of the IT service providers. You may like to add, no?

Actually, we are working on various models. And as we said that our main contribution would be designing then facilitating those implementation to the contractors.

Okay. Got it. Got it, ma'am. Sir, secondly, I wanted to understand a lot of tenders have been put around power storage solutions on the utility scale. So do we see some opportunity for POWERGRID over there as well that we can deploy capital?

Definitely. For example, we have tweaked the DPR of the Leh system to include a battery component there -- a storage component, which will increase the utilization of the transmission line and also provide more round the clock kind of [ FR ]. So that is one of the things which has been incorporated into the DPR. And depending on the progress of the RE addition and the progress of this network, the storage system can be taken up a few years down the line. And we are also now putting more focus on the storage solutions. Internally, we are creating a team to look at the storage because going forward, there will be fungibility between transmission and storage, and that is an opportunity POWERGRID should be in a position to capitalize.

Sir, just wanted to understand on this Leh DPR front, so for example, what sort of capital cost can we expect [ in store ], let's say, for 1 megawatt hour?

Capital cost in the first phase, transmission system for 5 gigawatts will be of the order of INR 21,000 crores, INR 22,000 crores, okay? This is not having any storage component, okay? There will be a significant subsidy or a grant component in this because otherwise, the tariffs will not be viable. So on top of it, there is a plan to develop storage, a big storage which can cater to, say, another 8 gigawatts of installed capacity. It will be hybrid wind and solar. So idea is to increase the utilization of this transmission system and provide more continuous, stable power play for the DISCOMs.

Makes sense. Sir, just one last question, if I may ask, and please pardon my ignorance. But why exactly are we forming the telecom subsidiary? What's the requirement for this?

Okay. There is no specific requirement, but then we want to insulate ourselves from one other kind of demand which happened last time. So where the overall income was considered as part of the revenue, and there were demands, and then there was a lot of upheaval. So we want to avoid that and give it more focus and make it a bigger push because this is an area we see a significant opportunity to increase our nontransmission revenue, because going forward, there will be more digital -- digitization, there will be need for more network services. And that is what we want to capitalize through. So right now, it is around, say, INR 700 crores, INR 800 crores. Maybe this year, we will target around INR 900 crores to INR 1,000 crores of revenue from telecom, but we want to push it up because that is one possibility which we see a growth.

No, no immediate plans to monetizing this?

No immediate plan to monetize it. Not immediately, no.

Next question is from the line of Aniket Mittal from Motilal Oswal.