The Tata Power Company Limited (500400) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Tata Power Conference Call. [Operator Instructions] Please note that this conference is being recorded. Today, we have Tata Power management team on the call with us. I now hand the conference over to Dr. Praveer Sinha, CEO and MD of Tata Power. Thank you. And over to you, Dr. Sinha.

Thank you very much, and good evening to everyone, and thanks for joining the call on a very short notice. I know, it's a holiday for many of you. So really appreciate your joining. We do hope that all of you are doing well. On this call are my colleagues, the CFO, Sanjeev Churiwala, and the team from the Investor Relations, my colleagues, Kasturi and Rahul and [ Gautam ]. At the outset, I must mention that we are presently in the silent period as the accounts for the quarter ending on March 31, 2022, are under finalization. And I would request you not to ask any questions relating to the existing businesses. This call is being organized only to share with you the outcome of the Board meeting, which was held today, a little earlier, regarding our renewable energy platform. I'm pleased to share with you that today in the Board meeting held, the proposal has been approved for raising INR 4,000 crores by TPREL, which is a wholly owned subsidiary of Tata Power, which will set up India's most comprehensive renewable energy platform. The funds in this, the INR 4,000 crores would be invested by a consortium led by BlackRock Real Assets along with Mubadala as coinvestors at a [ free-money ] equity-based valuation of INR 34,000 crores, subject to the adjustments based on FY '23 EBITDA. The investment will be made in 2 tranches of INR 2,000 crores each within this financial year. Under the proposed structure, Tata Power Renewable Energy, TPREL, will become the holding company of all our renewable businesses, which includes utility scale generation, manufacturing of cells and modules, EPC for renewable business, O&M services, rooftop solar, solar pumps and EV charging business. All future renewable businesses will be developed under this holding company. As you all are aware, TPREL has an operational capacity of 3.3 gigawatts as of 31st March 2022 and has a pipeline of 1.6 gigawatts, which are in various stages of implementation. We are also the largest solar EPC company in the country, with more than 30 years of experience with 1 gigawatt manufacturing capacity of cell and module in Bangalore. The company has also decided to set up another 4 gigawatt of solar manufacturing capacity, consisting of cells and modules. The company is already a leading brand in the solar rooftop and solar pump segments with a pan-India presence. The company has also installed the largest number of EV chargers across the country, having installed more than 15,000 chargers covering home and [ fleet ] customers as well as public charging stations. The setting up of the green platform and adequately capitalizing it by raising funds would enable the platform to scale up rapidly to become the leader in the renewable energy segment, thereby providing a wide spectrum of products and services, touching bulk of the industrial, commercial and retail consumers. Also, the participation of globally reputed investors such as BlackRock and Mubadala, signals the trust and confidence, which they have on Tata Power, and its ability to deliver on the growth plans. The setting up of the platform and consolidation of all green businesses under it, also signals our resolve to accelerate our journey towards a cleaner and greener company. As we always stress and have been sharing with you earlier too, our transformation will be founded on the pillars of a strong balance sheet and very healthy return metrics, with sustainability at the core. With this, I hand over the call back to the moderator for the question-and-answer sessions. I would once again request you to restrict your questions to the renewable platform only. Thank you.

[Operator Instructions] First question is from the line of Rahul Modi from ICICI Securities Limited.

Many congratulations for a much-awaited finalization of the transaction. Sir, just a couple of questions on the economics. Sir, the assets, which will be held under TPREL in the reorganized company, Sir, what is the kind of revenue and EBITDA that these assets would have earned in 9 months this year and FY '21, If you could throw some light on the revenue, EBITDA, PAT and the debt figures also for the assets, which will be housed in the new entity?

Thank you, Rahul. First of all, we have been sharing with you, every quarter, the EBITDA, revenue and the PAT numbers of our renewable platforms and the renewable businesses that we have. I will request my colleague, Rahul Shah and Kasturi to share with you the details of the first 9 months. I don't have it readily available with me. And also for FY '21, what has been the -- and I'm sure, they will be able to provide you.

Sure. I'll take it from them. Sir, from a strategy point of view, going forward, sir, how are we looking to grow the asset base from here, in terms of annual targets because over the last 6 months, we've seen some kind of slowdown in bidding. But how are you seeing the market now? And in terms of both EV charging, what's the potential manufacturing, if you can reiterate some timelines and also on the utility scale in terms of the 1.6 gigawatts, when do we expect this to be fully commissioned?

So to answer 1.6 gigawatt, many of them will get commissioned in this year. As you are aware that there are certain restrictions in terms of executing these projects, especially now that the [ BCD ] has come from 1st April. And there is also a requirement that -- in some of the bids, that the modules have to be Indian manufactured. So we have tied up that manufacturing part of it. And most of them will get commissioned in this financial year. The second issue is on the market. I think India has a huge potential. We have today 150 gigawatts in terms of the renewable, plus non-carbon that is hydro. And we need to add 350 in next 9 years. And that means, nearly 40 gigawatts of capacity addition. A lot of steps that the government is taking. One is the RPO obligation, which has been 20% down. The government is in the process of finalizing it. And I'm told that it may be in the range of 30% to 35% staggered over a period of time. So that will ensure that the discoms will have to tie up 30% to 35% -- 35% of their energy requirement through renewable sources. Just 2 days back, government also came up with a policy that they would ask the coal-based and the hydro-based power plants to have a certain quantum of their energy, which can be through renewable sources. I'm told that again, it will be about 20% staggered over a period of time. So suppose if you are having a coal-based plant of 1,000 megawatts, you need to have minimum 200 megawatts of renewable capacity, which you can tie up and supply to the distribution companies. So I think a lot of steps are being taken. Apart from that, what we are also seeing is that the retail part of it, which has been ignored for a very long time in the Indian context, especially the rooftop solar and solar pumps, that will get a lot of push in the coming year. And we are already seeing a lot of traction, where not only the retail part of it for commercial, industrial or residential consumer, but also group captive solutions are coming up. And we expect that going forward, there will be a huge amount of requirement of such retail and distributed generation of opportunities in the country. So we are very confident that these type of numbers that we have set for ourselves, that will add something like at the utility scale. And this will not be just plain vanilla solar and wind, but they would also be hybrid solutions, solar, wind and storage; solar, wind and hydro; solar, wind, hydro and storage. So there are a lot of combinations that will happen, and we will play a very, very important role, going forward.

The next question is from the line of Swarnim Maheshwari from Edelweiss.

Congratulations for the successful transactions and a much better and improved valuation than the ], which was in the year. So clearly, better late than never. Sir, a couple of questions. First, what will be the corresponding enterprise value for this INR 34,000 crores of equity valuations?

Thank you, sir. The enterprise value, if you consider the equity valuation of 34,000, plus the debt that we have, which is about INR 15,000 crores, that we have INR 15,000-odd crores, so it will be about INR 50,000 crores. So that's the type of enterprise valuation that we have.

Okay. And sir, I'm assuming that INR 15,000 crores is entirely with respect to the developer portfolio, broadly speaking ?

Broadly. There would be some group captives in that, but broadly, it's the developer, the utility scale.

Okay. Okay. Now sir, the second thing is that in this INR 34,000 crores, this is, right now, the base valuations as we understand, but this can move up also, depending on the FY '23 actual performance. Is that understanding right?

100% right, and that's why we have given a range that it can -- there is a minimum and a maximum that can be there. And that range demonstrates that based on the performance in FY '23 EBITDA, it can go up.

Okay. So this INR 34,000 crores is basically corresponding to 11.45% stake, right?

No, it is corresponding to 10.53% stake.

This is corresponding to 10.53% stake. All right. All right. Sir, so I understand that part. But then, if you are saying that INR 34,000 crores is the base valuation and we have done the deal at 10.5%, then at 11.5%, the dilution will be slightly -- the valuation will be slightly lower. So then there is a risk that this INR 34,000 crores can go down also?

Yes. That's why we have given the range of shareholding that can be from 9.76% to 11.43%. So there is a cap, and there is a base minimum, which is there. So in fact, it can move within that range. Yes.

No, sir, the confusion actually arises from the word -- when you're saying base valuation, that becomes, INR 34,000 crores is the base. It's like it cannot go below that. But at INR 34,000 crores, it is a 10.5% stake. So hence, that's the confusion.

Let me jump in. At the time of doing the deal, kind of setting up a base valuation, that is, this a predicted performance level that we have in F '23, that this is still a projected base. And that position business can change, can go up and down. And hence, looking at the [ comfort ] as to how the market will move, we have decided to keep a [ range-wise ] . It is not absolutely fixed on the basis valuation. The capital inclusion is fixed, which is about INR 4,000 crores. Depending upon the performance, of course, the final shareholding, depending upon the floor and the cap, can move between 9.76% to 11.43%.

Okay. Got it. Got it. Got it. Right. My third question would be that if you were to look at -- is it possible to get some color or some flavor on the individual valuation because this is kind of an integrated transaction. So is it possible to get some idea on what the developer portfolio has got or something like that? Some color. We don't know on the exact numbers.

I don't have it now, but you can -- I will ask Rahul to share with you. He has some data on the this.

Yes. I'll jump in here. As you rightly mentioned, this is, of course, an integrated deal that we are bringing in all the portfolio together, and it's a combined valuation of this entire deal, of the entire platform. At the moment, not getting into the segregation and then separately varying out differently, [ if and but ] separately. So it's an integrated one particular deal. One deal, wherein all the separate operations come under one holding company of TPREL. And accordingly, the TPREL is valued for this, which has all these separate verticals sitting under it. It's a composite valuation.

Okay. Fair enough. Fair enough. Got it. Sir, the next question would be if -- how do we actually intend to use this proceeds of INR 4,000 crores? By, first of all, when do we expect to get these proceeds? That's the first thing. And the second thing would be that how do we intend to use this proceeds? Do we also intend to use this for our 4,000 megawatts of the new CapEx that we were planning on these modules and solar cells?

Yes. So typically, there are certain CPs, where some statutory approvals needs to be completed. And we expect that in the next 6 to 8 weeks' time, we should be able to complete most of these approvals. Apart from -- and that is in the formation of the new platform will take place and the INR 2,000 crores initial, the first tranche will come. The second tranche, of course, is dependent on some of the other second phase of CPs that needs to be completed. We are expecting that the whole money will come within this financial year. We will be using it for all our growth businesses, whether it will be manufacturing or utility scale or EV charging. So whatever is the inflow under the first and second tranche, will be used for investment in the growth business of the renewable platform.

Yes. And to add to what Mr. Sinha said, this is part of one signing agreement that we have signed today. And once we do the first closing and as part of the condition precedent, we're [ getting ] all this separate experience within the TPREL holding company. And then we're getting the first tranche of INR 2,000 crores, which will be in the equity infusion. And then after 6 months, we will be getting a INR 2,000 crore infusion through [ CTPS ], right? And it's part of the same deal.

May we request that you return to the question queue for follow-up questions. The next question is from the line of Sumit Kishore from Axis Capital.

Congratulations on the transaction. My follow-up on the previous question, you shared the bank of the FY '22 EBITDA, which is [ 9.67% ] to [ 11.43% ]. What exactly is the base FY '23 EBITDA that is being considered here? And what are the terms of the convertible security, where you're getting INR 20 billion after 6 months from the first tranche?

Thank you, Sumit. And Sanjeev, you would like to respond to Sumit?

Sumit, as we said, this is a base equity valuation of INR 34,000 crores, subject to the performance in FY '23, right? This has no connection to FY '22, given that we're bringing in growth assets. Very clearly, we're looking at to demonstrate growth in F '23. And of course, because I [ do ] the fact that we kind of wanting to grow this company rapidly, right, we have kind of kept the band. And we have put up a floor and a cap, saying that depending on where the performance will land, the shareholding of BlackRock will be 9.76% to 11.43%. I will not take it to a specific EBITDA number in our discussion [ of forum ].

So the base EBITDA number for FY '23, at which INR 340 billion is being arrived at, that would have been [ frozen ], right?

Well, there are a lot of factors, which goes in the valuation that is not the EBITDA factor. But we are taking the equity valuation, the base equity valuation, subject to the '23 EBITDA and certain adjustments over there. So that's the way we should look at the deal.

Okay. On the convertible security, what is the detail there?

Sir, on the convertible, we're issuing INR 2,000 crores of convertible, which is almost like end of 6 months of the first closing. And the whole idea is that when we close F '23, which is the performance then, those [ CPs ] will be converted by then. The idea is that overall, including the equity infusion that happens and then later on, the [ physical ] conversion, the shareholding will stay in the range of 7.76% to 11.43%.

Okay. And the conversion will happen over what timeframe?

Once we close the F '23 after that, so you can assume a few months after F '23 closing. Assume May or June, somewhere, yes.

May, June 2023. Okay. The next question I have is, are you looking to onboard more strategic investors in TPREL after this transaction? Or -- because you had been in talks with, as reported in India, with a few other players. So is there any intent to free up more equity for the growth plans that you have?

I don't think, anything immediately. So this is good enough for our present investment plan for this year. And if we have any requirement later on, we'll examine it. But at this stage, there is no plan.

Okay. And finally, when I look at your holding structure, so you think that TPREL as holding company will include rooftop in TPREL standalone? And what are captive companies here in this structure? What exactly is the effect there?

So all the companies which are there in renewable business, that means that part of our solar manufacturing which is there, then some of the subsidiaries of TPREL, WREL, some of the other renewable companies which are in Tata Power. So all of them will move within the TPREL platform.

So I specifically meant, what will the standalone TPREL entity have? And in the 5 green boxes that you put, what exactly is the captive company?

I think Rahul will be able to share with you more detail, sir, because the presentation that we have shared with you, gives the details. If there's anything more, we will be able to give you that information.

The next question is from the line of Mohit Kumar from DAM Capital.

Congratulation on a very, very good deal. So my first question is, is any plan to do IP of this entity conditions of this investment?

Beg your pardon, can you repeat the question, please?

My question is, if any plan to do IPO at some point of time for this entity? Has the investors put any condition, saying that this entity has to be publicly listed after some time?

Sanjeev here Yes, there is no condition at the moment on this. Of course, it's up to us after the few years to look at all the opportunities. But as of now, there's no condition.

That will be continuously monitor the market, but there is no condition. There's nothing like that. There's no plan at this stage.

Understood, sir. Secondly, you have guided for a reduction in [ debt ] in FY '20 beginning and given the fact that you developed only 10%, either entire entities will get consolidated in the entire Tata Power. So debt is not getting reduced. So is the company in the ?

Sanjeev, you may like to respond to that?

Yes. I think as we have stated earlier also, we'll keep on looking at our debt position and do that. But the fact is, when we raise an equity at the TPREL [ revenue ] still kind of holding about 90-odd percent, and that will get consolidated in the overall TPCL. To that extent, yes, it does give the benefit.

Sir, one clarification, is there any money coming back to Tata Power standalone company to repay the debt?

No. This is -- we're talking about the consolidated number that we see. We are not talking about the TPCL standalone number, right? And we kind of keep on appropriately, looking at our debt situation and keep on wondering that. And that is irrespective of this transaction.

So my question was, I think, that INR 4,000 crores, would you use to go grow the asset size of the Tata Power Renewables? And no one will come back to Tata Power [ standalone ], right?

Yes. So basically, the whole idea is that we're looking at this funding in a manner that TPREL can really manage on its own.

Lastly sir, will the investors have any Board seat? And will they be part of decision making?

Yes. So they have a Board seat. Of course, this is what we have also said in our release and in our presentation as well. And of course, they are partnering with us. But of course, we are the majority holder. And to that extent, the Board is represented largely by Tata Power.

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

Sir, my question is again on the accounting statement, so post this deal, the TPREL and asset held under it, they will be consolidated line by line like there has been [ legal penalty ], or it will be like an associate online ?

It will be the same treatment because the [ steel ] continues to be the major subsidiary of Tata Power, right? So there's no change in the accounting policy or norms. It continues to be the same.

Okay. So sir, I mean, post-COVID, even the management had articulated that to bring down the consolidated net debt to INR 250 billion. So is the continues to get consolidated line by line, this was earlier, then the net debt will still range for about INR 250 billion. So are you still looking to bring down the consolidated net debt to INR 250 billion? Or is that target on hold for the time?

So we'll continue to look at our debt position and look at all of the avenues to continue to work around optimum debt. We are doing that and setting that earlier as well. And we'll continue the same position as we move forward.

The next question is from the line of [ Ranjeet ] from Mahindra Manulife Mutual Fund.

Congrats on this transaction. Just to clarify, like in future, if you also look at some of the greener opportunity like will that come under this entity? Or is there flexibility that it can come under Tata Power's 100% -- around 100% [indiscernible] clause?

See, any new investment in renewable business will come under this entity. So anything that we do in renewables, which can be a hybrid solution with storage. It can be a hybrid solution with hydrogen. It all will come under this entity.

Okay. Okay. And we cannot use this cash to -- the current cash to deleveraging the balance sheet of Tata Power Standalone, that is clear, right?

Yes. So this money is coming through a primary issuance in Tata Power renewable energy, and it is basically very clearly stated objective of growing the business. And so this money will not be used to reduce debt of Tata power level. This is purely and primary for Tata Power Renewable for the growth assets.

The next question is from the line of [ Abhay Modi ] from Bajaj Allianz Life Insurance.

I had a couple of questions. One, will there be a large gain that will be there for the Tata Power Standalone because of this sale or state dilution? That is one. And second, will there be a tax incidents on that gain? And third is, can that tax be offset by the accumulated losses of CGPL that is recently you got the approval for the merger with Standalone?

Yes. So I think there are 2 questions here. The first question is regarding the tax benefit. This is the primary issuance, which is happening from Tata Power Renewable. And hence, there is no issue of tax or any sort of a capital gain because of this transition, right? Second question is regarding the CGPL. Of course, yes, the CGPL merger has been announced. And to that extent, the carryforward losses benefit would be available, but we're not getting into the specific numbers as yet because of the silent period. You will get to hear when we kind of get into the quarter 4 call.

The next question is from the line of Rahul Modi from ICICI Securities Limited.

Sir, just one follow-up question. The debt of INR 15,000 crores that you mentioned would be -- is it on the current capacity or on the full operational capacity of 4.9 gigawatts?

It's on the present capacity, whatever we have, which includes not only the utility scale, but also the group capital investments that we have.

So this will not be at the end of FY '23 expected? This is today's date.

Yes. This is today F '22 number. Could you just repeat your question? You're breaking in between. Just help us better to understand your question.

Just wanted to ask that Mr. Sinha has mentioned INR 15,000 crores of debt, which is there in the current capacity. So that is with regard to the 3.3 plus or it's also including the 1.6 gigawatt, which is in pipeline? So will this debt be the same number as before?

[indiscernible] Yes. So this is today the existing generating capacity plus work in progress. This is the [ stated intention ] debt as of now, which is all included.

Will this go up when everything is commissioned?

This is about INR 15,000 crores as of now, of course, as and when we keep on commissioning and adding more CapEx, this will go up. And to that extent, we are getting this equity infusion to fund this growth.

Right, sir. Got it. So this will be a higher number. Okay.

The next question is from the line of Anupam Goswami from B&K Securities.

Most of my questions have been answered. But I had this one question. What is the thought process behind this deal where it's not bringing down the debt, and we are not ceasing it to be a subsidiary. Earlier the thought process in InvIT that it will cease to be a subsidiary and debt will go off the balance sheet. So later on, do we have more plans such in to dilute more equity and bring it down to below 50%? Or if it is not, then what is the thought process of this? Because as I understand, Tata Power would not have any problem in raising debt for its own growth, then what is the reason for dilution?

Maybe I'll try and answer that. I guess this goes back to a year back story when we were trying to create this InvIT platform. And during that process, we realized that we need to create a much larger platform, which is a big growth story. And on this asset that our renewal businesses will grow and we would need CapEx over there. And very clearly, we needed an equity infusion plan over there to ensure that our debt equity as well as the growth stories are maintained. By creating this particular platform, where we are still having 90% holding as of now, and we are able to demonstrate growth as we move forward. This also gives us an opportunity to look at further optimization possibilities and further monetization possibilities. So that's our plan. The idea is to invest behind the growth, right? And of course, as and when we start getting the cash flows, that will definitely help us also to optimize our debt levels.

Okay. And sir, are we bringing any -- changing any management in the TPREL after this deal?

No, the same management just continues. It is just that we're having investors now coming into that company and having a Board seat. That's the only change.

The next question is from the line of Gopal Nawandhar from SBI Life Insurance.

Sir, this -- if I refer the presentation of quarter 3, that whatever like consolidated renewables business revenue EBITDA, which we have given. Is that the same entities are getting transferred? Or is there any adjustment to that number?

So there will be some company elimination that would happen. And of course, the EV business now forms part of this overall green complete platform. So that is what the changes would be.

Okay. So only EV-related or whatever revenue EBITDA will be the adjustment for this?

Yes. [indiscernible] was there, but it's a very small numbers over there.

Yes, right. Okay. Okay, sir. And second is just on the clarification on the timelines of the conversion of this shares. Is it right that you said it will be post completion of FY '23? Or you start in this June, July of '23?

Yes. So there are 2 questions. The first tranche will come after the closing, which is we'll say about 2 to 3 months from now, where we get to INR 2,000 crores equity. And after 6 months, we will get INR 2,000 crores as [ GCPL ] that will get converted after F '23 closing to assume somewhere around June, July could be the period, next year.

Okay, sure. And the variability of EBITDA for FY '23 will be largely dependent on the capacity addition of FY '23. Is that a right assumption?

Well, I think that there are a whole lot of business now part of it, right, generation, PPC, rooftop, solar pumps, EV charging, right? That in a way is a kind of also isolate some fluctuations. All this put together, we kind of -- we're looking at that particular EBITDA number now to performance derivative.

Okay. Okay. And sir, lastly, you mentioned this 3.3 gigawatt operational capacity. And if I refer the Q3 presentation, the capacity mentioned is 2.95. Is it just some -- like whatever capacity addition would have happened in last 3 months, it is that or...

Yes. Capacity additions.

[Operator Instructions] The next question is from the line of [ Rohit Maheshwari ] from Tata AIG.

Just had one [indiscernible] question. When you acquired Welspun asset, if I'm not mistaken, then the valuation of EV EBITDA was close to 8x, 8.5x. Can you just throw some light that what will be the valuation at current [v composite ]] or whatever we are selling at Tata's renewal?

Yes. As I said earlier we have shared a breakup -- yes. Sorry, Mr. Sinha maybe I'll just complete this. We did discuss we're looking at a composite valuation now, and we're not looking at some of part total where we're breaking up valuation for each of the verticals, right? Because there's always synergies when we're bringing it all this together. And hence, we're looking at a composite valuation.

No, just [indiscernible] at renewal [indiscernible] portfolio when you acquired the Welspun asset, the valuation was close to INR 10,000 crores, today [indiscernible] including [indiscernible] Tata Power, a renewal portfolio and your EV portfolio, the total valuation range is between INR 35,000 crores to INR 40,000 crores. So now just want to understand, what has changed in the last 2.5 years, like more than -- more than 3-odd years? And just to make some connect, if you can throw some light on it.

Yes. I guess we are looking at a very different world right now as compared to 3 years back, right? There has been a lot of additions happening there, the rooftop solar business have come in, the pump business have come in. The EV businesses come in, the third-party efficient businesses have a very, very different scale, right? So I think it's very difficult to kind of go back and compare 3 years back, right? I think we have a much bigger platform now, and we think we have a much richer valuation also coming out because of that.

Ladies and gentlemen, that was the last question. I now hand the conference over to Dr. Praveer Sinha for closing comments.

Thank you. Thank you very much. And I would like to thank all the analysts who could make it today on a very short notice. I really appreciate your support, which has been there for last many years. And also a lot of feedback that we have been receiving from you. We keep on learning from that and keep on incorporating it in our business plan. And I'm sure that any questions you have, any further queries that you have, please connect with my colleagues, Kasturi and Rahul Shah, and we'll be able to provide you and furnish you the details. So once again, take care, and we look forward to catching up after the quarterly results. Thank you. Take care.

Thank you.

Ladies and gentlemen, on behalf of the Tata Power, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.