Torrent Power Limited (TORNTPOWER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Torrent Power Limited Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Mashruwala, Chief Financial Officer, Torrent Power Limited. Thank you, and over to you, sir.

Thank you, Nirav. Good evening to all of you, and thank you for joining the earnings call of Torrent Power for Q2 FY '24. First, I will take you through the performance of the quarter, after which phone lines will be open for a Q&A session. I will explain the performance of the company at PBT level first and then take you through the tax expenses separately. Reported PBT for the quarter stood at INR 741 crores as compared to INR 725 crores in the corresponding quarter of last year, an increase of about INR 16 crores, about roughly about 2% on a reported basis. There were no nonrecurring items in both the quarters, current as well as corresponding quarter last year. Underlying business across coal generation, renewal generation, license and franchise distribution showed improved performance in terms of profit, which was partially offset by a lower gain from LNG as well as merchant sales in current quarter as compared with the corresponding quarter of last year. Business factors contributing to the growth. There are 3 reasons, 3 factors, which have improved the -- which has impacted the profit. For this contribution from the distribution business improved by INR 66 crores due to 2 reasons: First, improvement in T&D losses, increase in ROE on capital -- in capitalization of CapEx and incentive contributed over INR 71 crores which was partially offset by the higher bad debt provision, mainly in distribution franchise business due to lower collection as witnessed in the quarter of INR 11 crores. Second, profitability of renewable business increased by INR 75 crores on account of: First, improved PLF from the wind power project; and second, contribution for the newly commissioned 115 MW SECI V projects, wind power projects, which is commissioned in the month of July '23. Third, the aforementioned 2 gains from the distribution as well as renewal generation segment were offset by the reduced profit from the thermal generation by INR 130 crores on account of lower net gain in the current quarter from sale of LNG and Merchant Power compared to corresponding quarter of last year. Before moving into the after tax numbers, I would like to highlight that despite the lower LNG as well as merchant gains as detailed in my earlier commentary, company has been able to grow its bottom line on absolute basis. Company's consolidated profit after tax reported for the quarter is INR 531 crores as compared to INR 485 crores reported in the corresponding quarter last year, which is higher by about 46%, growth of about 9%. Now moving on to the operating performance of the company. There are 6 factors. First, power demand witnessed a remarkable growth during the quarter, leading to a better generation of the power plant -- generation of the company. Second, demand from the distribution business of the company witnessed a healthy growth of 6.5% in the current quarter. Third, thermal generation of the company witnessed an increased PLF due to increased demand from both long-term of takers as well as merchant power. Fourth, for the first time, all generating units of 1,200 megawatt DGEN power project. Gas-based power project, varied service and base load for the several period of times. We expect the country power demand to show incremental growth and merchant power market in certain peak demand period particularly in the month of summer as well as through the winter, will give opportunity -- will offer the opportunity to sell power from the gas-based power product in the future, considering the LNG price segment at sustainable level. The last PLF of renewable generation was higher on account of the better generation from wind power project due to normalized the wind speed compared to previous quarters. This completes the overview of the quarterly financial as well as operating performance of the company. Moving on with the -- we now give you the brief update about the current projects, which are in the pipeline. TPLD 300 megawatt solar project is likely to commissioned by end of FY '24. It is expected that -- it is expected to have improved return profile considering the recent reduction in solar model prices in the international market. Second is PPA for 300 megawatt SECI XII wind project was executed in the end of March '23. Turnkey EPC Contract for the development of the project has been awarded to Suzlon. The SCOD of the project is March '25. The SCOD of the project is likely to be extended, considering the procedural delay in adoption of tariff by the CERC. During the quarter, the company acquired 100% stake in air power wind farm at the cost of INR 22 crores. The company is in business of leasing of land or renewal project, and is in possession of the land, which is suitable for development of 175 megawatt renewal project and the high CUF. Under C&I portfolio company has 295 megawatt of projects under development out of which 11-megawatt is commissioned into Q2 FY '24, and remaining projects are going to be commissioned going forward. Company's pilot project in green hydrogen blending with the CNG in UP, one of the largest private sector branding project in India, is progressing as per the timeline and is expected to commission by March '24. In Distribution segment, company commissioned its powered import substation in Dholera SIR, wherein we are the licensee. With respect to Pumped Storage Hydro project in Maharashtra MoEF has granted the terms of reference for 2 sites, and DPR is under preparation right now. That's all for the -- for this quarter. Now I would request coordinator to open the line for the Q&A session. We wish everybody to stay safe and healthy. Thank you. Handing over to the operators.

[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.

Three questions from my side. One is on the renewable pipeline, we see a lot of bidding happening, but we don't see us participating in this bid. Is it a conscious decision not to participate in any of the renewable bidding which are happening currently? Are we going to reassess this position after some time?

We are participating, but we are very conscious about the bottom line also. So we thought that the -- only solar and wind stand-alone project will not offer the better return. So we look at the hybrid kind of a project will offer a better return. So return expectation is more important for us than the bidding -- simply bidding the projects.

Do you expect to see [indiscernible] bids will have a lesser competition. Is that a fair assessment?

Yes. Hybrid project has a lesser competition, that is what our understanding is, yes. And it offer better returns also.

Second question is on the given that there is a lack of power capacity and the gas power plants in the sense should be in demand. Are you -- can we expect the DGEN to start operating at some point of time at a higher PLF. And did the government conduct a bid in particular for the month of October?

Yes, government has currently offered the new tenders. But finally, because of lower demand, we are -- it was not offered to us. But we expect that DGEN project -- in fact, if you look at the summer as well as pre-winter period, DGEN -- we were able to offer the DGEN project. We are able to sell power in the merchant market. Going forward because of energy situation in the country, we expect demand for merchant power will come in the -- during the summer time as well as pre-winter period and we expect DGEN project will possibly run during those periods.

Understood, sir. My last question is on the -- is it possible to give us the EBITDA breakup for the quarter -- for the half year?

It is given in the result which we have announced, in fact, we are starting giving the segment-wise reporting including the EBITDA also.

So EBITDA number is there in the presentation, is it?

It is there in the financial results which we have announced, segment-wise performance we have announced. Distribution, generation, renewables. So you can get from that quarterly numbers as well as half-yearly numbers, as well as yearly numbers also.

Could you share the merchant volume in this particular quarter?

Sorry?

Merchant volumes in this quarter.

Merchant volumes? Yes. So about 272 MUs we are able to sell in the merchant market.

Understood. Best of luck.

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

You could mention the LNG profitability for this quarter compared to the previous one.

Sorry, Anuj, come again?

Sir, LNG profitability for this quarter compared to the previous year quarter.

So, Anuj, I think this year -- this quarter, there was not much of LNG sales. It was more of merchant sale, which has contributed to profitability. So if you compare the last quarter as well as current quarter, both merchant and LNG put together, we earn about INR 130 crores less contribution from the LNG as well as merchant.

Okay. So combined contribution you're saying INR 130 crores or less.

Lower as compared with the comparable quarter of last year.

Got it, sir. And you mentioned about there could be some delay in the commissioning of 300 megawatt SECI XII project. Any indication sir much delay will it be, a quarter or 2 or something [ than usual sort of thing ].

See, SECI was unable to finalize the PPA with the -- onward PPA, I would say, with the couple of discount. That is why it -- there will be some delay in the signing the PPA with us also. So maybe quarter or so, they will come back to us with what kind of extension they are going give.

Okay. Okay, sir. And then the time line if you can throw for the 175 megawatts of projects which we are targeting for the merchant market and other 191 megawatt C&I projects.

Maybe about 15 to 18 months is a duration one can expect.

Okay. And sir, are we still sticking to our long-term goal -- long term in the sense, 3 to 4 years kind of a goal to have 5 gigawatt of renewable capacity in our kitty, because as you mentioned in the earlier question that we are strategically looking into bidding this project. So we don't want to lose on to the earnings or the return portfolio by adding more project to the kitty. So are we sticking to this 5 gigawatts by FY '26?

Yes, 3, 4 years, yes, our target is to reach for 5 gigawatt. Both we are looking greenfield projects as well as our acquisitions also both things we are evaluating at this moment. So Anuj, as and -- earlier also when we say it, we were always saying that it was always subject to we getting the desired returns which we are looking at. So again, that caveat remains that 5 gigawatts is the aspiration which we want to, but not at the cost of the profitability of the return profile.

[Operator Instructions] Next question is from the line of Dhruv Muchhal from HDFC Asset Management.

Sir, the first question was the demand -- electricity demand has been very reasonable across your circles. Sir, if you can share some sense and we see that across India also. If you can share some sense on what is driving this? Probably understand some of it could be residential, but some incremental thoughts from you. So particularly, if I take D&D, which is probably largely commercial and industrial area for you, there also demand growth is about 8% this quarter. So just some sense, some granular details on what your view is driving this demand?

The combination of -- if you look at the GDP numbers also and industrial demand, which is very strong right now, which is what is driving the demand across all our distribution areas. So Dhruv, if you look at, let's say, DD, DNH, which is, as you rightly say, it is more of an industrial area, which has showed a growth of 8%. If you look at Agra also, which is more of residential or Ahmedabad which is more of residential, they have also shown a good growth in terms of volumes is concerned. So as far as the demand for the entire electricity is concerned, I think it is coming from all the angles, be it industrial or be it residential or commercial. So country as a whole H1 demand, consumption of electricity was about 9.3%. That is what government has announced the numbers. So this is reflected in our performance also in our area of operations.

For your area, say, particularly areas which are relatively high industrial, if you split that between industrial and say, residential, would the growth be similar between the industrial and residential? Or is there something which is growing more faster and something slower?

No, no. I think it would be -- it would not be right to generalize that. So if I tell you that Bhiwandi, Bhiwandi is an industrial area, but it has not shown growth because of it, in particular issues with respect to the industry, which it has. So as far as generalization is concerned, it would be very difficult to generalize that. But yes, if I look at my areas, then all the areas have shown a typical growth, some maybe a couple of percentage higher, some a couple of percentage lower. But as far as residential or industrial is concerned, both of them have shown good growth.

The growth within the segments -- I mean, within the areas for these segments, it is reasonable, both for industrial, residential, it is same across. Got it. Got it. Sure. And sir, the second thing was similar to the renewable bids, transmission bids are also we see that the pace of transmission bidder wording is increasing. Sir, how do we think of our participation there? Because I think earlier, we were looking at getting some bids there?

So we are participating. But as we said, we always look at the desired returns. So based on the desired return, we generally participate and -- participate in the transmission project. So I think Dhruv, we participate in all the biddings which happened for renewable or for transmission. Sometimes we are not successful because we are not willing to go beyond certain point in terms of rates are concerned.

So in your view, still the rates in transmission bidding is not as attractive, probably for you, it's not as attractive yet despite the increase in pace for now.

As of now, yes.

[Operator Instructions] Next question is from the line of Jiten Rushi from Axis Capital.

Sir, just on the LNG and the merchant side. So in Q2 last year, we had an INR 155 crores of LNG gain. So as you said, the decline is INR 130 crores, this time closing, INR 25 crores was the earnings from the LNG and merchant?

Yes.

And sir, what would be the breakup between this 2, because last in Q1, it was like INR 10 crores from LNG gain and INR 130 crores from merchant. So In this INR 25 crores...

Jiten I think major part of it is merchant, very small part from LNG trading.

And what was the rate at which you have sold the merchant power?

Average rate would be around INR 10 -- I think INR 11, INR 10 to INR 11 range.

INR 10 to INR 11. So probably, you are expecting this run rate to continue this quarter? Any additional earnings of INR 25 crores, INR 30 crores run rate to maintain in merchant?

I think it would be very speculative to answer that question, whether that will sustain or not. But if you look at merchant prices right now because winter setting in, expectation is it will slightly go down and then again, pick up, let's say, somewhere at the end of Q4.

And on the parallel licensing, any updates like you were talking about the parallel licensing in Maharashtra and other states. So any status on that?

For parallel licensing, we have completed all compliances, whatever compliances is required. The regulator, we have completed all compliances. We are now just waiting MERC to take this forward for their internal process.

So how long process will take more time from here? Or what is your view?

It's difficult to say right now because MERC has to take it forward in their internal system for the approval purpose. Difficult to put a time to it, but it's moving on. It's very difficult to put a time line to it.

And sir, on the Pumped hydro storage, obviously, last quarter also, you had highlighted something and you also had stated in the opening remark is moving -- even what allotted some land. So can you just throw some further light on what is the progress now in the pumped hydro storage in the last quarter?

It's a long-term project, maybe 5, 6 years is required to materialize that -- come see the pump storage operating. So first step is that we have to get the MoEF approval which we have opt-in. Now the second step is prepare the DPR and then take it forward for the approval process.

And sir, the initial preparatory work will take another 2 years before the actual construction or execution?

I think so. Yes, yes. You are right.

And probably after that, the construction we call like 5 -- 4 to 5 years?

3 to 4 years, I would say.

Okay. So in all, like 5 to 6 years for commissioning from now?

Yes. Yes, yes.

Wish you and Torrent team Happy Diwali, sir.

Same to you.

Next question is from the line of Amit from Morgan Stanley.

I wanted to get some sense around the performance in the license and franchise distribution. I know -- I mean you have clubbed both the segments into T&D. So how should one look at it? I mean, what would be a good way to understand how the franchise is performing.

We have said in the beginning of the call, saying that the -- both license and franchise distribution performance is better, and we have improved the performance on by INR 66 crores a combined basis. That is what -- that is what all we can say.

Great. Right. Okay. In on the PSP part, I mean, what kind of models are we looking at? Are we looking at a leasing kind of model or would we go for regulated bids? Or how would it be?

I think as of now it's too early to comment on that. We have kept our options open. Once we get nearer to getting those approvals, we'll really see whether we want to go into a leasing part or do RTC project and sell the energy.

[Operator Instructions] Next question is from the line of Bharani Vijayakumar from Spark Capital.

Just wanted to understand from you when you said that the returns are better in the hybrid projects. Could you highlight the reasons according to you? Why this is the case?

Hybrid project is a high CUF of project. In fact, you can able to deliver the higher PLF CUF, I would say, so which will ensure that the availability of power is higher, I would say. So because of the inherent advantage of high CUF project, retails would be higher.

High cost, you mean?

No. High CUF, I would say.

C-U-F. Okay.

So basically, what happens is that in these kind of projects, you'll have to really identify the sites which can provide you a higher PLF both on wind and solar. and then only you can give a high CUF solution to the purchaser, which means that you'll have to identify those sites and be ready when the tenders come. So that the competition itself would be lower because of which returns could be higher compared to pure plain vanilla projects of wind or solar.

Okay. Okay. Okay. And does common transmission network and infrastructure which is required, which will probably come up at a much lesser cost per megawatt, is that also a reason?

That would also be one factor, but I think major factor would be lesser competition in the bids compared to all those cost savings. And evacuation facility will be better utilized in case of hybrid projects.

Okay. Okay. And what I'm noticing is that in the recent SECI bids, there is this firm and dispatchable renewable energy kind of bids that are coming up, which mandates storage also to be part of the bid. So are we bidding for those kind of bids?

So our interest is to go and try for the hybrid kind of projects.

Okay, only hybrid, okay, okay. And the last question from my side is on the entire gas capacity in the country and especially for us. Now recently, government has been doing a lot of measures to improve power supply in the country and some of the measures also include reviving the stranded assets, be it coal, maybe even on gas. So are you seeing any long-term action that government is planning to do to revive the entire gas space, which will also benefit us?

Our expectation is the power deficit scenario is going to continue for a couple of months coming -- going to come, I would say. So we expect that the gas-based power project is better placed to deliver the -- in those period, in those particular summer period or winter period.

So what you're telling is the temporary measures that the government has been doing that will continue, no long-term measures which will resolve the stranded assets...

Some period of time, we are seeing that situation.

[Operator Instructions] As there are no further questions, I will now hand the conference over to Mr. Saurabh Mashruwala for closing comments.

Yes. Thank you so much. Thank you for attending the Torrent Power's earnings calls. We wish everybody to stay safe and healthy and 'Happy Diwali' to all of you. Thank you so much.

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

Thank you.

Thank you, sir.