Torrent Power Limited (TORNTPOWER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Torrent Power Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Mashruwala, CFO, Torrent Power. Thank you, and over to you, sir.

Thank you so much. Good evening to all of you, and thank you for joining Torrent Power's earnings calls for Q1 FY '25. First, I will take you through the performance of the quarter after which phone lines will be open for the Q&A session. Next is the performance of the company at PBT level first, and then we'll take you to tax expenses separately. Reported PBT for the quarter stood at INR 1,315 crores as compared to INR 711 crores in the corresponding quarter last year, an increase of INR 603 crores as a growth of 85% on a reported basis. EBITDA for the current quarter increased nonrecurring [indiscernible] INR 102 crores for carrying costs approved by the regulators. Adjusted for the above nonrecurring item, the adjusted PBT for the quarter stood at INR 1,213 crores as compared to INR 711 crores in comparable quarter of last year, which is higher by INR 502 crores that is a growth of about 71%. Business factors contributing to the performance are as follows: First, gain from sale of merchant power and LNG of INR 517 crores. During the quarter under consideration, merchant capacity were operated for sale in the merchant market, 477 megawatts NVVN tenders, Section 11 as well as sale of power in a merchant and power action as well. Current demand and supply situation in the electrical market is favorable for generator like when -- whoever untied capacity. And due to the no major investment being made on thermal capacity in the recent past. With moderation in LNG price globally, it provides a good opportunity for us to run our untied capacity, and gas-based capacity of 1,500 megawatts. Overall, PLF of thermal generation improved 14% to 16%, due to better long-term as well as merchant sales. Above mentioned gain from the thermal segment were partially offsetted by 2 reasons. First, a reduction in contribution of the renewable energy segment by INR 4 crores. The second, reduction in contribution from the distribution business, mainly on account of 2 reasons, marginally higher T&D losses across all areas except Agra offset by better demand across both the segment, which increased by 7% [ entire ] distribution area and 6% in sensors distribution area. This completes the explanation on financial performance during this quarter. Moving on, we'll now give a brief update on the projects in the pipeline. 3 gigawatt capacity on DC basis of renewable power projects are in pipeline, which includes following projects: First, 87.7 megawatt out of total 420-megawatt solar project having PPA with our own DISCOM as in commission during the quarter. Balance capacity is expected to be progressively commissioned by end of Q2 FY '25. As informed earlier, project is expected to have improved return profile considering reduction in solar module prices in interest market. The project costs is expected to be around 1,800 crores. Second, 300-megawatt SECI XII wind projects, PPA for which was executed in the end of May '23, a turnkey EPC contract for the development of the project has been awarded to Suzlon, in view of the [indiscernible] by [ ERC, ] the SCOD of the project has been extended to January 2026. The project cost is expected to be in about INR 2,500 crores. Third, 200-megawatt merchant hybrid project comprising of 125 megahertz wind as well as 75 megahertz solar is being developed under the Airpower wind farm. The project implementation is on track. And plant is expected to be commissioned progressively by December '25. As the power from the projects to be sold directly in the merchant market, it will start generating revenues right from the first part of commissioning, as evacuation infrastructure is in place. The project cost is expected to be INR 1,400 crores. Fourth, 825 megahertz hybrid projects having PPA capacity of 450 megawatt with our own DISCOM, comprising of 486 megawatt wind and 339 megawatt of solar project was awarded through bidding process, at a fixed tariff of INR 3.65 for 25 years. LOA for the project has been awarded and PPA for the project is likely to be executed by end of Q2 of FY '25. SCOD of the project is 24 months from the PPA date and likely to be implemented with a project cost of INR 5,500 crores. Fifth, 368 megawatt hybrid project comprising of compact 225-megawatt (sic) [ 224-megawatt ] of wind and 144 megawatt solar project was awarded through a bidding process conducted by the Indian Railway at a fixed tariff of INR 4.25 per unit for 25 years. LOA for the project has been awarded and PPA for the project is likely to be executed in the current quarter. SCOD of the project is 24 months from the PPA date and likely to be implemented with the project cost INR 2,600 crores. Sixth, 425 megahertz Solar PV project having [indiscernible] of 306 megawatts was awarded through a bidding process conducted by the MSEDCL at a fix tariff of INR 3.10 for 25 years. LOA for the project has been awarded and PPA for the project has been executed. SCOD project is September '25 and is likely to be implemented with a project cost of INR 1,550 crores. Seven, 100-megawatt wind power project awarded through competitive bidding process conducted by SECI XVI at a fixed tariff INR 3.60 for 25 years. PPA for the project been executed. SCOD of the project is June '26, and is likely to be implemented with a project cost of INR 925 crores. Eighth, under C&I portfolio. Company has 528 megawatts project under development, compassing of 426 megawatts solar, 122 megawatt out of wind project. Out of which, 35-megawatt has been commissioned till the end of the current quarter, taking total C&I capital to 563 megawatt. Balance capacity is likely to be commissioned progressively within next 2 years. The project cost is expected to be INR 2,700 crores. Apart from renewable energy projects, the company has been working on a development of 2 transmission projects, which includes Khavda transmission project in the Torrent Power Grid Limited. It's a JV between Torrent Power as well PGCL which has been awarded because the company on a nomination basis under regular tariff mechanism, post-tax return on equity of 15% plus incentives. The project cost is expected to be above INR 800 crores. Second, Solapur Transmission project under new SPV, which was won on the competitive bidding basis conducted in the Q1 of FY '23 -- '25 at fixed -- annual [ INR 50 crores ] per annum for 35 years. The project cost is expected to be INR 470 crores. The above stated investment in renewable as well as transmission project, the company has investment plan close to odd INR 20,000 crores for next 3 to 4 years. Moving over to the new ventures, companies pilot project on green hydrogen then in the the CNG in UP. One of the largest private sector blending project in Indian sector expected to be commissioned by Q2 of FY '25. Further the company has got allocation of 18 Ktpa of green hydrogen production under SECI PLIs tender. Tthe average PLI of 28.89 per kilo. Technical feasibility has been done and detailed business plan is under preparation. With respect to pump storage hydro project, having good identified project site with a potential of 8.4 gigawatt of pump storage, hydro capacity in the district of Maharashtra and Utar Pradesh entailing total investment of INR 40,000 crores. Technical feasibility study completed and MoEF terms of reference has been granted for the entire capacity of 8.4 gigawatts. It has be appointed for [ EIA ] sudy and environmental clearance for the all sides. Similar opportunities are being explored in other states like Gujarat, MP and Rajasthan. We have initiated the process for obtaining requisite approval. This could be offered either as a storage solution or proving high CUF even or RTC renewal power solutions. That's all for the quarter. Now I request coordinator to open the Q&A session. We wish everybody to stay safe and healthy. Thank you, Handing over to the operator.

[Operator Instructions] First question is from the line of Satyadeep Jain from AMBIT Capital.

Sir, a very strong performance. Just I have a couple of questions. On the merchant power sale, I'm not sure if I missed it. Is it possible to share the split between NVVN and Section 11? What was the volume -- and also separately on the profitability for Section 11, last time we discussed that, there is a benchmark and then there's a spread over that benchmark. If you can maybe share some metrics around profitability on the Section 11 that you had in this quarter?

Breakup, we're not able to provide, but we can able to provide the MUs basically. MUs, we have sold is about 1,700 MUs we have sold in the merchant market.

So the -- but generally any kind...

It is including the NVVN sale Section 11 as well as well as the sale on the exchange and bilateral revenues.

So any profitability directionally can you give on -- maybe Section 11? What was the price at which you sold or maybe some kind of profitability metrics on the Section 11?

This kind of opportunity is available in the summer time and the pre-winter time. So summer time, we -- obviously the demand is very strong and electrifies [ are moderated basically. ] So we got this opportunity to sell significant quantity in the merchant market. We have 1.5 gigawatt untied capacity. So we have utilized this capacity in selling these 3 areas -- the 4 areas, NVVN tenders, Section 11 -- exchange is a bilateral basis. So we expect the similar opportunity will be available in the pre-winter time also, maybe September, October and other things, depending on the season, how the seasons progress.

Okay. And can you remind us on your take or pay on LNG, what is the current contracted LNG volumes you have? And I believe you're looking at new tenders. So how does it -- maybe just some details on when these take-or-pay contracts are now written and what kind of renewal you're looking at?

So we are working on the fresh contract, in fact. So it's under discussion by income. So it's working progress kind of [indiscernible] form.

Currently, you have, I believe, 3 LNG cargoes contracted under take or pay each year for the next 1 or 2 years?

Yes, up to '26 -- up to '26, we have 3 cargoes we have contracted. And balance cargo for the year, we have taken [indiscernible] is going to be a [ percent ] of spot basis. So we -- now the LNG price is moderated, so we will try and contract more cargoes going forward.

Maybe, possibly more than 3 cargos is what you have suggested here.

Absolutely, absolutely. Absolutely.

Just 1 more quick question on the distribution and transmission. Just want to understand very strong Y-o-Y growth, the underlying drivers. You discussed it briefly, but if you look at AT&C losses have also -- distribution losses were generally slightly higher Y-o-Y. What drove that profitability in that business?

Sorry, come again?

In the distribution and transmission business, when we look at the underlying profit compared to last year, there is a significant growth Y-o-Y. I just want to understand what were the drivers that led to that.

Demand has gone up by about 6%, 7% in the Q1 as compared to the last quarter, comparable to what of last year. The profit is mainly coming from the approval, which we have received from the regulator for the carrying cost of close to about INR 100 crores this quarter.

Okay. So that was the big swing in just the approval for that carrying cost?

Yes, exactly.

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

Congratulations for the cool set of numbers. My first question is, is it possible to let us know the current arrangement of sales from DGEN and SUGEN? Is it the Section 11 and what is the quantum level of the of the merchant basis? Just some color will be helpful.

So, SUGEN if you look at the Section 11 provision, so whatever is untied up capacity, for example, is we can able to offer in the Section 11. But since we have a NVVN tender, we have some committed capacity from SUGEN and DGEN. So balance capacity can offer on Section 11.

So is it for the quantum and how long it will continue, this Section 11?

It will be up to 30th June, I would say. So it will keep a limited period of time in the summer month.

So this is over right?

Yes, yes.

So now the untied capacity is free to be sold in the budget, right?

Yes, exactly. Exactly.

So Mohit, just to add, typically, what happens is that if you are untied capacity, when you say untied capacity, it includes a long-term contract, and it includes even bilateral contracts also. Over and above there, if you have any untied capacity, then you have to sell it under Section 11. So typically, what we do is we also do bilateral contracts with short-term for 1 month, 2 months, 3 months. Those capacities are not available for Section 11.

And [indiscernible] Section 11 capacity, government is asking the user schedules during the peak time. We provide a schedule as well as schedule requirement, we have supply the power under Section 11. It will not be throughout consistently being provided. The government is providing the schedule when they need the power. And accordingly, we have to supply power to under Section 11.

Is it right to say that the terrific Section 11 is over now -- and what will the capacity is free, right?

Yes, it is up to the scheme was available up to 30th June. So now it is not no longer Section 11 is applicable at this moment.

Second question is on the T&D losses. Of course, generally, you see improvement every year. This particular quarter, you have seen the T&D losses. Is there a particular reason which affected our T&D losses?

See, if you look at the Ahmedabad and Surat distribution area, we -- there was a growth about 6%, 7%. So -- and there will be more retail share -- selling to more retail [indiscernible] area, I would say. Where the loss will be bit higher compared with the industrial commercial consumer. So sale to those residential consumers are higher and where the losses are higher, I would say. That is why it's gone up by a bit -- for a few basis points.

My last question on the other expenses that has gone up, I think, by INR 60 crores Q-o-Q and Y-o-Y INR 100 crores. What explains this?

If you can repeat your question?

This other expenses, just as a line item -- other expenses.

Other expenses, see the plant operation is higher. We have -- if you look at generation PLF was 40%, it has gone up to 60%. So obviously, the plant O&M expenses will be higher. So because of the plant higher operation, my other expenses is also higher which will be booked in the other expenses.

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

My first question is on the gain on sale of gas on merchant business as well as NVVN. Sir, you said in the opening remarks that it is incremental, it is higher by INR 917 crores, right?

Sorry?

It is incrementally higher by INR 917 crores, your revenue.

INR 517 crore.

INR 517 crores.

INR 517 crores, sorry, my bad. So sir, last year same period, I think the gain was almost INR 140-odd crores, right, sir, incremental?

There's INR 130 crores gain from merchant and INR 10 crores from LNG.

Yes, yes. INR 140 -- about INR 145 crores were the gain for the last year.

Okay. So this year, it is like.

This is the incremental profit of INR 517 crores we are talking about.

Incremental -- yes. Okay. And sir, the carrying cost, which has got approved by the regulator is for the distribution you said, right, which is still -- this...

License distribution area.

Ahmedabad and Surat, right, sir?

Yes.

And sir, 1 more question on the booking side. You have seen a sharp increase in the employee cost. So what was the reason for that, sir?

I don't think there is a sharp increase in the employee cost. General...

You If you see Q4 '24, it was INR 147 crores. And this is INR 173 crores in Q1. So obviously there is a sharp increase.

But you are comparing Q4, but rather, I think quarter 2, quarter 1 as to compare.

Quarter 1 also is INR 146 crores.

Generally, the Q4 -- if you look at the Q4 -- Q4 by capitalization was highest in Q4. So -- in Q4, our capitalization is highest in Q4 because the highest capitalization, some of the cost of employees also get capitalized because of the accounting, the capitalization and expenses. So -- and Q1, capitalization is lower, I would say.

But this is not a trend. So this is a different trend we saw. Okay. And sir, on the CapEx guidance, can you throw some light for this year?

Capital guidance, is the same guidance, about INR 2,000 crores we plan to spend of our license and franchise distribution business. INR 1,750 crores is for license distribution business and about INR 200 crores, INR 250 crores for the franchise distribution area.

And in the renewable part, sir?

So renewal progressively, we have INR 18,000 to INR 20,000 crores investment plan for next 3 years -- 3, 4 years, I would say. So every year, we'll spend about INR 5,000 crores -- close to INR 5,000 crores. But it will be progressively spend based on the commissioning of the projects.

And sir, in your opening remarks, I think you said something on the green hydrogen and the PLI which is not part of the presentation. Can you repeat or I can take it separately after the call also. It is fine for me.

Yes, you can take it separately after the call.

Next question is from the line of Bharani from Avendus Spark.

Am I audible?

Yes.

Yes. So I just want to clarify the split of the Section 11 and the contracted capacity to either PPA or bilateral plant wise, like SUGEN has about 80% contracted to own DISCOM. So should I consider the remaining was offered in Seciton 11 in the quarter?

So about 75% is tied up with the long-term PPA for SUGEN as well as UNOSUGEN. And yes, balances are available -- part of it is available for Section 11.

So Bharani, you are right. For long-term PPAs, it is 75%. But as I said earlier that we also do short-term contracts. Now if we already have some contracts in place, that will not get counted under Section 11.

Sir, that's what so -- 25% of SUGEN and UNOSUGEN, whatever is remaining, that would be given to bilateral or merchant or [indiscernible] sorry. So what would have been that bilateral portion from SUGEN and UNOSUGEN in 1Q?

We are not sharing those numbers. I think you should look at merchant on a holistic basis rather than dissecting it in 2 different sections.

Okay. So of the overall capacity of SUGEN, UNOSUGEN and DGEN, which is [ 2,750 ] megawatts have been given to merchant in megawatts in 1Q?

So merchant, total MU which we have sold, which will comprise of Section 11, NVVN and bilateral all on exchange is around 1,700 MUs for the quarter.

Okay. Okay. That comes to what percentage, I mean, I can calculate, but just for discussion purposes.

Sorry, come again?

That will come to what percentage of overall sold by these 3 plants?

I'll give it you offline. I don't have the numbers as of now.

Okay. Got it. And pre-winter like in September and October, again, there will be probably increased sales in merchant or bilateral. But do you foresee Section 11 in those months?

It depends on the weather condition I would say, so how the weather condition will be there. It depend on the weather condition. And though the weather will not be so severe like summer. So, as of now it's too early to estimate whether Section 11 will come or not.

Okay. So in the -- for the remaining part of the year, we can assume that it would be PPA of capacity plus some merchant sales that can happen from the -- untied capacity.

Yes.

Okay. And final question. So I think in the last quarter call, some number around average tariff and average cost of generation for NVVN was said, I think it was -- costs at the INR 8 per unit, tarrif at INR 10 per unit, so EBITDA contribution of INR 2 per unit. So was this materially different? Or was it same for NVVN in [indiscernible]?

The average contribution is higher in the summer months. We can't give the exact number of amount of contribution, but it's higher than the summer -- during the summer month.

And what would be like the average cost of generation at present or for the remaining, say, 9-month period for this gas- based power plant in rupees per unit?

See if you -- it depends on your material cost the cargo cost, basically. So average, so far, what we have acquired is about $9.5 per Mbbtu -- fuel costs.

That will roughly translate to INR 7, INR 8 per unit landed cost.

It is about INR 6.5 kind of a thing, variable cost.

Next question is from the line of Vishal Periwal from [indiscernible].

Yes, congratulations on a good set of results. I joined the call a little late, so pardon if there is a repetition. In terms of our quarterly PAT of roughly INR 996-odd crores. Can you share if one has to like -- one-offs in this, what could be a recurring PAT for us.

So out of PAT of -- it will be above INR 1,315 crores after Q1 of the current quarter, the one-off is hardly INR 102 crores, which is a carrying cost we got approval of INR 102 crores carrying cost. That is the one-off items.

Okay. But sir, I think Section 11, again, probably if it is not continuing at least for the next coming quarter, will it be possible maybe like to subtract that and to provide some numbers?

No, we see it as a section as a part of the merchant set. So we don't distinguish section alone differently. So all our NVVN tender, merchant sales, our exchange and bilateral business, Section 11, we all see it as a part of the merchant sales.

So Vishal, I think on a normalized basis, which you're talking, I think you'll have to see on a Y-o-Y basis rather on a quarter-on-quarter basis. So if you look at last year, if you -- or any year, Q1 has always been better compared to any other 3 quarters because of inherent demand in the country, which is very high, and that's why having higher merchant sales. So if you want to normalize, actually you'll have to look at Q2 versus Q2 rather than Q1, Q2, Q3.

Okay. So is that fair to say in the quarter 1 of last year, there were Section 11 at that time also.

No. Section 11 was the first time, which was imposed on gas-based power plants in this Q1. What we are trying to say is that merchant sales on a holistic basis, there was profit in the last year Q1 also, there are profits in this year, Q1 also, which typically goes down as we progress towards the year. In Q2, Q3 and Q4 typically, it tapers down because of lower demand.

Okay. Sure sir. Maybe. Sir, on this Section 11, any number that is there in public domain that you like to share in terms of the realization, how exactly it differs maybe with our contracted quantity, if there's any directionally ballpark percentage higher? Or if you can just share?

Yes. So we explained, we don't differentiate the Section 11. It's a part of the merchant set.

So as far as the formalized concern, it is 120% of your variable cost. Now variable cost is defined as your gas price, which is defined by GSPL or the defined price by the [ new ] -- price against which our sourcing cost is lower. Another one is on the wind and costs, which are variable, there is some normative parameters against which our O&M costs are lower. So if you look at -- from a holistic basis, my margins would be higher than 20%, which is [indiscernible] under the Section 11.

Next question is from the line of Swati Jhunjhunwala from JM Financial.

Congratulations on a good set of numbers. Sir, I might have missed it. So the C&I capacity of 525 megawatts, when is that expected to be commissioned?

Next 2, 3 years, 2 to 3 years.

Next 2 to 3 years, okay. And so can you give me a broad sort of a number as to what you are planning the commission this year versus next year versus FY '27. Is it -- like are the 8 projects that you highlighted? Is that it? Or there might be more?

So as of now 8 projects under development right now. If you look at the -- by March '25, 1 project of 420-megawatt is getting commissioned. And the rest of the project is getting commissioned from next year onwards. Some capacity will get commissions of C&I portfolio also. Airpower capacity progress fully gets commissioned because it is both commissioning date line is somewhere around December '25, but some part of the capacity is getting commissioned before March '25 also.

Understood. And on the Hydro PSP, 8.4 gigawatts, can you assume a sort of a 4 to 5 years timeline for this one to come up since it's still in the approval phase.

Yes, at least 5 years, I would say.

Okay. And sir, just 1 question on this PSP. So are we looking at it at a -- is it a near a river or is it not near the water body. Because I think the water requirement is very different.

I think it is not one of the river projects. They are all pump storage -- storage hydro projects. And the projects are typically in those areas where rainfalls are good. So once you have good rainfalls, you can collect the water and use it for store.

There will be a reservoir for upper and for lower reservoir -- and so -- and that area it will be developed.

Understood. So it's not run off the rivers is what you're saying.

No, no, no.

Next question is from the line of Aniket Mittal from SBI Mutual Fund.

Sir, a clarification. For the quarter, what were our LNG sales or the deals that you made on LNG?

LNG sales are very, very municipal.

So now they have opportunities to generate the power and sell in the merchant market. So very municipal amount we sold in the LNG.

Sir, this overall number of, let's say, INR 660 crores worth of gain that we met. Like almost INR 650 crores will be merchant related. Is that fair?

Sorry, come again, Aniket?

Sir, the overall profit, if I look the overall gain on merchant plus LNG sales for this quarter is roughly INR 660 crores, right?

Correct.

Yes.

So out of this about like -- you're saying INR 650 crores is just merchant-related only. LNG sales would be INR 10 crores or [indiscernible].