Torrent Power Limited (TORNTPOWER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Torrent Power Limited Q4 FY '25 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Saurabh Mashruwala, Executive Director and Chief Financial Officer. Thank you, and over to you, sir.

Thank you so much. Good evening to all of you, and thank you for joining earnings call of Torrent Power for Q4 FY '25. First, I will take you through the performance of the quarter, after which phone lines will be open for a Q&A session. [Technical Difficulty]

Ladies and gentlemen, we have the management line reconnected. Sir, you can go ahead.

Thank you. Good evening to all of you, and thank you for joining earnings call of Torrent Power Q4 FY '25. First, I will take you through the performance of the quarter, after which phone lines will be open for a Q&A session. I'll explain the performance of the company at PBT level first, and then I will take you through the tax expenses separately. Reported PBT for the quarter stood at INR 619 crores as compared to INR 617 crores in the corresponding quarter of last year, an increase of INR 2 crores on a reported basis. As informed in the last quarter, 420-megawatt Torrent TPL solar project got commissioned during the last quarter. The plant is under stabilization phase. It was not able to make optimum contribution to the bottom line. Hence, the consolidated PBT has been impacted negatively. Considering plant running on a steady state basis, PBT for the quarter would have been higher by approximately INR 35 crores. Adjusted for the same, the adjusted PBT for the quarter stood at INR 654 crores as compared to INR 617 crores in the comparable quarter of last year, which is higher by INR 37 crores. There is a growth of about 6%. Businesses that contributing to the performance are as follows: First, contribution from distribution business improved by INR 112 crores, mainly due to the higher volumes and increase in ROE on capitalization of CapEx, solar incentive and other O&M incentive and true-up adjustment. Demand growth during the quarter was about 4% across all our distribution areas. Positive contribution from our distribution business were partially offset by following reasons. First, lower contribution from the merchant power and LNG sales of INR 88 crores. LNG prices have been continued to remain elevated during the quarter, trading between $12 to $17. Corresponding merchant sales remained subdued due to elevated fuel price and lower demand growth for the quarter. Third, however, the recent gas price have started witnessing downward trends. Competitive gas price coupled with NVVN tenders and better demand prospects, we expect the situation should have improved going forward. We got the LOE from NVVN for DGEN project 1150-megawatt and SUGEN for 150-megawatt plants. [indiscernible] NVVN tender is from 16 March to 15 October and broad specification for the tender remains same as for the last year tenders. Adjust for the one-off, as explained above, profitability for the solar generation improved during the quarter by INR 43 crores, partly offset by the lower PLA for wind project on account of inclement weather condition having negative impact of about INR 30 crores. So it's net positive impact for the renewable is INR 13 crores. Moving now to the tax expenses as informed earlier. Under the [indiscernible] part of the published account, there has been a decrease in tax expenses, mainly due to the reversal of deferred tax liability being onetime and noncash items. This completes the explanation of the financial performance during the quarter. Coming into the project update. 84 megawatt out of 360 megawatt MSEDCL project was commissioned during the quarter. This aggregate installed generation capacity of the company stood at 4.8 gigawatt as of 31st March '25, comprising of 2.7 gigawatt gas-based capacity, 1.7 gigawatt of renewable capacity and 362 megawatt of coal-based capacity. Pipeline project at the end of the quarter includes 3.1 gigawatt renewable capacities, 3 gigawatt of pumped storage capacities and 2 transmission projects at Khavda and the Solapur. Further details on our transmission pipeline project have been summarized in our latest investor presentation available on our website. Now I would like to take you through some of the key highlights during the year, including the financial as well as operating as well as strategic point. First, during the year, company made an equity raise of INR 3,500 crores through QIP, which is the first in the last 3 decades by the Torrent Group. Our gas-based power project, we're able to supply power in merchant market, including NVVN tenders and at a section level imposed first time on the gas-based power plant by the government contributing significantly to the bottom line. Our distribution business continued to set new operational benchmark, with distribution loss of 2.34% in license distribution business. It's achievement and in one of the lowest across the countries comparable to the global benchmark. In our franchisee business area, Agra achieved its historical low AT&C losses of 6.94% compared to 58.77% and it was taken over in 2010. On strategic front, the company made significant progress in building on a strategic initiative by entering into the first of its kind India energy storage facility agreement with MSEDCL for supplying 2,000 megawatts pumped storage hydro project for 40 years. The net debt to EBITDA -- net debt to equity of 0.40 and net debt-to-EBITDA of 1.41x, the company enjoys a strong balance sheet position with one of the best financial ratios among the private sector players in power sector as well as poised for the next phase of growth. That's all for today. I would like to now request coordinator to open the line for the Q&A session. We wish everybody to stay safe and healthy. Thank you so much. Operator -- handing over to the operator.

[Operator Instructions] Our first question comes from the line of Mohit Kumar from ICICI Securities.

First question is on the -- what was the CapEx in FY '25 and the CapEx amount budgeted for FY '26? And can you break up this across the businesses?

So CapEx for license distribution was about close to INR 1,300 crores for the full year. Franchisees was out about INR 275 crores. Transmission is about INR 250 crores. And total CapEx is about close to INR 1,900 crores means other than renewable CapEx, I would say, is about INR 2,500 crores.

Expected CapEx for F '26 sir, the breakup?

Hello? Yes.

Sir, asking for the CapEx breakup for FY '26?

CapEx for FY '26, as we explained that the distribution CapEx is INR 2,000 crores, INR 1,750 crores for the license distribution business and about INR 250 crores of financial distribution business. And renewable, I think we have given in the investor PPT.

Understood, sir. I think in investor PPT, you just mentioned, the megawatt numbers, right, and the date of commissioning. Is that right?

Sorry, can you come again? Your voice is too low.

Sorry, let me be loud. Okay, I move to the next question, sir. I hope I'm clear now. My second question is on the NVVN, the contract we just signed with -- signed in the month of March. Is it take-or-pay contract? And what is the minimum guaranteed volume which you have agreed to?

So guaranteed volume is basically more or less in line with what we have done in the last year. So the specs more or less remains the same in terms of methodology.

Okay. Understood, sir. And any update on the progress of 1.2 gigawatt pumped storage project, which you've signed with the Maharashtra, what is the update? Have you done the financial closure? Any color on that?

It's a 2 gigawatt project. It's not 1.2.

Yes. 2 gigawatt, yes, yes.

And see, it's a 4, 5 years project. So it is currently the various statutory approvals we are doing into the DPR also. And in the process of land acquisitions also. This is what the progress is right now. A lot of statutory approvals we have to take. So that process is going on. Land acquisition process is also going on.

The next question comes from the line of Sumit Kishore from Axis Capital.

My first question is a follow-up...

Before you go ahead with the question, may I request you to please use your handset sir. Your audio is slightly -- there's an echo in the line.

Sure. Is this better now?

Yes, sir, please go ahead.

Okay. So the first question is a follow-up on what Mohit asked. So there is a CapEx for renewables, which is almost INR 206 billion as the expected project cost. Is this the residual amount remaining? Or what is the CWIP, which is already there for renewables? So what is the balance CapEx remaining for these projects? And in terms of a rough phase out over FY '25, '26, '27, is it going to be more FY '26 heavy, given the time lines of commissioning are more 2026, 2027 calendar year?

Yes. So you are right, the CapEx, which we have brought out in investor presentation is a total CapEx. Out of which, whatever we have done is being shown in the CWIP. So balance CapEx remains, which is a significant part still remaining as far as outflow is concerned. You are right in terms of saying that '26 would be a larger number because of a lot of commissioning being done in '26 and '27. So '26 could be a larger number as far as renewable CapEx is concerned. '27 would be lower -- it should be lower than that depending on how we progress in terms of commissioning of these projects.

So '26 will remain the heavy CapEx year as far as renewable is concerned.

And sir, if you could help us with the CWIP number for renewables specifically, it will just help us to better understand what you have done so far?

So I would say, INR 2,500 -- roughly about INR 2,500 crores CapEx for renewables up to March '25 and a significant amount of CapEx we are going to incur in the current year, FY '26.

Got it. So out of INR 206 billion, roughly INR 25 billion is what you have incurred so far?

Yes, exactly.

Sir, what has been the experience so far, given power demand has been slightly depressed in -- fairly depressed in April, and then it's a decline in May for the first 13, 14 days. So how is your NVVN opportunity shaping out so far? Is there acceptance? I know there is a pass-through for variable cost. But given the high overall power cost for anyone who is buying this power, what is your experience on offtake?

So we have increased the duration of the contract. So earlier, it was June. Now it is -- they have extended, which is October. Last year, it was up to June. They have extended till October. So now the June -- May has started in fact, summer period has started. Actually was a bit impacted because of rain and weather factors, I would say. So hopefully, now the rain is behind us. So hopefully, it will start picking up. Summer will start picking up, and demand will start growing, improving.

Is it reasonable to sort of gauge that April and period in May so far wouldn't have seen much offtake of this extensive power. Is that directionally a right conclusion to draw?

Yes, it is happening. During the peak period, it is happening with NVVN tariffs.

Okay. Okay. And it's very clear that in the second quarter, there would be a direct benefit because this arrangement last year was only till June.

Yes, exactly. Yes. So it is -- now it's up to October. October 15, I would say.

My last question on the UP privatization. What we are hearing is that the state will be divided into 5 circles for the 2 areas which are getting privatized. So is there any condition on how many circles one private player can take?

I think 5 or 6 circles they are talking about. And it is under the -- document is in the preparation right now. So possibly, they will invite all private sector players to participate in the tenders. So more details will be -- coming with the more details, they are holding -- they are -- meeting is happening with the Torrent -- Ministry of Power is also get involved in the tender -- for tendering process.

Got it. So but there is more chance hit ratio can be higher for more than a couple of players, given 5, 6 circles would be there.

They will try to allocate to each of the players because ultimately, you need the management benefit to handle all 6 circles together. So better for them also, we will try to distribute among the private players.

And this will be regulated cost plus ROE model just like Ahmedabad...

Absolutely.

Okay. And just finally, on pump storage hydro, is there any progress in the 2 gigawatt project? I know I mean this is -- but any progress that you would like to highlight?

So in terms of progress, as informed earlier to Mohit, it is under very various regulatory approval process is going on. Land acquisition process is going on right now. So the first stage, you have to get the approval, various approval and land in possession and then construction activity and ordering will start.

[Operator Instructions] The next question comes from the line of Satyadeep Jain from AMBIT Capital.

First, just another clarification question on the pump storage project. The energy storage facility agreement was signed recently as per the release. If I understand correctly, the agreement was that the capacity needs to be commissioned within 48 months of signing this agreement. So is there -- given you are in the process of land acquisition and then construction, doesn't look like it will be commissioned within 48 months. I just wanted to understand, is that flexible the term for commissioning, which was laid out initially?

These are too early to comment on the time line. So we are working -- we are aware about the time line. So we are working on the project right now on various commissioning time line.

So fair to say the CapEx on this will not start in the next 2 years. The CapEx outlay?

No, current CapEx -- land acquisition will happen, which is going to happen. So we'll start committing the CapEx because PPA is in place, so we'll start committing CapEx from the current year onwards itself.

Okay. Secondly, on the NVVN tender, just wanted some clarification. I know earlier questions also were asked around this time. The tender specified is 111 crunch days. And there is a minimum contract, minimum guaranteed offtake based on those crunch days. So I'm guessing it started, it's been 2 months, so there would have been some crunch days in the last 2 months. How has been your offtake on the specified crunch days that were mentioned? So if it -- because the crunch days of 111 will be spread out across the 6 months, if I understand correctly.

Yes, it is spread out across the 6 months. Minimum offtake we are talking about. It can be higher also.

But how was it in the -- so how many crunch days have been there so far in the last 2 months out of 111?

Satyadeep, it is difficult to comment on the current quarter in terms of crunch days and all. But if you look at it, April and May. April, we saw some pickup in demand. May because of, I think, weather conditions, it has again gone down as far as demand -- overall demand is concerned. But if you really look at the exchange data, there are periods where the prices are touching INR 10, which indicates that there is a demand -- higher demand and lower supply. So intermittently, there has been offtake under the tender, but it would be difficult to give you exact numbers for the current quarter, per se.

I was trying to understand, if I look at the math, the tender specifies 2,900 MU for the entire tender and given you participated with the capacity, it looks like you have minimum guaranteed offtake of 2,300 MU over till October, but that will be based on crunch days every month. So I'm just trying to understand the demand has been relatively weak if the NVVN tender -- as per tender, NVVN would be bound to have a minimum offtake against every crunch day, and they can't make it up later on. So just wanted to -- is that the way it works? And basically, which means on every specified crunch day, they are taking the minimum guaranteed offtake. That's what I'm trying to understand.

So if you look at the demand scenario last 1 week was bad. Otherwise, it's basically -- demand is there. Last week, demand was weak.

Satyadeep, there is also some variability or some flexibility available for NVVN and for generators also. So it is not sacrosanct or casting stone that for these days, you have to pick up this much. These days, you have to pick up this much. There is some flexibility under the tender, which people will utilize.

But you have a minimum guaranteed offtake of 2,300 MU. If they don't take up in one particular month or quarter, then they have to make it up till October. Is that understanding...

No, no. This is for the 6 months period, minimum guaranteed. If they don't do it, then typically, they have to pay for the fixed charges for -- for whatever MUs they have contracted for.

It's not a monthly commitment. It's basically a commitment for the 6 months.

If they don't offtake, they don't pick up 2,300 MU, then they have to pay you a fixed charge, which is mentioned in the tender.

Absolutely.

For the amount, they don't pick up. And the overall return, I just wanted to understand how does it stack up against -- I know the pricing seems somewhat lower compared to NVVN tender last year. How does it -- I mean, if you have to look at profitability per unit, is it -- how does it stack up against Section 11 that you had or maybe the last tender -- NVVN tender for last year?

No, I think profitability, if you look at it, this year also the profitability should more or less be similar to what we have seen last year under NVVN tender. I think Section 11 may not be a good comparison of NVVN tender. So ideally, we should compare it with the last year NVVN tender.

Isn't the pricing somewhat lower compared to NVVN tender? Last year, you're saying per unit profitability would be similar for you versus last year NVVN tender?

There would be a slight impact, but not a major impact per se because there are other gains which you also make in terms of your cost of buying gas could be lower compared to what you are being paid for. So you make some money out of that also. Then there are operating expenses. So if I put all together, I think profitability from current year NVVN tender should be more or less similar to what we have seen in last year with a slightly downward buyers.

Okay. Just on this particular gas only given you had Section 11 last year, you have bigger period for minimum guaranteed offtake. I mean, demand has been volatile, but the offtaker is there and it's taking up power at these high prices. Generally, are you sensing some interest on some medium-term PPA given -- I mean, buyer is already buying this high gas prices. Is there any interest at all from some parties for medium-term PPA for gas? Or given the demand is so volatile and it's still expensive that you've not seen any interest at all?

I think right now, we don't see any medium-term or a long-term contract being offered for gas simply because you can't have control on the gas prices. So there is no pricing confirmation on the gas prices, which means the offtaker would also be open for the variability. And since demand is also very, very variable, it's difficult to do a long-term or a medium-term contract right now.

So that is why, in fact, if you look at -- we have committed the higher capacity from the DGEN and SUGEN plant this year as compared with the last year. Last year, it was 770 megawatts. We have just doubled it about 1,300 megawatts. So we have increased our -- we have tied up a larger capacity for the -- under the NVVN tenders this year.

That is understood. The capacity is higher and the contract period is also, which is why the minimum guaranteed offtake amount, quantity is much bigger. I mean, I would believe it is 2,300 MU versus last year. I was just not able to understand if -- so I think that you clarified that if demand is not there, then if they don't pick up, they have to pay that fixed -- assured fixed cost.

That is due to contract. Minimum guaranteed they have to honor basically. So that is assured, I would say.

Our next question comes from the line of Atul Tiwari from JPMorgan.

Just 2 questions. So what is the minimum guaranteed take or pay offtake for which the fixed charges have to be paid under NVVN tender?

That we are not disclosing right now.

Okay. Okay. And sir, my second question is on this pump storage project. So just trying to understand it a little more clearly. So as per the agreement, the commissioning period is 48 months, so has that clock started? Or is the start of the clock contingent on first approvals being available and land being acquired?

It is started from the date of PPA signing. It has started.

Okay. So the clock has just started. But sir, if the land is still under acquisition. And in many infrastructure projects, we see land acquisition can get delayed a lot. And obviously, it is not under the control of a private company. So how does it work in reality? I mean, if suppose land acquisition gets delayed by 2 years, then what is the remedy available to you under the PPA?

It's early to comment on the land acquisition because we are in process of doing it. So we don't foresee, I would say this -- the long period will happen in the acquisition of land. Too early to comment.

Okay. But any idea about how long land acquisition will take place? I mean, is majority of land acquired, 90% acquired or just 20% acquired, where we are in that spectrum?

Atul, I think there are multiple stages in when you say land acquisition, right? So we have identified the land. There are discussions going on. There are certain things which have been done. Now it is not a binary event. It will be a stage-by-stage process. So we are fairly ahead in terms of final acquisition is concerned. But you can't say that entire thing is being done and there are different types of lands. So I think we should be able to get the land in a very short time. But as of now, if you want to say an answer to it, I think we have not got the land as of now.

Okay. And fair to assume that the financial closure will happen, obviously, only after land acquisition is done and dusted, right? Is that a right understanding? Or you guys are like hoping to do FC even before that?

Atul, it is -- these are all simultaneous process, land acquisition, scouting for various construction parties in terms of, let's say, turbine suppliers, civil suppliers, financial closure. These are all parallel activities which you do when you are getting -- when you get a project or you win a bid. So financial closure has multiple -- again, multiple layers into it. There could be a sanction, which I can say that the disbursal can happen if these CPs are finalized or these CPs are done. Some part of disbursement can happen. So as far as all these different work streams are concerned, there are multiple layers into it.

Our next question comes from the line of [indiscernible] with Avendus Spark.

Am I audible?

Yes, please go ahead.

Okay. Yes. So I missed the first part of the opening remarks. Can you give me the merchant EBITDA in this quarter and for the full year FY '25?

So merchant -- it's a lower count of INR 88 crores merchant. Negative.

No, I didn't understand. So you're telling it's INR 88 crores for the 4Q?

Q4 as compared to last quarter. Comparable quarter of last year. It is lower by INR 88 crores.

Okay. Last year number, I have INR 85 crores. So it's basically nothing in this quarter or minus 3.

Yes.

Okay. So for the full year, the merchant EBITDA will be around INR 750-odd crores, INR 740 crores FY '25?

Roughly that, yes.

Okay. Clarity on NVVN tenders. So as per my understanding, this first quarter FY '25, we benefited due to both NVVN and Section 11 opportunities. And what you are telling is now it is not Section 11, it's only NVVN tenders. Is that right understanding?

Yes, as of now, yes. As of now, yes.

Okay. And last year, in the -- sorry, this year, first quarter, the spread that we earned was around INR 4 per unit. So you are telling that it might be roundabouts there with the lower buyer on the spread. Is that the right understanding?

We are not able to comment on this.

Okay. Other question is like how is this NVVN tender different from last year? Like so is there a fixed revenue?

No, it is on a similar line. So not much difference, I would say.

I mean, I'm not aware of how it was last year. Meaning, is there a fixed tariff? Or is it like variable costs plus some margin?

You will get the fixed charges for the tenders plus you will get some differential amount because our variable cost is lower. So we'll get some margin for the variable costs also.

Okay. Okay. And how much will that fixed charge be per unit?

We are not sharing that number.

Our next question comes from the line of Aniket Mittal from SBI Mutual Fund.

In your presentation, I see an increase in the merchant capacity that you want to build out. It's almost doubling from about 200 to 400 megawatts. I just want to understand the thought process on that? And what sort of realizations do you expect to see on this merchant plant?

So we see lots of potential. If you look at the market also, we see lots of potential for the merchant market. So -- and we will tie up at some point of time, those open capacity. Right now, we plan to build up merchant capacity. And during the course of construction and going forward also, whenever the opportunity is available, we'll tie up those capacities.

And Aniket, if you see the merchant capacity, which has been added right now is wind capacity. So if you really look at it, the prices have gone down in solar hours. But if you really look at it in the nonsolar hours, the prices have been fairly stable or on an upward sloping curve. So these are all wind capacities which we are putting up. And as Saurabh rightly mentioned, going forward, if opportunities available, we would -- we may tie up these capacities also.

In the medium term, did you plan to add more on merchant because you've incrementally been increasing our targets on that? Just from a portfolio level, is there like a percentage mix of merchant that you're thinking?

Right now, this is what we are planning right now at this moment.

Okay. Other part was just on pumped hydro and to understand a bit better, let's say, from a CapEx perspective, internally, when do you think the CapEx in the pumped hydro should start coming in? And let's say, internally, what are your CapEx estimates specifically on the pumped hydro front for FY '26 and FY '27?

So some CapEx will happen and we'll start incurring CapEx for the current year onwards from the land acquisitions and some initial payment to the -- for the equipment. But I would say major CapEx will happen in the next 2 years, I would say.

Suppose '26, is it like '27, '28?

'26-'27 and '27-'28.

Okay. And just one clarification I had. So this INR fixed 37 crores of one-off in the deferred tax. Has this been completely done in 4Q itself?

Yes, Q4 itself, yes.

Our next question comes from the line of Anuj Upadhyay from Investec.

Sir, what will be the CapEx in the transmission segment, you mentioned for FY '26. Last year, it was INR 250 crores, I guess. In the presentation, I see we are likely to commission 2 transmission projects amounting to roughly INR 1,200-plus odd crores in FY '26. So could you give some kind of guidance on the CapEx on the transmission side for FY '26?

From these 2 projects, we incur about INR 250 crores CapEx in FY '25. And remaining majority CapEx, I would say balance CapEx will happen in the next current year, means '25, '26.

So roughly INR 900 crores to INR 1,000 crores would be in this year.

One can assume that number.

Okay. And we are not seeing any kind of a delay or evacuation related concern in this. It's pretty firm to get commissioned in the current fiscal.

Not material, I would say.

Sorry, sir?

Not material, I would say.

Our next question comes from the line of Gaurav Birmiwal with Axis Mutual Fund.

Sir, a lot of opportunities are opening up on the thermal side from the state side. Are we evaluating those opportunities as well? I mean do you want to expand on the coal side or our focus is on PSP and renewables for now?

Yes, we are looking at both brownfield as well as greenfield also. So that is what we are evaluating. So we are not just committed to anything. But yes, we are evaluating it.

Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Thank you, everybody, for joining Torrent Power's earnings call. We wish everybody to stay safe and healthy. Thank you so much.

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

Thank you so much. Thank you.