JSW Energy Ltd (JSWENERGY) Q3 FY23 Earnings Concall Transcript

JSW Energy Ltd (NSE: JSWENERGY) Q3 FY23 Earnings Concall dated Jan. 20, 2023

Corporate Participants:

Prashant Jain — Joint Managing Director and Chief Executive Officer

Vikas Choudhary — Investor Relations

Analysts:

Rahul Modi — ICICI Securities — Analyst

Atul Tiwari — Citi — Analyst

Sumit Kishore — Axis Capital — Analyst

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q3 FY2023 Results Conference Call of JSW Energy, hosted by Emkay Global Financial Services. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhineet Anand from Emkay Global Financial Services. Thank you and over to you, sir.

Operator

Thanks, Suzanne. Good evening, everyone. I would first like to thank the management for giving us this opportunity to host the call. Today, we have with us from the management, Mr. Prashant Jain. Joint Managing Director and CEO. Mr. Pritesh Vinay, Director of Finance, and Mr. Vikas Choudhary, Head, Investor Relations and Treasurym JSW Energy. We will have an opening remark from the management, post which we can have the Q&A. Over to you sir.

Prashant Jain — Joint Managing Director & Chief Executive Officer

Thank you, Abhineet. Good evening, ladies and gentlemen. And firstly, wish you a very very Happy New Year to you and your family. So, the quarter gone by. was a good quarter in terms of the power demand, wherein in we saw 6.4% power demand growth year-on-year basis. And for the nine months, the power demand was at robust 10% year-on-year.

In the month of January last, for the first 20 days, the power demand has been growing over 15%. So, all in all, we have been seeing very good trajectory in terms of the power demand. In terms of the generation, for the quarter three, we saw the renewable generation up at 14.1% and for the nine months 16.4%, demonstrating that the renewable growth is continuously improving.

The total installed capacity is seen at 410 gigawatt and during the quarter, we saw the capacity addition of 2.5 gigawatt. And for the first nine months it is, 11 gigawatt, which is in contrast to the last year full capacity addition of 15.5 gigawatt. It appears that we will be little short of the capacity addition as compared to the last year.

Now, in totality, we are having 165 gigawatt of renewable capacity, which is close to 41% of the total installed capacity. The merchant prices of the power was down by 7% for the quarter, which was at an average of INR4.55 in the quarter three. And volume was down 14% in the quarter three. Whereas API4 price was 37% higher at $227 per ton. This is what explains that the quarter fee was quite a different situation where the price of the merchant power was down in spite of a robust 6.5% demand increase and the fuel price was 37% higher and that’s where the Merchant volumes were dipped dramatically. However, in the current month, the thermal coal prices have moderated substantially and now they are running at $170 per ton API4 Index.

Now coming to the operational performance of the company, during the quarter, the net renewable generation was up by 3% and net long-term generation was flat at 4.2 billion units. Overall, the generation was down by 5% at 4.3 billion units, primarily because there was a 230 million units lower merchant sales during the quarter.

If you remember last year, October was a substantially super-duper month for the country where the prices were substantially higher and power demand was up at 12%. Because of the higher base effect and extensive range, the power demand growth was negative in the — up to one month this year. And, the other thing, which I — as I explained that the tariff was lower and fuel price was higher because of which there was a delta of 230 million units lower merchant sales.

However, during the first nine months, our generation is up by 2% at 16.8 billion units, which is primarily — one more important thing is that in the first-nine months, our merchant sales is up by 65% year-on-year, which is in excess of 450 billion [Phonetic] units. But the generation overall increases only 2% because there was no schedule available for our unit numbers earned from the Maharashtra. And there, the loss of the generation was INR550 million units. Otherwise, on a long-term contract basis as well as in the short-term basis, the company has been performing exceptionally well.

In terms of the EBITDA for the quarter was INR727 crores, which was down by 18%, primarily due to the long-term — lower long-term sales. And for the nine-months, the EBITDA is up by 5% at INR2,936 crores. The cash profit during the quarter was INR489 crores, which is the cash return on adjusted networth of 20%, which we have been retaining.

Our receivable trajectory is robust. It is down by 8% at 69 days. Our projects are progressing very well with very big commission on schedule both for hydro, as well as wind projects. We have also received LoA for our SECI contract of battery storage project. which we will be building in the next 18 to 21 month’s timeframe, and which will be commissioned by October 2034. That’s all from my side. With this, I open the forum for question-and-answers. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. The first question is from the line of Rahul Modi from ICICI Securities. Please go ahead.

Rahul Modi — ICICI Securities — Analyst

Thank you for the opportunity,sir, Sir, just a couple of questions I had. First was with regards to some economics, if you could help us with the BESS project, that we have won, In terms of what would be the storage, tariff, cost and how will the indirect economics work. That is first. Secondly, some progress on — over the next two, three years, you mentioned that the Ind-Barath project would get commissioned over the next 24 months. So, some details on that as to how do you see it scaling up and would you prefer, because it’s a low-cost project as of now. So, would you prefer to tell it on merchant or what would be the strategy, like? Thank you.

Prashant Jain — Joint Managing Director & Chief Executive Officer

So, thank you, Rahul. So, this is a project, which we are selling at a particular lease-rent kind of a construct wherein 60% of the capacity is being sold for 12 years at a INR10,85,000 odd per megawatt per year — sorry per month. And that’s how it will be construed and after 12 years, the project will be transferred back to SECI. The 40% capacity is belonging to us, which we are hoping to contract with other DISCOMS, as well as supplying with services into the ancillary market. There is a new ancillary market and a policy framework, which has been opened up and where we see a better potential to earn better returns as compared to what we are getting from SECI. And that’s how the project has been conceptualized.

In terms of the returns, we can guide at this point of time that we will be getting close to mid teen or little higher returns with that, what’s been normally get in terms of any generation project. And since we are having number of levers available in front of us at this point of time, so this is what we would like to give you the guidance. But as the projects get commissioned and then are working and operating, numbers start kicking in, then we can see if there are some positive surprises. But this case, we will be getting 15%, 16% kind of equity IRR on the project. Sir, just one follow-up on this. So basically, sir, the DISCOM will give you the grid power and during their peak hours, we will supply back to [Indecipherable]. As far as I’m concerned, I’m supposed to make it available. The storage capacity should be made available. Whether they want to use in one cycle, they want to use two cycles, which DiSCOM will contract the capacity with the SECI, we are not aware about anything at this point of time. So, how it is going to work is depending upon the DiSCOM requirement. So, we make the system available. They can give me the power in the day time and take it in the night-time. They can give me the power in the night-time and take in the day time. It depends on them.

Rahul Modi — ICICI Securities — Analyst

Got it, and sir any indicative tariff just to understand, you know, in such projects, what is the tariff, which is coming out to be.

Prashant Jain — Joint Managing Director & Chief Executive Officer

So it is — again depends on the business case and business model. The tariff will be different if the one cycle is used. The tariff will be just half of it if it is two cycle, which is used. Tariff will be one third if three cycles are used. So, I hope you understand what I’m trying to explain to you. It’s a two-hour storage system. If you are — you can use up to eight, 10 cycles also, depends up to you. So, it’s very difficult to talk about at this point of time, that what is it, it will translate into the storage cost for the end user. So, it can — it can fluctuate on the business case basis.

Rahul Modi — ICICI Securities — Analyst

Got it, sir. And two more questions, which I had. One on the strategy and progress, how do you see it going through over the next 24 months in Bharat because it’s a pithead plant. And secondly, sir, you know-how do you see the spread between the coal prices on imported business and the merchant panning out for us and overall market over the next six to 12 months? Thank you.

Prashant Jain — Joint Managing Director & Chief Executive Officer

Sir, merchant tariffs are strengthening and they are now running in the range of now INR6 to INR6.5 on a daily basis. And fuel prices are moderating. So, that’s the situation. And you know the thermal coal is directly linked with the natural gas at this point of time because the natural gas prices — natural gas demand has been migrated to the thermal coal in Europe and because of which, thermal coal prices had been elevated since the Ukraine came on the front.

And now, the natural gas prices have moderated and they are back to the pre-war and that’s what is also reflecting in the thermal coal prices. Now, they are not as the pre-war level, but, yes, they are very close to that coal number. And if the natural gas prices continue to slide and then go up to $3, then I am quite confident in some point of time, the terminal prices — coal prices can also go to $100.

So, that’s kind of a situation and merchant power prices are very tough to forecast. But what I can see at this point of time that the power demand is very robust throughout the year and then we are seeing substantial uptick in terms of the power demand and that is what is reflecting in terms of the higher capacity utilization, as well as the higher merchant tariff. So, the spread are better and we are seeing a higher merchant volume in the month of January, what we saw last January. And so I am seeing that there will be a good business case for the merchant power producer in the next couple of months.

Rahul Modi — ICICI Securities — Analyst

Thanks. Just last, some comments on the Bharath acquisition. How do you see the progress?

Prashant Jain — Joint Managing Director & Chief Executive Officer

In Bharath acquisition, our main focus is to set the plant site and commission both the units. We have lot of options and opportunities available in front of us. One option is that the vertical integration for polysilicon manufacturing, which we have been contemplating and evaluating. Second option is also to look at certain captive requirements for the Group for thermal power for our Eastern India Requirement. Third option is also the PPAs, which lot of DISCOMS want to do for the thermal power, where they are various, which have already been invited by the DISCOMS. So, we are evaluating each and every option and and then accordingly we will be taking a call, in the due course, while this capacity is commissioned, which is a win-win for all the stakeholders.

Rahul Modi — ICICI Securities — Analyst

Alright sir. Thank you very much and all the best.

Operator

Thank you. The next question is from the line of Atul Tiwari from Citi. Please go ahead.

Atul Tiwari — Citi — Analyst

Yes, sir, thanks a lot. Sir, for those battery storage of system, how much is the capex for this 500 MW capacity?

Prashant Jain — Joint Managing Director & Chief Executive Officer

So, we will be disclosing. We will let you know. We are now firming up a couple of orders. And so in the Q4 results, we will inform you the total capital expenditure.

Atul Tiwari — Citi — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Sumit Kishore from Axis Capital. Please go-ahead. Sumit, your line is in the talk mode. Please go ahead.

Sumit Kishore — Axis Capital — Analyst

Good evening. My question is related to the acquisition of Mytrah RE assets. On the last call you had mentioned that you expected this to be completed or concluded before end of Q3 and gross blocks stage for it to be, I believe it’s first April 2022. So what is the present status now?

Prashant Jain — Joint Managing Director & Chief Executive Officer

So I agree that expecting but there are 17 lenders and most of them are from the public sector and then sometimes few things happened in terms of the lender NOC beyond our control. But those things or most of the things are settled out. There are 17 lenders. Out of 17 lenders, 15 NOCs have come and then two are in pipeline, which are expected any time soon — any soon means within days, not in weeks. And that’s the only thing, which is pending and the movement it happens, and we will be in a position to complete the deal.

And as you know that, you balance sheet comes to us from first of April 2022 itself. However, the consolidation will take place on the date of closing.

Sumit Kishore — Axis Capital — Analyst

Okay, so the P&L will not get consolidated from first April 2022?

Prashant Jain — Joint Managing Director & Chief Executive Officer

No, no. That will be the whatever the adjustment will be done in the network and gross blocks. Accordingly, the consolidation will happen from the data of acquisition.

Sumit Kishore — Axis Capital — Analyst

Okay, and is there any update that you have from the last call on your pumped storage hydro initiatives?

Prashant Jain — Joint Managing Director & Chief Executive Officer

So those are moving fine. Right now. I just — I must tell you that it requires a detailed project report is to be prepared. Then based on that report, they need to be approved by the CEA, so and also there are the public hearing is to be done to take environmental clearance. There has to be complete — and a detailed engineering has to be done. So all those things are going on, on all the projects and as we have also mentioned in our presentation that the first project for our captive requirement at Vijayanagar, we will start the construction in the current calendar year.

So there, are we have already moved very advanced in terms of all kind of approval and we have already floated tenders and other things. So at some point of time during the calendar year, we will be — once we form up the things, we will be going to the Board, and then start the construction immediately.

However, before we are going to the Board, we are doing all kind of preparatory exercise and this is what is going on in all the projects in parallel, whatever we have disclosed to the market for 7.8 gigawatt, which is equivalent to 50 gigawatt hour or [Indecipherable] so. Everywhere, things are progressing well, but since all these are greenfield projects, all these activities are going on in parallel. And year-on-year, we will see that different projects will be going on to the construction mode.

Sumit Kishore — Axis Capital — Analyst

Finally, could you also tell us what is the status of the INR195 billion PLI for solar manufacturing. How close are we to, you know, the bidding stage and final decision being taken.

Prashant Jain — Joint Managing Director & Chief Executive Officer

We are same as anybody else. We are akin with the industry and then government of India and as and when anything is in the final stage, we will be looking to participate into it and see that whether we are competitive to get something in that or not.

Sumit Kishore — Axis Capital — Analyst

Sure, thanks, thanks a lot and wish you All the best.

Operator

[Operator Instructions]. We’ll take the next question from the line of Abhineet Anand. Please go ahead.

Operator

Yes sir. My question is on the wind side. The government has set up a target, which from 40 odd gigawatt that we presently are to around 140 gigawatt by 2030. Solar has rallied and better. We have all seen in the last few years. I mean, how realistic are these numbers first. And given that your success rates in wind are better also, how do you feel that over the next few years — how these capacities can get ramped up?

Prashant Jain — Joint Managing Director & Chief Executive Officer

Abhineet, wind projects are difficult to execute because of the nature of the project because you know they are having — spread over kilometers and kilometers for even a small project of 300 megawatt. And that poses a law of right of fee and land acquisition challenges and approach issues as compared with the solar. So that is one issue. The second issue is that the tariff which comes out with wind project is much, much more as compared to the solar project because of the technology is here and that’s where more and more challenges come in terms of executing the PPA at those tariff, and executing the project on ground.

So government is mindful about this challenge. But however, both needs to be seen differently because, only with solar, you cannot have a grid stability, as well as the profile of the renewable energy cannot be maintained. So, wind is also required. Hydro is also required. So it has to be a blend, which is required for the country as a whole and similarly thermal is also required.

So that’s — stepping on direction is, first is that reverse bidding has been now contemplated, that will be stopped and it will be a simple — single line competitive bidding. And we hope to see that if that brings little discipline into the project developers and then some prudence come in terms of the tariff and then it may become little attractive to get a better investment in the wind sector.

Execution challenges will remain, which needs to be seen that, how much capacity can be added on a yearly basis. So the numbers are achievable, but, timeline could be discussed that it may take couple of years more, but the numbers are achievable.

Operator

And just on this this, I mean, the supplies, which used to be earlier I think because this a whole — whether it is Suzlon or Gamesa and some of the other players, India has been adding like one two gigawatt, something like two or three. And do we have enough decent suppliers to go to a seven, eight or whatever five gigawatt type of market? Do you feel?

Prashant Jain — Joint Managing Director & Chief Executive Officer

Yeah, yeah, supply is available because that’s not at all a constraint. The biggest deficient was the tariff. So, at the right tariff, projects can be — enough capital and enough equipments are available. However, the execution challenges will be still there.

Operator

Thanks so much.

Prashant Jain — Joint Managing Director & Chief Executive Officer

Can be mitigated very well.

Operator

Thanks.

Operator

Thank you. The next question is from the line of Dhruv Muchhal from HDFC Mutual Fund. Please go ahead.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Yeah, sir. Thank you so much. This is one quick clarification.

Operator

Sorry to inwrapt Mr. Muchhal. Sir, you’re sounding very softly. Speak a [Speech Overlap].

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Is this better?

Operator

Much better. Thank you.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Sir. I just wanted to check on the SECI battery project. The LoA is received. So do we still have to wait for the PPA before we start constructing or this is the final go air. We can now. I mean there is full surety of uptake now?

Vikas Choudhary — Investor Relations

So basically, the timeline starts for PPA to be signed. That’s why, in the previous question, I have not asked — I’ve not answered the capital expenditure numbers. That’s where we are expecting these will be completed by before our Q4 results. And then, we will be placing the order accordingly. However, from our side, we are all set and ready in terms of whether be it financing or in terms of other things.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Got it, sir. The final thing is just we are awaiting the PPA and once that is done and the 18 to 24 months, start from there.

Prashant Jain — Joint Managing Director & Chief Executive Officer

Yeah, 18 months, start from there.

Dhruv Muchhal — HDFC Mutual Fund — Analyst

Perfect, thank you so much.

Operator

Thank you. The next question is from the line of Atul Tiwari from Citi. Please go ahead.

Atul Tiwari — Citi — Analyst

Yes, sir, thanks a lot opportunity again. Sir, my question is on this 22 megawatt solar project, how much is the gross block now that the project has been finally commissioned. So what is the number, would you be able to share that?

Prashant Jain — Joint Managing Director & Chief Executive Officer

Yeah, it’s close to — just over INR1100 crores, actually, yeah.

Atul Tiwari — Citi — Analyst

Okay, okay thanks.

Operator

Thank you. After. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

Prashant Jain — Joint Managing Director & Chief Executive Officer

Thank you very much. Thank you, Abhineet for the call. Have a nice evening.

Operator

[Operator Closing Remarks]