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Ladies and gentlemen, good day, and welcome to the Adani Energy Solutions Limited Q3 FY '25 Investor Update Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Kandarp Patel, Chief Executive Officer of Adani Energy Solutions Limited. Thank you, and over to you, sir.
Good morning, all investor friends and analysts and also wish you a very Happy New Year. So we have released this Q3 results material through stock exchange and also updated our website. So I'm sure you -- all of you must have had a chance to look at it. You must have noticed that AESL has continued the growth momentum even in Q3 in all parameters, be it financial, operating or deployment or implementation parameters. So we have reported a strong number in terms of revenue, EBITDA, PAT and also CapEx deployment at our various projects.
During this quarter, AESL has won one of the largest project in our operating history that is HVDC in Bhadla Fatehpur Transmission project of about INR 2,500 crores CapEx -- besides that -- INR 25,000 crore CapEx. Besides that, we have also secured Khavda Phase IV Part D which is Pune [WRSR] project. Now with all these projects that we have secured in the current year, our CapEx pipeline for Transmission alone has reached to almost INR 55,000 crores from INR 17,000 crores level. So that's a significant thing that AESL has been able to achieve.
Now while we continue to secure project of large amounts, we have also performed very well in terms of deployment of CapEx on the ground. So in quarter 3, the CapEx of Transmission was about INR 3,000 crores, which is almost 3x of CapEx that we deployed last year in the same period. And for the 9-month period in the current year, the CapEx deployed so far is INR 7,500 crores, which was almost double than what we did in the last year during the same period. And our focus now obviously will be on CapEx deployment -- efficient CapEx deployment. So all the projects that we are undertaking right now, we aim to complete that in a time and also within the cost.
In the current year itself, we will commission another 3 projects, which is Sangod, Khavda in Phase IV, Part A and KPS augmentation. At AESL level and at AEML level, we will commission another transmission project of BKT 220 kV project. These 3 projects -- in fact, 4 projects will combine to about CapEx of INR 3,100 crores that will get capitalized and that will start contributing revenue of about INR 375 crores on an annual basis. Similarly, on a smart meter, our deployment has gained a significant momentum. We have now reached to deployment of about 18 lakh meters so far. By the year-end, we aim to reach to 40 lakh meters. And for the next year, we have targeted 70 lakh meters.
So all the thing is in place. Teams are in place. Most of the issues on the ground are sorted out, and we are confident that we'll be able to achieve this. In fact, we aim to surpass this, but this is the minimum that we'll be able to do on the ground. On the operational front as well, we have done an excellent job. The ability that we have achieved is 99.7%, which has contributed to about INR 33 crores of incentive income during the quarter. And the incentive income for the period 9 months is about INR 100 crores. We have added about 225 circuit kilometers during the quarter. Now we have reached to 25,778 circuit kilometers.
In our distribution segment as well, we continue to perform very well. Our sales has increased by about 3 percentage, but significant achievement is in terms of T&D losses. Now we have reached to level of 4.66 percentage and we aim to continue to maintain that trajectory. Even in our distribution network, we have achieved a reliability of over 99.9 percentage. On a financial front as well, you must have seen those details. The revenue has increased by 15 percentage. The total income now stands at about INR 6,000 crores, which is with a growth of 24 percentage. Operational EBITDA of INR 1,579 crores, which is 9 percentage higher as compared to the last period. Similarly, EBITDA increased by 6 percentage. Now it has reached to INR 1,831 crores. The PAT has also seen a significant growth. It has reached to INR 625 crores in quarter 3, which is 80% higher on a year-on-year basis.
So now you must have seen that the most important thing that we have achieved so far is that we have locked in our growth -- 3x growth already. And now the focus of the organization will be on an implementation. So we will continue -- but despite that, we will continue to participate in the bidding opportunity. There is about INR 60,000 crore bidding that we expect to happen in next 1-year period. And while we participate in the bidding, we will be of the mindful that we will secure projects only to the extent that our ratios are not -- and our ratings are not diluted and our returns are not compromised. So we will be very selective in taking the projects. And with these event thresholds, we expect that we'll be able to continue to maintain our market share of around 20%.
So with this detail, I think we'll dwell more during the question-and-answer session. Over to you for further proceedings.
[Operator Instructions] The first question comes from the line of Mohit Kumar from ICICI Securities.
Sir, first question is on the financial numbers. Can you please help us with the large negative movement in deferred regulatory in this quarter in P&L and the nature of it?
Sorry, Mohit, large negative?
Movement in the deferred regulatory line item in the P&L where there is a negative of INR 468 crores, if I'm not wrong?
Correct, correct. So Mohit, that is only on account of the regulatory surplus that the distribution business has reported. What has happened is that the MERC has now allowed FAC recovery to be done along with the tariff recovery and because of which there is a regulatory surplus. Till now, we would have a regulatory gap in our account, but because of this FAC recovery which the regulator has allowed, we are now having a surplus in our balance sheet or in our income statement, which is just a timing difference, which has back to be returned over the next quarter or over the next tariff period. So it's just a timing part on the regulatory surplus part.
So Mohit, just to add what Kunjal said, this negative number is not a negative. It is the surplus revenue over and above the cost of supply that we have recovered from customer. Now when the next tariff setting happens, this surplus will get adjusted from ARR. So meaning thereby that our tariff will be lower than our cost in the next tariff period. And obviously, that will help us in improving our competitiveness along with -- among the competitor in Mumbai distribution.
Understood, sir. My second question is, what is the status of Mumbai HVDC project? Are we expecting it to commission in the Q4? Or it will be most likely a spread-out phenomena in FY '26? And my second question, again, on the second HVDC line, which you have won, what is the progress? When do you expect the awarding to be done to the equipment providers? And what is the time line you're looking at?
So Mohit, our Mumbai HVDC is right on track. There is only one issue, which is yet to be -- in fact, we have yet to get the approval, which is from mangrove cutting, which matter is pending before high court, but that involves only 1.5 kilometer of cabling. Everything else is on time, and we expect to commission this project in quarter 3 next year. So that will be in completion on time, which will be a very, very significant event in the context of Mumbai because you must have seen history of Mumbai transmission projects, which are delayed for quite a long period, but this will be the one mega project, which will get completed in time.
As far as Fatehpur, Bhadla HVDC project is concerned, you must have seen from the various announcements and press that we have taken over this subsidiary on 20th of this month. We are into the final stage of discussion with the OEMs, and we hope to conclude those contracts in next 1 to 1.5 months. And the period that is given for completion or commissioning of the first bi pool is 48 months and the second bi pool is 54 months, and we'll be commissioning well within the time.
And this date starts from the signing of transmission service agreement or is it from the transfer of the SPV?
We have completed both the parts. We have signed the TSA and we have also taken over that SPV.
Understood, sir. My last question, sir, how is the pipeline of smart meter bidding? And has the Tamil Nadu smart meter tender up for rebidding now?
What I gathered is that they wanted to do rebidding because they have already got that approval from RDSS for getting a grant of that Government of India contribution of INR 900 per meter. And we expect that they will be coming out with another rebidding very soon.
The next question comes from the line of Bharanidhar from Avendus Spark.
Am I audible?
Yes, yes, loud and clear.
Okay. So my question is on the power demand growth. So in our operating circuits also, we have seen about a 3% year-on-year growth in power distribution. So wanted to understand your view on where is this heading, in the sense, first, if there is a slowdown from last year? In which segments or categories there is a slowdown? And what is your outlook on this power demand growth for the next 1- to 2-year period?
So the growth that we have seen this year is obviously much lesser as compared to last 3 years. And the stagnation is because that the additional capacity or additional consumption that was expected to get commissioned has delayed. So one of the major would be commissioning of those metros in Mumbai, which we expect that it will now has reached to a very good shape and will get commissioned in very short time. And few of the data center projects that are supposed to come up has delayed. So it is delayed for some time, but we expect that growth to remain healthy about 5 percentage per annum.
Okay. So are you seeing any drop in demand from specific consumer category like residential or industrial, anything like that?
No, no, I don't see any category. In absolute term, it will reduce. In fact, it will continue to grow at a steady rate and the additional growth will come from this kind of intervention or commissioning of such a project, public mobility basically and consumption like data centers.
Understood. My second question is on the privatization opportunity in distribution that recently came up, especially in the State of UP. So where is that bid in progress? Are we bidding for it?
We will certainly bid for it. They have invited bid for appointment of consultant and UP has been thinking of privatization since last couple of years. And we believe that they have done a good amount of preparation. So we see movement in that direction. And we believe that once a state like UP does privatization, it will also give signal to many other states where they would also want to explore this option. And we see a good amount of opportunity coming up in distribution privatization. But the numbers that we are talking currently, we have not factored in those kind of additional opportunities.
Understood. Just to be clear, you just said they have invited for appointment of consultant. Any time line as to when there will be a final round of bidding and when we can expect, say, opening of the bids? And if at all, if there could be any challenges because it is a large state and usually privatization faces a lot of challenges from incumbent employees, et cetera, so your views on that?
Yes. So this bid, I believe, has already mentioned the time line. It is about 210 days. I'm not pretty sure about it. So -- but it looks like that UP wanted to conclude it early and with the kind of administration at the state level, we think that they'll be able to pull it up this time.
The next question comes from the line of Dhananjai from ASK Investment Managers.
Congratulations on a good set of results. I wanted to ask you, sir, in smart metering, what are we hearing from on ground in terms of implementation? And how are we seeing that in terms of order pipeline going ahead?
So currently, Dhananjai, we have order pipeline of [indiscernible] crore meters. We have already deployed about 18 lakh meters. Our average rate is about -- now we have reached to 15,000 meters per day. And I feel proud in saying that we have been doing far, far better as compared to all other players in the market. In fact, today, my sense is that the meter being implemented by all other companies on the ground, aggregate of that, we are implementing equivalent to that. So we have already reached to 15,000, and we'll be doing at least 20,000 average meters per day in the last quarter of this year.
And as far as the bidding pipeline is concerned, there are few large states who have not gone ahead with the smart metering bidding. Those are Karnataka, Tamil Nadu, Telangana and Madhya Pradesh and few of the states have done partial, like Andhra Pradesh, Gujarat. And few of the states are also facing very, very poor deployment. They might even think of canceling and rebidding that opportunity, state like Rajasthan and UP.
What -- just what went wrong in Rajasthan and UP? And how are we seeing ourselves in terms of pushback from any like local bodies or final consumer?
So when you take this kind of project for implementation, you have to assume that this kind of challenges will come on the ground and you have to handle it and implement it. And now we -- our team has done a fabulous job. They have been able to handle this kind of registrant on the ground. So one of the key element in managing those is that communication with the customer. And we have been able to handle that part very well and have been able to reach to this level.
So another key element is to understand the requirement of distribution company because every distribution company has different processes for billing and metering. You need to understand that well and integrate your solution very well with their system seamlessly so that they don't find any problem in getting your data and availing your services. So that's a key aspect there. And we being a distribution company understand that very well. And our team has also done an excellent job on that count as well.
Sure. And sir, what will be the CapEx for this year and next year? Total CapEx...
So we have completed INR 7,500 crores of CapEx for the 9-month period currently. And by the end of this financial year, considering the smart meter deployment, the CapEx in transmission and distribution, we're likely to close around INR 12,000 crores of CapEx by the end of this financial year.
And so for next year, roughly?
Roughly, basically, it would be in the range of around INR 18,000-odd crores for FY '26 considering that we have to -- yes, we have to deploy the -- all the transmission projects which would be roughly around INR 12,000-odd crores in transmission CapEx itself.
And the remaining...
Would be largely contributed by smart meters, where we would go aggressively, as K.P. sir mentioned that it would be around 20,000 meters per day. So there, we would have to deploy more CapEx in smart meters.
The next question comes from the line of Pradyumna Choudhary from JM Financial Family Office.
So my first question is why -- pardon me for being a bit new to the company. So some of the questions would be basic. First question is on the distribution side, we've seen a flat EBITDA -- operating EBITDA Y-o-Y and the EBITDA number has even declined by 17%. So what is the reason for the same?
That's because of the reduction in the asset base or regulated asset base in the distribution business, largely on account of the carve-out of Dahanu Power Plant, which was completed last quarter. Now once the Dahanu Power Plant is out of our way, we will see stable EBITDA in the AEML business. In fact, we have huge plans of capitalization coming up in the next 1 or 2 quarters in AEML distribution business where we would see that around INR 2,000-odd crores of EBITDA being done during the next year or so. So basis that, we will see a stable EBITDA from EBITDA. The drop is largely on account of Dahanu Power Plant.
So just to add what Kunjal said, the drop is on account of Dahanu and also on account of delay of one project, which is BKC 220 kV project. Now our regulatory asset base right now is about INR 7,500-odd crores and by the year-end with all capitalization of the CapEx that we are doing in distribution and that particular project, the EBITDA -- sorry, the RAB will reach to about INR 9,000 crores by this year-end.
INR 9,000 crores will reach by year-end from what number currently?
INR 7627 crores.
INR 7627 crores, right. And secondly, on the smart meter side, what sort of EBITDA are we targeting over the next 2 years? Like do we give a number?
The balance smart meter opportunity is about 10 crore meters, and we will target about 20 to 25 percentage at least of those bidding opportunities.
The next question comes from the line of Love Sharma from JPMorgan.
Just 2 questions from me. If you could just highlight what would be the debt outstanding as of December across the transmission and the distribution business, AEML and also the cash balances which you're currently holding? And the other question was, I think, coming more as a follow-up from the previous question about you do expect some tariff revision lower for AEML. Could you just quantify how much are we expecting for FY 2026 onwards?
Sure. So Love, basically, the debt levels continue to remain same as was reported in September of close to around INR 39,500-odd crores. We also have surplus cash of around close to INR 9,000-odd crores. Basis that, we have a net debt of around INR 30,000-odd crores and our leverage continues to be in the range of 3.1 to 3.3x of our EBITDA. So that position still continues to remain same. Especially due to the proceeds of QIP, we have a healthy liquidity position in the company to take care of our funding requirements.
On the tariff levels?
On the tariff side, this INR 400-odd crores of revenue surplus will translate to a tariff reduction of about INR 0.70 per unit.
Per unit. Okay. So that remains only pretty much for the FY 2026? Or do you expect it to be -- in the future years also to be lower?
So it can get spread out in a couple of years, but that depends. So our application is already before MERC, and they will announce tariff for next year latest by 31st March.
Understood. And how about the -- because you are completing some of these transmission assets in AEML as well, as you just mentioned, I think about one of the projects which will be completed this year. That buildup in the RAB and how will that be monetized in the future? Should we expect more like a midterm tariff revision there?
So that tariff of transmission project that we commission in AEML doesn't directly get included in my distribution tariff. It gets pulled into a state pool and from state pool, I have to pay. And tariff of that is already factored in the InSTS tariff estimate that we have made for our distribution tariff.
Okay. Understood. So that revenue will be separate from the distribution utility assets, okay?
Correct. So in AEML, there are -- now there are 2 streams. Earlier, there were 3 streams of revenue. One was from a generation of Dahanu now which we have carved out. So AEML, we have now 2 revenue streams, regulated revenue stream. One from distribution assets and one from transmission assets. So all transmission assets is a part of InSTS and the tariff gets pooled with all other transmission assets of the states and then gets charged through distribution company -- individual distribution company basis usage of those transmission assets.
Got it. That is useful. And just again, to confirm, the cash balance which you mentioned was about INR 9,000-odd crores. Is that right?
Correct.
Correct.
The next question comes from the line of Darshan Parmar from Jefferies.
I just wanted to get a sense on how much of smart metering bidding is still left, if you could quantify?
So Darsan, the smart meter bidding left out is about INR 10 crores. And those are mainly from the state of Andhra Pradesh -- sorry, Telangana, Karnataka, Tamil Nadu, Madhya Pradesh, part of Andhra Pradesh and a few other states.
The next question comes from the line of Abhiram Iyer from Deutsche Bank.
Congrats to the company on a good set of results. I just wanted to ask, with the Dahanu Power sale in the previous call, you've mentioned that some of the proceeds are going to go towards reduction of debt. So may I just quantify how much is the debt now at AEML and how much it's been reduced by? That was question one. And question 2 was, has the company been in progress on a plan for refinancing its upcoming bond? There is a [indiscernible] bond coming due in 2026. Any imminent plan for that?
So at the AEML debt level, yes, the proceeds would be applied as per the AEML bond documents, where we can use the proceeds of Dahanu towards business as well as reduction of the debt. Part of the proceeds have been used to repay the debt of the company by about INR 400-odd crores during last quarter. And so currently, at AEML, there is no increase in the -- I mean, there is actually a reduction of the debt. We currently have around $880 million of bond outstanding and $300 million of SLB bond outstanding. So $1,120 million of bond, which is outstanding at AEML level. So that is at the debt level. Sorry, what was your second question?
The second question was you also have a public bond, which is coming due in the wider transmission company at [indiscernible] in 2026. So are there any plans towards refinancing this or coming back to the market for this?
Yes. So I'll answer that. This is -- Kunjal, I'll take that. Anupam this side. So I think for that one, we will stay true to our capital management plan, that is issue at tenure. It will be similar to the 2036 paper that we have outstanding, which is amortizing paper and it was issued in 2019. So this one, when it comes due 3 to 6 months prior to that, you should be seeing us tapping the market for a term takeout of that, which will be an amortizing structure. We have the option of both private placement and public market for that instrument.
[Operator Instructions] the next question comes from the line of Sagar Parekh from One Up Financial.
Sir, 2 questions. First is on the transmission side, you mentioned we have about INR 54,000 crores worth of CapEx to be done, right? So that almost INR 55,000 crores, right? INR 55,000 crores CapEx would translate to how much of incremental EBITDA?
So INR 55,000 crores of project currently based on the tariffs which we have quoted will give us INR 7,600 crores, INR 7,700 crores of tariff, which is there. We continue to maintain 92% margins or 93% margins in Transmission business.
Understood. And you said INR 370 crores would be the in Q4 incremental tariff revenue from the 4 projects that you will be commissioning?
Correct.
But that's a part of INR 54,000 crores, right?
INR 7,600 crores [indiscernible].
And second question is on the debt side, we have 60% of our debt, I think, on the U.S. dollar denominated. Correct me if I'm wrong, but 60% is what is the foreign debt. So with the current rupee depreciation, what are your thoughts on this? And how do we account this? Because I think most of the debt is more than 5 years or something. So just wanted some clarity on this as well, please.
So what we generally do is that as soon as we take an overseas debt for a rupee -- I mean, dollar-denominated debt, we hedge the entire debt so that currently, our entire portfolio is hedged both at AEML as well as AESL level. So we are not significantly impacted because of the rupee depreciation.
So it is fully hedged?
Fully hedged.
So the hedging cost would come in the finance cost, is it?
Correct. So even today, whatever finance cost that you see is with a hedging cost. There is not going to be any incremental one. So it is already there.
But if the dollar -- I mean, if the rupee depreciates, then is there a mark-to-market loss that we have to book by any chance? Because I believe even hedging means that there would be -- at some point, that would -- you would reverse that entry. But in the near term, would there be any kind of mark-to-market losses?
There is an end-to-end loss, but then there is a derivative gain because of the assets -- I mean, the underlying assets. So from that perspective, it becomes neutral.
Neutral. Okay. Okay. So no impact on the rupee depreciation on our balance sheet for now?
Correct.
The next question comes from the line of Giriraj from Visaria Family Trust.
First, some clarification on the operating data what we report. So in the pre-quarter update also, we mentioned about the decent jump in the network rent and the transmission capacity, somewhere about 14% quarter-on-quarter and 19% on the quarter-on-quarter for transmission capacity. But like is it the total capacity or is it which is about to be commissioned? So I just want to understand like there is no quarter-on-quarter increase in the revenue, not material. So is it the under construction capacity what we are mentioning here or is the commissioned capacity what we are mentioning here?
So 25,000 circuit kilometers is the total, all put together, even under construction is included. Currently, close to 20,000 circuit kilometers have been fully commissioned and the balance 5,000 circuit kilometers are under construction.
Okay. So this number will not lead us to any conclusion on the revenue side of it?
Correct. I think, Giriraj, what is the important number from revenue side to track is the CapEx that we have incurred or capitalization of that CapEx.
Understood. Understood. That you have mentioned recently in the PPT. I got the commissioning aids also. Next question on the smart meter side. So when you mentioned that you will be commissioning about 20,000 meters per day and roughly, let's say, 90 days, we're talking about 18 lakh meters. So should we assume a CapEx of about INR 1,000 crores because about [indiscernible] per meter CapEx. Is that the right thought process?
So our target is to do 70 lakh meters during the next financial year, which would roughly translate to around INR 3,500 crores to INR 4,000-odd crores of CapEx for smart meters during the next financial year.
Okay. Okay. And how do we book the revenue here? I understand it's INR 19 subsidy what we will get and then from the 31st month, the revenue will start kicking in. But will we be doing -- so on the Ind AS basis, we will be doing on an accrual basis accounting, right, on SLM basis. So the revenue...
No, no. So the revenue -- because this is -- our accounting would be under service concession accounting, so it would be spread between OpEx as well as the CapEx revenue. So therefore -- and since the asset would be classified under SCA accounting. So portion of it would be OpEx revenue, portion would be CapEx revenue and some portion would get attributed towards the interest income as well.
Okay. So when will revenue in meter occurring...
Yes. So the revenues in metering is accounted immediately on completion of -- as soon as the billing starts. So we have already started billing in certain 3 or 4 projects that we have commissioned, and it is accounting on a per meter per month billing basis, the tariffs which we have quoted for each of the projects.
Okay. Because since first quarter presentation at June '24, you had -- the company had given the separate meter revenue and EBITDA. But this number is not there for the second and third quarter PPT, separate segment reporting on the meter side of it. So if you could...
Yes. Because the amounts are not that significant for smart meters in the current quarter. So therefore, it is not being separately shown under the segmenting reporting as per the Ind AS things. I think if the segmenting reporting for smart meters would come up from the next financial year when the smart meter revenues would be a sizable number.
[Operator Instructions] As there are no further questions, I would now hand the conference over to Mr. Kunjal Mehta, Chief Financial Officer. Please go ahead.
Thank you all for taking out the time and joining the call. We are continuing to engage with you. And in case if you have any clarifications or further information that you have, you can reach out to our IR team who would take on any of your additional information. Thank you all. Thank you once again for taking out the time.
Thank you. On behalf of Adani Energy Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.