Adani Transmission Ltd
NSE:ADANITRANS
Earnings Call Analysis
Q3-2024 Analysis
Adani Transmission Ltd
In its recent quarter, the company commissioned additional transmission lines and registered robust growth, as reflected by a 10% year-on-year increase in EBITDA and a notable INR 786 crores in cash profit. Executives, including Managing Director Anil Sardana and CEO Kandarp Patel, underscored their ability to navigate past challenges presented by COVID-19, which included regulatory adjustments yet to be accounted for in the earnings.
The company's revenue increased due to the registration of new assets, although direct costs rose in tandem. Discussions on various petitions concerning changes in law due to COVID-19-induced impacts are pending, with expectations for additional regulatory approvals in future quarters.
Adani Electricity Mumbai Limited (AEML) performed a buyback of $120 million in bonds, leading to an outstanding senior debt of roughly $1,180 million, while also holding a cash reserve of INR 1,000-1,200 crores. AEML's net debt stood at approximately INR 7,000 crores as of December 31st, inclusive of a working capital debt of INR 650 crores, resulting in a total net debt figure of INR 7,600 crores.
The company maintained its CapEx guidance, having spent around INR 3,500 crores within nine months against an annual projection of INR 5,000-6,000 crores. The equity raise approved last year remains a subject of ongoing discussion, with no concrete conclusion reached yet. Future CapEx plans will likely adhere to earlier forecasts unless larger bids mandate an increase.
The company emphasized its favorable position in supplier relations compared to competitors, which includes strategic tie-ups with key equipment suppliers. This advantage is crucial in light of the upcoming heavy CapEx in the energy sector. Additionally, the firm has won INR 10,000 crores out of INR 61,000 crores in TBCB projects awarded last year. Competitive dynamics suggest that the company is well-positioned for future project bidding without compromising projected IRRs.
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Ladies and gentlemen, good day, and welcome to the Adani Energy Solutions Limited Q3 FY '24 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. From the management, we have with us Mr. Anil Sardana, Managing Director; Mr. Kandarp Patel, Chief Executive Officer; Mr. Rohit Soni, Chief Financial Officer; Mr. Kunjal Mehta, Chief Financial Officer, AEML; and Mr. Vijil Jain, Head Investor Relations. I now hand the conference over to Mr. Anil Sardana. Thank you, and over to you, sir.
Thank you, and good afternoon to all the analyst friends. Welcome to Q3 analyst call. You would have got the press details and the other details that're submitted to the stock exchange.
And let me continue from the fact that like every quarter, the company achieved good progress during the quarter with commissioning of additional transmission lines. And by virtue of that, it continued to get and register robust growth. That's visible in the way that the cash profit registered during the quarter is about INR 786 crores.
The revenue is up by virtue of the fact that one could register additional assets and so did the direct costs by virtue of it the EBITDA numbers have shown a growth of 10% year-on-year. I must quickly add that in each of these assets. One has seen the COVID times, and therefore, the change in law with regard to the COVID months, which is 8 months as permitted by Government of India through official circular, and the balance period as was relevant in different states has not been accounted for in respect of the added IDC or change in law. These are all subjects for which petitions will be bundle as we now move into the other quarters. And therefore, one would see the advent of those additional approvals as they will come by from time to time from respective regulators. Amongst these formidable part was the Kharghar-Vikhroli line. A matter of great pride that for the first time, Mumbai is seeing 400 kV grid, getting energized by Adani Energy Solutions. And this by no means more than easy line to execute because it is from those denser areas as also challenges of height restriction besides the fact that all the other lines, as you must be aware, by some of the other transmission players are still languishing for quite some time. But we could achieve this and the line is very much now energized. The next one was the first line from Khavda. This is the 765 kV double circuit line, all the way connecting to Bhuj area. And the fascinating part is that it is today carrying electrons from the first solar fields that have started to get energized.
Now naturally, for us, the schedule for this was somewhere end of January '24, but we could commission it ahead of schedule. And we have been able to carry the electrons for the generators. In addition to that, some of the other orders that the company captured in terms of Smart Metering continue to take us to robust positions with regard to how we are positioning ourselves in an area, which eventually dovetails well with our aspirations of private distribution or the second license or the parallel distribution networks as we would gone to eventually get into. So those are some of the highlights. And to that extent, the details are there with you. It will be nice to get your questions and by virtue of that, I'm sure we will tend to answer and provide you more details. So instead of going further, I would stop here and request that we can have the questions from your end, and we will use that opportunity to deliberate more on some of the aspects that I may not have covered. Thank you.
[Operator Instructions] The first question is from the line of Koundinya Nimmagadda from Jefferies.
Sir, my first question is on the under construction pipeline for Adani Energy. So what is the current asset base that you have, which is -- and which is expected to be commissioned in the next 3, 4 years, if you can provide some color on the target area and commissioning for FY '24, '25, and '26, please?
Yes. So the current pipeline, which is under execution, is about INR 17,000 crores. And we plan to complete these projects. These are about 8 projects -- covering 8 projects. And we would complete this by -- all the projects by the December '25.
And how much of that would be commissioned in FY '24 and FY '25, sir, of the INR 170 billion?
So there are 2 projects, which will be completed in the next 3 to 6 months. The MP-II, which is partially commissioned and KBTL, which has been connected, would be declared fully commissioned. These 2 projects will be completed in next 1 and 2 quarters.
Understood, sir. And sir, on the Smart Metering side, that's my second question. So what is -- how does the current pipeline look like? And you also, in your presentation, spoke of about INR 135 million of total opportunity side. So what extent of that is covered in the bid pipeline? And what is it that is yet to be tapped? If you can throw some color on that, please?
So currently, the order in hand is about 2.1 crore meters, which is roughly CapEx of about INR 17,000 to INR 18,000 crores. And this, we will complete in next 24 months' time. So in the next 2 financial years, the current pipeline will get concluded. We also expect to get -- there is a bidding process that is going on in various states. And we expect that the similar number of amount of orders will get added into the current quarter. And that we will have to also conclude in -- going forward in 24 months from the date when we get that order.
Understood, sir. So essentially -- okay, understood. And sir, lastly, of the INR 1.1 trillion transmission bid pipeline, which you spoke of in the presentation, what extent of that is in tendering stage and what is it that is still under discussion, so if you can provide some color, please?
So the bidding pipeline for transmission project is expected to be about INR 1,000,001,0 -- INR 1.1 lakh crore CapEx. And that we expect this bidding to happen in the next 6 to 7 months' time.
Sir -- yes. Okay. So this is all in the bidding stage itself. And what extent of -- I mean, incrementally, what is it that's being approved by NCT and that to enter bidding stage, sir?
So already, everything has been approved by NCT and already notified for bidding, where after the approval NCT, MOP issues notification for bidding. The notification has already been issued for INR 81,000 crores project, which is -- which -- for which bidding is likely to get complete by April or May this year.
The next question is from the line of Mohit Kumar from ICICI Securities. Mohit, the line for you has been unmuted. You may proceed with your question. As there is no response from the current participant, we will move to the next participant, which is the question from the line of Abhiram Iyer from Deutsche Bank.
My first question was with respect to what -- could you just let us know what's the current debt and cash positions at Adani Energy Solutions consolidated and at Adani Electricity, Mumbai?
Abhiram, you want specific for AEML? am I right?
If you can give both consol and AEML, that would be useful.
Okay. So we'll give the AEML first.
So AEML basically, as you would know, did a buyback of $120 million of bond during the last quarter. With that, the total debt, which is outstanding, is $1,180-odd million, which is the senior debt, which is outstanding. And it had a cash of roughly around INR 1,000-odd crores -- INR 1,200-odd crores in its books. So roughly around INR 7,000-odd crores of net debt AEML had in its book as on 31st December.
Got it. This includes all working capital, right? INR [ 7,800-odd crores ]...
Working capital was INR 650-odd crores. So add to is the working capital debt also.
Okay. INR 650 crores is working capital. Okay.
So in total, INR 7,600 crores net debt of AEML.
Got it.
And you ask, Abhiram, on the second part of that, I think, at AESL consolidated level. So we are sitting at a debt gross rate of close to around INR 13,000 crores as on quarter 3 end. And if we talk cash, we're looking at close to around [ INR 300 crores ] of cash in the business in various pipelines. So looking at net debt, it's close to around INR 25,000 crores. Because of the bond buyback, INR 1,000 crores. And we have not considered the sub-debt and working capital in it.
Perfect. The other question that I had was on the reversal of the tariff built up, basically the AEML's regulatory balance account. From what I can see is it's been declining. We saw a big reversal in Q1, but then Q2 and Q3 have been smaller and smaller so that overall till now it's been around INR 500 crores out of the nearly INR 2,000 crores of balance that was built up by the end of FY '24.
So we -- if you recall our previous conversations, you had mentioned that it might take 2 year -- around 2 years to bring this balance down. Are we now expecting this to go longer? Or is this a temporary sort of slowdown, which is expected to correct again back from Q4 or even FY '25 onwards?
No, no. So there is no question of slowdown or reduction of this thing. What the regulator has said is that around 17 -- INR 1,500-odd crores would be recovered over a 24-month period, of which we have closely recovered INR 500-odd crores by 31st December. The balance INR 200-odd crores will come between Q4. That will take care of around INR 700-odd crores that will be recovered by 31st March, and the balance INR 800 crores will be recovered during April '24 to '25.
So INR 500-odd crores has been recovered, which is in line with the regulatory order. So there is no slowdown as far as the recovery of the regulated or the past recovery on the asset as investment.
Understood. Understood...
Yes, Abhiram, just to add to what Kunjal said, we recovered this regulatory gap through tariffs that we charge to our customers. And you must have seen the increase in sales that AEML has been able to achieve. So as we go forward, because of increased sales, the recovery will also increase accordingly.
We have the next question from the line of Sumit Kishore from Axis Capital.
My first question is, could you share some color around the fiscal year-to-date TBCB project -- projects that have been awarded by value? And what is the big discipline that you're seeing by operator and other major players, including yourself? And do you see IRRs for projects win so far this year have they improved versus last fiscal? So that's my first question.
Sorry, can you repeat your question? The line was bit unclear. Can you repeat it, please?
Sorry, I asked whether fiscal year-to-date, if you could speak about TBCB project by value, what has been awarded so far this fiscal? And what is the bid discipline that you're seeing in this pickup in TBCB project awards? And do you see IRRs for project wins that have happened so far this fiscal whether they have improved versus last year? So basically, I wanted an overview on the competitive dynamics in the space and some color on the projects that have been awarded so far this year?
Yes. So some of the INR 61,000-odd crore bid has been done in the last 1 year. And there, we saw intense competition. The reason probably was that prior to this last 1 year, the bidding that happened in previous years, the quantum was relatively smaller. But as we go forward, the kind of projects that are coming up for bidding, as we discussed, about INR 1.1 lakh crores bid that is going to happen in next 6, 7 months' time.
So we expect that the expectation or the competition will not be that intense because every player has a significant work already with their -- in their bidding. And another important thing that you should note here that now the project, which is coming under bidding, are quite a big size project. And also that bidding is going to happen very quickly, almost simultaneously for most of the projects. And therefore, we expect that there will not be a pressure on IRR for the project that we bid.
Okay. So out of the INR 61,000 crores projects which have been awarded right in the last 1 year, how much has Adani Transmission won -- Adani Energy Solutions, I mean?
Out of INR 61,000 crores, we have won about INR 10,000 crores.
Okay. And in your assessment, Power Grid would be more than INR 25,000 crores.
Yes, Power Grid is around 55 percentage share of this INR 61,000 crores.
Okay. But that INR 61,000 crores would include that [indiscernible] which was given on a nomination basis or that is outside. There's only TBCB.
No, no. That is outside.
That is outside. Okay. Okay. So given the intense -- so Power Grid is offering -- is competing quite aggressively. Do you get a sense that Power Grid is ready to take a bit of compromise on IRRs at this point because their works in hand had been going slower earlier when the number of opportunities available were lower? So are you getting a sense that Power Grid is competing quite aggressively?
So Kishore, I can't comment what probably Power Grid would do, but the kind of advantage that we have is that since we are into transmission, distribution as well as Smart Metering, we have ability to fund the investment in the sector, which is giving us a good IRR. And looking at current market situation, we don't see any reason why any player, including Power Grid, will become a super aggressive in getting the project.
Got it. My second question is in relation to your Smart Meter CapEx plans, which are quite intense. So can you share some color on your smart meter procurement for the CapEx that you have lined up? Have you made any tie-ups or partnered with any prominent players to procure your smart meter requirement?
So Kishore, in Smart Metering, there are essentially 3 -- in fact, 4 important segment of a CapEx that you do. One is obviously a meter. The second one is the communication. The third one is the software, which is HES and [ FDL ] and the fourth one is your cloud services. Now you must have noted from our various communication that we have a strategic alliance or tie-up or JV for communication, software as well as cloud services. Now as far as meter supply is concerned, the total capacity of meter manufacturing in India is in excess of 12 crores per annum.
Now even after this kind of spurt in demand, we feel that there is a sufficient meter manufacturing capacity. And we are essentially having a kind of understanding or agreement with the Tier 1 meter manufacturer. So mainly those are Schneider, Genus and HPL, where we are sourcing meter from them. And the rate that we have been able to get at are very, very competitive looking to the market condition.
The next question is from the line of Mohit Kumar from ICICI Securities.
My first question is on the -- what is the time line for the Smart Metering rollout? Is it fair to say that entire 21 -- 2.1 crores smart meter will get installed over the next 3 to 4 years? Is that a fair understanding? And the related question is, how do you intend to fund this outlay? Is it -- you will fund all these projects SPV depending on the discount?
So Mohit, contractually, we have to implement the entire metering solution within 27 months from the date of the agreement. Now -- but internal plan of us is to implement within 24 months. And we have lined up our entire implementation plan, including procurement and sourcing in a such a way that we are in a position to achieve that kind of a time line.
And my question, sir, are the discoms ready? And how you intent to...
So yes, the important thing to make sure that we implement this at a very good pace is to involve and educate discom right from the beginning. So that is the kind of practice that we have been doing that the moment we get the concession, we actively start interacting with the discom and also let them know as to -- on which part they will have to take a decision because it is essentially integration of two systems.
Eventually, I will have to integrate my entire solution in that billing system. There, I require a support from their side. And it is important that this discom is geared up, and we are making sure that they are given all the input to take the right decision.
Okay. So how do you intend to fund the outlay, sir?
Sure. So the most important part on smart metering thing is the -- thing that the revenue to CapEx cycle is significantly lower. So what I mean is that we do not have to wait for the entire 27 months or 30 months to get completed to fund the entire project for 27 months and then the revenue starts accruing. The way it is that once a particular price of smart meters, say 5% of the smart meters have been installed, we start earning revenues also into it.
So the funding becomes self-funded assets or self-funded to that extent. And then with a smaller debt tie-up, I can fund the entire 21 million smart meters, which we have planned currently. So here, we are not talking about to first lay -- raise debt of, say, 70%, 75% and then do 30% of equity. That is not what, how it was. Essentially, what we are here looking at 30% equity -- say 30%, 35% of the funded assets and say 20%, 25% of the debt to be tied up and then we will be able to do it on a self-funded asset. So that is how we are looking at financing -- this entire Smart Metering financing.
Understood. My second question is on the bidding pipeline. So there is a strong bidding pipeline. I think we were not bidding actively in most of these. Can we expect us to be more active compared to our recent past experience? And question is, given the pipeline, are you seeing the constraint emerging in power equipment space, the fact that there is no passover is available [indiscernible] not available, HVDC [indiscernible] industries are full with orders, can you please comment on that?
Yes. So Mohit, you will see us active in the bidding, but not because that -- but not at the cost of compromised ROE. We believe that we will be able to get a good amount of share without compromising IRR. As far as your second question is concerned, yes, obviously, there is a constraint looking to the kind of CapEx that is expected in the country. But the good thing that we have already done is that we have a strategic tie-up with a major equipment supplier, and we work closely with them not only in our transmission business but also other businesses where we buy a lot of equipment -- electrical equipment.
So we are currently in a better place as compared to other player in terms of relationship with the suppliers.
My last question is what was the CapEx in 9-month FY '24 across the businesses?
So Mohit, I mean, if you take the CapEx spend, what we have being more or less in the guidance, what we have said. So if we take for the 9 months, we have spent close to around INR 3,500 crores on the CapEx side with guidance of INR 5,000 crores to INR 6,000 crores of the CapEx what we do on a yearly basis. So we are on track for that.
The next question is from the line of Abhiram Iyer from Deutsche Bank.
Could you let me know what's the status of the equity raise that was approved last year? I mean, the last time we discussed it, you mentioned waiting for an opportune time and I agree that internal accruals are enough for new projects. But is this still on track? Or has this been shelved for the moment?
Abhiram, I think last time when we had done -- the resolution we've done it has enabling clause to support the growth of AESL. So the discussions are still going on. I wouldn't say it has been put off of the shelf. But the current CapEx pipeline, the bid pipeline what we have, that has equally supported by the cash flows what we have from the business. Equity raise discussions are still ongoing. We don't have anything concrete to tell yet. This has been concluded, but discussions are going on at a larger level.
Understood. So no specific time and it's still the company deciding on when it is best for them to do it.
Correct. So we're just looking on what is the timing, what would be the value size, so all those discussions are going.
[Operator Instructions] The next question is from the line of Dhruv Muchhal from HDFC Asset Management.
Sir, in your earlier calls, you had mentioned that the CapEx target for the transformation business is about INR 4,000 crores, INR 4,500 crores. So do you stick to the guidance? Or do you see any upward division to it for the next year, I think?
I think, Dhruv, the guidance what we gave is basis on the construction activity, which is undergoing. So we stick to the guidance. So those numbers still hold good what we said. Our 9-month data also talks about the same thing, and the 12-month data would also speak to the same numbers. What we see is the bidding pipeline is getting bigger and basis that what would be our plan to get to the more CapEx what should be done, that is the area where we are working. But for the next 1 to 2 years, the CapEx numbers what we have said would hold to the numbers.
Okay. Sure, sir. And one bookkeeping kind of question is, on your Slide 46, you have given the Kharghar-Vikhroli asset base. It's about INR 13 billion. And if I look at the same number in the previous quarter's presentation, it was about INR 18 billion, INR 19 billion. So just wondering, is this change because the asset has got constructed and now you have the actual number or the earlier number was an estimate?
So I would say the numbers are still provisional, but we might see a certain CapEx on the Kharghar-Vikhroli. So it just got commissioned 5 to 10 days before the quarter closed. So the final numbers will be throwed up once we've done, say, 3 to 6 months for the claims and the counter claims and [ potentially ] will be closed. So we'll throw up the number as we come closer to that. So we say it will be in that range.
So the INR 13 billion is currently provisional. I should not...
Correct.
The next question is from the line of Megha from Stone Harbor.
My question was on the international rating. So S&P has changed the outlook from negative to [indiscernible] Could you throw some light on the discussions with Moody's? And is there any sense on what action are they taking on the rating? What has been the progress in terms of your dialogue with Moody's then?
So the company continues to engage with all the stakeholders, including the rating agencies. And with respect to the continuous engagement and with respect to all the positive outcomes which we are seeing, S&P has now restored back the rating outlook which it had done last year. So -- and we continue to engage with Moody's and the other agencies. And at the right time, I think all the agencies would also upgrade their ratings.
[Operator Instructions] We have the next question from the line of Nikhil from Bernstein.
I just had one question on the distribution business side. Any opportunities ongoing or in the pipeline that you could update us on would be helpful?
So you must have noted from the presentation and other materials that we shared, we have already applied for a second license in respect of 3 geographies, one for Mundra Taluka, which is adjacent to our existing distribution company in Mundra SEZ, that is about 1,000 square kilometers. The another one is Navi Mumbai. There, we have applied for a second license. That is also about 1,000 -- 1,100 square kilometer. And the third one that we have applied is in Uttar Pradesh, where we have applied for Ghaziabad Municipal Corporation. Along with that District of Jewar where new airport and other development is happening. So these are the 3 areas where we have applied for a license in Mundra, Gujarat Electricity Regulatory Commission has in principally approved. Now the next step, we'll have -- they will have to issue public notice and they will conduct a public hearing. We expect that public hearing will be notified shortly. And once that is done, then they will issue us the license. In MERC and UPERC, the process is a bit slow. But we expect that once Gujarat order is out, probably that will also pick up a pace.
All right. Understood. And one follow-up question on that, in these areas, as the second licensee, the company would be building the parallel infrastructure companies if you are not using the existing setup. Am I correct to understand that, especially in places like Navi Mumbai, et cetera?
Yes, your understanding is correct. In fact, that's a legal obligation as per the current [ statue ].
We have no further questions, ladies and gentlemen. I would now like to hand the conference over to Mr. Rohit Soni for closing comments. Over to you, sir.
Yes. Good evening to all of you. I think very thankful to all of you for joining this call and hearing results for 45 minutes. So it's been a very good quarter from the business side. We'll keep updating you as the business progresses. It's a big pipeline, which is coming up on all the 4 sections in which we operate, transmission, distribution, smart meters and the state pooling solution. We thank you for your support and wishing you a very happy year as the year has started. Thanks a lot.
Thank you. On behalf of Adani Energy Solutions Limited, that concludes this conference call. Thank you all for joining us. You may now disconnect your lines.