ReNew Energy Global plc

Thank you for standing by and welcome to the Renew Energy's third quarter fiscal 2022 earnings call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Nathan Judge. Please go ahead.

Thank you and good morning, everyone, and thank you for joining us. On Thursday evening, the company issued a press release announcing results for the first nine months and third quarter of fiscal 2022 ended December 31st, 2021. A copy of the press release and the presentation are available on the investor relations section of Renew's website at www.renewpower.in. With me today are Sumanth Sinha, founder, chairman, and CEO, and Kailash Vaswani, President of Finance and Interim CFO. Samant will start the call by going through an overview of the company and recent key highlights. Kailash will then provide an update on the quarter and then we will wrap up the call with Samant reiterating our adjusted FY 2022 EBITDA, excluding the impact of weather, our forecast of $810 million. After this, we will open up the call for questions. Please note our safe harbor statements are contained within our press release presentation materials and available on our website. These statements are important and integral to all our remarks. There are risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements. So we encourage the press release we furnish in our form 6K and presentation on our website for a more complete description. Also contained in our press release, presentation materials, and annual report are certain non-IFRS measures that we reconcile to the most comparable IFRS measures, and these reconciliations are also available on our website in the press release, presentation materials, and annual report. It is now my pleasure to hand it over to Samant.

Thank you, Nathan, and a good morning to everybody on the call. Our company, RNW, has been publicly listed on NASDAQ for six months, and a lot has happened since our last earnings call in November that we are, in fact, excited to recap for you. We continue to believe that RNW is one of the most compelling investment opportunities in the renewable energy sector today. We realize that many investors are new to the story, so I would like to provide a quick recap on page five. Renew is one of the leading renewable energy companies in India and also one of the largest renewable energy companies globally. More than 70% of our portfolio is already operating, and most of the assets that are in development have PPS that are for 25 years with fixed tariffs providing predictability. Our portfolio is also balanced between solar and wind. Our scale and vertical integration differentiates us in multiple ways, including being more efficient and lower cost, having greater access to cheaper capital, and investing for the future to retain our competitive edge in a young and rapidly evolving market with maintaining higher EBITDA margins. We have a long track record of execution, and have delivered equity IRRs of between 16 and 20% consistently over time. We are emphatic about capital discipline as evidenced by our recently announced share buyback. India is now one of the largest and fastest growing renewable energy markets globally and is committed to increasing the installed capacity of renewable energy by over fourfold through 2030. Renewable energy makes sense for the consumer as it is the lowest-cost source of new electricity capacity in the country today. The Indian renewables market continues to mature, and this is really playing to our strengths. On page six, we have provided a broad segmentation of how we view the market today, broken into the plain vanilla renewable energy, which currently has the most competition, and return opportunities at the lower end of our targeted range. and the higher return segments in intelligent energy solutions, M&A, and corporate PPAs that provide higher returns and lower competition. More of our growth will be from segments that have higher returns, which Renew has a differentiated advantage in. Focusing on the intelligent energy solution segment, for a moment, distribution companies are increasingly needing electricity that has a more consistent or firm profile. With our expertise across renewable energy technologies, including wind, solar, and storage, we believe that we are one of the few Indian renewable energy providers that can provide baseload power in the market today. In addition, given our expertise and past investments in the intelligent energy solution segment, we believe that we are the lowest cost provider of firm power from renewable energy sources in India today. Our locked-in growth remains robust and on track with our previously announced guidance as seen on page 7. As of today, we have 7.3 gigawatts operating, up from 5.6 gigawatts that we had operating 9 months ago. We continue to expect our FI22 adjusted EBITDA, excluding the impact of weather, which was approximately $55 million in the first 9 months of this fiscal year so far, to be approximately $810 million. I do want to point out that all of our expected FI22 EBITDA is coming from operating and completed capacity. We expect to deliver EBITDA of over $1.1 billion annually from our 10.2 gigawatt portfolio, which is actually nearly double our EBITDA that we reported last year. We do have confidence in achieving this growth as about a billion dollars of the EBITDA should be generated from commission projects or have assigned PPA that are in construction phase. Moving on to page eight on recent developments since our last earnings call, there has been some progress in resolving the Andhra Pradesh Discom Court case. We have also got favorable rulings from the court and regulator in Karnataka and Maharashtra states. Final hearings occurred earlier this month and we anticipate a ruling on the Andhra Pradesh issue shortly. Please note that a favorable ruling would improve our financial position relative to our guidance. Despite all of the interest rate dislocations, we have also just completed a $400 million green bond issuance with a US dollar coupon of 4.5%. Net of hedging costs, the landed interest rate in INR terms was 8.4%. The initial use of proceeds are expected to refinance near-term maturities, saving the company about $5 million of interest expense annually. We continue to see favorable terms to continue refinancing at rates better than we currently have, which we will discuss shortly. We also announced this quarter the sale of our rooftop business for about $90 million at an EV to run rate EBITDA multiple of about 9.5 times. We decided to monetize this business for several reasons. Structurally, the rooftop business is a different business than our large-scale ground-mount focus, and the sale allows us to allocate capital to hire at larger utility-scale projects. In addition, we saw an attractive opportunity to redeploy capital to buy back our stock at an EV200 adjusted EBITDA multiple of only 7.6, creating significant value for ourselves. This is also a good segue into our $250 million share repurchase program. Earlier this month, we announced a share buyback as we found the value of the stock to be our highest return opportunity of scale. We are committed to capital discipline and will allocate capital to the highest return opportunities, whether it is an organic growth, M&A, or our own shares. Turning to accounts receivables on page nine, As of December 31, 2021, our outstanding accounts receivables stood at $606 million, which we recognize is high. We believe that the DSO, however, has peaked at the end of the second quarter of 2022 and will continue to improve going forward. And when you look into what constitutes our past due accounts receivables, you will see that four state DISCOMs account for the vast majority of our overdue receivables. We believe that we can improve our payment cycles with these states. In particular, we have for the first time taken our customers in Karnataka, Maharashtra, and Madhya Pradesh to court to accelerate recovery. The increase in receivables was understandable during COVID. However, now electricity demand is at new highs and payments to the discoms are being made in a more timely manner. And therefore, we have made some progress towards improving our VSOs. In Karnataka, the High Court directed the discoms in the state to clear all outstanding dues payable, which is about $90 million for us. In Maharashtra, the state electricity regulator directed the state distribution company to submit a clear plan to clear all outstanding receivables. Our court case in Madhya Pradesh is proceeding, and we expect a ruling later this year. Please do note that full recovery from the state, that even a favorable court ruling, is likely to be over some period of time. Turning to the court case in Andhra Pradesh or AP, the drawn-out case has finally concluded its hearings, and we do expect a ruling by no later than the end of March. We believe that we have a strong case, and if we win the case, we would look to recover about $200 million over a period of time. The recovery of past due receivables is an upside to our long-term guidance provided last year, and we will not need to issue new shares if an outcome in any of these cases is unfavorable to us. The combination of company initiatives, legal and regulatory proceedings, central government support, improvement in electricity demand for distribution utilities, and a shift towards central government agencies that have a strong record of on-time payment will result in a major improvement in our DSOs over the next several years. With regard to partnerships, we recently announced joint ventures with L&T, India's leading engineering and EPC company, and Fluence, a global leader in battery technology. These initiatives are consistent with our past practices of making small investments now to be a leader in future large opportunities. We believe that these partnerships will provide competitive advantages to us and position us extremely well for the next stage of growth in Indian renewables, which will be based around both hydrogen and batteries. And in fact, India has recently announced a green hydrogen policy and is only one of the few countries to have announced such a policy. The policy includes major incentives such as free transmission, open access, and provisions to bank power. We believe that the government of India wants major industries to commit to green energy and decarbonization, and an important step forward would be a green hydrogen purchase obligation. Overall, we think that green hydrogen represents about a $60 billion investment opportunity by 2030. Approximately 70% of the capex required for a green hydrogen plant is renewable energy, where we expect to contribute our expertise to the joint venture. L&T has a depth of knowledge on the last mile, the electrolyzers, connecting to the plant and storage, et cetera. We believe that this partnership is one of the lowest cost providers of green hydrogen in India. We expect that there will be numerous bids over the coming years and we will provide updates to all of you as events unfold. We also entered into an agreement with Fluence to provide a market leading energy storage solution in India. Fluent brings significant intellectual property leadership in the battery segment and currently is the only company that has an operational utility scale battery operating in India at the moment. The projected market size is equivalent to about 27 gigawatts by 2030. Before I turn it over to Kailash, I would also like to say a word on our CFO Muthu's announcement to move on from Renew Power to pursue other interests. Since joining us in August 2019, Buthu has been a valued member of the Renewal Leadership Team and played an instrumental role in the company's lifting on the NASDAQ last year. We do express our sincere gratitude for his contribution and wish him the best for his future endeavors. His resignation shall be effective on or around 31st March 2022. Kailash Vaswani will be the Interim Chief Financial Officer till the Board appoints our next CFO. As an introduction to Kailash, who most of you would previously have met, Kailash has been a valued member of Renew's senior management team right since the inception, about 11 years ago. Kailash has directly been responsible for all of Renew's fundraising and all of our M&A activities, as well as our cash flow and treasury management. With that, I will turn it over to Kailash to discuss our quarterly results. Thank you. Thank you, Sumanth. Looking at page 12, which provides highlights of the third fiscal quarter, we have 7.3 gigawatts operating as of today after the addition of 1.1 gigawatts this quarter. The 1.7 gigawatt addition this fiscal year was particularly commendable given the challenges of COVID and supply chain disruptions. Our revenues or labeled total income under IFRS in the first nine months of fiscal 22 rose 26% on the year. while our adjusted EBITDA increased by more than 27%, and the cash flow to equity jumped almost 116%. Turning to page 13, which provides a reconciliation of weather-adjusted EBITDA to our reported results, weather-adjusted EBITDA in the first nine months of FY22 was $626 million, or about 77% of our FY22 weather-adjusted EBITDA guidance of $810 million, which puts us on track to achieve our guidance. weather improved from last year, although it remains below normal levels, and has had about a $55 million negative impact in the first nine months of this fiscal year. We do expect our operating capacity will be around 8.2 gigawatt by year end, although it is possible that commissioning of some small amount of capacity may slip into the early parts of April. We have recently signed binding term sheets for another 500 megawatt of acquisitions which will add to the above number. One of the frequent questions we get asked is about supply cost inflation, which we discussed on page 14. The project cost for Megawatts added during the first nine months of this fiscal year had very little impact for higher supply costs. Whilst there has been some increase in costs relative to budget for projects we are delivering for the remainder of the year, after considering the lower financing costs that we are realizing in the market today, We continue to expect that our projects under construction will deliver an equity IRR within our targeted range of 16% to 20%. Turning to slide 15, which highlights our interest rate risk management strategy, the majority of our debt is fixed, and only about 15% to 16% of our total debt would have near-term impact from interest rate increases. Every 100 BIP change in short-term borrowing rate for all these variable cost debts will equal to about a 2% impact on the cash flow to equity annually. So again, very marginal. Despite the recent increase in interest rates globally, we are still seeing very favorable debt sanctions below 8% in the Indian market and from overseas lenders, which is less than our average cost of debt. We have financed and refinanced debt in excess of $1.5 billion over the last 12 months, resulting in decline in our average cost of debt to 8.9% going forward, compared to 9.4% we recorded over the past nine months. In recent transactions, we have seen rates as low as 6.5% to 7.5% as well. We are working towards refinancing our floating rate debt to fixed rates for the long term. With that, I'll turn it over to Soman for guidance and closing remarks. Yeah, thank you, Kailash. I'm very happy to report that despite the uncertainty around supply chain issues and COVID, We do continue to be on track with our adjusted EBITDA guidance for this year. We do believe that we will achieve $810 million of EBITDA after excluding the negative impact of weather, which we've said has been about $55 million so far through the first nine months of fiscal 2022. As it looks currently, we also should be having 8.2 gigawatts operational by around April or May, depending on when our acquisitions close. Turning to slide 17, We are also reiterating our guidance on a run rate EBITDA basis. Once our 10.2 gigawatts portfolio is completed over the next 18 months or so, we expect EBITDA will be at least $1.1 billion. We expect that we will have about $5.7 billion of net debt on our books or a 4.9 times debt to run rate EBITDA leverage ratio once the 10.2 gigawatts is fully completed. We expect our cash flow to equity run rate to improve meaningfully as well to $400 million on an annualized basis once the 10.2 gigawatts are operational. Importantly, our portfolio is fully equity funded. In fact, we do not need to issue any new shares to reach 18 gigawatts. And at 18 gigawatts, our cash flow generation should be sufficient to self-fund 3.5 to 4 gigawatts of growth annually without raising any external S&P. With this, let me stop and we will, of course, be happy to take any questions.