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spk35: Thank you for standing by and welcome to the Renew Power fourth quarter FY23 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, Investor Relations. Please go ahead.
spk03: Thank you, Darcy, and good morning, everyone, and thank you for joining us. On Tuesday evening, the company issued a press release announcing results for its fiscal fourth quarter ending March 31, 2023. A copy of the press release and the presentation are available on the Investors Relations section of Renew's website at www.renew.com. With me today are Simant Sinha, founder, chairman, and CEO, and Kedar Appadjie, CFO. After the prepared remarks, we will open up the call for questions. Please note, our safe harbor statements are contained within our press release and presentation materials and materials available on our website. These statements are important and integral to all our remarks, And 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 you to review the press release we have furnished in our form 6K and the 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.
spk27: Thank you, Nathan. Good morning, good evening, good afternoon to everybody on the call. I'm glad to have you join us on this, on Renews Q4 FI23 earnings call. At the beginning, I thought it would be good to start with three key thoughts. Firstly, the Indian renewable energy market is getting stronger and has seen very encouraging developments recently. The Ministry of New and Renewable Energy, which is tasked with the renewable energy sector in India, has increased the pace of auctions by threefold to 50 gigawatts for FI24 and onwards just from this April onwards. More importantly, the majority of this increase is expected across complex and wind auctions where we have proven strong comparative advantages. In fact, in the first few of these auctions, we have good news to report in terms of a complex bid one with quite a healthy IRR. We will obviously talk more about this and other select corporate and state-level bids one once we find the PPAs. We're also pleased to announce that we have entered into a joint venture with Petronas' renewable energy subsidiary, Gentari, on our peak power project. As you know, we view capital recycling as a pillar to enhancing shareholder value. In addition to these positives, there are a number of steps taken by regulators to ease doing business for players like us, including the successful continuity of the late payment surcharge scheme which has substantially improved our DSOs to 138 days as of March 31. All these and other developments indeed give us strength to build our growth trajectory in this market. Secondly, Renew, as you know, will complete two years of being listed on the NASDAQ in the next couple of months. And in this period, we have built up our organizational footprint and capabilities across key areas to respond to the global climate transition opportunity. We have developed strong talent bench strength by onboarding several key leaders in key functions of project execution, regulatory, business development, digital, and solar manufacturing, apart from four additions on our highest level management committee with leaders from diverse global backgrounds. There have been multiple steps taken by us to enhance our readiness for the future. As an example, we are seeing good momentum on our solar manufacturing operation to provide critical supply security and cost advantages to our core renewable energy development business. During this period, we have also bolstered our own wind EPC capabilities to deliver projects at scale. We continue to engage with stakeholders and have seen good traction in our sustainability ratings. As you are also aware, our largest investor, CPPIB, has increased their economic stake to 52% in the company. All these important milestones certainly position us as a stronger climate transition leader. Thirdly, on page six, we continue to execute well on the other important building block of financing. During FI23, in a difficult debt environment, we successfully refinanced more than $1 billion of maturities by reducing the interest cost in favor of rupee-based loans. As mentioned earlier, we have signed a JV agreement with Petronas, who is keen to enhance their presence in renewables, and we have received the first tranche of their equity contribution for the Peak Power Project. We hope to build on this alliance further. In parallel, we are exploring monetization of our assets that we have. We programmatically intend to execute on asset recycling initiatives as a way to enhance shareholder value. That also enables us to enhance returns, raise funding at higher multiples than our share price implies, which further supports targeted growth at healthy returns without issuing new shares. Turning to page seven, MNRE's recent push to accelerate the annual auction pays to 50 gigawatts, around three times the amount auctioned over the last couple of years each, and a shift towards a higher percentage of complex projects provides significant market opportunities for us. At the same time, we are seeing less competition leading to higher tariffs in recent auctions. Combined with our differentiated ability to execute on complex projects, IRRs in recent auctions that we have won are some of the highest we have seen in the past several years. As a case in point, there was a recent auction for Peak Power Supply where we were one of the biggest winners. While I am conscious that the PPA is yet to be signed, This is a complex project which will require a significant amount of wind capacity to meet the daily dual peak and high PLF delivery requirements. This complexity clearly resulted in much higher tariff bids from our competitors. In fact, out of the 12 bidders, most had final tariffs that were 10 to 20% higher than where we won, which we believe illustrates that we have won. If not, the lowest cost supplier of complex projects in the country. The tariff we realized was about 35% higher than the tariff on our earlier RTC project, and while CAPEX is not expected to be much higher on a normalized basis. Said another way, this project and similar other projects are expected to have IRRs that are above even the high end of our targeted range of IRRs. Put simply, as seen on page eight, Renew has a significant comparative advantage in complex auctions. We are one of the few Indian IPPs with in-house wind EPC, vertically integrated solar execution, and a JV partner with strong credentials for battery storage systems. The proprietary data related to wind gathered over the years, coupled with our digital platforms, takes us to an advantageous position. There is a dearth of EPC and operating capability in India in wind at scale and even less capability to deliver wind, solar, and storage seamlessly. We are happy with the outcome and expect to sign the PPA later this year. Do note that we do not include winds into our portfolio until we sign a PPA. Turning to page nine, we are happy to share that we expect to complete 1.75 to 2.25 gigawatts of execution during financial year 24 and the remaining 3.5 to 4 gigawatts of under construction capacity during FI25. Do note that while execution will be spread throughout the year, a large part of the capacity is expected to come online during the last quarters of the respective fiscal years which limits the profit contribution in the year of commissioning. We have further data stock growth in FY25 since the last time we spoke with you as our two biggest power projects, the round-the-clock and the peak power projects are well advanced in multiple stages and on track to get completed by the end of the current fiscal year. Please also note that there have been cost savings relative to late last year when we would have had to buy modules in order to deliver these projects on the timelines originally discussed. These two projects represent the largest chunk of our 35% plus growth in adjusted EBITDA in FY25. Our manufacturing facility is expected to start production by early next quarter and provide much-needed security of supply, given the supply-side challenges in solar module sourcing in India currently. With that, I would like to turn it over to Kedar, our CFO, to go over the latest financials. Kedar?
spk09: Thank you, Suman.
spk11: I'll now move to slide 11, which provides highlights of the fiscal year 2023. Our portfolio increased from 10.7 gigawatts to 13.7 gigawatts in the current fiscal year, an increase of 28% compared to the prior year. Total income or revenues for fiscal 23 increased from $912 million to $1.1 billion, an increase of 29%, on a YOR basis. FY23 adjusted EBITDA increased 12.4% during the fiscal when compared to the prior year, and our cash flow to equity increased 18%. The wind PLF and solar PLFs are roughly at the same levels achieved in the prior year. However, as a recent wind resource study conducted by the industry experts indicate, the expectation is that it is highly likely that the abnormally low wind resource over the past several years is expected to normalize in the coming years. Turning to page 12, which provides a reconciliation of adjusted EBITDA, which stands at $753 million, or 12% higher than the last year, despite poor wind resource and relatively lower carbon credit sales than the last year. You may have noticed that our EBITDA margin is lower at an overall company level compared to prior periods. In reality, EBITDA margin for our core business is similar at around 80.3%. The reported overall EBITDA margin is a bit distorted by the accounting for our transmission projects, wherein we are mandated to follow the requirements of IFRS standard IFRIC 12 on service concession agreements. This added about Rs. 7.5 billion to income and Rs. 7 billion to cost of goods sold, making the impact on adjusted EBITDA limited at only Rs. 4 billion. This reporting is applicable during the period which comes from the transmission assets, subsequent to which The annual income under the PPA will get reported. Turning to page 13, we continue to put efforts to improve collections and pass-due receivables from the state distribution companies. The year-end DSO improved as highlighted by nearly 50% over last year, a reduction to only 138 days. Discoms continue to make payments on overdue amounts, and we continue to expect further improvement in our DSOs over time. As an increasing percentage of our sales will be to central government-owned authorities, which pays these bills promptly around time. Going through a summary of our balance sheet, we have close to Rs. 77 billion in liquidity, including cash and bank balances, which is pretty healthy. During the current quarter, we raised close to $600 million in debt, and our current net debt stands at Rs. 455 billion. With that, I will turn to page 16 and talk about our ESG initiatives. As our Chief Sustainability Officer, Mrs. Vaishali Sinha, is not able to join us, for the call today due to her travels. We are committed to setting new benchmarks on all fronts of ESG vision, performance, and transparency. First and foremost, we are thrilled to announce that Renew's near-term and net-zero target for 2014 has been officially validated by the prestigious Science-Based Targets Initiative, or SBTI. As you know, SBTI recognizes businesses that set ambitious emissions reduction targets in line with the latest climate science. This reinforces Renew's alignment with the Paris Agreement and aligns our aspirations with efforts to limit global warming to 1.5 degrees Celsius above pre-industrial levels. On our net zero target, Renew commits to reach net zero GHG emissions across our value chain by fiscal 2014, and we commit to reduce our absolute scope 1, 2, and 3 GHG emissions by 29.4% by fiscal 2017 from a fiscal 2022 base year. Our latest ESG ratings and scores are testimonials to our endeavors on performance and transparency. As a validation of our ESG commitment and performance, we recently received a rating of 11.6 from System Analytics, a global ESG ratings company. This ranks Renew as number 10 globally in the utilities category and number 7 globally in the renewable energy category. Furthermore, Renew received a rating of A- as its supplier engagement rating for 2022 by CDP, which puts us in the leadership band. Renew's ACR is higher than the ACR regional average of C and higher than the renewable power generation sector average of B-. An A- rating from the CDP ACR for Renew reflects that the company is implementing current-based practices to accelerate action on supply chain emissions. With that, I will turn it to R.C. Osuman for comments on our FY24 guidance.
spk27: Yeah, thank you, Kirat. With regard to our guidance outlined on slide 18 for FI24, we expect adjusted EBITDA to be in the range of rupees 60 to 66 billion. Given that we are committed to delivering on our commitments, we have made conservative assumptions related to continued poor weather, completion of projects, and practically no contribution from M&A and carbon credit sales, among other factors. In FI25, we do expect to grow adjusted EBITDA over FI24 by 35% or thereabouts, and then we reach our portfolio run rate EBITDA in FI26, which is essentially fully contracted as of now. With regard to our cash flow to equity, we are expecting about INR 6 to 8 billion rupees in FI24. The decline from FI23 reflects extra debt that we have on our balance sheet for delivery of the 5.7 gigawatts under construction at the moment. Our 13.7 gigawatt run rate CFE remains the same as it was previously. With regard to debt, we believe that debt coverage ratios will be peaking this year, as often happens when the large-scale commissioning is in progress, and we will begin to see improvement going forward as the revenues start getting booked. We will also see the benefit from our ongoing capital recycling initiatives. We are expecting net debt to adjusted EBITDA to improve by nearly one term by the time our 13.7 gigawatt portfolio is completed. With regard to our buyback, we have repurchased now 32.1 million shares to date, which represents about 30% of our free float. We continue to see our shares as one of the highest return investments of scale in our portfolio. The remaining 50 million of authorization represents about 10 to 15% further of the total free float. With that, we will be happy to take questions, and thank you for listening to us. Nathan, back to you.
spk04: Hi, Darcy. Can you please open the call open for questions, please?
spk35: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Justin Clare from Ross MKM. Please go ahead.
spk07: Yeah, hi. Thanks for the questions.
spk05: First off, this quarter you added COD dates back for the community projects that you have. I was just wondering if you could talk about what has led to the improved visibility that you have in the conditioning timelines, and then just to, you know, the uncertainties that initially caused the delays and how those have evolved.
spk27: Sorry, Justin. I couldn't get the second part of your question. The first part was around how do we have higher certainty around commissioning, right? And what was the second question?
spk05: Yeah, that's right. It's just around the improved visibility that you have into project commissioning, and then really that's the key part of the question that I wanted to get at.
spk27: Okay, got it, got it. Yeah, yeah, sure. So look, the reason we have increased confidence is obviously because While we commissioned fewer megawatts last year, there was a lot of work that was going on for project commissioning, for construction on the projects that we were working on. As you know, for the RTC project, just as an example, we, on the financing front, did the tie-up with Mitsui. We also did the syndicated loan for a billion dollars plus with 12 international lenders. of which six were lending into India for the first time. We've ordered the machines. The land has been acquired. So a lot of work has happened for both the RTC project and the Peak Power project, which are now in fairly advanced stages of commissioning. And therefore, we have confidence that over the next few months, you'll start progressively seeing those projects getting commissioned. So I would say that our confidence really for the commissioning numbers that we're giving you right now is the progress that we've actually made on the ground in a number of our projects that we're working on right now. So that is really where that confidence emanates from. And it's really around financing, as I said, in some of the projects. You know, on the Peak Power project, as you see, we've also now announced the joint venture with Petronas. So both of these large projects, which between the two of them, account for almost two-odd gigawatts of our portfolio. We have the financing tied up. And as I said, there's a lot of progress that has been made on the ground in terms of land acquisition, getting the turbine equipment ordered, and a lot of the work on the transmission side as well.
spk05: Okay, got it. That's helpful. And then, you know, with the accelerated auction plan that was announced by MNRE, I was wondering how you think about the amount of capacity that you might be able to secure at auction in the coming years, especially if the IRRs are very attractive. So do you anticipate meaningfully expanding the amount of capacity that you bid on and potentially win? Just wondering what the limiting factors might be to growth if the opportunity set here has expanded.
spk27: Yeah, Justin, that's a good question. So look, the reality is that we as a country are moving from a total of about 15 gigawatts of auctions every year. The government's target is to move that up to 50 gigawatts. And MNRE has come out with a specific note to that effect. They've appointed three new bidding agencies on top of SECI. As you know, Solar Energy Corporation was doing the bid so far, but they've appointed three new agencies. There are central government-owned power companies, NTPC, another company called SJVNL, and the third company called NHPC. So these are companies that have now been tasked with carrying out auctions and selling the power and so on. And M&R has also come out with a very specific set of what kinds of auctions will be done in which quarter. So it's a fairly granular plan that they have now come out with. And in that plan, we've also categorized what kinds of bids will happen. And you can see that the majority of the bids in that are moving towards the complex auctions. And that's why we talked about that particular point. But to come back to your question, therefore, if the target is to get up to 50, regardless of whether we get to the target or not, there will be a very substantial step up in the number of auctions that are going to happen. And so the question for us is, how much of that do we want to win and how much can we win? So I think our first criteria there is we obviously want to maintain high IRRs, and there is an opportunity that we are seeing here where we can increase the amount of IRRs that we're able to make on these projects because of all the reasons I talked about, which is the expertise and so on that we now have. The constraining factors, however, are one is financing, because it's obviously only so much that we are willing to stretch our balance sheet. And we've given you very clear guidelines on how much you want to get in terms of debt on our balance sheet. And we want to keep it at a certain maximum level. So that is clearly one factor. And the second factor clearly also is execution capability. And on the execution capability front, there are several factors involved. One is, of course, our capability of actually executing projects from an EPC standpoint. And two is getting access to the right equipment at the right price. And so we just want to make sure that we manage all of these in the most optimal way and we don't overcommit to projects that we are then not able to execute properly. So those are the factors that we want to keep looking at. And within that, we want to just make sure that whatever we win ends up being at the maximum or the highest possible IRR. So our sense at this point, Justin, just to answer your question, is that we intend to do about three to four gigawatts every year. We are not likely to exceed that. And as we get comfort around execution capability over the next two, three years on that number of megawatts, then we perhaps in future years can think of scaling up the megawatts that we do. But in the near term, our focus will be to do about three to four gigawatts every year. And, you know, for FI24 and FI25 that is current here and the next year, We already have a pipeline. We already have an execution plan. So we're only talking about FI26 onwards that we will start with somewhere between 3 and 4 gigawatts and then potentially look to scale it up depending on how all of these factors shape up. But within that, I certainly sense that there's an opportunity for us to choose and be much more selective about the projects and really win those that maximize our IRR. So I think our ability to deliver higher IRRs, therefore, all said and done, will go up, you know, even as our market share potentially comes down a little bit.
spk06: Okay, that's great to hear. Thanks very much. Thank you.
spk35: Thank you. Your next question comes from Julian Dumoulin-Smith from Bank of America. Please go ahead.
spk33: Hi, this is Morgan Rehut on for Julian. Thanks for taking the question. Really interesting comments from you all on the complex project successes of late. Can you talk about the expanding opportunity that you're seeing there? Presumably the latest auction win and any subsequent wins are going to flow through in FY26, just like you were just talking about. So can you talk about where we should look for the upside to kind of the current development pipeline in this complex project segment here and when we could start to see that adding into that three to four gigawatts of development that you were just talking about?
spk30: Yeah, sure.
spk27: So, you know, in terms of the complex auctions, you know, for all the reasons that I've talked about already, we are, the government clearly is moving in that direction because it is just much easier for the grids and the utilities to absorb power that is meeting a certain generation profile it just is easier for them to then absorb that power. And so they are in some ways, therefore, passing the responsibility of shaping the generation profile onto us. And that's fine with us because it allows us to do that shaping, give them a power source or a profile that is appropriate for the utility, and is still cheaper than their next best alternative, which is coal-based power. And coal-based power today is about anywhere from five and six rupees upwards. If they buy power in the market, in the power markets, on a merchant basis, those prices are even higher. And so for them, if they're able to get anything below five rupees for this managed profile, that's a great win for the utilities. And so the tariff that we won the most recent auction at, which, by the way, we have not yet put into our committed pipelines, Because as you said repeatedly, we will only do that once the PPA is signed. But just as an indicator of the direction in which we are heading from an auction and bidding standpoint, we won that tariff. We won it at a tariff of $469 or thereabouts. And that compares in some ways with the tariff on our first round-the-clock power project, which was closer to around $350. Now, of course, a lot of it depends on the shaping that is required of the generation profile and, therefore, how much wind, how much solar, and how much storage is required. So they're not exactly comparable on a like-to-like basis, but certainly it gives you an indicator that for these kinds of projects, these kinds of generation profiles, utilities are willing to accept a higher tariff. And I think that's really the directionally, you know, what is going to give us, therefore, higher IRRs. And in these bids, we are finding fewer participants because they require a large component of wind. And wind execution capability in India, as we've stated repeatedly, is limited. There aren't really any good EPC providers out there. And we have our own entire EPC team of more than 300 people. The other thing that is also, as you've said also repeatedly in the past, that is a constraint, is solar module availability. And... government's policies have put a squeeze on the availability of solar modules in India, which is making it hard for some of our competitors to bid on these auctions. And this is really where our own solar manufacturing plant, which is now getting commissioned later this summer, really comes in handy. What we're commissioning right now is a four gigawatt module plant. And so that allows us to already have a lot more confidence in being able to source solar modules. So because of all the steps that we've taken in the past, and I know that a lot of you had reservations when we got into solar manufacturing, but it was for these reasons that we anticipated that this would happen in the Indian market and that this would give us a lot of security. And so the capability of doing wind, the capability of finding out the right ways of combining, and the capability of having our own solar supply chain right now is what is allowing us to get much higher IRRs where the market is, you know, struggling a little bit.
spk32: Got it.
spk33: And I guess in terms of kind of talking about the strategic focuses, I mean, understand that the FY23 results were impacted by some of the delays that you've all talked about and a resource that we all understand. And looking to FY24, there are some nuances around project data as you kind of finish out the rest of the development process. I mean, I guess, where would you point us in terms of kind of the strategic focuses here and going forward and where I guess investors should try to get a little bit more comfort in the next couple of years, understand that now we're all talking about FY26 kind of execution. But I guess what would you point to in terms of trying to get confidence around the next couple of years here and the opportunities in front of you?
spk27: Yeah, Morgan, so, you know, I would focus you guys on a couple of things. One is, of course, and most critically, which is the point that Justin was also asking about, is project commissioning. I think that is obviously going to be central to hopefully build everybody's confidence even further in the company. So I think that's something that you should definitely monitor, and we will provide that information to you as we go forward. And so that will give you confidence around our 24, the FI24 and FI25 numbers, and also, therefore, give you the comfort around what is going to happen in terms of final run rate in FI26, which will be manifest in that year. And the second thing I think you should also look at is bid wins. Now, bid wins, you know, we don't typically talk about that because, Unless, as I said earlier, it translates into a PPA, we don't normally put that into a – we don't actually put that into a pipeline. But, you know, you can track the auctions that happen in India because those are publicly available. Now, it may be that there is a lag between the bid win and the actual PPA signing, at which point the bid wins that we have will show up in our committed pipeline. But you can start tracking at least the bid wins. And so you'll get a sense of which direction is it heading in. But just to make the point again that for us, the market and growth is not a constraining factor because there are going to be enough auctions that will happen. In addition, as you know, the corporate PTA market is doing very well as well. So we're actually a little bit spoiled for choice right now about how much capacity do we want to win. And therefore, within that, we can be very selective about which, you know, how to maximize IRR. And so that's something that you will not be able to, of course, see specifically because But I think as the number of bids go up, I think you can assume that the wins that we will have, therefore, will be, you know, at a higher level of IRR just because we can be more selective now. So those are the two things I would point you to. And I think the third thing is obviously acid recycling. And so, therefore, you can – look to some more announcements and so on as you go forward on that front.
spk34: Great. Thank you.
spk35: Thank you. Your next question comes from Puneet Gulapi from HSBC. Please go ahead.
spk21: Yeah. Hello and thank you for the opportunity. My first question is if you can give some color on, you know, what is driving this delay in commissioning, and it seems that there could be cost savings. If you can also quantify what kind of cost savings are you looking at in terms of, you know, reduced module costs or any change in the wind turbine costs, et cetera.
spk27: Yeah, Puneet. So, you know, as far as... The second part of the question was costing. What was the first part?
spk21: The first part was what really led to the delay in commissioning. Earlier, the plan was to do it in first half.
spk27: Yeah, yeah, that's right, that's right. So, look, I think the reasons we decided to delay, there were, of course, some organic reasons, such as some transmission substations that were supposed to come up, those got delayed. There were some equipment supply issues. But I think the biggest reason was really the issue around the fact that the government extended the commissioning deadlines for us by one year. And secondly, the fact that module prices had gone up and therefore we were clearly expecting them to go down given polysilicon ads that were coming up in China. And so the question really for us was whether we should commission projects six months in advance at potentially capexes that were on a per module basis three to four cents higher. or whether we should wait for six months and then commission the project at a lower cost. Now, in fact, that's what's happening in the sense that polysilicon prices have come down because of all the poly capacity that has been added in China. And as a result of that, module prices have come down by 3% to 4%. So that is allowing us, therefore, to get our capex down by almost about close to about 7% to 8%. for solar projects. Now, so that's really the benefit that we've been able to get by having this delay of, you know, six to nine months in project commissioning.
spk21: And can you give us some sense of what kind of, you know, module pricing are you getting for deliveries around October, November?
spk27: So now, the module prices that we are getting, see, it really depends, Puneet, about where you're getting the modules from because There are three different places where you can get modules from right now for October, November. You can import them from China at about 20, 21 cents. So in China, at least prices have come down to the levels they had got to earlier. But as you know, you have to pay a 40% customs duty on it. The second source is, you know, buying from Southeast Asia. Their prices are a little bit lower. So it's about 26 cents, 27 cents. compared to the China plus import duties, which is closer to 28, 29 cents. And the third option is to import the cells and do the tolling in India, in which case also the cell price is now having come down, allows you to get a price of about 25, 26 cents. So, you know, being able to import the cells and do the tolling in India, if you have the module capacity, is now in some ways the most optimal solution. imports from Southeast Asia are somewhat limited because as you know, most of that capacity is going to China, to the US, sorry. So it's very hard to actually source modules from there. So I would say the price levels today depend on your sourcing, you know, or the place where you're sourcing the modules from. And the cheapest right now is now turning out to be importing cells and converting them to modules in India, which is why having access to a module capacity is production capability in India is very important. Because as you also know, Puneet, a lot of the Indian modules are being sucked into the US as well because of the higher pricing there. So it's not that the entire module capacity in India is available for sales in India. So that is, I think, what is creating problems for a lot of folks at this point. But as I said, fortunately, we have our own plant coming on stream by the middle of this year, by the summer. And so we'll start getting a lot of our own capacity from the model at the rate of about, let's say, 25, 26 cents.
spk21: And would you still get the benefit of change in law there or when you buy from your own capacity versus importing from China and getting duty adjusted?
spk27: So, yeah, so it depends, Puneet, on when the bids happen. As you know, bids that happen prior to, I think, April 21st, April 2021. Those are grandfathered, so those will get changed in law. So for those, you can still import from China and pay the custom duty if you're willing to have that working capital stuck for some time. As you know, it takes time to get that refund. But for projects that are bid after that, obviously you don't have that benefit. So then you have to go for the India option as being the next best solution. Okay. So that's really what's happened. And I would say that most of our Projects that are getting commissioned right now, like RTC and Teak Power, those are all bid before, so those are protected for change in law. Some of the other bids that we run were not protected, and so it's sort of a mix of the two.
spk21: So for change in law, you would still prefer to buy from your own factory or India instead of importing from China? Is that still a better alternative? No, for change in law...
spk27: for wherever you are protected, it is better to import from China because that is still 20, 21 cents. And even if you apply the higher working capital and therefore, you know, the cost of all of that, you're probably still going to be at maybe 23, 24 cents. So it's still a cent or two cheaper than doing the tolling in India.
spk21: Understood. That's pretty helpful. Secondly, you know, if you can talk a bit about, you know, the income from carbon credit sales, which used to be a decent number till last year. And this time it seems in the other expenses part, you actually booked some impairment. So what has driven that change?
spk27: Yeah, I think Kedar will take that.
spk11: Yeah. Yeah, so Puneet, income from carbon credit for us largely is through RE credits. And last year, actually, we accumulated the registration of most of our projects which were eligible for these credits. And as a first-time cumulative income recognition, it happened last year. So I think year-on-year, it was designed to have lower sort of reflection. So this time, you're seeing in revenue line, there is a reduction from last year, which was by design. And in the expense, there is a impairment because the prices have gone down. I mean, as you know, because there is no additionality, the prices for RE credits are under a little bit of pressure. So we had done an inventory accounting until September and December. So to some extent, we were required to adjust those prices. But all of that was factored and that's in line with the overall 62 billion guidance that we had given for FY23, 61 to 63. So all these adjustments were factored there, but just to sum up, I think RE credit pricing is what has reflected in that other expense impairment.
spk21: Okay, that's very helpful. Thank you so much. You're on the call. Quickly, on one entry in balance sheet, there was a change in contract ethics, which was a negative while your receivables did go down. How should one read that?
spk11: So I can, which specific line you're referring to, Puneet, if you could repeat.
spk21: So in the balance sheet, there's change in contract assets, which shows up in the cash flow statement, some 7.5 billion rupees decrease in non-current assets.
spk11: Yeah, so it might be with respect to transmission accounting. See, what I briefly mentioned in my speech transcript is we are following the IFRIC 12 transmission accounting now, which means the amount of capex we spend for transmission projects are accounted as a sell and cost immediately in the same period. So we recognize maybe 3% to 4% EPC margin on that. And the receivables from this get collected in the subsequent periods from the PGCL as part of the normal PP accounting. But in the period in which we construct this project, there will be a revenue and there will be a cost. And the net margin will be very marginal in the P&L. But there will be a receivable creation which will get collected in the subsequent period. So it's a book entry. It's not really impacting the cash flows.
spk21: Understood. Thank you so much. All the best.
spk35: Thank you. Your next question comes from Amit Bind from Morgan Stanley. Please go ahead.
spk17: Hello, sir. I just had one question that we earlier were guiding run rate net debt to adjusted EBITDA of 5.1 till quarter three PPD and now we have increased that to 5.1 to 5.3 at project level and additionally we have put 0.4 to 0.7 on corporate debt. So that's somewhere 5.5 to 6. So what are our debt assumptions changing for even when the working capital is expected to come down with receivables like coming in now? So why would the assumption increase?
spk11: Yeah, I think it has slightly gone up, not materially, because what we are conscious is, you know, the discipline at the project level, tracking of DSCRs, et cetera, is pretty strong. So we will stick to what we earlier communicated at that level. So that is not changing. The corporate top-up is required for us to invest in newer businesses. So as you know, we are doing initial devX, we are doing initial businesses, we are doing manufacturing investments. Now the EBITDA from those is not factored here. So ideally, if you capture the EBITDA from manufacturing, whenever we get certifications and we start exporting, and you know that there is a scarcity premium attached to the pricing of modules, if you factor the EBITDA from that, I think this will substantially be lowered but it will take some time for us to get the visibility from that. So you should primarily look at the green portion on slide 18, which talks about 5.1 as a lower end. And the additional top up is required for us to make contextual investments at that period of time for us to build new businesses, which will have subsequent period EBITDA generation.
spk37: Right, got that. All right, yep, that was my question, thanks.
spk35: Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you. you Thank you. you Thank you. Bye.
spk00: Thank you. Thank you.
spk35: Thank you for standing by and welcome to the Renew Power fourth quarter FY23 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, Investor Relations. Please go ahead.
spk03: Thank you, Darcy, and good morning, everyone, and thank you for joining us. On Tuesday evening, the company issued a press release announcing results for its fiscal fourth quarter ending March 31, 2023. A copy of the press release and the presentation are available on the Investors Relations section of Renew's website at www.renew.com. With me today are Simant Sinha, founder, chairman, and CEO, and Kedar Appadjie, CFO. After the prepared remarks, we will open up the call for questions. Please note, our safe harbor statements are contained within our press release and presentation materials and materials available on our website. These statements are important and integral to all our remarks and 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 you to review the press release we have furnished in our form 6K and the 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.
spk27: Thank you, Nathan. Good morning, good evening, good afternoon to everybody on the call. I'm glad to have you join us on this, on Renews Q4 FI23 earnings call. At the beginning, I thought it would be good to start with three key thoughts. Firstly, the Indian renewable energy market is getting stronger and has seen very encouraging developments recently. The Ministry of New and Renewable Energy, which is tasked with the renewable energy sector in India, has increased the pace of auctions by threefold to 50 gigawatts for FI24 and onwards just from this April onwards. More importantly, the majority of this increase is expected across complex and wind auctions where we have proven strong comparative advantages. In fact, in the first few of these auctions, we have good news to report in terms of a complex bid one with quite a healthy IRR. We will obviously talk more about this and other select corporate and state-level bids one once we sign the PPAs. We're also pleased to announce that we have entered into a joint venture with Petronas' renewable energy subsidiary, Gentari, on our peak power project. As you know, we view capital recycling as a pillar to enhancing shareholder value. In addition to these positives, there are a number of steps taken by regulators to ease new business for players like us, including the successful continuity of the late payment surcharge scheme which has substantially improved our DSOs to 138 days as of March 31. All these and other developments indeed give us strength to build our growth trajectory in this market. Secondly, Renew, as you know, will complete two years of being listed on the NASDAQ in the next couple of months. And in this period, we have built up our organizational footprint and capabilities across key areas to respond to the global climate transition opportunity. We have developed strong talent bench strength by onboarding several key leaders in key functions of project execution, regulatory, business development, digital, and solar manufacturing, apart from four additions on our highest level management committee with leaders from diverse global backgrounds. There have been multiple steps taken by us to enhance our readiness for the future. As an example, we are seeing good momentum on our solar manufacturing operation to provide critical supply security and cost advantages to our core renewable energy development business. During this period, we have also bolstered our own wind EPC capabilities to deliver projects at scale. We continue to engage with stakeholders and have seen good traction in our sustainability ratings. As you are also aware, our largest investor, CPPIB, has increased their economic stake to 52% in the company. All these important milestones certainly position us as a stronger climate transition leader. Thirdly, on page six, we continue to execute well on the other important building block of financing. During FI23, in a difficult debt environment, we successfully refinanced more than $1 billion of maturities by reducing the interest cost in favor of rupee-based loans. As mentioned earlier, we have signed a JV agreement with Petronas, who is keen to enhance their presence in renewables, and we have received the first tranche of their equity contribution for the Peak Power Project. We hope to build on this alliance further. In parallel, we are exploring monetization of our assets that we have. We programmatically intend to execute on asset recycling initiatives as a way to enhance shareholder value. That also enables us to enhance returns, raise funding at higher multiples than our share price implies, which further supports targeted growth at healthy returns without issuing new shares. Turning to page 7, M&RD's recent push to accelerate the annual auction pays to 50 gigawatts, around three times the amount auctioned over the last couple of years each, and a shift towards a higher percentage of complex projects provides significant market opportunities for us. At the same time, we are seeing less competition leading to higher tariffs in recent auctions. Combined with our differentiated ability to execute on complex projects, IRRs in recent auctions that we have won are some of the highest we have seen in the past several years. As a case in point, there was a recent auction for Peak Power Supply where we were one of the biggest winners. While I am conscious that the PPA is yet to be signed, This is a complex project which will require a significant amount of wind capacity to meet the daily dual peak and high PLF delivery requirements. This complexity clearly resulted in much higher tariff bids from our competitors. In fact, out of the 12 bidders, most had final tariffs that were 10% to 20% higher than where we won, which we believe illustrates that we have won. If not, the lowest cost supplier of complex projects in the country. The tariff we realized was about 35% higher than the tariff on our earlier RTC project, and while CAPEX is not expected to be much higher on a normalized basis. Said another way, this project and similar other projects are expected to have IRRs that are above even the high end of our targeted range of IRRs. Put simply, as seen on page eight, Renew has a significant comparative advantage in complex auctions. We are one of the few Indian IPPs with in-house wind EPC, vertically integrated solar execution, and a JV partner with strong credentials for battery storage systems. The proprietary data related to wind gathered over the years, coupled with our digital platforms, takes us to an advantageous position. There is a dearth of EPC and operating capability in India in wind at scale and even less capability to deliver wind, solar, and storage seamlessly. We are happy with the outcome and expect to sign the PPA later this year. Do note that we do not include winds into our portfolio until we sign a PPA. Turning to page nine, we are happy to share that we expect to complete 1.75 to 2.25 gigawatts of execution during financial year 24 and the remaining 3.5 to 4 gigawatts of under construction capacity during FI25. Do note that while execution will be spread throughout the year, a large part of the capacity is expected to come online during the last quarters of the respective fiscal years which limits the profit contribution in the year of commissioning. We have further data stock growth in FI25 since the last time we spoke with you as our two biggest power projects, the round the clock and the peak power projects are well advanced in multiple stages and I'm trying to get completed by the end of the current fiscal year. Please also note that there have been cost savings relative to late last year when we would have had to buy modules in order to deliver these projects on the timelines originally discussed. These two projects represent the largest chunk of our 35% plus growth in adjusted EBITDA in FI25. Our manufacturing facility is expected to start production by early next quarter and provide much-needed security of supply given the supply-side challenges in solar module sourcing in India currently. With that, I would like to turn it over to Kedar, our CFO, to go over the latest financials. Kedar?
spk09: Thank you, Suman.
spk11: I'll now move to slide 11, which provides highlights of the fiscal year 2023. Our portfolio increased from 10.7 gigawatts to 13.7 gigawatts in the current fiscal year, an increase of 28% compared to the prior year. Total income or revenues for fiscal 23 increased from $912 million to $1.1 billion, an increase of 29%, on a YY basis. FY23 adjusted EBITDA increased 12.4% during the fiscal when compared to the prior year, and our cash flow to equity increased 18%. The wind PLF and solar PLFs are roughly at the same levels achieved in the prior year. However, as a recent wind resource study conducted by the industry experts indicate, the expectation is that it is highly likely that the abnormally low wind resource over the past several years is expected to normalize in the coming years. Turning to page 12, which provides a reconciliation of adjusted EBITDA, which stands at $753 million, or 12% higher than the last year, despite poor wind resource and relatively lower carbon credit sales than the last year. You may have noticed that our EBITDA margin is lower at an overall company level compared to prior periods. In reality, EBITDA margin for our core business is similar at around 80.3%. The reported overall EBITDA margin is a bit distorted by the accounting for our transmission projects, wherein we are mandated to follow the requirements of IFRS standard IFRIC 12 on service concession agreements. This added about Rs. 7.5 billion to income and Rs. 7 billion to cost of goods sold, making the impact on adjusted EBITDA limited at only Rs. 4 billion. This reporting is applicable during the period which comes from the transmission assets, subsequent to which The annual income under the PPA will get reported. Turning to page 13, we continue to put efforts to improve collections and pass-due receivables from the state distribution companies. The year-end DSO improved as highlighted by nearly 50% over last year, a reduction to only 138 days. Discoms continue to make payments on overdue amounts, and we continue to expect further improvement in our DSOs over time. As an increasing percentage of our sales will be to central government-owned authorities, which pays these bills promptly and on time. Going through a summary of our balance sheet, we have close to Rs. 77 billion in liquidity, including cash and bank balances, which is pretty healthy. During the current quarter, we raised close to $600 million in debt, and our current net debt stands at Rs. 455 billion. With that, I will turn to page 16 and talk about our ESG initiatives. As our Chief Sustainability Officer, Mrs. Vaishali Sinha, is not able to join us, for the call today due to her travels. We are committed to setting new benchmarks on all fronts of ESG vision, performance, and transparency. First and foremost, we are thrilled to announce that Renew's near-term and net-zero target for 2014 has been officially validated by the prestigious Science-Based Targets Initiative, or SBTI. As you know, SBTI recognizes businesses that set ambitious emissions reduction targets in line with the latest climate science. This reinforces Renew's alignment with the Paris Agreement and aligns our aspirations with efforts to limit global warming to 1.5 degrees Celsius above pre-industrial levels. On our net zero target, Renew commits to reach net zero GHG emissions across our value chain by fiscal 2014, and we commit to reduce our absolute scope 1, 2, and 3 GHG emissions by 29.4% by fiscal 2017 from a fiscal 2022 base year. Our latest ESG ratings and scores are testimonials to our endeavors on performance and transparency. As a validation of our ESG commitment and performance, we recently received a rating of 11.6 from System Analytics, a global ESG ratings company. This ranks Renew as number 10 globally in the utilities category and number 7 globally in the renewable energy category. Furthermore, Renew received a rating of A- as its supplier engagement rating for 2022 by CDP, which puts us in the leadership band. Renew's ACR is higher than the ACR regional average of C and higher than the renewable power generation sector average of B-. An A- rating from the CDP ACR for Renew reflects that the company is implementing current-based practices to accelerate action on supply chain emissions. With that, I will turn it to R.C. Osuman for comments on our FY24 guidance.
spk27: Yeah, thank you, Kedar. With regard to our guidance outlined on slide 18 for FI24, we expect adjusted EBITDA to be in the range of rupees 60 to 66 billion. Given that we are committed to delivering on our commitments, we have made conservative assumptions related to continued poor weather, completion of projects, and practically no contribution from M&A and carbon credit sales, among other factors. In FI25, we do expect to grow adjusted EBITDA over FI24 by 35% or thereabouts, and then we reach our portfolio run rate EBITDA in FI26, which is essentially fully contracted as of now. With regard to our cash flow to equity, we are expecting about INR 6 to 8 billion rupees in FI24. The decline from FI23 reflects extra debt that we have on our balance sheet for delivery of the 5.7 gigawatts under construction at the moment. Our 13.7 gigawatt run rate CFE remains the same as it was previously. With regard to debt, we believe that debt coverage ratios will be peaking this year, as often happens when the large-scale commissioning is in progress, and we will begin to see improvement going forward as the revenues start getting booked. We will also see the benefit from our ongoing capital recycling initiatives. We are expecting net debt to adjusted EBITDA to improve by nearly one term by the time our 13.7 gigawatt portfolio is completed. With regard to our buyback, we have repurchased now 32.1 million shares to date, which represents about 30% of our free float. We continue to see our shares as one of the highest return investments of scale in our portfolio. The remaining 50 million of authorization represents about 10 to 15% further of the total free float. With that, we will be happy to take questions, and thank you for listening to us. Nathan, back to you.
spk35: Hi, Darcy.
spk04: Can you please open the call open for questions, please?
spk35: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Justin Clare from Ross MKM. Please go ahead.
spk07: Yeah, hi. Thanks for the questions.
spk05: First off, this quarter you added COD dates back for the committed projects that you have. I was just wondering if you could talk about what has led to the improved visibility that you have in the conditioning timelines, and then just to, you know, the uncertainties that initially caused the delays and how those have evolved.
spk27: Sorry, Justin. I couldn't get the second part of your question. The first part was around how do we have higher certainty around commissioning, right? And what was the second question?
spk05: Yeah, that's right. It's just around the improved visibility that you have into project commissioning, and then really that's the key part of the question that I wanted to get at.
spk27: Okay, got it, got it. Yeah, yeah, sure. So look, the reason we have increased confidence is obviously because While we commissioned fewer megawatts last year, there was a lot of work that was going on for project commissioning, for construction on the projects that we were working on. As you know, for the RTC project, just as an example, we, on the financing front, did the tie-up with Mitsui. We also did the syndicated loan for a billion dollars plus with 12 international lenders of which six were lending into India for the first time. We've ordered the machines. The land has been acquired. So a lot of work has happened for both the RTC project and the Peak Power project, which are now in fairly advanced stages of commissioning. And therefore, we have confidence that over the next few months, you'll start progressively seeing those projects getting commissioned. So I would say that our confidence really for the commissioning numbers that we're giving you right now is the progress that we've actually made on the ground in a number of our projects that we're working on right now. So that is really where that confidence emanates from. And it's really around financing, as I said, in some of the projects. You know, on the Peak Power project, as you see, we've also now announced the joint venture with Petronas. So both of these large projects, which between the two of them, account for almost two-odd gigawatts of our portfolio. We have the financing tied up. And as I said, there's a lot of progress that has been made on the ground in terms of land acquisition, getting the equipment ordered, and a lot of the work on the transmission side as well.
spk05: Okay, got it. That's helpful. And then, you know, with the accelerated auction plan that was announced by MNRE, I was wondering how you think about the amount of capacity that you might be able to secure at auction in the coming years, especially if the IRRs are very attractive. So, you know, do you anticipate meaningfully expanding the amount of capacity that you bid on and potentially win? You know, just wondering what the limiting factors might be to growth if the opportunity set here has expanded.
spk27: Yeah, Justin, that's a good question. So look, the reality is that we as a country are moving from a total of about 15 gigawatts of auctions every year. The government's target is to move that up to 50 gigawatts. And MNRE has come out with a specific note to that effect. They've appointed three new bidding agencies on top of SECI. As you know, Solar Energy Corporation was doing the bid so far, but they've appointed three new agencies. There are central government-owned power companies, NTPC, another company called SJVNL, and the third company called NHPC. So these are companies that are now being tasked with carrying out auctions and selling the power and so on. And M&R has also come out with a very specific set of what kinds of auctions will be done in which quarter. So it's a fairly granular plan that they have now come out with. And in that plan, they've also categorized what kinds of bids will happen. And you can see that the majority of the bids in that are moving towards the complex auctions. And that's why we talked about that particular point. But to come back to your question, therefore, if the target is to get up to 50, regardless of whether we get to the target or not, there will be a very substantial step up in the number of auctions that are going to happen. And so the question for us is, how much of that do we want to win and how much can we win? So I think our first criteria there is we obviously want to maintain high IRRs, and there is an opportunity that we are seeing here where we can increase the amount of IRRs that we're able to make on these projects because of all the reasons I talked about, which is the expertise and so on that we now have. The constraining factors, however, are one is financing because there's obviously only so much that we are willing to stretch our balance sheet. And we've given you very clear guidelines on how much you want to get in terms of debt on our balance sheet. And we want to keep it at a certain maximum level. So that is clearly one factor. And the second factor clearly also is execution capability. And on the execution capability front, there are several factors involved. One is, of course, our capability of actually executing projects from an EPC standpoint. And two is getting access to the right equipment at the right price. And so we just want to make sure that we manage all of these in the most optimal way and we don't overcommit to projects that we are then not able to execute properly. So those are the factors that we want to keep looking at. And within that, we want to just make sure that whatever we win ends up being at the maximum or the highest possible IRR. So our sense at this point, Justin, just to answer your question, is that we intend to do about three to four gigawatts every year. We're not likely to exceed that. And as we get comfort around execution capability sort of over the next two, three years on that number of megawatts, then we perhaps in future years can think of scaling up the megawatts that we do. But in the near term, our focus will be to do about three to four gigawatts every year. And, you know, for FI24 and FI25, that is current year, and the next year, we already have a pipeline. We already have an execution plan. So we're only talking about FI26 onwards, that we will start with somewhere between 3 and 4 gigawatts and then potentially look to scale it up depending on how all of these factors shape up. But within that, I certainly sense that there's an opportunity for us to choose and be much more selective about the projects and really win those that maximize our IRR. So I think our ability to deliver higher IRRs, therefore all said and done, will go up.
spk35: um you know even as our market share potentially comes down a little bit okay that's great to hear thanks very much thank you thank you your next question comes from julian dumoulin smith from bank of america please go ahead hi this is morgan rupon for julian thanks for taking the question
spk33: Really interesting comments from you all on the complex project successes of late. Can you talk about the expanding opportunity that you're seeing there? Presumably the latest auction win and any subsequent wins are going to flow through in FY26, just like you were just talking about. So can you talk about where we should look for the upside to kind of the current development pipeline in this complex project segment here and when we could start to see that adding into that three to four gigawatts of development that you were just talking about?
spk30: Yeah, sure.
spk27: So, you know, in terms of the complex auctions, you know, for all the reasons that I've talked about already, we are, the government clearly is moving in that direction because it is just much easier for the grids and the utilities to absorb power that is meeting a certain generation profile it just is easier for them to then absorb that power. And so they are in some ways, therefore, passing the responsibility of shaping the generation profile onto us. And that's fine with us because it allows us to do that shaping, give them a power source or a profile that is appropriate for the utility, and is still cheaper than their next best alternative, which is coal-based power. And coal-based power today is about anywhere from five and six rupees upwards. If they buy power in the market, in the power markets, on a merchant basis, those prices are even higher. And so for them, if they're able to get anything below five rupees for this managed profile, that's a great win for the utilities. And so the tariff that we won the most recent auction at, which, by the way, we have not yet put into our committed pipeline, Because as you said repeatedly, we will only do that once the PPA is signed. But just as an indicator of the direction in which we are heading from an auction and bidding standpoint, we won that tariff. We won it at the tariff of $469 or thereabouts. And that compares in some ways with the tariff on our first round-the-clock power project, which was closer to around $350. Now, of course, a lot of it depends on the shaping that is required of the generation profile and therefore how much wind, how much solar, how much storage is required. So they're not exactly comparable on a like-to-like basis. But certainly it gives you an indicator that for these kinds of projects, these kinds of generation profiles, utilities are willing to accept a higher tariff. And I think that's really the directionally, you know, what is going to give us therefore higher IRRs. And in these bids, we are finding fewer participants because they require a large component of wind. And wind execution capability in India, as we've stated repeatedly, is limited. There aren't really any good EPC providers out there. And we have our own entire EPC team of more than 300 people. The other thing that is also, as you've said also repeatedly in the past, that is a constraint, is solar module availability. And... government's policies have put a squeeze on the availability of solar modules in India, which is making it hard for some of our competitors to bid on these auctions. And this is really where our own solar manufacturing plant, which is now getting commissioned later this summer, really comes in handy. What we're commissioning right now is a four gigawatt module plant. And so that allows us to already have a lot more confidence in being able to store solar modules. So because of all the steps that we've taken in the past, and I know that a lot of you had reservations when we got into solar manufacturing, but it was for these reasons that we anticipated that this would happen in the Indian market and that this would give us a lot of security. And so the capability of doing wind, the capability of finding out the right ways of combining, and the capability of having our own solar supply chain right now is what is allowing us to get much higher IRRs where the market is, you know, struggling a little bit.
spk32: Got it.
spk33: And I guess in terms of kind of talking about the strategic focuses, I mean, understand that the FY23 results were impacted by some of the delays that you've all talked about and a resource that we all understand. And looking to FY24, there are some nuances around project data as you kind of finish out the rest of those development efforts. I mean, I guess, where would you point us in terms of kind of the strategic focuses here and going forward and where I guess investors should try to get a little bit more comfort in the next couple of years, understand that now we're all talking about FY26 kind of execution, but I guess what would you point to in terms of trying to get confidence around the next couple of years here and the opportunities in front of you?
spk27: Yeah, Morgan, so, you know, I would focus you guys on a couple of things. One is, of course, and most critically, which is the point that Justin was also asking about, is project commissioning. I think that is obviously going to be central to hopefully build everybody's confidence even further in the company. So I think that's something that you should definitely monitor, and we will provide that information to you as we go forward. And so that will give you confidence around our 24, the FI24 and FI25 numbers. And also, therefore, give you the comfort around what is going to happen into the final run rate in FI26, which will be manifest in that year. And the second thing I think you should also look at is bid wins. Now, bid wins, you know, we don't typically talk about that because, Unless, as I said earlier, it translates into a PPA, we don't normally put that into a – we don't actually put that into a pipeline. But, you know, you can track the auctions that happen in India because those are publicly available. Now, it may be that there is a lag between the bid win and the actual PPA signing, at which point the bid wins that we have will show up in our committed pipeline. But you can start tracking at least the bid wins. And so you'll get a sense of which direction is it heading in. But just to make the point again that for us, the market and growth is not a constraining factor because there are going to be enough auctions that will happen. In addition, as you know, the corporate PTA market is doing very well as well. So we're actually a little bit spoiled for choice right now about how much capacity do we want to win. And therefore, within that, we can be very selective about how to maximize IRRs. And so that's something that you will not be able to, of course, see specifically because But I think as the number of bids go up, I think you can assume that the wins that we will have, therefore, will be, you know, at a higher level of IRR just because we can be more selective now. So those are the two things I would point you to. And I think the third thing is obviously asset recycling. And so, therefore, you can – look to some more announcements and so on as you go forward on that front.
spk34: Great. Thank you.
spk35: Thank you. Your next question comes from Puneet Gulapi from HSBC. Please go ahead.
spk21: Yeah. Hello, and thank you for the opportunity. My first question is if you can give some color on, you know, what is driving this delay in commissioning, and it seems that there could be cost savings. If you can also quantify what kind of cost savings are you looking at in terms of, you know, reduced module costs or any change in the wind turbine costs, et cetera.
spk27: Yeah, Puneet. So, you know, as far as... The second part of the question was costing. What was the first part?
spk21: The first part was what really led to the delay in commissioning. Earlier, the plan was to do it in first half.
spk27: Yeah, yeah, that's right, that's right. So, look, I think the reasons we decided to delay, there were, of course, some organic reasons, such as some transmission substations that were supposed to come up, those got delayed. There were some equipment supply issues. But I think the biggest reason was really the issue around the fact that the government extended the commissioning deadlines for us by one year. And secondly, the fact that module prices had gone up and therefore we were clearly expecting them to go down given polysilicon ads that were coming up in China. And so the question really for us was whether we should commission projects six months in advance at potentially capexes that were on a per module basis three to four cents higher. or whether we should wait for six months and then commission the project at a lower cost. Now, in fact, that's what's happened in the sense that polysilicon prices have come down because of all the poly capacity that has been added in China. And as a result of that, module prices have come down by 3% to 4%. So that is allowing us, therefore, to get our capex down by almost about close to about 7% to 8%. for solar projects. Now, so that's really the benefit that we've been able to get by having this delay of, you know, six to nine months in project commissioning.
spk21: And can you give us some sense of what kind of, you know, module pricing are you getting for deliveries around October, November?
spk27: So now, the module prices that we are getting, see, it really depends, Puneet, about where you're getting the modules from because There are three different places where you can get modules from right now for October, November. You can import them from China at about 20, 21 cents. So in China, at least prices have come down to the levels they had got to earlier. But as you know, you have to pay a 40% customs duty on it. The second source is buying from Southeast Asia. Their prices are a little bit lower. So it's about 26 cents, 27 cents. compared to the China plus import duties, which is closer to 28, 29 cents. And the third option is to import the cells and do the tolling in India, in which case also the cell price is now having come down, allows you to get a price of about 25, 26 cents. So, you know, being able to import the cells and do the tolling in India, if you have the module capacity, is now in some ways the most optimal solution. imports from Southeast Asia are somewhat limited because, as you know, most of that capacity is going to China, to the U.S., sorry. So it's very hard to actually source modules from there. So I would say the price levels today depend on your sourcing, you know, or the place where you're sourcing the modules from. And the cheapest right now is now turning out to be importing cells and converting them to modules in India, which is why having access to a module capacity is production capability in India is very important because as you also know, Puneet, a lot of the Indian modules are being sucked into the US as well because of the higher pricing there. So it's not that the entire module capacity in India is available for sales in India. So that is, I think, what is creating problems for a lot of folks at this point. But as I said, fortunately, we have our own plant coming on stream by the middle of this year, by the summer. And so we'll start getting a lot of our own capacity from the model at, at the rate of about, let's say 25, 26 cents.
spk21: And, and would you still get the benefit of change in law there or when you buy from your own capacity versus importing from China and getting duty adjusted?
spk27: So, yeah, so it depends on when the bids happen, as you know, bids that happened prior to, I think April 21st, April 2021. Those are grandfathered, so those will get changed in law. So for those, you can still import from China and pay the customs duty if you're willing to have that working capital stuck for some time. As you know, it takes time to get that refund. But for projects that are bid after that, obviously you don't have that benefit. So then you have to go for the India option as being the next best solution. Okay. So that's really what's happened. And I would say that most of our Projects that are getting commissioned right now, like RTC and Teak Power, those are all bid before, so those are protected for change in law. Some of the other bids that we run were not protected, and so it's sort of a mix of the two.
spk21: So for change in law, you would still prefer to buy from your own factory or India instead of importing from China? Is that still a better alternative because of what we have? No, for change in law,
spk27: for wherever you are protected, it is better to import from China because that is still 20, 21 cents. And even if you apply the higher working capital and therefore, you know, the cost of all of that, you're probably still going to be at maybe 23, 24 cents. So it's still a cent or two cheaper than doing the tolling in India.
spk21: Understood. That's pretty helpful. Secondly, you know, if you can talk a bit about, you know, the income from carbon credit sales, which used to be a decent number till last year. And this time it seems in the other expenses part, you actually booked some impairment. So what has driven that change?
spk27: Yeah, I think Kedar will take that.
spk11: Yeah. Yeah, so Puneet, income from carbon credit for us largely is through RE credits. And last year, actually, we accumulated the registration of most of our projects which were eligible for these credits. And as a first time cumulative income recognition, it happened last year. So I think year on year, it was designed to have lower sort of reflection. So this time you're seeing in revenue line, there is a reduction from last year, which was by design. And in the expense, there is a impairment because the prices have gone down. I mean, as you know, because there is no additionality, the prices for RE credits are under a little bit of pressure. So we had done an inventory accounting until September and December. So to some extent, we were required to adjust those prices. But all of that was factored and that's in line with the overall $62 billion guidance that we had given for FY23, 61 to 63. So all these adjustments were factored there, but just to sum up, I think RE credit pricing is what has reflected in that other expense impairment.
spk21: Okay, that's very helpful. Thank you so much. You're on the call. Quickly, on one entry in balance sheet, there was a change in contract ethics, which was a negative while your receivables did go down. How should one read that?
spk11: So I can, which specific line you're referring to, Puneet, if you could repeat.
spk21: So in the balance sheet, there's change in contract ethics, which shows up in the cash flow statement, some 7.5 billion rupees decrease in non-current assets.
spk11: Yeah, so it might be with respect to transmission accounting. See, what I briefly mentioned in my speech transcript is we are following the IFRIC 12 transmission accounting now, which means the amount of capex we spend for transmission projects are accounted as a sell and cost immediately in the same period. So we recognize maybe 3% to 4% EPC margin on that. And the receivables from this get collected in the subsequent periods from the PGCL as part of the normal PP accounting. But in the period in which we construct these projects, there will be a revenue and there will be a cost. And the net margin will be very marginal in the P&L. But there will be a receivable creation which will get collected in the subsequent period. So it's a bookend rate. It's not really impacting the cash flows.
spk21: Understood. Thank you so much. All the best. Yeah.
spk35: Thank you. Your next question comes from Amit Bind from Morgan Stanley. Please go ahead.
spk17: Hello, sir. I just had one question that we earlier were guiding run rate net debt to adjusted EBITDA of 5.1 till quarter three PPD. And now we have increased that to 5.1 to 5.3 at project level. And additionally, we have put 0.4 to 0.7 on corporate debt so that's somewhere 5.5 to 6 so what are our debt assumptions changing for even when the working capital is expected to come down with receivables like coming in now so why would the assumption increase yeah I think it has slightly gone up not materially because what we are conscious is you know the discipline at the project level tracking of DSCRs etc is pretty strong so we will stick to what we earlier communicated at that level
spk11: So that is not changing. The corporate top-up is required for us to invest in newer businesses. So as you know, we are doing initial devX, we are doing initial businesses, we are doing manufacturing investments. Now the EBITDA from those is not factored here. So ideally, if you capture the EBITDA from manufacturing, whenever we get certifications and we start exporting, and you know that there is a scarcity premium attached to the pricing of modules, if you factor the EBITDA from that, I think this will substantially be lowered but it will take some time for us to get the visibility from that. So you should primarily look at the green portion on slide 18, which talks about 5.1 as a lower end. And the additional top up is required for us to make contextual investments at that period of time for us to build new businesses, which will have subsequent period EBITDA generation.
spk37: Right, got that. Yep, that was my question, thanks.
spk35: Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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