Good evening, everyone, welcome to the earnings call of Tata Power for Q2 of FY 2021. With me on the call is my colleague, CFO Ramesh Subramanyam, Financial Controller Anand Agarwal, The Chief of Investor Relations, Mr. Soundararajan Kasturi. Q2 has been an eventful quarter for Tata Power with a robust operational performance across all businesses and significant deleveraging through a number of measures that we had laid out in our long-term strategy.
Despite COVID-19, the company has achieved very good progress in this quarter. We have seen a sharp recovery in demand with sales in our distribution circles picking up almost 35% compared to Q 1, though it's a little below than the previous year. Collections in the distribution business has improved, though it was severely impacted in the Q1 , We expect that it will become much better going forward.
Our overdues from state discoms have also come down in the last two quarters. All our thermal assets have run on higher availability. CGPL under recovery reduced sharply with the falling coal prices, better coal sourcing, and logistic management. The fuel FOB under recovery has reduced from INR 0.52 in Q2 FY 2020, to INR 0.46 in Q1 FY 2021, to INR 0.30 in this quarter. With the fall in FOB prices led to reduced profits in the coal companies.
On a combined basis, CGPL and coal related businesses generated a combined profit of INR 39 crores without one-offs. We now have two back-to-back quarters of profit in this cluster. With the planned debt reduction in CGPL and the merger with Tata Power, CGPL issues are now fully contained, and it is likely to become self-sustainable in future.
We continue to improve availability across the renewable assets with the company taking over the operational control of certain wind sites and certain preemptive maintenance activities carried out through RCM. In the last two quarters, we saw very low wind speeds across India due to weather patterns, which led to significant reduction in generation. The pickup in the economic activities as lockdown restrictions have been relaxed have helped in our EPC businesses returning to normalcy.
Tata Power Solar's total revenue jumped from INR 405 crores in quarter one to INR 1,014 crores in quarter two. Solar EPC business continues its rapid growth with orders received in Q2 of INR 1,556 crores for 347 MW of solar projects, taking the total order book to almost INR 8,687 crores as of end September, with nearly 2.2 GW of large projects in pipeline.
The delays in project execution during the last quarter will be made good in subsequent quarters as we are seeing increased site activities. The current order book is likely to be executed over the next 12 - 18 months. Similarly, Tata Projects turn to profit of INR 41 crore this quarter compared to a loss of INR 35 crore in the last quarter. With all these improvements, we have clocked a 10% growth in reported PAT to INR 371 crore compared to reported PAT of INR 339 crore last year.
The company has now reported an increase in profit on year-on-year basis for the last four quarters, and this is the second consecutive quarter of PAT increase of 10%. The consolidated revenue stood at INR 8,413 crore compared to INR. 7,329 crore in the previous year, mainly driven by higher generation in conventional assets, TPCODL acquisition, and Solar EPC business, which of course has been partially offset by lower wind generation.
The consolidated EBITDA in this quarter was INR 2,276 crore, up by 7% compared to last year, mainly driven by lower under recovery in CGPL and higher Solar EPC business, offset by lower wind generation. Due to improved business in Tata Projects and Prayagraj, the underlying business EBITDA is 7% higher at INR 2,472 crore this quarter. During this quarter, the company won bids of 347 MW of solar projects. With this, the company's renewable project development pipeline moves to 1,237 MW.
With further 370 MW of solar project awaiting letter of award, the total renewable portfolio of the company will grow to 4.4 GW when all these projects get implemented. Moving on to the balance sheet and the progress on deleveraging.
We have seen a meaningful reduction in the debt with the receipt of the balance consideration from ship sale and completion of preferential equity issuance. This helped us to reduce the net debt from INR 43,578 crore as on 31st March to INR 36,840 crore by the end of this quarter. Our debt equity ratio has sharply reduced to 1.52x from 1.81 x in previous quarter. Similarly, debt to underlying EBITDA has improved to 4.01 x by end of September.
This significant improvement in debt metrics achieved over last few quarters, has helped the company to secure an upgrade in its credit rating from CRISIL, upgrading the long-term rating to AA stable and ICRA changing the outlook to positive on its rating of AA -. The improving credit rating and the reduction of debt will assist the company in reducing the interest cost and optimizing its finance cost.
We are also happy to inform the completion of the defense sale transaction at INR 1,076 crores, and Tata Power has received cash of INR 539 crores net of the debt of SED. Besides reducing the debt of the company, this sale also addresses many investors concerns on Tata Power's indirect involvement in defense related business, and therefore we expect positive impact on Tata Power's overall ESG ratings.
Work on setting up of an InvIT for renewable assets has progressed very well with the non-binding term sheet now signed and due diligence underway. The progress has been as per the plan and we are expecting to complete the restructuring in next two, three months. We'll share the terms once the binding agreements are in place.
The various pieces of our strategy to strengthen the balance sheet is shaping up as planned, and we are very confident of achieving the INR 25,000 crore net debt target at the end of this financial year. While we work on reduction of debt through divestment and restructuring, the focus on generating strong cash flows and recalibrating CapEx in line with the cash position will help us to achieve sustainable ratios. Our discussions on the revised GERC framework for compensatory tariff for Mundra is continuing.
However, with the significant fall in coal prices, which have resulted in CGPL and coal businesses reporting profit, CGPL is likely to become sustainable on its own cash flow. We foresee coal prices to remain low in the future, which will make the compensatory tariff maybe less relevant in overall context. In the recent businesses taken over, both Prayagraj and CESU have good quarters.
In fact, in Prayagraj we continue to see very strong operational performance, achieving a 76% availability in this quarter. PPGCL also recovered significant part of its receivables under the COVID-19 package of Ministry of Power, Government of India, which was received by the state. Along with the share of PPGCL's profit, Tata Power is also providing O&M services, which is paid separately.
We have now completed a full quarter since taking over CESU through TPCODL, and we have seen significant improvements in the operational and financial parameters. Despite COVID-19 related challenges, we have achieved the parameters that we originally planned. We have been able to reduce the provisional billing by almost half and improve our collection efficiency from around 85% in June to almost 99% in the last quarter.
We are confident of the turnaround of this business as per our plan in the next 12- 15 months. The growth in our consumer-oriented businesses continues to be promising and we continue to build partnerships for the future. For EV charging, the geographical presence of our EV charging network has been enhanced from 19 to 23 cities, and 203 public charging points have been installed.
Tata Motors has recently issued a letter of intent to Tata Power for development of EV charging ecosystem required for deployment of 300 e-buses in Mumbai. We have also entered into agreement with MG Motor for setting up public charging infrastructure at their dealer places. Similar agreement has also been signed with JLR.
Similarly, we have received LOA for almost 5,000 solar pumps during the quarters, and we have also been awarded a 6.2 MW order for the largest carport from Tata Motors. Our rooftop business presence has now expanded to more than 100 cities, and we have 27% market share as per the latest Mercom report. Our microgrid installations continue to rise with a pipeline of more than 130 installations, and we have been able to reach to nearly 800 customers across 190 villages as of end September.
Agreements have been signed with partners to provide efficient electrical appliances and also along with Grassroot Energy to explore electricity generation through biomass and biogas technologies. The company continues to make considerable progress towards its long-term strategy, and appropriate actions have been set in motion to address challenges of individual businesses so that the company can deliver an overall value to its shareholders and investors. We are excited about this journey and are grateful for the support and patience shown by all of you in this journey. I now hand over the call to Raymond for question and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar from DAM Capital. Please go ahead.
Good evening, sir, and congratulations. Good set of numbers. My first question is, sir, I do understand that you will not be able to share the valuation of InvIT. Sir, can you broad understanding of the timeline, and are we confident that we'll be able to close the deal by March 2021, including the entire transfer of the asset to InvIT?
Yes. I think before the end of the year, definitely we're confident it'll get done. In fact, we are trying earlier, but definitely before the financial year ends, we'll be completing this.
What about the binding term sheet and any kind of idea on the leverage you are expecting in the InvIT?
Well, as you know, the unlisted InvIT don't have any particular leverage. This will go by finally what the rating agencies and banks agree upon finally, when they give out the ratings. Normally, one has to form the InvIT to get the final rating and the sanctions. Therefore, I think the rough ballpark is that traditional debt equity ratios cannot be applied to an InvIT situation. They are lower. Now, how much lower would finally depend on what the rating agencies and the banks agree upon to give a optimal rating as well as a good lending terms. That's the broad indication we can give you. You know that in the listed InvIT segment, the SEBI's starting debt is 49%. In unlisted, there is no such limit, it will be definitely not constrained.
Okay, sir. On this quarter, we are seeing a sharp turnaround in CESU, and there's some higher profit in this TERPL. Is there some kind of one-off in both the entities?
Sorry, can you repeat? You talked about CESU?
CESU and TERPL, the shipping company.
Oh, sorry. Shipping company.
Shipping company and CESU. Both the QoQ and YoY numbers, QoQ numbers are slightly off. I'm trying to figure out is there something one off there.
Shipping company is only because of the tariff, because it is also linked to the CERC, the escalation indices. When the indices are favorable, they make higher profits. When they eventually catch up, they match the market rates. It's what we call, the corollary is that when the shipping company charges high, the CGPL pays them higher freight. For us, in a consolidated manner, it doesn't matter because the earnings of the shipping company is the cost of CGPL, right? Individually, it doesn't matter. To your question that why is it different? That's because it is influenced by the CERC indices. The other question was on CESU.
CESU, yeah.
So CESU-
QoQ, there's sharp improvement, yeah.
Yeah. One, that is more because of the application of the relevant accounting standards in such acquisitions, where the accounting standards require you to follow a certain process, and which has been adopted here. Last quarter, it was not adopted. As a result, the last quarter reported loss was worse than this quarter. As a result, you are seeing that increase. Actually, this doesn't belong to this quarter.
What will be adjusted number, if I may ask?
Adjusted number would be INR 2 crores.
Understood, sir. Thank you, sir. Thank you.
Yeah.
Thank you. Best of luck.
Yeah. Thank you.
Thank you. The next question is from the line of Murtuza Arsiwalla from Kotak Securities. Please go ahead.
Yeah. I have two questions from my side. One on the balance sheet, we see the capital work in progress increasing. Would that be largely attributable to renewable assets? If you could give some color in the last six months. Second is, while I understand that the low under recovery makes us less dependent on the committed tariff, could you give some color on where the compensatory tariff is sort of progressing because, in the long run, it's still a risk-mitigating sort of measure. Where are we in terms of signing the compensatory tariffs?
To your first question, Murtuza, right?
Yeah.
Your first question is that the capital work . You asked first about, huh?
The capital work-in-progress.
That is largely renewable. Okay.
Yep.
We have some transmission projects in the regulated businesses, which is going on. Both are the ones, and they are likely to get converted before next 12 months. That was one. The second is on the compensatory tariff. Where are we? As Mr. Sinha outlined in his initial remarks, while we are in discussions with the government, clearly that progress has to be made. There are differences in the initial conditions and the subsequent conditions that have been put. We are in discussions with them. I think we are coming more and more to a conclusion that if the long-term outlook on coal is not likely to firm up very soon. Really speaking for us, this is becoming less and less relevant.
What we have done is, keeping that in view, we've actually kind of already sized the debt down, and by the end of the year, or let's say in the coming months, we might see CGPL debt go down to as low as INR 4,000 crore. Which will mean that it will become self-sustaining in any case. As you know, there is a hedge which operates as a result of which, if the coal prices were to go up anyhow, we do have a hedge in the coal companies. Our overall plan has been always agnostic of any solution that is coming out of compensatory tariff.
Okay. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Puneet Gulati from HSBC. Please go ahead.
Yeah, thank you so much. Just continuing on this
Sorry, we are not able to hear.
Mr. Puneet Gulati, we can't hear you.
Hello, can you hear me?
Yes, sir, we can hear you now. Please go ahead.
On the compensatory tariff, is it fair to assume that you are not pursuing the issue with as much vigor as you would have been earlier?
I think you are putting words. Our view is that if they come on our terms, it could have been a different issue. Right now, there is no such traction.
Okay.
Also, for us, see, we can't be running the business on certain things just going our way. We are planning completely to make this business run on its own. Those are the steps we're already taking.
Okay, great. My second question is, in your standalone balance sheet, there is INR 17,300 crore of debt, which has significantly come down. Out of this, how much would relate to the regulated business?
About INR 6,000 crore.
Okay, INR 6,000 crore would be regulated and the balance INR 11,000 crore odd is unregulated. Is it? For the other investments.
Yeah, all the other investments and the rest of the non-core asset sale, plus the dilution in the renewables business, all this will cut it down to a much, much lower level, which is reflecting more closer to finally something above the regulated debt, which will be there.
Okay. Okay, great. On the SED sale, will there be any capital gains tax implication?
No.
To what extent? No.
No.
Okay. That's great. That's all from my side. Thank you so much.
Thank you.
Thank you. The next question is from the line of Swarnim Maheshwari from Edelweiss. Please go ahead.
Hello, sir. Thanks for the opportunity and congratulations for a good set of numbers. Sir, three questions. Firstly, you did mention that you guys are expecting the coal prices to be at the lower side for the future reference. My first question is with respect to that. Do you think that it then really makes sense to look at the coal mines because, for CGPL, coal can be really outsourced from somewhere else also. Is there any thought process that we will be actually looking to sell our coal mines also at some point in time?
Right now, our first focus is to get the license renewal in KPCL, as you know. The good news is that in Arutmin, which was the other mine which we sold, and we have not closed the transaction because we have not got the full money. There, the license extension has come through. Once the license extension comes through, we would have to look at all these options. At the end of the day, everything will depend at what value and what is the response we get.
Okay. All right. Sir, secondly, on the divestment side. We have actually realized fair bit of divestment proceeds from our non-core investments. If you can just actually share what is now pending to be realized in Q3 and Q4 from the non-core divestments.
Right now we are pursuing in our list of assets, the Georgia investment, which is a hydro investment, and the Zambian hydro investment. Lastly, defined as non-core, we have Tata Projects. There is a smaller coal mine, which is BSSR. All these four assets are there, which in the coming quarters and months we will continue to pursue. That is pretty much where we are.
This sale of the proceeds from the Defense business, this has been realized in Q3. The impact on the balance sheet that will be reflected in Q3.
While we are trying everything, I must say that because of COVID and because of the sentiments in the market on the assets which we are out in the market, both in Africa as well as in Indonesia, I don't think that we can expect a closure in Q3. Certainly, we are trying to do it in the quarter thereafter. The process is on, by the way. We are not letting up the process, but the traction is something which we have to keep a close watch on. We are confident of getting it through sooner than later.
Okay.
I must tell you in addition, that our target for net debt, we will meet nevertheless, even if we are delayed on these, because these are not very high-ticket items. These are not going to move the needle. Our broader target of going under INR 25,000 is on track.
Right. sir, did we receive anything from Arutmin in this quarter?
Yes, we did. I'll give you that number separately while we discuss. I just ask somebody to give. How much?
Yeah, maybe if you can also give the pending amount the last time.
INR 33 crores. Sorry, how much? INR 33 crores. It is about $6 million.$ 5 million .
Okay, the pending amount from Arutmin now would be about $160 million.
Yeah. Correct.
Okay. Sir, finally, one last question. What will be the captive order book in our solar EPC? Would it be about 50-odd%?
Captive. About half is captive.
Right, sir. Perfect. Thank you so much, sir, and wish you all the very best. Thank you.
Thanks, Swarnim.
Thank you. The next question is from the line of Anupam Goswami from B&K Securities. Please go ahead.
Yeah, hi sir. My first question on the stake sale of renewables to the InvIT platform. From a consideration point of view, how much premium also can we look at? The next question is on, sir, as you said, the coal prices you foresee are subdued prices. On a net-to-net effect, taking CGPL as well as the coal SPVs, where do we see our profit in those two segments going forward?
To your first question on the premium on the sale of renewable assets, I'm afraid we can't share with you right now because the transaction is still in process. As and when the final value will be available, we will be informing formally. You know the market, so you are in a good position to assess that. Your other question on net-net on CGPL and coal. Once we complete our debt restructuring of CGPL, then we expect that together these two assets would be a slight positive, and they will continue to be so regardless of the coal price, because one or the other will take the benefit of the movement in coal prices. That is the whole objective of ensuring that we don't put any more equity or support into the combined assets.
Okay. Sir, as you mentioned that the consideration and transaction taking place and you can't disclose, just what is the benchmark that is being decided on taking on a premium on this? What kind of parameters got looked at?
Anupam, I think you are in this business, you know the standard parameters are in these kind of businesses an EV to EBITDA or price to book or DCF or a combination of all these things. This is the standard valuation, and we follow the same methodology, or the investors follow the same methodology. The only limited point is we can't guide you with a number because we are in transaction mode, so we can't disclose that number. You can see the latest deals that are happening in the market, and I'm sure that you'll be able to get to a ballpark.
Right. I'm getting that. Sir, last question. When can we expect the restructuring as in the merger of CGPL to the standalone as well as the Tata Power Solar?
Both these are now the merger proposals are in NCLT, and hearings have begun. Of course, it is difficult to say that on behalf of NCLT, but I think next three to six months should be a reasonable time period by which these things should be over. In between, we do have processes of creditors meeting or shareholders meeting, et cetera. That process has to be followed up, yes.
Okay, sir.
We do expect to get it done before the year end.
Okay. Thank you, sir. I'll get back to you.
Thank you. The next question is from the line of Aniket Mittal from Motilal Oswal. Please go ahead.
Yes, thank you for the opportunity. Sir, firstly, I think we view one sort of product from the renewable front itself. Just trying to understand what would be the overall CapEx that we're expecting for FY 2021 and for FY 2022, particularly on the renewable front.
We have currently about 650 MW of assets under construction, and typically that will be about close to INR 3,000 crore-INR 3,500 crore. We will be spending probably more than half of it or a majority of that CapEx will be over in this year. Some spillover depending on the progress will be there in the next year.
Okay. How much of that do we expect to commission this year?
Commissioning this year, we're targeting 650 MW, but maybe it'll get spillover to next quarter because of COVID, a lot of delays happened in the first half, so we are catching up.
Okay. We also have other products that are lined up. I assume the work would have started. The overall dependency is higher than 650 MW, right?
The 650 is our own development.
Okay.
That is under construction.
Okay. Understood. Just from an overall perspective, let's say INR 3,000 crore-INR 3,500 crores on the renewable front, how much on your regulated businesses can we expect the CapEx to be? I think there are total FGD plans that we had for-
Yeah.
If I'm not mistaken.
I will tell you the number. The total CapEx that we expect in this year, FY 2021, is going to be about INR 3,800 crore. Which half of them would be renewable, and the rest would be amongst various regulated businesses. There will be some for the new businesses, which is essentially EV, and some would go into some of the non-regulated businesses. Largely, about 85%-86% of this is going to regulated and fixed-asset businesses.
Sure. Also from the solar manufacturing front, we've seen a decent uptick in the execution during this quarter. What sort of execution can we expect, let's say, over the next 12 months or so? We do have a healthy order book. I'm just trying to understand in terms of, let's say, revenues. Is everything normalized? I mean, what sort of execution do we see over there?
I think the current order book, as you know, is 2.2 GW, right? That is the order book.
Right.
About INR 9,000 crore is the order book now. The whole issue is that since the activity level has just picked up, we would assume that about half of that would be probably next year, and the rest would be covered in this year.
Okay. Sure. One question on the shipping business itself. I was actually wondering, given that we've actually sold those three ships, our EBITDA and PAT number ideally would have been impacted because the revenue and the EBITDA from that would not have come in our financials, is what I was expecting. Still the overall number seems to be pretty high. I'm just trying to understand what's happened over there on the shipping business front.
First is that we've sold the ships, but we do have the contract. Okay? The business operation continues. Only thing is we don't own the ship, but we have the contract. Second is high number, which you're seeing is mostly to do with the tariff linkage to the CERC index on the fuel price. The last revision of the index was high, so the revenue book there was high, but consequently, CGPL pays also a higher amount. Right? While on a consolidated basis, it is a zero-sum game, but individually, the shipping companies would seem to have made a higher profit in this quarter. There will be a catch-up because it's a time lag between the actual shipping prices and the final notification of CERC.
Just to confirm, you said that you don't own the ships but still have the contracts. The revenue and EBITDA from this is still flowing in, is what you're saying. This would then sustain.
Yes. Absolutely right. A certain minimum level of EBITDA will sustain, not as high as this, because this is more due to that carry-forward of the index effect. Once the index is normalized, it will be having a slightly lower number, but yes, there will be EBITDA.
Okay. Second, you mentioned that you've done an adjusted PAT of around INR 2 crores. I'm just trying to understand what is the overall AT&C loss over that, say, two?
Overall-
Maybe the overall AT&C loss you think is helping with that.
Just one minute. I'll just tell you. It is 28.1%.
28%?
Yes, 28%. We have brought it down from 30% now.
Okay. Sir, what would be the AT&C overall? It would be around 30% or so?
No, this is 28% is the exit quarter end AT&C.
Okay.
Okay. As of October. As per the tariff, which has been fixed in three years' time, we have to reach 23.7. Okay? That's where we are heading.
Okay. Largely, our trajectory in terms of the reduction of AT&C loss would be similar to that has been sort of the normative T&D that has been fixed in the tariff. Is that fair to assume?
The correct statement to make is that trajectory is in line with what was, let's say, targeted in the bid. If it is higher, then you will see losses.
Right
in the results.
Exactly.
As long as you're seeing positive, that means we are on track.
Sure. Maybe with an AT&C loss of 28%, we are coming with a positive number. That means, largely it's close to the normative number.
Yes.
Okay. Sir, maybe, like that's in your PPT, you've mentioned sort of a broad sort of outline in terms of the consumer-facing businesses that you're highlighting. Sir, could you give certain insights into what sort of revenue or profitability can we expect from some of these businesses, particularly in the solar pumps front and the EV charging front from, let's say, a two-year perspective?
We don't give too many forward-looking statements. I think we had shared with you all the FY 2025 target on all these businesses.
Right.
We are tracking them on a six-monthly basis because
Hello?
Members of the management, we can't hear you. Participants, please stay connected while we reconnect the line for the management. Please stay connected while we reconnect the management line. Thank you for patiently holding your lines. We have the line for the management reconnected. Over to you, sir.
Yeah. I think, the question was around how are we doing on the new businesses of rooftops and pumps, et cetera. I must say that, this, of course, quarter as well as six months have been seriously affected by the COVID-related issues. Otherwise, we believe the second half will be far better, and we will be able to pick up pace. We are working seriously now on all the marketing and distribution and launching initiatives. You will see the results in the next four, five months. Hopefully, year-end, we'll be able to make good progress on that. On the ground, things are working as per the plan.
Okay. All right. Thank you. I will get back in the queue.
Thank you. Next question is from the line of Abhishek Puri from Axis Capital. Please go ahead.
Yeah, thank you for the opportunity, and congrats for good set of results.
Thank you, Abhishek.
Sir, two things. In your presentation, you mentioned for Mundra, there is some SCED scheme one-off. Could you elaborate what is that?
Okay. This is a scheme where there is a central scheme which says that if your variable cost of dispatch is lower in a certain order, then you will be asked to dispatch out of turn, and the difference between your dispatch rate and what is available in the market is shared with you. That is the scheme which the Ministry of Power runs, and it shows actually a sign of competitiveness amongst the merit order dispatch. That is the income. It depends on what the market opportunities are available. We sometimes make money, sometimes we don't.
What is the amount here, one-off amount?
I think last year we had earned. There was a loss. This year it is not there.
Okay. No one-off this time.
No.
Got it, sir. It was interesting to know on the CESU front that you're tracking the trajectories in the second quarter itself. Could you tell us in terms of the accounting change that we would have done or followed here?
It's not accounting. Let me put it this way, it's not accounting change, it is just adoption of the standard. Remember, in the first quarter, we didn't have the proper accounts also from the takeover of the company. We could do the accounts finally in the second quarter only.
The accounting standard says that if you have a business acquisition which has a certain trajectory of investment in the initial period, then that investment is recovered in the revenues later on, then you can offset, or you can take it to the balance sheet because these are planned. Therefore, as long as it's sticking to the plan, it doesn't affect your bottom line. That is why we said that we are tracking it, because that's the way the standard works. That if we don't track it, then you'll have to provide for the loss caused by not tracking it as per the plan.
Fair enough. That's well understood. In this scenario, would we put some of the CapEx and interest and depreciation into balance sheet, right?
No. as far as the new investment is concerned, which is CapEx-
Yes. Okay.
that will reflect as ROE, just like any other regulated business.
Right.
Okay. That will come to the P&L. Only the AT&C related deficit would go into the balance sheet.
Positive also.
Positive also. If you are doing better than the plan, then it will be positive. Portion will go to the P&L. If it is worse than the plan, then the negative will go to the P&L.
Well understood, sir. Thanks for that clarification. Lastly, the merger tax benefits, what would be that amount and when can we realize this? This is subject to NCLT hearing, right now.
Yes, subject to NCLT, and it is effective April 1st 2020 as per the NCLT application. Whenever the order becomes effective, it will become effective from April 1st 2020. The tax benefit in that sense, assuming that the scheme will get approved, have started to already tick. You can't recognize it until the order comes.
Okay. For the regulated business, we cannot take these tax benefits, right? For the Mumbai regulated business.
No. No. Until the order is in hand, you can't.
If we are able to do the InvIT here, sorry, just a clarification on this. If we are able to complete InvIT say, before end of this year, a large part of that gain can be offset against this?
Yeah. If there is a capital gain on that, yes, it can be offset, of course. Also there is a past gain, losses also available. Therefore, there's room for that.
I was just trying to understand how soon can we utilize this.
No, it will be effective. See, the meter has started ticking. It's just that you can't click it until the order comes in hand.
Right, sir. Thanks so much, and all the best, sir.
Thank you, Abhishek.
Thank you. The next question is from the line of Subhadip Mitra from JM Financial. Please go ahead.
Good evening, sir. My questions were around CESU. Just wanted to get an understanding that, given the COVID related impact, has there been any regulatory relaxation that is available on the AT&C loss thresholds as per the earlier contract?
There is no relaxation, but I think the regulator has promised to look into the trajectory if required. As of now, since things are getting back to normalcy, we don't see any special relaxation.
Okay. Understood.
Thank you. The next question is from the line of Anuj Upadhyay from Emkay Global. Please go ahead.
Thanks for the opportunity, and congrats on good set of numbers.
Thank you.
Sir, two questions. Starting with the three distribution circle in Odisha, which we have bidded out. Any timeline, sir, when can we expect the final outcome to be? The follow-up to this would be, we have learned that in the NESCO circle, we are the sole bidder. Would it be fair to assume that the NESCO would come to us, or there are some conditions which we need to comply before assuming the same?
As you rightly mentioned, NESCO, we are the sole bidder. The regulator and the government is taking a view whether they would give it to us based on our offer, or if there's going to be a re-bid. Once we get clarity, we'll be able to decide on the next course of action. As regards the two bids where we have submitted, we expect by end of December they will possibly come out with the decision on the same.
Fine, sir. Second one on the Mundra, sir. The presentation mentioned that in October we have already repaid around INR 2,600 crore of the debt. Another INR 1,500 crore likely to be paid in November. With this, we are targeting to repay around INR 4,000 crore for Mundra. Any targeted level overall for Mundra over the next one or two years where we would feel comfortable enough to make the plant self-sufficient, the debt level amount, whether we are targeting to bring it below INR 10,000 crore level, INR 8,000 crore or something. That would be helpful, sir.
No, in the next month or so, we'll be infusing about INR 1,500 crores. That is the plan already there. With that, we'll be down to INR 4,000 crores. That's all third-party debt.
Okay.
No more than that.
Okay.
Which will sustain the company in any case on that, because if you see the EBITDA trajectory, then you will see that will easily sustain.
Yes, sir. Thank you.
Thank you. The next question is from the line of Dhruv Muchhal from HDFC Asset Management. Please go ahead.
Yeah, thank you so much. Sir, a question on CESU. You mentioned that the losses have come down, AT&C has come down from 40% to 28%, which just seems quite impressive given that we have taken the circle only about three or six odd months. Sir, given the initial success, do you think there is probably initial thoughts on can we probably beat the 23% target over the next three years significantly?
First of all, I want to clarify that the 40% number is also aided by the problem in COVID. They had a collection issue, so it was not that it was having initially all along the same number. It was much lower, but for the collection issues in COVID. Yes, it is coming down on track. To your question on 23.7%, yes, we are hoping to reach that target much earlier than the target as per the regulatory plan.
Okay.
We are trying to do something in the next 12-18 months, what was supposed to take two years.
Three years.
three years.
Okay. What number did you start with, the AT&C number?
This was a temporary phenomenon because we took it on June 1st, so this was the COVID period. Otherwise, last year they had AT&C of 30%. The trajectory was made on that basis. On a temporary basis, because of COVID, it had gone up to 40%, but otherwise we have already reached a level of 28%.
Got it. Sir, initially, at least I was expecting that for a couple of years, CESU will be on a PAT level, probably will be a drag, some marginal drag, but it will cause some drag. Given 2Q and given probably some change in the accounting, do we expect now that at least we will be breaking even there or marginally positive, at least for the next two years?
One can reasonably say so. We are confident of meeting our trajectory, in which case then we won't have to book any additional losses. The only CapEx and the regulated equity that is there will keep us earning the ROE. Your conclusion is right. If we do our job well, which is what we are doing today, I think we should be marginally positive.
Okay. The accounting works this way, right? As long as the target which you have set as per the agreement or as per your internal target, as long as that is met, that is okay.
Correct.
That will not cause a drag to the P&L.
Correct.
Got it. The target by the end of third year will be around 23%, which currently the actual loss is around 28%.
Correct.
Got it. Nice, sir. Secondly, if I look at the Mundra plus the coal JVs and plus the logistic companies, this quarter is the best ever quarter that you have done, probably in the last two, three years.
Yes.
I understand one part is because of the logistics one-off that you mentioned. Sir, is it fair to say this is not a one-off because you mentioned that Mundra is already paying that amount, so in the next quarter, Mundra will have a higher EBITDA and there will be a lower EBITDA in the logistics company?
Correct.
This is not a one-off as such. This is just.
It's a one-off as per shipping companies concerned.
Okay. from a pure complete perspective.
Logistics perspective, not.
it's not a one-off. Sir, if you can say something on what's driving this strong performance, is it the Mundra, some efficiencies that you're probably gaining in Mundra in terms of lower coal cost or what's driving this? After the shipping company, we thought there should be some impact on the EBITDA. I understand they will still generate EBITDA, but there should have been some impact on EBITDA. Despite that, the numbers are quite strong.
Yeah. The reason is twofold. While the market fell, our mines also launched very strong cost control measures and they've been able to absorb a significant portion of the price decrease in the market. That's something which our coal companies do it, but they've done a good job in these last six months in terms of cost cutting everywhere, and therefore they have reduced the impact of the price. On the other hand, in CGPL, we have managed to purchase coal at much lower than the market. That is also because of, I would say, the advantage of the current market. We have been able to buy good shipments at attractive prices with higher CV. When you do a combination of good quality and cheaper logistics cost and cheaper FOB price, you end up beating the market price.
I think what has happened is in this quarter especially, and we have been seeing this for the last six months, that our ability to squeeze costs in a glut scenario is much higher at CGPL level, and the coal companies are tackling the price decline by putting severe cost control measures. It's both ways.
Got it. If I have to put it this way, the under-recovery absolute amount will be about INR 200 odd crores for the quarter if I just do the volume into the under-recovery amount that you have given.
Right.
How much of that would have been higher if this efficiency sourcing would not be there?
It's difficult to give one number for efficiency sourcing because the quality and quantity and CV factor, maybe we could give you some rough number. Later on, Rahul will share with you.
Okay. Sure. Sir, just last two quick ones. In your presentation, you mentioned that 150 MW at Maithon, the PPA is expiring.
Yes.
Okay. The PPA is getting over. Is it the long-term PPA is getting over?
No, there is a right to one of the buyers to call off the PPA in a certain interval.
Can be
which they are opting for. We will find alternate buyers. We'll tie up that power with others.
Okay. When is this expiring, sir?
It's September 2021. Yeah.
September 2021. Okay. Sir, last thing, actually this was kind of a suggestion, if you can probably help us, because the renewable is becoming a bigger portion of your business now. Of the under-construction capacity, if you can help us provide what would be the revenue that you will be generating, because that will help us model the business better, because there are multiple projects at different tariffs. For us, building that will be extremely difficult. If you can help us provide what the potential revenue would be of the under-construction portfolio.
Sure. Rahul will separately tell you the rough math that when the under-construction assets come on board, what generally is the EBITDA and both factor. Rough math can be given to you, which will give that.
Yeah. Even the revenue also would help because probably we would know what.
From there you can always work backwards.
Yeah.
Sure.
Thank you.
We'll give you that.
Thank you, sir.
Thank you. The next question is from the line of Aniket Mittal from Motilal Oswal. Please go ahead.
Thank you for the opportunity. Most of my questions have been answered. Just one question on the working capital front. You mentioned that there is some amount that you've received from the Aatmanirbhar scheme, if I'm not mistaken. If you could just quantify that amount and just trying to understand your trajectory in the receivables front, could we receive further amount over there?
You're talking about Aatmanirbhar?
No. Aatmanirbhar.
Receivables front.
Huh?
The money that has come.
Prayagraj. Oh, you say Prayagraj.
That is for Prayagraj.
Aatmanirbhar. Oh.
That's the main money for Prayagraj.
That is the money for Prayagraj. We received, what, INR 1,200?
No.
60?
750.
Huh? 750. 1,200.
750 is the correct figure.
I think currently we are at about three months odd outstanding in Prayagraj. Money is coming in trickles on that.
Okay. Can you add sort of pending amount that we expect to come from the scheme?
From the scheme?
From the Aatmanirbhar scheme. Is there further amount that we expect to flow in from the scheme?
Well, only few states have really gone for it. I think Tamil Nadu has also opted for it. We are a recipient of that, I won't be able to share with you exact numbers.
Telangana has gone.
Telangana has gone.
Money from Telangana, due money is very small.
Yeah.
Okay. Overall, on the renewables front, what will be your receivables amount? Total receive.
About-
1+
About INR 1,000 crores.
Okay. Maybe just one question on the trajectory of how interest costs are moving. One is obviously there's an upgrade in our ratings that has happened, and also the overall interest costs environment right now is pretty benign. Just trying to understand from an overall interest cost trajectory, how do we see that moving? Is there any sort of benefit that we can get in terms of lower interest costs?
Certainly. Remember that we have been getting very fine rates all through, higher than our ratings. We do expect, already it's bottomed out in some ways. We are also seeing that the next couple of months, we have some other more monies to be received. Once that happens, we'll have to see how we have to churn between short-term and medium-term and long-term. Maybe that will have some effect. Broadly, our weighted average cost should come down further a little bit in the next two quarters.
Okay. Just one last question. I think in an earlier participant had highlighted about the profits that you have at CGPL plus your coal mine. That number looks a bit high. I was just wondering, is there any sort of lag benefit that you've got at CGPL? The prices have gone down, but maybe your tariff has not been revised. I'm just trying to understand from sustainability perspective for the coming quarter. Is there some lag benefit that you're getting at CGPL because of these ?
Actually, no, there's not much of lag benefit. Look at it, there are two, three things here. One is that, yes, there is a lag. Okay? Yes. That in the second half there will be a catch-up. On the other hand, we had a higher PLF in the first half. In second half will be lower PLF. There will be some benefit around that. Therefore, they may probably offset each other. To answer your question, in short, I don't think there is a serious one-off that is affecting these prices. They seem to be going in this direction because of the factor I mentioned some time back. There's a good pressure on costs on the mining side.
Okay. Thank you. That's it from me.
Thank you. We'll be able to take one last question. The last question is from the line of Swarnim Maheshwari from Edelweiss. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity again. Sir, have we awarded the Prayagraj O&M contract to our O&M business? Is it still done by some one else?
No, no, it's Tata Power.
Okay. I just wanted to understand, are we benefits of the O&M because we are one of the newest O&M procurers, O&M guys. Just wanted to understand, what is the current O&M cost that is it for Prayagraj?
Your point is right that we are one of the most efficient, but since it's an individual contract, we normally don't disclose, but we can sufficiently say that we are doing a good job over there, both technically and financially.
Okay, the efficiency are already reflected in the numbers?
Yes, absolutely. Because we do book that in our services.
Okay. Sir, lastly, just on solar EPC, what are the kind of EBITDA margins in this EPC business, and any guidance for FY 2022 as such?
It's generally in the late single, early double, that kind of range, depending on which contract to piece. You know the market. The market is very tight on EPC. It's generally in the single digits, but at the end of the late single digits.
Okay. FY 2020 guidance on FY 2022, you did mention that you do expect your existing order book to get exhausted over the next 12 -1 8 months. I think a substantial amount should come in FY 2022 then.
Yes, that's correct. We can't give you a guidance on the numbers. You've seen the order book. That's about INR 9,000 crores, and that will all get materialized over the next 12 - 18 months.
Perfect, sir. Perfect. All right, sir. Thank you so much.
Thank you.
Thank you very much. We'll take that as the last question. I would now like to hand the conference back to Mr. Sinha for closing comments.
Thank you very much for all of you for joining the call. Whatever additional information is required, you are most welcome to reach out to us. My colleagues, Kasturi and Rahul Shah, will be more than happy to provide you the required information. You all take care and stay safe. Thank you.
Thank you very much.