Ladies and gentlemen, good day and welcome to the Adani Green Energy Limited Q3 FY 2021/2022 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from DAM Capital Advisors Limited. Thank you, and over to you, sir.
Thanks, Rutuja. Good afternoon, everyone. On behalf of DAM Capital, I would like to welcome you all to the Q3 FY 2022 earnings call of Adani Green. From management side, we have with us today Mr. Vneet Jaain, MD and CEO, Mr. Kaushal Shah, CFO, and Mr. Viral Raval, Lead Investor Relations. We'll start with the opening remark, followed by Q&A. Over to you, sir.
Thank you, Mohit, for introducing us. Good afternoon, friends, and thank you for joining this call. Hope you and your family members are safe in this pandemic time. Take care of yourself. Warm welcome to all the participants in this earnings call of Adani Green to discuss the operational and financial performance of Q3. We have uploaded the earnings presentation on our website, and I'm sure you had a sufficient time to go through the same. Let me walk through the recent updates and followed by the operational and financial performance. On a year-on-year basis, the operational capacity has increased by 83% to 5,410 MW. This is what we have achieved in spite of this pandemic time, and big kudos to our project team.
With their persistent efforts, we are able to achieve this major milestone. This of course includes 1,700 MW of SB Energy portfolio, which we have acquired on September 30th. Another important milestone which you all are always asking about, what is the progress on that 8 GW of solar generation projects linked with the setting up of manufacturing capacity. I'm happy to report that we have signed world's largest green PPA with SECI to supply 4,667 MW. Overall now, out of this 8,000 MW, we have already signed PPA for close to 6,000 MW, and we will be signing another 2,000 MW in the near future.
We have already signed the contract agreement with the SECI for setting up of solar PV manufacturing plant for this 2 GW capacity. This plant will be done under Adani Enterprises. Now, let me brief you on the ESG front. We have done a lot of progress as per our commitment. AGEL has achieved CDP 2021 score of B, surpassing again the global average, Asia average, and the renewable energy sector average. The score reflects AGEL as a company taking coordinated action on climate issues. AGEL has received initial FTSE ESG score of FTSE4Good, leading to company's inclusion in FTSE Russell's ESG focus indices. This is another important progress on the ESG front. In the last quarter, 37 of our operational plants of AGEL have been certified as a single-use plastic free.
With this, 65% of our operating capacity is now single-use plastic free under CII plastic protocol. This is, as per our commitment to become the plastic free in all the plants by 2024, but we will be doing it much ahead of that. AGEL has become the first Indian member of GRI South Asia Charter on Sustainability Imperatives, strengthening its commitment towards UN SDG 7, 9, and 13 . Let me just tell you, we focus on all the goals of UN, but the major focus is on 7, 9, and 13. Seven focuses on affordable and clean energy, and nine focuses on the industry, innovations and infrastructure, and SDG 13 focuses on the climate actions.
On all of these, we have a big focus, and we have a dedicated ESG head appointed who is working under the ESG committee. AGEL has also adopted a technical standard that has been developed in association with the CII to ensure no net loss of biodiversity across all plants as a voluntary commitment under the India Business and Biodiversity Initiative. W e are focusing also on the biodiversity. Now let me just take you through the operational and the financial performance. The robust capacity addition and the best-in-class O&M process have led to a continued impressive operational and financial performance.
Coming to the numbers for the nine months, solar CUF has improved by 50 basis points year-on-year to 22.6%, and wind CUF has improved by 470 basis points year-on-year, 33.2%. Solar CUF improvement is backed by the integration of the high quality SB Energy portfolio, consistent with the high plant availability of near 100% and improved grid availability near 99%. Wind CUF improvement is backed by technology advance and more efficient newly added wind turbine generators, and the improved plant availability of 96% and the grid availability of almost 100%. Sale of energy has increased by 67% to 6,456 million units, backed by robust addition of 2,460 MW renewable capacity over the last one year. This is supported by strong operational performance.
AGEL's revenue from the power supply has increased by 54% year-on-year to INR 2,655 crores. The EBITDA from the power supply has increased by 56% year-on-year to INR 2,474 crores, with 160 basis points improvement in margin to 92.4%. In infrastructure, we focus on the cash profit, and this has increased by whopping 47% to INR 1,292 crores. In conclusion, we are on track to meet our renewable energy target of 45 GW by 2030, backed by robust capacity addition, increased visibility of growth with the PPAs and consistent operational performance. Also with the global recognition of our efforts to light up the world with the green energy and to further incorporate the ESG practices on all fronts.
Our ESG commitment is growing stronger and stronger. With this, I'm opening a door. On operational front, I will give you because we are not required to publish the debt number. O n an operational project, we have debt EBITDA of 4.5x , which we have told you that this is what is the trend which we will have. As we move forward, this also will come down as more and more capacity will be added. Cash, of course, we have nearly INR 4,300 crores cash available at the end of this quarter as well. These are the broad numbers which I wanted to highlight to you. Our hybrid projects of 1.6 GW is in very advanced stage of commissioning.
In fact, we have commissioned almost 800 MW, which is partially commissioned. The remaining , we are expected by April to be online. We are on track as far as India's first hybrid projects of 1.7 GW becoming operational. This is initial comments from my side. O ver to you for the Q&A. Thank you.
Shall we start with the Q&A?
Yes, please.
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 the touch-tone 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of [Apoorva Bahadur] from Investec. Please go ahead.
Hey. Hi, sir. Thank you for the opportunity. Good set of numbers. Congratulations for that. I wanted to understand your views on the pipeline for further renewable project development. We understand that there could be a module shortage, right? Because the domestic capacity is yet to be set up with the PLI and the BCD to be implemented very soon. Do you think that there will be a drop off in the pace of project awarding?
I think, when it comes to the pipeline, I think, Government has clearly specified in March last year that how the BCD trajectory would come in, what will be the implication of that in terms of change in law, as well as, yesterday as Finance Minister has notified, or the Ministry has notified the 25% and 40% BCD. I think things have been made very clear to the industry how things would pan out.
Whatever tenders people have actually won in the last nine months, those have been considered done after considering those BCDs or taxes. The tenders prior to that have that as a clear change in law. In terms of projects which are going to get implemented in the coming year or in the current year of calendar 2023, most of those projects would have, we are assuming that those would have change in law as far as the BCD is concerned. Hopefully that won't impact the project pace too much. At the same time, there would be some capacities which is going to be available in the country for the solar modules and cells.
Those will help some of the production, some of the development assets which are being done by some developers where BCD may not be a pass through. Again, it's a developer specific situation, but we do not see too big an impact of that on the country's solar pipeline.
No, sir. What I meant was, post this implementation of BCD, either we import Chinese modules and the bids will go up, or we'll depend on the domestic modules. Do you think that the domestic module capacity is large enough to support the type of ambition or the targets that we are chasing? Will we be continue to be dependent on Chinese modules till our domestic capacity increases? Is that a fair understanding and hence the prices will go up?
The good part is, as I mentioned to you, is for this year, most of the projects which are going to come up would have change in law available for the Chinese modules when those are imported. Now, going forward, there is significant capacity which is being expanded in the country, which is expected to come in by end of this year or early next year or mid of next year. You would see some of those getting expanded. Our own capacities, we are increasing significantly in terms of our sister company expanding, and they are putting up their own 2 GW capacity, which should from the modules which are already online, and very soon the cells will be available online.
There are other players in the industry which are further expanding their cell lines and module lines. I think when it comes to next calendar year, there would be sufficient capacity available. Again, it finally depends on how everyone is able to unlock this opportunity to set up the manufacturing facilities in the country, which is the push from the government side. Yes, there could be some supply situations probably early next year when some of this transition happens. In terms of tariffs, I'm not expecting too much of an impact of BCD in the tariffs, because some of the projects recently which has been bid out were inclusive of any potential BCD. I hope this clarifies.
Yes, sir. Thank you so much for the explanation. Second question is regarding our sister concern's green hydrogen foray. Right. We understand that the group has set up entity within Adani Enterprises. Now, what we need to know from you is, will Adani Green be tapped into for supplying the renewable power? A. B, what type of arrangement will be that, if that happens, the IRRs or the ROEs over there. And C, are we also looking to foray into storage now, given that a lot of new storage tenders are on the anvil?
Breaking into two parts. One, in terms of the green hydrogen story, I think still it is evolving. As the government pushes the green hydrogen mandate in the country, that would potentially decide how the businesses are structured. I'm unable to comment too much on what the AEL would do. At the same time, yes, it's a big opportunity. As of now, it is very early to say that what would happen in future as the opportunity crystallizes. Because it would finally depend on what government wants to do. Now, coming to your battery thing. Again, as we understand, battery or the storage capabilities is something which will be of great use to the grid when those become economical.
Today the kind of cost which we have for a battery storage does not makes it I would say uncommercially viable in a manner where it can be deployed in a significant way. There would be certain tenders which would come in. NTPC has come up recently with a tender. SECI might also come up with a tender, which are more test tenders. In future, probably three, four, five years down the line, the battery storage may make some sense for the stationary storage purposes. As of now, I think the entire battery ecosystem which is being talked about is for the electric vehicle or passenger vehicle segment.
Right. We are not looking into pumped hydro?
We continuously look at multiple segments whether it is pumped hydro or floating solar or other avenues as well. I think from that perspective we would tap in those opportunities as we believe when we believe those are available and commercially viable. We have been working on this for a good time, actually.
Okay. Thank you so much.
Thank you. Ladies and gentlemen, to ask a question, please press star and one. The next question is from the line of Nitin Tiwari from YES Securities. Please go ahead.
Good evening, sir. Thanks for the opportunity. My first question is, as everyone, and pardon my ignorance on that. Is the customs duty which has been raised on solar import or solar modules or import of solar cells or on both?
Hi, Nitin. The duty, which as we understand, has been, is on solar cells at 25% and on solar modules at 40%. Those are currently applicable only after April 1st, 2022. As of now, there are no duties. Yes, from April 1st, 2022, this is what the duty structure would be.
Right. The 2 GW capacity that we are planning, so that would be manufacturing solar modules or that would be manufacturing solar cells as well?
Both.
Both. Okay. Basically, it will be a backward integrated solar module facility where you won't be dependent on imported solar cells as for manufacturing of modules, right?
That provides that option to us in terms of sourcing product from this sister company, which is producing 2 GW. Apart from that, they already have close to 1.5 GW of facility, which is also cells and modules.
Understood, sir. Sir, the PLI scheme that has been introduced in this budget with respect to solar modules manufacturing has often been spoken about. If you can just throw some light and help us understand that how that scheme is going to help, basically a company like ours or the sector as such. If you can just help us understand that a little bit.
Sure. Government of India had come up with a PLI scheme earlier part of last year where allocation of some INR 4,500 crore was done as a PLI for capacities to be set up in India. Where a preference was given to people who would set up capacities from polysilicon to modules. Then stage-wise second preference to ingot, wafer and cell & module. The third one is cell & module only. Based on which a tender was called during the third quarter of last year. Lot of people submitted their interest and their bids as part of that particular tender.
Close to 52 GW, if I remember right, was the total subscription which was done by various people for those capacities, depending upon the bidder. Level of integration was different, but those capacities to be set up over the period of next two-three years. Now, for that capacity, the initial allocation available was only INR 4,500 crore. If this INR 19,500 crore, which has been allocated by the in the budget, if that is given to those particular bids, then this entire 50+ GW of capacity would be eligible for getting the PLI. That is, let's see how it pans out. If this gets allocated, you will see that over the course of next two-three y ears, most of this 50 GW will get implemented.
For people like us, we had bid for, or our sister company had bid for 4 GW of capacity, starting from polysilicon to ingot, wafer and cells and modules. This capacity is over and above the 3.5 GW capacity I have already spoken.
Okay. Understood. Great, sir. Thanks for answering those questions.
Pleasure.
Thank you. Ladies and gentlemen, to ask a question, please press star and one. The next question is from the line of Mohit Kumar from DAM Capital Advisors. Please go ahead.
Yeah. Good evening, sir. Firstly, what is the capacity likely to come in FY 2022, in the Q4 FY 2022 and FY 2023, FY 2024 and FY 2025 based on our pipeline as it stands today? That's the first question.
Mohit, we are expecting that by year-end, we should be close to around 7,500 MW-7,700 MW as an operational one. That is what is on a yearly basis, normally, our plan is to add approximately 1 GW- 3.5 GW.
Okay. What is the pipeline, the portfolio as it stands today? Is it around 10 GW? Is that a fair number?
We have a total 20 GW of projects on hand all put together, out of which 5.4 GW is operational.
Do you have a PPA for the entire portfolio barring that 2 GW?
Yes, we have a PPA for all the portfolio.
Barring the 2 GW which is pending, correct?
Yes.
Okay. Secondly, sir, given the module prices has been on a different trajectory in the last 12-18 months. Does it affect our project IRR in the sense how do we protect ourselves, especially from the prices of freight, prices of module and the freight?
Mohit, as a part of our capital management program, we have a great relationship with the various suppliers and we are able to open the letter of credit well in advance. In majority of the cases we are not having a hit of this increase in the prices. Having said that, yes, in some cases we have a impact of around 5%-7% kind of an impact. You know, because of our efficient capital management program and the saving in other components of the overall project cost, we expect that there will not be any material increase in the project cost which will happen.
Sir, [audio distortion].
Sorry, just to add. What we have been able to achieve over the years is that, okay, fine, when we bid for a particular project we have a technology roadmap which we consider. Over the years now we have been working significantly on adopting various technologies. We have been able to improve what the entire generation would be, what the BoS structure would be, what the methodology would be. With all of that we have been able to save not only in terms of cost, but also on the generation side or O&M side, plant availability side. All of that actually helps us after we win a bid to further improve our returns.
This kind of an impact where there is a market related impact which we could not do much except ensuring that our relationship with our strategic suppliers ensures that we still get one of the cheapest module in the market. We are able to take those cost of 5%-7%, but at the same time mitigate that through various other measure, including the capital management program. Sorry, I just thought I'd add.
Sir, one more clarification. I think in the earlier you know I think couple of years back you used to say that [audio distortion] . Our bidding parameter is CapEx by EBITDA, and the number you are targeting is 6.5-6.
Does the number hold true right now in the current scenario?
With the changes in the entire capital market, obviously, Mohit, what has happened is the interest rates have gone down significantly than when we used to talk about 6.5 EBITDA as our aim. At the same time, the cost of capital for this particular industry has also gone down. We have moved up a bit in this case, but we are still significantly earning 2%-2.5% higher than our competitors when it comes to equity IRRs in our projects. That we are ensuring, which is coming through various initiatives which we have taken, some of them which I have spoken with respect to technology, O&M and all of that.
As well as our land capabilities in terms of securing them in advance as well as the EPC capabilities.
Sir, on the financial side, the EBITDA has increased QOQ by roughly INR 100 crore, while the interest cost and depreciation, I think, has increased by INR 200 odd crore. That's a loss of INR 100 crore additional, in the sense, the negative impact of the acquisition. Is that the right way to think about it? Will that number continue or do you think this number will reduce going forward?
No, I'm sorry. Can you come again?
My question is at QOQ. If you look at QOQ, our EBITDA has increased by INR 1.2 billion, right? QOQ.
Uh.
While the interest costs have gone up by INR 2 billion, right? Roughly. I think there's some part also Forex, but yeah, the number is.
Mohit, let me just explain you that QO Q technical comparison also will not be right. W hat is happening is that if there is a seasonal impact as far as the CUF and other stuff is concerned, if you compare the Q3 with the Q3 of last year, then you will have a better idea compared to Q2 versus. Because Q2 normally we have a good numbers available all the time, every year. Q3 will be because of this extended monsoon and other stuff, so EBITDA will be slightly lower. Now, this quarter we have added the SB Energy portfolio, so that, we are stabilizing the asset and putting up that, increasing the EBITDA margin. We are working on particular piece.
Some of the assets are into the solar park where we have to pay t he lease charges and other things which was not there in case of Adani Green. There is a marginal cost increase in on the O&M front in that sense. We are working out how we can optimize the other part of the cost in that particular piece. As far as the interest cost is concerned, we have the cost increased because of the SB Energy portfolio, which has been added. That's an addition of around INR 105 crore. And then there were other portfolio also last year, which we have added. That also has increased the cost of borrowing.
Some of the borrowing at the whole level, which has, you know, net of capitalization that is increased. Overall, this is within the range only.
What are the efficiencies of their, if possibly so in the SB Energy portfolio, was it not been maintained optimally? Is there any chance to increase the PLF and reduce the cost materially?
Sorry, can you come back again? Your voice
For the SB Energy portfolio, what is the scope for increasing our PLF and thereby revenues? What is the scope for decreasing our cost?
Yeah.
Mohit, basically SB Energy, as we have been highlighting in our announcements also is already one of the highest quality portfolios that are there, in India. The annual CUF last year was close to 26%. Correct. It is already a good addition to the portfolio, and thanks to that, even our overall CUF has gone up on an overall basis. Yes, definitely with the synchronization of Energy Network Operation Center, across all the plants, there is some chance to further improve it, but it is already doing very well.
Mohit, for this plant, there's one difference which you would find between the two entities. One is that the SB Energy largely relied on third-party O&M contracts. That is where we have been able to introduce our own O&M people and similarly the ENOC capability, which has led to or which will further lead to reduction in the O&M cost. As you would understand that if there is a third party, the plant availability is measured in a particular manner. Some of those parameters which are not necessarily can be quantified between a contractor and a contractee. Those are the things which are multiple hygiene issues which we will be able to resolve when we operate these plants.
There will be some improvements, but at the same time, as Viral said, that on the generation side, since the plants were already operating at a really good level, the improvements may not be very significant, but we will be able to reduce significantly on the O&M cost. There is also a significant, I would say, the admin cost as well as the overall overall cost of the structure, which we have been able to take out and reduce significantly. That is again something which we will be able to do better than what SB Energy was able to do. These are the savings which will be part of our synergies when we talk about and will give us additional value than what was visible when it was part of SBEH.
Last question on my side. Is there a reason to tie up for longer term for our solar module requirement, given that our requirement is around 3.5 GW and our domestic capacity for solar cell will be far lower in the near term. There could be a mismatch between what is available and what our capacity we are supposed to put in the near term.
Mohit, one, as I said, a lot of our projects or I would say most of our projects which we are doing has BCD as a pass-through. Okay. That is number one. I'm not stopped from importing any modules. That is a de facto option I have available. But at the same time we understand that we will see how do we optimize these options. That particular flexibility is always there with us. There is nothing called shortage. We can always source. Number two, when we talk about the capacities, today, the arm of our sister company has 1.5 GW operating, 2 GW being commissioned as we talk. For the module side it is already commissioned.
For the cell side, it is getting commissioned in May or June this year itself, so the capacity goes to 3.5 GW. Apart from that, we are further implementing close to 4 GW over the course of next two and a half years. Net-net, without changing anything beyond this, the sister company would be setting up close to 7.5 GW of capacity. As far as that company is concerned, they would, we might become an anchor customer, but still they would have excess capacity.
Understood, sir. Thank you and best of luck. Thank you.
Thank you. Thank you very much.
Thank you. Before we take the next question, a reminder to the participants to ask a question, please press star and one.
The next question is from the line of Alok Malpani from DAM Capital. Please go ahead.
Hi, Vneet. Good evening. You articulated very well on how you are organizing and looking at this play, both from a control over cost of raw material, availability of the raw material, et cetera, et cetera, which is very well taken. In terms of debt, which is again a significant part of this play, and with this rising interest cost scenario globally, what is your thought process around hedging that?
Hello?
Hello. Vineet?
Yeah.
[Audio distortion], would you like to take that?
Yeah, yeah. I will take that. What we are doing is that, you know, as a part of our capital management program, we have three sources of the funding. One is that we have a LC limit which is available to us of close to $1.2 billion, now the cost of which is only 4.5%, including margin commission and discount charges. At the greenfield level we have that level of cost, which is the cheapest source which is available. What we have done is that if you recollect, we have tied up the construction facility with the almost 19 international banks, and it's a revolving construction facility.
We are very much in control of that particular program and we will be able to raise the funding from the banks at a very competitive rate. O n a full year basis, we are talking about 8.5%-8.45% when the projects becomes operational. once this becomes operational, post that we will take them through the international market through the bond. There we might have to sell out 20 basis points-25 basis points or let's say 30 basis points higher. This will be a you know full tenure bond of 20 years. that you know and the initial repayment profile will be very very low. most of the repayment will be tail-ended. as a result, the equity money will be available.
Internal accrual will be available so that this money can be used as an equity funding for our growth program. This is how we are planning to overall control the cost, number one, optimize the cost and then fund the overall projects also. If you understand, if we have today, let's say, INR 9,000 crore of LC limits. If I do six months rollover of LC running around, then I can easily fund around INR 18,000 crore at 4.5% for at least one year. You know, and the projects normally get operational between one and a half years. You know, there is a very competitive structure of capital management program which we have created.
This you are referring to U.S. dollar as a currency.
No. This is a Indian rupee LC facility which we have available with us, so we can open the LC in favor of the supplier.
No, I understand the mechanism. This 4.25% whatever you indicated is for INR, Indian rupees.
Yeah, for Indian rupees. Yes.
Okay. Understood. Thank you.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one. Participants, you may press star and one to ask a question.
Mohit, if we have no further questions, then we can close the call.
Thank you. As there are no further questions from the participants, with that, I would now like to hand the conference over to Mr. Mohit Kumar for closing comments.
For giving us this opportunity, thank you.
Thank you.
Thank you.
Thank you all the participants. Thanks a lot, and feel free to touch base with the investor relations team for any further questions. Thank you guys.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.