Tata Power Company Limited (TATAPOWER.NS) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Tata Power Q3 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Dr. Praveer Sinha, CEO and Managing Director of Tata Power, for his opening remarks. Thank you, and over to you, sir.

Thank you. Thank you very much, and good evening to everyone, and thanks for joining in the call. I have my colleague, Sanjeev Churiwala, CFO; J.V. Patil, Group Financial Controller; Kasturi, Chief Treasury; and from Investor Relations, we have Anshul and some of my other colleagues from the finance department. Before I share with you some of the salient features of the quarter performance, just to give you a little background, the power demand during the quarter 3 and 9 months for the last financial year has been, I would say, not very high, but has been nearly 7%, which is less than what it was the previous year. But I think when we look at both the demand increase in December and January, it looks like we will have a rebound in this year, especially with summer expected to be a little more warmer than last year. We do expect that our peak demand will be in the 270 to 280 gigawatt range, and we can expect a very large increase in the demand of power in the coming months. In last 9 months, we have seen huge capacity adds, especially in renewable space. And while our overall capacity has reached 514 gigawatt of installed capacity, nearly 45 gigawatt was added in this fiscal, out of which 38 gigawatt is renewable capacity. So huge capacity additions have happened. And we do expect that going forward, this momentum will be continued. Looking at the financial performance of the company for the quarter, we have given a very strong operational and financial performance with the EBITDA increase of nearly 12% year-on-year at INR 3,913 crores compared to the previous year. Similarly, the PAT has increased marginally to INR 1,195 crores despite Mundra being nonoperational for the quarter and having a substantial hit because of that. For the 9 months, the EBITDA has jumped 12% year-on-year to INR 11,874 crores as compared to INR 10,639 crores. Similarly, the PAT is up by 7% for the 9-month period to INR 3,702 crores. This quarter, what we have seen is many of our new businesses have come to age, whether we look at our solar cell and module manufacturing, where there has been a huge increase in our plant profit tax -- profit after tax, which has gone up to nearly INR 251 crores in the quarter compared to INR 112 crores last year. For the 9-month period, the plant has delivered a PAT of INR 592 crores, which is an increase of 154% compared to INR 233 crores in the last year 9 months. Similarly, our rooftop has done exceedingly well. We crossed 1 gigawatt in 9 months period. And in Q3, we executed in the previous year. In this quarter, we executed 372 megawatts compared to 173 in the previous year. The rooftop PAT has increased in the quarter to INR 111 crores compared to INR 60 crores last year. And in the 9-month period, it has gone to INR 324 crores compared to INR 110 crores in the previous year 9 months. Similarly, Odisha DISCOMs have done very well. The profit of Odisha DISCOMs has gone up to INR 226 crores in the quarter compared to INR 86 crores last year. And in the 9-month period, it has gone to INR 505 crores compared to INR 164 crores in the previous year 9 months. I think what is important is that many of our new businesses have now started showing results. And in the future quarters, they will further stabilize and produce much better results than what we have seen in the previous quarter. We also have seen that many of our other businesses, including the transmission businesses have started showing results. We were able to commission some of our TBCB projects such as the 400 kV Koteshwar-Rishikesh transmission line. Similarly, we were able to complete some of the other projects which were under implementation. And some of the projects will get completion -- completed in this quarter also. We also got a letter of intent in the last quarter for the Hinjewadi line, and we are expecting some more projects in this quarter also. Last quarter, we had a huge challenge because Mundra was not operating. We have been able to now conclude the arrangement with Gujarat on all the issues of the SPP, excepting one point. We hope that in the next 2, 3 weeks, we will be able to close that. And on a similar basis, we will parallelly start discussing with the other states so that we are in a position to start operation of the plant maybe by the end of this month as there is now a huge demand of power that is coming up, and we should be ready for the summer months requirements of these states. Work on all our other businesses, especially our PSP project in Bhivpuri and our hydro plant in Bhutan are going at full swing, and they will meet the time lines that have been set by us for both these projects. These are very ambitious time lines that we have set for PSP and the Bhutan project. And we are very confident with the pace of work that is going on that we'll be able to complete. On our distribution business, we expect that some changes will happen by way of the Electricity Act amendment. And we are expecting that once the Electricity Act amendment is put in the parliament for approval in this budget session, we will get many more opportunities on [indiscernible] licensing in the country. Similarly, we are expecting some more announcements on the distribution sector in next 6 to 9 months, whereby certain more states will come up for public-private partnership based on some of the other incentives and concessions to be provided to them, especially to states which have huge financial losses in their distribution business. We also expect that many of the new initiatives of the government, including nuclear power and all that will bring more clarity in terms of the technology transfer, in terms of sourcing of fuel. And in terms of the opportunity that will come up to set up these nuclear plants, especially the small modular nuclear plants in various parts of the country, for which we are in continuous discussion with the government, Department of Atomic Energy and NPCIL as also NITI Aayog so that these are put in practice quickly and some of the projects can start work in the next 24 months. We are always working towards improving our performance. And to that extent, you will see that our financial metrics are very, very conservative. And we continue in spite of the type of CapEx that we are incurring, we continue to have a net debt to underlying EBITDA of 3.4 and a net debt to equity of 1.2 and we expect that the type of calibrated growth we have will continue in future quarters also. So with this, I will hand over back to you for your questions. And me and my colleagues are here to respond. Thank you.

[Operator Instructions] We'll take our first question from the line of Mohit Kumar from ICICI Securities.

Congratulations on strong numbers in solar manufacturing and solar rooftop especially. My first question is on Mundra. Sir, of course, you are trying to resolve with the Gujarat and you will subsequently go to the other procurers. My question is till the time we get the final resolution from the other procurers, is it fair to assume that you'll be able to run the capacity, which you only linked to Gujarat and Delhi?

So this is all under discussion. We had a few months back the joint meeting of all the procurers, during which it was agreed that Gujarat will take the lead in finalizing the PPA terms. Now that the PPA is agreed with Gujarat is one point. They will be circulating this to other states and once we get their principle approval, we will try to start operating the plant and scheduling it to them based on their acceptance. So hopefully, in the next few weeks, we should be able to find out the comfort level of this other secure state and then we will start scheduling the power.

Understood. My second question is, sir, how do you think about the renewables capacity addition over the next 3 months? I think the target we have set for ourselves was 2 to 2.5 gigawatts, if I remember correctly. I think you added around 600 megawatts, if I'm not wrong, in the last 9 months. Do you think we'll still be able to meet that 2 gigawatt target?

So our target this year was that we will set up 2.6 gigawatts, which included third party and ourselves. We've already done 2.3 gigawatt, which includes third party and also it includes 900 megawatt of our own capacity adds. We have another 400 to 500 megawatts of projects, which we are pursuing, which we expect to complete in this quarter. And then we have projects which will come up in 2027, which wherein most of the projects will be our own because all our so-called third-party projects have got over, including SJVN and NHPC. So all these new projects that will come up will be catering to our own department.

We take our next question from the line of Sumit Kishore from Axis Capital.

When I look at the [indiscernible] of Q3 FY '26 EBITDA to Q3 FY '25 of INR 432 crores, it is almost entirely explained by the bump up that has happened in the Delhi distribution business. Although the Delhi distribution business has seen a 2% decline in power purchase and sale -- power purchase and sale, there seems to be some regulatory adjustments there, which has bumped up the EBITDA. So why hasn't it been properly called out in accounts in the presentation? And what are the details there? Because it seems to be explaining the whole growth for the quarter.

What you have to do is you have to see the increase in EBITDA considering that last year, we had an EBITDA impact from Mundra, where there was a positive EBITDA of INR 300 crores. That is not there this year, and that is being compensated from our rooftop business, from our manufacturing business and our Urja business. There is a one-off that we have got in Delhi DISCOMs because of the regulatory order that we got for cooling of a tariff for '22, '23. But notwithstanding that also, there has been increase in our existing portfolio of businesses, and that has helped us for the increase in EBITDA for this quarter.

That is very clear sir. The truing up amount has just become congruous in a quarter where you have had the big Mundra impact. What is the amount for the quarter?

Mundra, there are various provisions that we had to do. I think in the next quarter, when we do the complete true-up, we'll be able to give you the complete picture.

Okay. But what is the impact for 9 months that you have trued up in your numbers, if not the third quarter?

I think all put together, when we look at 9 months, it's closer to about INR 800-odd crores of losses that we have got.

Which is losses for Mundra?

Mundra only, yes. Because Mundra has been shut for 6 months now. And of course, when we -- the plant is shut, we don't get the capacity charges. And fixed cost is still there. So to that extent, the INR 800 crores have been booked as a loss.

This is at the EBITDA level or the PAT level?

At the PAT level because for Mundra and other thermal power plants, PAT level matters the most.

Okay. Asking is for Delhi distribution for the 9-month period, what is the true-up benefit that you have taken in numbers?

For 6 months, which again to your earlier point, we have been reporting that in the earlier quarter and this quarter. The total regulatory impact at TPDDL is about INR 344 crores for 6 months. We also had a similar true-up impact last year of INR 333 crores. That is there. Plus in the last year corresponding same period, we had the order impact for Mundra of INR 332 crores. All of them have been appropriately reported in the accounts.

It is still not clear to me. What is the benefit that you have booked in the third quarter?

You wanted YTD or third quarter only?

Third quarter only also because you're saying that the 6-month number was clearly mentioned. The third quarter number is not clearly mentioned.

The third quarter PAT impact is about INR 344 crores on TPDDL regulatory impact.

And that is flowing from revenue to profit? Or is there any other benefit at the EBITDA level?

No. So this is net of taxes, of course. So...

So the [indiscernible] EBITDA benefit is more?

Yes. So it's INR 460 crores at the EBITDA level.

How much? INR 464 crores?

INR 460 crores.

INR 460 crores, I heard.

In fact, it would be that the notes on accounts, Sumit, that's -- public disclosure around that. You'll get the full numbers.

Okay. That is clear. The second question is, typically, you have an elimination in the renewable cluster under others, which is a negative number. This time, it is a small positive number. So typically, our understanding over the last few quarters was that if you -- because you do know internal -- intra transfers, sales, there is some elimination. Why is the elimination positive this time?

So you're right, the elimination that is done, whether it's a positive number or a negative number, everything has to be eliminated. So whenever there is an intra transfer and there's some positive number, that is eliminated, so you see a negative elimination. And whenever there is an intra transfer loss, that is also eliminated to a positive number. So the idea is that -- at the PAT level, there's no impact. And this is basically a true-up on a quarterly basis. So the way you have to read it is net of elimination, when you look at INR 912 crores, let's say, you can look at the Slide #52, which has been uploaded, it shows the cluster-wise performance, the breakup is there.

Yes. I'm looking at the cluster-wise performance. So because you are doing projects which Tata Power is setting up on its own books, I'm assuming that part of the modules are going from your manufacturing facility to your own projects. So which is why the elimination needs to happen on consolidation because it is being consumed by your own entity. So why is the elimination a positive number?

That's what I'm saying. So if you look at the right, you have this genco, Solar EPC, TP Solar. So TP Solar would provide services to the genco in terms of supply of most. Similarly, the Solar EPC would also do the services for genco and as well as a third party. So of course, there are many, many projects within that. However, if any project is having a negative loss because of the contractual nature of the agreement, right, that also needs to be eliminated. So one of the projects could be a negative PAT margins for -- most likely for the Solar EPC, which now has been eliminated for positive INR 60 crores.

There was a loss which you have made in the Solar EPC business, which has been -- because the elimination has then become a positive.

As you can see Solar EPC overall PAT is INR 183 crores, right? It is positive. But let's say there are 100 different projects happening, which include in-house supply. So as per the accounting standard, any contract which even has a loss or in-house supply also needs to be eliminated. So as a result, that INR 60 crores is in elimination.

This is very clear. Just one last point. There's some positive impact for FGD recovery in Q3 and 9 months for Maithon, which also seems to be bumping up the number quite dramatically on a year-on-year basis in Q3 particularly. So what is that impact? That's my last question.

So we have commissioned the FGD for Maithon. And given that this is a regulatory asset, we are getting the regulatory returns. So that impact of that is about INR 15-odd crores, and you will see that recurring -- happening every subsequent quarters now.

So INR 50 crores in every quarter it will come?

15, 1-5.

INR 15 crores.

We'll take our next question from the line of Apoorva Bahadur from IIFL Capital.

Sir, you briefly mentioned about more opportunities on the distribution business from the PPP side, possibly due to some sort of a package for the DISCOMs. Can you give some more color on that? What sort of package are we foreseeing over here?

So there are many states who have huge financial losses. And so some of those states will be given the opportunity of a long-term loan at 0 rate of interest. And -- but there will be certain caveats in terms of they need to go for PPP and only against that, they will be given. So those are states which are already identified in terms of the type of financial losses they have. And it is expected that once that is announced, we will have a few states who would be availing that opportunity and going for PPP.

So when should we expect this? Around -- any time lines?

I think in the next 6 to 9 months, this should happen.

Okay. Understood. Sir, also wanted to sort of understand our strategy on the rooftop side. Commendable, I mean, the improvement that has happened in the growth and profitability. But has it reached some sort of peak revenue or a peak profit? Or do we foresee more growth here? And secondly, any plans of cross-selling more, especially on the storage side?

So this is tip of the iceberg, I would say. And the opportunity is phenomenal. And what we are seeing is against the Prime Minister Surya program, 1 crore houses were supposed to be done. We've already done only 25 lakhs. So there is a huge number. In this budget, another 50 lakhs have been added -- 5 million has been added. So there is a huge opportunity with the type of financial support that is being provided. Without the financial support also, we are finding that a lot of C&I customers are also going as -- also customers who want larger capacities, 10 kilowatt and above. So I think this is a business which is going to be there for a very, very long term. We would also find that people will -- those who have put up smaller capacities will augment it in future based on their increase in energy requirement. And this business, I do feel is something which is very futuristic and very -- will keep on improving going forward.

Okay, sir. Sir, lastly, one theoretical question. Now that we are close to solving Mundra in terms of the supplemental PPA. In case the government again sort of implements Section 11 because the last time it implemented, it was not just for Tata Power, but for all the imported coal-based assets. So does Section 11 supersede the supplemental PPA? Or will we be kept out of the purview?

Section 11 is imposed when there is a shortage of power. And hopefully, before that happens, we should be in a position to close this arrangement because this power is required by all the secular states and if they go for Section 11, they have to pay more. So it makes more sense for them to go ahead and finalize the FCPA rather than going to Section 11.

[Operator Instructions] The next question is from the line of Puneet from HSBC.

My first question is you talked about one point which is missing in Mundra. Can you elaborate where is the point of difference still?

There is one point. Let's wait for that clarity to come from the government and we will be able to clear it.

Okay. Secondly, on the Delhi distribution side, there was this talk about reducing regulated assets. But in this quarter, the number has gone up again. Any progress that you're seeing there? Or it's a slow outlook?

So the regulatory asset per se has gone down. But what has happened is that there is one more order that has come -- the true-up order has come for '22, '23, which has given another INR 400 crores additional regulatory asset to the company. So that's why it's looking high. But in actual during the quarter, it has come down by INR 460 crores. It has come down by INR 460 crores.

Okay. Understood. And lastly, if you can talk about which are the big renewable projects that you will commission in FY '27?

Which are the...

Yes, projects which will come in...

I think some of the Tata Steel projects, we already commissioned the 198 megawatt wind project. There are some more wind projects which will get commissioned in this quarter. So I think many of the wind projects will get commissioned and also some other projects will get commissioned between this quarter and the next quarter.

Understood. And what should be the run rate for the year that we should assume for your own and separate [indiscernible].

This year, we will do something like another 500 megawatts. But next year, the so-called 2.5, we will do 100% for ourselves.

Okay for FY '28 onwards?

Right.

We'll take our next question from the line of Ketan Jain from Avendus Spark.

Congratulations on a strong performance in rooftop and module manufacturing. Just on the rooftop side, what's your outlook on the rooftop addition in India? I think year-to-date, we have added around 7 to 7.5 gigawatts. Will it continue going forward in '27 and '28 -- '27 and '28?