Good return opportunity in solar module: Tata Power

“Well, these losses are primarily because of the other aspects relating to depreciation and also in terms of Ind AS 115. So in terms of operating profit, Mundra has made operating profit in terms of EBITDA, it has made profit,” says Dr Praveer Sinha, CEO & MD, Tata Power.



RK Singh over the weekend told us that power is the game in town. I am sure you would concur with that.

Yes, I think so. I think the way the demand has been growing up, there is a huge surge and we expect that to meet the demand, lot of capacity addition will happen in the next few years.

Okay, capacity addition will have to happen if you have to meet that growing demand. But I wanted to come back to the earnings this quarter and Mundra plant reverted to losses this time despite section 11 at play. What explains that and do you expect these losses to continue in Q4, Q1 as well?

Well, these losses are primarily because of the other aspects relating to depreciation and also in terms of Ind AS 115. So in terms of operating profit, Mundra has made operating profit in terms of EBITDA, it has made profit. But because of these aspects about the depreciation and also because of the Ind AS requirement, you have seen the losses, which is a nominal loss.

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Okay, fair enough. Let us also talk about coal prices, which have fallen 81% understandably. But what is the outlook on coal prices? If you can share any insights, any update on plans to monetise the coal mine portfolio?

Our coal mines have been doing very well, they continue to perform at a very high capacity. Of course, the prices have now stabilised, it has come to a level of around $120 for 6500 kcal coal. And we expect that this is an area where not much of a hike will take place in the coming quarter, because there is a good demand supply match that has been seen. And we expect that whatever profit that we have seen in the coal mines in the last one year that will virtually stabilise going forward.

What we want to understand is that you would cut your FY27 PAT guidance, right. A, why is that? And then what are the revised targets? Because it seems like it was a sizable cut.

I do not think we have cut our guidance for FY27. We still believe that this is a guidance that we will very much achieve. And if you see now, three years back, we had a profitability of only 1400 crores, leave aside the exceptional items. This year in three quarters itself, we are 3000 crores. So I think our profitability has increased by nearly three and a half times in the last three years. And we expect that this profitability will also double from the guidance that we had given in 2023 to double that number. And we are on track to achieve that. And you have seen that how our profitability has now stabilised. And this quarter, the satisfying thing is that our profitability has come from coal businesses. Unlike last year, where a lot of it came from the coal business which was a one time. And going forward, you will see all our businesses that is transmission distribution generation will continue to contribute. In fact, this quarter, 71% of our profit has come from our transmission distribution and renewable business. So I think we are doing very good in terms of consolidating and ensuring that our core businesses start giving us the profitability and thereby, it can be sustained in the long run.

Okay, point taken. The reason we ask you that question is because in your earlier presentation, you had talked about how from FY22 levels, where the profitability was 2300 odd crores, you are planning to make it 4x, which comes around 8000 to 9000 crores versus the latest presentation, where the profitability is 3810 and you are expecting it to be 2x. So a little lower than what it was in the earlier presentation. But I think it is a small number at that. But I wanted to come back to the focus on the international businesses as well, because there was this maiden dividend from Zambian unit that came this time. And that supported the profits as well. Do you expect this kind of contribution to continue? And is this a fundamental asset for you that you would want to hold on? Are you looking at probably divesting a stake in some of these international assets?

So as you were aware that the Indonesian asset was not performing well, and because of the challenges in the asset, we had taken it up with the government. So all our old payments, which is due to us, which is nearly 150 million dollars, 50 million has been received and the balance 100 we will get in next 12 to 18 months. Otherwise, this asset has been doing very well, because of the challenges in Zambia, we could not get the payment from the buyer of the power and also because the currency issues were there. Now that that has been sorted out, the plant is operating very well. And we will expect dividend flow from the operating plant as well as the old payments which are due to us, which we will receive in next 12 to 18 months.

But since you talked about the Zambian unit, do you actually see a sustained contribution coming in from there?

Sure, in the operating plant, we will get the sustained returns, apart from the old outstanding payments which will get paid in the tranches over the next 12 to 18 months.

But I also wanted to shift focus and talk about your the captive solar module factory that you are going to commission very soon. I think part of it has already started, but the actual production is expected to start from Q2 of this calendar year. Could you talk to me about what kind of production are you envisaging and will it be 100% captive only because the prices in the external market has plummeted quite a bit.

There are two parts of it. One is the manufacturing of plant, the module plant of four gigawatt out of which three has already been commissioned and the production has already started last week and it is now getting stabilised. So, we will definitely start seeing some returns in this quarter from the module manufacturing plant. The cell plant will get ready by first quarter of next financial year and it will stabilise by the second quarter.

The cell plant output we will start getting from the next financial year. But the module plant is already operating and we will be supplying to our existing projects whether they are group captive projects or those are utility scale projects or even for that matter for our rooftop business.

I think we are doing very good on the manufacturing facility and this is one of the fastest which has come within the country. The second aspect is the low cost of imported modules. As you are aware that the ALMM is only applicable till 31st March and import beyond that will not be allowed for utility scale projects and some of the other projects. So, I think we have very good opportunity to supply to the domestic users as well as to large projects which have the requirement of domestic component. So, the financials of the manufacturing plants are very well structured and we do expect that we will make good returns on this investment.

On the net debt front, it had come below the mark of 40,000, but given the kind of capex you have lined up, what is the number that we should expect going forward on the net debt and secondly with respect to the EV infrastructure, the government is also planning to electrify the highways as well. Would you be a strong contender for that, making the highways into e-ways?

Absolutely. First of all, on the EVs, we are the biggest player. We already have EVs installed at various locations right through the country and we have nearly 55% market share. And when you drive intercity, whether it is from Srinagar to Jammu or Jammu to Delhi, you would find our EV chargers. Similarly, between all major cities, we have EV chargers. So, we will play a very-very important role based on the government rollout plan. Secondly, all our businesses you would see will start giving very good results, having seen the type of investments that we have made in the last few quarters and whatever is planned in the next few quarters, our financial metrics whether it is the debt equity or it is the debt EBITDA will also be within the prudential norms. Today, we are at debt-equity of just one and even with the high investments that we are planning, we will not be crossing the 1.5, plus the internal accruals that will come from our existing operations will also support us in ensuring that our financial metrics are met. So, I think we are in a very good situation considering infrastructure company and many of our investments also will start generating revenue in the coming years.

I think the Street was a bit disappointed about the pace of capacity addition that we have seen in the renewables business. Are you expecting a pickup soon? Was it just a momentary delay or there has been some shifting of plans because of which your renewable portfolio has not jumped up to the level that you had earlier envisaged?

We will surprise you with what we will do in this quarter in the Q4 where we have nearly 1.2 gigawatt of projects lined up for completion and also in the subsequent quarters in Q1 and Q2 of FY25. As you are aware, there was a huge increase in prices in imported modules last year and that is why we had deferred some of the projects which I think on hindsight was the right decision, considering that the prices have come down in the last six months and we will take the benefit and implement most of the projects in the next two to three quarters.

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Roy Walsh

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