ReNew Energy Global plc Q2 FY2023 Earnings Call

Thank you for joining us for the ReNew Power Second Quarter 2023 Earnings Conference Call. I will now hand the conference over to Mr. Nathan Judge. Please proceed. Thank you, and good morning, everyone, and thank you very much for joining us today. On Tuesday evening, the company issued a press release announcing results for its fiscal second quarter 2023, ended September 30, 2022. A copy of the press release and the presentation are available on the Investor Relations section of ReNew's website at www.renewpower.in. With me today are Sumant Sinha, Founder, Chairman and CEO; Kedar Upadhye, CFO; and Vaishali Sinha, Chief Sustainability Officer. Sumant will start the call by going through an overview of the company and recent key highlights. Kedar will then go through the results, followed by an update on ESG from Vaishali. And then we will wrap up the call with Sumant discussing our guidance for fiscal year 2023. After this, we will open up the call for questions. Please note, our safe harbor statements are contained within our press release, presentation materials and available on our website. These statements are important and then to grow to all our remarks. There are risks and uncertainties that could cause our results to differ materially from those expressed or implied by forward-looking statements. So we encourage you to review the press release we furnished in our Form 6-K and presentation on our website for a more complete description. Also contained in our press release, presentation materials and annual report are certain non-IFRS measures that we reconciled to the most comparable IFRS measures, and these reconciliations are also available on our website in the press release, presentation materials and annual report. It is now my pleasure to hand it over to Sumant.

Yes. Thank you, Nathan, and good morning, good afternoon or good evening, everybody, depending on where you are. Let me dive right into the presentation itself. Starting on Page 4 of the presentation. Our core operations fundamentally remain on track, and through the first half of fiscal year 2023, we are in line with our internal targets, excluding the contribution from the 528 megawatt acquisition, which is in process. For the first half of the year, revenues and EBITDA grew more than 20% year-on-year, in line with robust expansion in our commission capacities, bringing the total to 7.7 gigawatts of operating capacity. The total capacity under construction currently is 5.7 gigawatts, which is targeted to be operational by end of the next fiscal year, and that brings our total portfolio size to 13.4 gigawatts currently. Our revenues from customers rose 28% year-on-year in the first half of fiscal 2023 and cash flow to equity increased by 48% in H1 from last year due to higher revenues from operating capacities and improving days sales outstanding (DSOs). We are making good progress on our accounts receivables and are seeing regular payments coming in from the state distribution companies that have the highest amount of overdues, and Kedar will cover this in greater detail in his section. On to signing of new Power Purchase Agreements (PPAs) on Page 5. We signed 1 gigawatt of new PPAs this quarter, and we have also derisked our growth as only less than 1.5% of our 13.4 gigawatt portfolio now has pending PPAs. That's less than 1.5%. The corporate PPA portfolio itself grew 41% from Q1 and is now at 1.5 gigawatts, almost 247% higher than the prior year with many additional conversations occurring right now, which we would hope to convert to firm PPAs in the coming months. We have signed more than 400 megawatts of corporate PPAs in the quarter ended September 30, and our customers include well-known companies such as Amazon, Suzuki, Mahindra and Toyota. We believe that this shows our differentiated advantage in this business segment. Corporate PPAs offer higher returns than claims under our renewable energy projects given higher barriers of entry, our ability to partner with corporate customers, and provide them energy sooner than our competitors. We are currently having discussions with many corporate customers, and we do believe that ReNew will have a 4- to 5-gigawatt corporate PPA portfolio by 2025. Overall, the growth environment remains bullish as renewables continue to be the lowest cost option for new power capacity in India, and this can be seen on Page 6. Increasingly, our customers are seeking complex power solutions that can be delivered consistently over the full year, and we have built this expertise by offering a full suite of renewable products overlaid with digitalization and proprietary AI technology. We believe this is a truly differentiated offering in the renewable sector. Given the need for electricity to be delivered around the clock, we have seen increased interest in our intelligent energy solutions. We expect that over 5 gigawatts of auctions for complex projects will occur over the next several months, with another 8 gigawatts under discussion at SECI. There is over a 100 gigawatt opportunity by 2030. Now keep in mind very importantly that 1 megawatt of RTC Power actually requires more than 3 megawatts of renewable energy power. The addition of 3E, which I'll talk about, provides even greater differentiation to our offerings. Our operational expertise across the renewable energy technologies combined with a leading digital platform provides us capabilities that few have, and this can be seen in how few bidders are participating in the complex RD solution auction relative to the Plain Vanilla projects. This continues to present opportunities for higher-than-average returns and our most recent 300 megawatt hybrid win is evidence of this. In this context, I will now speak more about our new growth initiatives. We have signed definitive agreements to acquire shares of 3E, which is a leading European SaaS platform that enhances renewable energy asset performance through analytics and AI. The transaction should be completed in two stages of 40% now and 40% in 2024. 3E currently already has about 20 gigawatts of assets under management. As we see the energy complex today, efficiencies through digitization will be key to continued differentiation and higher returns as Independent Power Producers (IPPs) increasingly require customized products. We have tremendous confidence in the company and have been using 3E's state-of-the-art software for our own assets for the last four years. The 3E platform, along with our internally developed digital capabilities built over years of experience, we believe will make 3E a worldwide leader in asset performance management for solar, wind and storage assets. There are many global opportunities for this digital platform that can enhance our returns for the incremental capital that we are putting into this investment. We continue to pursue enhancing the returns on your capital that we deploy through capital recycling. We have recently entered into a partnership with Norfund, the Norwegian government investment fund, for developing countries, and with KLP, Norway's largest pension company, to co-invest in our transmission projects, and they have signed definitive agreements to invest in the very first project. Our investment in transmission projects is synergistic to our renewable energy project development and further enables higher returns from our core renewable energy business. As we have built over 6,800 kilometers of transmission lines over the past decade, long distance transmission is a natural extension of our core capabilities. By taking on the execution of transmission lines that connect with our own RE projects, we are able to bring on these renewable energy projects sooner with greater predictability and allow us opportunities to capture additional revenues from our renewable energy projects in the power markets. On our initiatives on green hydrogen, you may have seen yesterday's announcement on the signing of a framework agreement with the government of Egypt to set up a green hydrogen plant in the Swiss Canal economic zone. As per the agreement, a final investment decision will be made over the next 12 to 18 months. This project is scheduled to be implemented in phases, the first of which is a pilot phase to produce 20,000 tonnes of green hydrogen along with derivatives annually. In the next phase, the production of 200,000 tonnes per year of green hydrogen along with derivatives will be achieved, thereby bringing the project's total green hydrogen production capacity to 220,000 tonnes per year. One risk that we are frequently asked about is inflation risk to CapEx as well as security of supply, which is discussed on Page 7. We believe that we have managed this well, and there is limited risk to our CapEx budget at this point. We have locked in turbine prices, so there is essentially no material exposure on this front. We continue to build module and cell manufacturing facilities that ensure supply at an advantage cost relative to imports for future growth. Even if module prices were to rise by 10% from today's level, our CapEx has only changed by about 3% to 4%. As most of our wind turbine prices are locked in, there is essentially no material exposure on this front. We continue to expect that in our new projects, we will deliver project-level equity IRRs within our targeted range of 16% to 20%. If any additional new project has an expected IRR below our minimum thresholds, we will simply not proceed. We will remain disciplined with your capital. With that, I would like to turn it over to Kedar to go over the latest quarter's financials. Kedar, over to you.

Thank you, Sumant. Very good morning, good afternoon, and good evening to everybody on the call. Turning to Page 9. As we have highlighted many times over the past year, we have been focused on improving collections on the overdue receivables from the state distribution companies, and we are pleased to announce that we have made significant progress in this regard. The quarter 2 FY '23 DSO improved over a month compared to the end of Q2 last year as the DISCOMs that have been late on payments, almost 50% of our receivables, have now been making payments. Normally, there is a seasonal increase in DSO in the second quarter, but this year, DSO actually improved from quarter 1. The Andhra Pradesh DISCOM, which represented about 42% of our overdue receivables as of March 31, agreed in June 2022 to pay its past due over the next 12 months in equal monthly installments, and they have made about 4 payments out of 12 so far. The other states that were late have also been making payments. We continue to expect substantial improvement in our DSO by year-end. Through November '22, Andhra Pradesh, as I mentioned, has made 4 out of 12 payments to clear its past balances, and other states, including Madhya Pradesh, Telangana, Karnataka, and Maharashtra, are also making up past due payments. In fact, we improved our cash position by $60 million in the second quarter through better collections in a quarter that normally sees higher accounts receivable balances. It is worth emphasizing that DSO should fundamentally improve over time as an increasing percentage of our sales will be to the central government and central government-owned SECI, which pays its bills promptly. Today, with 7.7 gigawatts operating, about 50% of our assets are with five DISCOMs that have relatively higher DSOs. As almost all of our committed projects are with SECI henceforth or with corporate customers, the exposure to these five DISCOMs will fall to about 33% by the time we complete our 13.4 gigawatts portfolio. This customer mix shift would represent an increment of 55 days in our overall DSO just by itself. I'll now move to Slide 10, which provides highlights of the fiscal second quarter of 2023. We added 75 megawatts this quarter to bring the total to 7.7 gigawatts operating. We signed another 1 gigawatt of PPAs, which brings the total under construction to 5.7, most of which should be operational by the end of next year. Our revenues from customers rose 28% year-on-year in the first half, and cash flow to equity increased 48% compared to last year due to higher revenues from operating capacities and improving DSOs. Turning to Page 11, which provides a reconciliation of adjusted EBITDA in Quarter 2, which stands at INR 18.2 billion. The wind source followed a different pattern this year, where there was more production in April and May compared to this year, but plateaued at this level in Quarter 2. We would also point out that there were some impacts of timing related to carbon credit sales and other items. We recorded revenues related to this in the second quarter of last year, but expect the majority of our carbon credit sales to be recorded in the second half of the current fiscal. If this had been taken out of 2Q last year, EBITDA would have increased about 9% year-on-year. Turning to Slide 12. We continue to execute multiple initiatives on the financing front and repaid a $300 million bond this quarter. We had USD 1 billion of maturity in FY '23, of which the majority has already been repaid through various refinancing initiatives. Slide 12 also provides a source and use reconciliation statement and our funding plans. We are in a very strong position with almost $780 million of cash on our balance sheet and anticipate that we should raise a similar amount to internal cash flow, capital recycling, and improvements in working capital by FY '25. With regards to our CapEx, our internal accruals and capital recycling is more than the equity requirements of our planned 13.4-gigawatt CapEx that we are seeing from lenders. It also gives additional capacity to grow further without any need to issue new shares, which is not in our current plan. Given our ability to finance projects with 75% debt combined with cash flow generation and capital recycling, we anticipate that we will have more cash on the balance sheet after the completion of the 13.4 gigawatts than we currently have. With regard to interest rate risk on Page 13, it is worth noting that inflation in India is under control and well below levels seen in the U.S. Long-term interest rates in India are more competitive than what is generally seen globally. We have meaningful additional borrowing capacity available, and we believe we can fund all our growth in our current plans domestically. We are currently being offered rates for refinancing of around 8.5% to 9% in INR terms, which is below the average interest rates on debt maturing over the next couple of years. Our interest rate risk is also limited with fixed rates on 73% of our debt, and a 100 basis point increase would only impact our FY '23 cash flow to equity by around 2%. Despite the increase in interest rates, we still expect to refinance the debt that is maturing at rates that are lower than our current prevailing interest rates. We have been capitalizing on the refinancing saving opportunity this year, and we are on track to refinance more than $11 billion, which also shows our ready access to affordable capital. With that, I'll turn it over to Vaishali to update everyone on our ESG initiatives. Thank you.

Thanks, Kedar. Hello, everybody, and thank you for joining us today for the earnings call. Can we go to Slide 15? This year has been an interesting year for us from an ESG perspective as we ramped up our efforts significantly, and we disclosed our efforts in our sustainability report for fiscal year 2022. As our community members are important stakeholders, I'm delighted to share that we released the report at one of our CSR sites in Rajasthan in the presence of the local community and ReNew's Global Board. The sustainability report is aligned to GRI standards and TCFD guidelines. Given our NASDAQ listing, it is also aligned with SASB. The report has been titled 'Partnering for Transition, Progressing Sustainably, Prospering Together' as we believe that this sums up our approach towards sustainability very aptly. In line with the idea of progressing sustainably, we have restricted our carbon intensity of electricity generation to just 32.83 grams of carbon dioxide per kilowatt-hour, which is 95% lower than the Indian power sector average and 94% lower than the global average. Through our clean energy operations, we have avoided 11 million tonnes of carbon dioxide and generated electricity, which is enough to power 4 million Indian households. We've deployed robotic dry cleaning, which has enabled us to save 216,000 kiloliters of water, which is enough to serve the daily consumption of 1.6 million Indians. With a view of partnering together with our employees, suppliers, and communities for a carbon-free future, ReNew has taken up the following initiatives. We have derisked our supply chain from sustainability-related risks and have released the sustainability code of conduct for suppliers, which is available on our website for you to see. Our employee strength has also grown by 38% compared to last year, which reflects ReNew's aim to be the employer of choice. ReNew has a target of achieving 30% women through multiple initiatives such as recruitment, mentoring sessions, and awareness sessions with senior experts, including our Board members. Safety trainings conducted over the past year have increased by 41%. At ReNew, our mission is to contribute to addressing climate change through impactful, scalable, and market-driven solutions to create a sustainable and equitable future. We are also in the process of finalizing a decarbonization plan for our operations, which will be disclosed in the coming months. Apart from this, ReNew has disclosed Scope 3 emissions across all applicable categories for the first time in our sustainability report. With respect to community engagement, we aim to impact over 2.5 million lives by 2030 through various community development initiatives across women empowerment, youth engagement, providing access to clean electricity, and climate literacy. All of these are in alignment with various and a few others. ReNew is also a signatory to UNGC and UN Women Empowerment Principles. This takes me to the last but most important aspect of partnering for transition. ReNew has always believed in the power of collaboration and is building synergistic relationships with like-minded institutions like academia, think tanks, and industry associations to serve a common purpose in the fight against climate change. Can we go to Slide 16 now? Additionally, we have also disclosed our targets across ESG parameters like we have validated – as we have been validated as carbon neutral for Scope 1 and 2 emissions for the second consecutive year. We have achieved 30% diversity at the Board level. We have submitted our GHG reduction targets to SBTI for validation. We have impacted the lives of 650,000 people across 10 states and 250 villages through our social responsibility programs. We have rolled out human rights policy and approach notes on circular economy and biodiversity, which are all available on our website. We will be disclosing the progress across all these targets in the coming sustainability reports. I will now turn it back to Sumant for closing remarks and guidance.

Thank you, Vaishali. With regard to our guidance outlined on Slide 18, the core operations of the company continue to execute as expected this year. As we mentioned earlier, weather has been a headwind year-to-date, but we provided for this in our initial FY '23 guidance. In addition, we continue to work on closing the acquisition we announced, which has had some delays. We are reiterating our guidance at this point with the obvious caveat that our full year EBITDA will depend on normal weather for the remainder of the year and timely completion of the acquisition. Our FY '23 EBITDA guidance is for between INR 66 billion and INR 69 billion, and our cash flow to equity guidance is INR 21 billion to INR 23 billion. On the buyback, we have repurchased about 20 million shares since we implemented the program, which leaves about $120 million of authorization remaining under the program. We continue to see considerable value in our shares with an 11% cash flow to equity yield on our current portfolio. ReNew also trades at a meaningful discount to what we can sell assets for. As our shares are one of the highest return investments of scale we can make, we have been actively buying back stock when we believe it will provide the highest return opportunity. I would also like to highlight that we have been added to about six indices this calendar year, including the most recent. This not only helps average daily volume but also increases the awareness of ReNew to a broader audience. With that, let me thank you for your patience, and we will be happy, of course, to take any questions. Thank you.

This is Morgan on for Julien. Congratulations on a nice quarter here. It seems like you've had some really healthy improvement in the DSO this quarter. Can you talk about your expectations for how this is going to evolve through the remainder of the year? And how does this increased headroom kind of maybe change your latitude for further investments? Any thoughts on that.

Yes. Kedar, why don't you take that?

Yes. Yes. So as we explained, the biggest state which accounted for highest over dues was Andhra Pradesh. And on the 30th September balance sheet, we have got two installments out of the 12 installments. After 30th September, you have got another two installments on day. And till 31st March, which is your question, we will get six more. So in total, in this year, we'll get about eight installments of substantial value and that will improve the DSOs to a level which will go back almost to pre-COVID days, and that will substantially contrast with the elevated levels of the DSOs we have seen for the past several quarters. So I'm a little hesitant to quote a precise number, but I'm confident that the DSOs will go down to a level around 175 days or so. In fact, as at October, we have already seen the DSO at 270. So naturally, this releases cash and to your point, this allows us to invest more equity to fund future growth, and all of that is part of the plan. So the slide on source and use of financing, which we have included in our debt this quarter, factors improvement in the receivables as well.

And then, I guess, can you also talk about the co-investment that was announced this quarter in the transmission projects? And how you view these opportunities as a part of your broader capital recycling plan? Any plans to kind of continue these co-investment strategies or any comments there?

Yes. Sure, sure. I'll take that question. Yes, look, Morgan, we have won a few transmission projects till now, which, as I mentioned in my remarks, are very strategic for us because they link into the renewable energy projects that we are doing, and therefore, help us with commissioning those projects on time and make the whole project much more predictable from a timing standpoint. Now the investment that you've got from Norfund and the other company, KLP, is basically for partnering with us and to take a 49% stake in the first of those projects with a view that eventually, they will continue to partner with us for other projects as well. So we do have a broader understanding with them for coming into more of our transmission projects. And as we win them and we get them to the point, the expectation would be for us to continue to get them to come in as co-investors along with us right at the beginning itself. As far as recycling of assets is concerned, as we have stated in the past, that is going to be core to our strategy going forward. We do see recycling of assets as being a very important way for us to derive better value from our own capital invested in those projects and also get capital out, which we can then reinvest to further grow our portfolio. It also allows us the opportunity of tweaking our portfolio in ways that we think eventually might be better for us from a capital hold standpoint in the longer run. So capital recycling is a fundamental part of our overall strategy. In transmission, as we've said, we've just started off that business, and right off the bat, we've got very high-quality partners to come along with us. For our existing other renewable energy assets, we continue to be in conversations with a number of different investors. And as you know, for our first RTC project, we have got Mitsui as a partner with a 49% stake. We anticipate that we will be selling more assets, potentially both to them as well as to other investors as we go forward.

So first off here, you signed 1 gigawatt of PPAs just all in the last quarter here, so a pretty significant amount of progress there. So wondering, have you seen a meaningful change in the demand for power and an acceleration in your ability to get these PPAs signed? I was wondering just how broad-based is the demand? And then how should we think about the time it takes to go from winning at an auction to getting a PPA signed given the current environment?

Yes, Justin. To clarify, within the 1 gigawatt, there are 400 megawatts from corporate PPAs that we've discussed, and 600 megawatts are from letters of authorization that have now been converted into PPAs. This is how the 1 gigawatt is represented. Your question seems to focus on the momentum in the market related to power demand and how that impacts bids and our portfolio growth. Currently, power demand in India is growing robustly at about 6% per year, and there has been a significant power shortage in the country for several months, which is likely to continue. As a result, both distribution utilities and corporations are seeking new energy sources, with renewables being the most cost-effective option available. SECI is organizing several auctions, and we have submitted bids for some round-the-clock power projects. More complex projects will see bids soon, likely within the next month. Additionally, we anticipate around 5 gigawatts of RTC auctions coming to market imminently, with some bids already submitted and others approaching. Beyond that, another 8 gigawatts of RTC auctions are expected. Our view is that the increasing power demand is turning into bidding activity, and SECI is now clearly identifying off-takers before the bidding process, which should streamline the transition from bidding to signing PPAs more than before. Previously, disruptions due to COVID affected this process, but it is normalizing now, so we expect bids to translate into PPAs relatively quickly. The typical timeframe pre-COVID was about 3 months, and we anticipate returning to that. Furthermore, we have two years to construct projects after signing the PPAs, which means any bids in the current financial year will need to be completed by the end of financial year '25. That's the current status.

Okay. Got it. And then, I guess, just along the lines of the demand that you're seeing, are you seeing any upward pressure on PPA prices, whether they are in the corporate market or at auctions? Is this demand being translated into those PPAs moving upwards?

So Justin, what happened is because there is more uncertainty on the commodity price side and interest rates have gone up. Obviously, those are being passed on in the form of higher tariffs. Therefore, tariffs in general have gone up in the market, reflecting the higher input costs because we are passing those on to end customers. I think that's really what is happening. The specific question of returns on these bids is a function of the competitive intensity, which is influenced by the nature of the bid and the potential off-takers. For example, in the corporate PPA market, as we've said, a lot depends on the kind of solution you can provide. We do see fewer bidders there. In the down-the-clock power solutions that are getting bid out by SECI, we are again fewer bidders because these are harder to execute and larger sized projects, which play to our advantages. Therefore, we expect to see IRRs that should be certainly within our range of 16% to 20%. I don't want to specify whether it's higher or lower end of that because these bids still need to happen. But I can just say that we expect to be very comfortably within our overall IRR range for a lot of these bids that are coming up. Yes, power prices have gone up because of input prices having increased.

Right. Okay. Great. That's really helpful. And then just based on where you are in the various stages of the projects that you're developing, I was wondering if you could just speak to any notable hurdles that remain to commissioning the 13.4 gigawatts that you're planning by the end of fiscal '24. How are you feeling about how you're positioned with your access to solar panels, given the ramp-up of your manufacturing? And how are you feeling about the wind supply chain as well?

Yes. So look, as far as supply chain is concerned, in fact, I'll just answer your question more broadly. In wind, we have pretty much procured all the turbines for these megawatts that we have to commission. When I say procured, I mean we've locked in the supply. Of course, the turbines will get delivered at the time that we require to get them installed closer to the time we need to get them installed, but fundamentally, all the turbines have been locked in. As for solar modules, a number of these projects are grandfathered concerning custom duties, so for those projects, we are allowed to import. Therefore, we have locked in those as well. For the ones that we won subsequent to April of last year, we expect to have our own supplies of modules. That is something that we will start getting from the first part of the module plant that we're commissioning in around Q1, Q2 of next year. So even the supply of modules is pretty much locked in as well. We don't anticipate any equipment supply issues causing delays in the construction of these projects. As for financing, I'll let Kedar answer that question. But fundamentally, work is going on apace right now, and at this point, there might be the usual implementation issues that we have in India around right-of-way problems and so on. Those, of course, we will solve as and when they come up. But our expectation is that based on all the work that we've done so far and the work that we continue to do at sites, including land acquisition, that we will be able to commission the vast majority of the 13.4 gigawatts by the end of the next financial year. We are on track for getting that done. Kedar, if you want to just talk about the financing piece as well.

Yes. Sure, Sumant. Yes. So I think financing is the access and affordability of capital is quite smooth these days. We have taken a target to churn the debt portfolio more in favor of Indian rupees. A while back, we were almost 2/3 in dollars, and now we are almost half. Half of the portfolio is in Indian rupees and half is in dollars. Most of the term sheets that we're getting for refinancing are in the range of 8.5% to 9% on a rupee basis, and that's really helping us build a natural hedge. Domestic access to capital, as we said, has improved. There are a couple of government-backed institutions that are coming forward to lend to companies like us, which is also helping. So all in all, good on financing.

My first question is on hedging packages. If you could give some clarity on the mix of swaps versus options in terms of the dollar debt exposure. Is it for the entire duration of the debt? And also if it's an option, what exchange rate is ahead there?

Yes. So I think we use a mix of instruments. In our view, when we back tested the effectiveness of hedging practices, that was proven to be quite appropriate for us. Once in a while, if the depreciation of the rupee impacts a particular quarter, we have to take an accounting charge, which is noncash. But from a commercial logic, the mix of plain forwards and at-the-money forwards and cross currency swaps has proven to be useful for us. I can give you offline in terms of the kind of rates that we have been able to lock in, but almost half of the hedges are in terms of plain forwards where we lock in the current rate with a premium on a year-on-year basis. The balance is spread into ATMF options, and as I said, some of these are at between 90 to 95.

Understood. The second question was regarding the round-the-clock project, which is under construction. There, there was some update that the borrowed debt has been locked. So if you could give us some sense of what was the borrowing cost at does the IRR guidance still hold for that project?

Yes, the IRR guidance still holds for that. That was a large loan, almost $1 billion, and we had a consortium among more than 10 banks. That was the USD SOFR-linked loan approximately around 9% or so, Nikhil. We are still quite in the range of IRRs that we target towards for these kinds of projects.

I should add, Kedar, that obviously, with the farm-down to Mitsui, the IRR has actually become a lot better.

Understood. Just one follow-up question on that. The 9% is dollar interest rate, right?

Dollar and SOFR plus spread plus the hedging cost. So 9% is the all-in fully loaded cost.

Got it. Helpful. Yes, and then my last question is regarding the storage opportunity. Many competitors have been exploring pumped storage opportunities. I just wanted to understand ReNew's views and if any plans around that?

Yes. Pump hydro is a very long gestation business. The first pump hydro projects will probably come up in 2025. And that will be the first one. Others might take a little bit longer. Having said that, we do believe that pump hydro has a role to play in some applications in the country, so we are looking at pump hydro opportunities. It’s a long gestation business, and therefore, it will take time for those kinds of projects to come online. Our view continues to be that batteries will have a significant role to play from a storage standpoint, and eventually, that will get deployed at scale as well. Battery prices have increased over the last year, but we expect the prices to come down and make it more competitive. Both batteries and pump hydro will have distinct roles to play. Batteries can be deployed much faster and in a more modular manner, giving more flexibility and being less grid-intensive. Pump hydro is more long-distance and transmission intensive. We are exploring both options.

My first question is with respect to the wind plant load factor (PLF), which has surprised again this quarter. And I remember last year was a similar event and you had said that you will reevaluate your wind projections. Can you comment on where are you in terms of reestimating the projections there?

Yes, we previously mentioned that we would wait for the high wind season to conclude before reevaluating based on the results. I agree that this year's wind performance has not met expectations. However, over the past three years, the difference from the long-term average has lessened. While we haven't returned to what we believed the average to be, we will collaborate with an external agency in the coming months to reassess all long-term evaluations of our wind projects to determine if adjustments to those forecasts are necessary. We expect to have some preliminary insights to share with everyone soon. In the meantime, we've been more cautious about assessing near-term wind performance when creating our long-term forecasts. The adjustments for upcoming projects, based on the last few years, are being made. If the last three years are viewed as an anomaly rather than a shift in the long-term average, we will have adopted a conservative stance on our forecasts going forward. Conversely, if there has been an actual change to what we believed was the long-term average, our future bids will be better aligned with those expectations. That's the update on our situation.

My second question is on the acquisition, the 0.5 gigawatt acquisition. What's driving the delays? And now you've also segregated your EBITDA estimate between the acquisition and the organic. So is there a risk that the acquisition can get pushed into FY '24 versus '23?

Kedar?

Yes. So Puneet, we are currently in the process of integrating this acquisition. This is through the slump sale route, which means that you acquire all the underlying assets for land and the PPA and everything. This process takes a little longer than a company acquisition. There are obviously some state-level issues and regulatory matters that are taking time. At this stage, it's difficult for us to tell you precisely what we will end up with in the current year. That’s why we have segregated that particular item. There might be some risk, but the quantum and magnitude will be better placed to tell you by the February call. The lockbox date of this aquisition is April, which means once the acquisition is consummated, the cash is secured. The only question is the recognition in P&L from a revenue standpoint versus recognition in balance sheet as a reduction in the capital expenditure.

I understand. That's helpful. My final question is regarding the project Sumant mentioned about stepping away from projects that won't achieve IRRs of 16% to 20%. Does that imply there are projects in your portfolio with low tariffs of 2.18, 2.35 that carry that kind of risk? Do you anticipate reaching a point where you would abandon those projects in your portfolio?

No, Puneet, let me clarify. What I meant to say was, not for our existing portfolio, but for any future bids that we might participate in. If we see that the tariff is coming to a level that we are not going to make the returns that we typically target, which is 16% to 20%, then we will walk away from those bids. We will not go ahead and build those bids in that case. For things that are already there in our portfolio that we've already won in the past where we've signed PPAs, most of our projects are within the defined range. Therefore, we don't anticipate any issues. Even if there were issues, having signed the PPA, it would be difficult for us to walk away. We will probably not be looking at doing that, keeping in mind the consequences of relationships with SECI and the reputational issues involved. We would not take that action lightly once the PPA is signed. But before we start the bidding process, if projects don't meet the hurdle rate, then we will not go ahead and win those projects. We have been very disciplined over the last many years, and this has stood us in good stead. While our market share is the largest in terms of bid wins over the last several years, our percentage of losses of bids not won is probably among the highest.

And just quickly to add to that. Sumant mentioned earlier in his comments that we continue to have a lot of conversations with investors as it relates to capital recycling, and that broadly across the portfolio has the opportunity to improve any particular project's IRRs.

Yes, understood. Understood. And if I can squeeze in just one last one. You alluded that projects before April '21 are now grandfathered. Is that clear now from the government's perspective that there's not a change in law, but more grandfathering?

No, I could come back on the specific point, Sumant. We'll take it offline and come back to you.

I just wanted to get your view on the offshore wind opportunity that's coming up. There was news that bids would be tendered for 4 gigawatts in Tamil Nadu. How are you looking at that opportunity? And what is the preparedness that we have for such a project?

Yes. So look, I think offshore, it's not clear at this point when the bid will come and in what form it will come. MNRE is working to come up with something on offshore wind, but nothing formal has been discussed. That said, MNRE is looking to allocate certain blocks of the ocean floor for blocking for future. We intend to participate in those auctions and, whenever an offshore win does come out, we'll be active participants. There are potential partners that we've been talking to, who have experience with offshore wind in other geographies. Last time, when MNRE was looking at this in 2018, we had partnered with one European and one Japanese company to bid. Of course, that never progressed. But as and when the bid comes up, we'll participate very actively. Thank you.

There are no further questions at this time. This will conclude our conference for today. Thank you for your participation. You may now disconnect.