ReNew Energy Global plc Q3 FY2023 Earnings Call

Thank you Jason and good morning, everyone, and thank you very much for joining us. This morning the company issued a press release announcing results for its fiscal third quarter 2023, ended December 31, 2022. A copy of the press release and the presentation are available on the Investor Relations section of ReNew's website at www.renew.com. With me today are Sumant Sinha, Founder, Chairman and CEO and Kedar Upadhye, the CFO. After the prepared remarks we will open 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 integral to all our remarks. There are risks and uncertainties that could cause our results to differ materially from those expressed or implied by such 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 a good morning, good afternoon, or good evening to everybody listening in on the call. Welcome to the call. Let me start off by saying that the Indian renewable energy market remains incredibly robust and we see plenty of high return investment opportunities on the horizon, where we do believe we have a competitive advantage, specifically in the complex projects and corporate PPA segments. We have developed a platform that is differentiated not only in India but even compared to peers globally. We have operational expertise across renewable energy technologies with leading proprietary digital capabilities that create optimal and customized products for our customers. We believe that the world is shifting, customers are increasingly recognizing the climate change imperative as an existential risk and are moving rapidly to decarbonize. We are one of the few companies globally that can deliver decarbonization solutions for our customers that most companies are not really focusing on as much. As these solutions require technological leadership, complexity, and customization we believe that we will be the decarbonization leader and will be even better positioned to capitalize on these opportunities more than ever before. From our perspective as we look at it today, we believe that our EBITDA will grow at least 50% over the current base as we execute on our entire portfolio in the coming two years. We expect to layer further growth on top of this with a particularly interesting round of upcoming auctions over the next year, given the complexity. In addition, the evolution of opportunities in digitalization and green hydrogen provide our investors incredible upside options that many countries are not focusing on as much at this point. We believe that the value of our shares does not reflect one of the best growth rates in the renewable energy industry combined with equity returns that are among the highest in the world, so much so that we have already repurchased about $60 million of our own stock which represents over 15% of the free float in only the last 10 months or so. We have another $90 million of authorization or another 20% of free float approximately and we have every intention to use that authorization aggressively given where the current share price is. We believe the value of the company has been highlighted with over $500 million of asset sales over the past 18 months at valuation multiples that are consistently higher than new build multiples. Starting on Page 4, to discuss highlights this quarter. We continue to report strong growth and for the first nine months of this fiscal year 2023, revenues from contracts with customers grew 24% year-on-year. Adjusted EBITDA was 18% higher and cash flow to equity increased 11% from the same period in the prior year. We have commissioned capacities of 7.7 gigawatts operating and the total capacity under construction currently is 5.4 gigawatts, and another 337 megawatts is in the process of being acquired, which brings our total portfolio size to 13.4 gigawatts. So far this fiscal year our core operations, what we can control, are tracking very close to our internal budget provided at the beginning of the fiscal year. With only about six weeks left in this fiscal year, we expect that we will end the year around INR 61 billion to INR 63 billion. The revision in guidance is essentially for reasons beyond our control. This includes delayed completion of the acquisition that we had announced earlier this fiscal year and which is still under process. Based on where we are in the process, we now expect the acquisition to close early next year. We had expected that this acquisition would add about INR 3 billion or so this year in our original guidance, which now looks to be realized in FY 2024 and beyond. Even though the acquisition has not contributed to EBITDA this year, it is contributing to our balance sheet. The lockbox date was set at the beginning of this fiscal year, and we retain the economic value and cash generation, which accrues to our balance sheet. Also, carbon credit sales of around INR 1 billion that we expected to be realized this fiscal year are now likely to slip into early next fiscal year, given the backlog of projects that are in the process for registration at various carbon exchanges. Weather continues to be a bit of a headwind and while we captured the majority of the negative hit this year in our guidance at the beginning of the year, the weather along with a variety of other items looks to end up another INR 1 billion or so worth in our beginning of the year assumptions. We are focused on the long run and still believe that ReNew will be delivering adjusted EBITDA of INR 89 billion to INR 94 billion over the next several years or about 50% higher than this year. Virtually all of this growth is contracted and highly visible. As we have reiterated many times, we are focused on creating value and one of the key determinants of creating value is maximizing returns not only through disciplined bidding and product offerings but also through execution. In this way, SECI began granting extended construction timelines which may present us an opportunity to enhance the returns on these projects under development. Module prices are also down 20% or so in the last couple of months, which allows us to streamline construction schedules for our 5.4 gigawatts under development and potentially bring in plants earlier to capture market sales, which could materially improve the returns on our pipeline. We are planning to update the market in the next couple of months but broadly, we do expect that the adjustments will be moderate and all the projects in our pipeline will be executed as they are all expected to earn a return above our threshold minimums. We are making good progress on our accounts receivables and are seeing regular payments from the state distribution companies that have the highest amount of overdue payments. Also during the quarter, we added another 300 megawatts of corporate PPAs, bringing that portfolio to 1.8 gigawatts or about 13% of our total portfolio. Separately, we also received some strong ESG ratings from Refinitiv, Sustainalytics, and Carbon Disclosure Project. Refinitiv recently updated their ESG rating on ReNew and we are now ranked as the second highest of any electric utility or IPP globally. Sustainalytics ranked us as a top ESG-rated company. We also received the highest rating by the Carbon Disclosure Project among all Indian renewable companies. On to signing of new PPAs on Page 5, as I said, we have signed another 300 megawatts of PPAs this quarter, and we have also de-risked our growth as only 1% of our 13.4 gigawatt portfolio is pending PPAs. The corporate PPA portfolio has nearly tripled from the same time last year and as I said, it's now 1.8 gigawatts with a growing backlog. We estimate that we have the largest market share by a significant measure in this market, which shows that differentiated advantage in this business segment. Corporate PPAs offer higher returns than plain renewable energy projects, given higher barriers to entry, our ability to partner with corporate customers and provide them energy solutions sooner than our competitors. We continue to believe that ReNew will have a 4 to 5 gigawatt corporate PPA portfolio by 2025. The volume of auctions for complex projects, such as round-the-clock and peak power continues to be robust. At the moment, there are about 12 gigawatts of auctions for these complex projects under process, and given our differentiated platform that provides us cost and revenue advantages, we remain bullish that we will be able to capitalize on these at returns that are above our minimum return thresholds. With regard to CAPEX, the prices of materials, modules, which go into our CAPEX have moved in our favor since our last earnings call last November, and this is discussed on Page 6. On this front, we have seen around a 20% reduction in prices for modules compared to levels in November. Falling prices for wafers and cell prices are likely to make the delivered prices from our captive manufacturing even more competitive. From where we stand today, we are even more confident about delivering returns within our targeted 16% to 20% equity IRR range at the project level. We believe there is further opportunity to improve returns through capital recycling, further implementation of proprietary digitalization, and continued pursuit of operational excellence. As a reminder, we have locked in wind turbine prices so there is essentially no material exposure on this front. If, in the event that any additional new project has an expected IRR below our minimum thresholds, as you know, we will 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.

Thank you, Sumant. I'll now move to Slide 8, which provides the highlights of the fiscal third quarter of 2023. We added 66 megawatts this quarter to bring the total to 7.8 gigawatts operating. We signed another 282 megawatts of PPAs, which brings the total amount under construction to 5.4 gigawatts. Our revenues from customers rose 24% year-on-year in the first nine months of fiscal 2023. EBITDA increased 18% in the nine months of fiscal 2023 when compared to the same period in the prior year, and our cash flow to equity increased 11%. While solar generation was better than last year, the wind PLF was about 200 basis points lower than the prior year, which was in keeping with the lower production from wind sites recorded across all of India. Turning to Page 9, which provides a reconciliation of adjusted EBITDA in Q3, which stands at INR 11.628 million. The wind resource continues to be below normal, albeit above the lows witnessed several years ago, and carbon trade sales were below last year, although we expect this will come in the next fiscal. EBITDA through the nine months ended about 98% of our internal budget and for our core operations excluding the impact of weather and the timing impact of carbon-related sales, the full year looks like it will end up around the same. With regards to our cash flow generation on a nine-month basis, our cash flow to equity was 11% higher than the prior year, although CAPEX this quarter was impacted by the timing of interest payments after refinancing the green bond, that paid the interest biannually with domestic debt which pays the interest monthly. Also, worth noting is the strong cash generation from our cash flow statement. Cash flow from operations for the third quarter of FY 2023 nearly doubled to $261 million for the same period in the prior year as one of the largest positive contributors was a $122 million reduction in our receivables from the second fiscal of 2023. Turning to Page 10, as we have highlighted many times over the past year, we have been focused on improving collections on the past due receivables from the state distribution companies, and we are pleased to announce that we have made sizable progress. The Q3 DSO improved by over two and a half months compared to the end of Q3 in the prior fiscal, and that contributed about $122 million to our cash position as the discounts that were laid on payments have now been making up payments. As a reminder, the AP DISCOM, which represented about 42% of our current past due receivables in March 31, agreed in June to pay past dues over the next 12 months in equal monthly installments and has made about six to seven payments out of 12 so far. The other states that were late have also been making payments on past dues. At this point, we expect to end the fiscal with further improvement in the DSOs, which would represent a release of cash from working capital of approximately INR 6 billion or more from the prior year. We continue to expect further improvement in our DSOs over time as an increasing percentage of our sales will be to the central government-owned SECI, which pays its bills promptly and on time. Today, with 7.8 gigawatts operating, about 50% of our assets are with the five DISCOMs that have high DSOs, as almost all of our committed projects are with SECI or with corporate customers who pay on time. The exposure to these five DISCOMs will fall to about 32% by the time we complete the exhibition of the portfolio. This customer mix shift would represent an improvement of 55 days in our overall DSO just by itself. With that, I will turn it back to Sumant for a comment on our ESG and guidance.

Yeah, thank you, Kedar. I'm taking up ESG on behalf of our Sustainability Head, Vaishali. Turning to Page 12, continuing our momentum from last year, we are committed to setting new benchmarks in all fronts of ESG performance and transparency. Our latest ESG rating scores are testimonials to our endeavor on this front. As a validation of our ESG commitment and performance, we recently received a score of 81 out of 100 from Refinitiv, a global provider of financial market data. This score positions ReNew as number one in India in the electric utilities and IPP category and, as I said earlier, number two globally in the same category. Furthermore, ReNew has been recently included in the top-rated ESG companies list released by Morningstar Sustainalytics for the year 2022-2023. We believe this is a validation of ReNew's ability to identify and manage ESG risk that can impact our operations. CDP has rated ReNew as B for climate change, which is the best rating among the renewable energy companies in India and higher than the Asia average, which is a C. A B rating from CDP for ReNew reflects that the company is taking coordinated actions for climate change mitigations. To drive collaborative impact towards a fossil-free future, we continue to work with our employees, communities, and partners. Towards this end, ReNew has undertaken the following initiatives. We have pledged to plant 1 million trees by 2030 under the World Economy Forum's 1 trillion trees initiative. Our corporate office in Gurugram in India has been recognized as one of the best existing green buildings by GRIHA, which stands for green rating for integrated habitat assessment, India's green building rating agency equivalent to the U.S. GBC, United States Green Building Council. Our annual program called Gift Want has benefited 275,000 people across 11 states in India this year. One of our other initiatives, Project Surya, focusing on job training and entrepreneurship development of women's salt pan workers, was showcased in COP 27 in the India Pavilion and the G20 Power Inception event. Turning to Slide 13, we continue our efforts to achieve our ESG targets with specific initiatives. Earlier last year, we submitted our science-based GHG reduction targets, which have now reached a validation stage by SBTI. Working towards our target to achieve water neutrality by 2030, a feasibility study is currently underway near our site to identify community-based initiatives to offset our water footprint from our operations. We also achieved a 12% women representation in our workforce by the end of Q3, and we are working on increasing it substantially to 30% in the next two years. We would be disclosing progress across our targets in our forthcoming sustainability reports. I invite you all to engage with our sustainability report 2021-2022, which was released in October 2022. Moving on to our guidance, this is now beyond the sustainability section. With regard to our guidance outlined on Slide 16, we are shifting our FY 2023 adjusted EBITDA guidance, as I said earlier, to a range of INR 61 billion to INR 63 billion, which reflects the absence of the expected EBITDA contribution from our acquisition and the process; the deployment of carbon credit sales; and some impact of weather, which is deferring some of our EBITDA. Again, we are not revising our portfolio run rate EBITDA, which is about 50% above expected levels this fiscal year and which is essentially fully contracted and should be reached over the next couple of years. On the buyback front, as I said, we have repurchased about 25 million shares since we implemented the program, which still leaves us about $90 million of authorization remaining. $90 million represents approximately 20% of the currency float at today's share price. We continue to see considerable value in our shares. As we have evidenced by numerous asset sales over the past year, RNW trades at a meaningful discount to what we can sell assets for. As our shares are one of the highest return investments of scale that we can make, we have been actively buying back stock when we believe that it would provide the highest return opportunity for our shareholders. With that, we will be happy to take any questions. Nathan, back to you.

The first question comes from Julien Dumoulin-Smith from Bank of America. Please go ahead.

Hi, thanks for taking the question. This is actually Morgan Reid on for Julien. Can you first talk about the execution on the corporate PPAs this quarter? It seems like this is clearly an increasingly relevant portion of the pipeline. We'll be interested to understand what proportion of the portfolio you think this can become in the next year. I think I'm trying to understand where you are focusing your growth, clearly, you've talked about this opportunity quite a lot.

Yes. We signed many of our corporate Power Purchase Agreements in the last six to nine months, and even more recently. These projects have been actively executed. It's important to note that we secured most of the 1.8 gigawatts in the past 12 months, which indicates strong momentum in that segment of the market. Additionally, we expect around 25% of our future Power Purchase Agreements to come from the corporate sector. Currently, we have a solid backlog, and I believe we will be able to achieve this goal in the near term.

Got it, thank you. And then can you also elaborate on the value that you're associating with the decline in module prices? It seems like maybe there's some accelerated development opportunities and certainly some decrease in CAPEX. Can you just talk about how we should think about that as we're looking at the current development opportunities?

Yes, Kedar, do you want to take that?

Yes. We discussed the 20% decline in module prices from November until now, and the new purchase orders we are placing are at a level that makes us comfortable. If we wait a bit longer, there might be further decline, although some factors are unpredictable. This situation allows us to manage our capital expenditures effectively and helps us improve our internal rate of returns since prices were quite high from June to November. We are continuing to monitor and stagger the orders and deliveries to stay aligned with our target range for the internal rate of returns.

Great, thank you. I will get off. Bye.

Our next question comes from Nikhil Nigania from Bernstein. Please go ahead.

Hi, thank you for taking the question. On the acquisition front, the quantum of 528 megawatts last time we see is lower this time. Any reason for that? And also on timelines on completion of that acquisition, if you could give some guidance?

Yes. Nikhil, this acquisition involved a more complex process, requiring changes to the titles of the underlying assets, transfers of the purchase price allocation, leases, and titles of other assets. This process takes more time than a straightforward share purchase agreement. We have learned a lot from this, and as mentioned, the lockbox date has already been established for the beginning of this year. Consequently, the cash flow from those purchase price allocations will be reflected on the balance sheet as a deduction from capital expenditures. Additionally, this has enabled us to enhance the quality of the assets we are targeting. In the upcoming months, we will determine the appropriate mix of these assets for acquisition, which may result in us acquiring slightly more than half of our initial target. However, please consider this as tentative guidance for now; we will provide more clarity about the total purchase price allocations we will adopt by the end of the year. By the time we approach you with our full-year results, we should have a better understanding of both the quantity and size of the assets we plan to acquire and the timeline for complete integration.

If I just add to that. Yes. Sorry. I was just saying that, look, as you know, most trends, most M&A transactions are, as Kedar was saying, shares transferred. This one was a slight sale because of the specific situation involved here, and that process has just taken a bit longer than anticipated and expected because of the transfer of so many different things. But I think it's something that we're now fairly close to completing, and it is something that should be finished by early next year. And that will then also allow us to get back to you on exactly what percentage you're going to acquire. But there were one or two assets within that that we said might be something that we don't really want to go ahead with or are hesitant to close because of all these regulatory issues. And that's why we have decided to sort of decrease the amount that we were acquiring a little bit.

Thank you for that answer. My second question was about the use of proceeds from the asset sale, which is related to approximately 1.1 gigawatts and potential interest from various entities. Could you share any insights on the rationale behind this decision and the context?

Kedar, I'll address that. Capital recycling is a strategy we've discussed frequently in the past, and it's one that many global renewable energy companies embrace, including us. Essentially, the concept is that we can build more assets than we are prepared to retain. By doing this, we can enhance value in the assets we develop and then sell them for higher returns. This is a practical approach for us, and as Nikhil noted, we certainly anticipate selling more assets in the future, while our portfolio will continue to expand. There is a lot happening on the Indian front that you're aware of, but we must wait for a specific announcement from us before we can comment further.

Great, thanks Sumant for the answer. Sorry, two more questions quickly then. One is where you think around that ALM restrictions might get relaxed in the near term? If that happens, does it help deepen timelines for any projects? And related to that, on the RTC project, which is a big one, last time, the guidance was for Q2 FY 2024, does that change as it stands today or if that mix has changed?

Yes. Regarding the ALMM, we are positioned on both sides as a developer and potentially a manufacturer, so our stance is neutral on how it will evolve. However, we don’t anticipate it will enable us to commission projects any sooner just yet. The specific policy hasn’t been released, so we’ll need to see how it unfolds. We can’t confirm earlier commissioning without understanding where we can source the modules and their delivery timelines. If we can commission projects earlier, we certainly would like to, as it allows us to sell power into the merchant market, which seems to be holding stable prices. Nonetheless, we haven't explored this in detail, so I can't provide a definitive answer. As for the RTC project, which consists of four projects—three wind and one solar, including a battery component—the commissioning will happen progressively starting now and likely continue through Q2 and Q3. Revenue generation can begin as each part of the project is commissioned. However, for us to report that the entire project is commissioned to SECI, it may take until Q2 or Q3 of the 2024 financial year. Overall, we are on track with solid execution.

Perfect, makes sense. Just coming back with one last question, a small one. I continue to find the answer now. This is just on the balance sheet, on other noncurrent assets, there's a jump of, I think, about INR 1,000 crores or $120 million. Possible to give what is the reason for that?

Yes, Nikhil, a couple of items which have gone up. As you know, we have made an acquisition in a digital entity. And we are only a 40% stake in that entity. So part of that gets recorded in other assets. We have also made some advances to company creditors as part of the RTC and various projects. So I think some of these things get reflected in the other assets category.

Perfect, thank you so much Kedar. Thank you, Sumant. That’s it for me.

Your next question comes from Justin Clare from ROTH MKM. Please go ahead.

Yeah, thanks for taking our questions. So I guess, first off, you had indicated that you expect further improvement in DSOs by the end of this year and then into fiscal 2024. I was wondering if you could just give us a sense for how much more improvement might be possible? And then just more generally, could you talk about whether you expect this improvement in DSOs to be maintained? So at this point, has there been a lasting structural change in the market where there's going to be particularly lower risk of DSOs getting extended in the future?

Yeah, we believe so. I think you must have heard about several pronouncements from the regulators, which is helping us. See, two things are happening. One is the old deals are getting cleared and the current deals are getting strongly paid on time. Both these are helping us to get a reduction quarter-by-quarter in the DSOs. The second factor which we mentioned is the mix of off-takers is changing in favor of those who are paying much earlier. So the proportion of corporate off-takers, and the proportion of central authorities like SECI, that is going up. The proportion of DISCOMs is going down from 55 to 32. So both the LPS deal specifically and the change in mix of the off-takers is helping us. We believe this is structural, and this will continue for some time. Compared to the December DSO, we do expect about 15 to 20 days further reduction as of March and similarly going forward as well.

Got it. Okay, thank you. And then it looks like the ALMM was recently relaxed for a period of two years. Then we've also seen a decline in module cell and wafer pricing. So just given the changes that have happened here, can you talk through your module sourcing strategy? Has there been any change? I think as of now, you're planning to self-supply with about 60% of your projects from your own manufacturing. Has that changed at all or are you thinking there, just any update would be helpful?

Yes. At this time, the ALMM has been announced by the minister but it hasn't been officially established as government policy yet, so we need to wait for that to happen. We are also unable to assess how this change might affect us. The customs duty of 40% on modules and 25% on sales remains unchanged, meaning imports from China are still not feasible. Imports from some other regions like Southeast Asia may be possible, but we need to evaluate the availability in those markets, especially since many modules from there are being sent to the U.S. and Europe. We haven’t been able to conduct that assessment yet, as this is not formal government policy. Regarding our suppliers, our module plants will be operational in the coming months, and once stabilized, we expect them to supply most of our needs. However, some of our projects are exempt from the duties since we secured them before the announcement of the duty and the ALMM. Therefore, we can still import modules for those projects from China or other sources. Ultimately, it will depend on the stabilization of the plant and the specific rules in place at that time, which will guide our decisions. On the positive side, module prices and sell prices have decreased significantly, suggesting our module costs will be lower than we initially anticipated, which is beneficial for us. At this moment, I cannot specify how much will come from our own supply versus imports, or from which regions, due to the ongoing uncertainty surrounding government policy and supply sources.

Okay, appreciate it. Thank you.

Our next question comes from Amit Bhinde from Morgan Stanley. Please go ahead.

Hello Sumant. I had two questions, one with the wind PLF situation right now and be thinking of reassessment, how are we looking at the near-term forecast and any update on the reassessment that you are planning?

Yes, those are both important questions. In our guidance for the current financial year, we had already taken into account a lower wind speed forecast. This year's wind speed is aligning with those expectations, although it remains significantly below the long-term average. We are likely to maintain a similar forecast moving into next year, as it's prudent to be cautious. We've experienced three consecutive years of lower wind performance, which is unusual but not unheard of in other regions. Typically, such trends are followed by a recovery, although it's uncertain when or to what extent this might occur. Therefore, we plan to continue with a conservative outlook for guidance next year. Currently, we are working on a comprehensive assessment of long-term wind forecasts, collaborating with several wind forecasting agencies. The encouraging news from our initial discussions is that the methods and technologies used for long-term wind forecasting in India are consistent with those utilized globally. Thus, I expect to gain meaningful insights as we move forward with this project, and we should be able to update you soon on this topic. Additionally, due to the wind performance experienced in the past few years, we have already adjusted our future wind forecasts to be more conservative, not just for our existing assets but also for future developments. Consequently, I do not foresee any further reductions in our guidance. However, we will review and collaborate with the wind agencies and provide more detailed insights during our next interaction, which I hope will be in the coming months.

The government is planning an 8-gigawatt auction for wind energy. They have stipulated that the project should not be concentrated in just a few states, ensuring a broader distribution where wind variability may be greater. Considering this, how do you forecast the tariff impact in light of two factors: first, the wind plant load factor is already affected by speed, and second, the need to diversify into states where wind conditions may not be optimal for the auction?

I don't think that will have any impact, frankly, because our company is already operating in most of these states and we have good experience with wind forecasting in all of them. Even if the wind quality is lower in one state compared to another, that difference is reflected in the tariffs that people bid. Tariffs tend to be higher in states with normal wind speed. The government plans to group all the wind bids and projects from various states to offer a single pool tariff to the power buyers. Therefore, it doesn't really matter where you establish the capacity.

Okay, perfect. I have another question about domestic manufacturing of modules. With module prices dropping, I want to understand the financial side. What would be the difference in output price between our own manufacturing and imports plus custom duties? For instance, would imported modules with custom duties be around $0.20 to $0.25, and how does that compare to the price of the domestic modules? What would be the difference between the two?

I can't provide a specific answer at this moment. However, I want to point out that import duties are set at 40% for modules and 25% for cells. Any modules we manufacture in India will have significantly lower costs compared to the duties imposed on imports. Therefore, the comparison isn't really about imports, as those will always be pricier due to duties. Instead, we should compare with what other companies are manufacturing in India. In that respect, we will be very competitive due to our scale and the advanced technology of our modern plants.

Alright. That ballpark, it would be around $0.25 or something, the domestic manufacturing output, I know, as you said…?

No, I hate to generalize because it really depends on, for example, the input cost of either cells or wafers depending on what you're buying. And that price is moving around a little bit. So therefore, it's hard to give us a fixed number on that at this point.

Alright, got that. Those are my questions, thank you.

Our next question comes from Puneet Gulati from HSBC. Please go ahead.

Hi, thank you so much and best wishes. My first question is, you haven't been very, very actively participating in the utility scale auctions. Is there a differentiated strategy that you are allowed to adopt focusing more on corporate than on utility scale?

So Puneet, as you know, there haven't been many auctions lately. Most of the auctions that have occurred have been at the state level or involved messy wind or solar bids. We have previously stated that we do not intend to participate in those because we want to avoid significant state exposure. We believe our competitive advantage lies in more complex auctions, so we are concentrating on those. We expect many of these complex bids to emerge, providing us with sufficient opportunities to bid. Additionally, the corporate PPA market remains very active. Between the RTC/grid power bids and the corporate PPA market, we have a lot on our plate, which is why we have decided not to engage in the preliminary auctions or state-level actions.

Understood. And did I hear it right, you said that you will not be revising estimates on account of weather, and your EBITDA guidance is already prudently capturing that?

That is right Puneet. Yes, that's what we've said.

Okay. Understood. And then last one, when I look at your CAPEX guidance this quarter versus last, the manufacturing link had been slightly slower in FY 2023 and now more move towards FY 2024. Why would that be the case, and then what are the timelines for completion now for your module and cell manufacturing capacities?

Our module plant is running about a couple of months behind schedule. It was supposed to be commissioned by the end of Q1 but will likely extend into early Q2 of the next financial year. This is not a significant delay. The seven module plants are operating as intended in Dholera, where we are setting them up. Therefore, there should not be a major difference in CAPEX. There may just be some payment or phasing issues involved.

Alright, yes. And on the carbon credits, can you explain what really happened there? You've reduced your guidance on account of carbon credits as well. Is that a permanent rate or is it more short term, and what part of your EBITDA at the portfolio level guidance is attributable to carbon credits?

Kedar, do you want to take that?

Yes, yes. So Puneet, these are basically RE credits now. Going forward, we hope to have more voluntary credits, nature-based solutions and things like that. But as of now, these RE credits. What we understand is that the global agencies that registered the projects as eligible for carbon credit, there is a lot of backlog. So actually, some of this is beyond our control. Just a timing deferral from quarter four of this year to probably the first half of next year. And the amount is roughly a little less than INR 1 billion. But as I said, the current composition of our credits is RE in nature. Going forward, the idea is to get to a little more higher proportion of the volume breakages.

And at the portfolio level EBITDA, what sort of contribution have you assumed in your 89 billion to 94 billion EBITDA?

Yes, it would be in the mid to high single digits, but not more than that.

In general, the carbon credits in our existing portfolio are gradually winding down due to the phase-out of security protocols. Consequently, we do not anticipate a significant number of carbon credits will be available in the future. There are developing markets, such as in the Middle East, where these carbon credits might still hold some value, but we are uncertain about how those markets will evolve over time. Therefore, we are being very conservative in our assumptions regarding any future revenues from carbon credits related to our renewable energy segment. As Kedar mentioned, we are also engaged in a separate initiative focused on developing carbon credits based on nature-based solutions, which is a distinct endeavor that is not included in our $89 million to $94 billion guidance, which is based solely on our 13.4 gigawatt portfolio.

Okay. And when you say nature-based solution, basically, the FOREX that you may be building those will be ultimately contributing to the credits, that kind of stuff?

Yes, there are two separate aspects to consider. The trees we are planting primarily serve an ESG purpose rather than being profit-driven. However, we have other emerging projects that are still in the very early stages. For some of these projects, we are exploring development opportunities outside India, but I want to emphasize that these initiatives are just beginning. A significant amount of groundwork is required before we proceed with any investments.

Understood. That’s all from my side. Thank you so much and all the best.

Our next question comes from Angie Storozynski from Seaport. Please go ahead.

Thank you. I have a broader question. Given the scrutiny surrounding Adani Green and their financing, I recognize that your stock and theirs are not directly comparable, especially regarding multiples prior to the selloff. However, I'm curious if this situation has altered the competitive landscape or the inquiries posed by future lenders for your renewable power projects. Do you believe that the turmoil facing Adani Green is providing you with an advantage in acquiring certain assets? Additionally, have you gained any insights on how to enhance your disclosures moving forward?

Yes. So Angie, I think we are quite different from Adani for several reasons. Our operating situation remains unchanged. We have consistently been viewed as a high-quality company regarding ESG issues, and that remains true. This is reflected in our ratings. There haven't been any bids following recent events to indicate any changes in the situation. However, there may be a growing appreciation for high-quality, well-managed companies that genuinely adhere to ESG principles. I hope this will enhance our attractiveness. That said, I can't predict how this situation will affect the Adani Group or their behavior in the marketplace. It's too early for me to comment on potential changes. Kedar, do you have anything to add?

No, I would just say that since we are listed in the U.S., we do follow very extensive 6-K and 20-F disclosures, which are both for financial and operational data and management commentary, pretty extensive in nature. And we will continue to enhance those disclosures. Thanks.

Okay. And then an unrelated question, if I may. So you mentioned that the SECI is granting extensions to CODs for some of the assets. And I don't think I fully understood what you were trying to say. You were suggesting that you actually might bring projects early on to capture merchant earnings and just use this fact that there could be an allowed delay in official COD or is it about just the fact that the component prices are falling and so the economics of the projects might get improved if you were to delay them?

Actually Angie, it's both. And so each case might be different. Wherever it is allowed for us to postpone, and we feel that in the postponement, we can get lower prices that will allow us to potentially postpone the project and lower the CAPEX and still meet SECI's commissioning requirements. So that is one potential strategy that we could follow. The second potential strategy is that we could potentially commission projects earlier and sell them in the merchant market and then sort of lay them off to SECI based on the SECI commissioning extension that we've got. The point is that it gives us a lot more flexibility to optimize the project costs or revenues. And so we fully intend to use the flexibility that we've been given to maximize the returns of our projects. So it will allow us to increase the returns either by using either one of these two strategies.

You mentioned in your prepared remarks projects that exceed the minimum return threshold, but you also mentioned a range. Are we referring to projects that have at least a 16% IRR or something else?

Yes, yes, yes. That's right. That's what I'm saying, that all the projects, therefore, are within our threshold rate. And now that we have this extra little bit of flexibility that just gives us high degree of confidence and comfort of being able to meet those threshold requirements. And of course, for future projects, we continue to be disciplined, as you know, and we will not bid for projects where we feel that we are not likely to meet requirements.

Awesome, thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.