SJVN Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Soft quarter, strong H1: Q2 generation dipped 1.7% YoY on lower water discharge and wind flow, dragging revenue marginally lower, but H1 generation still grew 3.2% and H1 PAT already exceeded the full prior-year PAT.
• Finance costs bit, but PAT still rose: A ₹79 crore YoY expense increase, driven largely by an ₹80 crore foreign exchange hit on dollar debt, pulled PBT down ₹84 crore, yet Q2 PAT still grew 11% YoY.
• The project pipeline is converting: Three new solar wins totalling 388 MW were bagged this quarter, the 75 MW Parasan solar project began commissioning, and the 382 MW Sunni hydro project received its final forest clearance.
• Arun-3 is the make-or-break item: HRT heading is at 81% completion and management is pushing for a March 2024 finish, a full year ahead of the official February 2025 date, but transmission tower erection in hilly terrain is stalled pending land possession.
• What to watch next quarter: Whether the Naitwar-Mori PPA gets tied up before its Feb-Mar '23 commissioning, progress on the Kholongchhu JV exit negotiations, and any update on the Arun-3 transmission land hurdle.

Quarterly Performance: The Headline Miss and the Underlying Story

• Generation drove the top line down: A 1.7% YoY decline in Q2 generation, caused by reduced water discharge in the river and less wind flow at wind projects, pulled revenue from operations down by a marginal ~₹3 crore.
• September was a record, but it could not save the quarter: The company achieved its highest ever monthly generation at 133.9 crore units in September, with both Nathpa Jhakri and Rampur stations setting individual records, yet the weak July-August period left the quarter in negative territory.
• H1 tells the opposite story: First-half generation rose 3.2% YoY, adding 22.3 crore units, driven entirely by a strong Q1. H1 incentives of ₹161 crore also ran ahead of the prior year's ₹148 crore, helped by a ₹73 crore quarterly incentive booked in Q2.
• The PAT paradox: Despite a ₹84 crore YoY drop in PBT, Q2 PAT increased 11% YoY. The mechanism was not detailed on the call.
• Plant availability remained a point of pride: The plant availability factor stayed above 109%, which management called "one of the highest in the industry."

Nand Lal Sharma: "I would also like to share that this half yearly profit is again more than the last year's total profit of Rs. 977 crore."

The FX Bite: How a Strong Dollar Hit the P&L

• The ₹80 crore FERV shock: H1 finance costs rose ₹101 crore YoY, and ₹80 crore of that was foreign exchange rate variation, as the dollar moved from ~₹78 to ~₹82 during the period.
• Half of it is recoverable: Of the ₹80 crore FERV, ₹50 crore is recoverable from beneficiaries for the Rampur project, leaving a net unrecovered FX impact of ₹30 crore in Q2.
• The rest of the expense increase was interest: Beyond the FX hit, the remaining ~₹21 crore of the H1 finance cost increase came from a major portion of interest and financial cost, though management did not provide a specific incremental borrowing rate when asked.

Project Pipeline: Wins, Commissioning Starts, and Approvals

• Parasan solar began feeding the grid: Commissioning of the 75 MW Parasan solar project in Uttar Pradesh started in the last week of October, with 31 MW synchronized so far and the full 75 MW expected within a couple of weeks from the November 11 call date.
• Three new solar wins added 388 MW: The company bagged an 83 MW floating solar project at Omkareshwar Reservoir (taking the total there to 173 MW), a 200 MW BOO solar project in Maharashtra at a ₹2.90 tariff, and a 105 MW solar project in Maharashtra at a ₹3.93 tariff.
• PPAs and MoUs are stacking up: A PPA was signed for the Omkareshwar floating solar project at a ₹3.26 tariff, an MoU was signed with GUVN for a 260 MW Gujarat project, and another MoU was signed with an Assam entity for 1,000 MW of floating solar in Gujarat.
• Sunni hydro cleared its last forest hurdle: The 382 MW Sunni hydroelectric project, with a ₹2,614 crore investment, received Stage-2 forest clearance. An L1 bidder contractor has been identified and the project awaits Cabinet Committee on Economic Affairs investment approval before award and construction start.
• Lower Arun DPR approved in record time: The 669 MW Lower Arun hydro project in Nepal had its DPR techno-economically approved and vetted by the Central Electricity Authority in 11 months, a timeline management called a record for any hydro project DPR. Construction is expected to start in 3-4 months after investment approval.
• FY23 capacity addition on track at ~205 MW: The year is expected to see 75 MW from Parasan solar, 60 MW from Naitwar-Mori hydro (commissioning in Feb-Mar '23), and 70 MW from Bagodara solar.
• FY24 is the big solar year: Approximately 1,700 MW of solar projects are expected to be commissioned next year, with the balance of the ~3,600 MW portfolio completing in FY25.

Nand Lal Sharma: "this is in record 11 months that any hydro project DPR has been cleared by CEA"

Arun-3 and Buxar: The Two Giant Timelines

• Arun-3 HRT progress is steady but geology-dependent: 9.54 km of the 11.8 km head race tunnel has been excavated, with work proceeding on 6 fronts at an average monthly progress of ~300 meters. Per-front rates vary from 15 m to 40 m depending on rock conditions encountered during excavation.
• The official vs. aspirational timeline gap: The official commissioning date is February 2025, but management is "doing its best" to complete the project by March 2024, the next financial year.
• Transmission is the wildcard: Tower erection in plain areas across 4 districts is progressing with 70-80 foundations done, but in the 2-3 hilly districts, land possession is still pending and foundation laying and tower erection have yet to take off in most locations. Management declined to provide a percentage completion figure for tower erection when asked.
• Buxar thermal is tracking alongside Arun-3: The plant is most likely to be up and running around the same time as Arun-3, by March 2024, with commissioning expected in FY24.
• Arun-3 PPAs are in the works: An MoU has been signed with PTC and ReNew Energy for back-to-back PPAs with Discoms, and the company is now in the process of signing those PPAs.

The PPA Problem: Hydro's Structural Disadvantage

• Hydro PPAs get signed late, and that is the industry norm: Because hydro project commissioning timelines are uncertain, stretching anywhere from 5 to 10 years, PPAs are typically signed closer to project completion. Management does not expect to sign PPAs before construction starts.
• Naitwar-Mori still has no PPA, with commissioning just months away: The 60 MW project is expected to commission in February-March '23, but no PPA has been signed. The company is exploring bundling with solar power and approaching bulk consumers in steel and oil industries, as well as some interested Discoms. If no PPA materializes by commissioning, power will be sold in the open market or on exchanges.
• State Discoms are reluctant to sign long-term hydro PPAs: Management cited a political economy problem: Discoms argue that after 10 years, a different party or policymaker will be in power, so they see no reason to commit to 25-35 year agreements for the benefit of future administrations.
• The strategy is shifting to shorter, fixed-rate PPAs: The company will now try to enter into PPAs with bulk consumers for at least 15 years, down from the historical 25-35 years. It is also exploring a fixed lump-sum tariff structure over the concession period instead of the declining CERC-model tariff, though it must ensure cash inflows remain sufficient for debt repayment.
• Bundling hydro with solar for round-the-clock power: Where standalone long-term hydro PPAs are not possible, the first preference remains long-term or medium-term PPAs, but the fallback is to bundle hydro with solar to provide RTC power to beneficiaries via exchanges or as a merchant plant.

Nand Lal Sharma: "They say that after 10 years, there will be some other person in power or other party in power. So, why to think of the persons or the state or the people after 10 years or of the policymaker."

Nand Lal Sharma: "In case of hydro projects, the PPA signing in the beginning has been a difficulty in the past also and is also a difficulty at present also because it is not certain that hydro project will come say, in 5 years or 7 years or 10 years."

Capital Structure, Modules, and the Renewable Subsidiary

• Debt is being pushed to 80% on some projects to keep tariffs down: Because debt interest cost is lower than the return on equity, the company is using 80% debt financing for some projects where tariffs would otherwise be unviable. In hydro, the effort is to keep equity at 30% where the tariff is reasonable.
• Module procurement strategy is under review: The company is considering separating module procurement from the balance-of-system in future projects, moving away from the current all-under-EPC approach. It is also thinking about entering module manufacturing, though no decision has been taken.
• Renewable subsidiary listing is a FY24/25 event: The plan is to consider listing the separately incorporated green renewable subsidiary once a portfolio of operational projects is built, with a timeline of end of FY24 or FY25.
• Under-construction renewable portfolio metrics: The won and under-construction renewable capacity stands at ~1,500-1,600 MW, with expected generation of ~350 crore units, expected revenue of ~₹875-900 crore, and expected CAPEX of ~₹7,500-8,000 crore.

Kholongchhu: The Bhutan JV Unwind

• Bhutan wants the JV structure gone: The Government of Bhutan has expressed discomfort with the joint venture mode for the Kholongchhu project and has requested the Government of India to change it to an IG (inter-governmental) mode. Discussions are ongoing at the GoI level.
• SJVN's exit condition is clear: If the company exits, it requires repayment of its equity contribution plus a reasonable rate of interest.

Nand Lal Sharma: "If they want to construct it at their own, then naturally we will exit from that. But in that we have put the condition that then they have to pay back our equity contribution, which SJVN has made along with a reasonable rate of interest."

Guidance & Commitments

Key Metrics