SJVN Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Record capex, but hydro output flat: FY23 capex hit an all-time high of INR8,240 crores, yet generation rose only ~1% as poor post-monsoon hydrology and uneven rainfall offset a strong Q1.
• Water cess is a live, pass-through risk: Himachal Pradesh’s new water cess adds INR0.50–3.00/unit to costs; while PPAs treat it as a change-in-law pass-through, SJVN is challenging its constitutionality in court.
• Nepal project pivots to merchant strategy: Management will not sign long-term PPAs for the 900 MW Arun-III project, betting instead on selling into power exchanges where peak hydro rates have hit INR10–11/kWh.
• Thermal and solar scale-up is now tangible: The Buxar thermal plant (1,320 MW) is set to commission by mid-2024, while 1,500 MW of solar projects are targeted for commissioning this fiscal year.
• What to watch next quarter: The pace of investment approval for the 669 MW Lower Arun project in Nepal, the court’s stance on the water cess, and whether monsoon hydrology recovers enough to lift full-year generation.

Hydrology & Generation

• A tale of two halves: Q1 benefited from good river discharge, but the remaining three quarters suffered from very low precipitation, reduced snowfall in catchment areas, and an uneven monsoon where some months saw water exceed design discharge (rendering it unusable) while others saw critically low flows.
• Pre-monsoon pain: Generation in the pre-monsoon period is running at just 50% of last year’s level, though management expects full flow during the monsoon months (late May to mid-September) to offset this.
• Post-monsoon uncertainty: The outlook beyond September is unclear, as a prolonged winter with less snow melt could again suppress river discharge in the lean season.
• Incentive income holds up: Despite flat generation, total incentives rose 2.2% to INR305 crores, driven by a Plant Availability Factor above 106% (vs. a normative 85–90%) that earned INR210 crores in capacity incentives.

N.L. Sharma: "the Government of India has also written to the state, not only Himachal, but all the states, those who have levied such duties or cess on the generation of power, that this imposition of water cess or such levy is unconstitutional and beyond the scope of powers of the state, because this is ultimately, an additional tax, taxation."

Project Pipeline & Execution

• Capex engine at full throttle: FY23 capex of INR8,240 crores exceeded the Government of India’s INR8,000 crore target and represents a 70% CAGR over six years, reflecting a rapidly expanding construction portfolio.
• Thermal milestone in sight: The 1,320 MW Buxar thermal plant, with power tied up on a cost-plus basis with the Bihar government, expects its first unit by March 2024 and the second by May/June 2024, though land acquisition disputes and local unrest remain live issues.
• Nepal projects advance, slowly: The 900 MW Arun-III project is now expected to commission between March and September 2024, delayed by geological issues at the dam site. The 669 MW Lower Arun project has cleared DPR approval from both Indian and Nepalese authorities and awaits Indian cabinet investment approval, which management expects in a month or two, with construction starting this calendar year.
• Solar scale-up underway: Five solar projects totaling over 1,100 MW have been transferred to the SJVN Green Energy subsidiary at a purchase consideration of ~INR1,282 crores. Management targets commissioning 1,500 MW of solar in the current fiscal year and another 1,200 MW next year.
• Pump storage ambitions face reality: The Government of India has indicated 10 pump storage projects (12,790 MW) to SJVN, but feasibility studies are underway and five of six projects in Maharashtra are already ruled out as they sit inside wildlife sanctuaries.

Strategic Pivot: Hydro as a Peaking Asset

• No long-term PPAs for new hydro: Management explicitly stated it will not lock Arun-III into long-term power purchase agreements, arguing that hydro’s value as a peaking and balancing resource will only rise as intermittent solar and wind capacity grows.
• Merchant market bet: The strategy is to sell power through exchanges, where peaking rates have already reached INR10–11 per kWh, capturing a premium that long-term PPAs would forfeit.
• Naitwar Mori exception: The smaller 60 MW Naitwar Mori project, expected to commission by July 2023, is in final-stage PPA discussions with a single entity for a five-year offtake arrangement covering its entire capacity.

N.L. Sharma: "we will not go for long term PPAs because it has been seen that, the need of hydro, the necessity of hydro is going to be there in the times to come with the increase in the intermittent energy from solar and wind projects."

Regulatory & Cost Headwinds

• Water cess mechanics: The Himachal Pradesh government’s water cess ranges from INR0.50–0.60 per unit to INR2–3 per unit depending on head and discharge. While PPAs classify it as a change-in-law pass-through to offtakers, SJVN has petitioned the High Court, and the central government has advised states that such levies are unconstitutional as they effectively tax consumers in other states.
• Devsari stuck in legal limbo: The project in Uttarakhand faces delays tied to Namami Ganga and Supreme Court orders. Although it is on a tributary of the Alaknanda and not directly on the Bhagirathi or Alaknanda, three ministries must file a joint affidavit before it can proceed.
• Buxar land acquisition drags: Compensation rate objections have led to court challenges; the court is issuing notices for affected parties to receive payment, but the process remains unresolved.

Subsidiary & Financial Notes

• SJVN Green Energy capital base: When asked for the subsidiary’s net worth, management offered an approximate figure of “around INR2,500 crores” but declined to confirm it, promising to provide the exact number later.
• Solar project economics: Solar tariffs are set through competitive bidding with no CERC role; projects break even from day one as tariffs are structured around loan and equity costs, delivering a return on equity of 10–12%.
• Viability Gap Funding: VGF received under the CPSC scheme for projects like the Bikaner 1,000 MW solar park is drawn during construction and applied directly to that project.
• Per-MW profitability undisclosed: An analyst requested operating and net profit per megawatt for the renewable energy segment; management responded with total investment, equity range, and total annual profit on equity, not the requested per-unit metric.

Guidance & Commitments

Key Metrics