SJVN Ltd Q2 FY2024 Concall Summary

Key Takeaways

• A new profit pool opens: SJVN’s designation as a Renewable Energy Implementation Agency (REIA) unlocks a capital-light, fee-based income stream that management expects to deliver ~INR4,000 crores of pure profit by FY29/30.
• Core hydro hit by nature: Generation fell ~3% YoY and plant availability dropped to 105% after unprecedented floods forced four-day shutdowns on the Satluj, compressing revenue and incentives.
• Execution delays are stacking up: Arun-3 commissioning slips to next financial year after a diversion tunnel cavity, Buxar’s first unit will miss its year-end target on land acquisition issues, and three Himachal projects remain stuck without an implementation agreement.
• The REIA tender engine is running: The first 1,500 MW RTC tender closed at a discovered price of INR4.38/unit, with 1,138 MW allotted; management targets floating 10 GW of REIA bids annually.
• What to watch next quarter: Whether the Arun-3 diversion tunnel is repaired by mid-December as promised, any movement on the Himachal Pradesh implementation agreement, and the pace of Q3 capex catch-up against the INR10,000 crore full-year target.

The REIA Model: A Capital-Light Profit Engine

• What REIA is: The Government of India designated four agencies (SECI, NTPC, NSECE, and now SJVN) to act as intermediaries that aggregate demand from DISCOMs, tender out renewable energy capacity, and earn a fixed arranger commission of INR0.07 per unit. SJVN carries no default risk: agreements are tripartite, backed by a payment security fund, and if a DISCOM fails to pay the developer, SJVN can escalate directly to the ministry.
• The first tender closed successfully: SJVN floated a 1,500 MW Round-The-Clock tender (RE plus battery energy storage), received bids for 1,184 MW with a green shoe option, and allotted 1,138 MW to five developers at a discovered price of INR4.38/unit. Management called the price "quite reasonable" for ~17 hours of firm renewable power.
• The annual bidding ambition: SJVN targets floating at least 10 GW of REIA capacity every year, split across 3 GW RTC, 3 GW hybrid (wind plus solar), 2.5 GW exclusive wind, and 1.5 GW exclusive solar. Tenders for solar, wind, and hybrid will be floated shortly.
• The profit ramp, per management: Revenue from REIA begins in FY26 (energy generation starts 1.5 to 2 years after tendering). Profit is expected to scale from ~INR231 crores in the first year to ~INR460 crores in the second, tripling in the third, and reaching an additional ~INR4,000 crores of pure profit within five years. PPAs under this model run for 25 years.
• The demand thesis: Management is "very much optimistic" about hitting the 10 GW annual target because energy demand is rising, thermal and hydro projects take too long, and the RTC model backed by battery storage is the best fit for states. Some states are customizing or planning at their own level, but the model is gaining traction.

Sharma: "So this is the new business model which will be adding to our existing operations or existing capacity or existing portfolio. This will be the additional source of income for the company and we are sure that, the target which we have kept that another 10,000 megawatt in the next three years and another 23 megawatt in the next seven years, so we will reach 25 gigawatt by 2030."

Quarterly Performance: Floods Dent Hydro Output

• Generation-led revenue dip: Total generation fell to 420.2 crore units from 432.7 crore units last year, a ~3% decline driven by lesser river discharge and forced project shutdowns during unprecedented floods in Himachal Pradesh. Revenue from operations consequently slipped 1.1% to INR870 crores.
• Plant availability suffered: The plant availability factor dropped to 105% from 109% because projects on the Satluj river had to be shut continuously for four days to prevent damage from high flood levels. Total incentive income fell to INR59.44 crores from INR73.73 crores.
• Other income cushioned the bottom line: Other income nearly doubled to INR81.95 crores from INR40.52 crores, helping profit before tax rise by INR20.57 crores to INR555 crores. Profit after tax still declined by INR9.7 crores to INR441.35 crores as expenses edged up by INR10 crores.
• Balance sheet strengthened: Net worth rose by INR318 crores to INR14,280 crores, and book value per share increased to INR36.36 from INR35.55.

Project Execution: Three Delays, One Near-Term Fix

• Arun-3 (Nepal): diversion tunnel cavity pushes commissioning to next financial year. Early monsoon floods caused a cavity in the diversion tunnel. The cavity has been treated and heading is complete, with most benching also done. Management expects the tunnel to be back in shape by mid-December, allowing dam concreting to start. HRT excavation has only 400 meters left, and the powerhouse and transformer hall are at an advanced stage.
• Buxar thermal: first unit will miss the year-end target. Additional land acquisition for the railway siding and water corridor ran into farmer objections over compensation. The matter went to the appellate court; the process is nearly complete and land has been handed over, but the delay means the first unit, originally expected by end of this financial year, will slip.
• Luhri, Sidney, and Dolasin (Himachal Pradesh): stuck without an implementation agreement. An MOU signed in 2019 required a mutually agreed implementation agreement. Terms were agreed by August 2022, but after a change of government in December 2022, the new administration sought to revise conditions on free power and SGST reimbursement. SJVN argues the projects were appraised and approved by the cabinet committee on economic affairs on the original terms, and revising them would make the projects unviable. Discussions on settlement methods are underway with no timeline.
• Capex is back-end loaded: First-half capex reached only INR3,800 crores against a full-year target of INR10,000 crores because Q1 and Q2 were disrupted by floods. Most of the planned spend is now expected in Q3 and predominantly Q4. Next year’s target is around INR12,000 crores.

Sharma: "Now we expect that by mid of December, this diversion tunnel will be back in shape and water will be diverted through that and we will be able to start the concreting work of the dam also."

PPA Strategy: Shorter Tenures, Better Prices

• Nathpa Jhakri is commissioning this month with no long-term PPA lock-in. SJVN is in discussions with J&K, Uttarakhand, NDMC, and other states to sell power. Management explicitly ruled out a 35 to 40-year PPA, preferring 5, 10, or 15-year agreements depending on the price obtained. If no good bilateral option materializes, the company is free to sell on the exchange.
• Arun-3 offtake is being negotiated for commercial benefit. An MOU is already signed with PTP and ReNew for power purchase, and other state governments have expressed interest. SJVN will go with whichever party offers the most commercially beneficial rate.
• Water sale charges dispute remains unresolved. The Himachal Pradesh government has levied water sale charges of INR138 crores. The matter is sub judice in the high court; SJVN is not paying currently. The Government of India has directed CPSC to wait for the court’s decision and issued clarification on who is competent to levy such taxes. The next hearing is in December.

Guidance & Commitments

Key Metrics