IGI Logo

Merchant volumes impact profits

Torrent Power’s (TPW) Q1FY22 performance was influenced by: 1) bad debt provisioning of Rs210mn at distribution franchises (DFs), 2) lower merchant sales and net contribution, 3) improvement in DF businesses’ profits YoY, and 4) lower interest cost. On consolidated basis, revenues were up 3.1% YoY at Rs31bn, but EBITDA was down 24.9% YoY at Rs7.3bn.

Reported PAT came in at Rs2.1bn (down 44.6% YoY), but adjusted PAT was up 23.6% YoY at Rs2.3bn. TPW’s focus on renewables continues with the acquisition of an operational 50MW solar asset, 400MW under-construction projects, and revival of 115MW SECI-V wind project. Distribution business profits are expected to remain on the recovery path. However, higher gas prices may continue to affect merchant volumes and contribution. Maintain REDUCE.

* Generation flat YoY as merchant sales dipped: Conventional generation remained largely unchanged YoY. However, higher gas prices resulted in 85% decline in merchant volumes at 139MU and 95% decline in net contribution at Rs0.02/unit. As a result, there were no operations at DGEN (vs 736MU generated in Q1FY21) and gas generation EBIT declined 82% YoY to Rs170mn. Higher demand at DL areas aided growth at AMGEN (up 327% YoY), SUGEN (up 4% YoY) and UNOSUGEN (up 101% YoY). RE generation was 3% lower YoY.

* Q1FY22 PAT was impacted by: 1) Bad debt provisioning of Rs210mn at DFs due to deferment of recovery of arrears, 2) finance cost decline of Rs580mn YoY due to lower rate of interest (130bps lower YoY) and lower debt (by Rs11bn YoY), 3) lower merchant volumes and net contribution, 4) 25MW reduction in PPA with PTC for SUGEN (impact of Rs40mn), 5) lower PLF in renewables (impact of Rs110mn), 6) Rs130mn higher O&M expenses YoY due to increased operational activities.

* Distribution businesses performed better YoY: Demand was higher YoY at all distribution areas (due to less severe lockdown vs Q1FY21). Demand in DL areas was up 39% YoY, and in DFs up 37% YoY. This helped improve DF businesses’ PBIT to Rs1.41bn in Q1FY22 vs Rs160mn in Q1FY21, and of DL businesses to Rs2.1bn from Rs1.9bn in H1FY21 (Rs9.5bn in FY20).

* SECI-V project to be revived: SECI has extended the CoD of the 115MW wind project in Gujarat to Feb’22. Necessary permissions are in place. TPW is reviving the project and will be acquiring land and equipment. Tariff remains at Rs2.76/unit. Even though the module cost is higher, interest rates are favourable, so TPW can get low-teen IRRs.

* Focus on renewables: Company has signed PPAs for both 100MW GUVNL and 300MW own discom projects (land acquisitions in process). Deadline for ordering modules is Jul’22 (can be extended). TPW has also acquired a 50MW operational solar project. EV of the project is Rs3.17bn (Rs1.96bn debt, Rs1.21bn equity, of which Rs220mn is cash). Project has a balance life of 22 years and clocked an average PLF of 21.6% in the last three years. TPW expects some savings in O&M cost post integration.

* Valuation: We maintain our REDUCE rating and target price of Rs409 on TPW due to near-term headwinds of high RLNG prices. However, improving demand and upcoming capex are the positives.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer