ReNew Energy Global Plc (NASDAQ:RNW) Q1 2023 Earnings Call Transcript

ReNew Energy Global Plc (NASDAQ:RNW) Q1 2023 Earnings Call Transcript August 21, 2023

Operator: Thank you for standing by, and welcome to the ReNew’s First Quarter Fiscal Year ‘24 Earnings Report. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Nathan Judge, Head of Investor Relations. Please go ahead.

Nathan Judge: Thank you, Jason, and thank you, everyone. Good morning, and thank you for joining us. On Friday evening, the company issued a press release announcing results for its fiscal first quarter ended June 30, 2023. 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; Kedar Upadhye, our CFO, and Vaishali Nigam Sinha, Chairman, Sustainability. After the prepared remarks, we will open up the call for questions. Please note, our Safe Harbor statements are contained within our press release, presentation materials, materials available on our website. These statements are important and integral to all our remarks.

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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 the presentation on our website for a more complete description. Also contained in our — on our press release, presentation materials, and annual report or certain non-IFRS measures that we reconcile to the most comparable IFRS measures, and these reconciliations are also available on our website in the press release as invitation materials and on our annual report. It is now my pleasure to hand it over to Sumant.

Sumant Sinha: Yes. Thank you, Nathan. Good morning, everybody. I’m glad to have you all on our Q1 FY ‘24 earnings call. In a couple of days, we will be commemorating the second anniversary of our listing on NASDAQ. A significant journey that has been made possible by the support of all of our stakeholders and the dedication of our committed employees. As we approach this milestone I send my heartfelt gratitude to all our stakeholders, which includes our investors and analysts, our board members, the Domestic and International Banking and Lending community, our business partners, regulators, and government authorities in India and abroad, multiple customers and offtakers when we have the pleasure of serving our supplies and technology providers, global rating agencies, multiple contractors and agencies, who make the execution of projects possible on the ground.

And of course, our employees rub in incremental in our achievements thus far. This anniversary provides an opportunity to reflect upon our journey so far. There has been significant growth in the last two years. Despite all of the considerable hurdles, including COVID, supply constraints and inflation, our operating portfolio has grown from 5.7 gigawatts to 8.4 gigawatts since Q1 FY ‘22, an increase of about 47%. Our portfolio grew by over 3 gigawatts during that time. And importantly, we ink all the PTAs on essentially all of our megawatts in our portfolio, thus lowering the offtake risk on our growth outlook considerably, compared to two years ago. Our trailing 12-months adjusted EBITDA has risen by 41% and our run rate adjusted EBITDA increase even more on about 60%.

In addition, we have improved our GSO significantly, cutting the time to get paid by more than half from over 260 days to around 114 days, that’s 114. And we believe that there is some further scope for improvement. Not only this, but we have been recognized as one of the top-rated ESG companies globally by several rating agencies. Moving to the highlights for the quarter on page six, let me begin by delving into the strategic partnerships with global industry leaders that are propelling our growth. We recently signed an MoU with Petronas’ Renewable Energy and Gentari for evaluating the joint development of 5 gigawatts of renewable energy assets. We believe that this and other partnerships that we have executed over the past two years forced with globally recognized industry leaders does illustrate our differentiated competitive advantage.

This endorsement also underscores the value of collaboration in the pursuit of sustainability while providing lower-cost capital. In addition, we have recently ink MoUs with PFC and REC with the Government of India-owned financial institutions to fund the power sector. For debt funding of approximately $7.8 billion combined. Furthermore, we have secured a financing arrangement of $230 million from the State Bank of India for our Peak Power project. These financial partnerships enable us continued access to among the cheapest project debt in the country at a must faster pace and a larger quantum. In the first quarter of the fiscal year ended 2024, we commissioned 415 megawatts related to our B2B segment and we are poised to commission between in 1.3 gigawatts and to 1.7 gigawatts of projects during the remainder of this fiscal year.

Our Peak Power and RTC projects standout as our most expensive and complex undertakings to-date, as well as significant contributors to our expected 35% plus EBITDA growth next year. I am pleased to report that the construction progress for these projects remains on track and we are confident of meeting the guidance provided with our Q4 FY 2023 results. The conducive auction market along with a higher rate of auctions continues to yield favorable outcomes in auction win with attractive IRRs. Year-to-date, we have secured approximately 3.5 gigawatts of additional capacity on another 25% above our current 13.7 gigawatt portfolio setting the stage for another leg of growth above the 45% in adjusted EBITDA growth over this fiscal year. This momentum is set to continue as we strategically engage in auctions that provide opportunities for attractive returns.

It is important to note that these megawatts, I am not yet incorporated into our portfolio, but we do expect to include them in our portfolio and adjusted EBITDA run rate guidance over the next six to nine months as we sign these PPAs. We are beginning to see the value of the platform being converted into results as well. We report a profit after tax of $36 million, one of the highest we have ever made in any quarter, and foot on track to be around breakeven in profit after tax on an annualized basis going forward, subject to the stability of currency and interest rates. Overall, the first quarter results for EBITDA were marginally higher, and on PAT substantially higher than our internal budget. Turning to page six, I am pleased to share with our investors that our asset recycling initiative remains on its positive trajectory, effectively addressing our equity capital needs for our recent wins.

In notable development on this front, as I said, is the MoU that we have recently entered into with Gentari for exploring joint development ventures, encompassing 5 gigawatts of renewable energy assets. The partnership provides us a clearer visibility on the source of capital for future growth and demonstrates the capital discipline that we have committed to our investors. Our commitment to advancing energy transition solutions for our partners remains steadfast. This strategic partnership is in addition to the 403 megawatt deal that we signed with Gentari earlier in the year, for which we have realized the equity proceeds during the current quarter. Our intention is to build 3 gigawatts to 4 gigawatts each year, and we believe we will be able to fund that equity through the current cash on our balance sheet, as well as through our internal cash flow generation.

It is important to reiterate that we have no intention of issuing shares. We think that asset recycling will provide the equity funding for the next phase of growth that we alluded to before. Not only does asset recycling provide a lower cost of equity than issuing shares, it also provides us better returns and capital employed in the long run, and illustrates that the inherent value of the portfolio is significantly higher than the implied multiple of our stock. The funds generated through our asset recycling efforts continue to fuel our growth trajectory, which has been sustained over the past several years. Our focus remains firmly therefore all the strategy designed to bolster our balance sheet and to enhance returns for our shareholders.

Till date, we have successfully secured $550 million of equity through strategic partnerships, including the equity funding of the 403-megawatt project comes entirely. We have raised funding through partnering with global leaders such as Gentari, Mitsui, Norfund, and other valued investors. Additionally, we are considering a sale of 100 megawatts of solar assets in Karnataka and our classified to related assets as held for sale in our accounts, we expect the closure of this deal by the end of the calendar year. Moving to page eight. As we mentioned in our last quarter earnings call, a significant development occurred earlier this year when the Ministry of New and Renewable Energy unveiled an ambitious calendar outlining a plan to auction 50 gigawatts of renewable energy projects every year.

This announcement has triggered a surge of activity, and notably, there has been a substantial uptick in the frequency of auction announcements, spanning various renewable energy segments, in particular, complex projects. We are seeing less competition in many recent auctions, resulting in higher implied IRR for bids that are clearing and this trend is even more obvious for auctions for complex projects. Our in-house Wind and Solar EPC capabilities and supply certainty provide divided by a now operating solar module plant provide us a distinct edge. As a testament to this, we have successfully won auctions for 3.5 gigawatts of projects above our current portfolio and expected IRRs that are at the high end and possibly even above our current portfolio at our target range.

The wins include a 400-megawatt project with GUVNL at a tariff of INR2.71 for which we have signed the PP a few days back, and this project is not yet included in our committed pipeline. Turning to page nine. The current reporting period has seen the successful commissioning of 415 megawatts of projects, primarily related to our corporate PPA business. With regards to our RTC and Peak Power projects, which represent about three-fourth of our expected 35% EBITDA growth next year. I’m pleased to announce that the projects are approximately two-thirds complete, and we are confident about the commissioning schedule provided in our guidance earlier this year. We do expect to reach our 1.75 gigawatts to 2.25 gigawatts commissioning guidance by the end of financial year ’24.

Turning to page 10. Our manufacturing plant commenced module production in June 2023 and is now at full production. Our 4 gigawatt facility will provide us with an assurance and module supply, streamlining our project construction efforts and giving us a competitive cost advantage relative to imports or tooling. Further, the facility will help us in controlling the quality of output, ensure sales efficiency by minimizing reliance on OEMs and potentially save O&M costs. For most of our competitors getting solar module is currently an issue. There is, at this point, a significant supply deficit in the country, compared to the demand that exists right now. And most of what is being produced is either being exported to the U.S. or is meant for internal consumption or is old technology and high cost.

Importing is not a good option either as there are significant import taxes. Or is not allowed by the non-tax import barrier of ALMM, which, of course, as you know, has been deferred until early next year. Sourcing modules globally is a challenge for nearly all of our competitors. Our solar module plants will not only ensure a stable supply that should also provide us with a cost advantage. With that, I would like to turn it over to Kedar to go over the latest financials. Thank you.

Kedar Upadhye: Thank you, Sumant. Turning to page 12. The Indian government remains steadfast in its commitment to establishing robust framework for facilitating the funding of sizable projects at highly competitive interest rates. The timely closing of financing is a critical factor, as you know, in project completion schedule and cost efficiencies. The MOUs for $7.8 billion we signed with Power Finance Corporation and Rural Electrification Corporation holds significant importance to us. Not only do they bolster our credibility in the Indian renewable energy industry, they also illustrate our strong relationship with these institutions. We expect debt financing at more favorable terms than those currently prevailing in the market.

Furthermore, these agreements are poised to have the way for securing substantial funding for projects with larger capital requirements and collaboration with these entities reinforce our commitment to optimizing financing revenues. Thereby advancing our projects towards completion on time and with enhanced cost effectiveness. I’ll now move to slide 13, which provides the highlights of the first quarter of the fiscal year 2024. Overall, the quarterly performance was in line and in fact, marginally higher than our internal budget, and we are on track to meet our guidance for the fiscal year. We reported a profit after tax of $36 million, as compared to a loss of $1.2 million last year. The reported profit is one of the highest ever reported by us.

Our installed capacity increased from 7.6 gigawatts in Q1 FY ‘23 to 8.4 gigawatts in Q1 FY ‘24, an increase of 10%, compared to the same quarter in the previous year. Wind PLS were lower, compared to the levels achieved in the prior area, but we had captured this in our FY ’24 guidance. Turning to page 14, our adjusted EBITDA of the first quarter of fiscal ’24 stands at $222 million or 8% lower than the last year, primarily on account of low merchant revenues, wind PLFs and higher expenses, which were planned. As stated previously the Q1 FY ’24 EBITDA is slightly ahead of our into budget and was factored into our fiscal 2024 guidance. Turning on to Page 15. Our efforts to improve collections and past due receivables from the state distribution companies continue to show results.

The DSO’s further improved to 114 days from 232 days for the same period a year ago, an improvement in our collection cycle of over two months. Our efforts to reduce the amount of time it takes to get paid, generated about $108 million in our cash flow over the past 12 months. As state DISCOMS continue to make payments on over the amounts and all our growth is with entities that pay on time, we do expect DSO days to contract further over time. Going through a summary of our balance sheet on Page 16, we have close to $834 million in liquidity, including cash and bank balances. During the current quarter, we raised close to $397 million in debt, and our current net debt stands at $5.8 billion. On the following slide, we have provided more detail around our sources and use this to fund the CapEx to complete our 13.7 gigawatt portfolio.

Please note that we expect to be able to fund our portfolio with cash on our balance sheet. As well as in full cash flow generation, and we have no intention of issuing shares for developing the current pipeline. With that, I would like to turn it over to Vishaili to talk about our ESG initiatives.

Vaishali Nigam Sinha: Thank you, Kedar. Now turning to page 19. As many of you know, at ReNew, we have an ESG committee at the Board level, which highlights how important sustainability has been at ReNew — and continues to be. ReNew is one of the pioneers in the industry to disclose scope 3, GHG emissions through an inventory-based approach across all relevant categories in our annual report and CDP submission. In fiscal year ‘23, with the deployment of robotic cleaning and condition-based module cleaning, we saved about 313,000 kiloliters of water, which is an improvement of about 48% year-on-year. We have achieved carbon neutrality for our operations across all our sites three years in a row now. For our SBTi net zero target, we have a 4.8% reduction in Scope 1 and 2 emissions.

In the first year of disclosure. There has been significant progress in avoided emissions powering about 4.8 million homes with clean energy for fiscal year ‘23, marking a 20% year-on-year increase. In recent time, biodiversity has worked into a pivotal concern within the renewable energy sector. And with this in mind, we are glad to announce the release of our biodiversity policy for ReNew. Our CSR journey began in 2014. And since then, we have benefited the life of over 1 million people across 500 plus villages in India standing over 10 states across the country. Now let’s turn to page 18, where I would like to switch to the specifics of some of our efforts. Lighting Light. This is an initiative where we electrify schools with less than three hours of electricity using solar off-grids.

Till date, we have electrified 120 schools and established 54 digital learning centers. We have recently entered into a long-term partnership with HSBC to electrify 75 schools across our areas of operation. Women for climate. In this program, our efforts include more women in the energy sector, we have programs on green skilling in partnership with UNEP, which is the United Nations Environment program. We are skilling traditional women [Technical Difficulty] farmer in Gujarat to become renewable energy technician. Community Base water management — in this program, arid region of Rajasthan and Gujrat, we’ve depleted 10 lakes constructed 120 somcards and have excavated 18 waterfalls across these regions to provide access to drinking water to communities, which is a critical need of this.

We have kick started the fiscal year ’24 disclosure cycle to the submission of CDP climate change. Over the next couple of months, we will also be releasing our fiscal 2023 sustainability report and look forward to sharing the highlights of this in our next earnings call. With that, I turn to Sumant for comments on our fiscal year ’24 guidance.

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Q&A Session

Sumant Sinha: Yes. Thanks, Vishaili and Kedar. The first quarter was in line with our internal budget, and we are on track to achieve our fiscal year ’24 guidance, and we are confident about our run rate numbers. While we are focused on delivering the projects in the current fiscal, we have started executing the plan for the remainder of the pipeline that is due for completion towards the end of FY ‘25. With regard to our buyback, we have repurchased 34.5 million shares to date, which represents about 32% of the free float at the time of listing. We have about $35 million of authorization remaining, which would represent about 5% to 7% of the total ratio. With that, we will be happy to take questions. Nathan, over to you.

Operator:

A – Nathan Judge: Thank you. [Operator Instructions] The first question comes from Justin Clare from Roth MKM. Please go ahead.

Justin Clare: Yes. Hi, thanks for taking our questions. SO first off here, I was wondering, could you talk about the projects that were completed in Q1? It looks like those projects were completed ahead of the target targeted COD dates. So just wondering what may have enabled you to complete those projects earlier than expected? And then also looking at your other project time lines, it looks like 300 megawatts of utility-scale solar projects were moved forward in terms of their COD dates about a year. So maybe you can just speak to project time lines in general. Are you seeing them shorten and what might be driving that trend?

Sumant Sinha: Sure. Thank you, Justin. Always good to talk to you. Look, I’ll answer the question in general. And then for the specific project that you refer to, I’ll defer to Nathan or Kedar. Look, as far as project execution timelines are concerned, I wouldn’t say that there’s been any dramatic change in terms of pulling things forward in general or the times are shortening. I think it not depends on the overall availability of transmission, land and so on. And that, I would say, is going as per plan at this point It could be that there are a couple of projects here and there, there maybe we were able to quicken demand acquisition process or something like that. And therefore, we might have speeded them up. But there is no — I won’t say that there’s a systemic improvement in time lines at this point in time.

As far as the first quarter the project commissioning is concerned, yes, we did put a lot of effort to make sure that we got those done in the month of June itself before the monsoon really started, because that ones that happens when construction becomes a really harder. So we did put some extra effort behind making sure those projects would get commissioned in Q1 itself. So one just to sort of segregate another area, of course, one important thing that is happening is that module prices have gone down quite substantially. And in some ways, this is actually a very, I think, strongly reaffirmed the plan that we had of postponing execution from last year, because now we are seeing module prices coming down very, very sharply. And that is actually helping us decrease CapEx of our solar plants very substantially.

As you know, now we’re getting Mono-PERC modules per bot at a price of about $0.15 to $0.17, which is just unbelievable, because compared to last year, getting modules at $0.24, $0.25, prices have come off very dramatically since then. So that’s really, really, I think, just put into stock sort of affirmation of the fact that we have taken the decision to postpone of the plant, and that is really benefiting us now.

Justin Clare: Okay. Great. That’s helpful. And then maybe just shifting to the 3.5 gigawatts that you had won at auction year-to-date here. I was wondering if you could just talk through the time lines there. When could you potentially sign the PPAs. And then when could the COD dates likely be for that capacity? And then this is a very significant amount of capacity one in a short period of time here. Does that affect your plans for bidding going forward? Because I know you’re kind of targeting a 3 to 4 gigawatt per year run rate? You’re already there essentially with the capacity that you’ve won at auction. So just wondering how we should think about things moving forward.

Sumant Sinha: Yes. So the 3.5, as you know, we run in the last few months. Most of that is to be commissioned in FY ‘26. So if you think about our current pipeline of 5 odd gigawatts that we have committed right now, that will be getting constructed FY ’24 and FY ’25, mostly. And all of this 3.5 will be getting done in FY ’26. So in a way, it just moves forward our execution pipeline to one more year. And as you know, these are just the first projects that have been auctioned this year, we just barely starting the government’s program of 50 gigawatts for the year. There’s another 43 gigawatts of auctions that have been announced that have not happened yet, which will be happening in the remainder of the year. And if you go with our regular market share of 10% to 12% or thereabout, then you should expect that we can pick up a lot more capacity out of that.

Now the question for us, of course, is as you rightly said, when will that be commissioned and we’ll be ready for execution. And so the future projects that come up will probably be towards the second-half of FY ’26 or FY ’27. And so to that extent, we might selectively build some more projects from this point on in the next few months just to make sure that we have sufficient sort of capacity build-out happening into FY ‘27 as well. PPA signing to your question on that, does take a few months. It also depends on the nature of the project. Out of that 3.5, as you know, 400 megawatts with the Gujarat government has just been signed already. So that actually should go into our committed pipeline. But there’s another three different projects that are there that account for the balance 3 gigawatts.