ReNew Energy Global Plc (NASDAQ:RNW) Q4 2023 Earnings Call Transcript June 7, 2023

Operator: Thank you for standing by, and welcome to the ReNew Power Fourth Quarter FY ’23 Earnings Call. [Operator Instructions] I would now like to hand the conference over to Mr. Nathan Judge, Investor Relations. Please go ahead.

Nathan Judge : Thank you, Darcy, and good morning, everyone, and thank you for joining us. On Tuesday evening, the company issued a press release announcing results for its fiscal fourth quarter ending March 31, 2023. A copy of the press release and the presentation are available on the Investors Relations section of ReNew’s website at www.renew.com. With me today are Sumant Sinha, Founder, Chairman and CEO; and Kedar Upadhye, CFO. After the prepared remarks, we will open up the call for questions. Please note, our safe harbor statements are contained within our press release and presentation materials and materials available on our website. These statements are important and integral to all our remarks, and 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 have furnished in our Form 6-K and the presentation on our website for a more complete description. Also contained in our press release, presentation materials and Annual Report are 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, presentation materials and Annual Report. It is now my pleasure to hand it over to Sumant.

Sumant Sinha : Thank you, Nathan. Good morning, good evening, good afternoon to everybody on the call. I’m glad to have you join us on this — on ReNew’s Q4 FY ’23 earnings call. At the beginning, I thought it will be good to state to start with three key thoughts. Firstly, the Indian renewable energy market is getting stronger and has seen very encouraging developments recently. The Ministry of New and Renewable Energy, which is tasked with the renewable energy sector in India has increased the pace of auctions by threefold to 50 gigawatts for FY ’24 and onwards, just from this April onwards. More importantly, the majority of this increase is expected across complex and wind auctions where we have proven strong competitive advantages.

In fact, in the first few of these auctions, we have good use to report in terms of a complex bid one with quite a healthy IRR. We will obviously talk more about this and other select corporate and state-level bids once we sign the PTAs. We are also pleased to announce that we have entered into a joint venture with Petronas Renewable Energy subsidiary, Gentari, on our Peak Power project. As you know, we view capital recycling as a pillar to enhancing shareholder value. In addition to these positives, there are a number of steps taken by regulators to ease doing business for players like us, including the successful continuity of the Late Payment Surcharge scheme, which has substantially improved our DSOs to 138 days as of March 31. All these and other developments indeed give us strength to build our growth trajectory in this market.

Secondly, ReNew, as you know, will complete two years of being listed on the NASDAQ in the next couple of months. And in this period, we have built up our organizational footprint and capabilities across key areas to respond to the global climate transition opportunity. We have developed strong talent bench strength by onboarding several key leaders in key functions of project execution, regulatory, business development, digital and solar manufacturing apart from four additions on our highest level management committee with leaders from diverse global backgrounds. There have been multiple steps taken by us to enhance our readiness for the future. As an example, we are seeing good momentum on our solar manufacturing operation to provide critical supply security and cost advantages to our core renewable energy development business.

During this period, we have also bolstered our own wind EPC capabilities to deliver projects at scale. We continue to engage with stakeholders and have seen good traction in our sustainability ratings. As you are also aware, our largest investor, CPPIB, has increased their economic stake to 52% in the company. All these important milestones certainly position us as a stronger climate transition leader. Thirdly, on Page 6, we continue to execute well on the other important building block of financing. During FY ’23, in a difficult debt environment, we successfully refinanced more than $1 billion of maturities by reducing the interest cost in favor of rupee-based loans. As mentioned earlier, we have signed a JV agreement with Petronas, who is keen to enhance their presence in renewables, and we have received the first tranche of their equity contribution for the Peak Power project.

We hope to build on this alliance further. In parallel, we are exploring monetization of our assets that we have. We programmatically intend to execute on asset recycling initiatives as a way to enhance shareholder value. That also enables us to enhance returns, raise funding at higher multiples than our share price implies, which further supports targeted growth at healthy returns without issuing new shares. Turning to Page 7; MNRE’s recent push to accelerate the annual auction pace to 50 gigawatts around 3x the amount auctioned over the last couple of years each and a shift towards a higher percentage of complex projects provide significant market opportunities for us. At the same time, we are seeing less competition leading to higher tariffs in recent auctions, combined with our differentiated ability to execute on complex projects, IRRs in recent auctions that we have won are some of the highest we have seen in the past several years.

As a case in point, there was a recent auction for peak power supplies, where we were one of the biggest winners. While I’m conscious that the PPA is yet to be signed, this is a complex project, which will require a significant amount of wind capacity to meet the daily dual peak and high PLF delivery requirements. This complexity clearly resulted in much higher tariff bids from our competitors. In fact, out of the — out of the 12 bidders, most had final tariffs that were 10% to 20% higher than where we won, which we believe illustrates that we have won, if not the lowest cost supplier of complex projects in the country. The tariff we realized was about 35% higher than the tariff on our earlier RTC project and while the CapEx is not expected to be much higher on a normalized basis.

Said another way, this project and similar other projects are expected to have IRRs that are above even the high end of our targeted range of IRRs. Put simply, as seen on Page 8, ReNew has a significant competitive advantage in complex auctions. We are one of the few Indian IPPs with in-house wind EPC, vertically integrated solar execution and a JV partner with strong credentials for battery storage systems. The proprietary data related to wind gathered over the years, coupled with our digital platforms takes us to an advantageous position. There is a dearth of EPC and operating capability in India in wind at scale and even less capability to deliver wind, solar and storage seamlessly. We are happy with the outcome and expect to sign the PPA later this year.

Do note that we do not include winds into our portfolio until we sign a PPA. Turning to Page 9, we are happy to share that we expect to complete 1.75 gigawatts to 2.25 gigawatts of execution during financial year ’24 and the remaining 3.5 gigawatts to 4 gigawatts of under construction capacity during FY ’25. Do note that while execution will be spread throughout the year, a large part of the capacity is expected to come online during the last quarters of the respective fiscal years, which limits the profit contribution in the year of commissioning. We have further derisked our growth in FY ’25 since the last time we spoke with you as our two biggest power projects, the round-the-clock and the peak power projects are well advanced in multiple stages and on track to get completed by the end of the current fiscal year.

Please also note that there have been cost savings relative to late last year when we would have had to buy modules in order to deliver these projects on the timelines originally discussed. These two projects represent the largest chunk of our 35% plus growth in adjusted EBITDA in FY ’25. Our manufacturing facility is expected to start production by early next quarter and provide much needed security of supply, given the supply side challenges in solar module sourcing in India currently. With that, I would like to turn it over to Kedar, our CFO, to go over the latest financials. Kedar?

Kedar Upadhye: Thank you, Sumant. I’ll now move to Slide 11, which provides highlights of the fiscal year 2023. Our portfolio increased from 10.7 gigawatts to 13.7 gigawatts in the current fiscal year, an increase of 28% compared to the prior year. Total income of revenues for fiscal ’23 increased from $912 million to $1.1 billion, an increase of 29% on a Y-o-Y basis. FY ’23 adjusted EBITDA increased 12.4% during the fiscal when compared to the prior year, and our cash flow to equity increased 18%. The wind PLF and solar PLFs are roughly at the same levels achieved in the prior year. However, as a recent wind resource study conducted by the industry expert syndicate, the expectation is that it is highly likely that the abnormally low wind resource over the past several years is expected to normalize in the coming years.

Turning to Page 12, which provides a reconciliation of adjusted EBITDA, which stands at $753 million or 12% higher than the last year — despite poor wind resource and relatively lower carbon credit sales than the last year. You may have noticed that our EBITDA margin is lower at an overall company level compared to prior periods. In reality, EBITDA margin for our core business is similar at around 80.3%. The reported overall EBITDA margin is a bit distorted by the accounting for our transmission projects, wherein we are mandated to follow the requirements of IFRS standard IFRIC 12 on Service Concession Agreements. This added about INR 27.5 million to income and INR 7 billion to cost of goods sold, making the impact on adjusted EBITDA limited at INR 0.4 billion.

This reporting is applicable during the period which constructs the transmission assets subsequent to which the annual income under the PPA will get reported. Turning to Page 13, we continue to put efforts to improve collections and past due receivables from the state distribution companies. The year-end DSO improved, as Sumant highlighted by nearly 50% over last year, a reduction to only 138 days. Discoms continue to make payments on overdue amounts, and we continue to expect further improvement in our DSOs over time. As an increasing percentage of our sales will be to Central Government-owned authorities, which [indiscernible] these bill probably around time. Going through a summary of our balance sheet, we have close to INR 77 billion in liquidity, including cash and bank balances, which is pretty healthy.

During the current quarter we raised close to $600 million in debt, and our current net debt stands at INR 455 billion. With that, I will turn to Page 16 and talk about our ESG initiatives. As our Chief Sustainability Officer, Mrs. Vaishali Sinha is not able to join us for the call today due to her travels. We are committed to setting new benchmarks on all fronts of ESG vision, performance and transparency. First and foremost, we are thrilled to announce that ReNew’s near-term and net zero target for 2040 has been officially validated by the prestigious Science Based Targets Initiatives or SBTi. As you know, SBTi recognizes businesses that set ambitious emissions reduction targets in line with the latest climate science. This reinforces ReNew’s alignment with the Paris Agreement and alliance our aspirations with efforts to limit global warming to 1.5 degrees Celsius above pre-industry levels.

On net zero target, ReNew commits to reach net zero GHG emissions across our value chain by fiscal 2014, and we commit to reduce our absolute Scope 1, 2 and 3 GHG emissions by 29.4% by fiscal ’27 from a fiscal ’22 base year. Our latest ESG ratings and scores are testimonials to our endeavors on performance and transparency. As a validation of our ESG commitment and performance, we recently received a rating of 11.6% from Sustainalytics, Global ESG ratings company. This ranks ReNew as number 10 globally in the utilities category and number seven globally in renewable energy category. Furthermore, ReNew received a rating of A minus as its supplier engagement rating for 2022 by CDP, which puts us in the leadership bank. ReNew’s ACR is higher than the Asia regional average of C and higher than the renewable power generation sector average of B minus.

A new minus rating from the CDP ACR for ReNew reflects that the company is implementing current base practices to accelerate action on supply chain emissions. With that, I will turn it to our CEO, Sumant, for comments on our FY ’21 guidance.

Sumant Sinha: Yes. Thank you, Kedar. With regard to our guidance outlined on Slide 18 for FY ’24, we expect adjusted EBITDA to be in the range of INR 60 billion to INR 66 billion. Given that we are committed to delivering on our commitments, we have made conservative assumptions related to continued poor weather, completion of projects and practically no contribution from M&A and carbon credit sales among other factors. In FY ’25, we do expect to grow adjusted EBITDA over FY ’24 by 35% or thereabouts. And then we reach our portfolio run rate EBITDA in FY ’26, which is essentially fully contracted as of now. With regards to our cash flow to equity, we are expecting about INR 6 billion to INR 8 billion in FY ’24. The decline from FY ’23 reflects extra debt that we have on our balance sheet for delivery of the 5.7 gigawatts under construction at the moment.

Our 13.7 gigawatt run rate CFe remains the same as it was previously. With regard to debt, we believe that debt coverage ratios will be peaking this year as often happens when the large-scale commissioning is in progress, and we will begin to see improvement going forward as the revenues start getting booked. We will also see the benefit from our ongoing capital recycling initiatives. We are expecting net-debt-to-adjusted EBITDA to improve by nearly one turn by the time our 13.7 gigawatt portfolio is completed. With regard to our buyback, we have repurchased now 32.1 million shares to-date, which represents about 30% of our free float. We continue to see our shares as one of the highest return investments of scale in our portfolio. The remaining INR 50 million of authorization represents about 10% to 15% further of the total free float.

With that, we will be happy to take questions, and thank you for listening to us. Nathan, back to you.

Nathan Judge: Hi Darcy, can you please open the call open for questions, please.

Q&A Session

Operator: [Operator Instructions] Your first question comes from Justin Clare from ROTH MKM. Please go ahead.

Justin Clare: Hi. Thanks for taking my questions. So first on this quarter, you added CMB date back for recruiting projects that you have. I was just wondering if you could talk about what has led to the improved visibility that you have in the commissioning timelines? And then just to the uncertainties that initially caused the [indiscernible] and how those have evolved?

Sumant Sinha: Sorry, Justin, I couldn’t get the second part of your question. The first part was around how do we have higher certainty around commissioning, right? And what was the second question?

Justin Clare: Yes, that’s right. It’s just around the improved visibility that you have into project commissioning. And then really, that’s the key part of the question that I wanted to know?

Sumant Sinha: Okay, got it. Yes, yes, sure. So look, the reason we have increased confidence is obviously because while we commissioned fewer megawatts last year, there was a lot of work that was going on for project commissioning for construction on the projects that we were working on. As you know, for the RTC project, just as an example we — on the financing front, did the tie up with Mitsui. We also did the syndicated loan for $1 billion plus with 12 international lenders, of which six were lending into India for the first time. We’ve ordered the machines, the land has been acquired. So a lot of work has happened for both the RTC project and the Peak Power project, which are now in fairly advanced stages of commissioning.

And you will — therefore, we have confidence that over the next few months, you’ll start progressively seeing those projects getting commissioned. So I would say that our confidence really for the commissioning numbers that we’re giving you right now is the progress that we’ve actually made on the ground in a number of our projects that we’re working on right now. So that is really where that confidence emanates from. And it’s really around financing, as I said, in some of the projects, on the Peak Power project, as you see, we’ve also now announced the joint venture with Petronas so both of these large projects, which between the two of them account for almost 2-odd-gigawatts of our portfolio. We have the financing tied up. And as I said, there’s a lot of progress that has been made on the ground in terms of land acquisition, getting the turbine, the equipment ordered and a lot of the work on the transmission side as well.

Justin Clare: Okay, got it. That’s helpful. And then with the accelerated auction plan that was announced by MNRE, I was wondering how you’re thinking about the amount of capacity that you might be able to secure at auction in the coming years, especially if the IRRs are very attractive? So do you anticipate meaningfully expanding the amount of capacity that you bid on and potentially win — just wondering what the limiting factors might be to growth if the opportunity set here has expanded?

Sumant Sinha: Yes, Justin. That’s a great question. So look, the reality is that we, as a country, are moving from a total of about 15 gigawatts of auctions every year. The government’s target is to move that up to 50 gigawatts. And MNRE has come out with a specific note to that effect. They’ve appointed three new bidding agencies on top of SECI. As you know, Solar Energy Corporation was doing the bid so far, but they have appointed three new agencies. There are central government-owned power companies, NTPC, another company called SJVN and the third company called NHPC. So these are companies that have now been tasked with carrying out auctions and selling the power and so on. And MNRE has also come out of the very specific set of, what kinds of auctions will be done in this quarter.

So it’s a fairly granular plan that they have now come out with. And in that plan, they’ve also categorized what kinds of bids will happen. And you can see that the majority of the bids in that are moving towards the complex auctions. And that’s why we talked about that particular point. But to come back to your question, therefore, if the target is to get up to 50, regardless of whether we get to the target amount, there will be a very substantial step up in the number of auctions that are going to happen. And so the question for us is, how much of that do we want to win and how much can we win? So I think our first criteria there is, we obviously want to maintain high IRRs. And there is an opportunity that we are seeing here where we can increase the amount of IRRs that we’re able to make on these projects because of the reasons I talked about, which is the expertise and so on that we now have.

The constraining factors, however, one is financing because it’s obviously only so much that we are willing to stretch our balance sheet. And we’ve given you very clear guidelines on how much we want to get in terms of debt on our balance sheet. And we want to keep it at a certain maximum level. So that is clearly one factor. And the second factor clearly also is execution capability. And on the execution capability front, there are several factors involved. One is, of course, our capability of actually executing projects from an EPC standpoint, and two, is getting access to the right equipment and the right price. And so we just want to make sure that we manage all of these in the most optimal way. And we don’t overcommit to projects that we are then not able to execute properly.

So those are the factors that we want to keep looking at. And within that, we want to just make sure that whatever we win, ends up being at the maximum or the highest possible IRRs. So our sense at this point, Justin, just to answer your question, is that we intend to do about 3 to 4 gigawatts every year. We’re not likely to exceed that. And as we get comfort around execution capability sort of over the next two to three years on that number of megawatts, then we perhaps in future years can think of scaling up the megawatts that we do. But in the near term, our focus will be to do about 3 to 4 gigawatts every year. And for FY ’24 and FY ’25, that is current year and the next year, we already have a pipeline, we already have an execution plan.

So we’re really talking about FY ’26 onwards that we will start with somewhere between 3 and 4 gigawatts and then potentially look to scale it up depending on how all of these factors shape up. But within that, I certainly sense that there’s an opportunity for us to choose and be much more selective about the projects and really win those that maximize our IRR. So I think our ability to deliver higher IRRs therefore all said and done will go up even as our market share potentially comes down a little bit.

Justin Clare: Okay. That’s great to hear. Thanks very much.

Sumant Sinha: Thank you.

Operator: Thank you. Your next question comes from Julien Dumoulin-Smith from Bank of America. Please go ahead.

Morgan Reid: Hi. This is Morgan Reid on for Julien. Thank you for taking my question. Really interesting comments from you all on the complex project successes of late. Can you talk about the expanding opportunity that you’re seeing there presumably the latest auction win and any subsequent wins are going to flow through in FY ’26 just like – you’re just talking about. So can you talk about where we should look for the upside to kind of the current development pipeline in this complex project segment here, and when we could start to see that adding into that 3 to 4 gigawatts of development that you were just talking about?

Sumant Sinha: Yes, sure. So in terms of the complex auctions, for all the reasons that I’ve talked about already, we are, the government clearly is moving in that direction because it is just much easier for the grids and the utilities to absorb power that is meeting a certain generation profile. It’s just as easier for them to then absorb that power. And so they are in some ways therefore passing the responsibility of shaping the generation profile onto us. And that’s fine with us because it allows us to do that shaping, give them a power source that is or a profile that is appropriate for the utility and is still cheaper than the next best alternative which is coal based power. And coal based power today is about anywhere from INR 5 and INR 6 upwards.

If they buy power in the market – in the power markets on a merchant basis, those prices are even higher. And so for them, if they’re able to get anything below INR 5 for this managed profile, that’s a great win for the utilities. And so the tariffs that we won the most recent auction at, which by the way we have not yet put into our committed pipeline because as you said repeatedly, we will only do that once the PPA is signed. But just as an indicator of the direction in which we are heading from an auction and bidding standpoint, we won that tariff, we won another tariff of INR 4.69 or thereabouts. And that was – that compares in some ways with the tariff on our first round the clock power project, which was closer to around INR 3.50. Now of course, a lot of it depends on the shaping that is required of the generation profile and therefore, how much wind, how much solar and how much storage is required.

So they’re not exactly comparable on a like-to-like basis. But certainly, it gives you an indicator that for these kinds of projects, these kinds of generation profiles, utilities are willing to accept a higher tariff. And I think that’s really the – directionally what is going to give us therefore higher IRRs. And in these bids, we are finding fewer participants because they require a large component of wind and wind execution capability in India, as we’ve stated repeatedly is limited. There aren’t really any good EPC providers out there, and we have our own entire EPC team of more than 300 people. The other thing that is also, as we’ve said also repeatedly in the past, there is a constraint, is solar module availability. And government’s policies have put a squeeze on the availability of solar modules in India, which is making it hard for some of our competitors to bid on these auctions.

And this is really where our own solar manufacturing plant, which is now — which is getting commissioned later this summer, really comes in handy. What they’re commissioning right now is a 4 gigawatt module plant. And so that allows us to already have a lot more confidence in being able to source solar modules. So because of all the steps that we’ve taken in the past, and I know that a lot of you had reservations when we got into solar manufacturing, but it was for these reasons that – and we anticipate that this will happen in the Indian market and that this would give us a lot of security. And so the capability of doing wind, the capability of finding out the right ways of combining and the capability of having our own solar supply chain right now is what is allowing us to get much higher IRRs where the market is struggling a little bit.

Morgan Reid: Got it. And I guess in terms of kind of talking about the strategic focuses, I mean I understand that the FY ’23 results were impacted by some of the delays that you’ve all talked about for resource that we all understand. And looking to FY ’24, there are some nuances around project data as you kind of finish out the rest of those development efforts. I mean, I guess can you – where would you point us in terms of kind of the strategic focuses here and going forward and where, I guess, investors should try to get a little bit more comfort in the next couple of years, understand that now we’re all talking about FY ’26 kind of execution. But I guess what would you point to in terms of trying to get confidence around the next couple of years here, any opportunities in front of you?

Sumant Sinha: Yes, Morgan, I would focus you guys on a couple of things. One is, of course, and most critically, which is the point that Justin was also asking about, is project commissioning. I think that is obviously going to be central to hopefully build everybody’s confidence even further in the company. So I think that’s something that we should definitely monitor, and we will provide that information to you as we go forward. And so that will give you confidence around our 24 – FY ’24 and FY ’25 numbers and also, therefore, give you the comfort around what is going to happen in terms of final run rate in FY ’26, which will be manifest in that year. And the second thing, I think you should also look at is bid wins. Now bid wins, we can — we don’t typically talk about that because unless, as I said earlier, it translates into a PPA, we don’t normally put that into up.

We don’t actually put that into a pipeline. But you can track the auctions that happen in India because those are publicly available. Now it may be that there is a lag between the bid win and the actual PPA signing, at which point the bid wins that we have will show up in our committed pipeline, but you can start tracking at least the bid wins. And so you’ll get a sense of which direction is it heading in. But just to make the point again that for us, the market and growth is not a constraining factor because there are going to be enough auctions that will happen. In addition, as you know, the corporate PPA market is doing very well as well. So we’re actually a little bit spoiled for choice right now about how much capacity do we want to win.

And therefore, within that, we can be very selective about which – how to maximize IRRs. And so that’s something that you will not be able to, of course, see specifically. But I think as the number of bids go up, I think you can assume that the wins that we will have, therefore, will be at a higher level of IRR just because we can be more selective now. So those are the two things I would point you to.

Morgan Reid: Thank you. Yes, go ahead.

Sumant Sinha: Yes. Yes, the only the third thing is obviously asset recycling. And so therefore, you can look to some more announcements and so on as we go forward on that front.

Morgan Reid: Great. Thank you.

Operator: Thank you. Your next question comes from Puneet Gulati from HSBC. Please go ahead.

Puneet Gulati: Yes. Hello. And thank you for the opportunity. My first question is if you can give some color on what is driving this delay in commissioning and it seems that there could be cost savings if you can also quantify what kind of cost savings are you looking at in terms of reduced module cost or any change in the wind turbine costs, et cetera?

Sumant Sinha: Yes, Puneet. So as far as the — sorry, the second part of your question was cost saving. What was the first part?

Puneet Gulati: What really led to the delay in commissioning. I mean, earlier plan was to do it in first half, yes.

Sumant Sinha: Yes, yes. That’s right. That’s right. So look, I think the reasons we decided to delay there were, of course, some organic reasons such as some transmission substations that were supposed to come up, those got delayed. There were some equipment supply issues. But I think the biggest reason was really the issue around the fact that the government extended the commissioning deadlines for us by one year? And secondly, the fact that module prices have gone up, and therefore, we were sort of in some — clearly expecting them to go down, given polysilicon adds that were coming up in China. And so the question really for us was whether we should commission projects six months in advance at potentially CapEx’s that were on a per module basis, $0.03 to $0.04 higher or whether we should wait for six months and then commission the project at a lower cost.

Now — in fact, that’s what’s happened in the sense that polysilicon prices have come down because all the poly capacity that has been added in China. And as a result of that, module prices have come down by $0.03 to $0.04. So that is allowing us, therefore, to get our CapEx down by almost about — close to about 7% to 8% for solar projects. Now — so that’s really the benefit that we’ve been able to get by having this delay of 6 to 9 months in project commissioning.

Puneet Gulati: Okay. And can you give us some sense of what kind of module pricing are you getting for deliveries around October, November?

Sumant Sinha: So now the module prices that we are getting – see, it really depends, Puneet, about where you’re getting the modules from because there are three different places where you can get modules from right now for October, November. You can import them from China at about $0.20, $0.21. So in China, at least prices have come down to the levels they had got to earlier. But as you know, you have to pay a 40% custom duty on it. The second source is buying from Southeast Asia, their prices are a little bit lower, so it’s about $0.26, $0.27 compared to the China plus import duties, which is closer to $0.28, $0.29. And the third option is to import the sales and do the tolling in India, in which case, also the sell prices now having come down, allows you to get a price of about $0.25, $0.26.

So being able to import the sales and do the tolling in India, if you have the module capacity is now in some ways, the most optimal solution. Imports from Southeast Asia are somewhat limited because, as you know, most of that capacity is going to China — to the U.S., sorry. So it’s very hard to actually source modules from there. So I would say the price levels today depend on your sourcing or the place from where you’re sourcing the modules from. And the cheapest right now is now turning out to be importing sales and converting them to modules in India, which is why having access to a module capacity production capability in India is very important because as you also know Puneet a lot of the Indian modules are being fracked into the U.S. as well because of the higher pricing there.

So it’s not that the entire module capacity – India is available for sales in India. So that is, I think, what is creating problems for a lot of folks at this point. But as I said, fortunately, we have our own plant coming on stream by this — by the middle of this year by the summer. And so we’ll start getting a lot of our own capacity from the module at the rate of about, let’s say, $0.25, $0.26.

Puneet Gulati: And would you still get the benefit of change in law there or when you buy from your own capacity versus importing from China and getting duty adjusted?

Sumant Sinha: So yes, so it depends Puneet when the bids happen. As you know, bids that happened prior to, I think, 1st, April 2021. Those are grandfather, so those will get change in law. So for those you can still import from China and pay the capital duty, if you’re willing to have that working capital stock for some time, as you know, it takes time to get that refund. But for projects that have bid after that, obviously, you don’t have that benefit. So then you have to go for the India option as being the next place solution.

Puneet Gulati: Okay. Understood.

Sumant Sinha: So that’s really what’s happened. And I would say that most of our projects that are commissioned – getting commissioned right now like RTC and Peak Power, those are all bid before. So those are protected for change in there. Some of the other bids that we won were not protected, and so it’s sort of a mix of the two.

Puneet Gulati: And so for change in law, you would still prefer to buy from your own factory or India instead of importing from China? Is that still a better alternative because of what would happen?

Sumant Sinha: No. For change in law or wherever you are protective, it is better to import from China because that is still $0.20, $0.21, and even if you apply the higher working capital and therefore, the cost of all of that, you’re probably still going to be at maybe $0.23, $0.24. So it’s still 0.01 or $0.02 cheaper than doing the tooling in India.

Puneet Gulati: Understood. That’s very helpful. Secondly, if you can talk a bit about the income from carbon credit sales, which used to be a decent number till last year and this time, it seems in the other expenses part, you actually booked some impairment. So what has driven that change?

Sumant Sinha: Yes. I think Kedar will take that.

Kedar Upadhye: Yes. So Puneet, income of carbon credit for us largely is through RE credits. And last year, actually, we accumulated the registration of most of our projects, which were eligible for these credits. And as the first time, cumulative income recognition, it happened last year. So I think year-on-year, it will – it was designed to have lower sort of reflection. So this time, you’re seeing in revenue line, there was a reduction from last year, which was by design. And in the expense, there is a impairment because the prices have gone down. I mean, as you know, because there is no additionality, the prices for RE credits are under a little bit of pressure. So we had done an inventory accounting until September and December.

So to some extent, we were required to adjust those prices. But all of that was factored and that’s in line with the overall $62 billion guidance that we had given for FY ’23, $61 billion to $63 billion. So all these adjustments were factored there. But just to sum up, I think RE credit pricing is what is reflected in that other expense impairment?

Puneet Gulati: Okay. That’s very helpful. Thank you so much. Just here on the call quickly, on one entry in the balance sheet, there was a change in contract FX, which was a negative while your receivables did go down. How should one read that?

Kedar Upadhye: So I can — which specific line you’re referring to, Puneet, if you could repeat?

Puneet Gulati: So in the balance sheet, there is change in contract assets, which shows up in the cash flow statement from INR 7.5 billion decrease in noncurrent assets.

Kedar Upadhye: Yes. So it might be with respect to transmission accounting. See, what I briefly mentioned in my speech, a transcript, is we are following a IFRIC 12 [traffic] accounting now, which means the amount of CapEx we spend for transmission projects are accounted as a sale and cost immediately in the same period. So we recognize maybe 3% to 4% EPC margin on that. And the receivables from this get collected in the subsequent periods from the [PGCIL] as part of the normal PPA accounting. But in the period in which we construct these projects, there will be a revenue and there will be a cost and the net margin will be very marginal in the P&L, but there will be a receivable creation, which will get collected in the support period. So it’s a book entry. It’s not really impacting our cash flows.

Puneet Gulati: Understood. That’s it. Thank you so much. All the best.

Operator: Thank you. Your next question comes from Amit Bhinde from Morgan Stanley. Please go ahead.

Amit Bhinde: Hello, sir. I just had one question that we earlier were guiding a run rate net debt to adjusted EBITDA of 5.1 till quarter three PPD. And now we have increased that to 5.1 to 5.3 at project level. And additionally, we have put 0.4 to 0.7 on corporate debt. So that’s somewhere 5.5 to 6. So what are our debt assumptions changing for even when the working capital is expected to come down with receivables like coming in now. So why would sale assumption increase?

Sumant Sinha: Yes. I think it has slightly gone up, not materially because what we are conscious is the discipline at the project level, tracking of [DSCR], it’s a rise, pretty strong. So we will stick to what we earlier communicated at that level. So that is not changing. The corporate top of is required for us to invest in newer businesses. So as you know, we are doing initial directs. We are doing initial businesses. We are doing manufacturing investments. Now the EBITDA from those is not factored here. So ideally, if you capture the EBITDA from manufacturing, whenever we get certifications, and we start exporting. And you know that there is a scarcity premium attached to the pricing of modules. If you factor the EBITDA from that, I think this will substantially be lower, but it will take some time for us to get the visibility from that.

So you should primarily look at the green portion on Slide 18, which talks about 5.1 at the lower end. And the additional top up is required for us to make contextual investments at that period of time for us to build new businesses, which will have subsequent period EBITDA generation.

Amit Bhinde: All right. Got that. Yes, that was my question. Thanks.

Operator: Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.