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Presentation

Operator: Thank you for standing by, and welcome to the ReNew’s Second 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 of Investor Relations. Please go ahead.

Nathan Judge: Yes. Thank you, Jason, and good morning, everyone. And thank you for joining us. This morning, we issued a press release announcing results for the fiscal 2024 second quarter ending September 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; Kailash Vaswani, our newly appointed CFO, and Vaishali Nigam Sinha, Co-Founder and Chairman of 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 and materials available on our website. These statements are important and integral to 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 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 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, presentation materials and on our annual report. And it is now my pleasure to hand it over to Sumant. Sumant?

Sumant Sinha: Yes, thank you, Nathan. Good morning, everyone. I’m glad to have you all in our second quarter fiscal year ended 2024. This year has presented new opportunities for us in avenues that align seamlessly with our competitive advantages. The backdrop for Indian renewable energy developers is the best we have ever seen, marked by a significant surge in power demand, shortfalls in energy supply, significant increase in auctions for renewable energy, which is the lowest cost electricity supply without subsidy, a softening of solar module prices, and a shift towards complex projects that is best served by wind, of which we are the largest developer in the country. I firmly believe that ReNew, with its disciplined approach to identifying the best return opportunities, is well positioned to capitalize on the current market.

We continue to make progress towards our goals, maintaining capital discipline along the way. We are more confident of achieving our financial guidance set earlier this year, and are raising the lower end of our EBITDA guidance by approximately 3%. We now anticipate delivering between INR 62 billion to INR 66 billion in adjusted EBITDA for FY ’24. We have put in a majority of our wind turbines and solar panels in our largest projects being commissioned this year, which puts us in good stead to deliver on our guidance of between 1.75 and 2.25 gigawatts of projects to be completed by this fiscal year end. We expect the additional capacity should translate to approximately 35% or more per share EBITDA growth next fiscal year. We continue to seek a consistent flow of auctions, as central agencies such as NTPC, SJVN, SECI, NHPC, and some states have announced RE auctions of 65 gigawatts this year, the highest that we have ever seen in the history of our industry.

Notably, 18 gigawatts of auctions have already been completed this year, already surpassing the previous year’s amount, with still about four months plus to go. A higher ratio of complex auctions signals a trend that distribution companies want specific electricity supply profiles, which require customized solutions. The complexity and limited development capabilities in India, among other things, have resulted in less participation by competitors. Broadly, we have seen an upward lift to auction tariffs for the past 12 months, and recent auctions indicate that this trend will continue further. We have signed a Power Purchase Agreement, PPA with GUVNL, which is the Gujarat Distribution Entity for 400 megawatts of capacity that we won earlier this year, and have received letters of awards for another 2.9 gigawatts that we have won.

As a reminder, we do not include projects with LoAs into our portfolio until we have a contract, a signed PPA, which indicates another step up in our long-term earnings potential as the 3.1 gigawatts of projects won, receive PPAs over the next three to six months. Our assets continue to attract interest from investors and strategic partners at favorable valuations. Recently, we concluded the sale of 100 megawatts of solar assets, resulting in a gain. In a little over two years, we have raised about $565 million from asset recycling, and year-to-date about $93 million. The ability to recycle capital and deploy it in higher return opportunities remains a significant component of our capital allocation and value creation strategy. This quarter, we reported a profit after tax of US$45 million, one of the highest reported by us till date.

This quarter, for the first time in a while, the wind resource was about close to normal. Wind PLF increased to 41.3% from approximately 33.7% in the corresponding quarter last year, and marked three straight years where we have seen improved wind resource, which may portend for more normal weather going forward. While we remain optimistic about long-term wind PLFs returning to normal levels, we are choosing to remain conservative at this time about our weather expectations for the remainder of this year in our guidance. Turning to Page 5, in September 2023, we witnessed a record surge in power demand, taking 240 gigawatts during peak hours, as well as a surge of power prices traded on the exchange, reflecting strong overall growth in power demand in the country.

We have seen overall power demand consistently rise at 8% over the last several years and continue to expect sustained growth for the next few years. While the Indian government is ambitious about achieving the 2030 renewable energy targets, with a 50 gigawatt renewable energy annual auction calendar, our position as a market leader in developing wind remains differentiated. With a shift away from vanilla wind and solar auctions, there is a tilt towards round-the-clock and complex auctions, a significant step towards catering to unique power demand profiles of distribution companies, with wind as a key differentiator. Our experience in developing complex solutions provides us with significant advantage over others who do not yet have in-house wind EPC capability, digital or AI platforms, and strong understanding of the supply chain cycles that enable us in securing returns superior to our peer group.

Turning to Page 6, while the market opportunity is substantial, our commitment to capital discipline remains unwavering. In-house wind and digital capabilities empower us to seamlessly build, operate, and maintain renewable energy projects, providing us competitive advantages in the market and enabling returns above our competitors and above our cost of capital. Recently, we signed a PPA with GUVNL at a tariff of 2.71 per kilowatt hour for 400 megawatts of solar and letters of awards – secure letters of awards for most of our 3.1 gigawatts of auctions built earlier this year at attractive tariffs. Given the increase of intermittent generation in the country, there is substantial demand for electricity supply that meets more stringent delivery and reliability requirements.

More than 60% of the 37.2 gigawatts of auctions yet to be completed this year are complex power solutions. Given our industry-leading wind EPC capability, our scale, given the larger size required for complex projects, our ability to source equipment through vertical integration, our superior access to the lowest cost of capital, and our substantial land bank, we have competitive advantages in delivering these complex RE projects quicker and at a lower cost than anyone else in India. To summarize, this is therefore one of the best backdrops for Indian renewable energy that we have seen in a very, very long while. Turning to Page 7, our on-ground progress remains on track as our projects enter final construction phases. Cheaper solar module prices have enabled us to procure modules at almost half the price as compared to the same time last year.

We delayed projects in the past because the then CapEx costs would have resulted in subpar IRRs. As we continue to reiterate, we remain laser-focused in capital discipline and have been rewarded by our patience. We have saved shareholders by our estimate about $100 million in lower CapEx by pushing out certain projects. We have consistently invested small amounts of capital in complementary businesses to enable even greater competitive advantages of our core renewable energy development business. For example, we spent about 10% of our CapEx to develop solar manufacturing given the substantial reductions on imports that are being imposed by the central government. This decision has borne fruit in allowing us to procure high IRR projects in recent auctions that others may not have been able to procure supply for.

Investment in transmission is another example. There are currently chronic delays across India in completing interconnection hubs that allow new projects to connect to the grid. Rather than leave our large projects sitting idle, we decided to invest a small amount of capital, less than 5% of our equity, to build a transmission EPC business. Furthermore, we have recaptured most of this equity through capital recycling that, have garnered gains. We successfully commissioned our first transmission project this quarter, which is the connection point for our large peak power project, providing 138 circuit kilometers of connectivity. Before I turn it over to our newly appointed CFO, I am really pleased that the Board has chosen to promote Kailash to the CFO role.

Many of you would have interacted with Kailash previously and know of his experience and extensive knowledge of renewable energy debt markets. Kailash has been with ReNew since the beginning and he joined us in 2011 as one of the founding members of the company and has been instrumental in all of our fundraising efforts, both debt and equity. To-date, he has helped ReNew raise close to $15 billion through various sources, including about $565 million raised through asset recycling. I do consider us lucky that we were able to identify someone internally for this position, who has in-depth knowledge about the business, as well as a proven track record. With that, I would like to turn it over to Kailash to go over the latest financials.

Kailash Vaswani: Thank you, Sumant. And it’s my pleasure to be here and interact with all of you. Before I begin my comments on the quarter, I thought I would like to share a little about my view on my commitment to capital discipline, in which I am a staunch believer. We live within our means and only deploy capital when the returns on our investments are comfortably above our cost of capital. Having been on ReNew’s investment committee for some time, I fully supported the $250 million share buyback that, was authorized in February of last year, as I saw investing in our shares as one of the most attractive investment opportunities of scale at that time. I still believe that at the current share price, there are a wide array of options that, we can use to fund growth without issuing shares.

I have led all of the capital recycling efforts so far and see a significant amount of demand for our projects. I also will lead efforts, to deleverage our balance sheet over time. With regard to the veracity of our reported numbers, I fully stand behind them. Turning to Page 9, while the global markets have been impacted by rise in interest rates, we have actively managed our portfolio by refinancing our higher cost debt and ensuring our overall cost of debt, is kept within check. In India, the yield spread for Indian money debt has compressed significantly as the sector matures. We can currently raise debt for our projects at sub-9%, through large Indian financial institutions. Importantly, assuming interest rates remain where they are now, we expect to be able to refinance debt maturing of $850 million over the next several years at a lower interest rate, saving an average of 25 to 50 basis points.

We have significant access to debt from diversified sources, including from PFC and REC, which is the Power Finance Corporation and the Rural Electrification Corporation, which are known to provide one of the most competitive cost of project debt in the industry. We recently signed an MOU of $8 billion with them. We continue to expect that we will be able to effectively manage our interest costs and ensure that project IRRs remain within the targeted range. Turning to Page 10, our asset recycling program continues to see interest from international players seeking an offset to their carbon footprint. We believe that asset recycling will effectively provide us with a long-term advantage by helping us scale at faster pace, as well as provides us avenues to optimize the build process and enhance returns on invested capital.

We completed a sale of 100 megawatt of solar assets in the current period and raised almost US$93 million through asset recycling year-to-date, about $565 million in aggregate. For growth beyond the current pipeline, we expect that we have operational development capability to be able to build about 2.5 to 3 gigawatt of assets annually, of which we intend to recycle assets, including sale of farm downs of net interest of about 1 to 1.5 gigawatts each year, which would generate the required cash flow to fund growth in addition to our internal sources. This would ensure we have sufficient equity for growth without having to issue shares. Turning to Page 11, we are pleased to report our highest quarterly profit after tax of US$45 million and the highest first half year profit after tax of US$81 million till date.

We saw a return to normal wind patterns, during the current period and the wind PLF during the quarter was 41.3%, compared to 32.7% in the same quarter last year. And we continue to remain cautiously optimistic about recovery in the long-term wind PLF towards the long-term normal levels. Our operating capacity increased by approximately 600 megawatts over the last comparable quarter in the prior year, an increase of about 8%. For the full year, we expect interest cost to be marginally higher, to the prior year on account of new project commissioning and the same is, offset by savings and interest rates from refinancing. Of course, this is subject to volatility in the foreign exchange market. Taxes look to be about 20% to 25% higher in FY ’24 as more of our subsidiaries are turning profitable.

Turning to Page 12, we reported an adjusted EBITDA of US$256 million for Q2 FY ’24. The higher EBITDA is primarily attributable to additional revenue from projects commissioned during the period, higher wind PLFs offset by lower late payment surcharges, of about $11 million as more of our customers are paying on time and higher operating costs reflecting more headcount to support our growth. Turning to Page 13, our DSO continues to improve year-on-year and we have seen an improvement of 119 days since September ’22, an improvement of 26 days since the beginning of this fiscal year. We continue to work with states and continue to believe that our DSO will continue to improve over time, as we continue to focus on getting paid for overdue receivables as well as a favorable mixed shift, where more of our revenues come from central government and corporate customers who pay on time.

Moving to Page 14, we are focused on improving our liquidity and leverage. Our cash balance stood at close to $1 billion, almost US$985 million and our net debt on operating assets was US$4.7 billion. Off gross debt, about 59% of our debt has a fixed interest rate. We only have about US$325 million of debt maturing in the next 12 months, which we expect to refinance at an average lower rate than, what we are currently paying. We have good visibility on how we anticipate refinancing, the remaining 600 odd million that matures in FY ’25 and FY ’26. With that, I would like to turn it over to Vaishali to talk about our ESG initiatives.

Vaishali Nigam Sinha: Thank you, Kailash. Turning to Page 16, building upon the momentum from the previous year, we remain steadfast in our commitment to establish new benchmarks across all aspects of our ESG vision, performance and transparency. We are leading the way for ESG in our sector. ReNew has released a sustainability report for fiscal year 2022-23 titled Driving Decarbonization. The report is aligned with GRI, SASB and TCFD and externally assured by DNV. Some of the key highlights of the report are, ReNew has generated clean electricity, which is 17,386 gigawatt hours, which is enough to power nearly 5 million Indian households. It has also helped to avoid 14 million tons of carbon emissions, through its operations, which is about 0.5% of India’s total emissions.

The carbon intensity of ReNew’s electricity generation is about 92% less than the Indian power sector’s average. ReNew saves about 318,708 kiloliters of water, about 48% year-on-year increase through our robotic cleaning and condition-based monitoring system. ReNew achieves carbon neutral status for the third consecutive year for a Scope 1 and 2 greenhouse gas emissions. I’ve mentioned earlier as well, the net zero targets for 2014 were validated by SBTi and entails reducing greenhouse gas emissions across all scopes by 29.4% in 2027 and by 90% by 2040. Two, clean energy procurement for operations, electrification of fossil fuel based equipment, encouraging suppliers to set SBTi aligned targets, low carbon footprint raw materials and green logistics for transportation.

So as you can tell, we are deeply committed. Social responsibility continues to remain an integral part of our business. Our CFe journey which began in 2014 and since then we have impacted the lives of over 1 million people across 500 plus villages in India, spanning across 10 states in the remotest parts of our country. Now, if you could turn to Page 17, I would like to switch to specifics of some of our efforts for first half of fiscal year 2024. Lighting Lives, which is one of our flagship programs is an initiative where we electrify schools with less than three hours of electricity using solar off-grid. Electrification of 50 schools and we have also established 50 digital learning centers and all of this is in progress and going well. Climate curriculum, we are in the process of rolling out the climate curriculum to about 9,000 students across the country.

Women4Climate is another program we are very passionate about. It is our effort to include more and more women in the energy sector and we have programs on green skilling in partnership with UN organizations and we are also working on re-skilling some of the salt pan workers in Gujarat to becoming now solar technicians. Nearly 60 women salt pan farmers have been trained and have secured employment. About 48 trainees have secured employment. Employee engagement is an important part of what we do. We have programs designed for and led by employees at ReNew annual volunteering campaign, which is the right bucket challenge for about 40,000 kgs of rice distributed pan India. We have kick started the fiscal year 2024 disclosure cycle with the submission of CPP Climate Change 2023 disclosure.

We will be disclosing further progress in our forthcoming sustainability report. With this, let me hand it back to Sumant to talk about our annual guidance.

Sumant Sinha: Thank you, Vaishali. Turning to our annual guidance, I am happy to report that we have increased the bottom end of our FY ’24 adjusted EBITDA guidance by INR 2 billion to INR 62 billion to INR 66 billion on account of a better than expected H1 performance. We have provided some additional details on how results were compared to our original guidance in the appendix of this earnings presentation. We reiterate our capacity of completed guidance for this fiscal year of between 1.75 to 2.25 gigawatts. Regarding our buyback, we have repurchased by now 38.6 million shares in total since February last year, which represent approximately 35% of the free float at the time of listing. We have $11 million of authorization remaining, which represents about 4% to 5% of the total free float. With that, we will be happy to take any questions. Thank you.

Operator: [Operator Instructions] Our first question comes from Puneet Gulati from HSBC. Please go ahead.

Puneet Gulati: Yes, thank you so much and congratulations on good numbers and good profitability as well. My first question is on the win PLF. So this quarter has been particularly good at 42% PLF. Should one consider this to be normal for 2Q or do you think it was higher than the normal?

Sumant Sinha: Yes, Puneet. Hi, thank you. This year’s PLF in Q2 was a little bit, but very marginally, I would say higher than what would be normal. But keep in mind that Q1 is actually significantly lower as well. So, in aggregate, Q1 and Q2 put together is lower than what should have been the case.

Puneet Gulati: Okay, understood. So, first half is normal, but Q2 higher, Q1 lower

Sumant Sinha: Yes, first half is a little bit less than normal, but Q2 is a little bit higher than normal and Q2 was lower. And so, therefore, overall we are ending up a little bit lower than the overall H1 expectation would have been.

Puneet Gulati: Understood. And secondly, can you also update on one of the acquisitions that you announced a few quarters back? What is the progress there?

Sumant Sinha: Yes, I’ll let Kailash do that.

Kailash Vaswani: Yes, Puneet. So, on the acquisition that we had announced, there was a lot of delay which happened in getting the approvals because those assets were sitting in a partnership firm and they had to demerge it into a company and the approvals for that demerger took a lot of time. So, that deal reached a long-stop date and we decided we didn’t want it because the entire market had sort of taken so much time for this process to get completed that we don’t want to wait any longer and we got better opportunities on the bidding side. So, we decided to allocate capital more on the organic front.

Puneet Gulati: Understood. And there were no penalties that we had to pay for that?

Kailash Vaswani: No, no penalties. There were some transaction costs which were involved, initial cost which was less than a $1 million. That was your total cost that we ended up incurring on it.

Puneet Gulati: Okay. And secondly, Sumant, you announced in this year, a lot of bids have been announced, tendering has happened, some PPAs being signed. Do you have a similar number for FY ’23? What kind of bids got announced and how much PPAs have been signed and what is the backlog for that?

Sumant Sinha: So, FY ’23, so you know, Puneet, it’s very hard for me to give a number because FY ’23, we actually hardly won any capacity. We just had a 3% market share last year. And – but I should tell you that our SECI 8 solar which is the outstanding, which in fact we haven’t put anywhere in the presentation, but therefore, Nathan, you have to tell me whether I can talk about that or not.

Nathan Judge: Yes, go ahead, Sumant.

Sumant Sinha: Okay. So, the SECI 8, which was an outstanding 200 megawatts, that PPA has also got signed now. So, of the 13.7 or 8 that we now have, everything is fully signed PPAs. So, there’s nothing that is now not signed. So, the only point I’m trying to make is that old PPAs are now getting converted quite rapidly. And with power demand going up, there is definitely interest among the discounts to go to SECI and try to convert some of the options into firm PPAs. But you know, Puneet, the process is a long one because the distribution utilities have to first, of course, go to the commercial implication. Then they have to go to their local regulator and get the approval of the tariff. That process itself can take a month or two.

Then they come back to the SECI and then basically go ahead and sign the PPA. After that, SECI signs the PPA balance. So, that whole process can take several months to get consummated. And in auctions where there is a central acquirer, they have to go to the central regulatory authority. So, for example, a couple of bids that we won back in April-May are now sitting with the central regulator, CERC, for approval. And it’s just a process, frankly speaking. It just takes a little bit of time. And so, the process of conversion of these bids to PPAs is happening within the works. And I think progressively, as some of these approvals from the regulators come through, you’ll see some of that getting announced.

Puneet Gulati: And in your reasonable expectation of the 2.9 left, how many of them should you see PPAs getting signed this year itself?

Sumant Sinha: I would imagine that most of them should —

Puneet Gulati: I’m sure it’s hard to say.

Sumant Sinha: Yes, it’s hard to say, but actually I would imagine most of them should get signed. Certainly, some of the more plain vanilla ones should. But then, of course, there is also some complex auctions. Complex auctions, as you know, does require a longer lead time to convert to PPAs, simply because they are, by definition, complex. And therefore, this storm will also take a longer time to understand them and then be able to get their own internal approvals. And then also to that extent, regulators take longer to understand them. So, the whole process of conversion of complex auctions is just a little bit longer. But, you know, the reality is that for us, there is no urgency at all right now on some of these, because for the capacity that we’ve won, these are things that we’re going to construct only in FY ’26.

And so, you know, we have time on our side to get them signed. Meanwhile, I should tell you that for all the projects that we’ve got LoAs, we’ve already blocked transmission capacity. So, transmission capacity has been blocked. Land, we have, obviously, we’re working on that right now. But eventually, we will convert them into actual, sort of deals when the PPAs do get signed as we go forward. And keep in mind that our clock to execute starts ticking only once the PPAs are signed.

Puneet Gulati: Right. But you have land for the entire 3.5, which is one good thing.

Sumant Sinha: Yes. I mean, we don’t have to acquire it right now as long as we have good line of sight into where that land is. In some cases, you can block the land without actually paying any real significant amount of money. But the important thing is as long as you block the transmission capacity, then, you know, that’s the most critical factor. And with the LoAs in hand, we are, in fact, able to block the transmission capacity. And so for all the capacities that we have, all the 3.1 gigawatts that we run, we have blocked the transmission capacity for all of that.

Puneet Gulati: Understood. That’s very helpful. And lastly, any progress on asset recycling? Anything that you did in Q2 and what’s out there for the second half?

Sumant Sinha: Yes, Kailash, can you take that?

Kailash Vaswani: Yes. So, we have consummated transactions of almost around $93 million till date. And we are working on a few in the pipeline. But the timing on asset sales is, you know, really hard to say because when the deals get done, so how much will get done in Q3 versus Q4, we are working towards it.

Puneet Gulati: And $93 million would include the Gentari acquisition and its results?

Kailash Vaswani: That’s right. It includes the two deals or three deals rather. It’s the Gentari deal, the 100 megawatt sale to [Technip Solar], and the third one is the amount that we got from [Northland solar transmission assets].

Puneet Gulati: Okay. Understood. That’s everything. Thank you so much and all the best.

Kailash Vaswani: Thank you.

Operator: The next question comes from Justin Clare from ROTH MKM. Please go ahead.

Justin Clare: Yes. Hi. Thanks for taking our questions there. So I want to ask just about the amount of capacity here. So there’s, it seems a significantly larger opportunity for renewable projects here in terms of the auctions that are expected annually. So I was wondering if you could speak to the potential for bottlenecks to emerge given the larger volume of capacity. And then, maybe you could speak to your strategy in managing those potential bottlenecks.

Sumant Sinha: Justin, thank you so much for the question. But, you know, you asked me a question that I can spend many hours discussing with you as you can imagine because this is obviously essential to our business. But just to give you a very quick sense of that, I think the key issues that are required for executing a project, of course, are PPAs, which as we discussed, there’s ample opportunity for us to win capacities there. The second is transmission. And that is not a limiting factor right now because the government is building transmission capacity quite at quite rapid pace. And as I said, once we win an LoA or we win a bid and get the LoA, then we’re able to block the transmission capacity. And if there is no transmission capacity available, then the execution timelines are automatically moved forward.

So transmission does not become therefore a problem for us to rule out and it should not become. The third is land. Land, of course, we’re working on constantly and we’re always trying to look at what is the forward pipeline and we’re trying to block land for three years out, four years out projects. And we’re also obviously putting up a number of net marks in different parts of the country. We have several hundred net marks that are now up and running to measure wind. And in solar, we have blocked by three – by a number of mechanisms transmission capacity in the state of Rajasthan, which allows us to execute projects even for two, three years beyond our existing pipelines. So, there is a lot of land available in Rajasthan for solar projects.

So land is handled on that basis. And then, of course, there’s the issue of people and organization. That is something that, you know, we have our own in-house capability of execution in both wind and solar. And that is something that we constantly re-evaluate and we are looking at scaling that up. But slowly, because obviously we want to build an organization that, is high quality and that execution capacity should be sustainably improving rather than, just sort of going up on a one-time basis. And then, of course, there is the issue of capital. And capital, I think we are looking at between a mix of internal capital and asset recycling to raise capital for funding some of these projects. So, I think that’s how we’re looking at these five key areas.

The sixth actually is supply chain. And there, obviously, we have as the largest wind player in the country, very key relationships with the important OEMs, which go out a few years. And so – and we get, you know, best terms from these wind OEMs, because we are in fact the largest buyer of wind turbines in the country. And as far as solar is concerned – as I’ve discussed multiple times with all of you, that’s an area where government policy is evolving and changing. And therefore, we have tried to – stay one step ahead of government policy by making sure that we have invested as much as we need to have that security of supply. And that, therefore, also allows us to keep bidding with a high degree of confidence around being able to source and procure our own modules.

And that’s actually becoming a significant competitive advantage. So that’s – those are some of the issues that we are working on to make sure that we’re able to continue to execute, you know, two to three, and then sort of we go up to a year, and then try to increase that – in years down the road. I hope that answers your question.

Justin Clare: Got it. Okay. Yes, no, very helpful. And then I guess just on the supply chain, you have your own in-house module manufacturing today. I was wondering if you could share what the cost structure was for the modules that you’re producing in-house, and how that might compare, to what’s available in the market, including the cost of the import duty, and how this might give you a relative advantage in terms of your cost structure?

Sumant Sinha: Yes. Nathan, we haven’t come out with those numbers right now, right? But please reconfirm.

Nathan Judge: No, not just yet. But I mean, if you want to give some ranges, that’s fine.

Sumant Sinha: Okay. Thank you. So yes, Justin, the thing is that, as you know, import duties in India for solar modules are about 40%. And that gives us sufficient protection against imported modules. The cost differential between what we produce in India and what is produced in China – as just for the module, in our estimation is about 10% to 15%. And so, the 40% protection is sufficient to allow us to not have that as an issue for us. The second thing is keep in mind that from – that way we also have the approved list of modules in manufacturers, which is really a hard barrier to import, which the government had imposed from this April, but had deferred it for a year. And it is coming back in April of next year, which will then prevent any imports from coming in at all, notwithstanding any duties and everything else.

And so at that point, it will not even just become a cost issue. It will become an availability issue, because anybody who has access to modules, will be able to continue to execute projects, and people who don’t obviously will not be able to. Our sense is that module supply next year will be in deficit, because obviously while capacity is coming up, it does take time to essentially get it to a level, where people have good quality, and stable production in place. Having said that, our sense also is, although there is no specific data that is there that allows us to point to, but just based on people that are working with us and so on, our cost of production is very competitive among other Indian companies. So that is really also something that we would like to benchmark ourselves to.

Justin Clare: Okay. I appreciate it. Thank you.

Sumant Sinha: Thank you.

Nathan Judge: And Samant, there is actually an inbound email question from Girish [ph] at Morgan Stanley that, is related to that. So if I could just ask this. Basically, are we open to selling a minority stake in our solar manufacturing? And there seems to be an overcapacity coming online in India and given strong response to PLI. What are our thoughts about those?

Sumant Sinha: Yes. So, no, we certainly are open. We’re not willing to keeping a 100% of the solar plant. As we stated many times, the reason that we set it up is, to assure ourselves of supply security. And as long as we’re able to do that, we are, you know, that meets our primary objective. As far as overcapacity is concerned in the Indian market, that is something that we’ll have to wait and see, because obviously while there are a lot of people who have announced plans, how many of those actually rectify, we will have to monitor. And the second thing is also that a lot of the earlier capacities that, have been set up are actually going to become uncompetitive, because they just won’t have either the efficiency, the production or the ability to make the latest generation of modules. So to some extent, some of the earlier capacities will have to be discounted in the calculation of the capacities that are coming up. Yes. So that’s my response on that, Nathan.

Nathan Judge: Thank you. Jason, go ahead to the next question. Thank you.

Operator: [Operator Instructions] And our next question comes from…

Sumant Sinha: Actually, if I could just add…

Nathan Judge: Yes Sumant, go ahead. Go ahead Sumant, go and finish your thought.

Sumant Sinha: Okay. Yes. No, no. The only other thing I would say is that also keep in mind that a lot of the modules are being exported, shipped out of India to the U.S. and other places. And so that also adds to the deficit – and will add to the deficit in the country next year.

Nathan Judge: Go ahead, Jason. Thank you.

Operator: Thanks. And our next question comes from Nikhil Nigania from Bernstein. Please go ahead.

Nikhil Nigania: Yes. Thank you. Congratulations on a good set of numbers. My first question is regarding the RTC and Peak Power projects. Good to see their guidance being maintained. But just wanted to clarify that transmission is not a bottleneck for these two assets, when they’re commissioned in Q4, power evacuations and the grid evacuations will start happening.

Sumant Sinha: One, Nikhil, I can categorically confirm that to you, that transmission is not a bottleneck. Largely, because we are actually building a lot of it ourselves. The very first project opting in RTC, there are three different wind projects and one solar project. The first wind project was making to a substation that we ourselves are making. And that we have now commissioned and – that has been charged. And so therefore, we just waiting – going through the connectivity protocols now to connect the first project into that [Koppal] substation – that we did. The second one also we are building, actually, which is another substation. And so therefore, obviously, we have clear understanding and control of when the substations are coming up.

The third one is getting connected to a substation that has been made by our third-party, which we are closely monitoring and we are in touch with them. And that also looks like it’s on track. So that should not lead to any problems either. So I don’t anticipate any transmission related issues in commissioning these projects.

Nikhil Nigania: Okay. Good to hear that. I think a related question then is transmission. I think a point slightly alluded to during the discussion earlier. Is transmission being seen as a constraint India ramping up to 30, 40 gigs of renewable installation now? Are you seeing that as a constraint in reaching that higher renewable installation numbers probably?

Sumant Sinha: I would say the government has been so far quite proactive in building on transmission capacity. And I think a lot of transmission capacity exists in the country that can allow for the 50 gigawatts of commissioning. The only thing is, of course, that the transmission capacity is not necessarily areas that people would want to set up or maybe there’s some constraint in places like Rajasthan or Karnataka and so on. And there, there might be bottlenecks as we go forward. But when I say bottlenecks, I mean that the bottleneck will emerge after 30 gigawatts or 40 gigawatts of connectivity rather than 10 or 15 gigawatts. So there is a lot of room to go before we actually start having constraints really, really emerge.

So I would say that at least for the next two, three years, we should not be seeing any transmission bottlenecks. And the government is, as you very well know, trying to really speed up the construction of transmission projects and the auctioning of transmission projects. So they are very closely evaluating what the issues are and are trying to debottleneck that.

Nikhil Nigania: Got it. Thank you. And my last question then is, there was this one big tender, the RTC-2 tender, I think for more than 2 gigawatts, which I think has been going around for quite some time. Any update that could be shared on that from the news side?

Sumant Sinha: I’m not sure which tender you’re specifically talking about. There’s one. There’s RTC-2?

Nikhil Nigania: Yes. The one that coal was also not to be blended, coal-fired generation.

Sumant Sinha: Okay, okay, okay. No, listen, I haven’t heard about that tender for quite some time. So I’m not sure that it is live right now. But as you know, in the meantime, a number of other RTC auctions have happened. [Techie 6] was the first one that happened. That is for 200 megawatts of headline capacity, which, as you know, translates to about 3.5 gigawatts of actual RTC capacity. Then SJVN just recently did another 200 megawatts capacity, which is not actually fully subscribed to, in which we’ve done 184 megawatts. And then there’s the REMCL tender as well. So there have been three such tenders in the last few months. And as you know, a number more are due to be coming up in the next few months.

Nikhil Nigania: Got it. Got it. Thanks. Thank you so much. Those are my questions. Thank you.

Operator: [Operator Instructions] And our next question comes from Angie Storozynski from Seaport. Please go ahead.

Angie Storozynski: Thank you. So just two simple questions. One, you do lots of capital recycling and existing and future projects. And so I’m just wondering if the gains that you record on that are reflected in your EBITDA. So that’s number one. And number two is, when you show us EBITDA and debt projections, just wanted to make sure that this is proportional EBITDA and proportional net debt, meaning the portion of both that you keep as renewed net of those divestitures or asset recyclings.

Sumant Sinha: Yes. Kailash?

Kailash Vaswani: Sure. Yes. So the gains on the asset sales have not been reflected in the EBITDA line as of now. I think the accounting transaction happened subsequent to the end of the previous quarter. So that’s the reason why I think it will get accounted in the subsequent period. To your second point, where we consolidate the full EBITDA, where we own 51% majority of the assets, there the full debt also gets consolidated with us into the balance sheet. So we don’t consolidate on a proportional basis because if we are in control of the asset, then the entire EBITDA and debt sort of stays with us. We take out the minority interest on account of the joint venture partners’ interest in the project.

Angie Storozynski: I understand, but I’m just asking you – yes.

Nathan Judge: Yes. Sorry. Just to clarify, on our guidance that you see there, that is just our net. So if you look at the debt –

Angie Storozynski: So it is net of minority interest.

Nathan Judge: Yes. So those are actually net to shareholders.

Angie Storozynski: Okay.

Nathan Judge: So, I mean, so – but as far as – yes. Actually, we’re recording. We would be taking out the net or the minority position in the minority interest line. But as a projection and our guidance is concerned, it’s all net of what we currently own.

Angie Storozynski: Okay. That’s good. And then just going back to the gains on capital recycling. So, again, I mean, you’ve done a couple of those transactions in the past. And I’m just wondering, I mean, have those been a meaningful contributor to the EBITDA? I understand the difference in the timing of recognition of the gain for this latest transaction. But I’m just wondering how big of a component of EBITDA this has been or can be. Again, just I know that that’s an ongoing business. But I’m, again, wondering how big of a position of the EBITDA this is.

Sumant Sinha: So, see, again, there’s an accounting value to it. What tends to happen is that we book costs basis and accounting calculation on the capital expenditure. We’re also going to put some margins at the EPC levels. When we consolidate them, they get knocked off. When we sell those assets, those assets are marked at a higher value in our books because of the – because we are sort of selling those assets. So to that extent, the gains are smaller, but the cash flow impact is larger.

Nathan Judge: Okay. So if the gains are not very material. And also remember that most of the larger transactions were related to projects that are under construction. Right? So our Peak Power and our RTC projects, right. And those gains would be, well, commercial gains, but accounting gains are de minimis because they haven’t been actually selling of operating assets. That’s where you would see gains. So, so far, there’s not been much.

Angie Storozynski: Okay. And then lastly, and again, by now you probably see where I’m going with this. I’m trying to compare you to other renewable power developers. There’s been some differences in how, you know, that’s, and EBITDA are shown. So, you know, you guys do project financing and I’m just wondering if there is any reasons for your – for you to change that stance. Like, I don’t know, as the balance sheet grows, would you consider balance sheet financing? Again, any, any changes in how you finance a new build?

Sumant Sinha: Yes. So again, there, what happens is that, you know, obviously we have an existing portfolio, which is quite sizable. We have existing debt, which is quite sizable. So to change everything to balance sheet, it will take time, and it requires a certain type of market environment, which is relatively easy money policy type of market where the rates are lower. In which market you can obviously get transactions done by getting borrowing balance sheet. And then repaying the debt at the core levels. But given that market conditions are what they are, investors are very focused on getting security on specified assets. And then the lenders typically wouldn’t want to consolidate or have in their entities where they hold the security under construction risk.

Because then the risk weightage is for them also changes. So we are not moving to a balance sheet type of financing anytime soon. For us, this model really works. And most of the Indian context, the lenders are project finance lenders with specific assets. And they want the full security of that asset without sharing it with any other lenders. So from a bankruptcy remoteness point of view also, that is the preferred model in India. So it seems like we’ll have to sort of continue with that.

Angie Storozynski: Great. Thank you.

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