On transmission - what do you see as the potential bidding pipeline for the second half of this year and how aggressive are you likely to go in this phase?
So, Puneet, probably we will not be able to give you a very precise number for bidding pipeline for second half. But in next 1 year to 1.5 year the projects which have been identified by CTU, and the central government are of the order of INR 90,000 crores. There could be addition from a few states as well, like Maharashtra. So nearly INR 80,000 crores to INR 90,000 crores of bidding opportunity or pipeline will be there in transmission.
Updates on UP privatization of Discom - what are the dates likely and how big is the opportunity?
So, there is no specific update from the UP side, but they continue to mention that they will come out with RFP very soon. So, we are eagerly waiting for that. We believe that they had a few conversations with the regulatory commission. They had certain queries and suggestions. So probably they are incorporating it and then they will come out with RFP.
On transmission - AESL has been winning quite a fair bit recently especially HVDC projects. What is the reason - just that competitors are full or something else? Also on transmission you highlighted right-of-way as a challenge but March regulations were expected to ease that with higher compensation. Has that not been the trend?
So, to answer your first question, probably I may not be able to comment as to why Power Grid is not able to take. But I can certainly comment on why we are in a position to take. We have been able to establish that kind of relationship with those major OEMs. And the last particular project, which was Khavda Olpad. In fact, in this particular area, we are already doing four projects. So, we exactly know the terrain, the ROW challenges in this particular area. That is the reason why we have been able to take this HVDC project through bidding. So, right-of-way, all the required legal framework is now in place. So, after last year's policy intervention from Government of India, most of the state has notified that the policy for right-of-way. Essentially, these policies are targeting to give fair compensation to the landholder. To use this policy framework, you have to go through that process of getting order issues from collectors. That also involves public hearing. And sometimes that process takes time. So, as I mentioned earlier in the call, what we do is we use both the routes parallelly. We directly negotiate with the farmers, take a decision on the ground and immediately implement it. And also, wherever we have a problem of ROW, then we use that route which is through collector and collector order compensation. And if the situation worsens, then we use that state machinery and police protection for ROW. But basically, it's a hybrid concept. We don't depend on one route because that could take a lot of time.
On the data center the group has signed - can you quantify what is the monetizable opportunity for us here? What role can we play?
I mean it's too early to put a number to any opportunity for that Google contract, which is there in data center. I mean, as we earlier mentioned, whatever demand would be there for transmission or substation requirement for that would be fulfilled by AESL. But currently, it's very early for us to put any number to it.
On the transmission pipeline of INR 96,000 crores mentioned in the press release, does it include both HVDC, Khavda-Olpad and South Kalamb, or is it excluding both these HVDC?
So, it is excluding the Khavda Olpad, but including South Kalamb.
Any update on the Olpad project and its status?
So Olpad reverse auction happened. We were L1 and we are expecting a response from the PFC. So, probably the delay was because of holidays, but now we can expect a response from the PFC in the current week.
On smart meter - last year there was no bidding in first half and Tamil Nadu bid was pending. The press release talks about 104 million smart meters still pending. Have you seen any improvement in tender bidding, are there other bids apart from Tamil Nadu, and what is the status of Tamil Nadu bid?
So, Tamil Nadu bid submission was concluded. The technical evaluation is going on. The other bids, especially Telangana and Karnataka, because they will have to get their metering program approved under RDSS. Earlier, they never submitted that proposal. I believe that they have now submitted it, and it is under approval. So, the moment that approval comes in, then they will come out with a bidding.
Is it right that earlier Karnataka was trying to do something on their own and now they are trying to get it under RDSS?
Correct, correct.
On commissioning pipeline for transmission - especially HVDC expected by October - are you facing constraints like right of way etc in the industry? And any clue on the HVDC project commissioning date, December '25?
So, the right of way and ability of skilled manpower is the problem. But as I explained in the last call as well, we do a little different approach as far as the right of way is concerned. While we use the government machinery and the power available under Sections 68 and 164, but we also directly negotiate with the farmer or landowner, and we run that process parallelly. As far as the manpower is concerned, so now we have developed that kind of relationship with those EPC players. You must have seen that we work with a few chosen EPC players. And this year, we have taken a very unique initiative by starting our own training facility. It is going to be online from 1st of November this year. We will be training about 1200 people for transmission line erection. And with that, all of our requirements should be met. In fact, we will train these people and give it to our EPC partners. So, HVDC is all going perfectly all right. All approvals are there. All ROW issues sorted out. The critical work which is going on is the underground cabling on the Vashi Creek. And we expect that to get commissioned somewhere in December or January.
Can you elaborate on parallel licensing opportunities beyond Mumbai? What circles are you targeting and what's the competitive landscape?
Yes. So, Manish, we at AESL are open for both the routes of expanding into distribution, which is either privatization or parallel license. We applied for parallel license for Navi Mumbai, Mundra area, as well as Ghaziabad or Jewar district in the UP. The regulatory process for Navi Mumbai and Mundra part is over. We are expecting order from Regulatory Commission very soon because all those proceedings have been done. So, we expect some movement on parallel license from these two geographies. And as far as competition and parallel license is concerned, so parallel license is open for anyone. But in Mundra, nobody else has applied. In Navi Mumbai, the other players have also applied, but their process just got initiated. And practically, I believe that once you have two distribution companies, I think interest by third distribution company will reduce significantly in any particular geography.
On smart metering - installation rate was down this quarter sequentially. Was it monsoons or talent availability? Also help us understand the addressable opportunity for AESL over the next three to five years and from a market share perspective what would be the constraints?
So, Manish, you are right. The installation rate reduced in the last quarter as compared to the quarter one. But essentially, that was because of rains continuing even till now. And geographies like Maharashtra, Uttarakhand, Assam, and even Bihar this year witnessed a lot of rain that impacted the progress. But now we are catching up again. We have already reached to 20,000 installations as of now. We want to push it up to 30,000 installations per day. All the resources are lined up accordingly, and all the materials and manpower are available for achieving 30,000. As far as the addressable market is concerned, there is about 10 crores smart metering opportunity that we think that will come in a year or so. Essentially from Tamil Nadu, Karnataka, Telangana, Madhya Pradesh, and Punjab. These are the main geographies from where we expect smart metering opportunity to come.
On smart meter share - it seems your share on the ground is probably running higher than in the initial round. Can you touch on what the share constraints might be?
So, Manish, our market share is about 18-19% in terms of orders, our installation market share is about 23-24% and we will continue to have that kind of better installation rate as compared to all other players. And as we add new geography, probably we'll be able to increase both market share in terms of contract as well as in terms of installation.
Leverage is at 4.4x at the end of second quarter. Given earnings are going to be second half weighted, would it be fair to assume leverage by the end of the year should be lower, maybe closer to the lower end of your target?
Yes, you're right. So basically, it would be in that range of around 4x what we've always mentioned.
What share do you assume for yourself?
So currently, we are operating at about 25% and we would like to continue to have that kind of market share.
On cooling - how is the response so far and where else do you see opportunity?
So cooling, Puneet, it is not only -- in fact, we spend a lot of time on creating market and awareness for the cooling solution because so far it is not very known concept in the Indian market. We have been interacting with a lot of players including sector federations, industry bodies and other players. We see now a lot of traction on the cooling side as well. In the first half we could also get a LOI from two third party developers for developing a district cooling plant. And we see a humongous potential as far as district cooling is concerned in India.
On distribution - now that the draft electricity regulatory changes are out, how do you see this space evolve for new opportunity for AESL in distribution?
So, Nikhil, the new draft also says and clearly the intent of government is there that they wanted to increase private sector participation in distribution. They are in fact further proposing to provide enabling provision for second license. In fact, the current legal provision says that you have to create your own network when you become a second license. The draft amendment proposed that the second license, new licensee can use existing distribution network of the existing licensee as well. So, it is clearly a good sign for the distribution sector, and it will create a lot of opportunity for private sector players.
Is it fair to assume this could open up opportunities for you to enter new cities without having to deploy your own capex?
So, Nikhil, our view is a little different. We might not use existing network of our distribution company because we believe that the major differentiation between you and the incumbent distribution company would be reliability of supply and quality of services. Now the moment you ride on the existing network, probably you might not be able to differentiate on those two aspects. So, we might go ahead with our own network as it is provided in the current regulation.
On the news of Adani Group's tie-up with Google for a data center - any role you envisage for AESL also in this opportunity?
Yes. So, probably we will have an opportunity for AESL in terms of providing energy solutions and timely connectivity. Because like what we did last time as well for Microsoft, when they were developing a data center, we created connectivity in infra for them. Similarly, we will also have an opportunity of creating infra for connectivity and also provide energy solutions to data center. Because they will certainly be very, very keen to have energy solution which is predominantly coming from a green power.
On AEML's plan for bond buybacks and cash surplus - broad numbers for AEML in terms of debt outstanding currently including any short-term debt which has been repaid or increased. What future buybacks can we think of? Also second question on capex addition for second half and target across different businesses?
Sure. So, on the AEML debt position, so that company continues to delever it. Last quarter, we did $44 million of bond buyback of GMTN bond. Earlier, we did close to $49.5 million bond buyback in Q1 of the 2030. And earlier, if you recall, we had done $120 million of bond buyback. So based on that, whatever surplus that that company is generating, we would continue to go down that path of continuing to do the bond buybacks in AEML. Plus, you would see is that whatever short-term working capital also AEML had and so we carried about INR 400-odd crores of short-term loan in AEML that also got paid down during the first half year. So that business will continue to delever based on whatever surplus it generates. On the capex front, that company has roughly around INR1600-odd crores of capex planned, of which INR575 crores has been incurred during first half and roughly around INR1000 crores would get incurred during the second half. Generally, you would know that it is always lopsided in the second half, because the first three or four months, that is June, July, August are predominantly monsoon months where the capex rate is not high. So, it's lopsided in the second half. So, INR 1600 crores would be the estimated capex for the full year for distribution AEML.
This was only for distribution right? How about for the AESL on consolidated basis?
So, total capex would be of the order of INR 17,000 crores to INR 18,000 crores. INR 6,000 crores we have done so far. The breakup of INR 6,000 crores is INR 3,350 crores in transmission, INR 700-odd crores in distribution and INR 2,000-odd crores in smart metering. For the full year, we will do about INR11,400 crores in transmission, INR1,600 crores in distribution and INR4,000 crores in smart metering. So, in smart metering, we'll add about INR 2,000 crores. In Distribution, we'll add about INR1,100 crores in the second quarter. And in transmission, we'll add about INR 8,000 crores in the second quarter.
On dollar bond side - we have this maturity coming up next year for transmission 2026 bonds. Any thoughts currently of how you're planning to take care of that refinancing? And if INR pricing, what kind of pricing are you seeing currently for those assets, around 8-9% in INR terms?
Yes. So, we are working towards it. And basically, we would like to refinance it. I mean, there are various sources. It could be both a mix of dollar bonds, and rupee bonds. But we would refinance it much ahead of its maturity. So, as you know, these are AA+ rated in the Indian market. So accordingly, it would get priced. Yes, basically, currently, if you look at it, AA+ plus or AAA+ bonds are generally priced sub 8%. So, in that region, it would get priced.
On Navi Mumbai license - the public hearing was done and all formalities completed by MERC. What is holding it back?
So now they have to issue, the matter was closed for order. So now they have to issue an order against our application.
What is the kind of capex that you foresee in this license area over the next few years once you get the license?
So, we will have a capex of about INR10,000 crores for Navi Mumbai entire area, which will span over about 5 years. So, the density-wise it is little lower as compared to Mumbai. And the second is because we will have to fulfill the universal service obligation. What we have proposed is that we will bifurcate the entire area into 25 circles. And once we start investing into that circle, we will fully deploy the network in that entire circle. So, every customer will have access to our network in that particular area. Once we achieve the universal service obligation in that entire circle, we will migrate to the second one. So, therefore the speed will be lower. But it is essential to ensure that universal service obligation is achieved circle-wise.
What will be the mix of industrial and commercial customers in Navi Mumbai approximately?
So, the commercial and industrial consumption there in Navi Mumbai currently is in excess of 50%. The rest is from small LT customers and residential customers.
On transmission - what kind of project that you plan to commission this year and what will be the addition to gross block in addition to the three projects you've done in the first quarter for the balance 6 months?
So, in the next half, we will capitalize about INR10,000 crores of capex. So at least we will commission three projects. We are trying to get the fourth project also commissioned in the next quarter, but we'll at least commission three projects which will add revenue of about INR1,700 to INR1,800 crores.
In opening comments, capex for this year about INR17,000-INR18,000 crores and EBITDA run rate about INR 2,800 crores. This is the capex that gets capitalized over the next two years and then EBITDA run rate will be realized. What do you capitalize this year and EBITDA run rate for that?
So, this year we'll capitalize in transmission projects close to around INR15,000 odd crores, which will translate to additional tariff of INR1,800 or INR1,900 odd crores, which is only in transmission business. Similarly, in case of AEML or distribution business, whatever capex is incurred is capitalized. So INR1,500, INR1,600 odd of capex will translate into a EBITDA of around INR 250 to INR 275 odd crores. And in smart meter based on its capex will give INR 800 odd crores of additional revenues. So that itself would translate, into INR1,800-1900 crores for transmission, INR250-230 crores for distribution, INR 800 for smart meters will give INR 2,800 odd crores of EBITDA from the INR17,000 odd crores of capitalization that we will do in each of these years.
On capex in transmission business - for full year about INR10-11,000 crores, first half about INR3,000, so about INR7,000 for remaining 2H. The capex is a significant increase, so for second half about INR7,000-8,000 crores in transmission capex versus last year second half about INR 4,000 crores. What's driving this confidence that this capex can be achieved?
So, first half was about INR 3,300 crores. And in the next half, we will do capex of about INR 7,000-8,000 crores. And in terms of capitalization, we did about INR2300 crores of capitalization in the first quarter. And in the second, we will do capitalization of about INR13,000. So, this year, you must have noted that we have started another four projects where now, so all the approvals and other things are in place. So, now you will see a lot of capex deployment in those newly started projects. And we will also continue to do capex in the projects which are already under construction, which are getting commission in the second half or in the first half of the next year. So, because the number of projects has increased and those projects will start to see the infusion of capex and therefore you see that number increasing significantly in second half.
We are seeing broader electrical demand in India remaining very weak. October demand is down about 5% including Diwali. On ground level what are you seeing - is it just purely weather?
So, in our view, the demand sluggishness this year is only because of the rain, which is not only widespread across the country, but the rain started from May, and it is still continuing. In fact, it was raining in the Western India yesterday and today, and you must have seen that prediction of cyclone on the east coast. So, the demand sluggishness in the country currently is only because of rain. So, Mumbai, in last couple of years, we see demand growth of the order of 5.5% to 6%. This year, you must have seen the number, the increase is only 2 percentage. And that was only because of the weather.
On smart meters - out of the 73 lakh smart meters installed, how much smart meter quantity has been billed and the meters that have achieved operational goal?
So out of 73 lakh meters, which have been installed, the meter months which have been built are 279 lakh meters which have been built for this first half. 73 lakhs have been commissioned, and out of that 67 lakhs have been billed. So, what happens when you install the smart meter, you also have to then offer for a testing to distribution company. That usually happens every month. So, you will see a difference of meter installed and commission of the order of installation equivalent to one month.
Status of the Bhadla-Fatehpur HVDC project that we had won - what is the progress?
Bhadla-Fatehpur, we already got that SPV, LOI, we have finalized all the contracts. In fact, the construction work has already begun at the Bhadla land. We will also start transmission line erection activity in the next month itself.
Given the capex that you are planning, is there any plan for a fundraise in the near future?
No, there is no such plans of any fundraise except for whatever debt which we have to take for the projects which we are at under construction stage. And of course, refinance.
On smart meter - given high profitability and accounting standards, can you share cash post-tax cash profit per meter per month? Across the entire portfolio what sort of unlevered IRR are you likely to make?
Sure. So, basis the current tariff profile that our smart meter portfolio has, our current revenue per meter per month is in the range of INR105 to INR109 per meter per month. That portfolio gives us close to around 80% to 85% EBITDA margins. So, based on the meters that we have installed, we have reported an EBITDA of around INR253 crores and EBIT of INR120 crores for this half year. And based on the current EBITDA margins, and based on the capital deployment in those smart meters, our internal returns are upwards of 20%-25% on a levered basis.