Your peer has already taken provision reversals on the Lanco Amarkantak account. Are your LGD/PD assumptions different? Why is the accounting for provision reversals differing despite similar accounts, and should we expect a reversal in Q1?
See, what I would request all of you that you may not ask the quesƟon with reference to immediate peers. As per our policy, when we get the final approval and when the resoluƟon plan is implemented, we have been consistently reviewing the provision at that stage. So NCLT approval is sƟll pending. We are waiƟng for the NCLT approval to be received and resoluƟon plan to be implemented, aŌer which we will be doing the reversal. And obviously, when we do the reversal, then we will both we will be at the same plaƞorm.
Should we imply that private exposure on the renewable side is slightly expanding and are we coming from there on the management overlay?
See, it is once the management, overlay is exercised so you can it said in order to build the overall cushion on all the stage one assets. We have increased the provisioning to a minimum of 0.4% individually, not on the porƞolio level. So this was the call management has taken.
On hydropower: we have vast water resources in the northeast causing flooding and destruction. Can we not channelize this through waterways to generate hydropower and address water shortage in the south?
This is actually a quesƟon directed to the government rather than PFC. As on today, we have a hydropower of around 47 gigawaƩ in the country installed capacity. Now the government is giving extra emphasis on the hydro power because it is very stable, it supplements your peak power requirement which also balances your RE intermiƩency into the grid. In the month of August, in the Arunachal Pradesh itself, the government of India signed 13 memorandum of understanding for 13 projects of 13 gigawaƩ. Arunachal Pradesh has almost has 60%, power potenƟal. There is a new scheme being approved which will be like central financial assistance in the form of equity to the state governments up to so that they can parƟcipate in each hydro projects up to 24 percent. In terms of percentage in the energy mix, that is about to that is to remain around 12% even Ɵll 2047. Because solar and wind RE is coming up. We have taken a target of 500 gigawaƩ in the country. The idea is basically to go for mulƟpurpose projects, which will also add into irrigaƟon, into the flood moderaƟon downstream.
The Finance Minister talked about a $20 billion inflow because of India's inclusion in the JP Morgan index. How is PFC positioned to capture that? She also talked about rupee advantages and the cost of hedging coming down. And separately, as the largest NBFC that appears undervalued at ~7x PE, can consolidation of PFC and REC be pursued to remove the holdco discount and improve valuation?
I think you have, raised 2 quesƟons. 1 was on the JPMorgan index. So we have already seen valuaƟons going up aŌer the declaraƟon, and we expect that it will further be post result and looking at the overall power sector scenario. On the rupee, yes, I agree that the government has announced, but the market is sƟll to be developed. So it is not only that we desire to raise funds from outside market in rupee, But it is also important that for the other party lend the person or the insƟtuƟon lending to us, how does it make a commercially viable proposiƟon. Because we are raising purely on the strength of balance sheet, of PFC's balance sheet. We don't have any support from government of India in this regard. On the consolidaƟon front, yes, there is an issue of hold co discount and how you are seeing that the stock is underpriced. You know, at that Ɵme of acquisiƟon, the intent, the logical conclusion for the acquisiƟon was the merger of the two companies. But somehow due to lot many other prioriƟes of the government, be it COVID, be it economic situaƟon or other factors. Somehow this issue was put on the back burner and we are waiƟng for our, honors or the majority shareholders whenever maybe in the Ɵmes to come, whenever a thought process is put on this, so we will get the direcƟon in this regard.
On RBI regulations: of your DISCOM and short-term loans, how much would be considered project finance? Will all DISCOM loans be considered project finance - specifically LPS and similar loans? And on thermal capex: media and peer commentary suggests 94 gigawatts of thermal capex is planned, of which 74 would be non-NTPC. Does your 12-15% loan growth guidance account for this thermal capex, and when do you think it will start moving on the ground?
With respect to the DISCOM lending, especially under these LPS, LIS and RBPF, these are non-Project loans. So as per our understanding, the RBI circular, the recent draŌ guidelines shall not apply to them. I think substanƟal part that is around 70 % of DISCOM porƞolio would be of these schemes. On your second quesƟon about the addiƟon in the thermal GeneraƟon Capex for that part. So we are open to funding that, but as you rightly said most of it is coming under NTPC, and NTPC is a central sector, and they are not a borrower from PFC. So if something is coming up in the states, we are open to that, and we would be funding that, that may be coming in there are certain projects on which it is an ongoing disbursement. Projects have been sancƟoned, but the capaciƟes are yet to come or the project are yet to be commissioned.
Peer analysis shows that electrical and mechanical (E&M) projects get clubbed in the thermal/conventional genco book for a peer, where that book has been growing. PFC's thermal genco book has been flat or declining. Are we not participating in E&M loans?
See, what I understand, I can't say about the peers, but for PFC, the generaƟon porƞolio which we are showing is the purely generaƟon porƞolio. No E&M porƟon has been clubbed. Rajiv Ranjan Jha: No, definitely, we parƟcipate under E&M, but it doesn't appear into the book because it doesn't lead to generaƟon. There are electromechanical component in some of the schemes where we parƟcipate. So that is appearing in the other loan book.
On costs: can you break up operating costs and borrowing costs? For operating costs, are there levers to drive further efficiencies - through retirement of senior/expensive personnel or technology-led reductions? On borrowing costs, you referred to retirement of high-cost debt - are there significant opportunities in the next 1-2 years for meaningful cost reduction?
On the operaƟonal cost, considering PFC's overall revenue, that porƟon is negligible. What I can share the maximum amount is the CSR expenditure 2%, which we have to incur . Otherwise, our costs are very miniscule because as far as the manpower is concerned, we are a very lean organizaƟon. The borrowing consists of 2 types of loans. one is the bonds which we borrow from the market and is at fixed rate, but there we don't have any prepayment opƟon. The other part is the loans from the banks where the rates are floaƟng but along with the prepayment opƟon, and generally, they are priced a bit higher than the bond prices since they have the prepayment facility. So the reƟrement of expensive loan or high cost loan we were referring, that was primarily the term loans we have borrowed from the banks. Either banks have decided to reduce the interest rate for lending to PFC in the exisƟng loan, or aŌer prepayment, they have lended to PFC at a lesser rate later .
What are the significant risks you foresee in the next one or two years?
See, one, that on the credit cost, I think provisioning front, we have sufficient cushion built in both on stage one, stage two, as well as on stage 3 asset. So we are not seeing any addiƟonal major risk on that front. But as we grow and as our regulator increases the compliance, so that could be one of the risks we can like these draŌ guidelines. So everybody, all the investors are concerned that what sort of impact it's going to have. So that is one risk that can be that is always open from the regulator point of view. And the other could be if any major fluctuaƟons in the exchange rate is happening. I think these are the 2 major risks as far as our understanding that is there.
You mentioned an additional 800 crores of standard asset provisioning on stages one and two. Is this in line with the new draft RBI norms or exclusive of that? What led you to put up extra provisioning?
See, this management overlay, what we were talking, we have already done Ɵll Q3. So it is not in this parƟcular quarter we have done any management overlay. So the draŌ guidelines have come much later than that. So this was done. We had some reversals. But as a prudent measure, we thought that let us have a strong asset book and addiƟonal provisioning to take care of the any future uncertainƟes. So on that account, we have exercised that opƟon, and you are seeing that on overall basis, we have reversals of just 134 or 124 crores.
We are guiding 12-15% loan growth and talking about power sector value chain opportunities. Despite ample opportunity across thermal, renewables (incremental 313 GW needed), DISCOM distribution capex, and infrastructure lending, what is leading to slight conservatism in growth estimates? And given high capital adequacy, the new RBI draft norms may not burn capital significantly - can you touch on where the growth targets are coming from?
See, we have always been talking about that we will be growing at somewhere between 12 to 15%. So you need to appreciate that our base is growing on which we are talking of the growth. So base has increased from 4,57,000 to 4,81,000. So accordingly, the numbers are we want to give realisƟc targets which we can achieve and we can sustain over a longer period. It is not that whatever is coming to us, we are funding. We have to build our book to sustain the future of PFC. So that is the moƩo by which we are going. For you, it may seem to be a conservaƟve number, but actuals, whatever we can think of, we are giving. If there is more potenƟal, we are always open to do to it that if we are finding more commercially viable projects. On your second quesƟon about the impact on the of the draŌ guidelines, I think a lot of clarity is required on these guidelines. SƟll, everybody is interpreƟng in the more you read, I think more confusion it gives. We will be giving our comments to RBI and let us see what RBI is coming out whenever they come for the final guidelines.
The installed power generation capacity of 230-240 GW could double in the next 5-7 years and PFC is well positioned. Your thoughts on doubling asset base? Also, with smart meters, can T&D losses come down to single digit since the current 15.43% is essentially power theft?
So on doubling the capacity, I would like to share that PFC has supported 50% of the total installed capacity in the country . And if I talk of the renewable capacity, we have supported 25% of the installed capacity. And we hope to conƟnue with our share in the increased capacity of the country. So this could be one. The other thing that there has been substanƟal reducƟon in the T& D losses. And in some states, this is the average for the country we are discussing. But however, in some states, we are already experiencing T& D losses coming in the single digit. So there are few states for which this parƟcular average is distorted. So we will think once those states also perform, then overall on the country level, we will achieve in single digit.
The Sinnar thermal power project is our second largest stressed asset. After the court process restarted, can we expect the project to be fully operational in the next year? Our provision on this is also among the largest.
That Sinnar power project is around 1350 megawaƩ, 5 units of 270 megawaƩ. So this project has been taken into NCLT . And you may be aware. So our first instrucƟons from the COC side to the RP is to make the units operaƟonal, at least 2 units operaƟonal. So that, because the coal transportaƟon, there is a limitaƟon. The coal siding railway siding is not available really. So by road only, the coal can be transported. So the first instrucƟon is to make 2 units operaƟonal. So RP is working towards that. And the resoluƟon process is on the way. The provision is 80%.