Adani Transmission Limited Q1 FY17 Earnings Conference Call August 10, 2016 MANAGEMENT T: MR. A MR. K MR. P AMEET DESAI GROUP CFO KAUSHALL SHAH CFO PRAVEEN KHANDELWAL ENERGY CFO Page 1 of 8
Ladies and gentlemen, good day and welcome to the Adani Transmission Limited Q1 FY17 earnings conference call. We have with us today Mr. Ameet Desai Group CFO, Mr. Kaushal Shah CFO, Mr. Praveen Khandelwal Energy, CFO. As a reminder all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call please signal an operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kaushal Shah, thank you and over to you sir. Good afternoon everyone. Thank you for being on the call. This is a strong set of results with good numbers across the board. The PAT has increased by almost 299% compared to Q1 FY 15 and I am pleased to announce that we have delivered another robust performance. I would also like to share that all our transmission lines of over 5000 circuit kms which are under operations has consistently achieved more than normative availability ranging from 99.4% to 99.99%. So availability as usual is very good which entitle us for the incentive. Another development of this quarter is that we have received the InSTS orders so company will start recovery of its unbilled revenue which was there in last year as well as in the current year where you all have the question that when this InSTS order and we promised that in July we should be able to get that which we have received. So this cash flow we will start billing from July onwards and in 12 instalments we will receive this cash flow. The next is that we have a good progress on the asset acquisition of the GMR assets which is 400 circuit kms and we have total 1900 circuit kms under execution. So overall post everything after two and half years we should be around 7300 circuit kms all put together and will be the largest transmission company in India. Also as you are aware that the company is the first private sector player to get global investment grade rating in Indian power sector from all the three credit rating agencies which is S&P, Fitch and Moody s. And we have successfully concluded the two capital market transactions which is the INR offshore masala bond and the USD bond for which we received overwhelming response from all the global investors across Asia, US and London. Let me just share with you the highlights on the financial and I will also take you through the adjustment of that one-time income. Please note that from 1 st April we have prepared accounts under IndAS as per the requirement. So as you are aware that the PAT has risen by 299% or 124 crores compared to 31 crores. EBITDA margin of 94% we have been able to maintain. Just to tell you the breakup which is very important for all of you to know because in the results it is not reflected very clearly, but I will take you through it and if you want to note it down, the tariff is 469.17 crores in this quarter. Incentive on the availability is 8.71 crores. O&M expenses is 19.65 crores, salary and wages is 10.53 crores. So overall EBITDA from the operation is 448 crores which is 94% EBITDA margin. What we have done is that we have given effect of the two orders which we have received, one is the CERC order where they have Page 2 of 8
approved our capital cost to 96%, so that 237 crore income recognition has happened in this quarter. There was also apparently provisional order issued by MERC for this Tiroda- Aurangabad line. In that actually they have asked certain details on the FOREX loss which we have made of close to 350 crores and then there are another 75 crores information, so because of that per month there is an effect of 9.25 crores roughly of the tariff which they have reduced. Normally the practice is that they do not issue the provisional order, earlier also there was a provisional order but they ask the information and issue the final order but what this time they have done is that they have issued the provisional order reducing the tariff and asked us that you submit this information and then we will again bring it back to the original tariff which we have approved, so as a result we have 9.25 crores revenue which have booked roughly in the last year, entire last year which is tantamount to a round 120 crores and then the current year first three months 27 crores, all of that we have as a conservative accounting practice we have reduced from the tariff. Now we are preparing the appeal against these orders and we expect these to settle before this year-end. So again if that settles before this year-end then we will have again this 120 which we have reversed in this quarter coming back plus around 120 crore which are going to reduce in the current year. For this 240 crores again that income may come subject to that final order comes in the last quarter. So I just wanted to clarify this. So as a result 237 minus 120 crores last year revenue reversal so we have booked 116 crores and we have to pay tax on this income which is a MAT of 21.34 crores, if you reduce that then in the PAT there is an effect of 91.38 crores roughly. So that is how this number looks like. There is another question which is there; there is the sale of traded goods. Now we not being an NBFC company we are required to have this trading turnover, so we have an expense purchase of 23.48 lakhs and similarly we have income of 23.48 lakhs as well because we do this on a very thin margin and this quarter we do not have a delayed payment surcharge income because we are current on our receivable. We have a carrying cost income of 14.48 crores in this quarter. So all in all with this one-time income we have an EBITDA of 584.44 crores. And then comes to the interest on the loan which is 232 crores. Now in this 232 crores there is a onetime charge of 16 crores because earlier we have a loan and we have paid that one-time fees which needs to be amortized over the various year but since we have completed the refinance as per the IndAS we have to charge off that 16 crores to the P&L. So moving forward this 232 crores according to us should be settled around 212 crores per year, roughly 212 to 215 crores per quarter and depreciation is as usual there is no change. And one more adjustment which has happened because of this IndAS is that the deferred tax liability of 34 crore roughly. Now frankly this we do not have any tax liability up to 15 years because as you are aware we have a 80IA benefit available and this is available you can choose for 10 years out of first 15 years. So normally first 3 to 4 years we are never because of the higher depreciation we do not fall into normal tax and after that we choose for this 10-year holiday, so next 15 years there is no liability which is going to happen except MAT to us. But this IndAS standard provides that you have to consider for 35 years and then take it out and provide certain provisions, so as a result we have to provide this for as a non-cash item and as a result after this provision we have a PAT of 123.5 crores. Now I will leave it to you for the questions. Thank you so much. Page 3 of 8
Thank you. Ladies and gentlemen, we will now begin the question and answer session. We will take the first question from the line of Ameet Golchha from HDFC Asset Management. Please go ahead. My first question is on deferred tax liability. Is there any amount which is related to previous year in this amount or this is the current quarter amount only? Deferred tax is for the current only. So this kind of a number will keep on coming in the forthcoming quarter as well? Yes. But as Kaushal explained this is a provision under IndAS. This does not constitute as an outgo. What is the outgo is our MAT liability Secondly, this ECB interest reset on which CERC needs to give an order, can you brief us about the current status, in terms of have you filed the petition, when is the order likely to come on this? Our petition is already pending there, I think we can expect that in the last quarter we will get the order but that s the current expectation. Lastly on this MERC order, earlier MERC had given the order on this line and is that they have changed their own calculations which were there earlier? We can t actually say that. As Kaushal tried to explain this rather elaborately the fact that they have given a provisional order and have sought information from us with respect to the exchange rate variable and the variance and the consequent exchange rate loss that we had which added to the fixed assets, we believe that once we provide all the information the final order would be written and hopefully it would incorporate this particular part of costs which has to get added to the cost of the asset. This GMR acquisition when is it likely to conclude? We expect to conclude it pretty soon, if not this month in the next month we expect to close and finalize in terms of actual taking over. The next question is from Shirish Rane from IDFC. Please go ahead. One clarification on this MERC order. What was the FERV amount they have contested as in would they have asked for more information? It is 300 crores? About 380 crores. They have not actually contested that; they have asked us to provide all the information. In terms of why it occurred it, details? Page 4 of 8
They would obviously want us to give them the copies of the relevant transaction, audit report, etc., so I think it comes to 335 crores. The reason I am asking is since you have reversed a large chunk of revenue which is close to 116 odd crores. Right. So the mathematics was not adding up which is why I am asking because if it is 360 odd crores then 116 crores of reversal in terms of how that works out is what I was trying to understand. We will provide you exact calculation, but this is for the exact amount which is currently pending finalization is 443 crores and 120 crores pertains to that 443 crores. Just for my understanding will it have any carrying cost as well because it is pending for a long period of time three years or so. As and when we get the final order we will also be entitled to receive the carrying costs. The unbilled revenue which you said you will receive that you can start receiving from July month onwards as per the order. For the month of July we would bill it in the month of August which is current month and we would start receiving it. So that s equally divided in 12 months whatever the unbilled amount that will be equally divided and you will keep receiving it over the months? 136 crores is what we will receive every month. For 12 months period. Yes, for 12 months. And we will book it as revenue or how do we have to book it, we will book it as revenue logically, right? The unbilled amount which is already lying in the current asset we have already booked the revenue last year actually and this is reflected as a current asset, just like debtors outstanding. It has only cash flow implication. So it s only a cash flow implication not a P&L implication. Yes. Page 5 of 8
Last thing was on the income tax. If I remove the deferred tax the cash tax works on a slightly higher side, about 25-26% so one should assume the average tax rate to be about 25-26% or there is some one-time What has happened this is a consolidated number; there is a loss at the Holdco which is of 26-27 crores. But I have to pay tax on individual company level. If you divide on a consolidated basis and calculate, apply same formulae then you can get the little higher number. MAT at 21.34% which we are paying. And this will be applicable for the next 15 years for sure. Last question from my end, in terms of GMR acquisition what will be the funding. Will we have to borrow the whole amount or we will just borrow the equity component or it s entirely financed by internal accruals? The equity value is 100 crores and debt is what we will get along with the acquisition of the company so 100 crores is something that we would pay from our own internal accruals. So there is no debt taken for this 100 crores? No. We will take the next question from the line of Ameet Golchha from HDFC Asset Management. Please go ahead. On this MERC cash flow thing I just missed the number in terms of how much cash flow we are going to receive in the next 12 instalments? Total we will receive 1646 crores over the period of 12 months. If you divide this then it will come to around 136 crores per month. This is the unbilled amount for FY16 only or is it before that as well? We have roughly around 600 crores for last year the billing which we have done which is reflected as an unbilled revenue and plus current year so all put together from MEGPTCL we will get 1646 crores. So basically till next 12 months whatever normal billing is there in this current year that is one part and second is the 600 crores of roughly last year cash flows. Right. On this last year cash flows have you already booked the carrying cost on this? Yes. We have booked that. So this 600 crores includes the carrying cost as well? Page 6 of 8
No, that doesn't include the carrying cost. That will be over and above this. This is purely a tariff. So basically for the first year which is FY16 you will receive 600 crores plus carrying cost every month? Yes. The interest costs in the parent which is about 161 crores in this quarter we were given to understand earlier that what will be the structure is that you will be charging interest from the parent to the SPVs at a particular rate and in the parent the interest generally would be lower than that rate and therefore there would be some income at the parent level. There will be some net income at the parent level, yes. But in this quarter the actuals are actually exactly opposite. Income is lower than the finance cost. I think we have just finished our entire financing program at the Holdco just now, so you would actually start seeing the effect of interest from the subsequent quarter actually from 1 st October. Partially you will see it in this quarter also but the real normalized result of income and charge you will see from 1 st October onwards. But at the consol level suffice to say that with issuance of masala bond and US Dollar bonds that we have done our overall interest cost has gone down by at least 100 basis points. And spend at what level, weighted average cost of interest would be at what level now? It would be less than 10%. What Kaushal had mentioned 215 crores per quarter kind of interest cost that is something which is essentially representing this rate of interest, so that is where we will stabilize our interest cost. I think we can give you very specific answer on the interest cost calculations offline. Kaushal will speak to you because I am saying things off the cuff from memory. We will take the next question from the line of Prafull. Please go ahead. Prafull: If I understand the results 90 crores is a one-off and what you are left after that is basically a flat Y-o-Y performance. Now going forward how much of these revenues for FY17 is going to be one off and what can we expect in terms of regular operating profit going forward? Going forward there will not be any one-off unless we get that order which I have told that there are two orders which are expecting, one is the CERC order which is pending and another is this MERC, once we provide the information and once if that is concluded before year-end Page 7 of 8
then again whatever we have reduced that tariff from this first quarter, that will come as a oneoff, but other than that it will be the similar things which will be coming up. Prafull: The first question was that ex that 90 crores one-off, the operational performance was flat Y-o- Y. Yes. Prafull: So there was no additional You might have reduced the deferred tax, if you add the deferred tax.. Prafull: Fair enough. Yes, if you do that then you will be able to calculate that. We will take the next question from the line of Shirish Rane from IDFC. Please go ahead. Just one clarification on this whole refinancing. This refinancing does it result in repaying that 1000 odd crores of loan which we had outstanding from related company? A part of it has already been repaid and our total rated debt is about 8500 crores to beyond that what is left out is I think 300 odd crores which will stay with us. So that related party debt would be paid down completely out of.. Except for 300 odd crores. As we speak that has been already done. Thank you all very much. If there are any questions, please write an email to Kaushal we would be very happy to answer. Thank you so much. Ladies and gentlemen, on behalf of Adani Transmission Limited that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines. Page 8 of 8