The fourth quarter numbers showed a strong perception regarding the coal business. What is your outlook for the coal business over the next two quarters?
We have fixed numbers not only for the coal business, but also for all of our existing operations. Our power generation has been much better than the past few quarters. Transmission and distribution (T&D) and renewables have also done well. All of our renewable plants are generating very good capacity, including the previously challenged wind power portfolio; They did a very good job this quarter.
Overall, we did very well and each of the companies supported the overall profits made. What is important is the consistency we have shown in growth. This is actually the eleventh consecutive quarter that we’ve shown PAT growth and we expect that to continue because operations have stabilized, there’s been a great deal of improvement in our operations and cost efficiencies and all of these benefits are being realized today. We expect in the coming quarters, similar trends will be observed.
Given the sharp rise in coal prices along with the focus on ESG, is there any plan to offload any stake in Indonesian joint ventures?
We continue to check all of these things. It all depends on what kind of assessment one will have as there was a license renewal in December and based on the new licenses we have 10 year mining licenses that can be extended for another 10 years. Our coal operations are going well. In due course, we will look at the opportunity but this is something we continue to monitor and monitor on a regular basis.
When I look at the finer details of EPC’s business, both Solar and Tata Projects have reported a loss. What is the outlook for profitability from now on and when will these companies change?
Tata projects had a negative impact in the last quarter as well as in this quarter because we look at it from a long-term cost-to-completion perspective. We made a provision for losses in the last quarter as well as this quarter considering the kind of projects we have and in some of the projects, there was a bit of pressure.
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Going forward, we do not foresee any additional impact on what they are implementing in the Tata projects. We also looked at it from the perspective that due to the lower cost of goods, we are in a much better position to deal with it and move forward with a profit. Similarly, with regards to the EPC renewal in the last quarter, we were expecting lower prices based on the various reports that came out of China. Unfortunately, prices have not come down as the impact of Covid is still present in a few places. Likewise, we faced a huge challenge in terms of forex losses and the increase and devaluation affected us negatively. Now that we have 100% hedge of all future purchases, we will not have any similar situation in the future and will be able to remedy this.
In the renewable business, it has announced a capex plan of around Rs 10,000 crore for the year. What are your expectations regarding growth in this vertical given that the PAT has been a bit choppy?
We have a huge plan and this year our total capex is Rs 14,000 crore, out of which, most of nearly Rs 10,000 crore goes to our renewable business. This will be for each of the utility projects we are undertaking and they are all in the pipeline. In fact, in the first quarter itself, we commissioned approximately 250 MW and another similar capacity operation is now taking place. This year we expect to add another 500 megawatts of projects. Apart from that, we will also set up the manufacturing facility with an investment of approximately Rs 3,000 crore. Taken together, the Rs 10,000 crore investment we will make will help us further improve our power generation capacity and this will also enhance the overall capacity of the company.
Yesterday we saw this important announcement from the Competition Commission of India which blessed the BlackRock deal as well as Mubadala’s investments. Now that the approvals are starting to come in, when can they be closed and when will we see the funds arrive?
These were the last pending approvals. Now that it has come, we expect to complete all transactions in the next two weeks and the first payment of money can be expected by then. The second tranche will come six months later. We are on track to complete this transaction and create a separate company for Renewable Energy TATA Which will carry out all the business related to the renovation.
This is the biggest trend we are seeing across India for businesses. In fact, to be fair globally as well, how new renewable energy subsidiaries are being created, for greener energy, ESG barriers are met, ESG allocations of funds are also met. So after truncating it, how well will it function independently? Will there be more capital increase? Can it be listed separately?
Well, for now, whatever divestment we had, we did it. The money that will come in will be enough to grow for at least the next two or three years, and depending on how the market reacts to this investment as well as the opportunities that will come in the future, especially considering that just last week the Government of India announced a revised RPO commitment rise to 47% By 2030, there will be a huge opportunity for us and we will be a big player in the renewable business in the future.
When we talk about investments in power, where do you see capital expenditures rebounding? Will higher prices and demand for better energy continue to keep capital expenditures in the sector going through the various players?
The energy sector has seen growth in the past few years, especially in the last year, and demand has increased by almost 25%. There is a huge opportunity for the Indian industry and for India to leap into the renewable space. India has taken a very ambitious target of 500 gigawatts by 2030. There are RPO commitments and this means that there will be huge investment in the renewable space.
When I talk about renewables, it’s not just about solar or wind energy, but all the renewable energy systems that are going to be there including storage and hydrogen. There will be a huge opportunity in the decentralized use of renewable energy sources – that is, rooftop pumps and solar power. There will also be a massive breakthrough for electric vehicles.
I think there is a great opportunity to meet this requirement. A lot of transportation systems need to be modernized and therefore there will be significant investments in transportation business. Likewise, the distribution system must become smart and the government’s smart metering program as well as the improvement of the distribution system, in terms of reliability as well as customer service, will be a very important boost. I think Tata Power is well positioned to take advantage of all these areas where opportunities come in, and one can see significant growth in Tata Power in the coming quarters.
Can you talk to us about the distribution business as well? What do all the amendments we’ve seen in the Electricity Law mean for this aspect of the business?
This means that the distribution sector has to undergo a major transformation in terms of the quality of service it provides to customers. There are a lot of changes happening and customer expectations are rising. So reliability, 24/7 availability, consumer available information, smart metering agenda, smart grid agenda – all these things will make India and the Indian consumer aware of the latest technologies and the benefits of energy use.
There is a great opportunity for India to jump into the smart grid and smart metering space and we anticipate that the way the energy sector operates, especially the state’s inconveniences, will undergo a change in terms of management and services and a lot of money will be invested in those areas.