Prepared remarks
Thank you for standing by and welcome to ReNew Energy Global Plc 4Q FY’24 Results and Long-Term Outlook. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. I would now like to hand the conference over to Mr. Nathan Judge. Please go ahead.
Yes, thank you and good morning everyone and thank you for joining us. Today we're going to have a little bit of a different format from our previous earnings call given the meaningful gains the company has made in securing long-term growth, as well as the dramatic improvement in the fundamentals of the Indian renewable energy market. We wanted to share with you our long-term outlook in addition to the normal earnings review and annual guidance for fiscal year 2025. We did put out a press release announcing results for the fiscal 2024 fourth quarter and full-year 2024 ended March 31, 2024 last night and a copy of this press release and earnings presentation are available on the investor relations section on Renew's website at www.renew.com. With me today are Sumant Sinha, Founder, Chairman, and CEO; Kailash Vaswani, our CFO, and Vaishali Nigam Sinha, Co-Founder and Chairperson of Sustainability.
After the prepared remarks, which we expect will take about an hour, 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 all our remarks. 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 furnish 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 are certain non-IFRS measures that we reconcile to the most possible IFRS measures. And these reconciliations are also available on our website in the press release presentation materials and our annual report. It is now my pleasure to hand it over to Sumant.
Thank you, Nathan. Good morning and good afternoon and good evening, everyone. I'm pleased to have you all on our earnings call. To begin with the presentation, I want to emphasize our commitment to creating a carbon-free world, step by step. Our emphasis is on growth that benefits all our stakeholders, particularly our shareholders. As a leading renewable energy company in India and the Global South, we are focused on enhancing our position in the years ahead. We do not seek scale or market share for its own benefit; rather, we pursue growth opportunities where the return on investment surpasses our cost of capital. The fiscal year 2024 commenced strongly with the Ministry of New and Renewable Energy announcing 50 gigawatts of annual auctions, nearly triple what had been auctioned in previous years. India not only met this goal but exceeded it by auctioning over 62 gigawatts of renewable energy capacity during the year.
Since April 2023, we have secured approximately 8 gigawatts of new capacity, which is about 60% more than our portfolio as of March 31, 2023. We have signed Power Purchase Agreements for around 2.2 gigawatts of capacity so far in FY’25, bringing our contracted portfolio to 15.6 gigawatts. For the additional 6 gigawatts for which we have letters of award, we expect to finalize the PPAs in the next six to nine months, referring to them as our pipeline until then. We are on track to deliver a pipeline exceeding 21 gigawatts by 2029, more than doubling what we completed in fiscal year 2024. Our advancement is supported by an encouraging macroeconomic environment, where we expect stable policymaking and a continued robust push for renewable energy. On the demand front, we predict significant growth in industrial demand, especially in sectors like electric vehicles and data centers, contributing to both GDP growth and substantial increases in power demand.
Regarding costs, solar cell and module prices have reached historic lows, and battery prices have fallen by about a quarter in just over a year, further enhancing the returns on projects in development. The fiscal year ahead appears even more promising and filled with opportunities than the last. We aim to address some key points that we believe the market has yet to acknowledge. Currently, we project a clear pathway to achieving 16% to 18% annual growth through the end of this decade. This growth is expected to come solely from internal cash flow generation and asset recycling, with no plans to issue new shares. We also anticipate a substantial improvement in our leverage ratios during this time. Our fully contracted portfolio is currently at 15.6 gigawatts, and we have an additional nearly 6 gigawatts from a favorable bidding market for which we possess letters of award and plan to sign the PPAs in the next six to nine months.
In total, we have more than 21 gigawatts, which enhances our growth visibility and confidence in execution and returns. Notably, the next 10 gigawatts of growth are expected to offer significantly higher returns compared to the 9.5 gigawatts operating as of March 31. Asset recycling plays a crucial role in our strategy, providing a lower cost of equity to fund growth while enhancing returns due to the substantial premiums we receive over build costs. We are aiming to achieve an average Internal Rate of Return of 20% to 25% after reinvesting equity and gains from sales. We expect to monetize around 2 gigawatts of assets by FY ‘29. We also want to clarify some aspects of our accounts. There will be considerable investment and costs in the near term, including debt and unallocable overheads for our platform. However, these are crucial for creating significant competitive advantages and long-term value.
Our analysis reveals that assets operational for over a year earn a solid Return on Capital Employed of around 11%, compared to approximately 8% at the consolidated level, contributing about INR 17 billion as Cash Flow from Operations, in contrast to our FY '24 consolidated Cash Flow from Operations of INR 13.7 billion. These assets maintain a net debt to Last Twelve Months EBITDA ratio of 5.3 times, much better than the consolidated level of 8.2 times. As we continue to grow throughout this decade, we anticipate that the consolidated account ratios will significantly improve as more of our assets become operational. On our growth estimates, we aim to boost our EBITDA by 16% to 18% annually over the next five years to reach approximately INR 142 billion to INR 150 billion in run rate adjusted EBITDA by FY ‘30. Furthermore, once operational, our 19.4 gigawatts should generate around INR 35 billion to INR 42 billion in Cash Flow from Operations, which would represent an annual growth rate of over 25%.
We foresee a return on capital employed between 11% to 12% for the consolidated results and will work to improve the consolidated net debt to EBITDA ratio by about 25% from current levels. For FY ‘25, we project EBITDA of INR 76 billion to INR 82 billion and aim to operationalize 1,900 to 2,400 megawatts of new projects. Additionally, we expect to achieve Cash Flow from Operations of INR 12 billion to INR 14 billion, reflecting about 30% growth after adjusting for gains on sale recognized in FY ‘24. We reaffirm our commitment to pursuing only the highest return opportunities where we can achieve returns exceeding the cost of capital. The return on capital employed for projects commissioned in FY ‘23 that are delivering stable EBITDA is around 11%, against our weighted average cost of capital of about 8.75% to 9.25%. Our in-house wind EPC, Operations and Maintenance capabilities, along with our digital capabilities, empower us to engage in firm power or complex projects with the highest returns, which represent the fastest-growing segment of the market.
Over the years, we have collaborated with both prominent domestic and international investors who have expressed interest in our assets and supported our growth with equity. This strategy has enabled us to obtain a higher return on invested capital while lowering our overall leverage.
Thanks, Sumant. On page 36, we'll discuss three themes: profitability, leverage, and funding growth. While we will showcase the returns from our operating projects, analyze the leverage of our operating portfolio, and outline our growth funding strategy. Firstly, turning to profitability and leverage. On slide 37, based on reported financials, some may view our leverage as high and profits as low. However, these ratios are distorted by growth, including debt for projects that are not yet completed and producing EBITDA, as well as the cost related to our platform that delivers tremendous value longer-term. We will show on the slide that leverage on assets in our portfolio that have been operating for at least one year only has a net debt to last 12-months EBITDA ratio of about 5.3 times. The Return on Capital Employed for the same group is around 11%. On a consolidated basis, the returns of these projects are partially offset by platform costs, new businesses, and our under-construction portfolio.
Put differently, as we grow, there will be systematic improvement to leverage and profitability. By 2030, we expect that the consolidated net debt to last 12 months EBITDA will be around 5.5 times or lower, and the overall return on capital employed will be double digits. On page 38, we delve into leverage. The operational portfolio of assets that have been operating for one year or more had a net debt to last 12 months EBITDA leverage ratio of around 5.5 times, while the same ratio on a consolidated basis stood at 8.2 times. We want to point out that this higher figure includes debt related to manufacturing, equity contributions by our joint venture partners in the form of compulsory convertible debt, and debt related to our under-construction portfolio. After these adjustments, our underlying core leverage ratio is about 5.5 times. On page 39, let me follow up on Sumant’s discussion of funding our growth.
Our internal cash flow to equity generation can fund about 2 gigawatts per annum of capacity additions. Adding this up through FY ‘29, we can reach about 17 gigawatts without additional equity. However, the auction market is particularly robust right now, offering some of the highest returns we have ever seen. In addition, given the shortages of development capability combined with strong ESG mandates by global investors, we are able to monetize assets at a premium. This asset recycling opportunity allows us to accelerate our growth without issuing new shares.
Thank you, Kailash. Turning to page 47, as we reflect on the remarkable milestones achieved during fiscal year ‘24, our journey has been marked by achieving our targets and being recognized by top rated ESG rating platforms affirming our leadership globally. We set new benchmarks in our ESG vision, performance, and transparency, which I will elaborate in the upcoming slides. ReNew has been recognized by top ESG rating platforms, including being named among the top-rated ESG companies by Sustainalytics and the best in India's electric utilities and Independent Power Producers corporate in India by Refinitiv. Our dedication to sustainability is further demonstrated by the increase in our S&P global score, which has gone up to 55 in fiscal year ‘23 from 41 in fiscal year ‘22. We have maintained our B score in CDP climate change and A minus in CDP supply engagement ratings. Last year, ReNew received global recognition for its pioneering achievements in business excellence, digital innovation, and sustainability.
Among the most notable accolades were the MIT Technology Review 2023's 15 Climate Tech Companies to Watch for; ReNew was included in this, and it was one of the only two renewable energy companies globally to be included in this prestigious list. In the sustainable markets initiative Terra Carta Seal, we were one of the 17 companies in a global list recognized for its efforts towards conservation of water in our operation. The COP28 Presidency Energy Transition Changemaker was an award, which was given to us by the COP28 Presidency. We were the only clean energy company from India to be recognized under the category of renewables integration and clean power. The World Economic Forum's Global Lighthouse Network recognized us, and we won this for the second time. We found our place in a select list of 21 members of the Global Lighthouse Network, a community of manufacturers that show leadership in fourth industrial revolution technology.
These accolades underscore our commitment to setting new benchmarks in ESG vision performance and transparency. Since inception, social responsibility has been central to our business strategy at ReNew. Our CSR journey, which began in 2014, has grown to impact over 500 villages across 10 plus states in India, impacting the lives of over 1 million people. Last year, we were awarded the prestigious CII-ITC Sustainability Award in the CSR category.
Questions and answers
Yes, hi. Thanks for taking our questions here. So first off, you have 21.4 gigawatts that you've won at auction already. And so just thinking through the interconnection constraints here, how are you thinking about participating in new auctions in FY ‘25 and beyond given the size of the pipeline that you already have? Are you looking to participate? And then if so, are you looking at winning projects where the COD dates would be in FY ‘30 or potentially beyond? So how are you thinking about that part of the business?
Yes, regarding your question about interconnection, to bid for a new project, you need both interconnection and a clear understanding of how you will secure the land or the ability to block it. This involves evaluating where you can bid with confidence that the project can be executed successfully. There are different ways to secure interconnection, such as purchasing land in advance, which enables you to block interconnection, or providing a bank guarantee to do the same. However, if you go with the bank guarantee option, you must acquire the land within a few months, or you risk losing the interconnection. Our strategy focuses on proactively identifying and securing interconnection areas that we consider favorable. The better the locations we acquire, the more competitive we are in auctions, as prime sites allow for higher returns at similar tariffs. Therefore, effective project development is essential for maximizing returns on the projects we pursue.
Currently, we are expanding our project development pipeline by an additional 4 to 6 gigawatts on top of the 21.4 gigawatts we already have. We hold various sites and interconnection areas where we will be bidding for new projects. As for your question about whether these projects will extend beyond 2030, we will evaluate that as we move forward, ensuring that we operate within the technical framework we have. Moving forward, we will selectively bid on projects. If we can structure those projects to be back-ended, we prefer to do so to manage our capital requirements effectively.
Yes. Thank you so much. My first question is on the additional projects that you've won. How soon do you think you'll be able to find PPAs? And if you can give some color on out of the 62 gigawatts that government auctioned, how much has already been found PPAs?
Yes, so after 8 gigawatts that we had won last year, as I had remarked, about 1.5 gigawatts worth of 1.7 gigawatts or 1.8 gigawatts of PPAs have been signed. Therefore, the balance of about 6 gigawatts is still left to be signed. Now there was some slowdown in PPA signing because the code of conduct was in effect for the last couple of months and some of the government agencies were going a little slow on signing PPAs, waiting for the code of conduct to be finished. Now that it's finished, I expect that some more PPAs will get signed. But I think this process will take a little bit of time. As I said, it may take six to nine months to get some of them signed. Simply because some of them are complex projects and therefore there needs to be a higher degree of engagement between the DISCOMs and the bidding agencies to explain to the DISCOMs and so on. And there has also been a complicated mechanism, whereby the DISCOMs have to get approval from their regulatory agencies as well. So that whole process is a little bit longer, especially for the more complex projects. So my sense is that over the course of this fiscal year, the remainder of this year, most of the PPAs will get signed.