Prepared remarks
Thank you for standing by and welcome to the ReNew Q2 2025 Earnings Report. 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 Anunay Shahi. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining us. We did put out a press release announcing results for Fiscal 2025 Second Quarter Ended September 30th, 2024, last night, and a copy of the press release and the earnings presentation are available in the Investor Relations section on ReNew's website at www.renew.com. With me today are Sumant Sinha, our Founder, Chairman and CEO; Kailash Vaswani, our CFO; and Vaishali Nigam Sinha, Co-Founder and Chairperson, Sustainability. After the prepared remarks, which we expect will take about half an hour, we will open 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 comparable IFRS measures and these reconciliations are also available on our website in the press release, presentation materials, and our annual report. It's now my pleasure to hand it over to Sumant, who recently featured in Times' list of 100 Most Influential Leaders Driving Business Climate Action. Over to you Sumant.
Yeah, thank you, Anunay. Good morning, everyone. Good evening or good afternoon and glad to have all of you on our earnings call. Before we get into our business, let me take note of extreme weather changes that we continue to see globally, underlining the urgent need to deliver sustainable sources of clean energy. From forest fires in the US to flash floods in Europe or the soaring AQI levels in Northern India, which we are currently experiencing, we see more events that indicate that climate change is for real. ReNew, of course, is doing its part to fight this enormous challenge by changing the energy mix of India, the most populous country on the planet with a growing energy demand and no alternative sources to fill the demand-supply gap. Having said that, let me now turn to updates from our business. I am glad to inform our investors that we are on track to deliver the megawatts and accretive growth for the current fiscal year along with expanding our contracted pipeline.
We continue to strive towards reducing costs and building efficiency in our operations. Among all our peers, we have commissioned the most renewable energy megawatts in India in the first six months of this fiscal year. While our share price movement has been affected by US macro factors, these factors actually have little or no bearing on our own business or growth or profitability as all of our business and operations are linked to the Indian economy, which is expected to grow at more than 7% this fiscal year. Turning to highlights for the quarter, we have commissioned 860 megawatts to date in this fiscal year and are on track to meet our guidance of installed megawatts. In addition to the 860 megawatts commissioned so far, there are another 350 megawatts to 400 megawatts that are currently installed which should be largely commissioned in the third quarter. Our total operating capacity net of assets that we sold in the last fiscal year grew by approximately 30%.
Our total portfolio in absolute terms grew by about 18% and would have been an even higher 21% after adjusting for the 400 megawatts that we sold last year. Including the approximately 700 megawatts capacity signed in October of this year, we have been able to sign PPAs for 2.9 gigawatts of renewable energy capacity in the current fiscal year, extending thereby our current portfolio from 13.8 gigawatts in September '24 to 16.3 gigawatts. That does not include 900 megawatt hours of battery storage capacity that are part of our complex projects. So, just to say again, our current portfolio is 16.3 gigawatts of contracted capacity, including another 900 megawatts of battery storage capacity. Turning to our financial performance, we reported a 14% growth in our adjusted EBITDA this quarter, driven by cost optimization. In addition, we had a 31% increase in profit after tax, primarily on account of lower G&A and lower finance costs, which Kailash will cover in detail.
Our 6.4 gigawatt solar module manufacturing facilities are now fully operational. I am delighted to announce that recently our cell facility has started trial production of cells as well. While it is expected to take the rest of the fiscal year to stabilize cell operations, we expect that our entire cell and module facilities will be stabilized fully and will operate for the full next fiscal year. In addition, we have now secured an external order book of over 900 megawatts, ensuring that our surplus capacity is sold in the market. Additionally, we are also listed as a Bloomberg Tier 1 supplier, underlining the quality that we have been able to create. We are committed to creating shareholder value and over the years, we have built a sustainable competitive advantage in one of the fastest-growing markets globally by raising capital through the cheapest source. We have grown responsibly, demonstrating capital discipline and taking up projects where returns are significantly above the cost of capital.
We are the leaders in complex solutions and one of the very few Indian IPPs to have commissioned over 2 gigawatts of renewable energy assets in a single year. Fiscal year to date, we have done around 860 megawatts of commissioning, ensuring that we are on track to hit our megawatt target for the year. In addition, we also have about 350 megawatts of solar projects that are currently installed and are in the process of getting connected to the grid. We expect that the peak power project should also be fully commissioned this quarter, as will the RTC Wind Phase 2 start getting commissioned later this quarter. While our peers in the market have faced connectivity and supply chain issues, our strategy has ensured that we have not only secured interconnection approvals for our current bid wins, but also beyond that. Our in-house EPC teams have ensured that any supply chain bottlenecks are sorted and there is no shortage of materials for wind or solar sites.
Additionally, we continue to demonstrate capital discipline as the auction markets continue to evolve at a rapid pace. As stated earlier, we don't target market share but are focused on delivering returns above our cost of capital, targeting levered returns of 16% to 20%. We have won around 1.4 gigawatts of additional capacity so far this fiscal year, where the expected returns have met our thresholds. Do note that while there are still over 6 gigawatts of bid wins with letters of award beyond our current portfolio, that won't be included into our portfolio until the PPA is signed. We are pacing our construction principally around interconnection infrastructure availability. Getting into manufacturing was a strategic move to secure our supply chain as India was moving to restrict imports of solar modules into India. This barrier meant that we needed to build our own facilities. The results are visible in the commissioning that we have been able to do in the last 12 months or so using our own solar modules.
While the two module plants are fully ramped up, I am happy to announce that our cell plant in Gujarat has also started trial production. Our plants are now featured in the Bloomberg Tier 1 module supplier list as well as a PVEL Top Performer 2024. Our external order book now stands at over 900 megawatts and is likely to grow and contribute to consolidated EBITDA. We will be able to provide more granularity on the FY'26 projected numbers along with our FY'25 results next year. In addition to securing supply, we are also looking to de-risk our capital by finding partners for the manufacturing business. Let me now hand it over to Kailash to talk more about the financial updates. Kailash, over to you.
Thanks, Sumant. Turning to our ongoing growth, since the same time last year, we have constructed over 2.4 gigawatts of projects, a nearly 30% increase in operating capacity after adjusting for the 400 megawatts sold during last year. Not only this, but I'm also happy to report a 31% increase in profit after tax year-on-year. This has been possible through a continued focus on cost control and building efficiency in our operations. We also continue to expand our contracted pipeline with a 21% increase in the portfolio adjusted for asset sales that we have made during the year and our contracted portfolio now stands at 16.3 gigawatts. There has been an 18-day reduction year-on-year in the debtor sales outstanding which follows the trend that we have been able to deliver over the past two years. There's been a sequential uptick, but that largely reflects the seasonality primarily due to higher revenue earned during Q1 and Q2 to be earned in Q3.
We expect lower debtor sales outstanding in the following two quarters. On Slide 9, in addition to profitability, we are also focused on generating cash from our projects. Our cash from operating activities has been increasing to almost INR20.1 billion in this quarter. It's almost a 10% increase year-on-year. Cash profit, a non-GAAP measure meant to showcase our P&L on a cash basis, increased by 31% to INR12.1 billion for the quarter. Turning to Slide 14, net debt to EBITDA leverage at the operating asset level continues to be below 6x, a threshold that we have set for ourselves. On a trailing 12-month basis, leverage was around 5.9x, excluding our under-construction portfolio with contribution from JV partners in the form of compulsory convertible instruments and our manufacturing and transmission businesses. As we continue to grow our portfolio, the proportion of under-construction projects should come down and will improve the ratios in addition to our efforts to be disciplined in our approach towards capital deployment.
Turning to Page 15, we have had questions about how we derive returns from our financials, given the distortion between growth and other businesses which we've done. What this slide shows is that we build our assets at 7 to 7.5 times project cost to EBITDA. The projects are funded with a debt-to-equity ratio of 75:25. Hence, typically the project debt levels are expected to remain around 5.5 times debt by EBITDA in the initial years of the project and the interest and depreciation ends up providing us with a tax shield. While generally, we assume no asset recycling while bidding for projects, we have demonstrated the value creation in several transactions wherein we've been able to sell the assets between 9 times to 9.5 times EV bidder, creating additional value and raising low-cost equity for growth, which currently remains for us as the cheapest source of equity to grow our pipeline. Let me now hand it over to Vaishali for comments on ESG.
Thank you, Kailash. Turning to Page 17, with the strong performance in the first quarter and the successful release of our inaugural Annual Integrated Report making significant strides toward achieving our sustainability targets, we are pleased to present the updates for the second quarter of fiscal year '25. ReNew is committed to leading the way to meet its net-zero targets. I'd like to highlight a few points. We've achieved carbon neutrality for the fourth consecutive year, showcasing a 10% reduction in Scope 1 and 2 emissions. ReNew is focused on enhancing the ESG ratings. As part of this effort, we've strengthened and developed key policies including the Board diversity, stakeholder engagement and data privacy policies, all of which are available on our website. Social responsibility has been integral to our business. Our CSR journey began in 2014, and since then we have impacted the lives of over 1.4 million people across 500 plus villages in India spanning over 10 states.
Turning to Page 18, I would now like to switch to some of our efforts for Q2 fiscal year '25. Women for Climate is a socioeconomic empowerment program that focuses on building climate resilience, where we have trained over 450 women salt pan farmers. We also have Employee Driven Programs led by our employees, ensuring sustainable, equitable, and responsible growth. Our volunteering campaigns cover the Rice Bucket Challenge, which involves donating rice to those in need and contributing towards a hunger-free India where we've distributed over 210,000 kilograms of rice. ReNew has been recognized for its sustained efforts in advancing sustainability. Turning to Page 19, I would like to showcase some marquee recognitions for Q2 fiscal year '25. At the Ministry of New and Renewable Energy's flagship event, RE-INVEST, ReNew solidified its position as a market leader across different categories.
The prestigious Sword of Honour Award was earned by ReNew's Hydropower Plant for safety. We were placed in the 18th position in the Energy Innovators Group in Fortune's renowned Change the World List. Turning to Page 20, I am showcasing our progress update on ESG targets for Q2 FY'25. We are advancing to the second phase of our Sustainable Supply Chain Assessment set to begin this quarter, focusing on supplier evaluations, recognition initiatives and capacity-building efforts, which are critical in this sector. We maintained our AA rating with MSCI, securing a position in the Leadership band. We have also submitted our 2024 responses for CDP and CSA with submissions to MSCI and Refinitiv planned for the next quarter. So we are on our sustainability journey and it's on track. We have also identified 46 schools for electrification across Rajasthan and Maharashtra in collaboration with HSBC.
Additionally, four digital labs were established in Uttarakhand, and 25 entrepreneurs received support through the Greentech Accelerator program. Let me now hand it back to Sumant for guidance. Thank you.
Yeah, thank you, Vaishali. Coming to our guidance, we are reaffirming our megawatts in spite of some challenges in wind execution and adjusted EBITDA guidance. We have also updated guidance for our updated contracted portfolio of 16.3 gigawatts. Do note that seasonally, our Q3 numbers are normally lower than the Q2 numbers due to weather patterns. With that, we will be happy to take any questions. Anunay, over to you.
Questions and answers
Thank you. Your first question comes from Justin Clare with ROTH Capital Partners.
Good morning. Thank you for the opportunity to ask questions. First, I would like to inquire about the RTC project. It appears that it is still scheduled for completion in the latter half of 2025, but this depends on transmission readiness. Could you provide more information on whether you believe the transmission will be ready on time or if there might be delays? Additionally, I would like to know if, with the RTC project, there is a chance you could sell in the merchant market before selling under the PPA.
Yeah, Anunay, should I take that? Okay. Yeah, Justin. Hi. So, yeah, the RTC project will be ready in the second half of this year. And as far as the transmission part is concerned, I don't think there's any delay that we expect to have. I think all of that is pretty much on track. So I don't see that delaying matters. To the extent that we can commission certain parts of the project ahead of the final commissioning, we can sell them in the merchant market. But the way the PPA was structured meant that up to the first 400 megawatts of delivered capacity, we would have to sell to the end customers. It's only when we generate capacities higher than 400 megawatts that we are able to sell that part of the capacity into the merchant market. So there will be some sales in the merchant market, but small amounts, which is dissimilar to what is happening with the peak power project where we can sell into the merchant market whatever is commissioned so far.
Okay, got it.
People were drafted differently and therefore had different outcomes for party commission capacity.
Okay, okay. That makes sense. Thanks. I'm also wondering if you could just comment on the new proposed restriction for cell manufacturing with the intention to eliminate cell imports. Does that affect your thinking on your manufacturing plan, your plans for capacity here? And then just wondering if you think your 2.5 gigawatts of cell capacity will be sufficient or could you look at expanding that?
Yeah. So the government is quite actively thinking of imposing an ALMM for cells starting in April 2026. So there's still about 18 months left for that to happen. The government is giving significant advance notice that this is something likely to come soon. This gives us time to plan for our own response. The most sensible response for us would be to expand our cell capacity to meet, at the very least, our own internal requirements. We are actively considering that plan, but we haven't taken a final decision on it yet. However, that would be the sensible thing for us to consider doing.
Okay. Got it. Appreciate it. Thank you.
Your next question comes from Maheep Mandloi with Mizuho.
Hey, hi, thanks for taking the questions here. Impressive job on the cost optimization. Could you just maybe touch upon that as to what drove that and how to think about the cost optimizations? If I can tag on that like if I look at the medium-term guidance, I think you have only 700 megawatts of more build-outs, but the EBITDA increase or the CFE increase is much higher than that ratio. So it looks like you expect more cost cuts or optimizations in the medium term as well. Could you just touch upon those? What are the drivers for that? Thanks.
Yeah. Kailash, do you want to take that?
Yeah. Sure, Sumant. So, Maheep, on cost, we've been running a lot of optimization programs within the company. A lot of discretionary spends are being canceled due to the underperformance we have been seeing in wind. We have also managed to renegotiate with some of our OEMs on certain O&M contracts for our earlier wind projects, which has helped us reduce costs on existing projects on a going forward basis. Additionally, we've been able to write back some provisions that we had kept in the form of equalization reserves. So we expect that some of these benefits will continue into the future. The idea is to grow the portfolio from here on without incurring significant additional costs, especially concerning manpower, while gaining benefits from operational leverage.
Got you. Got you. Also maybe clarify that the 700 megawatt which is adding to your medium term, is that PPA more or less in line with recent PPAs or how should we think about the PPA price because I was trying to find the when and couldn't find any details online.
Yeah. So these projects have all been won within the last 1 year, 1.5 years. The returns are within our thresholds as we've been discussing.
Got it. Looking at the FDRE and the hybrid projects, I think you had some changes possible on the solar and the wind mix. Could you clarify what's driving that? I know you talked about the transmission issue, but when would you know that and any other reasons driving that? What should we think about the impact on the IRRs? Does doing more solar, for example, increase the IRRs?
Yeah, if you want me to take that, I can. So, Maheep, basically what's happening is that since we ran some of these bids, prices have obviously moved, and equipment costs have come down sharply, especially for solar and batteries. This allows us to reconfigure some of these plants so that there will be more solar and more batteries, and less wind, which will mean less variability. We've had a lot of variability on wind speeds, and we are quite happy to reduce the relative amount of wind in those projects. The net result in our minds is that the IRRs are actually improving through this reconfiguration, and hopefully with less variability associated with them, thus enhancing our outcomes.
Got it. But to your point, there's more flexibility on the PPA side and so you still be in that 12% to 16% levered IRRs.
No, no. Not more than that. These are all bids that we have won in the last 18 months, and many of them were won in the period of 6 to 18 months ago. Since equipment costs have been decreasing during this time, our bids were already at attractive IRRs. By reconfiguring, we're able to increase IRRs even more. So I think they're all at the higher end of our threshold levels.
Got you. One last one from me. On that 900 megawatt cell and module order, I think that's 600 last quarter just for modules. How much of that is international? I know I've seen you guys in international conferences or trade shows, but just curious if it's all India or do you have some international as well?
At this point, Maheep, this is all India.
Got you. Perfect. Thanks.
Your next question comes from Nikhil Nigania with Bernstein.
Yeah, thank you for taking my question. My first question is regarding the PPAs. I wanted to understand, and it's good to see the wins by ReNew and the tariffs that are happening. But are we seeing a slowdown in tendering activity in India or a slowdown in the signing of PPAs, given the big quantum that we saw last year and early this fiscal as well?
So, Nikhil, we haven't yet seen a slowdown in the bidding process, although there have been more discussions around it within government corridors. Therefore, you may see some slowdown happening in the future. But at this point, everybody continues to bid out capacities. The key issue is what amount of PPA conversion is happening, and as we all know, there is a gap with about 40 gigawatts of PPAs that have not yet been signed off for all the auctions that have occurred.
Got it, Sumant. Also, I see some legacy PPAs that we have, for example, SECI 11 for wind, where tariffs are quite below the tariffs we are seeing right now. Is there any option to exit some of those legacy contracts which we have not built?
Yeah. So, you know, a lot of these contracts come with complexity issues because in many cases, the PPAs were signed after a long time. Our contention is that it’s not fair to hold us accountable for bids that might have happened a year, two years prior to when the PPAs are finally in the process of being signed. A lot of these are under discussion right now with regulatory authorities and bidding agencies to see whether those should proceed at all. Of course, our downside is that in case we don't do it and the bidding agencies say we should have, then there is a PPA penalty that would be leviable. But that bounds the downside to some degree. So that's where we are, but our first attempt is to demonstrate that some of these projects experienced significant changes by the time the contracts got signed.
Understood. Thanks, Sumant. The third question I have is regarding the module business. It's a very timely commissioning of the module plant and now the cell plant, given that most of it will be used internally. I wanted to understand, if you had to compare ballpark capex per megawatt for a solar plant with in-house manufacturing versus without, where do things stand? This would give us a sense of the benefit ReNew gets from it. For the whole 6.4 gigawatt module and 2.5 gigawatt cell, am I correct to assume it's Mono PERC and not TOPCon?
Yeah, so many questions there. The module lines were initially set up as Mono PERC, but are being entirely converted to TOPCon. Most of the conversion has already happened. We have eight lines altogether; six or seven of those lines have already been converted. The conversion from module line from Mono PERC to TOPCon is straightforward and takes a couple of weeks. The cell lines are Mono PERC and those will continue to operate that way. We may consider converting them depending on the cost and requirement, but at this point, they are Mono PERC. The advantage we gain, and what the margin is in the cell manufacturing business for third-party sales, provides us with a pointer to what price benefit we are getting. The margin in the solar manufacturing business is reasonably high right now, but how long it stays is a different matter. Today they are high, and had we been buying from the market, I would estimate a differential of at least $0.015 to $0.02.
Having our own manufacturing capacity allows us to avoid this extra cost. Internally, we have arm's length pricing between the two businesses, but it gets consolidated out for internal sales. Just to add, not all of our solar manufacturing will go in-house. We expect about 50% to 60% of the modules to be supplied in-house, with the balance sold externally. To the extent prices stay high, we will benefit from our solar manufacturing business on third-party sales. We are not providing guidance yet, as this year serves as our startup year. We will offer guidance for the next year as we get closer to that point and gain a better sense of our order book and likely pricing levels.
Got it, Sumant. Very clear. Thank you so much for answering my questions.
Your next question comes from Aniket Mittal with SBI Mutual Funds.
Yes, thank you. A few questions. Firstly, just to get some clarity on the wind PLFs, again, the average PLFs for the quarter are down about 300 basis points to 38.3%. If you could elaborate on the reasons for that, and typically how far away would this be from P90 levels?
Yeah, so you know, Aniket, forecasting wind and therefore assuming what is the right P75, of course, is an assessment that we make, and someone else's assessment could be higher or lower depending on how they assess it. We tend to be relatively conservative on these forecasts because wind has not been kind to us over the last four or five years. So it's shaped our view on assumptions for wind PLFs going forward. The 300 basis points probably is at the P90 level, away from the P75 we would have assumed. Last year was just at 41.3%, two to three percentage points below what we would have assumed to be the P75. This year being 300 points below that would put us between P85 and P90. Of course, there are still months left, and we have to wait to see what happens.
Okay. I got that. That's helpful. The other question was specifically on the C&I portfolio; you've got a fairly large, I think close to 1.3 gigawatts in construction. Please provide more granularity on the execution timelines over here and any challenges currently facing on the C&I front?
So Aniket, half of that 1.3 is likely to get commissioned this year. I'm giving you a ballpark number, and the balance would probably get done next year. There are no challenges we are facing in the C&I business per se. Everything is going very smoothly. There is a lot of demand in the market, and we are actually turning back people who approach us whose projects might be too small or in states where we may not have development capacity. We are focusing on the larger off-takers, typically at the 100 megawatts and above level, especially large tech companies from the US. There is a lot of interest and appetite across these segments, and our sense is that we should reach up to 15% of our total capacity each year coming from the C&I segment.
Got that. Lastly, just in the finance cost. If I look at the balance sheet on a year-on-year basis, our gross debt is up almost 19%, but the finance costs have been stable. I understand some of this is within CWIP, but we've put a fairly good control on the interest costs for the quarter. If you could highlight why that's happening?
As far as finance cost is concerned, we were impacted by mark-to-market moments due to the open exposure we had earlier on the rupee-dollar exchange rate. We have since put all those into firm hedges to eliminate the mark-to-market impact. This has significantly contributed to our stable finance costs. Secondly, we've done refinancing of high-cost debt. We made some announcements that we had bonds maturing, and we refinanced those when we achieved a 200 basis point saving concerning finance costs. All these factors are reflected now in the reported numbers.
Okay. Just one last question if I may squeeze it. Earlier you highlighted in one of your comments on the other expenses that there's been some write-back of certain provisions. If you could quantify that number? What's the write-back that's sitting in other expenses?
We had O&M equalization reserves built at a certain level of O&M costs, and since we managed to reduce O&M costs, we were able to reverse that provision. That write-back is around INR60 crore.
Okay. Got that. Those are the questions.
Your next question comes from Puneet Gulati with HSBC.
Yeah, thank you so much. My first question is with respect to your EBITDA guidance for 16.3 gigawatts. A few quarters back, you mentioned reevaluating numbers considering the variability of wind. Does the 16.6 gigawatt run rate EBITDA that you've given in your presentation now factor in poor PLF on wind or is it still more on a normalized basis?
Yes. We have taken some normalization from our initial estimates, but it doesn't reflect the year's performance as we are still seeing current performance impacted by near-term trends. However, there has been some adjustment factored in.
Understood. But there could be room for more adjustments as well?
When we do our planning, we assume there will be normalized wind, and due to actual performance, there could still be variability.
Interesting. On your module, you said half will be consumed in-house and half sold. What is the plan for sales? Is there a thought to enter the US market as well?
On sales, to the extent that we can tap into that market, of course, we would like to do that. It depends on how open that market is, including the total price we can get there versus prices in India. The DCR market is currently very attractive and is giving us good margins. Therefore, for any surplus we have, we are happy to sell into that market. However, as Maheep said, we are keeping our eyes and ears open for selling into the US market as well, participating in numerous conversations going on. We will pursue sales there if the margins justify it.
What is your assessment of the pricing for the DCR market on the sell side currently?
Pricing functionally depends on wafer costs. We think of it more in terms of margin for conversion. Today, margins for both modules and cells are quite attractive, which is reflected in the profitability of some of our peer group companies in the segment right now.
Out of the 2.6 gigawatts that you’ve already produced, how much has been sold outside so far?
I can't give you an exact number, Puneet.
It's right now less than 100 megawatts.
Okay, that's it. Thank you so much and all the best.
Your next question comes from Macauley Smith with Ninety One.
Hi. Thanks. You've answered most of my questions. I just wondered if you could give any guidance on CapEx for the remainder of the year?
Most of the CapEx for the remainder of the year has already been incurred. I would say that maybe we have a few solar projects in which some CapEx work is ongoing. That would be in the range of around $200 million to $250 million.
What are your expectations on total commissioned capacity by the end of the year?
We have given guidance of doing between 1.8 gigawatts to 2.4 gigawatts. We are still tracking within that range, about 1.9 gigawatts to 2.4 gigawatts, which will put us around 11.5 gigawatts in total.
Thank you. That was all my questions.
Thank you. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.