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The Q4 numbers show a hard reality as far as the coal business is concerned. What is your outlook for the coal business over the next few quarters?
We have solid numbers not only for the coal business, but also for all of our operations. Our energy production is better than many previous quarters. Our transmission and distribution (T&D) and replacement are also doing very well. All of our renewables are produced in very good capacity, including the ever-challenging wind portfolio; They did very well this quarter.
Overall we did very well and every business contributed to the overall profit. What is important is the consistency with which we get to show growth. In fact, this is the 11th quarter in a row that we have shown growth in PAT and we expect that to continue as operations have stabilized, a number of improvements have come into our operations and cost efficiencies and benefits are all increasing today. We expect that in future quarters, a similar trend will be observed.
Given the increase in coal prices coupled with the focus on ESG, are there any plans to divest any stake in Indonesian JVs?
We continue to examine all these things. It all depends on the type of valuation that will be obtained because there is a license renewal in December and based on the new license, we have a 10-year mining license that can be renewed for another 10 years. Our coal operation is going well. When the time is right, we will look at opportunities but this is something that we continue to observe and monitor on a regular basis.
As I look at the fine print of the EPC business, both Tata Power Solar and Tata Projects reported losses. What is the forecast of profits from this and when will these businesses turn?
The Tata project had a negative impact last quarter as well as this quarter because we look at it from a long-term perspective on completion costs. We make provision for losses in the last quarter as well as this quarter considering the type of projects we have and in some projects, there is a little pressure.
Going forward, we do not expect any impact on what they are doing in Tata projects. We also look at it from the point of view that the cost of goods is going down, we are in a better position to deal with it and going forward it should be profitable. Similarly, in EPC for the last quarter, we expect prices to soften based on various reports coming from China. Unfortunately, prices have not decreased as the effects of Covid continue to exist in a few places. Similarly, we have great challenges in terms of forex losses and the increase and devaluation of currencies that have a negative impact on us.
Now that we have made 100% protection for all future purchases, we will not be in a similar position in the future and we will be able to fix it.
On the renewables business, you have announced a capex plan of around Rs 10,000 crore for this year. What are your expectations regarding growth in this vertical as PAT is slightly volatile?
We have big plans and this year our capex is a total of Rs 14,000 crore, out of which, Almost Rs 10,000 crore is going towards our renewables business. These will be two utility scale projects that we are working on and they are all in the pipeline. In fact, in the first quarter, we commissioned almost 250 megawatts, and another similar capacity assignment is happening now. We expect this year we will increase the project by 500 megawatts. In addition, a factory will be established with an investment of nearly 3,000 million US dollars. All in all, the investment of 10,000 million rupees that we will make will help us to further improve our power generation capacity and that will also enhance the overall capacity of the company.
Yesterday we saw that important announcement from the Competition Commission of India that blessed the Blackrock deal as well as Mubadala’s investment. Now that the approvals have started coming in, when can it close and will we see the money coming in?
This is the last of the pending approvals. Now that it has arrived, we expect to complete all transactions in the next two weeks and the first money can be expected at that time. The second order will arrive six months later. We are very much on track to complete this transaction and carve out a separate company of Tata Power renewables which will handle all the renewables related businesses.
This is a larger trend that we are seeing across corporate India. In fact, in order to be fair around the world as well, the new subsidiary company method was created for renewables, for green energy, ESG obstacles are answered Provided, that ESG allocation of capital is obtained. So after you shell out, how will it work for free? Will there be more fundraising? Can it be listed separately?
Now, whatever we have to do, we have done. The money to come will be enough for growth at least 2-3 years ahead and based on how the market reacts to this investment is still an opportunity to come in the future, especially considering that last week only the Government of India announced. The revised RPO obligation will increase to 47% by 2030, there will be a huge opportunity for us and we will be a major player in the renewables business moving forward.
When we talk about investing in energy, where do you see capex picking up? Will higher prices and demand for better energy continue to keep capex in the sector across the various players?
The electricity sector has been growing in recent years, especially in the last year and the demand has increased. Up almost 25%. There are great opportunities for Indian industry and for India to make leaps in the renewable space. India has implemented a very ambitious target of 500 gigawatt by 2030. The RPO obligation is there and that means there will be significant investment in the renewable space.
When I talk about renewables, it’s not just solar or wind energy, but all renewable systems that will be available including storage and hydrogen. There will be a great opportunity to use the distribution model of renewables – that is, rooftops and solar pumps. There will also be a huge penetration of electric vehicles.
I think there is a great opportunity there to meet this need. Many transmission systems need to be upgraded and therefore there will be a large investment in the transmission business. Similarly, the distribution system must become smart and the government’s smart metering program as well as improving the distribution system, both in terms of reliability as well as customer service, will be a very important thrust. I think Tata Power is poised to benefit from all these areas where opportunities will come and one will see significant growth in Tata Power in the coming quarters.
Can you talk to us about the distribution business? All the amendments we have seen in the Electricity Act, what does that mean for business?
It means that the distribution sector must undergo a major transformation in terms of the quality of service provided to customers. There are many changes happening and customer expectations will increase. So reliability, 24×7 real-time availability, information available to consumers, smart metering calendars, smart grids – all these things will make India and Indian consumers aware of the latest technology and benefits of energy use.
There is a great opportunity for India to jump into the space of smart grid and smart metering and we expect that the way the electricity sector works, especially the state-owned discoms, will undergo changes in management, services and more. The money will be invested in these areas.
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