Tata Power Company’s initiatives and investments across businesses in the last 12 months will start showing results in the next 12-18 months, says Managing Director and Chief Executive Praveer Sinha.
In the last four years, the company has invested Rs 40,000 crore to build capacity and plans to invest another Rs 20,000 crore in FY25 alone. Almost half of this will be in renewable business.
In an exclusive interview with Moneycontrol, Sinha talks about the company’s growth plans and how it will finance the growth.
Edited excerpts follow:
Q. FY24 witnessed strong power demand—it's been over 10% in the last two months. Help me understand how that has translated into numbers for you?
This is the 18th consecutive quarter of profit growth that we have seen. In the last three years, there has been a huge increase in power demand. In the last two months, demand has grown upwards of 10% and I expect that this year also there will be a huge increase in power demand. There are three reasons for this: a pickup in industrial activity, more commercial activity, and heat-wave conditions. More air-conditioning usage is taking place even in tier 2 and tier 3 cities.
We also see that affordability has improved and more power is being utilised. There has been a general increase in power consumption and Tata Power has benefited from this by setting up more capacity—a lot of capacity addition has happened and more is lined up this year and in subsequent years. In fact, we have 4.5 gigawatts (GW) of operating assets in renewable and another 5.5 GW is under implementation, which will get completed in the next 24 months.
To cater to the renewable energy capacity, more transmission lines are coming and Tata Power has won two bids recently and two last year. All four projects are under implementation. As more renewable energy capacity is added, more transmission facilities have to be created and Tata Power will play a very active role in that.
In power distribution, operations in Odisha have stabilised. In fact, with the stabilisation of the network and better quality of service, consumption has increased.
Q. Tata Power is evolving from being a power generation company to having a more diversified portfolio with transmission, distribution and even manufacturing. How was the performance of the different businesses in FY24 and what do you expect in FY25?
In FY24, the main businesses—generation, transmission, distribution and renewables—have stabilised. We saw excellent performance from our generation business and they continue to improve every year in terms of availability and operational parameters and efficiencies. Similarly, in transmission, we see all our networks operating very well and a lot of capacity addition has taken place in Mumbai, where we keep on improving the network.
We also see that the renewable businesses have started doing very well. The 4 GW manufacturing facility has been set up. The modules plant is fully operational and has started supplying. The cell plant will get operational next month and we expect that it will reach full capacity by September. For many of the things that we have done in the last 12 months, the results will start showing in the next 12 to 18 months.
In Odisha Discom, there were initially a lot of hiccups but the discom has been making profits. (Note: Between 2020 and 2021, Tata Power won the bid to manage operations of all four Odisha discoms, in a public-private partnership model). We expect this profit to improve in the subsequent years. I think you would see that the company and all its businesses have virtually stabilised and will improve with more capacity addition, which will happen in renewables, as well as in transmission and distribution.
We are quite gung-ho about the fact that we are on a track to grow very quickly next year and in subsequent years. I think you will see an excellent performance from Tata Power.
Q. Last year you said that you have an ambitious plan to invest Rs 60,000 crore over the next three years. How much of this has been done and can you share the plans for the current fiscal year and next?
In the last four years, we have already invested Rs 40,000 crore. In the last financial year, we invested Rs 12,000 crores in various businesses. This financial year, in FY25, we have a target to invest nearly Rs 20,000 crore, out of which nearly 50% is in the renewables business.
In our transmission and distribution businesses in Delhi, Mumbai and Odisha, new capital investment will be done to improve the network and technology. Similarly, in renewable projects, a lot of capacity additions are being planned.
We will be getting ready not only for those projects that get implemented in FY25 but also the initial work that needs to be carried out for projects that will be implemented in FY25. So, there is a very ambitious plan to invest Rs 20,000 crore this year (FY25) and Rs 60,000 crore over four years. And we would continue to see the same type of investment happening as we move forward year on year.
Q. You have a lot of debt and you need to finance your big investment plans. What is the debt situation right now and how do you plan to raise funds to finance growth?
If you see our performance in the last four years, from a debt-to-equity ratio of 3.5, we have now come to 1.1. Our net debt is only Rs 38,000 crore in spite of Rs 40,000 crore that we have invested in the last 4 years. That means that we are generating very good EBITDA in cash in the company, which is used to a large extent to repay the old debt and also to fund capital. And of course, we will continue to take some new debt for the new investment.
And even with the new investment that we have planned, we will be in a very, very safe zone as far as debt-equity or debt-EBITDA is concerned. And typically, for infrastructure projects, these are much higher. Our focus is that we generate more of the cash from the new investments so that we can use it for future investments for the growth of the company.
Q. Is there scope for more improvement in the Odisha discom operations?
We have been able to clean up a lot of things that were there regarding giving and collection. That has helped us now reach a level whereby you will see that for subsequent years, the profit will be substantially higher than it was. We expect that the benefit of the new technology or the investment in the network and in personal service will get translated into a better performance by the company going forward. The best is yet to come; in FY25 and FY26, we will see much more improvement than in the previous year.
Q. Are you looking at more discom opportunities?
Absolutely, I am looking at all the states. I do expect that multiple suppliers of electricity will happen. Some of these states might go for a similar model as Odisha's technology model seeing the success and turnaround of the operations; it’s a win-win for everyone. I expect that out of these 27 states and the union facilities that are not under a private distribution arrangement, many will go for similar arrangements and I am very confident that Tata Power will play a very significant role in this.
The Mundra Plant has been operating under Section 11 and it has been able to supply power to all the beneficiary states. The power continues to be one of the lowest in all the power procurement being done. In the merit order, it is still very efficient and all the beneficiary states continue to schedule power from this, even under Section 11. And that goes to prove the efficiency of the Mundra Plant. Going forward, a solution has to be found, something that is similar to the Section 11 solution. We are in discussions, but as you know, Section 11 has been extended to October 14. And I am sure at the right place or right time, we will be able to conclude an amendment that is acceptable to all the states.
Q. This is the second year that we are operating under Section 11. Has this become the new normal; do you see the government extending this in future as well?
That’s a call the government has to take. The government enforces Section 11. As far as we are concerned, the plant is always ready to operate, but it has to be cost effective.
Q. Tata Power now has different businesses. What are the value unlocking opportunities here?
There are a lot of synergies. When we talk of 4 GW manufacturing capacity, the majority will be used internally for our captive, rooftop projects and a very small quantity will be sold in the market. This gives us certainty both in terms of the price as well as the quality of the panels or solar modules that will be supplied. The second thing is that these are bundled solutions. If today we have to give 24x7 renewable power, the pump hydro comes from the generation business. The transmission and distribution knowledge of how to schedule power and how to supply 24x7 comes from our distribution business. We need to look at them in totality rather than looking at them in silos or in a segmented way. And I think this is the strength of Tata Power. We are able to provide comprehensive solutions and not just standalone energy.
Q. Your renewable energy arm raised funds but is there a plan for a potential listing of the subsidiary at some stage?
It is too premature. Let us first go ahead and implement all these projects. We will take a call at the right time.
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