Orient Green Power Company LtdQ2 FY18Power

Orient Green Power Company Ltd

Q2 FY18 Earnings Call Analysis

Management growth scorecard

Revenue

Category 4

Margin

Category 3

Fundraise

Yes

Order

N/A

Capex

Yes

2 of 4 growth signals are positive.

Revenue guidance

Category 4

→Revenue for Q1 FY19 was lower by 26% due to a late start to the wind season but recovery and "makeup" expected in subsequent quarters, especially July onwards.
→Management confident of improving profitability and sustaining operational momentum in coming years with better wind availability.
→Expansion plans include a 43.5 MW project in Andhra Pradesh pending tariff negotiations; project expected to start post-approval.
→Repowering of wind mills expected, with around 1,000 MW in Tamil Nadu and 300-400 MW in Gujarat targeted by 2020.
→Wind season performance improving compared to last year, indicating better volumes ahead.
→Strategic initiatives, debt reduction, and improved grid availability should support consistent growth in sales and volumes.
→REC trading revival and monetization also expected to strengthen revenue streams.
→Expansion in solar and wind may be considered once competitive bidding stabilizes and financing costs reduce.

Category 3

→Q1 FY19 performance was subdued due to late wind season start but improving in Q2 with expectations to make up lost ground.
→Profitability and cash flow position showed improvement, with confidence to sustain momentum going forward.
→Strategic initiatives and balance sheet deleveraging are expected to drive consistent growth and improved earnings.
→Refinancing efforts aim to reduce interest costs significantly, saving Rs. 35-40 crore annually, supporting profitability.
→Improved grid availability and pure wind portfolio post-biomass divestment bolster operational efficiency.
→REC trading revival is expected to support revenues, with potential to monetize previously escrowed RECs at higher value.
→Potential strategic actions like mergers or expansions under consideration, dependent on easing of competitive bidding pressures and interest rates.
→Management optimistic about better future earnings and EPS growth with operational leverage and cost efficiencies.

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Yes

→The company is actively working to reduce interest rates on existing debt through refinancing, targeting a reduction from around 13% to single-digit levels, which could save Rs. 35-40 crore annually.
→They have attempted Qualified Institutional Placement (QIP) to raise equity for debt reduction but timing was not favorable due to prior grid backdown issues affecting investor confidence.
→Currently, with biomass divested and improved portfolio quality, they are approaching investors interested in their wind assets for refinancing and potential growth funding.
→Future expansion or fundraising through QIP or other equity routes is possible once interest rates ease and profitability is assured.
→Strategic options under consideration include reverse merger possibilities (e.g., with IL&FS) and other initiatives to facilitate expansion or better capital structure.
→No immediate large-scale equity fundraise is planned in the next couple of quarters; a "wait and watch" approach is adopted amid competitive bidding and market conditions.

→The company is actively pursuing expansion projects such as the 43.5 MW wind power expansion in Andhra Pradesh, which is currently delayed due to rate negotiations with the state government.
→There is ongoing negotiation with Andhra Pradesh government to finalize tariff rates (between Rs. 4.50 to Rs. 4.70) before starting the expansion.
→No specific details on a formal order book size or pending order backlog were provided in the transcript.
→The company is monitoring competitive bidding environments closely and is cautious about immediate expansions due to low tariffs and financial feasibility.
→Strategic initiatives like possible mergers and reverse mergers are being considered, which could impact future order flows and expansions.
→The management expects growth opportunities to materialize once interest costs reduce and credit conditions improve, likely in the next few quarters.

Yes

→The company is currently negotiating with the Andhra Pradesh government for tariff rates (Rs. 4.50 to Rs. 4.70) to proceed with the planned 43.5 MW expansion in Andhra Pradesh; once finalized, funding will be raised and the project started.
→No immediate large-scale expansions are planned due to non-viable tariffs in competitive bidding for wind and solar projects at suboptimal levels.
→Strategic initiatives under consideration include possible reverse merger with IL&FS and other merger options to unlock growth and capital.
→The company is actively working to reduce interest rates on existing debt to improve profitability before pursuing major capital investments.
→Repowering of wind capacity is planned, particularly in Gujarat and Tamil Nadu, with an estimated 1,300-1,400 MW to be repowered by 2020 following emerging repowering policies.
→Overall, expansions or capital investments are being delayed until market conditions (tariffs, interest rates) stabilize and strategic initiatives progress.

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