ReNew Energy Q1 Analyst Meet- Focus On Derisking, Valuations

On the second anniversary of its NASDAQ listing, ReNew Energy Global had a very positive outlook to share with analysts. Be it the growth in portfolio by almost 3 GW, almost all of it comitted through PPAs, or the drop in average collection period from over 200 to 114 days, or a clear growth path for the next few years based on a string of partnerships and tie-ups. The reported profit after tax of USD 36 million is one of the highest ever made in any quarter by the firm, and puts it on track to get close to or at breakeven on an annualized basis going forward.

Funding Tie Ups

Early on, ReNew Energy Global  Chairman, Founder and CEO, Sumant Sinha chose to highlight the MoU with Malaysian firm Gentari ( a subsidiary of Petronas, the oil major) for 5 GW of fresh renewable capacity. The tie -up does not include the previous deal with Gentari for a 403-megawatt deal where the equity proceeds are expected during the coming quarter.

Sinha also  highlighted the tie-ups for debt with PFC and REC. for $7.8 billion, besides an arrangement with the State Bank of India for $230 million for its peak power project. With 415 megawatts related to power sales in the B2B segment commissioned during Q1, ReNew hopes  to commission between 1.3 and — to 1.7 gigawatts of projects during the remainder of the fiscal year.

Sinha singled out the Peak Power and RTC projects as their most extensive and complex undertakings to date as well as significant contributors to expected 35% plus EBITDA growth next year.

These tie-ups provide ReNew the visibility and ability to grow without any further equity dilution, asserted Sinha, as the firm will continue to recycle assets where required to support growth. In a clear message that the firm believes its stock price to be underpriced, Sinha added that “Not only does asset recycling provide a lower cost of equity than issuing shares, it also provides us better returns on capital employed in the long run and illustrates that the inherent value of the portfolio is significantly higher than the implied multiple of our stock”. The firm has identified 100 MW of assets in Karnataka for sale accordingly.

Module Price Drops Supporting Margins

To a query on the timelines for projects that seem to have been completed ahead of schedule, Sinha referred to the ‘unbelievable’ process on mono-PERC modules, at a per watt price of about $0.15 to $0.17, compared to last year, when modules were available at $0.24, $0.25. That has allowed the firm to benefit from the earlier decision to delay plant construction in cases.

The firm is now a proper manufacturer with almost 2000 employees to boot, with a 4 GW module plant up and running in Dholera, Rajasthan. Besides another 2 GW is set to be commissioned next year. Add to that, the 2 GW of cell manufacturing capacity and the 6 GW it has won in the solar manufacturing PLI for wafer, cell and module for construction later, and India faces the impressive prospect of over 11 GW of capacity availability in 2024 from just ReNew Global and Reliance (with it’s first 5 GW commissioning next year) equal to total capacity in 2019! An unthinkable prospect in 2019 indeed.

Sinha is also bullish on merchant power and corporate PPAs, especially when tied in with ReNew’s RTC and PHP (Pumped Hydro Projects). These will allow the firm to command a premium for RTC power supply, even as trends on the exchanges indicate better realisations in the years to come thanks to faster power demand growth and lower thermal additions.

Overall, one would have to say that as one of the largest developers in the renewables space consistently, ReNew has, while not always leading market shifts, been the firm to watch to know when a change is decisive. With a special ability to bring on board high quality partners, starting with Goldman Sachs early on, it’s latest backers in Norfund, Mitsui and Gentari underline its ability to sell the India story well. Be it its move into RTC power, or the shift to corporate PPAs, and now the mention of merchant projects, the firm has allowed policy moves to guide its own strategy, helping avoid mis-teps  that many other developers have made. Issues like the outstandings in Andhra Pradesh have been unfortunate, and not of its making, and going ahead, it does look like the firm will finally get what it has sought from the NASDAQ listing, a premium valuation relative to peers, if it continues to deliver of course on the 3-4 GW of capacity it has promised every year to 2027 for now.