Torrent Power

Torrent Power reported a Q4 FY26 PBT of INR 547 crores, a decrease of INR 72 crores YoY. This decline was primarily due to a non-recurring^📎 provision of INR 171 crores related to a disallowance of power purchase costs for UNOSUGEN projects. However, adjusted for this one-off^📎, PBT increased by 16% YoY to INR 718 crores. The company also noted a reduction in its regulatory gap by INR 800 crores, driven by improved operational efficiency and lower power purchase costs.

The company highlighted new tariff regulations that allow for a base Return on Equity (ROE) of 13% (potentially up to 15% with incentives) for assets capitalized after April 1, 2025, based on a Return on Capital Employed (ROCE) basis. For assets capitalized prior to this date, incentives tied to milestone achievement can increase the effective ROE from 14% to 15%. Management anticipates these performance-based incentives could improve ROE by 1% annually, signaling a positive outlook for regulated earnings.

The thermal generation business, after adjusting for non-recurring^📎 items, saw a INR 90 crores decrease in contribution. This was attributed to higher O&M expenses incurred for scheduled maintenance and the absence of provision reversals that occurred in the prior year. Additionally, the renewable generation segment's contribution reduced by INR 20 crores, mainly due to the expiry of Generation-Based Incentives (GBI) for one of its projects, impacting its profitability despite ongoing capacity additions.

Torrent Power's total installed capacity reached 5.1 GW as of March 31, 2026, comprising 2.7 GW gas, 2 GW renewables, and 362 MW coal. The company is actively pursuing significant capacity expansion, with 367 MW from the MSEDCL project progressively commissioned and the Khavda Transmission project commissioned during the quarter. Key projects under implementation include a 1.6 GW thermal project in MP, a 3 GW pumped storage hydro project, and 4 GW of renewable projects.

For FY26, the company incurred approximately INR 9,350 crores in capex, with INR 6,500 crores allocated to renewables, INR 1,600 crores to license distribution and franchisee, INR 700 crores to thermal, and INR 550 crores to transmission. Management indicated that FY27 capex would be 'definitely much, much higher'. A long-term capex plan of INR 80,000 crores over the next five years, translating to an annual run rate of INR 15,000-20,000 crores, was confirmed as a fair assumption, underscoring the company's significant investment strategy.

While gas availability is not a major concern, management acknowledged that current gas prices are high. The company has contracted 3 cargoes for summer demand, with 2 already received and 1 expected in June, and anticipates BP/JERA cargoes from next year. For its merchant power capacity, the strategy involves optimizing distribution requirements and utilizing additional gas for merchant sales, though selling on an RTC basis at current high prices is challenging, with a focus on the peak market.

The acquisition of Nabha Power, with an enterprise value of INR 6,800 crores, is expected to close in June 2026. The funding structure involves INR 3,400 crores of debt and INR 3,400 crores of equity, with plans to raise INR 3,500-4,000 crores for the acquisition. The plant operates under a two-part tariff mechanism, ensuring that variable costs are passed through, which provides a degree of revenue stability.