Conference Call with Torrent Power Management and Analysts on Q4FY20 and Full Year Earnings Performance and Outlook. Listen in to the full earnings call.
Call Participants: Mr. Sanjay Dalal - CFO, Mr. Rishi Shah - AGM Finance, Mr. Jayprakash Khanwani - Manager Finance
Introductory Remarks from Sanjay Dalal
Good morning everyone! As usual, I will give you an overview of our Q4 financial performance for 10-15 minutes and then we will start taking questions from the participants. The consolidated profit after tax was actually negative at Rs 290 crores which means that there was a loss after tax of Rs 290 crore during the quarter versus Rs 18 crores of profit in the comparative quarter, that is lower by about Rs 108 crore. To facilitate the understanding of this loss after tax, let’s look at the profit before tax number and the tax number separately.
I will just quickly deal with the profit before tax number. So, the profit before tax for Q4 was again at a loss of Rs 693 crores vs Rs 220 crores of profit in the comparative quarter, lower by about Rs 913 crores. There are three key one-off adjustments which I want to highlight for a proper appreciation of this number. So, the first adjustment is Rs 1,000 crore impairment loss which we have taken in for the carrying value of our 1,200 megawatt diesel power project. As you know this is a trended asset and has been operating intermittently, this is actually a non cash book adjustment applicable under the accounting book standard. One significant future impact of this impairment is that the depreciation charge will go down by roughly Rs 5 crore per annum because of the impairment we have taken from next year onwards.
The second is the provision of Rs 51 crore which we have taken towards potential damages and other project related costs arising from expected delays or failure in setting up wind power projects which we won in the competitive building processing and early arrier. This refers to the 115 megawatt project which we have won. This provision is similar to the one we had taken in Q2 for the SECI 3 project and we will talk more about it in the renewable section of my comments.
The third one of adjustment is of Rs 48 crores provision for doubtful debts which we have taken in our franchise distribution business in Q4. So, this is a direct Covid impact as a result of dramatic fall in the electricity demand during the lockdown period and subsequent relief provided by the government in the form of postponement of payment of electricity dues, we have experienced a very drastic fall in the collection efficiencies in our franchise distribution areas particularly, Bhiwandi and Agra. The outstanding data as on March 31st was assessed from a collective perspective and in addition to the normal provisioning norms we follow, we have taken one time additional provision for bad debt of Rs 48 crore. So, if we adjust for these three items, the adjusted profit before tax is Rs 406 crore versus Rs 220 crores in the comparative quarter, higher by Rs 186 crores or about 85%. On an adjusted basis, the performance has been very good.
In Q4, the current tax is at Rs 74 crores which is roughly 24% of the profit before tax. Now the applicable tax rate is 17.4%, however our effective current tax rate is 24% because there is one provision which we made for SECI 5 project and the additional provision for bad debt etc. They are not allowed as a deduction from book profit and therefore, the effective book profit tax rate is about 24%. In addition to the current tax, there is a deferred tax credit we have taken in Q4 for Rs 493 crores. This deferred tax credit actually in Q4 is made up of two one time elements other than the usual adjustments which happen on account of deferred tax liabilities and assess for the transactions during the year. One big adjustment was that we had to reverse Rs 189 crores of deferred tax liability created in earlier year and this is a direct consequence of the impairment provision we took.
Secondly, we had to reassess the future estimates of taxable profits which we do for the purpose of determination of how much MAT Credit we will utilize. So this reassessment had to be done on accounts of two factors - one was that the year 2021 will have a Covid influence and obviously the profitability is likely to be lower than what it was earlier estimated and secondly because of the DGEN impairment, the financial model used for the purposes of the impairment also had to be used for the purposes of projecting future taxable profits. With these two adjustments, Rs 176 crores of additional MAT Credit also came to be accounted for because that would now get utilized.
The third element was that Rs 79 crore was recognized because of the reduction in MAT rate which happened during Q2 where the MAT rate was reduced from 21.55% to 17.47%. For all of that put together, the total deferred tax credit for Q4 was Rs 493 crores.
Some commentary on the adjusted PBT numbers - The higher adjusted PBT was driven by improved financial performance in all our operating segments. This generation performed better because of operationalization of the 278 megawatt of PPA from second quarter onwards and because of the higher merchant sales which we did in Q4.
This is the net off the tariff blow which PPA had to bear on account of reduction in tariff. Renewable segment also performed better on the back of higher operational capacity which was available during the quarter. For this quarter, we had an operational capacity of 737 megawatt versus 577 megawatt which was operational in the comparative quarter. License distribution business was a star performer because of three major factors - the first one is continuous investment happening because of which the RoE continuously kept going up. Secondly, because of continued improvement in efficiency of operations, we have earned higher incentives and the third factor was that we won some regulatory approvals for which we could take credit in this quarter.
All earnings transcripts