It has been a long wait for investors of Orient Green Power Ltd, the wind power company promoted by the Chennai-based Shriram group, for a net profit. On Wednesday, the company announced that it had made a net profit of ₹20.60 crore for 2019-20 — the first profit since the company came out with its ₹900-crore IPO in 2010.

The path of Orient Green Power’s turnaround has been long and arduous. The company began operations in 2006 as a wind and biomass company, but has since divested its biomass power portfolio. Today, it is a pure-play wind energy company; it owns 421 MW of wind power, including 11 MW in Croatia.

The company has been in the red practically since inception mainly because of unpaid dues from state-owned electricity distribution company, mainly those of Tamil Nadu and Andhra Pradesh. Orient Green has 308 MW of wind assets in Tamil Nadu. It used to sell power to Tamil Nadu’s utility, TANGEDCO, but after a few years of bad experience, when the utility refused to purchase power ostensibly because of technical issues, Orient Green wriggled out of its long-term agreement with the utility and started selling its power to industrial consumers directly.

REC scheme

Also, the company had put about 150 MW of capacity under the ‘REC scheme’, which meant that it would get no premium for the power from these plants but would instead get ‘renewable energy certificates’ that it could sell in the market for cash. The RECs were to be bought by ‘obligated entities’, to meet their mandated ‘renewable purchase obligations’.

However, since (until two years back), the regulators never enforced the obligations, there was nobody to buy the certificates. Orient Green was left with a huge pile of RECs, whose market value was negligible.

The lethal combination of utility backing down, mounting unpaid dues and worthless RECs did the damage. The company’s finances were badly impaired, which manifested itself mainly in terms of interest charges. For example, in 2015-16, when the company’s turnover was ₹402 crore, its interest burden was ₹278 crore.

In the meantime, the Shriram group refinanced about ₹700 crore of debt and has allowed Orient Green to defer interest payments. This gave the company a breather. Also, it hived off its bleeding biomass business into a separate company and subsequently sold it, salvaging some cash.

While actions such as getting out of the PPA with TANGEDCO and debt restructure, aided by better sales of electricity and improvement in the REC market, helped Orient Green hold itself from slipping inexorably into the red, a few favourable developments happened in 2019-20.

First, the company won a case in Madhya Pradesh, ending a dispute over whether or not the state government owed the company ‘fixed charges’ for its biomass plants. This victory allowed the company to recognise a receipt of ₹45 crore from Madhya Pradesh as income.

Second, the government of Andhra Pradesh, which had been balking at paying the company at the agreed tariff of ₹4.70 a kWhr, released ₹23 crore, against Orient Green’s claims of ₹61 crore. (The rest of the amount is the subject matter of a legal dispute — but the company expects to win.)

Third, the REC prices firmed up during the year. Orient Green fully liquidated its REC inventory and got ₹48.44 crore, compared with ₹28.60 crore in the previous year.

The result of all this is seen again in interest costs, which declined to ₹153 crore (from ₹165 crore in the previous year, and ₹278 crore in 2015-16). Interest charges as a percentage of revenue declined to 39 per cent last year, from a high of 70 per cent in 2015-16. Its total debt stands reduced to ₹1,351 crore (including ₹700 crore of group debt), compared with ₹1,978 crore in 2015-16.

Current year

In a chat with BusinessLine today, Orient Green’s Managing Director, Sesha Ayyar Venkatachalam said the Covid-19 pandemic would not affect its current year’s business, because the company is allowed to generate and bank the electricity with the state utilities. It has time till March to draw the banked power — so, it would be ready to supply power to its customers when they come out of the lockdown phase.

The customers are all AAA rated — they include corporate biggies such as Infosys, TVS and Madura Coats. Last year, Orient Green got an average price of ₹5.30 a kWhr for its electricity, gross, before factoring in government charges and income from REC.

It is too early to say whether the current year will see Orient Green reward its shareholders — it may not, given the still high level of debt — but the company is closer its maiden dividend than ever before.

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