In an interview to Isaac George, chief financial officer of GVK Power & Infrastructure says, extension of 80IA benefits is good for the power companies. "I believe 80IA benefits need to be extended beyond 2013," he adds.
He further says, reduction in withholding tax on ECB borrowings from 20% to 5% will reduce funding costs.
Meanwhile, Australia has passed a new law imposing 30% tax on iron-ore and coal mining profits. George says, Australian mining tax is already factored in the cost.
Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Udayan Mukherjee. Also watch the accompanying video.
Q: What are your thoughts on the Australian Mining Bill? That has become a law today, the 30% tax on iron ore and coal mining companies. Eventually is that bad news for you, even though it might not affect you materially today.
A: Not really. This has been factored in by us because this was being debated for quite some time. The only implication that we have is the mining rent and resource tax. That has an implication of USD 1 per tonne. So thatís not much as far as we are concerned. But, otherwise, I donít think there are any regulations which are negative as far as we are concerned.
Q: What did you takeaway in terms of positives from the Budget? Which ones help you materially you think?
A: From our point of view, one, the extension of 80IA by one more year up till March 31, 2013 has a positive bearing on us because two or our projects, the Alaknanda Hydro Power Project and the Goindwal Thermal Project, should get commissioned before that date. So that is fairly positive as far as we are concerned.
The second aspect is the removal of custom duty on mining equipment. We have a mine in Jharkhand. So, thatís positive as far as we are concerned. Barring that, the reduction in withholding tax on ECB borrowings from 20% to 5% has a positive effect on us as we have ECB borrowings in a couple of our companies. So, these are three things that have positive bearing on of course our companies.
Negatives are increase in service tax which has a negative bearing on us, increase in custom duty which will increase the EPC prices. That has a negative bearing as far as we are concerned.
Q: Depreciation of power equipment can be 20% now. Does it materially improve or help you?
A: Thatís a very positive move.
Q: What do you think is going on with the 80-IA? Do you expect to see even more extensions going forward or is this the last year according to you?
A: They have always been extending this 80IA benefit for a year at a time. But I personally believe that they should not stop it at this because there are a lot of bids that would have happened and the projects would be coming up in three-four years time. So, you canít deprive them of the 80-IA benefit. So, I personally that the government should give some more time; projects, which have already started construction, could avail of this particular benefit. So, I believe that stopping it at 2013 doesnít make really much sense.
Q: Were you happy to note that the domestic power equipment manufacturers did not get the customs duty protection that they were looking for?
A: Competition is always better, but we should always ensure that our industries are protected. Thatís what I always believe in. So, I think it should be a fair playing ground at the end of the day. Whatever reductions the government has considered, I think it is fairly in the right perspective.
Q: You have been warning off some cost overruns in the Mumbai airport. Where do things stand there for that now?
A: There is going to be a cost overrun and a time overrun. That is something which was beyond our control. The project will now get completed only by September of 2013. But I think looking at the positive part, costs have gone up, the scope has gone up. So, there is bound to be a little bit of cost overrun. But that was what has come to us not as a surprise because we envisaged this, fairly early in the projects. So, I donít foresee a problem in passing on that additional cost. But it all depends upon what the regulator will finally do as far as the tariff is concerned.
Q: Has Kingfisher been clearing your dues?
A: No, not yet. I would not like to comment on that, but yes there are outstanding as far as Kingfisher is concerned, both Mumbai and Bangalore.
Q: Significant ones still unclear?
A: It all depends. It is relative term, significance, but yes it is quite a bit.
GVK Power stock price
On November 27, 2015, GVK Power & Infrastructure closed at Rs 8.97, down Rs 0.32, or 3.44 percent. The 52-week high of the share was Rs 11.30 and the 52-week low was Rs 6.76.
The latest book value of the company is Rs 14.87 per share. At current value, the price-to-book value of the company was 0.60.
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