May 30, 2013 02:20 PM IST | Source: CNBC-TV18

Lanco Infra expects power biz EBITDA margin at 45% in FY14

Lanco Infra on Thursday reported a net loss Rs.72.82 crore. It had made a net profit of Rs.72.75 crore in the same period last year.

T Adibabu, COO (finance) of Lanco Infratech says the company's engineering, procurement and construction (EPC) business saw some slowdown in activity over the past few quarters, which saw a decline of 62 percent to Rs 974 crore. 

The private power producer on Thursday reported a net loss Rs.72.82 crore for the quarter ended March on account of fuel shortages, higher finance costs and foreign exchange losses. It had made a net profit of Rs.72.75 crore in the same period last year.

"We expect the power business EBITDA margin at 45 percent in FY14," he told CNBC-TV18.

Lanco's total debt currently stands at Rs 34,000 crore, Adibabu says.

Also read: Lanco Infratech reports Rs 31.6 cr loss in Q4

Below is the verbatim transcript fo his interview to CNBC-TV18

Q: Your EPC and construction business took quite a knock this quarter with a 50 percent decline in revenues and in fact this segments contribution to the overall pie has shrunk quite a bit. Also the margins are 20 percent plus this quarter surprised positively versus the run rate of single digits that we have generally seen. Can you give us the reasons behind this?

A: This quarter engineering, procurement and construction (EPC) business compared to the previous year is definitely low. In the last four quarters also compared to the last year we were definitely at a lower level. The projects where the construction activity is going were a bit slowed down because the project companies also would like to have an extended implementation schedule to meet their end point of getting coal in time and the transmission lines and putting power purchase agreements (PPAs) in place.

To synchronize with those PPAs, coal and other things there is a change in the implementation schedules. Due to which there is a slowdown in the EPC activity.

Accordingly last quarter also the performance was less compared to the previous year same quarter. When it comes to the bottom-line there were some cost claims which were claimed in the first. There were settlements or understanding of these claims because of that the claims are taken into record and thereby the bottom-line was better.

In addition to that some solar activity, solar EPC business was executed as EPC contract. There are some better bottom lines. Overall the EPC business bottom-line was better due to these reasons.

Q: I wanted to ask you about your power segment that has seen a very sharp decline in margins sliding from 30 percent levels last year now to early double digits. Can you give us any guidance of what a reasonable margin could look like for you in FY14?

A: Yes the power business in the normal way should give an EBITDA level of around 44-45 percent. However, last quarter if we see the EBITDA levels might have dropped down to 30 plus level because the operations are at 50 percent of the capacities.

Once the operations improve to their 100 percent level, definitely these EBITDA levels will come to normalcy of 44-45 percent level. Once you do 4000 megawatt at full capacity and able to maintain the EBITDA levels at this level, automatically the bottom-lines will be totally different from the present bottom-lines.

Q: What about the debt situation, what is the overall debt now on the books and going forward what kind of plan you have in terms of cutting the debt?

A: We are at the same level of Rs 34,000 crore like previous quarter. Of that 50 percent of the debt is for the plants, which are under operation and the remaining 50 percent is for the plants which are under construction.

The plants which are under operation are able to service their debt. It should not be an issue. For the plants under construction it is part of the project cost, that part will be taken care by them.

Q: The market believes that going forward the trigger for companies like yours will be monetizing assets. Even your peers are doing that to repair the balance sheet. There was even a talk that Lanco was also planning stake sale in some of the power SPVs, any developments?

A: We are working on that. To bring investors at the power holding company level or strategic investors at the SPVs level we are closely working with the probable interested investors.

We are hopeful of bringing some investors either at the SPV level or at the power holding company level in the current financial year.

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