No need to raise equity currently: Neyveli Lignite

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Commenting on the company's expansion plans, Prasanna Kumar, Chairman and Managing Director and Director of Finance, Neyveli Lignite , said they were concentrating on integrating power plants. However, he said, wind and hydel power business was giving less plant load factor and therefore, the company would go slow on that.

On raising funds, Kumar said the company's share capital stood at Rs 1,677 crore with about Rs 6,000-7,000 crore in reserves. "I can raise debt to the extent of two-and-a-half times than that. My debt is very low today. I have cash reserves and that can help me to raise debt. I do not have to raise equity as of now."

Here is a verbatim transcript of the exclusive interview with Prasanna Kumar on CNBC-TV18. Also watch the accompanying video.

Q: There has been a series of announcements coming from Neyveli about wind and hydel power and your interest in the Ultra Mega Power Projects (UMPP)-what kind of concrete capex plans are you looking at?

A: We are concentrating on lignite and coal and integrating power plants. We have got approval from the Government of India for setting up a plant at a low scale. Also, we are looking at opportunities for hydel. We have already entered into coal from Mahanadi Coalfields. We are setting up a 1,000 MW plant in Tuticorin project. Wind and hydel power are all giving less PFL and therefore we will go very slow into that. Nevertheless, we are entering into that area of business operations.

Q: Could you tell us, in the next 24 months, looking at the kind of project you have internally planned or are on the drawing stage, how much capital would you need and what is the ideal debt equity ration you would like to maintain-if you can just give me two of these numbers and some quantifiable bases?

A: Within next 24 months we will be able to implement 500 MW in Neyveli and 250 MW in Rajasthan, This 750 MW will come into operation within next four to five months. Rajasthan is in its advance stages of being implementation. Neyveli too will come up within next couple of months. There will be a mines capacity of 4.5 million in Neyveli and 2.1 million in Rajasthan. These two are the capacity addition. We would be able to replace 600 Mw within two and a half to three years. The existing 600 MW will be replaced with 1,000 MW. We are taking advance action plan to put up a plant so whatever lignite would be consumed for the 600 MW, we will use for the 1,000 MW. So these three plants will come into operations.

Q: In order to maintain your debt equity ratio, if the government was to ask you, "Would you like us to value some of our stakes so that you can get more money so that you can maintain your debt equity ratio"-what would your answer be? Would you be open to diluting the government stake and raising your equity because you need that debt equity ratio?

A: There are two aspects in diluting. Government itself can offload the shares. That will not alter my debt equity ratio. We have already issued the shares, the shares are with the government, and government in its wisdom at appropriate time can dilute and offload it. So that will not alter my debt equity ratio.

We would like to maintain 70:30 as preferred by CRC guidelines and also the financial institutions they have lent money. So we would like to maintain 70% debt and 30% equity. Thus, 70:30 would be the yardstick which has been prescribed and we will continue to maintain it. In case the government wants us to issue further share of capital-yes, to that extent, IPO can come and we will abide by the government's direction and in that extent our equity will go up and debt also can be raised to that extent.

Q: Are you looking at a follow on public issue at all-quite separate from the divestment, will that be one of the ways to raise capital?

A: For raising equity yes, it is a very elaborate procedure which the government has got to give clearance. Today, if you see our share capital stands at Rs 1,677 crore and we have reserves of about Rs 6,000-7,000 crore. All put together I can raise debt to the extent of two-and-a-half times than that. So my debt is very low today. I have cash reserves and that can help me to raise debt. I do not have to raise equity as of now. When we go for bigger projects like a 5,000 MW to be implemented, then, in that case, we need to issue equity and also raise debt. The present numbers are comfortable to me.

Q: Has the government sounded you at all on equity issue either for your own expansion for in terms of divestment and basically how would you value your company. At present your market cap is Rs 22,000 crore-you think it is a fair value?

A: I would be unable to answer the valuation part of it. Even divestment portion of equity is the government's wisdom and we will abide by whatever the government has to say on that. I am unable to comment on this which is pending before the government.