Spencer's open to discussion with global players: CESC

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There has been lot of interest around retail companies and whether or not they will be looking to captialise once foreign direct investment (FDI) in retail is opened up .

Sanjiv Goenka, vice chairman, CESC speaking to CNBC-TV said this policy is welcome move; it will help to tame inflation and provide employment. However, he is not sure if all the states will allow FDI in retail industry immediately.

Goenka further said CESC is open to investing in back-end infrastructure of its unlisted retail subsidiary Spencer's.

"Almost every major player is in dialogue with almost every major Indian player but that is more by way of engaging and accessing. Whether we will eventually get a player, strategic investor or not remains to be seen," he added.

Below is the edited transcript of Goenka's interview with CNBC-TV18. Also watch the accompanying video.

Q: Is it likely that this will be an option exercised in Bengal because the Trinamool Congress has been quite clear that they are anti this move? Will Bengal be one of the states that will open up to FDI in retail?

A: It is not for me to say whether Bengal will open up to FDI in retail or not but the nation as a whole has declared a policy. It is a policy which is welcome. It will control inflation and provide employment particularly to those people who have just done their school education. It is something that we as a company support.

Q: Do you think large global chains would walk in with this kind of uncertainty that they maybe allowed to do it in half the states but may not be allowed to do it in other states? Do you think you will get investments in easily from the larger companies?

A: At the end of the day getting investments in modern shade is something that we should all welcome. I do not believe that all the states will allow it immediately; it will be progressive, phased and it will be step by step. That is the way it will be and we should accept it that way.

Q: Your investors are quite confident that you will actually try and get a partner in for Spencer's take care of cash flows for that company. Does it make sense for you to get a strategic investor in now? Have you started discussion with any players?

A: The truth is that almost every major player is in dialogue with almost every major Indian player but that is more by way of engaging and accessing. Whether we will eventually get a player, strategic investor or not remains to be seen. However, we are open to investment in the field of backend and that is something anyway allowed already.

So it is an evolving industry, it is an evolving phase and it is early to really specifically comment with finality on anything. But we are open to discussion, we are open to thoughts. As far as cash flows are concerned, there is not that much now required, losses have come down substantially.

Sales have been going up smartly; for the month of October we finished Rs 1,240 sq foot which  is a very strong increase over the last quarter, where we were at about Rs 1,000 square foot. So sales are going up, losses are going down, capacity expansion is taking place. We are a company which is not particularly leveraged, we have minimal debts so, we are in a pretty comfortable position.

Q: The observation seems to be that while you do have store level profitability, overall profitability will only be driven once you get scale. To get that scale you need stronger set of hands financially to help you diversify, on that regard would you say it seems to make more sense to go with an international entity in order to do that?

A: Frankly, I think that assumption is wrong, roughly at Rs 80 a square foot at 16 lakh sq ft you break even. We are at Rs 62 EBITDA per square foot and we are at about 11 lakh sq ft. So you are not talking of something very significant. You are talking of about 4 lakh sq ft which you are looking at a total investment of about Rs 500 crore.

So, I do not believe that we are talking of huge numbers in terms of investment to get to breakeven. We are pretty much getting there. Having said that, examining a partnership with a strategic player in the backend is something that we are open to considering.

Q: Just want to bounce of this last bit of concession clause 30% sourcing from small SMEs in India is it a viable option to work with?

A: I do believe that when you have something like FDI in multi-brand retail these are clauses that will be there initially. But over a period of time as the SME sector feels it is not threatened these clauses will get diluted.

Q: How is your core power business doing?

A: Our core power business is doing reasonably well; our expansions are very much on track. We lifted the boiler drum for our Chandrapur project on the October 18 which is a milestone. We are very much on track to commission it on March 31, 2013. The progress with our Haldia project is moving on fine.

As far as the Orissa project is concerned, which is a 1,320 MW in the first phase, we are number one out of 18 power projects in Central Electricity Authority (CEA) list for coal linkage; everything else is obtained. We are awaiting the Standing Linkage Committee of the Ministry of Coal to meet and move ahead with the fuel linkage.

As far as our Jharkhand project is concerned, we have received the No Objection Certificate for the bulk of the land, the coal mine is in place, environment clearance are in place and water is in place. So we are pretty much set. We have land for another major project in Balagarh in West Bengal. We have got terms of reference from environment ministry and we have applied for is the fuel linkage.

Q: What would you say is a reasonable assumption to make going into next year on Merchant rates front because that has been quite volatile this year in terms of where merchant rates have been trading at?

A: With coal position being what it is, one can expect merchant rates to be slightly higher than where they are today. The Government of India (GoI) has to act on coal, there is a major problem.

Coal prices have gone up very dramatically and the availability of coal itself is in question. I feel this is something that the whole sector needs to address unitedly. All of us need to come together and urge the government to take very fast and very strong action to make sure that availability and pricing of coal is competitive.