Delhi Metro lines' check showed fault in making: Rel Infra

A month after the Reliance Infrastructure-led consortium shut down the Airport Metro Express line, the bitterness between Delhi Metro Rail Corporation and the concessionaire kept on escalating. DMRC accused R-Infra of trying to shift the blame for the maintenance and related work on to Delhi Metro after it refused the concessionaire's request to defer payment of concession fee for five years.

Reliance Infrastructure, a part of the Anil Ambani-led Reliance Group, posted a marginal 2% growth in net profit for the three months ended 30 June to Rs 412 crore from the year earlier. The firm's infrastructure division, which builds roads, reported an operating profit for the first time with an earnings before interest and tax of Rs 36.39 crore, versus a loss of Rs 5.50 crore a year ago and a loss of Rs 27.28 crore in the March 2012 quarter.

Jalan says the company has a target of Rs 10,000 crore of EPC revenue for full year. "The unit sales in power segment have increased," he told CNBC-TV18 in an interview.

Here is the edited transcript of the interview on CNBC-TV18.

Q: Although traditionally it is a strong segment your engineering, procurement and construction (EPC) revenues have underperformed in the quarter under review, could you elaborate on what is going wrong there?

A: On the EPC side, we are currently working on 13 different projects and if you compare the revenue of Q1 on year on year (YoY) basis similar quarter last year, the revenues are almost flat. Margins are slightly better. However if one looks at Q4 of last year, the revenues are lower. Looking at the total years' guidance, we still feel that we can achieve our guidance of Rs 10,000 crore of EPC revenue for the full year.

The reason why the revenues fluctuate sometimes between quarter to quarter  is as certain projects which were in full execution mode come towards completion and the newer projects take time to ramp up. So I think on YoY basis we are in line and we are in line to achieve our guidance for the whole year.

Q: There has been spurt on the power segment revenues this quarter tell us about that because this is quite different from how your peers have done in this quarter gone by? Could you  explain the drivers that led to the improvement this time in the power business?

A: Our power business that you see is about 950 Megawatt (MW) of generation. Then we have the distribution business in Mumbai and Delhi. Then we have the transmission business. So we are much more of a transmission and distribution (T&D) player than a generation player. In the distribution business we have done healthily. There is growth in unit sales in both our Bombay and Delhi properties. And even in the transmission business, whether it is the Mumbai transmission or the western region strengthening scheme, we have additional revenues this quarter compared to last year.

In fact if you compare 2 numbers, the last year Q1 had one time gain of Rs 227 crore of depreciation which is not there in this year's numbers. So without those numbers, the growth that you would see in net profit is significantly higher.

Q: What is the status of the Delhi metro Airport Express, recent problems it has run into?

A: In the Delhi Airport line, the civil works were to be done by Delhi Metro Rail Corporation (DMRC) and rest of the work of rolling stock, signaling, rakes were to be completed by us which was a part of the concession agreement. At the end of the first year when we started inspecting the line, we found certain defects in the civil structures notably the bearings and we brought it to the notice of DMRC. Then we were asked to take an independent opinion from reputed consultant. The advice that we got was that we should do a complete inspection of the entire track and get the bearings rectified keeping in mind the safety of the passengers because the trains run at 120 km/hr.

So we followed the advice and this is in discussion with the ministry. Now when the inspection has been carried under the leadership of railways, they have found that almost 92% of the bearings used in the civil structures have been found defected. So the process of rectification/replacement of these bearings is going to be the next step. Till the time the line is safe and recertified by the Commissioner for Metro Rail Safety (CMRS), it will not be proper to keep operations on.

Q: Could you elaborate a bit more about the tariff hike while the 21% tariff hike in the Delhi Distribution will be effective from July what kind of recoveries can investors look out for from this bit in the next quarter?

A: With regards to the tariff increase, the regulator has come out with the tariff order for the current year i.e FY13. He has followed the guidelines of honourable Appellate Tribunal for Electricity. He has introduced three things. One is cost reflective tariff. Secondly, he has introduced a full power purchase pass through which is known as power purchase adjustment clause (PPA). Which means that incase the power purchase cost goes up during the quarter, owing to change in fuel prices or fixed clause then that is recoverable from the consumer during the same year. Third they have introduced the concept of time of day electricity for the first time in Delhi. They have started with high-end customers in commercial and industrial. But eventually they will bring it down to more and more consumers.

So with this tariff, we not only are expecting to recover our costs and normal margins but as well as recover income to dilute the regulatory assets, which have been accumulated over the years. The regulatory assets have been given as a separate line item in the current tariff order.