Fuel price hike will affect margins in FY12: CESC

Sanjiv Goenka, vice chairman of CESC, joins CNBC-TV18 to discuss the quarterly figures for the company and highlight the future of the industry.

CESC has applied to the State Electricity Regulatory Committee for a hike in tariff, and once that comes through, the bottomline for the company will pick up, Goenka says. As far as realisations go, the company has no bad debts for now, and has a 99.6% recovery rate, he informs.

Below is the edited transcript of the interview. Also watch the accompanying video

Q: If you can just run us through your numbers, how is the generation side looking?

A: Generation is looking okay. I think where we have been impacted is the fuel price hike. The unprecedented hike in coal prices, which for us has almost been 99%, that is why you see bottom-line is just about the same as last year– Rs 111 crore versus Rs 110 crore. However, sales growth has been about 6-7%, which has been pretty decent.

Q: The pressure is likely to continue so how are you going to factor it in going forward?

A: We have applied to the State Electricity regulatory commission for an increase in tariffs. If that happens, then you should see that getting reflected in the bottom-line in the future.

Q: You are mulling a tariff hike and any plans as to when you are going to implement it – could you talk about it?

A: We have not even been granted that hike yet by the regulatory commission, so after they grant it we would implement it. I have a feeling it will be probably take another quarter or so.

Q: About the realizations in the power business how is that been for you?

A: Realizations have actually been very good. We have virtually no bad debts, and we have a 99.6% recovery.

Q: Let us talk about capacity expansion plans in the power retail business – are you planning anything that you like to share with us?

A: The one thing that we really haven’t really spoken about is that we have made progress on our land acquisition in Jharkhand, which is a 1320 megawatt power project. We have identified land in a village called Danro which is 30 km from the mine site. The revenue department has cleared it, the gram panchayat has cleared it, and an acquisition is underway. As soon as that happens, we could expect to financially close and then move on the project.

Q: You also talked about consolidation of power business – any fund raising plans going forward, any platform for inducting financial investors?

A: We are very excited about the prospects of FDI in retail. We do believe that that provides a very strong opportunity for consolidation in the backend in particular, frontend may also be. We know a lot of the world majors are interested in this market and we believe it provides a very strong opportunity for us.

Q: Excited about FDI in retail –how has Spencer been performing for you?

A: Spencer has been performing reasonably well. Our revenue per sq foot is steadily rising. First quarter this year, it was at Rs 1017 per sq foot as compared to Rs 887 in the same period last year. In the month of July we are almost at Rs 1100 a sq foot sales and this would put us clearly at the number one level in terms of sales per sq foot for food and grocery retail chains.

Q: Are you talking to any foreign players?

A: In this stage in the retail industry lots of people are speaking to lots of people. A dialogue is always on, but it is a question of until FDIs formally open up, there will be no meaningful dialogue I presume.

Q: No meaningful dialogue but European, American, Japanese any hints you would like to share?

A: It is a little premature isn’t it for that?

Q: Your guidance for fiscal’12?

A: It is going to be a year where the coal price hike is going to cause its fresh air of challenges. We have applied for our power tariff hike and if we get that then the forecast looks good.