Will reduce interest cost to 10% in FY14: Essar Ports

Essar Ports aims to reduce interest cost from 12 percent to around 10 percent in FY14 says MD and CEO, Rajiv Agarwal. Going forward, the company hopes to maintain more than 80 percent run rate.

Meanwhile, Essar Ports promoter will sell over 32 lakh shares via the OFS route today at a floor price of Rs 77 a share. He told CNBC-TV18 that OFS will dilute the promoter share holding to 75 percent from 83-84 percent. Below is the verbatim transcript of Rajiv Agarwal's interview on CNBC-TV18 Q: Take us through your offer for sale (OFS), how much will you be raising and what will the funds be used for? A: This is a dilution done by the promoters; we were at 83-84 percent and will come down to 75 percent. There is a part which is been diluted in the market and then there is a part which is being held by Port of Antwerp International as a global depository receipt (GDR), which will convert into shares. So, these are the two elements which will get completed and will bring down the promoters holding to 75 percent. Port of Antwerp part had come into the company sometime back and this one which is being now diluted is being diluted by the promoters so it does not come into the company.
Q: Can you take us through your business as well? In the quarter gone by you had seen dip in your margins at about 77 percent because of some commissioning expenses that you had to incur. Going forward, what kind of margin expansion or recovery do you hope and what could be a sustainable run rate? A: Our run rate is 81 percent and I do not think there was any dip in any of the quarter. I do not think that is right information. We are more than 80 percent and will maintain more than 80 percent run rate except when we have some of the public private partnership (PPP) projects which kick in, which is in Vizag that we recently got and at Paradeep where there is a revenue share, which is around 30-31 percent. The Vizag project is a terminal with 23 million tonne existing capacity. This is the outer harbour and the inner harbour and it has done a high of about 19 million tonne in the past when the iron ore exports were at the peak. So, it is a good asset, will give us very large portion of third party business almost about 17 million tonne of third party business, which we are expecting and the gestation period for this project is negligible because it is an existing terminal. Therefore, the moment we sign the contract and do the needful, we get into operations of existing terminal with 23 million tonne capacity. We got the letter of intent from the port on Friday and we should be signing it shortly and moving ahead with that. Q: Interest costs have been a lingering problem, the money raising that you have done is mainly because of the promoter holding issue. Will you be looking to raise money through the course of FY14 in order to alleviate the interest pressure that you have faced? A: We do not face any interest pressure. Our EBITDA was Rs 1150 crore and interest cost was about Rs 530 crore, so, we are well covered. The company has enough resources internally, which we are generating to meet our expansion plans, which are almost completed. There is always an attempt to improve interest cost; we are seeing softening of interest cost regime in the country. In infrastructure project, it is important that you have lower interest cost because it always helps to make more investments and have more resources for the company. So, we will try in this year to reduce our interest cost by few basis points and bring it down to about 10 percent or 9.5 percent from 12 percent today. However, apart from that if you see the debt levels of the company, they are very reasonable; for the size of the company we are only at Rs 5,700 crore debts. For an infrastructure company it is absolutely an ideal combination of debt and equity. We have an equity of about Rs 2,800 crore and a debt of about 5,800 crore. Therefore, it is very healthy. I do not see that as a problem at all, but we would like to see if we can reduce the interest cost by bringing down the cost and that is our attempt for this year.