SEB debt recast to boost electrical industry: IEEMA

The government has cleared Rs 2 lakh crore proposal to restructure the debt of the state electricity boards (SEBs).

In an interview to CNBC-TV18, JG Kulkarni, EVP and president - power systems (Asia), Crompton Greaves and president of IEEMA (Indian Electrical and Electronics Manufacturers Association) says debt recast will improve financial viability of SEBs.  "It will give a boost to electrical industry where the capacity utilisation today is, on an average, 67 percent," he adds.

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Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Sonia Shenoy.

Q: What would be the impact on the power transmission business after the debt restructuring plan for the SEBs? Will there be any benefits to a company like yours?

A: As the president of IEEMA, I would like to say that the recast for discom will help to improve their financial viability. That will create a market pool for the electrical products across electrical industries in distribution transformers, gear cables and all other equipments. That is very positive. It will give a boost to electrical industry where the capacity utilisation today is, on an average, 67 percent.

Q: Does your business cater more to the power grid kind of people? If it is to the power distributors then perhaps the demand would still be good.

A: From the point of view of IEEMA, where I am becoming the president today, I would say that discoms are primarily in the distribution segment of the power, closer to the customer. And most of the companies in India and many of the manufacturers in India including Compton Greaves are well positioned for distribution equipment supplies to the Indian network.

The demand, which will go up with this recast over the time, will fulfill our capacity gap that exists today. That will help us to better our performance financially. At the same time, we will support the growth and aspiration of the discoms to really go to the next level of operational performance.

Q: This 67 percent, which you mentioned, is that the capacity utilisation at Crompton as well?

A: This is an average at industry level across T&D equipment manufacturers, across all the products. It will vary statistically from industry to industry. But, on an average, if you take it at national level, the utilisation is approximately 67 percent.

Q: What about capacity utilisation at Crompton itself?

A: That varies from product to product; somewhere it can be higher than 80-85 percent, somewhere it can be 70-75 percent. So, it varies with product mix, market mix and the situation. It cannot be generalised to a specific industry. But as a generalisation, at a country level, it can be seen that on an average 67 percent capacity is getting utilised and balance capacity is available to fulfill the demand.

Q: Can you give us an update on the power realisations? Have they bottomed out at this point in time and are you seeing any improvement in the domestic business?

A: Being the president of IEEMA, I would like to address questions more on electrical industry as a whole instead of specific Crompton Greaves.

Q: How are the margins for the electrical industry? Is it that margins will improve in the second half or is it because of foreign competition your margins will remain where they were in the first half?

A: From the point of view of industry, the margins vary from segment to segment, distribution and transmission segment. But, currently, for most of the companies in the Indian industry, as an average, margins have substantially come under pressure, primarily because of competition, under utilisation of capacity and escalating cost of raw materials and other things.

In coming days, as these reforms get implemented, the discom’s health will improve and we see investment in T&D, there will be a positive impact of that across the industry sector.

Q: Do you see this as a precursor to some of the SEBs either putting up PPAs for rebidding or just increasing or hiking the prices?

A: There has to be increase in the prices of the unit of electricity. They need to offset whatever situation they are in today in order to comply with the requirement of the recast.