CESC plans big capex; may acquire distressed assets

Sonia: You had a multiyear capex plan that has now drawn to a close. Can you just give us an indication of what the second half of the year will look like in terms of earnings and what FY16 could look like both in terms of revenue trajectory as well as profitability?

A: If you look at Calcutta Electric Supply Corporation (CESC) by itself, the second half should be similar to the way the first half has gone. As far as the two projects that we have commissioned, one in Maharashtra and one in Haldia are concerned, the Maharashtra project has an agreement with Tamil Nadu Generation and Distribution Corporation Ltd (Tangedco), which is in Tamil Nadu for supply of 100 megawatts (MW) of power. We have recently signed an agreement with a private sector utility in northern India to supply 190 MW under Section 62.

With that, roughly about half the unit gets taken care of. There are negotiations with another private sector utility for supply of the remainder half of the capacity. Talks are at an advanced stage.

As far as the project at Haldia is concerned, the power purchase agreement (PPA) has been signed with CESC and the entire production from that unit will come into the CESC network.

Anuj: You raised Rs 500 crore recently. If you could tell us what is your intention for that money and would you be in the market anytime soon for any kind of fund raising or are you sufficiently funded now?

A: This is going to be used to fund our future capex as we go on. We are going to bid for the coal mines in the coal mine auction. We are setting up and beefing up our transmission network. The power demand and the CESC network is growing and over the next five to seven years we are expected to come to a total of about 3,000 MW and for that we have to beef up our transmission network and therefore you will see some investments going in there, which are already being planned in a very significant way.

So, part of it will be funded by internal accruals, part of it by this equity that we have raised and part of it will be funded by debt. So, overall we do expect to bid and we hope we will be successful in the coal mines and then the transmission network is the big one and if the coal linkage committee of the government of India meets and gives coal linkages then our power project in Orissa is rated as number one in the CEA list for awarding the coal linkage. So, if that happens then that is something that we will start working on soon. There could be some distressed assets that may come up for sale and so we would be looking at those also.

Sonia: Would you look at something in this financial year itself?

A: We are open to looking at ideas immediately but we would only take them if they make commercial sense to us.

Sonia: Any assets that you could tell us about that you are currently looking at?

A: No, that is all covered by confidentiality clauses so we are not at liberty to talk about them.

Sonia: You were telling us about what the expectation is for the second of the year. In Q2, your generation volumes did not grow much in fact they were quite flat. What is the volume that you are expecting in the second half of the year and what could the plant load factor (PLF) look like?

A: The PLF would look better than last year for sure. December-January is a period where typically demand in any city is at its lowest because of winter. You then typically take your plants for overhaul and maintenance at this point of the year. So PLF should be lower than the first half but it will be higher than the previous year.

Anuj: I am just reading one brokerage report, which expects your profits to double in two years and a compound annual growth rate (CAGR) of 24 percent over FY14-17. Would that be a reasonable estimate?

A: We do expect optimistic results as we go forward. We are bullish. We have invested in capex, we have invested in capacity and we do expect over a period of two to three years these capacities to start earning fully. Therefore, definitely you will see increase in the earnings but to what extent -- I think it is a factor of the market.

Sonia: Your Sarshatali mining lease that was cancelled -- can you tell us what the fine is that is likely to be expected in terms of what is the quantum and in case the fine is crystallised, do you think you will be able to pass it on via higher tariffs to customers?

A: Firstly, let me clarify that it is not a fine it is a levy. The Supreme Court (SC) judgment says it is an additional levy, it does not say it is either a fine or penalty that is point number one.

Point number two the amount is closed to Rs 990 crore. Now dialogues are on with the regulator and we have to see how to minimize the impact on the consumer.

Sonia: Will some of the qualified institutional placement (QIP) money be used to fund this levy?

A: No, not at all. QIP money will go purely for growth.