JSW Energy is likely to scale down its merchant realization guidance following subdued demand. In an interview to CNBC-TV18, Sanjay Sagar, Joint MD and CEO said overall demand for power has been weak. He mentioned unseasonal rains as the reason why South India’s power emand took a beating.
Below is the transcript of Sanjay Sagar's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Do you expect the trend of merchant realisations to remain as strong as what we saw in FY15? Will transmission constrains and some increase in industrial activity help in keeping realisations buoyant?
A: Merchant realisations have been a cause for a worry over the past month or month-and-a-half and given these circumstances we may have to revisit the guidance that we had given you earlier. However, at this moment I would like to wait for few days before I give a fresh guidance as far as numbers are concerned but we will have to revisit them. The demand has been exceptionally low and as a result of that the merchant realisations have been subdued.
Latha: Can you give us a broad range of your guidance?
A: I would to wait till the end of the quarter before we give out fresh guidance on the numbers.
Sonia: One important trend for FY15 was a fall in global coal prices. Do you think your margins adequately capture this trend or can there be a case for more upside? Also are coal prices expected to remain as benign for FY16 as well?
A: I think the upside of the decline in coal prices has already reflected in our margin so far and over the last month the coal prices are tending to stabilise a little, so I do not see any greater upside on that front going ahead.
Latha: South India is an important market for your company and some distribution companies like Andhra Pradesh have floated fresh power purchase agreement (PPA) tenders. What is the PPA price that they will look for and are there more such bids?
A: No, the demand in the southern region has also has also subdued to an extent and that is because of some unseasonal rainfall and it hit the country on its scheduled time. So there has been little downturn in demand in the southern region also. However, as far as long-term PPAs are concerned, you are right; Andhra Pradesh has come out with PPA for which we have already submitted the qualification bids. The state is yet to announce when they will be inviting the price bids but that's probably the only PPA in the market as of now and that is for a period of about 12 years, not the normal 25 years which you tend to associate with a long-term PPA.
Sonia: With respect to your deal with Jaiprakash Power Ventures, when can we expect the final deal closure and will the enterprise value of the deal get impacted in any way if the Central Electricity Authority (CEA) does find faults with the commission capacity of the Karcham Wangtoo plant?
A: This deal involves certain court and statutory approvals, so I would not really like to speculate on when those approvals will be sort of received but I think it would be safe for me to say that within July we should be able to close this deal. As far as Karcham Wangtoo project is concerned yes, the CEA has capped the capacity of project but that is something that we had factored in at the time when we made the deal and there are suitable adjustments within the deal to cater for that.
Latha: There are always media reports that you are going to raise more funds and you will also make more inorganic acquisitions, anything on the anvil?
A: The fund raising will entirely depend on whether we go in for anymore organic or inorganic growth. So at the moment the JP deal is going to be funded through a combination of internal accruals and debt, but beyond that we will have to take a call depending on if we intent to or if we get the opportunity to grow further. As of now we have only taken an enabling resolution from our shareholders to raise some funds but we have not made any definitive plans for doing so.
Latha: You spoke to us about tepid demand. Rajasthan is a state electricity board (SEB) which should be key for you and we understand that they have 55,000 crore of debt which they want recast. How is the situation for you? Can you sell directly to private vendors over their heads?
A: To clarify your doubt, as far as Rajasthan is concerned we are not facing a demand problem. Rajasthan is taking the scheduled power from us, so we don't have any issue with the Rajasthan Discom. As far as the other contracts are concerned, they are generally merchant contracts and in case of merchant contracts we are seeing subdued demand. The reason for it is not just the financial situation of Discom. It is a combination of a general fall in the industrial production which is reflecting in the numbers in the general euphoria amongst the people. It has gone down and that is the reason why we have seen fall in demand for electricity across the country. As far as Rajasthan is concerned they are picking up the power that is contracted with them because that's under long-term PPA and they are obliged to take that power from us. In any case even if they do back us down some time then we are entitled to get our fixed charges.
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