See debt-equity at 1:1.5 by year-end post deal: JP Power

Surabhi: I suppose it is very good news coming in for your shareholders who have been waiting for the completion of this transaction but very importantly as we talk about the units that have already been sold, some more clarity on Bina because it seems that you do have a binding agreement to also look at the possibility of that sale. At what stage are those negotiations?

A: It is very early stages, it is a binding Memorandum of Understanding which we have signed, so JSW over the next eight weeks is going to do the due diligence and subject to both sides agreeing on a valuation, we will proceed with this transaction as well.

Surabhi: Are the valuations you are looking at, will they be in the same vicinity as the earlier transaction that has been concluded or are you hoping for something more-just some sense of how you are looking at pricing this asset which is Bina?

A: There is a vast difference between the valuations of hydro and thermal, so let JSW conclude their due diligence, the only thing which I would like to say is that the JSW transaction has happened in a very cordial manner. There is a lot of good rapport which has got developed between the two groups where each is not going to be unfair to the other, so you will have to wait for eight weeks to get a clear answer on the valuation.

Varinder: I just wanted to understand one small thing, the enterprise value of this deal is Rs 9,700 crore. Can you just divide the numbers in terms of how much the debt will be cleared, what will be the debt picture of JP Power after this deal and what is the equity contribution out of this Rs 9,700 crore?

A: This Rs 9,700 crore consists of about Rs 5,600 crore of debt which is attributable to these two projects which are getting transferred. So, that debt goes and apart from that about Rs 3,000 crore of debt which we had at the corporate level in Jaiprakash Power also gets paid through equity consideration which we receive. So it is a total debt reduction of close to Rs 8,500-9,000 crore at Jaiprakash Power level. So, we were at about Rs 21,000 crore prior to this transaction taking place, so it reduces by about Rs 9,000 crore from there.

Varinder: These were the cash cows for JP Power- Baspa and Karcham Wangtoo. Can you just tell us how much revenue did these two assets contribute to JP Power?

A: Last year, that is March 31, 2015, we have done a total revenue of about Rs 4,500 crore. Of Rs 4,500 crore, approximately Rs 1,800-1,900 crore was coming from these two assets.

Varinder: I believe going ahead you will be a thermal company now which earlier was a hydro company. So, do you think that now the thermal company revenue will be able to pick up to service debt which is now remaining on the books of the company?

A: Absolutely, because what I would like to just highlight to you here is the fact that the Nigri thermal power plant which is a 1320 MW thermal plant had just gone into operation in the last financial year. In fact unit 2 had gone into commercial operations only on February 20. So, we will have the full year of generation on that plant and by the end of this year our subsidiary Prayagraj Power is also likely to commission another 1980 MW power plant. So, we are very well poised to be able to take care of our debt requirements in the coming days.

Varinder: What is the eventual plan for you because you sold your hydro-Baspa and Karcham Wangtoo, you also signed a non-binding agreement for a thermal asset which is Bina, so going ahead what do you want JP Power to be? Do you want it to be a mix of hydro plus thermal or you want to really concentrate only on thermal?

A: No, it will continue to be a mix of hydro and thermal. We will continue to own the 400 MW Vishnuprayag Hydroelectric Power Project, which obviously is a hydro asset. Apart from that, the 1320 MW Nigri, 1980 MW Bara - then we also own a 74 percent stake in Jaypee Powergrid Limited which is a joint venture company with Power Grid on the transmission side which is already in operation. So the sale of these two projects very clearly demonstrate an evidence - the focus which the JP Group has on debt reduction and as you very rightly said that these were the cash cows and the pride of JP Power, so what comfort our shareholders and our stakeholders need to derive is that the group is, while we will get a little leaner but we will be a more profitable company and we are ensuring that our stakeholders see value creation happening at the group level.

Varinder: I have no doubt that JP group has been divesting for a long time. With a debt of nearly Rs 55,000 crore on a group level, the total divestment done by the group has been around Rs 25,000 crore and if I include that, it could be more than that but the problem with the market now is that you have been divesting all the cash cows with what you have. Going ahead what happens to the remaining debt which will still remain on the books of the company, how will you get away with that, which are the remaining assets now, will you look to monetise those assets as well and where the earnings will come for the company?

A: All the projects which we continue to retain are also profitable projects. None of the projects with God’s grace that the group has set up are not profitable. It is only sometimes the market conditions which impact the profitability of some of the projects. With the divestments, whatever we have planned and whatever we have done, we are well poised to be able to continue to service the balance debt which we will retain.Surabhi: The same question just to get little more clarity and colour on exactly what Varinder is asking, first and foremost after Bina are you looking at any other asset sale at least in this financial year or is this going to be the last of it?

A: As of now after Bina we are not looking at anything else.

Surabhi: So, in that case if you could give us some sense of your targeted ratios, the gearing ratio that you think you will have?

A: Post this divestment which we have done, our debt-equity ratio which was 1:3.5 almost, comes down to almost 1:1.75 which is very good for a power company.

Surabhi: And after you divest Bina, by the end of this fiscal where do you see that ratio stabilising?

A: Our debt-equity should come down to 1:1.5.

Surabhi: Similarly for your topline for revenue because of a lot of these strategic changes that are taking place between thermal and hydro, what will be the rough mix you think by the end of this fiscal?

A: Of course the hydro will be only about 15 percent of the total topline, about 85 percent will be thermal.

Varinder: I appreciate the efforts what you have taken in order to reduce the debt but even after this transaction the total debt will be around Rs 40,000 crore on the group level. People were talking about that there are real estate assets which are lying with you. Would you at all going ahead like to monetise those assets as well? I want a very rough picture of what is in your mind in terms of the debt picture say going ahead in one or two years?

A: It is very difficult to say what will be the debt number but I can only say that the debt number will be a very comfortable number which the operations will be able to easily service and we have shown it in the past and we will show it again in the coming years.

Varinder: So for you going ahead the earning kicker will come from cement and construction?

A: Cement, construction, power, real estate, we are present in all sectors of Indian economy which are relevant to the infrastructure sector and as you know the focus is on development of infrastructure and once the cycle picks up, there is no doubt that the company will be back at the peaks at which it was a couple of years ago.