Tata Power bottomline to improve Q2 onwards, says MD

Anil Sardana, MD, Tata Power, says that the revenue growth of the company is above 20%. Positively, the Mundra unit which was commercialised in July-end has in the last 15 days is working at 100% plant load factor.

Interest and depreciation is completely predictable and as the revenues grow, the units continue to contribute and the contributions will take care of both the interest and depreciation. Below is the edited transcript of his interview to CNBC-TV18. Q: How are your numbers? What went right with the revenues and what are you guiding for full year revenues?
A: Our revenue grew over 20%. When one is in a project phase and is expeditiously investing into various projects, the advent of interest components will always be there and that phenomena is visible on the balance sheet.
As we make our units commercial both at Mundra and Maithon, the depreciation comes into the system and it will take sometime before the revenue spurts up from these operating units. So these are initial times for them.
Positively, the Mundra unit which was commercialized in July-end has in the last 15 days is working at 100% plant load factor. So the contribution is immense. One, will have to wait till the depreciation on slot that comes in because of the capitalization and it gets completely taken over by the contribution. Q: On Mundra Project, can you highlight how the bottom line looks like at this time because we understand that there were losses of Rs 40 crore. What would be the trajectory going forward on the bottom line. What can we expect in terms of stablisation?
A: The figure of Rs 40 crore is a per month number on account of fix cost on ground commitment in Mundra. Holistically, now our profitability even on consolidated basis takes care of the negative impact of Mundra because of performance from other units.  
So, going forward we will continue to have larger contribution and therefore larger profitability will appear on consolidated. But when you look at standalone, which is the investment vehicle, as Tata Power the profitability is handsomely higher compared to the Q4 of the previous year as well as the Q1 of the last year. Q: While one understands the inevitability of interest cost and depreciation cost at certain stages of projects going on stream it has nevertheless invite S&P outlook being lowered from stable to negative, could you give us some guidance in terms of how the interest cost and depreciation will pan out?
A: The two aspects are completely disassociated. The outlook that was put on watch by the S&P was not on account of interest or depreciation component. It was on account of the breaches that we had after impairment on our various covenant.
When we impaired and provided for impairment, to that extent the equity component becomes less and therefore the debt to equity ratio suddenly showed up a very different regime so S&P to us on the radar. Now, on that effect we have gone back to the lenders for the waiver of these conditions because they know very clearly on what circumstances the provisions have to be kept. 
The investors took this to their credit committee and have started to communicate wavers. On a holistic basis, in next four weeks we would get the formal communication of wavers, that will take care of the S&P part.
Interest and depreciation is completely predictable and as the revenues grow, the units continue to contribute and the contributions will take care of both the interest and depreciation.
_PAGEBREAK_ Q: Many brokerages were concerned with regards to increasing cash cost increasing at the Bhumi mines and falling of realizations. What is your guidance on the same?
A: The mining activity is very sensitive to the sales price and the cost of production. We predicted a price of USD 100-110 for every metric ton in last quarter fell to a realization of USD 94 metric ton and later to USD 84 metric ton in the previous quarter. Whenever there is this type of fall in price of coal, then the mining activity which is taken up at the price when the mining plan decision was taken.
So in all mining activities there is a lag of three-six month. If the price of coal is falling then one don't undertake expensive mining, dive deeper into lower heights. Surface mining is done more often and margins come back to normal.
It's a one or two quarter phenomena, not a long term phenomena. Our mining activity at KPC and Arutmin continues to be very robust and we will continue to see those contributions and margins going ahead. Q: Can you update us with your conversation with the CERC or the electricity regulators with respect to the pass through that you have been requesting on Mundra?
A: We had our first hearing at CERC on July 19, where four out of five beneficiaries agreed that CERC should adjudicate the matter. One of the beneficiaries was of the view that the matter could be settle outside CERC.
Then the CERC granted us 30 days to sit between the beneficiaries and check for a possibility of a settlement. All the beneficiaries again met on August 3, with a view that an affidavit be filed to the CERC to adjudicate in the matter. Q: Are you looking at alternate places to source coal from except for Indonesia?
A: We continue with our idea of getting more resources under our belt continues. In this quarter we have announced that we have signed a long-term off take on track for two more mines in Indonesia, where these mines will cater to the project investment that we do outside India. In India, there is no need for anymore imported coal as there is no clarity about  compensation.  
In such circumstances, investors would look at opportunities outside and we have already started to tie-up for building such coal-based projects around India and in other geographies, where the government and institutions are welcome us to put investment. We will soon announce some of those off take opportunities and even investment which would be in geographies other than Indonesia.
_PAGEBREAK_ Q: Considering that you have sourced coal elsewhere as well, are your losses in Mundra reducing either because coal prices are not as high as they were and also because now you are sourcing from a variety or sources. Are your losses like to come down anyway whether or not you are given the pass through?
A: If the coal prices come down then the losses in Mundra will also reduce. We are sourcing coal from places which will simulate or reciprocate similar arrangement that we have originally done in Indonesia.
In Indonesia, we had tied for 55% of the portion which was exactly the mirror of what we had bid for Mundra. Now, since the law in Indonesia has changed, we are looking at opportunities which will simulate similar conditions. That means, we could have long-term off take which could remain fixed or capture the next present value today and continue to give us at discounted price.
All those arrangements are underweight and we are trying to reduce the pain as we generate because our commitment to the nation is that we will honor and continue to generate and that is what we are doing today.
At the same time, we would continue to mitigate our problem to make sure how to get coal at competitive price for 55% portion due to change in laws. Therefore, our efforts to do blending with low sulphur, low ash, eco-coal has succeeded. Today, we are running the units with 70% blend ratios. It is an outstanding achievement and we will continue to make sure that other possible mitigation measures are also put in place. Q: This time the bottom line is quite dismal at Rs 146 crore. What quarterly run rate can we expect for the remaining part of the fiscal?
A: There are reasons for the impact. One, coal prices coming down and therefore lower contribution from coal mines. Going forward, we assume that in the next two quarters it will improve.
Immediate capitalization that happened for the commercial operations of units and that too going forward would be overrode by the contribution that will come in from the same units. So, performance will certainly improve in coming quarters. Q: When is the CERC expected to give its adjudication?
A: First, the CERC will have to run through the process including public hearing and the process will kick start in middle of September. Q: You are now taking up a lot of power building projects and buyers abroad. Can you give us some guidance for FY14 and thereafter as to how much of income you are expecting from these kinds of activities, how much might that give a boost to your revenues?
A: The projects that we are right now referring to will be in aconstruction stage till FY14 and may be a year later. The only revenue potential will come in from the recent deal that we did on the long-term off take for mining because that off take we will use for the purpose of selling till such time that it is used in some of the investments downstream. So that will be additional revenue in terms of the off take and at this stage that right is about two million ton. So that will be additional revenue that will set in.
In Africa we have started to take over the distribution rights of building. These projects are beginning to take shape in Kenya, Congo, and Ghana.
This looks to be a good promising movement because in India distribution business not offered through public private partnership. Nor is there serious endeavor to do franchisee which will be viable and palatable and therefore we are looking at opportunities which are there in other countries. It is interesting to see that they are inviting the private sector.