Yet to get clarity on power price hike: Adani Enterprises

Adani Enterprises is looking forward to strengthen margins in FY14, once it is allowed to charge higher tariff for power sold to consumers. The  Central Electricity Regulatory Commission's ( CERC ) has in a ruling last month allowed power companies to charge compensatory tariff till they make up for losses incurred due to higher fuel cost.

The company is yet to get clarity on the quantum of compensatory tariff, said Devang Desai, chief financial officer, Adani Enterprises, in an interview with CNBC-TV18. Adani and its competitor Tata Power had approached the CERC to consider increases in their power tariffs after customers declined to pay higher rates for the electricity generated from their imported coal-based power plants in Mundra, Gujarat. Due to its inability to pass on costs to consumers, Adani has been crying hoarse about inviable tariff structure. Read This:Adani Enterprises' Q4 net up 53% on one-time gain Meanwhile, Desai further said he is hopeful of seeing margins improve going ahead as most issues are likely to get resolved by FY14-end Below is the verbatim transcript of his interview to CNBC-TV18 Q: Could start by giving us an update on what’s going on with the Central Electricity Regulatory Commission (CERC) ruling which came in earlier on Adani Power? Apparently the Haryana discom filed a case against it, a committee was apparently set up – where do things stand on that? A: From a broader structure of vertical that we have – power is very important, has a very good weightage and we have already done 5320 megawatt of operational capacity today. On the CERC front, the committee is already being formed and deliberations are going on and we expect an early resolution, hopefully somewhere in this quarter we should get a feedback. We are very hopeful that this compensate tariff award that has been given by the CERC would make a big difference on the overall impact on our various capacities that we are building up. Q: What will this amount to - the Haryana discom has filed a case contesting the decision – do you still get your payment as scheduled or as planned or does this go into another litigative loop? A: No. I think the basic focus is now on CERC and the committee, the way the deliberations that will take place. We will have to wait till that time somewhere in the quarter. Even the committee comprises of Haryana as well as Gujarat and various other entities. I think we wait for the committee’s resolution and that will give us clarity. Q: There has been no clarity either on the quantum of compensatory tariff because last we had spoken you had indicated that, that hadn’t been worked out either? A: I think those numbers and the various issues would be in the domain of the committee and we have to wait till then and with due respect I won’t be able to say anything more on that. Q: We stressing about power because that is the one segment or vertical which is dragging down the overall consolidated numbers for Adani Enterprises despite some of the other segments like coal trading doing quite well. By when do you see the power business becoming EBIT positive and taking away some of the drag that it is having on your consolidated numbers? A: Even in the last year, it was already an EBITDA positive. The only issue was that because the capacities came in we had the larger finance cost being charged off and we also have mark to market issue on the foreign exchange and some of the deferred tax. The actual cash loss was not that substantial amount last year. If one sees, there are overall three verticals that we have – coal trading, port and logistics and the power generation. A very big chunk, large amount of growth was there in the coal trading. Almost 46 million tonne of volume that we handled, imported, the largest import that we did and that gave us a handsome EBIT. Port also did extremely well. These are the two that have taken the bulk of the pain of power that was there in the last year. We see that in 13-14 most of these issues will be resolved so more capacities, the balance capacities of 2640 will also be rolled out and we will have the entire 9240 megawatt operation. Hopefully the entire scenario will change as a lot of generations are expected from the power sector itself.  _PAGEBREAK_ Q: What about the coal trading business because that has done very well this year though earnings before interest, taxes, depreciation, and amortization (EBITDA) per tonne has eased off in the current quarter? What can you project for FY14 both in terms of volumes and where EBITDA per tonne levels might be? A: One is well aware about the import scenario of the country and in the next three to five years we will see a huge amount of ramp-up on imports. We have more than 55 percent market share. This year we did 46 million tonne, next year we expect to do equally well. In fact, there is a broad consensus that because of our end to end solutions we would have almost about 20 percent compounded growth in the next couple of years. That is a sector which we have perfected very well. It is a huge logistics play moving multimodal structures all over and giving a door delivery solution to various users. We see that going substantially, very sustainable margins coming in the ensuing years and a good competitive edge that we have maintained. Same thing in ports, actually we use that as a synergy model.  Q: Given the traction you are seeing in some of these businesses can you point out some kind of target in terms of growth that you guys hope to do in FY14 both in terms of how much revenues can get augmented by and also the fact that you improve the new core operating margins- can you hold on to that or better it over the next few quarters? A: As I said the scenario is very good for both these verticals- coal trading and ports and logistics. We have clear leadership roles in both these businesses, tremendous amount of market share, leadership that we have gained over the years and that is through the amount of stake that we have. Mundra has built up more than 255 million tonne of capacity. As we go forward it has a clear diversified cargo of coal containers and crude, very long-term contracts. Similarly, a clear competitive edge on the coal trading. So, we expect these two businesses to go very well in the coming years. Definitely sustain the existing margin, in fact, improving substantially. The exact numbers would be available as and when we see the quarters unfold.