Hopeful of deals in next couple of months: GVK Power

GVK Power & Infrastructure reported a net loss of Rs 43.6 crore in the second quarter of FY13, against a profit of Rs 38 crore year-on-year, YoY. The company's consolidated net sales were up at Rs 640.3 crore versus Rs 477.4 crore, YoY.

Isaac George, CFO of GVK Power & Infrastructure said the plant load factor (PLF) of one of the power plants in Andhra Pradesh is operating at about 60 percent due to the shortage of gas. The other plants too are working at extremely low PLFs and this has been one of the key reasons for a dramatic fall in the company's profits, added George.
At present, the company is debt laden because it had borrowed money for acquisitions, informed George. Going ahead, GVK Power is hopeful of deals in the next couple of months. Here is the edited transcript of the interview on CNBC-TV18. Q: Your power segment has seen a disappointment because of low PLFs for the last many quarters. This quarter as well there has been a distinct slowdown. Can you tell us what kind of recovery you are expecting through the course of FY13 and what your outlook is on PLFs going ahead?
A: I suppose you have said the right things as far as power is concerned. We have three gas based power plants in the state of Andhra Pradesh which are operational and the first one which gets gas from Gas Authority of India has been operating at a reasonable PLF of about 60 percent but, it is far below what we can operate at.
We can operate close to 90-95 percent PLF but, unfortunately since gas has been restricted we get only 60 percent gas capacity. As far as the second and the third power projects are concerned, we were in a position to operate only at 26 percent PLF which is ridiculously low. That’s one of the reasons why the profits have been pulled down dramatically.
As far as going forward is concerned, all the three power plants are capable of firing an alternative fuel. It can fire LNG, it can fire RLNG, it can fire high speed diesel and it can fire Naptha. For some months, like during the summer months in Andhra Pradesh they allow us to fire RLNG because there is acute power cuts in the state.
Even now, there is a five hour power cut and the industry has 50 percent power cut and that’s the state of affairs in Andhra Pradesh. We expect the government to come around and say that you can now fire an alternative fuel. We are just waiting for the government to take a call on allowing us to fire an alternative fuel. If that happens, we will be back on track. Q: How long do you think that would take?
A: I don't know. In fact we are representing to the government, we are talking to the industry, and government is talking to us. I am sure over the next month or so there could be some decision or a finality on this. Number two, on the east coast of India, we do not have an LNG terminal.
The LNG terminals are situated on the west coast of India. What happens is that, the moment we get an LNG terminal on the east coast, LNG itself will become very cost-effective and power generated based on LNG will be just about Rs 6-6.5. It is something which industries are prepared to buy even today. We hope that when that comes, the problem gets resolved. Q: That is about the operational performance. I will come back to the P&L in a bit, but every quarter we check with you on the balance sheet and quarter-after-quarter your interest costs are surging, this time around of course because of the additional stake in both Mumbai International Airport (MIAL) and Bangalore International Airport (BIAL), but what are you planning to do to bring down your interest cost and is there any stake sale that you have planned on the cards in FY13 at all?
A: In this quarter the interest burden was a result of the borrowings that we have done for the acquisition of stakes in Mumbai and Bangalore. It was about Rs 118 crore. If that wouldn’t have been there, I would have landed up with a profit of Rs 75 crore, which means that I am doing fairly well as far as my operations are concerned.
But, unfortunately because of the debts that we have borrowed for the acquisition there has been an impact to the extent of about Rs 118 crore. Going forward, we are actually in talks with quite a lot of investors and the only way out of this solution is to retire these debts with the equity coming in. I am hopeful that some deal will go through in the next couple of months and we are just waiting for it to happen so that we can come back on track Q: To get some numbers, what is the debt currently and how much do you plan to bring down your debt by?
A: About Rs 15,000 crore is the debt and most of the debt is at the SPV level except for the debts that we have borrowed for the acquisition of Mumbai and Bangalore, which is close to Rs 3000 crore. It is slightly lower than Rs 3,000 crore.