GVK Power & Infrastructure managed to more than halve its loss to Rs 30 crore year-on-year during June quarter, despite poor performance of its power business. Due to fuel scarcity issues, the firm’s power business revenues slipped 80 percent to Rs 86.6 crore. The vertical’s EBIT loss stood at Rs 35.2 crore versus Rs 14.8 crore EBIT profit year-on-year.
In an interview to CNBC-TV18, Isaac George, CFO, GVK said that quarterly run rate of power segment losses is around Rs 50 crore. “Two of the company’s power plants have not been operational since March,” he said.
However, the firm’s airport division recorded margins at 30.8 percent which is sustainable going ahead, he added. The firm is looking to retire debt by raising equity in airport vertical.
“Expect Deoli-Kota Project to be commissioned by February 2014,” he said.
Below is the edited transcript of George’s interview to CNBC-TV18
Q: Let us go through what didn’t do too well, the power sector. Obviously your power costs, the cost of raw material has come down but what exactly is the utilization that you are going through in the power space?
A: Energy space did not do very well. One of the reasons for that is two of our plants did not operate at all. They have not been operating from March 1 because there was no gas that was being supplied by Reliance Industries. One of the plants did operate but they operated at a capacity of just 51 percent. So, out of the 908 megawatts (MWs) of capacity that we have built up, 216 MWs operated at 51 percent and the balance never operated at all. So, that is the reason for a substantial decline in the profits. The turnover was just about Rs 86 crore and we have reported a loss of Rs 55 crore in the energy sector. GaAIL supplied gas, but Reliance has not supplied even one mmscmd of gas so that is the reason for the dismal performance of the energy sector.
Q: The run rate in terms of loss will continue to be Rs 55 crore every quarter? Will it be plugged at that level?
A: If the situation continues like this, without there being gas at all then it could be around that number, we would Have around Rs 50 crore of losses per quarter.
Q: It doesn’t seem to change in the foreseeable future, does it?
A: Not really. Honestly, Reliance gas is still far away, they are talking of 2015-16 but in the short-term there certainly is a possibility of allowing us to use liquid fuel which is high speed diesel because all our three plants have the ability of firing liquid fuel but it will be costly power. The other alternative is to use LNG or RLNG and that is an alternative wherein the state government is trying to figure out whether it would be something which is feasible. So, that is the only solution in the short-term but long term we will have to wait for Reliance gas and that is likely to happen by 2015-16, not earlier.
Q: What is the extent of cost increase if you used LNG, RLNG or liquid fuel and what is your power purchase agreement (PPA), how much you cannot pass on?
A: As far as PPA is concerned, the entire variable charge which is the cost of fuel is the pass through. So, the company doesn’t incur any cost even if we have to use expensive fuel. If one uses LNG then there are no terminals on the east cost of India whereas the LNG terminals are situated on the west coast of India.
If we were to get LNG from the west coast of India, the costs would be much higher. Because of taxes, transportation involved, the cost would be much higher. However, if we were to get LNG from the east coast of India, the cost will work out to something like USD 13-14 per mmbtu which effectively translates into twice the existing variable charges. So, if we are spending Rs 2 on power today, I think the variable charges from Rs 2 will go up to Rs 5 and fixed charges will be Re 1. So, the cost of generation for us would be around Rs 6-7.
Q: Thankfully you have your airports division growth to compensate for the losses that you are seeing in the power division. Just take us through the margin performance. This time around you have done around 31 percent in your airports division because of the tariff hike but is this sustainable and how do you see margins pan out going ahead in that segment?
A: Both the airports did exceedingly well. Mumbai reported a profit of about Rs 93 crore, Bangalore reported a profit of Rs 64 crore. In Mumbai airport, the profitability increase was basically because of the tariff hikes. We got a tariff hike of about 164 percent and that was the reason for the increase in profits during Q1. This trend is likely to continue, and we would continue to perform fairly well as far as profitability is concerned. Apart from the airport segment, our transportation vertical, which is the highways did exceeding well. It was much beyond expectations on a turnover of Rs 68 crore and we reported a profit of almost Rs 12 crore. So, that also did very well. Transportation and the airports did very well but then unfortunately in energy, for no fault of ours did not do very well. So, that reflected in the consolidated numbers.
Q: Your losses have trimmed this time, you have seen a loss of Rs 30 crore versus Rs 60 crore earlier. How many more quarters do you think it will take before GVK Power gets into the black?
A: It all depends upon whether we will be in a position to operate our power plants, which are under preservation mode today or which are idle today. So, if we are in a position to generate power from our energy segment, certainly we will turn into profits at the earliest. The other thing is, we are also looking at the possibility of retiring some debt by raising equity at the airport vertical. If that happens, then certainly we will get back to black at the earliest.
Q: Is there any equity raising planned within this financial year itself?
A: Yes, we are in the process. The due diligence is going on for dilution at the airport vertical level, so hopefully, we should be in a position to strike a deal at the earliest. If that happens then we will be in the black in no time at all.
Q: That is a private equity or a strategic partner?
A: There is private equity also and there are strategic investors who are looking at the project. Two of them have completed their due diligence and the third one is yet to start.