Sterlite Technologies will be separating their power and telecom business in order to focus on the two separately.
Sterlite Technologies will be demerging its power and telecom businesses in order to focus on each separately. "While the telecom business, the focus is on the growth that we are seeing from a solution provisioning perspective; on the power side, we are participating in the opportunities as an infrastructure developer and creator," Anand Agarwal, Director & CEO of Sterlite Technologies, told CNBC-TV18.
The telecom business will remain listed and the power entity will be unlisted in line with the global model of parent Vedanta, said Agarwal.
Shareholders in the power business will be given the option of staying invested through redeemable preference shares.
"Demerger will be completed by Q4 of FY16. The current debt allocation has been done on basis of asset share," added Agarwal.
The company's March quarter revenue rose 51.5 percent year-on-year to Rs 979 crore.
Below is the edited transcript of Anand Agarwal’s interview with Ekta Batra and Mangalam Maloo on CNBC-TV18.
Ekta: Before we talk on your numbers this quarter, can you explain to us the rationale behind the restructuring, which you have announced, which would now be a demerger of the telecom business as well as your power business?
A: Clearly, what we are seeing over the last several quarters and several years is that Sterlite Technologies is evolving and strengthening in two distinct business verticals. While on one side we have our telecom products and solutions vertical, which is essentially focused on taking advantages on the broadband propagation. So, we are doing broadband solutions for a converge network.
On the other side, we have another model wherein we are creating world class power transmission infrastructures and we thought that at the right, at the current time, the two entities, the two parts of the company have reached the right scale and have reached the right kind of opportunity for us to focus on the two different sets of opportunities in different ways because fundamentally the business models for both the businesses are now moving in two different directions.
While the telecom business, the focus is on the growth that we are seeing from a solution provisioning perspective; on the power side, we are participating in the opportunities as an infrastructure developer and creator. It was thought that it is best, looking at shareholder’s interest and hearing from a lot of investors that these need not reside within the same vehicle where providing to two different vehicles. The telecom part of the entity will remain as a listed vehicle while the power part of the entity will be unlisted vehicle.
Ekta: Why have you chosen to keep the power business unlisted and how will the shareholders participate? For example, what would the shareholding pattern looks like for the delisted entity? Would there be a chance of it relisting at a later point in time and the rationale behind keeping it unlisted?
A: We have looked at global models for transmission developers and we have found that the model which is there is to keep it private because the nature of this business goes through several cycles. It is a cycle of investment, cycle of operation and cycle of asset churning. In accordance with the global model, we are keeping it private.
When the demerger happens, the shareholding will be complete mirror shareholding. So, what is public for 45 percent of the shareholders will continue to be so. At the time of delisting, we are providing options to all the shareholders to either continue to participate in the growth that we see on the power side or providing liquidity options in terms of redeemable preference shares which can be liquidated either immediately or can be liquidated with a coupon post 18 months. We are providing options for people to continue to participate in the power growth albeit with an unlisted opportunity or take one of the liquidity options.
Mangalam: When you say that you are allowing people to participate in the power growth, if we look at your numbers, total income growth has been 51 percent; if we look at the segment, 60 percent growth has been coming from the telecom segment while 50 percent from the power segment. So, would you say that the power segment has been lacking because the margins on that has also come off?
A: If you look at the product part of the power business, we had gone through a low phase and we are coming back more to a normalised phase. But a significant part of the power company will also be transmission assets which we invested over the last three, four years and now we are moving into a phase where the assets have started operating.
The equity churning will happen over the next nine to twelve months. The business model for the transmission assets will be more and more in terms of developing and churning the assets. It will not be so much towards creating a pat level. And that is the primary reason as to why we are delisting it and keeping it unlisted.
Ekta: How exactly would the debt be split up in terms of both the entities at this point and if you could share by when this entire demerger process would be over?
A: For the debt allocation, we have advisors who are advising us on the transaction. Both PWC and KPMG are advising us on this transaction for various aspects and the debt has being split in the ratio of assets and that is how it has been applied currently. Currently for the power business, looking at the enterprise value and the current split debt, equivalent equity price per share comes to about Rs 22. This entire process will be over by Q4 of the current fiscal, say by in March 2016 by which time any repositioning of the debt due to the next nine, ten months would be relooked at and reallocated. But the current debt allocation has happened based on the asset ratio.
Mangalam: A final question, could you leave us with growth guidance for both your power sector and your telecom sector for FY16 and the margin guidance for that as well?
A: We do not give out forward guidance. I will showcase the outlook from the past itself. If you see, we have grown tremendously; almost 70 percent on the net profits. We have grown almost 40 percent on earnings before interest, taxes, depreciation and amortization (EBITDA) on a year-on-year basis. We are very bullish on the opportunities that we see on the Digital India creation, on the new opportunities that we see on the data side and equally if you would have seen the power minister today announce that there will be almost Rs 100,000 crore of opportunities coming on the power transmission side.
So, both the places we are very bullish and we see a phase of next three to five years of very good growth happening from an opportunity perspective as well as a company we are very uniquely place to participate in these opportunities. We are the only ones who have these kinds of strength to leverage from such opportunities and this newer structure or newer focus structure will allow us better to take those opportunities as we move forward.The Great Diwali Discount!
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