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Last Updated : Feb 20, 2017 02:35 PM IST | Source: CNBC-TV18

To sell non-core assets; trim debt-equity ratio to 2: Tata Power

Tata Power is keen to pare its debt and bring down the debt-equity ratio to 2 through sale of non-core assets, says CEO & MD Anil Sardana.

Anil Sardana, CEO & MD OF Tata Power said the company expects an expeditious hearing and verdict by Supreme Court on the Mundra Compensatory Tariff. The next hearing will be in March.

According to Sardana, the compensatory tariff will cover majority of the under-recoveries at Mundra.

Mundra, he said, would be one of the lowest cost options for the country going forward, aided by benign coal and proper pricing regime.


When asked about poor EBITDA performance in third quarter from Mundra, Sardana said availability, as well as changes in fuel price impacted the EBITDA.

However, the poor EBITDA performance from Mundra was compensated by a very strong EBITDA from mines, said Sardana. The EBITDA from mines came in at Rs 330 crore, while that from Mundra came in at Rs 30 crore.

Also Read: Tata Power Q3 profit up 38% at Rs 599 cr, operating income sinks

The company is also keen to pare its debt and bring the debt-equity ratio to 2 through the sale of non-core assets, Sardana said. The normal debt for the sector is around 3.3. Action towards debt reduction will be seen in the next five months, he said.

The total debt stands at Rs 45,000 crore.

Below is the verbatim transcript of Anil Sardana’s interview to Latha Venkatesh, Anuj Singhal, and Sonia Shenoy on CNBC-TV18.

Anuj: Before we talk about your last quarters numbers, I wanted to ask you on the big news on the Mundra plant. By when are we likely to get the final verdict for compensatory tariff?

A: The Mundra issue has now gone to the Supreme Court, having one at the first CERC level and then the APTEL level. We have to now wait for the Supreme Court order to come in. A part of that you saw in one of the other orders for UMPP, Supreme Court very clearly adjudicated there that regulatory commission has all the powers to decide, even section 63 bid tariffs. So, that is a very positive sign and we are hopeful that once they start hearing it in March that we should have expeditious hearing and early settlement.

Latha: It looks like the compensatory tariff will be lower than your under recovery, right?

A: No, that is not true. What had happened is that when first CERC order came in, it was with respect to our bid price of the coal and the subsequent one when the force majeure part was adjudicated by APTEL, there it was with respect to the fuel supply agreement which was at about USD 34. However, it will cover majority part of our under recovery portion.

Sonia: What is the current under-recovery at Mundra and what is the expectation as far as the tariff is concerned?

A: The under recovery part keeps changing because of the fuel prices. As you know that last quarter the fuel prices firmed up a bit, and therefore the under recovery climbed to a higher number. However, if we go by the normative level, that is close to about USD 70-75 is the FOB price, then the under recovery will be anywhere close to about 42-45 paise.

Anuj: You said the case is with the Supreme Court, when is the next hearing, do we have any time table in place, by when do you expect the final outcome and what is the best case scenario from your point of view?

A: Next date of hearing is now mentioned to be mid-March and it has been stated that after that there will be expeditious hearing in this subject. So, we are hopeful that the resolution should come by early. More bullish on the fact that the content, the Supreme Court mentioned about the fact that regulatory commission are fully empowered to look at the bid tariff which is what is important and I guess we are going to use that clause which was mentioned in the other case and try and see that if we can get back to the original CERC adjudication which was the comensatory tariff which was complete pass through in terms of under recovery.

The important point to be mentioned here is that even after the compensatory tariff, Mundra will be one of the lowest cost option for this country and that too with benign coal and with proper pricing regime that is expected in the years ahead. It is a very good solution so one should very clearly look at the fact that a tariff of about 250-260 with imported coal is still going to be the lowest cost option for the country and a large power station and that with super critical parameters is a great bet.

Latha: Just two things both on the Mundra part and the coal part is what we want clarity on. Why was the EBITDA so low in Mundra this time around; I believe it was about Rs 30 crore, that is sharply lower than the year ago level and what are the plant load factor (PLF) levels there?

A: As I have been mentioning before that because of the fuel price changes and the fact that the availability in this particular quarter was lower than 80 percent and therefore we could not even account for full fixed cost recovery. As you all know, we try and maintain the availability factor to 80 percent by the end of the year which is what we will achieve at the end of March and because of that the under-recovery happens even on the fixed cost during the quarter.

So, this quarter we could not get the full fixed cost recovery and that is the reason why you see low EBITDA. Also, I mentioned the fact that while the EBITDA for Mundra was Rs 30 crore, the EBITDA for the mines was Rs 330 crore. So, therefore what matters is there is an absolute strong hedge between the mines and Mundra and that is the reason why we had acquired those mines.

Sonia: Will you challenge this sub 10 paise compensatory tariff if it comes through because it is much lower than your current under-recoveries of around 42-45 paise as you mentioned?

A: If you are referring to the table -- they had done some calculations in the CERC last order, there were errors on record and that is the reason why we have gone already to Aptel to clarify that part. So, don’t go by that table because what they have actually used in the calculation are wrong figures. The under-recovery is almost compensated by the present formulation that they have prescribed.

Anuj: What about the coal business where we have seen quite a bit of improvement, what is the outlook there?

A: Since the coal prices firmed up, as I mentioned therefore all the mines which we have were very positive and we generated very good profitability at the KPC mines and also the other smaller mines did very well. So, if the prices remain around USD 80 which is what the present prices are, then one can clearly look forward to good profitability from all those points.

Latha: What about the Arutmin mine, the sale in Indonesia, the deal has been going on for a bit now, is it close, can you give us a timeline on that one?

A: We had already mentioned before that our mines which have been sold were sort of to be adjusted for the infrastructure as also some of the court cases which were filed by Thiess in Australia, that settlement has happened and we have settled those amounts and signed the revised deal and now it is expected that within the next quarter or so we will start moving on with the settlement that has been already defined.

However, the entire process will take about two years because as you clearly know that Bumi which has acquired Arutmin mine from us has very poor financials and therefore the schedule that they have tied up in the revised adjustment is about two years and therefore the entire settlement will take that long but it will start setting in, in the next one quarter.

Sonia: Can you just give us an update on the Welspun acquisition as well, what is the latest as far as the earnings are concerned, the performance and what can we expect going ahead?

A: Welspun assets have already been integrated into Tata Power now and the portfolio has started to yield and we announced that this quarter we had a Rs 255 crore EBITDA contribution from Welspun asset, so, it is tracking, in fact it is more than what we had envisaged in our plan and the business model. So, we are hopeful that coming next year we will have good EBITDA contribution from Welspun assets and all of them have now started to be on full yield.

Latha: I was just worrying about your debt, Rs 45,000 crore debt, that is still 2.5 times your equity, any plans to pair it down?

A: First and foremost, yes, we are concerned about our EBITDA but you need to know that in our sector the normative debt itself is 2.33 and our objective will be to get it somewhere close to 2 and therefore we are making all plans to make sure that the non-core assets are sold off and as also the last part of debt that was acquired to takeover Welspun asset is swapped with equity option. So, therefore that work is afoot and you would see us in action in the next six months to three quarters.

First Published on Feb 20, 2017 12:33 pm