Rural Electrification Corp Ltd (REC) is planning a follow-on public issue to raise funds. P Uma Shankar, CMD, REC, speaks to Moneylife’s Amritha Pillay about the company’s quarterly results and future plans
Amritha Pillay (ML): During the third quarter, your net profit rose by 49% to Rs474 crore. What were the factors responsible for this performance?
P Uma Shankar (PUS): The results have been good for two reasons—our disbursements have been really good and we also managed to keep borrowing costs down. During the third quarter, disbursements have gone up by 20% from the corresponding period last year. Therefore, good volumes and spread were the reasons for this performance.
ML: You mentioned that disbursements have gone up by 20%, resulting in good volumes. Since REC is a state-run entity, do you think it would have helped you in winning more projects from the government as private players were less privileged?
PUS: No, our being a state-run company didn’t figure in our winning more projects. In fact, there are more state-run power entities than private players. Over the past two years, we have been winning power projects that were sanctioned later. These power projects help us to boost our project pipeline and now it is maturing resulting in good volumes. Also, since we have been funding power projects for a long time, the experience and expertise we gained is no match for other players in the industry. Based on the projects in the pipeline, we will have more power projects coming up for disbursements over the next few quarters.
ML: REC is planning to buy stakes in coal mines and also in merchant power plants. But your main business has been transmission and distribution (T&D) and power finance. So what is the reason for this diversification?
PUS: No doubt, T&D is still our main business but since the past six to seven years, we started taking interest in large-scale power generation projects. In June 2002, REC’s mandate was expanded to all generation projects without limit on size or location from 25MW capacity. After studying T&D and power generation, we found out that you need to have a good recovery mechanism in place before financing such projects in order to minimise the risks.
Also, since we are soon coming out with a follow-on-public offer, I will not comment on the stake buying issue.
ML: What are the new, emerging trends in the power business? What does the future hold for this business in India?
PUS: So far, state-run utilities have been installing transmission lines, but I expect more private companies entering into this segment. Recently, the Indian government had asked REC to identify private bidders for constructing two transmission projects, and we did the job. We expect an increase in this kind of activity in the future. This type of arrangement also gives us another stream of revenue. Apart from recovering the project cost, we can also levy a success fee.
The kind of momentum we are witnessing in the power sector will help us to grow further. In addition, our two subsidiaries in the T&D segment will also help us to collect other fee-based revenues.