Ajay Bhat, Group CFO of the company blames low power sales for the dismal performance of the division. Hereon, the company plans to use the power captively for its steel plants, he adds.
Going ahead, Monnet Ispat aims to clock a turnover of about Rs 3500 crore from the next financial year with a target of taking it to Rs 5000 crore in the next couple of years.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Your power division did quite poorly. Do you expect an improvement in the next quarter?
A; Power sales in the last quarter were very low. The State Electricity Boards (SEB) were not the buyers. The prices crashed from about Rs 3 per kilowatt-hour (kWh) to about Rs 2.60 and we are actually seeing a modest recovery in the current quarter.
But, from the current and ensuing quarters this power is going to be used captively by us. So we are not going to be dependent on any outside sales from here onwards. We have completed our 1.5 million tonnes steel plant. This was a captive facility which was getting sold outside. Now with the commissioning of this 1.5 million steel plant which is an integrated facility, the entire power which was getting sold outside would be used captively from here onwards.
Q: What would that mean in terms of contribution that power could make to your revenue line?
A: If we have to actually compare the power sales and the power purchases by the companies, today the power at the state level is available at astronomical prices of Rs 4.5. If we sell the same, it is going at about Rs 2.5. So when we look at our modelling for the steel, we are getting a major contribution from the captive power on the steel.
If we look at its steel operations independently, in the last quarter also we have actually netted an EBITDA of about 25 percent despite the correction in steel prices in the last couple of quarters. We believe that after commissioning of the steel mill with the contribution of power, our EBITDA levels are going to be improved. So the contribution from power, by using it internally in steel operation will increase from here on.
Q: There is significant enthusiasm though around Monnet Power and what kind of value unlocking you can do. What is the timeline there in terms of how soon you think it will be up and running and whether that will start contributing and you will get to do outside sales for that?
A: That power plant is going to get commissioned by September and December 2013 and this is supported by a captive coal block. We have received environmental and forest clearance for that. It is going to be a very attractive project.
We have sold about 70 percent of the power on long-term basis at better rates. We are going to sell the balance power also on the long-term rates. We believe that here the cost of generation would actually determine where you would be actually selling the power. There is no need for us to actually look at the merchant market there. There I think the power plant alone is going to contribute to the bottom-line at about Rs 600-700 crore, once fully commissioned with the captive resource of coal.
If you are coming back to the parent company on the steel side, in Monnet Ispat we are actually clocking a turnover of about Rs 2,000 crore in the last two years. I think from the next financial year onwards, our turnover will inch to about Rs 3,500 crore for next year and about Rs 5,000 crore in the next two years. So both top-line and bottom-line at parent level and at the subsidiary level is going to see a significant jump from here onwards.
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