RE sector will compel the government to announce new transmission projects

How do you plan to leverage the opportunities provided by the government in the transmission and distribution (T&D) space?
There was a slag period for the transmission sector for the last two years. But, I think now the opportunities are opening up, especially with the advent of renewable energy. Since RE (renewable energy) has picked up in India, it will require a substantial amount of transmission projects to meet its demand. Since the lead-time to complete a RE project, especially solar has reduced, the government needs to plan the transmission infrastructure much in advance. Or the transmission companies must be equipped to complete the project within 6-12 months. In the coming three to four years, we see a tremendous growth in the sector. I don't think there will be any dearth of projects.

Since 14,000 circuit km of Inter-State Transmission System (ISTS) projects are under construction, do you see a refinancing or bond opportunity for the sector?
The refinancing or bond opportunity in the power sector in view of 14,000 circuit km of Inter-State Transmission System (ISTS) projects that are under construction is immense. These projects present a huge Rs 300 billion refinancing opportunity for the bond market, over the next four years. The credit risk profile of operational ISTS projects is strong because of low operation and maintenance costs, assured cash flows, and low counterparty risk make it a win-win situation for bond investors. No wonder, the operational ISTS projects have fetched bond issuances of Rs 50 billion over the past two years. With the Power Grid Corporation of India (PGCIL) supervising the entire exercise, counterparty risk is minimum.

There are growing allegations by private players that the government is not providing level-playing field to the private players. Do you agree?
Partly it is true! Because public sector organisations like PGCIL have a huge installation base across India which makes them at a better position than any private player. Throughout India, PGCIL has maintenance units so their operating cost is low. The cost of funds for a PSU is also low as compared to private. So that way if you are patting a private player against the PGCIL, then obviously the PSU has an edge over others, so to that extent, it's not a level-playing field. But, recently, we have witnessed that most of the transmission contracts are won by the private players. I think, now the private players have got a better way of calculating the cost which has gone in their favour.

What are the factors driving growth in India's transmission sector? In the coming years, what would be the market size and business potential for players in the power transmission sector?
The Indian power sector is in for unprecedented growth. As recently projected by the government, the country is set for USD 250 billion investments across various segments in the next five years. Out of this, the T&D segment is likely to attract an investment of at least USD 50 billion. It's a shot in the arm for the country's T&D network, but it will not be enough. A lot of ground remains to be covered. Ideally, every rupee spent on generation should be met with a matching amount on transmission. But in comparison to generation, India spends only one-fourth on transmission. While our installed power generation capacity has grown by 50 per cent over the last five years, the growth in transmission capacity has been just 30 per cent.

The state government has not been able to seamlessly integrate renewable energy into the grid which could impede major developments in the sector. What are your views on this?
It is incorrect to say that the state government is unable to integrate RE into the grid. Recently, the Gujarat Government has indicated to install a number of substations and transmission lines and have requested vendors to be ready for big orders. In fact, the government is focusing on setting up new substations and lines in areas where the state has a maximum number of RE projects. States like Andhra Pradesh, Tamil Nadu, Karnataka, to mention a few will have substantial amount of opportunities in the coming years. This will also add to our benefit, considering us, as an EPC contractor.

As compared to the other segments in the power chain, do you think power transmission sector possess low risk and a steady cash flow?
As an EPC contractor, it all depends on the developer who wants to keep their projects flowing smoothly. We have been associated with developers like Adani Power, for one of their large projects with a total cost of Rs 10 billion. Despite a high value project, we have not faced any payment issue from the developer side, which indicates a steady flow of cash from the government to the developer. Payment issue arises only when you have to deal with DISCOMs, considering their longer cycle of payment. We executed a project worth Rs 10.50 billion in Tamil Nadu, which was funded by the Renewable Energy Corporation (REC). And we have received all the payment from REC.

Considering the opportunities in T&D sector, what are your future plans?
Transrail has seen many ups and downs. Since 1984, our company has achieved new heights till FY13. In fact, our revenue in FY13 was Rs 20 billion, which gradually came down to Rs 8 billion in FY16. Meanwhile, 2016 onwards, when the company was demerged from Gammon India, in the subsequent financial year, we jumped from Rs 8 billion to Rs 12 billion. And last financial year, we managed to achieve a Rs 19 billion turnover. Meanwhile, in the current FY, the growth rate will not be as high as the last FY. This year will be a minor growth in the business to the extent of 10 per cent.

Meanwhile, we, as an EPC, have a presence in the African regions. We have a good presence in countries like Nigeria, Togo and Ghana in west Africa. In east Africa, we have footprints in Ethiopia, Kenya, Mozambique and Tanzania. We are already working in Botswana and Rwanda. We are also working in trouble torn countries like Afghanistan. The cost of the project is around USD 60 million and we have recently completed a job worth Rs 3 billion in Bhutan.       

What is your current order book position?
Our current order book position is Rs 3.5 billion which will be executed in the next 18 months. We are also expecting some more orders in the current year. It will be difficult to share the figures, however, we are well-placed in some of the jobs. We have also diversified our portfolio into various other business verticals such as substations, railways and poles. In substations, we have recently commissioned two substations of 220 Kv and one more is likely to be commissioned in a month?s time. 

Two more 400 Kv substations in Madhya Pradesh are under execution. In case of railways, we are executing about 200 km of railway electrification project with Ircon. And there are other opportunities such as Bharat Net, where we are L1 in one of the big jobs, worth Rs 5 billion in Uttarakhand.