Praveer Sinha, CEO & Managing Director, Tata Power Co. Ltd, talks about a deal worth Rs 4,000 with the BlackRock Real Assets-led consortium, the process of valuation of the renewables business, debt on books, revenue and profitability targets and inorganic growth opportunities among others during an interview with Swati Khandelwal, Zee Business. Edited Excerpts:
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Q: Congratulations on the deal worth Rs 4,000 with the BlackRock Real Assets-led consortium including Mubadala Investment Company. How the proceeds of the deal will be used?
A: It is quite a good and benchmark deal as we have not seen such a deal in the last many years. Importantly, we are not talking just about the utility-scale projects in the deal but are talking about the whole spectrum of renewable business, maybe it is our EPC business, manufacturing of cells and modules, roof-top solar pumps, and EV charging. So, we have created a single entity platform by combining all these businesses and our partners will have an investment of around Rs 4,000 in it. And, the money will be used for growth purposes of our renewable businesses maybe it is manufacturing or the establishment of a 4-gigawatt plant and utility space, where we will grow at a fast pace. Right now, we are operating at 5,000-gigawatt and have to grow it to around 20,000-megawatts by 2027. Is that an increase from 5000 megawatts to 20,000-megawatt, thus there will be a four times growth in the next five years. This will need a huge investment and this investment will be used in the investments that will be made in the next 12-18 months.
Q: Run us through the process of how a valuation of Rs 34,000 crore for the renewables business was arrived at for this deal?
A: There is an EV EBITDA number and based on the same it is decided what kind of EBITDA will be there. It is a range and based on the same range, this is the base range stood at Rs 34,000 crore. If we make good EBITDA in the next financial year then it will go up and if it is below the benchmark number then it will reduce. So that is the basis on which the EV EBITDA has been worked out.
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Q: Are there other funds or players that may invest in the company in the future?
A: The current Rs 4,000 crore has been targeted in a way that it can cater to the investment that will be made in the next 12-18 months. If after this period of 12-18 months, we feel that more investment is needed then we may look forward but now we do not have any such plan.
Q: Can IPO be a route for renewables in the future because the private equity firms may want to monetise it in the future? What has been told to them and do you have any conditions with them?
A: Our investors are long term investors and they want to be with us for the next 5-7 years. They don’t want to be a short term player. Thus, they want to make a long term investment and be our partner in the long term growth that is likely to happen. So, our arrangement with them is that they will stay for a long period and take the benefits of the growth.
Q: Currently, your debt on books stands at around Rs 15,000 crore, is it right, if yes how will you manage it? Will funding for the future CapEx needs come from debt or via roping in fresh investors?
A: We use prudent norms while doing any project and the debt-equity stands at 70:30 or 75:25 in that norm. The investment is done based on the same. So, our equity will stand at 25% or 30% and the balance will be 70%. The EBITDA of the company is enough to take care of debt repayment and interest repayment. At the same time, we keep a conservative debt-equity ratio. So, we will try to manage the debt in a much better way so that our financial metrics of debt-equity are maintained.
Q: As the new capacity comes on stream what kind of targets are you targeting on the revenue and profitability front in the next 2-3 years?
A: We do not provide a forward-looking number but I can share with you that our performance has been quite well last year despite the presence of COVID Wave-II and COVID Wave-III. Our team is quite stable and our fundamentals are strong. Going forward, all these things will grow well, maybe we will establish a new manufacturing plant in the next year. At the same time, our EPC will grow well. We have two EPCs one that is used for internal utilities and the other is that is used outside and there will be a decent growth on that front. At the same time, our rooftop solar pumps that have improved and increased a lot in the last three to four years will grow well. So, we expect that each one of our businesses will grow going forward.
Q: Apart from organic opportunities, do you have any inorganic growth opportunities on your radar?
A: Yes we will have a look and we usually use to look at those factors. But our standard of requirement is quite high because while taking an asset we look forward to a factor that can it function for the next 15-20 years or not, its maintenance, quality of equipment and the kind of PPAs it has and how viable those PPAs are and how secure those PPAs are. So, we look forward to many aspects before we decide on inorganic growth. But we scan the market regularly and if we get a good opportunity then we will definitely think about investing in it.