Tight rope walking may increase for CESC: Goenka

The rise in coal costs and the political resistance against higher electricity tariff may force CESC to walk on a tight rope in the medium-term, its vice chairman Sanjiv Goenka said on Friday.

"As coal costs rise, so too will be pressure on pricing. Against this will be the concerns of state governments and state electricity boards, which will try to politically resist such pass-through whenever they can," Goenka said in his letter to CESC's shareholders.

"Generation-cum-distribution companies such as yours will have to do a tight balancing act between the needs of the state governments on one hand and shareholder value on the other. Such tight rope walking may increase in the medium-term," he added.

CESC's profit after tax for the quarter ended June 30, 2012 expanded by 12.6 per cent to Rs 125 crore from Rs 111 crore in the corresponding period previous year. Profit growth was capped by the rise in coal and freight cost.

Goenka said scarcity of coal was also a concern for most thermal producers across the country.

"At the end of February this year, more than 30 power plans had coal stock of less than a week and some 25 or so of less than five days...Your company has attempted to deal with this crisis by locking in imported coal. Thanks to the group's owning over 11 per cent equity ownership of coal mining assets in South Africa, as well as executing long-term supply arrangements, your company should have access to sufficient imported coal over the foreseeable future," he said.

CESC expects first delivery of such coal in 2014.

The company plans to augment its production capacity and is exploring distribution opportunities outside West Bengal. "We are always exploring for the right territories, provided these come with the right conditions and at the right prices," Goenka said.

The company has put in bids for power distribution licences in Dhanbad, Ranchi and Jamshedpur. CESC also plans a project to generate wind power of 50 mega-watt in Rajasthan at a cost of Rs 350 crore.It aims to borrow close to Rs 570 crore from a group of public and private sector banks to meet its working capital needs and fund its investments.Separately, Goenka said the CESC's retail arm Spencer's plans to add 2.21 lakh square feet of store space in the current financial year to its existing store space of 9.74 lakh square feet.

Spencer's clocked its highest per square feet monthly sales in June, 2012 and Goenka expects the company to turn profitable in next 18 months.