We expect to become debt-free on a standalone basis by the end of FY17: M S Mehta

Interview with Chief Executive Officer, Reliance Infrastructure

Reliance Infrastructure (R-Infra), part of the Anil Ambani group, plans to focus more on the defence sector. It has put on the block its cement business and proposes to monetise the road business. M S Mehta, Chief Executive Officer, talks to Sanjay Jog on the strategy. Edited excerpts:

You have put on the block the cement business and decided to monetise the road business. Why the exit and what is the time line to complete this exercise? What are the valuations?

We have decided to monetise both the road and cement assets, at attractive valuations, for creating long-term value for the shareholders; it will add to our earnings per share. We have 11 revenue generating road projects of 4,600 lane-km, with total investment of Rs 9,000 crore. These projects are connecting the high-growth urban corridors of Delhi, Bengaluru, Pune and Jaipur, with significant traffic growth potential. We have already shortlisted five international bidders and expect the transaction to get complete by the end of the financial year.

We are planning to monetise 5.6 mtpa (million tonnes per annum) of operational capacity in the cement business, with the related assets. The due-diligence process is at an advanced stage and seven potential buyers have been shortlisted. We expect to complete the transaction by end-December.

What is the current stage of the 49 per cent stake sale in the Mumbai electricity business?

R-Infra has signed a non-binding term sheet with PSP Investment of Canada, wherein we will continue to hold the controlling stake at 51 per cent. The due-diligence process has started and we expect a binding offer by the end of this financial year.

The proposed monetisation is apparently meant to partly retire debt and use those proceeds to invest in the defence sector. What is the current debt level and debt to equity ratio, and to what extent are these expected to fall after sale of these two assets?

Our current standalone debt is Rs 16,000 crore. With monetisation of roads and cement, and 49 per cent of Mumbai power,
along with investments in the Pipavav acquisition, we expect to become debt-free by the end of FY17 on a standalone basis.

How much will you need immediately to invest in the defence sector?

Our immediate requirement will be Rs 1,200 crore for achieving management control.

What is the strategy for the sector?

The defence sector has relatively lower capital intensity and a low gestation period, unlike roads, minimal regulatory uncertainties and potential for superior return on equity. We have hired several experts from the defence industry at leadership positions. Opportunities in defence are expected to be Rs 20 lakh crore over the next 10 years.

What is your agreement with the Maharashtra government?

The company plans to develop the Dhirubhai Ambani Aerospace Park on 290 acres at Mihan, Nagpur, which will be a centre of excellence in the aerospace segment.

What are your plans to meet the increasing power demand in Mumbai, a key market where rival Tata Power has been gaining share?

We have a very strong and efficient network in Mumbai, wherein we distribute power to three million consumers. We do Rs 400 crore of capital expenditure yearly, to strengthen the network. In addition to receiving economical power from (our) Dahanu (unit), we have done a long-term power purchase agreement with the Butibori project of Reliance Power (part of the same group).

The current status on your distribution companies in Delhi?

The recent Delhi high court judgment has vindicated our stand that private utility is outside the scope of the Union comptroller and auditor-general. As a strategy, all future power generation will be through Reliance Power and we will continue to focus on our existing distribution and transmission business.

What is your take on the government’s recently announced UDAY (Ujwal Discom Assurance Yojana) initiative? Will it really help and what is the opportunity you are seeing for R-Infra?

The plan announced by the power minister is a welcome move for the financial turnaround and revival of the sector. This will
help in improving operational efficiencies, reduction in transmission and consumption losses, reduction in cost of power and in discoms’ interest cost. However, key challenges remain in the execution and we hope that private discoms be included.