Torrent May Recast Power Business

The Ahmedabad-based Torrent group, promoted by the Mehtas, is considering restructuring its power business, nearly three years after it built it up through a spate of acquisitions.

The group is taking a close look at Ahmedabad Electricity Company (AEC), the power utility it acquired in 1995 staving off a counter-bid by Nusli Wadia-controlled Bombay Dyeing.

Sources close to Torrent say the group may not be averse to diluting its majority stake in AEC.

The Mehtas have given a nod for an internal valuation of the AEC's assets. Industry sources in Ahmedabad say leading merchant bankers are pitching in to carry out due diligence and identify prospective buyers for AEC.

Murali Ranganathan, vice-president, power supply and corporate communications of AEC, said Torrent was committed to its power business.

"We are trying to run the business, and we are among the country's top generation and transmission and distribution (T&D) companies. There is no plan to hive off equity," he said.

The Mehtas, who had traditionally been in pharmaceuticals and cables, acquired a 21 per cent stake in AEC in 1995, which they later increased to over 50 per cent by buying out the Gujarat government's stake. Soon after, Torrent acquired another power utility, Surat Electricity Company.

The two acquisitions gave Torrent exclusive power distribution rights for Ahmedabad and Surat.

Torrent has had mixed success in its attempts to cut costs and improve profitability at AEC.

Despite having one of the highest tariff levels in the country, AEC's net profit, after rising initially, fell to Rs 29.99 crore in 1997-98 from Rs 38.41 crore in 1996-97, while sales rose to Rs 820.76 crore from Rs 707.62 crore.

Return on net worth declined to 6.9 per cent in 1997-98 from 9.74 per cent in 1996-97, and return on capital employed fell to 4.09 per cent from 5.58 per cent. Net cash from operating activities has dropped from Rs 123.56 crore in 1995-96 to Rs 52.23 crore in 1997-98.

The decline in AEC's profitability is attributed to three reasons _ unchanged tariffs since December 1996, a large workforce and T&D losses at 17 per cent.

A proposed tariff hike in March 1998 had to be withdrawn due to opposition from consumers. After discussions, the company decided not to hike tariffs for the residential category and in the commercial category below a consumption of 200 units per month.

The AEC plant, which is located at Vatva near Ahmedabad, is one of the oldest in the country and employs 8,500 workers. An internal survey has pegged the optimum workforce figure at 1,500.

Ranganathan disputed the figure of 8,500, but failed to provide the exact figure. "We don't have 8,500 employees," he said.

The power business of the group is controlled by Torrent Power Private Ltd, in which MCN Energy of US holds a 40 per cent stake.

Torrent also joined hands with multinational majors, Siemens AG of Germany and Powergen of UK, to set up a 655-mw power plant in the state.