Cesc Net Profit Plunges 53.8% To Rs 41.35 Cr

CESC Ltd, the RPG-controlled power utility company, is exploring options to cut costs and improve its bottomline, after recording a 53.8 per cent decline in net profit, at Rs 41.35 crore, for the year ended March, 1997.

The company is exploring possibilities of lowering its average cost of funds, including reducing cost through import of coal and thus cutting the transmission and distribution loss.

Reduction in import duties and the keenness of Australian and New Zealand and South Asian suppliers to create a market for superior quality coal in India is likely to help CESC.

High calorific value coupled with low ash content will increase the plant efficiency and reduce the ash handling cost. Also, burgeoning foreign exchange reserves of the company has compelled Reserve Bank of India to be more liberal on trade import financing because the differential in domestic and dollar-denominated interest rates more than offsets any anticipated risk of rupee devaluation which shall go a long way in reducing the interest cost on the working capital.

 

However, industry sources feel, containing interest cost on working capital fund shall have a marginal impact on the cost of generating electricity and, unless the on-going project costs are contained and financed through a innovative financing pattern, the consumers have little to look forward as far as power tariffs are concerned.

The West Bengal governments refusal to accept the very high transmission and distribution loss in the CESC network has forced the company to adopt methods to reduce its loss.

The company has undertaken a media blitz offering rewards up to Rs 2 lakh for information on line pilferage. CESC, according to sources, has a high stake in the success of the campaign.

The drop of every percentage point in the transmission and distribution loss (T&D) would earn the company an additional revenue.

Market analysts say: "The results of CESC have been much below expectations. Expenditure has gone up as a percentage of sales, from 66 per cent during March 31, 1995, to 81.5 per cent in March 31, 1996 to 88 per cent in March 31, 1997".

The company's high interest repayment burden is believed to have been fuelled by borrowings from the inter-corporate deposit market and huge borrowings from domestic and international institutions for the proposed power project.

Moreover, a further increase in fuel price and the recent increases in coal price and freight cost will further increase the expenditure in the current year. This, coupled with Rs 662-crore cost overrun in the proposed Budge Budge Thermal power project, is expected to increase the cost of generation substantially.

All this gives way to uncertainty in the market. The CESC stock closed at Rs 37.20 yesterday at the local exchange.

(Rs crore)

Year ended Mar 31

1996 1997

Net Sales 1145.31 1338.29

Other income 54.33 76.93

Expenditure 933.97 1173.20

Interest 110.34 130.57

Gross Profit 155.34 111.45

Depreciation 65.70 70.10

Net Profit 89.64 41.35