Creating A Base For Power Distribution

R N Nayak,
CMD,
Power Grid Corporation of India

How do you rate the present performance of Power Grid and what factors will drive its growth in future? 

We have witnessed a consistent return on equity over the last many years. During FY13, we earned a 16.4 per cent return and during the current fiscal it is expected to be around 16 per cent. In our core transmission business, the return is around 15 per cent but the margins are much more in the other verticals that we have, such as telecom, consulting services, etc. Talking about the future, we are working on the green energy corridor and a loan of 1 billion euros has been sanctioned for that. Work will commence soon on the project. Also, we are working on the transmission segment, where we have taken up the Smart Grid concept and work will commence very soon on that too. 

Similarly, we have done a pilot project in Puducherry in distribution. Now, the central government has come out with 14 pilot projects throughout the country where we are advising discoms of as many as 7 states. This will again generate good money for the company apart from improved efficiency. 

In the telecom sector, we are working with Bharat Broadband Nigam for laying of optical fibre network and we have been given contracts to connect 36000 panchayats across the country. The project is worth Rs 2700 crore and it will be completed in the next two years. 

Efficiency of Power Grid is of enormous importance to change the face of the Indian power sector. How will you ensure that? 

We know that efficiency in terms of project management is of utmost importance for Power Grid. For this, we have been constantly working on multiple fronts to improve our management skills. Over the past four to five years, we have built a huge force of skilled technical contractors through vendor development programs who can deliver projects on time. 

Secondly, a few years ago, we used to import various critical transformers and reactors but now we have made it very clear to the foreign companies that if they want to sell their products to us, then they have to establish their production facility in India. This has really helped us to get timely and adequate supply of critical components. 

The third and most important development is related to getting land for establishing the grid network. Previously, for getting right of ways, it was mandatory to have a no-objection certificate from all the gram panchayats in the tribal area. However, now, with the initiative of Ministry of Power, we have got a waiver as far as that provision is concerned which is speeding up things. 

What is the current order book position of Power Grid, both in domestic and international markets? 

On the domestic front, during the 12th Plan we will incur capital expenditure to the tune of Rs 1.10 lakh crore under the national grid for transmission. Also, we would be undertaking consultancy work worth Rs 8000 crore during the Plan period and projects worth around Rs 12000 crore would be done under the North East Comprehensive Transmission Scheme. 

On the international front, we don’t own any assets but are limited to providing consultancy services to various countries. During FY13, we have earned Rs 90 crore of revenue from international operations. Under this, we are providing consultancy to Bhutan’s electricity company. In Nepal, we have formed a JV with a 26 per cent stake for transmission. We are also actively working in Bangladesh and Sri Lanka. We are providing consultancy services and making available critical components to Myanmar too.

The company is about to complete the interconnection work between the southern states. How will this help the power sector?

Actually, Power Grid and another private company is working on two separate transmission lines of 765 KVA each to connect the southern states which will provide interconnection to the southern part of the country, thereby improving the power situation there in a big way. We will complete the work by January 2014 and we also want that private company to complete its work during this time. 

South India was slated to become self sufficient in power following the various projects that have been coming up there. But as these projects got delayed, the situation worsened. Due to this these two lines, which were earlier planned to take power form south to the western region, will now be used otherwise and power from Maharashtra can now be supplied to the southern part. This will also augment our business revenue going forward.

Your fabulous performance over the years in terms of topline and bottomline and having a decent operational efficiency and return on equity hasn’t really translated into better valuations for your stock on the bourses. What is the main reason for this?

If you see our fundamentals have been robust in a constant manner. If you take a look at our book value, during our IPO in 2007 it was at Rs 31.20, in 2010 November it climbed to Rs 47 and now it is Rs 61.50. So, it has doubled in the last six years but I don’t have any answer as to why the market is not properly valuing our stock. I know how a transmission line is build but I don’t have any idea of the markets.