by P.B. Jayakumar December 12, 2016
Ahmedabad-based Torrent Power's solid performance in the past three years, despite the turbulence in India's energy sector, helped Chairman Sudhir Mehta, 62, bag the 'Business Today Best CEO 2016' award for the power sector.
Analysis of the integrated power company's key figures indicate efficient running of its generation plants, better cost control and profitability. The company generates 3,400 MW - a mix of coal, gas and renewable energy - and distributes power to more than three million customers in Ahmadabad, Gandhinagar, Surat, Bhiwandi, Agra and Dahej SEZ distribution circles.
Between 2009/10 and 2014/15, the company had commissioned 2,347.5 MW, besides a brownfield expansion in Surat. It has also added 350 MW wind and solar capacity. Besides capacity additions, cooling of prices helped the company post higher margins in recent years, says Mehta. In 2015/16, the management's decision to regroup its gas-based power plants under Torrent Power a couple of years ago for better cost management, administration and supply chain efficiencies also paid dividends.
The move saw its consolidated income jump from Rs 8,681 crore in 2013/14 to Rs 11,687 crore in 2015/16, while total expenses rose at a comparatively slower pace from Rs 7,397 crore to Rs 8,696 crore. Its earnings before interest, taxes, depreciation, and amortisation (EBITDA) jumped from Rs 1,283 crore to Rs 2,106 crore, while operating margins jumped from 14.78 per cent to 25.59 per cent during the same period. Its net profit margin ratio also jumped from 1.24 per cent to 7.42 per cent, and return on capital employed (ROCE), which measures profitability from overall operations, increased from 8.57 per cent to 18.91 per cent, according to an analyst report by Sana Securities.
The company has also gained substantially from reducing transmission and distribution losses. In India, average T&D losses stand at 23 per cent of the electricity generated, while some sample studies by independent agencies estimate it to be as high as 50 per cent in some states. "In the initial years, Aggregate Technical &Commercial losses in the Bhiwandi region were as high as 58 percent mainly due to power theft and this has come down to around 23 per cent. In Agra, it was 61 per cent and has come down to around 28 per cent," says Mehta.
It was, however, not a smooth ride for Mehta and for Torrent Power. In 1998, when Mehta took over the reins of the pharma business of the now Rs 18,500-crore Torrent Group after the demise of his father U.N. Mehta, he was just 34. His brother, Samir, almost 10 yen years younger, was just out of college. However, what helped them both was the rich experience they had already gained under the watchful eyes of their father.
Mehta not only succeeded in making the pharma business one of India's top drug companies, he was also instrumental in diversifying into the power sector through the acquisition of ailing power cable company Mahendra Cables in 1989-90. Six years later, Torrent gained management control of Surat Electricity Company, one of the oldest power utilities in the country. Soon after, Gujarat Torrent Energy Corporation (GTEC) was planned as a 655-MW dual fuel-fired power station, in partnership with PowerGen of UK and the state government. This was one of the first private sector power plants in India. Subsequently, Torrent also acquired management control of The Ahmadabad Electricity Company.
The group also diversified into banking and had floated a non-banking financial company with Gujarat Lease Finance, but had to down the shutters after an initial good run. Another investment in Torrent Gujarat Biotech had turned sour as price realisation from penicillin had dropped sharply. The Torrent Group had also run up a huge debt due to its fast expansion plans and had to sell its 46 per cent stake in GTEC to PowerGen for about ?159 million, or $250 million, in 1999. The proceeds were used to pay back its debts and used as equity in new projects.
"We are looking to acquire stressed coal assets and more investments in coal and renewables. In the next five years, we will be investing about Rs 15,000 crore in renewable," says Samir Mehta, Vice Chairman, Torrent Group.
The company had carried out a debt restructuring exercise in March for a term loan of Rs 7,930 crore and the repayment is spread across 16 years starting December 2016. "Our leverage is at a healthy level and we have about Rs 2,000 crore cash in hand that can be used for further expansion," says Mehta, adding that he is confident of powering Torrent's to new heights.