19 June 2012
Mudajaya is expecting its 26% owned Indian associate company RKM Powergen Private Ltd to be profitable from 2013 after the coal-fired power plant there starts operations, income will be substantial to the bottomline due to secured tariffs - Group MD and CEO Anto Joseph
Mudajaya Group Bhd is expecting its 26% owned Indian associate company RKM Powergen Private Ltd to be profitable from 2013 after the coal-fired power plant there starts operations, said group managing director and chief executive officer Anto Joseph.
“The power plant is under construction and the full completion of the power plant is expected progressively in year 2013. Cashflows will be very positive and this will contribute substantially to the bottomline,” Anto said.
He added that a 20% contribution to its bottomline from this associate company would be possible because the plant was constructed on the build, own and operate (BOO) model, with substantial recurring income from the operations of the power plant.
“The initial power purchase agreements that we have signed is for 20 years but beyond that there will be recurring income for us. The income will be substantial to the bottomline due to the tariffs that we have secured,” he said.
To recap, the company's Indian associate RKM Powergen had recorded a loss of RM12.21mil in the FY2011 ended December 31 because the plant has not started operations. RKM Powergen had recorded profit of RM1.92mil in FY2010, their annual report showed.
“Till you start selling power - you wil find that there is a pre-operating expense. This is why it is showing a loss. Revenue starts coming in only when you start selling power. The previous years, we had surplus cash which we managed to invest while awaiting expenditure. Last year, the money has been invested for activities so there is a pre-operating expense loss,” Anto explained.
Mudajaya expects the power plant to generate a double digit internal rate of return higher than what can be expected in Malaysia on the backdrop of possibly rising interest rates expected in India.
“India is a difficult market but if you can overcome the issues there, then I think the returns are very good. Among the issues: India's currency - the Rupee has dropped quite substantially against the US Dollar. India's coalition government are facing internal issues as well but it should not impact the power sector because it is the main driving force for the economy,” Anto said.
Mudajaya was also aiming to secure additional power plant projects whether through construction or acquisition of power plant assets in India which has a deregulated power industry.
“We are looking at another power plant bigger than this current one. In India there is a supply shortage of power - a brownout situation unlike in Malaysia where we have a surplus (of power supply)). From 2012 - 2017, India aims to build another 75,000 MegaWatts (MW) of power plant,” Anto said.
“For us, (any additional investments) the lenders must be convinced of your balance sheets and it should be healthy enough. For us, in 2013 and 2014 we will have full recognition of the sale of power and we will have surplus cash and we will try to reinvest it to create even more income,” he added.
Meanwhile, the company was eyeing additional power plant, highway construction and water treatment opportunities in India, Vietnam and the Middle East and with bids for an additional RM3.6bil worth of projects aiming to top up its current outstanding orderbook of RM5bil.
Anto said the company was confident of securing about RM500mil to RM1bil of these bids and that a bulk of the bids would come from major local infrastructure projects.
Mudajaya currently derives 60% of revenue from overseas but aims to derive at least 60% to 70% of revenue from overseas recurring income in order not to rely on the cyclical construction sector.
On another matter, Anto said the company could likely be involved with a Chinese based company for the construction of the Prai Combined Cycle Gas Turbine (CCGT) power project.
“We are supporting some of the companies that is bidding for the Prai power - we are supporting for the EPC (engineering, procurement and construction). With the government talking about 4,500 MW of gas fired and another 1,000 MW of coal fire - I think that is good for us because we should get a piece of the action for the construction,” he said.