With six of its road projects generating revenue and a metro rail project set to begin operations next year, Reliance Infrastructure crossed a few road signs this year. Lalit Jalan, director and chief executive officer, talks to Katya Naidu on the growth areas and the company’s plans. Edited excerpts:
Where do you see new business opportunities for the company?
Metro rail projects will open a whole new area of opportunity. Every city with above four million people is looking for a metro rail. There is Jaipur Metro, then there are several lines in Mumbai, Kolkata, Bangalore, Chennai and Chandigarh. It will be a very big opportunity in the next 10 years. A report by McKinsey says urban-centric projects will become a trillion-dollar opportunity in the next 20 years. Besides, there will be Rs 30,000-40,000 crore opportunities in transmission.
How profitable will be metro projects in smaller cities?
There are multiple revenue streams in a metro rail project. There is real estate and traffic revenue. Then, there is advertising revenue. Fourth is the viability gap funding (VGF), which can form another big component. If I build a metro without real estate, VGF and advertising on low tariffs, it is bad but if you include these things, then you can make it viable.
There has been a lot of unrealistic bidding in road projects recently. What is your strategy in such a scenario?
There are two kinds of bidding patterns. There is a depression when no one bids and then there is a euphoria phase. We are winning projects when no one is excited and losing when everyone is excited.
Recently, the power regulator has given you a go-ahead to collect cross-subsidy surcharge from your competitors in Mumbai distribution business. Do you expect the exit of consumers to stop reversing the existing trend?
Both of them will happen. Earlier, there was no level playing field. You cannot have competition when only one person is forced to give away the subsidy. Once you compare the tariff with subsidy, you will find that we are very competitive. I do not see losing any new customers now and also customers who moved away from us will come back.
When is the Maharashtra Electricity Regulatory Commission expected to come up with a decision on the extent of surcharge to be levied?
The decision is expected soon. The process has been going on for a long time, and multiple hearings have happened on the matter. If you need to have open access there should be a system for cross-subsidy.
A number of infrastructure companies are eyeing international projects. Is it something that interests you?
We do look at international projects, but domestic opportunities are much more gigantic. We are looking at an Indonesian metro project, and some others in Malaysia. There are opportunities but nothing as exciting. I would say that returns that people aspire for in domestic projects are clearly more.
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A lot of macro issues have been eating into infrastructure stocks like the crunch in liquidity and increasing interest rates. How will it affect your company?
Fortunately, the liquidity crunch will not affect us because all our projects have been funded. But interest rates is a big issue because as rates go up, profitability of projects goes down. That is a matter of concern. We try and reduced that by borrowing a lot from the international market. But such high domestic interest rates are not good for long gestation projects.
What kind of savings can you do by international borrowings?
Even after hedging and all that, foreign debt is still cheaper. If you look at current rates of India are at 11-12 per cent. Foreign debt is around 4.5 per cent. So, even if you do go for full hedging and away from volatility of exchange rates, foreign debt is still cheaper.
We are able to attract foreign capital because our debt-to-equity ratio is very attractive at 0.5 to 1. For new projects, we will include high interest rate calculations at the bidding stage itself.
R-Infra had earlier talked about going for private equity at both project and holding company level. What is the amount you plan to raise through the same?
There is no roadmap per se, as we don’t need equity directly to complete our projects. There is interest in our assets. We own 100 per cent of all projects, and they are marquee projects. As the opportunities come by, we will evaluate them.