Eyebrows were raised when Kolkata-based private sector power major CESC Ltd acquired an IT-BPO company, Firstsource Solutions Ltd (FSL), last week. Many thought of it as an investment of the $2- billion RP-Sanjiv Goenka group.

Ask group chairman Sanjiv Goenka and pat comes the reply: “I see myself as a promoter of Firstsource.” He is confident that it’s a great opportunity to set foot in the IT industry through acquisition of nearly 50 per cent equity in a large profitable BPO company in the country, at a consideration of Rs 400 crore on a healthy CESC balance-sheet. Yet to get a berth on Firstsource board, Goenka stops short of elaborating the company’s future plans but, doesn’t hide his optimism on growth prospects in the IT sector.

Stalemate in power

Does it mean Goenka is leveraging the cash rich power business to diversify into other sectors? On the contrary, he reiterates that power will continue to be the mainstay of the group activities.

“I am hungry,” that is all he has to say if one refers the emerging acquisition opportunities in power generation sector.

So why did he venture out to as unrelated a sector as IT BPO? The reason lies in the prevailing stalemate in the power sector - adding to the uncertainty on the group’s future profit growth.

In the last fiscal, CESC’s profits were impacted due to delay in tariff award by the regulator in West Bengal. There is little option to make money from electricity exports to other States as many cash-starved SEBs like Tamil Nadu offer astronomical tariffs but delay payments inordinately.

That’s not all. The standing linkage committee did not meet for years now. No one knows when it would meet next. Coal has proved too hot for the Union Government. And, one may have to wait till next election to get the issues sorted out.

Goenka’s investment plans in power generation in Odisha is hanging in fire for nearly two years now simply for want of fuel linkage.

Adequate cash

On the one hand, CESC generates Rs 400 crore (the acquisition cost of FSL) of cash in just 5 months. The company is run at a healthy debt-equity of 0.5:1. Taking into considering heavy financing in two upcoming projects (through SPVs), the aggregate debt-equity of the group’s power business is an impressive 1.1:1. On the other hand, the group is forced to hold back its plan to invest in power sector. The problem of plenty may only increase with acquisition of a profit making FSL and, the improving fundamentals of Spencer’s. Listing of the retail arm may also bring home more cash.

What should Goenka do with resources? Understandably the group may prefer to utilise this as an opportunity to de-risk group profitability from prevailing stagnation in power? Likely options are: Enhancing presence in IT and retail.

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