China, with a similar kind of population, is producing 30 million cars and India 3.7 million. India will reach that level in 20-30 years. So the opportunity is huge. There is a level playing field since everyone has to shift to new technology. We are a conglomerate and it is not important to have synergy. We would like to be in a business where there is opportunity and where we can add value for shareholders. That’s why we entered the sports, paints and cement businesses.
The power sector is in stress and we feel consolidation is likely to happen. We will evaluate opportunities. We could not see meaningful resolution outside the National Company Law Tribunal (NCLT) because of a number of issues. Right now most of the power assets are in the admission stage. There is a lot of uncertainty because of litigation on the Reserve Bank of India’s February 12 circular. As and when assets go to the NCLT and even outside, we will be interested.
Each asset has unique problems, whether it is power-purchase agreement (PPA), fuel or capital. We are one of the most efficient power companies and have one of the strongest balance sheets. We are looking at assets that use domestic coal and the logistics cost is minimum and where we can do projects at low cost so that power tariffs are low. The problems of PPA and coal can be resolved over a period of time. We can factor in two to three years of delay and accordingly form the capital structure.
There is no target. We keep evaluating demand conditions and calibrate accordingly. We have maintained growth because we were not chasing any specific target or position. Unless and until we see policy clarity in some cases we don’t take any deep plunge. For instance, we did solar projects of only 12 Mw and after that we are in wait and watch mode. There is a lot of uncertainty in the solar market. Infrastructure projects are long-term. You can’t do anything based on policy which has visibility for just one year. We are cautious and optimistic and growth-oriented also.
The long stop date was extended till June 2019. JSPL has to meet certain conditions. We are yet to hear from them.
GDP-to-power demand elasticity is one but you saw lower demand during 2012-17 because of government emphasis on efficiency through the use of light emission diode (LED), the PAT (Perform Achieve and Trade) programme for industry, and reduction in aggregate technical and commercial losses. The five-year compound annual growth rate of GDP was 6 per cent but the power demand grew only 4 per cent. However, it grew last year 6.1 per cent. In the second quarter (ended September 2018), power demand growth was close to 7 per cent. I think demand growth would trend at 6.5-7.5 per cent.
Since there was power shortage during 2005-09, a lot of companies came up in the sector and wanted to make huge investments, because of which during 2012-17 as against a planned capacity of 88 Gw, close to a 123 GW capacity came up. That excess capacity and low growth in power demand created problems. This demand and supply situation is likely to be bridged in two to three years. We are optimistic about the power sector.