Companies may have ventured into captive power projects initially only as a hedge against erratic power supply by state-owned utilities,However of these ventures are now turning into major money-spinners, helping to boost the overall profitability and cash flows for these companies.
Merchant power
The case of ferro alloy maker — Navbharat Ventures — is an outstanding example. Despite its core business making losses, the company reported profit before interest and taxes of Rs 512 crore for 2009-10, of which Rs 506 crore or 97 per cent came from power sales. The company has been using almost all its 237 MW capacity for generating additional revenue by selling merchant power.
There are a good number of companies with similar results. Investments in captive power have unexpectedly paid off. Seventeen companies, that have disclosed power generation as an operation significant enough to be treated as an independent business for the year ended March 2010, saw their power segment's profit before interest and taxes (PBIT) growing at 57 per cent over the previous year, even as profits from their core business grew at a modest 1.5 per cent.Profits from the same captive power units grew only 8 per cent in 2008-09. However, even in that year, the power segment did better than the core business. Even as power segment profits expanded by 8 per cent, these companies saw their profits from their core business actually decline by 21 per cent.
JSW Steel's stand-alone power segment PBIT more than doubled and was up by 140 per cent in 2009-10 to Rs 389 crore. Nalco saw its power profits soar from Rs 58 crore in 2008-09 to Rs 663 crore in 2009-10.
Companies with smaller power capacities such as HEG and Dalmia Cements also managed to almost double profits. Jindal Steel and Power witnessed strong profit growth of around 30 per cent from this segment.
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