Essar Energy sees margin improvement via refinancing

The London-listed energy arm of the Ruia-promoted Essar Group, Essar Energy is having a tough FY13. Hit by a weak rupee, the company saw its pre-tax losses deepen to nearly USD 500 million during the first-half of this fiscal.

Given that, the company is now likely to exit its non-core E&P business to prevent it's bottomline from sinking further, reports CNBC-TV18's Aastha Maheshwari and Sajeet Manghat.

Along with tough refining business environment and weak economic conditions in Europe, Essar Energy had to deal with the crashing rupee in this fiscal and the company's earnings bore the brunt. The company is also the holding company of Essar Oil and Essar Power.

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With its pre tax losses rising by 43.3% to USD 498.8 million in the six months to September 30, and revenues rose a meagre 5% to USD 13.4 billion. While losses deepened due to the combined impact of higher interest costs and depreciation charges following the start of new power projects in late 2012, the main reason though was the rupee's depreciation with the company posting a USD 483 million foreign-exchange impact

Confronted with such a P&L statement, Essar Energy has now decided to exit "lower margin non-core assets" to help limit losses.

"We are examining all our E&P blocks and monetizing will depend on many factors. But currently we are in process of finalising stage of monetizing some non core assets," said Sushil Maroo, CEO, Essar Energy.

However with margins at its Vadinar refinery in India being maintained despite global refining margins falling to their lowest since 2011, the company is not shying away from expanding back home.

Maroo said: "We are expecting 600 MW of Mahan to come in, then 270 MW of captive power plant and another 120 MW captive power plant, in total expect 1000 MW of power generation capacity in the next 1 year," added Maroo.

However, considering Essar Energy's group company, Essar Oil is fighting a Rs 3500 crore sales tax case with the Gujarat Government. The company's focus will primarily remain on improving margins and cash flow through asset optimisation and refinancing.

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