‘Saved 8300 MW with LED lights alone’

State-run Energy Efficiency Services will go for an IPO in FY21, says its MD

Saurabh Kumar , managing director, Energy Efficiency Services Limited (EESL), one of the world’s largest public energy services companies, speaks about the company’s diversification plans, ownership structure, investments in energy efficiency and tapping the capital markets. Excerpts from an interview:

How has EESL grown in the last four years?

In the last four years, EESL has grown its topline from Rs. 70 crore to Rs. 2,000 crore this year. At the group level, we are expecting to close this year with Rs. 2,800 crore as we have a subsidiary in the U.K. that we acquired. Last year, our profit after tax was Rs. 50 crore and this year we are almost doubling it to about Rs. 100 crore.

The gross margins for the first six months was 25%. So, say if we reach Rs. 2,000 crore in revenue, our earnings before interest, depreciation, tax and amortisation will be around Rs. 500 crore.

Is the entire growth coming from LED lighting alone?

It has been a very rapid growth both in terms of value and volume and also in terms of diversification. Four years ago, we were just into a couple of verticals like LED lighting for domestic and public [uses].

But now, there are many initiatives that we have started. While lighting remains a strong portfolio, we have got into buildings, electric mobility, smart meters and decentralised solar plants.

PFC is going to acquire majority stake in REC. Both are your promoters...

It is not a merger of PFC and REC. Whatever limited understanding I have on this is, PFC is buying out the government’s holding in REC. So, theoretically and legally, both will remain separate legal entities.

Today, our shareholding pattern is 36% each with NTPC and PFC, 23% is with REC and the remaining is with Power Grid. So, for us, the ownership structures will not change per se unless there is something else to the contrary as and when the transaction gets completed.

Do you have any plans to go in for an IPO?

We want to give good valuation to our promoters and feel that the real value may not accrue right now.

Internally, we have looked at what could be the possible valuation, which is based on multiples of Ebitda and feel right now we can’t have our valuation 8-10 times of Ebitda.

Therefore, we would rather wait for couple for years when our Ebitda becomes twice what we have now, just to have a larger valuation to give more value to our promoters.

You equity base is quite small to command large valuation. Any plans to increase the equity base?

At the moment, our equity holding is Rs. 650 crore and we want to raise it to Rs. 1,500 crore before we liquidate about 20-25% of it as we need a large amount of capital in the next five years.

Most of it is projected to come in 2023-2025. So, if we have larger capital base, [we can] get better valuations and seamlessly do our projected investments. We will have our IPO in FY2021.

What is EESL’s biggest achievement so far?

Ujala was the LED bulbs programme. When we started the programme in 2014, a seven-watt LED bulb cost Rs. 310.

Today, we are procuring a far more efficient nine-watt bulb for Rs. 40. We have distributed 32 crore bulbs over the last four years, giving LEDs at Rs. 72.

We are a market enabler, 116 crore bulbs is done by the private sector.

We have done market transformation in the lighting sector by saving 8,300 MW of power capacity by LED lighting.

What about street lighting?

When we started, the total number of street lights with urban local bodies was about 1.4 crore and we have replaced nearly 81.5 lakh street lights till now.

How much have you invested in energy efficiency so far against the target of Rs. 74,000 crore?

Our investment till now in energy efficiency and energy efficiency products already deployed and committed is Rs. 10,000 crore. Of course, we are very far away from that figure, which has now doubled to Rs. 1.5 lakh crore.

A large part of this is done by industry on its own. For example, there is a scheme called Perform Achieve and Trade, a regulatory scheme of the Bureau of Energy Efficiency (BEE).

In the first cycle, the industry had invested Rs. 25,000 crore to reduce their energy consumption.

In the second, the expected investment is Rs. 35,000 crore. Most players do it for themselves but we do it for others.

What’s happening in the electric vehicles space?

The role of government will be that of an enabler. The Power Ministry has come out with two guidelines that charging is not sale or resale of power but a service.

It has capped what a distribution company can charge an EV charging station, and it has also clarified what kind of charging infrastructure you need to have in a charging station.

With this, the basic policy framework is there. We have started setting up public charging infrastructure in the New Delhi municipal area.

Some other entities are also seen tying up with discoms and municipal bodies for public charging. In India, besides Tatas and Mahindra, I know three OEMs — Hyundai, Nissan and Kia Motors — are coming out with their electric vehicles.

We are in a transition phase and this augurs very well for the country.

We will wait for our Ebitda to double, to give more value to our promoters [in an IPO]

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