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Adani’s Lanco unit buy works, but question mark on funds

The News International Team

Adani Power  will acquire Lanco Infratech ‘s 1,200 MW imported coal-fired Udupi thermal power plant in Karnataka in a deal valued at over Rs 6,000 crore. While Adani will take over the plant’s Rs 4,000 crore worth of debt, Lanco will receive Rs 2,000 crore in cash, which it plans to use for lowering its debt.

Speaking to CNBC-TV18, Vneet Jaain, CEO, Adani Power said the company has signed a definitive agreement and financial plans are being drawn out on the funding aspect of the deal. “We are very confident that this acquisition will add a lot of value to our portfolio,” he said.

Jaain believes the Udupi plant will provide Adani with a further scope of expansion both in power plants and captive jetty. “We feel that this is a very strategic move by us for entering into the southern region where we were not present so far,” he told the channel.

According to Lanco Infratech, the Udupi plant is the “first independent power project in the country based on 100 per cent import coal with a captive jetty of four million tons per annum and an external coal handling system in the new Mangalore Port Trust.” The capacity can be, if required, expanded to handle another four million tonne capacity, it added.

Lanco Infratech has already signed a pact with Karnataka government for expanding the plant’s generation capacity to 1,320 MW. Currently, Adani Power has an installed generation capacity of about 8,580 MW. The proposed acquisition would help in expanding its portfolio.

However, the question mark still remains on how Adani is likely to fund the deal. “We need to understand how Adani will arrange the equity funding and that will be a key issue for the stock to perform from hereon,” says IIFL’s Harshvardhan Dole.

Adani Power has a total debt of over Rs 40,000 crore as of March 2014 with very little On top of that the company is not generating any cash flows. However, Prime Minister Narendra Modi’s commitment of electricity for all in the next five-years should provide conducive environment for power companies to manage growth and for Adani to raise funds.

In April this year, the Adani group announced it had become the largest private power producer in India, with an overall installed capacity of 8,620 MW. It has set its sights on the Indian infrastructure sector and has put its loss-making coal terminal in Australia for sale at a reported valuation of USD 2 billion.

Adani Power, which also operates the 4,620-MW Mundra ultra mega power plant, has set a goal of achieving 20,000 MW of operational capacity by 2020.

Adani Power stock price

On August 14, 2014, Adani Power closed at Rs 53.55, up Rs 1.50, or 2.88 percent. The 52-week high of the share was Rs 68.50 and the 52-week low was Rs 31.65.

The company’s trailing 12-month (TTM) EPS was at Rs 4.65 per share as per the quarter ended June 2014. The stock’s price-to-earnings (P/E) ratio was 11.52. The latest book value of the company is Rs 27.11 per share. At current value, the price-to-book value of the company is 1.98.


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