Power play: Private players plug into the M&A route to scale up

The Adani Group, after acquiring the Lanco Infratech’s 1200 MW Udipi power plant for about ` 6000 crore in August, went on to acquire Avantha Power’s 600 MW Korba West project in Chhattisgarh for `4200 crore in November. This makes Adani the top private sector player with a total installed capacity of 11040 MW.

Similarly, JSW Energy in November also inked a deal to buy two hydroelectric projects, which have a combined capacity of 1391 MW, from Jaiprakash Power Ventures for `9,700 crore in cash.

Kameswara Rao, Leader-Energy, Utilities and Mining, PwC India, said a strong M&A deal flow is healthy in an economy as it brings new owners who are better placed to deal with an asset’s specific problems. Though this is not so easy in the power sector given its regulated nature, current deals reflect financing capabilities of the players with deeper pockets.

S C Natu, Senior Vice-President, Power Division, Mitcon Consultancy & Engineering, said electricity demand would improve once growth picks up, though fuel and tariffs issues had to be reckoned with.

Mitcon is a technical consultancy formed in 1982 by ICICI, IDBI, IFCI, SICOM, MIDC and various banks. Banks seek its services for techno-economic viability and feasibility studies, due diligence and valuations.

It is well known that infra projects have been hamstrung with growth dropping as their cash flows were worked when the GDP was over eight per cent.

With growth stuttering and cash flows projections going awry project economics too turned unviable.

Harish HV, Partner, Grant Thornton India, said there are many projects that are incomplete and stranded for various reasons including shortage of fuel. But given the government’s intent to resolve the coal issue, the trouble for the power sector on this front could be temporary.

Tata Power, which has lost its top slot to Adani, could be the next player to acquire. Motilal Oswal researchers say there are reports that discussions are on for the sale of Jhabua Power (a subsidiary of Avantha Power & Infra) with a Tata Power–ICICI Ventures consortium.

This article was originally published in The Hindu Business Line.