Billionaire Gautam Adani-led Adani Power Ltd (APL) has entered into an agreement with Avantha Power & Infrastructure Ltd to acquire its 600 MW Korba West power plant in Chhattisgarh for ₹4,200 crore.
This is the second large power sector buy for Adani in the last three months; it bought debt-laden Lanco Infratech’s 1,200 MW Udupi power unit for ₹6,000 crore in August.
According to reliable sources, Avantha Power decided to sell the plant to de-stress its balance sheet.
While analysts have welcomed the ‘long-call’ taken by APL by acquiring the Korba unit, the company’s high debt remains a challenge.
As on March 2014, APL had a debt of ₹47,147 crore.
APL paid ₹1,365 crore interest for the September quarter, up from ₹1,159 crore in the previous three-month period. On a consolidated basis, the company paid about ₹4,010 crore interest in 2013-14.
Strategic decision The two acquisitions are seen by analysts as a bold step by the company, which is attempting to strike a balance between its cash-flows and debt. Queries sent to APL regarding the deal remained unanswered.
“The decision to acquire stressed power projects was a strategic one, considering the long-term gains from improved cash-flows. So, even if the debt burden is increasing, the company is confident to take advantage of the power sector reforms that the new Government has initiated,” said a company official, who did not want to be named.
Positive step Acquisition of running plants is a positive step for the company, say analysts.
Stressed mid and small-cap power firms are facing operational challenges and cost pressures, hence, large players such as APL have an advantage for bargaining.
“Acquiring assets that are ready to deliver will be an advantage for APL. To set up a plant, it takes three-five years, but this acquisition will have an assured return. It’s a long call, but a positive one,” said Rikesh Parikh, Vice-President, Motilal Oswal Securities Ltd.
Tariff concerns Added Alex Mathews, head-research, Geojit BNP Paribas Financial Services: “There will be stress on the balance sheet of the company after big acquisitions. But there will be revival soon as the Government is keen on overcoming the challenges of the power sector.”
But there are concerns about uncertainty over tariff at APL’s flagship plant in Mundra, Gujarat, which will continue to be a drag for performance of its shares.
On Monday, APL’s stock gained 2.65 per cent to ₹46.55 on the BSE.