Adani Power, Lanco Infra Shares Jump on Udupi Plant Deal

Adani Power's decision to buy Lanco Infratech's 1,200-megawatt (MW) thermal power plant in Udupi seems to have gone down well with investors. Adani Power shares rose as much as 3.65 per cent, while Lanco Infra shares closed 5 per cent higher. (Read the full story here)

Adani Power will pay Rs 2,000 crore in cash and acquire Rs 4,000 crore worth of debt taking the transaction value to Rs 6,000 crore. Analysts say Lanco will make a profit of Rs 350 crore on its investment. The deal will also help the company bring down its net debt, which stood at Rs 36,000 crore at the end of March this year.

Asia Pacific-focused brokerage CLSA says the deal will reduce Lanco's capacity by 13 per cent, but will lead to a debt reduction of 15 per cent.

The sale will help Lanco bring down its net debt to equity ratio from current 17 times to 13 times, CLSA added.

Lanco, which produces power, builds roads and constructs residential and commercial buildings, in July last year started a process to restructure its $1.3 billion debt after economic weakness hurt some of its core businesses.

The coal-based power plant in Udupi has two units of 600 MW each and imports about 4 million tonnes of coal per year from Indonesia, according to Lanco's website.

Adani Power, part of the Adani business conglomerate led by billionaire Gautam Adani, is also quite leveraged at 8 times net debt/equity. The acquisition of Lanco's Udupi plant will raise Adani's capacity by 13 per cent, but will also puch up debt by 14 per cent.

Harshvardhan Dole, vice president (institutional equities) at IIFL says Adani Power has valued Lanco Infra's Udupi power plant at an enterprise value of Rs 5 crore per MW, which is lower than the current replacement cost of any other coal-based asset in India.

CLSA says the acquisition will be largely neutral to Adani Power's earnings, but will raise net debt/equity from 8 times to 9 times.

Nomura analysts Anirudh Gangahar and Archit Singhal say the Adani Power shares have reacted positively because of the surprise element, but the terms and conditions of the deal will be critical for long-term direction. Clarity on funding of the deal and receipt of the receivables will be crucial factors, the analysts say. (Read)

Nomura has a reduce rating on Adani Power with a target of Rs 35.

Adani Power shares closed 2.9 per cent higher at Rs 53.55, while Lanco Infra ended 5 per cent higher at Rs 8.95, outperforming a 0.7 per cent rise in the benchmark Sensex.

(With inputs from Reuters)