In an indication of the coming consolidation in India’s wind energy sector, Lanco Infratech Ltd has decided to exit the segment and has given the mandate for selling the business to audit and consulting firm Ernst and Young (E&Y).
“Lanco has 5,000 megawatts (MW) of wind power licences and had acquired land for 600MW of capacity through Lanco Wind Power,” said a person aware of the development, requesting anonymity. Another person, who didn’t want to be named, confirmed the development.
Lanco’s decision comes at a time when the company is laden with a debt burden of Rs. 29,665.7 crore as of 30 September. The Indian power sector is battling a crisis due to scarcity of funds, environmental issues, fuel shortages, resistance from local communities to giving up land and the worsening financial health of state electricity boards.
“It will help Lanco in their cash flow position,” said Anish De, chief executive at Mercados EMI Asia, an energy consulting firm. “Whoever is highly leveraged will look at this option at a time when the renewable energy is fairly attractive for private equity investors, who are looking for investment opportunities.”
While there is interest in developing wind energy sources from conventional power generation utilities, the funding of such efforts has become a concern. It takes capital expenditure of Rs. 4.2-4.5 crore per MW of power generated through coal-based or gas-based projects, compared with wind-based projects requiring Rs. 6-7 crore per MW.
“Lanco has decided to critically evaluate all the non-core activities in its portfolio,” Sharad Jhingan, chief operating officer of Lanco Infratech, said in an email. “The wind power business of Lanco is also being evaluated as part of this initiative. Decision to retain/partial or total divestment will be taken only after the entire evaluation exercise is complete. It is too premature to talk about any one alternative and/or the valuation of any business at this point in time.”
An E&Y spokesperson declined comment.
Lanco Infratech, which reported sales of Rs. 11,303 crore for the year ended 31 March, plans to have a total installed capacity of 15,000MW by 2015. Its current capacity is 3,300MW, while 6,000MW is under construction, being built at a cost of Rs. 32,550 crore.
“Lanco uses a number of consultancy and advisory firms, and E&Y is one of the leading firms advising Lanco on various matters, which may include evaluation of wind power business,” Jhingan said.
L. Madhusudhan Rao, executive chairman, had said in October that the company plans to sell stakes both at the individual project level and the company level across all its businesses, including power and roads, seeking to raise money to finance expansion plans.
There have been signs of consolidation in the Indian wind power sector. The Economic Times newspaper reported on Monday that DLF Ltd is banking on the sale of Aman Resorts and its wind energy venture to reduce its Rs. 22,758 crore of debt.
Interest in wind power generation has been aided by the government’s offer of fiscal incentives, including tax breaks for 10 years and depreciation benefits of 80 per cent on investment in the first year of a project’s operation, besides a chance to earn carbon credits.
