New Delhi: Billionaire Gautam Thapar, whose companies include India’s biggest paper maker, plans to invest at least Rs5,000 crore building two power plants to help the nation meet a shortage of electricity.
Avantha Power and Infrastructure Ltd will construct two facilities with a capacity to produce 600MW each, Thapar, chairman of Avantha Group, said in an interview in Gurgaon, near New Delhi. Avantha is seeking investment from private equity funds, he said, declining to name them.
Thapar will combine his electricity distribution and generation businesses as part of a plan to more than double revenue to $10 billion (Rs40,000 crore) in five years. Avantha intends to purchase a processed food maker in Hungary and overseas power equipment and software companies to meet that goal.
Eyeing new opportunities: Gautam Thapar, chairman of Ballarpur Industries, says, “I like long-term asset heavy, cash-flow heavy businesses. They may not be sexy, but are good solid businesses.”
“The challenge for us is ‘where is the next big opportunity’,” Thapar said on Thursday. “I like long-term asset heavy, cash-flow heavy businesses. They may not be sexy, but are good solid businesses.”
India’s economy has expanded an average 8.7% since 2003, and supply during peak hours falls 14.8% short of demand. That’s prompted private producers including Avantha Power to consider building utilities that sell electricity on contracts of as short as a week at double the rate of generators with 25-year agreements.
India in 2003 changed the rules on access by utilities to the transmission network, paving the way for companies to set up plants without entering into long-term purchase agreements. Utilities typically sell power based on long-term contracts and merchant plants sell at prices based on demand. “Today you have power trading and people with scale, size and the balance sheet who will buy merchant power,” Thapar said.
Thapar, 47, plans to combine all the utilities of the group under Avantha Power in the next 12 months. The company purchased two units from Ballarpur Industries Ltd with a capacity to generate 95MW of electricity in 2006. Avantha Power was earlier called Bilt Power Ltd. Shares of Ballarpur, which also belongs to the group and is the country’s biggest paper maker, rose 3.35% to close at Rs26.25 on the Bombay Stock Exchange.
The capacity of the two units is now being increased by 80MW in the next two years, Thapar said.
Crompton Greaves Ltd, a group company and the country’s fourth biggest equipment maker by value, won the rights last year to distribute electricity in three parts of Nagpur, Maharashtra. The city is the 13th largest in the country.
“Cities are growing, energy consumption will grow and that’s what will drive growth,” said Thapar, with a brass sign on his desk saying ‘The buck stops here.’ “Down the line, you target those customers with energy saving devices, which are there in Crompton’s portfolio.” Crompton Greaves also has a subsidiary called Malanpur Captive Power Ltd, which runs a 25MW, gas-based plant in Madhya Pradesh. Shares of Crompton Greaves, which have declined 34% this year, rose 0.62% to close at Rs259.25 in Mumbai.
Investors may seek more information on contracts for the supply of coal and environmental approvals from companies in India that plan to set up a merchant power plant, said Chakri Lokapriya, who manages $1 billion in assets, including Indian stock, at BNP Asset Management in London. “Before they convince the investor, that much more homework will be needed in getting all these clearances and contracts,” Lokapriya said. “In the current situation of shortage of coal and prices, it is a valid concern.”
The price of thermal coal shipped from Australia’s Newcastle port, a benchmark for Asia, has more than doubled in the past one year, according to the globalCOAL NEWC index.
One of the new utilities will be located close to a coal mine, Thapar said, without providing the locations of the two generating plants. The money for the two plants will be spent over four to five years and may have a debt to equity ratio of 2.5:1, he said.
Thapar, who has been listed by Forbes magazine among India’s richest with a net worth of $1.4 billion, also runs Global Green Co., a closely held maker of pickles that counts Carrefour SA among its clients. Global Green is in the process of concluding the purchase of a company in Hungary that preserves and pickles vegetables and fruits. The acquisition will cost €5 million (Rs31.6 crore) and the company has annual sales of about €40 million, Thapar said, declining to give its name.
Crompton Greaves plans to buy companies in the next six-nine months to manage power distribution networks, Thapar said, without providing details of the targets.
“I will do the design, I will put everything inside it, I will put the entire technology package and I will provide remote management of substations,” Thapar said.