BackNagarjuna Construction to cut exposure to power business
Entire holding to be sold in HP project, 50% to be offloaded in AP project, Sikkim plans put on the backburner
Premium(Y.D. Murthy, executive vice-president of finance at NCC. )
Hyderabad: Nagarjuna Construction Co. Ltd (NCC) is in the process of reducing its exposure to the power business by selling stakes in these units.
The Hyderabad-based infrastructure company has three power assets that include two hydroelectric projects in Himachal Pradesh and Sikkim and one coal-based power project in Krishnapatnam, Andhra Pradesh.
The company has already signed a definitive agreement with Abu Dhabi National Energy Co. PJSC (TAQA), the government-controlled energy holding company of Abu Dhabi, to sell its entire stake in the special purpose vehicle (SPV), Himachal Sorang Power Pvt. Ltd, a consortium of NCC and IL&FS Engineering and Construction Co. Ltd.
Himachal Sorang Power is developing a 100 megawatt (MW) merchant power project on Sorang Khad river in Kinnaur district, Himachal Pradesh, at an estimated cost of ₹ 600 crore. NCC owns a 67% stake in Himachal Sorang, while IL&FS owns the remaining 33%.
The company has invested ₹ 127.7 crore as the equity component in the project, which has a concession to operate and manage the project for 40 years.
“We signed a definitive agreement. We need the approval of the Himachal Pradesh government to sell equity and normally they give (approval) six months after the commercial operations date (COD)," said Y.D. Murthy, executive vice-president of finance at NCC. “The COD is expected in April or May."
Himachal Sorang has already transferred a 5% stake to TAQA and the rest will be transferred in nine months, NCC said. Murthy declined to disclose the financial details of the stake sale.
NCC has put its 280 MW hydel power project on the river Teesta in North Sikkim on the “backburner".
The work on the project was put on hold due to issues such as environmental clearance and rehabilitation terms, the company said. Around six projects on the Teesta, including the NCC project, have been stopped by the Sikkim government, Murthy said.
“The government of Sikkim needs to resolve the issues, for us to take up the project," Murthy said.
NCC has so far invested ₹ 91 crore as its equity share in the project, which is estimated to cost ₹ 1,960 crore.
“Right now we need not invest on the project," Murthy said, adding that the company may even give up the project if it finds a taker.
NCC is offloading 50% of the stake in its 1,320 MW greenfield coal-based power project in Krishnapatnam in Nellore district of Andhra Pradesh.
Talks have started there but hasn’t seen much progress due to the economic uncertainty, Murthy said.
NCC is developing the project along with Gayatri Projects Ltd through an SPV called NCC Power Projects Ltd with a total investment outlay of ₹ 7,046.9 crore in a 65:35 debt-equity ratio. NCC holds a 55% equity stake in the SPV, while Gayatri holds the rest.
Meanwhile, the company has placed boiler, turbine and generator orders worth ₹ 2,600 crore with Chinese-state owned companies Harbin Boiler Co. Ltd and Harbin Turbine Co. Ltd.
The project is based on super critical technology using 70% indigenous coal and 30% imported coal. The project has completed land acquisition and got all clearances including environmental, coastal regulatory zone and sea water drawl clearances. The project also has agreements for coal linkages with Mahanadi Coalfields Ltd, a unit of Coal India Ltd.
The civil works are on currently and the project is expected to start operations in March 2015, Murthy said.
NCC has so far invested ₹ 900 crore as equity in various road and power projects, with around ₹ 500 crore in the second of these.
It had a total debt of ₹ 2,234 crore on a standalone basis as of March 2012. The company plans to retire a portion of it by raising around ₹ 400-500 crore through the sale of its assets by March.
Concerns about fuel security, lack of clarity on coal pricing and the inability of state power utilities to raise tariffs substantially and reduce subsidies is deterring potential investors from investing in the Indian power sector, said Krishnakant Thakur, an analyst tracking infrastructure and power at Espirito Santo Securities.
NCC is expecting to end the financial year with 15% growth in revenue and a profit of ₹ 90 crore, Murthy said. However, he expects a drop in earnings before interest, taxes, depreciation and amortization (EBITDA) by 1-1.5% compared with the previous year’s 9% advance.
Sluggish execution and delays in getting payments are impacting profitability, said an analyst tracking infrastructure at a Mumbai-based brokerage who did not want to be named citing company policy.
On Monday, NCC declined 5.89% to ₹ 38.35 on the BSE, while the benchmark Sensex rose 0.08% to 19,331.69 points.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
