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Crompton arm’s IPO to add little value

Crompton arm’s IPO to add little value
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First Published: Mon, Apr 19 2010. 09 09 PM IST
Updated: Mon, Apr 19 2010. 09 09 PM IST
Avantha Power and Infrastructure Ltd (APIL), a 31.6% subsidiary of Crompton Greaves Ltd, has filed draft red herring prospectus with the Securities and Exchange Board of India for proposed initial public offering (IPO) to part finance phase-1 of two power projects aggregating 1.2 gigawatts (of total capacity of 2.4 gigawatts) in Chhattisgarh and Madhya Pradesh.  
Recently, APIL awarded boiler and turbine generator (BTG) contracts for phase-2 also and, thus, BTG contracts for the entire 2.4 gigawatts of capacity have been awarded to Bharat Heavy Electricals Ltd. Phase-1 in Chhattisgarh and Madhya Pradesh is expected to be commissioned by the second quarter of FY13 and the fourth quarter of FY13, respectively.
APIL has secured coal linkages for 1.2 gigawatts capacity comprising of phase-1. Around 30% of power is to be sold to respective home states on Central Electricity Regulatory Commission terms and 5% at variable cost. A large part of private land acquisition for phase-1 has been completed. APIL has also entered into memorandums of understanding (in January) to explore options of acquiring coal mines in Indonesia for $60 million and we believe that these could be towards the 1.3 gigawatts planned project in Gujarat, which is still in its nascent stages of development.
APIL plans to raise Rs1,250 crore through an IPO, including plans to offer 65 million shares through pre-IPO placement to raise up to Rs300 crore. Considering the same indicative pricing benchmark, pre-money valuations stand at Rs3,000 crore and post-money at Rs4,250 crore.
At Rs3,000 crore pre-money valuations, APIL will account for approximately 5% of the market capitalization for Crompton Greaves. We, thus, have a neutral outlook.
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First Published: Mon, Apr 19 2010. 09 09 PM IST