Lanco to look at power IPO

Lanco to look at power IPO

Mumbai: Lanco Infratech will consider an initial public offering for its power business as it looks to fund expansion plans to meet rising demand in Asia’s third-largest economy, a senior official said.

The group has not set a timeline for the fund raising, but is currently consolidating all its power projects under a single company, K. Raja Gopal, chief executive of Lanco’s thermal power business, said at the Reuters India Investment Summit in Mumbai.

“As we move forward, we will be requiring huge financial budgets to support our plans. To meet these needs at an appropriate time, we will be looking at an IPO or two," he said.

India faces peak hour power shortage of nearly 14%, and sector firms have lined up to raise funds as they expand generation and transmission capacity to satisfy a rapidly urbanising population and rising industrialisation.

India plans to add capacity of 100,000 MW during 2012-17.

Since July last year, Adani Power, NHPC, Indiabulls Power and JSW Energy have together raised about $2.8 billion through IPOs, capitalising on investor interest in the sector and a booming stock market.

Lanco currently operates 2,082 megawatts of generation capacity, and plans to commission another 2,000 MW by March. It also has a further 5,000 MW under development across the country.

It aims to generate 15,000 MW by 2015, Raja Gopal said.

“We foresee in the near future, affordable power is the answer. We feel there is a huge opportunity to grow in terms of size," Raja Gopal, who has worked in the power sector for over 28 years, said.

“In the infrastructure sector, volumes are large..the returns are not big, but are very steady in the long run."

Looking overseas

Lanco is now scouting for coal mines in Australia, Indonesia and Africa with at least 100 million to 200 million tonnes of output per year, to satisfy its rising coal needs, he added.

Coal powers 75% of India’s electricity, but local output lags swelling demand. Imports are expected to grow to 100 million tonnes in 2011-12 from 80 million tonnes now.

Last month, Adani Enterprises agreed to invest $1.65 billion in an Indonesian coal port and railway project, and acquired stake in Australian miner Linc Energy’s Galilee project for $2.7 billion.

Lanco is also bidding for coal-based power projects overseas and has bid for a 600 MW project in southern Sumatra, estimated at $775 million and Raja Gopal said Lanco was open to similar projects.

Lanco has looked to cut costs in its core business and has placed an order for 16 sets of 660 MW boiler-turbine-generator (BTG) power equipment from China’s Harbin.

“Definitely it will be competitive compared to sourcing it from either Indian or European manufacturers".

Hyderabad-based Lanco, which listed in November 2006, also has interests in construction, roads and real estate. The company reported net profit of 1.13 billion in 2009-10, on revenues of 24.03 billion.

Lanco, which currently holds only two toll road projects in its portfolio, is looking at fresh opportunities in the segment, attracted by the potential for large orders.

“There is a huge opportunity. Definitely we will be looking, based on our actual experience and move forward in this sector," Raja Gopal said, adding Lanco is open to partnering with other players to bid for the larger projects.

Shares in Lanco, valued by the market at $3.5 billion, closed at 68.40, up 2.4% in a Mumbai market that rose 0.4%. The stock has risen 18.4% in 2010, better than the 15% rise in the main stock index.