Gautam Adani plans a 5000 mw push into power sector; in talks with GMR, Lanco, Indiabulls & Avantha
Gautam Adani plans to acquire power plants with a total capacity of 5,000 mw, but he will avoid aggressive bids to ensure good returns, a source close to the tycoon said a day after Anil Ambani-led Reliance Group outbid him to buy 1,800 mw hydro power capacity from Jaypee Group. Gautam Adani is directly involved in evaluating offers and negotiations, something he left to company executives in the past, the source said. The company is in talks with several power sector players, including GMR, Lanco, Indiabulls, Avantha Power and Athena, the source said. Another person in the Adani Group said there are many sellers in the market, offering projects with a combined capacity of nearly 50,000 mw.
The Adani Group was also in the race for the Jaypee's assets, which Reliance Power clinched for about Rs 12,000 crore. "Reliance Power offered Rs 12,300 crore. Adani found this price too high for 1,800 mw hydro power assets," said the source. According to the source Adani was not willing to go beyond Rs 11,000 crore as the return on equity, according to the group's calculations, would have been much lower than its own benchmark of 12%. The source said that JSW had offered an attractive value, but the proposal included a share-swap, which was not acceptable to the Jaypee group as it wanted cash to reduce its debt.
The Adani group is already India's biggest private power producer with a capacity of 8,620 mw, but it plans to grow much bigger and is looking at various projects as a number of developers are willing to sell off their delayed and fuel-starved power generation projects. "Adani Group is present in almost entire value chain of power sector through green field projects, starting from coal mining, transportation, generation and electricity transmission. The group is prepared to grow inorganically now and utilise its strengths to turnaround stranded assets acquired at prudent valuation," said the source. Industry officials say Adani Power, Reliance Power, Tata Power and Essar Power have started taking interests in acquisition opportunities despite their high level of debt.
"Adani Group has set vision to have 20,000 mw of generation capacity by 2020 and there are ample opportunities available to achieve its goal through acquisitions. It has decided to acquire power generation assets with potential to earn 11-12% return on equity. The group is open for both conventional and renewable power projects," said a source close to Gautam Adani. The Adani group's power business has grown with the help of new projects developed from scratch. Its plans to buy new capacity would be a new strategic direction for the group. Reliance Power has also focused primarily on organic growth before its sudden announcement that it had signed an exclusive MoU to acquire three hydroelectric plants of the Jaypee group, which would help it diversify its largely thermal portfolio and make it the country's biggest private player in the hydropower sector.
The power sector has been in turmoil for at least two years as new plants of thousands of megawatts have been stranded or under utilised due to severe fuel shortage. This has increased the debt of many companies to unmanageable levels and also raised concerns among banks and institutions that have lent large sums to developers. However, the outlook has improved after recent government measures to push Coal India to increase production, speed up environmental clearances and begin discussions on ways to help gas starved plants start generation electricity.