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Nagarjuna Construction Company
Power Plant Acquisition by the Infra Arm
Quick Comment – Acquisition of 55% stake in
1320MW Plant: NCC, through its step-down subsidiary
NCC Power Projects, has acquired a 55% equity stake
of Nelcast Energy Corporation Limited (NECL), which is
developing a 1320 MW thermal Power Project at
Krishnapatnam, Nellore Dist, Andhra Pradesh. As per
NCC management, Nelcast Energy has required land
for the project and the necessary environmental
approvals for its 1320 MW plant. NCC has paid Rs1.5
bn for the 55% stake of NECL. NCC already had a
100% coal linkage from Coal India for their Sompet
power plant and has applied to Coal India to transfer the
linkage to NECL power plant.
Background: NCC Infra’s plans to set up a 1,320 MW
thermal power plant in Sompet, Andhra Pradesh had
been shelved due to cancellation of the environmental
clearance for the project. The company had invested
Rs830 mn in Sompet project of which Rs450mn was
paid to acquire land that is currently in their possession.
NCC was looking for alternative locations or a solution
as they had a PPA with the Govt of Karnataka for
supplying 400 MW of power @ Rs3.89 per unit from the
Sompet power plant by F2015. The company had
submitted a Rs1.2 bn performance guarantee to the
Govt of Karnataka to honour its commitment.
Positive development for the Infrastructure
subsidiary: For our base case SOTP value of Rs196
for the parent, we factor in Rs27 from the NCC Infra. We
value the equity investments of Rs4.6 bn made by
NCC’s mainly for its road projects on a P/B of 1.5x to
arrive at our value of Rs27 per share. We view this
acquisition as a positive step taken by NCC to honor its
commitment on the PPA to the Karnataka Government.
NCC is on the verge of financially closing this project
and has four years to execute on the project.
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