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NCC Power Projects acquires 55% stake in NECL
NCC Power Projects, a subsidiary of Nagarjuna Construction, has acquired 55% stake in
Nelcast Energy Corporation (NECL). NECL is setting up a 1320MW thermal power plant at
Nellore District, Andhra Pradesh. The project is based on imported coal and supercritical
technology with an estimated cost of `6,822cr. The land requirement for the project is
~865acres (plus an additional area of 150acres for coal and pipeline corridor). Out of the
865 acres, ~291 acres is government land and ~574 acres is private land (458 acres
owned by NECL; and for ~116 acres, the agreement is in place for acquisition). Further, the
land is away from the CRZ area. The project will use imported coal as fuel, supported by
secondary fuel oil for start up. Imported coal will be received at the Krishnapatnam port. The
project has all the environmental clearances in place. (Source: NECL environment study
report).
Our take
We believe the move is in line with NCC’s commitment with the Karnataka government for
the supply of power by 2015-end, given the project envisaged will take nearly five years
henceforth, since BTG orders are yet to be awarded for the same. However, we were not
able to contact the management for latest details of the project and the amount paid for the
55% stake. However, we believe the amount would be in the range of `100cr–150cr (around
15–20% premium). Further, it should be noted that Nelcast Ltd., a holding company of
NECL, has reported a profit before tax from sale of investment of `109cr for 3QFY2011.
Delay on the power plant project has been an overhang on the stock for the last couple of
months, and this move will put rest to these concerns. Further, we believe since the project is
under the awarding stage, Nagarjuna Construction may bag EPC order for the same –
boosting the order inflow for the company, which should be positive in this scenario.
However, it should be noted that the company will have to dilute on the IRR front, apart from
immediate cash outflow of `100cr–150cr from the power project perspective. However,
given NCC’s comfortable debt/equity position and limited equity commitment for its BOT
portfolio, we believe cash outflow would not be that negative. Due to pending details from
the management, we are not factoring this development and maintain a Buy with an SOTP
Target Price of `196.
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