Lanco Infratech - 2,087MW on the ground:: Macquarie Research

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Lanco Infratech
2,087MW on the ground
Event
 With a history as an EPC company, Lanco Infratech has emerged as one of
the key players among Indian IPPs (Independent Power Producers). At the
end of FY10, it had 1,349MW under operation, 3,255MW under construction
and 4,692MW in the development stage.
 Earnings from Lanco’s power business have overtaken its EPC earnings
starting 1QFY11 with the contribution of Amarkantak Units 1 and 2 (600MW),
Kondapalli Unit 2 and the new units of Udupi (1,200MW).

Impact
 Internal EPC business helps protect margin leakage: Having an internal
EPC business acts as a competitive advantage in two ways. First, it prevents
margin leakage; and second, it reduces the effective equity required to fund a
project. This gives Lanco a competitive advantage in winning
regulated/contracted power projects due to the group’s ability to achieve lower
capex than its peers. Over the long term, this could lead to ongoing volume
and thus revenue growth for projects with ROEs of 15%.
 Strong project pipeline under implementation: Capacity is expected to
triple over the next two years as both the Udupi (1,200MW) and the Anpara C
(1,200MW) projects come on-line. In our view, the company has a solid
project growth profile over the next five years.
 EPC business eyeing more of external projects: The EPC business has
shifted focus from meeting internal requirements to bidding for projects
externally. Recently, the company won EPC contracts from Moserbaer and
Mahagenco. The current order book stands at Rs275bn.
 Coal asset acquisition offers fuel security: The recent Griffin coal asset
acquisition offers the company fuel security and benefits in a rising coal price
scenario. The mines have resources of over 1bn tonnes while the current
production capacity is 4mtpa. Lanco plans to scale up the production capacity
to 6mtpa through 2012 and 2013 and reach 16mtpa by 2016.



Lanco Infratech Aide Memoire
Questions for Management
1. Update on power off-take agreements for Amarkantak project. How long do you plan to sell Amarkantak U2 output to the
UI market?
2. Update on fuel supply agreement with NCL for Anpara? Do you see a threat around coal supplies linked through NCL over
the medium to long term?
3. Update on money outlay (upfront, future payments, etc) that would go into Griffin Coal acquisition? What capex do you
foresee to be required in the future to ramp up production?
4. What percent of your fuel requirements is linkage based for your upcoming projects? What alternate fuel sources are you
scouting and the respective share for each of them for each of the coal based projects?
5. On the EPC front, the current order book stands at Rs27,500 crore. How much of that will be executed over FY11 and
FY12 and how much contribution would come from the EPC business going forward.
6. Update on financial impact on the EPC business, once government mandates IFRS?