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Lanco Infratech (LAIN.BO) Rs47.10
Equity Research
Likely mine acq’n strategically +ve, but high debt magnifies NT risks
News
Lanco Infratech (LANCI), according to Business Standard, could bid for
Australian mines owned by Hancock Coal. These mines (Alpha coal project
and Kevin’s corner) reportedly (1) have a combined resource potential of
7.9 bn tons of thermal coal; (2) can produce about 30 mn tons, with the first
production to commence in 2013; and (3) will necessitate about US$10 bn
in capex to builds ports and coal handling facilities for evacuation of coal.
Analysis
We estimate LANCI to have installed capacity of about 3,800MW over next
6-8 months and that 80% of capacity is based on coal. We believe LANCI’s
acquisition of Griffen coal mine in 2010 and news flow on likely acquisition
of mines owned by Hancock is strategically positive (subject to cost of
acquisition), as they could help LANCI maintain control over fuel costs.
However, LANCI’s current high net debt of US$3.5 bn (net debt to equity of
3.6X, gross debt relating to operating assets is about US$2.4 bn) could limit
its ability to fund these assets, in our view, due to the near-term risks to its
operating cash flows such as: 1) a potential increase in domestic coal
prices; 2) uncertainty of gas supplies to Kondapalli II & III; 3) declining
trend of merchant power prices and deteriorating finances of state boards;
and 4) rising interest rates (debt service coverage ratio to decline to 1.3X in
FY12E from 1.4X with 100 bp interest rate increase).
We estimate LANCI to have EBITDA of US$800 mn-US$950 mn and debt
service obligations of about US$650 mn-US$750 mn annually over FY12E-
13E, leaving LANCI with cash flows of US$150 mn-US$200 mn annually to
meet its equity commitments. Given the near-term risks to its operating cash
flows and its equity commitments for Griffen and the upcoming 4000MW
power and infrastructure projects (EPC, roads, solar), we believe LANCI may
need to dilute equity to fund any additional capex requirements.
Implications
We remain Neutral-rated on the stock and maintain our target price.
INVESTMENT LIST MEMBERSHIP
Neutra
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Lanco Infratech (LAIN.BO) Rs47.10
Equity Research
Likely mine acq’n strategically +ve, but high debt magnifies NT risks
News
Lanco Infratech (LANCI), according to Business Standard, could bid for
Australian mines owned by Hancock Coal. These mines (Alpha coal project
and Kevin’s corner) reportedly (1) have a combined resource potential of
7.9 bn tons of thermal coal; (2) can produce about 30 mn tons, with the first
production to commence in 2013; and (3) will necessitate about US$10 bn
in capex to builds ports and coal handling facilities for evacuation of coal.
Analysis
We estimate LANCI to have installed capacity of about 3,800MW over next
6-8 months and that 80% of capacity is based on coal. We believe LANCI’s
acquisition of Griffen coal mine in 2010 and news flow on likely acquisition
of mines owned by Hancock is strategically positive (subject to cost of
acquisition), as they could help LANCI maintain control over fuel costs.
However, LANCI’s current high net debt of US$3.5 bn (net debt to equity of
3.6X, gross debt relating to operating assets is about US$2.4 bn) could limit
its ability to fund these assets, in our view, due to the near-term risks to its
operating cash flows such as: 1) a potential increase in domestic coal
prices; 2) uncertainty of gas supplies to Kondapalli II & III; 3) declining
trend of merchant power prices and deteriorating finances of state boards;
and 4) rising interest rates (debt service coverage ratio to decline to 1.3X in
FY12E from 1.4X with 100 bp interest rate increase).
We estimate LANCI to have EBITDA of US$800 mn-US$950 mn and debt
service obligations of about US$650 mn-US$750 mn annually over FY12E-
13E, leaving LANCI with cash flows of US$150 mn-US$200 mn annually to
meet its equity commitments. Given the near-term risks to its operating cash
flows and its equity commitments for Griffen and the upcoming 4000MW
power and infrastructure projects (EPC, roads, solar), we believe LANCI may
need to dilute equity to fund any additional capex requirements.
Implications
We remain Neutral-rated on the stock and maintain our target price.
INVESTMENT LIST MEMBERSHIP
Neutra
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