X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Power: Of 'ultra-mega' dreams! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 19, 2006

    Power: Of 'ultra-mega' dreams!

    The bids for the two ultra-mega power projects - Sasan (Madhya Pradesh) and Mundra (Gujarat) are finally out. While Lanco Infratech has emerged as the lowest bidder for the former (bidding at Rs 1.19 per unit), India's largest private sector power generator, Tata Power, has grabbed the latter (bidding at Rs 2.25 per unit). Lanco has, in fact, outbid 15 other bidders in its way of winning the Sasan project, which will involve an investment of Rs 180 to Rs 200 bn (Rs 45 m to Rs 50 m per MW). Among the major companies, whom Lanco has outbid for this project include NTPC, Tata Power, Reliance Energy and L&T.

    The government's ultra mega power projects (UMPPs) policy, as its core, shall involve development of large generation projects through competitive bidding. As put down by the Ministry of Power, these would involve:

    • Setting up of large projects of 4,000 MW at a single location, thus ensuring economies of scale

    • Utilisation of super critical technology, thus ensuring higher efficiency and lower CO2 emissions

    • Award of projects to developer through tariff based competitive bidding, thus ensuring cheaper power

    As reported, the Ministry was expecting the bids to be near Rs 1.70 per unit, a rate at which NTPC sells its pithead coal based power to the state electricity boards. It is estimated that by December 31, 2006, the awards for these two projects would be issued and these developers should be in a position to take their financing. While the Sasan plant is being constructed near a coal mine, the Mundra project, which will be located on the coast, will run on imported coal. Apart from these two projects, the government has two more UMPPs in the pipeline - one in Krishnapatnam (coastal Andhra Pradesh) and the other in Jharkhand. These will be awarded in mid-2007.

    While Lanco's bid for the Sasan project seems a lot aggressive, it couldn't be taken as improbable, considering that the second lowest bidder, Reliance Energy (who is also the runner-up for the Mundra project), had put in its bid just 10 paise higher at Rs 1.29 per unit. Against the expected rate of Rs 1.70 per unit, at which NTPC sells its pithead coal based power to the state electricity boards, there were 4 companies that had bid at a lower rate. This goes to show the kind of cost efficiency through scale advantage that can be earned from projects of this size. However, in all this, NTPC, which was expected to be among the most aggressive of the lot, put its bid at the (almost) highest level of Rs 2.12 per unit. The reasons for the same are unknown as yet!

    Proposed off-take from UMPPs
    State/Project Sasan (MP) Mundra (Guj.) Girye (Mah.) Karnataka
    Delhi 500 - - -
    Uttar Pradesh 500 300 - -
    Uttaranchal 100 - - -
    Punjab 600 500 - -
    Rajasthan 400 400 500 300
    Haryana 450 400 - -
    Madhya Pradesh 1,200 - 500 -
    Chhatisgarh 250 - 500 -
    Gujarat - 1,600 - -
    Maharashtra - 800 2,000 1,000
    Karnataka - - 500 1,500
    Tamil Nadu - - - 1,000
    Kerala - - - 200
    Andhra Pradesh - - - -
    Total 4,000 4,000 4,000 4,000

    So, what's in it for investors?
    Nothing, as yet! The financial closure of these projects will take another six months and the first unit of the Sasan project is expected to commence generation not before the beginning of the 12th five-year plan (2012-2017). Also, there are doubts raised on the ability of Lanco to generate the required funds for this project, considering that its aggressive bid might be understood as a lot risk by the financiers. As a matter of fact, the company will require debt funding to the tune of Rs 140 bn (70% of the estimated project size of Rs 200 bn). In case Lanco is not able to secure the funding in the desired timeframe, there might be another round of bidding for the project. However, not sounding too doubtful of the company's ability to execute such a large project, we believe that investors will have to wait for a long-long time to see any materialisation of returns from these projects. As far as the country is concerned, the step is definitely in the right direction. What is required now is successful execution.

     

     

    Equitymaster requests your view! Post a comment on "Power: Of 'ultra-mega' dreams!". Click here!

      
     

    More Views on News

    NTPC: Higher Tax Provision Impacts Profits (Quarterly Results Update - Detailed)

    Mar 30, 2017

    NTPC declared results for the quarter ended December 2016. The company reported revenue growth of 10.9% while profits declined by 7.5% YoY.

    NTPC: Capacity Addition a Key to Earnings Going Ahead (Quarterly Results Update - Detailed)

    Nov 23, 2016

    NTPC declared results for the quarter ended September 2016. Here is our analysis of the results.

    Power Grid: Robust Performance Continues (Quarterly Results Update - Detailed)

    Nov 23, 2016

    Power Grid Corp (PGCIL) declared its results for the quarter ended September 2016. The company reported a revenue and profit growth of 28% YoY and 32% YoY respectively.

    Power Grid: Steady Start to the Year (Quarterly Results Update - Detailed)

    Sep 29, 2016

    Power Grid Corp (PGCIL) declared its results for the quarter ended June 2016. The company reported a revenue and profit growth of 31% YoY and 35% YoY respectively.

    NTPC: Good Start to the Year (Quarterly Results Update - Detailed)

    Sep 29, 2016

    NTPC declared results for the quarter ended June 2016. Here is our analysis of the results.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE POWER


    Aug 22, 2017 (Close)

    S&P BSE POWER 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS