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Why are the Tatas paying a premium for Welspun’s Renewable Energy assets

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The Welspun Group looking to sell its renewable energy assets for the last one year, has been no secret amongst the investment community in India. Welspun Group is a large industrial conglomerate which has major interest in textiles and steel pipes. The Group entered the renewable energy area in a big way 3 years ago, and had managed to become the largest RE developer by setting up large wind and solar plants in different parts of the country. This was done at a time when the solar sector had not really gone exponential. There was less competition as well with fewer players. Over the last one year, Welspun has not been active in the bidding space, leaving the area open for newer players such as Fortum, Adani, Aditya Birla, Renew and others.

Welspun had been looking at alternative options to sell its 1 GW plus portfolio of wind and solar energy assets. It was looking for an IPO or a yieldco listing but that did not work out. It was also looking to sell out to Private Equity players and Utilities outside India such as Sembcorp, but even that was not closing mainly because of valuation issues.

Now the news has come that Tata Group is looking to buy Welspun at a 15-20% valuation offered by other players. The deal is said to be in the advanced states of closure. What perplexes me is why Tata looking to pay a premium for Welspun assets, given that there are a number of RE developers looking to sell solar assets (SunEdison). The Indian power sector is in distress and there are a huge number of both conventional and non-conventional assets on offer. Tata Power which is the Tata Group utility is also not in the pink of financial health, given its loss making ultra-mega power thermal plant in Mundra. The Indian power sector is trying to recover from the 3-4 years of regulatory confusion and adverse financial situation.

Read about TATA solar panels here.

The Tata Group has also not been very good at acquisitions in the recent past (JLR was the exception). There are selling the Corus steel group at a huge loss. I am frankly at a loss to come to a rational reason behind the buying of the RE assets at a premium. Welspun assets will also not be of high quality, as they were known to buy equipment based on costs rather than quality. Tatas may also reduce the price once they do their due diligence. With another 100,000 MW of solar energy capacity coming up in the future, it is not like as if this 1000 MW portfolio is a scarce resource. It will be interesting to see what the end result is likely to be.

“Tata Power has emerged as the frontrunner among all the other potential suitors valuing the equity of the Welspun platform at Rs 3700 crore. They are willing to take over the operating assets as well as the pipeline ” said one of the sources on condition of anonymity as the discussions are still in private domain. Welspun Renewables Energy Pvt Ltd (WREPL), part of the $3 billion Welspun Group, is one of the largest renewable energy firms in India, operating 685 MW of wind and solar energy projects across eight states. Another 200 MW is expected to get commissioned by this June end while a further 257 MW is due by October-November of this year. The business also has around Rs 5900 crore ($893 million) of debt but not entirely drawn down yet as many projects are at different stages of completion. This makes the enterprise value of the business at Rs 9600 crore ($1.45 billion).
Source -ET

PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in

4 Responses so far | Have Your Say!

  1. George

    There are an increasingly large number of Indian firms dealing in Solar Thermal ACs, which claim to offer electricity savings of about 60% over conventional ACs. Sneha, can you tell us how good or effective this new technology really is? The initial investment is more than double the cost of a conventional AC of a similar capacity. Are they worth the investment, specially knowing that they all originate in China. What is the service backup available in India. Any Indian manufacturers in the fray??

  2. Karanth

    It is also surprising to me. I was of the belief, TATAs shall invests in assets that last long, not just on low costs. But of late the trend we see is not the same. Not sure of the final agenda. I expect Tat Power Renewables are the with out doubt the one IPP which shall stay with all the RE Power projects and fight get them yield the best results, sometimes more than what OE would have given. In fact it has credibility in Thermal Power plants upkeep and they are running some of them for ages.

  3. Radhakrishnan Mundoli

    All the initial euphoria of installing projects is over and now it is time for running the projects. This is the test as to how good the projects have been built. I have found that during the evaluation of the running projects, many a projects is found to be under producing. One needs not warm bodies to manage the assets as usually is thought. May be Tata power is confident of turning around the projects and hence is evaluating them at a higher cost.

  4. Excelsior Engineering Solutions

    Lot of these assets are first generation plants. Overall quality of those plants were lot better than the one’s being constructed today. Also, the valuation is based on the PPA rate. Welspun assets were setup when the PPA was upwards of Rs10/unit. Even though if three years of PPA has been utilized of the Welspun assets, the IRRs will be lot better on the remaining years as compared to new tenders.