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    Kamalanga deal is value-accretive, JSW Energy may expand capacity

    Synopsis

    JSW Energy believes that the acquisition of GMR Energy’s Kamalanga power project in Odisha will be value-accretive and aims to improve the performance of the plant. The company may consider expanding the capacity of the project, but for now it will be focusing on boosting performance and adding capacity through renewables, Prashant Jain, chief executive officer, told Rachita Prasad in an exclusive interview. Edited excerpts:

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    With commercial mining, coal availability will improve and make thermal power very competitive.

    How will this acquisition help JSW Energy and what are your future plans?

    This is a pithead power plant with five years of operating history, 85 per cent output tied up in long-term power purchase agreements (PPAs) and diversified customers in three states. It fits into our strategy of having cost of power in the bottom quartile of the purchase basket, which will enable us to get merit-order dispatches and mitigate the risk of receivables. There is a potential to increase the capacity by another 350 MW, which we will consider but for now, we will focus on bringing efficiency into existing units. The base rate operating income is ₹900 crore with the enterprise value (EV) of ₹5,321. The EV-Ebitda ratio is 5.5. We believe we can improve it to 5.1 times by operational efficiency and tying up the balance power in longterm pacts. This deal is return-onequity accretive from day one.

    You are also in the process of buying Ind-Barath (Utkal). When will it be completed? Are you looking at more buys?

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    The Ind-Bharat deal will be done by June-July. It is in the process of getting NCLT approval. We will not look at any more acquisitions in thermal power, unless it has very compelling valuations. Our focus would be on renewable energy.

    You have said that renewable energy will be at the core of the second phase of growth from 10 GW to 20 GW. How will this be added?

    It will be a mix of solar, wind and pump storage. We are investing in those capabilities and acquiring sites for large-scale projects. There is a team in place. This will be primarily organic growth but we are not averse to inorganic growth. Even here we will look at projects that produce low cost of power. Today, more than 30 per cent of our generation capacity comes from hydropower. In the next 3-5 years, when we reach 10 GW, renewables would be close to 50 per cent. Incremental additions from 10 GW to 20 GW would be 100 per cent renewable energy.

    Are you looking at asset monetisation?

    We are highly under-leveraged. We don't need any equity. We need sustainable growth opportunities. We didn’t grow very fast in a couple of years because we were not comfortable with the tariff and PPAs. Now, we are talking about the renewable space because there is a rationality which has come up in bidding. Power is a long-term cash flow business. We don't need monetisation right now.

    Power companies are facing problems in recovering receivables. Are you facing it, too?

    We have a receivable cycle of 60 days, which is comfortable because we have a low-cost of order and we are high on merit-order dispatches. But as an industry, it is a big challenge as close to ₹92,000 crore are outstanding as of this moment; some 5-6 states contribute 75 per cent of this.

    There are concerns that we may be back to pre-Ujwal Discom Assurance Yojana (UDAY) days in the power sector. What are your views?

    Power demand growth was robust in the last few years but since the second quarter (FY20), it has been deteriorating due to poor economic activity and was even worse in Q3. Power demand has fallen to 1 per cent in the nine months, which can be substantiated by poor GDP growth rate data. Now, the demand is picking up, so is the economy. But there is a lag effect. Power demand should start improving in the first quarter of FY21.

    The industry is under pressure from an increase in receivables as the financial health of state governments is deteriorating.


    The state government should consider direct subsidy transfers to the consumer and not include it as a part of tariffs to ease the cash flow of generators because the subsidy money comes late to discoms and delays payments. We have seen the worst and the situation is going to improve. With commercial mining, coal availability will improve and make thermal power very competitive.




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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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