To trim debt, Lanco may sell more power assets

After sale of the Udupi plant Lanco Infratech has 2,790 Mw operational capacity, including 136 Mw in renewable energy

When Lanco Infratech sold its 1,200 Mw thermal power plant in Udupi to Adani Power last week for Rs 6,000 crore, it divested its most profitable asset to trim debt. Now the company plans to sell another 3,000 Mw capacity for Rs 20,000 crore, wiping out its operational power portfolio.

The Hyderabad-based company, which has 16 operating firms in power, coal mining and road construction, had debts of Rs 34,297 crore in March 2014, nearly 13 times its equity. In 2013-14 Lanco Infratech reported a Rs 2,273 crore loss on revenues of Rs 10,707 crore as high fuel costs and low utilisation increased the financial stress on power firms.

After sale of the Udupi plant Lanco has 2,790 Mw operational capacity, including 136 Mw in renewable energy. Another 732 Mw gas-based capacity is getting ready at Kondapalli.

"The cash crunch is unlikely to be resolved in the medium term and most power projects are likely to be under stress," said Amit Golcha, an analyst with brokerage firm Emkay Global.

The company did not respond to queries.

It signed a debt restructuring agreement with lenders in December to restructure Rs 7,700 crore of loans, with a two-year interest holiday. The sales of the power plants follow the agreement.

In 2013-14, the Udupi plant generated the highest profit of Rs 124 crore for Lanco Infratech, and the 120 Mw Tanjore plant was the only other one to post profit, at Rs 45.6 crore. The company reported a Rs 388 crore loss overall. Its Kondapalli plant reported the highest loss of Rs 298 crore. The 1,200 Mw Anpara plant reported a Rs 133.4 crore loss and the 600 Mw Amarkantak plant one of Rs 125.9 crore.

"The Udupi deal and the debt restructuring will merely postpone the issue," said Golcha. The lenders' agreement is not likely to help resolve cash flow issues as money is needed for projects under construction. Lanco Infratech is setting up another 4,636 Mw of power capacity.

This a setback for a group that takes pride in starting from a single truck to supply construction material in 1960. Business grew to 100 trucks before it entered construction in 1980. It got into the power sector in 2000 with the commissioning of a 368 Mw plant at Kondapalli.

The sale of 3,000 Mw of Lanco Infratech's operational power capacity does not look easy because most power companies are facing litigation over fuel supply, cost of generation and power offtake.