Adani Group in talks to acquire Avantha Power and Infrastructure's Jhabua project

Adani Group was founded in 1998 and has grown exponentially over the years. The projection for expanding business estimates a 4 to 10 fold increase over the next decade. Adani Power forecasted 20000 MW power generation in 2020. The company has already added Avantha's Korba Power capacity of 600 MW and Lanco Infratech's Udupi Power with 1200 MW capacity projects for Rs 10500 crore in its portfolio.

India's power sector is suffering from problems like lack of fuel, issues with land acquisition, environment approvals and the poor financial health of state electricity distribution companies. In spite of this situation, Adani group is in talks with Avantha Power and Infrastructure's 1260 MW power project located at Jhabua in Madhya Pradesh. This project could be executed at Rs 7500 crore. Earlier, Avantha Power was in talks with Tata Power and ICICI Venture to sell this power plant. But Avantha initiated sell of power project to Adani Group by sending a proposal. Adani Power has an installed capacity of 10440 MW and will increase to 11640 MW after this deal.

The decision of Adani Power to buy power projects is a strategy for long term gains with improved cash flows. Inorganic growth for an electric utility sector gives advantage over setting up new plant and the time required. Any company wanting to set up a power plant will require about three to four years to set it up. Small power firms are facing various issues to run projects like cost pressures and operational challenges. This will give large players like Adani Power to acquire them at discount prices. The company is spreading power generation plants over various geographic locations.

Adani Power reported revenue of Rs 19545 crore with growth of 23.95 per cent in FY15 on yearly basis. The company has very less cash amounting to Rs 856 crore in FY15. While it has Rs 46575 crore debt with an debt to equity ratio of about 8.14 which is quite high in the industry in FY15. The stretched balance sheet of the company could face approval difficulty from banks for the project.

Avantha's Jhabua power project was implemented in two phases of 600 Mw and 660 Mw. After the deal, Avantha Power will have only 26.19 Mw installed capacity with Malanpur captive power plant.