L&T awaits fair valuations for Nabha Power, Hyderabad Metro

Similarly, the company will wait for the financials of its Hyderabad Metro project to improve before considering a sale. Despite having potential buyers, the current valuations do not meet L&T’s expectations, Raman said.

Nabha Power is a coal-fired supercritical power plant in the Rajpura district of Punjab with twin units generating 700 megawatts each. Power from the plant is sold to Punjab State Power Corp Ltd (PSPCL) under a 25-year power purchase agreement, effective till 2039.

The ₹11,000-crore plant was put on the block in 2021 as it was a drag on the company’s financials and was deemed as a non-core asset. The company has failed to find a buyer so far.

“The issues in the sale of Nabha are not about viability but about who wants to add coal to their portfolio, and so, that is what will determine the exit,” Raman said.

“The power plant is performing very well. So, if somebody were to look at it now, compared to what you had before, the asset is far more valuable. So, we are not bending backward to sell it in a desperate mode,” he said.

Nabha Power’s performance in the October-December quarter pushed up the Ebitda margin of L&T’s development projects segment to 16.2% from 6.8% a year earlier. Ebitda stands for earnings before interest, tax, depreciation and amortization, a metric to gauge a company’s profitability.

The company was open to offers from prospective buyers as long as they reflect what L&T considers to be a fair value, according to Raman. “Nabha plant continues to be an asset available for somebody to monetize, but we will not sell desperately.”

Experts tracking the sector said that the focus on energy transition and sustainability in recent years has meant that global investors – some of the likeliest buyers for real assets – have been hesitant to put money in coal-fired power units. They prefer renewable energy units and other infrastructure assets instead.

“There is no interest in thermal power plants in the market as no one wants to buy into coal. Even companies that have expansion plans for thermal power are not interested as they don’t have capital at hand,” an investment banker dealing in power assets said on the condition of anonymity. “They (L&T) have spoken to everyone in the market, but there is no buyer at the moment.”

The Hyderabad Metro, another non-core asset of L&T, was put up for sale in 2021. However, the company is currently focussing on improving the project’s financial viability to boost its valuations. One of the levers for that is to improve ridership, which has now crossed half a million people a day.

“We are trying to improve the financial viability of that project by doing a few things and all of them are work-in-progress,” Raman said.

To manage the project’s debt load, the company has been sanctioned ₹3,000 crore in interest-free loans by the Telangana government. ₹1,000 crore of this has already been passed on to L&T. The company also has about 18.5 million square feet of area available as part of the project that can be monetised to pare debt.

“Today it is over-leveraged, and that over-leverage has to be corrected and that’s what we are working on,” Raman said. “This is a 65-year concession and will make money hands over fist for patient capital like sovereign wealth funds, LIC, insurance companies.”

Raman said that some investors have shown interest in the project but at valuations reflecting the current cashflows. The company plans to improve the viability of the project before selling to get better value.

“Without that asset our returns will improve. But that doesn’t mean that we should throw the baby out with the bath water, right? So, we were timing it, and it will take a year for us to get all of this sorted out,” he said.

L&T’s development projects segment recorded revenues of ₹1,220 crore during the quarter ended December, registering a growth of 10% compared to the corresponding quarter of the previous year. The company attributed this to improved peak load factor at Nabha Power and higher ridership in Hyderabad Metro.

The scrip closed 0.87% lower on the BSE on Wednesday at ₹3,393.75, while the benchmark index Sensex ended flat.

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

Here’s your comprehensive 3-minute summary of all the things Finance Minister Nirmala Sitharaman said in her Budget speech: Click to download!

Published: 07 Feb 2024, 07:09 PM IST