Lanco continues to be plagued by regulatory uncertainties, operational challenges and ever-mounting debt that prevent us from taking a constructive view on the name. While tariff issues remain unresolved for Amarkantak, fuel availability remains a concern for gas-based (Kondapalli) and coal-based (Amarkantak, Anpara) power plants. We look at the current judgment on Griffin Coal favourably, though ultimate resolution of pending litigations with Perdaman is still awaited.
The Supreme Court of Western Australias rulingpaves way for Griffin to sign revised fuel supply agreements with Bluewaters while adjudicating on a petition filed by Perdaman Chemicals & Fertilizers. Earlier in November, Perdaman had filed an application to restrain Griffin from creation of charge or security of its assets and had sought an injunction on sale of Bluewaters to a consortium of Japanese bidders, after the coal supply agreement with Griffin Coal had been revised.
As per unconfirmed media reports, Lanco is looking to raise funds through sale of its Udupi (1,200 MW) plant at a valuation of R22-24 billion implying an EV of R68 million per MW. This follows on the heels of similar reports that talk of asset sales of other power plants, road assets, or ownership in holding entities to private equity and/or strategic investors. In our view, such an asset sale or equity dilution is favourable for Lanco Infra, as it would help reduce the ballooning debt positions R327 billion on a consolidated basis.
Lanco has guided for a capex totaling 1.2 billion Australian Dollars for Griffin Coal Mines, which would ramp its capacity from 4 million tonnes per annum (mtpa) to 18 mtpa by 2015. Capex includes 600 million Australian Dollars for mines expansion, and 100 million Australian Dollars for railway line.
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