According to reports, in an indication of the coming consolidation in India’s wind energy sector, Lanco Infratech Ltd has decided to exit the segment and has given the mandate for selling the business to audit and consulting firm Ernst and Young (E&Y).
“Lanco has 5,000 megawatts (MW) of wind power licences and had acquired land for 600MW of capacity through Lanco Wind Power Pvt. Ltd,” said a person aware of the development, requesting anonymity. Another person, who didn’t want to be named, confirmed the development.
Lanco’s decision comes at a time when the company is laden with a debt burden of Rs. 29,665.7 crore as of 30 September. The Indian power sector is battling a crisis due to scarcity of funds, environmental issues, fuel shortages, resistance from local communities to giving up land and the worsening financial health of state electricity boards.
“It will help Lanco in their cash flow position,” said Anish De, chief executive at Mercados EMI Asia, an energy consulting firm. “Whoever is highly leveraged will look at this option at a time when the renewable energy is fairly attractive for private equity investors, who are looking for investment opportunities.”
While there is interest in developing wind energy sources from conventional power generation utilities, the funding of such efforts has become a concern. It takes capital expenditure of Rs. 4.2-4.5 crore per MW of power generated through coal-based or gas-based projects, compared with wind-based projects requiring Rs. 6-7 crore per MW.
“Lanco has decided to critically evaluate all the non-core activities in its portfolio,” Sharad Jhingan, chief operating officer of Lanco Infratech, said in an email. “The wind power business of Lanco is also being evaluated as part of this initiative. Decision to retain/partial or total divestment will be taken only after the entire evaluation exercise is complete. It is too premature to talk about any one alternative and/or the valuation of any business at this point in time.”