The acquisition of Mytrah Energy India Pvt Ltd's renewable assets is value accretive for shareholders from day one and operating income of the asset would increase significantly post acquisition after more working capital in pumped into it, JSW Energy Ltd’s Chief Executive Officer and Joint Managing Director Prashant Jain told Moneycontrol in his first media interaction after announcing the deal.
JSW Energy said earlier on August 10 that its arm JSW Neo Energy has executed a binding agreement with Mytrah Energy to acquire 1,753 megawatts (MW) of its renewable energy portfolio for an enterprise value of Rs 10,530 crore.
In an interview in July, Jain had told Moneycontrol that FY23 is likely to be the year of acquisitions for JSW Energy and acquisition of the renewable assets is the biggest so far by the company.
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The acquisition will fast-track the company’s ambition of having a capacity of 10 gigawatts (GW) by fiscal 2024-25. JSW Energy’s current operational generation will increase from 4,784 MW to 6,537 MW with the acquisition. Another 2,500 MW of projects, which are under-construction, are likely to be commissioned in phases over the next 18-24 months. This will take its capacity to 9.1 GW by December 2023-March 2024, of which 65 percent would be renewable energy-based projects.
“If I were to build the same wind and solar power capacity right now, as against the odd Rs 10,500 crore that we are paying for the acquisition, we would have to pay 5 percent more because the replacement cost is high,” Jain said.
Moneycontrol reported exclusively in May that the JSW Group has signed an exclusivity agreement with Hyderabad-based Mytrah Energy to buy the latter’s wind and solar assets.
Jain said that JSW has plans to pump in working capital into the acquired company, which has shut down about 200 MW of capacity due to lack of funds; this would add generation capacity in the next 6-8 months.
“The current capacity is working at suboptimal levels due to financial crunch and technical issues, we would optimize the asset,” Jain said.
He said that JSW Energy has an appetite for more acquisitions and would continue to scout for more opportunities.
"JSW Energy believes that the acquisition will give access to a pool of resource and domain expertise that would enable us to propel towards our medium term objective of 20GW by 2030," he said.
Discom Dues
Mytrah Energy, set in 2009, was an early entrant in the renewable energy sector as an independent power producer. The company, under the leadership of founder and chairman Ravi Kailas, built solar and wind energy capacity across nine states – Punjab, Rajasthan, Gujarat, Madhya Pradesh, Maharashtra, Karnataka, Telangana, Andhra Pradesh and Tamil Nadu. The company has been on the block for over three years and the management had been in talks with private equity and strategic buyers.
The company faced a cash crunch, like many of its peers, due to high receivables from power distribution companies. Cash flows were hurt further after Andhra Pradesh, which accounts for 21 percent of its operational capacity, reneged on power purchase agreement, forcing the company to sell power at cheaper rates than what was contracted before. As on April 2022, the outstanding dues to discoms stood at Rs 1,876 crore, of which 45 percent were from Andhra Pradesh and 35 percent were from Telangana.
In a landmark judgment in March, the High Court of Andhra Pradesh thwarted the state government’s attempts to renegotiate contracts and asked them to pay power generators according to the original pacts.
Action Plan
JSW Energy CEO said that the company will engage with states to recover receivables of Mytrah. He said that Andhra Pradesh has already paid the first installment of the dues, which is 10 percent of its total outstanding, and has committed to pay the rest within 12 months.
“Telengana is a different matter, there is no court case. We will have to work with the state as we work with other discoms to recover dues,” Jain said.
JSW will also infuse working capital to restart 200 MW of capacity that has been shut down and on maintenance of existing units, which will increase generation output and efficiency of the plants. The merger of the assets will also help reduce operation and maintenance (O&M) cost of Mytrah’s assets from Rs 13 lakh/MW to Rs 10 lakh/MW.
“We are going to improve the EBITDA (earnings before interest, taxes, depreciation, and amortization) by improving power generation and reducing the O&M cost. The normalised EBITDA will be Rs 1,650 crore which we will achieve in 12-18 months. Right now the EBITDA is at 1,240 crore. Majority of the improvement will be due to the increase in generation,” Jain said.
The Sajjan Jindal-led JSW Energy will also use the parent company's balance sheet to refinance the long-term debt of over Rs 9,132 crore of Mytrah that could potentially lead to saving of 200 basis points on interest rate.
“We are taking over the entire team of Mytrah, other than the promoters, come with us. We are a fast growing company and we need a more talented pool of people; that was one of the rationale behind the acquisition,” Jain said.
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