Twin acquisitions value-accretive from day 1: JSW Energy

JSW Energy today completed its acquisition of two hydropower plants from Jaiprakash Power Ventures. The company now has two power plants- Baspa with a capacity of 300 MW and Karcham Wangtoo HEP with a capacity of 1,091 MW. The enterprise value of the deal is Rs 9575 crore.

In an interview to CNBC-TV18, joint managing director and chief executive officer Sanjay Sagar says the deal, that was partly funded through debt and internal accruals, now increases its total debt to Rs 15,000 crore.

"These are very well constructed assets and will be value-accretive for us from day 1," he explains, adding that the acquisition now takes the company's power generation capacity to 4,500 MW, closer to its target of 10,000 MW power generation by 2025.

Below is the transcript of Sanjay Sagar’s interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18.

Sonia: Can you just tell us with this acquisition of Baspa II and Karcham Wangtoo what will the total hydro power capacity be on JSW Energy?

A: At the moment these are the only hydro power that we have in our portfolio so our capacity as of now is going to be 1,391 megawatts. However, we are taking up the construction of our Kutehr greenfield project which is another 240 megawatts so we intend to start the construction of that project within this calendar year. Once that is completed then we should be adding another 240 megawatts to this 1391 megawatts.

Anuj: How have you funded this acquisition have you raised any debt because that would be a bit of a concern? So far your balance sheet has been quite strong does it become a bit tilted towards debt?

A: After this acquisition our debt equity ratio would stand somewhere around 2, so I would not be overtly worried. We have funded this project partly through debt and partly through our internal accruals. We have raised about Rs 1,500 crore odd of debt for this and Rs 2,000 crore odd has come from internal accruals.

Sonia: What does your total debt stand at for the company now?

A: Total debt for the company has of now would stand at around--- if I take into account the debt that we will be taking over for these two assets ---Rs 15,000 crore.

Anuj: What makes you so confident about this particular space because if you acquire some more units you will be taking over one more debt? We have seen for example even JP Group had trouble with some of these assets what makes you so comfortable on that space? What makes you so bullish on this space that you are spending so much money to buy these two assets?

A: If you recall this was the deal which we have concluded almost a year back. We were only waiting for the various clearances to take place. Even at that time we had informed the market and our stakeholders with these two are sterling assets. Most of the power is tied up in the long-term power purchase agreements (PPAs) and they are very well constructed assets. So, they are value accretive from day one as far as JSW Energy is concerned. We are obviously in the interest of our stakeholders that we have acquired them.

Sonia: What did you say your total debt was if I have got that correct is it Rs 15,000 crore now?

A: Yes, it is give or take Rs 15,000 crore.

Sonia: You have also entered into binding memorandum of understanding (MoU) with Jaiprakash Power to buy 500 megawatts of the Bina Thermal plant by when is that deal expected to be concluded and also what could the ballpark valuations of that asset be?

A: As far as the conclusion of that deal is concerned we expect it to be anything in between 6-8 weeks to update the due diligence. We carried out preliminary due diligence on this sometime back so we need to update that we should be able to conclude that within about 6-8 weeks.

The valuation numbers will emerge only after the due diligence has been completed. I would not like to comment on valuation at this time. I would not like to enter a guess on that.

Sonia: There are some talks that the valuations could be about Rs 3,500 crore is that a reasonable assumption?

A: I have no idea where those talks have emerged from and even I read that article in the ET today. I have absolutely no clue where they got that number from.

Sonia: You said in your press release that you are closed to achieving the aim of 10,000 megawatt of power generation by 2025. Can you take us through what the immediate target is say in the next couple of years in terms of power generation?

A: What we have said in the press release is that this takes us closer to achieving or 10,000 megawatt target by 2025. That is the target that we have set for ourselves and these two assets have taken us close to about 4,500 megawatt. We will continue to sort of look at both organic and in organic growth as we have been sort of advising the street.

Sonia: So since you did say that you are looking at inorganic as well any update on Monnet Ispat & Energy 1,050 megawatt coal-fired plant acquisitions?

A: The due diligence is still on, that is the only update that I can give you on Monnet Ispat.

Anuj: By when do you expect to carry out the due diligence?

A: May be another month or so.

Anuj: So we should hear from you on that Monnet Ispat plant in about a month?

A: Probably.

Anuj: Anything else that is on your radar in terms of inorganic acquisition?

A: Not at the moment. At the moment we are looking at Bina Thermal plant and Monnet Ispat. Other than that we are not looking at anything else as of now.