 "Lanco to scale up EPC business to sustain turnaround")
Lanco Infratech’s dramatic turnaround in the second quarter ended September 2015 after three years of losses has raised hopes for a revival for big infrastructure players with huge debts.
Central to this change in financial performance — with a net profit of Rs 98.98 crore compared with a net loss of Rs 527.48 crore in the corresponding previous quarter — was the restart of Lanco Infratech’s Rs 33,000 crore of stalled projects.
Lanco Infratech’s engineering, procurement and construction (EPC) revenue grew four-fold in the second quarter to Rs 1,090 crore on a sequential basis on work generated by these restarted projects. This has become possible after lenders approved a cost overrun funding of up to Rs 5,500 crore, 80 per cent of which is an additional loan.
Lanco Infratech is now planning to scale up this revenue stream in the coming quarters to sustain the momentum. "We may end up doing EPC work worth around Rs 4,000 crore this year as compared to Rs 1,316 crore in the previous year. We will scale it up to Rs 6,000 crore next year and maybe to Rs 8,000 crore in the third year,” T Adibabu, chief operating officer, Lanco Infratech, told Business Standard. The company has already expended over 50 per cent of equity on these projects. They will need to be completed before sale of power or sale of these assets.
As 77 per cent of the Rs 24,000 crore EPC order book, excluding solar projects, is in house, Lanco Infratech will look at external projects, including roads. The Rs 4,000 crore EPC contract of a power project at Ennore in Tamil Nadu is part of the external EPC work. "We have a sizeable EPC order book that will be executed between 2015 and 2017. We will build it further with external EPC contracts to maintain the volume beyond 2017," Adibabu said.
The rise in EPC revenue does not tell the full story as one-time items, including a Rs 175 crore MAT reimbursement for Lanco Infratech’s Kodapally project by the respective state power utilities and a one-time tariff income of Rs 500 crore from the Anpara plant following the termination of the power purchase agreement, contributed to the turnaround in the second quarter.
A Rs 102 crore claim of a cost incurred in 2012 was taken into account as well, and this partly contributed to the reduction in expenses during the quarter.
But the company is optimistic the one-time gains will be compensated for in the coming quarters. It expects additional power revenues from the commercial operation of a 300- Mw unit at the Amarkantak project and from the 1,200-Mw Anpara power project after the execution of the fresh power purchase agreement. After completion of the ongoing power projects, the installed capacity in the company's power portfolio will double to around 8,000 Mw in 2018, precisely when the company would like to start the sale of its power assets to reduce its debt.
Lanco Infratech now sits on a debt of around Rs 35,000 crore, which is expected to go up to Rs 45,000 crore before the management starts selling the power assets. The company had reported a consolidated net loss of Rs 2,036 crore on a total income of Rs 9,371 crore from operations in 2014-15.
Central to this change in financial performance — with a net profit of Rs 98.98 crore compared with a net loss of Rs 527.48 crore in the corresponding previous quarter — was the restart of Lanco Infratech’s Rs 33,000 crore of stalled projects.
Lanco Infratech’s engineering, procurement and construction (EPC) revenue grew four-fold in the second quarter to Rs 1,090 crore on a sequential basis on work generated by these restarted projects. This has become possible after lenders approved a cost overrun funding of up to Rs 5,500 crore, 80 per cent of which is an additional loan.
Lanco Infratech is now planning to scale up this revenue stream in the coming quarters to sustain the momentum. "We may end up doing EPC work worth around Rs 4,000 crore this year as compared to Rs 1,316 crore in the previous year. We will scale it up to Rs 6,000 crore next year and maybe to Rs 8,000 crore in the third year,” T Adibabu, chief operating officer, Lanco Infratech, told Business Standard. The company has already expended over 50 per cent of equity on these projects. They will need to be completed before sale of power or sale of these assets.
As 77 per cent of the Rs 24,000 crore EPC order book, excluding solar projects, is in house, Lanco Infratech will look at external projects, including roads. The Rs 4,000 crore EPC contract of a power project at Ennore in Tamil Nadu is part of the external EPC work. "We have a sizeable EPC order book that will be executed between 2015 and 2017. We will build it further with external EPC contracts to maintain the volume beyond 2017," Adibabu said.
The rise in EPC revenue does not tell the full story as one-time items, including a Rs 175 crore MAT reimbursement for Lanco Infratech’s Kodapally project by the respective state power utilities and a one-time tariff income of Rs 500 crore from the Anpara plant following the termination of the power purchase agreement, contributed to the turnaround in the second quarter.
A Rs 102 crore claim of a cost incurred in 2012 was taken into account as well, and this partly contributed to the reduction in expenses during the quarter.
But the company is optimistic the one-time gains will be compensated for in the coming quarters. It expects additional power revenues from the commercial operation of a 300- Mw unit at the Amarkantak project and from the 1,200-Mw Anpara power project after the execution of the fresh power purchase agreement. After completion of the ongoing power projects, the installed capacity in the company's power portfolio will double to around 8,000 Mw in 2018, precisely when the company would like to start the sale of its power assets to reduce its debt.
Lanco Infratech now sits on a debt of around Rs 35,000 crore, which is expected to go up to Rs 45,000 crore before the management starts selling the power assets. The company had reported a consolidated net loss of Rs 2,036 crore on a total income of Rs 9,371 crore from operations in 2014-15.