There's a slim chance for any counter offer as Reliance already holds a 15 per cent stake in BSES. Meanwhile, CMD, R V Shahi says, "We do not consider this as a hostile bid, the move will benefit both Reliance as well as BSES." The bid is launched through Reliance Power Ventures, a fully-owned subsidiary.
The move will benefit Reliance in both qualitative and quantitative terms. It will also boost its future plans in the telecom and media segment. The infrastructure and expertise built by BSES will come in handy for Reliance. More so now that Reliance has become active in telecommunications and plans to develop a fibre optic cable network at a cost of Rs 6,000-10,000 crore and part of its convergence strategy. Reliance plans to cover Karnataka,
Gujarat, Tamil Nadu and Andhra Pradesh in the first phase. The second phase will concentrate on Delhi, Madhya Pradesh, Rajasthan and Haryana.
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This move is in sync with its bid for BSES. It will bring in the much needed stable power business, spread in different parts of country besides an entry into optical network where Reliance plans to corner a major chunk. One of the major parameters for BSES in terms of comparison with other power company's is its efficiency. The transmission and distribution losses are 11 per cent as against the industry average of 18 per cent. Its plant load factor of 88 per cent is much higher than the industry average of 68 per cent. Besides, it in sound financial health with a lucrative network in Mumbai.
Despite its power generation and distribution, BSES has a presence in telecom and coal washeries. A look at each of these would give an insight into their business profile :
Power
BSES has a large infrastructure in Mumbai covering 70 per cent of the total area. It has an enviable customer profile consisting of residential, industrial and commercial consumers. They are mainly dominated by retail users where there is negligible chance of setting up captive facilities. Besides, there is a good distribution network. Last year BSES acquired power distribution licenses for three fourth of Orissa placing it firmly on the nation's power map.
Among other projects, BSES Kerala Power (a joint venture) where it has an 80 per cent stake is a 165 MW project. The company plans to commence its combine cycle steam turbine by this June or July wherein the JV has a power purchase agreement with the Kerala State Electricity Board and guaranteed by the Kerala government.
There is another 220 MW power project at Kakinada in Andhra Pradesh. The
orders for supply of gas and steam turbine have already been placed. The project is scheduled to be completed in the next 12 months. In order to make the project more economical, the company which zeroed in on naptha as fuel has applied for a gas linkage to the Andhra Pradesh government.
BSES and GAIL (Gas Authority of India) have approached the government of
Delhi for a 500 MW project at Delhi. The company has applied for an access of the distribution systems in Delhi to take care of the revenue requirement of the project.
The two company's have also proposed to rope in the Delhi Vidyut Board for a joint venture partnership.
Telecom
The other boosting factor for Reliance would come from BSES Telecom, a wholly-owned subsidiary. BSES plans to lay a 1,400 km long optic fibre network. This will come handy for Reliance's convergence plans. BSES has already laid 200 kms and plans to lay an additional 400 km by this year. Having launched its ISP (internet service provider) powersurfer.net, the company has recently bagged the category 'A' license which would help BSES to penetrate other towns and cities.
For Reliance, which also has a category 'A' license, the power distribution network of BSES will help it achieve its ISP plans. According to BSES, Mumbai city has about 35 per cent of total Internet users in India. BSES' ISP plans include value-added services such as database services, e-commerce, media streaming/games and virtual private network.
Coal Washery
BSES commenced its coal washery and is currently working at two lakh tonnes per month. The company plans to utilise this for various power projects which use coal as fuel. BSES would utilise its expertise to sell washed coal to manufacturers using coal with low ash content.
Conclusion Though the offer price is arrived as per the Securities & Exchange Board of India (Sebi) guidelines, the 35 per cent stake of financial institutions will decide the fate of BSES. Retail investors do not have much of an option here. The current market price of Rs 280 is still higher than the offer price. Considering its foray into optic fibre network and its efficiency in the power segment, investors can hold on to the stock rather than opting for the open offer.