Construction company Patel Engineering has planned to dilute as much as 40 per cent of equity in its power subsidiary, Patel Energy Resources.
“We will look at investors like Power Trading Corporation and Power Finance Corporation. There are other financial players and funds but they just look at 20 per cent return and look for an exit,” said Rupen Patel, managing director of Patel Engineering.
The equity dilution could begin in six months to a year, as many of Patel Energy’s projects would then be in a construction phase, commanding higher valuations. It is developing a 1,320-Mw power plant at Nagapattinam in Tamil Nadu. The land has been acquired, coal linkages received and financial closure is expected by the second quarter of 2010-11. Patel Energy is also building a 90-Mw hydro power plant in Arunachal Pradesh, the financial closure of which would be achieved in the first quarter of 2010-11.
Patel Energy was floated around two years earlier, after Patel Engineering decided the power sector was a needed diversification, hopefully a game changer, for this hitherto traditional EPC (engineering, procurement and construction) player. Patel Engineering, whose annual turnover is Rs 2,500-crore, has an external order book (that is, excluding contracts for in-house companies) of around Rs 10,000 crore and this has grown at 20-25 per cent annually.
“Internationally, construction companies which stayed only in construction either went bust or got bought out,” said Patel. He said they decided that developing power plants would be a good idea, as they had already undertaken many civil construction contracts for companies.
Another diversification was due to the company’s huge land bank; it has a total of 1,100-acres in Mumbai, Bangalore, Hyderabad and Chennai. It transferred 12 per cent of this land bank to a wholly owned subsidiary, Patel Realty India, floated two years earlier, which is building residential projects in Bangalore and Noida. “We expect cash flows from the real estate segment to contribute to Rs 200-300 crore every year,” said Patel.
Patel Realty sold 900 apartments in Bangalore and 1,200 apartments at Noida in the past two months. They could clock these sales in spite of a slowdown in the sector due to their concept of studio apartments; this has especially taken off in Bangalore, as it has a high floating population employed in the information technology sector. “We targeted a section of the society which was not being targeted, the ‘baby boomers’. These are the people who are just out of college and in their first job, living as paying guests. I am giving them a flat for an EMI (equated monthly instalment) less than the rent they would pay,” said Patel.
The margins in studio apartments are higher than those in single-bedroom apartments; one can charge more even though the area is less. Patel Realty hopes to retain the idea of studio apartments in a modular manner, to enable conversion into single or double-bedroom apartments, depending on market demand.
Rupen Patel envisions a Rs 10,000-crore annual turnover for the group. And, it is these new businesses which will drive this growth. “Power will give the turnover and real estate will give a substantial amount of profit,” he explained.
