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Aditya Birla Group revs up power plans

May 26, 2010 03:01 IST

Three years after exiting the power business, the Rs 1.4-lakh crore Aditya Birla Group is planning a powerful comeback into the sector and is eyeing a major acquisition in Tamil Nadu, two people with direct knowledge of the deal told Business Standard.

The group is in advanced negotiations with Hyderabad-based Nuziveedu Seeds Private Limited to acquire its thermal power subsidiary, Nagapattinam Power & Infratech Private Limited. Nagapattinam Power is setting up a 1,320 Mw project in Tamil Nadu via two 660 Mw thermal power units.

Essel Mining & Industries Limited will be the likely vehicle for the acquisition. Essel Mining is a closely held Aditya Birla Group firm with interests in iron ore mining and ferro alloys and also, at times, doubles as a holding company for the group.

Sources told Business Standard that talks between the two had progressed to the term sheet stage.

The valuation of the deal is not known, but bankers involved in power sector transactions say similar power projects now attract a valuation of Rs 30-50 lakh per Mw. So, the Birlas may have to shell out anything between Rs 396 crore to Rs 660 crore for the asset, depending on the final valuation.

Aditya Birla Group declined to comment. "We are not commenting on our power plans and we don't comment on a privately-held company of the group," the group spokesperson said.

NSL Group's Managing Director M Prabhakar Rao, however, denied any plans to sell the company.

"It is completely baseless. We are running the project on our own. The project is under development and as of now there are no plans to rope in any strategic investor. We have not had any dialogue with any Aditya Birla group company."

But sources in both groups say a dialogue is indeed on. "We are evaluating a number of possibilities. Nagapattinam is one such project we are looking at. There are many factors which we will have to evaluate before closing any transaction. We are looking at opportunities in a number of states like Tamil Nadu, Andhra Pradesh, Maharastra, Chhattisgarh, Karnataka and Madhya Pradesh," said a senior Aditya Birla official on condition of anonymity.

The Tamil Nadu government had in 2008 cleared the Nagapattinam project by giving the necessary facilitation letter, but construction is yet to begin. Around 50 per cent of the required 1,300 acres of land has already been acquired and negotiations for the remaining land parcel are currently on with government and other private owners.

The environmental clearance is due in June, said sources in the NSL Group and they are confident that the entire 1,320 Mw project will be up and running in three years. Coal linkage with Mahanadi Coalfields for 70% of the requirement is also due and the letter of intent is expected next month. The project will need to import 30% of its coal requirement.

Power from the project, said company officials, will be sold via long term agreements and also in the spot market as merchant power. The company is in the process of bidding for long term power supply contracts in Andhra Pradesh and Tamil Nadu.

Analysts are more surprised at the news of Aditya Birla Group reviving its power sector plans. In 2006, the group sold its 1,000 Mw Rosa Power Supply Co. Ltd in Uttar Pradesh to Reliance Energy Ltd, owned by the Reliance-Anil Dhirubhai Ambani Group. The following year, it sold Bina Power Supply Co. Ltd in Madhya Pradesh to Jaiprakash Associates Ltd.

The third power plant near Ennore in Chennai, which would have used imported liquefied natural gas from Qatar, was also wound up in 2006 after delays in state government clearances.

The plan is now to acquire and get scale quickly, and inorganic route is a faster one. "We believe that if we need to seriously get into a sector, then a vertical has to generate a billion dollars in three years," said an Aditya Birla official who is overseeing the group's power sector plans.  A strategic team has been put in place by the Aditya Birla Management Corp. Pvt Ltd -- the group's residential think tank -- with officials from different group companies and functions. It includes Aditya Birla old timer, Anil Mehta, who earlier was heading the power vertical in 2005-06. The plan, as of now, is to house the power venture within Essel Mining until it reaches significant scale. Essel Mining is also being positioned as a natural resources company.

"There is still upside in power, so it's not too late in the day for Aditya Birla Group. There is still demand in the market. And acquisition is the fastest way forward. Or else companies get stuck for 2-3 years in pre-development work," said Kuljit Singh, head of Transaction Advisory Services, Infrastructure, Ernst & Young.

According to the ministry of power, India has a total installed capacity is 157,229 Mw. The country needs another 78, 700 Mw to achieve the 11th plan target.

Arijit Barman in Mumbai