Raising the stakes: Sembcorp Industries pours $337m into Indian power plant JV

The plant will start operating in 4Q14.

Sembcorp Industries has raised its stake in the Thermal Powertech Corporation India, a joint venture power plant expected to start commercial operations later this year. 

SCI has raised its stake from 49% to 60%, bringing its total investment to $377m in TPCIL. The power plant is a joint venture between SCI and Gayatri Energy Venture.

According to DBS, SCI is cashing in on India’s high-growth power sector, but India would contribute less than 3% of Utilities profits in FY15 if operations start as planned.

“India's power sector offers tremendous growth potential because of a mismatch in electricity demand-supply in the country. According to the World Bank, around 25% of India's population still lacks access to electricity, and the nation's Ministry of Power says the country suffers from a supply deficit of 8%-10% during peak hours. SCI is expanding its foothold in India as it believes this market will grow significantly over the longer term, despite the usual impediments to growth,” noted DBS.

Here’s more from the report:

SCI has raised its stake in the JV power plant Thermal Powertech Corporation India (TPCIL) to 60% from 49% previously. The total investment for the incremental 16% stake is close to S$84m. SCI has invested a total investment of S$377m in TPCIL, now a subsidiary of SCI.

TPCIL is a joint venture between SCI and Gayatri Energy Venture to develop, own and operate a 1320 MW (2x660MW units ) coal-fired power plant located near the coast of the Bay of Bengal, in Krishnapatnam in Andhra Pradesh.

The project will be implemented in two phases: the first unit (660MW) is expected to be completed in 4Q14, and the second by 2015. 

For feedstock, TCPIL has secured 60% of the plant's coal requirement under a 20-year contract with Coal India's subsidiary to supply domestic coal (2.1m tonnes per year) and a 10-year supply from PT Bayan Resources. TPCIL continues to work with the authorities in India to secure another source of fuel supply.

In terms of demand, the company had signed a long-term power purchase agreement in April 2013 to sell 500 MW of power to the Andhra Pradesh Power Distribution Companies for a period of 25 years at about Rs3.70 per unit of energy.

For now, we estimate SCI’s 60% share of the 500MW PPA implies India would contribute less than 3% of Utilities profits in FY15 if operations start as planned. Hence, our TP is intact at S$6.20.

However, there may be upside from larger generation capacity (when second unit comes onstream), more PPAs or larger uptake, or if margins exceed our forecast of 3%.