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BL Research Bureau

With the latest acquisition of a 50 per cent stake in Italy-based Sofinter, Gammon India would complete its technology gap in the power space and qualify itself to bid for equipment and EPC works in power generation plants.

Gammon derives almost 50 per cent of its current revenues from the power segment through civil structuring works for power projects. The current move towards forward integration, if successful, would not only result in its power segment becoming a key earnings driver but also result in higher profit margins when compared to the mere contracting work done so far.

Gammon has acquired the above stake through its offshore subsidiary. Sofinter is the holding company of Ansaldo Caldaie, a company engaged in manufacturing of super-critical boilers for power utilities, boilers used for conversion of biomass and waste in energy as well as heat recovery steam generators. This company has already won orders for design and supply of boilers and auxiliaries in the country.

Gammon acquired strategic stakes in two other Italian companies a few months ago; these companies are in the business of power EPC and manufacture of power turbines. With the current strategic acquisition, Gammon would have complete access to equipment technology as well as EPC skills. These companies would not only provide access to the European market but also provide technology for Gammon to bid for power projects in the country. With low capacity utilisation, especially in the companies initially acquired, Gammon is likely to benefit from the additional capacities available, without having to resort to any fresh capex programme.

While Gammon would be qualified to compete in power projects in the country, the company’s ability to compete (in terms of price) against peers such as L&T and BHEL could be a challenge. To overcome this, Gammon is looking at the possibility of having the acquired companies to set up manufacturing base in India. Such a move would be a major positive for the company’s bidding capabilities.

The 50 per cent stake valued at about €50 million (Rs 320 crore) would be funded through debt – a strategy adopted for the earlier acquisitions as well. The debt geared by the subsidiary would not result in a higher burden in the standalone entity.

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