The Adani Power stock moved up by 5 per cent on Monday and DB Corp, by 14 per cent after the former announced the acquisition of Bhaskar Group led DB Power for an enterprise value of about ₹7,017 crore (all-cash deal). As per Care Ratings report from August 2021, DB Power is majorly (83.87 per cent) held by DPPL (Dilgent Power ), which in turn is held by ‘Writers & Publishers ’ and other individual promoters (54.46 per cent), Warburg Pincus private equity (19.22 per cent) and The Rohatyn Group (26.32 per cent).

What’s Adani getting?

Over the last few years, while supercritical projects are gaining traction and even Adani Power’s current and future projects being more in supercritical space, Adani Power will get a hold of DB Power’s 1200 (2x600) MW of subcritical thermal power plant Janjgir Champa in Chhattisgarh. Supercritical thermal power plants are more efficient than that of subcritical ones as a subcritical plant requires burning more coal than a supercritical plant for generating same amount of electricity,also leading to more pollution.  DB Power’s plant will be addition to company’s already existing subcritical (600 MW) and supercritical (2x685 MW) facility at Chhattisgarh. The company says the deal will help them to expand its offerings and operations in the thermal power sector in the state of Chhattisgarh.

DB Power’s Chhattisgarh plant was commissioned in 2015. The company has long term and medium-term power purchase agreements (PPA) for about 923.5 MW (77 per cent of its capacity) backed by Fuel Supply Arrangements (FSA) with Coal India (CIL) while the untied capacity is sold on bilateral/merchant basis. As per Crisil report date June 2022, the company benefits from proximity to coal mines and own railway siding facility which results in lower cost of transportation. The company’s plants continue to remain above the normative availability requirements with plant availability factor of 89 per cent and plant load factor (PLF) of 82 per cent.  During FY22, DB Power tied up 200MW of capacity with medium-term PPAs, due to which the EBITDA increased from ₹1,263 crore in FY21 to ₹1,504 in FY22.

While there are certain positives around the deal considering the profitability, proximity to coal mines, PPAs, and some room for merchant selling, the deal at a price around ₹ 6 crore per MW can be seen as a bit expensive.

If the capex on FGD (Flue Gas Desulphurisation) has not yet taken place, another ₹50 lakh per MW can be added to the deal value. For a perspective, a newly built supercritical plant can cost approximately ₹7-8 crore per MW including FGD, considering projects under construction by NTPC and SJVN.

Valuation comparison with other deals

In 2019, Resurgent Power (JV between Tata Power and ICICI Bank) acquired 75 per cent of Prayagraj Power Generation Company at around ₹4 crore per MW. This was 1980 MW (660x3) supercritical thermal power plant (without FGD) having 25-year-old PPA with discoms and FSA with Northern Coal Fields. This project was commissioned in 2016. However, Prayagraj had poor credit history prior to being acquired, as per an ICRA report.

Recently, JSW energy got NCLT nod to acquire Ind-Barath Energy (Utkal) for ₹1,025 crore. The latter owns an under construction 700 MW (350x2) subcritical power plants. JSW Energy estimates an additional cost of ₹1,650 crore to commence commercial operation. This stressed deal is  valued at around ₹4 crore per MW. In the year 2021, NTPC struck a deal of acquiring 50 per cent Avantha Group’s 600 MW distressed Jhabua power plant at around ₹3.2 crore per MW.