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Lanco Infratech Amarkantak: Unit 2 Synchronized

March 12, 2010

Lanco Infratech indicated that they synchronized Unit 2 of Amarkantak power plant and expect it’s commissioning during the next quarter. The synchronization of Unit 2 and consistent PLF for Unit 1 gives us more visibility on commissioning of Amarkantak power project. Further, calculations indicate the cash inflows of Unit 1 (since synchronization in May 09) have so far resulted in 21% reduction in capital cost.

Goldman Analysts expect the stock’s underperformance versus BSE Power index (14% YTD) to narrow in the medium term primarily due to 1) 2x increase in capacity (2300MW from 750MW) by FY11E on commissioning of i) 600MW of Amarkantak; ii) 133 MW of Kondapalli Phase II; and iii) 1,015MW Udupi plant, and consequently Lanco’s earnings profile to improve in FY11E with the power division constituting 72% of FY11E EBITDA; and 2) rising power deficits leading to strength in the merchant rates.

The Base Case Sum of the Parts Valuation of Lanco Infratech is Rs 61 which is also the target price on the stock. The valuation is arrived by adding Rs 41.6 assigned to Power Segment and Rs 17.4 for the Construction segment.

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