Orient Green Power’s Wind Energy Business To Be Profitable By Next Financial Year
Orient Green-IL&FS wind energy merger will bring down the cost of funds.
Renewable energy firm Orient Green Power Co. Ltd. said the proposed merger of its wind power business with IL&FS Wind Energy would bring down the cost of funds for both companies.
The combined entity with a capacity of 1.2 gigawatts and earnings before interest, taxes, depreciation and amortisation (EBITDA) of around Rs 1,000 crore will ensure better shareholder returns since wind energy generation is a business of scale, T Shivaraman, the vice chairman of Orient Green told BloombergQuint in a phone interview.
Oriental Green had announced on Thursday that it had entered into non-binding agreement with IL&FS Wind Energy to evaluate a potential merger that could create India’s largest listed renewable energy company.
Oriental Green’s wind energy business, which has been facing challenges in the last two to three years, is expected to turn profitable in the next year on a standalone basis, without even the deal, added Shivaraman.
Here are edited excerpts from the interview.
What synergies are you expecting to derive from the merger?
This transaction provides both companies a platform to substantially grow their footprints. This collaboration will result in the creation of a wind power generation company with pan–India presence since Orient has presence across Tamil Nadu, Andhra Pradesh and Gujarat, while IL&FS is present across Maharashtra, Rajasthan and Karnataka among other regions.
Also, Orient would get the stability of long term power purchase agreements (PPAs) from IL&FS. Besides distribution, the combined entity would have wide range of PPAs. Since, Orient’s bulk of asset are on ‘make and sell’ to third parties, with this combination, the company would stand to benefit from the stability of long term PPAs of IL&FS’ assets.
What impact will the transaction have on your debt?
The merger is a cashless merger. Not debt, but cost of funds is expected to come down for the assets of both the companies.
When will the demerger of the biometric business be completed?
With the shareholder’s approval already in place, the proposal has been already filed with the court for approval, the process for which is already under-way. We expect de-merger of company’s bio-metric business to take place by the end of this financial year.
How does the second half of the year look to you, given that you managed to post a profit in the previous quarter after seven straight quarters of losses?
Not very well. Though, some traction may be seen in third quarter. Not much should be expected in fourth quarter.
When do you expect the turnaround to happen?
It could take place by the financial year 2017-18. Since, the financials include both biomass and wind energy business. Biomass entities are not profitable as yet. However, wind energy business should be profitable on a standalone basis even without the deal by next year.
Orient Green’s wind business has been facing challenges over the last two-three years due to Tamil Nadu grid back down issues. The company has been losing substantial amount of EBITDA since we were not getting grid connectivity in Tamil Nadu to operate our plants effectively.
In this fiscal, with lot of effort, we have been able to solve the grid availability problem in Tamil Nadu. With that Orient Green’s wind business financials are robust. We expect to get closure on the Tamil Nadu grid connectivity issue by the next fiscal year.