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The Welspun Group has put its renewable energy business on the block and has appointed British bank Barclays to look for a buyer, two people with direct knowledge of the plan said, as the pipe-to-textile maker seeks to trim debt amid concerns of a fall in solar power prices hurting its margin. "The process has just begun," said one of the people. "Some overseas strategic investors have shown preliminary interest."
The $3 billion group, controlled by billionaire BK Goenka, generates 494 megawatt (Mw) from renewable sources and has plans to commission 1,000 Mw by the end of fiscal 2016. One of the early Indian companies to bet on solar energy, the group has invested roughly Rs5,000 crore in the past eight years in the segment. The renewables business, which mostly comprises solar but also has a small percentage of wind operations, now has an enterprise value of Rs 10,000 crore, including Rs 6,500 crore of debt, a senior company executive said. Vineet Mittal, vice chairman of Welspun Renewables, denied the group has put the business up for sale, but said the company is seeking to raise money from the market.
"Today there are multiple options to raise money, especially post the governments push and vision to power a clean and a green India with a focus on solar," he said in an email response ET's queries. The group has recently sold its sponge iron making unit to JSW Steel and two ready-to-build coalfired power plants to the Adani Group to raise money and pay back debt. The two people who spoke to ET said the latest move to sell the solar business, housed under Welspun Energy, is a part of Welspun's plan to further trim its heavy debt.
It comes also at a time when there are concerns about falling solar power prices hurting the return on capital employed by companies like Welspun. In November, American renewable energy company Sun Edison won a bid to supply the cheapest solar power in the country at Rs 4.63 per kilowatt-hour from a 500-Mw project in Andhra Pradesh. The previous lowest was about Rs5.05 per unit by a project in Madhya Pradesh by Canadian company SkyPower. Coal-fired power costs between Rs 1.50 and Rs 5 a unit.
Welspun's solar power is priced Rs 6-7 a unit. Many solar power producers who paid higher prices for solar panels, land and technology are feeling the pain of lower tariff now. "It makes sense for overseas strategic companies to buy these companies as they take a longer view," said the managing director of a solar power producer who is aware of the sale process by Welspun group but asked not to be named as the talks are private. Some analysts also said Welspun's solar assets could attract overseas strategic investors because of the government's push to expand capacity to adhere to green-house emissions rules.
"Welspun Renewables has ramped up solar very fast ... Its solar power assets are attractive with great operational performance," said Pawan Matkari, an analyst at CARE Ratings. "Foreign investors are keen on the solar sector because of the strong government push. Maximum capital asset formation is happening in the solar projects." India allows 100% foreign direct investment in solar sector while state-owned organisations are tasked to facilitate to generate 10 gigawatts from solar power by 2025.
"The imperative to add substantial new generation capacity to meet social and economic needs is helping India reshape its energy mix towards renewables quicker than other regions," said a report by consultant PwC released in November. Despite more than 300 days of sunshine a year, India relies on coal for three-fifths of its energy needs, with solar accounting for less than 1%. One megawatt can light up roughly 1200 homes in India. Welspun Renewables reported a profit of about Rs15 crore on revenue of Rs750 crore in the fiscal year ended in March 2015.
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