Investment Opportunities in India

March 23, 2010

Indian power sector abuzz with plans of fresh investment into several projects

The government being bombarded with proposals from overseas Indian investors for new power and infrastructure projects recently augurs well for the Indian economy. Governments—both local and central—are providing incentives and initiating projects in the public-partnership (PPP) mode. Only second to Gujarat in receiving investments in 2009, Orissa lately has been the focus of attention of most overseas Indian investors, according to a recent study released by an industry body. Several projects have already been announced in the country – pertaining to solar power, renewable energy, solar photo-voltaic units etc. According to official sources, while ACME Tele-powers would set up a 100 Mw solar thermal power plant in Bolangir/Khurda district, GRD Power Private Ltd has plans to set up a 25 Mw solar thermal power plant in Khurda. Upcoming projects include six solar photo-voltaic power projects with an aggregate generating capacity of 105 Mw too, which have been given the go-ahead by the Orissa state level technical committee (STC).

Among the other projects that have received approval by Orissa STC including EIO Six Orissa Private Ltd (20 Mw, Bolangir) are Cambridge Energy Pvt Ltd (5 Mw, Ganjam), Abacus Holding Private Ltd (5 Mw, Nawarangpur), Green O Projects (10 Mw, Khurda) and Green O Lite (5 Mw, Kalahandi). The total envisaged capacity in the solar power sector has now increased to 294 Mw from 64 Mw earlier.

The Indian subsidiary of French energy giant Areva too has contracted a deal from Larsen and Toubro to offer solutions at the 1,200 MW power facility at Malwa in Madhya Pradesh. Mumbai-based L&T is adopting greening measures by venturing into wind and hydro power generation. The power major has prepared a blueprint for building wind power projects in Gujarat, Maharashtra and Tamil Nadu for captive use. It is also investing around Rs 8,000 crore for setting up 700-800 MW of hydro power projects in Himachal Pradesh, Uttarakhand and Arunachal Pradesh, according to official sources. The projects are expected to go onstream in the next four-five years.

According to Ernst and Young, the Indian Government has identified the need for US$ 500 billion in infrastructure spending between 2007 and 2012. Various efforts of the Indian Government such as Public Private Partnerships (PPP), Green Energy, Ultra Mega Power Projects and Viability gap funding are being viewed as potential investment opportunities providing stimulus to the growth of Indian infrastructure sector.

There is also the market expectation that the Budget 2010-11 to be announced by the Finance Minister, Dr Pranab Mukherjee on February 26, 2010, will focus on spending in some specific sectors. Several market experts believe that the Budget will largely focus on infrastructure and give some sops to the power sector. This will thereby benefit construction, road, power and equipment companies. The government is further considering a plan to levy between 11 per cent and 14 per cent across-the-board import duty on foreign generation equipment—based on a report by Planning Commission member Arun Maira—who is heading a government panel looking into ways of bolstering domestic manufacturing of power equipment.

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March 19, 2010

Investment Scenario and the Markets in India

Most credit companies in India are quite gung-ho about the reversal in economic downturn as several companies are either in the process or already underway with new projects, opening up new avenues for investment in India. Capex plans are getting fructified with increasing interest in making investments for capacity expansion either in domestic or overseas markets. Credit growth is in fact, currently growing at 15 per cent from the lower 10 per cent in October 2009. Banking companies and the non-banking finance companies (NBFCs) with their newly accorded permission of banking licences are an even more excited lot.

Companies from varied sectors such as glass-making, pharmaceuticals and hospitals are demanding credit from banks with some companies wanting to diversify and others wanting funding for backward or forward integration.

There is a major difference in the approach by companies in gathering funds before and after the recession. Before the recession, the companies were accumulating funds to overcome recessionary debts and rationalisation of capacity while after the recession, they are in the expansion mode and to cater to their capacity expansion plans, are going in for other routes of capacity expenditure (capex). Another key route has been the foreign investment in India route, by which proposals for Foreign Direct Investment (FDI) worth over US$ 216.1 million have received government approval. The proposals include that of Zee Entertainment, Walt Disney, Max India and Hyderabad-based Soma Highways (Toll) Projects.

There are about 17 initial public offerings on the anvil now, with companies gathering funds from the markets for their capacity expansion plans. Several global majors too feel that the growth of emerging economies including India is remarkable and most of these countries will prosper in 2010 and beyond.

Siemens also has plans to make India a major centre for ‘value-priced’ engineering products and would set up six new hubs in India for design, development, production and sales of such products. Sree Sakthi Paper Mills Ltd has announced that its expansion project is expected to be completed by August 2010 and is being funded partly through debt funds and partly through internal accruals. VE Commercial Vehicles on March 8 has said it will double the production capacity of its Eicher branded products to up to 8,000 units per month in the next three years to cater to the rising demand for its products. The investment for enhancing the capacity would be a part of the Rs 500-crore capex plan for the next three years that the company had earlier announced.

The government too has plans of escalating capex vide the divestment route. All accruals through divestment are being intended to be pumped back for capacity expansion in due course. The scenario is indeed very encouraging with banks, recognising systemic constraints such as delay in contracting, now responding to the requests of project companies and concession granting authorities and willing to reschedule loans.

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