The JV makes sense, but it will increase ADAG’s debt significantly
Beware! The beasts are on a prowl – the Ghost and the Darkness
have hit the Indian terrain! The epitome of strategic alliance of the two lions from the Hollywood blockbuster can be well compared to the business alliance between Anil Ambani promoted Reliance Infrastructure Limited (R-Infra) & Chinese power equipment maker Shanghai Electric Corporation. No doubt, with this unprecedented deal (Indian domestic power utility player tying up with a power equipment-manufacturer), Ambani is looking at a larger picture. The Chinese component of that picture is expected to increase in the coming time in view of the ongoing Indo-China business treaty. Even if its with or without the Chinese partners, to say the least! But then, will the alliance really support Ambani junior in getting his desired chunk of the power and energy market flesh?
“We are committed toward playing a major role in the energy sector. We will continuously seek opportunities and undertake projects to maintain our position as the largest private player in the sector,” declared Anil Ambani, Group Chairman, Anil Dhirubhai Ambani Group (ADAG) on one such imperative business covenant. This $3 billion deal (apart from four other JVs with a committed investment of $400-600 million) between the two majors will give a much needed push to the power and energy initiatives of ADAG. “Ambani surely seems to be betting big with the project and wants to become the biggest player in the infrastructure and energy sector eyeing the huge opportunities that are up for grabs”, agrees Shailesh Kanani, Infrastructure & Real Estate Analyst, Angel Broking. Taking this into consideration, they already seems to be working on that line, where the Reliance Power and EPC orders have been given to R-Infra for optimum utilisation. The 4000 MW Sasan ultra mega project under R-Power is boosted through Rs.128 billion construction support by R-Infra. Moreover, it’s an open secret that the Chinese are known for their cost effectiveness. So, with ADAG’s domestic expertise in terms of customer outreach and human resource support and Shanghai Electric technical know-how and cost effectiveness, Ambani is looking to augment his dominance on energy & power supply domain.
Moreover, this venture will result in Ambani’s power ambition taking a head on with competitors like BHEL and L&T. However, Kanani discounts the competitions when he clarifies, “Well, with the kind expansion & infrastructural growth that India is eyeing, the pie is way too big to accommodate each of these players.” Nevertheless with the country still needing an additional 100,000 MW of power and energy to meet the growing demands for electricity over the next 8-10 years there is plenty for Anil to exploit. So its a great strategy to get into opportunistic win-win collaborations. But the downside to the move is that the initiative would also result in aggravating the concerns related to the quality and after-sales supported by Chinese manufacturers known for supplying comparatively cheaper equipments. The Central Electricity Authority (CEA) is already on the move with a watch dog eye by setting up a technical committee to test and verify the quality and suitability of the equipments supplied by the Chinese counterparts. Another chink in the armour is that with increasing economy turmoil backed by market volatility, increasing input cost with rising inflation et al, the aim of raising around Rs.95 billion as debt for the proposed plant and that too, when a major chunk is expected to be sourced from foreign banks is a little too much of a financial dependence, which ADAG should be wary of.
Beware! The beasts are on a prowl – the Ghost and the Darkness
have hit the Indian terrain! The epitome of strategic alliance of the two lions from the Hollywood blockbuster can be well compared to the business alliance between Anil Ambani promoted Reliance Infrastructure Limited (R-Infra) & Chinese power equipment maker Shanghai Electric Corporation. No doubt, with this unprecedented deal (Indian domestic power utility player tying up with a power equipment-manufacturer), Ambani is looking at a larger picture. The Chinese component of that picture is expected to increase in the coming time in view of the ongoing Indo-China business treaty. Even if its with or without the Chinese partners, to say the least! But then, will the alliance really support Ambani junior in getting his desired chunk of the power and energy market flesh?“We are committed toward playing a major role in the energy sector. We will continuously seek opportunities and undertake projects to maintain our position as the largest private player in the sector,” declared Anil Ambani, Group Chairman, Anil Dhirubhai Ambani Group (ADAG) on one such imperative business covenant. This $3 billion deal (apart from four other JVs with a committed investment of $400-600 million) between the two majors will give a much needed push to the power and energy initiatives of ADAG. “Ambani surely seems to be betting big with the project and wants to become the biggest player in the infrastructure and energy sector eyeing the huge opportunities that are up for grabs”, agrees Shailesh Kanani, Infrastructure & Real Estate Analyst, Angel Broking. Taking this into consideration, they already seems to be working on that line, where the Reliance Power and EPC orders have been given to R-Infra for optimum utilisation. The 4000 MW Sasan ultra mega project under R-Power is boosted through Rs.128 billion construction support by R-Infra. Moreover, it’s an open secret that the Chinese are known for their cost effectiveness. So, with ADAG’s domestic expertise in terms of customer outreach and human resource support and Shanghai Electric technical know-how and cost effectiveness, Ambani is looking to augment his dominance on energy & power supply domain.
Moreover, this venture will result in Ambani’s power ambition taking a head on with competitors like BHEL and L&T. However, Kanani discounts the competitions when he clarifies, “Well, with the kind expansion & infrastructural growth that India is eyeing, the pie is way too big to accommodate each of these players.” Nevertheless with the country still needing an additional 100,000 MW of power and energy to meet the growing demands for electricity over the next 8-10 years there is plenty for Anil to exploit. So its a great strategy to get into opportunistic win-win collaborations. But the downside to the move is that the initiative would also result in aggravating the concerns related to the quality and after-sales supported by Chinese manufacturers known for supplying comparatively cheaper equipments. The Central Electricity Authority (CEA) is already on the move with a watch dog eye by setting up a technical committee to test and verify the quality and suitability of the equipments supplied by the Chinese counterparts. Another chink in the armour is that with increasing economy turmoil backed by market volatility, increasing input cost with rising inflation et al, the aim of raising around Rs.95 billion as debt for the proposed plant and that too, when a major chunk is expected to be sourced from foreign banks is a little too much of a financial dependence, which ADAG should be wary of.
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