Strength in consolidation and ability to expand

Vol 4, PW 10 (21 Jun 00) Midstream & Downstream

What is the wider significance of the Tata Group's decision to consolidate Some analysts suspect the group has decided to merge the three power companies in preparation for the day when the Bombay Suburban Electricity Supply (BSES) ceases to be its customer.

Many suspect this could happen when a new 500-MW power plant of BSES at Dahanu comes on stream. When that happens the Tatas will only have Maharashtra State Electricity Board (MSEB) as a customer.

"MSEB's paying ability is suspect," said Nischal Maheshwari, head of research at Anand Rathi Securities, "The Tatas want to be prepared at least in terms of size to work out alternatives." Following the merger, the Tata stake will come down to 26% from 31% due to the cancellation of cross-holdings. Ratan Tata said the group wants to increase its stake in the power company: "We want to enhance it.

We will grow over time. The merger will result in greater liquidity in the company's stock, astronger balance sheet and greater leverage to participate in large projects." The company's expansion plans are echoed by Tata Power executive director Adi Engineer who confirms it is in talks to acquire several power projects in Madhya Pradesh, Tamil Nadu and Karnataka.

Engineer reveals that some of the projects are already in operation while others are in the final stages of getting clearance. Joint operating revenues of the three merged companies put together were up 21% at Rs2,781cr ($648m) in the last fiscal year, compared to Rs 2,300cr ($535m) the previous financial year.

Net profit was Rs468.64cr ($109m), up 42% against Rs330.07cr ($76m) the previous year.