Lanco Infratech has announced that it has sold its Udupi Power Plant (1200MW) to Adani Power (APL) in a deal valued at Rs 60 billion. Lanco expects to receive Rs 20 billion in cash and APL will take over the Udupi project's long-term debt of Rs 40 billion. The Nomura Financial Advisory and Securities has recommended 'Reduce' on Adani Power with target price of Rs 35 as against current market price (CMP) of Rs 52 in its report.
Commenting on the deal, Nomura Financial Advisory and Securities said, ''APL's acquisition of Udupi is arguably a surprise. In this context, APL's initial stock reaction is likely to be positive, although we believe that the terms and conditions of the deal are critical, particularly in regards to funding of the deal and receipt of the receivables (ie, who retains the receivables and the interest thereon).
Our earnings forecasts and TP for APL are under review. At CMP, consensus estimates show APL trading at FY15/FY16 P/B of 2.3x/2.1x and Lanco at 2.1x/6.2x.''
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