Thermax to acquire 100% stake in Babcock & Wilcox JV
The JV – Thermax Babcock & Wilcox Energy Solutions Private Limited (TBWES) established in 2010 has not succeeded due to decline in demand for boilers globally.
The Board of directors of Thermax Ltd has approved to enter into a preliminary understanding with B&W to acquire the shareholding of the latter in the JV – TBWES. The transaction will provide Thermax access to the manufacturing facility of TBWES and also to a wider range of B&W technologies. Thermax will acquire 49% stake of Babcock & Wilcox India Holdings Inc. (B&W) in Thermax Babcock & Wilcox Energy Solutions Private Limited (TBWES).
Thermax had set up a joint venture in 2010 with Babcock & Wilcox Power Generation Group from the US for manufacturing large boilers.
TBWES built a manufacturing unit in Pune for supercritical and subcritical boilers with an annual capacity of 3,000 MW expandable up to 5,000MW.
TBWES had reported sales of Rs306cr in FY17 (as against Rs334cr in the previous year), as it executed orders from Babcock & Wilcox, in the absence of orders from domestic players. During the fiscal, the company set aside Rs112cr for impairment of its investments in TBWES in view of the challenging market conditions, which is likely to impact the future cash flows of the JV, and further infused Rs180cr for loan repayment.
As per the FY17 annual report, globally, there has been a drastic reduction in investments in thermal power plants. Within India too, the emergence of solar, as a viable renewable energy option and the government’s focus on renewables with emphasis on solar, has adversely affected the prospects of thermal power projects. Also, the National Electricity Policy has limited space for new coal based power plants during the 2017-22 period.
Thermax in the earnings conference call stated that the acquisition is likely to take place at a very attractive valuation and will prove to be favourable to Thermax group. However, it did not divulge any more financial details. Despite the bleak demand for super critical and sub-critical boilers, the company believes that the facility can be a substitute for the company’s couple of existing facilities which are getting old. This will save Thermax capex spend in the future which could be much higher than the acquisition cost. Thus, the acquisition is likely to prove beneficial for the company.
Source: indiainfoline
