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TATA Purchases Welspun Energy

Tata Power has agreed to buy Welspun Renewables Energy for an enterprise value of 92.49 billion rupees ($1.38 billion), as India’s largest private power producer seeks to benefit from the nation’s push to expand its renewable energy capacity amid growing demand for clean energy.

The deal will help Tata Power, primarily a thermal power company, expand its overall electricity generation capacity to 10,000 megawatts, and push its alternative fuel portfolio to 2,300 megawatts, making it the largest renewable energy company in India, Tata Power said in a statement to exchanges on Sunday.

Tata is betting on renewable energy as Asia’s third-largest economy has stepped up efforts to reduce dependence on thermal fuels such as coal in its bid to reduce pollution. India has set an ambitious target of increasing clean energy capacity by more than fivefold to 175,000 megawatts by 2022 and is aiming to boost the share of non-fossil fuel in total installed power capacity to 40% by 2030, from 30% currently.

Tata Power, backed by the $109 billion salt-to-software Tata Group, has been bulking up its alternative fuels portfolio, buying solar and wind operating assets. The company is currently consolidating its renewable energy assets under a separate unit Tata Power Renewable Energy.

“This acquisition will enable the company to deliver significant value for all its stakeholders as most of the assets are revenue generating and operational,” said Anil Sardana, chief executive of Tata Power. “The acquisition is also a significant step towards attaining the company’s objective of having non-fossil fuel based capacity of up to 30%- 40% of total generating capacity.”

Welspun Renewables has 1,140 megawatts capacity — roughly 87% solar-powered and the remaining wind-powered. Of this, close to 90% is operational. The company had reported revenue of 7.60 billion rupees in the fiscal year that ended in March.

“These are all operational assets. Therefore the returns are immediate,” Sardana told reporters on Monday. In spite of the acquisition of Welspun, which had a debt of 55 billion rupees, Tata Power will able to reduce its debt-to-equity ratio at the end of this fiscal year in March 2017, he said.

Still, analysts are not bullish on the deal. Welspun Renewables’ revenue “does not appear exciting upfront,” Kotak Institutional Equities said in a note. “Our initial assessment suggests that the acquisition would be break-even at a profit-before-tax level, assuming it is fully debt-financed, though would add significantly to the existing debt of Tata Power.”

Tata Power’s consolidated debt stood at 400 billion rupees at the end of last fiscal year. Tata’s renewable unit currently has capacity of 294 megawatts. It is consolidating another 500 megawatts from the parent and has an additional 400 megawatts of wind and solar projects being installed.

The deal also marks the exit of Welspun Energy–part of the textiles-to-steel Welspun Group-from renewables business, freeing up capital for its other businesses in infrastructure and oil and gas. The deal is likely to be completed in September, Welspun Enterprises, the holding company of Welspun Energy, said in a statement to exchanges

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