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What The Management Of Sembcorp Industries Limited Has To Say About Growth In India

Sembcorp Industries Limited (SGX: U96) is a big Singapore-listed conglomerate with three major business divisions: Utilities, Marine, and Urban Development.

The first two are by far the most important part of Sembcorp Industries’ business. Utilities deals with the company’s energy production and water-treatment assets while the Marine division comes from Sembcorp Industries’ 61% ownership of offshore and marine engineering outfit Sembcorp Marine Ltd (SGX: S51).

Sembcorp Industries has been under scrutiny lately due to its under-performing Marine division and also lackluster earnings from Utilities.

The Marine division’s results have been badly hampered due to the huge drop in the price of oil. Meanwhile, the Utilities division’s business, particularly in energy generation, had been under pressure in Singapore. This can be seen from the drop in net profit from S$134 million in 2014 to S$51.7 million in 2015 for the Energy sub-segment of Sembcorp Industries’ Singapore Utilities business.

Over the past decade, Sembcorp Industries has invested in many energy projects outside of Singapore in countries such as the U.K., Vietnam, Oman, UAE, India, and Myanmar.

According to a recent interview that a few members of Sembcorp Industries’ top executives had with T E Narasimhan, the company had invested S$4 billion into India between 2011 and 2014 to develop power assets in the country. These assets are in both thermal power generation and renewables and make up around 30% of Sembcorp Industries’ total power capacity (under development and in operation) of 10,000 MW.

The executives that were interviewed were Tang Kin Fei (Chief Executive Officer and President), Tan Cheng Guan (Executive Vice President & Head Group Business Development and Commercial), Koh Chiap Khiong (Chief Financial Officer), and Vipul Tuli (Executive Vice President & Head Group Strategy). Let’s look at what they said in the interview to get a better understanding of Sembcorp Industries’ plans in India.

In the interview, the management team indicated that Sembcorp Industries can double or triple its investments in India, provided the returns from India are better and the business environment is conducive. Sembcorp Industries is open to both organic growth (the building of assets from scratch) and inorganic growth (acquisitions).

The executives also mentioned that Sembcorp Industries has the ability to double capacity at the recently launched Sembcorp Gayatri Power Complex at Nellore.

When questioned on the company’s plans to list certain businesses in India, the executives mentioned that it is something they would consider once Sembcorp Industries’ Thermal energy portfolio is double its current size of 2,600 MW.

There was also a discussion of the possible listing of Sembcorp Industries’ 60%-owned India-based renewable energy subsidiary, Green Infra. The executives mentioned that they will review a listing of Green Infra when it reaches a capacity of 3,000 MW. At the moment, Green Infra has a capacity of over 800 MW. The leaders of Sembcorp Industries also said that the matter of the listing could perhaps be looked at after four to five years at best. This implies annual growth of around 550 MW in capacity for Green Infra.

Regarding a question on other areas of interest for Sembcorp Industries in India, the executives said that they are looking at industrial water-related projects. But, they also stated that demand is low. Sembcorp Industries is also talking to state governments to provide urbanization and city development solutions ranging from master planning, industry positioning, land development, and utilities.

All told, Sembcorp Industries’ management team stressed that they will be cautious moving forward, though they are optimistic about the future. This is due partly to the different regulatory environment in the country.

From the above interview, it seems like Sembcorp Industries sees big growth potential in India and has clear plans about how it wants to expand in the country.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay own shares in Sembcorp Industries.