Sembcorp Industries Limited Outlines Its Big Game Plan for India

Sembcorp Industries Limited  (SGX: U96) held its 2016 fourth quarter earnings briefing in February. Among the key topics covered was the company’s game plan for India.

As a brief background, Sembcorp Industries has three business segments, namely Utilities, Marine, and Urban Development & Others. The former two are by far the most important segments for the company. (It’s worth noting that the conglomerate’s Marine business stems from its majority ownership of Sembcorp Marine Ltd  (SGX: S51).)

I dream of India

Sembcorp Industries’ first thermal power plant in India, under Thermal Powertech Corporation India Limited (TPCIL), commenced operations in 2015. The second plant, SembCorp Gayatri Power Complex (SGPL) was launched in 2016. SGPL’s first unit was completed in November 2016 while the second unit was completed in February 2017.

2017-04-06 SembCorp Industries India
Source: Sembcorp Industries earnings presentation

The challenge is to secure a long-term power purchase agreement for the SGPL plant. Tang Kin Fei, Sembcorp Industries’ chief executive officer, commented:

“We completed the two thermal plant, which each one of them are two by 660 megawatts. So I think now we need to focus to secure contracts, the long-term PPA [power purchase agreement] contracts for SGPL.

We are getting a lot of short-term contracts, and the short-term contract prices are not that attractive, although it covers the cost of coal. So we have some small income, enough to pay for our interest costs.”

On the flipside, 86% of TPCIL’s net capacity is covered by long term PPAs.

2017-04-06 SembCorp Industries India 2
Source: Sembcorp Industries earnings presentation

Sembcorp Industries’ power capacity in India has ramped up from zero in 2006 to an impressive 3,611 mega-watts (MW) in 10 years. India’s contribution is now significant, given that the total power capacity of Sembcorp Industries stands at around 11,000 MW.

There is also a renewable energy portfolio in India. Tang said:

“We have about 971 megawatts of renewable energy plants that’s under operation or under construction in place. So you can see that while our thermal plant portfolio will stagnate for a while, in India, we continue to grow our renewable energy capacity, both in wind and solar.

So that is our game plan for India.

At the same time, we look out for other business opportunity, like centralized utilities and water business in India.”

Unfortunately, Sembcorp Industries’ India operations has not contributed any positive earnings yet. We will have to see what 2017 brings for the company’s business in India.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.