Infrastructure Sector: Green shoots

The renewable energy sector in India continues to get stronger with almost 300 global and domestic companies committed to generate more than 250 GW of solar, wind, mini-hydel and biomass-based power in India over the next decade with an investment of approximately US$ 300 billion.

The Indian solar market is set to move into the next phase of development, but the liquid secondary market is essential for its sustainable growth. Hence, there is growing pressure on developers to raise capital. Therefore, mergers and acquisitions (M&A) in the sector are gathering pace. Both new and established players are vying for existing assets. This comes on the heels of successful closure of Welspun’s sale of 990 MW of solar assets to Tata Power. Another reported sale of 337 MW of renewables capacity was made by NSL to Brookfield Asset Management. Amplus Energy acquired 7MW of SunEdison’s roof-top solar assets in India and CLP acquired 49% stake in Suzlon’s 100MW solar project in Telangana and Sun Edison’s remaining operating assets should also see a transaction before the end of this quarter.

There is a demand and supply gap creeping in as more and more solar projects are being awarded. Hence, we see new developers emerging, but only a handful of them are Tier 1 engineering, procurement, and construction (EPC) players. This has created growth opportunities that are being capitalised by electrical majors like KEC, Godrej, Schneider, and ABB apart from a few other smaller players. We could also see much larger GW projects being awarded by the government, a scale yet not seen in the country.

We expect a healthy demand for skilled professionals in project management, engineering design, and business development. Also, corporate finance personnel will be in demand as significant debt capital will be required to support 10GW projects.

The Indian wind market is seeing favourable policies that are making it easier to set up wind projects. The turbine capacity is also increasing, which will help reach grid parity. Hence, the sector may potentially attract INR 1 lakh crore investments by 2020, with the addition of about 4 GW of annual capacity. However, the impending GST norms may have a negative impact on the wind market due to escalation of costs. Hence, there is a visible shift in the way some large and serious players are building their wind portfolio. The large independent power producers (IPP) are now executing projects on a turnkey basis with the help of turbine manufacturers. As wind is an integrated segment, turbine manufacturers are also handling EPCs and original equipment manufacturers (OEM), with two-thirds of the market set to be controlled by players such as Suzlon, Vestas, GE, Gamesa and Senvion. However, the business has been under pressure. Hence, we see limited hiring formanufacturing roles and greater hiring for business development and project management roles.

The Indian roads sector is projected to continue its high growth trajectory and is expected to touch US$ 19.2 billion by 2017.The construction of highways had reached an all-time high of 6,029 km this year, which is expected to continue with a target of 25km/day. With 100 percent equity divestment allowed for build-operate-transfer (BOT) projects and more than 20 expressways under construction, we will see talent requirement in the domains of engineering and finance along with business leadership roles. Private equity (PE) funds are showing interest in the sector with several completed projects available for acquisition. Goldman Sachs’ Private Equity fund has invested US$ 200-250 million in Essel Highways and the Canadian pension fund gets four road assets totalling 710Km from

Some key developments in this sector are:

• The Cabinet has approved four-laning of three national highways in Punjab, Odisha and Maharashtra, with an investment of nearly INR 6,000 crore.
• China Railway Construction Corporation has evinced interest in bidding for around 3,000 km highway contracts in India worth INR 35,000-40,000 crore.
• Ashoka Buildcon wins an INR 1,600 crore-road project in Punjab from the National Highways Authority of India (NHAI).
• MBL Infrastructures has been awarded projects by the NHAI worth INR 2,126 crore.
• MEP Infrastructure Developers in a joint venture (JV) with its Spanish partner has received letters of award for INR 1,765 crore Isolux Corsan