StanChart-Backed Ramky Enviro Plans $200 Million IPO By Sharang Limaye and Archana Chaudhary - Jan 7, 2013

Ramky Enviro Engineers Ltd., an Indian waste management company, plans to raise $200 million in the nation’s first initial share sale to finance a power plant fueled by urban refuse.
The company, backed by Standard Chartered Plc (STAN)’s private equity unit, will file its application for the initial public offering next month, Executive Director Goutham Reddy said in an interview in his office in Hyderabad. The company has hired Kotak Mahindra Bank Ltd. (KMB), JPMorgan (JPM) Chase & Co., Bank of America, IDFC Capital Ltd., SBI Capital Markets Ltd. and Edelweiss Capital Ltd. to manage the share sale, he said.
Ramky Enviro, based in the southern Indian city of Hyderabad, is seeking to tap investor demand after a 26 percent surge in the benchmark stock index last year, the best among the world’s four biggest emerging markets, helped revive IPOs. The waste manager plans 17 billion rupees ($308 million) of investment in the next three years to help almost triple sales to 50 billion rupees by March 2018.
“Once I invest the money I have committed, the company will grow at a rapid pace,” Reddy said. “It’s going to be one of the most promising sectors as the government gets stricter about environmental regulations.”

‘Immense Opportunity’

India’s urban areas generate about 55 million tons of municipal solid waste and 38 billion liters of sewage every year, and waste output per capita is growing as much as 1.33 percent annually, according to the website of Chennai-based consultants Energy Alternatives India. Federal and state governments offer incentives to help harness energy from waste material, while cutting environmental pollution.
“The overall space is lucrative and the opportunity is immense,” said Mangesh Bhadang, a research analyst at Mumbai- based Quant Broking Pvt. “Environmental issues will keep coming up and we need companies that take care of garbage collection to effluent treatment.”
An erosion of the market value of other renewable energy companies because of their inability to benefit from government policies to promote clean energy may deter investors from buying Ramky Enviro shares, said Sitaraman Iyer, an analyst with MSFL Research.
Orient Green (OGPL) Power Co., whose shares started trading in October 2010 after raising 9 billion rupees from an IPO, has declined 77 percent below its IPO price of 47 rupees, while Indowind Energy Ltd. (IEL) has plunged 93 percent from the offer price of 65 rupees after its debut in September 2007, according to data compiled by Bloomberg.

Facing Challenge

“The renewables sector isn’t doing very well in India,” said Mumbai-based Iyer. Lack of development of the Indian renewable credit market, no government support and unorganized raw material suppliers are some of the challenges facing the industry, he said.
India requires power distributors, steelmakers and miners to either produce or buy as much as 10 percent of their annual electricity from clean sources. Companies aren’t taking the regulation seriously, which is undermining the one-year-old market for trading renewable-energy credits, Tarun Kapoor, joint secretary in the Ministry of New and Renewable Energy, said in November.
Each credit represents one megawatt-hour of clean electricity fed into the grid. Companies facing the target include Coal India Ltd. (COAL), Oil & Natural Gas Corp. (ONGC), Tata Power Co. (TPWR) and Reliance Infrastructure (RELI) Ltd. Those failing to secure enough renewable power locally to meet the target can opt to buy credits sold by wind farms, hydropower and biomass plants over the country’s two power exchanges.

State Firms

“While the private sector companies are buying the credits as per the targets set for them, it is the state-owned companies that aren’t keeping up,” MSFL’s Iyer said.
Ramky Enviro, led by Chairman Ayodhya Rami Reddy, plans to invest 5 billion rupees from the IPO proceeds to set up a 48 megawatt “waste-to-energy” plant in Hyderabad, said Executive Director Reddy. The company forecasts sales will increase 21 percent to 17 billion rupees in the year ending March 31.
The company reported profit after tax of 2.1 billion rupees in the year ended March 31, compared with 1.5 billion rupees in the previous 12 months, according to a report dated Dec. 6 by Crisil Ltd. (CRISIL), the local unit of Standard & Poor’s.
The company plans to complete the share sale in the second quarter of this year, and raise debt to finance the rest of its investment plans, Reddy said. Share sales by Indian companies almost doubled to 573 billion rupees in 2012 as the benchmark BSE Ltd. Sensitive Index reached a two-year high last week, according to data compiled by Bloomberg.
Ramky Infrastructure Ltd. (RMKY), a group company, went public in October 2010, and its shares have slumped 72 percent from an offer price of 450 rupees, according to data compiled by Bloomberg.
“There are only a handful of companies in India setting up projects using waste to produce energy,” said Shantanu Jaiswal, a New Delhi-based analyst at Bloomberg New Energy Finance. “The sector is still developing. If Ramky and similar companies manage to generate profits from their projects, there are chances investors may look at these markets favorably.”
To contact the reporters on this story: Sharang Limaye in Hyderabad at slimaye@bloomberg.net; Archana Chaudhary in New Delhi at achaudhary2@bloomberg.net
To contact the editor responsible for this story: Arijit Ghosh at aghosh@bloomberg.net