Is Lanco Infratech a sond investment?
-Lata
Lanco Infratech is into construction, power, infrastructure, property and wind power. The company ranks third in terms of revenue behind L&T and JP Associates.
Lanco acquired 100 per cent of Griffin Coal in March 2011 by taking a bridge loan. Griffin owns operational thermal coal mines in Western Australia. Currently Griffin is barely generating enough cash to service the interest costs on the loan. The plans to ramp up Griffin's production require an investment of Rs 42.5 billion. Given Lanco's heavy debt load (its debt-equity ratio stands at 3.6) , expansion work is unlikely to begin soon.
The company is at loggerheads with Perdaman Industries, which has filed an AUD 3.5 billion (about Rs 16,600 crore) lawsuit in the Supreme Court of Western Australia, alleging that Lanco is not complying with a 25 year-long coal supply pact related to its upcoming Collie urea plant in Western Australia.
Lanco's EPC business, which executes power projects, has an order book of Rs 292 billion. But progress on new power projects has slowed down and this will affect this business.
Lanco's stock has lost 85 per cent of its value over the past one year. Significant debt, weak operational performance, negative impact of coal mine acquisition and associated litigation will prevent a turnaround in the stock in the near future.
This article was originally published on February 21, 2012.
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