In this short story we explore the rise and fall of one of India’s largest power and energy conglomerates – The Lanco Group
Dear Readers,
We bring to you the tale of Indian companies that have fallen on hard times in recent years. Once a source of pride and strength for the Indian economy, many of these businesses have now been forced to close their doors due to a combination of factors such as political interference, changes in government policies, weak corporate governance, a lack of focus in business strategy, a lack of economic understanding, and the impact of global markets.
At India CSR, we aim to shed light on these stories, in order to understand what led to their downfall and to prevent similar incidents from occurring in the future. Our series, “Big Money -Big Problems“, will take a closer look at the challenges faced by these companies and the lessons we can learn from their failures.
To begin, we present to you the story of the Lanco Group, a business once considered to be at the forefront of the Indian economy. Today, we will be discussing the story of the Lanco Group, a power and energy company that once made headlines for its low bid for India’s first ultra-mega power project.
We hope that by sharing these stories, we can promote greater understanding of the challenges faced by Indian businesses and help to ensure a more stable and prosperous future for the Indian economy.
Background
The Lanco Group got public attention in 2007 when it made a low bid for India’s first ultra mega power project. The group company, Lanco Infratech, quoted an incredibly low rate of Rs 1.19 per unit, but the bid was cancelled due to flawed documents. Despite losing the project, by 2013, Lanco had 4,700 MW capacity under the leadership of L. Madhusudhan Rao, the younger brother of Lagadapati Rajagopal.
Success
The company secured $1.5 billion funding for an additional 1,320 MW power plant in eastern India and floated a subsidiary in Singapore for foraying into power projects in emerging markets. Lanco also partnered with Indonesian miner Bukit Asam and pursued solar energy projects in Europe and the US. In March 2012, Lanco Infratech had a net worth of Rs 4,643 crore.
Fall
However, by March 2015, the net worth had eroded to negative net worth of Rs 466 crore. The company posted losses of Rs 2,260 crore on revenues of Rs 7,343 crore in FY17 due to its huge financing costs and debt pile of Rs 49,960 crore. The market capitalization of Rs 12,592 crore in March 2010 had crumbled to Rs 1,099 crore just before it filed for bankruptcy. In 2017, at the time of bankruptcy, the company had 3,460MW capacity and was in the process of building an additional 4,636MW.
Insolvency
A dozen group companies were at different stages of insolvency. State-run NHPC acquired the 500MW Lanco Teesta VI hydro power project through the corporate insolvency resolution process.
L Madhusudhan Rao, Executive Chairman, Lanco Infratech Limited, in his Chairman Speech, 24thAnnual General Meeting on December 22, 2017, “The performance of the Company in the FY 2017 is affected due to inadequate fuel supply for operation of installed capacity, regulatory approvals, lack of Power Purchase Agreement, delay in sanction and disbursement of loan by lenders and liquidity problems. On a consolidated basis, total revenue was Rs. 7,510 Cr vs gross revenue of Rs. 8,335 Cr in the previous year. Net loss for the year 2016-17 was Rs. 2,049 Cr compared to a loss of Rs. 269 Cr in 2015-16. There was a Cash Loss of Rs. 1,068 Cr for the year with a Cash Profit of Rs. 593 Cr in the previous year.”
Conclusion
The story of Lanco Group highlights the importance of proper financial management and the consequences of excessive debt and losses. The company had a promising start but ultimately fell due to its inability to manage its finances effectively.
The rise and fall of Lanco Group is a cautionary tale of what can happen when debt piles up and financing costs become too high. However, despite this setback, Lanco Group’s legacy lives on through its numerous projects and the impact it had on India’s power and energy sector.
We hope this story provides valuable insights for aspiring business owners.
(Copy Right @ India CSR)
