Tuesday, March 6, 2012

Gwalior Distribution Franchisee Bid Results - 'SMART Wireless Limited (Essel Group)' emerged as a Winner

'SMART Wireless Limited', an Essel group company emerged as the winner for Madhya Pradesh's Gwalior Power Distribution Franchisee. The company quoted a Levelized Input Price (LIP) of Rs. 4.14/kWh, which enabled them to win and surpass existing DF operators like SPANCO and Torrent Power.

This rate quoted for Gwalior city is highest compared with all previous DF bids.

All 9 companies who participated in Gwalior bid were Technical Qualified (see our earlier blog Total 12 companies participated in Madhya Pradesh's DF bids for list of all received bids and participating companies for MP bids)

Some key observations from the price bid are:
  • Of all quoted LIPs, minimum was Rs. 2.52/unit, coming from an existing DF operator.
  • Average LIP of all quoted bids was Rs. 3.23/unit.
  • Existing DF operators ranked 5th and last in the financial bid. They also quoted lower for Gwalior than their existing won areas.
  • Margin between winning and 2nd price bid was Rs. 0.27/unit, a 7% lower than winning bid.
  • 3rd and 4th bids were respectively 18% and 20% lower than winning bids.
Some brief bid analysis:
  • The bid is definitely aggressive given that other players bids (with some of them fairly established in Power Distribution business) is 7-40% lower. 
  • Assuming mandated Rs. 170 cr. capex is good to bring down target AT&C loss reduction trajectory, LIP of Rs. 3.85/unit and beyond gives negative IRR for Gwalior. (The mandated capex in the RFP for Gwalior was given as Rs. 170 cr., however some experts estimated it to be higher than Rs. 350cr. minimum.) In view of this, sustaining the winning bid of Rs. 4.14/unit calls for some fundamental innovation.
  • The bid looks like an aggressive strategy from Essel group to enter into DF business in India.
  • One thing good with Gwalior bid, if it carries forward and winning company be able to deliver upon it, then it will be a real win-win situation for the Distribution Licensee. Average cost of supply of power at all India level is Rs. 3.54 with utilities making a loss of order of Rs. 1.00 to 1.45 per unit distributed/realised. With this scenario, the Gwalior utility getting a levelised price of Rs. 4.14/unit with further provision of monthly indexation, is pretty good deal for the utility.

About Smart Wireless Ltd.
The Smart Wireless Ltd. company is into generate new technologies in the messaging space and facilitate technology and process driven companies using cost effective data transfer solutions such as SMS. The Wire segment of the Essel group is currently one of the largest cable distribution system in India, with presence in 54 cities. It will be interesting to see their existing B2C reach also to the power distribution business. Overall the Essel group has wide portfolio in Infrastructure (roads, SEZ, power plants etc.), Media (ZEE, DNA being their leading brands), Technology, Education, and other diversified businesses.

pManifold Team congratulates the winning bidder company and wish them robust innovation and credible delivery to sustain strong Distribution Franchisee model growth.

Upcoming Results
Technically qualified bidders list for Ujjain city is available here. 9 out of 10 received bids were technically qualified. There is some controversy on ACME group's technical qualification for Ujjain bid and they have been not selected.

Ujjain results are to be announced on 7th March at 12 noon. With Gwalior bid going so high and with Smart Wireless Ltd. also having bidded for Ujjain and Sagar, it is to be seen, if the bids will go this level aggressive for Ujjain also. Note that Ujjain has most interest with 10 out of 12 bidding companies selecting to bid for Ujjain.

Post by: Kunjan Bagdia @ pManifold

Keeping with its positioning to help scale Distribution Franchisee business model in India, pManifold is launching a new Market Research Report on 'Input based Power Distribution Franchisee' in India. The report will provide detailed market, operational and financial insights into running a Power Distribution Franchisee. It will also include detailed previous bid analytics, including most recent from MP, future DF opportunities and trends. For more details, please see Table of Contents. You can place your order with us at kunjan.bagdia@pmanifold.com.

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