How we helped an investor assess valuation of an Indian wind OEM
India’s wind market has strong potential. Our client a leading wind player, wanted to grow its presence in India through acquisition. The client reached out to MEC+ to conduct a full market and commercial due diligence of the target, asking two key questions-
- How realistic is the quoted valuation of the target’s asset base?
- What is it’s competitive and commercial positioning in the market?
We started off by mapping the target’s landbanks with the total asset base in India and benchmarked its commercial competitiveness. In parallel, we built an understanding of the target’s internal operations, bid strategy and customer landscape. Accordingly, we framed the analysis around four issues:
How realistic were the target’s assumptions for capacity growth in the market?
To answer this question, we compared the target’s internal forecast with our own at four different levels:
- customer segment
- state of installation
- state-utility which will sign PPA
- incentive mechanism of reverse auctions vs. feed-in-tariffs
For each of the forecast, we outlined scenarios to identify the risks. This provided deep insight into the business planning assumptions of the target.
How strong were the target’s asset claims?
To qualify the claims made on the quality of the assets, we first established truth about the status of landbank by doing:
- Segmentation of the landbank into private and public land
- Assessment of maturity based on state-wise status of allotment of land and connectivity to grid
- Benchmarking of resource potential of the landbank
- Assessing the extent to which ‘right of way’ and ‘clearances’ have been secured
Then, we assessed the competitive position of sites allocated to its competitors by doing:
- Competitive benchmarking of the target’s landbank with that of the competition
- Assessing competence of the competitors to commercialise the landbank available to them in the vicinity of the target’s landbank
- Probability of securing PPA within the timeframe in which the site can be made ready by the target
And, we quantified the value of this landbank by estimating the cost of acquiring such sites either through purchases in the open market or by developing sites by applying to state governments.
How were the target’s customer relationships and performance in the market?
To identify the target’s strengths and weaknesses in terms of securing higher orders from customers over the next three years we:
- Compared target’s current market share at distinct customer segments with the growth forecast of these segments
- Assessed concentration of revenue and profitability by each customer
- Measured ability to change engagement model in line with changing govt. policies
- Took market feedback on target’s products and services through customer interviews
How well was the target positioned to compete in future?
We assessed the ability of the target to commercialise its product pipeline by:
- Benchmarking of performance and operational competitiveness against competitors
- Comparison of the current and planned offerings with that of the competition and customer needs
- Test of strength of relationship with the top customers in the market
- Assessment of the ability of the team to develop projects
Based on our recommendations and interactions with the board, the client decided to change and optimize their acquisition plan. The client started renegotiations with the target company using the updated knowledge and understanding of the target’s market positioning, capabilities and future scope to win in the market.