OCTAGON Consolidated Bhd expects its proposed acquisition of a mini-power generation operation in India to help double its net profits in 2005 from the RM11mil reported for the year ended Oct 2003, according to chief executive officer Mazlan Ali.
“The forecast is based on a net profit guarantee of RM11.53mil by March 2005 from the vendors and developers of the power plants and at least RM10mil from Octagon’s coating division,” he told a press conference in Kuala Lumpur yesterday.
He said Octagon was guaranteed net profits of RM11.8mil in 2006 and RM10mil in 2007.
The industrial and specialised coatings manufacturer marked its entry into the new core business when it entered into purchase agreement to buy over RVK Energy Ptd Ltd and Kasargod Power Corp Ltd (KPCL) with several parties, including Caterpillar Power Ventures International Mauritius Ltd, K&S Consulting Group Private Ltd and Maruti Finance Pte Ltd, on Feb 21 for RM50mil.
Mazlan said the acquisitions, subject to approvals from the local authorities, would be funded internally as well as by offshore financing.
“We have some RM40mil in cash and there’s not much we need to borrow,” he said.
Mazlan said the acquisition of RVK and KPCL would provide the Octagon group not only with a stable cashflow but also a stable base for its entry into India.
With an installed capacity of 21.17MW, KPCL, one of two independent power producers in Kerala that have started commercial operations, has secured a 15-year power purchase agreement with the Kerala State Electricity Board.
RVK's plant, which boasts 19.17MW and a 12-year wheeling agreement with Transmission Corp of Andhra Pradesh Ltd, has been operating for the past four years.
Octagon had also signed a joint development agreement with KSK Energy Ventures Ltd in a tie-up aimed at looking into opportunities in future power generation ventures in India, Mazlan said.
He said the potential for power generation in India was huge in view of the current undersupply of electricity in a country of 1 billion people which was experiencing strong economic growth.
India’s current 108,000MW of installed capacity is expected to double in the next 10 years.
The world’s fourth largest economy expects a 8% to 10% growth in gross domestic product in the next 10 years.
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