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Big Deal: Renewables witness huge M&A trend, investors show interest in green energy; experts discuss

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In this episode of Big Deal, experts discuss deal trends in renewables and investor interest in green energy.

Renewables have seen maximum action on the deal street by way of investments, acquisitions and consolidation. It is clearly the sector of the future given the thrust towards climate consciousness across the world and that is why it has become a space being captured aggressively by the large corporates.
All this ties in with India meeting its green goals in the future. To discuss the entire landscape on M&A, investor interest, corporate focus and evolution of green technology CNBC-TV18’s Nisha Poddar spoke to Ajay Mathur, director-general of International Solar Alliance, Ramesh Subramanyam, CFO, Tata Power and Pramod Kumar, Head-Investment Banking at Barclays Bank.
There has been a significant amount of investment and mergers and acquisitions (M&A) activity in the energy sector, Kumar said. According to him, a huge amount of capital requirements and a very attractive market opportunity for investors are driving the energy deals. 
He said that this year alone, energy sector transactions have touched close to $10 billion, with two large transactions, including Adani Group's acquisition of SoftBank energy.
“Five years ago, this number was probably less than $2 billion. So clearly, there is a huge amount of activity that is taking place in the sector, given the large and attractive market growth opportunity,” he explained.
Tata Power CEO Subramanyam said the firm started just like many other renewal companies as solar and wind, but now has realised that it is a very different ballgame and is looking at renewables pretty differently from others. 
“Apart from just plain vanilla solar generation, wind generation or hybrid, we are looking at specific ways to address both the urban and rural areas, for example, solar pumps, a great way to reach solar power to the farmers, or microgrids to reach the far-flung villages, then EVs because that is going to be the next kind of big wave,” he said. 
He said the firm is looking at how to reach the consumer and the green energy in the best possible manner. Organic or inorganic, doesn't matter because that is only a mode of acquiring size or scale or new businesses, Tata Power is open to both, he added.
Meanwhile, Mathur said the future dialogue will be around moving away from petroleum for cars and moving away from coal for the industry as the economy heads towards decarbonizing.
“That is where the Reliance decision to move into hydrogen plays a very, very important role. With solar electricity going to make solar hydrogen and then solar hydrogen being provided to cars, trucks, steel making, and so on, completely changes the ballgame as far as the Indian economy is concerned, not just the energy economy,” he explained.
Commenting on the valuation metrics for investors Kumar said, “in technical terms, we look at free cash flow to equity as the methodology for valuing these businesses. But you also see a lot of buyers and sellers talk about EV-EBIT sort of another matrix to look at. What we have seen here certainly is over the last few years, there has been a reasonable improvement over these multiples at which these transactions have happened and that is reflective of growing interest in green energy, growing interest in India and a general reduction in the interest rate environment.” 
Therefore, a couple of years ago, transactions were being done at maybe six to seven times EBIT and are now being done at eight to nine times and even touching 10 times, he said,  adding that is kind of the uplift being seen in the valuation multiples in the sector. 
 
Watch the accompanying video for more.
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