Swan Energy Ltd (Rs.618.65): Buy

Target: Rs.1000+

Time: 9 to 12 months.

One of the most influential businessmen in NaMo's India is someone you likely haven't heard of much. If you search for Nikhil V. Merchant online, you'll struggle to find a photograph, profile, interview, or even a quote from the entrepreneur in his fifties. However, his close ties with Narendra Modi are well-known among the top ranks of the Bharatiya Janata Party (BJP) and its government in Delhi. Photo: Instgram.

While other corporate giants make headlines, the promoter of a relatively obscure company, who is believed to have Midas touch, Swan Energy Ltd, is genuinely enjoying "Achche Din" as public sector firms eagerly seek to do business with him. Swan is led by Nikhil Merchant and his father-in-law, Navinbhai Dave, who purchased it from the Goenka group in 1991.

Swan Energy Limited is an Indian business enterprise that operates in the petrochemical, textile, real estate, and energy industries. Textile, Energy, Building/Others, Distribution & Development, Warehousing, Manufacturing, and Power Generation are some of its segments.

Swan Energy's diversified business verticals include Oil & Gas, Petrochemical Manufacturing & Trading, Textiles, and Realty. Its business segments encompass Textile, Energy, Construction/Others, Distribution & Development, Warehousing, Manufacturing, and Power Generation.

Swan Energy Ltd (Rs.618.65) earlier this year raised Rs.3,000 crore from qualified institutional placement of shares, priced at Rs.670 apiece, this is at a premium of ~7.50% with respect to CMP. 

In March, 2024, its natural gas business arm Swan LNG Pvt Ltd prepaid Rs.2,206 crore of loan taken from a consortium of lenders. Post-prepayment, Swan LNG's debt has come down to Rs.1,611 crore and the firm will save around Rs.250 crore in interest cost annually.

Reliance Naval and Engineering Limited (R-Naval) is an Indian company based in Mumbai that builds ships and heavy industrial equipment. It used to be called Reliance Defence & Engineering Limited, Pipavav Shipyard Limited, and Pipavav Defence & Offshore Engineering Limited. The company is working on getting listed again on both stock exchanges.

In March, 2024 Swan Energy announced that in accordance with the order of the Hon'ble NCLT, Ahmedabad Bench dated 23 December 2022, issuance of 1 equity share for every 275 equity shares held by the existing shareholders of RNEL (Reliance Naval and Engineering Ltd) is completed. RNEL is in the process of obtaining the RELISTING approval from the stock exchanges and has made the required payments as demanded by the exchanges. The final listing approval is under consideration of the exchanges. Once the listing of RNEL is done tentatively by August, 2024, the value will unlock.

This acquisition is a strategic move for the company, positioning itself as major player in the commercial and Naval Vessel manufacturing and ship repair company in India. It is poised to become the largest private entity in its domain of operations in India. Moreover, according to my sources, there's a high chance of RNEL getting contracts for making  WAR SHIPS as it is a highly sophisticated company. 

It is to be remembered that Swan Energy is a strategic investor of Successful Resolution Applicant (SRA), i.e., Hazel Mercantile (HML), through a Special Purpose Vehicle, namely Hazel Infra (HIL), to acquire Reliance Naval & Engineering.

In a significant development, in August 2016, India's major public sector oil companies, ONGC, IOC, and HPCL, backed Merchant's favored project—an LNG terminal at Jafrabad port in Gujarat. These three firms reserved 60% of the terminal's capacity, which is a floating storage regasification unit (FSRU). Additionally, the Gujarat government company GSPC reportedly booked 1.5 MT of the terminal's capacity. These offtake agreements have made the LNG venture almost risk-free for Nikhil Merchant.

I am not aware of the final status of its Rs.5600 crore (Rs.56 billion) Floating Storage and Regasification Unit-based liquid natural gas (LNG) import terminal at Jafrabad in Gujarat, but last time I read somewhere that it is in the final stages of completion. This is a massive venture and could alone take the scrip above Rs.1000.

In 2022, Swan Energy, the manufactures and markets cotton and polyester textile products in the country expanded the capacity of its Ahmedabad plant to 3 million metres per month. 

The business aims to tap into retail and export markets in areas including Latin America, South Africa, Vietnam, Bangladesh, Sri Lanka, and the US.

Flip side: Probably, the only notable controversy involving Swan occurred in March 2009, when the Gujarat government under Narendra Modi decided to transfer a 49% stake in the Gujarat State Petroleum Corporation’s Pipavav Power Company Ltd (GPPL) to Swan Energy for Rs.381 crore.