FWLT in Agreement with Indian Firm - Analyst Blog

Recently, Foster Wheeler AG (FWLT), through its business unit Global Power Group, signed a license agreement with an Indian company, The Saraswati Industrial Syndicate Ltd. As per the deal, Foster Wheeler will be providing its highly developed technology license for wall-fired subcritical and supercritical pulverized-coal (PC) steam generators. The period of the contract is 20 years for the generators to be sold in India.

Though the company did not disclose the financial terms of the deal, the value of the contract will be included by Foster Wheeler in its bookings for the third quarter of 2010. Over the period of the agreement, the company will get royalty for its license.

Foster Wheeler and Saraswati are already in an agreement, under which they have marketed in India 34 circulating fluidized-bed steam generators since 1997. Such agreements expand the global presence of Foster Wheeler by serving the domestic power demand in the emerging countries like India, with increasing high demand for power supply.

Foster Wheeler's technical expertise, long-term relationships with clients and its selective approach in pursuit of new prospects has led it to successfully book and fulfill large number of contracts. Over the longer term, we believe that the world demand for electrical energy will continue to grow and solid-fuel-fired steam generators will fill a significant portion of this incremental generating capacity. The clients are anticipated to invest in new and upgraded capacity to meet rising demand for energy, especially in the emerging economies like India.

However, the company is subject to various environmental laws and regulations in the countries in which it operates. If it fails to comply with these laws and regulations, it may incur significant costs and penalties that could adversely impact its business, financial condition, results of operations and cash flows. Further, Foster Wheeler faces strong competition from companies like Fluor Corporation (FLR) and Jacobs Engineering Group Inc. (JEC). The competitive pressure in its E&C Group was somewhat more pronounced than it was in the previous year. In its Global Power Group, demand for solid fuel boilers has also been very weak.

Foster Wheeler AG is based in Zug, Switzerland, but its operational headquarters are in Clinton NJ USA. The majority of Foster's revenues and new businesses originate from outside the United States.  The company serves the following industries: Oil and Gas; Oil Refining; Chemical & Petrochemical; Pharmaceutical; Environmental; Power Generation; and Power Plant Operation and Maintenance.

We continue to maintain a Neutral rating on Foster Wheeler, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

 
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