Indian Power Sector

Power Sector Initiating Coverage
In the build-out phase Sector Outlook Positive
Initiating Coverage on the Indian Power Sector
August 2010
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset 1
Purple patch for dream merchants Sector Outlook Positive
Merchants to reap as multiple speed-breakers impede the enormous capacity-addition drive Date 23 Aug 2010
We believe power shortages will persist over the next 5 years, extending the window of merchant power
opportunity. We believe regulations will continue to favor competition, supporting merchant power prices. Though Market data
high merchant prices have partly led to all-time-high losses of state utilities, we note that several of them have Sensex 18,409
resorted to tariff hikes in order to tackle the situation, strengthening our view. Change in regulatory stance,
Nifty 5,544
unlikely as it appears now, represents the biggest risk to our view.
BSE Power 3,096
With structural, multi-year demand drivers in place, we expect >8% CAGR in power demand over FY10-15E.
BSE Power vs Sensex - Relative
Deficits are high and both the 11th as well as 12th Plans focus on substantial capacity creation. Aided by a benign
0.20
regulatory environment, private sector leads the capacity addition binge, accounting for ~50% (~15% historically) 0.15
of the 126GW planned capacity additions, lured by unfettered returns through merchant power. 0.10
0.05
Despite the thrust, we believe capacity additions will lag the plans (expect only 51GW during the Plan), given 11th
Closing price
0.00
multiple challenges on the fronts of funding and achievement of pre-construction milestones, posed by such an -0.05
unprecedented scale of capacity creation. Thus we think power shortages will likely persist. -0.10
-0.15
Comprehensive framework of analysis to pick the winners – Lanco and Torrent are our top picks
Oct-09
Apr-10
Feb-10
Jun-10
Aug-09
Dec-09
Aug-10
 Lanco and Adani are score high on growth proposition (>40% revenue CAGR), non-linear earnings (>20% RoEs), fuel
strategy as well as financial strength (strong ability to fund projects with internal accruals). We prefer Lanco due to greater BSE Power Sensex
operating experience, ability to control project execution through EPC arm and adequate valuation comfort. Performance of Indices (%)
 NHPC and GIPCL are laggards based on key parameters such as growth and execution. Between the two regulated 1m 3m 12m
utilities, we prefer NHPC due to higher operating experience, greater growth prospects as well as improving RoE profile.
Sensex 2.4 11.9 22.6
 GMR and GVK score poorly on most of the critical parameters, save the fact that GMR scores high on risk mitigation /
execution. Also, both stocks trade at a similar ~18-20% premium to our DCF valuation. We view GMR’s expansive growth BSE Power -1.7 6.0 8.3
strategies unfavorably much as we view GVK’s late stage investments into infra assets unfavorably.
 Among the integrated power utilities, Torrent scores high on growth potential, non-linear earnings (ability to retain
efficiency gains vs regulated returns of CESC) as well as quality of financials. Company is well placed on ability to fund Vijaykumar Bupathy
future power generation projects. On the other hand CESC benefits from improved fundamentals post recent capacity vijaykumar@sparkcapital.in
addition, virtual certainty of doubling generation capacities over the next 3-4 years and valuation comfort. +91 44 4344 0036
 As for PTC, we like the non-linear growth potential (power trading on a secular growth trend), expected favorable shift in Bharanidhar Vijayakumar
long-short term volumes (will earn higher margins) and risk mitigation through presence in other power related bharanidhar@sparkcapital.in
businesses. PGCIL benefits from a well insulated, fixed RoE business model, but will need equity to fund its ambitious +91 44 4344 0038
expansion plans.
We rate CESC, Lanco, NHPC, PTC and Torrent as Outperform. Our top picks are Lanco and Torrent.
Executive Summary Sector Outlook Positive
Key differentiating aspects of our report
 Unlike most analysts on the street, we believe India is unlikely to be base load surplus over the
ensuing 4-5 years
 We have formed our views after many discussions with regulators, policy makers, several unlisted
players in the space, apart from those with the various companies we cover – these interactions
highlight various execution challenges that impede capacity addition
 The merchant power theme has more steam as the regulators are unlikely to clamp down on the
merchant market, given the thrust on private investments
 We present a comprehensive framework of analysis which ranks companies across 8 key

parameters:
Operating experience Fuel strategy
Capacity expansion plans Generation economics
Execution strengths Risk mitigation
Non-linearity Financial stability
 One of the very few to be positive on NHPC and one of the very few covering Torrent Power
3
Snapshot of views on stocks Sector Outlook Positive
Com pany View
- Well poised to become India's largest private pow er utility by FY14, w ith total capacity of 9.9GW.Presently operates 990MW and expected to commission 5.7GW over FY11-12E.
- We like Adani's strong focus on timely project execution, w ell devised strategies to maximise on the merchant pow er opportunity as w ell as hedging offtake risks through long
Adani term PPAs. In the short term, the company is a quality-play on the merchant pow er market (>40% of capacities for trading).
UPF - Scores very high on generation economics, w ith ~40% of the coal requirement to be met from Adani Enterprises' Bunyu coal mines, w ith costs locked in over a five year term.
On the oher hand the company has preferred low -cost, Chinese equipments w hich could pose risks in the long run. How ever risk is mitigated through vendor diversification.
- Strong RoEs of ~22% (avg FY11-15E) and ability to fund grow th w ith accruals. How ever, trading at demanding valuations of 3.5x FY12E ABV.
- Integrated pow er business (regulated returns) in the lincense area (567sq kms) of Kolkatta and How rah provides a steady stream of cash flow s to the tune of Rs. 7bn per
annum. Cash flow s have improved since the commissioning of Budge Budge III, w hich has taken the company's capacities to 1.2GW.
CESC - Virtual certainty of doubling generation capacities over the next three years. Development pipeline of 5.5GW, of w hich 1.2 GW have all essential clearances and are expected to
OPF be operational w ithin three years, reflected in Spark's Milestone w eighted capacity of 1.5GW. RoEs to remain modest at ~10%.
- Well placed on operating experience, generation economics and risk mitigation. Comfortable financials w ith debt-equity less than 1:1 but retail venture remains a drag.
- Stock trades at 1.1x FY12E ABV and at a 38% discount to all time high on multiples and 44% discount to all time high stock price. Attractive valuations.
- With strong experience in setting up & operating pow er plants, generation portfolio balanced betw een dual-fuel sources and low pow er generation costs, the company is w ell
- placed to generate steady cash flow s over the next few years
GIPCL Suffers from lack of ambition to expand, w th modest capacity expansion plans and slow pace of project execution - SLP1 expansion took more than 5 years to get
UPF - commissioned.
Though w ell placed on fuel availability (captive mines exist for the 500MW expansion planned), scores poorly on execution track record, risk mitigation as w ell as scale of
- operations. We value the stock at 1.0x FY12E ABV.
- Infrastructure conglomerate w ith aggressive expansion plans in the pow er generation space, w ith a total development pipeline of 4.1GW that are in advanced stages of
development. Operational capacities add up to 834MW, including the 235MW, barge mounted, gas-based pow er plant at Kakinada, w hich has recommenced operations.
GMR - Virtual certainty of adding generation capacities totaling to 5x of existing capacities as evident from Spark's milestone w eighted capacity of 3.9GW (>90% of capacity), indicating
UPF most of the key, pre-construction milestones have been achieved w ith respect to the development pipeline.
- Though w ell placed on operating experience as w ell as risk mitigation,it is already leveraged heavily and suffers from poor return ratios (3.4% RoEs), even w ith merchant sale.
- Although w ell positioned on funds availability, airports business w ill likely drag profitability. Also, high contribution of realty to overall valuation of airports.
- Infrastructure conglomerate w ith expansion plans in the pow er generation space, w ith a total development pipeline of 2.0GW that are in advanced stages of development.
Operational capacities add up to 914MW.
GVK - Significant uncertainty on capacity additions w ith 1.2GW (60% of planned expansion) being gas-based, for w hich gas allocation is not yet in place. Scores poorly on most
UPF metrics such as financials, risk mitigation, generation economics as w ell as non-linear earnings potential.
- Moreover, w e do not like the company's strategy of inorganic grow th and late stage investment in infrastructure assets w here w e think upsides are more likely to be limited
- Unless the company raises funds at the parent level, the expansion plans in the pow er segment could be at risk. Airports w ill continue to soak capital.
4
Snapshot of views on stocks contd.. Sector Outlook Positive
Com pany View
- Infrastrucure conglomerate w ith a strong pipeline of pow er projects comprising of 6.3GW of thermal plants and 0.7GW of hydel plants and an in-house EPC arm largely
- constructing projects for the group.
Lanco We like the strong grow th ambitions of the company (>60% revenue CAGR over FY10-13E) backed by solid execution as reflected by a high score based on Spark's milestone
OPF - w eighted capacity score of ~85%. Though operational capacities are gas dependent, future projects are mostly coal based w hich places it at the top on generation economics.
Key risks include dependence on a single vendor for supply of BTG equipments and potential negative cash flow s from the property business, w hich is being dow nscaled.
- Well placed to fund the pow er segment's equity requirements due to the contribution from the profitable EPC business and RoEs of 12% over FY11-15E.
- India's largest hydel, pow er utility w ith operational generation capacities of 5.2GW, w ith plans to add another 4.6GW over the next five years. Most projects under development
have crossed critical milestones and doubling of capacities over this period is highly certain.
NHPC - Most experienced pow er generation company w ithin our coverage w ith a high quality balance sheet (net debt-equity of 0.4) and ability to add generation capacities w ithout
OPF diluting. RoEs likely to expand to ~10% as the capacities under development get commissioned, w ith an improving trend already established in FY10.
- Negatives are inferior return profile to NTPC as w ell as PGCIL, ow ing to high CWIP in the balance sheet, w hich does not earn any returns. As CWIP as a % of balance sheet size
- moves from >30% in FY10 to ~5% in FY15E, w e expect RoEs to improve to ~10%. Stock trades at 1.2x FY12E ABV and w e find the valuations attractive.
- India's Central Transmission Utility and the leading pow er transmission player in India, transmitting close to 50% of the pow er generated in the country.
- Natural beneficiary of the large scale capacity additions being planned in the generation space, w hich needs to be supported by adequate transmission capacities. Strong
PGCIL execution track record w ith plan achievement ratios consistently >80%.
UPF - Positives are monopolistic nature of business as w ell as rich experience in laying and operating transmission lines across the length and breadth of India. Offers steady grow th
to investors, albeit moderate grow th of 18-20%. w ith RoEs of expected to be in the 12-13% range.
- How ever the already high debt-equity ratio coupled w ith ambitious expansion plans necessitates equity dilution in order to fund such a grow th. Dilution overhang to remain.
- Industry volumes on a cyclical uptrend over the next 4-5 years, w ith India embarking upon a massive capacity addition plan w ith ~50% private participation. With the private
sector reserving a large portion (typically 20-30%) of their capacities for trading, market volumes are bound to head northw ards rapidly.
PTC - PTC is the market leader w ith strong non-replicable strengths such as >40% market share, pedigreed parentage and the only independent player in the market.
OPF - Business mix shifting in favour of long term (PPA linked) pow er trading, w hich benefits from both high visibility and unfettered trading margins.
- High quality balance sheet w ith ‘zero-debt’. Exposure to a unique tolling arrangement & potential value unlocking in other businesses.
- We take a positve long-term (2 year) stance on the company's business. We value core trading business on P/E at 22x FY12E EPS and other businesses on book / DCF.
- Integrated pow er business (regulated tariffs) in the license area of Ahmedabad, Surat and Gandhinagar operating pow er plants totalling to 1.6GW. With the distribution circle
requiring only ~1.5GW of capacities, the company can divert upto 100MW to the merchant pow er market thereby improving RoEs.
Torrent - Pioneer in successful implementation of the distribution franchising model in India, w ith the classic turn around story orchestrated in Bhiw andi. The group possesses significant
OPF non-replicable strengths, w hich w ill likely allow them to be the most successful player in the distribution franchising business.
- Driven largely by the massive capacity expansion plan (3.5GW) the company is w ell positioned to achieve strong topline grow th of ~20% over FY10-15E on a high base.
- With a debt-equity ratio of 1.2x and strong cash flow generation, w e believe the company is extremely w ell positioned to fund all its grow th aspirations.
5
Power Segment Financials and DCF Sector Outlook Positive
Com pany Pow er - Revenues, Rs.bn Pow er - EBITDA, Rs.bn Pow er - PAT, Rs.bn Pow er - RoE FY10-13E CAGR
FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E Revs EBITDA PAT
Adani 4.3 30.8 66.9 122.2 2.4 20.1 40.7 70.6 1.7 12.0 21.7 33.1 4.3% 19.3% 27.1% 32.2% 204.0% 207.1% 169.0%
CESC 32.9 35.7 35.8 36.0 8.2 10.3 10.9 11.4 4.3 4.6 5.5 5.9 8.3% 8.0% 9.1% 9.0% 3.0% 11.6% 11.1%
GIPCL 9.5 13.5 16.1 17.0 2.3 4.4 4.7 4.8 1.1 1.5 1.6 1.8 8.4% 10.4% 10.2% 10.5% 21.4% 28.2% 19.2%
GMR 27.0 24.3 33.6 75.9 5.1 7.1 11.5 31.4 1.8 3.4 5.2 12.9 10.5% 7.3% 7.0% 13.7% 41.1% 82.8% 93.7%
GVK 16.1 20.1 20.7 40.1 4.0 4.4 4.3 14.8 0.6 0.9 1.0 5.0 3.8% 3.3% 2.8% 10.4% 35.7% 54.4% 97.8%
Lanco 17.1 41.8 69.6 73.0 6.6 19.5 33.3 31.9 2.8 6.7 12.3 11.0 8.6% 13.4% 16.8% 11.5% 62.3% 69.4% 58.5%
NHPC 52.3 49.6 53.7 58.1 41.3 38.1 41.8 45.8 22.8 18.9 21.6 25.0 9.5% 6.8% 7.2% 7.8% 3.6% 3.5% 3.2%
PGCIL 71.3 85.9 102.0 119.9 58.7 72.3 87.3 104.1 20.4 21.5 27.6 32.6 13.4% 11.1% 11.4% 12.0% 18.9% 21.0% 16.9%
PTC 77.7 100.6 124.8 200.9 0.7 0.9 1.2 2.3 0.9 1.0 1.2 2.0 5.2% 4.6% 5.5% 8.5% 37.2% 52.5% 27.6%
Torrent 58.3 59.3 68.3 95.5 19.7 23.6 26.6 35.8 8.4 10.0 13.0 17.6 23.3% 23.0% 24.4% 26.2% 17.9% 22.0% 28.1%
Com pany Target DCF

Pow er Other
Overall Valn
P/ABV (x) Segm ent Segm ent Rs. / share Rs. bn Rs. / share Why not DCF ?
(Rs. Bn)
Valn (Rs. Bn) Valn (Rs. Bn)
 The sector is in the investment phase
Adani 3.3 284.4 0.0 284.4 130 104.4 48
and companies are in the process of
CESC 1.3 69.0 (10.2) 58.8 470 70.3 563 adding new projects.
GIPCL 1.0 16.3 0.0 16.3 108 17.1 113
 Hence it becomes essential to look at
GMR 1.5 111.5 84.5 196.0 50 205.9 53 the prospects of sustained value
GVK 1.0 41.5 38.1 79.6 50 60.1 38 creation and not to take a snap-shot
Lanco 2.0 145.9 70.8 216.6 90 159.0 66
view
NHPC 1.5 465.0 0.0 465.0 38 208.1 17  Evidently all the companies which are
PGCIL 2.0 459.5 0.0 459.5 109 268.6 64
adding capacities are trading at a
premium to our DCF valuations
PTC 22.0 26.4 12.9 39.3 134 - -
Torrent 3.5 206.8 0.0 206.8 438 143.4 304
* P/E for PTC instead of P/ABV
6
Valuation Matrix Sector Outlook Positive
Com pany Revenues, Rs.bn EBITDA, Rs.bn PAT, Rs.bn RoE FY10-13E CAGR
Adani 4.3 30.8 66.9 122.2 2.4 20.1 40.7 70.6 1.7 12.0 21.7 33.1 4.3% 19.3% 27.1% 32.2% 204.0% 207.1% 169.0%
CESC 36.4 36.7 36.9 34.9 8.2 10.3 10.9 11.4 4.3 4.6 5.5 5.9 8.6% 8.5% 9.3% 9.1% -1.4% 11.6% 11.1%
GIPCL 9.5 13.5 16.1 17.0 2.3 4.4 4.7 4.8 1.1 1.5 1.6 1.8 8.4% 10.4% 10.2% 10.5% 21.4% 28.2% 19.2%
GMR 51.2 53.6 67.3 113.3 13.6 18.6 25.6 47.9 2.3 (0.7) 3.0 11.9 3.4% -0.6% 2.0% 6.9% 30.3% 52.0% 74.1%
GVK 17.9 22.0 22.7 42.4 4.7 5.6 5.9 16.5 1.6 1.5 0.8 4.8 2.6% 2.0% 1.4% 10.5% 33.3% 52.3% 45.7%
Lanco 80.3 133.0 177.5 200.8 14.5 31.8 47.8 49.8 4.9 12.1 18.8 19.3 16.1% 20.9% 22.6% 19.3% 35.7% 50.8% 57.3%
NHPC 52.3 49.6 53.7 58.1 41.3 38.1 41.8 45.8 22.8 18.9 21.6 25.0 9.5% 6.8% 7.2% 7.8% 3.6% 3.5% 3.2%
PGCIL 71.3 85.9 102.0 119.9 58.7 72.3 87.3 104.1 20.4 21.5 27.6 32.6 13.4% 11.1% 11.4% 12.0% 18.9% 21.0% 16.9%
PTC 77.7 100.6 124.8 200.9 0.7 0.9 1.2 2.3 0.9 1.0 1.2 2.0 5.2% 4.6% 5.5% 8.5% 37.2% 52.5% 27.6%
Torrent 58.3 59.3 68.3 95.5 19.7 23.6 26.6 35.8 8.4 10.0 13.0 17.6 23.3% 23.0% 24.4% 26.2% 17.9% 22.0% 28.1%
Adj.
Com pany Net Debt to Equity (x) CMP Shares M.Cap Pow er ABV per share, Rs. Pow er - Price / ABV (x) Target Rating
M.Cap
FY10 FY11E FY12E FY13E (m n) Rs. bn Rs. bn FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E P/ABV (x) Price (Rs.)
Adani 2.4 2.9 2.3 1.6 140 2,180 305 305 25 30 40 55 5.7 4.6 3.5 2.5 3.25 130.4 UPF
CESC 0.3 0.5 0.6 0.9 404 125 50 61 347 387 425 466 1.4 1.3 1.1 1.0 1.30 470.4 OPF
GIPCL 0.8 0.7 0.4 0.2 115 151 17 17 88 98 108 120 1.3 1.2 1.1 1.0 1.00 108.1 UPF
GMR 3.2 1.9 1.8 1.6 63 3,893 245 161 6 14 19 25 7.4 3.0 2.2 1.6 1.50 50.3 UPF
GVK 1.0 1.7 2.8 2.9 46 1,584 72 34 15 18 26 34 1.4 1.2 0.8 0.6 1.00 50.3 UPF
Lanco 1.5 1.8 1.9 1.9 69 2,408 167 96 13 21 30 39 3.0 1.9 1.3 1.0 2.00 90.0 OPF
NHPC 0.4 0.4 0.4 0.4 31 12,301 384 384 22 23 25 27 1.4 1.3 1.2 1.1 1.50 37.8 OPF
PGCIL 2.1 1.6 1.7 1.9 103 4,209 434 434 38 49 55 62 2.7 2.1 1.9 1.7 2.00 109.2 UPF
PTC* (0.1) (0.2) (0.2) (0.3) 115 295 34 21 27 29 32 37 2.6 2.5 2.2 1.9 22.00 133.6 OPF
Torrent 0.5 0.9 1.0 1.2 340 472 161 161 84 100 125 160 4.1 3.4 2.7 2.1 3.50 437.8 OPF
7
Table of contents Sector Outlook Positive
Sections Page Sections Page
Industry Scenario Company Section

Demand Supply dynamics 9 Adani Power 46
Regulatory History and Reforms 14 Financial Summary 50
Positioning of Players 17 CESC 51
Merchant Power and Tariff based bidding take centre stage 19 Financial Summary 55
Funding is a monumental Challenge 22 GMR Infrastructure 56
Execution Challenges and Bottlenecks 23 Financial Summary 59
Losses of SEBs and the implications for Industry 25 GVK Power and Infrastructure 60
Fuel supply and associated risks 26 Financial Summary 64
Framework of Analysis 28 Gujarat Industries Power 65
Coverage Universe – Relative positioning of players 29 Financial Summary 69
Coverage Universe – Key differentiators 31 Lanco Infratech 70
The most experienced players 32 Financial Summary 74
Growth proposition – We prefer the ‘big thinkers’ 33 NHPC 75
Certainty of expansion – We prefer visible, strong execution 35 Financial Summary 79
Earnings non-linearity – prefer balanced merchant exposure 37 Power Grid Corporation 80
Fuel strategy – we like a high degree of certainty 38 Financial Summary 82
Prefer low cost power generators 39 Power Trading Corporation 83
Risk mitigation – prefer players who hedged exposures 40 Financial Summary 85
Financial Strength and ability to fund growth 41 Torrent Power 86
Summary of Ranks 42 Financial Summary 90
Valuation Discussion 43
Valuation Matrix 44
8
Sector Outlook Positive
Industry Scenario
9
#1 - Demand-Supply dynamics Sector Outlook Positive
Demand far outstrips supply and we believe

will do so for the next 5 years Supply playing catch Structural Demand
 Low demand base: Per capita consumption at up drivers in place
717kwhr, less than 30% of the global average. Such a
low base by itself should propel demand. Further,
initiatives such as ‘Power for all by 2012’ focus on
improving per capita consumption to 1,000kwhr.
FY10-15E
 High deficits: Peak deficits have remained high
De 8.5% CAGR
between 11% and 14% over the last five years. Also,
our industry interactions strongly suggest that even Sy 8.4% CAGR
the mentioned data on shortages suffer from massive
Shortages to
under-reporting due to political as well as technical
persist
factors.
 Economic growth to boost demand: Moreover, with
India expected to return to an 8.5% GDP growth
trajectory, with increased urbanization and greater
industrialization, the demand for power can only
continue growing at a healthy pace. Power demand
CAGR over FY05-10 was 7%. We believe that power
demand can witness a CAGR of 8.5% over FY10-15E.
 AT&C losses unlikely to drop drastically: We
further believe that AT&C losses are unlikely to
change materially over the next 5 years. Efficiency
gains are unlikely to bridge the demand-supply gap.
 Supply side: Despite the massive thrust on boosting
generation capacity in the 11th Plan, achievement will
pose challenges. We believe that ~51GW can be
added over the period FY10-15 and that supply can
grow at a maximum of ~8.4% over the corresponding
period.
10
India‟s per capita power consumption abysmal at 717kwhr Energy deficit has been high for more than 5 years
20,000 KWhr
16% 16%
15,000 12% 12%
10,000 8% 8%
5,000 4% 4%
0 0% 0%
Canada USA Australia Japan World China Mexico Egypt India FY05 FY06 FY07 FY08 FY09 FY10
Average
Peak Deficit Energy Deficit
Source: UN, Spark Capital Research Source: CEA, Spark Capital Research
Black outs are common and some states fail to even report them Demand for power has grown by 7% CAGR over FY05-10
State Months Affected Shedding (MW) Reported
12% 1.2
Analysed m onths
1.0
Elasticity of Demand
Tamil Nadu 27 27 1,000 - 3,000 Yes
8% 0.8
Growth %
AP 27 26 900 - 2,500 Yes
Gujarat 27 27 Staggered w eekly off Yes 0.6
Punjab 27 27 100 - 600 Yes 4% 0.4

Haryana 27 27 100 - 250MW Yes
0.2
Karnataka 27 26 500 - 1,500 Yes
Rajasthan 27 9 <200 MW Yes 0% 0.0
UP na na Industrial - Peaking pow er cuts in 08 No FY05 FY06 FY07 FY08 FY09 FY10
Maharashtra na na Industrial - Peaking pow er cuts in 09&10 No Demand Growth De Elasticity vs GDP growth
Source: CEA, Spark Capital Research Source: CEA, Spark Capital Research
11
High AT&C losses have consistently plagued India‟s power generation sector. Through a combination of various measures starting from
unbundling of SEBs to implementation of R-APDRP, such losses have been lowered since 2003. Based on our interactions with various
industry participants, we believe that AT&C losses can be brought down to the range of 21-22% of the course of the next 3-4 years. We
adjust our supply forecasts based on AT&C losses in this range.
Technical losses – Control measures initiated Commercial losses – Control measures initiated
 Inter-state transmission projects initiated by PowerGrid -  Unbundling of SEBs – 22 states have unbundled their SEBs into
PowerGrid, India’s Central Transmission Utility has been entrusted with GENCOs, TRANSCOs and DISCOMs. Serves to improve collection
these initiatives and will look to spend a total of Rs. 550bn over the 11th efficiencies.
Plan period and Rs. 900bn over the 12th Plan period.
 Restructured APDRP – Targets cities with population of >30,000 and
 Progress on intra-state transmission projects initiated by State uses a unique ‘Carrot & stick’ approach to derive better results. Targets
Electricity Boards - States such as Maharashtra, Rajasthan, Madhya a total spend of Rs. 500bn during the 11th Plan.
Pradesh, Gujarat and Chattisgarh have initiated projects to reduce the  Privatization of distribution – Two popular routes -1) Distribution
AT&C losses within their respective states. Total spend of Rs. 400bn privatization as well as 2) Franchisee model of distribution. Successful
envisaged over the next 3 years. implementation restricted to large cities.
AT&C Losses have reduced since 2003 Scenario analysis - AT&C losses and implications on power supply
40.0% Supply CAGR Over FY10-15E
AT&C % Capacity addition over the period GW
36.0% 56 60 63 67 71 75
AT&C Losses (%)
27.0% 5.0% 5.4% 5.7% 6.1% 6.4% 6.7%

32.0%
25.0% 5.6% 5.9% 6.3% 6.6% 7.0% 7.3%
28.0% 23.0% 6.1% 6.5% 6.8% 7.2% 7.5% 7.9%
21.0% 6.7% 7.0% 7.4% 7.7% 8.1% 8.4%
24.0%
19.0% 7.2% 7.6% 7.9% 8.3% 8.6% 9.0%
20.0% 17.0% 7.7% 8.1% 8.5% 8.8% 9.2% 9.5%

FY03 FY04 FY05 FY06 FY07 FY08 15.0% 8.2% 8.6% 9.0% 9.3% 9.7% 10.0%
Source: CEA Source: Spark Capital Research
12
Supply plays catch up – we expect supply to grow at a maximum of 8.4% over the next 5 years
 Supply grew by ~7% CAGR over FY05-10: Power supply CAGR over the last five years has been 7.4%, largely playing catch up with the burgeoning
demand for power in the country. We note that this is grid connected power and does not include captive power plants, which add up to ~20GW of
capacity, most of which have been set up since 2003.
 Strong push to power generation during the 11th Plan period: Targets set for this plan period were ambitious at ~78GW of generation capacities,
representing almost a two-fold increase over the corresponding target during the 10th Plan period. Moreover, this plan lay more emphasis on the private
sector, which was expected to add 19% of the capacities (against historical 13% controlled by them).
 Capacity additions to be missed during the 11th Plan as well: Over the first 39 months of the 11th Plan period, ~24GW of generating capacity has
been added, leaving us with an expected capacity addition of ~54GW during the remaining 21 months of the plan period. Assuming certain delays across
power plants that are under construction (delays likely given limitations of BTG suppliers and EPC contractors), we believe a maximum of ~51GW could
get commissioned during the plan period
 Power deficit scenario likely to persist: Even if we assume the above addition of ~51GW during the 11th plan period and a large portion of the
slippages getting commissioned during subsequent years, supply can grow at a maximum of 8.4% CAGR over FY10-15E (factoring in AT&C at 21%
by 2012 and no efficiency gains thereafter).
Greater focus on private participation in the 11th Plan period 11th Plan achievement to be higher but not adequate
250.0 25.0% 60 70%
Achievement (GW)
200.0 20.0% 45
60%
GW
150.0 15.0%
30
100.0 10.0%
50%
15
50.0 5.0%
0.0 0.0% 0 40%

FY07 11th Plan FY12 8th plan 9th plan 10th plan 11th plan
Central State Private Private % Achievement Achievement %
Source: CEA, Spark Capital Research Source: CEA, Spark Capital Research
13
We foresee a marginal improvement in the deficit scenario over FY11-13 but unlikely to sustain given the robust demand growth expected
1,400 14%
1,200 12%
1,000 10%
Power shortage
800 8%
Bn units
600 6%
400 4%
200 2%
0 0%
FY12E
FY15E
FY06
FY09
FY11E
FY13E
FY14E
FY04
FY05
FY07
FY08
FY10
Supply Demand Def icit
14
#2 – Regulatory history and reforms Sector Outlook Positive
Post independence era - The structure of electricity industry in independent India was laid down by the Electricity (Supply) Act 1948. Except for some
pockets such as Mumbai, Kolkata, Ahmedabad and Surat, the entire industry was nationalised by virtue of the aforesaid Act.
During the 1980s, separation of generation from transmission had emerged as a best practice in developed countries. In India too, inter-state transmission
was segregated and assigned to Power Grid Corporation in the early 1990s. Setting up of generating stations in the private sector was also enabled.
Distribution of electricity, however, remained a monopoly in the hands of State Electricity Boards (SEBs) that continued to function as integrated utilities.
Reform of the power sector during the 1990s failed to make a material improvement in its quality and viability. The Government, therefore, decided to
take a fresh look at the industry structure with a view to evolving a new law based on emerging best practices. This led to the eventual promulgation of the
Electricity Act, 2003.
Overview of the regulatory framework

Governance Under the Constitution of India, electricity is a „concurrent‟ subject, implying that the governing responsibility is
divided between the central and the state governments.
Legislation The Electricity Act, 2003 was passed to consolidate the laws relating to generation, transmission, distribution, trading and use of
electricity. That apart, the law lays emphasis on role of government, rural electrification and consumer protection. The Act
replaced the following acts 1) The Indian Electricity Act, 1910, 2) The Electricity supply Act, 1948 and 3) The Electricity
Regulatory Commissions Act, 1998
Shift in paradigms –  Obviated the need for individual States to enact their own reform laws
EA 2003  Central Government required to be prepare National Electricity Policy and Tariff Policy
 Generation of electricity was de-licensed
 Trading in electricity was recognized as a distinct, licensed activity
 SERCs made mandatory
 Tariff principles laid down
Concessions /  All projects can avail 100% FDI under the automatic route
benefits for the power  Any project can borrow through the ECB window for an amount not exceeding US$ 500mn a year
sector
 Mega power projects can avail customs duty waiver and deemed export benefits – subject to restrictions on unbundling of
SEBs and privatization of distribution
 All green field projects can avail tax benefits under Section 80IA of the Income Tax Act.
15
Ministry of Power
Electricity Act, 2003
Central Electricity Authority Regulatory Commissions Appellate Tribunal for Electricity

Advisory,  Technical coordination and  Regulate tariffs for generation  Hear appeals or original
Regulatory supervision of programmes as well as transmission petitions against the orders of
& Judiciary AO / RCs / Joint Commission
 Various statutory functions  Licensing for trading,
transmission and distribution
Generation Transmission License Area
 Central Generation  Bulk Consumer

 Trading Licensee
Stations
 Retail Consumer
Functional  State Utilities  State Distribution
Layer Licensee  Captive Consumer
 Private Generation
Transmission by Transco
 Captive Generation for a transmission charge
Transmission Open Access Distribution Open Access (in phases)
16
Post Electricity Act 2003

Power generation opened up
to market forces
Current scenario Partly deregulated Allowed Regulated

Partly deregulated Fully deregulated
(private participation (margins capped on (Franchisee model
(captive mines) (no cap on RoEs)
allowed) short term trades) allowed)
Fuel Generation Transmission Trading Distribution
Regulated Regulated Regulated Not permitted Regulated

Earlier scenario
Prior to Electricity Act 2003

The entire value chain
effectively regulated, with
14-16% RoEs
17
#3 – Positioning of the players Sector Outlook Positive
Power Generation – Removal of cap on returns attracts several private participants

Several private players have entered the power generation space over the last 7 years. As at FY10, Tata Power was the largest private player with
operational capacities of ~2.7GW and the only private player with >2GW of commissioned capacities.
However, we expect more than 25 private players to set up substantial generation capacities over the next few years. Over the next seven years, we
estimate that 12-15 players will have operational capacities greater than 2GW each.
Split of capacities among private / listed players – 48GW in FY10 Split of capacities among private / listed players – 130 GW in FY17
Essar Reliance Energy Sterlite Energy

GIPCL GMR IndiaBulls Pow er
1% 1% Lanco 2%
NLC 1% 3% JSW 2%
3%
GMR Adani 5% Jaiprakash 2%
GVK 2% 1% 4% CESC
GVK
2% Torrent 2%
2%
5% Essar
Lanco
CESC Tata 2%
2%
3% 5%
NHPC GIPCL
Torrent
5% 1%
3%
JSW
2% NLC
Jindal 5%
4%
Tata Adani NTPC
NTPC
4% 5% 32%
61%
NHPC Jindal
8% 7%
Reliance Energy
14%
18
#3 – Positioning of the players Sector Outlook Positive
Transmission and Distribution

India’s inter-state transmission lines are constructed, controlled and operated by PowerGrid, which is the central transmission utility. Intra-state transmission
lines are controlled by the respective states. Only limited initiatives have been taken on the front of privatization of transmission, largely due to the
monopolistic nature of power transmission. In most states, distribution still rests with the respective DISCOM. A few states such as Maharashtra, Delhi,
Kolkatta and Gujarat have experimented with privatization, with reasonable success.
Private participation in transmission Private participation in distribution
Details of the Transmission N/W Circle Licensee
Power Transformation Tata Power, Reliance Power (along

Mumbai
Generator Capacity Transmission Lines with BEST)
Torrent Power Formed Torrent Power Completed commissioning Delhi BSES
Grid Limited with PGCIL of two transmission lines.
to lay evacuation lines for Kolkata CESC
its Sugen Plant.
Ahmedabad, Surat, Gandhinagar Torrent Power
CESC 1,412 MVA (33kV and 528 ckt. Km
above) Input based distribution franchisee model
Adani Power na a) 400KV, 800km line
Mundra to Dehgam Circle Franchisee
b) 500KV HVDC line of
800kms from Mundra to Bhiwandi Torrent Power
Haryana
Agra Torrent Power
Reliance Power na 300 kms transmission line
for Parbati and Koldam Kanpur* Torrent Power
Projects in Himachal
Pradesh Dahej SEZ Torrent Power
*under dispute
Power trading
Trading in power started in 2008 and since then has become highly competitive with several private players entering the space. Though 37 trading licenses
have been issued so far there are only a handful of players who are active in this space with top 5 players accounting for approximately 88% of the total
traded volume. PTC with ~40% share, Lanco (~14%), NTPC (~ 13% ), Tata Power (~11%) and Reliance Energy (~9%) are the top 5 trading licensees.
19
#4 – Merchant power and tariff based bidding take centre stage Sector Outlook Positive
‘One size fits all’ strategy „Horses for courses‟ strategy that also promotes healthy competition
Differentiators Regulated RoE Model Tariff based bidding under section 63 of the Electricity Act, 2003 Merchant Pow er
Case 1 Case 2
Process Central utilities / private players Competitive Bidding - Fuel, Competitive Bidding - Location Usually a small portion (15-
invited to set up capacities for fixed technology or location not specified specific projects w here fuel source 30%) of plant's capacity
RoE is know n traded in the pow er market
Relevance Limited - Phased out for private High - Several states w ill invite bids High - Several states w ill adopt this High - Given pow er
sector from January 2006 and to be under this route to meet the route for location specific / large shortages all players allot a
phased out for public sector from prevailing pow er shortages sized projects certain portion of generation
January 2011 capacity to trading
Utility Five year moratorium given to the Smaller load requirements at the Hydel projects and load center Taking advantage of the
CPSUs to adjust to the level playing load dispatch centres - typically 300- projects of higher capacities - short term pow er market
field 500MW typically >1,000MW
Components of the Typically a tw o part tariff Capacity charge and Energy charge Capacity charge, energy charge, na
tariff comprising of a fixed charge and a transportation energy charge and
variable charge fuel handling charge
Active States All states used to adopt this route Haryana, Madhya Pradesh, Punjab, Uttar Pradesh, Chattisgarh, na
earlier Rajasthan, Gujarat, Karnataka & Haryana, Punjab & Maharashtra
Bihar
Instances All NTPC and NHPC plants. GVK's GMR - 330MW Kamalanga All the UMPPs, Anpara, Talw andi 210MW GMR Energy
Goindw al Sahib plant in Punjab Sabo, Rajpura, Bhaiyathan, Bara,
Karchana, Jhajjar, Dhopaw e
20
Progressive regulations More than 25GW awarded under Case 1 competitive bidding
 Reforms delineated tariff setting from politics 10.0
by setting up SERCs.
8.0
Case 1 bids (GW)

 One time settlement of dues of the SEBs,
through the issue of bonds. 6.0
 Further, utilities are empowered to stop 4.0
supplying power to defaulting states and 2.0

divert power to other states.
0.0
 PPAs take the form of tri-partite agreements R-Power Adani JSPL India Bulls GMR JSW Tata CESC Torrent GVK Jaiprakash Lanco
make all parties accountable. Security of
escrow accounts is available in most cases.
Projects bid under Case 2 competitive bidding
 Last but not the least, market forces were Particulars Capacity State Fuel Low est bidder Aw ard Low est bid
unleashed through the introduction of (MW) (Rs. per unit)
competitive bidding. UMPPs were at the UMPPs
forefront of competitive (case 2) bidding. Sasan 3,960 Madhya Pradesh Captive Reliance Pow er July'07 1.20
Mundra 4,000 Gujarat Imported coal Tata Pow er Dec'06 2.26
 More than 25GW of power projects have
been awarded under case 1 bidding. R- Krishnapatnam 4,000 Andhra Pradesh Imported coal Reliance Pow er Nov'07 2.33
Power, Adani, JSPL, GMR and India Bulls Tilaiya 4,000 Jharkhand Captive Reliance Pow er Jan'09 1.77
are the companies with maximum Case 1 State Projects
capacities. Anpara C 1,200 Uttar Pradesh Linkage Lanco Infratech Jun'06 1.56
Bhaiyathan * 1,600 Chattisgarh Captive India Bulls Mar'08 0.81
 More than 28GW of power projects have
Jhajjar 1,320 Haryana Linkage China Light and Pow er Mar'08 3.00
been awarded under case 2 bidding. With
clearances, linkages and land acquisition Talw andi Sabo 1,980 Punjab Linkage Sterlite Jul'08 2.86
taken care of prior to award, these Rajpura 1,320 Punjab Linkage Lanco Infratech ** Feb'09 3.31
projects are expected to be executed as Bara 1,980 Uttar Pradesh Linkage Jaiprakash Feb'09 2.97
per schedule. Karchana 1,320 Uttar Pradesh Linkage Jaiprakash Feb'09 3.03
Dhopaw e 1,600 Maharashtra Imported coal Lanco Infratech Feb'09 3.60
* Only 65% Needs To B e So ld A t Co mmitted Rates. B alance Can B e Ro uted Thro ugh M erchant M arket
** Lanco Was The So le B idder A nd The B ids A re To B e Called A gain
21
Merchant Power Rates – Key conclusions

• Given the power shortages, we believe Recent rounds of
merchant power prices should trade at a Peak UI charges
Case 2 bidding
premium to the long term (low risk) rate of of Rs. 7.35 to act Merchant
provide an
Rs. 3.0 per unit discovered under recent as natural cap on power
Case 2 bids. indicative floor for
merchant power prices
merchant power
• UI charges at Rs. 7.35 per unit provide a prices
prices at ~Rs. 3
natural cap to such merchant power prices.
• This scenario will likely continue till FY15E,
till when we expect the power deficits to
continue.
• Convergence of merchant power tariffs and Merchant Rates FY10 FY11E FY12E FY13E FY14E FY15E
long term PPA rates not likely within this
period. Rs. per Kwhr 5.5 5.0 4.5 4.0 4.0 3.5
Tariffs fluctuate daily based on peaks and troughs Merchant rates fluctuate based on seasonality & other factors
Rs. per unit Rs. per unit
Poor Summer
5.0 16.0 6M
Peak hours Elections monsoons peak Avg
14.0 Rs.
4.5 4.7
12.0 Winter &
4.0 10.0 Cap on
Lean merchant
hours 8.0 rates
3.5
6.0
3.0
4.0
2.5 2.0
2.0 0.0
Nov-09
Jun-09
Jan-10
Jul-09
May-09
May-10
Mar-10
Feb-10
Apr-09
Oct-09
Apr-10
Dec-09
Aug-09
Sep-09
12- 3 AM 6 AM 9 AM 12 PM 3 PM 6 PM 9 PM
Midnight
Source: CERC Source: CERC
22
#5 – Funding is a monumental challenge Sector Outlook Positive
Private sector lines up

huge capacity additions FY11-15 Central & State utilities Private
Over the next 5 years, we
expect a total of 126GW of
power plants to be under
construction. Private sector is • Debt equity of • Debt-equity of
expected to lead this capacity 70:30 assumed in 75:25 assumed as
addition with a share of line with CERC with most power
guidelines plants
>50%.
Funding such massive
investments will challenge Debt
India‟s financial system
Rs. 2.28tn Rs. 2.48tn
• Out of the box solution
needs to emerge for
funding the debt – As
exposure limits to 126GW
infrastructure is already at 62GW of capacity with addition & 64GW of capacity with
an all time high, banks will
spend of Rs. 3.25tn Rs. 6.56tn spend of Rs. 3.31tn
struggle to meet the
needs. Solutions like Infra spend
NBFCs, ECBs, relaxation
of CRR / SLR for infra
lending and use of forex
reserves to fund Rs. 0.98tn Rs. 0.83tn
Equity
infrastructure need to be
explored.
• Equity – Only a handful of
players such as GMR, • Debt equity of • Debt-equity of
KSK, Adani and R-Power 70:30 assumed in 75:25 assumed as
have raised equity. More line with CERC with most power
guidelines plants
equity will be required.
23
#6 – Execution challenges and bottlenecks Sector Outlook Positive
Several factors beyond Key execution challenges affecting developers – a straw poll among our industry contacts
developer‟s control  Environmental is a key challenge affecting power plant developers - Significant overlap of dense forest cover with
location of coal mines and similar overlap with river basins with hydro power potential. EC is a 9 month process and FC is a
 Physical implementation attributes - 12 month process but invariably takes longer.
Several processes such as land
 Law and order issues – All the seven coal rich states of India are affected by naxal / maoist violence, with the frequency of
acquisition, environment clearance, these attacks only increasing in the recent past. Implementation of hydel projects in North and North East also impacted due
pollution clearance and chimney height to frequent agitations.
clearance are beyond the control of the  Land acquisition frequently results in public unrests. Eg. Cuddalore district of Tamil Nadu and Srikakulam district of
developers. These clearances add up to Andhra Pradesh.
more than 20% of a projects gestation  Water allocation can present challenges even after project completion. Eg. Sipat plant of NTPC in Chattisgarh.
period.
 Economic / financial attributes - Activity/Months 0 12 24 36 48 60

Further, approvals for mega power DPR Preparation
status, financial closure and compliance
Fuel Linkage
with foreign currency borrowing
Water clearance
guidelines also add up to execution time
lines. These processes add up to 25% of Land Acquisition
a project’s gestation period. Env & Forest clearance
Pollution clearance
 In all, such processes add up to a Land Development
significant portion of a project’s gestation Financial closure
period. Ability to complete these
Chimney height clearance
processes within the requisite time lines
Equipment Ordering
calls for both experience as well as
patience on the part of developers. EPC award
Construction
 With more than 12% of announced Testing/Trial runs
capacities or ~36GW expected to come Commissioning
from new entrants with little or no ‘skin in
the game’ execution experience will be a Outcomes outside Outcomes within
Pre-commissioning control of developer developers control
key determinant that can differentiate Pre-constructionstage
stageis
is very
critical for projects
players. critical for projects
24
#6 – Execution challenges and bottlenecks Sector Outlook Positive
Constraints in supply of critical Over the next 3-4 years more then 5 new BTG players should enter the market
equipments Com panies Capacity Tie ups Products In house capacity
 10th Plan miss largely due to (Announced) Boiler TG Designing BoP EPC
equipment shortages - Under
BHEL 20,000 Alstom / Siemens Yes Yes   
achievement (51% achievement) of
capacity addition targets during the 10th L&T 4,000 Mitsubishi Yes Yes   
plan period was largely attributed to Thermax 3,000 Wilcox & Babcock Yes No   
equipment supply constraints. BGR Energy 4,000 Hitachi Yes Yes   
 11th Plan relies heavily on use of JSW-Toshiba 3,000 Toshiba No Yes   
imported equipments - Recognizing Bharat forge - Alstom 5,000 Alstom No Yes   
that relying on domestic vendors will lead GB Engineering- Ansaldo 2,000 Ansaldo Yes No   
to delays, the developers have placed Total Capacity (MW) 33,000 36,000
orders totaling to 35% of 11th plan
capacities with foreign vendors.
 However, Chinese capacities are Use of Chinese equipments – a straw poll among our industry contacts
untested in the long run and could pose
Operating capabilities of Chinese equipments are not proven as most plants in China operate at sub-70% PLFs due to the
challenges such as non-availability of massive capacity build up. Also, the ability of the equipments to handle low quality Indian coal has also been suspected .
spares.
Moreover, Govt. of China recently banned the production of power plant equipments of low unit sizes (typically 200-300MW),
 A systematic process of indigenization an initiative towards lowering pollution. For Indian power companies using Chinese equipments of such unit sizes, servicing
could pose challenges.
has been initiated whereby several
private players are setting up BTG “Given such prevalent risks, why do so many developers opt for Chinese equipments? What are the pay offs? “ – We
asked the experts
manufacturing capacities in India.
 Cost savings – Chinese equipment is up to 20% cheaper.
 Domestic manufacturing facilities to
 Speedy delivery – Delivery schedules of Chinese equipments are invariably met unlike BHEL. A clear 1 year arbitrage
be ready only for 12th plan additions - exists between BHEL and Chinese vendors. Given the impetus on timely project completion to tap the lucrative merchant
Capacity constraints should ease power market, many private players have gone with Chinese vendors.
starting FY13 or so, by when most of the  Risks are over blown – Risk of equipment malfunction or inability to operate at higher PLFs are over blown. West Bengal
33-36GW of BTG capacity additions has already implemented the Sagardighi project with Chinese equipments. The plant has operated at 80-85% PLFs over
should have materialized. the last one year.
In summary, most private players have opted for Chinese equipments to benefit from the attractive merchant power
Bottom line – Constraints exist but rates. Although the lifecycle of these equipments could be shorter, it is not a near-term concern.
efforts afoot to improve situation.
25
#7 – Losses of SEBs and the implications for industry Sector Outlook Positive
SEBs have resorted to increased purchase of power from short term market The losses of state utilities are driven by an inter play
 Over the last two years, the top five states (in terms of volume of short term power purchases) are of AT&C and dependence on high-cost short term
power purchases without corresponding tariff
Tamil Nadu, Rajasthan, Uttar Pradesh, Maharashtra and Haryana accounting for 64% of the power increases.
purchases in the short term market over Aug’09-Jun’10. In particular, states such as Rajasthan and
We believe that the efficient utilities (like TN) will likely
Haryana have consistently met more than 15% of their demand through short term power purchases.
increase tariffs while the inefficient utilities (like J&K)
 As the prices of such short term power purchases largely range from Rs. 3 to Rs. 6, much higher than will likely focus of efficiency gains.
say NTPC‘s (30% market share) average realization of Rs. 2.5, the financial health of utilities resorting
to short term power purchases is under strain.
 Although the losses of SEBs are ballooning, we believe that a repeat of 2002 is unlikely. We States AT&C Losses Short term Dep'ence
% Rs. bn Purchase % trend
further believe that increases in consumer tariffs are inevitable for those states that are already
efficient in transmission (low AT&C) while the others will focus on efficiency gains. SEB losses FY08 from Aug'08
will have to be tackled in a prudent manner. Uttar Pradesh 35% (63) 6% 
Pass on increase in tariffs to

Tamil Nadu 16% (50) 7% 
consumers Positive for
Or merchant power Punjab 19% (42) 7% 
– ST & LT
State Govt. subsidy
Buy power under Rajasthan 33% (36) 16% 
the short term
window Haryana 32% (29) 13% 
Positive for
Utilities bear the incremental merchant power
Andhra Pradesh 16% (25) 3% 
Options costs resulting in cash flow
– Not
with strain Madhya Pradesh 47% (24) 3% 
sustainable
power
Bihar 44% (15) 1% 
deficient
SEBs Karnataka 32% (14) 2% 
J&K 72% (14) 7% 
Pull down supply by Jharkhand 58% (12) 5% 

Short term solution but meets Negative for
resorting to load with political resistance merchant power
shedding Gujarat 23% (11) 1% 
(336)
26
#8 – Fuel supply and associated risks Sector Outlook Positive
Coal is the fuel of choice; Imports to meet shortages Recent Indonesian coal mine acquisitions by Indian utilities
Coal / lignite based generation capacity accounts for ~67% of the Plan 11th Acquirer Year Nam e of m ine Mode of Valn Reserves
target. The choice is obvious as India possesses the third largest coal acquisition
reserves in the world, after USA and China. Rs. m n MT
 As a result of the focus on coal-based power generation, the annual coal R-Pow er May'08 South Sumatra Coal 100% stake in 3 40,000 1,200
requirement, we expect, will actually increase at a CAGR of 12% over Mines mines
FY10-15E. Tata Pow er Apr'07 Bumi Resources (Kaltim 30% stake in 46,200 7,200
Prima Coal and Arutmin) Bumi Resources
 Compare this with the 6.8% growth (CAGR) in domestic coal production
over FY04-10. Thus we do not foresee Coal India and its subsidiaries GMR Feb'09 PT Barasentosa Lestari 100% stake in 2 4,000 100
captive coal
gearing up production to meet with this demand.
Adani 2008 blocks
Bunyu Mine 100% ow nership 6,000 140
 The shortfall is expected to be met through imports, primarily from
Indonesia and Mozambique. Several Indian companies have already JSW 2007 Sungai Belati Long term na na
ventured to buy mines in these countries. Coal imports expected to agreemnt
cross 100MTPA within the next 3-4 years and will likely pose a huge Source: Industry Sources, Spark Capital Research
logistical challenge in the years to come.
Power sector‟s coal requirements and the import component Stringent points system implemented to award coal linkages
Criteria Rationale Points
900 25%
Proportion of imported coal

750 20% Prefer large unit sizes & super-
Size and technology 20
600 critical technology
Mn tons
15%
Prefer projects that have LA
450 Stage of land acquisition 50
visibility
10%
300
Location of the plant Prefer pithead plants 20
150 5%
Use of sea w ater instead of fresh
0 0% Nature of w ater use 10
w ater
FY04 FY06 FY08 FY10 FY12E FY14E
Domestic coal production Coal imports Imports % Total Points 100
Source: Coal India, Spark Capital Research Source: Coal Linkage Committee
27
#8 – Fuel supply and associated risks Sector Outlook Positive
Natural Gas – Still some steam left Hydel – No fuel risk but other factors compensate
 Until production from KG-D6 commenced in the early part of FY10, Given their longer life and zero fuel cost, they are beneficiaries in an
~9.4GW of gas-based capacities were grossly under utilized. inflationary environment and are capable of acting as peaking stations,
which can earn merchant tariffs. But these plants suffer from
 However, gas supply visibility has improved with the commencement of
Execution timelines are stretched
supply from RIL’s KG-D6. That apart there have been discoveries of
more than 22 tcf of gas over the last 6 years, comprising GSPC’s Deen  Extended time period required for the preparation of DPR, which can
Dayal (20 tcf) and ONGC’s KG-DWN-98/2 (2-14tcf). even take 18-24 months.
 Based on our industry interactions, we estimate that the supply of natural  Accessibility, natural disasters such as flash floods / land slides and
gas will range between ~180-215mmscmd by FY14. This represents a geological surprises can hamper the execution of these projects.
20-33% increase over the existing supply situation.  These projects can take more than 7-8 years to implement.
 Consequently companies such as GMR, GVK, Lanco and Torrent Projects face the wrath of locals
are expanding their existing gas-based capacities by ~5.4GW so as  Rehab & resettlement often comes in the was of land acquisition.
to tap the improved supply of natural gas.
 Protests by locals is very common
Domestic gas supply expected to support >20GW of gas stations Instances of implementation issues of hydel plants
Project & Developer MW Likely Key issues
Gas supply expected by FY14 - Conservative (mmscmd) 215 CoD
Flash floods in 2007 &
Gas supply expected by FY14 - Aggressive (mmscmd) 183 Teesta Low Dam III, NHPC 132 FY11
2009; agitation by locals
Uri II Earthquake: Oct ’05
Allocation to pow er sector 50% 240 FY11
NHPC Slide near dam: Jan ’08
Chamera II Coffer dam w ashed
Gas based capacity that can operate - Conservative (MW) 18,716 231 FY11
NHPC aw ay: Jul ’07
Loharinag Pala Agitations by
Gas based capacity that can operate - Aggressive (MW) 21,989 600 FY13
NTPC environmentalists
Parbati II
Potential additional Gas-based capacities (MW) 6,183 800 FY13 Poor geological strata
NHPC
Source: Industry Sources, Spark Capital Research Source: CEA
28
Framework of Analysis
29
Coverage universe – Relative positioning of players Sector Outlook Positive
Across the power value chain -

generation, transmission and distribution.
Generation: Operational capacities at Pure Generators
12.9GW. NHPC is the largest player with NHPC 5,175MW
operational hydel capacities of 5.2GW. GIPCL 810MW
Torrent is the largest thermal power player
GVK 914MW
with operational capacities of 1.7GW.
Transmission: PGCIL is the virtual
monopoly in this space, with limited private Generation, Trans &
entrants. Distribution
Trading: Still a nascent business with only
Generation
CESC 1,225MW
9% of generation being traded (including UI).
PTC is market leader with 40% market share. Torrent 1,648MW
Generation, Trans & Trading

Adani Power 990MW
Generators & Traders
GMR 834MW
Lanco 1,482MW
Transmission &
Energy Trading Distribution
Traders
PTC Operational PPAs for Pure Transmission
1,648MW PGCIL 77,000kms of
transmission lines &
Pipeline of >13GW 132 substations
30
Coverage universe – Relative positioning of players Sector Outlook Positive
Existing Other
Company Comments on the pow er business Market Cap. & FY10 Financials, Rs. bn
capacities Business
M.Cap Revenues EBITDA PAT
Rapidly grow ing, new -breed private utility focused on coal-based pow er
Adani
Generation: 990MW generation and pow er trading. Constructing a dedicated transmission line from 304.9 4.3 2.4 1.7
Pow er
Mundra to Haryana.
Establised, integrated, coal-based pow er utility in Kolkata region earning

Generation: 1,225MW Retail,
CESC regulated returns on the capital base. Aggressive expansion plans in pow er 50.5 36.4 8.2 4.3
T&D: Serving 2.1mn customers Property
generation.
Generation: 810MW Established pow er utility w ith both gas-based as w ell as lignite-based
GIPCL 17.4 9.5 2.3 1.1
Mines: Vastan & Mongrol generation capacities. Working w ith modest grow th plans.
Large, integrated infrastructure player, w ith focus on thermal (coal-based &

Airports,
GMR Generation: 834MW gas-based) pow er plants in the medium term and renew able energy sources 231.0 51.2 13.6 2.3
Roads, EPC
in the long term.
Large, integrated infrastructure player, w ith focus on thermal (coal-based & Airports,
GVK Generation: 914MW 72.2 17.9 4.7 1.6
gas-based) pow er plants as w ell as renew able energy sources. Roads
EPC,
Rapidly grow ing, new -breed private utility focused on coal-based pow er
Lanco Generation: 1,482MW Property, 167.0 80.3 14.5 4.9
generation and pow er trading.
Roads
India's largest, established hydel pow er generator w ith aggressive expansion

NHPC Generation: 5,175MW 384.4 52.3 41.3 22.8
plans.
India's Central Transmission Utility and monopoly in intra-state pow er

77,000 ckms of transmission Telecom and
PGCIL transmission, focused on enhancing transmission capacities to meet the rapid 434.4 71.3 58.7 20.4
lines and 132 substations consultancy
increase in generation capacities.
Infrastructure
Market leader in pow er trading having high visibility on the future traded
PTC PPAs: 1,680MW NBFC, Pow er 33.9 77.7 0.7 0.9
volumes w ith strong pipeline of PPAs
Tolling
Generation: 1,648MW
Establised, integrated, pow er (coal & gas-based) utility in Gujarat. Aggressive
Torrent Distribution: Serving 2.5mn 160.8 58.3 19.7 8.4
expansion plans in pow er generation.
customers
31
Coverage universe – Key Differentiators Sector Outlook Positive
We evaluate the companies under our coverage using the following key parameters
Experience – prefer players with maximum experience
Growth proposition – biased towards players with strong growth ambitions
Strong execution capabilities – but ambitions need to be backed with execution
Earnings non-linearity – prefer balanced merchant exposure
Fuel strategy – focus on fuel security is critical
Cost of power – ability to generate low cost power is key to long term profitability
Risk mitigation – prefer players with maximum hedge
Financial strength and ability to fund growth
32
#1 – The most experienced players Sector Outlook Positive
Comparison of the operating experience of the power generation companies under our coverage
We measure the operating Spark Ranking

experience of power generation On operating experience
companies in GW years, reflecting Low w eight
60
the time-weighted capacities
Company Ranks
55 Adani 8
CESC 2
50
GIPCL 4
45 GMR 5
NHPC is the most GVK 6

40 experienced power Lanco 7
generation company NHPC 1
GW Years
35 within our coverage PGCIL na
CESC and Torrent PTC na

30
are the most Torrent 3
25 experienced private
players
20
15
10
0
NHPC CESC Torrent GIPCL GMR GVK Lanco Adani
33
#2 – Growth proposition – We prefer the „big‟ thinkers!! Sector Outlook Positive
Adani and Lanco likely to show maximum growth in capacity creation

With generation capacity additions
being planned across the sector,
14 70%
we look at the players likely to
lead the charge 12 60%
Adani, Lanco and NHPC plan to 10 50%
10-15E CAGR
Capacity (GW)
add the maximum capacities over
FY10-15 8 40%
However, Adani and Lanco stand 6 30%

out in terms of capacity growth, at 4 20%
58% CAGR and 44% CAGR
respectively 2 10%
0 0%
Adani Lanco GMR CESC GVK Torrent NHPC GIPCL
Capacity FY10 Capacity FY15E 10-15E CAGR

For PGCIL and PTC, we look at
other operational metrics which
determine the likely growth
We expect PGCIL’s gross block to
Analysis of growth in business volumes of the support players Growth in relevant metric
grow at a CAGR of 17% over
FY10-15E, reflecting a moderate
growth Company Relevant Metric Units Rationale FY10 FY15E CAGR %
We expect PTC’s trading volumes

to grow at a rapid, >35% CAGR Capex linked, regulated returns
PGCIL Gross Block Rs. bn 432.3 939.3 16.8%
over FY10-15E, given the robust model
pipeline of projects (13GW) with
respect to which the company has Revenues are a function of
tied up long term PPAs PTC Units Traded Bn Kwhrs 18.2 92.9 38.5%
volumes traded
34
#2 – Growth proposition – We prefer the „big‟ thinkers!! Sector Outlook Positive
Growth in revenues largely linear to capex

Given that the sector is highly capex intensive, we find that revenue 160%
growth largely tails the growth in the gross block. Revenue growth
140%
across the generation companies ranges from 13% to ~90%. Naturally,
Adani and Lanco expected to lead growth. 120%
10-15E CAGR
100%
The only exception is PTC, whose business is not linked to capex and
is only a function of the trading volumes. The company transacts in 80%
power, both through the short term as well as long term windows. 60%
40%
20%
Company Revenues, Rs. mn Gross Block, Rs. mn FA Turnover 0%
Adani Lanco GVK GMR Torrent PGCIL CESC GIPCL NHPC PTC
10-15E
FY15E FY15E CAGR % FY10 FY15E Capex Revenues
CAGR %
Adani 116,146 92.9% 285,120 141.5% 1.3 0.4
Spark Ranking Spark

CESC 61,885 13.4% 207,598 12.8% 0.3 0.3
Prefer On grow th proposition On ex
GIPCL 17,824 13.4% 35,791 11.8% 0.5 0.5 Adani, High w eight High
Lanco and Company Ranks
GMR 107,353 31.8% 256,226 29.0% 0.4 0.4
PTC
Adani 1
GVK 68,432 33.6% 146,681 30.5% 0.4 0.5 CESC 8
GIPCL 9
Lanco 102,591 43.1% 259,863 33.3% 0.3 0.4
GMR 5
NHPC 78,946 8.6% 473,799 11.1% 0.2 0.2 GVK 4
Lanco 2
PGCIL 163,588 18.1% 939,325 16.8% 0.2 0.2 NHPC 10
PGCIL 7
PTC 417,535 40.0% 735 3.4% 124.9 567.8
PTC 3
Torrent 137,548 18.7% 232,035 24.3% 0.7 0.6 Torrent 6
35
#3 – Certainty of expansion – We like visible, strong execution Sector Outlook Positive
Strong development pipelines across companies – 4 to 8 times existing capacities is common
10 1000%
With big ticket
capacity additions 8 800%
% of existing
Pipeline (GW)
planned, slippages
are likely 6 600%
We track project 4 400%

milestones to
evaluate execution 2 200%
0 0%
Adani Lanco NHPC CESC GMR Torrent GVK GIPCL
Key milestones tracked – Pre Environ. EPC Fuel / CEA Financial CoD
Land
construction stage is critical Clearance ordering approval Closure
Growth aspirations vs Realistic growth potential – Based on Spark milestone weighted capacity
We track execution of projects using 70%

milestone weighted capacity, which 60%
factors in key milestones 50%
Growth %
Adani, GMR and Lanco score high 40%

based on Spark‟s milestone weighted 30%
capacity growth 20%
NHPC is moderately placed on this 10%
parameter 0%
Adani GMR Lanco GVK CESC NHPC Torrent GIPCL
Greater potential for slippages in the
cases of CESC, Torrent and GIPCL Aspirational Growth % Realistic Growth %
36
#3 – Certainty of expansion – We like visible, strong execution Sector Outlook Positive
We reiterate that pre- Support players – Natural beneficiaries of the infrastructure spend
construction phase of projects
 40% revenue CAGR over FY10-15E
is critical. As is evident, little Market leader in power trading – High
PTC  Strong pipeline of long term PPAs (>13GW) and trend of secular increase in short
differentiation based on Visibility
term trading
construction timelines.
Natural monopoly in interstate  18% revenue CAGR over FY10-15E
PGCIL
transmission of power – High Visibility  Pan-India player with strong execution track record – Expect >90% plan achievement
Completion time (in years) from date of placement of EPC order to CoD
Prefer
Jegurupadu II Surat Lignite II
Lanco,
Kondapalli II Budge Budge Mundra I U1 Sugen U1 Vemagiri
Adani,
Amarkantak I Mundra I U2 Sugen U2 Gautami
GMR &
Amarkantak II Mundra II U1 Sugen U3 PTC
5.76
5.29
Appears
4.08 Spark Ranking
4.03 3.96 4.15 inflated but
3.90 was due to On execution
3.65 gas non-
3.50 availability High w eight
3.13 3.34
Company Ranks
2.83
2.50 2.09 Adani 1
CESC 6
GIPCL 10
GMR 2
GVK 5
Lanco 3
NHPC 8
PGCIL 7
PTC 4
Lanco CESC Adani Torrent GMR GVK GIPCL
Torrent 9
37
#4 – Earnings non-linearity – Prefer balanced merchant exposure Sector Outlook Positive
We believe the merchant power

Merchant Rates FY10 FY11E FY12E FY13E FY14E FY15E
opportunity can provide substantial
upsides
Rs. per Kwhr 5.5 5.0 4.5 4.0 4.0 3.5
• Over the long term, we expect all
players to have ~15-20% of their
capacity traded through the Adani, GMR and Lanco are the players likely to exploit the merchant opportunity
merchant power window.
60%
• However, over the short term, only a
Merchant exposure
50%
few players such as Adani, GMR,
Lanco and Torrent are capable of 40%
leveraging upon the merchant power 30%
opportunity.
20%
• We believe that the average RoEs
10%
over the period FY10-15E best
captures the growth potential 0%
FY10 FY11E FY12E FY13E FY14E FY15E
Spark Ranking Spark Ranking Adani GMR Lanco CESC GVK Torrent
Prefer
Lanco, On non linearity On fuel strategy
Adani, High w eight
Average RoE over the period FY10-15E is the best measure of growth
High w eight
Torent
Company Ranks
& PTC 25%
Adani 2
CESC 5 20%
GIPCL 7
15%
GMR 8
GVK 10 10%
Lanco 6 5%
NHPC 9
PGCIL 4 0%
PTC 3 Torrent Adani PTC PGCIL CESC Lanco GIPCL GMR NHPC GVK
Torrent 1 Average RoEs - FY11-15
38
#5 – Fuel strategy – We like a high degree of certainty Sector Outlook Positive
Coal dominates the capacity expansion plans, given the low cost – Prefer players with committed linkages, captive blocks and firm allocations
Com pany Operational Plan Details Therm al Hydel Overall Score
MW MW Coal linkage Captive Coal Im ported Gas Best bet in the long run given the
control over costs. Ownership of
mines is attractive and provides
Adani 990 9,900 Plan 6,192 Nil 3,708 Nil Nil 9,900 excellent visibility to cash flows
Secured 2,892 Nil 3,708 Nil Nil 6,600
Secured % 47% Nil 100% Nil Nil 67%
CESC 1,225 6,745 4,527 Nil 2,218 Nil Nil 6,745

Riskier proposition in the long run,
Secured 1,935 Nil 490 Nil Nil 2,425 given countries such as Indonesia (a
Secured % 43% Nil 22% Nil Nil 36% major source of imported coal) are
revisiting their export policies
GIPCL 810 1,310 Nil 1,000 Nil 310 Nil 1,310
Secured Nil 1,000 Nil 310 Nil 1,310
Secured % Nil 100% Nil 100% Nil 100%
GMR 834 4,972 1,970 1,400 Nil 1,602 Nil 4,972

Secured 1,970 1,400 Nil 834 Nil 4,204
Spark Ranking
Secured % 100% 100% Nil 52% Nil 85% Prefer
Lanco, On fuel strategy
GVK 914 2,963 Nil 540 Nil 2,093 330 2,963 Adani, High w eight
Secured Nil 540 Nil 914 330 1,784 Torent
Company Ranks
Secured % Nil 100% Nil 44% 100% 60% & PTC
Adani 4
Lanco * 1,454 9,236 7,080 Nil 1,200 1,624 652 10,556 CESC 8
Secured 7,080 Nil 1,200 721 652 9,653 GIPCL 1
Secured % 100% Nil 100% 44% 100% 91%
GMR 3
NHPC * 5,175 12,574 Nil Nil Nil Nil 12,574 12,574 GVK 5
Secured Nil Nil Nil Nil 7,399 7,399 Lanco 2
Secured % Nil Nil Nil Nil 59% 59% NHPC 6
PGCIL na 39
Torrent 1,648 5,230 400 2,000 Nil 2,831 Nil 5,231
PTC na
Secured 400 0 Nil 1,631 Nil 2,031
Secured % 100% 0% Nil 58% Nil 39% Torrent 7
* Secured In The Case Of Hydel P lants Refers To CEA A ppro val
39
#6 – Prefer low cost power generators – Total cost Sector Outlook Positive
Between the two we prefer

Adani, GMR , GIPCL and Lanco benefit from low cost power generation
Torrent over CESC due to
the lower cost dynamics
CESC GMR fares better

than GVK in cost
Torrent dynamics
GVK
Adani and GIPCL

Lanco enjoy the lowest
cost dynamics
GIPCL
GMR
Spark Ranking
Adani On generation econom ics
Low w eight
NHPC Company Ranks
Adani 1
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 CESC 4
Direct cost per unit GIPCL 2
GMR 7
Prefer GVK 8
GIPCL, Lanco 3
Adani, NHPC 5
Lanco &
Low cost of generation is critical in the long term CESC
PGCIL na40
PTC na
Torrent 6
40
#7 – Risk mitigation – prefer players who hedged exposures Sector Outlook Positive
Maximum single vendor exposure - Lanco is exposed the maximum Dependence on various equipment vendors - % of planned capacity
100% Company Chinese Indian European Korean

% of total capacities planned
80% Adani 100% - - -
60% CESC 33% 67% - -

GIPCL - 100% - -
40%
GMR 40% - 32% 28%
20%
GVK - 29% 44% 27%
0% Lanco 87% 6% 7% -
Lanco GIPCL GVK Adani GMR CESC Torrent
NHPC - 100% - -
Max Single vendor exposure Torrent - 15% 85% -
Prefer GMR the most on risk mitigation Spark Ranking

Prefer On risk m itigation
Among the generation players, GMR is best positioned in terms of risk mitigation. The company
GIPCL,
is adopting a balanced mix of Chinese, European as well as Korean equipments. GVK, CESC Low w eight
Adani,
and NHPC have low / no dependence on Chinese equipments and are safer bets in the space. Company Ranks
Lanco &
Adani and Lanco have high dependence on Chinese equipments / single equipment suppliers,
CESC Adani 9
increasing operational risks.
CESC 3
GIPCL 8
GMR 1
PTC is well placed as well with cost competitive PPAs
GVK 4
Among the support players, PTC is well placed with PPAs signed with a diverse set of Lanco 10
developers. In recent Case 1 bids in the State of Bihar, the company is L1, L3 as well as L4,
NHPC 7
giving a strong indication of the cost competitive power purchases of the company.
PGCIL 641
PTC 2
Torrent 5
41
#8 - Financial strength and ability to fund growth Sector Outlook Positive
NHPC, CESC and Torrent have lower D/E ratio among the generation companies
WE prefer Torrent, NHPC, Lanco 350 3.4

amd Adani as they are well placed 300 2.9
to fund future equity investments 250 2.4
through internal accruals
Ratio
(Rs.bn)
200 1.9
PTC is unique as its business 150 1.4
model needs negligible CAPEX 100 0.9
GMR, GVK and PGCIL are in a 50 0.4
tight spot given the huge CAPEX 0 -0.1
required for their planned projects PTC NHPC CESC GIPCL Torrent GVK PGCIL Lanco GMR Adani
NetWorth (FY11) D/E (FY11)
Prefer Spark Ranking

Torrent, Lanco, Adani and NHPC are best placed to fund Equity requirements
Torrent, On financials
Lanco,
High w eight 300 800%
Adani,
NHPC Company Ranks
250
Adani 3 600%
CESC 5 200
400%
GIPCL 6
150
Rs.bn
GMR 8
200%
GVK 7 100
Lanco 2
0%
50
NHPC 4
PGCIL 9 0 -200%
PTC NA NHPC Torrent Adani Lanco GIPCL PTC CESC GMR GVK PGCIL
Torrent 1
Equity Req. (FY10-15E) Funds (FY10-15E) Excess/Shortfall %
42
Summary of ranks Sector Outlook Positive
Spark Ranking Spark Ranking Spark Ranking Spark Ranking  Among

Spark the
Ranking
power generation companies,
On operating experience On grow th proposition On execution On non linearity Lanco and Adani are the score high on
On fuel strategy
key parameters such as growth
Low w eight High w eight High w eight High w eight High w eight
proposition, (>40% revenue CAGR) non-
Company Ranks Company Ranks Company Ranks Company Ranks linear earnings (>20% RoEs), fuel
strategy as well as financial strength
Adani 8 Adani 1 Adani 1 Adani 2
(strong ability to fund projects with internal
CESC 2 CESC 8 CESC 6 CESC 5 accruals). Between the two, we prefer
GIPCL 4 GIPCL 9 GIPCL 10 GIPCL 7 Lanco due to greater operating
GMR 5 GMR 5 GMR 2 GMR 8 experience as well as the ability to control
project execution through its EPC arm.
GVK 6 GVK 4 GVK 5 GVK 10
NHPC and GIPCL are utilities that are
Lanco 7 Lanco 2 Lanco 3 Lanco 6 laggards based on these key parameters.
NHPC 1 NHPC 10 NHPC 8 NHPC 9
 The infrastructure conglomerates, GMR
PGCIL 1 PGCIL 7 PGCIL 7 PGCIL 4 and GVK, score poorly on most of the
PTC na PTC 3 PTC 4 PTC 3 critical parameters, save the fact that
Torrent 3 Torrent 6 Torrent 9 Torrent 1 GMR scores high on risk mitigation.
Based on the quality of the power
generation business, we prefer GMR over
GVK.
On fuel strategy On generation econom ics On risk m itigation On financials  Among the integrated distribution utilities,
Torrent scores high on non-linear
High w eight Low w eight Low w eight High w eight
earnings potential (ability to retain
Company Ranks Company Ranks Company Ranks Company Ranks efficiency gains vs regulated returns of
Adani 4 Adani 1 Adani 9 Adani 3 CESC) as well as quality of financials.
Company is well placed on ability to fund
CESC 8 CESC 4 CESC 3 CESC 5
future power generation projects.
GIPCL 1 GIPCL 2 GIPCL 8 GIPCL 6
 As for PTC, we like the company for non-
GMR 3 GMR 7 GMR 1 GMR 8
linear growth potential as well as risk
GVK 5 GVK 8 GVK 4 GVK 7 mitigation through presence in multiple
Lanco 2 Lanco 3 Lanco 10 Lanco 2 businesses.
NHPC 6 NHPC 5 NHPC 7 NHPC 4  PGCIL benefits from a well insulated,
PGCIL na PGCIL na PGCIL 6 PGCIL 9 fixed RoE business model, but the
PTC na PTC na PTC 2 PTC NA company will need equity to fund its
ambitious expansion plans.
Torrent 7 Torrent 6 Torrent 5 Torrent 1
43
Valuation Discussion Sector Outlook Positive
Target P/B multiples

We prefer to use P/B multiple to value the power businesses of the companies due to the following
Com pany 1 Year Avg Target
key reasons
P/B (x) P/B (x)
 Simple and capable of adjusting to market gyrations Adani 3.65 3.25
 All our coverage companies have attained the critical mass necessary to apply multiple based valuations
CESC 1.00 1.30
 We apply differential multiples based on our qualitative analysis of our coverage companies’ power
business GIPCL 1.24 1.00
GMR na 1.50
Power stocks usually trade in a tight band unless there are any substantial rerating triggers
GVK na 1.00
10.00 Lanco 3.03 2.00
9.00 NHPC 1.36 1.50
8.00 PGCIL 2.27 2.00
Torrent 3.12 3.50

7.00
6.00 Valuation of non-power businesses

P/ABV (x)
Com pany Valn Rs. per Com m ent

5.00 Rs. bn share
Adani - -
4.00
CESC (10.2) (81.6) Retail
3.00
GIPCL - -
2.00
GMR 79.5 21.7 Airports
1.00 GVK 38.1 24.0 Airports
0.00 Lanco 70.8 29.5 EPC & Trading

Jun-05
Jun-06
Jun-10
Jun-07
Jun-08
Jun-09
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Apr-05
Oct-05
Apr-07
Apr-09
Oct-09
Apr-10
Apr-06
Oct-06
Oct-07
Apr-08
Oct-08
Dec-05
Aug-06
Dec-06
Aug-07
Aug-08
Dec-08
Aug-09
Aug-05
Dec-07
Dec-09
Aug-10
NHPC - -
PGCIL - -
NTPC Adani CESC GIPCL Lanco NHPC PGCIL Torrent PTC 12.9 43.9 Tolling & PFS
Torrent - -
44
Valuation Matrix Sector Outlook Positive
Com pany Revenues, Rs.bn EBITDA, Rs.bn PAT, Rs.bn RoE FY10-13E CAGR
Adani 4.3 30.8 66.9 122.2 2.4 20.1 40.7 70.6 1.7 12.0 21.7 33.1 4.3% 19.3% 27.1% 32.2% 204.0% 207.1% 169.0%
CESC 36.4 36.7 36.9 34.9 8.2 10.3 10.9 11.4 4.3 4.6 5.5 5.9 8.6% 8.5% 9.3% 9.1% -1.4% 11.6% 11.1%
GIPCL 9.5 13.5 16.1 17.0 2.3 4.4 4.7 4.8 1.1 1.5 1.6 1.8 8.4% 10.4% 10.2% 10.5% 21.4% 28.2% 19.2%
GMR 51.2 53.6 67.3 113.3 13.6 18.6 25.6 47.9 2.3 (0.7) 3.0 11.9 3.4% -0.6% 2.0% 6.9% 30.3% 52.0% 74.1%
GVK 17.9 22.0 22.7 42.4 4.7 5.6 5.9 16.5 1.6 1.5 0.8 4.8 2.6% 2.0% 1.4% 10.5% 33.3% 52.3% 45.7%
Lanco 80.3 133.0 177.5 200.8 14.5 31.8 47.8 49.8 4.9 12.1 18.8 19.3 16.1% 20.9% 22.6% 19.3% 35.7% 50.8% 57.3%
NHPC 52.3 49.6 53.7 58.1 41.3 38.1 41.8 45.8 22.8 18.9 21.6 25.0 9.5% 6.8% 7.2% 7.8% 3.6% 3.5% 3.2%
PGCIL 71.3 85.9 102.0 119.9 58.7 72.3 87.3 104.1 20.4 21.5 27.6 32.6 13.4% 11.1% 11.4% 12.0% 18.9% 21.0% 16.9%
PTC 77.7 100.6 124.8 200.9 0.7 0.9 1.2 2.3 0.9 1.0 1.2 2.0 5.2% 4.6% 5.5% 8.5% 37.2% 52.5% 27.6%
Torrent 58.3 59.3 68.3 95.5 19.7 23.6 26.6 35.8 8.4 10.0 13.0 17.6 23.3% 23.0% 24.4% 26.2% 17.9% 22.0% 28.1%
Adj.
Com pany Net Debt to Equity (x) CMP Shares M.Cap Pow er ABV per share, Rs. Pow er - Price / ABV (x) Target Rating
M.Cap
FY10 FY11E FY12E FY13E (m n) Rs. bn Rs. bn FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E P/ABV (x) Price (Rs.)
Adani 2.4 2.9 2.3 1.6 140 2,180 305 305 25 30 40 55 5.7 4.6 3.5 2.5 3.25 130.4 UPF
CESC 0.3 0.5 0.6 0.9 404 125 50 61 347 387 425 466 1.4 1.3 1.1 1.0 1.30 470.4 OPF
GIPCL 0.8 0.7 0.4 0.2 115 151 17 17 88 98 108 120 1.3 1.2 1.1 1.0 1.00 108.1 UPF
GMR 3.2 1.9 1.8 1.6 63 3,893 245 161 6 14 19 25 7.4 3.0 2.2 1.6 1.50 50.3 UPF
GVK 1.0 1.7 2.8 2.9 46 1,584 72 34 15 18 26 34 1.4 1.2 0.8 0.6 1.00 50.3 UPF
Lanco 1.5 1.8 1.9 1.9 69 2,408 167 96 13 21 30 39 3.0 1.9 1.3 1.0 2.00 90.0 OPF
NHPC 0.4 0.4 0.4 0.4 31 12,301 384 384 22 23 25 27 1.4 1.3 1.2 1.1 1.50 37.8 OPF
PGCIL 2.1 1.6 1.7 1.9 103 4,209 434 434 38 49 55 62 2.7 2.1 1.9 1.7 2.00 109.2 UPF
PTC* (0.1) (0.2) (0.2) (0.3) 115 295 34 21 27 29 32 37 2.6 2.5 2.2 1.9 22.00 133.6 OPF
Torrent 0.5 0.9 1.0 1.2 340 472 161 161 84 100 125 160 4.1 3.4 2.7 2.1 3.50 437.8 OPF
45
Companies Section
46
Adani Power Underperform
Initiating Coverage CMP Rs. 140 Target Rs. 130
Solid strategy and strong execution but valuation discomfort overrides both Date 23 Aug 2010
Well poised to be India‟s largest private, power utility by FY14. We like Adani‟s strong focus on timely project
execution, well devised strategies to maximize on the merchant market as well as hedging of risks relating to Market data
off-take through long term PPAs. Scores high on growth proposition as well as generation economics, the
Bloomberg ADANI IN
latter because of competitive imported coal supply arrangements and the use of low-cost Chinese equipments,
which keeps project capex low. Also, the company is well placed to fund its growth out of accruals, a key Reuters ADAN.BO
differentiator according to us. However, notwithstanding all the positives (for which we accord a 3.25x P/B on CMP Rs. 140
FY12E book) the stock trades at a premium to our valuation. Initiate with Underperform.
Shares o/s 2,180mn
Investment Rationale
Market Cap Rs. 304.8bn
 Set to become the largest private, power utility in the country, with 990MW of capacities operational and 8.9GW
52-wk High-Low Rs. 137-90
(spread across Gujarat, Maharashtra and Rajasthan) under various stages of construction.
3m Avg. Daily Vol Rs. 153mn
 We like the company’s strong focus on timely project execution, which sets it apart from several other players in the
space. Will likely be the fastest growing (FY10-13E revenue CAGR of >200%) company, albeit from a low base. Latest shareholding (%)
 Timely project execution to boost non-linearity in earnings as there is at least a 3-4month time lag between the likely Promoters 73.50
CoD of projects and the commencement of the respective PPAs, which allows the company to sell power on
Institutions 10.97
merchant basis. Already three units of Mundra have commenced merchant sale of power.
Public 15.53
 Capacities are entirely coal-based and has stitched up long term purchase agreements with Adani Enterprises (the
parent) to provide up to ~35-40% of coal requirements through imports, at optimal costs of US$ 36 per ton, which
Stock performance (%)
keeps variable costs low. Also, use of low-cost Chinese equipments keeps fixed charges low and the company is
best placed on generation economics, as a result. 1m 3m 12m
 Generates strong RoEs of ~22% (average over FY11-15E), partly a function of high merchant sale realizations APL 9.5 20.7 35.6
expected during FY11-13, and is capable of funding its growth aspirations with accruals to the tune of Rs. 144bn Sensex 2.4 11.9 22.6
expected over FY11-15E.
BSE Power -1.7 6.0 8.3
Financial summary Vijaykumar Bupathy

vijaykumar@sparkcapital.in
Year Sales (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) ABV (Rs.) P/ABV (x)
+91 44 4344 0036
FY10 4,349 2,438 1,700 24.7 5.7
Bharanidhar Vijayakumar
FY11E 30,776 20,071 12,023 30.2 4.6 bharanidhar@sparkcapital.in
FY12E 66,902 40,735 21,696 40.1 3.5 +91 44 4344 0038
Company Brief & Power projects CMP Rs. 140 Target Rs. 130
 Adani Power is a rapidly growing new- Operational / Execution phase projects

breed private utility focused on coal
based power generation and power Project Mundra I Mundra II Mundra III Mundra IV Tiroda
trading. Ow nership 100% 100% 100% 100% 77%
 It is involved in power project Entity Adani Pow er Adani Pow er Adani Pow er Adani Pow er Adani Pow er
development. It develops, operates and
Tiroda,
maintains thermal power projects in Location Mundra, Gujarat Mundra, Gujarat Mundra, Gujarat Mundra, Gujarat
Maharashtra
India. 660 660 1,320 1,980 1,980
Capacity (MW)
 A part of the Adani Group, the company (2*330) (2*330) (2*660) (3*660) (3*660)
was founded by Mr. Guatam Adani in Capex (Rs.mn) 21,780 22,000 58,080 89,100 93,060
1996.The company went public in April
Debt (Rs. mn) 18,295 18,000 44,722 71,280 74,448
2007 and raised Rs.30 bn.
Equity (Rs. mn) 3,485 4,000 13,358 17,820 18,612
 With an operational capacity of 990MW,
5610 MW capacity under execution and DER (x) 5.3 4.5 3.3 4.0 4.0
about 10,000MW in pipeline, the Estimated capex (Rs. mn per
33 33 44 45 47
company is set to be one of the largest MW)
private sector power generators. Coal - Imported / Coal - Imported / Coal - Imported / Coal - Imported /
Fuel type Domestic Coal
Domestic Domestic Domestic Domestic
 The company plans to sell the power
generated from these projects to Imported - AEL Imported - AEL Imported - AEL Imported - AEL
Fuel source Tapering linkage
industrial and state owned customers Domestic - CIL Domestic - CIL Domestic - CIL Domestic - CIL
through a combination of long term
Financial closure Achieved Achieved Achieved Achieved Achieved
power purchase agreement and on
merchant basis. CoD Jul-09 Jul-10 Jul-11 Apr-12 Apr-12
 Mr. Gautam Adani is the Chairman and Offtake - Regulated tariff (R) R - 76% R - 76% R - 76% R - 72% R - 67%
Mr. Rajesh Adani is the MD. Offtake - Merchant tariff (M) M - 24% M - 24% M - 24% M - 28% M - 33%
48
Power projects under execution CMP Rs. 140 Target Rs. 130
Developm ent projects
Project Dahej Kaw ai Tiroda - Exp Dahej - Exp Mundra - Exp Chhindw ara
Ow nership 100% 100% 77% 100% 100% 100%
Adani Pow er Adani Pow er Adani Pow er Madhya
Entity Adani Pow er Dehej Adani Pow er Rajasthan Adani Pow er Dehej
Maharashtra Maharashtra Pradesh
Location Dahej, Gujarat Kaw ai, Rajasthan Tiroda, Maharashtra Dahej, Gujarat Tiroda, Maharashtra Chhindw ara, MP
1,980 1,320 1,320 660 3,300 1,320
Capacity (MW)
(3*660) (2*660) (2*660) (1*660) (5*660) (2*660)
Estimated capex (Rs.mn) 89,100 59,400 59,400 29,700 148,500 59,400
Debt (Rs. mn) 71,280 47,520 47,520 23,760 118,800 47,520
Equity (Rs. mn) 17,820 11,880 11,880 5,940 29,700 11,880
DER (x) 4.0 4.0 4.0 4.0 4.0 4.0
Estimated capex (Rs. mn per MW) 45 45 45 45 45 45

Fuel type Domestic Coal Domestic Coal Domestic Coal Domestic Coal Domestic Coal Domestic Coal
Fuel source - - - - - -
Financial closure - - - - - -
Expected CoD Jan-14 Sep-13 - - - -
Offtake - Regulated tariff (R) R - 76% R - 76%
- - - -
Offtake - Merchant tariff (M) M - 24% M - 24%
Progress on Milestones:
Land      
Environment clearance      
EPC Ordering      
FSA      
Water Availability      
49
Project Locations CMP Rs. 140 Target Rs. 130
Mundra, Gujarat Kawai, Rajasthan

Plant Capacity Plant Capacity
TPP Phase 1 ( 2*330) : 660 MW *** ( 2*660) : 1,320 MW
TPP Phase 2 (1*330) : 330 MW Total : 1,320 MW
TPP Phase 2 (1*330) : 330 MW
TPP Phase 3 (2*660) : 1,320 MW
TPP Phase 4 (3*660) : 1,980 MW
Chhindwara, Madhya Pradesh
TPP Expansion(5*660) : 3,300 MW
Plant Capacity
Total : 7,920 MW
*** (2*660) : 1,320 MW
Total : 1,320 MW
Tiroda, Maharashtra
Plant Capacity
TPP Phase 1 (2*660) : 1,320 MW
TPP Phase 2 (1*660) : 660 MW
*** ( 2*660) : 1,320 MW
Total : 3,300 MW
Dahej, Gujarat
Plant Capacity
*** (3*660) : 1,980 MW
Total Capacity
*** (1*660) : 660 MW
**Operational 990 MW
Total : 2,640 MW
**Under execution 5,610 MW
**Under development 9,900 MW
50
Disclaimer: All efforts have been made to make this map accurate. However Spark Capital does not own any responsibility for the correctness or authenticity of the same.
Financial Summary CMP Rs. 140 Target Rs. 130
Abridged Financial Statem ents Key m etrics

Rs. m n FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E
Profit & Loss Capacities / Generation
Revenues 4,349 30,776 66,902 122,180 Operational (MW) 330 1,980 5,280 6,600
EBITDA 2,438 20,071 40,735 70,628 Pipeline (MW) 6,270 4,620 1,320 0
Other Income 319 117 419 884 Generation (Mn kWhr) 1,562 8,460 20,556 39,731
Depreciation 353 1,702 4,761 9,927 Revenue per unit (Rs.) 2.78 3.64 3.25 3.08
EBIT 2,404 18,486 36,394 61,586 Opex per unit (Rs.) 1.22 1.27 1.27 1.30
PBT 2,027 15,029 27,120 43,609 PBT per unit (Rs.) 1.30 1.78 1.32 1.10
PAT 1,700 12,023 21,696 34,887 Perform ance ratios
PAT after MI 1,700 12,023 21,696 33,078 RoA (%) 1.2% 5.0% 7.3% 10.9%
Balance Sheet RoE (%) 4.3% 19.3% 27.1% 32.2%
Net Worth + MI 55,408 68,950 91,049 125,936 RoCE (%) 1.7% 7.6% 12.3% 19.2%
Total debt 150,215 209,904 221,710 203,652 Total Assets Turnover (x) 0.0 0.1 0.2 0.4
Deferred Tax - - - - Fixed Assets Turnover (x) 0.4 0.4 0.3 0.4
Total Netw orth & Liabilities 205,623 278,853 312,758 329,588 Working capital Turnover (x) 0.2 2.2 2.6 2.8
Gross Fixed assets 10,890 72,600 223,740 285,120 Financial stability ratios
Net fixed assets 10,598 70,606 216,985 268,438 Net Debt to Equity (x) 2.35 2.91 2.26 1.62
CWIP 174,946 191,136 61,380 - Current ratio (x) 4.72 3.07 3.85 4.41
Investments - - - - Working capital days 1,634 161 138 129
Inventories 288 1,542 3,649 7,033 Inventory & Debtor days 84 78 80 81
Sundry Debtors 726 5,129 11,150 20,363 Creditor days 439 78 48 38
Cash and bank balances 19,868 9,592 15,664 24,909 Interest cover (x) 6.38 5.35 3.92 3.43
Loans & Advances 4,164 4,164 4,164 4,164 Valuation m etrics
Current liabilities 5,308 6,663 9,005 12,812 Fully Diluted shares (mn) 2,180 2,180 2,180 2,180
Net current assets 19,737 13,764 25,622 43,656 Fully diluted M. Cap (Rs.mn) 304,878
Deferred Tax / Misc. Exp. 342 3,348 8,772 17,494 Fully Diluted EPS (Rs.) 0.78 5.52 9.95 15.17
Total Assets 205,623 278,853 312,758 329,588 P/E (x) 179.3 25.4 14.1 9.2
Cash Flow s EV (Rs.mn) 455,093
Cash flow s from Operations 319 6,417 15,247 27,303 EV/ EBITDA (x) 186.7 22.7 11.2 6.4
Cash flow s from Investing (116,520) (77,900) (21,384) - BV/ share (Rs.) 24.7 30.2 40.1 55.3
Cash flow s from Financing 130,483 61,207 12,209 (18,058) Price to BV (x) 5.7 4.6 3.5 2.5
51
CESC Outperform
Solid blend of experience, growth and valuation comfort Date 23 Aug 2010
CESC is one of the older private power utilities in India with operational generation capacities of 1.2GW and a
strong pipeline of 5.5GW till FY15. Also, the rich experience in transmission and distribution makes it a strong Market data
contender for taking advantage of distribution franchising opportunities elsewhere. Although the loss making
Bloomberg CESC. IN
retail business has been a drag, we believe the company‟s increased focus on addition of power generation
capacities will lead to an improving valuation outlook (stock trades at 38% discount to all time high on Reuters CESC.BO
multiples and 44% discount to all time high), resulting in stock outperformance. We initiate with Outperform. CMP Rs. 404
Investment Rationale Shares o/s 125mn
 Steady stream of cash flow generation, to the tune of Rs. 7bn annually, from the core electricity distribution business Market Cap Rs. 50.5bn
in Kolkatta & Howrah. Moreover, cash flows have improved with the commissioning of the 250MW Budge Budge III,
52-wk High-Low Rs. 452-291
which has made the company self sufficient with respect to the requirements of the regulated distribution circle.
 Virtual certainty of doubling the generation capacity by FY14 (600MW at Haldia and 600MW at Dhariwal), as
reflected by Spark’s milestone weighted capacity of 1.5GW, providing high visibility on revenue as well as earnings Latest shareholding (%)
growth. Focused on exploiting the merchant power opportunity, with 25% of Haldia and 50% of Dhariwal untied.
Promoters 52.49
 Extremely well placed on operating experience as well as demonstrated execution capabilities reflected by the
Institutions 36.54
completion of Budge Budge expansion in under 3 years, and also well placed on generation economics as the
capacities under execution are coal based. Public 10.97
 Comfortable financials with a debt-equity ratio less than 1:1 and adequate cash accruals over the next 5 years (to the
tune of Rs. 47.5bn) so as to fund the power capacity additions and the strengthening of the distribution infrastructure
within the license area. 1m 3m 12m
 We believe that the company has shown commitment to grow its power business and the significance as well as CESC 1.6 9.7 21.9
dynamics of this business will keep improving. Thus we think lesser importance will be attributed to the loss-making Sensex 2.4 11.9 22.6
retail business, thereby improving the valuation outlook for the stock.
BSE Power -1.7 6.0 8.3

+91 44 4344 0036
FY10 32,930 8,220 4,330 347.1 1.4
FY12E 35,812 10,910 5,501 424.6 1.1 +91 44 4344 0038
52
CESC Outperform
 CESC is a fully integrated power Operational projects

utility whose operations include
Budge Budge Budge Budge
mining coal, generation, transmission Project Titagarh Southern New Cossipore
Phase 1 Phase 2
and distribution of power.
Ow nership 100% 100% 100% 100% 100%
 A part of the RPG Group, it was
Entity CESC Ltd. CESC Ltd. CESC Ltd. CESC Ltd. CESC Ltd.
founded in 1978 to supply electricity
to regions in and around Kolkata. In Budge Budge, Budge Budge, Titagarh, West Kolkata, West Kolkata, West
Location
West Bengal West Bengal Bengal Bengal Bengal
the following year, 1979, the
500 250 240 135 100
company came up with its maiden Capacity (MW)
(2*250) (4*60) (2*67.5) -
public offer.
Estimated capex (Rs.mn) 22,500 11,250 7,200 4,050 2,000
 Currently CESC meets its entire
Debt (Rs. mn) 16,875 8,438 5,400 3,038 1,500
power requirements of 2.3mn
customers in 567 sq.km area of Equity (Rs. mn) 5,625 2,813 1,800 1,013 500
Kolkata and Howrah.
DER (x) 3.0 3.0 3.0 3.0 3.0
 Has a stong T&D network with 474
Estimated capex (Rs. mn per MW) 45 45 30 30 20
Kms of transmission lines, 85
distribution stations and 3,837 Kms Coal (Pulverized Coal (Pulverized Coal (Pulverized Coal (Pulverized
Coal - Domestic /
Fuel type Fuel) - Domestic / Fuel) - Domestic / Fuel) - Domestic / Fuel) - Domestic /
of High Tension (HT) wires. Imported
Imported Imported Imported Imported
 Spencers Retail which operates Domestic - ICML, Domestic - ICML, Domestic - ICML, Domestic - ICML, Domestic - ICML,
more than 200 stores throughout ECL, BCCL ECL, BCCL ECL, BCCL ECL, BCCL ECL, BCCL
Fuel source
Imported - Imported - Imported - Imported - Imported -
India is its fully owned subsidiary. Indonesia Indonesia Indonesia Indonesia Indonesia
 Mr. Rama Prasad Goenka is the Financial closure Achieved Achieved Achieved Achieved Achieved
Chairman and Ms Sumantra
CoD Jun-99 Feb-10 Jun-84 Jun-91 Jun-50
Banerjee is the Managing Director.
There are 10,441 employees in the Offtake - Regulated tariff (R) R - 100% R - 100% R - 100% R - 100% R - 100%
firm. Offtake - Merchant tariff (M) M - 0% M - 0% M - 0% M - 0% M - 0%
53
CESC Outperform
Execution/Developm ent projects
Project Haldia Dhariw al Dhenkanal Dum ka Pirpainty

Haldia Energy Limited (100% Haldia Energy Limited (100% Nalanda Pow er Company
Ow nership 100% 100%
Sub) Sub) Lmited (100% Sub)
Entity Haldia Energy Dhariw al Infrastructure Dhenkanal Dumka Pirpainty
Location Haldia, West Bengal Chandrapur, Maharashtra Dhenkanal, Orissa Dumka, Jharkand Pirpainty, Bihar
600 600 1,320 1,000 2,000
Capacity (MW)
(2*300) (2*300) (2*660) - -
Debt (Rs. mn) 22,500 21,750 49,600 40,000 70,500
Equity (Rs. mn) 7,500 7,250 12,400 10,000 23,500
DER (x) 3.0 3.0 4.0 4.0 3.0
Fuel type Coal - Domestic / Imported Coal - Domestic / Imported Coal - Domestic / Imported Coal - Domestic / Imported Coal - Domestic / Imported
Domestic - Mahanadi Coal

Fuel source - - Mahuagarhi coal block -
Fields/ SECL
Financial closure - - - - -
Expected CoD Sep-13 Jun-13 Jun-15 Jun-15 Jun-15
Offtake - Regulated tariff (R) R - 75% R - 50% R - 25% R - 25% R - 25%
Offtake - Merchant tariff (M) M - 25% M - 50% M - 75% M - 75% M - 75%
Land     
Environment clearance     
EPC Ordering     
FSA     
Water Availability     
54
CESC Outperform
Pirpainty, Bihar Southern, West Bengal

TPP (1*2000) : 2,000 MW TPP ( 2 *67.5) : 135 MW
Total : 2,000 MW Total : 135 MW
Dumka, Jharkand Titagarh , West Bengal

TPP (1*1000) : 1,000 MW TPP (4 *60) : 240 MW
Chandrapur, Maharashtra
Budge Budge, West Bengal
Plant Capacity
Plant Capacity
TPP (2*300) : 600 MW
TPP Phase 1 (2*250) : 500 MW
Total : 600 MW
TPP Phase 2 (1*250) : 250 MW
Total : 750 MW
Dhenkanal, Orissa
Plant Capacity New Cossipore, West Bengal
TPP (2*660) : 1,320 MW Plant Capacity
Total : 1,320 MW TPP (1*100) : 100 MW
Total : 100 MW
Haldia , West Bengal Total Capacity

Plant Capacity **Operational 1,225 MW
TPP (2*300) : 600 MW **Under execution 1,200 MW
Total : 600 MW **Under development 4,320 MW
55
CESC Outperform

Revenues 32,930 35,664 35,812 35,994 Operational (MW) 1,225 1,225 1,225 1,225
EBITDA 8,220 10,321 10,910 11,427 Pipeline (MW) 4,321 4,322 3,095 3,095
Other Income 840 687 1,150 1,660 Units Sold (Mn kWhr) 7,595 8,770 8,735 8,710
Depreciation 2,060 2,461 2,516 2,574 Revenue per unit (Rs.) 4.3 4.1 4.1 4.1
PAT 4,330 4,600 5,501 5,941
Balance Sheet Perform ance ratios
Net Worth 51,968 57,748 63,249 69,191 RoA (%) 4.6% 4.3% 4.9% 4.4%
Total debt 28,117 35,238 42,360 67,856 RoE (%) 8.3% 8.0% 9.1% 9.0%
Customer Security Deposit 8,965 9,323 9,696 10,084 RoCE (%) 7.5% 8.0% 8.4% 7.7%
Deferred Tax & others 4,467 4,467 4,467 4,467 Balance Sheet ratios
Total Netw orth & Liabilities 93,517 106,777 119,772 151,598 Total Assets Turnover (x) 0.4 0.3 0.3 0.2
Gross Fixed assets 113,638 119,597 126,033 132,984 Fixed Assets Turnover (x) 0.3 0.3 0.3 0.3
Net fixed assets 72,327 75,825 79,746 84,122 Working capital Turnover (x) 2.9 3.3 3.9 3.8
CWIP 2,783 13,403 24,023 51,143 Financial stability ratios
Investments 6,786 6,786 6,786 6,786 Net Debt to Equity (x) 0.3 0.5 0.6 0.9
Inventories 2,383 2,998 3,053 3,112 Current ratio (x) 1.7 1.6 1.5 1.5
Sundry Debtors 4,999 6,042 6,106 6,174 Working capital days 126 108 92 95
Current liabilities & Provisions 17,289 17,729 17,780 17,834 Fully Diluted shares (mn) 125 125 125 125
Deferred Tax / Misc. Exp. 71 71 71 71 Fully Diluted EPS (Rs.) 34.66 36.82 44.03 47.55
Total Assets 93,517 106,777 119,772 151,598 P/E (x) 11.7 11.0 9.2 8.5
Cash flow s from Operations 9,583 11,008 12,060 13,087 EV/ EBITDA (x) 9.3 7.4 7.0 6.7
Cash flow s from Investing (11,672) (16,579) (17,056) (34,071) BV/ share (Rs.) 416 462 506 554
Cash flow s from Financing 1,425 5,303 5,400 23,456 Price to BV (x) 1.0 0.9 0.8 0.7
56
Gujarat Industries Power Company Underperform
Rating: Target price: EPS: Update CMP Rs. 115 Target Rs. 108
Multiple handicaps of sub-par ambitions and slow execution, downgrade to Underperform Date 23 Aug 2010
Gujarat Industries Power Company (GIPCL) with its strong experience in setting up & operating power plants,
generation portfolio balanced between dual fuel sources and low power generation costs, is well placed to Market data
generate steady cash flows over the next few years. However, we believe the company suffers from a lack of
Bloomberg GIP IN
ambition to expand, with only 500MW of capacity expansion planned. Naturally, the company scores poorly on
growth proposition and pace of execution. As a result, we accord a multiple of 1x on FY12E ABV, yielding a Reuters GPIP.BO
price target of Rs. 108. Based on our relative ratings methodology, we downgrade the stock to Underperform CMP Rs. 115
(from Outperform).
Shares o/s 151mn
 Operational capacities of 810MW including the recently commissioned 250MW lignite-based Surat Lignite Power – 1
Expansion. Following this capacity addition, we expect revenues and PAT to grow at a CAGR of ~20%, over FY10- 52-wk High-Low Rs. 133-82
13E. However, no significant capacity additions expected over the next four years, with the 500MW SLP2 plant being 3m Avg. Daily Vol Rs. 9mn
the only expansion plan. Even ICB for this project is not completed and is likely to face delays, given the company’s
track record of sluggish project execution. Latest shareholding (%)
 Company operates a dual fuel portfolio of generation assets with 310MW gas-based plants and the 500MW lignite- Promoters 58.21
based plant. Captive lignite mines allow the company to set up an additional 600-700MW of lignite based capacities. Institutions 27.77
Captive lignite reserves can cater to 1,000MW of generation capacities for 30 years (average PLF of 80%).
Public 14.02
 Operational assets under two broad revenue models with the 145MW V-1 selling power to promoter group
companies based on a negotiated tariff and the other assets selling power to GUVNL based on a 13% fixed RoE Stock performance (%)
through a PPA. All future projects of the company to be operated under the regulated revenue model, governed by
1m 3m 12m
the tariff guidelines of CERC, providing for an assured 15.5% return on the regulated equity base.
GIPCL 0.6 3.3 22.8
 Clean corporate structure with all leverage, assets and cash-flows under the same entity. Balance sheet used
optimally with SLP1 Exp funded predominantly out of debt and at very competitive terms (fixed rate of 9%). Sensex 2.4 11.9 22.6
Nevertheless, we expect RoEs to peak out by FY12E, at a moderate 10.5%, given the expected poor redeployment BSE Power -1.7 6.0 8.3
of capital.
+91 44 4344 0036
FY10 2,295 2,295 1,068 87.9 1.3
FY11 4,353 4,353 1,461 97.6 1.2 bharanidhar@sparkcapital.in
FY12E 4,742 4,742 1,593 108.1 1.1 +91 44 4344 0038
57
Company Brief & Power projects Update CMP Rs. 115 Target Rs. 108
 Vadodra based Gujarat Industrial Power Company Operational / Developm ent phase projects
(GIPCL) is an established power utility with both Project Surat I Surat II Vadodra I Vadodra II Surat Expn
gas-based as well as lignite-based generation Ow nership 100% 100% 100% 100% 100%
capacities. Entity GIPCL GIPCL GIPCL GIPCL GIPCL
 It was promoted jointly by Gujarat State fertilizer Location Surat, Gujarat Surat, Gujarat Vadodra, Gujarat Vadodra, Gujarat Surat, Gujarat
Gujarat Alkalies & Chemicals and Gujarat 250 250 145 165 500
Electricity Board in 1985 to cater to their captive Capacity (MW) 3*32 GT+ 1*49 1*111 GT + 1*54
2*125 2*125 2*250
needs. The company came up with an IPO in ST ST
October 2005 and raised Rs. 2.75bn. Debt (Rs. mn) 6,050 11,410 1,075 1,835 22,820
Equity (Rs. mn) 6,050 4,890 1,075 1,835 9,780
 GIPCL operates two lignite and gas based power
DER (x) 1.0 2.3 1.0 1.0 2.3
plants each at Surat and Vadodra respectively. The Estimated capex (Rs. mn per
48 65 15 22 65
Surat units are of 250MW capacities each. While MW)
the Vadodra units have capacities of 145MW & Fuel type Lignite Lignite Gas Dual Fuel-Gas Lignite
165MW. Natural Gas Natural Gas
from Gail and R- from GAIL & R-
Fuel source Capitive mines Capitive mines Capitve mines
 The company has captive mines at Vastan & LNG from GAIL LNG from GAIL
Mongrol which supplies lignite to the Surat power & GSPC &GSPC
plants. Financial closure Achieved Achieved Achieved Achieved Achieved

CoD Nov-99 May-10 Feb-92 Nov-97 FY 16
 Recently, it obtained the Gujarat governemnt’s GUVNL&
Offtake - Regulated tariff (R)
approval to expand the Surat Lignite plant to 500 GUVNL GUVNL promoter group GUVNL GUVNL
Offtake - Merchant tariff (M)
MW. companies
Progress on Milestones: Operational Operational Operational Operational Development
 Mr. L Chuanago is the Managing Director of the
Land     
company. There are 508 employees in the
Environment clearance     
organization.
EPC Ordering     
FSA     
Water Availability     
58
Project Locations Update CMP Rs. 115 Target Rs. 108
Vadodara, Gujarat
Plant Capacity
TPP Phase 1( 3*32+1*49) 145 MW
TPP Phase2 (1*111+1*54) : 165 MW
Total : 310 MW
Surat , Gujarat
Plant Capacity
TPP Phase 1 (2*125) : 250 MW
TPP Phase 2 (2*125) : 250 MW
TPP Phase 3 (2*250) : 500 MW
Total : 1,000MW
Total Capacity
**Under execution 0 MW
**Under development 500 MW
59
Financial Summary Update CMP Rs. 115 Target Rs. 108

Profit & Loss (Rs. m n) Grow th ratios (%)
Revenues 9,499 13,543 16,062 16,999 Sales -18.3% 42.6% 18.6% 5.8%
EBITDA 2,295 4,353 4,742 4,837 EBITDA 5.1% 89.6% 8.9% 2.0%
Other Income 31 116 116 116 PAT 24.5% 36.8% 9.1% 13.5%
Depreciation 880 1,523 1,523 1,523 Margin ratios (%)
EBIT 1,446 2,946 3,335 3,430 EBITDA 24.2% 32.1% 29.5% 28.5%
PBT 1,284 1,673 2,154 2,372 PAT 11.2% 10.8% 9.9% 10.6%
Balance Sheet (Rs. m n) RoA (%) 4.3% 5.6% 6.0% 6.8%
Net Worth 13,295 14,756 16,349 18,157 RoE (%) 8.4% 10.4% 10.2% 10.5%
Total debt 11,445 10,930 9,671 8,183 RoCE (%) 6.0% 11.7% 12.9% 13.1%
Deferred Tax 771 675 579 482 Total Assets Turnover (x) 0.4 0.5 0.6 0.6
Total Netw orth & Liabilities 25,511 26,361 26,599 26,823 Fixed Assets Turnover (x) 0.4 0.7 0.9 1.0
Gross Fixed assets 33,575 33,575 33,575 33,575 Working capital Turnover (x) (23.9) 6.4 4.0 2.9
Net fixed assets 21,473 19,950 18,428 16,905 Financial stability ratios
Mine development expenses 2,903 2,774 2,661 2,513 Net Debt to Equity (x) 0.8 0.7 0.4 0.2
CWIP - - - - Current ratio (x) 0.9 1.7 2.3 2.9
Investments 1,405 1,405 1,405 1,405 Working capital days (15) 57 90 126
Inventory 766 1,085 1,150 1,259 Inventory & Debtor days 85 98 86 87
Debtors 1,437 2,535 2,617 2,770 Creditor days 129 80 69 66
Cash 440 1,126 2,900 4,613 Interest cover (x) 8.9 2.3 2.8 3.2
Loans & Advances 327 327 327 327 Valuation m etrics
Current liabilities 3,368 2,970 3,017 3,096 Fully Diluted Shares (mn) 151.3 151.3 151.3 151.3
Net current assets (398) 2,104 3,978 5,873 Fully Diluted M.Cap (Rs.mn) 17,409 17,409 17,409 17,409
Misc. expenditure 128 128 128 128 Fully Diluted EPS (Rs.) 7.1 9.7 10.5 12.0
Total Assets 25,512 26,361 26,599 26,823 P/E (x) 16.3 11.9 10.9 9.6
Cash Flow s (Rs. m n) EV (Rs.mn) 28,414 28,414 28,414 28,414
Cash flow s from Investing (2,689) (964) 116 116 BV/ share (Rs.) 88 98 108 120
Cash flow s from Financing (162) (1,788) (2,440) (2,545) Price to BV (x) 1.3 1.2 1.1 1.0
60
GMR Infrastructure Underperform
Growth with certainty but overwhelming concern on financials, downgrade to Underperform

Date 23 Aug 2010
GMR Infrastructure (GMR) has aggressive expansion plans in the power generation space, with a development
pipeline of 4.1GW that are at advanced stages of execution. In the power generation space, the company Market data
scores high on certainty of capacity additions (5x current levels), operating experience as well as risk
mitigation on the fronts of off-take as well as equipment supply. However, given the massive investment Bloomberg GMRI IN
pipeline of the company and highly leveraged balance sheet (DER of ~2:1 even excluding the debt drawn to Reuters GMRI.BO
fund the acquisition of Intergen), we think the financials will worsen over the next two years. Power segment‟s
CMP Rs. 63
RoEs to remain subdued and given massive losses expected at DIAL, we expect the company to report net
losses starting 2QFY11. We value the power business of the company at 1.5x FY12E ABV and other assets Shares o/s 3,892mn
using DCF. Based on our relative ratings, we downgrade the stock to Underperform (from Neutral). Market Cap Rs. 214.6bn
Investment Rationale 52-wk High-Low Rs. 77-51
 Possesses operational power capacities of 834MW, with a development pipeline of >8GW (5.4GW coal based, 3m Avg. Daily Vol Rs. 275mn
0.8GW gas-based and 2.1GW of hydel projects). One of the players expected to ramp up generation capacities
rapidly over FY10-15E. We expect a capacity CAGR of >20% over this period. Latest shareholding (%)
 On the thermal projects, the company has made steady progress, with most of the planned projects having achieved Promoters 70.61
key pre-construction milestones. Well reflected in Spark’s milestone weighted capacity score of >90% and indicates
Institutions 21.96
strong focus on timely project execution. Also, well placed on risk mitigation with a mix of PPA-linked capacities as
well as merchant power. On the front of equipments, company is well placed with diversified vendor exposures, Public 7.43
 Despite all mentioned advantages, we find that the leverage of the company is in uncomfortable territory of 2:1, even Stock performance (%)
though the ~US$ 1bn loan taken to acquire Intergen is not considered. Moreover debt-equity ratio will only worsen
from here, leading to a stretched balance sheet,. We consider this to be a risky proposition. 1m 3m 12m
 Majority stakes in Delhi (53% in DIAL) and Hyderabad International Airports (63% in HIAL), both being high quality GMR 5.8 9.8 -6.4
airport assets, together accounting for ~25% of traffic handled at Indian airports. Although passenger traffic at these Sensex 2.4 11.9 22.6
airports is increasing at a rapid pace, the consolidated financials of GMR will come under the stress of high interest BSE Power -1.7 6.0 8.3
costs and depreciation charges, following the capitalization of T3 at DIAL.
Year Sales (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) ABV (Rs.) P/B (x)
+91 44 4344 0036
FY10 51,234 13,643 2,254 5.57 7.4
FY11E 53,625 18,573 (709) 13.81 3.0 bharanidhar@sparkcapital.in
FY12E 67,286 25,616 2,992 19.10 2.2 +91 44 4344 0038
61
 Bangalore headquartered GMR Infrastructure is an

Operational projects
integrated developer with assets in power, airport,
Project Kakinada Basin Bridge Vem agiri
road and SEZs.
 Founded by Mr G M Rao , it was originally Ow nership 100% 51% 100%
incorporated in 1996 as Varalakshmi Vasavi Power

Entity GMR Energy GMR Pow er Corporation Vemagiri Pow er Generation
Projects Ltd in Andhra Pradesh. Subsequently, in
April 2000, the company changed to its present Location Kakinada, Andhra Pradesh Basin Bridge, Chennai West Godavari, AP
name.
Capacity (MW) 235 210 389
 The company went public in August 2006 and raised
Rs. 9.5bn.Recently , in April 2010, the company Estimated capex (Rs.mn) 8,225 9,469 11,480
raised $315 million through QIP
Debt (Rs. mn) 4,964 6,994 8,735
 GMR Infra focuses on thermal (coal-based & gas-
based) power plants in the medium term and plans to Equity (Rs. mn) 3,261 2,475 2,745
focus on renewable energy sources in the long term.
DER (x) 1.5 2.8 3.2
 Other businesses of GMR are airports , highways,
EPC and urban infrastructure. The company Estimated capex (Rs. mn per MW) 35 45 30
currently has two airports and six highway

Fuel type Natural Gas High Speed Diesel Oil Natural Gas
infrastructures operational.
 The company has also forayed into international Fuel source GAIL IOC RIL - KG Basin
business by developing an airport at Istanbul,

Financial closure Achieved Achieved Achieved
Turkey. It has also won the bid to operate and
modernize the Male International airport. CoD Jun-01 Apr-98 Jan-06
 Mr G M Rao is the Chairman and Mr Srinivas Offtake - Regulated tariff (R) R - 0% R - 100% R - 100%
Bommidala is the Managing Director of the company. Offtake - Merchant tariff (M) M - 100% M - 0% M - 0%
There are 734 employees in the firm.
62
Power projects under execution Update CMP Rs. 63 Target Rs. 50
Projects under developm ent

Project Kam alanga Vem agiri Expn Varora Raipur Coastal
Ow nership 80% 100% 100% 100% 100%
Entity GMR Kamalanga Energy Vemagiri Pow er Generation GMR EMCO Energy GMR Chattisgarh Energy GMR Coastal AP Pow er
Location Kamalanga, Orissa Vemagiri, Andhra Pradesh Varora, Maharashtra Raikheda, Raipur, Andhra Pradesh
Chattisgarh
1,400 768 600 1,370 2,000
Capacity (MW)
(4*350) (ST 260 & GT 255) (2*300) (4*342)
Exstimated capex (Rs.mn) 60,533 37,143 34,800 88,124 96,000
Debt (Rs. mn) 45,400 26,000 26,100 61,687 67,200
Equity (Rs. mn) 15,133 11,143 8,700 26,437 28,800
DER (x) 3.0 2.3 3.0 2.3 2.3
Fuel type Coal - Domestic Gas - Domestic Coal - Domestic Coal - Domestic Coal - Imported
Fuel source Captive coal mine - Rampia KG Basin - unallocated Linkage Linkage Indonesian & South African Subsidiaries
Financial closure Achieved Not Achieved Achieved Not Achieved Not Achieved
Done on / Expected by May'09 Sep'10 Oct'09 Sep'10 Dec'10
Borrow ing cost (%) 11.0% 11.0%
Bankers 13 Bank consortium led by IDBI roped in as the sole Axis bank led consortium Axis bank to lend Rs. 15bn
IDFC debt advisor 15yr term loan
More details (if any) on Bankers
Expected CoD Sep'2011 to Jan'2012 Mar'2012 Jan'2013 to Mar'2013 Jan'2014 to Mar'2014 Mar'2015
Offtake - Regulated tariff (R) R - 58% R - 0% R - 33% R - 35% R - 0%
Offtake - Merchant tariff (M) M - 42% M - 100% M - 67% M - 65% M - 100%
Progress on Milestones: Under construction Under construction Under construction Under construction Under development
Land     
Water availability     
Environment clearance     
EPC Ordering     
FSA     
63
Warora, Maharashtra Kamalanga, Orissa

TPP (2*300) : 600 MW TPP (4*350) : 1,400 MW
Total : 600 MW Total : 1,400 MW
Raipur , Chattisgarh Vemagiri , Andhra Pradesh

TPP (4*342) : 1,370 MW TPP (1*389) : 389 MW
Total : 1,370 MW TPP Exp (1*268+ 2*250) : 768 MW
Total : 1,157 MW
Kakinada , Andhra Pradesh

Plant Capacity Coastal, Andhra Pradesh
TPP (1*235) : 235 MW Plant Capacity
Total : 235 MW TPP (1*2000) : 2,000 MW
Total : 2,000 MW
Basin Bridge, Tamil Nadu

Plant Capacity
TPP (1*210) : 210 MW Total Capacity
Total : 210 MW **Operational 834 MW
64

Profit & Loss Grow th ratios
Revenues 51,234 53,625 67,286 113,334 Sales 14.5% 4.7% 25.5% 68.4%
EBITDA 13,643 18,573 25,616 47,875 EBITDA 27.9% 36.1% 37.9% 86.9%
Other Income 1,634 2,553 3,529 3,215 PAT -19.3% -131.5% -522.1% 297.4%
Depreciation 6,122 9,682 10,857 14,257 Margin ratios
EBIT 9,155 11,444 18,289 36,832 EBITDA 26.6% 34.6% 38.1% 42.2%
PBT 1,932 (432) 4,684 16,510 PAT 4.4% -1.3% 4.4% 10.5%
PAT 2,254 (709) 2,992 11,892 Perform ance ratios
Balance Sheet RoA 0.8% -0.2% 0.6% 2.3%
Net Worth + Minority 66,657 127,346 146,983 171,553 RoE 3.4% -0.6% 2.0% 6.9%
Total debt and grants 216,873 316,365 342,115 345,958 RoCE 3.2% 2.6% 3.7% 7.1%
Total Netw orth & Liabilities 283,530 443,711 489,098 517,511 Total Assets Turnover (x) 0.2 0.1 0.1 0.2
Gross Fixed assets 146,546 256,179 334,893 370,755 Fixed Assets Turnover (x) 0.4 0.2 0.2 0.4
Accumulated depreciation 22,555 33,273 44,129 58,387 Working capital Turnover (x) 2.3 0.5 0.6 1.0
CWIP 103,829 71,612 53,463 57,281 Net Debt to Equity (x) 3.2 1.9 1.8 1.6
Investments 32,253 33,310 33,310 33,310 Current ratio (x) 9.6 27.4 23.4 14.3
Inventories 2,148 2,954 3,577 5,842 Working capital days 156 779 596 359
Sundry Debtors 3,653 6,118 7,954 13,352 Inventory & Debtor days 41 62 63 62
Cash and bank balances 1,573 76,811 70,390 67,906 Creditor days 122 224 178 106
Loans & Advances 17,085 32,837 32,837 32,837 Interest cover (x) 1.3 1.0 1.3 1.8
Current liabilities 2,557 4,333 4,898 8,399 Valuation m etrics
Net current assets 21,902 114,387 109,861 111,538 Fully Diluted shares (mn) 3,663 3,893 3,893 3,893
Misc. Expenditure & Def. Tax 1,554 1,496 1,700 3,014 Fully diluted M. Cap (Rs.mn) 214,606 214,606 214,606 214,606
Total Assets 283,530 443,712 489,098 517,511 Fully Diluted EPS (Rs.) 0.62 (0.18) 0.77 3.05
Cash Flow s P/E (x) 102.5 nm 82.0 20.6
Cash flow s from Operations (1,474) (8,751) 13,625 26,705 EV (Rs.mn) 325,201 325,201 325,201 325,201
Cash flow s from Investing (112,617) (77,955) (60,047) (39,161) EV/ EBITDA (x) 18.5 13.8 10.0 5.4
65
GVK Power & Infrastructure Underperform
Modest plans with substantial concentration risks, focus on inorganic growth opportunities
Date 23 Aug 2010
despite stretched financials is a concern, downgrade to Underperform
GVK Power and Infrastructure (GVK) has modest expansion plans in the power generation space, with a Market data
development pipeline of 2.0GW at advanced stages of execution. Despite being one of the older private players
Bloomberg GVKP IN
in the power generation space, the company has lost ground by having only limited (~540MW) coal based
capacities in the execution stage. Also, operational power plants generate only modest RoEs of sub-5% and Reuters GVKP.BO
company has limited options to leverage upon the merchant power market. Also, as the company needs CMP Rs. 46
capital to fund its growth, expansion plans at J3 and Gautami (both gas based and exposed to fuel supply
risks) are likely to progress slowly. We value the power business of the company at 1.0x FY12E ABV and other Shares o/s 1,579mn
assets using DCF. Based on our relative ratings, we downgrade the stock to Underperform (from Neutral). Market Cap Rs. 72.2bn
 Possesses operational power capacities of 914MW, with a development pipeline of ~2GW (0.5GW coal based, 1.2W 3m Avg. Daily Vol Rs. 254mn
gas-based and 0.3GW of hydel projects). Despite being one of the earlier private players in the power generation
space, the company is only expected to grow capacities at a moderate pace over the next 4-5 years. Latest shareholding (%)
 In uncomfortable territory as regards financial position, with debt-equity of 1.7:1 (even excluding debt of the airports, Promoters 54.25
which are associates), expected to worsen further as more debt is drawn down in projects under execution. Moreover Institutions 35.87
we are averse to the company’s stated strategy of inorganic growth, which is unlikely to provide non-linear upsides.
Public 9.88
 Although the company scores reasonably well on execution (Spark’s milestone weighted capacity score of >80%),
company suffers from substantial fuel supply risks as ~60% of expansion plan is gas-based, without fuel supply being Stock performance (%)
tied up. Moreover, the company lags peers such as GMR and Lanco on construction progress (a key monitorable for
1m 3m 12m
gas allocation), thus hampering chances of timely gas allocation.
GVK 1.2 9.6 -4.0
 Minority stakes in Mumbai (37% in MIAL) and Bangalore International Airports (29% in BIAL), both being assets that
will consume significant amounts of capital in the near future. Although passenger traffic at these airports is Sensex 2.4 11.9 22.6
increasing, the key trigger is the real estate development at Mumbai airport, which continues to be delayed. BSE Power -1.7 6.0 8.3

+91 44 4344 0036
FY10 17,886 4,683 1,559 14.86 1.4
FY12E 22,692 5,869 809 26.22 0.8 +91 44 4344 0038
66
Operational projects
 GVK Power & Infrastructure Ltd (GVKPIL) is a large , integrated Project Jegurupadu - 1 Jegurupadu - 2 Gautam i
infrastructure player, involved in the development of power plants,
Ow nership 100% 100% 64%
airports and roads.
 GVK Power was incorporated in 1994 under the name Jegarupadu Entity Jegurupadu Pow er Jegurupadu Pow er Gautamii Pow er
Operating & Maintenance Company as a private company. Later on in

Location Jegurupadu, AP Jegurupadu, AP East Godavari, AP
2005, it became a public limited company and changed its name to
GVK Power & Infrastructure Limited. 235 215 464
Capacity (MW)
 In February 2006 , the company raised Rs. 2.56bn through its maiden
Estimated capex (Rs.mn) 10,255 8,931 19,357
public offer. Its latest capital raising initiative was in July 2009 , where
it raised Rs. 7.2bn through preferential shares. Debt (Rs. mn) 7,691 7,281 11,060
 Later, the company merged its power, road and airport project entities Equity (Rs. mn) 2,564 1,650 8,297
under GVKPIL in January 2007.
DER (x) 3.0 4.4 1.3
 The company is involved in undertaking power projects across India
Estimated capex (Rs. mn per MW) 44 42 42
based on three different fuel source namely : coal, natural gas and
hydel power . Currently 914MW of operational capacity is run on
Fuel type Natural Gas Natural Gas Natural Gas
natural gas. Also , It is developing 540MW, 1390MW, 1179MW of coal
, hydel and natural gas projects respectively.
 Other businesses include airports, highways and urban infrastructure Fuel source GAIL RIL - KG Basin RIL - KG Basin
projects. It operates two airports at Mumbai & Bangalore and the
Jaipur-Kishangarh BOT road project. Financial closure Achieved Achieved Achieved
 Dr G V Krishna Reddy is the Chairman & Managing Director of the
CoD Feb'97 Nov'03 Mar'04
company.
Offtake - Regulated tariff (R) R - 100% R - 100% R - 100%
Offtake - Merchant tariff (M) M - 0% M - 0% M - 0%
67
Power projects under execution Update CMP Rs. 46 Target Rs. 50
Execution/Developm ent projects
Project Goindw al Sahib Tokisud Seregraha Alakananda Gautam i II Jegurupadu III Goriganga Ratle
Ow nership 100% 100% 44% 100% 64% 100% 100% 100%

GVK Coal Seregraha - Alakananda
GVK Pow er Jegurupadu
Entity (Tokisud) Jointly w ith Hydro Pow er Gautamii Pow er - -
(Goindw al Sahib) Pow er
Company Arcellor Mittal Company
Taran Taran, Latehar, Srinagar,
Location Ranchi, Jharkhand East Godavari, AP Jegurupadu, AP
Punjab Jharkhand Uttarkhand
540 52 67 330 786 393 370 690
Capacity (MW)
(2*270) (4*82.5) (2*393) (1*393) (200+170)
Estimated capex (Rs.mn) 29,700 3,438 2,914 27,000 32,000 16,000 29,600 55,200
Debt (Rs. mn) 22,275 2,750 2,186 21,600 24,000 12,000 22,200 41,400
Equity (Rs. mn) 7,425 688 729 5,400 8,000 4,000 7,400 13,800
DER (x) 3.0 4.0 3.0 4.0 3.0 3.0 3.0 3.0
Estimated capex (Rs. mn per MW) 55 82 41 41 80 80
Fuel type Coal - Domestic Opencast mines Coal - Domestic Not Applicable Gas - Domestic Gas - Domestic Not Applicable Not Applicable
Captive coal mine Run-of-river Run-of-river Run-of-river

Fuel source Captive Captive KG Basin Gas KG Basin Gas
- Tokisud hydel project hydel project hydel project
Financial closure Achieved Achieved Not Achieved Achieved Not Achieved Not Achieved Not Achieved Not Achieved
Expected CoD Dec'12 Jun'12 Jun'14 Mar'12 Dec'12 Dec'12 2017 2017
Offtake - Regulated tariff (R) R - 100% R - 100% R - 100% R - 100% R - 60% R - 60%
- -
Offtake - Merchant tariff (M) M - 0% M - 0% M - 0% M - 0% M - 40% M - 40%
Regulated Tariff - - - - - -
-
Land     32 Acres required 24 Acres required - -
Environment clearance       - -
EPC Ordering  NA NA    - -
FSA    NA   - -
Water Availability    NA   - -
68
Ratle, J&K Goriganga, Uttarakhand

Hydel Power (1 *690) : 690 MW Hydel Power (200+170) : 370 MW
Total : 690 MW Total : 370 MW
Goindwal Sahib, Punjab Alakananda, Uttarakhand

TPP (2 *270) : 540 MW Hydel Power (4 *82.5) : 330 MW
Jegurupadu , Andhra Pradesh

Gautami, Andhra Pradesh Plant Capacity
Plant Capacity TPP -1 (1 *235) : 235 MW
TPP-1 (1 *464) : 464 MW TPP -2 (1 *215) 215 MW
TPP-2 (2 *393) : 786 MW TPP-3 (1 *393) 393 MW
Total Capacity
69

Revenues 17,886 21,986 22,692 42,407 Sales 255.1% 23.3% 3.2% 86.9%
EBITDA 4,683 5,589 5,869 16,535 EBITDA 198.0% 11.3% 5.0% 181.7%
Other Income 292 91 135 249 PAT 35.3% 9.7% -47.3% 495.7%
EBIT 3,604 3,685 4,007 12,823 EBITDA 28.2% 25.4% 25.9% 39.0%
PBT 1,433 934 500 4,358 PAT 4.4% 3.2% 2.3% 9.9%
PAT 1,559 1,535 809 4,817 Perform ance ratios
Balance Sheet RoA 1.2% 0.8% 0.4% 2.6%
Net Worth 34,631 36,349 37,356 42,406 RoE 2.6% 2.0% 1.4% 10.5%
Deferred Tax 69 (185) (310) (708) Total Assets Turnover (x) 0.25 0.22 0.15 0.24
Gross Fixed assets 45,555 47,821 81,247 153,613 Working capital Turnover (x) 5.15 2.97 2.13 2.25
CWIP 16,290 37,656 50,738 - Net Debt to Equity (x) 1.03 1.66 2.80 2.87
Loans & Advances 95 189 284 378 Interest cover (x) 1.66 1.34 1.14 1.51
Misc. Expenditure - - - - Fully diluted M. Cap (Rs.mn) 72,151
Deferred Tax - - - - Fully Diluted EPS (Rs.) 0.88 0.97 0.51 3.04
Total Assets 72,183 100,350 148,590 175,383 P/E (x) 51.6 47.0 89.2 15.0
Cash flow s from Investing (15,351) (26,228) (47,000) (22,573) BV/ share (Rs.) 20.08 21.05 21.56 24.60
70
Lanco Infratech Outperform
Best bet on strong capacity additions, available at modest valuations Date 23 Aug 2010
Infrastructure conglomerate with a strong pipeline of power projects comprising of 6.3GW of thermal plants
and 0.7GW of hydel plants coupled with an in-house EPC arm largely constructing projects for the group. We Market data
like the strong growth ambitions of the company (>60% revenue CAGR over FY10-13E) backed by solid
Bloomberg LANCI IN
execution. Also, well poised to fund the power segment's equity requirements over the next 4-5 years, given
consolidated RoEs of >20% over FY11-15E. We value the power generation business at 2x FY12E ABV and the Reuters LAIN.BO
EPC business using DCF. Initiate with Outperform. CMP Rs. 69
Investment Rationale Shares o/s 2,407mn
• Infrastructure conglomerate with a strong focus on power generation, with 1.4GW of operational capacities and a total Market Cap Rs. 166.9bn
development pipeline of 9.2GW. We like the strong growth ambitions of the company (>60% revenue CAGR over
FY10-13E). 52-wk High-Low Rs. 71-39
• Also, growth ambitions are adequately backed by timely project execution, as reflected by Spark’s milestone
weighted capacity score of 91% or 9.6GW. We further like the company’s unique (although other group’s are looking
Latest shareholding (%)
to follow suit) backward-integration into the EPC business (more than 2000 employees), which predominantly caters
to the projects of Lanco. Promoters 67.95
• Although the company has exposure to merchant power, through the gas-based Kondapalli plant, it is expected to Institutions 24.10
achieve only moderate RoEs of ~10% (even then substantially better than other conglomerates such as GMR and Public 7.95
GVK) in the power business, given the substantial scale up in capacities.
• Scores high on availability of assured fuel supply, given that coal linkages are available for 100% of the 7GW of coal-
based capacities that are coming up. 1m 3m 12m
• We expect a strong revenue CAGR of >40% over FY10-13E, in the power generation business of the company, Lanco 3.6 26.4 68.6
based on the capacity additions lined up over the next 30 months. Overall, we expect the company’s revenues to Sensex 2.4 11.9 22.6
grow at a CAGR of >35% over the corresponding period. We expect the company to achieve consolidated RoEs of
BSE Power -1.7 6.0 8.3
>20%, which will allow the company to fund its expansion plans without resorting to further capital raise.
+91 44 4344 0036
FY10 80,320 14,515 4,941 13.4 3.0
FY12E 177,534 47,836 18,764 30.3 1.3 +91 44 4344 0038
71
 Lanco Infratech is a rapidly growing , new breed Operational projects

private utility focused on coal based power Project Kondapalli I Kondapalli II Aban Pow er Am arkantak I&II
generation and power trading. Ow nership 59% 59% 51% 100%
 Lanco was formed in 1985 by first generation Lanco Kondapalli Lanco Kondapalli Aban Pow er Lanco Amarkantak
Entity
entreprenuer Mr. L Rajagopal. It was incorporated Pow er Pvt Ltd Pow er Pvt Ltd Company Ltd Pow er Private Ltd
in 1993 as Lanco Constructions Ltd in Andra Location
Kondapalli, Andhra Kondapalli, Tanjore, Tamil
Champa, Chattisgarh
Pradesh. Pradesh Andhra Pradesh Nadu
368 366 120 600
 The company came out with an Initial Public Offer Capacity (MW)
2* 300
(IPO) in November 2006 raising Rs. 10.67 bn. Later
Capex (Rs.mn) 10,845 11,385 4,185 25,650
on, it further raised capital through preferential issue
of shares in August 2009. Debt (Rs. mn) 8,676 9,108 3,348 20,520
 Currently it has about 1.4GW of operational Equity (Rs. mn) 2,169 2,277 837 5,130
capacity. Under aggressive expansion mode, it is
DER (x) 4.0 4.0 4.0 4.0
currently executing power projects with a total
Estimated capex (Rs. mn per
capacity of 7.8GW. It is also working on two road 29 31 35 43
MW)
projects near Bangalore. BY 2015, the company is
Gas - Combined Gas - Combined
planning to increase power generation capacity to Fuel type Gas - Combined Cycle Coal
Cycle Cycle
15GW.
 The power projects have a widespread presence in Fuel source RIL KG D6 RIL KG D6 GAIL SECL
10 states across South and Central India.
 Other businesses of the company include EPC , Financial closure Achieved Achieved Achieved Achieved
property development and roads.
CoD Oct-00 May-10 Aug-09 Jun-05
 Mr. Mashusudhan Rao is the Executive Chairman
Unit I - PPA, 15 Years, Unit I -Merchant Pow er -
and Mr. G Venkatesh Babu is the Managing Offtake - Regulated tariff (R)
APPCC, till 2015 , Unit II - -
15 years - TNEB,
With PTC (to MP SEB)
Offtake - Merchant tariff (M) till 2020
Director of the company. There are 5,500 Merchant Pow er Unit 2 - w ith PTC
employees in the organization.
72
Executional/Developm ent projects

Am arkantak III Vidharbha Udupi Pow er I Lanco Energy Lanco Hydro Lanco Green
Project Kondapalli III & IV Therm al Lanco Anpara & II (Teesta) Energies Pow er Babandh I & II
Ow nership 100% 100% 100% 100% 100% 100% 100% 100% 100%
Lanco Lanco Lanco Vidarbha Lanco Green
Entity Kondapalli Amarkantak Thermal Pow er Lanco Anpara Udipi Pow er Lanco Energy Lanco Hydro Pow er Private Lanco Babandh
Pow er Pvt Ltd Pow er Pvt Ltd Private Limited Pow er Pvt Ltd Corporation Ltd Pvt Ltd Pow er Ventures Limited Pow er Pvt Ltd
Himachal
State Andhra Pradesh Chhattisgarh Maharashtra Uttar Pradesh Karnataka Sikkim Uttarakhand Orissa
Pradesh
742 1320 1320 1200 1200 500 152 70 1320

Capacity (MW)
- (2*660) (2*660) (2*600) (2*600) - (2*76) - (2*660)
Estimated capex (Rs.mn) 20,180 71,280 56,760 33,530 42,450 30,000 9,120 4,200 55,846
Debt (Rs. mn) 16,144 57,024 45,408 26,824 33,960 24,000 7,296 3,360 44,677
Equity (Rs. mn) 1,311 10,858 11,352 6,706 8,490 6,000 1,824 840 11,169
DER (x) 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Estimated capex (Rs. mn
27 54 43 28 35 60 60 60 42
per MW)
Gas - Combined
Fuel type Coal Coal Coal Imported Coal Hydro Hydro Hydro Coal
Cycle
Fuel source - SECL SECL North Coal fields Indonesia NM NM NM -
Financial closure No No No Yes Yes Yes Yes Yes No
Expected CoD NA FY14 FY16 FY12 FY11 FY16 FY12 FY12 FY16
Offtake - Regulated tariff (R) R-65% R- 56% R-92% R-50%

- R-100% R-100% M-100% R-100%
Offtake - Merchant tariff (M) M-35% M-44% M-8% M-50%
Land         
Environment clearance         
EPC Ordering         
FSA         
Water Availability         
73
Lanco Hydro Energies

Lanco Energy, Sikkim
Plant Capacity
Plant Capacity
Hydel Power (1*152) : 152 MW
Hydel (1*500) : 500 MW
Total : 152 MW
Total : 500 MW
Lanco Green Power, HP
Amarkantak, Chattisgarh
Plant Capacity
Plant Capacity
Hydel Power : 70 MW
TPP -1 (1*300) : 300 MW
Total : 70 MW
TPP – 2 (1*300) : 300 MW
Anpara, Uttar Pradesh TPP Exp ( 2*660) : 1,320 MW
Plant Capacity Total : 1,920 MW
TPP-1 (2*600) : 1,200 MW Babandh, Orissa
Total : 1,200 MW Plant Capacity
TPP ( 2*660) : 1,320 MW
Vidharbha Thermal, Maharashtra
Total : 1,320 MW
Plant Capacity
TPP-1 (2*660) : 1,320 MW Kondapalli, Andhra Pradesh
Total : 1,320 MW Plant Capacity
CCPP -1 (1*368) : 368 MW
Udupi Power, Karnataka CCPP -2 (1*366) 366 MW
Plant Capacity CCPP - 3 742 MW
TPP -1 (2*600) : 1,200 MW Total : 1,476 MW
Total : 1,200 MW
Aban Power, Tamil Nadu Total Capacity

Plant Capacity **Operational 1,482 MW
CCPP-1 (1*120) : 120 MW **Under execution 7,824 MW
Total : 120 MW **Under development 0 MW
74

Pow er Generation 16,000 33,470 34,386 32,659 Pipeline (MW) 7,962 6,629 5,354 4,034
EBITDA 14,515 31,753 47,836 49,813 Units Sold (Mn kWhr) 5,529 13,092 22,965 25,181
Other Income 1,839 590 917 1,529 Revenue per unit (Rs.) 2.9 2.6 1.5 1.3
Depreciation 3,479 6,782 12,591 13,692 Opex per unit (Rs.) 1.8 1.7 1.6 1.6
EBIT 12,876 25,561 36,162 37,650 PBT per unit (Rs.) 0.6 0.7 0.6 0.5
PBT 9,322 16,671 23,574 24,031 Perform ance ratios
PAT 4,941 12,068 18,764 19,250 RoA (%) 4.7% 6.5% 6.8% 5.8%
Net Worth + MI 40,556 74,776 91,407 108,023 RoCE (%) 12.7% 13.7% 13.1% 11.4%
Deferred Tax 1,003 (705) (2,554) (4,836) Fixed Assets Turnover (x) 1.3 1.1 1.0 1.1
CWIP 19,237 70,953 65,044 119,586 Current ratio (x) 2.6 2.6 2.7 2.6
Investments 20,229 33,941 33,941 33,941 Working capital days 157 102 105 120
Inventories 1,442 1,538 1,937 3,363 Inventory & Debtor days 173 115 102 107
Inventory 16,267 6,134 7,155 7,488 Creditor days 157 119 104 114
Sundry Debtors 22,344 36,316 42,998 52,419 Interest cover (x) 3.6 2.9 2.9 2.8
Loans and Advances 21,800 23,547 23,547 23,547 Valuation m etrics
Cash and bank balances 9,628 15,644 29,487 46,711 Fully Diluted shares (mn) 2,408 2,408 2,408 2,408
Current liabilities 35,110 43,802 51,245 63,310 Fully diluted M. Cap (Rs.mn) 166,981
Net current assets 34,929 37,839 51,942 66,856 Fully Diluted EPS (Rs.) 2.1 5.0 7.8 8.0
Total Assets 125,173 247,853 302,295 359,076 P/E (x) 34 14 9 9
Cash flow s from Operations (6,608) 21,957 31,095 35,252 EV/ EBITDA (x) 16.6 7.6 5.0 4.8
75
NHPC Outperform
Stability even with the largest capacity addition drive in the company‟s history Date 23 Aug 2010
Clearly India's largest (5.2GW operational) and most experienced (30 years of operating experience) hydel
power utility with 4.6GW of projects under execution, which will double the capacities of the company over the Market data
next 4-5 years. Development projects have crossed critical milestones and we believe that such doubling of
Bloomberg NHPC IN
capacities is highly certain. High quality balance sheet and ability to fund growth out of internal accruals.
RoEs are likely to expand to ~10% as the capacities under development get commissioned. Moreover, we see Reuters NHPC.BO
the regulatory climate beginning to shift in favour of hydel projects. We value the company at 1.5x FY12E ABV. CMP Rs. 31
Initiate with Outperform.
Shares o/s 12,301mn
• Largest hydel player with operational capacities of 5.2GW and experience in operating hydel plants for more than 30
years. Embarking upon ‘the capacity addition drive’ in its history, with the aspiration to (almost) double capacities by 52-wk High-Low Rs. 40-28
FY15E. All the 4.6GW of capacities under construction have achieved key pre-construction milestones and are in the 3m Avg. Daily Vol Rs. 268mn
construction phase, leading us to believe that the company will likely achieve the doubling of capacities as envisaged.
• Substantial RoE improvements to be driven by two key factors. (a) tariff for the period 2009-14, which allows 15.5% Latest shareholding (%)
RoEs (instead of 14.5% earlier) (b) conversion of CWIP into gross block over the next 3-4 years. CWIP as a % of Promoters 86.36
overall balance sheet size, we expect, will reduce from >30% in FY10 to ~5% in FY15E following commissioning of
Institutions 4.22
projects under construction. As a result we expect RoEs to improve to ~10% by this period.
Public 9.42
• From a regulatory standpoint, we are beginning to see the thrust in favour of hydel power generation, given that these
are the stations that typically serve peak load requirements. NHPC being the leading player in hydro power, will likely Stock performance (%)
benefit from more benign regulations in future. Accordingly, company has applied for grossing up RoEs (4th year of
construction onwards) on to project cost, so as to close the gap with thermal power major NTPC. Also company has 1m 3m 12m
applied to the Ministry of Power to extend the applicability deadline for tariff based bidding. Both verdicts are NHPC 0.2 12.0 NM
expected during FY11E.
Sensex 2.4 11.9 22.6
• High quality balance sheet, with debt-equity ratio of 0.4 and a surplus cash position. With accruals of at least Rs. BSE Power -1.7 6.0 8.3
20bn each year, the company is well positioned to meet its funding requirements.
+91 44 4344 0036
FY10 52,273 41,291 22,777 21.7 1.4
FY11 49,554 38,132 18,921 23.4 1.3 bharanidhar@sparkcapital.in
FY12E 53,727 41,849 21,602 25.2 1.2 +91 44 4344 0038
76
NHPC Outperform
Power projects CMP Rs. 31 Target Rs. 38
 NHPC is a Mini Ratna Category-I Operational Projects
Government of India promoted enterprise Annual

Total Capacity Cost (Rs.
Project Nam e Location CoD River Generation
incorporated in the year 1975 as a private (MW) m n)
(units)
limited company to develop hydro electric Indira Sagar Pow er Khandw a District Madhya
power projects. Station 1,000 Pradesh May-05 Narmada 43,556 1,980
 Subsequently in 1986 it was converted into Salal Pow er Station 690 Udhampur District, J & K Apr-85 Chenab 92,889 3,101
a public limited company. It came out with Chamera I Pow er Chamba District, Himachal
an IPO in August 2009 and raised Rs. Station 540 Pradesh May-94 Ravi 21,140 1,665
60.38bn. Omkareshw ar Pow er Khandw a District Madhya
Station 520 Pradesh Nov-07 Narmada 22,247 1,166
 It is the largest organization in the field of
hydro power development in India with Teesta V Pow er Station 510 Sikkim Apr-08 Teesta 21,980 2,573
installed capacities of more than 5GW and

capacities of more than 4.5GW under Uri - I Pow er Station 480 Baramulla District, J&K Apr-93 Jhelum 33,000 2,587
Chandra -
construction. Tributary of
Dulhasti Pow er Station 390 Doda District J & K Apr-07 Chenab River 35,598 1,907
 The company also has in its pipeline more
Chamera II Pow er Chamba District, Himachal
than 13GW that are awaiting the approval Station 300 Pradesh Mar-04 Ravi 19,296 1,500
of CEA. Dhauliganga -
Dhauliganga - I Pow er Pithoragarh District Tributary of
 It has done five turnkey projects with a total Station 280 Uttarakhand. Nov-05 Sharda
Baira,River
Siul 15,783 1,135
capacity of 89.3 MW. Two of these projects and Bhaledh -
are located in Nepal and Bhutan. Chamba District, Himachal Tributaries
Baira Siul Pow er Station 180 Pradesh Apr-82 of Ravi 1,425 779
 Mr. S K Garg is the Chairman & Managing Champaw at District,
Director of the company. The firm has Tanakpur Pow er Station 94 Uttarakhand Apr-93 Sarda 3,792 452
about 13,000 employees.
Loktak Pow er Station 90 Manipur Jun-83 - 1,300 448
Rangit Pow er Station 60 Sikkim Feb-00 - 4,923 339
Total 5,175 316,929 19,632
77
NHPC Outperform
Projects Under Construction
Total Capacity Annual Generation on a

Project Nam e Units Location CoD River Cost (Rs. m n)
(MW) 90% Dependable Year (MU)
Low er Subansiri
Subansiri 2,000 8*250 Arunachal Pradesh Jun-13 Subansiri 62,853 7,421
Parbati II 800 4*200 Kullu Himachal Pradesh Jun-13 Parbati 39,196 3,109
Parbati III 520 4*130 Kullu Himachal Pradesh Mar-12 Parbati & Sainj 23,046 1,963
Kishenganga -
Kishenganga 330 3*110 Baramulla J&K Jan-16 Tributary of Jhelum 36,420 1,350
Uri II 240 4*60 Baramulla J&K Feb-11 Jhelum 17,248 1,124
Chamba District,
Chamera III 231 - Himachal Pradesh Dec-10 Ravi 14,056 1,104
Teesta Low Dam IV 160 4*40 Darjeeling West Bengal Sep-11 Teesta 10,614 720
Teesta Low Dam III 132 4*33 Darjeeling West Bengal Apr-11 Teesta 7,689 594
Sew a - Tributary of
Sew a II 120 3*40 Kathua J&K Jun-10 Ravi 6,655 534
Nimmo-Bazgo 45 3*15 Leh J&K Apr-11 Indus 6,110 239
Chutak 44 4*11 Kargil J&K Apr-11 Suru 6,213 213
Total 4,622 230,100 18,370
78
NHPC Outperform
Jammu & Kashmir Capacity West Bengal Capacity

Operational 1,560 MW Operational 0 MW
Under execution 779 MW Under execution 292 MW
Under development 3,120 MW Under development 0MW
Himachal Pradesh Capacity Sikkim Capacity

Under execution 1,551 MW Under execution 0 MW
Under development 0 MW Under development 730 MW
Uttarakhand Capacity Manipur Capacity

Operational 374 MW Operational 90 MW
Under execution 0 MW Under execution 0 MW
Under development 1,970 MW Under development 66 MW
Madhya Pradesh Capacity Arunachal Pradesh Capacity

Under execution 0 MW Under execution 2,000 MW
Under development 0 MW Under development 8,000 MW
Total Capacity
**Operational 5,134 MW
79
NHPC Outperform

Revenues 52,273 49,554 53,727 58,148 Sales 50.4% -5.2% 8.4% 8.2%
EBITDA 41,291 38,132 41,849 45,795 EBITDA 78.7% -7.7% 9.7% 9.4%
Other Income 6,473 7,442 11,925 14,365 PAT 71.1% -16.9% 14.2% 15.7%
EBIT 34,936 32,378 39,839 45,660 EBITDA 79.0% 77.0% 77.9% 78.8%
PBT 27,543 22,881 26,122 30,232 PAT 43.6% 38.2% 40.2% 43.0%
Balance Sheet RoA 5.5% 4.2% 4.5% 5.0%
Net Worth 266,968 288,414 310,016 335,017 RoE 9.5% 6.8% 7.2% 7.8%
Deferred Tax 17,919 15,398 15,398 15,398 Total Assets Turnover (x) 0.12 0.11 0.11 0.12
Gross Fixed assets 280,120 318,079 371,750 371,750 Working capital Turnover (x) 1.02 0.87 0.70 0.82
CWIP 140,620 124,006 96,208 123,901 Net Debt to Equity (x) 0.38 0.32 0.29 0.23
Loans & Advances 18,847 16,195 13,500 20,240 Interest cover (x) 4.7 3.4 2.9 3.0
Misc. Expenditure (4) - - - Fully diluted M. Cap (Rs.mn) 384,398
Deferred Tax 0 0 0 0 Fully Diluted EPS (Rs.) 1.85 1.54 1.76 2.03
Total Assets 448,402 462,108 493,773 501,268 P/E (x) 16.9 20.3 17.8 15.4
Cash flow s from Financing 14,046 (14,717) (38) (26,557) Price to BV (x) 1.4 1.3 1.2 1.1
80
Power Grid Corporation of India Underperform
Certainly a monopoly but priced for perfection Date 23 Aug 2010

India's Central Transmission Utility and the leading power transmission player in India, transmitting close to
50% of the power generated in the country. The company is essentially a “service provider” wheeling power Market data
from the generator to the distributor, earning regulated returns based on the cost plus model. Hence, revenues
Bloomberg PWGR.IB
will likely be stable and will increase every year to the tune of new projects getting commissioned. Well
positioned to achieve at least 90% of the planned outlay of Rs. 550bn in the 11th Plan period. Has lined up Reuters PGRD.BO
investments plans of Rs. 900bn for the subsequent plan period. Steady growth expected, but debt-equity CMP Rs. 103
already near the threshold of 2.33:1 will necessitate frequent dilution. Value the company at 2.2x FY12E ABV
and initiate with Underperform. Shares o/s, 4,209mn
52-wk High-Low Rs.121-95
• Natural beneficiary of the large scale capacity additions being planned in the generation space, which needs to be
supported by adequate transmission capacities. Natural monopoly with rich experience in laying and operating 3m Avg. Daily Vol Rs. 157mn
transmission lines across the length and breadth of India.
• Strong execution track record with plan achievement ratios consistently >90%. Right of way is the only serious
impediment to project execution and does not pose as big a risk as in other infrastructure projects because transfer of Promoters 86.36
possession is not usually required. Moreover, >45% of the projects of the company are transmission strengthening Institutions 7.18
projects, which typically do not suffer any setbacks.
Public 6.46
• Even with a history of maintaining availability factors of ~99% in the transmission lines, upsides on RoEs are limited
and we expect the company to earn RoEs in the 12-13% range over the next few years, given a large portion of the Stock performance (%)
equity funding will be towards creation of CWIP. Moreover, given the stringent criteria (minimum availability of 98%) 1m 3m 12m
for earning incentives, ability to earn non-linear returns is limited.
PGCIL 2.2 -0.1 -4.2
• Although steady growth of >15% CAGR is a virtual certainty, the company’s financial position is not exactly the most
Sensex 2.4 11.9 22.6
desirable, with a debt-equity ratio of close to 70:30, implying the company will need to raise vast amounts of equity to
fund its growth plans. Risk of frequent dilution looms large. BSE Power -1.7 6.0 8.3

+91 44 4344 0036
FY10 71,275 58,694 20,409 37.9 2.7
FY12E 101,972 87,298 27,623 54.6 1.9 +91 44 4344 0038
81
Company Brief CMP Rs. 103 Target Rs. 109
 PGCIL commenced operations in 1992and is

responsible for planning , executing and
National grid strengthening programme for the 11th plan
operating high voltage inter-state
transmission systems in India.
 Incorporated in 1989 as National Power Northern North

Transmission Corporation , the company Region Eastern
subsequently changed to the present name in Region
1992.The company came out with a public
issue in September 2007 and raised Rs.29.84
bn. 2,860MW 1,260MW
 PGCIL wheels about 45% of the total power 2,990MW

generated in the country in its transmission Western
network.
Eastern
Region Region
 It operates 77,000 kms of transmission 6,490MW
network setup across India, managed by 124
sub stations with a total transformation
capacity of 89,000 MVA.
 Has Rs. 550 bn CAPEX in 11th plan and

around Rs. 900 bn in 12th plan. Another Rs. Southern
600 bn CAPEX for high capacity transmission Region
corridors.
 PGCIL diversified into telecom business,

Current Capacity
establishing telecom network of 21,000 kms.
Capacity at the end of 11th plan
 S K Chaturvedi is the Chairman & MD. There
are 7650 employees in the firm.
82

Revenues 71,275 85,908 101,972 119,938 Revenues 8.3% 20.5% 18.7% 17.6%
EBITDA 58,694 72,321 87,298 104,090 EBITDA 7.2% 23.2% 20.7% 19.2%
Other Income 3,761 6,807 6,655 5,424 EBIT -11.7% 32.5% 20.9% 17.9%
Depreciation 19,797 22,605 25,593 28,926 PBT 17.8% 2.7% 28.5% 18.2%
EBIT 42,658 56,523 68,359 80,589 PAT 20.7% 5.3% 28.5% 18.2%
PBT 26,263 26,979 34,676 40,975 Perform ance ratios
PAT 20,409 21,492 27,623 32,640 RoA (%) 4.1% 3.5% 3.8% 3.9%
Net Worth + MI 159,419 227,675 255,299 287,939 RoCE (%) 4.1% 3.5% 3.8% 3.9%
Deferred Tax 7,035 7,035 7,035 7,035 Fixed Assets Turnover (x) 0.2 0.2 0.2 0.2
Total Netw orth & Liabilities 534,747 677,224 779,668 889,522 Working capital Turnover (x) (15.3) 4.8 12.1 (3.7)
Investments 14,532 14,532 9,532 9,532 Working capital days (24) 75 30 (98)
Sundry Debtors 22,146 20,466 24,370 28,738 Creditor days 510 523 527 530
Other Current Assets 37,899 46,197 54,426 63,617 Valuation m etrics
Current liabilities 100,929 124,864 149,206 176,460 Fully Diluted shares (mn) 4,209 4,676 4,676 4,676
Net current assets (4,659) 17,924 8,462 (32,759) Fully diluted M. Cap (Rs.mn) 434,352
Deferred Tax / Misc. Exp. 39 39 39 39 Fully Diluted EPS (Rs.) 4.85 4.60 5.91 6.98
Total Assets 534,747 677,224 779,668 889,522 P/E (x) 21.3 22.5 17.5 14.8
Cash flow s from Financing (22,819) 91,442 41,138 37,599 Price to BV (x) 2.7 2.1 1.9 1.7
83
PTC India Outperform
Industry pioneer with market leadership, strong growth prospects and non-replicable Date 23 Aug 2010
strengths
PTC is both the pioneer and the market leader in India‟s power trading business. The company, we believe, Market data
possesses strong visibility on business volumes, significant sustainable advantages and an improving Bloomberg PTCIN IN
business mix, all expected to treble the profits of the company over FY11-14E. Investments summing up to Rs.
17.0bn provide substantial value unlocking potential. Initiate with Outperform Reuters PTCI.BO
• Industry volumes on a cyclical uptrend over the next 4-5 years: India is embarking upon a massive capacity CMP Rs. 115
addition plan (~180GW over two plan periods) with ~50% private participation. With the private sector reserving a Shares o/s 295mn
large portion (typically 20-30%) of their capacities for trading, market volumes are bound to head northwards rapidly.
• PTC is the market leader with strong non-replicable strengths: >40% share in the trading market and pedigree
parentage. Clearly, the most trusted, independent player in the market resulting in strong preference from small and 52-wk High-Low Rs. 126-83
medium generation players, providing PTC with a significant sustainable advantage. 3m Avg. Daily Vol Rs. 98mn
• Improving business mix to drive margin expansion: Business mix shifting in favour of long term (PPA linked)
power trading, which benefits from both high visibility (PPAs exist for 13.0GW of which, 4.8GW backed by PSAs) and Latest shareholding (%)
unfettered trading margins. Such trades currently represent 30% of volumes but will likely make it to 70% by FY14E.
Promoters 16.3
• Non-linear growth potential with high quality financials: Given the short working capital cycle (only 2 weeks), we
don’t foresee any equity requirement until traded volumes cross ~50bn units per annum, which we expect will be Institutions 68.8
surpassed by FY14E. To top it, the company possesses a high quality balance sheet with ‘zero-debt’. Public 14.9
• Exposure to a unique tolling arrangement & potential value unlocking in other businesses: A unique tolling
arrangements exists for capacities adding up to 350MW through the 100% subsidiary PTC Energy, where we think Stock performance (%)
>Rs. 6bn in profits can be achieved cumulatively over the next five years. Also, strong value unlocking potential exists 1m 3m 12m
at PTC India Financial Services and other generation assets where PTC has minority stakes.
PTC 2.4 11.1 28.9
Given the strong growth outlook for the power trading business (EPS CAGR of 44% over FY11-14E), we value
Sensex 2.4 11.9 22.6
it at 22x FY12E EPS, at Rs. 90 per share. We value PTC Energy using DCF at Rs. 23 per share while we value
the other investments (including PFS) at investment value or Rs. 21 per share. Initiate with a Outperform. BSE Power -1.7 6.0 8.3

Year Sales (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E (x)
+91 44 4344 0036
FY10 77,703 657 939 3.2 36.1
FY11E 100,623 863 978 3.3 34.6 bharanidhar@sparkcapital.in
FY12E 124,845 1,200 1,201 4.1 28.2 +91 44 4344 0038
84
Company Brief CMP Rs. 115 Target Rs. 134
 PTC is a Government of India initiated Public

Private Partnership enterprise founded in PTC – Business Segments
1999 to promote inter-state power trading.
 Jointly promoted by NTPC, Power Grid,

I. Power Trading II. Strategic Stakes
NHPC & PFC to provide credit risk mitigation
for private power project developers. Short Term Long Term
PTC Financial PTC Energy Direct
 PTC India became public in 2004 and raised Period: <1year Period: 1 year or
Rs. 0.87bn in the process. Further , in 2008, more NBFC floated Develop &  Athena Energy
the company raised Rs. 11.99bn through by PTC with the manage asset Ventures
preferential shares issue. Typically on a Includes cross vision to be the based businesses  Teesta Urja
day-ahead, weak border trade with most preferred in the energy  Krishna
 The trading activities undertaken by PTC ahead basis Bhutan financial sector and also to Godavari
includes long term trading of power generated services partner provide Power Utilities
by large power plants and also short term in the energy consultancy  IEX
trading due to supply-demand mismatch. value chain services
Includes 3-month Based on long term
 PTC’s trading volumes have increased at arrangement with PPAs and PSAs
27.4% CAGR in the past 10 years. PGCIL with generator and
consume of power
 It acts as a single entity to enter into PPAs
with power utilities on one hand and form
multipartite PSAs with state electricity boards.
 PTC also provides consultancy service in the

power sector .
III. Fuel Intermediation & Tolling
 Mr. T.N. Thakur is the Chairman & Managing
Fuel Intermediation Tolling
Director of the company. There are 63
employees in the firm. Perform the role of fuel aggregator Enter with tolling arrangements with IPPs
85

Profit & Loss Traded Units
Revenues 77,703 100,623 124,845 200,874 Long Term (MUs) 7,000 10,321 15,039 31,076
EBITDA 657 863 1,200 2,329 Short Term (MUs) 11,236 12,023 12,864 13,765
Other Income 715 558 558 558 Total traded Units (MUs) 18,236 22,343 27,903 44,841
Depreciation 55 58 61 65
EBIT 602 805 1,139 2,264 Trading Margin (Rs./ MU) 0.05 0.05 0.06 0.06
PBT 1,316 1,363 1,697 2,822
PAT 939 978 1,201 1,952 Perform ance ratios
RoA (%) 5.2% 4.6% 5.5% 8.4%
Net Worth 20,892 21,457 22,245 23,784 RoCE (%) 5.2% 4.6% 5.5% 8.4%
Total debt - - - - Total Assets Turnover (x) 3.7 4.7 5.6 8.4
Deferred Tax 92 92 92 92 Fixed Assets Turnover (x) 124.9 156.9 188.5 293.4
Gross Fixed assets 622 641 662 685 Financial stability ratios
Net fixed assets 429 390 349 307 Net Debt to Equity (x) (0.07) (0.17) (0.20) (0.26)
CWIP 11 11 11 11 Current ratio (x) 1.97 1.61 1.60 1.51
Inventories Inventory & Debtor days 21 21 21 21
Cash and bank balances 1,551 3,674 4,547 6,266 Interest cover (x) (0.84) (1.44) (2.04) (4.06)
Loans & Advances 183 183 183 183 Valuation m etrics
Current liabilities 3,154 5,992 7,430 11,943 Fully Diluted shares (mn) 295 295 295 295
Deferred Tax / Misc. Exp. Fully Diluted EPS (Rs.) 3.19 3.32 4.08 6.63
Total Assets 20,984 21,549 22,337 23,876 P/E (x) 36.1 34.6 28.2 17.4
Cash flow s from Operations (488) 1,998 749 1,597 EV/ EBITDA (x) 49.2 37.5 27.0 13.9
Cash flow s from Investing (8,804) 538 537 535 BV/ share (Rs.) 70.9 72.8 75.5 80.7
Cash flow s from Financing 4,587 (413) (413) (413) Price to BV (x) 1.6 1.6 1.5 1.4
86
Torrent Power Outperform
Integrated utility with a unique niche and stellar cash flow generation Date 23 Aug 2010
Integrated power distribution business with regulated RoEs in select pockets of Gujarat, providing the
company with a steady stream of cash flows. With the commencement of operations at Sugen, the company is Market data
more than self sufficient in its distribution circles and thus, capable of selling power in the lucrative merchant
Bloomberg TPW IN
power market. Proven ability of converting sick distribution circles into profitable ones, with Bhiwandi being
the classic example where the company has reduced AT&C losses from >50% in 2005 to 19% in 2010. With Reuters TOPO.BO
efficiency gains being retained by the franchisee, the company manages to earn superior RoEs of >20%. CMP Rs. 341
Ambitious expansion plans in power generation, with 3.5GW of capacities being planned. Moreover high-
quality financials (debt-equity <1:1) and strong operating cash flow generation of >Rs. 12bn each year will Shares o/s 472mn
allow the company to grow without diluting. Impressive on every count. Initiate with Outperform. Market Cap Rs. 160.8bn
• Integrated power distribution business with regulated RoEs in areas of Ahmedabad, Gandhi Nagar and Surat,
operating power plants totaling to 1.6GW. With the distribution circle requiring only ~1.5GW of capacities, the
company can divert up to 100MW into the merchant power market, thereby improving RoEs.
• Pioneer in successful implementation of the distribution franchising model in India, with the classic turn around story
orchestrated in Bhiwandi. In FY10, the Bhiwandi circle accounted for almost 20% of Torrent’s power sale but Promoters 52.78
contributed to >25% of overall profits. We believe the group possesses significant non-replicable strengths, which will Institutions 25.80
likely allow them to be the most successful player in the distribution franchising business. Public 21.42
• Driven by increasing power demand in the distribution circles controlled by the company as well as the massive
capacity expansion plan (3.5GW), the company is well positioned to achieve strong topline growth of ~20% over Stock performance (%)
FY10-15E.
1m 3m 12m
• Ranks highest in Spark’s analysis of financial strength as it is expected to produce total accruals of Rs. 94bn in the
five year period FY11-15E. With a debt-equity ratio of 1.2 in FY10 and strong cash flow generation (>Rs. 12bn each Torrent -1.6 7.2 43.5
year), we believe the company is well positioned to fund all its capacity growth aspirations as well as the investments Sensex 2.4 11.9 22.6
required for strengthening the T&D network in its distribution circles.
BSE Power -1.7 6.0 8.3

+91 44 4344 0036
FY10 58,253 19,709 8,373 83.9 4.1
FY12E 68,314 26,642 12,958 125.1 2.7 +91 44 4344 0038
87
 Torrent Power promoted by the Torrent Group, is a Operational projects

pure-play integrated private utility based out of
Gujarat. TPL is engaged in the generation and Project Sabarm ati Vatva CCPP Sugen CCPP
distribution of electricity in Ahmedabad, Gandhinagar

Ow nership 100% 100% 100%
and Surat.
Entity Torrent Pow er Torrent Pow er Torrent Pow er
 TPL was incorporated in 2004 as Torrent Power
Trading Private Ltd. In 2005, Torrent merged three of
Location Ahmedabad, Gujarat Ahmedabad, Gujarat Surat, Gujarat
the group entities, Torrent Power AEC Ltd, Torrent
Power SEC Ltd and Torrent Power Generation Ltd to 400 100 1,148
Capacity (MW)
form Torrent Power. (60, 120,2*110) (2*32.5, 1*35) (3*382.5)
 TPL caters to around 2.2mn customers and Capex (Rs.mn) 16,000 3,000 30,960
distributing over 10 billion units of power annually to Debt (Rs. mn) 13,440 2,520 21,053
Ahmedabad, Surat and Gandhinagar.
Equity (Rs. mn) 2,560 480 9,907
 In these three cities Torrent has reduced the AT&C
DER (x) 5.3 5.3 2.1
losses to be one of the lowest in the country which
stands at 7.62% as at the end of FY10 Estimated capex (Rs. mn per MW) 40 30 27
 In 2006 itentered into a 10 year contract with the

Maharashtra State Electricity Board to distribute Fuel type Coal Gas Gas
electricity in Bhiwandi Circle. It has managed to

phenomenally bring down the AT&C losses from
Fuel source Domestic - RIL KG D6 Domestic - RIL KG D6
>50% in 2006 to 19.33% as at the end of FY10 Domestic - SECL, GMDC
 In 2009, Torrent Power signed a deal with Uttar

Financial closure Achieved Achieved Achieved
Pradesh Power Corporation Ltd to supply power to
Kanpur and Agra. CoD Jun-88 Jun-91 Aug-09
 Mr. Sudhir Mehta is the Chairman of the company. Offtake - Regulated tariff (R) Private distribution license to distribute pow er to Amedabad and Surat license
There are 6,888 employees in the firm. Offtake - Merchant tariff (M) areas in Gujarat
88
Execution/ Developm ent Projects

Sugen I Unit 4
Project Sugen II and III Dahej Pipavav Morga
(Unosugen)
Torrent Pipavav
Entity Torrent Pow er Torrent Pow er Torrent Energy Limited Torrent Pow er
Generation Limited
Location Surat, Gujarat Surat, Gujarat Dahej, Gujarat Pipavav, Gujarat Morga, Chhattisgargh
Capacity (MW) 383 3,000 1,200 2,000 1,000
Units (1*382.5) (2*1500) First Phase - 380MW First Phase - 1000MW -
Exstimated capex (Rs.mn) 7,650 90,000 60,000 80000 40,000
Debt (Rs. mn) 6,120 72,000 48,000 64,000 32,000
Equity (Rs. mn) 1,530 18,000 12,000 16,000 8,000
Debt % : Equity % 80% : 20% 80% : 20% 80% : 20% 80% : 20% 80% : 20%
Fuel type Domestic Gas Domestic Gas Domestic Gas Domestic Coal Domestic Coal
Baitrani Coal Block,
Fuel source - - - Morga II Coal Block
Talchar, Orissa
Financial closure No No No No No
Expected CoD Mar-11 - Mar-13 Jul-13 NA

Offtake - Regulated tariff (R) R - 70% R - 60%
R - 100% R - 100% R - 100%
Offtake - Merchant tariff (M) M - 30% M - 40%
Land     
Water availability     
Environment clearance     
EPC Ordering     
FSA     
89
Vatva, Gujarat Sabarmati, Gujarat

CCPP -1 (2 *32.5+1*35) : 100 MW TPP (1*400) : 400 MW
Morga, Chattisgarh
Pipavav, Gujarat
Plant Capacity
Plant Capacity
TPP -1 (1*1000) : 1,000 MW
TPP (2*1000) : 2,000 MW
Total : 1,000 MW
Total : 2,000 MW
Sugen , Gujarat
Dahej, Gujarat
Plant Capacity
Plant Capacity
CCPP Phase 1 (3*382.5) : 1,147.5MW
TPP-1 (1*1200) : 1,200 MW
CCPP Phase 1 (1* 382.5) : 382.5 MW
Total : 1,200 MW
CCPP Phase 2 (1*1,500) : 1,500 MW
CCPP Phase 3 (1* 1,500) : 1,500 MW
Total : 4,530 MW
Total Capacity
**Operational 1,647.5 MW
**Under execution 0 MW
**Under development 7,582.5 MW
90

EBITDA 19,709 23,557 26,642 35,811 Pipeline (MW) 3,688 3,320 3,320 0
Other Income 1,323 2,302 2,531 3,422 Units Sold (Mn kWhr) 12,895 12,446 14,785 22,578
Depreciation 3,527 3,665 3,263 5,051 Revenue per unit (Rs.) 4.5 4.8 4.6 4.2
RoA (%) 11.2% 10.6% 10.3% 10.6%
Net Worth 39,619 47,318 59,096 75,532 RoCE (%) 21.6% 21.0% 18.5% 18.5%
Deferred Tax 2,593 2,589 2,589 1,555 Fixed Assets Turnover (x) 0.7 0.7 0.8 0.8
Current liabilities 18,430 18,409 19,264 22,263 Fully Diluted shares (mn) 472.4 472.4 472.4 472.4
Misc. Exp. Fully Diluted EPS (Rs.) 17.7 21.2 27.4 37.3
Total Assets 79,986 109,191 143,151 189,311 P/E (x) 19 16 12 9
Cash flow s from Financing (2,741) 24,447 26,676 37,549 Price to BV (x) 4.1 3.4 2.7 2.1
91
Rating Interpretation
BUY More than 100% absolute return over a maximum of three years
OUTPERFORM We expect the stock to outperform peers/ relevant sector index but is not a Buy
UNDERPERFORM We expect the stock to underperform peers/ relevant sector index but is not a Sell
SELL More than 25% downside to the stock price
Analyst Certification
The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this research report accurately reflect the analyst(s) personal views about the subject
companies and their securities. The Research Analyst(s) also certify that the Analyst(s) have not been, are not, and will not be receiving direct or indirect compensation for expressing the
specific recommendation(s) or view(s) in this report.
Spark Disclaimer
This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as
investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this
document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies
referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being
supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any
purpose.
This document does not constitute or form part of any offer for sale or subscription or incitation of any offer to buy or subscribe to any securities. This material should not be construed as an
offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital Advisors (India) Private Limited makes no
representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital Advisors (India) Private
Limited, its affiliates, and the employees of Spark Capital Advisors (India) Private Limited and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal
as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other
business from, any company referred to in this report. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through
the independent analysis of Spark Capital Advisors (India) Private Limited
Copyright in this document vests exclusively with Spark Capital Advisors (India) Private Limited.
92

Indian Power Sector

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Indian Power Sector

Uploaded by

Copyright:

Available Formats

Power Sector Initiating Coverage

In the build-out phase Sector Outlook Positive

Initiating Coverage on the Indian Power Sector

Key differentiating aspects of our report

 We present a comprehensive framework of analysis which ranks companies across 8 key

Operating experience Fuel strategy

Capacity expansion plans Generation economics

Execution strengths Risk mitigation

Non-linearity Financial stability

Com pany View

Com pany View

Com pany Target DCF

Sections Page Sections Page

Industry Scenario Company Section

Demand far outstrips supply and we believe

15,000 12% 12%

Punjab 27 27 100 - 600 Yes 4% 0.4

27.0% 5.0% 5.4% 5.7% 6.1% 6.4% 6.7%

20.0% 17.0% 7.7% 8.1% 8.5% 8.8% 9.2% 9.5%

250.0 25.0% 60 70%

0.0 0.0% 0 40%

Central State Private Private % Achievement Achievement %

Supply Demand Def icit

Overview of the regulatory framework

Electricity Act, 2003

Central Electricity Authority Regulatory Commissions Appellate Tribunal for Electricity

Generation Transmission License Area

 Central Generation  Bulk Consumer

Transmission Open Access Distribution Open Access (in phases)

Post Electricity Act 2003

Current scenario Partly deregulated Allowed Regulated

Fuel Generation Transmission Trading Distribution

Regulated Regulated Regulated Not permitted Regulated

Prior to Electricity Act 2003

Power Generation – Removal of cap on returns attracts several private participants

Essar Reliance Energy Sterlite Energy

Transmission and Distribution

Private participation in transmission Private participation in distribution

Details of the Transmission N/W Circle Licensee

Power Transformation Tata Power, Reliance Power (along

Case 1 bids (GW)

 Further, utilities are empowered to stop 4.0

supplying power to defaulting states and 2.0

Merchant Power Rates – Key conclusions

Source: CERC Source: CERC

Private sector lines up

 Economic / financial attributes - Activity/Months 0 12 24 36 48 60

Pass on increase in tariffs to

J&K 72% (14) 7% 

Pull down supply by Jharkhand 58% (12) 5% 

Proportion of imported coal

Across the power value chain -

Generation, Trans & Trading

M.Cap Revenues EBITDA PAT

Establised, integrated, coal-based pow er utility in Kolkata region earning

Large, integrated infrastructure player, w ith focus on thermal (coal-based &

India's largest, established hydel pow er generator w ith aggressive expansion

India's Central Transmission Utility and monopoly in intra-state pow er

Experience – prefer players with maximum experience

Growth proposition – biased towards players with strong growth ambitions

Strong execution capabilities – but ambitions need to be backed with execution

Earnings non-linearity – prefer balanced merchant exposure

Fuel strategy – focus on fuel security is critical