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Rating Target Price

Current Year Earnings Estimates

Next Year Earnings Estimates

Ticker Old New Old New Old New Old NewADAN.BO 1L 1L Rs159.00 Rs159.00 Rs5.26 Rs5.26 Rs22.71 Rs22.71CESC.BO 1M 1M Rs498.00 Rs498.00 Rs37.87 Rs37.87 Rs40.28 Rs40.28JAPR.BO NA 2L NA Rs70.00 NA Rs0.92 NA Rs4.47JSWE.BO NA 2L NA Rs135.00 NA Rs8.55 NA Rs14.13LAIN.BO 1M 1M Rs80.00 Rs80.00 Rs3.73 Rs3.73 Rs3.69 Rs3.69TTPW.BO 1L 1L Rs1,550.00 Rs1,550.00 Rs36.52 Rs35.87 Rs36.22 Rs37.51

Asia Pacific | India Electric Utilities (Citi)

Company

29 September 2010 116 pages

India Electric Utilities Private Utilities - Marching Ahead of Government Utilities

India to add 113GW in the next 7 years; private utilities will lead the charge — We expect ~113GW (+79% from end-FY10 capacity) of additions over the next 7 years to reduce the 13.3% peak deficit at end-FY10. Private utilities will lead the charge over government utilities with their faster decision process contributing ~ 57% of the Rs5.1tn of investments in generation over FY10-15E.

Modest performance over last year – next 4 years the sweet spot — Our India strategist has been underweight the sector relative to MSCI over last year and interestingly, 5/8 stocks in the CIRA India Electric universe (10/15 stocks analyzed) have underperformed the BSE Sensex over last year. However, the next 4 years would be the sweet spot with: (1) capacities commissioned, (2) companies generating huge cash flows maximizing the merchant opportunity and (3) strong earnings momentum (sector growing PAT at a CAGR of ~40%+).

Key risk to sector performance – stock supply, capital and regulatory — With numerous power QIPs/IPOs over the next 2 years. As the ability of frontline companies/groups to get capital/land/clearances/fuel is far superior to marginal players, we expect the trend of consolidation to continue with smaller players selling out coal linkages/land procured for planned power plants to larger players. Others risks include capital access and regulatory intervention.

Our primary valuation tool – DCF — With P/E and P/BV being used for checks and balances. We believe EV/MW cannot be a primary valuation tool (as no two power plants are similar) but could be used for comparisons.

Top picks in India Electric Utilities — In the order of preference are (1) Lanco Infratech, (2) Tata Power and (3) Adani Power. CESC is a value pick, which should perform once retailing losses come down. We rate JSWEL, JPVL and PGCIL as Hold (2L) and NTPC as Buy (1L).

Initiate coverage on JPVL & JSWEL at Hold (2L), despite robust growth — JPVL will need ~US$500mn of equity over the next 18 months & has back-ended additions. JSWEL has limited upside & high merchant sales/imported coal.

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures.

Venkatesh Balasubramaniam +91-22-6631-9864 [email protected]

Atul Tiwari, CFA +91-22-6631-9866 [email protected]

Pierre Lau, CFA +852-2501-2716 [email protected]

Deepal Delivala +91-22-6631-9857 [email protected]

India Electric Utilities 29 September 2010

Citigroup Global Markets 2

Executive Summary 3

Industry Analysis 9

Quantitative Ratings 16

Adani Power (ADAN.BO) 20 Scenario Analysis 22

CESC (CESC.BO) 24 Maintain Buy (1M) – Target Price Rs498 26

Jaiprakash Power Ventures (JAPR.BO) 31 Investment Thesis 33 Valuations 35 Risks 37 Background 39 Business Analysis 42 Financial Analysis 51 Project Pipeline of 7,140MW 53 Financial Statements 56

Tata Power (TTPW.BO) 58 Maintain Buy (1) –Target Price Rs1,550 60 Business Update 62

Lanco Infratech (LAIN.BO) 69 Maintain Buy (1M) – Target Price Rs80 71 Capacity Addition Update 73

JSW Energy Ltd (JSWE.BO) 75 Investment Thesis 77 Valuations 78 Risks 80 Background 81 Business Analysis 82 Fuel Supply Arrangements 87 Other Businesses 91 Financial Analysis 92 Pipeline Projects 96 Financial Statements 97

Appendix A-1 109

Contents



Private sector utilities marching ahead

India’s base demand deficit of 10.1% and the peak load deficit of 13.3% at end-FY10 present a clear and present opportunity for generation companies that manage to commission the maximum amount of capacity over FY10-14E and sell a major portion of the same in the merchant markets. And this is where private sector utilities are marching ahead of regulated government utilities with their faster decision-making abilities. Over FY10-15E, CRISIL expects investments in utility generation to be ~Rs5.1trn with the private sector accounting for about 57%.

Despite disappointments in the XIth Plan we expect a significant pickup in capacity additions over the next 7 years with ~113GW (79% increase on the FY10 end capacity of 148GW) of utility capacity being added. It is also worth noting that India had ~27.5GW of captive capacity at end-FY10, and we expect this to grow by 13.0GW over the next 7 years. Further, renewables capacity might increase from 15.5GW to 36.0GW.

Figure 1. India Power Capacity Addition in Next 7 Years

End FY10 Added in Next 7 Years End FY17E CAGRUtility Capacity 143,877 113,200 257,077 8.6%Renewables 15,521 20,500 36,021 12.8%Captive Capacity 27,500 13,000 40,500 5.7%Total 186,898 146,700 333,598 8.6%

Source: CEA and Citi Investment Research and Analysis estimates

Figure 2. India Utility Capacity Additions Figure 3. India Utility Installed Capacity

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Source: CEA and Citi Investment Research and Analysis estimates Source: CEA and Citi Investment Research and Analysis estimates

Top picks in India Electric Utilities

Our India strategist has an underweight position relative to MSCI on Electric Utilities in his India model portfolio (but overweight on Tata Power/NTPC). Our top picks in India Electric Utilities in the order of preference are: (1) Lanco Infratech, (2) Tata Power and (3) Adani Power. CESC is a value pick, which should perform once retailing losses come down. We rate JSWEL, JPVL and PGCIL as Hold (2L) and NTPC as Buy (1L).

Executive Summary



Initiate coverage of JPVL and JSWEL at Hold (2L)

We initiate coverage of 2 private utilities, JPVL and JSWEL, at Hold (2L); they are expected to grow capacity 10x and 5x over the next 5-6 years, respectively. Our rating is premised on (1) JPVL’s need to raise ~US$500mn of equity over the next 12-18 months and back-ended capacity additions; and (2) JSWEL’s limited upside to our target price and high exposure to merchant sales/ imported coal.

Figure 4. India Electric Utilities Attributable Capacity Ramp-Up

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Source: Companies and Citi Investment Research and Analysis estimates

Figure 5. India Electric Utilities Comparables

Companies RIC Code Rating Price EPS CAGR P/E P/BV RoE (Rs) FY10-13E FY11E FY12E FY13E FY11E FY12E FY13E FY11E FY12E FY13EPGCIL PGRD.BO 2L 106 15.3% 17.4 14.8 13.5 2.5 2.2 2.0 15.0% 15.8% 15.3%NTPC NTPC.BO 1L 210 14.8% 16.4 14.9 12.9 2.5 2.3 2.0 16.0% 16.0% 16.5%Tata Power Con TTPW.BO 1L 1332 6.2% 19.5 14.9 17.7 2.5 2.2 2.0 14.0% 16.1% 12.1%CESC - Cons CESC.BO 1M 401 23.9% 18.7 15.7 13.2 1.5 1.4 1.3 8.2% 9.1% 10.0%Adani Power ADAN.BO 1M 136 215.7% 25.8 6.0 5.5 4.3 2.5 1.7 18.1% 52.7% 36.8%Lanco Infratech# LAIN.BO 1M 67 22.8% 18.0 18.1 19.0 3.9 3.2 2.7 23.9% 19.3% 15.5%JPVL JAPR.BO 2L 65 58.1% 70.7 14.5 14.1 3.8 3.0 2.5 5.5% 23.2% 19.4%JSW Energy JSWE.BO 2L 125 36.8% 14.6 8.8 10.7 3.3 2.4 2.0 25.6% 31.6% 20.2%CIRA Average 49.2% 25.1 13.5 13.3 3.0 2.4 2.0 15.8% 23.0% 18.2%Neyveli Lignite NELG.BO NR 164 na 19.2 16.9 na 2.4 2.2 na 13.3% 13.3% naTorrent Power TOPO.BO NR 331 29.3% 13.1 11.9 9.2 3.3 2.7 2.1 23.5% 23.1% 24.3%GIPCL GJIP.BO NR 118 19.8% 10.9 9.4 10.4 1.3 1.2 1.0 11.9% 12.5% 10.5%KSK Energy Ventures KSKE.BO NR 180 65.7% 17.0 10.4 9.4 2.3 1.9 1.5 13.0% 19.0% 17.3%Reliance Power RPOL.BO NR 162 37.8% 61.5 57.8 29.4 2.6 2.4 2.1 4.5% 4.4% 8.1%NHPC NHPC.BO NR 32 14.6% 23.1 19.0 16.5 1.5 1.4 1.3 6.6% 7.4% 8.4%SJVN SJVN.BO NR 25 na 11.1 10.7 na na na na 13.8% 11.8% naNR Average 33.4% 22.3 19.4 15.0 2.2 2.0 1.6 12.4% 13.1% 13.7%Average 43% 23.8 16.2 13.9 2.7 2.2 1.9 14.2% 18.3% 16.5%

Source: Bloomberg and CIRA estimates @ Priced as of September 28, 2010. #Lanco Infratech's P/E multiples are not comparable due to accelerated depreciation policy

followed by the company.



Modest performance over last year – next 4 years the sweet spot

Our India strategist has been underweight the sector relative to MSCI over the last year and interestingly, 5/8 stocks in the CIRA India Electric universe (10/15 stocks analyzed) have underperformed the BSE Sensex over last year. However, the next 4 years would be the sweet spot with: (1) capacities commissioned, (2) companies generating huge cash flows maximizing the merchant opportunity and (3) strong earnings momentum (sector growing PAT at a CAGR of ~40%+).

Figure 6. India Electric Utilities Price Performance vs. BSE Sensex

1 Month 3 Months 6 Months 1 Yr 2 Yr 3 Yr 5 YrBSE Sensex 11% 14% 14% 20% 53% 17% 135%JSW Energy - Absolute -3% -3% 7% na na na na - Relative -15% -17% -7% na na na naJPVL - Absolute 1% -7% -4% -22% 53% -16% 105% - Relative -10% -21% -18% -42% 0% -33% -31%Adani Power - Absolute 0% 13% 17% 35% na na na - Relative -11% -1% 3% 15% na na naTata Power - Absolute 7% 2% -2% 3% 35% 55% 194% - Relative -4% -12% -16% -17% -18% 38% 59%Lanco Infratech - Absolute -5% 0% 24% 39% 261% 89% na - Relative -16% -14% 10% 19% 208% 72% naCESC - Absolute 6% 7% 4% 3% 44% -17% 79% - Relative -6% -7% -9% -17% -9% -34% -56%Torrent Power - Absolute -1% 0% 10% 11% 236% 253% na - Relative -12% -14% -4% -9% 183% 236% naKSK Energy - Absolute 14% 4% 0% -12% -16% na na - Relative 2% -10% -14% -32% -69% na naReliance Power - Absolute 6% -4% 8% -3% 0% na na - Relative -6% -18% -5% -23% -53% na naNTPC - Absolute 7% 7% 3% -2% 20% 8% 98% - Relative -5% -7% -10% -22% -33% -9% -37%PGCIL - Absolute 1% 4% -1% -5% 19% na na - Relative -10% -10% -15% -25% -34% na naNHPC - Absolute 5% 12% 4% -8% na na na - Relative -7% -2% -10% -28% na na naSJVNL - Absolute 2% 5% na na na na na - Relative -9% -9% na na na na naNeyveli Lignite - Absolute 0% 3% 7% 21% 75% 53% 92% - Relative -11% -11% -7% 1% 22% 36% -43%Gujarat Industries Power - Absolute 3% 0% 6% 3% 90% 33% 37% - Relative -9% -14% -8% -17% 37% 16% -98%

Source: DataCentral and Citi Investment Research and Analysis



Merchant power prices expected to decline

According to CRISIL, merchant prices would decline to Rs3.5-3.8/kWh in FY15E from Rs5.9/kWh in FY10. Our estimates factor in a slower decline.

Figure 7. India Merchant Prices

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Source: CRISIL and Citi Investment Research and Analysis estimates

Value “current + under construction capacity” – not the entire pipeline

Private sector utilities have massive generation capacity addition pipelines from 7GW for CESC all the way to 35GW for R-Power. One cannot ignore these pipelines and concentrate only on the existing generation capacity, as there has been demonstrated progress in a large part of this pipeline capacity. However, one has to be careful not to value all the pipeline capacity, as nothing prevents the utilities in question to keep on inflating the pipeline capacity. A middle path has to be chosen, which has some identifiable metric to decide if one should be valuing a power plant or not.

Three years back our identifiable metric was financial closure of power plants, as we assumed a lending institution would financially close a power plant only if all clearances, fuel supply, water and land were in place. However, over time these parameters have been diluted with lenders financially closing power plants that do not have most of these parameters in place. However, draw-down of debt is subject to most of these parameters being in place, which is hard for an analyst or investor to verify plant by plant. Since financial closure has become an unreliable metric, we have started relying on a combination of “fuel supply security + subjective call on land acquisition and water clearance.” Based on this, we come up with an “under construction capacity” concept and value only the same along with the existing generation capacity. The remaining capacity is classified as pipeline capacity that does not get valued as of now but may be valued if certain milestones are achieved.



Valuation approach – DCF using FCFE and cost of equity

Traditional valuation methodologies like P/E and EV/EBITDA multiples can be misleading if used to value pure infrastructure asset holders, as profitability of the projects can be lumpy, primarily on the basis of year of commissioning and the life of the asset. In some years, when the project is being commissioned, the company may look very attractive on a P/E multiple basis while in another year, when the asset life ends, the stock may appear relatively expensive.

Infrastructure assets – more specifically Electric Utilities – generate regular and predictable cash flow streams for a fixed time period. Therefore, the discounted cash flow (DCF) approach is the best-suited tool to value them.

While applying the DCF, one can either choose the free cash flow to the firm (FCF) or the free cash flow to equity (FCFE). We prefer FCFE as individual projects are highly geared, and gearing changes as debt is rapidly paid off. We value all projects using DCF on FCFE as of March 2011E. We use a CoE of 13% for operational projects and projects under construction. One could always argue that we should be using different discount rates for under construction and operational capacities based on the risk profile of the assets. However, this makes comparisons and sensitivities cumbersome.

Figure 8. India Electric Utilities – Stock Recommendations

Company Rating RIC Code Current Price Target Price UpsideGovernment Utilities NTPC 1L NTPC.BO 210 229 9.0%PGCIL 2L PGRD.BO 107 116 8.4%Private Sector Utilities Tata Power 1L TTPW.CO 1,332 1550 16.4%Adani Power 1L ADAN.BO 136 159 16.9%JSW Energy 2L JSWE.BO 125 135 8.2%Jaiprakash Power 2L JAPR.BO 65 70 7.7%Lanco Infratech 1M LAIN.BO 67 80 19.4%CESC 1M CESC.BO 401 498 24.2%

Source: Citi Investment Research and Analysis estimates

Is EV/MW a reliable metric to value companies

At the outset we would like to state that EV/MW is a not a reliable valuation technique but could be used for back-of-the-envelope comparisons across various companies. The reason being that no two power plants are similar, as the worth of a power plant is a function of: (1) capital costs that vary depending on the fuel type and the equipment supplier, (2) fuel cost that varies depending on the fuel or fuel source (pithead captive mine, non pithead captive mine, coal linkage and imported fuel), (3) funding costs that vary across developers and (4) tax status depending on whether the plant is an SEZ plant or a non-SEZ plant.

However, as some investors do tend to focus on the same, we present an analysis in the following table. For companies with non generation assets, we adjust the market capitalization with the CIRA value of the same.

Last but not least, we come up with a concept “discounted current + under construction capacity,” as just like a rupee today is worth more than a rupee tomorrow, a MW today is worth more than a MW tomorrow. This concept to some extent helps to smooth out the EV/MW metric from front and back loading of capacities.



Figure 9. India Electric Utilities – EV/MW Comparison (Attributable Capacity)

Units TPWR APL JSW JPVL LANCI CESC NTPCCurrent Capacity MW 2,945 660 1,295 700 1,714 1,225 29,948Under Construction (UC) Capacity MW 4,339 7,834 4,859 5,689 6,351 1,200 16,985Current + UC Capacity MW 7,284 8,494 6,154 6,389 8,065 2,425 46,933Pipeline Capacity MW 6,400 7,260 4,820 6,601 5,058 4,640 28,067Total Capacity MW 13,684 15,754 10,974 12,990 13,123 7,065 75,000Discounted (Current + UC Capacity) @ discount rate of 13% 6,328 6,532 4,518 4,371 5,785 1,961 42,427FY08 MW 2,364 - 260 700 288 975 27,946FY09 MW 2,785 - 260 700 288 975 28,946FY10 MW 2,945 660 995 700 1,114 1,225 29,948FY11E MW 3,573 1,980 3,140 700 2,314 1,225 33,703FY12E MW 6,411 6,152 3,140 1,769 3,583 1,225 37,038FY13E MW 7,284 6,152 3,410 1,769 3,659 1,225 42,993FY14E MW 7,284 8,494 3,410 6,389 6,085 2,425 46,933FY15E MW 7,284 8,494 5,322 6,389 8,065 2,425 46,933FY16E MW 7,284 8,494 6,154 6,389 8,065 2,425 46,933CAGR Over FY10-14E 25.4% 89.4% 36.1% 73.8% 52.9% 18.6% 11.9%Share Price Rs 1,332 136 123 65 67 401 210Mkt Cap Rsmn 329,027 296,485 201,727 136,219 161,323 50,099 1,731,555FY10 Consolidated Net Debt Rsmn 161,362 94,051 72,653 42,243 125,586 16,919 280,955FY10 End Enterprise Value (EV) Rsmn 490,389 390,536 274,380 178,462 286,909 67,019 2,012,510CIRA Value of Non Generation Assets Rsmn 247,017 - - 3,202 55,379 18,032 189,647Equity Value of Generation Assets Rsmn 82,010 296,485 201,727 133,017 105,943 32,067 1,541,909EV of Generation Assets Rsmn 243,372 390,536 274,380 175,260 231,529 48,986 1,822,864EV/MW of Current capacity Rsmn/MW 83 592 212 250 135 40 61EV/MW of (Current + UC capacity) Rsmn/MW 33 46 45 27 29 20 39EV/Discounted MW (Current + UC Capacity) Rsmn/MW 38 60 61 40 40 25 43EV/MW of Total Capacity Rsmn/MW 18 25 25 13 18 7 24

Source: Company and Citi Investment Research and Analysis estimates



Peak load deficit of 12.7% as of June 2010

Power shortages have cast a shadow over India for a long time. However, the situation has now turned critical, and if timely measures are not implemented, power shortages are expected to slow economic growth. The base demand deficit was 10.1% and the peak load deficit was 13.3% at end-FY10. The government had set a target of 78,700 MW for the XIth Plan (FY08-12), which has been reduced to 62,000MW due to continuing execution delays.

Figure 10. India Power Sector

FY1997 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010CAPACITY Hydel (MW) 21,658 21,905 22,479 23,857 25,142 26,269 26,767 29,507 30,942 32,326 34,654 35,909 36,878 36,863 Thermal (MW) 61,010 64,005 67,565 70,493 72,355 74,429 76,762 77,969 80,902 82,411 86,015 91,907 93,725 102,454 - Coal (MW) 54,154 62,131 63,951 64,956 67,791 68,519 71,121 76,049 77,649 84,198 - Diesel (MW) 294 1,135 1,178 1,173 1,202 1,202 1,202 1,202 1,200 1,200 - Gas (MW) 6,562 11,163 11,633 11,840 11,910 12,690 13,692 14,656 14,877 17,056 Nuclear (MW) 2,225 2,225 2,225 2,680 2,860 2,720 2,720 2,720 2,770 3,360 3,900 4,120 4,120 4,560 Capacity 84,893 88,134 92,270 97,030 100,357 103,418 106,249 110,195 114,615 118,096 124,569 131,936 134,723 143,877 Renewable 902 1,084 1,266 1,448 1,630 1,628 1,628 2,488 3,811 6,191 7,761 11,125 13,242 15,521 Total Capacity 85,795 89,218 93,536 98,478 101,987 105,046 107,877 112,684 118,426 124,287 132,329 143,061 147,965 159,398 GENERATION Hydel (BU) 69 75 83 81 74 74 64 74 84 101 113 124 113 107 Thermal (BU) 317 336 354 387 408 422 449 467 486 497 527 559 590 641 Nuclear(BU) 9 10 12 13 17 19 19 18 17 17 19 17 15 19 Total(BU) 395 421 448 481 500 515 532 558 587 616 659 699 718 766PLF (Calculated) Hydel 36.2% 38.8% 41.9% 38.7% 33.8% 32.2% 27.2% 28.6% 31.2% 35.8% 37.3% 39.3% 35.0% 33.0%Thermal 59.4% 59.9% 59.8% 62.7% 64.4% 64.7% 66.7% 68.3% 68.6% 68.9% 70.0% 69.4% 71.9% 71.4%Nuclear 46.2% 51.3% 61.6% 56.2% 67.5% 81.0% 80.6% 74.3% 69.4% 58.6% 54.5% 46.5% 40.8% 46.7%Total PLF 53.1% 54.5% 55.5% 56.6% 56.8% 56.9% 57.1% 57.8% 58.5% 59.5% 60.4% 60.5% 60.8% 60.8%PLF (Government) 64.4% 64.7% 64.6% 67.3% 69.0% 69.9% 72.2% 72.7% 74.8% 73.6% 76.8% 78.6% 77.2% 77.48%Supply (BU) 390 420 451 467 483 498 519 548 579 624 665 689 746Demand (BU) 425 447 480 507 523 546 559 591 632 691 737 774 830Deficit (BU) 34 26 30 40 39 48 40 43 53 66 72 85 84 Base Deficit % 8.1% 5.9% 6.2% 7.8% 7.5% 8.8% 7.1% 7.3% 8.4% 9.6% 9.8% 11.0% 10.1%Peak Demand. 63,853 65,435 67,905 72,660 74,872 78,441 81,492 84,574 87,906 93,255 100,715 108,866 109,809 118,472Peak Met 52,376 58,042 58,445 63,691 65,628 69,189 71,547 75,066 77,652 81,792 86,818 90,793 96,632 102,725Peak Shortage 11,477 7,393 9,460 8,969 9,244 9,252 9,945 9,508 10,254 11,463 13,897 18,073 13,177 15,747 Peak Deficit % 18.0% 11.3% 13.9% 12.3% 12.3% 11.8% 12.2% 11.2% 11.7% 12.3% 13.8% 16.6% 12.0% 13.3%T&D Losses 32.54% 32.53% 31.25% 30.42% 28.61% 26.91% na naAT&C Losses 32.54% 34.78% 34.33% 34.54% 32.07% na na na

Source: CEA, CERC and Citi Investment Research and Analysis

India will miss generation capacity addition targets again

According to CIRA, the likely capacity additions in the XIth Plan would be lower than the government’s revised target of 62GW, and key reasons are (1) shortage in equipment manufacturing capacity; (2) shortage in balance of plant equipment; (3) poor road infrastructure, leading to delays in moving equipment; (4) problems in attaining financial closure; (5) delays in land acquisition and getting environmental clearances; and (6) problems in obtaining fuel supply agreements.

Industry Analysis



Figure 11. India Plan-wise Capacity Addition Targets and Achievement

Plan Period Target (GW) Actual (GW) Achievement GrowthV (74-79) 12 10 82%VI (80-85) 20 14 72% 39.4%VII (85-90) 22 21 96% 50.4%VII (92-97) 31 16 54% -23.3%IX (97-02) 40 19 47% 15.8%X (02-07E) 41 21 51% 10.9%XI (07-12E) 79 47 59% 122.2%XII (12-17E) 100 88 92% 88.2%


But India should still add 113GW of utility capacity over the next 7 years

Despite disappointments in the XIth Plan, we expect a significant pickup in capacity additions over the next 7 years with ~113GW (79% increase on the FY10 end capacity of 148GW) of utility capacity being added. It is also worth noting that India had ~27.5GW of captive capacity at end-FY10, and we expect this to grow by 13.0GW over the next 7 years. Further, renewables capacity might increase from 15.5GW to 36.0GW.

Figure 12. India Power Capacity Addition in Next 7 Years

End FY10 Added in Next 7 Years End FY17E CAGRUtility Capacity 143,877 113,200 257,077 8.6%Renewables 15,521 20,500 36,021 12.8%Captive Capacity 27,500 13,000 40,500 5.7%Total 186,898 146,700 333,598 8.6%


Figure 13. India Utility Capacity Additions Figure 14. India Utility Installed Capacity

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Source: CEA and Citi Investment Research and Analysis estimates Source: CEA and Citi Investment Research and Analysis estimates



Private sector – lion’s share of the investments in generation

CRISIL estimates private sector investments in power to grow at a CAGR of 23% as compared to the overall investment growth of 15% CAGR over FY10-15E. Consequently, the share of private sector investments in power is expected to increase from 42% in FY10 to 60% in FY15E.

During the same period, CRISIL expects total investments in the utility generation to be around Rs5.1tn with the private sector accounting for about 57%. These investments would be mainly through the setting up of capacities through UMPPs, and Case I and Case II routes. Investments in T&D would continue to be driven by state and central sectors, as private sector participation, though increasing, remains limited in the segment.

Figure 15. Investment In Generation – Sector Wise

Source: CRISIL

Mounting SEB losses could result in cap on merchant prices

Please see our 21 June 2010 report, “India Infrastructure Insights - 3: Balancing SPU Losses and Super-Normal Merchant Profits,” https://www.citigroupgeo.com/pdf/SAP37502.pdf

SEB losses increased from Rs46bn in FY93 to Rs319bn in FY08 to Rs400bn in FY10. At FY08 tariff levels, the 13th Finance Commission believes this could be as high as Rs686bn in FY11E and move up to Rs1,161bn by FY15E. Top 12 SPUs contribute almost all of the losses, and 30 out of 90 SPU entities had negative net worth at the end of FY08.

State government annual subsidies to the SPUs have increased from Rs19bn in FY93 to Rs181bn in FY09 and could increase as losses mount. State governments have an exposure of Rs2,303bn to SPUs at the end of Mar08 consisting of Rs713bn of equity investments, Rs707bn of loans and Rs884bn of guarantees.

https://www.citigroupgeo.com/pdf/SAP37502.pdf�



In India, wholesale price of electricity is market determined and the retail price is regulated. The DISCOMs will go bankrupt if compelled to supply and not resort to load shedding.

Fortunately in India, presently the wholesale short-term market is only ~5% and DISCOMs have the choice to shed load. This problem will accentuate when the share of short-term contracts in the portfolio of DISCOMS increases.

While international peak merchant prices are ~Rs3/kWh, in India the 2009 average bilateral OTC price is >2x this level at ~Rs6.41/kWh. OTC prices in 2009 being higher than power exchanges prices is contrary to normal perceptions and is particularly worrisome because size of the OTC market is 3x-4x the size of the power exchange market.

According to CERC, generators might be making supernormal profits to the tune of (1) portfolio with average procurement cost of Rs2.76/kWh-Rs3.65/kWh, (2) states selling free hydel power - Rs5.41/kwh and (3) new imported coal based plant - Rs2.90/kWh. This is adversely impacting the financial health of DISCOMs of power deficit states.

Regulators will have to strike a fine balance between ensuring that generators/ traders do not make super-normal profits at the expense of ailing DISCOMS and price caps do not scare away private investment in generation. One has to keep in mind that barring the circles of Mumbai, Kolkata, Surat, Ahmedabad, Delhi and Bhiwandi, most of the other distribution circles are still being manned by SPUs and their financial health is critical for the long-term sustainability of the India Electric Utility sector, and therein lays the risk of price caps in the future.

Figure 16. SPUs (G+T+D+Trading) Losses Without Subsidy Figure 17. SPUs (G+T+D+Trading) Losses With Subsidy

(46) (51)(61)

(88)

(113)

(140)

(209)

(264)(253)

(332)

(192)

(240)

(209)

(271)

(319)(350)

(300)

(250)

(200)

(150)

(100)

(50)

-FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY04 FY05 FY06 FY07 FY08

Rsbn

(27) (27)(10) (12)

(47)

(76)

(105)

(151)

(178)

(248)

(81)

(135)(125)

(300)

(250)

(200)

(150)

(100)

(50)

-FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY06 FY07 FY08

Rsbn

Source: Planning Commission, PFC and Citi Investment Research and Analysis Source: Planning Commission, PFC and Citi Investment Research and Analysis

If one looks at the financials of the SPUs, one observes that while financials of the GENCOs, TRANSCOs and Trading have improved over FY04 to FY08, the financials of the DISCOMs have deteriorated in the same period.



Figure 18. Profit & Loss DISCOMs + Improving Generation, Transmission and Trading Financials

Year End Mar31 Rsbn FY06 FY07 FY08Total Income (Excluding Subsidy 1,197 1,319 1,492 Total Expenditure 1,404 1,599 1,831 PBT (84) (145) (146)PAT (87) (143) (147)PAT without subsidy (209) (279) (341)PAT on subsidy received basis (100) (151) (178)Cash Profit (accrual basis) (20) (76) (79)Cash Profit subsidy received Basis (33) (83) (110)Cash Profit on revenue and subsidy received basis (88) (129) (156)Profit without subsidy - All State Utilities (209) (271) (319)Profit without subsidy - DISCOMS (209) (279) (341)Profit without subsidy - GENCO, TRANCOs and Trading 0.4 8.2 22.3

Source: Planning Commission, PFC and Citi Investment Research and Analysis

The accumulated losses of SEBs (generation, transmission, distribution and trading companies) increased to Rs611bn in FY08 from Rs447bn in FY06. As a result, 30 SEB entities out of ~90 had negative net worth in FY08. To sustain the operations of the SEBs, various state governments had to infuse Rs276bn of equity into the SEBs over FY06-08.

Figure 19. SPUs (G+T+D+ Trading) Balance Sheet Data

FY06 FY07 FY08Equity (Rsbn) 621 704 897 Reserves (Rsbn) 55 65 75 Accumulated Loss (Rsbn) (447) (592) (611)Networth (Rsbn) 208 158 341

Source: PFC and Citi Investment Research and Analysis

Past instances of regulatory intervention in the merchant market

Please see our 10 September 2009 report, “India Infrastructure Insights: Power Trading: The Story So Far” https://www.citigroupgeo.com/pdf/SAP30692.pdf

On September 11, 2009, CERC had set a minimum tariff of Rs0.10/kWh and maximum tariff of Rs8/kWh for all day ahead transactions in the bilateral market (direct or through traders) and exchanges (IEX and PXIL) for a period of 45 days from the date of this order.

In August 2009, prices on the IEX and PXIL increased as high as Rs14.50/kWh. The situation had been aggravated due to near drought-like conditions in northern India coupled with the prevailing high temperature in northern/western India. Although, fuel prices (coal, diesel, naptha and RLNG) have remained moderately stable during the above period, the power price behavior has become disjointed from the fuel price and the overall real costs.

The price cap of Rs8/kwh seems to be based on reasonable returns. The maximum price has been worked out based on naptha/HSD fuel for July 2009 prices: variable + fixed charges = Rs6.7/kWh + Rs1.3/kWh = Rs8.0/kWh. Although the draft order had used UI as the benchmark to arrive at the cap price of ~Rs11/kWh, the CERC has decided to de-link UI from market prices as UI is an instrument for grid discipline.

https://www.citigroupgeo.com/pdf/SAP30692.pdf�



Impact of price caps on short-term power

Sellers may avoid price-cap: Distribution utilities may be tempted to avoid bilateral trading or sale through power exchange and prefer to sell power under the UI mechanism through withdrawal. This would defeat the purpose of a price ceiling. Increased unscheduled flows could pose problem of grid security.

Impact on prices: The price discovery mechanism of power exchanges is likely to become defunct in many hour blocks, and power exchanges would be required to resort to pro-rata rationing of available power. This could send mixed signals about development of the power market in India.

Impact on liquidity: Availability of short-term power for purchase on a scheduled basis may be reduced further, increasing the hardship of deficit states.

Impact on demand: The demand being elastic is bound to be more at a capped price of Rs5/kWh compared to the demand in the Rs5-Rs8/kWh range. The supply at a capped price of Rs5/kWh may be 3-4x the demand at times. Consequently, sellers in the bilateral market may resort to discriminatory methods in selecting buyers.

Impact on short-term traded prices: Appropriately designed price caps, if successfully implemented, would address concerns about profiteering in shortages and also the feeling of hardship in deficit states. Market reforms cannot completely ignore the present day realities.

Regulatory cap succeeded in cooling off prices

Post the CERC caps, the simple average power prices on the IEX had cooled off to Rs4.08/kWh in September 2009, Rs4.55/kWh in October 2009 and Rs3.96/kWh in November 2009, from the highs of Rs7.23/kWh in August 2009.

Power demand varies throughout the day and to get a high average price of say ~Rs7.50/kW, one needs to get an opportunity to sell power in certain high demand slots at higher than Rs10-12/kWh. Capping merchant prices leads to lower average realizations for IPPs that could negatively impact their profits and RoEs.



Figure 20. India Power Trading Volumes and Prices

Bilateral Power Exchange UI Total % Gen Gen Bilateral PXIL IEX UI -New Grid UI-SR Grid VWAP (ex UI) VWAP Traders Direct PXIL IEX Total mn kWh mn kWh mn kWh Rs/kWh Rs/kWh Rs/kWh Ave Ave Rs/kWh Rs/kWhSep-08 1,604 366 na na 279 1,890 4,139 7.0% 59,019 7.17 na 7.95 6.50 7.87 7.29 7.24Oct-08 1,742 287 na na 377 1,826 4,232 6.8% 61,967 7.78 7.57 8.32 6.32 8.97 7.81 7.73Nov-08 2,182 365 na na 470 1,686 4,703 8.1% 58,308 7.98 7.22 7.47 5.33 8.55 7.87 7.51Dec-08 2,177 523 na na 369 1,765 4,833 8.1% 59,635 7.89 6.58 6.64 4.89 7.66 7.70 7.12Jan-09 1,715 406 25 292 316 1,911 4,349 7.1% 61,194 7.23 6.86 6.16 4.99 7.61 7.12 6.72Feb-09 1,678 471 37 181 218 1,569 3,936 6.9% 57,122 6.58 7.42 6.85 4.89 7.68 6.64 6.48Mar-09 1,697 245 51 377 429 1,878 4,249 6.6% 64,842 7.43 8.54 8.33 4.85 8.20 7.63 7.11Apr-09 1,795 416 29 377 406 1,816 4,432 7.1% 62,486 7.21 10.18 10.10 5.36 6.04 7.75 6.82May-09 2,070 247 18 324 342 1,997 4,656 7.3% 63,466 6.82 8.74 6.84 4.17 3.99 6.96 5.65Jun-09 1,844 574 51 479 530 2,119 5,066 8.1% 62,646 5.05 9.60 7.39 4.94 5.10 5.82 5.44Jul-09 2,403 618 61 434 495 2,205 5,721 9.1% 62,936 4.75 4.85 4.81 4.12 4.67 4.76 4.60Aug-09 2,761 608 68 425 494 1,927 5,789 8.8% 65,563 4.64 6.15 7.40 6.29 5.85 4.96 5.38Sep-09 2,519 339 55 472 527 2,210 5,595 8.9% 63,188 4.73 4.32 4.00 5.02 4.20 4.63 4.62Oct-09 2,211 561 103 536 639 2,251 5,662 8.7% 64,896 5.07 5.18 4.73 4.24 5.83 5.04 5.04Nov-09 1,942 445 120 638 759 2,098 5,244 8.8% 59,403 5.33 3.39 3.16 2.72 3.79 4.75 4.10Dec-09 2,179 685 98 542 640 2,431 5,935 9.4% 63,417 4.99 3.07 3.22 3.26 3.92 4.57 4.12Jan-10 2,213 658 133 723 856 2,307 6,034 9.3% 64,849 5.26 3.33 3.46 3.84 3.90 4.74 4.37Feb-10 2,218 508 110 656 767 2,215 5,708 9.3% 61,076 5.05 3.30 3.24 3.00 5.21 4.59 4.38Mar-10 2,666 531 69 563 632 2,230 6,059 8.6% 70,100 4.94 6.47 5.58 4.85 7.31 5.15 5.52Apr-10 2,095 604 81 564 644 2,011 5,354 8.0% 66,572 5.74 7.43 7.75 7.75 6.66 6.18 6.61May-10 2,560 634 79 592 670 2,530 6,395 9.4% 67,980 6.17 4.65 4.54 5.14 4.25 5.84 5.34Jun-10 2,743 1,212 142 748 891 2,450 7,296 11.2% 65,211 5.59 3.47 3.50 3.61 4.67 5.07 4.70

Source: CERC and Citi Investment Research and Analysis estimates

Merchant power prices expected to decline

According to CRISIL, merchant prices would decline to Rs3.5-3.8/kWh in FY15E from Rs5.9/kWh in FY10. Our estimates factor in a slower decline.

Figure 21. India Merchant Prices

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

FY10 FY11 FY12 FY13 FY14 FY15 onwards

Rs/k

Wh

CRISIL CIRA

Source: CRISIL and Citi Investment Research and Analysis estimates



Tata Power – View (Contrarian)

Tata Power Co currently lies in the Contrarian quadrant of our Value-Momentum map with relatively weak momentum but strong value scores. The stock has moved from the Unattractive quadrant to the Contrarian quadrant in the past 3 months indicating improving valuations though momentum remains weak - possibly as a result of improving earnings revisions. Compared to its peers in the Utilities sector, Tata Power Co fares better on the valuation metric but worse on the momentum metric. Similarly, compared to its peers in its home market of India, Tata Power Co fares better on the valuation metric but worse on the momentum metric.

From a macro perspective, Tata Power Co has a low Beta to the region, so can be expected to hold it's own given a decline in the regional market. It is also likely to benefit from falling EM yields, and a weaker US Dollar.

Figure 22. Radar Quadrant Chart History Figure 23. Radar Valuation and Momentum Scores

17-Sep-1030-Jun-

10 31-Mar-10

31-Dec-09

30-Sep-09

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Comp Momentum Comp Value

Source: CIRA Source: CIRA

Figure 24. Radar Model Inputs

IBES EPS (Actual and Estimates) FY(-2) 47.47 Implied Trend Growth (%) 16.37 FY(-1) 57.09 Trailing PE (x) 14.87 FY0 82.21 Implied Cost of Debt (%) 6.93 FY1 80.03 Standardised MCap 0.12 FY2 95.26

Note: Standardised MCap calculated as a Z score − (mkt cap - mean)/std dev − capped at 3

Source: Citi Investment Research and Analysis, Worldscope, I/B/E/S

Figure 25. Stock Performance Sensitivity to Key Macro Factors

Region 0.70 Commodity ex Oil 0.08 Local Market 1.07 Rising Oil Prices 0.04 Sector 0.71 Rising Asian IR's (0.03)Growth Outperforms Value 0.32 Rising EM Yields (0.37)Small Caps Outperform Large Caps 0.31 Weaker US$ (vs Asia) 1.54 Widening US Credit Spreads (0.15) Weaker ¥ (vs US$) 0.19

Source: Citi Investment Research and Analysis

Quantitative Ratings

Paul Chanin +65-6432-1153 [email protected]

Data as of: 17-Sep-10

Radar Screen Quadrant Definitions

Glamor Poor relative value but superior relative momentum

Attractive Superior relative value and superior relative momentum

Unattractive

Poor relative value and poor relative momentum

Contrarian

Superior relative value but poor relative momentum



Lanco Infratech – View (Glamour)

Lanco Infratech currently lies in the Glamour quadrant of our Value-Momentum map with strong momentum but relatively weak value scores. It has been a resident there since the past 3 months. Compared to its peers in the Industrials sector, Lanco Infratech fares worse on the valuation metric but better on the momentum metric. Similarly, compared to its peers in its home market of India, Lanco Infratech fares worse on the valuation metric but better on the momentum metric.

From a macro perspective, Lanco Infratech has a high Beta to the region so is likely to rise (or fall) faster than the region. It is also likely to benefit from falling Commodity (ex-oil) prices, falling EM yields, and a weaker US Dollar.


17-Sep-1030-Jun-

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31-Dec-09

30-Sep-09

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IBES EPS (Actual and Estimates) FY(-2) 1.68 Implied Trend Growth (%) 33.40 FY(-1) 1.33 Trailing PE (x) 29.03 FY0 2.02 Implied Cost of Debt (%) 5.59 FY1 4.20 Standardised MCap (0.14)FY2 4.99




Region 2.13 Commodity ex Oil (0.77)Local Market 1.83 Rising Oil Prices 0.05 Sector 0.90 Rising Asian IR's (0.12)Growth Outperforms Value (0.94) Rising EM Yields (1.46)Small Caps Outperform Large Caps 1.05 Weaker US$ (vs Asia) 2.78 Widening US Credit Spreads (0.24) Weaker ¥ (vs US$) 0.50





Unattractive


Contrarian




Jaiprakash Power Ventures - View (Unattractive)

Jaiprakash Power Ventures Lt currently lies in the Extreme corner of the Unattractive quadrant of our Value-Momentum map with weak momentum and weak value scores. It has been a resident there since the past 9 months. Compared to its peers in the Utilities sector, Jaiprakash Power Ventures Lt fares worse on the valuation metric and on the momentum metric. Similarly, compared to its peers in its home market of India, Jaiprakash Power Ventures Lt fares worse on the valuation metric and on the momentum metric.

From a macro perspective, Jaiprakash Power Ventures Lt has a high Beta to the region so is likely to rise (or fall) faster than the region. It is also likely to benefit from tightening US credit spreads, and a weaker US Dollar.


17-Sep-10

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IBES EPS (Actual and Estimates) FY(-2) 4.35 Implied Trend Growth (%) (23.32)FY(-1) 2.91 Trailing PE (x) 56.65 FY0 1.15 Implied Cost of Debt (%) 4.09 FY1 1.01 Standardised MCap (0.17)FY2 2.52




Region 1.34 Commodity ex Oil 0.01 Local Market 1.46 Rising Oil Prices 0.04 Sector 0.68 Rising Asian IR's (0.11)Growth Outperforms Value (0.95) Rising EM Yields (0.12)Small Caps Outperform Large Caps 1.18 Weaker US$ (vs Asia) 2.16 Widening US Credit Spreads (0.35) Weaker ¥ (vs US$) 0.05 Source: Citi Investment Research and Analysis




Unattractive


Contrarian




CESC - View (Unattractive)

CESC currently lies in the Unattractive quadrant of our Value-Momentum map with weak momentum and weak value scores. The stock has moved from the Glamour quadrant to the Unattractive quadrant in the past 3 months indicating a fall in momentum along with valuations remaining weak. Compared to its peers in the Utilities sector, CESC fares worse on the valuation metric and on the momentum metric. Similarly, compared to its peers in its home market of India, CESC fares worse on the valuation metric and on the momentum metric.

From a macro perspective, CESC is likely to benefit from falling Commodity (ex-oil) prices, falling EM yields, and a weaker US Dollar.


17-Sep-10

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IBES EPS (Actual and Estimates) FY(-2) 27.83 Implied Trend Growth (%) 21.44 FY(-1) 6.20 Trailing PE (x) 32.78 FY0 12.59 Implied Cost of Debt (%) 8.38 FY1 35.06 Standardised MCap (0.20)FY2 39.34




Region 1.04 Commodity ex Oil (0.51)Local Market 0.82 Rising Oil Prices 0.10 Sector 0.69 Rising Asian IR's 0.04 Growth Outperforms Value (0.61) Rising EM Yields (0.58)Small Caps Outperform Large Caps 1.03 Weaker US$ (vs Asia) 2.60 Widening US Credit Spreads (0.06) Weaker ¥ (vs US$) (0.03)





Unattractive


Contrarian




Adani Power (ADAN.BO) Buy: 16% Custom Duty on SEZ-Based Power Plants Removed

The notification — The Ministry of Finance in a notification issued on Sep10

has replaced 16% duty on sale of power from projects in SEZs to domestic tariff area (DTA) or non processing areas of SEZ, with a much lower duty of Rs100 per 1000kwh (imported coal) and nil (domestic coal).

Removes uncertainty — Replacement of provision of 16% duty with a much lower duty structure is a sentiment positive and removes uncertainty on valuations of APL. APL had contested the earlier 16% duty, and our target price of Rs159 assumes that APL would not be required to pay the same.

Some questions still remain — (1) Whether 5% custom duty on imported coal will also be removed to avoid double taxation on both input and output; and (2) for sale of power under long-term PPA, whether the new duty on sale of electricity would qualify for “change in law” provision and hence be a pass-through in PPA. We analyze various scenarios in the note to asses the impact of various permutations and combinations.

Scenario 1 - Impact on target price — Our target price would decline to Rs153 in the worst case (no pass-through in PPA and non-removal of custom duty on imported coal) and to Rs158 in the best case (pass-through in PPA and removal of custom duty on imported coal).

Scenario 2 - Impact on valuations if we factor in adverse judgment in GUVNL

case — If APL accepts GERC order and does not get coal from GMDC, our target price would go down to Rs149 from Rs159 currently. If we take 149 as the base price and examine the impact of notification, our target price would decline to Rs143 in the worst case (no pass-through in PPA and non-removal of custom duty on imported coal) and to Rs148 in the best case (pass-through in PPA and removal of custom duty on imported coal).

Maintain Buy — Replacement of 16% custom duty with a lower duty structure is a sentiment positive, though already factored in valuations. Adani Power’s stock performance would largely be governed by the pace of capacity additions, milestone achievement on 7.2GW of pipeline projects and short-term swings in merchant prices.

Company Focus


Buy/Low Risk 1LPrice (28 Sep 10) Rs136.00Target price Rs159.00Expected share price return 16.9%Expected dividend yield 0.0%Expected total return 16.9%Market Cap Rs296,485M US$6,587M

Price Performance (RIC: ADAN.BO, BB: ADANI IN)

Statistical Abstract

Year to Net Profit Diluted EPS EPS growth P/E P/B ROE Yield

31 Mar (RsM) (Rs) (%) (x) (x) (%) (%)

2009A -26 -0.01 89.3 nm 11.0 -0.1 0.0

2010A 1,701 0.78 na 174.3 5.1 4.2 0.0

2011E 11,472 5.26 574.4 25.8 4.3 18.1 0.0

2012E 49,501 22.71 331.5 6.0 2.5 52.7 0.0

2013E 53,506 24.54 8.1 5.5 1.7 36.8 0.0

Source: Powered by dataCentral

Asia Pacific | India Independent Power Producers & Energy Traders (GICS)Electric Utilities

(Citi)



Fiscal year end 31-Mar 2009 2010 2011E 2012E 2013E

Valuation Ratios

P/E adjusted (x) nm 174.3 25.8 6.0 5.5 EV/EBITDA adjusted (x) nm 150.3 22.7 5.9 4.9 P/BV (x) 11.0 5.1 4.3 2.5 1.7 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Per Share Data (Rs) EPS adjusted -0.01 0.78 5.26 22.71 24.54 EPS reported -0.01 0.78 5.26 22.71 24.54 BVPS 12.35 26.50 31.77 54.47 79.02 DPS 0.00 0.00 0.00 0.00 0.00

Profit & Loss (RsM)

Net sales 0 4,349 29,461 119,773 166,537 Operating expenses -28 -2,264 -11,885 -41,807 -72,486 EBIT -28 2,085 17,576 77,966 94,051 Net interest expense 0 -377 -3,289 -12,207 -22,517 Non-operating/exceptionals 0 319 0 -652 348 Pre-tax profit -28 2,027 14,287 65,107 71,882 Tax 0 -327 -2,814 -12,826 -14,161 Extraord./Min.Int./Pref.div. 2 1 0 -2,780 -4,215 Reported net income -26 1,701 11,472 49,501 53,506 Adjusted earnings -26 1,701 11,472 49,501 53,506 Adjusted EBITDA -28 2,438 19,073 84,076 105,095 Growth Rates (%) Sales na na 577.5 306.5 39.0 EBIT adjusted 61.3 nm 743.1 343.6 20.6 EBITDA adjusted 61.3 nm 682.3 340.8 25.0 EPS adjusted 89.3 nm 574.4 331.5 8.1

Cash Flow (RsM)

Operating cash flow -1,170 3,501 9,883 60,231 79,959 Depreciation/amortization 0 353 1,497 6,110 11,044 Net working capital -1,142 1,131 -5,727 -7,962 -6,887 Investing cash flow -44,085 -86,702 -94,316 -101,150 -54,165 Capital expenditure -44,618 -86,702 -94,316 -101,150 -54,165 Acquisitions/disposals 0 0 0 0 0 Financing cash flow 48,215 88,829 79,485 61,567 33,613 Borrowings 39,785 55,808 82,126 71,369 51,694 Dividends paid 0 0 0 0 0 Change in cash 2,960 5,627 -4,948 20,648 59,407

Balance Sheet (RsM)

Total assets 78,962 179,280 261,805 396,044 515,951 Cash & cash equivalent 5,585 11,654 9,727 40,186 109,182 Accounts receivable 0 2,563 1,574 5,258 9,812 Net fixed assets 69,213 155,562 248,382 343,422 386,542 Total liabilities 55,516 120,477 191,530 273,488 335,674 Accounts payable 5,620 14,652 557 1,335 2,238 Total Debt 49,897 105,705 187,831 259,201 310,893 Shareholders' funds 23,446 58,803 70,276 122,556 180,277

Profitability/Solvency Ratios (%) EBITDA margin adjusted na 56.1 64.7 70.2 63.1 ROE adjusted -0.1 4.2 18.1 52.7 36.8 ROIC adjusted -0.1 1.6 7.3 21.5 21.0 Net debt to equity 189.0 159.9 253.4 178.7 111.9 Total debt to capital 68.0 64.3 72.8 67.9 63.3

For further data queries on Citi's full coverage universe please contact CIRA Data Services Asia Pacific at [email protected] or +852-2501-2791



Scenario 1 – Impact of the notification on target price of Rs159

Figure 38. Impact of the notification on CIRA target price of Rs159

(Rs/share) Custom duty on imported coal is removed

Custom duty on imported coal is not removed

Custom duty on sale of electricity is allowed to pass-through in PPA

158 157

Custom duty on sale of electricity is not allowed to pass-through in PPA

156 153


Scenario 2 – Earlier GERC had requested the Government of Gujarat to ask

APL to withdraw the termination notice of the PPA with GUVNL to supply 1,000 MW of power for 25 years at a rate of Rs2.35/kWh. Our discussion with the APL management suggests that they are yet to decide on what legal course they are likely to resort to – (1) accept the decision or (2) appeal in the appellate tribunal of electricity (ATE). Under the circumstance that APL accepts the order and does not get coal from GMDC, our EPS estimates would be lower by 1-6% over FY12E-15E and our target price would go down to Rs149 from Rs159 currently (~6% downside). In the following table we examine the impact of the latest custom notification to replace 16% duty with a much lower duty structure on Rs149 value per share of APL.

Figure 39. Impact of the notification on Rs149 value per share of APL.

(Rs/share) Custom duty on imported coal is removed

Custom duty on imported coal is not removed

Custom duty on sale of electricity is allowed pass-through in PPA

148 148

Custom duty on sale of electricity is not allowed pass-through in PPA

147 143


The Details of Notification

The notification applies on electrical energy removal from a SEZ into Domestic Tariff Area or non processing areas of SEZ.

Figure 40. Notification No. 91/2010-CUSTOMS, Ministry of Finance (Government of India)

For project size >= 1000 MW Using imported coal as fuel Rs100 per 1000kwh Using domestic coal as fuel Nil Using domestic gas as fuel Rs110 per 1000kwh For project size < 1000 MW Using imported coal as fuel Rs40 per 1000kwh Using domestic coal as fuel Nil Using domestic gas as fuel Rs60 per 1000kwh

Source: Ministry of Finance, Citi Investment Research and Analysis

Scenario Analysis



Target price Rs159

Figure 41. Adani Power – Plant Wise Value DCF Value

(MW) Units CoE Project IRR Equity IRR Project (Rsmn) Stake (Rsmn) Equity/MW Stake (US$mn) P/Equity Per ShareMundra 4620 223,977 223,977 48.5 4,977 5.7 103 - Phase I 660 2X330 - Phase II 660 2X330

13.0% 23.8% 57.4% 66,120 66,120 50.1 1,469 8.5 30

- Phase III 1320 2X660 13.0% 22.1% 45.5% 69,626 69,626 52.7 1,547 5.2 32 - Phase IV 1980 3X660 13.0% 24.4% 50.0% 88,231 88,231 44.6 1,961 4.9 40Tiroda 3300 93,012 71,973 28.2 1,599 2.9 33 - Phase I & II 1980 3X660 13.0% 18.4% 35.6% 67,768 52,439 34.2 1,165 3.7 24 - Phase III 1320 2X660 13.0% 16.6% 35.0% 25,244 19,534 19.1 434 1.9 9Kawai 1320 13.0% 14.7% 26.4% 19,667 19,667 14.9 437 1.4 9Under Development 9240 336,656 315,617 36.4 7,014 4.0 145 Dahej 2640 4X660 Chhindwara 1320 2X660 Bhadreshwar 3300 5X660 Pipeline Projects 7260 - Equity Issue 30,165 670 14Grand Total 16500 345,782 7,684 159




CESC (CESC.BO) Buy: Still a Lot of Value in the Power Business

Parent power continues to deliver — CESC’s parent power business with

1,225MW of generation capacity and the T&D circles of Kolkata and Howrah continues to grow at a steady clip with FY10 PAT at Rs4.3bn up 6% YoY. We expect PAT CAGR of 7% over FY10-13E driven by benign regulatory norms. With the commissioning of the 250MW Budge Budge, CESC has increased generation capacity by 25%+.

Chandrapur project update — The plant is located 150km from Nagpur and has secured land totaling 450 acres from MIDC, received water linkages, and received LOA from Coal India for supply of coal. The plant has signed a PPA for 300MW with MSEDCL on a cost-plus basis, allowing CESC to sell the balance 300MW through case-1 bids/power exchange/traders. The plant has also achieved financial closure, and the BTG and BOP orders have been given to Shanghai Electric and Punj Lloyd respectively.

Haldia - I project update — The project is set to start construction in Sep10 and CoD is expected in Sep13. Of the 380 acres of land, CESC had acquired 340 acres and 40 acres were remaining. CESC has started distributing cheques for the remaining 40 acres. All clearances and coal linkage are already with the company. Given the project is a coastal project, the company can use only 70% of coal linkage from Mahanadi coalfields and 30% of required coal has to be imported. Currently, finalization of equipment specifications/negotiations with selected vendors is on for freezing the project cost to initiate steps for achieving financial closure.

ICML takes a stake in an Australian coal miner — RPG Group promoted ICML, an affiliate of CESC, has acquired ~10% stake in Resource Generation (RG), an Australian coal mining company, for $10.5 mn (Rs450mn). ICML will purchase 1mn tons of coal per annum for 3 years and 2mn tons per annum for a further 17 years from RG’s Boikarabelo mine in South Africa.

Retailing continues to bleed — CESC’s retailing business had a recurring cash loss of Rs2.5bn in FY10 vis-à-vis management guidance of Rs2.0bn. Further the company also booked exceptional cash losses of Rs430mn. The retailing business continues to be a major drag on CESC.

Company Focus


Buy/Medium Risk 1MPrice (28 Sep 10) Rs401.00Target price Rs498.00Expected share price return 24.2%Expected dividend yield 1.0%Expected total return 25.2%Market Cap Rs50,099M US$1,113M

Price Performance (RIC: CESC.BO, BB: CESC IN)

Figure 42. Statistical Abstract

Year to Parent Profit

Parent EPS

EPS Growth

P/E ROE Cons. Profit

Cons EPS

EPS Growth

Cons. P/E

Cons. RoE

Div. Yield

31-Mar Rsmn (Rs) (%) (x) (%) Rsmn (Rs) (%) (x) (%) (%)FY08A 3,554 28.4 -20.3% 14.1 14.4% 2,674 21.4 -40.0% 18.7 9.2% 1.0%FY09A 4,097 32.8 15.3% 12.2 12.9% 1,560 12.5 -41.7% 32.1 5.3% 1.0%FY10A 4,333 34.7 5.8% 11.6 12.0% 2,000 16.0 28.2% 25.0 6.5% 1.0%FY11E 4,732 37.9 9.2% 10.6 11.8% 2,680 21.4 34.0% 18.7 8.2% 1.0%FY12E 5,032 40.3 6.3% 10.0 11.3% 3,198 25.6 19.3% 15.7 9.1% 1.0%FY13E 5,307 42.5 5.5% 9.4 10.8% 3,800 30.4 18.8% 13.2 10.0% 1.0%


Asia Pacific | India Electric Utilities (GICS)Utilities (Citi)




Valuation Ratios

P/E adjusted (x) 12.2 11.6 10.6 10.0 9.4 EV/EBITDA adjusted (x) 9.1 8.1 7.4 6.9 6.4 P/BV (x) 1.5 1.3 1.2 1.1 1.0 Dividend yield (%) 1.0 1.0 1.0 1.0 1.0 Per Share Data (Rs) EPS adjusted 32.79 34.68 37.87 40.28 42.48 EPS reported 32.79 34.68 37.87 40.28 42.48 BVPS 270.90 305.05 338.26 373.87 411.69 DPS 4.00 4.00 4.00 4.00 4.00

Profit & Loss (RsM)

Net sales 30,313 32,928 34,474 37,115 38,785 Operating expenses -25,938 -27,488 -28,506 -30,903 -32,361 EBIT 4,376 5,441 5,967 6,213 6,424 Net interest expense -1,410 -1,782 -1,907 -1,872 -1,838 Non-operating/exceptionals 1,683 1,562 1,640 1,722 1,808 Pre-tax profit 4,649 5,221 5,701 6,062 6,394 Tax -552 -888 -969 -1,031 -1,087 Extraord./Min.Int./Pref.div. 0 0 0 0 0 Reported net income 4,097 4,333 4,732 5,032 5,307 Adjusted earnings 4,097 4,333 4,732 5,032 5,307 Adjusted EBITDA 6,125 7,497 8,305 8,642 8,944 Growth Rates (%) Sales 9.2 8.6 4.7 7.7 4.5 EBIT adjusted 14.0 24.3 9.7 4.1 3.4 EBITDA adjusted 10.9 22.4 10.8 4.1 3.5 EPS adjusted 15.3 5.8 9.2 6.3 5.5

Cash Flow (RsM)

Operating cash flow 3,580 5,918 4,756 5,895 6,608 Depreciation/amortization 1,749 2,056 2,337 2,429 2,521 Net working capital -2,266 -471 -2,313 -1,566 -1,219 Investing cash flow -10,927 -13,145 -4,000 -4,000 -4,000 Capital expenditure -13,519 -9,463 -4,000 -4,000 -4,000 Acquisitions/disposals 0 0 0 0 0 Financing cash flow 9,992 5,914 -483 -583 -583 Borrowings 7,693 4,136 -500 -500 -500 Dividends paid -585 -583 -583 -583 -583 Change in cash 2,646 -1,312 273 1,312 2,025

Balance Sheet (RsM)

Total assets 86,290 96,950 101,755 107,347 112,788 Cash & cash equivalent 12,510 11,198 11,471 12,783 14,809 Accounts receivable 3,889 4,999 5,234 5,635 5,888 Net fixed assets 53,919 61,325 62,988 64,559 66,038 Total liabilities 52,446 58,838 59,494 60,637 61,353 Accounts payable 15,645 16,063 16,618 17,761 18,478 Total Debt 23,981 28,117 27,617 27,117 26,617 Shareholders' funds 33,845 38,112 42,261 46,710 51,434

Profitability/Solvency Ratios (%) EBITDA margin adjusted 20.2 22.8 24.1 23.3 23.1 ROE adjusted 12.9 12.0 11.8 11.3 10.8 ROIC adjusted 8.0 7.7 7.7 7.6 7.5 Net debt to equity 33.9 44.4 38.2 30.7 23.0 Total debt to capital 41.5 42.5 39.5 36.7 34.1




Maintain Buy (1M)

As we continue to like CESC’s power business with 1,225MW of generation capacity and the transmission and distribution circles of Kolkata/Howrah. Parent FY10 PAT at Rs4.3bn was up 6% YoY, and we expect it to grow at a CAGR of 7% over FY10-13E.

We also are positive about the (1) 600MW Chandrapur project, where the company has already invested Rs7bn and construction work has started and (2) 600MW Haldia Phase I project, where the last mile land acquisition issues are being sorted out.

CESC’s retailing business continues to be a major drag with recurring cash losses of Rs2.5bn in FY10 vis-à-vis management guidance of Rs2.0bn. Further, the company also booked exceptional cash losses of Rs430mn.

Figure 43. CESC Consolidated – 1 Year Forward Rolling P/E Bands Figure 44. CESC Consolidated – 1 Year Forward Rolling P/BV Bands

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Source: DataCentral and Citi Investment Research and Analysis estimates Source: DataCentral and Citi Investment Research and Analysis estimates

Target price Rs498

Figure 45. CESC – Sum of the Parts

Part New Methodology NewPower Business (1225MW + T&D) DCF as of Dec10 (WACC - 12% TGR - 2.5%) 405 Dhariwal Infra (600MW) DCF on Dec10 CoE = 13% 78 Haldea Phase - I (600MW) DCF on Dec10 CoE = 13% 62 - Retailing (94.72% Stake) 0 - Power Business Funds For Retailing NPV Cost of Equity = 12% (46)Net Retailing Value (46)Total 498


Parent power business continues to grow at a steady clip

CESC’s parent power business with 1,225MW of generation capacity and the transmission and distribution circles of Kolkata and Howrah continue to grow at a steady clip with FY10 PAT at Rs4.3bn, up 6% YoY. We expect PAT CAGR of 7% over FY10-13E driven by benign regulatory norms.

Maintain Buy (1M) – Target Price Rs498



With the commissioning of the 250MW Budge Budge, CESC has increased generation capacity by 25%+. Started in 2006, the project was commissioned on 28 February 2010.

Figure 46. CESC – Parent PAT Growth

(715) (880)

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Haldia Phase–I Power Project (600MW)

The project had been delayed due to land-acquisition issues, and is set to start construction in September 2010 and CoD is expected by September 2013. Of the 380 acres of land required, CESC had already acquired 340 acres and 40 acres were remaining. CESC has now sorted out the same and has started distributing cheques for acquisition of the remaining 40 acres.

Environmental and various other clearances including water consumption are already with the company. Coal linkage has since been obtained.

Given that Haldia Phase–I has been classified as a coastal project, the company can use only 70% of the available coal linkage from Mahanadi coalfields, and 30% of the required coal would have to be imported.

Currently, finalization of equipment specifications/negotiations with selected vendors is on for freezing the project cost to initiate steps for achieving financial closure. We believe the equipment order will be given to Chinese equipment suppliers, and the company is likely to announce financial closure anytime in the next 3 months.

We believe CESC distribution will pick up 400MW in FY14E, 500MW in FY15E and 600MW in FY16E. Any extra available capacity will be sold in the merchant market in the initial years.

According to Business Standard, issues

over procurement of land have now been

resolved and all the land required is now

with the company. Of the total land, the

majority had been acquired without

glitches, but a small but vital plot was

being elusive and had led to substantial

delays. With the intervention of the West

Bengal government, the acquisition

roadblocks now have been resolved.

According to our estimates the Haldia

Phase–I project will have a project IRR of

12.8% and equity IRR of 18.3%



Figure 47. Haldia Phase-I Power Project

Details Remark Capacity (MW) 600 Project Cost (Rsmn) 28,000 Debt 70% Rsmn/MW 46.7 Land available (acres) 380 (340 acres acquired and balance 40 acres to be acquired) Coal linkage from Mahanadi Coal Fields Water availability Done Environment clearance Advanced stages Financial Closure Yet to be done. By Sep10 Offtake To CESC distribution but some amount merchant in initial years Zero Date Sep10 CoD By Sep13 CoD – CIRA Assumption Dec13 and Mar14


Chandrapur Power Project (600MW)

The plant is located 150km from Nagpur and has secured land totaling 450 acres from MIDC, received water linkages and received LOA from Coal India for supply of coal.

The plant has signed a power purchase agreement (PPA) for ~50% of capacity (300MW) with MSEDCL on a cost-plus basis, allowing CESC to sell the balance 300MW through case-1 bids/power exchange/traders.

The plant has also achieved financial closure, and the BTG and BOP orders have been given to Shanghai Electric and Punj Lloyd respectively.

Figure 48. Chandrapur Power Project

Details Remark Acquired Stake 50.1% Paid (Rsmn) 2000 For Remaining Stake 49.9% Will Pay (Rsmn) 1000 Capacity (MW) 600 Project Cost (Rsmn) 30,000 Debt 70% Rsmn/MW 50 Land available (acres) 450 Coal linkage from Southern Coal Fields Water availability Done Environment clearance Advanced stages Financial Closure Done in Mar10 Offtake - 50% Sold to MSEDCL on cost plus basis Offtake - 50% Remaining merchant Zero Date Mar10 CoD By Mar13 CoD – CIRA Assumption Sep13 and Dec13


Transmission and distribution enhancements

CESC expects to spend (1) Rs4.5bn by FY11E to enhance its transmission capacity and (2) Rs3bn of annual maintenance capex in the next 3 years.

According to our estimates, the

Chandrapur project will have a project

IRR of 12.9% and equity IRR of 18.1%



Figure 49. Current Expansion Projects

Project - Purpose (Rsbn) CODInterface to receive 700MW by FY12E Transmission for Haldia Phase – I Network re-organization Connectivity to National Grid

- License Area

4.5 By FY12EMaintenance capex of Rs3bn for 3 years - License Area 9.0 FY11- FY13E

Source: Company and Citi Investment Research and Analysis

Future pipeline of 4640MW of generation capacity

Figure 50. CESC – Future Capacity Expansion Projects

Project Capacity (MW) Use (Rsbn) COD - Remarks Haldia Phase II - 1300MW 1320 - Merchant 62 - Land acquisition on

- Coal linkage applied for - Pre - feasibility studies near completion

Dumka, Jharkand 1000 - Merchant 50 FY15E - MoU signed with Government - Coal for 750MW available (110mn tons Mahuagarhi Block) - Trying to secure linkage for additional 250MW - Exercise on to select EPC contractor - Mining prospecting license acquired - Awaiting coal linkage - Land acquisition process started

Dhenkanal, Orissa 1320 - Merchant 62 FY15E - MoU signed with Government - Coal allocation being pursued - 450 acres has been acquired

Pirpainty, Bihar 1000 - Merchant 47 FY16E - MoU with Bihar Govt for project Total 4640MW - Merchant 221


Retailing continues to bleed

CESC’s retailing business had a recurring cash loss of Rs2.5bn in FY10 vis-à-vis management guidance of Rs2.0bn. Further, the company also booked exceptional cash losses of Rs430mn. The retailing business continues to be a major drag on CESC.

Figure 51. CESC – Retailing Losses

Year End Mar31 (Rsmn) FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E FY16ERecurring Cash Loss (PBT +Depreciation) (115) (422) (1,222) (3,190) (2,460) (1,800) (1,200) (600) 0 600 1,200 Exceptional Cash Loss 0 0 0 (790) (430) 0 0 0 0 0 0 Overall Cash Loss (115) (422) (1,222) (3,980) (2,890) (1,800) (1,200) (600) 0 600 1,200 Recurring Cash Loss/ Month (10) (35) (102) (266) (205) (150) (100) (50) 0 50 100


The Indian government has sought public comments by July 31, 2010, on allowing foreign direct investments (FDI) in multi-brand retail in a cautious effort to further open up the economy.

If there is positive development on this front and any foreign multi-brand retail company becomes interested in CESC’s retailing business, it would be a big positive trigger for the company.



Figure 52. CESC – Consolidated Profit & Loss Statement

Year End Mar31 (Rsmn) FY09 FY10 - Power 30,310 32,910 - Retail 10,200 9,130 Net Sales 40,510 42,040 - Power 6,110 7,480 - Retail (3,590) (2,930)EBITDA 2,520 4,550 Margin % 6.2% 10.8% - Power 4,640 5,160 - Retail (3,650) (2,990)PBT 990 2,170 - Power 4,090 4,270 - Retail (2,530) (2,270)Recurring PAT 1,560 2,000 - Power - - - Retail (790) (430)Exceptional (790) (430) - Power 4,090 4,270 - Retail (3,320) (2,700)Reported PAT 770 1,570




Jaiprakash Power Ventures (JAPR.BO) Initiate At Hold: Diversified Portfolio But Back-Ended Growth

Initiate at Hold/Low Risk (2L); target price Rs70 — Given (1) need to raise

~US$500mn of equity funding over the next 12-18 months to fund individual projects and (2) back-ended/lumpy growth implies near-term P/E & P/BV metrics do not look cheap.

10x capacity ramp-up over next 5 years — JPVL is set to grow operational capacity to 6,820MW by FY14E from 700MW currently. The capacity being added includes 1,000MW Karcham Wangtoo, 500MW Bina Phase-I, 1,320MW Nigrie, 1,320MW Karchana & 1,980MW Bara. Additional pipeline capacity of 7,140MW is in the early stages of development.

PAT CAGR of 58% over FY10-13E and 55% over FY10-15E — JPVL’s consolidated sales are set to grow at a CAGR of 81% over FY10-13E and 77% over FY10-15E driven by commissioning 6,820MW. EBITDA margins would fall from 92% in FY09 to 67% in FY15E, as the coal plants with lower EBITDA margins get commissioned and contribute increasingly to the consolidated EBITDA. This would result in consolidated recurring PAT and EPS CAGR of 58% and 55% over FY10-13E and FY10-15E respectively.

Equipment orders with quality suppliers mitigates risk — Though JPA and JPVL have limited experience in execution and O&M of large-sized coal power plants, orders for main equipment of coal plants have been placed with quality suppliers like BHEL and L&T-MHI, which mitigates execution and equipment quality risk to a large extent, in our view.

Need to raise equity funding of ~US$500mn — JPVL’s consolidated net debt/equity rises well above 3.0x all the way to 4.6x in FY13E. The key reason for this is that the parent is raising debt to fund its equity commitments in the individual projects. Our estimates suggest that this might force the company to raise ~US$500mn of equity funding over the next 12-18 months.

Downside risks — Fuel supply, coal mining, execution, merchant tariffs, hydrological, financial closure, R&R and land acquisition.

Upside risks — Better than expected operating parameters, faster-than-expected execution, higher-than-expected merchant tariffs, and significant progress ahead of expectations of 7.140MW of pipeline projects.

Company Focus


Hold/Low Risk 2LPrice (28 Sep 10) Rs65.00Target price Rs70.00Expected share price return 7.7%Expected dividend yield 0.0%Expected total return 7.7%Market Cap Rs136,219M US$3,026M

Price Performance (RIC: JAPR.BO, BB: JPVL IN)



31 Mar (RsM) (Rs) (%) (x) (x) (%) (%)

2009A 1,472 3.00 1.6 21.7 3.0 14.0 2.3

2010A 2,449 1.17 -61.0 55.6 4.0 11.0 0.0

2011E 1,927 0.92 -21.3 70.7 3.8 5.5 0.0

2012E 9,371 4.47 386.3 14.5 3.0 23.2 0.0

2013E 9,684 4.62 3.3 14.1 2.5 19.4 0.0


Initiation of coverage


(Citi)




Valuation Ratios


Profit & Loss (RsM)

Net sales 2,889 6,496 6,929 33,307 38,599 Operating expenses -704 -1,849 -1,778 -7,659 -10,843 EBIT 2,185 4,648 5,150 25,648 27,756 Net interest expense -819 -2,364 -3,386 -10,266 -13,436 Non-operating/exceptionals 290 682 690 1,994 2,004 Pre-tax profit 1,656 2,965 2,454 17,377 16,324 Tax -183 -516 -483 -3,423 -3,216 Extraord./Min.Int./Pref.div. -44 -31 -44 -4,583 -3,424 Reported net income 1,429 2,418 1,927 9,371 9,684 Adjusted earnings 1,472 2,449 1,927 9,371 9,684 Adjusted EBITDA 2,655 5,674 6,262 29,449 32,440 Growth Rates (%) Sales -4.0 124.9 6.7 380.7 15.9 EBIT adjusted -4.9 112.7 10.8 398.0 8.2 EBITDA adjusted -3.7 113.7 10.4 370.3 10.2 EPS adjusted 1.6 -61.0 -21.3 386.3 3.3

Cash Flow (RsM)

Operating cash flow 3,150 -2,099 10,496 17,058 18,721 Depreciation/amortization 470 1,026 1,112 3,801 4,683 Net working capital 1,181 -7,106 6,585 -1,487 139 Investing cash flow -2,840 -52,867 -87,670 -76,893 -89,967 Capital expenditure -2,840 -48,867 -91,670 -76,893 -89,967 Acquisitions/disposals 0 0 0 0 0 Financing cash flow -35 79,601 51,618 72,512 84,648 Borrowings 817 59,002 51,618 72,512 84,648 Dividends paid -862 -28 0 0 0 Change in cash 275 24,635 -25,557 12,677 13,403

Balance Sheet (RsM)

Total assets 22,680 108,462 161,143 248,619 347,197 Cash & cash equivalent 1,237 25,872 315 12,992 26,395 Accounts receivable 1,206 2,039 1,536 2,855 3,676 Net fixed assets 18,360 66,201 156,760 229,852 315,135 Total liabilities 11,449 74,214 124,925 198,448 283,917 Accounts payable 393 2,748 2,025 2,245 2,276 Total Debt 9,113 68,115 119,732 192,245 276,893 Shareholders' funds 11,231 34,247 36,218 50,171 63,280





Jaiprakash Power Ventures (JPVL) has an interesting and diversified (fuel wise and off-take wise) portfolio of projects that includes 700MW of operational capacity, 6,120MW of under-construction capacity and 7,140MW of pipeline capacity. The 10x capacity growth over the next 5 years would lead to robust EPS CAGR of 55% over FY10-15E. Despite the stupendous growth prospects over the longer term, we initiate coverage with a Hold/Low Risk (1L) rating given (1) the need to raise ~US$500mn of equity over the next 12-18 months to fund the equity funding in individual projects and (2) back-ended/lumpy growth implies near-term P/E and P/BV metrics do not look cheap.

Capacity ramp-up to 6,820MW by FY15E from 700MW currently

JPVL is set to grow operational capacity to 6,820MW by FY14E from 700MW currently. The capacity being added includes 1,000MW Karcham Wangtoo, 500MW Bina Phase-I, 1,320MW Nigrie, 1,320MW Karchana & 1,980MW Bara.

Additional capacity pipeline of 7,140MW

Additional pipeline capacity of 7,140MW is in the early stages of development. The company is currently tying up fuel supply arrangement/preparing DPR/ applying for environmental clearance/acquiring land etc., for these projects.

Backed by strong execution capability

JPVL’s promoter’s Jaiprakash Associates Limited (JPA) has participated in 54.30% of hydro power projects under implementation in the Xth Five-Year Plan and has completed execution of 8,840MW of hydro power capacity over 2002-09. JPA is one of the leading EPC companies in India with an order backlog of ~Rs370bn end-Mar10. JPA would undertake the execution of JPVL’s hydro power capacity and civil construction work of coal-based power plants.

Experienced pool of engineers

JPVL has access to Jaypee Group’s 3,165 in-house engineers with expertise in a range of engineering disciplines, including hydrology, electrical, civil and structural design, hydro-mechanical and geotechnical design

Equipment orders with quality suppliers mitigates risk

Though JPA and JPVL have limited experience in execution and O&M of large-sized coal power plants, orders for main equipment of coal plants have been placed with quality suppliers like BHEL and L&T-MHI, which mitigates execution and equipment quality risk to a large extent, in our view.

Sound and well thought out off-take arrangements

700MW of current operational capacity is on CERC pass-through norms with assured RoEs of 16% with an attractive incentive structure. In our view, as new capacity is commissioned, the proportion of capacity operating on CERC pass-through norms would decline, but the business model will stay defensive with ~70% of capacity operating on cost pass-through norms (full cost or fuel cost) and only 3-4% of capacity on fixed price by FY16E. However, in the short term, if Karcham Wangtoo is able to exit the PPA with PTC, proportion of merchant sales could increase manifold.

Investment Thesis



Operational projects operating at healthy return on invested equity

300MW Baspa-II and 400MW Vishnuprayag have operated at 14-31% and 15-37% returns on invested equity capital respectively since inception. Baspa-II has so far paid back ~Rs1.1bn in cumulative dividends since commissioning compared to Rs4.9bn of capital invested, thus returning ~23% of capital initially invested in 6 years of operation till March 2009. SPV Vishnuprayag has so far paid back Rs2.5bn in cumulative dividends since its commissioning compared to Rs5.4bn of invested capital ,thus returning ~46% of invested capital in its 3 years of existence till March 2009. We believe the healthy returns reflect the management’s ability to choose projects with an attractive risk-reward profile

PAT CAGR of 58% over FY10-13E and 55% over FY10-15E

JPVL’s consolidated sales are set to grow at a CAGR of 81% over FY10-13E and 77% over FY10-15E driven by commissioning 6,820MW. EBITDA margins would fall from 92% in FY09 to 67% in FY15E as the coal plants with lower EBITDA margins get commissioned and contribute increasingly to the consolidated EBITDA. This would result in consolidated recurring PAT and EPS CAGR of 58% and 55% over FY10-13E and FY10-15E respectively.

Need to raise equity funding of ~US$500mn

Despite funding most of the projects at a debt to equity ratio of 70:30 or 75:25, JPVL’s consolidated net debt/equity rises well above 3.0x all the way to 4.6x in FY13E. The key reason for the same is that the parent is raising debt to fund its equity commitments into the individual projects. Our estimates suggest that this might force the company to raise ~US$500mn of equity funding over the next 12-18 months to take care of funding over the next 3-5 years.

Near-term dip in RoCE/RoE followed by a healthy pickup

RoCE/RoE are likely to be subdued in FY11E because of an increase in net worth due to amalgamation and commissioning of projects only after FY11E. Over the medium term as projects get commissioned, RoCE/RoE are expected to show a healthy improvement.



Valuations approach – DCF using FCFE and CoE

Traditional valuation methodologies like P/E and EV/EBITDA multiples can be misleading if used to value pure infrastructure asset holders, as profitability of the projects can be lumpy, primarily on the basis of year of commissioning and the life of the asset.

In some years, when the project is being commissioned, the company may look very attractive on a P/E multiple basis, while in another year when the asset life ends, the stock may appear relatively expensive.


While applying the DCF one can either choose the free cash flow to the firm (FCF) or the free cash flow to equity (FCFE). We prefer FCFE as individual projects are highly geared, and gearing changes as debt is rapidly paid off. We value all projects using DCF on FCFE as of March 2011E. We use a CoE of 13% for operational projects and projects under construction.

7,140MW of pipeline capacity (out of final expected capacity of 13,960MW) is in the very early stages of development. Hence we believe that it is not prudent to value this capacity at this point in time. Consequently, we value 6,820MW of capacity, which includes 700MW of operational capacity and 6,120MW of under-construction capacity.

Target price of Rs70/share

Figure 53. JPVL – Target Price Sum of the Parts

Project Stake Fuel MW Equity (Rsmn) Project IRR Equity IRR Value (Rsmn) Equity/MW JPVL Value P/Equity Per ShareBaspa - II 100.00% Hydel 300 4,910 17.3% 17.6% 13,793 46.0 13,793 2.8 7 Vishnuprayag 100.00% Hydel 400 5,090 15.2% 24.5% 25,275 63.2 25,275 5.0 12 Comissioned 700 10,000 39,068 39,068 3.9Karcham Wangtoo 56.90% Hydel 1,000 21,450 13.7% 20.8% 43,244 43.2 24,606 2.0 12 Bina Phase I 100.00% Coal 500 8,260 17.4% 29.2% 18,666 37.3 18,666 2.3 9 Jaypee Nigrie 100.00% Coal 1,320 24,300 16.8% 25.1% 42,446 32.2 42,446 1.7 20 Bara Phase I 100.00% Coal 1,980 28,750 14.3% 21.3% 24,161 12.2 24,161 0.8 12 Karchana Phase I 100.00% Coal 1,320 19,000 13.4% 20.1% 16,654 12.6 16,654 0.9 8 Tranmission 74.00% 3,000 12.6% 16.4% 4,327 3,202 1.4 2 Under Construction 6,120 101,760 149,498 129,735 1.5Lower Siang-I 89.00% Hydel 1,500 Lower Siang-II 89.00% Hydel 1,200 Bina Phase II 100.00% Coal 1,000 Bara Phase II 100.00% Coal 1,320 Karchana Phase II 100.00% Coal 660 Hirong 89.00% Hydel 500 Kynshi II 74.00% Hydel 450 Umngot - I 74.00% Hydel 270 Kannur 100.00% Coal 240 Pipeline Projects 7,140 Net Cash/(Net Debt) on Parent (22,080) Total 13,960 146,723 70


Valuations



JPA’s right to acquire equity stake in projects

JPA, the promoter of JPVL, has the right to acquire a 26% stake in the Bara and Karchana projects. We have assumed JPVL’s stake at 100% in these projects currently. If we assume JPVL’s stake in these projects at 74%, the total value would decline. However, it is pertinent to note that the actual impact on JPVL would depend on the valuation at which JPA subscribes to the stake in these projects.

Figure 54. JPVL Consolidated – 1 Year Forward Rolling P/E Bands Figure 55. JPVL Consolidated – 1 Year Forward Rolling P/BV Bands

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Valuation sensitivity

Figure 56. JPVL – Valuations Sensitivity Analysis

CoE higher or lower by 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5%Value (Rsmn) 122,267 129,809 137,941 146,723 156,218 166,500 177,649 Per share 58 62 66 70 75 79 85 PLF higher or lower by -8% -5% -3% 0% 3% 5% 8%Value (Rsmn) 130,307 135,779 141,251 146,723 152,195 157,666 163,138 Per share 62 65 67 70 73 75 78 Calorific value higher or lower by (kcal/kg) -600 -400 -200 0 200 400 600Value (Rsmn) 122,893 131,679 139,580 146,723 153,212 159,133 164,558 Per share 59 63 67 70 73 76 79 Heat Rate higher or lower by (kcal/kWh) 75 50 25 0 -25 -50 -75Value (Rsmn) 140,773 142,756 144,740 146,723 148,706 150,689 152,672 Per share 67 68 69 70 71 72 73 Auxiliary consumption higher or lower by 1.5% 1.0% 0.5% 0 -0.5% -1.0% -1.5%Value (Rsmn) 138,037 140,932 143,828 146,723 149,618 152,513 155,408 Per share 66 67 69 70 71 73 74 Merchant prices higher or lower by (Rs/kWh) -0.75 -0.5 -0.25 0 0.25 0.5 0.75Value (Rsmn) 107,163 120,350 133,536 146,723 159,909 173,096 186,282 Per Share 51 57 64 70 76 83 89




Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns a Low Risk rating to JPVL.

Downside risks

In case Karcham Wangtoo is not 100% merchant (ex free power): In case JPVL loses the Karcham Wangtoo case to PTC in the Supreme Court and is not able to sell entire generation (ex free power), our fair value of the company would fall to Rs66 from Rs70. The following table shows the downside to the current EPS and book value estimates.

Figure 57. Karcham Wangtoo – 100% Merchant (Ex Free Power) vs. 704MW to PTC Under Old CERC Norms

Year End Mar31 (Rsmn) FY11E FY12E FY13E FY14E FY15E FY16E FY17 FY18 FY19 FY20Current EPS 0.92 4.47 4.62 8.82 10.59 11.49 12.25 13.19 13.97 14.82EPS Fall Under Original PTC Contract - (2.52) (1.38) (0.80) (0.29) (0.44) (0.59) (0.71) (0.82) (0.93)Increase 0.0% -56.3% -29.8% -9.1% -2.8% -3.9% -4.8% -5.4% -5.9% -6.3%Current EPS 0.92 4.47 4.62 8.82 10.59 11.49 12.25 13.19 13.97 14.82Current BV 17.0 21.5 26.1 35.0 45.5 57.0 69.3 82.5 96.5 111.3Current P/E 70.7 14.5 14.1 7.4 6.1 5.7 5.3 4.9 4.7 4.4Current P/BV 3.8 3.0 2.5 1.9 1.4 1.1 0.9 0.8 0.7 0.6EPS Under Original PTC Contract 0.9 2.0 3.2 8.0 10.3 11.1 11.7 12.5 13.1 13.9BV Under Original PTC Contract 17.0 19.0 22.2 30.3 40.6 51.6 63.3 75.8 88.9 102.8P/E Under Original PTC Contract 70.7 33.3 20.0 8.1 6.3 5.9 5.6 5.2 4.9 4.7P/BV Under Original PTC Contract 3.8 3.4 2.9 2.1 1.6 1.3 1.0 0.9 0.7 0.6


Fuel supply risk: JPVL has coal linkages for Bina (500MW), Bara (1980MW)

and Karchana (1320MW). However, shortfall in supply of coal due to bottlenecks in mining/transportation will impact the company adversely.

Coal mining risk: JPVL depends on development of Amelia (North) and the Dongri Tal II coal block for coal supply to the 1,320MW Nigrie thermal power plant. JPVL has entered into a coal supply agreement with Madhya Pradesh Jaypee Minerals Limited (MPJML) (a JV between JPA and Madhya Pradesh State Mining Corporation Limited (MPSMCL), which has been formed to undertake coal mining at Amelia (North). Delay in development of coal blocks or error in estimates of coal reserves would have an adverse impact.

Execution risk: Execution delays are common occurrence in all infrastructure projects. However, they are particularly relevant for hydro power projects, which tend to suffer large execution delays. Any delays, especially hydel projects, would impact the value of the company negatively.

Merchant tariff risks: One cannot rule out the possibility that if India adds significant capacity ahead of expectations, merchant tariffs could collapse below regulated rates. Any fall in merchant prices below our assumed rates would impact the company adversely.

Hydrological risk: Though JPVL’s portfolio of hydro projects is primarily fed by glacier-fed rivers (vs. monsoon-fed rivers), which are less prone to hydrological risk, any shortfall in water flow will impact the generation and hence the value of the company. Alternatively, sharp surges in water flow may cause hydro electric power plants to shut down, as water levels may increase beyond the plant’s designated flood levels.

Financial closure risk: A failure to achieve financial closure of projects will negatively impact the value.

Risks



Dependence on promoter and promoter group companies: JPVL depends on promoter and promoter group companies for project execution, corporate guarantees for certain borrowings and design/engineering expertise. The company may also be dependent on the promoter group for pre-qualification requirements for bidding for projects.

Receivables risk: State government-owned entities are the main customers for power generated by JPVL’s plant. Any delay in payments by these customers or any other customer may impact the company adversely.

Regulatory risk: The bulk of JPVL’s capacity is expected to operate under regulatory mechanism, which allows pass-through of costs. Any adverse stance by regulators to not allow pass-through of incurred costs may impact the company negatively. Moreover, regulators have intervened in the past in electricity markets to cap merchant prices and trading margins. Any such intervention in future may impact the company negatively.

Resettlement–rehabilitation (R&R) and land acquisition risk: Any infrastructure project involves acquisition of land and resettlement/ rehabilitation of people. Delay in land acquisition and R&R issues have led to delays in several projects in country. Though a large part of JPVL’s land requirement is under possession, some part still remains to be acquired.

Lower than expected operating parameters: If JPVL’s plants operate at lower than expected operating parameters (such as PLF, heat rate, auxiliary consumption, higher maintenance requirement and higher transformation losses), it would affect the value of the company adversely.

Upside risks

If JPVL operates its power plants at higher PLFs, lower heat rates and lower auxiliary consumption, there could be upside to our estimates and valuations.

Faster-than-expected execution.

Higher-than-expected merchant tariffs.

Significant progress ahead of expectations on 7,140MW of pipeline projects, which are now in the pre-development stage.

Additional project wins by the company.



The erstwhile Jaiprakash Hydro Power Limited (JHPL) was a part of the Jaypee Group, which has interests in construction, cement, hotels & hospitality, road BOT (build-operate-transfer), power and real estate businesses.

JHPL was incorporated in December 1994 to set up thermal and hydroelectric (hydel) power plants. In the initial years of its existence, the company undertook development of the 300MW RoR (run of the river) Baspa-II hydel power plant in Himachal Pradesh. The plant was commissioned in June 2003. JHPL became a listed company in March 2005. JHPL initially held a 100% stake in the 300MW Baspa-II power plant and a 74% stake in Jaypee PowerGrid, which is developing a 213Km – 400KV transmission line.

JHPL has completed the scheme of amalgamation with Jaiprakash Power Ventures Limited (JPVL), a promoter group unlisted company, to bring all power assets of Jaypee Group under a single umbrella.

Figure 58. JHPL – Pre-Amalgamation Shareholding as of September 2009

Non-Institutions, 31.7%

FIIs, 1.8%FIs/Banks, 2.1%

MFs/UTI, 1.1%JPA, 63.3%

Source: BSE

Jaiprakash Power Ventures Limited (JPVL)

The erstwhile Jaiprakash Power Ventures Limited (JPVL) was incorporated in May 1995 as a part of Jaypee Group to develop and implement power projects across India. JPVL has developed the 400MW RoR Vishnuprayag hydel power plant in Uttarakhand. The plant was commissioned in October 2006. Apart from the Vishnuprayag power plant, JPVL is undertaking development of 9 other power plants aggregating final capacity of 12,770MW and a transmission line. JPVL was not listed on any stock exchange.

Background



Figure 59. JPVL – Pre-Amalgamation Shareholding

SBI, 0.9%

JGEWT, 1.5%

Others, 0.0%ICICI , 2.0%Jaypee Ventures, 15.0%

JPA, 80.6%

Source: Company

Amalgamation of JHPL and JPVL has been completed

Jaypee Group has completed the amalgamation of JHPL and JPVL to bring the group’s power assets under one umbrella. The merger has resulted in

Creation of a single entity for Jaypee Group’s power business and would help in consolidating its position in the power sector.

A stronger balance sheet enabling the company to participate in larger projects.

Enable diversification of power assets by fuel mix type.

Revenue streams diversified across a mix of assured RoEs, long-term PPAs, fuel cost pass-through arrangements and merchant power.

Simplified holding structure enabling better utilization of resources and capital of the group.

Post amalgamation structure

As a result of the amalgamation, all power assets (power plants and the stake in transmission line) of the erstwhile JPVL have become a part of JHPL. The erstwhile JPVL shareholders have received 3 shares of JHPL for 1 share of JPVL.

The amalgamation has resulted in issue of ~1,605mn new shares of erstwhile JHPL, and JHPL’s outstanding share count has risen to 2,096mn from 491mn, implying a dilution of 327%. JHPL has been renamed Jaiprakash Power Ventures Limited (JPVL).



Figure 60. JHPL and JPVL – Post Amalgamation Structure

Source: Company

Figure 61. JPVL – Post Amalgamation Shareholding as of June 2010

JPA, 76.25%

Others, 0.08%

FIIs, 1.04%Bodies Corporate,

1.67%

FIs/Banks, 3.14% Individuals, 6.2%

Jaypee Ventures, 11.45%

Mutual Funds/ UTI, 0.21%

Source: BSE



Jaypee Group’s lineage

The Jaypee Group is a leading integrated infrastructure conglomerate in India with exposure to the power generation, cement, construction and real estate sectors. The flagship company of the Jaypee Group, JPA is the promoter of JPVL and holds a 76.25% stake in the company

In the next 10 years, JPA could have: (1) cement capacity of 35.5mn tonnes making it one of India's top 3 cement companies; (2) a power portfolio of 13.96GW; (3) an E&C business that does not depend on external-party orders for growth; (4) one of the country's largest real-estate development businesses; and (5) 1,212km of expressways.

JPA – leading EPC company with an experienced pool of engineers

JPA has over 4 decades of experience in execution of river valley and hydroelectric power projects undertaking EPC and turnkey contracts, as the lead construction company/leader of consortia and through joint ventures. JPA’s E&C business ended FY10 with a backlog of ~Rs370bn.

The Jaypee Group has ~3,165 in-house engineers with expertise in a range of engineering disciplines, particularly hydrology, electrical, civil and structural design, hydro-mechanical and geotechnical design.

These engineers have specialized skills and experience relating to the design of large underground structures, electro mechanical equipment, variable and unpredictable geological conditions and certain specific analysis, design and CAD software applications.

Figure 62. JPA – Sample List of Works and Execution Capability

Year Project Major Works Completed 1974 Ukai Dam Project Main canal, Cross drainage works, tail race channel 1977 Salal Hydel project Excavation of powerhouse, cut-off wall 1979 Garwhal-Rishikesh Chilla hydel

project-Veerbhadra Barrage Channel works and barrage works

1985 Brahmaputra Road Bridge Approach bank and guide bind 1986 Sardar Sarovar package works Excavation of Sardar Sarovar Dam foundation (1981); fault

zone treatment (1984); construction of blocks 1 to 20 of Sardar Sarovar Dam (1986)

1986 Tehri hydro-electric project Two diversion tunnels; river bed excavation; upstream coffer dam excavation and fill placement excavation of chute spillway

1987 Karjan Reservoir project Concrete gravity dam 1987 Indira Sarovar hydro-electric project Two adit tunnels and powerhouse pit 1993 Chamera concrete gravity dam Concrete gravity dam 1994 Kudremukh iron ore project Raising height of Lakya earth dam and construction of tunnel

spillway 1998 Vadagam Saddle Dam Canal head powerhouse 2002 Nathpa Jhakri Hydel project Construction of powerhouse 2003 Baspa hydro-electric project Hydro-electric Build-Own-Operate plant 2004 Chamera II Hydel project EPC contract for dam and power house 2005 Indira Sagar Hydel project Construction of power house and dam 2005 Sardar Sarovar (Vadgal Saddle Dam) Saddle dam complete 2006 Vishnuprayag Hydel project Hydro-electric Build-Own-Operate plant 2007 Dulhasti Hydel project Dam, powerhouse and HRT 2007 Tehri Hydel project Rock-fill dam and spillway 2007 Sardar Sarovar (Narmada) project Main dam and power house 2007 Tala Hydel project Powerhouse 2007 Omkareshwar Project EPC Contract for dam and powerhouse

Source: Company

Business Analysis



Strong hydel execution capability

JPA has participated in construction of hydro electric projects generating ~8840MW in 2002- 2009. As an E&C company, JPA has obtained an ICRA rating of CR1 indicating very strong contract execution capacity with respect to hydropower (EPC) projects with contract values of up to Rs25bn. JPA has also participated in 54.30% of hydro power projects (in different capacities) under implementation in the recently concluded Xth Five-Year Plan of the government of India.

Figure 63. Hydel Projects Executed By JPA over 2002-09 in MW

Name Client 2002-05 FY06 FY07 FY08 FY09 Total BOO Baspa JPVL 300 300Vishnuprayag JPVL 400 400EPC Chamera - II NHPC 300 300Omkareshwar NHDC 520 520Baglihar JKSPDC 450 450Contracts Indira Sagar NHDC 1000 1000Nathpa Jhakri SJVNL 1500 1500Dulhasti NHPC 390 390Tehri THDC 1000 1000Teesta - V NHPC 510 510Sardar Sarovar SSNN 250 1200 1450Tala THPA 1020 1020Total 3100 250 4010 1030 450 8840

Source: Company

Quality suppliers mitigate the lack of large-size coal plant experience

JPVL has limited experience in execution and O&M of coal-fired power plants. It has set up some amount of coal-fired capacity for captive use in its cement plants, but these are in smaller unit sizes.

The orders for equipment for coal-fired plans have been placed with reputed and well established players. This, in our, view mitigates the execution risks to a large extent. Further, the turbine generating system and GIS orders for the hydel projects have also been given to reputed global players.

Figure 64. JPVL – Suppliers of Key Components for Hydel Plants

Project Capacity (MWs) Unit size (MWs) Type Supplier Baspa - II 300 100 RoR Turbine and Generating System VA Tech and Voith GIS Alstom Vishnuprayag 400 100 RoR Turbine and Generating System Alstom GIS Alstom Karcham Wangtoo 1000 250 RoR Turbine and Generating System VA Tech and Voith GIS Areva

Source: Company



Figure 65. JPVL – Suppliers of Key Components for Coal-Based Plants

Project Capacity (MW) Unit size (MW) Type Supplier Nigrie 1320 660 Supercritical Boiler L&T-MHI Turbine - Generator L&T-MHI Bina Thermal 500 250 Sub critical Boiler BHEL Turbine Generator BHEL Bara Phase -I 1980 660 Super critical Boiler BHEL - Alstom Turbine Generator BHEL - Siemens Karchana Phase -I 1320 660 Super critical Boiler L&T-MHI Turbine Generator L&T-MHI Karchana Phase -II 660 660 Super critical Boiler L&T-MHI Turbine Generator L&T-MHI

Source: Company

700MW operational, 6,120MW under construction

JPVL has plans of setting up a total power generation capacity of 13,960MW. The company currently has 700MW of operational capacity and 6,120MW of capacity under construction.

Apart from the above-mentioned 6,820MW of capacity in various stages of development, JPVL also has pipeline projects totaling 7,140MW. However, these projects are in initial stages of development with fuel supply/DPR/ environmental clearance, etc., not in place yet.

Some progress has happened on the pipeline coal capacity, as this capacity is the extension of coal-fired plants (Bina, Bara and Karchana) under development. As a result, the common infrastructure (road/rail linkage and water supply infra, etc.) will be in place for the extension capacity with the completion of the first phase of respective projects. However, coal supply for this pipeline capacity is not tied up, and the company is still in the process of arranging coal supply for the same.



Figure 66. JPVL – Capacity Ramp-Up Schedule

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Increase from 2.2GW to 6.4GW

Increase from 6.4GW to 7.1GW

Total Capacity 13.96GW


Figure 67. JPVL – Project Portfolio

Project Stake Fuel MW Cost (Rsmn)

Rsmn/MW VERs/CERs COD Debt (Rsmn)

Equity (Rsmn)

D/C E/C

Baspa - II 100% Hydel 300 16,670 55.6 1.00mn VERs U1-May03/ U2-May03/ U3 - Jun03 10,890 4,910 65.3% 29.5%Vishnuprayag 100% Hydel 400 16,940 42.4 1.32mn VERs U1- Jul06/ U2-Jul06/ U3 -Aug06/ U4-Oct06 11,850 5,090 70.0% 30.0%Commissioned 700 33,610 22,740 10,000Karcham Wangtoo 56.9% Hydel 1,000 71,500 71.5 3.35mn CERs U1-Apr11/ U2-Apr11/ U3-May11/ U4-Jun11 50,050 21,450 70.0% 30.0%Bina-I 100% Coal 500 27,540 55.1 - U1-Sep11/ U2-Dec11 19,280 8,260 70.0% 30.0%Jaypee Nigrie 100% Coal 1,320 81,000 61.4 0.8mn CERs * U1-Apr13/ U2-Sep13 56,700 24,300 70.0% 30.0%Bara -I 100% Coal 1,980 115,000 58.1 2.5mn CERs * U1-Oct13/ U2-Mar14/ U3-Aug14 86,250 28,750 75.0% 25.0%Karchana-I 100% Coal 1,320 76,000 57.6 1.5mn CERs * U1-Sep13/ U2-Mar14 57,000 19,000 75.0% 25.0%Tranmission 74% 10,000 Dec10 7,000 3,000 70.0% 30.0%Under Construction 6,120 371,040 269,280 101,760 72.6% 27.4%Lower Siang-I 89% Hydel 1,500 CY16 Lower Siang-II 89% Hydel 1,200 NA Bina-II 100% Coal 1,000 CY14 Bara-II 100% Coal 1,320 NA Karchana-II 100% Coal 660 NA Hirong 89% Hydel 500 CY18 Kynshi II 74% Hydel 450 CY19 Umngot - I 74% Hydel 270 CY19 Kannur 100% Coal 240 CY13 Pipeline 7,140 Grand Total 13,960

Source: Company and Citi Investment Research and Analysis *Management estimates of CERs



Clearances in place for under construction projects

Figure 68. JPVL – Status of Financial Closure, Clearance and Fuel Supply Status

Project Stake Fuel MW Land Water EC DPR/ EPC Order FSA FCCommissioned 700 Baspa - II 100.00% Hydel 300 Yes Yes Yes Yes NM Yes Vishnuprayag 100.00% Hydel 400 Yes Yes Yes Yes NM Yes Under Construction 6,120 Karcham Wangtoo 56.90% Hydel 1,000 Yes Yes Yes Yes NM Yes Bina Power 100.00% Coal 500 Yes Yes Yes Yes Yes YesJaypee Nigrie 100.00% Coal 1,320 Yes Yes Yes Yes Yes YesBara Phase I 100.00% Coal 1,980 Yes Yes Yes Yes Yes Debt underwrittenKarchana Phase I 100.00% Coal 1,320 71% acquired Yes Yes Yes Yes Debt underwrittenTranmission 74.00% 213kms Yes NM Yes Yes NM YesPipeline 7,140 Bina Phase II 100.00% Coal 1,000 Yes Yes Yes No No NoKannur 100.00% Coal 240 No No No No No NoBara Phase II 100.00% Coal 1,320 No NA NA No No NoKarchana Phase II 100.00% Coal 660 No NA NA No No NoJaypee Arunachal 3,200 - Lower Siang Phase I 89.00% Hydel 1,500 No Yes Approval for pre-constr TEC given by CEA NM No - Lower Siang Phase II 89.00% Hydel 1,200 No Yes Approval for pre-constr TEC given by CEA NM No - Hirong 89.00% Hydel 500 No Yes Approval for pre-constr Under preparation NM NoMeghalaya Projects 720 - Kynshi II 74.00% Hydel 450 No No No No NM No - Umngot - I 74.00% Hydel 270 No No No No NM NoGrand Total 13,960

Source: Citi Investment Research and Analysis estimates EC = Environmental clearance, DPR = Detailed project report, FC = Financial closure, FSA = Fuel supply

agreement, EPC = Engineering, procurement and construction

Figure 69. JPVL – Status Update On Various Power Projects

Source: Company

Currently operational projects operating at healthy returns

Baspa-II project has operated at 14-31% return on invested equity capital since its inception. Returns have been impacted to some extent by additional capex required after completion of projects on certain works and build-up of receivables (which has come down subsequently).



Vishnuprayag project has operated at 15%-37% return on invested equity capital since its commissioning. The project has benefited from an attractive incentive structure, which adds up to ~6.6% to regulated RoE if plant availability reaches 99-100%, and returns on secondary energy.

Baspa-II has so far paid back ~Rs1.1bn in cumulative dividends since commissioning compared to Rs4.9bn of capital invested, thus returning ~23% of capital initially invested in 6 years of operation till FY09.

SPV Vishnuprayag has so far paid back Rs2.5bn in cumulative dividends since its commissioning compared to Rs5.4bn of invested capital ,thus returning ~46% of invested capital in its 3 years of existence till FY09.

Figure 70. Baspa II and Vishnuprayag - Return on Initial Invested Equity Capital

14.2% 13.7%

19.3%

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Diversifying into coal from hydel

JPVL currently has 100% hydel capacity, and as coal-based projects are commissioned the fuel mix is likely to change to ~75% in favor of coal.



Figure 71. JPVL – Changing Fuel Mix

23% 23%

73% 76%

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Diversified off-take arrangements

JPVL’s current operational capacity of 700MW is on 12% free power and 88% CERC norms and attractive incentive provisions for achieving high availability and secondary energy. As new projects are commissioned, capacity operating on CERC norms would come down to 28% by FY15E. However, in future the majority of the off-take would be either on full (both fixed and variable) or fuel (variable) cost pass-through norms.

Longer-term merchant capacity would contribute 17-20% of the Offtake. However, in the short term if Karcham Wangtoo becomes 100% merchant, this could change the off-take mix completely.

Figure 72. JPVL Offtake Arrangements – JPVL Honors PTC Contract Figure 73. JPVL Offtake Arrangements – JPVL Does Not Honor PTC Contract

12.0% 12.0% 12.0% 9.3% 9.3% 3.3% 3.0%

88.0% 88.0% 88.0%

68.4% 68.4%

30.9% 27.9%

38.6% 43.5%

4.1% 4.1%4.1% 3.7%

17.1% 17.1% 21.1% 20.0%

1.1% 1.1% 2.0% 1.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY09 FY10 F Y11E FY12E FY13E FY14E FY15E

Free Powe r CERC Norms Fuel Cos t Pas s Through Lo ng Term PPA Merchant Variable Co st

12.0% 12.0% 12.0% 9.3% 9.3% 3.3% 3.0%

88.0% 88.0% 88.0%

36.4% 36.4%

19.4% 17.6%

38.6% 43.5%4.1% 4.1%

4.1% 3.7%49.1% 49.1%

32.5% 30.4%

1.1% 1.1% 2.0% 1.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY09 FY10 FY11E FY12E FY13E FY14E FY15E

Free Power CERC Norms Fuel Cost Pass Through Long Term PPA Merchant Variable Cost

Source: Citi Investment Research and Analysis estimates Source: Citi Investment Research and Analysis estimates



Figure 74. JPVL – Off-take Arrangement Plant Wise

CERC norms Free Power Fuel Cost Pass Through

Long Term PPA

Merchant Variable Cost

Baspa II 88.0% 12.0% 0.0% 0.0% 0.0% 0.0%Vishnuprayag 88.0% 12.0% 0.0% 0.0% 0.0% 0.0%Karcham 70.4% 12%-18% 0.0% 0.0% 11.6%-17.6% 0.0%Bina 37.0% 0.0% 0.0% 18.0% 40.0% 5.0%Nigrie 30.0% 0.0% 0.0% 12.5% 50.0% 7.5%Bara 0.0% 0.0% 90.0% 0.0% 10.0% 0.0%Karchana 0.0% 0.0% 90.0% 0.0% 10.0% 0.0%


PTC has moved the Supreme Court on Karcham Wangtoo 704MW PPA

JPVL had entered into a power purchase agreement (PPA) with Power Trading Corporation (PTC) on March 21, 2006, pursuant to which PTC agreed to 704MW of saleable energy for 35 years (extendable by mutual agreement for a further 20 years).

The PPA provides for a mechanism of determination of tariff payable to Karcham Wangtoo based on (i) capacity charges = interest on loans + depreciation + advance against depreciation + leasing charges + interest cost + depreciation cost; (ii) energy charges = return on equity + operation and maintenance expenses + income tax + interest on working capital + miscellaneous charges; (iii) secondary charges = payment for energy in excess of the design energy; and (iv) incentives for plant availability more than 85%. The tariff would be based on the completion cost of the Karcham-Wangtoo and will be determined in accordance with the CERC regulations.

However, JPVL is trying to get out of this contract stating the Lanco Amarkantak case, which had challenged CERC’s jurisdiction to determine the tariff between a trading licensee and a generating company.

PTC has submitted that if JPVL was not restrained from selling the power to third parties, it would adversely affect its back-to-back sales agreements with UP, Punjab, Haryana and 3 Rajasthan DISCOMs.

Coal supply arrangements for 5,120MW of coal projects

Bina: Bina expects to utilize coal from South Eastern Coal Fields and Central Coalfields Limited, as per the letters of approval dated 6 June 2009 and 1 June 2009 received from them, respectively.

Nigrie: With respect to the Amelia (North) coal block, JPA and MPSMCL have entered into a JV agreement dated January 27, 2006, pursuant to which MPJML, the JV company, is expected to mine and produce coal for Nigrie. JPVL entered into the Amelia CSA with MPJML dated December 25, 2007. With respect to the Dongri Tal II coal block, JPA and MPSMCL have entered into a JV agreement dated December 24, 2008, pursuant to which MPJCL, the JV company, is expected to mine and produce coal for Nigrie. The coal supply agreement between JPVL and MPJCL has not yet been executed.

Bara: Bara has been sanctioned a coal linkage from the proposed expansion of Jayant and Dudhichua collieries of Northern Coal Fields. These coal fields are likely to become operational in the year 2012 as intimated by NCL to UPPCL. The coal linkage is currently in UPPCL’s name and is in the process of being transferred to PPGCL.



Karchana: Karchana has been sanctioned a coal linkage from the proposed expansion of Jayant and Dudhichua collieries of Northern Coal Fields. These coal fields are likely to become operational in the year 2012 as intimated by NCL to UPPCL. The coal linkage is currently in UPPCL’s name and is in the process of being transferred to SPGCL.

Figure 75. JPVL - Coal Supply Arrangements

Project MW Company (MMTPA) CIRA (MMTPA) @ 90% PLF Quantity (MMTPA) - Sources Bina Power 500 2.90 2.4 1.080 - SECL MMTPA Grade F Coal 0.926 - CCL MMTPA Grade E Coal Jaypee Nigrie 1,320 5.70 4.8 2.500 - Amelia (North) coal blocks 2.500 - Dongri Tal II coal blocks (Qty yet to be firmed up) Bara Phase I 1,980 8.04 7.7 7.020 - Expansion of Jayant colliery of NCL Grade D Coal - Expansion of Dudhichua colliery of NCL Grade D/E Coal Karchana Phase I 1,320 5.36 5.1 4.680 - Expansion of Jayant colliery of NCL Grade D Coal - Expansion of Dudhichua colliery of NCL Grade D/E Coal Total 5,120 22.0 19.9 18.706


Evacuation facilities for power

Figure 76. JPVL – Evacuation Facilities

Project MW - Arrangement Baspa - II 300 - Agreement with SJVNL to feed saleable/free through tx lines at Naptha Jhakri in HP Vishnuprayag 400 - Interconnected to a 400kV grid substation owned by UPPCL at Muzaffarnagar in UP via a double circuit 400 kV tx line Karcham Wangtoo 1,000 - Jaypee PowerGrid's tx line will be used for evacuation Bina Power 500 - Will use facilities of PGCIL located at a distance of 15km from Bina Jaypee Nigrie 1,320 - Will construct 140km tx line to connect project to PGCIL's station at Satna in MP Bara Phase I 1,980 - UPPCL and its nominees are obligated to develop the facilities for the evacuation of power Karchana Phase I 1,320 - UPPCL and its nominees are obligated to develop the facilities for the evacuation of power Total 6,820




PAT CAGR of 58% over FY10-13E and 55% over FY10-15E

We expect JPVL’s consolidated sales to grow at a CAGR of 81% over FY10-13E and 77% over FY10-15E driven by commissioning 6,820MW. The EBITDA margins would fall from 92% in FY09 to 67% in FY15E, as the coal plants with lower EBITDA margins than hydel plants get commissioned and contribute increasingly to the consolidated EBITDA.

This would result in consolidated recurring PAT and EPS CAGR of 58% and 55% over FY10-13E and FY10-15E respectively.

Figure 77. JPVL – Consolidated Sales Growth Figure 78. JPVL – Consolidated EBITDA Growth and EBITDA Margins

2,889 6,496 6,929

33,30738,599

68,484

114,295

-4%

125%

7%

381%

16%

77% 67%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000


Sale

s (R

smn)

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

Grow

th %

Sales CAGR of 81% and 77% over FY10-13E and FY10-15E respectively

-4%

114%

10%

370%

10%

60%47%

87.3%

66.7%

91.9%

75.8%

84.0%88.4%

90.4%

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%


EBIT

DA G

rowt

h %

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

EBIT

DA M

argi

ns

EBITDA CAGR of 79% and 68% over FY10-13E and FY10-15E respectively

Source: Company and Citi Investment Research and Analysis estimates Source: Company and Citi Investment Research and Analysis estimates

Figure 79. JPVL – Consolidated PAT Growth Figure 80. JPVL – Consolidated PAT Break Up

1,4722,449 1,927

9,371 9,684

18,490

22,190

66%

-21%

386%

3%

91%

20%2%

0

5,000

10,000

15,000

20,000

25,000


PAT

-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

Grow

th

PAT CAGR of 58% and 55% over FY10-13E and FY10-15E respectively

(5,000)

0

5,000

10,000

15,000

20,000

25,000

30,000


Rsm

n

Baspa II Vishnuprayag NigrieParent Interest Cost Karcham Wangtoo Bina PowerBara Karchana Tranmission


Need to raise equity funding of ~US$500mn for equity

Despite funding most of the projects at a debt to equity ratio of 70: 30 or 75:25, JPVL’s consolidated net debt/equity rises well above 3.0x all the way to 4.6x in FY13E. The key reason for this is that the parent is raising debt to fund its equity commitments into the individual projects. Our estimates suggest that this might force the company to raise ~US$500mn of equity funding over the next 12-18 months, which should take care of funding requirements over the next 3-5 years.

Financial Analysis



Near-term dip in RoCE/RoE followed by a healthy pickup

RoCE/RoE are likely to be subdued in FY11E because of an increase in net worth due to amalgamation and commissioning of projects only after FY11E. Over the medium term as projects get commissioned, RoCE/RoE are expected to show a healthy improvement.

Figure 81. JPVL – Consolidated Debt/Equity and Net Debt/Equity Figure 82. JPVL – Consolidated RoCE and RoE

0.8

2.0

3.4

4.3

5.1

4.6

3.6

4.1

3.0

0.7

1.3

3.3

4.0

4.6

-

1.0

2.0

3.0

4.0

5.0

6.0


D/E Net Debt/Equity

9.5%

6.1%

3.1%

10.2%

7.5%9.1%

11.2%

14.0%

11.0%

5.5%

23.2%

19.4%

28.9%

26.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%


R oCE RoE


CIRA vs. Bloomberg consensus

Figure 83. JPVL – Consolidated (CIRA vs. Consensus) Estimates

FY11E FY12E FY13ESales Consensus 7,393 25,545 36,785 Difference -6% 30% 5%EBITDA CIRA 6,262 29,449 32,440 Consensus 6,786 22,442 27,877 Difference -7.7% 31.2% 16.4%PAT CIRA 1,927 9,371 9,684 Consensus 1,857 5,836 9,394 Difference 3.8% 60.6% 3.1%EPS CIRA 0.92 4.47 4.62 Consensus 0.89 2.78 4.48 Difference 3.8% 60.6% 3.1%

Source: Bloomberg and Citi Investment Research and Analysis estimates



Kannur (240MW)

JPVL has been mandated by Kerala Infrastructure Development Corporation to develop a 240MW power project, which will supply power to the 1.5mn tons cement grinding unit (to be set up by JPA) to use the fly ash from the power plant and a 3mn tons jetty to import coal for power project/clinker for grinding. This project is expected to be commissioned in FY14E.

Bina Phase II (750MW)

The project is the second phase of the 1,500MW Bina power project, being implemented by the company at Bina in Madhya Pradesh. The company has procured sufficient land and water for 1,000MW of Phase II. However, the approval letter for fuel supply linkage has been obtained only for 500MW of Phase 1 from CIL.

Land requirement of 697 hectares for the Bina project is in possession. The land has been properly fenced. Water supply for the project has been provided from river Betwa (100 cusecs).

Bara Phase II (1,320MW)

The project is the second phase of the 3,300MW Bara project, being implemented by the company at Allahabad in Uttar Pradesh. The Phase I consists of 1,980MW and Phase II consists of 1,320MW.

The company had won the 1,980MW phase I under case-II bidding, quoting a levelized tariff of Rs3.02/unit for Phase 1. As the project was under case-II bidding, the land (~2,300 acres), water (from river Yamuna) and fuel supply sources (from expansion of Jayant and Dudhichua collieries of NCL) were already identified for 1,980MW.

Government of UP (GoUP) has allowed the selected bidder to construct up to two additional generation units of 660MW (1,320MW in total). However, responsibility for arranging coal supply for 1,320MW of Phase II remains with the company.

GoUP shall have the first right to purchase power up to 20% of the aggregate capacity of the additional generating unit(s), which may be set up by the company on the basis of their own arrangement for sourcing the fuel, at the rate determined by the bidding process. This condition will be applicable to capacities added by the company within a period of two years from the commissioning of the last unit of the project supported by the coal linkage provided by the State of UP. The developer shall be allowed to sell up to 80% of the power generated from such additional unit to any person other than the procurers provided such additional unit(s) is established within 2 years from the COD of the power station.

In the case that the additional capacity is commissioned more than two years after the date of commissioning of the last unit of the project supported by coal linkage being provided by the State of Uttar Pradesh, the state government or its assignee shall have the first right of refusal to purchase power up to 30% of the aggregate additional capacity from such generation unit at a rate to be decided by the Uttar Pradesh Electricity Regulatory Commission.

Project Pipeline of 7,140MW



Karchana Extension (660MW)

The project is the second phase of the 1,980MW Karchana project, being implemented by the company at Allahabad in Uttar Pradesh. The Phase I consists of 1,320MW and Phase II (extension) consists of 660MW.

The company had won the 1,320MW Phase I under case-II bidding, quoting a levelized tariff of Rs2.97/unit for Phase 1. As the project was under case-II bidding, the land (~583 hectares), water (from river Yamuna) and fuel supply sources (from expansion of Jayant and Dudhichua collieries of NCL) were already identified for 1,320MW.

Government of UP (GoUP) has allowed the selected bidder to construct one additional generation unit of 660MW. However, responsibility for arranging coal supply for 660MW of Phase II remains with the company.

The GoUP shall have the first right to purchase power up to 20% of the aggregate capacity of the additional generating unit, which may be set up by the company on the basis of its own arrangement for sourcing the fuel, at the rate determined by the bidding process. This condition will be applicable to capacity added by the company within a period of two years from the commissioning of the last unit of the project supported by the coal linkage provided by the State of UP. The company shall be allowed to sell up to 80% of the power generated from additional unit to any person other than the procurers provided such additional unit is established within 2 years from the COD of the power station.

In the case that the additional capacity is commissioned more than two years after the date of commissioning of the last unit of the project supported by coal linkage being provided by the State of UP, the state government or its assignee shall have the first right of refusal to purchase power up to 30% of the aggregate additional capacity from such generation unit at a rate to be decided by the Uttar Pradesh Electricity Regulatory Commission.

Lower Siang Phase I & II (1,500MW+1,200MW)

The project totals 2,700MW over 2 phases of 1,500MW and 1,200MW in Arunanchal Pradesh. MOA for Lower Siang Hydro-Electric-Project on river Siang in Arunachal Pradesh on BOOT basis was signed on 22nd Feb 06 with the GoAP. DPR for 2,000MW had been purchased from NHPC. The company had appointed independent consultants to revise the DPR, and revised DPR was submitted to CEA in Jun-08. The company has got the TEC from CEA and site mobilization has commenced.

Hirong (500MW)

MOA for the 500MW Hirong HEP on river Siyom in Arunachal Pradesh on BOOT basis had been signed on 22nd Feb 06 with GoAP. The concession period for the project is 40 years. According to MOA with GoAP, JPVL will hold 89% and GoAP will hold an 11% stake in the project. MOA with GoAP requires the project to supply free power to AP (12% for first 10 years and 18% for 11th year and onwards). Acres International of Canada is preparing the DPR.



Kynshi Stage – II (450MW)

MOA for 450MW Kynshi HEP on river Kynshi in Meghalaya on BOOT basis had been signed on 11the Dec. 07 with the Meghalaya government. The concession period for the project is 40 years. According to MOA with the Meghalaya government, JPVL will hold 74% and Government of Meghalaya will hold a 26% stake in the project. MOA with Government of Meghalaya requires the project to supply free power to AP (12% free power + 1% additional for social development by state government).

Umngot Stage – I (270MW)

MOA for 270MW Umngot HEP in the Umngot River Basin in Meghalaya on BOOT basis had been signed on 11the Dec. 07 with the Meghalaya government. The concession period for the project is 40 years. According to MOA with the Meghalaya government, JPVL will hold 74% and Government of Meghalaya will hold a 26% stake in the project. MOA with Government of Meghalaya requires the project to supply free power to AP (12% free power + 1% additional for social development by state government).



Figure 84. JPVL – Consolidated Profit & Loss Statement

Year End Mar31 (Rsmn) FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15ERevenue 2,995 2,718 3,291 3,008 2,889 6,496 6,929 33,307 38,599 68,484 114,295 Growth -9% 21% -9% -4% 125% 7% 381% 16% 77% 67%Parent (Baspa+Vishnuprayag+Nigrie) 2,995 2,718 3,291 3,008 2,889 6,496 6,410 6,194 6,024 27,642 34,291 Karcham Wangtoo 20,183 18,165 16,147 14,128 Bina Power 4,849 12,369 11,686 10,988 Bara 0 0 5,039 30,011 Karchana 0 0 6,000 22,976 Tranmission 0 518 2,081 2,042 1,971 1,900 Fuel Cost 0 0 0 0 0 0 0 1,145 3,150 11,034 29,362 % of sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.4% 8.2% 16.1% 25.7%Total O&M 187 200 252 251 234 823 666 2,713 3,010 5,506 8,670 % of sales 6.2% 7.4% 7.6% 8.4% 8.1% 12.7% 9.4% 2.0% 1.9% 3.4% 2.1%EBITDA 2,808 2,518 3,039 2,757 2,655 5,674 6,262 29,449 32,440 51,944 76,263 Growth -10% 21% -9% -4% 114% 10% 370% 10% 60% 47%EBITDA Margin 93.8% 92.6% 92.4% 91.6% 91.9% 87.3% 90.4% 88.4% 84.0% 75.8% 66.7% Depreciation and Amortization 836 440 456 459 470 1,026 1,112 3,801 4,683 8,396 14,925 EBIT 1,973 2,079 2,583 2,298 2,185 4,648 5,150 25,648 27,756 43,548 61,338 EBIT Margin 65.9% 76.5% 78.5% 76.4% 75.6% 71.5% 74.3% 77.0% 71.9% 63.6% 53.7% Interest and Financial Charges 1,273 1,014 1,101 993 819 2,364 3,386 10,266 13,436 19,836 33,692 Other Income 18 24 274 417 212 271 280 289 298 298 298 Sale of VERs/ CERs 0 0 0 0 78 411 411 1,706 1,706 2,457 2,457 PBT 718 1,089 1,756 1,722 1,656 2,965 2,454 17,377 16,324 26,467 30,400 Tax 44 140 253 273 183 516 483 3,423 3,216 5,214 5,989 Tax rate 6.1% 12.9% 14.4% 15.9% 11.1% 17.4% 19.7% 19.7% 19.7% 19.7% 19.7% Recurring PAT pre minority 675 948 1,503 1,449 1,472 2,449 1,971 13,954 13,108 21,253 24,411 Minority Interest 0 0 0 0 0 0 (44) (4,583) (3,424) (2,763) (2,222)Recurring PAT post minority interest 675 948 1,503 1,449 1,472 2,449 1,927 9,371 9,684 18,490 22,190 Growth 41% 59% -4% 2% 66% -21% 386% 3% 91% 20%Baspa II 1,472 1,349 1,333 1,333 1,342 1,476 1,477 Vishnuprayag 1,794 1,718 1,720 1,722 1,724 1,726 Nigrie 7,942 9,102 Parent Interest Cost (538) (1,249) (1,543) (2,184) (2,484) (2,474)Karcham Wangtoo 5,869 4,339 3,467 2,752 Bina Power 1,600 4,074 3,524 2,995 Bara 1,165 3,802 Karchana 1,285 2,419 Tranmission 0 124 392 391 391 391 Baspa II 1,472 1,349 1,333 1,333 1,342 1,476 1,477 Extraordinary items (164) 509 492 685 (44) (31) 0 0 0 0 0 Reported PAT 511 1,457 1,995 2,134 1,429 2,418 1,927 9,371 9,684 18,490 22,190


Financial Statements



Figure 85. JPVL – Consolidated Balance Sheet

Year End Mar31 (Rsmn) FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15EShare Capital 4,910 4,910 4,910 4,910 4,910 20,957 20,957 20,957 20,957 20,957 20,957Reserves and Surplus 320 1,877 4,119 5,376 5,823 12,835 14,762 24,133 33,817 52,307 74,497Networth 5,230 6,787 9,029 10,286 10,733 33,792 35,719 45,090 54,774 73,264 95,453 Minority Interest - - 0 368 498 455 499 5,082 8,506 11,269 13,490Deferred Revenue (AAD) - 166 470 706 776 2,340 3,168 3,958 4,749 5,539 6,329Loans 10,925 10,640 10,228 8,296 9,113 68,115 119,732 192,245 276,893 333,625 342,848Total Liabilities 16,155 17,593 19,728 19,655 21,120 104,702 159,118 246,374 344,921 423,696 458,121 Gross Block 16,423 16,471 17,155 17,227 18,487 48,303 57,171 156,114 156,114 389,315 427,649Less : Depreciation 1,556 1,257 1,713 2,172 2,641 6,025 7,061 10,862 15,546 23,942 38,866Net Block 14,868 15,214 15,442 15,055 15,846 42,278 50,110 145,252 140,568 365,374 388,782CWIP 17 482 442 819 1,956 15,701 106,650 84,600 174,567 13,417 -Expensespending 2 117 559 8,223 Net Fixed Assets 14,885 15,696 15,886 15,991 18,360 66,201 156,760 229,852 315,135 378,790 388,782 Investments - - 4,000 - - - - - Inventories 26 66 65 50 49 217 202 595 1,090 3,407 8,037Debtors 1,526 1,772 2,561 2,144 1,206 2,039 1,536 2,855 3,676 7,294 12,421Cash 518 500 594 961 1,237 25,872 315 12,992 26,395 36,015 52,087Other Current Assets 1 2 1,010 1,040 909 927 902 902 902 902 902Loans and Advances 161 385 506 701 919 9,206 1,429 1,423 - - -Total CA 2,232 2,724 4,737 4,895 4,320 38,260 4,383 18,767 32,062 47,619 73,446 Total CL 961 827 896 1,231 1,560 3,760 2,025 2,245 2,276 2,712 4,107 NCA 1,270 1,897 3,841 3,665 2,759 34,500 2,358 16,523 29,786 44,906 69,339Total Assets 16,155 17,593 19,728 19,655 21,120 104,702 159,118 246,374 344,921 423,696 458,121


Figure 86. JPVL – Consolidated Cash Flow Statement

Year End Mar31 (Rsmn) FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E Recurring PAT 675 948 1,503 1,449 1,472 2,449 1,927 9,371 9,684 18,490 22,190Depreciation 836 440 456 459 470 1,026 1,112 3,801 4,683 8,396 14,925Deferred Revenue 0 166 304 235 71 1,563 828 790 790 790 790Working Capital Changes (631) (645) (1,850) 544 1,181 (7,106) 6,585 (1,487) 139 (5,499) (8,362)Operating Cash Flow 879 909 414 2,687 3,194 (2,068) 10,452 12,475 15,297 22,177 29,544 Investments - - - - - (4,000) 4,000 - - - -Capex (39) (1,250) (647) (563) (2,840) (48,867) (91,670) (76,893) (89,967) (72,051) (24,917)Investing Cash Flow (39) (1,250) (647) (563) (2,840) (52,867) (87,670) (76,893) (89,967) (72,051) (24,917) Share Capital - - - - - 16,047 0 - - - -Reserves and Surplus (157) 100 247 (15) (120) 4,622 - - - - -Change in Minority Interest 0 367 130 (43) 44 4,583 3,424 2,763 2,222Dividend and Taxes (420) - - (862) (862) (28) - - - - -Loan Repayments 250 (285) (412) (1,932) 817 59,002 51,618 72,512 84,648 56,732 9,223Financing Cash Flow (327) (185) (165) (2,442) (35) 79,601 51,661 77,095 88,072 59,495 11,445 Non Recurring Items (164) 509 492 685 (44) (31) - - - - -Change in Cash 350 (18) 95 367 275 24,635 (25,557) 12,677 13,403 9,620 16,072




Tata Power (TTPW.BO) Buy: Power Capacity Growth + Coal Hedge + Superior Execution

Maintain Buy — Tata Power has a good execution track record, demonstrated progress on expansion projects and ability to achieve stated targets. We currently value 3.0GW of capacity + Mundra UMPP + Maithon + Mumbai & Delhi distribution + Powerlinks + power trading + coal mines investments (telecom, renewable and other subsidiaries/associates).

Target price Rs1,550 — To factor in (1) our consolidated estimates cut by -8% to -14% over FY11E-12E and (2) roll forward of our DCF values to Mar11E and P/E & P/BV multiples to Mar12E. Our consolidated EPS estimates have been revised to factor in (1) adjustments to our coal volumes/ASPs and (2) change to parent estimates by -2% to +4%.

Mundra UMPP Maithon update — Mundra is 59% complete and 1st unit will be up before Sep11. 94% of hard costs are committed and the new coal jetty will be ready by the end of this year. Company is coordinating with PGCIL for readying evacuation lines. Mundra UMPP has been turned down for carbon credits and company is appealing against this. This could push down returns to some extent. Maithon is 83% complete and 1st unit will be up and running by end-2010. Fuel supply agreement (FSA) with Bharat Coking Coal has been signed and additional capex of Rs3.8bn is needed for land acquisition.

Coal mines update — KPC and Arutmin mines sold 15.1mn tons coal (+3.4% YoY) at ASP of USD63.7/ton (+18.4% YoY) in 1QFY11. The mines plan to increase production capacity to 100mn tons over the next three years post US$1.2bn capex, which will be funded through debt and internal accruals.

Coal SPV stake monetization — Tata Power has raised US$300m in coal SPVs. Deal values coal SPVs at Rs309-335/share of Tata Power pre-money, which is Rs140-166/share lower than our valuation of Rs475/share. The deal makes sense strategically given low promoters stake (31.22%) in Tata Power and need to raise funds for acquisition of additional coal mine.

25,000MW by 2017 — Tata Power is on track to achieve 8,242 MW of operational capacity by FY13E. Beyond FY13E, management outlined plans to achieve 25,000MW of operational capacity by FY17E. ~6,400MW of capacity is in the pipeline, and these projects will be presented to Tata Power’s board for approval in FY11E.

Company Focus


Buy/Low Risk 1LPrice (28 Sep 10) Rs1,332.00Target price Rs1,550.00Expected share price return 16.4%Expected dividend yield 0.9%Expected total return 17.3%Market Cap Rs316,093M US$7,023M

Price Performance (RIC: TTPW.BO, BB: TPWR IN)


Year to Parent PAT

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Growth Cons P/E

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31-Mar (Rsmn) (Rsmn) % (x) (%) (%) (Rsmn) (Rsmn) (%) (Rsmn) (%)FY08A 5,812 26.10 7.6% 51.0 9.0% 0.8% 7,768 34.9 21.4% 38.2 3.8 11.9%FY09A 6,756 30.34 16.2% 43.9 8.6% 0.9% 14,426 64.8 85.7% 20.6 3.4 17.7%FY10A 7,959 32.22 6.2% 41.3 8.8% 0.9% 15,536 62.9 -2.9% 21.2 2.8 15.5%FY11E 8,860 35.87 11.3% 37.1 8.6% 0.9% 16,909 68.5 8.8% 19.5 2.5 14.0%FY12E 9,265 37.51 4.6% 35.5 8.5% 1.0% 22,012 89.1 30.2% 14.9 2.2 16.1%FY13E 10,173 41.18 9.8% 32.3 8.8% 1.0% 18,604 75.3 -16% 17.7 2.0 12.1%


Estimate change

Asia Pacific | India Electric Utilities (GICS)Utilities (Citi)




Valuation Ratios


Profit & Loss (RsM)

Net sales 71,932 68,072 73,570 77,719 82,757 Operating expenses -64,241 -56,646 -60,919 -64,329 -68,305 EBIT 7,691 11,426 12,651 13,390 14,452 Net interest expense -3,278 -4,230 -4,526 -4,862 -4,862 Non-operating/exceptionals 4,196 3,402 3,532 3,663 3,795 Pre-tax profit 8,609 10,599 11,657 12,190 13,385 Tax -1,853 -2,639 -2,798 -2,926 -3,212 Extraord./Min.Int./Pref.div. 2,466 1,428 0 0 0 Reported net income 9,222 9,388 8,860 9,265 10,173 Adjusted earnings 6,756 7,959 8,860 9,265 10,173 Adjusted EBITDA 10,979 16,206 17,669 18,887 20,386 Growth Rates (%) Sales 22.5 -5.4 8.1 5.6 6.5 EBIT adjusted 27.9 48.6 10.7 5.8 7.9 EBITDA adjusted 23.1 47.6 9.0 6.9 7.9 EPS adjusted 16.2 6.2 11.3 4.6 9.8

Cash Flow (RsM)

Operating cash flow 7,897 15,660 18,826 18,161 19,398 Depreciation/amortization 3,289 4,779 5,018 5,497 5,933 Net working capital -5,568 560 4,740 3,170 3,041 Investing cash flow -26,068 -20,003 -27,596 -21,190 -7,090 Capital expenditure -15,933 -7,552 -8,870 -11,090 -7,090 Acquisitions/disposals -10,135 -12,452 -18,726 -10,100 0 Financing cash flow 18,339 16,665 -1,357 4,233 -11,504 Borrowings 21,609 6,738 1,000 7,800 -7,800 Dividends paid -2,877 -3,233 -3,478 -3,616 -3,755 Change in cash 168 12,321 -10,127 1,203 804

Balance Sheet (RsM)

Total assets 160,763 188,718 198,106 213,445 214,159 Cash & cash equivalent 455 12,776 2,649 3,853 4,657 Accounts receivable 15,880 19,763 19,223 20,307 21,624 Net fixed assets 59,517 62,290 66,141 71,734 72,891 Total liabilities 79,664 88,731 91,661 101,351 95,646 Accounts payable 11,005 10,025 10,834 11,445 12,187 Total Debt 51,982 58,720 59,720 67,520 59,720 Shareholders' funds 81,099 99,988 106,445 112,094 118,513





Maintain Buy (1L)

Tata Power has a good execution track record, demonstrated progress on expansion projects and ability to achieve stated targets. We currently value the 3.0GW of capacity + Mundra UMPP + Maithon + Mumbai & Delhi distribution + Powerlinks + power trading + coal mines investments (telecom, renewable and other subsidiaries/associates). However, we continue to believe it is a little too early to value the ~6.4GW+ of pipeline projects.

Target price maintained at Rs1,550

We maintain our target price of Rs1,550 and factor in (1) our consolidated FY11E-12E estimates cut by -8% to -14% and (2) roll forward of our DCF values to Mar11E and P/E & P/BV multiples to Mar12E.

Figure 89. Tata Power – Value of Investments

Investment Methodology Per ShareTTMSL 20% discount to CMP 11TTSL 30% discount to NTT Docomo valuations 108Tata Communications 20% discount to CMP 11Tata Communications (Panatone Finvest) 20% discount to CMP 43Direct Telecom Stake Value 173NDPL 2.5x FY12E Book Value 80Power Links 1.5x FY12E Book Value 17Tata Power Trading 15x FY12E PAT 5Maithon Project - 1050MW DCF Value as of Mar 2011 - Cost of Equity = 12.5% 69IEL - 240MW 2.5x BV of Investments Till FY10 25 - Mundra UMPP DCF Value as of Mar 2011 - Cost of Equity = 12.5% 125 - PT Kaltim Prima + PT Arutmin DCF Value as of Mar 2010 - Cost of Equity = 12.5% 475Mundra + Coal Mines 600Power Investments 789Tata BP Solar (49% stake) 20x FY08 PAT 9Geodynamics (10% stake) 20% discount to CMP 2Renewable Investments 11Other subsidiaries and associates FY10 Book Value 15Value Of Direct Investments 989


Figure 90. Tata Power Consolidated 1 Year Forward P/E Bands Figure 91. Tata Power Consolidated 1 Year Forward P/BV Bands

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Maintain Buy (1) –Target Price Rs1,550

Figure 88. Tata Power – Sum of the Parts

Part Old New Parent Business 569 561 - Power + Coal Investments 766 789 - Telecom Investments 177 173 - Renewable Energy Investments 13 11 - Other Investments 24 15 Value of Investments 980 989 Fair Value 1,550 1,550

Source: CIRA estimates



Earnings revision

We revise our consolidated estimates by -8% to -14% over FY11E-12E to factor in: (1) adjustments to our coal sales volumes, (2) changes to our coal ASP assumptions and (3) change to parent estimates by -2% to 4%.

Figure 93. Tata Power – Reconciliation Between Parent and Consolidated PAT

Year End Mar 31 (Rsmn) FY09 FY10 FY11E FY12E FY13E FY14E FY15EParent Recurring PAT 6,756 7,959 8,860 9,265 10,173 11,407 12,973 - Coal SPVs 7,785 6,744 7,270 10,750 10,894 10,963 8,902 - Mundra UMPP - (242) (242) (1,126) (5,665) (5,801) (4,001)Coal SPV + Mundra 7,785 6,502 7,028 9,624 5,228 5,162 4,902 Maithon - - 490 2,416 2,432 2,455 2,480 NDPL 874 1,789 1,120 1,096 1,072 1,179 1,297 Tata Power Trading 66 72 79 87 95 100 105 Powerlinks 333 551 579 608 638 670 704 IEL 70 133 297 345 345 345 Chemical Terminal 29 34 34 34 34 34 34 Aftaab Investments 39 151 151 151 151 151 151 NELCO (102) 92 92 92 92 92 92 Industrial Power (0) (0) (0) (0) (0) (0) (0)Industrial Power Infra (0) (0) (0) (0) (0) (0) (0)Vantech Investments - (32) (32) (32) (32) (32) (32)Trust Energy (27) (1,019) (988) (988) (988) (988) (988)Energy Eastern (0) (0) (4) (4) (4) (4) (4)Veltina Holdings (0) (0) (0) (0) (0) (0) (0)Other Associates (1,326) (632) (632) (632) (632) (632) (632)Cons. Recurring PAT 14,426 15,536 16,909 22,012 18,604 19,938 21,425 Parent exceptional 2,466 1,428 - - - - - Cons exceptional (4,705) 2,704 - - - - - Cons Reported PAT 12,187 19,669 16,909 22,012 18,604 19,938 21,425 FD Shares 222.7 247.0 247.0 247.0 247.0 247.0 247.0 Stock Price 1,320 1,320 1,320 1,320 1,320 1,320 1,320 Parent FD EPS 30.3 32.2 35.9 37.5 41.2 46.2 52.5 Growth 16.2% 6.2% 11.3% 4.6% 9.8% 12.1% 13.7%Consolidated FD EPS 64.8 62.9 68.5 89.1 75.3 80.7 86.7Growth 85.7% -2.9% 8.8% 30.2% -15.5% 7.2% 7.5%


Figure 92. Tata Power – Earnings Revision

FY11E FY12E FY13E COAL MINES Sales (mn tons) Old 64.0 76.1 80.9 New 64.0 72.0 88.0 % Change 0.0% -5.3% 8.8% ASP (US$/ton) Old 64 76 81 New 67 72 68 % Change 5.1% -5.3% -15.9% Sales (US$mn) Old 1,083 1,450 1,457 New 1,161 1,400 1,616 % Change 7.2% -3.5% 10.9% EBIT (US$ mn) Old 355 639 557 New 343 477 479 % Change -3.6% -25.4% -13.9% PARENT Sales Old 76,099 76,869 80,921 New 73,570 77,719 82,757 % Change -3.3% 1.1% 2.3% EBITDA Old 17,128 16,837 17,078 New 17,669 18,887 20,386 % Change 3.2% 12.2% 19.4% EBITDA Margin % Old 22.5% 21.9% 21.1% New 24.0% 24.3% 24.6% % Change 151 240 353 PAT Old 9,029 8,953 9,445 New 8,860 9,265 10,173 % Change -1.9% 3.5% 7.7% Parent EPS Old 36.52 36.22 na New 35.87 37.51 41.18 % Change -1.8% 3.6% nm Consolidated PAT Old 18,377 25,474 20,537 New 16,909 22,012 18,604 % Change -8.0% -13.6% -9.4% Consolidated EPS Old 74.34 103.05 na New 68.45 89.11 75.31 % Change -7.9% -13.5% Nm

Source: CIRA estimates



Current operations update

Tata Power currently has 2,971MW of capacity, which includes 2,329MW of thermal, 447MW of hydel and 195MW of wind capacity. Out of this, 2,027MW services the Mumbai region.

In addition, the company has 2 distribution circles at Mumbai (load of 477MW) and Delhi (load of 1,000MW).

Figure 94. Tata Power – Current Generation Capacity 2,971MW Fuel Mix

Coal40%

LNG/Natural Gas20%

Hydel15%

Oil10%

Wind7%

Producer Gas8%


Figure 95. Tata Power – Current Operations and Updates

Area of Operation Capacity Remarks Generation Mumbai 1927 MW (150 MW Standby) • MYT for 5-yr control period proposed from FY12 -FY17

• 1527 MW contracted to BEST (1000MW) and TPC-D (527MW) • 400 MW available for sale from April 1, 2010

Captive (Jojobera) 548 MW • Additional 120 MW Jojobera Unit 5 (IEL) will be commissioned by Q1 FY11 Merchant (Haldia, Unit 8) 200 MW • Unit 8 stable

• Average realizations ~ Rs. 5 -5.5 per unit Belgaum 81 MW Other Businesses Mumbai Distribution 477 MW • Crossed customer base of 50,000 post SC verdict

• Load expected at ~650 MW (FY11) and ~800 MW (FY13) NDPL >1000 MW • AT&C losses reduced to ~15% (FY10) from 54% (FY03) Powerlinks • New CERC norms applicable from April ‘09 �higher ROE


Mumbai business update

Tata Power is currently supplying 200MW to R-Infra, 100MW to BEST + 160MW to Tata Power distribution. The company has added 18,000 customers in distribution and now has a customer base of 76,000 (46,000 customers have changed from R-Infra to Tata Power. The peak demand is

Business Update



761MW of which for 488MW the company has an existing PPA and 160MW from Tata Power’s own plant and the rest is being bought from outside. In 1QFY11 the company purchased 345mus from outside.

Current expansion projects: 2,971MW => 8,242MW by FY13E

Tata Power is on track to achieve 8,242MW of generation capacity by FY13E, primarily from Maithon (1,050 MW), Mundra (4,000MW) and wind capacity additions.

Maithon (1,050MW) – Project is 83% complete and unit 1 will be up and running by end of 2010. FSA with Bharat Coking Coal has been signed, and additional capex of Rs3.8bn is needed for land acquisition. The company has drawn down debt of Rs19.53bn and invested Rs6.28bn of equity.

Mundra (4,000MW) – Project is 59% complete and first unit will be up and running before September 2011. 94% of hard costs are committed, and the new coal jetty will be ready by this year. The company is coordinating with PGCIL for readying evacuation lines. The company has drawn down loans of Rs59.69bn and invested equity of Rs23.34bn. Mundra UMPP has been turned down for carbon credits and the company is appealing again. This could push down returns to some extent. According to the company the 1st year tariff could be in the range of Rs2-2.20/khw (we have Rs1.97/kWh in our numbers currently).

Figure 96. Tata Power Generation Capacity Growth by FY13E (Excluding pipeline projects)

Source: Company

Tata Power did not use any external

agency for the EPC of Mundra UMPP,

which has been a tremendous learning

experience for the organization. This

should help the company in executing its

future growth plans on time.

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EPC skills for developing power plants

based on producer gas.



Figure 97. Tata Power – Generation Business Model

Business Model Projects Capacity (MW) Today Capacity (MW) FY13ERegulated Mumbai, Maithon, Wind 2122 2873 -3073Captive Power Plant Jamshedpur (PH6), Jojobera 548 668Merchant Haldia, Unit 8, Mumbai 200 200 -400Case 1 (For Supply) Haldia(MoU) 20 20Case 2 (For Project) Mundra UMPP, Belgaum 80 4081Total 2971 8242


Figure 98. Tata Power Funding Requirement : FY10E–FY12E

Rs bnTotal capex FY10-FY12 236Debt 181-of which debt already arranged 163Equity 55- of which internal accruals 28- of which GDR proceeds 16- of which FCCB proceeds 14


Renewables thrust

Tata Power has substantially increased focus on renewable energy. The company has acquired a 10% stake in Geodynamics (an Australia-based developer of geothermal power plants) and a 5% stake in Exergen, which has given the company access to technology for drying brown coal.

Tata Power believes that in the medium to long run, there will be substantial growth in renewable power generation in India, driven by constraints on coal supply and environmental concerns. At some point in time, India will have to follow the path of developed countries and will have to impose carbon emission tax. Recent levy of ~Rs50/ton on coal is a movement in this direction.

Tata Power plans to focus on the top 3 technologies in the renewable space, i.e., solar power, geothermal and wind.

Wind: The company currently has 200MW of installed wind capacity and plans to add 500MW over the next 3 years. Tata Power plans to have ~2GW of installed wind capacity by 2017.

Solar: The National Solar Mission has given a new thrust to the development of solar energy in the country. The mission targets to achieve 20,000MW of grid connected solar power and grid parity for prices of solar power by 2022. Solar power purchase obligation may start with 0.25% in Phase I (2009-2013), and may increase up to 3% by 2022. NTPC Vidyut Vyapar Nigam Ltd (NVVN) will act as nodal agency to enter into 25-year PPAs with developers for plants set up before March 2013 and grid connected at 33 kV or above. Tariff for solar power is to be determined by CERC guidelines, and current cost of power from a generic solar power plant is estimated at Rs18.44/kwh. Tata Power is exploring solar power opportunities of up to 300MW and is currently commissioning a 3MW grid connected solar power plant.



Geothermal: Tata Power is participating in a bid for 200MW of Indonesian geothermal opportunities. The company has signed MoU with Gujarat government to explore geothermal potential.

Future pipeline projects and growth intent

The management has outlined the long-term growth intent for the company with targeted capacity of 25,000MW by 2017E. Over and above the 8,242MW of capacity under implementation, the company has ~6,000MW in the pipeline.

Many of the projects currently in the pipeline will be presented before Tata Power’s board of directors for approval in FY11E. If projects are approved by Tata Power’s board, we expect management to share more granular details about the progress of these projects.

Out of ~6,000MW of pipeline projects, the company is yet to tie up fuel supply for the 2,400MW imported coal-based Dehrand power project.

However, the company will have to invest ~Rs60-70bn of equity in ~6,000MW of pipeline capacity. Management has indicated that Tata Power will look to dilute stake in SPVs, sell telecom investments and raise equity for funding.

The projects beyond 8,242MW + 6,000MW, which are in very early stages, are (1) Maithon expansion, (2) addition of~500MW of wind capacity over next three years and (3) bidding for geothermal power plant in Indonesia with initial capacity of ~55MW, which will be ramped up to 200MW gradually1 .

Figure 99. Tata Power – Growth Intent Figure 100. Tata Power – FY17E Generation Capacity 25,000MW Fuel Mix

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Source: Company and Citi Investment Research and Analysis Source: Company and Citi Investment Research and Analysis

1 Economic Times



Figure 101. Tata Power - Status of Future Projects

Project MW Fuel Stake Attributable MW - Status Ph 1 – 1600 Imported coal 100% 2400 - Sec 32 notification from Maharashtra for acquisition of land Coastal Maharashtra

(Dehrand) Ph 2 - 800 - Land rates being negotiated with farmers - Environment clearance for Phase I -1.6GW. Phase -II would be 800MW - 50% of coal likely from Bumi Resources - CoD FY16E - FY18E Naraj Marthapur CPP 1270 Supply by procurers 100% 1270 - 1GW to IOC, 270MW to Tata Steel Naraj Marthapur IPP 1200 Mandakini coal block 100% 1200 - 291mn tonnes of coal mine with Monet Ispat and Jindal Photo. - Annual coal output of 7.5MMTPA. Tata Power gets 2.5MMTPA - Likely CoD in FY14E Tiruldih IPP/CPP 500 Tubed coal block 100% 500 - 189mn tonnes of coal along with Hindalco (40% stake). - Tata Power has 40% stake and will get 2.3MMTPA - Certain % to Orissa regulated + % at regulated. Remaining merchant - Could get delayed because of Jharkand political situation Jharkand CPP 500 Supply by Tata Steel 74% 370 - To meet Tata Steel's requirements CPP for Corus 525 Producer gas from

Corus 74% 389 - JV between Tata Steel and Tata Power

- Could earn 15-16% regulated RoE - Likely CoD in FY13E Dagacchu Hydel 114 26% 30 - Under construction - PPA to be signed soon Orissa 270 74% 200 - For Tata Steel under IEL Tama Koshi, Nepal 800 NA NA Total 7579 6358 + Tama Koshi


Other project updates

IEL - Unit 5 in Jojobera 120MW has been synchronized in April 2011 and will be commissioned in 2QFY11.

Dagachhu - Ordering for the project has been completed and all land/ clearances are in place for the 114MW project in which the company has a 26% stake. The entire power is to be purchased by Tata Power Trading and sold in the merchant market in India. The total capex is US$192mn.

Mandakini - All major clearances obtained and land acquisition for power plant is ongoing. Mandakini Power plant land may be acquired in 1QFY12.

Tubed - Applied for environmental clearance for coal mine development.

Dehrand - Maharashtra has approved land compensation proposal and initial activities are under way. The company is evaluating PPA options. Substantial part of land to come by Sep/Oct 2010. Board approval by Dec 2010.

Coal mining business update

The coal mine capacity is targeted to increase to 75mn tons over the next 12-18 months and then to 100mn tons over the next three years. Total infrastructure capex would be to the tune of US$1.2bn for capacity expansion. Tata Power is not infusing any money from its pocket for the same. There is a tax arbitrage if investments are done in an appropriate manner, and taxes may decline to 30% from 45% currently.

All required tax provisions have been made in accounts, and tax is being paid as per agreed schedule with authorities.



The management expects the sales volume and realizations to remain firm against the backdrop of the recent strengthening of coal prices compared to the low levels seen earlier this year.

Figure 102. Indonesian Coal Mines – Operational Performance

CY08 CY09Production (mn tons) 52.8 62.7Sales (mn tons) 51.5 58.1Realization (US$/ton) ~73 ~62Production cash cost (US$/ton) ~33 ~30Loans ( Coal SPV) (US$ mn) 717


Raises US$300m by monetizing stake in coal SPVs

Tata Power has signed an agreement to raise US$300m for a 14-15% stake in Bhira and Bhivpuri - coal SPVs – through shares with differential rights to be issued to Olympus Capital. Funds raised could be used to buy stakes in coal mines or to reduce the outstanding debt in the SPVs.

The instrument will be in the form of differential rights (Class B) shares with no dividend rights, which are the subject of a capital protection arrangement at the end of five years from the date of closing the transaction, unless converted. These Class B shares are fully convertible into ordinary shares through the end of the fifth year from the date of closing at the option of the holders of the Class B shares. The capital protection arrangement could be serviced either from Tata Power or the coal SPVs.

The deal will be completed after lenders’ approval is received, and this is expected by the month end. After 5 years there is a window in which Olympus can sell its stake at a multiple on the previous 12 months trailing profits to Tata Power. After the window is over, Tata Power is free from its obligation to buy the stake, but Tata Power will have first right of refusal if Olympus decides to sell its stake to a third party.

The deal values the coal SPVs at Rs309-335/share of Tata Power pre-money, which is Rs140-166/share lower than our valuation of Rs475/share of Tata Power. We view the transaction negatively as the deal is more favorable to Olympus Capital than Tata Power as (1) it values the coal mine at lower valuations than ours and (2) it gives capital protection rights, which limits downside and (3) option to convert to normal equity shares anytime over the next 5 years, which helps capture all the upside.

But one has to view the transaction strategically as promoters own only 31.22% in Tata Power and might not be keen to dilute at the parent level in a hurry and the 8GW pipeline might need funding going forward (either through equity raising or sell down of telecom stakes). The deal becomes even more imperative if Tata Power has lined up more coal mine acquisitions near term (the company is looking at mines in Southern Indonesia).



Figure 103. Tata Power – Olympus Capital Deal Valuations

Item Units Amount Stake in Bhira and Bhivpuri 14% 15%Amount Raised US$mn 300 300Valuation of coal SPVs - Post Money US$mn 2,143 2,000 Valuation of coal SPVs - Pre Money US$mn 1,843 1,700 USDINR 45 45Coal SPVs valuation - Pre Money Rsmn 82,929 76,500 Value Per Share of Tata Power Rs/share 335 309Coal SPV value in our target price of Rs1550 Rs/share 475 475PE valuations lower by Rs/share 140 166FD Shares mn 247 247


Coal SPVs – Bhira, Bhivpuri and Khopoli

Figure 104. Tata Power – Coal SPVs Profit & Loss Statement

Year End Mar31 (US$mn) FY08 FY09 FY10Revenues 71 267 145 Operating Cost (2) (76) (5)EBIT 69 191 140 - Interest Cost (61) (56) (40) - Loan Amortization (11) (21) (5)Interest Cost (72) (77) (45)PBT (3) 114 94 Tax 0 (4) (4)Rate 6.3% 3.7% 4.5% PAT (2.9) 110.3 89.9


Figure 105. Tata Power – Coal SPVs Balance Sheet

Year End Mar31 (US$mn) FY08 FY09 FY10Interest in JVs 1,197 1,089 1,149 Cash 58 88 51 Other Current Assets 7 84 102 Total CA 65 172 153 Total CL 31 60 78 ASSETS 1,231 1,201 1,224 Networth 26 134 226 -Shareholder's loans 256 303 303 -Third party loans 948 628 551 -Current loans 0 126 135 -Other loans 10 9 Total third party loans 948 764 695 DTL 0 0 0 LIABILITIES + NETWORTH 1,231 1,201 1,224




Lanco Infratech (LAIN.BO) Buy: The Dark Horse Is Delivering

Maintain Buy (1M) — Solid execution has resulted in capacity increasing to

2,087MW from 511MW at end-FY09. We expect LANCI to increase capacity 4.2x to 8,569MW by FY15E (FY11E - 600MW, FY12E - 1270MW, FY13E - 76MW, FY14E- 2556MW & FY15E- 1980MW). This will drive EPS growth of 23% over FY10-13E with average RoEs of 19%.

Execution on track — LANCI has added Amarkantak 1 (300MW) in Mar10, Udupi 1 (600MW) in Jun10 and Kondapalli (133MW) in Jul10, taking total capacity to 2,08MW from 511MW in less than 1 year. LANCI has increased employee count from 3,200 in FY08 to 5,500 in FY10, a clear sign of the execution ramp-up.

Under development projects are now starting construction — LANCI has tied up coal supply, land for main plant and necessary clearances for 3,960MW capacity. Construction of Babandh (1,320MW) and Amarkantak 3&4 (1,320MW) has started while Vidarbha (1,320MW) is set to start construction in 2-3 months. Construction of Kondapalli expansion (742MW) is in full swing and the company expects the plant to be commissioned in XIth Plan itself.

Aggressive pricing for third-party BoP orders — LANCI won the Rs13bn Koradi 1,980MW BoP order at a price of Rs6.6mn/MW vis-à-vis BGR’s historical price of Rs15.7mn/MW. Even allowing for variation in scope of work, LANCI seems to have adopted an aggressive pricing strategy for third party BoP orders. LANCI has also won Bhubaneshwar Airport construction order. The company has a target of ~25% of orders from external projects.

1QFY11 PAT – 51% ahead of estimates — LANCI’s 1QFY11 PAT at Rs1.95bn grew 68% YoY (51% ahead of CIRA estimate of Rs1.3bn) due to lower than expected depreciation and interest expenses. 1Q EBITDA at Rs5.95bn grew 117% YoY. Decline in EPC revenue was worse than CIRA estimates of a 10% YoY decline, as large projects are nearing end and execution on Babandh, Vidarbha, Amarkantak 3&4 and Kondapalli is yet to pick up. EPC PAT Rs713mn was in-line with CIRA estimate, as shortfall in sales was made up by higher than expected EBITDA margins of 14.4%.

Company Focus


Buy/Medium Risk 1MPrice (28 Sep 10) Rs67.00Target price Rs80.00Expected share price return 19.4%Expected dividend yield 0.0%Expected total return 19.4%Market Cap Rs161,323M US$3,584M

Price Performance (RIC: LAIN.BO, BB: LANCI IN)


Year to Net Profit Diluted EPS EPS growth P/E P/B ROE Yield31-Mar (RsM) (Rs) (%) (x) (x) (%) (%)2008A 3,542 1.59 88% 42.1 8.1 21.2% 0.0%2009A 2,804 1.26 -21% 53.1 7.1 14.3% 0.0%2010A 4,586 1.90 51% 35.2 4.8 16.9% 0.0%2011E 8,974 3.73 96% 18.0 3.9 23.9% 0.0%2012E 8,888 3.69 -1% 18.1 3.2 19.3% 0.0%2013E 8,486 3.52 -5% 19.0 2.7 15.5% 0.0%


Asia Pacific | India Construction & Engineering (GICS)Electric Utilities (Citi)




Valuation Ratios


Profit & Loss (RsM)

Net sales 60,710 81,076 119,322 140,130 153,412 Operating expenses -52,899 -69,284 -96,155 -112,687 -125,855 EBIT 7,810 11,792 23,167 27,443 27,557 Net interest expense -2,185 -3,554 -7,975 -12,567 -13,904 Non-operating/exceptionals -90 906 483 465 180 Pre-tax profit 5,535 9,144 15,676 15,341 13,833 Tax -1,690 -3,643 -3,902 -3,807 -3,749 Extraord./Min.Int./Pref.div. -1,041 -915 -2,799 -2,646 -1,598 Reported net income 2,804 4,586 8,974 8,888 8,486 Adjusted earnings 2,804 4,586 8,974 8,888 8,486 Adjusted EBITDA 8,884 15,270 33,912 43,828 44,309 Growth Rates (%) Sales 87.3 33.5 47.2 17.4 9.5 EBIT adjusted 25.6 51.0 96.5 18.5 0.4 EBITDA adjusted 27.0 71.9 122.1 29.2 1.1 EPS adjusted -20.8 51.0 95.7 -1.0 -4.5

Cash Flow (RsM)

Operating cash flow -2,076 -6,135 28,559 20,270 24,466 Depreciation/amortization 1,073 3,479 10,745 16,385 16,752 Net working capital -5,955 -15,028 8,840 -5,003 -772 Investing cash flow -21,035 -29,747 -136,799 -71,376 -71,619 Capital expenditure -18,164 -19,355 -136,799 -71,376 -71,619 Acquisitions/disposals 0 0 0 0 0 Financing cash flow 25,604 35,605 100,034 50,313 50,610 Borrowings 24,320 27,644 97,981 47,667 49,012 Dividends paid 0 0 0 0 0 Change in cash 2,493 -277 -8,206 -793 3,456

Balance Sheet (RsM)

Total assets 115,485 160,283 278,832 339,045 400,577 Cash & cash equivalent 9,905 9,628 1,421 628 4,084 Accounts receivable 11,943 22,270 29,338 32,752 34,411 Net fixed assets 54,139 70,015 196,069 251,061 305,928 Total liabilities 87,476 119,727 227,249 275,928 327,376 Accounts payable 29,750 32,191 41,654 42,666 45,102 Total Debt 55,970 83,614 181,594 229,262 278,273 Shareholders' funds 28,009 40,556 51,584 63,117 73,201





We maintain Buy (1M) on LANCI as:

Execution remains on track: (1) Udupi unit1 (600MW) has been synchronized in June 2010 and unit 2 will be synchronized in September 2010, (2) 133MW combined cycle turbine at Kondapalli has been synchronized in July 2010. As a result operational capacity has increased to 2,087MW now from 511MW at the start of FY10.

Company is likely to achieve financial closure of 4,702MW of capacity by September 2010. This capacity includes Amarkantak 3&4 (1,320MW), Vidarbha (1,320MW), Babandh phase 1 (1,320 MW), and Kondapalli expansion (742MW). Press reports suggest that the company has already achieved financial closure of Babandh 1 at a project cost of Rs55.4bn.

The company has tied up land, coal supply and other clearances for Amarkantak 3&4 (1,320MW), Vidarbha (1,320MW) and Babandh 1 (1,320 MW). Construction work for Amarkantak 3&4 and Babandh 1 has started on ground while design and engineering for Vidarbha has been completed and construction is set to start soon.

Figure 107. LANCI – Sum of the Parts

Name MW Stake CoE Dec 10 LANCI Stake(Rsmn) LANCI Stake (US$mn) P/Equity NewLanco EPC 100% 11x Dec11E 55,443 55,443 1,205 23.0Kondapalli Unit 1 368 59% 13% Kondapalli Unit 2 366 59% 13% 23,316 13,756 299 3.0 5.7Aban Power 120 51% 13% 4,308 2,198 48 1.3 0.9Vamshi Hydro 10 98% 13% 545 534 12 1.0 0.2Vamshi Industrial 10 98% 13% 258 253 6 0.8 0.1Amarkantak - I 300 100% 13% 20,612 20,612 448 3.8 8.6Udupi Power 1200 100% 13% 22,881 22,881 497 1.7 9.5Operational/Near Operational 2687 8.6502 1.04 71,921 60,235 1,309 11.7 25.0Lanco Green Budhil 70 98% 13% 1,654 1,621 35 1.4 0.7Lanco Energy - Teesta VI 500 74% 13% 4,680 3,463 75 0.8 1.4Anpara Power 1200 100% 13% 10,636 10,636 231 1.1 4.4Lanco hydro Uttaranchal 76 100% 13% 4,746 4,746 103 2.0 2.0Under Construction 1922 472% 52% 21,716 20,466 445 5.3 8.5Amarkantak (Unit 3&4) 1320 100% 13% 24,002 24,002 522 1.7 10.0Vidarbha 1320 100% 13% 16,656 16,656 362 1.2 6.9Babandh (Unit 1&2) 1320 100% 13% 15,360 15,360 334 1.1 6.4Under Development 3960 56,018 56,018 1,218 3.9 23.3Total Power Capacity 8569 149,654 136,719 2,972 1.6 56.8BHM Road 81 Kms 100% 13% 3,455 3,455 75 2.7 1.4ND Road 82 Kms 100% 13% 1,425 1,425 31 1.3 0.6Total Roads 163 Kms 4,880 4,880 106 2.1 2.0Lanco Hills 3.5mnsqft 74.00% 14% (10,000) (7,400) (161) (4.2) -3.1Electricity Trading 100% 15x Dec11E 3,299 3,291 72 1.4Carbon Credits 51% 13% 502 256 6 0.1Total 193,189 4,200 80


Maintain Buy (1M) – Target Price Rs80



Figure 108. LANCI Consolidated 1 Year Forward P/E Bands Figure 109. LANCI Consolidated 1 Year Forward P/BV Bands

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LANCI currently has ~2,087MW operational capacity. We expect operational capacity to reach 8,569MW by FY15E.

The company has executed well over the past 1-2 years and has commissioned ~1,484MW of capacity which includes Kondapalli 2 (366MW), Amarkantak 1&2 (600MW) and Udupi unit 1 (600MW).

Over the next 2 years capacity addition will be driven by commissioning of Udupi unit 2 (600MW) and Anpara C (1200MW).

Figure 110. LANCI – Capacity Addition Figure 111. LANCI – Breakup by off-take type

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Fuel Passthrough CERC Norms Fixed Price Merchant

Source: Citi Investment Research and Analysis Source: Citi Investment Research and Analysis

Project-wise update

Udupi (1,200MW) – Unit 1 has been synchronized in June 2010. Unit 2 is expected to be synchronized by September 2010. Project has started receiving coal supply from Indonesia at agreed price. However, given higher coal prices in international markets, the company has approached buyers/ regulators to allow pass-through of higher prices and decision is awaited.

Amarkantak 3&4 (1,320MW) – Project has obtained land, coal and all necessary clearances. The construction work has started on the ground and financial closure is expected by September 2010.

Vidarbha (1,320MW) – Project has obtained coal linkage for 1,320MW from Mahanadi Coalfields and has land for main plant under possession. Remaining land acquisition is expected to be complete in next 2-3 months. The company has completed the design and engineering and will start construction soon. Financial closure is expected by September 2010.

Babandh 1&2 (1,320MW) – Project has obtained coal linkage for 660MW and has captive coal mine for 1,000MW. Land for main plant is under possession and remaining land is expected to be acquired in the next 2-3 months. The company has started construction on the ground. Press reports suggest that the project has achieved financial closure though the company is yet to make a formal announcement.

Kondapalli expansion (742MW) – The company expects to achieve CoD of this unit in XIth Plan itself, thereby gaining priority in allocation of gas. We currently do not value this project as fuel supply has not been secured.

Capacity Addition Update



Figure 112. LANCI- Project Commissioning Schedule

Project Capacity Company - CoD Citi - CoD Comment Kondapalli Unit 1 368 - Gas is available without interruption Kondapalli 2 366 May-10 Jun-10 - 2nd unit of 133MW Synchronized. Gas is available without interruption Aban Power 120 - Low PLF due to interruption in gas supply in recent months Vamshi Hydro 10 Amarkantak 2 300 Apr-10 Apr-10 - Synchronization is complete. PPA to start after CoD.

- Operating on domestic coal (80% - linkage , 20% - e-auction) Amarkantak 1 300 NA Apr-10 - Unit is operating at PLF of ~70-80% since August 2009.

- Now operating on mostly domestic coal (80% - linkage , 20% - e-auction) Vamshi Industrial 10 Sep-10 Sep-10 -5MW has achieved CoD and 5MW will achieve CoD by September 2010 Wind 13 Udupi Unit 1 600 Jun-10 Jun-10 - Synchronized in June 2010.G104.

- Transmission line is ready and company has started receiving coal supply from Indonesia Currently operational 2,087 Udupi Unit 2 600 Sep-10 Sep-10 - Receiving Indonesian coal @US$52/ton

- Transmission capacity is being augmented for CoD in September 2010 Further Addition in FY11 600 Operational by FY11 end 2,687 Anpara C - Unit 1 600 Dec-10 Jun-11 Anpara C - Unit 2 600 Mar-11 Sep-11 Lanco Green Budhil 70 Dec-10 Oct-11 Addition in FY12 1270 Operational by FY12 end 3,957 Uttaranchal 1- 76MW 76 Mar-12 Mar-13 Addition in FY13 76 Operational by FY13 end 4,033 Amarkantak Unit 3 660 Mar-13 Dec-13 - Construction on ground started, Financial closure by September 2010 Lanco Energy Teesta 500 Mar-13 Mar-14 Uttaranchal 2- 76MW 76 Mar-13 Mar-14 Amarkantak Unit 4 660 Jun-13 Mar-14 - Construction on ground started, Financial closure by September 2010 Babandh Unit 1 660 Mar-13 Mar-14 - Financial closure achieved Addition in FY14 2556 Operational by FY14 end 6,589 Vidarbha Unit 1 660 Dec-13 Jun-14 - Design and Engineering complete and construction to start soon Babandh Unit 2 660 Jun-13 Sep-14 - Financial closure achieved Vidarbha Unit 2 660 Mar-14 Dec-14 - Design and Engineering complete and construction to start soon Addition in FY15 1980 Operational by FY15 end 8,569




JSW Energy Ltd (JSWE.BO) Initiate at Hold: Risk Reward Evenly Balanced

Initiate at Hold/Low Risk (2L) with target price of Rs135 — JSWEL, backed

by the strong execution capabilities of the JSW Group, has ramped up to an operating capacity of 1,295MW in a short span of time. At current stock price levels, the risk reward appears evenly balanced given (1) limited upside to our target price of Rs135, which factors in 6,570MW of current + under construction capacity, (2) risk due to dependence on merchant sale of electricity and imported coal and (3) JSWEL’s stock is up 27% since listing on January 4, 2010 and has outperformed BSE Sensex by 13.3% YTD.

Good execution record — JSWEL has increased its capacity to 1,295MW currently from 260MW in Mar09. Further, 1,845MW is in advanced stages of completion. Operating plants have operated at high efficiencies (PLF >95%) historically. JSWEL’s capacity will reach FY13E – 3.41GW & FY16E – 6.57GW.

High operating efficiencies of operating plants — Vijaynagar-1 (260MW) and Vijaynagar-2 (600MW) operated at PLFs of 99% and 94% in FY10 respectively.

PAT to grow at 37% CAGR over FY10-13E — Revenue, EBITDA and PAT will grow at CAGR of 53%, 49% and 37% respectively over FY10-13E. Revenue, EBITDA and PAT will grow at CAGR of 34%, 33% and 25% respectively over FY10-16E driven by commissioning of West Bengal and Chhattisgarh projects.

Dependence on merchant sale and imported coal increases risk — Merchant power sales will constitute ~51% of volumes over FY11-16E and ~31% of capacity will be dependent on imported coal. Dependence on merchant sale and imported coal simultaneously compounds business risk tremendously in our view, even though it has helped JSWEL capture temporarily high supernormal profits in the merchant markets. High merchant prices are providing sufficient cushion currently for higher cost of imported coal. If merchant prices were to come under pressure it would severely hurt the profitability, especially if concurrently international coal prices are high.

Upside risks — Higher merchant prices, lower imported coal prices and progress on Ratnagiri 2 (3,200MW) and Chhattisgarh (1,620MW) projects.

Downside risks — Lower merchant prices, disruption in imported coal supply, higher prices of imported coal and execution delays.

Company Focus


Hold/Low Risk 2LPrice (28 Sep 10) Rs124.50Target price Rs135.00Expected share price return 8.4%Expected dividend yield 0.0%Expected total return 8.4%Market Cap Rs204,497M US$4,543M

Price Performance (RIC: JSWE.BO, BB: JSW IN)



31 Mar (RsM) (Rs) (%) (x) (x) (%) (%)

2009A 2,767 5.06 -58.3 24.6 4.6 22.3 0.0

2010A 7,455 4.55 -10.2 27.4 4.3 23.8 0.6

2011E 14,019 8.55 88.0 14.6 3.3 25.6 0.0

2012E 23,174 14.13 65.3 8.8 2.4 31.6 0.0

2013E 19,095 11.64 -17.6 10.7 2.0 20.2 0.0


Initiation of coverage


(Citi)




Valuation Ratios


Profit & Loss (RsM)

Net sales 18,350 23,551 55,325 99,538 83,591 Operating expenses -13,634 -12,777 -32,950 -59,623 -49,389 EBIT 4,716 10,774 22,376 39,916 34,202 Net interest expense -1,209 -2,837 -4,964 -11,102 -10,468 Non-operating/exceptionals 171 742 0 0 0 Pre-tax profit 3,678 8,679 17,412 28,814 23,734 Tax -911 -1,224 -3,393 -5,639 -4,639 Extraord./Min.Int./Pref.div. 0 0 0 0 0 Reported net income 2,767 7,455 14,019 23,174 19,095 Adjusted earnings 2,767 7,455 14,019 23,174 19,095 Adjusted EBITDA 5,319 12,135 25,832 46,048 40,424 Growth Rates (%) Sales 90.0 28.3 134.9 79.9 -16.0 EBIT adjusted -3.8 128.4 107.7 78.4 -14.3 EBITDA adjusted -3.1 128.2 112.9 78.3 -12.2 EPS adjusted -58.3 -10.2 88.0 65.3 -17.6

Cash Flow (RsM)

Operating cash flow 14,577 3,876 15,308 23,231 27,587 Depreciation/amortization 602 1,361 3,456 6,132 6,221 Net working capital 11,079 -5,287 -2,167 -6,075 2,271 Investing cash flow -53,699 -44,560 -14,011 -31,063 -42,862 Capital expenditure -52,201 -31,920 -14,011 -31,063 -42,862 Acquisitions/disposals 0 0 0 0 0 Financing cash flow 37,923 44,981 20,779 25,052 21,510 Borrowings 36,545 19,430 20,779 25,052 21,510 Dividends paid 0 -1,434 0 0 0 Change in cash -1,198 4,297 22,076 17,220 6,235

Balance Sheet (RsM)

Total assets 92,697 146,823 181,621 229,846 270,452 Cash & cash equivalent 1,751 6,048 28,124 45,344 51,580 Accounts receivable 1,369 2,714 4,040 7,159 5,999 Net fixed assets 85,421 115,980 126,534 151,465 188,106 Total liabilities 77,748 98,869 119,648 144,700 166,210 Accounts payable 17,624 17,524 17,524 17,524 17,524 Total Debt 59,272 78,701 99,481 124,532 146,042 Shareholders' funds 14,949 47,954 61,973 85,147 104,242





JSW Energy (JSWEL), a relatively new entrant in the Indian Electric Utility space, has achieved 1,295MW of operating capacity in a short span of time. The company has exhibited excellent execution capabilities and operational efficiencies. The company has relied on imported coal to achieve fast capacity expansion and capitalized on the supernormal profits in merchant markets. The stock is up 27% since listing in January 2010. We believe the current stock price factors in the future expansion to a large extent, and the risk-reward appears evenly balanced given high exposure to merchant sale/ dependence on imported coal. We initiate coverage of JSWEL with a Hold/Low Risk (2L) rating.

JSWEL is a relatively new entrant in the Indian Electric Utility space. Even though the company has been operating a 260MW power plant since CY00, the capacity expansion has picked up pace only since CY09 onwards. JSWEL has executed well and in a short time span the operating capacity has increased to 1,295MW from 260MW in March 09. Further, the company has been executing Ratnagiri (1,200MW) and RWPL (1,080MW) projects and operational capacity is expected to reach 3,140MW by FY11E end.

JSWEL has maintained high operational efficiencies at its operating plants. Vijaynagar 1 (260MW) and Vijaynagar 2 (600MW) operated at average PLF of 99% and 94% in FY10 respectively. Despite a good execution track record and high operational efficiencies of operational projects, we believe that the current market price adequately factors in the execution capability and future capacity expansion of JSWEL. JSWEL’s stock is up 27% since listing on January 4, 2010, and has outperformed BSE Sensex by 13.3% YTD.

The company has large exposure to the merchant market, which has resulted in high profitability of operational plants. JSWEL sold ~69% of generation in the merchant markets in FY10. Proportion of merchant sale is likely to stay fairly high at average of 51% over FY11E-FY16E. High proportion of merchant sale exposes JSWEL to fluctuations in merchant prices and increases the business risk. We believe that merchant prices of electricity will trend down gradually over FY11-15E as India adds new capacity. Over August 09 to June 10, the VWAP of short-term sale of electricity (excluding UI) registered average YoY decline of 30%. If this declining trend worsens beyond our estimates (CIRA FY15 merchant price = Rs3.5/kWh), it would adversely impact the profitability.

To capitalize on supernormal profits available in the merchant market, JSWEL has aggressively expanded capacity. As arranging domestic coal supply is a time-consuming process, the company’s plants are using imported coal. The company is sourcing coal from Indonesia under a long-term contract and from South Africa under a mix of long-term and spot contracts. The combination of high proportion of merchant sale and dependence on imported coal has a compounding effect on the business risk. High merchant prices are providing sufficient cushion for high cost of imported coal currently. However, if merchant prices were to come under pressure it would severely hurt the profitability, especially if this was to happen concurrently with high international coal prices.

Our target price of Rs135 factors in 6,570MW capacity. We believe that at the current stock price the risk-reward is evenly balanced. JSWEL’s execution capability and future capacity expansion plans are adequately factored in the price. We believe that the stock is likely to remain range bound unless concerns on high proportion of merchant sale and dependence on imported coal are resolved.

Investment Thesis



Valuation approach – DCF using FCFE and CoE

Traditional valuation methodologies like P/E and EV/EBITDA multiples can be misleading if used to value pure infrastructure asset holders, as profitability of the projects can be lumpy, primarily on the basis of year of commissioning and the life of the asset.

In some years, when the project is being commissioned, the company may look very attractive on a P/E multiple basis while in another year, when the asset life ends, the stock may appear relatively expensive.


While applying the DCF one can either choose the free cash flow to the firm (FCF) or the free cash flow to equity (FCFE). We prefer FCFE as individual projects are highly geared and gearing changes as debt is rapidly paid off.

Target price of Rs135

Figure 113. JSWEL – Target Price Sum of the Parts (Rsmn)

Name MW Stake CoD Value (Rsmn)

JSWEL's Value(Rsmn)

Project IRR Equity IRR Equity (Rsmn)

P/Equity Per Share (Rs)

JSWEL SBU-I 260 100% 1-Apr-00 31,070 31,070 NA NA 22,379 1.39 19JSWEL SBU-II 600 100% 1-Sep-09 43,619 43,619 31% 74% 4,650 9.38 27JSWERL 1,200 100% 31-Dec-10 52,328 52,328 21% 47% 9,788 5.35 32RWPL Ph 1 1,080 100% 1-Mar-11 27,738 27,738 14% 22% 12,500 2.22 17RWPL Ph 2 270 100% 31-Jan-13 6,560 6,560 17% 29% 3,375 1.94 4Kutehr 240 100% 30-Sep-15 1,489 1,489 11% 13% 8,352 0.18 1West Bengal 1,600 74% 31-Dec-15 24,821 18,368 16% 28% 19,200 1.29 11Chhattisgarh 1,320 100% 30-Nov-14 22,144 22,144 18% 34% 16,250 1.36 14Sub total 6,570 209,769 203,316 96,493 2.2 124Net Cash/ (Net Debt) FY10 17,703 11Total 221,019 135


Figure 114. JSWEL – Consolidated P/E Chart Figure 115.JSWEL – Consolidated P/B Chart

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Valuations



Possible upside to target price

Ratnagiri - 2 (3,200MW): Our target price does not factor in Ratnagiri - 2 (3,200MW). JSWEL has substantial part of the land required for the project and signed agreements for supply of coal from Indonesia and Mozambique. However, we have not factored in the project in our target price as environmental clearance for the project is contingent on Ratnagiri-1 (1,200MW) not impacting the surrounding crops in the first full year of operation. The Ministry of Environment and Forest (MoEF) has advised that the Terms of Reference (ToR) for environmental impact study will be issued only after one full year of operation of Ratnagiri-1. Hence final execution of the project is too uncertain at this point and likely to be substantially delayed at the minimum. There is no clarity on reserves of Mozambique mines, GCV of coal and mining costs at this point in time. If we were to value Ratnagiri-2 (3,200MW) it would add Rs18/share to our target price.

JSW-Toshiba TG Manufacturing JV: Our target price does not value JSWEL’s 20% stake in turbine manufacturing JV with Toshiba. The JV will start operation in CY11E and will be fully operational by CY14E. Economics of the business in terms of order book, initial and steady state margins and utilization levels are too uncertain currently. If the JV wins large orders, execution pickup is faster than expected and margins are healthy it would result in upsides to our target price.

Valuation sensitivity

Figure 116. JSWEL – Valuations Sensitivity Analysis

CoE higher or lower by 2% 1% 0% -1% -2%Value/Per share 119 127 135 144 155 PLF higher or lower by -5% -3% 0% 3% 5%Value/Per share 121 128 135 142 148 Coal calorific value higher or lower by -400 -200 0 200 400Value/Per share 123 129 135 140 144 Price of Imported Coal +/- by (USD/Ton) 15 7.5 0 -7.5 -15Value/Per share 115 125 135 145 155 Price of Domestic Coal +/- by (USD/Ton) 200 100 0 -100 -200Value/Per share 132 133 135 136 138 Heat Rate Higher or Lower By 100 50 0 -50 -100Value/Per share 129 132 135 138 141 Auxiliary Consumption +/- by % 1.0% 0.5% 0 -0.5% -1.0%Value/Per share 130 132 135 137 140 Merchant prices +/- by (Rest/unit) -0.5 -0.25 0 0.25 0.5Per Share 100 118 135 152 169




Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns a Low Risk rating to JSWEL. We believe a Low Risk rating is appropriate based on a number of factors, namely the status of projects under implementation, execution track record, industry-specific risks, fuel supply status, financial risk and management risk.

Downside risks

Imported coal supply risk: JSWEL’s majority of capacity depends on supply of imported coal from PT Sungai Belati and spot and long-term purchase of coal from South Africa. Sharp fluctuations in price of imported coal can affect the profitability of the company.

Fuel supply risk: JSWEL has entered into a long-term coal purchase agreement with Sungai Belati of Indonesia. The agreement provides for delivery of specified quantities of coal at very attractive prices that are linked to RB Index. The failure of the Indonesian supplier to supply agreed quantity of coal may adversely affect the utilization levels of JSWEL’s plants. A part of JSWEL’s capacity will continue to remain dependent on purchase of coal on a short-term basis, exposing the company to possible coal availability issues.

Pricing Risk: FoB price of coal from PT Sungai Belati has been fixed at US$35/ton for base RB Index value of 94, and any rise in RB Index above 94 will be passed through in the price of coal to the extent of 50%. This pricing arrangement results in attractive price of coal for JSWEL compared to currently prevailing international coal prices. If the Indonesian supplier demands higher price for coal that is closer to higher international prices, the profitability of JSWEL’s projects will be impacted adversely.

Execution risk: Execution delays are common occurrence in all infrastructure projects. However, they are particularly relevant for hydro power projects, which tend to suffer large execution delays. JSWEL’s Kutehr (240MW) hydro electric project is expected to achieve CoD in September 2015. Any delay in CoDs of power projects, especially hydro power projects, would impact the value of the company negatively.

Merchant tariff risks: One cannot rule out the possibility that if India adds significant capacity ahead of expectations, merchant tariffs could collapse below regulated rates. JSWEL is heavily exposed to merchant price fluctuations as ~53% of capacity will be sold in merchant market between FY11-FY15E.Any fall in merchant prices below our assumed rates will impact the stock negatively.

Coal mining risk: JSWEL’s West Bengal, Chhattisgarh and Rajasthan West projects are dependent on fuel supply from captive coal mines. Any coal mining operation involves execution risks. If estimated reserves, quality of coal/lignite, estimated capex or operating costs of the mines deviate substantially from plan/assumption, it may affect the company adversely.

Upside risks

(1) If JSWEL operates its power plants at higher PLFs, lower heat rates and lower auxiliary consumption, there could be upside to our estimates and valuations, (2) faster-than-expected execution, (3) higher-than-expected merchant tariffs (4) significant progress on 3,200MW Ratnagiri - 2 and (5) additional project wins by the company.

Risks



JSW Energy Limited (JSWEL) was originally incorporated as Jindal Tractebel Power Company Limited in March 1994 as a joint venture between JSW Steel Limited and Tractebel, S.A., Belgium. The name of the company was changed to Jindal Thermal Power Company Limited in January 2002 after Tractebel, SA Belgium sold its holding to JSW Group companies and financial institutions. The name was further changed to JSW Energy Limited on December 7, 2005. JSWEL completed its IPO in December 2009 and raised Rs27bn. The company is promoted by Mr. Sajjan Jindal and JSW Steel Limited (listed). The Jindal Group holds a 76.72% stake in the company and a 4.75% stake is held by JSW Steel Limited (JSWSL).

Figure 117. JSWEL – Shareholding Pattern as of June 2010

FIIs, 5.06%

Non Institutions, 11.28%

FIs/Banks, 5.84%

MFs / UTI, 1.10%

Promoter, 76.72%

Source: NSE

Mr. Sajjan Jindal (Chairman and Managing Director): Mr. Jindal is the

principal promoter of the company, vice-chairman and managing director of JSW Steel Limited and chairman and director of JSW Group companies.

Mr. S.S. Rao (Joint Managing Director and the CEO): Mr. Rao holds a bachelor’s degree in electrical engineering and masters degree in business administration. He has over 39 years of experience in establishing greenfield thermal power projects, negotiating and implementing PPAs and fuel supply agreements, power pricing, tariff structures and mechanisms, environment friendly and safe methods in operating and maintenance of power plants. He is a member of the New York Academy of Sciences, Chartered Engineer (India), senior member of IEEE (USA), fellow member of the Institution of Engineers and Licensee as Surveyor and Loss Assessor (IRDA). Prior to joining JSWEL, he worked with the Power Grid Corporation of India Limited, NTPC, Mecon India Limited and Aditya Birla Group.

Background



995MW in FY10 to 6,570MW in FY16E

JSWEL has been operating 260MW of coal-fired capacity in Vijayanagar, Karnataka since April 2000. The plant was set up to meet the captive power requirements of JSW Steel (JSWSL) but is now a 100% merchant plant. JSWEL has embarked on an aggressive capacity expansion plan, and installed capacity has now grown to 1,295MW from 260MW in Mar09.

JSWEL has been executing Ratnagiri - 1 (1,200MW) and Rajasthan West Power - 1 (RWPL - 1 of 1080) over the past 2-3 years, and these projects are expected to be commissioned by FY11E end. The company has further started ground work on 3,430MW of incremental capacity, which is expected to be commissioned by FY16E end.

Figure 118. JSWEL – Capacity Ramp-Up Schedule

0

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FY09 FY10 FY11E FY12E FY13E FY14E FY15E FY16E

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260

995

3140 31403410 3410

5530

6570


Ratnagiri - 1 and RWPL - 1 are in advanced stages of commissioning. We

expect both projects to achieve CoD by FY11 end. Our estimated CoD dates for these projects are more or less in line with CEA’s estimate.

Figure 119. JSWEL Project CoDs- CIRA assumptions vs. CEA estimates

Ratnagiri 1 (1200MW) RWPL 1(1080MW) Citi CEA Citi CEAUnit 1 (CoD) Jul-10 Jul-10 Nov-09 Nov-09Unit 2 (CoD) Aug-10 Sep-10 Jun-10 Aug-10Unit 3 (CoD) Oct-10 Nov-10 Nov-10 Oct-10Unit 4 (CoD) Dec-10 Jan-11 Dec-10 Nov-10Unit 5 (CoD) Jan-11 Jan-11Unit 6 (CoD) Feb-11 Mar-11Unit 7 (CoD) Apr-11 Apr-11Unit 8 (CoD) Mar-11 Jul-11


Business Analysis



Heavy reliance on merchant sales

JSWEL sold ~69% of generation in the merchant markets in FY10. We expect reliance on merchant sale to continue in the near future, though the balance will shift slightly in favor of PPA sales as RWPL units come online.

Figure 120. JSWEL – Off-Take Breakup

31.3%41.6% 42.6% 43.4% 46.9% 51.9% 56.7%

58.4% 57.4% 56.6% 53.1% 48.1% 43.3%

68.7%

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PPA sale % Merchant %


Operational projects update

Figure 121. JSWEL – Operational Karnataka Projects

Plant Stake MW Fuel CoD Capex PLF Auxiliary Consumption Heat RateKarnataka (SBU 1) 100% 260 Duel fuel Apr-00 93% 7% 2321Karnataka (SBU 2) 100% 300 Coal Jul-09 18600 81% 8% 2332Karnataka (SBU 2) 100% 300 Coal Sep-09 93% 8% 2343


SBU 1 (260MW) – The plant is fully merchant. The fuel is being supplied by

JSWSL, which procures coal from South Africa and supplies to the plant on a cost basis. ~25% of fuel requirement is met by corex gases from JSWSL.

SBU 2 (600MW) – The plant will start selling 594 MW capacity in merchant markets from Oct10 onwards. Till September 2010, 300MW was being sold to JSWSL under a cost pass-through mechanism. 6MW will continue to be sold to JSWCL @ 20% RoE and cost pass-through mechanism. Currently the plant is using a mix of coal from Indonesia (40%) and South Africa (60%) but is expected to shift to 100% Indonesian coal from FY13E onwards. The plant received 0.05mn tons of coal from Indonesia in FY10.



Under construction projects

Figure 122. JSWEL – Under Implementation Projects

Plant Sub Stake MW Units % Completion Fuel CoD Capex (Rsmn)

Capex (Rsmn) June 30, 2010

D/E Land EC FC Equipment

Rajasthan RWPL-1 100% 675 5X135 >90% Lignite Jan-11 31,250 45,870 75/25 Yes Yes Yes Dongfang Rajasthan RWPL-1 100% 405 3X135 >90% Lignite Apr-11 18,750 75/25 Yes Yes Yes Dongfang Rajasthan RWPL-2 100% 270 2x135 Na Lignite/Coal Jan-13 13,500 620 Yes No No Dongfang Ratnagiri Parent 100% 1,200 4x300 >80% Imported Coal Dec-10 45,000 39,170 75/25 Yes Yes Yes Shanghai Electric Kutehr - HP JSWEL 100% 240 3x 80 Hydro Sep-15 19,152 800 On No No No Total 2,790


RWPL - 1 (1,080MW) – JSWEL has completed ~ 88% of the construction

work and has commissioned 2 units totaling 270MW. Due to delay in captive coal mining from Kapurdi and Jalipa mines, the plant has started operations on imported coal. The plant sells power under a regulated RoE mechanism to Rajasthan DISCOMs and has received regulatory approvals allowing pass-through of costs of imported coal in the tariff. Coal is being imported from South Africa at a landed cost of ~ US$140/ton (FOB cost of US$90, shipping cost of US$15 and Inland transportation and handling costs of US$35). Coal has GCV of 6000-6200Kcal/Kg. RWPL has also received tapering coal linkage till mines start operation. The linkage provides for delivery of 1.15mn tons and 2.3mn tons in FY11E and FY12E respectively at landed prices of US$50/ton for GCV of 3800-4300kcal/kg. The first unit had suffered delays in commissioning due to delay in construction of water pipeline from Indira Gandhi Nahar Pariyojana to the plant. The pipeline has now been commissioned and is fully functional. Rajasthan state transmission entity is developing the transmission infrastructure to evacuate power from the project. Power evacuation facilities for the first 2 units completed in Dec09.

RWPL - 2 (270MW) – Project is yet to tie up coal supply and off-take arrangement. The company has applied for approval to use excess lignite from Jalipa and Kapurdi mines for this project. If approval is granted and RWPL - 2 uses excess lignite from Jalipa and Kapurdi mines, the generated power will most likely be sold under regulated RoE norms. In case excess lignite from Kapurdi and Jalipa mines cannot be used in the project, required coal will have to be procured separately, but the project will have the flexibility of selling power in the merchant markets.

Ratnagiri (1,200MMW) – The project is based on 100% imported coal and is currently using a mix of Indonesian coal (40%) and South African coal (60%). Indonesian coal is being supplied by Sungai Belati under a long-term FSA while South African coal is being procured on a spot purchase basis as well as from JSWEL’s recently acquired mines. The project has a PPA with MSEDCL for 300MW of power while remaining output will be sold in the merchant markets. Ministry of Environment and Forest (MoEF) had earlier given environmental clearance for the plant without Flue Gas Desulfurization (FGD) installation. Later concerns arose regarding the impact of SO2 on mango orchards in the area due to which environmental clearance given to the plant was put on hold. On June 28, 2010, MoEF has given approval for commissioning of the plant with the following conditions: (1) flue-gas desulfurization (FGD) installation (costing Rs5.27bn) within 23-32 months from 21 Jun10, (2) JSWEL shall reduce the power generation and/or change to a fuel with low sulphur content or close the power plant, if required, in



case SO2 levels exceed the prescribed standards till the installation of FGD, (3) JSWEL will install SO2 sensors and (4) if at any point of time adverse impacts on mango orchards are noticed/established (through sensors), the plant will be shut down. JSWEL has already placed orders for FGDs. JSWEL has constructed 1,200MW, 400KV double circuit transmission line from Jaigad to Koyna and Jaigad to Karad. Jaigad-Koyna line has been charged while Jaigad to Karad line is expected to be commissioned in Nov10.

Kutehr (240MW) - JSWEL is implementing 240MW (3X80 MW), run-of-the-river, hydroelectric power project on the upper reaches of river Ravi in the district of Chamba, Himachal Pradesh. The project was awarded on a competitive bidding basis in 2007 with a concession period of 40 years. The DPR has been prepared and submitted in June 2009. The power generated will be sold in the merchant market. Prequalification of vendors has been completed for main civil works and public hearing for environment clearance has been held successfully. Techno economic clearance from CEA is expected soon. Land acquisition is under progress and affected villages have given no objection certificate.

Under development projects update

Figure 123. JSWEL under development projects

Plant Stake Capacity (MW) Units Fuel CoD Capex (Rsmn) Capex as on June 30, 2010

D/E Land EC FC

Ch’ttisgarh. 100% 1320 2x660 Domestic Coal Unit 1 - July 2014 Unit 2 - Nov 2014

65,000 330 Na Partial* No# No

WB 74% 1600 2X800 Domestic Coal Unit1 - 2014 Unit 2 - 2015

Rs76,800mn for power plant Rs20,000mn for mine development

280 Na Yes No

Source: Company and Citi Investment Research and Analysis, *200 acres acquired, public hearing on for remaining,# = Public hearing is on

Chhattisgarh (1,320MW) – JSWEL has acquired 200 acres of land (out of

700 acres required) and has received ToR from the MoEF and public hearing for environmental clearance took place in August 2010. Four bidders have purchased the bid documents for equipment supply. Transmission line is in place. 50%of the coal for the project (~3.2mntpa) will be supplied by Utkal A coal block, which JSWEL is developing along with Mahanadi Coal and JSWSL. The entire land required for development of Utkal A coal mine is under possession. The company has also applied for coal linkage for remaining coal requirement. JSWEL expects to achieve financial closure of Chhattisgarh project in FY11E. JSWEL plans to evacuate power from the plant with a direct connection to the transmission facility being developed by the PGCIL in Chhattisgarh.

West Bengal (1,600MW) – JSWEL is developing this project to meet captive coal requirements of JSWSL’s upcoming West Bengal plant, which will have steel production capacity of 10mn tons. 50% and 25% of power will be sold to JSWSL and WB state DISCOMs respectively under regulated RoE mechanism and remaining 25% will be sold in merchant market. The entire coal requirement for the project will be met by Ichhapur captive coal mine (Reserves – 116mn ton, GCV – 5500). The entire land for development of captive coal mine is under possession. JSWEL expects to achieve financial closure of West Bengal project in FY11E.



Figure 124. JSWEL – Project Details and Operating Assumptions

JSWEL SBU-I JSWEL SBU-II JSWERL RWPL - 1 RWPL - 2 Kutehr Ratnagiri 2 Chhattisgarh West BengalCapacity (MW) 260 600 1,200 1,080 270 240 3,200 1,320 1,600 Configuration 2x130MW 2x300MW 4x300MW 8x135MW 2x135MW 3X80MW 4x800MW 2x660MW 2x800MWUnit 1 (CoD) 1-Apr-00 1-Jul-09 31-Jul-10 30-Nov-09 31-Jan-13 30-Sep-15 30-Apr-15 31-Jul-14 31-Dec-14Unit 2 (CoD) 1-Apr-00 1-Sep-09 31-Aug-10 16-Jun-10 31-Jan-13 31-Jul-15 30-Nov-14 31-Dec-15Unit 3 (CoD) 31-Oct-10 1-Nov-10 30-Nov-15 Unit 4 (CoD) 31-Dec-10 1-Dec-10 28-Feb-16 Unit 5 (CoD) 1-Jan-11 Unit 6 (CoD) 1-Feb-11 Unit 7 (CoD) 1-Apr-11 Unit 8 (CoD) 1-Mar-11 Operating parameters PLF % 93% 93% 90% 50% 85% 55% 90% 90% 90%Auxiliary Consumption % 7.60% 7.60% 8.00% 11.00% 11.00% 0.50% 8.00% 7.50% 7.50%Heat Rate (kcal/kWh) 2,307 2,219 2,250 2,532 2,532 na 2,000 2,100 2,000 Mode of Selling PPA 0% 1% 48% 100% 100% 19% 70% 70% 75%Merchant 100% 99% 53% 0% 0% 81% 30% 30% 25%Fuel Domestic coal % 0% 0% 0% 100% 100% Na 0% 100% 100%Imported coal % 100% 100% 100% 0% 0% Na 100% 0% 0%Domestic coal price (Rs/ton) na na na 1,380 1,250 na na 1,639 1,530 Escalation na 3% 3% 3% 3% na na 3% 3%Imported coal price (US$/ton) 127 67 87 140 140 Na 86 Na NaDomestic coal GCV (kcal/kg) na na na 2,460 2,600 Na Na 3,500 5,500 Imported coal GCV (kcal/kg) 6,100 6,014 5,395 6,100 6,100 Na 4,950 na naASP & Cost (Average of First 3 Years) - Rs/kWh Cost/unit (ex Tax and RoE) 3.01 2.57 2.67 4.48 2.82 1.73 2.84 2.24 1.27 ASP/unit 4.92 4.38 3.94 4.73 3.64 3.08 3.41 3.17 2.65 Spread 1.90 1.81 1.27 0.25 0.82 1.35 0.56 0.94 1.38Financial Capex (Rsmn) 11,006 18,600 45,000 50,000 13,500 19,152 150,000 65,000 76,800 D/E NA 3.00 3.00 3.00 3.00 1.29 3.00 3.00 3.00Project IRR NA 31% 21% 14% 17% 11% 14% 18% 16%Equity IRR NA 74% 47% 22% 29% 13% 23% 34% 28%




SBU-I (260MW) - Will continue to depend on JSWSL for coal supply. JSWSL will procure coal from South Africa and supply to JSWEL on cost pass-through basis.

SBU–II (600MW) and Ratnagiri (1,200MW) - Will be dependent fully on supply of coal from Indonesia over the long term. We estimate that ~165mn tons of Indonesian coal will be required over the life of two plants. JSWEL has fuel supply contract with PT Sungai Belati for long-term coal supply. Sungai Belati has two mines in Indonesia each with mineable reserves of ~80mn tons (total 160mn tons). PT Sungai Belati’s reserves should be just sufficient to meet requirement of the 2 plants over their entire life. However, annual requirement of the two plants in steady state will be ~7.2mntpa. Contract with Sungai Belati requires delivery of only ~3mntpa since FY13E-14E onwards. It may be difficult for PT Sungai Belati to ramp up annual production beyond 3-4 mn tons per annum. As a result JSWEL may have to arrange additional coal supplies.

RWPL - 1 (1,080MW) and RWPL - 2 (270MW) - Will need 225mn tons of lignite. Kapurdi and Jalipa mines with total reserves of 368mn tons are sufficient to meet this requirement.

West Bengal (1,600MW) - Will require ~104mn tons of coal over life of project. Captive Ichhapur mines have reserves of 116mn tons and will supply 100% of coal requirement for the project.

Chhattisgarh (1,320MW) - Will require ~153mn tons of coal over its entire life. JSWEL and JSWSL each have 11% stake in Utkal (A) coal block with mineable reserves of 673mn tons. JSWSL’s share of thermal coal will also be used for Chhattisgarh project. The plant requires 6.3mn tons of coal per annum. Mining plan for 15mntpa has been approved. 3.3mntpa (15mntpa x 22%) coal will be supplied to the plant, which will meet the plant’s 50% requirement. JSWEL has applied for coal linkage for the remaining 50% requirement.

Figure 125. JSWEL- Long-Term Fuel Arrangements

Name Capacity Coal (mn tons) Supply Arrangement Landed price SBU-I 260 0.61 JSWSL buys from SA and supplies to JSWEL at cost US$127/ton SBU-II 600 2.50 PT Sungai Belati to supply from Indonesia US$67/ton Ratnagiri 1,200 4.80 Indonesian coal US$58/ton RWPL Ph 1 1,080 7.80 Captive lignite – meets 100% of requirement Rs1250/ton RWPL Ph 2 270 2.00 Captive lignite – meets 100% of requirement Rs1250/ton Kutehr 240 NM NM NM WB 1,600 4.60 Captive mine – meets 100% of requirement Rs1400/ton CS 1,320 6.20 ~3.3mn tons from captive coal mine

Applied for coal linkage for remaining coal Rs1500/ton

Total 6,570 28.5


Fuel Supply Arrangements



Figure 126. JSWEL – Short-Term Fuel Arrangements

FY11E FY12E Mn Tons Source Mn Tons Source SBU 1(300MW) 0.6 SA – Through JSWSL 0.6 SA – Through JSWSL SBU 2 (600MW) 0.82 Indonesia 1 Indonesia 1.22 SA - Spot Purchase 1.1 SA - Spot Purchase RWPL (1080MW) 0.12 SA - Spot Purchase 1.55 SA - Spot Purchase 1.15 Tapering Linkage 2.3 Tapering Linkage Ratnagiri (1200MW) 0.55 Indonesia 2 Indonesia 0.32 SA - Spot Purchase 1.2 SA - Spot Purchase 0.5 SA - Own mines 1 SA - Own mines

Source: Company and Citi Investment Research and Analysis estimates, SA = South Africa

Figure 127. JSWEL – Sources of Fuel (FY11E and FY12E)

Mn Tons FY11E FY12ETotal Indonesia 1.37 3Total SA - Spot Purchase 1.66 3.85Total SA - Owned Mines 0.5 1Total SA - Long term Contract 0.6 0.6Total - Tapering Linkage 1.15 2.3Total 5.28 10.75


Arrangement with Sungai Belati

JSWEL has entered into long-term coal supply arrangement with PT Sungai Belati to supply coal to Ratnagiri (1,200MWs) and SBU 2 (600MW). PT Sungai Belati has two mines in Indonesia each with mineable reserves of 80mn tons. Production has started from the first of these mines while the second mine is yet to start operation. The GCV of coal received from these mines is 4400 kcal/kg and pricing is linked to RB Index.

The pricing structure under the contract is as follows:

If the RB Index does not change from the base index (which was 94 at the time of signing of contract) on the date of the contract, the base contract coal price remains fixed at US$35 per metric ton, FOB.

If the RB Index published three weeks prior to the scheduled shipment date is higher than the base index, the contract coal price shall be the base price of US$35 per metric ton plus 50% of the difference between the actual RB Index and the base RB Index.

In the event that the Government of Indonesia imposes a minimum export price for the quantity of coal provided for in the agreement, and such minimum price is higher than the price determined by the above formula, the contract coal price shall be the minimum export price.

JSWEL has a first priority over other customers of Sungai Belati.

Jalipa and Kapurdi mines status update

JSWEL has formed a 49:51 JV with RSSML to undertake coal mining in Jalipa and Kapurdi coal mines. JSWEL has a 49% stake in JV. Mine development has started at Kapurdi and MoEF clearance for Jalipa mines has been obtained. Mine development plan for Jalipa mines has been



approved. Kapurdi mine is expected to start production in 4QFY11E at the rate of 4-4.5mn tons per annum and Jalipa mine is expected to start production in 4QFY12E at the rate of 3.8-4mn tons per annum.

The two mines have lignite reserves of 368mn tons with a GCV of 2500-2700Kcal/Kg. JSWEL will infuse Rs1.4bn for 49% stake in the coal mines. Average landed cost of lignite is ~Rs1,250/ton, which factors in 14% RoE. These mines will meet 100% of lignite requirement of RWPL - 1 and 2.

Utkal A (Orissa) Mines

JSWEL has an 11% stake in a coal consortium, which has been allotted coal block from Utkal A Gopalprasad West mines near Talcher, Orissa. The block has estimated thermal coal reserves of 951.68 MT with mineable coal reserves of 673.09 MT and is spread over an area of 1,357 hectares. Other stake holders in the block are JSWSL (11% stake), Mahanadi Coal (60% stake), Shyam DRI (7% stake) and Jindal Stainless (11% stake).

The public hearing process for the mine has been completed and land acquisition is also complete. The production from the mine is expected to start in CY11E. Plan for mining 15 mn tons of coal per annum has been approved by Ministry of Coal. The mine will supply ~ 3.3mn tons of coal (equal to JSWEL and JSWSL’s combined proportionate share) to meet requirement of Chhattisgarh power project. The coal supply from this mine will meet ~ 50% of coal requirement of Chhattisgarh (1,320MW) project.

Majority stake in South African Coal Mining Holding Limited

JSWEL has acquired a 49.8% stake in Royal Bafokeng Capital Limited (RBC) and has option to acquire a further 50.2% stake. JSWEL has also acquired a 100% stake in Mainsail Trading 55 Limited (Mainsail). RBC and Mainsail collectively hold majority shareholding (284.6mn shares) in South African Coal Mining Holdings Ltd. (SACMH).

JSW Energy has acquired an effective 49% stake in SACMH for US$29mn and plans to acquire the remaining 51% stake in SACMH for US$21mn. Hence entire acquisition would cost ~US$50mn. SACMH mines have total reserves of 50-60mn tons out of which 14-20mn tons are exportable to India. The remaining reserves are middling and not exportable to India. The mine is an operating mine and cost of coal to JSWEL is likely to be US$65/ton FOB. The mines will produce supply of 0.5mn tons and 1mn tons coal to JSWEL’s Ratnagiri plant in FY11E and FY12E.

West Bengal Mines

JSWSL has entered into a development agreement with the Government of West Bengal and its agencies to develop steel plant with 10mn tons per annum capacity as well as an associated captive power plant for the steel plant at Salboni, West Bengal. JSWEL will develop this power plant of 2x800MW as a captive power plant to meet the entire power requirement of the steel plant. JSWEL will have a 74% stake in the project.

West Bengal Minerals Development and Trading Company (WBMDTC) has obtained consent from the Government of India for exploration and mining of Kulti, Sitrampur and Ichhapur coal blocks, and these blocks which have been allocated to JSW Bengal Steel Limited (JSWBSL), the JV company implementing the project.



JSWEL and JSWSL each hold 50% stakes in the Ichhapur captive coal mines. The mines have coal reserve of 116mn tons. The quality of coal is quite high with GCV of 5500Kcal/Kg. Full land required for mine development is under possession and mining plan has been approved. The mine development will require underground mining and hence the capex requirement will be high at Rs20bn.

MoU with Osho and IOM

JSWEL has entered into a MOU with Osho Venture FZCO, Dubai (Osho) and Indian Ocean Mining (Pty) Limited, South Africa (IOM) with an intention to acquire 70% equity interest in IOM from Osho. IOM has certain Coal prospecting rights in the North West region of South Africa. The MOU is subject to the company carrying out due diligence, execution of definitive agreements and compliance with regulatory requirements.



JSW – Toshiba JV

JSWEL has entered into a joint venture with JSWSL and Toshiba Corporation for the design, engineering, manufacture, assembly and sale of sub-critical and super-critical steam turbines and generators ranging from 500MW to 1,000MW. The manufacturing facility is located near Ennore port, Chennai.

JSWEL has incorporated a joint venture company, Toshiba JSW Turbine and Generator Private Limited (Toshiba JSW), in which it holds a 20% stake. JSWSL and Toshiba Corporation hold 5% and 75% stakes respectively.

Under this joint venture, Toshiba Corporation will grant a license to and transfer technology for the manufacture of steam turbines and generators to Toshiba JSW. The equipment manufactured under this joint venture would be primarily used for domestic sale.

The manufacturing facility is 33% complete and blade shop is 75% complete. JV expects to commence production in phases starting in CY11E and the entire facility is expected to be fully commissioned by CY14E. Estimated total cost of the project is Rs11.8bn.

Transmission Business

JSWEL has entered into Joint Venture Agreement with Maharashtra State Electricity Transmission Company Limited (MSETCL) for transmission system/network. JPTL is 74:26 JV between JSWEL and MSETCL.

JPTL is implementing two 400kV transmission lines from Jaigad to New Koyna and Jaigad to Karad for evacuation of power from JSWEL’s 1,200MW power plant at Jaigad at a total project cost of Rs.5.8bn.

JPTL has been granted transmission license from MERC. Financial closure for the Project has been achieved. Jaigad – New Koyna transmission line has been charged successfully in April 2010. Both transmission lines are expected to be commissioned by November 2010.

Other Businesses



Volume growth of 62% and 41% CAGR over FY10-13E and FY10-16E

JSWEL’s sales volumes will grow at a 62% CAGR from 5.3 bnkWh to 22.6 bnkWh driven primarily by commissioning of Ratnagiri - 1 and RWPL projects. Volumes will grow at a 41% CAGR over FY10-16E driven by commissioning of West Bengal and Chhattisgarh projects.

PPA sales will grow at 81% and 56% CAGR over FY10-13E andFY10-16E respectively. Merchant sales will grow at 52% and 31% CAGR over FY10-13E and FY10-16E respectively. As a result proportion of merchant sales will decline to 56.6% in FY13E and 43.3% in FY16E from 69% in FY10.

Figure 128. JSWEL – Sales Volume Growth (mn kWh) Figure 129. JSWEL – Merchant Sales Volume Growth (mn kWh)

5,277

12,209

22,396 22,62424,124

30,363

41,724

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PAT growth of 37% and 25% CAGR over FY10-13E and FY10-16E

JSWEL’s consolidated revenue, EBITDA and PAT will grow at CAGR of 53%, 49% and 37% respectively over FY10-13E. Revenue, EBITDA and PAT will grow at CAGR of 34%, 33% and 25% over FY10-16E respectively.

We expect EBITDA and PAT growth to lag behind revenue growth due to falling merchant prices and increasing contribution from capacity operating on long-term PPAs and regulated RoE tariffs.

Financial Analysis



Figure 130. JSWEL – Consolidated Revenue (Rsmn) Figure 131. JSWEL – Consolidated PAT (Rsmn)

23,551

55,325

83,59189,257

102,130

135,703

99,538

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7,455

23,174

19,09520,536 20,667

27,995

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RoE and RoCE to remain range bound due to investment in new capacity

RoE and RoCE will range between 15-32% and 9-17% over FY10-16E respectively. We expect the return ratios to remain range bound as positive impact of commissioning of Ratnagiri and RWPL projects will be neutralized by declining merchant prices and investments in West Bengal, Chhattisgarh and Kutehr projects.

Comfortable gearing ratios over FY10-16E

We expect JSWEL to have comfortable gearing over FY10-16E as internal cash generation from Vijaynagar (860MW) and Ratnagiri (1,200MW) projects will be more than sufficient to meet equity infusion requirement for capacity expansion. D/E and net D/E will average 1.4x and 1x over FY10-16E.

Figure 132. JSWEL – Consolidated RoCE and RoE Figure 133. JSWEL – Consolidated D/E and Net D/E

9%

13%

17%

12%11% 10%

13%

18%

15%18%

20%

32%

26%24%

0%

5%

10%

15%

20%

25%

30%

35%


RoCE RoE

1.6 1.6

1.51.4 1.4

1.3

1.1

0.5

0.91.00.90.9

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1.5

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8


Debt/Equity Net Debt/Equity




Sufficient internal cash flow generation to meet equity requirements

JSWEL will be able to generate sufficient internal cash flows over FY10-16E to meet its equity infusion requirement for expansion projects. As a result possibility of future equity rising and hence dilution is quite low.

Figure 134. JSWEL – Funding Requirements

Rsmn FY11E FY12E FY13E FY14E FY15E FY16E TotalTotal Capex (14,011) (31,063) (42,862) (50,868) (37,560) 0 (176,364)Internal Accruals 15,308 23,231 27,587 25,519 26,496 35,905 154,048 Debt 20,779 25,052 21,510 30,344 19,970 (6,608) 111,047


Spread (price/unit - cost/unit) to narrow

JSWEL profitability has received a tremendous boost from widening spreads between unit generation costs and ASPs between FY06-FY10. This has happened primarily due to strong merchant prices.

However, spreads have started moderating and have declined to Rs1.54/kWh in FY10 from Rs1.86/kWh in FY08. We expect this trend to continue and spreads will fall to Rs1.05/kWh by FY13E and to Rs0.88/kWh by FY16E due to falling merchant prices, higher proportion of regulated RoE generation and persistently high imported coal prices.

Figure 135. JSWEL – Spreads

0.63

1.49

1.86

1.60 1.541.43

1.29

1.05 1.06

0.86 0.88

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

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2.00

FY06

FY07

FY08

FY09

FY10

FY11

E

FY12

E

FY13

E

FY14

E

FY15

E

FY16

E

Rs/k

Wh




Figure 136. JSWEL – Historical ASPs and Cost Per Unit (Rs/Kwh) Figure 137. JSWEL – Projected ASPs and Cost Per Unit (Rs/Kwh)

2.70

3.73

4.51

6.02

4.46

2.92

4.42

2.652.242.07

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

FY06 FY07 FY08 FY09 FY10

ASP (Rs/unit) Total cost of electricity generation (ex. Taxes and RoEs)

4.53 4.44

3.69 3.703.36 3.25

2.382.502.642.65

3.163.11

0.00

0.50

1.00

1.50

2.00

2.50

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4.50

5.00

FY11E FY12E FY13E FY14E FY15E FY16E

ASP (Rs/unit) Total cost of electricity generation (ex. Taxes and RoEs)

Source: Company and Citi Investment Research and Analysis Source: Company and Citi Investment Research and Analysis estimates



Figure 138. JSWEL under development projects

Plant Stake MW Units Fuel CoD Capex (Rsmn) Capex as on June 30, 2010

D/E Land EC FC

Jharkhand 100% 1,620 2x6601x300

Linkage coal 8/31/215 79,380 Na Na No No No

Ratnagiri 2 100% 3,200 4x800 Imported Coal 4/1/2015 150,007 Na Na Yes No No


Ratnagiri 2 (3,200MW) - The project is based on imported coal from Indonesia and Mozambique, and the company has tied up agreements for the coal import. The company has substantial land required for the project under possession. MoEF has advised to develop the project in two phases of 2x800MW each. MoEF has also advised that Terms of Reference (TOR) for Ratnagiri 2 (3200MW) can be issued only after assessing the impact of 1,200MWs of phase 1 on the surrounding mango and cashew plantations for one full year of operation. After the receipt of the one-year study, ToRs for first 2x800MW may be issued. The project has signed coal supply agreements with Sungai Belati for supply of coal from Indonesia. The remaining coal will come from JSWSL’s Mozambique mines.

Jharkhand (1,620MW) – JSWEL is developing a 1,620MW power plant near Baranda at the Ranchi district, Jharkhand, in proximity to a proposed 10 MT steel project of the JSWSL. The land required for the project is approximately 800 acres. The water requirements for the project shall be met from the Subarnarekha river, which is located near this project. Plant is expected to achieve CoD by August 2015. Project location is approximately 250 kms from the coal reserves located at Karnpura mines owned by Central Coalfields Limited. JSWEL has made applications to the Ministry of Coal for long-term coal linkage from these mines and has completed the environmental impact study.

Pipeline Projects



Figure 139. JSWEL – Consolidated Profit & Loss Statement

End Mar31 (Rsmn) FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E FY16ERevenue 5,418 7,769 9,656 18,350 23,551 55,325 99,538 83,591 89,257 102,130 135,703% Growth 28% 135% 80% -16% 7% 14% 33%ASP (Rs/kWh) 2.70 3.73 4.51 6.02 4.46 4.53 4.44 3.69 3.70 3.36 3.25 - Parent 22,520 47,088 67,891 57,256 57,151 50,638 52,459 - JSWERL Ph1 0 0 0 0 0 0 0 - RWPL Ph 1 800 8,050 31,460 25,073 25,226 25,399 25,663 - RWPL Ph 2 0 0 0 1,076 6,694 6,739 6,808- WB 0 0 0 0 0 3,895 19,840- Chhattisgarh 0 0 0 0 0 15,272 30,746 Cost of fuel (2,558) (2,648) (3,122) (6,202) (9,829) (26,822) (48,019) (37,434) (40,105) (46,890) (57,317)Fuel cost (Rs/kWh) 1.30 1.35 1.51 3.01 1.86 2.20 2.14 1.65 1.66 1.54 1.37 O&M (381) (460) (723) (814) (1,075) (2,672) (5,472) (5,734) (6,281) (7,615) (9,918)EBITDA 2,418 4,277 5,489 5,319 12,135 25,832 46,048 40,424 42,872 47,625 68,468Margins % 44.6% 55.1% 56.8% 29.0% 51.5% 46.7% 46.3% 48.4% 48.0% 46.6% 50.5%EBITDA (Rs/kWh) 1.23 2.17 2.66 2.58 2.30 2.12 2.06 1.79 1.78 1.57 1.64 - Parent 11,857 23,388 35,501 27,968 27,790 21,099 22,607 - JSWERL Ph1 0 0 0 0 0 0 0 - RWPL Ph 1 298 2,444 10,547 11,887 11,619 11,358 11,134 - RWPL Ph 2 0 0 0 569 3,462 3,406 3,360- WB 0 0 0 0 0 2,679 13,462- Chhattisgarh 0 0 0 0 0 9,083 17,905 Depreciation (580) (583) (586) (602) (1,361) (3,456) (6,132) (6,221) (6,771) (8,807) (12,510)EBIT 1,838 3,694 4,903 4,716 10,774 22,376 39,916 34,202 36,100 38,819 55,958Margins % 0 40.4% 40.1% 40.9% 40.4% 38.0% 41.2% Other Income 71 346 329 171 742 0 0 0 0 0 0Interest (497) (630) (886) (1,209) (2,837) (4,964) (11,102) (10,468) (10,571) (12,745) (19,369)PBT 1,412 3,410 4,347 3,678 8,679 17,412 28,814 23,734 25,529 26,074 36,590 Total Tax (223) (506) (1,251) (911) (1,224) (3,393) (5,639) (4,639) (4,992) (5,100) (7,171)Rate 15.8% 14.8% 28.8% 24.8% 14.1% 19.5% 19.6% 19.5% 19.6% 19.6% 19.6% Minority Interest 0 0 0 0 (307) (1,423)Recurring PAT 1,189 2,905 3,096 2,767 7,455 14,019 23,174 19,095 20,536 20,667 27,995% Growth 169% 88% 65% -18% 8% 1% 35% Exceptional 0 0 (118) 0 0 0 0 0 0 0 0Sale of CERs 0 0 3,276 0 0 0 0 0 0 0 0Reported PAT 1,189 2,905 6,253 2,767 7,455 14,019 23,174 19,095 20,536 20,667 27,995 - Parent 13,617 20,599 14,920 15,226 10,325 11,269 - JSWERL Ph1 0 0 0 0 0 0 0 - RWPL Ph 1 61 402 2,575 3,934 4,068 4,207 4,361 - RWPL Ph 2 0 0 0 241 1,243 1,243 1,294- WB 0 0 0 0 874 4,050- Chhattisgarh 0 0 0 0 4,019 7,020


Financial Statements



Figure 140. JSWEL – Consolidated Balance Sheet

Year End Mar31 (Rsmn) FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E FY16EGross Block 10,731 10,865 11,144 11,519 36,668 124,606 124,606 138,106 176,506 299,058 299,058 Accumulated Depreciation (3,567) (4,152) (4,742) (5,349) (6,714) (10,170) (16,302) (22,524) (29,295) (38,102) (50,612)Net Block 7,164 6,713 6,402 6,170 29,954 114,435 108,303 115,582 147,211 260,956 248,446 CWIP 116 2,729 27,420 79,251 86,026 12,099 43,162 72,524 84,992 0 0 Net Fixed Assets 7,280 9,442 33,822 85,421 115,980 126,534 151,465 188,106 232,203 260,956 248,446 Investments 3,455 3,675 207 1,705 14,344 14,344 14,344 14,344 14,344 14,344 14,344 Goodwill on Consolidation 0 171 172 172 171 171 171 171 171 171 171 Debtors 4,675 3,899 693 1,369 2,714 4,040 7,159 5,999 6,574 7,833 10,599 Inventories 215 231 301 323 3,714 4,876 7,832 6,721 7,934 9,653 11,487 Cash and Bank Balance 448 2,745 2,949 1,751 6,048 28,124 45,344 51,580 56,576 65,789 96,509 Loans and Advances 249 1,035 1,092 1,957 3,852 3,531 3,531 3,531 3,531 3,531 3,531 Total CA 5,587 7,910 5,035 5,400 16,328 40,571 63,866 67,830 74,615 86,805 122,126 CL 370 1,142 3,811 17,624 17,524 17,524 17,524 17,524 17,524 17,524 17,524 Provisions 1,296 425 1,208 38 1,482 1,482 1,482 1,482 1,482 1,482 1,482 Total CL 1,665 1,567 5,020 17,662 19,006 19,006 19,006 19,006 19,006 19,006 19,006 NCA 3,922 6,343 15 (12,262) (2,678) 21,564 44,859 48,824 55,608 67,799 103,119 ASSETS 14,657 19,631 34,216 75,035 127,817 162,614 210,840 251,445 302,326 343,270 366,080 Share Capital 2,890 3,468 5,148 5,466 16,401 16,401 16,401 16,401 16,401 16,401 16,401 Reserves and Surplus 6,935 7,733 4,767 9,331 31,401 45,420 68,594 87,689 108,226 128,893 156,888 Advance for share capital 0 0 90 0 0 0 0 0 0 0 0Networth 9,825 11,201 10,004 14,797 47,802 61,820 84,995 104,090 124,626 145,293 173,289 Minority Interest 0 800 800 152 152 152 152 152 152 459 1,883 Secured Loans 4,383 6,045 22,721 59,266 77,696 93,632 114,790 137,672 166,559 184,508 174,975 Unsecured Loans 6 1,026 6 6 1,006 5,849 9,742 8,370 9,828 11,849 14,773 Total Debt 4,389 7,071 22,727 59,272 78,701 99,481 124,532 146,042 176,387 196,357 189,748 DTL 443 559 685 815 1,161 1,161 1,161 1,161 1,161 1,161 1,161 LIABILITIES + NETWORTH 14,657 19,631 34,216 75,035 127,817 162,614 210,840 251,445 302,326 343,270 366,080


Figure 141. JSWEL – Consolidated Cash Flow Statement

Year End Mar31 (Rsmn) FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E FY15E FY16EReported PAT 2,905 6,253 2,767 7,455 14,019 23,174 19,095 20,536 20,667 27,995 Change in DTL 116 126 130 346 0 0 0 0 0 0 Add: D&A 583 586 602 1,361 3,456 6,132 6,221 6,771 8,807 12,510 Change in Working Capital (125) 6,533 11,079 (5,287) (2,167) (6,075) 2,271 (1,788) (2,977) (4,600)Cash Flow from Operations 3,479 13,497 14,577 3,876 15,308 23,231 27,587 25,519 26,496 35,905 Capex (2,745) (24,966) (52,201) (31,920) (14,011) (31,063) (42,862) (50,868) (37,560) 0 Change in Investments (220) 3,468 (1,497) (12,640) 0 0 0 0 0 0 Cash Flow from Investing Activities (2,965) (21,498) (53,699) (44,560) (14,011) (31,063) (42,862) (50,868) (37,560) 0 Change in Debt 2,682 15,656 36,545 19,430 20,779 25,052 21,510 30,344 19,970 (6,608)Change in Equity 578 1,770 228 10,935 0 0 0 0 0 0 Change in Reserves 524 (9,220) 1,798 16,051 (0) 0 (0) (0) (0) (0)Change in Minority interest 800 (0) (648) 0 0 0 0 0 307 1,423 Dividend and Dividend Tax (2,801) 0 0 (1,434) 0 0 0 0 0 0 Cash Flow from Financing Activities 1,783 8,205 37,923 44,981 20,779 25,052 21,510 30,344 20,277 (5,185)Increase/(Decrease) in Cash 2,297 204 (1,198) 4,297 22,076 17,220 6,235 4,996 9,213 30,720




Adani Power Company description

Adani Power Limited (APL) has five thermal power projects in various stages of development, with combined capacity of 16,500 MW, namely: (i) Mundra Power Project with 4,620MW (ii) Tiroda Power Project with 3,300MW (iii) Kawai Power Project with 1,320MW (iv) Dahej Power Project with a capacity of 2,640MW (v) Chhindwara Power Project with a capacity of 1320MW and (vi) Bhadreshwar with a capacity of 3300MW. Investment strategy

Adani Power Buy / Low (1L) risk as Adani Power is an interesting case of private sector entrepreneurship at its best, capitalizing on persistent power deficits and exploiting high medium term merchant tariffs before the start of long term PPAs to reduce project payback, using faster-than-BHEL execution time cycles of Chinese equipment suppliers. Impressive progress on 4620MW of capacity at Mundra and 3300MW at Tiroda; and the Adani Group's experience in executing mega projects like the Mundra Ports and SEZ project bolsters the investment case.

APL during its IPO had projects under development of 6,600MW and pipeline projects of 3,300MW. The under development projects have increased to 9,240MW and pipeline projects have increased to 7,200MW.

As the pace of execution in Mundra 4,620MW and Tiroda 3,300MW has been ahead of execution which we observed during our visit to Mundra and from the Tiroda site photographs shared with us by the management. Mundra site currently has ~17,000 workers which include ~300 Chinese workers and execution is currently happening at a frenetic pace.

Purchase of the 100% interest in the Galilee coal tenement though not a short term positive significantly improves fuel supply security to achieve APL’s long term vision of having 20GW of operational capacity by 2020. 30MMTPA of coal can fuel 10.5GW of capacity at 90% PLF using supercritical plants with a heat rate of 2100kcal/kWh assuming coal GCV of 5800kcal/kg and 60MMTPA of coal can fuel 21GW of capacity. Valuation

Traditional valuation methodologies like P/E and EV/EBITDA multiples can be misleading if used to value pure infrastructure asset holders, as profitability of the projects can be lumpy, primarily on the basis of year of commissioning and the life of the asset. In some years, when projects are commissioned, the company may look attractive on a PE multiple basis, while in another year, when the asset life ends, the stock may appear relatively expensive. Infrastructure assets and more specifically Electric Utilities generate regular and largely predictable cash flow streams for a fixed time period. Therefore, discounted cash flow (DCF) is best-suited to value BOT projects. While applying DCF one can choose free cash flow to the firm (FCF) or free cash flow to equity (FCFE). We prefer FCFE as individual projects are highly geared and gearing changes as debt is rapidly paid off. If we assume APL executes all its projects flawlessly in line with our assumptions we would arrive at a value of Rs159 for the stock.



Risks

Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns a Low Risk rating to Adani Power.

Downside risks include: 1) Insufficient quantity of coal in Bunyu to fire the Mundra project; 2) The total reserves of 150mn tonnes have three licenses. While the counterparties of 2 of the 3 mines have procured long-term exploitation licenses the third license has not yet been granted to the counterparty; 3) Regulatory risk in Indonesia; 4) Fuel supply to Mundra Phase IV and Tiroda is contingent on AEL achieving certain milestones and finalizing the coal supply agreements and timely mining; 5) Fuel pricing risk for the Indonesian coal; 6) Merchant tariff risks; 7) Execution risks; 8) Chinese equipment quality risks; and 8) Interest rate risk.

Upside risks include: 1) Better than expected operating parameters; 2) Faster than expected execution; 3) Higher than expected merchant tariffs; and 4) Significant progress on 3300MW of projects now in planning stages.

CESC Company description

CESC is a vertically integrated electric utility engaged in the business of generation, transmission and distribution of electricity to consumers in its licensed area, which covers Kolkata and Howrah. It currently has four power plants with a generation capacity of 1225MW servicing 2.4m consumers in its 567sqkm license area. CESC has a 26% stake in Integrated Coal Mining Ltd (ICML) (74% held by RPG group companies). ICML supplies c.2.5m MTPA of coal to CESC (52% of CESC's coal requirement) with the remaining being sourced from Coal India and imported coal from Indonesia. Imported coal with 6% ash content is mixed with domestic coal that has 42% ash content to bring it down to 37% ash content and fed into the power plants. CESC generated 7.8 billion units (bu) of power, bought 1.8bu of power and sold 7.6bu, with a transmission and distribution (T&D) loss of 13.2% in FY10. Investment strategy

We rate CESC as Buy/Medium Risk (1M). Having turned from a loss of Rs1.3bn in FY99 to profit of Rs4.3bn in FY10, the power business, aided by the West Bengal Electricity Regulatory Commission's (WBERC's) benign tariff orders, continues to create value. However, we have been worried about the company's retailing business which on merger with CESC led to a 37% equity dilution and has been a drain on CESC power cash flows. We view that the retail business could see some improvement in FY11E, although losses are expected to continue. This aside, we had also been worried about the slow progress in the power expansion projects. However, developments on the power business in the last six months have impressed us, including: (1) acquisition of 600MW Chandrapur project, and (2) significant progress on the Haldia Phase - I project.



Valuation

Our Rs498 target price is based on a sum-of-the-parts (SOTP) methodology. We value the power business using a DCF at Rs405 (WACC = 12% and g = 2.5%). We also value the Chandrapur and Haldia projects using DCF (Cost of Equity = 13%). The negative NPV of the power business support is Rs46. Risks

We assign a Medium Risk rating to CESC. While our quantitative risk-rating system, that tracks 260-day historical share price volatility, rates the company High Risk, we view a Medium Risk as more appropriate given a significant portion of CESC's business value emanates from an assured RoE business where costs are a pass through. Key downside risks that could impede the stock from reaching our target price include: 1) The SEBs are still loss-making and trifurcation-corporatization-privatization process has yet to be completed; 2) India has a significant power deficit, and the question remains whether private generating companies can earn expected returns with adequate payment security; 3) Following passage of the Electricity Act, a number of High Tension industrial consumers have set up captive capacity and are not purchasing power from the grid. If the speed of switching to captive power increases beyond our expectation, CESC's operations could be negatively affected; 4) Despite having access to substantial coal for its operations, future growth beyond the Budge Budge operations will depend on CESC's ability to secure captive mining blocks in Orissa and Jharkand; 5) Free power remains an area of risk; and 6) Future capacity expansion dependent on clearance from various regulatory authorities.

Jaiprakash Power Ventures Company description

Jaypee Group has completed the amalgamation of JHPL and JPVL to bring the group’s power assets under one umbrella. JPVL has plans of setting up a total power generation capacity of 13,960MW. The company currently has 700MW of operational capacity and 6,120MW of capacity under construction. Apart from the above-mentioned 6,820MW of capacity in various stages of development, JPVL also has pipeline projects totaling 7,140MW. However, these projects are in initial stages of development with fuel supply/DPR/ environmental clearance not in place yet. Investment strategy

Jaiprakash Power Ventures (JPVL) has an interesting and diversified (fuel wise and off-take wise) portfolio of projects, which includes 700MW of operational capacity, 6,120MW of under-construction capacity and 7,140MW of pipeline capacity. The 10x capacity growth over the next 5 years would lead to robust EPS CAGR of 55% over FY10-15E. Despite the stupendous growth prospects over the longer term, we have a Hold/ Low Risk (2L) rating given: (1) the need to raise ~US$500mn of equity over the next 12-18 months and (2) back-ended/ lumpy growth implies near-term P/E and P/BV metrics do not look cheap.



Valuation

Traditional valuation methodologies like P/E and EV/EBITDA multiples can be misleading if used to value pure infrastructure asset holders, as profitability of the projects can be lumpy, primarily on the basis of year of commissioning and the life of the asset. In some years, when projects are commissioned, the company may look attractive on a PE multiple basis while in another year, when the asset life ends, the stock may appear relatively expensive. Infrastructure assets and more specifically Electric Utilities generate regular and largely predictable cash flow streams for a fixed time period. Therefore, discounted cash flow (DCF) is best-suited to value BOT projects. While applying DCF one can choose free cash flow to the firm (FCF) or free cash flow to equity (FCFE). We prefer FCFE as individual projects are highly geared and gearing changes as debt is rapidly paid off. If we assume JPVL executes all its projects flawlessly in line with our assumptions, we would arrive at a value of Rs70 for the stock. Risks

Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns a Low Risk rating to JPVL.

Downside risks include: fuel supply risk, coal mining risk, execution risk, merchant tariff risks, hydrological risk, financial closure risk, dependence on promoter and promoter group companies, receivables risk, regulatory risk, R&R and land acquisition risk and lower than expected operating parameters.

Upside risks include: better than expected operating parameters, faster-than-expected execution, higher-than-expected merchant tariffs, significant progress ahead of expectations on 7,140MW of pipeline projects, which are now in the pre-development stage and additional project wins by the company.

Tata Power Company description

Tata Power is a leading Indian power utility with interests in generation (2976MW of capacity), distribution (Delhi license area), transmission (Tala Transmission Project) and trading (Tata Power Trading). Investment strategy

We rate Tata Power as Buy/Low Risk (1L). Tata Power plans to raise capacity to 13GW by FY13E from 2.8GW now. Good past execution record and the current expansion project give us increased confidence. We value its 2.8GW of capacity + Mundra UMPP +Maithon + Mumbai +Delhi distribution + Powerlinks + power trading + investments (telecom, renewable and other subsidiaries/associates). However, we believe it is too early to value the ~6.4GW of pipeline projects where it is yet to crystallize plans and share this with analysts/investors.



Valuation

Our Rs1,550 target price is based on a sum-of-the-parts approach: 1) The parent business is valued using DCF as of March-2011E, using a WACC of 12.3% (risk free rate of 8.5%, market risk premium of 6%, beta of 1.06, D/E of 67%); 2) Tata Power's 51% stake in NDPL is valued at 2.5x FY12E P/BV; 3) Tata Power's stake in Powerlinks is valued at 1.5x FY12E P/BV; 4) Holdings in Tata Teleservices (Maharashtra) and VSNL are valued at a 20% discount to the market price prices; 5) Stake in Tata Teleservices is valued at a 30% discount to the NTT Docomo valuations; 6) Mundra UMPP using FCFE and Cost of Equity = 12.5%; 7) The Maithon project is valued like Mundra UMPP; and 8) 30% stake in KPC and Arutmin coal mines at FCFE and CoE = 14%. Risks

Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns a Low Risk rating to Tata Power. Key downside risks to our target price include: 1) Unfavorable judgement in the MERC order petition and standby charges case vs. R-Infra could hit the financials; 2) Power sector is gradually liberalizing, but regulatory and tariff structures still evolving. Companies in the sector are vulnerable to delays, mid-term corrections and dramatic policy changes; under the existing system, litigation following discord may be time-consuming, and a lack of precedents adds to uncertainty; 3) Delays and cost escalation in capacity expansion and an unfavorable interest rate environment; 4) The nature of the Asian coal market means an inability to fill orders or expand capacity in Indonesian coal mines will have a material impact on profitability, as will regional coal prices; and 5) Coal mines rely heavily on contract miners; changing relations could materially affect operations.

Lanco Infratech Company description

Lanco Infratech, founded in 1993, as a construction and EPC company, has leveraged its EPC expertise to become one of the fastest growing independent power producers in India. It now has 1,995MW of capacity operational which will reach 8,384MW by FY15E. Its EPC division has expertise spanning several segments of infrastructure space but specializes in EPC of coal and gas-based power plants. The EPC division acts as backbone for executing power projects. Apart from power and EPC, Lanco Infratech has also forayed into roads, real estate and electricity trading. Investment strategy

We have a Buy/Medium Risk rating on Lanco Infratech. The company has 1,995MW of capacity operational and is executing another 4,700MW over the past 3-4 years with a large part in advanced stages of completion.

It is on a high growth path with an estimated 8,384MW operational by FY15E. It has strategically developed its power plant portfolio with a focus on Case-II / MoU developmental projects, which come with land and fuel visibility.



It has de-risked its business model by weighting its power portfolio heavily in favor of power projects with either complete or partial (fuel cost only) pass-through mechanisms. Over FY11-15E these projects will constitute ~70-80% of total capacity. This reliance on pass-throughs provides downside support to valuation. A strong in-house EPC division not only provides a backbone for faster project execution but also helps it optimize the need for infusing and blocking upfront equity into projects under development.

Lanco Infratech is at inflexion point on its growth trajectory. We expect PAT and revenue to grow at CAGR of 23% and 24% respectively over FY10-13E compared with 22% and 94% over FY07-FY09A. Earnings growth and expansion will be driven by: (1) rapid capacity addition, (2) addition of merchant capacity to portfolio, and (3) execution of projects by EPC division Valuation

Traditional valuation methodologies like P/E and EV/EBITDA multiples can be misleading if used to value pure infrastructure asset holders, as project profitability can be lumpy, given the year of commissioning and life of the asset. Infrastructure assets, especially electric utilities, generate regular and largely predictable cash flow streams for a fixed period. Therefore, discounted cash flow (DCF) is best suited.

While applying the DCF one can either choose free cash flow to the firm (FCF) or free cash flow to equity (FCFE). We prefer FCFE as individual projects are highly geared and gearing changes as debt is rapidly paid off.

We value Lanco Infratech at Rs80/share with EPC at Rs23/share (11x Dec-11 EPS - 20% discount to mid-cap construction), Power at Rs56.8/share (DCF on FCFE using 13% CoE), Roads at Rs2/share (DCF on FCFE using 13% CoE) and other businesses at Rs(-1.6)/share. Risks

Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns a High Risk rating to Lanco Infratech. However, we believe a Medium Risk rating is more appropriate given the status of projects under implementation, industry-specific risks, financial risk and management risks.

LANCI's Medium Risk rating is more appropriate as: 1) its 6,000MW of capacity under implementation, has fuel, land, off-take arrangement and bulk of financing tied up; 2) The construction on a large part of this capacity is in advanced stage; 3)The power portfolio has ~80% of capacity operating on full/ fuel cost pass-through mechanism. These factors, we believe, reduce risk substantially.

Given that LANCI is a play on both execution and operation of power plants, execution delays would have a bigger impact on numbers and company value. Other downside risks that could prevent the stock from reaching our target price include financial closure delays, fuel supply disruption, equipment quality and lower-than-expected merchant tariffs.



JSW Energy Ltd

Company description

JSW Energy Limited was originally incorporated as Jindal Tractebel Power Company Limited in March 1994 as a joint venture between JSW Steel Limited and Tractebel SA, Belgium. JSW energy completed its IPO in December 2009 and raised Rs27bn. Jindal Group holds a 76.72% stake in the company.

JSW Energy Limited (JSWEL) is a relatively new entrant into the Indian electric utility space. JSWEL has executed well and in a short span of time operating capacity has increased to 1,295MW from 260MW in Mar09. Further, the company has been executing Ratnagiri (1,200MW) and RWPL (1,080MW) and operational capacity is expected to reach 3,140MW by FY11E. The company has further started ground work on 3,430MW of incremental capacity, which is expected to be commissioned by FY16E end.

Investment strategy

JSWEL, a relatively new entrant in the Indian Electric Utility space, has achieved 1,295MW of operating capacity in a short span of time. The company has exhibited excellent execution capabilities and operational efficiencies. The company has relied on imported coal to achieve fast capacity expansion and capitalized on the supernormal profits in merchant markets. The stock is up 27% since listing in January 2010. We believe the current stock price factors in the future expansion to a large extent and the risk-reward appears evenly balanced given high exposure to merchant sale/ dependence on imported coal. We rate the company Hold/ Low Risk (2L).

Valuation

Traditional valuation methodologies like P/E and EV/EBITDA multiples can be misleading if used to value pure infrastructure asset holders, as profitability of the projects can be lumpy, primarily on the basis of year of commissioning and the life of the asset. Infrastructure assets and more specifically Electric Utilities generate regular and largely predictable cash flow streams for a fixed time period. Therefore, the discounted cash flow (DCF) approach is the best-suited tool to value them.

While applying the DCF one can either choose the free cash flow to the firm (FCF) or the free cash flow to equity (FCFE). We prefer FCFE as individual projects are highly geared and gearing changes as debt is rapidly paid off. We value JSWEL’s power projects using DCF on FCFE and cost of equity of 13% for all projects to get a target price of Rs135.

Risks

Our quantitative risk-rating system, which tracks 260-day historical share price volatility, assigns a Low Risk rating to JSWEL. We believe a Low Risk rating is appropriate based on a number of factors, namely the status of projects under implementation, execution track record, industry-specific risks, fuel supply status, financial risk and management risk.

Key upside risks include progress on Ratnagiri 2 (3,200MW) and Jharkhand (1,600MW) project, better execution, higher merchant prices and lower coal prices. Key downside risks include increase in imported coal prices, lower merchant prices, execution delays and delay in captive mine development.



Appendix A-1 Analyst Certification

The research analyst(s) primarily responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. The research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report.

IMPORTANT DISCLOSURES

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Date Rating Target Price Closing Price1 25-Jan-08 *3 - 500.052 11-Feb-08 *1 - 498.953 18-Feb-08 *2 - 525.004 25-Feb-08 *1 - 502.455 4-Mar-08 *2 - 470.906 17-Mar-08 *1 - 432.207 14-Apr-08 *2 - 433.808 5-May-08 *1 - 480.109 2-Jun-08 *2 - 481.30

Date Rating Target Price Closing Price10 4-Aug-08 *4 - 349.7511 25-Aug-08 *1 - 350.7012 15-Sep-08 *4 - 284.3013 22-Sep-08 *5 - 284.5014 13-Oct-08 *2 - 214.2515 3-Nov-08 *3 - 206.5016 5-Jan-09 *4 - 266.6517 2-Feb-09 *2 - 227.0018 23-Feb-09 *3 - 202.90

Date Rating Target Price Closing Price19 6-Mar-09 *4 - 205.6020 15-May-09 *2 - 252.6021 5-Jun-09 *5 - 344.5022 19-Jun-09 *2 - 295.7023 3-Jul-09 *5 - 290.7524 7-Aug-09 *4 - 304.8025 14-Aug-09 *5 - 326.25

Date Rating Target Price Closing Price1 25-Jan-08 *3 - 500.052 11-Feb-08 *1 - 498.953 18-Feb-08 *2 - 525.004 25-Feb-08 *1 - 502.455 4-Mar-08 *2 - 470.906 17-Mar-08 *1 - 432.207 14-Apr-08 *2 - 433.808 5-May-08 *1 - 480.109 2-Jun-08 *2 - 481.30

Date Rating Target Price Closing Price10 4-Aug-08 *4 - 349.7511 25-Aug-08 *1 - 350.7012 15-Sep-08 *4 - 284.3013 22-Sep-08 *5 - 284.5014 13-Oct-08 *2 - 214.2515 3-Nov-08 *3 - 206.5016 5-Jan-09 *4 - 266.6517 2-Feb-09 *2 - 227.0018 23-Feb-09 *3 - 202.90

Date Rating Target Price Closing Price19 6-Mar-09 *4 - 205.6020 15-May-09 *2 - 252.6021 5-Jun-09 *5 - 344.5022 19-Jun-09 *2 - 295.7023 3-Jul-09 *5 - 290.7524 7-Aug-09 *4 - 304.8025 14-Aug-09 *5 - 326.25

CESC Ltd (CESC.NS)Rating HistoryGlobal Quantitative ResearchAsia Radar ScreenAnalyst: Paul R Chanin

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* Indicates change Rating/target price changes above reflect Eastern Standard Time

CoveredNot covered Chart current as of 4 August 2010

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Date Rating Target Price Closing Price1 2-Oct-07 *2 - 508.152 4-Dec-07 *5 - 626.953 8-Jan-08 *4 - 658.154 7-Feb-08 *6 - 547.305 6-Mar-08 *4 - 474.156 3-Apr-08 *2 - 406.557 3-Jun-08 *1 - 463.35

Date Rating Target Price Closing Price8 3-Jul-08 *3 - 379.909 3-Aug-08 *2 - 349.80

10 7-Oct-08 *9 - 249.8511 7-Nov-08 *4 - 219.7012 4-Dec-08 *2 - 235.0013 7-Jan-09 *7 - 234.0514 5-Feb-09 *4 - 227.30

Date Rating Target Price Closing Price15 4-Mar-09 *2 - 200.1016 7-Apr-09 *4 - 236.0017 14-May-09 *2 - 251.1018 8-Jun-09 *1 - 329.1019 7-Jul-09 *3 - 272.9520 10-Aug-09 *4 - 295.7521 14-Sep-09 *3 - 356.85

Date Rating Target Price Closing Price1 2-Oct-07 *2 - 508.152 4-Dec-07 *5 - 626.953 8-Jan-08 *4 - 658.154 7-Feb-08 *6 - 547.305 6-Mar-08 *4 - 474.156 3-Apr-08 *2 - 406.557 3-Jun-08 *1 - 463.35

Date Rating Target Price Closing Price8 3-Jul-08 *3 - 379.909 3-Aug-08 *2 - 349.80

10 7-Oct-08 *9 - 249.8511 7-Nov-08 *4 - 219.7012 4-Dec-08 *2 - 235.0013 7-Jan-09 *7 - 234.0514 5-Feb-09 *4 - 227.30

Date Rating Target Price Closing Price15 4-Mar-09 *2 - 200.1016 7-Apr-09 *4 - 236.0017 14-May-09 *2 - 251.1018 8-Jun-09 *1 - 329.1019 7-Jul-09 *3 - 272.9520 10-Aug-09 *4 - 295.7521 14-Sep-09 *3 - 356.85

CESC Ltd (CESC.BO)Rating HistoryGlobal Quantitative ResearchWorld Radar ScreenAnalyst: Chris MontaguCovered since May 23 2009

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Jaiprakash Power Ventures(JAPR.BO)Ratings and Target Price HistoryFundamental Research

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CoveredNot covered

Chart current as of 28 September 2010

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Date Rating Target Price Closing Price1 5-Jan-09 *4 - 32.802 12-Jan-09 *3 - 28.803 28-Jan-09 *4 - 30.304 23-Feb-09 *3 - 28.105 27-Mar-09 *4 - 29.70

Date Rating Target Price Closing Price6 24-Apr-09 *3 - 41.407 29-May-09 *4 - 70.158 12-Jun-09 *3 - 88.409 19-Jun-09 *4 - 86.15

10 3-Jul-09 *3 - 92.40

Date Rating Target Price Closing Price11 10-Jul-09 *NR - 70.6012 17-Jul-09 *3 - 80.8013 14-Aug-09 *4 - 84.65

Date Rating Target Price Closing Price1 5-Jan-09 *4 - 32.802 12-Jan-09 *3 - 28.803 28-Jan-09 *4 - 30.304 23-Feb-09 *3 - 28.105 27-Mar-09 *4 - 29.70

Date Rating Target Price Closing Price6 24-Apr-09 *3 - 41.407 29-May-09 *4 - 70.158 12-Jun-09 *3 - 88.409 19-Jun-09 *4 - 86.15

10 3-Jul-09 *3 - 92.40

Date Rating Target Price Closing Price11 10-Jul-09 *NR - 70.6012 17-Jul-09 *3 - 80.8013 14-Aug-09 *4 - 84.65

Jaiprakash Hydro-Power Ltd(JAPR.BO)Rating HistoryGlobal Quantitative ResearchAsia Radar ScreenAnalyst: Paul R ChaninCovered since January 5 2009

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Date Rating Target Price Closing Price1 7-Jan-09 *7 - 30.402 5-Feb-09 *6 - 29.703 4-Mar-09 *10 - 25.95

Date Rating Target Price Closing Price4 7-Apr-09 *9 - 31.955 14-May-09 *4 - 40.006 8-Jun-09 *5 - 87.05

Date Rating Target Price Closing Price7 10-Aug-09 *9 - 78.80

Date Rating Target Price Closing Price1 7-Jan-09 *7 - 30.402 5-Feb-09 *6 - 29.703 4-Mar-09 *10 - 25.95

Date Rating Target Price Closing Price4 7-Apr-09 *9 - 31.955 14-May-09 *4 - 40.006 8-Jun-09 *5 - 87.05

Date Rating Target Price Closing Price7 10-Aug-09 *9 - 78.80

Jaiprakash Hydro-Power Ltd(JAPR.BO)Rating HistoryGlobal Quantitative ResearchWorld Radar ScreenAnalyst: Chris MontaguCovered since May 23 2009

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Date Rating Target Price Closing Price1 25-Jan-08 *3 - 54.752 11-Feb-08 *2 - 39.983 18-Feb-08 *4 - 46.484 25-Feb-08 *3 - 42.535 17-Mar-08 *2 - 35.716 21-Apr-08 *3 - 49.587 28-Apr-08 *2 - 48.818 5-May-08 *3 - 54.729 23-Jun-08 *4 - 34.94

10 30-Jun-08 *3 - 28.31

Date Rating Target Price Closing Price11 21-Jul-08 *2 - 31.5212 4-Aug-08 *3 - 32.8113 25-Aug-08 *5 - 30.0314 15-Sep-08 *3 - 27.0215 22-Sep-08 *2 - 22.5216 13-Oct-08 *3 - 17.3817 20-Oct-08 *4 - 13.2918 3-Nov-08 *3 - 13.7819 17-Nov-08 *5 - 11.6520 5-Jan-09 *2 - 17.35

Date Rating Target Price Closing Price21 12-Jan-09 *1 - 11.0822 19-Jan-09 *4 - 11.9623 23-Feb-09 *5 - 12.0424 1-May-09 *4 - 22.2225 15-May-09 *5 - 23.5226 5-Jun-09 *4 - 39.6727 12-Jun-09 *3 - 38.6328 19-Jun-09 *5 - 34.3229 3-Jul-09 *2 - 37.3930 11-Sep-09 *5 - 42.23

Date Rating Target Price Closing Price1 25-Jan-08 *3 - 54.752 11-Feb-08 *2 - 39.983 18-Feb-08 *4 - 46.484 25-Feb-08 *3 - 42.535 17-Mar-08 *2 - 35.716 21-Apr-08 *3 - 49.587 28-Apr-08 *2 - 48.818 5-May-08 *3 - 54.729 23-Jun-08 *4 - 34.94

10 30-Jun-08 *3 - 28.31

Date Rating Target Price Closing Price11 21-Jul-08 *2 - 31.5212 4-Aug-08 *3 - 32.8113 25-Aug-08 *5 - 30.0314 15-Sep-08 *3 - 27.0215 22-Sep-08 *2 - 22.5216 13-Oct-08 *3 - 17.3817 20-Oct-08 *4 - 13.2918 3-Nov-08 *3 - 13.7819 17-Nov-08 *5 - 11.6520 5-Jan-09 *2 - 17.35

Date Rating Target Price Closing Price21 12-Jan-09 *1 - 11.0822 19-Jan-09 *4 - 11.9623 23-Feb-09 *5 - 12.0424 1-May-09 *4 - 22.2225 15-May-09 *5 - 23.5226 5-Jun-09 *4 - 39.6727 12-Jun-09 *3 - 38.6328 19-Jun-09 *5 - 34.3229 3-Jul-09 *2 - 37.3930 11-Sep-09 *5 - 42.23

Lanco Infratech Ltd (LAIN.BO)Rating HistoryGlobal Quantitative ResearchAsia Radar ScreenAnalyst: Paul R ChaninCovered since January 25 2008

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Date Rating Target Price Closing Price1 27-Dec-07 *4 - 80.012 8-Jan-08 *3 - 80.333 7-Feb-08 *5 - 50.544 6-Mar-08 *2 - 41.095 14-May-08 *3 - 51.386 3-Jun-08 *2 - 47.48

Date Rating Target Price Closing Price7 8-Sep-08 *8 - 29.898 7-Oct-08 *7 - 17.459 7-Nov-08 *5 - 16.90

10 4-Dec-08 *3 - 12.8411 7-Jan-09 *1 - 12.6012 5-Feb-09 *5 - 11.13

Date Rating Target Price Closing Price13 4-Mar-09 *8 - 11.4214 14-May-09 *2 - 22.8415 8-Jun-09 *3 - 35.7916 7-Jul-09 *2 - 37.03

Date Rating Target Price Closing Price1 27-Dec-07 *4 - 80.012 8-Jan-08 *3 - 80.333 7-Feb-08 *5 - 50.544 6-Mar-08 *2 - 41.095 14-May-08 *3 - 51.386 3-Jun-08 *2 - 47.48

Date Rating Target Price Closing Price7 8-Sep-08 *8 - 29.898 7-Oct-08 *7 - 17.459 7-Nov-08 *5 - 16.90

10 4-Dec-08 *3 - 12.8411 7-Jan-09 *1 - 12.6012 5-Feb-09 *5 - 11.13

Date Rating Target Price Closing Price13 4-Mar-09 *8 - 11.4214 14-May-09 *2 - 22.8415 8-Jun-09 *3 - 35.7916 7-Jul-09 *2 - 37.03

Lanco Infratech Ltd (LAIN.BO)Rating HistoryGlobal Quantitative ResearchWorld Radar ScreenAnalyst: Chris MontaguCovered since May 23 2009

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Date Rating Target Price Closing Price1 8-Oct-07 *1L *1,078.00 977.902 30-Jan-08 1L *1,494.00 1,280.003 9-Sep-08 1L *1,453.00 1,049.10

Date Rating Target Price Closing Price4 25-Nov-08 1L *1,027.00 654.855 26-Mar-09 1L *900.00 781.806 5-Jun-09 1L *1,209.00 1,081.35

Date Rating Target Price Closing Price7 23-Sep-09 *2L *1,389.00 1,311.008 13-Jan-10 2L *1,564.00 1,455.459 28-Jan-10 *1L *1,550.00 1,305.80

Date Rating Target Price Closing Price1 8-Oct-07 *1L *1,078.00 977.902 30-Jan-08 1L *1,494.00 1,280.003 9-Sep-08 1L *1,453.00 1,049.10

Date Rating Target Price Closing Price4 25-Nov-08 1L *1,027.00 654.855 26-Mar-09 1L *900.00 781.806 5-Jun-09 1L *1,209.00 1,081.35

Date Rating Target Price Closing Price7 23-Sep-09 *2L *1,389.00 1,311.008 13-Jan-10 2L *1,564.00 1,455.459 28-Jan-10 *1L *1,550.00 1,305.80

Tata Power (TTPW.BO)Ratings and Target Price HistoryFundamental ResearchAnalyst: Venkatesh Balasubramaniam

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CoveredNot covered


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Date Rating Target Price Closing Price1 26-Nov-07 *5 - 1,178.802 6-Dec-07 *4 - 1,300.103 28-Jan-08 *3 - 1,276.904 4-Feb-08 *2 - 1,405.255 10-Mar-08 *3 - 1,104.006 7-Apr-08 *2 - 1,178.807 14-Apr-08 *4 - 1,247.708 5-May-08 *3 - 1,391.859 30-Jun-08 *2 - 1,057.00

Date Rating Target Price Closing Price10 29-Sep-08 *3 - 915.4511 13-Oct-08 *5 - 786.7512 3-Nov-08 *3 - 693.7013 12-Jan-09 *4 - 727.2514 23-Feb-09 *5 - 737.9015 6-Mar-09 *4 - 638.6516 27-Mar-09 *3 - 783.6017 1-May-09 *4 - 896.8018 15-May-09 *3 - 908.60

Date Rating Target Price Closing Price19 22-May-09 *4 - 1,044.1020 5-Jun-09 *3 - 1,080.7021 12-Jun-09 *2 - 1,177.8022 19-Jun-09 *4 - 1,163.8523 3-Jul-09 *2 - 1,187.1024 7-Aug-09 *4 - 1,232.9525 14-Aug-09 *5 - 1,281.9526 4-Sep-09 *4 - 1,293.4527 30-Jul-10 *2 - 1,320.95

Date Rating Target Price Closing Price1 26-Nov-07 *5 - 1,178.802 6-Dec-07 *4 - 1,300.103 28-Jan-08 *3 - 1,276.904 4-Feb-08 *2 - 1,405.255 10-Mar-08 *3 - 1,104.006 7-Apr-08 *2 - 1,178.807 14-Apr-08 *4 - 1,247.708 5-May-08 *3 - 1,391.859 30-Jun-08 *2 - 1,057.00

Date Rating Target Price Closing Price10 29-Sep-08 *3 - 915.4511 13-Oct-08 *5 - 786.7512 3-Nov-08 *3 - 693.7013 12-Jan-09 *4 - 727.2514 23-Feb-09 *5 - 737.9015 6-Mar-09 *4 - 638.6516 27-Mar-09 *3 - 783.6017 1-May-09 *4 - 896.8018 15-May-09 *3 - 908.60

Date Rating Target Price Closing Price19 22-May-09 *4 - 1,044.1020 5-Jun-09 *3 - 1,080.7021 12-Jun-09 *2 - 1,177.8022 19-Jun-09 *4 - 1,163.8523 3-Jul-09 *2 - 1,187.1024 7-Aug-09 *4 - 1,232.9525 14-Aug-09 *5 - 1,281.9526 4-Sep-09 *4 - 1,293.4527 30-Jul-10 *2 - 1,320.95

Tata Power Co Ltd (TTPW.NS)Rating HistoryGlobal Quantitative ResearchAsia Radar ScreenAnalyst: Paul R Chanin

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Date Rating Target Price Closing Price1 2-Oct-07 *7 - 910.802 4-Dec-07 *8 - 1,306.753 7-Feb-08 *7 - 1,415.604 6-Mar-08 *6 - 1,197.305 3-Apr-08 *5 - 1,159.306 14-May-08 *6 - 1,356.80

Date Rating Target Price Closing Price7 3-Jul-08 *5 - 1,006.608 8-Sep-08 *1 - 1,100.859 7-Oct-08 *3 - 767.85

10 7-Nov-08 *8 - 737.3511 4-Dec-08 *7 - 683.6512 5-Feb-09 *9 - 742.95

Date Rating Target Price Closing Price13 4-Mar-09 *10 - 674.3014 7-Apr-09 *6 - 857.9015 14-May-09 *5 - 884.0016 8-Jun-09 *8 - 1,080.3517 7-Jul-09 *3 - 1,091.0018 14-Sep-09 *6 - 1,273.65

Date Rating Target Price Closing Price1 2-Oct-07 *7 - 910.802 4-Dec-07 *8 - 1,306.753 7-Feb-08 *7 - 1,415.604 6-Mar-08 *6 - 1,197.305 3-Apr-08 *5 - 1,159.306 14-May-08 *6 - 1,356.80

Date Rating Target Price Closing Price7 3-Jul-08 *5 - 1,006.608 8-Sep-08 *1 - 1,100.859 7-Oct-08 *3 - 767.85

10 7-Nov-08 *8 - 737.3511 4-Dec-08 *7 - 683.6512 5-Feb-09 *9 - 742.95

Date Rating Target Price Closing Price13 4-Mar-09 *10 - 674.3014 7-Apr-09 *6 - 857.9015 14-May-09 *5 - 884.0016 8-Jun-09 *8 - 1,080.3517 7-Jul-09 *3 - 1,091.0018 14-Sep-09 *6 - 1,273.65

Tata Power Co Ltd (TTPW.BO)Rating HistoryGlobal Quantitative ResearchWorld Radar ScreenAnalyst: Chris MontaguCovered since May 23 2009

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Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of CESC, Jaiprakash Power Ventures, Lanco Infratech, Tata Power. This position reflects information available as of the prior business day.

Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of Adani Power, NTPC, Power Grid Corporation of India, Tata Power.

Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from Adani Power, NTPC, Power Grid Corporation of India, Tata Power.

Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from NTPC, Power Grid Corporation of India.



Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from CESC, Jaiprakash Power Ventures, NTPC, Power Grid Corporation of India, Tata Power in the past 12 months.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): CESC, Adani Power, NTPC, Power Grid Corporation of India, Tata Power.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities-related: NTPC, Power Grid Corporation of India, Tata Power.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non-securities-related: CESC, Jaiprakash Power Ventures, NTPC, Power Grid Corporation of India, Tata Power.

Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues.

For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Investment Research & Analysis product ("the Product"), please contact Citi Investment Research & Analysis, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention: Legal/Compliance. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at www.citigroupgeo.com. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request.

Citi Investment Research & Analysis Ratings Distribution Data current as of 30 Jun 2010 Buy Hold SellCiti Investment Research & Analysis Global Fundamental Coverage 54% 35% 12%

% of companies in each rating category that are investment banking clients 47% 45% 40%Citi Investment Research & Analysis Quantitative World Radar Screen Model Coverage 30% 40% 30%

% of companies in each rating category that are investment banking clients 22% 22% 20%Citi Investment Research & Analysis Quantitative Decision Tree Model Coverage 46% 0% 54%

% of companies in each rating category that are investment banking clients 57% 0% 49%Citi Investment Research & Analysis Quantitative European Value & Momentum Screen 30% 40% 30%

% of companies in each rating category that are investment banking clients 50% 52% 49%Citi Investment Research & Analysis Asia Quantitative Radar Screen Model Coverage 20% 60% 20%

% of companies in each rating category that are investment banking clients 19% 19% 22%Citi Investment Research & Analysis Australia Radar Model Coverage 50% 0% 50%

% of companies in each rating category that are investment banking clients 17% 0% 35%Guide to Citi Investment Research & Analysis (CIRA) Fundamental Research Investment Ratings: CIRA's stock recommendations include a risk rating and an investment rating. Risk ratings, which take into account both price volatility and fundamental criteria, are: Low (L), Medium (M), High (H), and Speculative (S). Investment ratings are a function of CIRA's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating.

For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings are:Buy (1) (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for Low-Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks).

Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk. Guide to Citi Investment Research & Analysis (CIRA) Corporate Bond Research Credit Opinions and Investment Ratings: CIRA's corporate bond research issuer publications include a fundamental credit opinion of Improving, Stable or Deteriorating and a complementary risk rating of Low (L), Medium (M), High (H) or Speculative (S) regarding the credit risk of the company featured in the report. The fundamental credit opinion reflects the CIRA analyst's opinion of the direction of credit fundamentals of the issuer without respect to securities market vagaries. The fundamental credit opinion is not geared to, but should be viewed in the context of debt ratings issued by major public debt ratings companies such as Moody's Investors Service, Standard and Poor's, and Fitch Ratings. CBR risk ratings are approximately equivalent to the following matrix: Low Risk Triple A to Low Double A; Low to Medium Risk High Single A through High Triple B; Medium to High Risk Mid Triple B through High Double B; High to Speculative Risk Mid Double B and Below. The risk rating element illustrates the analyst's opinion of the relative likelihood of loss of principal when a fixed income security issued by a company is held to maturity, based upon both fundamental and market risk factors. Certain reports published by CIRA will also include investment ratings on specific issues of companies under coverage which have been assigned fundamental credit opinions and risk ratings. Investment ratings are a function of CIRA's expectations for total return, relative return (to publicly available Citigroup bond indices performance), and risk rating. These investment ratings are: Buy/Overweight the bond is expected to outperform the relevant Citigroup bond market sector index (Broad Investment Grade, High Yield Market or Emerging Market), performances of which are updated monthly and can be viewed at https://fidirect.citigroup.com/ using the "Indexes" tab; Hold/Neutral Weight the bond is expected to perform in line with the relevant Citigroup bond market sector index; or Sell/Underweight the bond is expected to underperform the relevant sector of the Citigroup indexes.

Guide to Citi Investment Research & Analysis (CIRA) Quantitative Research Investment Ratings: CIRA Quantitative Research World Radar Screen recommendations are based on a globally consistent framework to measure relative value and momentum for a large number of stocks across global developed and emerging markets. Relative value and momentum rankings are equally weighted to produce a global attractiveness score for each stock. The scores are then ranked and put into deciles. A stock with a decile rating of 1 denotes an attractiveness score in the top 10% of the universe (most attractive). A stock with a decile rating of 10 denotes an attractiveness score in the bottom 10% of the universe (least attractive). CIRA Asia Quantitative Radar Screen model recommendations are based on a regionally consistent framework to measure relative value and momentum for a large number of stocks across regional developed and emerging markets. Relative value and momentum rankings are equally weighted to produce a global attractiveness score for each



stock. The scores are then ranked and put into quintiles. A stock with a quintile rating of 1 denotes an attractiveness score in the top 20% of the universe (most attractive). A stock with a quintile rating of 5 denotes an attractiveness score in the bottom 20% of the universe (least attractive). CIRA Australia Quantitative Radar Screen model recommendations are based on a robust framework to measure relative value and momentum for a large number of stocks across the Australian market. Stocks with a ranking of 1 denotes a stock that is above average in terms of both value and momentum relative to the stocks in the Australian market. A ranking of 10 denotes a stock that is below average in terms of both value and momentum relative to the stocks in the Australian market. CIRA Quantitative Decision Tree model recommendations are based on a predetermined set of factors to rate the relative attractiveness of stocks. These factors are detailed in the text of the report. The Decision Tree model forecasts whether stocks are attractive or unattractive relative to other stocks in the same sector (based on the Russell 1000 sector classifications).

For purposes of NASD/NYSE ratings-distribution-disclosure rules, a Citi Investment Research & Analysis (CIRA) Quantitative World Radar Screen recommendation of (1), (2) or (3) most closely corresponds to a buy recommendation; a recommendation from this product group of (4), (5), (6) or (7) most closely corresponds to a hold recommendation; and a recommendation of (8), (9) or (10) most closely corresponds to a sell recommendation. An (NR) recommendation indicates that the stock is no longer in the screen. For purposes of NASD/NYSE ratings distribution disclosure rules, a CIRA Asia Quantitative Radar Screen recommendation of (1) most closely corresponds to a buy recommendation; a CIRA Asia Quantitative Radar Screen recommendation of (2), (3), (4) most closely corresponds to a hold recommendation; and a recommendation of (5) most closely corresponds to a sell recommendation. An (NR) recommendation indicates that the stock is no longer in the screen. For purposes of NASD/NYSE ratings-distribution-disclosure rules, a CIRA Quantitative Research Decision Tree model or Quantitative Research Australia Radar Screen recommendation of "attractive" (1) most closely corresponds to a buy recommendation. All other stocks in the sector are considered to be "unattractive" (10) which most closely corresponds to a sell recommendation. An (NR)/(0) recommendation indicates that the stock is no longer in the screen. Recommendations are based on the relative attractiveness of a stock, thus can not be directly equated to buy, hold and sell categories. Accordingly, your decision to buy or sell a security should be based on your personal investment objectives and only after evaluating the stock's expected relative performance.

NON-US RESEARCH ANALYST DISCLOSURES Non-US research analysts who have prepared this report (i.e., all research analysts listed below other than those identified as employed by Citigroup Global Markets Inc.) are not registered/qualified as research analysts with FINRA. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below:

Citigroup Global Markets India Private Limited Venkatesh Balasubramaniam,Atul Tiwari, CFA,Deepal Delivala Citigroup Global Markets Asia Pierre Lau, CFA

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