Power Utilities, Infra Developers and BOT Asset Owners

1QFY12 Results Review

August 2011

Executive Summary
Adverse environment for power and infrastructure; selective stocks available at deep-value
1QFY12 saw multiple headwinds drag the quarterly financial performance of the power utilities and infrastructure developers under our coverage. Overall, the utilities and infrastructure developers under our coverage reported revenues of Rs. 164.3bn (up 28% yoy), EBITDA of Rs. 61.1bn (up 22% yoy) and profits of Rs. 28.6bn (up 16% yoy). Headwinds took the form of low PLFs in certain gas-based power plants as well as in certain recently commissioned coal-based power plants, low revenues in the EPC arms of companies and yoy lower merchant power tariffs. Traffic growth at the airports and roads remain healthy but not adequate to lift up the financial performance of the sector. The power generating utilities (or the generation segments of utilities) under our coverage reported total revenues of Rs. 73.5bn (up 6% yoy) and EBITDA of Rs. 36.0bn (up 7% yoy). Main reasons for the lack luster growth in EBITDA were low PLFs (due to fuel supply crunch) and poor merchant realizations. Revenues held up better due to a temporary return to strong PLFs at the gas-based power plants of GMR, GVK and Lanco, as Andhra Pradesh DISCOM supplemented domestic gas with R-LNG during the summer months. Also, merchant realizations remained below the Rs. 4.0/ unit mark, impacting yoy revenue comparison despite an increase in the quantum of power supplied. Overall, only the regulated businesses of CESC, NLC, GIPCL and Torrent Power reported good numbers, automatic fuel cost pass through being a key reason for the same. The privatized airports witnessed strong traffic growth during the quarter (Delhi up 15% yoy, Mumbai up 2%, Bangalore up 8% and Hyderabad up 18%). Overall these airports reported a cumulative topline of Rs. 9.9bn, EBITDA of Rs. 3.8bn and a PAT of just Rs. 55mn. A net loss of Rs. 1.0bn at Delhi International airport weighed heavily on the overall financial performance of the airports segment. The toll roads and annuity roads, as usual, reported a steady quarter with yoy revenue growth of 19% (primarily because of more road projects of ITNL getting operational, negating which the growth has been ~11%), at Rs. 5.1bn. A traffic growth of 5-6% has been witnessed across the road projects held by our coverage companies. Snapshot of significant beats / misses Positive surprises a) NHPC - Significant one-off gains boosted profits b) IRB Better than expected revenues and profitability at construction segment c) Torrent Power likely booking of CERs bolstered profits d) PTC on a large rebate reversal booked yet again. Negative surprises a) Lanco Higher than expected intersegment elimination almost entirely wiped out profits and due to lower merchant realization b) Adani Power lower PLFs and lower merchant realizations. Despite certain positive surprises during the quarter, we remain negative on the power utilities (a) tight domestic coal / gas supply situation (b) rising prices of imported coal as well as e-auction coal (c) inadequate fuel cost pass through arising out of strict implementation of MoU terms / case 1 bids and (d) poor financial health of SEBs. Further, we see no signs of any near-term amelioration in these issues. Our only Buy ideas are Lanco and PTC, with the latter being less risky. We would prefer to play the roads through IRB over ITNL.
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1QFY12 Sector Review Date Market Data Sensex Nifty BSE Power 16772 5035 2258 Aug 17, 2011

Market Performance (%) 1m Sensex Nifty BSE Pwr

20% 15% 10% 5%
0%

3m
-8% -7% -11%

12m
-9% -9% -27%

-9% -10% -13%

BSE Power vs Sensex - Relative performance

Closing price

-5%

-10% -15% -20% -25% -30%

Oct-10

Aug-10

Jun-11

Dec-10

BSE Power

Sensex

Vijaykumar Bupathy vijaykumar@sparkcapital.in +91 44 4344 0036 Bharanidhar Vijayakumar bharanidhar@sparkcapital.in +91 44 4344 0038

Aug-11

Feb-11

Apr-11

Snapshot of 1QFY12 Results

1QFY12 (Rs. bn) Company Adani CESC GIPCL GMR GVK Lanco Infratech Revs. 8.2 11.8 3.4 18.6 6.1 19.7 EBITDA 4.1 2.7 1.3 5.0 1.4 5.2 PAT 1.8 1.1 0.4 (0.7) 0.6 0.1 1QFY11 (Rs. bn) Revs. 3.5 11.0 2.5 10.7 4.9 21.3 EBITDA 2.1 2.6 0.6 3.5 1.3 6.0 PAT 1.1 1.1 0.4 0.3 0.3 1.9 4QFY11 (Rs. bn) Revs. 8.6 8.4 3.2 19.6 4.6 20.3 EBITDA 5.1 2.5 1.3 4.4 1.1 6.5 PAT 1.7 1.1 0.8 (10.1) 0.4 0.2 Revs. 132% 8% 36% 75% 25% -7% yoy growth % EBITDA 92% 4% 115% 44% 11% -13% PAT 54% 1% 3% -308% 76% -93% Revs. -4% 40% 7% -5% 33% -3% qoq growth % EBITDA -20% 9% 1% 13% 25% -21% PAT 1% -1% -47% -93% 57% -18%

Nava Bharat
NHPC NLC PGCIL PTC Torrent Power IRB

2.4
15.6 11.6 22.0 24.9 20.7 8.0

0.6
10.5 3.5 18.5 0.5 6.5 3.3

0.5
7.9 3.4 7.1 0.5 3.5 1.3

2.9
10.6 11.5 20.0 27.6 18.2 5.1

1.2
8.5 4.8 16.8 0.3 5.9 2.5

1.1
5.4 3.4 7.0 0.3 3.0 1.2

2.7
11.4 8.7 22.1 20.8 17.2 7.7

0.7
10.5 3.4 18.7 0.3 5.5 3.1

0.7
6.4 5.9 7.5 0.3 3.4 1.0

-18%
48% 1% 10% -10% 13% 57%

-49%
23% -26% 10% 71% 9% 32%

-51%
47% 0% 0% 63% 15% 14%

-11%
37% 33% 0% 20% 20% 4%

-19%
-1% 4% -1% 39% 18% 5%

-22%
24% -42% -6% 35% 3% 31%

ITNL

10.9

3.3

1.2

NA

NA

NA

16.6

4.1

1.6

41%

27%

6%

-34%

-19%

-25%

1QFY12 Actuals vs. Estimates

Actual 1QFY12 (Rs. bn) Company Adani CESC GIPCL GMR GVK Lanco Infratech Nava Bharat NHPC NLC PGCIL PTC Torrent Power IRB Revs. 8.2 11.8 3.4 18.6 6.1 19.7 2.4 15.6 11.6 22.0 24.9 20.7 8.0 EBITDA 4.1 2.7 1.3 5.0 1.4 5.2 0.6 10.5 3.5 18.5 0.5 6.5 3.3 PAT 1.8 1.1 0.4 (0.7) 0.6 0.1 0.5 7.9 3.4 7.1 0.5 3.5 1.3 Revs. 9.7 11.4 3.4 19.3 5.5 20.5 2.8 12.8 11.8 22.9 25.1 16.6 5.6 Spark Estimates (Rs. bn) EBITDA 5.8 2.7 1.2 4.2 1.1 6.2 0.6 9.7 4.2 19.2 0.3 4.5 2.8 PAT 2.1 1.2 0.4 (0.1) 0.4 1.6 0.5 6.1 3.1 6.6 0.3 2.6 1.0 Revs. -15% 3% 0% -4% 12% -4% -14% 22% -2% -4% -1% 24% 43% Delta % EBITDA -30% -1% 6% 19% 32% -17% -5% 7% -16% -4% 48% 44% 17% PAT -16% -7% 1% 396% 51% -91% -3% 31% 10% 6% 41% 35% 34%

ITNL

10.9

3.3

1.2

9.4

2.7

1.2

16%

22%

-3%

FY12E Estimate Revisions

Revenues (Rs. mn) Company Adani CESC GIPCL GMR GVK Lanco Infratech Nava Bharat NHPC NLC PGCIL PTC Torrent Power IRB Old 58,885 41,908 15,662 57,614 17,658 85,504 11,558 58,092 55,682 102,824 117,721 67,022 35,671 New 57,255 41,908 14,692 57,614 17,658 85,504 11,395 59,502 55,682 102,824 117,721 67,461 35,671 % Change -3% 0% -6% 0% 0% 0% -1% 2% 0% 0% 0% 1% 0% Old 33,276 10,713 4,642 20,010 4,497 20,761 3,203 41,664 19,487 88,150 1,434 19,645 13,202 EBITDA (Rs. mn) New 32,225 10,713 4,741 20,010 4,497 19,411 2,788 42,702 19,487 88,150 1,434 19,842 13,202 % Change -3% 0% 2% 0% 0% -7% -13% 2% 0% 0% 0% 1% 0% Old 16,957 5,202 1,593 (1,373) 1,430 4,917 2,867 22,226 11,340 28,889 1,501 9,931 5,311 PAT (Rs. mn) New 16,096 5,202 1,615 (1,373) 1,430 3,567 2,436 23,500 11,340 28,889 1,501 11,072 5,311 % Change -5% 0% 1% 0% 0% -27% -15% 6% 0% 0% 0% 11% 0%

ITNL

46,929

53,435

14%

12,889

13,688

6%

5,446

5,024

-8%

Valuation Matrix
Company Revenues (Rs.bn) FY11E Adani CESC GIPCL GMR GVK 21.4 51.0 10.9 57.7 19.1 FY12E 57.3 57.0 14.7 57.6 17.7 FY13E 107.5 64.0 16.4 105.6 25.7 EBITDA (Rs.bn) FY11E 12.2 8.7 3.1 15.6 5.1 FY12E 32.2 8.9 4.7 20.0 4.5 FY13E 58.0 9.6 4.8 41.3 9.9 FY11E 5.1 3.1 1.6 (9.3) 1.5 PAT (Rs.bn) FY12E 16.1 3.6 1.6 (1.4) 1.4 FY13E 23.5 4.0 1.8 4.7 2.6 FY11E 9% 7% 12% -7% 4% RoE FY12E 23% 7% 11% -1% 3% FY13E 27% 7% 11% 3% 6% Revs 77% 16% 16% 27% 24% FY11-14E CAGR EBITDA 72% 16% 15% 44% 42% PAT 70% 19% 3% NA -13%

Lanco
Nava Bharat NHPC NLC PGCIL PTC Torrent IRB ITNL Company

77.8
10.9 51.4 39.5 83.9 90.6 65.4 24.6 40.5

85.5
11.4 59.5 55.7 102.8 117.7 67.5 35.8 53.4

116.4
12.0 63.3 57.2 125.1 201.6 73.1 53.1 57.9 CMP

20.1
3.4 42.9 12.9 70.5 1.4 17.7 11.0 13.1 Shares

19.4
2.8 42.7 19.5 88.1 1.4 19.8 13.3 13.7 M.Cap (Rs. bn) 195.8 39.1 12.2 111.3 28.0 40.5 17.9

24.4
2.6 45.7 19.3 108.4 2.9 21.9 17.5 16.5

4.5
3.1 23.2 13.0 27.0 1.4 10.7 4.5 4.3 P/E (x) FY11E 38.1 12.4 7.5 (12.0) 18.0 9.1 5.9 FY12E 12.2 10.9 7.6 (81.1) 19.5 11.3 7.3

3.6
2.4 23.5 11.3 28.9 1.5 11.1 5.4 5.0

6.3
2.2 25.8 12.0 34.4 2.6 11.1 7.1 5.4

10%
18% 9% 12% 14% 10% 23% 20% 18% Price / BV (x)

7%
13% 8% 10% 13% 7% 20% 20% 17%

11%
10% 8% 10% 14% 12% 18% 21% 15%

29%
2% 10% 14% 21% 50% 8% 33% 21% Target

25%
-17% 6% 13% 22% 45% 16% 20% 22% Rating

37%
-22% 10% -2% 16% 38% 10% 15% 8%

Net Debt to Equity (x) FY11E FY12E 3.0 0.9 0.6 2.0 1.5 2.3 0.1 FY13E 2.8 1.1 0.3 1.9 1.3 2.6 0.1

(Rs.) 90 313 81 29 18 17 200

(mn) 2,180 125 151 3,892 1,579 2,408 89

FY13E 8.3 9.9 6.7 23.7 10.8 6.4 8.2

FY11E 3.3 0.8 0.9 1.3 0.1 0.9 1.0

FY12E 2.6 0.8 0.8 1.0 0.0 0.7 0.9

FY13E 2.0 0.7 0.7 0.8 0.0 0.5 0.8

P/BV (x) SoTP 0.80 0.80 SoTP SoTP SoTP 1.00

Price (Rs.) 87 358 90 29 26 42 246

Absolute Reduce Add Add Reduce Add Buy Add

Relative UPF OPF OPF UPF UPF OPF OPF

Adani CESC GIPCL GMR GVK Lanco Nava Bharat

3.2 0.7 0.7 1.9 0.9 1.8 0.1

NHPC
NLC PGCIL PTC Torrent IRB ITNL

0.3
0.3 1.9 (0.3) 0.7 1.9 2.3

0.3
0.2 2.0 (0.4) 0.7 2.4 2.7

0.2
0.2 2.2 (0.4) 0.9 2.6 2.7

25
85 104 72 213 151 185

12,301
1,678 4,630 295 472 332 194

306.3
142.7 480.6 21.1 100.4 50.2 35.9

13.2
11.0 17.8 15.2 9.4 11.1 8.3

13.0
12.6 16.6 14.1 9.1 9.3 7.1

11.9
11.8 14.0 8.2 9.0 7.0 6.6

1.2
1.3 2.2 0.1 2.1 2.1 1.6

1.1
1.2 2.1 0.1 1.8 1.7 1.3

1.0
1.1 1.9 0.1 1.6 1.3 1.1

1.10
1.40 1.80 SoTP 2.00 SoTP SoTP

28
107 100 129 269 204 185

Add
Add Reduce Buy Add Add Reduce

UPF
OPF UPF OPF OPF OPF UPF

mn Units bn Units
12.00 15.00 18.00 0.00 3.00 6.00 9.00 4,000 6,000 8,000

2,000

0 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 UI Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Rs./kWh 2.0 3.0 4.0 5.0 6.0 7.0 8.0 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 3.82 4.00 3.91 3.95 4.00 4.24 4.67 4.76 0% 5% 10% 15% 20% 25% 4.49 4.98 4.92 4.73 Hydro as % of total (RHS) 5.05 4.75 4.64 4.73 5.07 5.33 4.99 5.26 5.05 4.94 5.74 6.17 5.59 Rate in Bilateral trading market Exchanges Hydro Power Generation in India Bilateral 0.00 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

Source: CEA

Industry Overview Merchant volumes increase yoy by 24%, leads to lower merchant prices

Source: CERC bn Units

16.00 32.00 48.00 64.00 80.00

Hydel generation shows a seasonal pick-up in 1Q

1QFY12 merchant volumes increased 24% yoy; bi-laterals by 23%

Source: CEA

Source: CERC

results in lower merchant rates

..resulting in higher share in total generation, which grew 8% yoy

Total Generation in India (LHS)

Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

Business Overview Power, Roads and Airports

Generation Capacity Additions (MW)
Company Adani CESC GIPCL GMR Lanco NHPC 4QFY11 660 - Mundra Phase 3 U1 1QFY12 660 - Mundra Phase 3 U2 -

Key Developments since our last Sector review

Developments Benchmark pricing of Indonesian coal to be implemented from September 2011 (both retrospectively and prospectively).

Supreme Court of India passes an order quashing the levy of Airport Development Fee (ADF) at Mumbai International Airport.
Australia-based Perdaman Chemicals and Fertilisers files a lawsuit seeking compensation of about Rs 167bn (A$3.5 billion) for alleged breach of a coal supply agreement by Lancos Griffin Coal. Lanco Infratech wins order worth Rs3.65bn in Iraq, its first international EPC contract, for AKAZ power plant of 2x125MW capacity of an open cycle, gasbased thermal power plant.

600 Udupi U2 (awaiting transmission line completion) -

Lanco, Torrent , GMR, Adani 20-30% merchant dependence in 1Q

5,000 4,000 30% 3,000 45%

Merchant realization for most companies fall yoy (most for Adani)
6.0 5.0 4.0 Rs./unit 3.0 2.0 40% 20% 0% -20% -40%

MW

2,000 1,000 0 Lanco Torrent GMR Adani CESC GIPCL GVK NHPC

15%

1.0
0%

-60%
-80% CESC GMR Torrent Lanco GVK GIPCL Adani NHPC

0.0

Non-Merchant Capacity

Merchant Capacity

Merchant/Total (RHS)

Avg. Realization/unit (LHS) Source: Company

yoy growth

qoq growth

Source: Company, Spark Research

Business Overview Power, Roads and Airports

Power Segment most companies flat yoy except Adani and GIPCL
25.0 20.0 15.0 150% 120% 90% 17.0 12.0

Power Segment qoq profitability for Lanco and Adani declines

150% 100% 50% 0% -50% P-Grid Torrent GIPCL CESC Lanco NHPC Adani GMR GVK PTC 120% 800 550 300 -40% 50 -200 IRB Roads - PBT GVK yoy (RHS) GMR qoq (RHS) -80% -120% 80% 40% 0%

Rs. bn

Rs. bn

60% 30% 0%

7.0 2.0 -3.0

10.0 5.0

-30%

0.0
PTC P-Grid Torrent NHPC CESC Lanco Adani Power - Revenues yoy (RHS) GMR GVK GIPCL qoq (RHS)

-60%

Power - EBIT

yoy (RHS)

qoq (RHS)

Source: Company

Source: Company

Roads ITNLs road portfolio saw maximum revenue growth

3,000 2,500 2,000 60% 50% 40%

Roads - GVKs JKEL benefited from absence of MME

Rs. mn

1,500 20%

1,000
500 0 IRB ITNL Roads - Revenues GMR yoy (RHS) GVK qoq (RHS)

10% 0% -10%

Source: Company

Rs. mn

30%

Source: Company

Business Overview Power, Roads and Airports

Airports - ATMs at Delhi and Hyderabad increased
90,000 75,000 21.0% 18.0%

Airports T3 permits strong yoy traffic growth in Delhi

9.00 8.00 7.00 21.0%

60,000 45,000 30,000

Mn Pax

ATMs

15.0% 12.0% 9.0% 6.0%

6.00 5.00 4.00 3.00 2.00 1.00 0.00 Mumbai Bangalore Delhi yoy (RHS) Hyderabad qoq (RHS)

14.0%

7.0%

3.0% 15,000
0 Mumbai Bangalore Delhi yoy (RHS) Hyderabad qoq (RHS) 0.0% -3.0%

0.0%

ATMs (LHS)

Passengers (LHS)

Source: Company

Source: Company

No substantial change in the Airports segment revenue profile

3,000 2,500 2,000 50% 40% 30% 20%

DIAL profitability adversely impacted due to capitalization of T3

1,000 500% 400% 300% 500

Rs. mn

1,500

Rs. mn

200% 100%

1,000
500 0 Mumbai Bangalore 4Q Revenues Delhi yoy (RHS) Hyderabad qoq (RHS)

10%
0% -10%

0%
-100% -200%

-500 Mumbai 4Q EBIT Bangalore yoy (RHS) Delhi Hyderabad qoq (RHS)

-300%

Source: Company

Source: Company

10

Stock Performance Sector has underperformed significantly due to structural headwinds

Coverage Universe performance since date of initiation
From Initiation (Aug 24, 2010)
Lanco GVK GMR IRB NLC ITNL Navabharat PTC Torrent Adani GIPCL Lanco GVK PTC ITNL GMR Navabharat NLC IRB Adani GIPCL Torrent CESC NHPC PGCIL -80% -60% -40% -20% 0% 20% -60% -40% -20% 0% 20%

Coverage Universe performance YTD

% change YTD

CESC
NHPC PGCIL -100%

Source: Bloomberg

Source: Bloomberg

11

Absolute Rating Interpretation BUY ADD REDUCE SELL Relative Rating Interpretation OUTPERFORM UNDERPERFORM Stock expected to outperform sector index /sector peers in our coverage Stock expected to underperform sector index/ sector peers in our coverage Stock expected to provide positive returns of > 15% over a 1-year horizon Stock expected to provide positive returns of <=15% over a 1-year horizon Stock expected to fall <=15% over a 1-year horizon Stock expected to fall >15% over a 1-year horizon

Analyst Certification The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this research report accurately reflect the analyst(s) personal views about the subject companies and their securities. The Research Analyst(s) also certify that the Analyst(s) have not been, are not, and will not be receiving direct or indirect compensation for expressing the specific recommendation(s) or view(s) in this report. Spark Disclaimer This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This document does not constitute or form part of any offer for sale or subscription or incitation of any offer to buy or subscribe to any securities. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital Advisors (India) Private Limited makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital Advisors (India) Private Limited, its affiliates, and the employees of Spark Capital Advisors (India) Private Limited and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through the independent analysis of Spark Capital Advisors (India) Private Limited Copyright in this document vests exclusively with Spark Capital Advisors (India) Private Limited.