Irrigation Projects Under Construction In Andhra Pradesh

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Travelog

the analyst's diary

INFRASTRUCTURE 2010

Building a new landscape

Andhra Pradesh

Hyderabad Airport

GVK

IVRCL

AP Irrigation

BSCPL Infra

Coastal Projects

Ramky Infra

Rithwik Projects

Ind Barath Power

Nagarjuna Cons.

Madhucon Projects

Vijai Electricals

Gayatri Projects

Site Visits:

1. Emaar - Boulder Hills

2. Veligonda Irrigation Project

Satyam Agarwal

(AgarwalS@MotilalOswal.com; +91 22 39825410)

Nalin Bhatt

(NalinBhatt@MotilalOswal.com; Tel: +91 22 39825429)

Infrastructure 2010

Travelog

Building a new landscape

YDERABAD. India's most populated southern city,

has been called the City of Pearls and the City of

Nizams. It is the capital of India's south eastern

state of Andhra Pradesh and boasts of the Charminar and

many other tourist delights,

which are testimony to its

erstwhile rulers' dreams for it.

But now it has been transformed

into a city of modern day dreams.

Not only has it developed as an

IT hub, but we found that

technocrats have ambitious plans

for it as well.

As we approach this sprawling city

of 8.8m people, the flavor of

Hyderabad fills the senses, quite

like the biryani it is so famous

for. But take a closer look: plans

are afoot to change the very

landscape into a city of dreams.

We spoke with the managements of 15 companies and

discovered the brilliance that is yet to come. From an

June 2010

Page 2

Building a new landscape

Travelog

airport that will match the best in the world to waterworks

and energy that will elevate the lifestyles of millions,

it's all happening here in Andhra Pradesh.

Our three-day journey in the sweltering heat of June

uncovered a passion to excel across the board. Although

some projects might not have progressed as quickly as

planned, the vision remains.

June 2010

Page 3

Building a new landscape

Travelog

Infrastructure 2010: Travel Itinerary

10 June 2010

We met the managements of

Hyderabad Airports

(pg 12),

GVK Power

(pg 20),

IVRCL

(pg 31),

the

Andhra Pradesh Irrigation Department

(pg 38),

and

rounded off the day with a visit to Boulder Hills,

a township by

Emaar,

and with discussions with

emerging leaders like

BSCPL, Coastal Projects,

Rithwik

and

Ramky.

11 June 2010

We met the managements of

Ind Barath,

Nagarjuna

Constructions

(pg 49),

Madhucon

(pg 56),

Vijai

Electricals

(pg 61),

Gayatri Projects

(pg 65),

and

also discussed issues such as setting up power

projects in Andhra Pradesh, real estate and coal

mining in Indonesia.

12 June 2010

We visited the

Veligonda Irrigation project

(pg 68)

in Srisailam district, where two 18.8km

tunnels are being bored. The project has Tunnel

Boring Machines (TBM) which are among the most

expensive engineering tools. The journey has its

own story to tell. Read on to discover ...

June 2010

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Building a new landscape

Travelog

Key takeaways from our tour

HE Indian infrastructure sector offers significant

growth opportunities, given the targeted spend of

US$1 trillion in the Twelfth Five Year Plan and increased

private sector participation. Against this opportune

backdrop, we embarked on Construction Travel 2010 to

Andhra Pradesh, where we interacted with various

infrastructure / construction companies, government /

bureaucrats, and visited large projects.

Power: ambitious expansion plans

We were amazed to note the huge capacity addition

plans by a few companies in Hyderabad. None of the

company managements we met is recognized in capital

markets as frontline power utilities. Despite this,

these companies cumulatively have operational power

capacity of 1.2GW, intend to commission 6GW by FY14/

15 and have 9.5GW in the planning stages.

These companies contribute 0.8% of India's installed

capacity and would have market share of 8-10% in

terms of capacity commissioning in FY14/15.

Among the major companies are Ind Barath, GVK, Nagarjuna

and Gayatri. In fact, Ind Barath, will have a large

portfolio of capacity on merchant basis in FY13/

FY14.

June 2010

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Building a new landscape

Travelog

With gas availability and allocation round the corner

in Andhra Pradesh, we expect this number to increase.

We have not considered GVK's gas-based expansion

plans for addition by FY14/15 pending gas allocations,

but this scenario could change for the better.

AMBITIOUS POWER CAPACITY ADDITION PLANS (MW)

Operational

GVK

Ind Barath

Gayatri

Madhucon

Nagarjuna

Coastal Projects

Total

911

291

1,202

Addition by

FY14/15

870

1,728

1,320

600

1,320

171

6,009

Capacity under

Planning Stage

3,090

1,338

1,320

2,395

1,320

9,463

Total

Portfolio

4,871

3,357

2,640

2,995

2,640

171

16,674

Several BOT projects to become operational in FY11

Several infrastructure projects, on an ownership basis,

are expected to become operational in FY11. The

companies we met during our trip to Hyderabad will

commission 16 NHAI road projects, one thermal power

project, one hydro power project and one desalination

project, largely in FY11.

The cumulative project cost of these infrastructure

assets is Rs114b and proportionate equity invested

is Rs18b. As these projects become operational,

operating cash flows will improve. This will also

June 2010

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Building a new landscape

Travelog

provide financing opportunities through stake sales

in these project SPVs, and other means.

PROJECTS

OPERATIONAL

SIZEABLE PORTFOLIO OF PROJECTS TO BECOME OPERATIONAL IN FY11

(Rs m)

Gayatri

Madhucon

Nagarjuna

IVRCL

B Sreenaiah

Total

Total Project

Cost

23,345

36,000

32,321

18,350

4,081

114,097

Proportionate

Equity

2,047

7,830

4,545

3,390

521

18,333

Remarks

5 NHAI road projects

NHAI

road

project, 1 thermal power project

project, 1 hydro power project

project, 1 desalination project

project

Funding a key growth constraint

Most companies that we met in the course of our

travels plan to raise equity funding. This could be

a combination of equity dilution in the parent company,

equity dilution in the infrastructure holding company

and equity dilution in project SPVs. The companies

also intend to monetize a part of the operational

asset portfolio.

Thus, funding and fund raising is becoming critical

for growth, for many of the companies.

June 2010

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Building a new landscape

Travelog

Infrastructure assets: incremental revenue largely

flows to bottom-line, operating leverage meaningful

For operational infrastructure projects, operating

parameters have started improving. During April–May

2010, Hyderabad Airport (HIAL) traffic grew 20% YoY.

This compares with FY10 traffic growth of 5.4% YoY.

Existing capacity can cater to ~2x passenger traffic

and with brownfield expansion, it could cater to 3x

current traffic. Given the current under absorption

of interest and depreciation costs, HIAL will enjoy

superior leverage with pick up in operating factors

and increased spend per passenger. [In FY10, interest

and depreciation costs for HIAL were Rs530/passenger

v/s revenue of Rs673/passenger and EBITDA of Rs351/

passenger.]

Similarly, for the Jaipur Kishangarh road project

(owned by GVK), FY11 toll revenue is expected at Rs2b

(up 17.6% YoY). Project revenue increased by 14.8%

CAGR over FY06-10 through 8.6% traffic CAGR and 6.2%

toll increase.

June 2010

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Building a new landscape

Travelog

Founders, senior management of unlisted companies

show entrepreneurial spirit

As part of our travels, we met several interesting

bureaucrats and personalities, who exhibited the

entrepreneurial spirit of Andhra Pradesh. At one of

the meetings we learned that for Powergrid's BOOT

tenders for power transmission lines, out of 30-33

bids submitted, about half were from Andhra Pradesh.

Despite a setback in FY10, Andhra Pradesh Irrigation

Department is attempting to put in place a structured

mechanism for project implementation. This is

commendable, given the current limitations. Cumulative

spend over the past five years on irrigation projects

in Andhra Pradesh has been Rs530b and projects worth

Rs1,220b were contractually awarded in this period.

This is one of the largest infrastructure initiatives

in India under implementation.

Vijai Electricals' success story is inspiring. Over

the years, the company has achieved leadership in

India in the distribution transformer segment and is

the only organized player in the market. The company

is entering the "big boys' league" and recently added

capacities in EHV transformers [current capacity is

~10%]. Very soon, ABB, Siemens, Areva, BHEL and Crompton

June 2010

Page 9

Travelog

will also have to compete with the entrepreneurial

spirit of Andhra Pradesh.

Site visit: Veligonda irrigation project

We visited Veligonda Tunnel project, executed by Coastal

Projects Limited. This project entails drilling two

tunnels through mountains, with a length of 18.8km each

and diameters of eight and 10 meters. The tunnels are

being drilled by Tunnel Boring Machines and the contract

value is Rs14b-15b. The project is among the largest

ongoing irrigation projects in Andhra Pradesh.

An exciting journey to the project site:

The 300km

journey from Hyderabad to Veligonda took us though i)

Rajiv Gandhi Tiger Reserve, ii) Srisailam Dam across

the Krishna River, which

submerged more than 100

villages when it was built,

iii) the famous Mallikarjuna

Temple, one of the 12

jyotirlings of Lord Shiva,

and iv) the world's longest

bored tunnel, being drilled

by Jaiprakash, with a length

of ~45km and diameter of

The Srisailam Dam across the Krishna River

nine meters.

June 2010

Page 10

Travelog

Giant drills:

Tunnel Boring Machines (TBMs) are giant

drills that bore through imposing mountains. Each TBM

is about 150 meters long and weighs 1,450 tons. Each

TBM costs Rs1.2b-1.3b, making it one of the most expensive

engineering tools. A railway

coach transported us 2.5km

into the tunnel to a TBM.

Here,

120

meters

underground fresh air must

be pumped in. A TBM encases

~150 people working in close

coordination with each other,

and can move 1.65 meters an

hour, leaving a concretized

tunnel in its wake.

Miniature model of a TBM

June 2010

Page 11

Building a new landscape

Travelog

Hyderabad International Airport

Preparing for take-off

E met GRK Babu, Chief Financial Officer, Adavi

Joshi, Head, Retail-Commercial and members of the

senior management of the airport. Their story of the

progress of the airport on its journey to a world-class

facility was impressive.

Hyderabad International Airport (HIAL) is developed as

a greenfield airport by a consortium led by GMR

Infrastructure (63% stake), Airport Authority of India

(13%), the government of Andhra Pradesh (13%) and Malaysia

Airports Holdings (11%). HIAL commenced commercial

operations on 23 March 2008.

AERIAL VIEW OF HYDERABAD AIRPORT

June 2010

Page 12

Hyderabad International Airport

FRONT VIEW OF HYDERABAD AIRPORT

Travelog

Operating factors improve, HIAL has large operating

leverage

During April-May 2010, passenger traffic at HIAL was

1.2m, up 20% YoY indicating a strong recovery. This

compares with traffic growth of 4.3% in FY10.

FY10 passenger traffic was 6.49m passengers and current

capacity is 12m passengers, indicating significant

under utilization. Given the operating cost leverage,

EBITDA margins are expected to increase to ~65% at

passenger traffic of 10m against 55% currently.

In FY10, HIAL's interest and depreciation costs were

Rs530/passenger against revenue of Rs673/passenger

and EBITDA of Rs351/passenger. Given the current

under-absorption of interest and depreciation costs,

HIAL will enjoy superior leverage with a pick-up in

operating factors and increased spend per passenger.

June 2010

Page 13

Hyderabad International Airport

PASSENGER TRAFFIC (M)

Travelog

CAGR of

33%

2.9

4.0

6.9

5.7

5% YoY

6.2

6.5

21% YoY

1.0

1.2

Apr-

May

2010

2.2

FY04

FY05

FY06

FY07

FY08

FY09

FY10

Apr-

May

2009

Existing capacity to cater to 2x passenger traffic;

brownfield expansion to cater to 3x current traffic

Phase 1 of HIAL was developed at a capital cost of

Rs29.2b (v/s Rs23b for Bangalore airport with passenger

handling capacity of 12m). Increased cost for HIAL

factors in capex for a 305-room hotel Rs2.5b, a fuel

farm Rs1.2b (pipelines with pumping points) and other

infrastructure Rs1.1b. Higher capex led to increased

variable share in revenue streams from concessionaires.

The current passenger handling capacity is 12m a year

against FY10 passenger traffic of 6.5m. Besides,

expansion of passenger handling until 20m a year will

be modular and capex limited at Rs8b, providing

superior leverage with increased passenger spending.

The eventual handling capacity of the airport is envisaged

at 40m passengers, which will entail replicating almost

the entire infrastructure, including runways.

June 2010

Page 14

Hyderabad International Airport

HIAL MASTER DEVELOPMENT PLAN

Travelog

HIAL subsidiary to manage duty free; HIAL to divest

hotel business into subsidiary

HIAL has awarded major contracts for non-aero revenue

on a revenue sharing and minimum guaranteed revenue

basis. Thus, improved passenger spends will lead to a

higher share of non-aero revenues for HIAL.

For duty free, the initial concessionaire, Nuance

Group, has discontinued operations and HIAL will

undertake the operations through a 100% subsidiary.

HIAL will thus directly control one of the key sources

of non-aero revenue at the airport. The new company

will take over the operations from 21 June 2010.

HIAL will divest its 305 room hotel (currently operated

June 2010

Page 15

Hyderabad International Airport

Travelog

by Novotel) into a wholly owned subsidiary. This

transfer will lower the project cost by Rs2.5b [equity

Rs1.1b and debt Rs1.4b]. This will also enable the

company to induct a financial/strategic partner in

the business going forward.

In FY10, a large part of the non-aero revenue was

derived from the fuel farm (Rs600m-620m), rentals

(Rs300m), advertising (Rs140m-150m), duty free shopping

(Rs100m), cargo (Rs140m) and the car park (Rs100m).

Higher operating factors for airlines and improved

passenger traffic will give rise to an increased

number of ATMs, which will lead to a higher increase

in aero-related (fuel farm, in-flight kitchen) and

non-aero revenue (duty free, advertisement and F&B).

PARTNERS/TIE-UPS FOR NON-AERO REVENUE STREAMS

Area

Cargo operation

In-flight kitchens

Fuel farm

Business hotel

(305 rooms)

Ground handling

Duty-free retail

(2,525sm)

MRO

Partner

Menzies plc, UK

LSG Sky Chefs &

Sky Gourmet

Reliance industries

Ltd (925 Kl/day )

Accor with Novotel

brand (COD Oct 2008)

Menzies Aviation &

Bobba, Air India & SATs

Through 100%

subsidiary (from June 2010)

Indian Airlines,

Malaysia Airlines

Area

Airport advertising

F&B

Lounge management

Hospitals

Car parking

Telecom services

Book stores

Forex counters

Partner

Laqshya

HMS Host

Plaza Premium Lounge

(3 nos)

Apollo Hospitals (17 beds)

Tenaga Car Parking

of Malaysia

Tata Teleservices

Landmark, Odyssey

Weizmann, Travelex

June 2010

Page 16

Hyderabad International Airport

Travelog

Initial progress on real estate development

Out of 1,500 acres of land available at Hyderabad

airport, 250 acres each are earmarked for development

of aero and logistics SEZs, respectively.

Aero SEZ (250 acres):

In the Aero SEZ, HIAL entered

into contracts with CFM International to set up an

engine training center and with Malaysian Aerospace

Engineering to set up a JV for the MRO business. The

project cost for the MRO operations is US$65m and the

companies invested seed capital of US$2m each. Staff

has been selected and is undergoing training in

Malaysia. HIAL plans to develop four hangars for MRO

checks including a D check, which can accommodate

three narrow-bodied and one wide-bodied aircraft or

five narrow-bodied aircraft simultaneously.

Logistics SEZ (250 acres):

HIAL plans to develop a

logistics SEZ with amenities to assemble and export,

largely as a transshipment hub.

Balance development (1,000 acres):

Real estate

development on 1,000 acres is likely to be centered

round three major themes: 1) medical tourism, 2)

entertainment, and 3) leisure. HIAL has tied up with

Apollo Hospitals to develop a 250-bed hospital on 30

acres of land. Development could include a golf course,

convention centre, shopping malls, and gaming and

entertainment zones.

June 2010

Page 17

Hyderabad International Airport

ESTA

REAL ESTATE DEVELOPMENT PLAN

Acres

250

Travelog

Usage

Aviation SEZ: Aircraft maintenance and manufacturing, assembling or repairing of avionic

components, etc. SEZ notification received in October 2009 and subsequently was

transferred to 100% subsidiary company, GMR Hyderabad Aviation SEZ Ltd. Tie-up with

Malaysian Aerospace Engineering for JV for MRO business, CFM International for engine

training centre and other facilities

Logistics SEZ: Largely to be developed as a transshipment hub

Medical, entertainment, leisure

250

1,000

CONNECTIVITY

ADVANT

ANTAGE

BETTER CONNECTIVITY IS A KEY ADVANTAGE

June 2010

Page 18

Hyderabad International Airport

Travelog

GMR's stake in HIAL valued at Rs33b, Rs9/share

We expect HIAL to post FY11 net loss of Rs251m, and net

profit of Rs513m in FY12 (including profit from RE

monetization). We value HIAL at Rs33b (for GMR's stake

of 63%), comprising

airport operations at Rs15b and

real estate at Rs18b. We have considered a 40% discount

to the real estate NAV for our SOTP valuations.

VALUA

ALUATION

STAKE)

HYDERABAD AIRPORT VALUATION (FOR GMR'S 63% STAKE)

Particulars

Core Business

Real Estate

Total NPV

Value (Rs m)

15,315

18,120

33,434

Rs/sh

HIAL: SIGNIFICANT OPERATING/FINANCIAL LEVERAGE LIKELY (Rs m)

OPERATING/FINANCIAL

LIKELY

Passenger (m)

Net revenue

Staff, admin cost

EBIDTA*

Margin (%)

Interest

Depreciation

PAT

Cash Profit

FY09

6.2

3,982

2,388

1,431

35.9

1,592

1,122

(1,211)

(89)

641

384

230

256

180

(195)

FY10

6.5

4,211

1,923

2,288

54.3

2,079

1,370

(1,103)

267

646

295

351

319

210

(169)

FY11E

7.7

5,516

2,021

3,274

59.4

2,145

1,444

(251)

1,193

719

264

427

280

188

(33)

FY12E

8.7

6,494

2,124

4,109

63.3

2,145

1,487

513

2,000

748

245

473

247

171

Summary (Rs/passenger)

Net revenue

Staff, admin cost

EBITDA

Interest

Depreciation

PAT

June 2010

Page 19

Building a new landscape

Travelog

GVK Power & Infrastructure

Powering ahead

E met business heads and members of senior management

from various divisions at GVK Power and

Infrastructure and were told about the progress the

company is making in various sectors including roads,

power and oil and gas.

Road business

1. The Jaipur-Kishangarh Expressway

The Jaipur-Kishangarh Expressway (JKEL) toll

collections increased to Rs4.7m a day in FY10 from

Rs2.2m a day in FY06, its first year of operations.

Traffic, measured in terms of passenger car units

(PCUs) increased from 45,000 to 62,500 in this period

and project revenue increased from Rs980m in FY06 to

Rs1.7b in FY10, a robust 14.8% CAGR over FY06-10.

This was achieved through 8.6% traffic CAGR and 6.2%

toll increase CAGR.

70% of the JKEL traffic comprise commercial vehicles

(trucks, multi-axle vehicles), which are dependant

on industrial activity. The GVK management stated

that in the best year, commercial vehicle traffic

grew 18% YoY and in the worst year, it de-grew 0.4%.

June 2010

Page 20

GVK Power & Infrastructure

COLLECTION

TOLL COLLECTION BOOTH AT JKEL

Travelog

In FY11, toll revenue of Rs2b is expected (up 17.6%

YoY). Toll increase from July 2010 is expected at

9.54%, based on the WPI index as at March 2010.

Revenue growth going forward is expected at 18-20% a

year.

The capacity of the road is 140,000 PCUs and thus at

~8.6% traffic growth (historical average), the road

will reach peak capacity in FY19 or FY20. The concession

period expires on 17 March 2023. Outstanding debt in

the project was Rs2,250m as at March 2010 and will be

completely repaid by 2017.

June 2010

Page 21

GVK Power & Infrastructure

Travelog

PAT

JKEL: REVENUE, PAT (RS M)

2,100

1,575

1,050

525

Net profit for FY10 was impacted due to periodic maintence capex of

~Rs900m; partly offset by revision in depreciation policy. For FY11,

the maintenance capex is Rs100m

Revenues

PAT

FY06

FY07

FY08

FY09

FY10

FY11

FY12

2. Kota-Deoli road project

GVK recently bagged the four-laning of the Kota-

Deoli road project covering 88km. The project cost is

estimated at Rs8b-8.5b.

Equity return is expected at 18%. The project is

expected to achieve financial closure in 2HFY11.

After JKEL (which was among the earliest projects

awarded by NHAI), this is only the second project win

by GVK in the roads sector.

June 2010

Page 22

GVK Power & Infrastructure

Travelog

Power business

1. Gas based expansion of 2.4GW

GVK said it would expand its gas-based capacity by

2.4GW, including 1.2GW expansion each at Gautami and

JPII. The configuration at Gautami will be three

turbines of 400MW each and at JPII will be three

turbines of 408MW each.

The EPC contract for the Gautami expansion is expected

to be signed in June 2010, and EPC contractors are a

consortium of Hyundai (Korea) and L&T Chennai. For

the JPII expansion, Alstom is the expected EPC

contractor.

For both project expansion plans the land is in

possession and a large part of the water availability

has also been tied up. Environment clearance has also

been obtained. The company has applied to Powergrid

for power evacuation. 35-40% of the capacity will be

sold to AP discoms.

Financial closure of the initial few sets is targeted

by October 2010, after gas allocation by the

government. The construction period is 31 months

after financial closure, given the shorter gestation

period for gas-based power projects.

June 2010

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GVK Power & Infrastructure

Travelog

2. Goindwal Sahib (540MW)

Goindwal Sahib achieved financial closure on 2 February

2010 and construction has commenced. Piling foundation

for boiler 1 is almost complete and the site will

soon be handed over to BHEL for installations. Punj

Lloyd has also been mobilized for the BOP work. BHEL

has started sending foundation equipment to the site.

The project is expected to be completed in 36 months.

In Tokisud mines, the company acquired 60% of the

land required. Environment clearance and stage 1

forest clearance is also available and the company is

expected to sign the mining lease in two months.

3. Alaknanda Hydro Power Project (330MW)

Work on Alaknanda Power Project is progressing per

schedule and overall physical progress is 50%. The

revised project cost is Rs27b (v/s an initial target

of Rs20b) due to reclassification of the seismic

zone.

Project commissioning is expected by December 2011.

Design energy for the project is 1,309MUs, translating

into PLF of 55%. GVK will get returns based on prior

CERC norms of 14% ROE, plus incentives.

June 2010

Page 24

GVK Power & Infrastructure

D T I T AKE A N D C O FFE R D A M

D I E R SI N D A M

Tr a ve l

G ANT R Y E R E CT I N AT H E A D R A C E

T UNNEL

PO W E R CH A N N E L

June 2010

Page 25

GVK Power & Infrastructure

Travelog

4. Wins Rattle Hydro Power Project in J&K [690MW, 6 X

115MW]

GVK recently won 90MW Rattle Hydro Power Project in

J&K. This is first hydro power project to be awarded

on a competitive based bidding mechanism in India.

Other bidders included Tata Power, Lanco and L&T.

Scheduled commissioning for the project is 81 months

from the date of LoI (received in May 2010) and the

concession period is 35 years. In 24 months, the

project is expected to receive all approvals. The

project DPR was prepared by NHPC in 2007. The GVK

management believes there is a fair possibility of

completing the project ahead of schedule. Access to

the project is easy as it is located near the national

highway in Jammu.

Free power is 16% comprising of 1% towards local area

development and 15% to the state government. Terminal

value after 35 years is Rs3.8b, which will be paid by

the J&K government for transfer of the project. GVK

has quoted a tariff of Rs1.44/unit for 55% of the

power to discoms and 45% will be available for sale

on a merchant basis.

The internal estimate of the project cost is Rs50b

and upfront payment in FY10 is expected at Rs350m.

Rehabilitation is restricted to only one village,

involving less than 50 people.

June 2010

Page 26

GVK Power & Infrastructure

CAPACITY ADDITION BY GVK (MW)

Travelog

Existing

Alakananda HEP

Goindwal Sahib

Rattle HEP

2,471*

690

540

911

330

FY10

FY12E

FY13E

FY16E

FY17E

* Excluding 2400MW Gas-based power project expansion at JP-II and Gautami projects, pending gas allocation

Oil and gas

GVK bid for seven deep-sea blocks, including six in

Mumbai High and one in the Kerala-Konkan region. This

was through a JV with BHP-Billiton, with GVK having

a 74% share. These are largely frontier blocks, on

which not much data were available.

The commitment was to spend US$60m for exploratory

data, which would cover 2D seismic study, and other

elements.

GVK has spent US$17m so far on oil and gas and the

cumulative spend until December 2010 for data

acquisition will be US$26m-27m. After that, data

processing will commence, which will require US$36m-

June 2010

Page 27

GVK Power & Infrastructure

Travelog

39m. The next stage will be drilling exploratory

wells, depending on the data analysis.

Equity investment of Rs5.4b in FY11, plus Rs2b-3b

if gas based project expansion/NHAI project achieves

financial closure

For FY11, GVK's equity commitment will be Rs5.4b,

largely towards initial contribution for gas based

power project expansion (Rs1b), Alaknanda/Goindwal

Sahib (Rs3b), oil and gas (Rs300m-400m), Mumbai airport

(Rs740m), upfront payment for Rattle Hydro Power

(Rs350m).

Successful financial closure of 800-1,200MW gas-based

project expansion will entail incremental equity

investment of Rs1.2b-2.5b; plus Rs700m towards Kota-

Deoli NHAI road project. Bangalore airport debt of

Rs6.8b (interest rate 9%) needs to be refinanced in

January 2011, entailing refinancing requirements of

~Rs7.5b.

Part of the fund requirement is intended to be met

through private equity in the power business (~US$200m-

250m, in advanced stages) and internal accruals.

Private equity funding in the airport business looks

challenging due to regulatory uncertainty. GVK also

has options to securitize cash flows in operational

projects.

June 2010

Page 28

GVK Power & Infrastructure

Travelog

Valuations and view

We expect GVKPIL to post consolidated net profit of

Rs3.2b in FY11 (up 100% YoY) and Rs5b in FY12 (up 56%

YoY). At a CMP of Rs45, the stock trades at a PER of 21x

FY11E and 14x FY12E. We arrive at an SOTP based target

price of Rs54/share, comprising the airports (including

Bangalore airport at book value) at Rs25/share, roads

at Rs7/share, power portfolio at Rs17/share and investment

in other projects, cash at Rs3/share. Maintain

Buy.

NET PROFIT (RS M)

Summary of SPV wise profitability

Mumbai International Airport Limited

Jaipur Kishangarh Expressway

Jegurupadu Phase I

Jegurupadu Phase II

Alakananda Hydro Project

Gautami Power Project

Other Business (Mining, O&M)

Reported PAT

FY09

316

534

1,076

FY10

517

591

263

232

1,559

FY11

694

863

256

752

676

3,240

FY12

927

1,089

212

1,083

423

979

331

5,044

June 2010

Page 29

GVK Power & Infrastructure

INFRASTRUCTURE:

VALUA

ALUATIONS

GVK POWER AND INFRASTRUCTURE: SOTP VALUATIONS (RS M)

Project

% Holding

Mumbai Airport

Core business operations

37.0

Real Estate

Bangalore Airport

Roads

Jaipur Kishangarh Exp

Power

Jegurupadu Phase I

Jegurupadu Phase II

Alakananda Hydro project

Gautami Power Project

Goindwal Sahib Project

Coal Mining

Goriganga Hydro power project

Others

Oil & Gas Exploration

O&M Business

Investment in SEZ

Cash

Grand Total

37.0

Basis

DCF

DCF, At NAV

BV of investment

100.0

64.0

100.0

74.0

DCF

BV of investment

DCF

Book Value

FY10 Book

9.6

9.4

9.5

10.0

9.4

11.1

9.4

WACC %

8.7

12.0

Travelog

Equity ValueIn %

38,836

13,966

24,870

4,850

10,603

27,219

4,359

5,416

4,211

5,574

5,460

2,170

300

1,243

1,060

1,500

85,612

100

Rs/sh

100.0

10.5

June 2010

Page 30

Building a new landscape

Travelog

IVRCL

One for the road

UR meeting with senior management of IVRCL revealed

that the company had ambitious plans of diversifying

both geographically and segment-wise. The company's

share of water projects in its order book has declined

while that of road projects has increased. BTB has

increased from 3x in FY09 to 3.9x currently and the

target is to increase it to 4.6x by FY11, providing

robust growth visibilities.

Attempts at segmental, geographical order book

diversification; expect higher BTB ratio

IVRCL is in a transition phase, with attempts to

diversify its order book, in terms of new verticals

and geographies. The share of water projects declined

from 70% of the order book at the end of FY09 to 46%

at the end of FY10; but the share of roads increased

from 5% of the order book to 32%, largely due to

group BOT project wins.

IVRCL has also identified new business verticals

such as: i) marine, including piling and dredging,

and ii) mining contracts. IVRCL has also set up

initial presence in certain overseas markets, submitted

June 2010

Page 31

IVRCL

Travelog

bids for electrical tower projects in Africa, and is

planning acquisition of manufacturing units abroad

(to complement its strengths in Hindustan Dorr Oliver).

The book-to-bill (BTB) ratio increased to 3.9x at the

end of FY10, up from 3x at the end of FY09. The

increased order intake is driven by projects that

entail a longer gestation period [~50% of the intake

in FY10 is being driven by in-house road BOT projects].

For FY11 the management has guided for closing its

order book at Rs320b and revenues of ~Rs70b; thus

implied BTB stands at 4.6x. This will be a meaningful

increase.

ATTEMPTS TO DIVERSIFY ORDER BOOK COMPOSITION (%)

Water

Roads

Building

Power

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

June 2010

Page 32

IVRCL

Travelog

RATIO AT

TARGET

BOOK-TO-BILL RATIO AT 3.9X TTM REVENUE, TARGET 4.6x BY FY11

Order Book (Rs b)

Book to Bill (ttm x)

IVR Assets to book 35-40% EPC/construction profits

on BOT projects

For the order book from IVRCL Assets, IVRCL will get

EBITDA margins of ~9% for project construction and

IVRCL Assets will retain 3-4% margins on project

management and design improvements.

Given that a construction contract will cover 65-70%

and project management 85-95% of project costs, we

understand 60-65% of combined EPC/construction profits

will be accounted in IVRCL and 35-40% in IVRCL Assets.

June 2010

Page 33

IVRCL

Travelog

Net working capital cycle improves; debtor days

deteriorate to 115 in FY10

For IVRCL, net working capital in FY10, excluding

advances to subsidiary companies was Rs18.4b. This

was largely similar to that in FY09, despite 12.5%

revenue growth in FY10.

We understand that a large part of this improvement

is driven by increased current liabilities (up 46%

YoY) driven by higher mobilization advances, which

are largely interest bearing. Debtor days have

deteriorated from 65 days in FY08 to 84 in FY09 and

115 days in FY10.

Thus, increased interest bearing advances led to

higher interest costs in 4QFY10 at Rs525m against

Rs368m in 3QFY10; despite debt in absolute levels

declining to Rs16b from Rs19.4b.

BALANCE SHEET: IMPROVEMENT IN NWC DRIVEN BY INCREASED CURRENT

LIABILITIES

US$m

Debt

Current Assets

Current Liabilities

Net Working Capital

FY09

270

791

314

477

FY10

302

936

460

476

June 2010

Page 34

IVRCL

DAYS DETERIORATED

DEBTOR DAYS DETERIORATED IN FY10

Travelog

106

114

115

FY05

FY06

FY07

FY08

FY09

FY10

IVRCL Assets and Holdings: equity investment

contingent on fund raising

IVRCL Assets and Holdings has a portfolio of 10

projects comprising eight roads, one desalination

plant and one tankage facility. Total project cost

stands at Rs125b and over one year, the asset size is

targeted at Rs220b-230b. We believe this increase is

challenging given the funding constraints.

Equity investments on the existing portfolio is Rs22b,

of which IVRCL's share is Rs19b. Outstanding equity

investments by IVRCL stands at Rs15b-16b. While the

company has achieved financial sanctions for many

projects, financial closure will entail that 25-35%

of the equity will have to be invested upfront.

June 2010

Page 35

IVRCL

Travelog

The management stated that funding needs would be

largely met through: private equity investment in

project SPVs at Rs4b-4.5b, structured finance/QIP in

IVR Assets Rs5b and real estate monetization Rs4b-5b

(over three years). Thus a large part of the equity

requirement is contingent on fund raising/asset sale.

For IVRCL Assets, revenue in FY11 is expected at

Rs10b, including Rs3.5b from toll/annuity revenue.

FY12 revenue is expected to be Rs20b, including Rs6b

from toll/annuity revenue.

Successful fund raising in IVRCL Assets is also

important for IVRCL's execution as 15-18% of FY11

revenue are expected to be contributed by in-house

projects.

PROJECT DETAILS

IVRCL ASSETS: BOT PROJECT DETAILS

Project name

Length

Concession Project

(kms)

cost

Jalandhar - Amritsar Road Project

Salem to Kumarapalayam

Kumarapalayam - Chenagmpalli

Chennai Desalination

Sion - Panvel

Baramati - Phaltan

IOCL Tankage

Chengapalli - Walayar

Indore - Gujarat

Goa - Maharashtra

Aggregate

53.53

48.51

100MLD

77.9

12 tanks

155

122.06

20 years

25 years

18.9 years

25 years

15 years

27 years

23 years

3,436

5,020

4,215

5,679

14,500

3,820

30,000

11,250

15,237

30,000

123,157

Equity

641

800

651

1,730

3,500

690

2,250

4,250

3,809

4,000

22,321

IVRCL

Expected

Share (%) Completion

100

FY11

FY10

FY11

FY14

June 2010

Page 36

IVRCL

Travelog

Maintain Neutral

We expect IVRCL to report net profit of Rs2.6b in FY11

(up 21.9% YoY) and Rs3.4b in FY12 (up 31.5% YoY).

Maintain

Neutral,

with a price target of Rs184. At a

CMP of Rs181, the stock quotes at reported PER of 19.4x

FY11E and 14.8x FY12E and adjusted PER of 13.2x FY11E

and 10.1x FY12E.

June 2010

Page 37

Building a new landscape

Travelog

A P Irrigation Department

Wealth from water

UR discussions with Shailendra Kumar Joshi, IAS,

Principal Secretary to Government (Projects),

Irrigation and Command Area Development Department,

revealed the enormity of the Jalayagnam project. The

project has hit a few roadblocks but the A P Irrigation

Department seems to be doing its best to get things

moving. It is, after all, a project that can help to

change for the better, the lives of millions.

Jalayagnam: an ambitious project

The government of Andhra Pradesh's ambitious irrigation

infrastructure project, Jalayagnam, comprises major,

medium and minor ventures. Jalayagnam includes 44

major irrigation projects, 30 medium irrigation

projects, eight modernization projects and four flood-

bank strengthening projects.

Jalayagnam is expected to irrigate 10m acres and was

scheduled to be completed by FY14. Since 2004, 12

projects have been completed and 2.2m acres have been

irrigated. The project entails land acquisition (0.8m

acres), resettlement and rehabilitation (0.13m

families).

June 2010

Page 38

A P Irrigation Department

Travelog

June 2010

Page 39

A P Irrigation Department

Travelog

Project implementation: priority to complete

projects with 75%+ physical progress

Jalayagnam's 86 projects were approved at a project

cost of Rs1,790b. Of this, projects costing Rs1,220b

were awarded to contractors. The remaining projects

worth ~Rs550b are awaiting clearances of issues such

as land acquisition, rehabilitation of families and

environment and forest department clearances.

Since 2004, Rs530b has been spent on irrigation

projects, of which Rs430b has been towards Jalayagnam,

and Rs100b on modernization/upgrading of existing

projects and on minor irrigation projects.

Out of the 86 projects, only 12 were complete by

March 2010 and partial benefits have been given on 20

projects. The target is to complete 39 projects by

mid-FY12 (including 20 projects for which partial

benefits have been given), which would take the number

of completed projects to 51. The 39 projects have

achieved over 75% physical progress and are on the

government's priority list for completion. The

estimated remaining cost for completion of the 39

projects is Rs68b.

June 2010

Page 40

A P Irrigation Department

Travelog

Funding a constraint, but scenario has improved

since 2QFY10

Budgetary allocation for the Jalayagnam projects

accounted for 40-42% of the government of Andhra

Pradesh's Plan Budget, and is thus its flagship

project.

In FY10, budgeted allocation to the Jalayagnam project

was Rs170b and actual spend was Rs120b. In FY11 the

budget allocation is Rs150b but actual spending is

estimated at Rs120b. Real estate comprises less than

1% of government revenues and is not impacting project

execution.

As at March 2010, the outstanding liability towards

contractors was ~Rs40b. As of date, bill payments

have been made for work done until November 2009. For

AIBP projects, funding has been cleared until February

2010.

Spend in FY11 will include payments of outstanding

dues of ~Rs40b to contractors, Rs68b towards 39

projects which are more than 75% completed and balance

amount will be used for other projects. Since a large

part of the allocation is for clearance of past dues,

the allocation to spending on work on the projects

will be curtailed.

June 2010

Page 41

A P Irrigation Department

Travelog

The government has also revised milestones for project

execution/completion from 36/42 months to ~60 months.

This will slow execution.

The Jalayagnam project was targeted to be completed

by FY14 but is expected to take 2-3 years more due to

delays.

Escrow mechanism for contractors

To partly address funding constraints for contractors,

the government has provided comfort to financial

institutions and banks through an escrow account.

Contractors can take advances against outstanding

receivables. The interest cost on the advances must

be borne by contractors. The mechanism is largely to

address the funding requirements.

Execution challenges

The Jalayagnam project entails execution challenges

because of its large size, land acquisition issues,

resettlement and rehabilitation of families on the

land for the project, and delays in obtaining

clearances from the environment and forest departments.

Irrigation projects also involve inter-state issues

because of the use of water from sources that run

through other states. Funding is also a constraint.

June 2010

Page 42

A P Irrigation Department

Travelog

Central government funding

The central government is weighing the possibility

of declaring the Polavaram (Rs63b) project a national

project. The central government bears 90% of the cost

of a national project.

A project can be declared a national project if it i)

has an ayacut of 250,000 hectares, ii) leads to

inter-linking rivers, iii) involves inter-state issues,

or iv) involves international border issues.

Initial contracts on the Polavaram project were pre-

closed and the project tender is expected to be re-

awarded soon. The project will be implemented if it

receives central government funding.

Huge opportunity cost of scarce water

The opportunity cost of scarce water is huge as it

leads to losses in industrial development and

agricultural production.

For instance, the Polavaram project's opportunity

loss is Rs20b a year, because it can irrigate 725,000

acres of agricultural land and expedite expansion

plans of companies like SAIL and NTPC, which have

been impacted by a water shortage.

June 2010

Page 43

A P Irrigation Department

Travelog

Andhra Pradesh irrigation projects: Among the

largest infrastructure initiatives in India

AMRP INCLUDING SLBC TUNNEL

Cost: Rs56b

Irrigation potential (acres):

370,000

Power requirement: 116MW

CoD: 2013-14

PROJECT

STAGE

SRIRAM SAGAR PROJECT (SRSP, STAGE II)

Cost: Rs8.3b

Irrigation potential (acres):

440,000

CoD: 2011-12

June 2010

Page 44

A P Irrigation Department

PROJECT

FLOOD FLOW CANAL FROM SRSP PROJECT

Travelog

Cost: Rs47b

Irrigation potential (acres):

220,000

Power requirement: 48MW

CoD: 2012-13

INDIRA SAGAR RUDRAM KOTA LIFT IRRIGATION (LIS)

KOTA

IRRIGATION

Cost: Rs18b

Irrigation potential (acres):

200,929

Power requirement: 229MW

CoD: 2012-13

June 2010

Page 45

A P Irrigation Department

DEVADULA

J. CHOKKA RAO - DEVADULA LIS

Travelog

Cost: Rs92b

Irrigation potential (acres):

621,000

Power requirement: 384MW

CoD: 2013-14

(POLAV

PROJECT

INDIRA SAGAR (POLAVARAM) PROJECT

Cost: Rs103b

Irrigation potential (acres):

721,000

Power requirement: 960MW

CoD: 2012-13

June 2010

Page 46

A P Irrigation Department

PROJECT

POOLA SUBBAIAH VELIGONDA PROJECT

Travelog

Cost: Rs52b

Irrigation potential (acres):

447,300

Power requirement: 15MW

CoD: 2013-14

PROJECT

TELUGU GANGA PROJECT

Cost: Rs44b

Irrigation potential (acres):

522,539

CoD: 2010-11

June 2010

Page 47

A P Irrigation Department

SRAV

GALERU - NAGARI SUJALA SRAVANTHI

Travelog

Cost: Rs72b

Irrigation potential (acres):

255,000

CoD: 2010-12

June 2010

Page 48

Building a new landscape

Travelog

Nagarjuna Construction

Consolidation on the cards

UR interaction with the management of Nagarjuna

Construction revealed that the company would

consolidate its global business in FY11 and EBITDA

margins would be sustained. Most of the BOT projects

under construction will be commissioned in FY11,

improving operational cash flows. The company also

plans to acquire coal mines in Indonesia.

International business: FY11 to be a consolidation

year, increased competition

During FY11, the management intends to consolidate

its international business. According to its FY11

business plan, approved by the board, international

operations will contribute revenue of Rs13b, and

order intake is expected to be Rs7b. This compares

with gross intake of Rs20b in FY10. Over the past

four years, the business has grown meaningfully,

from revenue of Rs1b in FY07 to Rs11.2b in FY10. The

international business order book as at March 2010

was Rs33b (contribution of 21%).

June 2010

Page 49

Nagarjuna Construction

Travelog

Competition is now increasing with various Chinese/

Turkish companies entering the market. A slowdown in

Dubai has also led to increased competition for projects

in places like Abu Dhabi and Muscat. Nagarjuna also

intends to enter countries like Kuwait and Qatar.

In the international business, Nagarjuna is focused

on the transport, water and buildings segments. Since

the orders are from government agencies, payment

risks are mitigated.

EBITDA margins in international projects at the bid

level are similar to those of domestic projects. As

tax rates in Muscat and Dubai are low (nil in Dubai,

12% in Muscat), PAT margins are better. All

international orders are on a fixed-price contract

basis and the company benefited from a decline in

commodity prices in FY10. The management believes

EBITDA margins will be sustained as operational

efficiencies have crept in.

INTERNATIONAL

CONSOLIDATION

INTERNATIONAL BUSINESS: FY11 TO BE A YEAR OF CONSOLIDATION (Rs M)

Order Book

Revenues

Net Profit

In %

FY08

24,240

1,466

4.3

FY09

33,030

5,753

260

4.5

FY10E

32,920

9,342

448

4.8

FY11E

25,750

13,450

673

5.0

June 2010

Page 50

Nagarjuna Construction

Travelog

Investments in RE/BOT projects of Rs11.8b, new BOT

road project win after 3-4 years

Nagarjuna has so far invested Rs11.8b in real estate

and on road BOT projects (including advances of Rs2.4b).

The outstanding equity commitment is Rs600m-700m,

including cost overruns, of which a large part will

be invested in 1QFY11. Most of the BOT projects under

construction are expected to be operational by end

FY11, which should improve the operational cash flows.

Nagarjuna was recently awarded an NHAI road project,

at a cost of Rs15b in West Bengal. This win is the

first of its kind after 3-4 years.

Nagarjuna has capped further equity investment on

real estate. It plans to recover investments through

project launches as the real estate market improves.

The company has commenced apartment sales in the

National Games Village in Ranchi: 250 apartments of

the 1,000 apartments constructed and attributable to

Nagarjuna have been sold.

Nagarjuna Urban will have revenue of Rs2.7b in FY11,

up from Rs1.1b in FY10.

June 2010

Page 51

Nagarjuna Construction

PROJECTS

OPERATIONAL

SIX BOT PROJECTS TO BE OPERATIONAL BY END FY11

Type

Transport

Bangalore-Maddur (Brindavan)

Orai-Bhognipur, UP

Bangalore-Hosur Elevated Road

Merrut-Muzzafarnagar, UP

Pondicherry Road

Power

Himachal Sorang (100MW)

Total

* Nagarjuna share

Project

Cost

(Rs m)

2,475

5,840

8,520

6,349

3,150

5,987

32,321

Equity

Invested

(Rs m)*

150

936

1,149

1,170

330

810

4,545

NCC

Stake

(%)

Travelog

Status

Annuity

Toll based

Operational

July 2010

Jan 2010

July 2010

Sept 2010

Mar 2011

Hydropower

Thermal power: case 1 bids of 400MW signed, plans

to acquire coal mines in Indonesia

Nagarjuna plans to set up a 1,320MW thermal power

plant in Andhra Pradesh, for which most of the

clearances and coal linkages have been received and

land acquisition (1,800 acres) completed. Project

EPC will be executed by Nagarjuna, and BTG will be

awarded to Chinese companies. Nagarjuna is expected

to make EBITDA margins of 11-12% and PBT margins of

7-8%.

The company has participated in a case 1 bid and

signed PPA with Karnataka to supply 400MW at Rs3.89/

unit for 25 years. Nagarjuna intends to have 80% on

long term PPAs and 20% on a merchant basis.

June 2010

Page 52

Nagarjuna Construction

Travelog

The project is expected to achieve financial closure

by the end of June 2010. Nagarjuna has 100% stake in

the project and plans to induct a financial investor

(maximum 49% dilution). The project cost is Rs65.7b,

which will be financed as debt of Rs51.6b and equity

of Rs17.2b. The company has spent Rs650m-700m on the

project so far. Financial closure will entail upfront

equity investment of Rs5.8b.

70% linkage has been obtained from Mahanadi coal

fields and landed cost is expected at Rs1300/ton. 30%

of the coal will be met through imports. Nagarjuna

intends to acquire coal mines in Indonesia with

reserves of ~30mt reserves and negotiations are

underway. FOB price is expected at US$35/t and CIF

including local transport will be US$55/ton. Generation

cost is expected at Rs2.4/unit.

The project also entails phase-2 expansion of 1,320MW

for which most clearances are in place.

Dubai real estate: trigger point for customer payment

should indicate cancellations

So far, Nagarjuna Urban Infra has invested Rs3.4b in

the project including through client advances,

borrowings and equity investment. Nagarjuna plans to

complete construction of Tower 1 up to the tenth

floor (cost Rs500m), which will be the next trigger

June 2010

Page 53

Nagarjuna Construction

Travelog

point for further payment by customers and should

indicate the quantum of cancellations. We believe

there is a fair possibility of cancellations in the

project, which will entail blockage of funds by

Nagarjuna until economic conditions improve in Dubai.

The sale value of Tower 1 is Rs5.5b and the construction

cost is Rs4b (excluding land cost). Thus, after

factoring in the proportional cost of land and interest

during construction, Tower 1 is expected to only

break even.

NAGARJUNA: BUSINESS PLAN FY11 (RS M)

Build Trans- Water

ings

Op. O/ Book

(Mar-10)

port

36,890 11,790 24,250

Elec-

Irri- Metals Power Others Inter-

national

4,940 10,650

9,460 32,950 153,780

Total

trical gation

7,100 15,750

6,000

4,230

3,600

8,870 18,150

Order Intake 32,000 20,000 15,000

Revenue

18,150

5,060 14,000

Cl. O/ Book 50,740 26,730 25,250

(Mar-11)

5,900 50,000

9,000

6,250 150,150

4,170

3,510

3,520 13,450 69,690

6,670 57,140 14,940 25,750 234,240

June 2010

Page 54

Nagarjuna Construction

RATIO AT

BOOK-TO-BILL RATIO AT 2.7X TTM REVENUE

Travelog

Order Book (Rs b)

Book to Bill - x (ttm)

Maintain Buy

We expect Nagarjuna to post net profit (from the

construction business, including overseas companies)

of Rs3b in FY11 (up 26.7% YoY) and Rs3.7b in FY12 (up

22.5% YoY). Maintain

Buy,

with a price target of Rs204/

sh. At a CMP of Rs190, the stock quotes at a reported

PER of 16.2x FY11E and 13.3x FY12E, and adjusted PER of

13.1x FY11E and 10.7x FY12E.

June 2010

Page 55

Building a new landscape

Travelog

Madhucon Projects

SPVs commence operations

E met S Vaikuntanathan, Director Finance, and S

Jagannadham, Executive Director, of Madhucon

Projects. By end FY11, the company will have an

operational portfolio of four NHAI projects (317km),

Thermal Power (300 MW) and coal mining in Indonesia

(250mt). Funding is a challenge.

Contracting order book Rs57b, in-house orders 60%

Madhucon Project's current order book is Rs57b and

its book-to-bill ratio is 4.4x FY10 revenue. Order

composition is: power (42%), irrigation (24%), roads

(24%), buildings (7%).

The share of in-house projects in the order book is

Rs36b, comprising roads (Rs7.5b), power (Rs24b) &

buildings (Rs4b). In-house orders contribute 60% to

the order book.

Within irrigation, a large number of the projects is

from Andhra Pradesh, which entails that the execution

on this order book will be limited in FY11.

The management has guided for FY11 revenue of Rs20b

(v/s Rs13.1b in FY10) and PAT margins of 4.8% (v/s

3.3% in FY10). We believe that given the order book

composition, the guidance is challenging.

June 2010

Page 56

Madhucon Projects

Travelog

CONTRACTING

CONTRACTING BUSINESS: FINANCIAL (RS M)

FY05

Revenues

EBIDTA %

PAT %

PAT

3,106

14.4

5.2

162

FY06

3,495

20.1

9.5

333

FY07

5,315

18.4

7.8

416

FY08

7,506

16.0

6.3

473

FY09

10,445

13.7

4.5

469

FY10

13,076

10.6

3.3

432

Four operational road BOT projects by end-FY11

Madhucon is executing four road BOT projects with a

total length of 320km (project cost Rs20b and equity

of Rs3.8b). A large part of the equity has already

been invested.

Currently two road projects are operational and the

remaining two projects will start partial tolling in

July 2010. These four projects will generate toll

revenue of Rs1.7b a year.

Recently Madhucon was awarded the Chhapra-Hajipur

four-laning road project by NHAI in Bihar on an

annuity basis. The project size is 64km and project

cost is Rs8.2b. Target DER is 75:25 and annuity

payments are Rs634m payable semi-annually. The

concession period is 15 years, including 2.5 years of

construction.

June 2010

Page 57

Madhucon Projects

Travelog

OPERATIONAL PROJECTS

BOT PORTFOLIO: FOUR OPERATIONAL PROJECTS BY END AUG 2010 (RS M)

Bharatpur - Mahwa

Karur - Dindigul

Trichy - Thanjavur

Madurai - Tuticorin

Chhapra - Hajipur

Total

Equity (%)

100

Length (km)

129

COD

May-09

Nov-09

July / Aug 2010

2014

Project Cost

3,380

3,730

3,900

9,200

8,200

28,410

Grant

960

860

780

1,440

4,040

Power: 300MW to start operations end-FY11, 3.7GW

in various stages of completion

Krishnapatnam Phase 1 project capacity has been

increased to 300MW (2 units of 150MW each), v/s

initially 270MW (2 units of 135MW each). Project

capex is Rs16b, which will be funded on a DER of

75:25. As at March 2010, the company incurred capex

of Rs7b and the rest will be spent in FY11. Equity

invested is Rs2.2b.

During the first phase, 200MW capacity was tied up

with PTC, which will supply the coal, and the rest of

the power will be sold on a merchant basis.

Phase 2 will comprise two units of 150MW each to be

set up at a project cost of Rs16b. Financial sanctions

have been received and the project is expected to

achieve financial closure shortly. Equity investment

expected in FY11 for Phase 2 is Rs2b.

June 2010

Page 58

Madhucon Projects

Travelog

The company plans to set up 1,320MW at Krishnapatnam

in Phase 3, it has signed an MOU with the government

of Jharkhand to set up a 1GW thermal project and was

awarded hydro power projects of 75MW by the Uttarakhand

govewrnment. Construction for the hydro power projects

is expected to commence by the end of FY11.

Indonesian coal mines to start production in FY11

Madhucon's 95% subsidiary, PT Madhucon, Indonesia

has started excavation at the East Kalimantan mines

in Indonesia, which as per a geological survey, has

reserves of 250mt spread over 3,188 hectares. The

jetty to export the coal from this mine is expected

to be completed by the end of August 2010. Production

is expected as follows: 0.5m-0.6mt in FY11, 1.5mt in

FY12 and 2.5mt in FY13. For production beyond 1.5mt,

incremental capex will be required for the mining

infrastructure.

The company also received another license to prospect

coal from 10,000 hectares of land in and around

Sumatra, Indonesia and the expected mineable reserves

are 900mt. Geological studies are being conducted.

The management says it takes 6-7 years to start

mining in Indonesia, which is a long gestation period.

June 2010

Page 59

Madhucon Projects

Travelog

Real estate

Madhucon has nine acres of land in Kukatpally,

Hyderabad, which it acquired at an auction from the

Hyderabad Urban Development Authority (HUDA) for Rs45m

an acre in 2005.

The company plans to develop about 2.1msf for mixed

use development, including a four-star hotel,

commercial complex and retail mall.

June 2010

Page 60

Building a new landscape

Travelog

Vijai Electricals

Powering ahead

E met D Jai Ramesh, chairman and managing director

of Vijai Electricals and discovered a fascinating

corporate journey.

An inspiring story

Vijai Electricals was promoted as a proprietary concern

by DJ Ramesh, in 1973, incorporated as a private

limited company in 1980 and converted into a public

limited company in 1992.

Over the years, the company has achieved a leadership

position in India in the distribution transformer

segment, and is the only organized player in the

market. The company has diversified into other segments

such as power transformers, switchgear products and

projects. Vijai now has five business units.

The company has also diversified geographically through

setting up manufacturing plants in countries like

Mexico and Brazil.

Many of the business segments are in the initial

stages of a production ramp-up and present a meaningful

growth opportunity in the future.

June 2010

Page 61

Vijai Electricals

Travelog

Revenue growth over the six years to 2008 was ~50%

CAGR. FY10 revenue was Rs16b-18b, and in FY11, the

company expects revenue growth of ~50%.

Between 2004 and 2008 Vijai incurred capex of Rs6b to

set up manufacturing facilities. Now, the company

has capability to generate revenues of 3x current

size without a meaningful incremental capex.

Only organized player in distribution transformers

In distribution transformers, Vijai has a market

share of 25% and capacity share is 30%. The distribution

market (33kV) is dominated by small unorganized players

and there is no other large organized player.

The company's backward integration and investment in

technology, which helped it to compete with the

unorganized sector, is the main reason for its success.

Vijai makes its own conductors, insulators, lamination

and tank fabrication, which provides cost benefits.

The company developed amorphous metal transformer

technology, which leads to power saving. While the

domestic market for this product is improving,

countries like Brazil and the

US offer good

opportunities.

June 2010

Page 62

Vijai Electricals

Travelog

Entering the big boys' league

Vijai entered the design, manufacture, testing and

supply of EHV power transformers up to 500MVA, 500kV

in technical collaboration with Daihen Corporation,

Japan. The company has a capacity of ~12,000MVA for

EHV transformers, which is in a similar range as many

MNCs like ABB, Areva and Siemens. Vijai is also

preparing to supply 1,200kV transformers, as the

market for them opens in India. Vijai's capacity

share in EHV transformers is ~10%.

Vijai will gain from backward integration into

conductors, lamination, tank fabrication, radiators

and insulators even in making power transformers,

providing it with cost benefits.

Vijai is scheduling the manufacture of gas-insulated

switchgears of up to 420kV in India and will perhaps

be the only company to do so.

Chinese/Koreans competition not structural, pricing

pressure probably reaching trough

Chinese and Korean competition in 765kV products was

given stringent pre-qualification norms by Powergrid.

The products were required to be supplied from a

plant with a two-year track record of manufacturing

765kV transformers.

June 2010

Page 63

Vijai Electricals

Travelog

Over the past 18 months the pre-qualification norms

have been eased, which has helped some companies in

India to gain pre-qualification for their Indian

manufacturing units.

Prices two years ago were better than what they are

today. Today's prices are 7-8% lower than prices a

year earlier. Prices are probably touching the lowest

point.

Vijai is focusing on efficiency improvement and

increased capacity utilization for power transformers,

switchgears and other products, which are new product

segments. Its plants in Mexico and Brazil can contribute

meaningfully to revenues going forward.

June 2010

Page 64

Building a new landscape

Travelog

Gayatri Projects

Steady progress

T Gayatri Projects, we met KG Naidu, VP Finance,

who gave us a fair idea of the company's road,

irrigation and power projects.

Order book of Rs71b, irrigation projects contribute

52% to order book

Gayatri Projects' order book is Rs71b (5.6x FY10

revenue). Order book composition is as follows:

transport (34%), irrigation (52%) and others, including

industrials (14%).

The management expects FY11 revenue contribution from

irrigation projects of Rs2b against an initial estimate

of Rs10b. This slowdown will also impact margins on

irrigation projects due to poor cost absorption.

Gayatri Infra Ventures (70% stake)

Gayatri Infra Ventures has a portfolio of seven BOT

projects, comprising four annuity and three tolls

with a project cost of Rs23b.

Of these, four annuity and one toll project are

expected to become operational in FY11. The projects

were expected to become operational between September

June 2010

Page 65

Gayatri Projects

Travelog

2008 and December 2009. Equity invested so far by

Gayatri Infra Ventures in BOT projects is Rs2.1b,

including Rs1b received from AMP Capital.

The two toll projects were recently awarded and will

achieve financial closure in the next few months. The

share of equity investment in the projects by Gayatri

Infra Ventures is Rs3b.

In March 2008, AMP Capital infused Rs1b in Gayatri

Infra Ventures for a 29.4% stake, valuing the company

at Rs3.4b. AMP also has the option to invest Rs1b

more in the company as equity commitment towards

future BOT projects.

PROJECTS

OPERATIONAL

FIVE BOT PROJECTS TO BECOME OPERATIONAL IN FY11

Type

Gayatri Lalitpur

Gayatri Jhansi

Merrut-Muzzafarnagar, UP

Hyderdabad outer ring road 1

Hyderdabad outer ring road 2

Hyderabad Karimnagar Ramagundam

Indore Dewas

Total

Annuity

Toll

Annuity

Toll

Cost

(Rs m)

3,126

4,210

6,681

4,310

5,018

22000

6,016

Gayatri Infra Equity

( stake, %)

100

(Rs m)

306

408

768

341

224

1,480

1,504

5,030

Equity infusion

(FY10, Rs m)

306

408

768

341

224

2,046

June 2010

Page 66

Gayatri Projects

Travelog

Gayatri Energy Ventures

Gayatri Energy Ventures, a subsidiary of Gayatri

Projects, is developing a 1,320MW (2*660MW) thermal

power plant under Phase-I at Krishnapatnam, Andhra

Pradesh through its subsidiary, Thermal Powertech

Corporation India Limited (TPCIL). The company plans

to expand its capacity in the same location by 1,320MW

in Phase-II, thus taking the total capacity to 2,640MW.

Land has been acquired (1408 acres), environment

clearance received, coal linkage from Mahanadi

Coalfields for 70% of requirements has been obtained..

Land for Phase-II of the 1,320MW project is also in

its possession. The Phase-I project cost is Rs68.7b,

which will be funded as debt of Rs51.5b and equity of

Rs17.2b. Financial closure for Phase-I is targeted

by the end of June 2010.

In May 2010, the company entered into a JV agreement

with Sembcorp Utilities to invest Rs11b in TPCIL for

49.7% stake. Gayatri Energy Ventures has so far

invested equity of Rs2b and will invest the remaining

Rs4.2b going forward.

June 2010

Page 67

Building a new landscape

Travelog

Irrigation project at Veligonda

An engineering marvel

E visited Veligonda Tunnel project, about 300km

from Hyderabad, executed by Coastal Projects Ltd.

This project entails the drilling of two tunnels through

mountains with a length of 18.8km each and diameters of

eight and 10 meters. The tunnels are being drilled by

Tunnel Boring Machines, which bore through the mountains

earthworms. With a contract value of Rs14b-15b,

these are easily among the largest ongoing irrigation

projects in Andhra Pradesh.

An exciting journey

The journey from Hyderabad to the Veligonda site took

us through (i) Rajiv Gandhi Tiger Reserve, (ii) Srisailam

Dam across the Krishna River, which submerged more than

100 villages when it was constructed, (iii) the

Mallikarjuna Temple, which is one of the 12 jyotirlingas

of Lord Shiva, (iv) the world's longest bored tunnel

being drilled by Jaiprakash with a length of ~45km and

diameter of over nine meters.

June 2010

Page 68

Irrigation project at Veligonda

Travelog

Hyderabad

Veligonda Site

June 2010

Page 69

Irrigation project at Veligonda

Travelog

Rajiv Gandhi Tiger Reserve is

spread over 3,568sq km and has

75 tigers

The Srisailam Dam across the

Krishna River had resulted in the

submerging of over 100 villages

when it was built

June 2010

Page 70

Irrigation project at Veligonda

Travelog

The left bank hydro electric power

station generates 6 × 150MW of

power and the right bank

generates 7 × 110MW of power

Jaiprakash Associates is drilling

what is probably the world's

longest bored tunnel, the

Srisailam Left Bank Canal. The

project contract value was about

Rs20b

June 2010

Page 71

Irrigation project at Veligonda

Travelog

Project site an engineering marvel

Tunnel Boring Machines (TBMs) are giant drills that

bore through imposing mountains. Each TBM is about 150

meters long and weighs 1,450 tons. Each TBM costs

Rs1.2b-1.3b, making it one of the most expensive

engineering tools. A railway coach transported us 2.5km

into the tunnel to a TBM. Here, at 120 meters underground

fresh air must be pumped in. A TBM encases ~150 people

working in close coordination with each other. At optimum

rates, a TBM can move 1.65 meters an hour, leaving a

concretized tunnel in its wake.

Miniature model of a TBM

June 2010

Page 72

Irrigation project at Veligonda

Travelog

Entering the mouth of the tunnel

in a railway coach [notice that

fresh air is being pumped in]

Heavy duty cranes to load

concrete liners on railway wagons;

conveyor belts transporting cut

rocks from inside the tunnel

June 2010

Page 73

Irrigation project at Veligonda

Travelog

Entering the tunnel: soon it will

become completely dark as we

move deeper inside

Railway carriage inside the TBM,

where we get down

June 2010

Page 74

Irrigation project at Veligonda

Travelog

Cement being pumped inside the

liners (across the tunnel), to close

any gaps

Concrete liners being affixed on

the tunnel. As the TBM moves

ahead, a concretized tunnel is left

behind

June 2010

Page 75

Irrigation project at Veligonda

Travelog

Concrete liners on the top of the

tunnel. Seven liners are required

to complete a ring

Workshop to manufacture

concrete liners... the workshop

consumes ~10 tons of steel and

50-70 tons of cement a day

June 2010

Page 76

Irrigation project at Veligonda

Travelog

The first stage in making concrete

liners for the tunnel is cutting and

fabrication of steel...

Concrete is then poured into a

structure to make concrete liners

June 2010

Page 77

Building a new landscape

Travelog

NOTES

June 2010

Page 78

Building a new landscape

Travelog

NOTES

June 2010

Page 79

Travelog

the analyst's diary

INFRASTRUCTURE 2010

For more copies or other information, contact

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Navin Agarwal.

Retail:

Manish Shah

Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: reports@motilaloswal.com

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