19615Alpha Power

XYZ & ASSOCIATES

Business Valuation of ALPHA POWER LIMITED

As of 30th September, 2009

Prepared for ABC Pension Fund Managers, USA

Reference Letter No - Aaa Dt 12/10/2009

The information contained herein is of a confidential nature and is intended for the exclusive use of the persons or firm for whom it was prepared. Reproduction, publication or dissemination of all or portions hereof may not be made without prior approval from XYZ & Associates, Chartered Accountants.

Valuation Report prepared by Group 8 Batch 3 Page 2 of 52

Contents EXTERNAL AND INTERNAL SOURCES OF INFORMATION.......................................................................3

ASSUMPTIONS AND LIMITING CONDITIONS........................................................................................3

INDUSTRY OVERVIEW ........................................................................................................................3

Overview of the Indian Economy ....................................................................................................3

Industry Demand-Supply Overview.................................................................................................3

Regional Demand-Supply Scenario..................................................................................................3

Historical Capacity Additions..........................................................................................................3

Installed Generation Capacity by Sector and Fuel ............................................................................3

Thermal Power Generation.............................................................................................................3

Future Capacity Additions...............................................................................................................3

Power Scenario in Western India....................................................................................................3

Organization Structure of the Power Industry .................................................................................3

Regulatory Control.........................................................................................................................3

Regulatory Structure ................................ ................................ ................................ ......................3

Regulations....................................................................................................................................3

Ultra Mega Power Projects .............................................................................................................3

Captive Power Generation in India..................................................................................................3

BUSINESS OVERVIEW OF ALPHA POWER LIMITED ...............................................................................3

Overview.......................................................................................................................................3

Power Projects...............................................................................................................................3

Competitive Strengths....................................................................................................................3

Company strategy ..........................................................................................................................3

Competitive analysis................................ ................................ ................................ ......................3


APL’s Power Projects................................ ................................ ................................ ......................3

HISTORICAL FINANCIAL STATEMENTS .................................................................................................3

STATEMENT OF PROFIT AND LOSS ACCOUNT ..................................................................................3

FINANCING ARRANGEMENTS FOR PROPOSED POWER PROJECTS.....................................................3

VALUAION OF ALPHA POWER LIMITED ...............................................................................................3

Income Approach-Discount Rate Estimates .....................................................................................3

Discounted Future Earnings Method...................................................................................................3

ASSUMPTIONS...............................................................................................................................3

PROJECTED ENERGY SALES................................ ................................ ................................ ..............3

COAL REQUIREMENT CALCULATION................................................................................................3

PROJECTED PROFITABILITY STATEMENT..........................................................................................3

PROJECTED BALANCE SHEET ...........................................................................................................3

CASH FLOW ESTIMATES AND CALCULATION OF PRESENT VALUE OF CASH FLOWS TO EQUITY ..........3

DCF VALUE PER EQUITY SHARE .......................................................................................................3

Comparative Company Method..........................................................................................................3

Market Approach (Market Value Method)..........................................................................................3

Business Value of ALPHA POWER LIMITED ..........................................................................................3

CONCLUSION OF VALUE..................................................................................................................3


INTRODUCTION AND OBJECTIVE

Our objective was to estimate the Fair Value for minority Stake of Alpha Power Limited (APL) as of September 30, 2009. It is a power project development company, which is developing, and will operate and maintain, power projects in India. APL has four thermal power projects under various stages of development, with a combined installed capacity of 6,600 MW. The standard of value used in our valuation of Alpha Power Limited is Fair Value . Fair Value is the price, in cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could reasonably be expected to accept, if the business were exposed for sale on the open market for a reasonable period of time, with both buyer and seller being in possession of the pertinent facts and neither being under any compulsion to act. The purpose of this valuation is to determine the price per share for buying 10% stake in Alpha Power Limited from the promoters of the company M/s Alpha Enterprises Limited by long term pension fund managers M/s ABC Pension Fund Managers, USA. Shareholding pattern as on 30th September 2009

Million Shares %

Alpha Enterprises 1531.39 70.25% Venture Power Investment 70.88 3.25% MFs/UTI 26.03 1.19% Banks/Financial Institutions 10.28 0.47% FIIs 164.26 7.53% Public 377.14 17.30% 2179.98 100.00%

Source: NSE website Our opinion of Fair Value relied on a “value in use” or going concern premise. This premise assumes that the Company is an ongoing business enterprise with management operating in a rational way with a goal of maximizing shareholder value. Our analysis considers those facts and circumstances present at the Company at the Valuation Date i.e. 30thSeptember, 2009. Our opinion would most likely be different if another Valuation Date was used. To arrive at our conclusion of Fair Value, we performed the following procedures:

? Collected the Company’s relevant historic financial statements.

? Analyzed the historic financial statements by calculating financial ratios in order to identify trends.

? Compared the Company’s financial ratios to industry guideline data to identify any

significant vari ances.


? Assisted management in preparing a 7 year projection of the financial statements based

on management’s assumptions as to the Company’s future outlook.

? Developed risk-adjusted Discount Rates to apply to the Company’s historic and projected earnings, respectively.

? Collected and analyzed transactional data from comparable companies within the same

industry.

? Applied Income, Market, and Comparable Company Multiple valuation approaches to determine an estimate of Total Entity Value. The following methods were considered under each approach: 1. Income Approach

Discounted Future Earnings. 2. Comparable Company Multiple Approach

Enterprise Value to Mega Watt Multiple, 3. Market Approach

Average Historical Prices of the shares.

? Selected the most reasonable Tota l Entity Value from the range of values established in the Valuation methods and then applied any appropriate discounts & Premiums to arrive at our conclusion of the estimated Fair Value of per equity share of APL


EXTERNAL AND INTERNAL SOURCES OF INFORMATION

Unless otherwise indicated, all financial and statistical data in the following discussion is derived from websites of and publicly available documents from, various sources, including the website of the Ministry of Power and Central Electricity Authority (“CEA”). The data may have been re-classified by us for the purpose of presentation. Unless otherwise indicated, the data presented excludes captive capacity and generation. To aid us in our analysis of the Company, numerous financial publications and databases were consulted including Reports from CII & Leading consulting & financial firms, Business Statistics, Bloomberg’s Industry Surveys. The sources of information, which have been furnished to us by the management of the Company, are as under:

1. Background of the Company.

2. Debt Profile of the Company.

3. Details of Performance of the Comparable power companies in India.

4. Memorandum of Articles and Articles of Association of the Company.

5. Analysts / Investors Conference Call transcript.

6. Audited accounts of the Company for the year ended MARCH 31, 2008 and 2009.

7. Projections of APL from the year ended 31ST March 2010 to 2016.

8. Other relevant details such as history of the Company, its promoters, shareholding pattern, past & present activities, future pl ans &prospects, other relevant information and data.

9. We have also received the necessary explanations and information, which we believed

were relevant to the present valuation exercise from the executives and management of the Company and the Client.


ASSUMPTIONS AND LIMITING CONDITIONS

This valuation is subject to the following assumptions and limiting conditions:

? Public information, estimates, industry and statistical information contained in this report have been obtained from sources considered to be reliable. However, we independently did not verify such information and make no representation as to the accuracy or completeness of such information obtained from or provided by such sources.

? Possession of this report, or a copy thereof, does not carry with it the right of

publication of all or part of it nor may it be used for any purpose by anyone other than those enumerated in this report without the written consent of the XYZ & Associates, Chartered Accountants. This report and the conclusion of value arrived at herein are for the exclusive use of our client for the sole and specific purposes as noted herein.

? We are not required to give testimony in court, or be in attendance during any hearings

or depositions, with reference to the company being va lued, unless previous arrangements have been made.

? Financial information of the subject company is included solely to assist in the

development of a value conclusion presented in this report and should not be used to obtain credit or for other purpose. Because of the limited purpose of the information presented, it may be incomplete and contain departures from generally accepted accounting principles. We have not audited, reviewed or compiled this information and express no assurance on it

? The conclusion of value arrived at herein is valid only for the stated purpose as of the

date of the valuation and may not be used out of the context presented herein.

? This valuation assumes that the Company will continue to operate as a going concern, and that the character of its present business will remain intact.

? The valuation contemplates facts and conditions existing as of the valuation date.

Events and conditions occurring after that date have not been considered, and we have no obligation to update our report for such events and conditions.

? It is assumed that there is full compliance with all applicable central, state, and local

environmental regulations and laws unless non-compliance is stated, defined, and considered in the report

? The conclusion of value arrived at herein is based on the assumption that the current

level of management expertise and effectiveness would continue to be maintained, and


that the character and integrity of the enterprise through any sale, reorganization, exchange, or diminution of the owners’ participation would not be materially or significantly changed

? Neither the professionals who worked on this engagement nor XYZ & Associates,

Chartered Accountants have any present or contemplated future interest in Alpha Power Limited, any personal interest with respect to the parties involved, or any other interest that might prevent us from performing an unbiased valuation. Our compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report.

? We have made no investigation of title to property, and assume that the owner’s claim

to the property is valid. We have not attempted to confirm whether or not all assets of the business are free and clear of liens and encumbrances or that the entity has good title to all assets


INDUSTRY OVERVIEW

Overview of the Indian Economy India is the fourth largest economy in the world after the United States of America, China and Japan in purchasing power parity terms (Source: CIA World Factbook website ). India is also amongst the fastest growing economies globally and has grown at an average rate of 7.4% per annum during the last five years. The following table presents a comparison of India’s real GDP growth rate with the real GDP growth rate of certain other countries (in percentages).

(Source: CIA World Factbook Website)

Industry Demand-Supply Overview The Indian power sector has historically been characterized by energy shortages which have been increasing over the years. In the period from April 2009 to May 2009, peak energy deficit was estimated to be at 12.3% and normative energy deficit was estimated to be 8.9%. The following table sets forth the peak and normative shortages of power in India from 2004 to May 2009:

Fiscal Year Peak Normative Requirement Availability Shortage (%) Requirement Availability Shortage (%)

(MW) (MW) (MW) (MW) (MW) (MW)

2004 84574 75066 9508 11.2 559264 519398 39866 7.1 2005 87906 77652 10254 11.7 591373 548115 43258 7.3

2006 93255 81792 11463 12.3 631757 578819 52938 8.4

2007 100715 86818 13897 13.8 690587 624495 66092 9.6 2008 108866 90793 18073 16.6 739345 666007 73338 9.9

2008-09 109809 96685 13124 12.0 774324 689021 85303 11.0

April-May, 09 110958 97355 13603 12.3 135812 123699 12113 8.9 Source: CEA, “Power Scenario at a glace”, May 2009


Regional Demand-Supply Scenario The following table displays the peak and normative power shortages in India for the period from April 2009 – May 2009 across different regions in India:

Region Peak Normative

Requirement Availability Shortage (%) Requirement Availability Shortage (%)

(MW) (MW) (MW) (MW) (MW) (MW) North 32223 28075 4148 12.9 38704 35535 3169 8.2

West 35992 30273 5719 15.9 44696 39254 5442 12.2

South 29216 26369 2847 9.7 36146 33626 2520 7.0 East 12913 11610 1303 10.1 14816 14036 780 5.3

North-East 1569 1342 227 14.5 1450 1248 202 13.9 Source: CEA, “Power Scenario at a glace”, May 2009 Energy deficit varies widely across India, with the western region having the highest peak energy shortages followed by the northern region. According to the 17th Electric Power Survey, India’s peak demand will reach approximately 152,746 MW with an energy requirement of approximately 968 billion units by fiscal year 2012. By the fiscal year 2017, peak demand is expected to reach 218,209 MW with an energy requirement of 1,392 billion units. Large Energy Deficit Results in Low Per Capita Consumption of Electricity Due to inadequate supply and distribution infrastructure, the per capita consumption of energy in India is extremely low in comparison to most other parts of the world. The following chart shows per capita electricity consumption of energy in 2006 in various developed and developing countries.

Source: IEA, Key World Energy Statistics, 2008


Historical Capacity Additions The energy deficit in India is a consequence of slow progress in the development of additional energy capacity. The Indian economy is based on planning through successive five year plans (“Five-Year Plans”) that set out targets for economic development in various sectors, including power sector. In the implementation of the last three Five-Year Plans (the Eighth, Ninth, and Tenth Five-Year Plans, covering fiscal years 1992 to 2006) less than 50% of the targeted additional energy capacity was added. India added an average of approximately 20,000 MW to its energy capacity in each of the Ninth and Tenth Five-Year Plan periods (fiscal years 1997 to 2001 and 2002 to 2006). (Source: White Paper on Strategy for Eleventh Plan, prepared by CEA and Confederation of Indian Industry (the “White Paper”). The following chart sets forth the targeted energy capacity addition for Five-Year Plans, the installed capacity actually achieved at the end of those Five-Year Plans and the installed capacity actually achieved as a percentage of the targeted capacity additions for each of those Five-Year Plans:

Source: White Paper


Source : White paper The total capacity addition during the past 25 years between the VIth and the Xth Five-Year Plans was approximately 91,000 MW. A total capacity addition of 78,577 MW is planned for the XIth Five-Year Plan (2007-12) which should result in substantial investments in the power generation sector.

Installed Generation Capacity by Sector and Fuel The following table and diagrams set forth a summary of India’s energy generation capacity as of May 31, 2009 in terms of fuel source and ownership:

(in MW) Sector Hydro Thermal Nuclear R.E.S. Total

Coal Gas Diesel Total

Central

8,592.0

29,760.0

6,638.3 -

36,398.3

4,120.0

-

49,110.3

State

27,055.7

42,397.5

3,672.2

602.6

46,672.3 -

2,247.7

75,975.7

Private

1,230.0

5,791.4

5,412.0

597.1

11,800.5 -

10,994.7

24,025.2

Total

36,877.7

77,948.9

15,722.5

1,199.7

94,871.1

4,120.0

13,242.4

149,111.2


Source : CEA, "Power Scenario at a Glace", May 2009 The Central and State governments together own and operate over 85.0% of the installed power capacity in India. The private sector has historically been reluctant to enter the market for power plants because of onerous governmental regulations on the construction and operation of power plants and sourcing of fuel for such plants. The participation of the private sector has however been increasing over time owing to power sector reforms.

Thermal Power Generation Thermal power plants account for over 63.0% of India’s installed capacity, within which over 82.0% of the capacity is accounted for by coal based plants, on total available thermal capacity, as of May 31, 2009. (Source: CEA “Power Scenario at a Glance”, May 2009)


Future Capacity Additions According to the CEA Executive Summary, as on May 31, 2009, India has an installed generation capacity of 149,111.2 MW that has increased at a compound annual growth rate (“CAGR”) of 4.5% between 2003 and 2009. A key risk to the continued growth of the Indian economy is inadequate infrastructure. Infrastructure investment in India is on the rise, but growth may be constrained without further improvements. The Government of India (the “Government”) has identified the power sector as a key sector of focus to promote sustained industrial growth by embarking on an aggressive mission – “Power for All” by 2012 backed by extensive reforms to make the power sector more attractive for private sector investment. According to the Integrated Energy Policy (“IEP”) report dated August 2006 issued by the Planning Commission, India would require additional capacity of about 71-84 gigawatt (“GW”) by 2012, 157-188 GW by 2017 and 276–339 GW by 2022, respectively, based on normative parameters in order to sustain a 8-9% GDP growth rate (Source: IEP, Expert Committee on Power). The following table sets forth the additional capacity required by 2012, 2017 and 2022 under different GDP growth rate scenarios:

Assumed GDP Growth

Electricity Generation Required

Peak Demand

Installed Capacity

Capacity Addition Required(1)

% BU GW GW GW By Fiscal Year 2012 8 1097 158 220 71 9 1167 168 233 84 By Fiscal Year 2017 8 1524 226 306 157 9 1687 250 337 188 By Fiscal Year 2022 8 2118 323 425 276 9 2438 372 488 339

Note: (1) Based on the existing installed capacity of 149 GW in India. Source: IEP Report, Expert Committee on Power The likely capacity addition during the 11th Five-Year Plan is 78,700 MW. (Source: CEA, “Power Scenario at a Glance”, May 2009) Given India’s large coal reserves, coal is expected to continue to dominate as a source of fuel for power plants in India. India has the fourth largest coal reserves in the world. However, in the past there were restrictions on the entry of private sector players into coal mining, which had caused India’s coal production to remain low in comparison to its reserves. These restrictions have now been removed and private participation is allowed in coal mining. The total coal production for the fiscal year 2005 was 377.27 million tonnes and for April-December 2005 was 282.43 million tonnes. The total geological coal reserves of India have been estimated at 253.30 billion tonnes as of January 1, 2006. (Source: Ministry of Coal)


In 2004, the Government of India set up a committee on coal sector reforms that led to several new initiatives being launched to encourage coal-based independent power plants in the country. These have increased the prospects of coal blocks being allotted to various private sector entities. Coal is already the key contributor to India’s energy scenario with 55.0% of the current total commercial energy needs being met by coal. Given India’s large coal reserves and favourable policy outlook, coal is expected to continue to be the dominant source of energy for India and play a major role in sustaining India’s economic growth.

Power Scenario in Western India The power requirements of Western India are met by the power generated by state utilities, Independent Power Producers (“IPPs”) and the state government’s share in the power generated by the central power stations. The total installed capacity in the western region as on May 31, 2009 was 46,632 MW. Details of the installed capacity in the Western region are given below:

(in MW) Sector Hydro Thermal Nuclear R.E.S. Total

Coal Gas Diesel Total

Central

1,520.0

6,895.2

3,511.3

10,406.5

1,840.0 -

13,766.5

State

5,484.5

15,502.5

1,430.8

17.3

16,950.6 -

330.9

22,766.0

Private

444.0

3,540.0

2,423.0

0.2

5,963.2 -

3,692.7

10,099.9

Total

7,448.5

25,937.7

7,365.1

17.5

33,320.3

1,840.0

4,023.6

46,632.4 Source : CEA, "Power Scenario at a Glace", May 2009 Demand Supply Scenario in Western India Period Peak

Demand (MW)

Peak Met

(MW)

Peak Deficit (MW) %

Energy Requireme

nt (MU)

Energy Availability

(MU) Deficit (MU) %

9th plan end 26510 22024 -4486 -16.9 175016 156793 -18223 -10.4 2002-03 28677 22853 -5824 -20.3 190745 166687 -24058 -12.6 2003-04 29704 23657 -6047 -20.4 191680 171236 -20444 -10.7 2004-05 31805 24128 -7677 -24.1 204048 181010 -23038 -11.3 2005-06 31772 25257 -6515 -20.5 215983 186904 -29079 -13.5 2006-07 36453 27463 -8990 -24.7 232391 196117 -36274 -15.6 2007-08 38277 29385 -8892 -23.2 247173 208228 -38945 -15.8 2008-09 35992 30273 -5719 -15.9 44696 39254 -5442 -12.2 April-May 2009 35992 30273 -5719 -15.9 22227 20144 -2083 -9.4

Source : CEA, "Power Scenario at a Glace", May 2009


State-wise Demand Supply Scenario in Western India for the period April 2009 to May 2009 Region Peak Normative

Requirement Availability Shortage (%) Requirement Availability Shortage (%) (MW) (MW) (MW) (MW) (MW) (MW) Gujrat 8975 8481 494 5.5 11865 11489 376 3.2 Chhatisgarh 2819 2703 116 4.1 2901 2851 50 1.7 M.P. 6522 5250 1272 19.5 6712 5601 1111 16.6 Maharashtra 18645 14292 4353 23.3 21879 18034 3845 17.6 Daman and Diu 280 255 25 8.9 291 270 21 7.2 Dadra and Nagar Haveli 485 441 44 9.1 556 525 31 5.6 Goa 455 400 55 12.1 492 484 8 1.6

Source : CEA, "Power Scenario at a Glace", May 2009


Organization Structure of the Power Industry The following diagram depicts the current structure of the Indian power industry:

Key to the diagram: CPSUs Central Public Sector Undertakings Discoms Distribution Companies ED Electricity Department IPP Independent Power Producer SEB State Electricity Board STU State Transmission Units Transmission and Distribution In India, the transmission and distribution system is a three-tier structure comprising regional grids, state grids and distribution networks. The five regional grids, structured on a geographical contiguity basis, facilitate transfer of power from a power surplus state to a power deficit state. The regional grids also facilitate the optimal scheduling of maintenance outages and better co-ordination between the power plants. The regional grids are to be gradually integrated to form a national grid, whereby surplus power from a region could be transferred to another region facing power deficits, there by facilitating a more optimal utilization of the national generating capacity. Most inter-regional and interstate transmission links are owned and operated by the Power Grid Corporation of India Limited (“PGCIL”) though some are jointly owned by the State


Electricity Boards (“SEBs”). PGCIL is the central transmission utility of India and possesses one of the largest transmission networks in the world. PGCIL has a pan India network presence of around 69,480 circuit kms of transmission network, 116 extra high voltage alternation current and high voltage direct current substations, and a total transformation capacity of 77,217 mega volt ampere. About 45% of the total generating capacity in India is transmitted through PGCIL’s system. (Source: http:powermin.nic.in and http:powergridindia.com). PGCIL is working towards establishment of an integrated national power grid, in a phased manner, in order to strengthen the regional grids and to support the generation capacity addition program of about 80,000 MW during the Eleventh Five-Year Plan period. The existing inter-regional power transfer capacity of 17,000 MW is expected to be enhanced to 37,000 MW by 2012 through creation of “Transmission Super Highways”. Based on expected generation capacity addition in XIth Five Year Plan, an investment of approximately Rs. 750.00 billion is envisaged in central sector and approximately Rs. 650.00 billion is envisaged in the state sector. (Source: http://powermin.nic.in) State grids and distribution networks are primarily owned and operated by the respective SEBs or state governments (through state electricity departments). State distribution networks are managed at the state level and continue to be affected by high aggregate technical and commercial (“AT&C”) losses estimated to be approximately 35%, which implies that 35% of power entering the system is lost during distribution. (Source: http://powermin.nic.in) A direct consequence of the high AT&C losses is the poor financial condition of SEBs, thereby constraining the SEBs from making any meaningful investments in generation and in upgrading the transmission and distribution (“T&D”) network. Power Trading Historically the main suppliers and consumers of bulk power in India have been the various government controlled generation and distribution companies who typically contracted power on a long term basis by way of power purchase agreements (“PPAs”) with regulated tariffs. However, in order to encourage the entry of merchant power plants and private sector investment in the power sector, the Electricity Act recognized power trading as a distinct activity from generation, T&D and has facilitated the development of a trading market for electricity in India by providing for open access to transmission networks for normative charges. Power trading involves the exchange of power from suppliers with surpluses to suppliers with deficits. Seasonal diversity in generation and demand, as well as the concentration of power generation facilities in the resources-rich eastern region of India, has created ample opportunities for the trading of power. Recent regulatory developments include the announcement of rules and provisions for open access and licensing related to interstate trading in electricity. Several entities have started trading operations or have applied for trading licenses. With the aid of the reforms, the volume of power traded as well as its traded price has grown rapidly over the last few years. The following graph and table shows the increasing volume and higher prices of power traded in India for the periods indicated:-


Increasing Traded Volume at Higher Prices

Electricity Traded (Units

MU) Price Rs. FY07 FY08 Rs 0.00 - 2.00 252.2 4729.6 Rs 2.00 - 4.00 2732.7 2647.7 Rs 4.00 - 6.00 10507.4 4094.1 Rs 6.00 - 8.00 461.7 5292.5 Rs 8.00 to 10.00 556.9 Rs 10.00 - 12.00 0

Source: CERC, Annual Reports for FY 2006, FY 2007 and FY 2008 Tariffs The main objectives of the National Tariff Policy (“NTP”) notified by the Government of India on January 6, 2006, include promoting competition, efficiency in operations and improvements in the quality of supply and ensuring the availability of electricity to consumers at reasonable and competitive rates. The NTP reiterates the importance of implementing competition in different segments of the electricity industry as highlighted in the Electricity Act and that competition will lead to significant benefits to consumers through reduction in capital costs and improved efficiency of operations. It will also facilitate the determination of price through competition. The NTP stipulates that all future power requirements should be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a state controlled or state-owned developer involved, in which case, regulators will need to resort to tariffs determined by reference to standards of the CERC, provided that expansion of generating capacity by private developers for this purpose will be restricted to a onetime addition of not more than 50% of the existing capacity. Under the NTP, even for public sector


projects, tariffs for all new generation and transmission projects will be decided on the basis of competitive bidding after a certain period of time. Merchant Power Plants Merchant power plants (“MPPs”) generate electricity for sale at market driven rates in the open wholesale market. Typically, the MPPs do not have long-term PPAs and are built and owned by private developers. Merchant sales, however, include sale of power under short-term PPAs and on spot basis. Many new private sector players are beginning to adopt the MPP model for their projects to generate higher returns as opposed to selling power through a long term PPA, as the off take risk is perceived to be low in view of significant power shortages in the country. The MPPs can sell power to the power trading companies (like the Power Trading Corporation), the SEBs and industrial and bulk customers. Indian Energy Exchange (IEX) Indian Energy Exchange (“IEX”) is India’s first nation-wide automated and online electricity trading platform. IEX seeks to catalyze the modernization of electricity trade in India by allowing trading through a technology enabled platform. On June 9, 2008, IEX received Central Electricity Regulatory Commission approval for commencing operations. IEX is a demutualised exchange that will enable efficient price discovery and price risk management in the power trading market. IEX offers a broader choice to generators and distribution licensees for sale and purchase of power facilitating trade in smaller quantities. IEX enables participants to precisely adjust their portfolio as a function of consumption or generation. (Source: www.iexindia.com ). Steam Power Plants The process of generation of power from steam power plants, utilizing coal or lignite fuel, essentially entails two stages. In the first stage, the chemical energy stored in the coal is converted into heat energy in coal-fired boilers. In the second stage, high-pressure steam, which is generated in the boilers, is passed through turbines (through conversion of heat energy into mechanical energy), which in turn is coupled to generators (through conversion of mechanical energy into electrical energy), thereby generating electricity. The water steam cycle essentially contains a coal-fired steam generator, a steam turbine with condenser, a feedwater tank, low-pressure (“LP”) heaters and high-pressure (“HP”) heaters and connecting pipelines. The superheated steam produced in the steam generator is supplied to the steam turbine, which drives the three-phase AC generator. After leaving the HP turbine, the steam is reheated in the steam generator and fed to the intermediate pressure (“IP”) turbine. In the LP turbine, the steam coming directly from the IP turbine expands to condenser pressure and is condensed in the condenser. Closed cycle water system is used for cooling the condenser. The condensation col lected in the condenser hot well is discharged by the condensate pumps and supplied via the LP condensate heaters into the feedwater tank. The feedwater is further heated by bled steam from turbine and dissolved gases from the feedwater are liberated. The boiler feed pumps discharge feed water from the feedwater tank via the HP heaters to the economizer. Steaming starts from this point onwards. The high temperature steam water mix is further converted into steam in water walls and finally passed through the super heaters sections for converting the saturated steam into superheated steam.


Steam power plant cycles are characterized by the pressure level at which they operate. Sub-critical cycles use pressures below the critical pressure of water. Typical popular unit sizes of large plants are in multiples of 125 /135 MW, 250/300 MW, 500 MW or 600 MW. On the other hand, supercritical cycles operate above the critical pressure providing higher efficiency. These cycles have varying unit sizes and varying parameters. Boiler types can be alternatives of various capacity parameters, namely: • Atmospheric Fluidized Bed Combustion type (“AFBC”); • Circulating Fluidized Bed Combustion type (“CFBC”); • Pulverized Fuel type (“PF”); and • Stoking Boilers.

Regulatory Control In India, control over the development of the power industry is shared between the central and the state governments. The Ministry of Power is the highest authority governing the power industry in India. The CEA, a statutory organization constituted under the Supply Act (as defined hereinafter), is the technical branch of the Ministry of Power assisting in technical, financial and


economic matters relating to the electricity industry. The CEA is responsible for giving concurrence to schemes involving capital expenditure beyond a certain limit fixed by the Government from time to time, and it is also responsible for the development of a sound, adequate and uniform power policy in relation to the control and utilization of national power resources. The Central Electricity Regulatory Commission constituted under the Electricity Regulatory Commissions Act 1998 is an independent statutory body with quasi-judicial powers. Its main functions include the formulation of policy and the framing of guidelines with regard to electricity tariffs. Several states have set up State Electricity Regulatory Commissions (“SERCs”). The SERCs are engaged in regulating the purchase, distribution, supply and utilization of electricity, tariff and charges payable, as well as the quality of service. State governments have set up SEBs at the state level, which are responsible for ensuring that the supply, transmission and distribution of electricity in such states is carried out in the most economical and efficient manner. These SEBs are required to coordinate with power generating companies, as well as the government entities that control the relevant power grids. Some states have amalgamated their respective SEBs to form Regional Electricity Boards, to ensure that electricity supply, transmission and distribution policies are consistently applied. Private sector companies operating in the electricity supply, transmission and distribution industry report to the Ministry of Power, as well as their respective SEBs and their SERCs.

Regulatory Structure


Key to the diagram: CCEA Cabinet Committee on Economic Affairs MNES Ministry of Non-Conventional Energy Sources CPSUs Central Public Sector Undertakings CEA Central Electricity Authority CERC Central Electricity Regulatory Commission REBs Regional Electricity Boards SMoP State Ministry of Power SU State Undertaking SEB State Electricity Board SERC State Electricity Regulatory Commission DAE Department of Atomic Energy NPCIL Nuclear Power Corporation of India Limited

Regulations The Electricity (Supply) Act, 1948 of India (the “Supply Act”) lays down the broad institutional framework for regulating the power industry. The Supply Act led to the setting-up of the SEBs, which are the state government agencies with the sole responsibility for generation, transmission and distribution of electricity within each state. However, due to systemic deficiencies and the need to overcome shortcomings of the existing regime, which focused primarily on generation and not on T&D, the Gove rnment passed the Electricity Act in 2003. The Electricity Act is a comprehensive legislation which replaced the Indian Electricity Act, 1910, the Supply Act and the Electricity Regulatory Commission Act, 1998 (the “ERC Act”). The Electricity Act was introduced with the aim to increase commercial growth and enable the states and the central agencies to progress in harmony. Until now, 13 states including Delhi and Orissa have unbundled/corporatized their SEBs under the Accelerated Power Development and Reforms Programme (“APDRP”) (Source: Ministry of Power Performance Report 2005-06). The Electricity Act has liberalized and de-licensed the power generation sector. This has resulted in an increase in the captive capacity additions by industrial units, thereby reducing the dependence on external providers. The requirement of techno-economic clearance has also been eliminated (except for hydro-electric projects). Open access has been allowed to transmission lines, both by distribution licensees as well as generating companies. Distribution licensees will be free to take up generation and generation companies will be free to take up distribution. Trading has been permitted as a distinct activity. The Electricity Act also provides for multiple distribution licensees in a single area. In May 2007, the Government passed the Electricity (Amendment) Bill, 2007 recommending amendments to the Electricity Act. Subsequent to this, the Electricity (Amendment) Act was passed in June 2007. The amendments broadly relate to: • the term “elimination” has been omitted in relation to cross-subsidies;


• captive units will not require a license to supply power to any user; • strict action against unauthorized usage of power; and • power theft has been recognized as a criminal offence, punishable under Section 173 of the Code of Criminal Procedure, 1973. The Government has omitted the term “eliminated” in the context of cross-subsidies. Earlier, the Electricity Act stated that the cross-subsidy surcharge and cross subsidies shall be progressively reduced and eliminated. In the tariff policy issued in January 2006, the Government suggested that by the end of 2010-11, tariffs should be +/- 20% of the cost of supply, in conjunction to the Electricity Act, which envisaged a complete elimination of cross subsidies. For this, the policy suggested that SERCs prepare a road map to achieve this target. However, the amendment suggests that cross-subsidies would be reduced gradually, and not completely eliminated, in accordance with the earlier provision of “elimination of cross-subsidy”. Hence, the amendment is likely to make states more lenient in setting targets for cross-subsidy reduction. Consequently, this may act as a setback to the reformation process, as elimination of cross-subsidies is an important pre-requisite for tariff rationalization and improving the financials of state utilities. The amendments related to penalties for unauthorized usage of power and recognition of power theft as an offence punishable under Section 173 of the Code of Criminal Procedure, 1973, are to ensure strict action against power theft. These amendments would simplify the process of identifying those consumers stealing power, as well as increase the assessment amount, which would help curb losses in the system. This is expected to further strengthen the drive by respective state utilities to eliminate power theft and improve operational efficiencies. According to the Central Electricity Authority, India faced T&D losses of around 33% in 2003-2004, which implies that one-third of the power is lost due to theft, pilferage and technical inefficiencies. In fact, a large part of the power lost is through theft and unaccounted agricultural consumption. Therefore, focused efforts towards eliminating theft of power can help reduce distribution losses substantially.

Ultra Mega Power Projects With the aim of meeting India’s significant power requirements, the Government has proposed the construction of nine Ultra Mega Power Projects (“UMPPs”). The award of the projects is based on competitive bidding processes, with the amount of the normalized tariff for 25 years being a significant factor in the selection process. Each of the UMPPs will provide a power generation capacity of 4,000 MW and use coal as fuel. The Government will ensure land and environmental clearances, off-take agreements, payment security mechanisms and also provide for fuel linkages in some cases to ensure efficient implementation of the UMPPs. The UMPPs will be awarded to developers on a Build-Own-Operate basis in which the developer builds, owns and operates the UMPP. The nine UMPPs, with


a total power generation capacity of 36,000 MW, are expected to be awarded and built at nine different locations in India over the next seven to eight years. To date, four UMPPs have been awarded – the project in Mundra, Gujarat has been awarded to The Tata Power Company Limited and the projects in Sasan, Madhya Pradesh, Krishnapattam, Andhra Pradesh and Tilaiya, Jharkhand have been awarded to Reliance Power Limited.

Captive Power Generation in India Captive power refers to power generation from a project set up for captive industrial consumption. Due to the continuing shortage of power and India’s economic growth, there has been an increase in the requirement for captive power projects in India. As most captive units are based on diesel generator sets, the cost of generation has increased sharply with rising crude oil and diesel prices.


BUSINESS OVERVIEW OF ALPHA POWER LIMITED Company Background and Company Identification

Overview Alpha Power Limited (“APL”) is a power project development company, which is developing, and will operate and maintain, power projects in India. APL will have four thermal power projects under various stages of development, with a combined installed capacity of 6,600 MW. In addition, company is also planning to develop two power projects with a combined installed capacity of 3,300 MW. APL intends to sell the power generated from these projects under a combination of long-term power purchase agreements to industrial and state-owned consumers and on merchant basis. APL is a part of the Alpha Group, a leading business group in India. Alpha Enterprise Limited (“AEL”), APL’s Promoter, is the flagship company of the Alpha Group, with total revenues of Rs. 196,097.10 million for the fiscal year 2008. AEL was one of the largest traders of coal in India for the three years period ended March 31, 2008, with coal mining rights both in the international and domestic markets, and according to Central Electricity Regulatory Commission, for the three years period ended March 31, 2008, AEL was one of the largest power traders, by volume, in India. With the commissioning of power projects, the Alpha Group will be vertically integrated in power sector value chain through presence in related activities such as coal mining, coal trading, shipping, power generation, power transmission and power trading. Another Alpha Group company, Alpha Port and Special Economic Zone Limited (“APSEZL”), owns and operates one of the largest private sector commercial ports in India, a Special Economic Zone (“SEZ”) at Mundra and a railway line between Mundra and Adipur, leading to strong synergies with APL’s power projects being set up in close vicinity. In addition, the Alpha Group also has operations in other industries, including commodities trading, real estate development, agro processing and logistics. We expect that we will benefit from Alpha Group’s strategy of vertical integration, which gives us greater control over various acti vities of power generation and trading. Alpha Power Limited came with the initial public offering of its equity shares in June 2009. APL issued 301.65 million shares to the public at Rs 100 per share. The issue was subscribed five times. The Equity Shares of APL are listed on stock Exchange at – 1. National Stock Exchange of India Ltd. 2. Bombay Stock Exchange Stock Code NSE symbol for Alpha Power Limited is ALPHAPOWER BSE Code for APL is 500000 ISIN Number for APL is INE111A11111


Power Projects Alpha Power Limited currently has four thermal power projects under various stages of development: • Mundra Phase I and II Power Project will have four sub-critical generation units of 330 MW each, with combined capacity of 1,320 MW. The boiler, turbine and generator (“BTG”) package for Mundra I and II was awarded to Sichuan Machinery and Equipment Import and Export Company Limited and Kowa Company Limited,respectively. APL currently expects that the first 330 MW unit of Mundra Phase I and II Power Project will be commissioned by December 2009, and that the power project will be fully commissioned by February 2010. • Mundra Phase III Power Project will have two super-critical generation units of 660 MW each, with combined capacity of 1,320 MW. The engineering, procurement and construction (“EPC”) contract for Mundra III was awarded to SEPCO-III Electric Power Construction Corporation and Shandong Tiejun Electric Power Engineering Company Limited. APL currently expects that the first 660 MW unit of Mundra Phase III Power Project will be commissioned by January 2011, and that the power project will be fully commissioned by June 2011. • Mundra Phase IV Power Project will have three super-critical generation units of 660 MW each, with combined capacity of 1,980 MW. The EPC contract for Mundra IV was awarded to SEPCO-III Electric Power Construction Corporation and Shandong Tiejun Electric Power Engineering Company Limited. APL currently expects that the first 660 MW unit of Mundra Phase IV Power Project will be commissioned by August 2011, and that the power project will be fully commissioned by April 2012. • Tiroda Power Project will have three super-critical generation units of 660 MW each, with combined capacity of 1,980 MW. The BTG package for Tiroda was awarded to Sichuan Machinery and Equipment Import and Export Company Limited. APL currently expects that the first 660 MW unit of Tiroda Power Project will be commissioned by July 2011, and that the power project will be fully commissioned by April 2012. APL’s 77.38% owned subsidiary, Alpha Power Maharashtra Limited (“APML”), is developing the Tiroda Power Project. APL is also planning to develop two thermal power projects at Dahej and Kawai with a combined installed capacity of 3,300 MW. Power projects set up under the SEZ policy and the Mega Power Project policy are eligible for certain tax and other benefits. Company received approval for developing Mundra Power Project as a sector-specific SEZ. Aplha Port and Special Economic Zone Limited (“APSEZL”) is developing two multi product SEZs, which have been combined with APL’s sector-specific SEZ (“Combined SEZ”), pursuant to an application filed by APSEZL and APL. APL has applied to the Government of India to act as a co-developer for the Combined SEZ at Mundra with APSEZL as


the developer. The Ministry of Commerce and Industry, Government of India (“Ministry of Commerce”) has approved APL’s proposal and the Combined SEZ has been notified pursuant to a gazette notification. As a co-developer, APL will avail of certain exemptions from income tax, excise duty, central sales tax, service tax, dividend distribution tax and customs duty on import of goods and services for setting up the power plant. APL has applied for an approval to develop the power project located at Tiroda under the Mega Power Project policy of the Government of India. APL intend to capitalize on the emerging opportunities in the Indian power generation sector, which are being driven by the current and expected demand and supply imbalance in India. Notwithstanding various policy initiatives within India to diversify fuel mix, with the limited reserve potentiality of petroleum and natural gas, eco-conservation, restrictions on hydroelectric power projects, and the geo-political perception of nuclear power, APL believe that it is likely that coal will continue to be the primary generator of energy in India.

Competitive Strengths Alpha Power Limited believes that it is well positioned to benefit from the growth opportunities in the Indian power sector due to the following competitive strengths: APL expects to benefit from the strong linkages of the Alpha Group in the power sector through presence in coal mining, coal trading, shipping and power trading APL is a part of the Alpha Group, which seeks to be vertically integrated in the Indian power sector. The Alpha Group has coal mining rights in both the international and domestic markets. PT Alpha Global, a wholly owned subsidiary of AEL, has entered into agreements with holders of long-term exploitation licenses to exclusively mine coal in Bunyu island, Indonesia. In addition, APL has also been allocated two coal blocks in India to mine coal for its Tiroda Power Project. Alpha Shipping Pte Limited, Singapore, a wholly owned subsidiary of AEL, has entered into a contract for the purchase of two newly-built capesize vessels with expected delivery by December 2010 for transportation of coal from the Indonesian coal mines operated by AEL. AEL was also one of the largest power traders, by volume, in India for the three years period ended March 31, 2008. To further integrate the Alpha Group’s power generation and trading operations, APL is constructing transmission lines for evacuating power generated at its power projects. The first of such transmission lines from Mu ndra to Dahegham, Gandhinagar has already been constructed. APL believes that the Alpha Group has established diversified sourcing and distribution networks and that its industry expertise enables it to effectively capitalize on and manage risks associated with opportunities across markets. APL expects that it will benefit from the Alpha Group’s strategy of vertical integration which gives us greater control over various activities of power generation. Company has secured supply of fuel for many of its power projects


One of the critical success factors for any power generation project is the availability of cost-effective fuel sources throughout the lifetime of the power project. Mundra power projects: APL’s Mundra power projects are located along the coast and will utilize imported coal as primary fuel for its operations. It has entered into long-term coal supply arrangements for coal with AEL for Mundra power projects. PT Alpha Global, a wholly owned subsidiary of AEL, has entered into agreements with holders of long-term exploitation licenses to exclusively mine coal in Bunyu island, Indonesia. For Mundra Power Projects, AEL proposes to procure the coal from these mines in Indonesia. Additionally, APL has received a letter from Mahanadi Coalfields Limited (“Mahanadi Coalfields”) on June 25, 2009, wherein Mahanadi Coalfields provisionally agreed to supply approximately 6.4 MTPA of Grade ‘F’ coal for its Mundra Phase IV Power Project. As a result of our long-term coal supply agreements and relationship with the supplier, APL believes that it will benefit from competitive pricing for coal for the Mundra power projects. Tiroda Power Project: APL has been allocated coal blocks at Lohara West and Lohara Extension for generating up to 1,000 MW of power at our Tiroda Power Project which have estimated coal reserves of approximately 170 million metric tons (“MMT”) and an average gross calorific value (“GCV”) ranging between 4,290 and 5,590 Kcal/kg, according to the geological report prepared by the Central Mine Planning and Design Institute Limited. Additionally, APL has received letters from South Eastern Coalfields Limited (“South Eastern Coalfields”) and Western Coalfields Limited (“Western Coalfields”) on June 6, 2009 and June 1, 2009, wherein South Eastern Coalfields and Western Coalfields provisionally agreed to supply approximately 2.5 MTPA of Grade ‘F’ coal and 2.2 MTPA of Grade ‘E’ coal for Tiroda Power Project, respectively. Company’s power projects enjoy locational advantages APL’s power projects enjoy locational advantages in terms of easy access to fuel, water and proximity to power deficit areas. All power projects under development are located in Western India, where according to the CEA, the peak deficit was 7,086 MW for the period between April 2008 and March 2009. Company believes that its power projects are well positioned to serve this deficit in power supply. APL’s Mundra power projects are located close to the Mundra port, which is owned and operated by APSEZL, Promoter Group company. APSEZL has proposed to set-up a coal jetty at a distance of approximately five km from the Mundra power project site and imported coal can be transferred from this coal jetty to the power project by conveyor belts and/or railway lines. Close proximity to the sea will ensure water for steam generation and cooling. The Tiroda Power Project is located in Tiroda Industrial Area developed by the Maharashtra Industrial Development Corporation (“MIDC”), adjacent to the state highway. The project is approximately 260 km from the Lohara West and Lohara Extension coal blocks, which are the designated coal blocks to supply coal for the Tiroda Power Project. The project site is expected to be connected to the coal blocks by rail. APL has been allocated water for the project from the nearby Wainganga river. APL expects to evacuate power through Power Grid Corporation of


India Limited (“PGCIL”) and Maharashtra State Electricity Distribution Company Limited (“MSEDCL”) sub-stations. Company has entered into long-term power off-take arrangements for our Mundra and Tiroda power projects Alpha Power Limited has entered into two off-take agreements with Gujarat Urja Vikas Nigam Limited (“GUVNL”) for the supply of 1,000 MW of power produced from the Mundra Phase I and II Power Project, and for the supply of 1,000 MW of power produced from the Mundra Phase III Power Project. APL has also entered into two off-take agreements with Uttar Haryana Bijli Vitran Nigam Limited (“UHBVNL”) and Dakshin Haryana Bijli Vitran Nigam Limited (“DHBVNL”), for the sale of a total of 1,424 MW of power produced from Mundra Phase IV Power Project. APL has also entered into an off-take arrangement with MSEDCL for the supply of 1,320 MW of power generated from the Tiroda Power Project. Off-take agreements generally provide that the consumer purchases power in pre-determined quantities at fixed rates and surplus power, if any, may then be sold to other consumers in the unregulated market. APL expects that the power produced in excess of what is sold under its Mundra Phase I and II Power Project, Mundra Phase IV Power Project, and Tiroda Power Project off-take agreements will be sold on merchant basis. Further, it has entered into an agreement with AEL for selling up to 221 MW of surplus power from Mundra Phase III Power Project on merchant basis. In addition, it may supply surplus power to various units within the APSEZL. These arrangements will allow it to mitigate our off-take risk, while enabling APL to sell the residual power at market determined rates.

Company strategy Capitalize on the growth of the Indian power generation sector The power sector in India has historically been characterized by power shortages that have consistently increased over time. According to the Central Electricity Authority, the total peak shortage was 12,838 MW in May 2009. As per the IEP Report, the Expert Committee on Power, in the XIth Plan (2007-2012), a capacity addition of 71 Gigawatts (“GW”) and 84 GW, assuming an 8.0% and 9.0% GDP growth rate, respectively, would be required by 2012. Although recent reports indicate that the GDP growth rate is likely to be lower, APL believes that its four power projects under development will play a significant role in the growth of the Indian power sector. Realize the opportunities presented by power sector reforms and benefits extended by the Government of India In 1991, the Indian power sector began a process of deregulation that is continuing today. The Electricity Act of 2003 and subsequent reforms have generated significant opportunities in the power sector. These changes include the following: • Liberalization and de-licensing in the power generation sector, and doing away with the

requirement of techno-economic clearances for thermal power projects, which expedites the thermal power project development process;


• Power trading recognized as a distinct activity; • Distribution licensees can now procure power through a process of international competitive

bidding; projects are no longer awarded on a cost-plus basis. We believe that competitive bidding presents attractive opportunities for efficient generation of power;

• Power generation companies can now sell power to any distribution licensees, or where allowed by the state regulatory commissions, directly to consumers. The market has evolved for merchant sales, which allows for the supply of peak power at premium rates;

• Power generation companies have open access to transmission lines, which will facilitate the direct sale of power to distribution and trading licensees;

• Improved payment security mechanisms, which we believe will improve sector stability and enhance our ability to obtain financing for our projects;

• No distinction between foreign and domestic investor under electricity laws; and • 100.0% FDI allowed in the power sector. Our projects are positioned and structured to take advantage of these benefits and also the benefits under the SEZ and Mega Power Project policy of the Government of India. Future power sector reforms may present additional opportunities for us and we intend to capitalize upon these opportunities as they arise. Benefit from the power scenario in Western India APL’s Mundra power project is located in Gujarat, and the Tiroda Power Project is located in Maharashtra. These states are leading industrial states in the Western part of India with high power demand, and they are currently experiencing a significant power deficit. This deficit is expected to increase in the future. These states have formulated policies for substantial investments in the power sector to support increased industrial activities. The stable and assured availability of power will lead to an increase in industrial activity in these states, which will further increase the power requirements. Though a number of power projects are under various stages of implementation in these states, such projects may not eliminate the deficit in power. APL is investing in the development and planning of power projects in states facing high energy deficits in order to be in a strong position to capture the opportunity. Secure fuel supply Having a dedicated, cost-efficient and established fuel supply line for a power project is fundamental to success. APL’s strategy has been to establish dedicated fuel lines prior to setting up a power project. APL tries to ensure that it has adequate supplies of cost-efficient fuel through captive fuel sources, long-term contracts or coal linkages to meet the fuel requirements for our power projects. Further integrate our power generation business with the installation of transmission lines In order to ensure evacuation of power from the power project, it is critical to have appropriate transmission linkages. APL is constructing transmission lines connecting its power projects at Mundra and Tiroda to state and central government sub-stations for evacuation of power. In light of the transmission constraints facing inter-regional links, the proposed Mundra and Tiroda transmission lines will be cost-efficient for evacuating power. They will also mitigate the


risk, which may arise in the event power purchasers under long-term PPAs reduce their procurement of contracted power from the Mundra and Tiroda power projects. In addition, APL entered into a bulk power transmission agreement with PGCIL to avail long term open access facilities for evacuation of power from our Mundra power projects. APL has applied to MSEDCL for similar approval to evacuate power from our Tiroda Power Project. Engage in an optimal mix of off-take arrangements with state-owned and industrial consumers Alpha Power Limited is developing four power projects that are capable of generating an aggregate 6,600 MW of power. APL believes that state-run utility companies will require substantial amounts of power in order to meet their power demands and to cope adequately with power shortages in their respective states. APL intends to utilize its marketing and trading capacities by optimizing our off-take arrangements between state-run utility companies and industrial consumers. This will enable it to enter into secured long-term off-take arrangements with state-run utility companies and industrial consumers as well as carry out merchant sales of power at market rates.

Competitive analysis Assessment of industry attractiveness Competition in Alpha Power’s business area is medium to high. The bargaining power of customers is low, as customers may not have many choices due to a supply-demand imbalance. The bargaining power of suppliers is high, as the availability of fuel, equipment and human resources is a challenge. We classify the threat of new entrants as high and the threat of substitutes as low. Threat of New Entrants’: “High” The threat of new entrants to Alpha Power’s market is high, given the macro scenario and the number of private companies that are entering the power generation business following de-licensing. Power projects have also started receiving captive coal allocations (Alpha Power has received a captive block for Tirdoa) and this could reduce the fuel risk involved Bargaining power of suppliers: “Medium” Fuel availability/pricing poses a significant risk for Alpha Power. The company also faces a risk in terms of performance of power equipment. However, the company has tried to mitigate this by using Chinese equipment where delivery is much faster. The many opportunities available for qualified and experienced employees is an additional pressure on the human resources front. Bargaining power of suppliers: “Low” In the power sector, we believe customers still have few choices because of the supply-demand imbalance. However, this may change with open access and improved transmission networks, which would mean only the most efficient power producers would be rewarded in the long run. Alpha Power is favorably placed in this regard with transmission linkage available for 6,660MW.


Threat of substitutes: “Low” Electricity as a source of energy seems irreplaceable in the current scenario. However, conventional fuel sources such coal and gas may face a threat from renewable sources such as wind based on environmental concerns. Webelieve Alpha Power will diversify into renewable sources if the need exists. Competitive rivalry in the industry: “Medium/High” The private sector power generation business, where Alpha Power focuses, is highly fragmented. However, we do not expect this to affect Alpha Power significantly because of Alpha Group’s strengths, especially in execution. We believe there is huge potential for growth in the Indian power industry. This should provide space for existing operators as well as new private entrants, and we do not expect competition to affect volumes or margins, at least in the short term. Alpha Power has also tried to reduce dependence on merchant power and intends to keep 70-75% of projects under long -term PPAs, which would lower the risk involved. There are two key issues concerning the fundamental attractiveness of the power-generation industry: 1) a power deficit or demand outstripping supply; and 2) the attractiveness of merchant power tariffs.

APL’s Power Projects Alpha Power Limited currently ha s four power projects under various stages of development. A summary of these projects is given below:

Mundra Ph I Mundra Ph II Mundra Ph III Mundra Ph IV Tiroda

Capacity (MW) 660 660 1320 1980 1980

Completion FY10 FY10 FY11 (660), FY12 (660)

FY12 (660), FY13 (1320) FY12 (660), FY13 (1320)

Type Sub-critical Sub-critical Super-critical Super-critical Super-critical

Configuration 2x330MW 2x330MW 2x660MW 3x660MW 3x660MW EPC Contractor Sichuan Machinery &

Equip. Import Co. Ltd Sichuan Machinery & Equip. Import Co. Ltd

SEPCO III Electric Power Eng. Co. Ltd.


Sichuan Machinery & Equip. Import Co. Ltd

BTG Equipment - Boiler Babcock & Wilcox Babcock & Wilcox Babcock & Wilcox Babcock & Wilcox Babcock & Wilcox BTG Equipment - Turbine & Generator Beijing Beizhong Beijing Beizhong Beijing Beizhong Beijing Beizhong Beijing Beizhong

Fuel Type Coal Coal Coal Coal Coal

Fuel Source

Agreement entered with Alpha Enterprises Limited for supply of coal

Mines allocated at Lohara west. Linkages received from Ministry of Coal for 1180 MW

Financial Closure Achieved Achieved Achieved Achieved Achieved

PPA

1000MW with GUVNL starting Feb 2010 @ 2.89

1000 MW with GUVNL starting Feb 2012 @2.35

712MW each with UNBVNL and DHBNVL starting Feb 2013 @ 2.94

1320 MW with MSEDCL starting with sep 2012 @ 2.64

Project Cost 43500 57960 89600 92630

Project cost (Rsmn/MW) 33 43.9 45.3 46.8

EPC Cost 43500 53960 80600 85130


EPC cost (Rsmn/MW) 33 40.9 40.7 43

Coal mining cost 4000

Transmission Development Cost 4000 9000 3500 Total CAPEX Required for developing 6600MW of power is estimated at Rs 304190 mn. Alpha power intends to maintain 70-75% of capacity under long term PPAs.

Source: Company Data


HISTORICAL FINANCIAL STATEMENTS (Alpha power was incorporated on 08th September 2007. So the historical financials of last two years are available.) Alpha Power Limited

STATEMENT OF PROFIT AND LOSS ACCOUNT Rs in Millions

Particulars For the Six Months Ending

September 2009

For the Year Ended March

31, 2009

For the Year Ended March

31, 2008 I Income - - - Total Income - - -

II Expenditures

Administrative 152.50 27.76

71.79

Total Expenditure 152.50 27.76

71.79

Profit/(Loss) before taxes (152.50)

(27.76)

(71.79) Taxes - - -

Profit/(Loss) after Taxes (152.50)

(27.76)

(71.79) Minority Interest 11.10 2.02 -

Net Profit/(Loss) as restated (141.40)

(25.74)

(71.79)

Balance brought forward (97.53)

(71.79) -

Accumulated Losses carried forward (238.93)

(97.53)

(71.79)

All the power projects of APL are in development stage. So there is no revenue as on the valuation date i.e. 30 the September 2009. APL currently expects that the first 330 MW unit of Mundra Phase I and II Power Project will be commissioned by December 2009, and 990 MW unit of Phase I and II will be commissioned by February 2010.


STATEMENT OF ASSETS AND LIABILITES

Rs in Millions

Particulars As at September 30,

2009

As at March 31,

2009

As at March 31,

2008 I Fixed Assets

Gross Block

3,491.73

3,471.73

183.51

Less: Accumulated Depreciation

103.55

103.55

12.54

Net Block

3,388.18

3,368.18

170.97

Capital Work in Progress

71,662.51

65,845.01

24,424.41

75,050.69

69,213.19

24,595.38

II Investments

0.01

0.01

532.40

III Current Assets, Loans and Advances

Cash and Bank Balances

23,585.47

5,585.47

1,920.97

Laons and Advances

4,163.48

4,163.48

1,762.45

27,748.95

9,748.95

3,683.42

Total Assets

102,799.65

78,962.15

28,811.20

IV Liabilities and Provisions

Secured Loans

38,396.87

40,896.87

10,111.74

Unsecured Loans -

9,000.00 -

Current Liabiliteis and provisions

6,869.57

5,619.57

4,360.65

45,266.44

55,516.44

14,472.39

NET WORTH

57,533.21

23,445.71

14,338.81 Net Worth represented by

Equity Share Capital

52,354.76

18,419.76

7,020.83

Reserves and Surplus (net of losses)

4,464.40

4,323.00

7,317.98

Minority Interest

714.05

702.95 -

57,533.21

23,445.71

14,338.81


As stated earlier, Alpha Power Limited came with the initial public offering of its equity shares in June 2009. APL issued 301.65 million shares to the public at Rs 100 per share. The total amount of Rs 33935 million was raised through the public issue. The company has repaid unsecured loans of Rs 9000.00 million and secured loan of Rs 2500.00 million from the amount raised through public issue. Total amount of Rs 18000.00 has been invested in shorter term debt mutual funds pending deployment of funds in proposed power projects.

FINANCING ARRANGEMENTS FOR PROPOSED POWER PROJECTS Summary of Power Projects being developed by APL

Mundra Ph I Mundra Ph II Mundra Ph III Mundra Ph IV Tiroda

Capacity (MW) 660 660 1320 1980 1980

Completion FY10 FY10 FY11 (660), FY12 (660)

FY12 (660), FY13 (1320) FY12 (660), FY13 (1320)

Type Sub-critical Sub-critical Super-critical Super-critical Super-critical

Configuration 2x330MW 2x330MW 2x660MW 3x660MW 3x660MW EPC Contractor Sichuan Machinery &

Equip. Import Co. Ltd Sichuan Machinery & Equip. Import Co. Ltd



Sichuan Machinery & Equip. Import Co. Ltd

BTG Equipment - Boiler Babcock & Wilcox Babcock & Wilcox Babcock & Wilcox Babcock & Wilcox Babcock & Wilcox BTG Equipment - Turbine & Generator Beijing Beizhong Beijing Beizhong Beijing Beizhong Beijing Beizhong Beijing Beizhong

Fuel Type Coal Coal Coal Coal Coal

Fuel Source

Agreement entered with Alpha Enterprises Limited for supply of coal

Mines allocated at Lohara west. Linkages received from Ministry of Coal for 1180 MW

Financial Closure Achieved Achieved Achieved Achieved Achieved

PPA

1000MW with GUVNL starting Feb 2010 @ 2.89

1000 MW with GUVNL starting Feb 2012 @2.35

712MW each with UNBVNL and DHBNVL starting Feb 2013 @ 2.94

1320 MW with MSEDCL starting with sep 2012 @ 2.64

Project Cost (Rs mn) 43500 57960 89600 92630

Project cost (Rsmn/MW) 33 43.9 45.3 46.8

1,320 MW Mundra Phase I and II Power Project – Mundra, Gujarat The Mundra Phase I and II Power Project is a coal-based power project with four sub-critical units of 330 MW each and an aggregate capacity of 1,320 MW of power. The power project is situated at Tunda and Siracha, Mundra village, Kutch district in the state of Gujarat. APL currently expects that the first unit of 330 MW will be commissioned by December 2009 and the remaining three units will be fully commissioned by February 2010. This power project has an estimated development cost of Rs. 43,500.00 million. Financing


The total investment re quired for the Mundra Phase I and II Power Project is expected to be Rs. 43,500.00 million. The equity contribution of Rs. 7,060.00 million has been funded by Promoters and strategic investors. The balance funding requirement of approximately 83.8%, which amounts to Rs. 36,440.00 million of the project cost has been obtained through secured debt financing from a consortium of project lenders. 1,320 MW Mundra Phase III Power Project The Mundra Phase III Power Project is a coal-based power project with two super-critical units of 660 MW each and an aggregate capacity of 1,320 MW of power. The power project is situated adjacent to the Mundra Phase I and II Power Project and thus will enjoy the same locational advantages. APL currently expects that the first unit of 660 MW will be commissioned by January 2011, and the second unit will be commissioned by June 2011. This power project has an estimated development cost of Rs. 57,960.00 million. Financing The total investment required for the Mundra Phase III Power Project is expected to be Rs. 57,960.00 million. APL has arranged financing of approximately 76.8% of the cost of this power project which amounts to approximately Rs. 44,540.00 million through third party debt. As of May 31, 2009, the equity contribution of Rs. 9,150.00 million has been funded by Promoters and strategic investors. The balance is expected to be funded through equity contribution by Promoters, net proceeds from Public Issue and internal accruals. 1,980 MW Mundra Phase IV Power Project – Mundra, Gujarat The Mundra Phase IV Power Project is proposed to be a coal-based power project with three super-critical units of 660 MW each and an aggregate capacity of 1,980 MW of power. The power project is situated at Tunda and Siracha, Mundra village, Kutch district in the state of Gujarat. This power project will be constructed in a single phase. The first 660 MW of Mundra Phase IV Power Project is expected to be commissioned by August 2011, and the last unit is expected to be commissioned by April 2012. This power project has an estimated development cost of Rs. 89,600.00 million. Financing The total investment required for the Mundra Phase IV Power Project is expected to be Rs. 89,600.00 million. APL intends to finance approximately 80.0% of the cost of this power project through third party debt. As of May 31, 2009, the equity contribution of Rs. 649.95 million has been funded by Promoters and strategic investors. The balance is expected to be funded through equity contribution by Promoters and through Net Proceeds of the Public Issue. The financing for the project to include senior debt of Rs. 67,200.00 million and subordinated debt of Rs. 4,480.00 million. 1,980 MW Tiroda Power Project – Tiroda, Maharashtra Our 77.38% owned subsidiary Adani Power Ma harashtra Limited (“APML”) is developing the Tiroda Power Project, a coal based power project consisting of three super critical units of 660 MW each and an aggregate capacity of 1,980 MW. The Tiroda Power Project will be commissioned in two parts, wherein Tiroda I will have two super critical units of 660 MW and


Tiroda II will have one super critical unit of 660 MW. The power project will be developed in two phases at village Tiroda in the district of Gondia in Maharashtra, India. This power project has an estimated development cost of Rs. 92,630.00 million. Financing The total investment required for the Tiroda Power Project is approximately Rs. 92,630.00 million. The total expected cost for phase I of 1,320 MW is Rs. 65,600.00 million, of which APML intends to finance approximately 80.0% from third party debt. The balance is expected to be funded through equity contribution by the Company, strategic investors and through Net Proceeds of the Issue.


VALUAION OF ALPHA POWER LIMITED The objective of this analysis is to estimate the Fair Value of APL as of September 30, 2009 so as to determine the price band per share for selling 10% promoters stake in the company. This valuation was included for analysis and planning purposes only. It is not intended to be relied upon or used for tax purposes, any legal proceeding or controversy, or as an independent opinion of value or fairness. The standard of value used in our valuation of APL is Fair Value. Fair Value is the price, in terms of cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could reasonably be expected to accept, if the business were exposed for sale on the open market for a reasonable period of time, with both buyer and seller being in possession of the pertinent facts and neither being under any compulsion to act. There are large number of factors to consider when estimating the common stock value of any business entity. These factors vary for each valuation depending on the unique circumstances of the business enterprise and general economic conditions that exist at the effective date of the valuation. However, fundamental guidelines of the factors to consider in any valuation have been established. The most commonly used valuation guidelines are derived from the Internal Revenue Service’s Revenue Ruling 59-60 (of USA-Internal Revenue Service, Revenue Rulling 59-60, 1959-1 C.B.237). Revenue Ruling 59-60 states that in the valuation of the stock of closely held businesses, the following factors, although not all inclusive, are fundamental and require careful consideration in each case: a. The nature of the business and the history of the enterprise from its inception. b. The economic outlook in general and the condition and outlook of the specific industry in

particular. c. The book value of the stock and the financial condition of the business. d. The earning capacity of the company. e. The dividend-paying capacity. f. Whether or not the enterprise has goodwill or other intangible value. g. Sales of the stock and the size of the block of stock to be valued. h. The market price of stocks of corporations engaged in the same or a similar line of business

having their stocks actively traded in a free and open market, either on an exchange or over-the counter.

Based on circumstances unique to APL as of September 30, 2009, additional factors have been considered. In addition to providing general valuation guidelines, Revenue Ruling 59-60 outlines other considerations and techniques for valuing the stock of closely held businesses. The techniques are commonly divided into general approaches, i.e., the Asset, Income and Market approaches. Specific methods are then used to estimate the value of the total business entity under each approach.


Our conclusion of Fair Value is determined based on the results of these methods and the specific circumstances surrounding the interest being valued. Overview of Valuation Approaches and Methods There are several commonly used and accepted methods for determining the value of equity shares. Considering the purpose of valuation, Subject Company is a listed company and other parameters in mind, we have considered the following valuation methods: As previously specified, various approaches have been used to value APL. These approaches, described below, are the: 1) Asset Approach, 2) Income Approach, 3) Comparable Company Multiple, 4) Market Approach, The asset based valuation technique is based on the value of the underlying net assets of the business, either on a Book Value basis or Net Asset Value basis or Liquidation Va lue (realisable value) basis. This valuation approach is mainly used in case where the firm is to be liquidated i.e. it does not meet the “going concern” criteria or in case where the assets base dominate earnings capability. In case of a going concern normally the relative earning power is of importance therefore the actual realization of the operating assets is not contemplated and the net asset value is calculated based on the historical cost. The Asset Approach is generally considered to yield the minimum benchmark of value for an operating enterprise. Under Book Value Method Fixed assets and current assets are valued at book value, whereas investments have been valued at market price. Net Asset Value represents net equity of the business after assets and liabilities have been adjusted to their fair values. Lastly, the Liquidation Value of the business represents the net present value of cash flows from liquidating the Company’s assets and paying off its liabilities. The Income Approach serves to estimate the value of a specific income stream with consideration given to the risk inherent in that income stream. The most common methods under this approach is Discounted Future Earnings. The Discounted Future Earnings method discounts projected future earnings back to present value at a rate that reflects the risk inherent in the projected earnings. The Comparable Company Multiple serves to estimate the value of similar companies operating in the same industry that are either publicly traded, Enterprise value to Sales multiple has been used in our report. The Market Approach (Market Price Method) is used to get the Weighted Average Historical Prices of the shares of the company to be valued.


Income Approach-Discount Rate Estimates For purposes of this analysis, various risk rates applicable to historic and projected earnings have been estimated. Generally stated, these risk-adjusted rates reflect the expected rate of return attainable on alternative investment opportunities with comparable risk. This discount rate, which is applied to the free cash flows, should reflect the opportunity cost to all the capital providers (namely shareholders and creditors), weighted by their relative contribution to the total capital of the company. This is commonly referred to as the weighted average cost of capital (WACC). We have derived the weighted average cost of capital (“WACC’’) from the Cost of equity calculated using the Capital Asset Pricing Model (`CAPM’). CAPM Model is based on a combination of risk factors including a Risk-Free Rate, a Market Equity Risk Premium, a Size Premium and other identifiable risk factors specific to the subject company. This Discount Rate represents the total return, in terms of cash flows and appreciation in value that an investor would require in order to make an equity investment in the subject company CAPM Model Expected return on equity = Kf + Beta * (Km-Kf) Where: Kf Risk free rate as on the valuation date Beta Beta measures the riskeness of an individual security in relation to ma rket portfolio Km-Kf Expected equity risk premium on the market Km Average Return from Market Portfolio Risk Free Rate (Kf) The risk free rate is generally based on the returns from long-term government bonds and securities. In a way it depicts a combination Economic Growth & Inflation Premium. These returns are used since they represent a very low default risk, are liquid (freely tradable) and include the expected long-term inflation premium. On the valuation date the risk free rate of return can be taken at 8% based on the current yield on long- term government securities in India. Beta Systematic risk is measured in the CAPM by a factor known as beta. Beta measures the Volatility of the changes in share prices of a company compared to the changes in the market for all listed company that make up that market. Systematic risk elements relating to the industry structure includes entry barriers, expected rivalry threat, substitution threat, and suppliers and buyers’ power threat. The beta of APL is 1.08 and the same has been considered in our CAPM calculations.


Company Name Beta Comments

NTPC 0.78 Low risk stock as complete cost is a pass through. However, limited upside as returns are regulated.

Reliance Power 1.12 One of the closest comparables to Alpha Power, with zero operating capacity and 33600MW portfolio of projects.

Tata Power 1.03 Regulated power business is low risk but new projects and coal assets are exposed to change in business environment.

Lanco Infratech 1.64 Power is the key business, but EPC, real estate and infrastructure business are significant. The stock is highlt volatile.

Reliance Infrastructure 1.49

Power is the key business, but EPC, real estate and infrastructure business are significant. The stock is highlt volatile.

NHP C 0.84 Low risk stock as complete cost is a pass through. However, limited upside as returns are regulated. More like NTPC

Aplha Power 1.08 Industry Average 1.15

Return from Market Portfolio (Km) The opportunity cost to the capital provider equals the rate of return the capital provider expects to earn on other investments of equivalent risk. The expected rate of return from equity is taken on the basis of compounded average growth rate of the year on year in terms of percentage of stocks under CNX 500 during last 10 years respectively .The calculation of CAGR is depicted as under: Calculation of Average Return of Index CNX 500 Since 2000

Year Open Close Growth YOY

in % tems CAGR

2000 1,205.00

912.85

(292.15) -24.24%

2001 912.85

700.60

(212.25) -23.25%

2002 700.60

772.85

72.25 10.31%

2003 772.85

1,531.35

758.50 98.14%

2004 1,531.35

1,804.90

273.55 17.86%

2005 1,804.90

2,459.20

654.30 36.25%

2006 2,459.90

3,295.05

835.15 33.95%

2007 3,295.05

5,354.70

2,059.65 62.51%

2008 5,354.70

2,295.75

(3,058.95) -57.13%

2009 2,295.75

4,329.10

2,033.35 88.57% -12.14%

Source : NSE website


Calculation of Cost of Equity Cost of Equity = Risk Free Rate + Beta X ERP = 8% + 1.08 X 4.14%(12.14%-8%) = 12.471%

Discounted Future Earnings Method The Discounted Future Earnings method arrives at an estimate of value by determining expected future earnings and then discounting those earnings back to present value using a discount rate that reflects the Uncertainty/time value inherent in those earnings. Projections have been made by the Management of APL and have been reviewed by us.

ASSUMPTIONS Alpha Power’s Capacity additions plans

MW FY10E FY11E FY12E FY13E Mundra Phase I 660 Mundra Phase II 660 Mundra Phase III 660 660 Mundra Phase IV 660 1320 Tiroda 660 1320 Capacity Additions 1320 660 1980 2640 Total Capacity 1320 1980 3960 6600

APL expects to sell 72% of power under long term PPA’s and balance to be sold at spot rates As discussed above the summary of PPA signed are mentioned below: Key PPA signed

Project Mundra I

& II Mundra

III Mundra

IV Tiroda Total Total Capacity (MW) 1320 1320 1980 1980 6600 PPA signed 1000 1000 1425 1320 4745 Rate (Rs/Unit) 2.89 2.35 2.94 2.64 With effect from Feb-10 Feb-12 Feb-13 Sep-12 Offtake agreement signed with GUVNL GUVNL UHBVNL MSEDCL Weighted Average Sales price under PPA 2.72 per unit


Merchant power tariffs As per data from the Indian Energy Exchange, short-term tariffs have remained very attractive.

Merchant power spot rates have remained very attractive over the past six months (above Rs5 on average). We believe there is a three year window of opportunity to earn attractive merchant power returns. We believe regulatory intervention is unlikely during this period and merchant power tariffs to decline in coming years due to the decline in gap between demand and supply of power as detailed below. Estimates of Merchant Power Tariffs

Merchant Power Tariffs FY10E FY11E FY12E FY13E FY14E FY15E

FY16E & onwards

Merchant tariff (Rs/Unit) 5.5 5.25 5 4.5 4 3.5 3


PROJECTED ENERGY SALES FY10E FY11E FY12E FY13E FY14E FY15E FY16E MW Installed 1320 1980 3960 6600 6600 6600 6600 MW Commissioned (annualised) 396 1188 2640 5478 6600 6600 6600 1MW = 1000 KWh 1000 1000 1000 1000 1000 1000 1000 Total Hr/Day 24 24 24 24 24 24 24 No. of Days 365 365 365 365 365 365 365 PLF 92.50% 92.50% 92.50% 92.50% 92.50% 92.50% 92.50% 3210 9630 21390 44390 53480 53480 53480 Sales in mn KWh 3210 9630 21390 44390 53480 53480 53480

Mundra I & II 3210 9630 10694 10694 10694 10694 10694 Mundra III 5348 9644 10696 10696 10696 Mundra IV 2674 12026 16045 16045 16045

Tiroda 2674 12026 16045 16045 16045

Total Sales (in Rs mn) 11,230

33,015

71,836

142,865

164,633

157,146

149,658

Sales under PPA (in KWh) 2,311

6,934

15,401

31,961

38,506

38,506

38,506

Sales (in Rs mn) PPA @ 2.72/Unit

6,286

18,859

41,890

86,933

104,735

104,735

104,735

Sales in open market (in Kwh) 899

2,696

5,989

12,429

14,974

14,974

14,974

Merchant Power Sales (in Rs mn)

4,943

14,156

29,946

55,931

59,898

52,410

44,923

Sales in mn KWh 3,210

9,630

21,390

44,390

53,480

53,480

53,480

Total Sales (in Rs mn) 11,230

33,015

71,836

142,865

164,633

157,146

149,658

COAL REQUIREMENT CALCULATION Coal Requirement calculation

Coal Requirement Capacity

Fuel Required Key Assumption

(MW) (MTPA) Heat Rate (kcal/unit)

Gross calorific calue (kcal/kg) PLF (%)

Mundra 4,620 17 2200 4840 92.5 Tiroda 1,980 7.3 2200 4840 92.5 Total 24.3


Coal Price Assumptions Captive Coal Rs 900 per tonne Coal linkage Rs 1200 per tonne Escalation Cost 2% pa

This assumption is reasonable and is based on market data from CommoditiesResearch.com The cost includes transportation Cost of Goods Sold (Coal) FY10E FY11E FY12E FY13E FY14E FY15E FY16E Sales in mn KWh 3210 9630 21390 44390 53480 53480 53480 Mundra I & II 3210 9630 10694 10694 10694 10694 10694 Mundra III 0 0 5348 9644 10696 10696 10696 Mundra IV 0 0 2674 12026 16045 16045 16045 Tiroda 0 0 2674 12026 16045 16045 16045 Fuel Required (MTPA) 1.18

3.54

7.87

16.33

19.68

19.68

19.68

Cost Per tonne 2,100 2,142

2,185

2,229

2,273

2,319

2,365

Total Cost in Rs mn 2,480 7,590

17,196

36,401

44,732

45,627

46,539

PROJECTED PROFITABILITY STATEMENT Amount Rs in millions FY10E FY11E FY12E FY13E FY14E FY15E FY16E

MW Installed 1,320

1,980

3,960

6,600

6,600

6,600

6,600

MW Commissioned (yearly)

396

1,188

2,640

5,478

6,600

6,600

6,600

Sales in mn KWh 2,984

8,953

19,894

41,281

49,736

49,736

49,736

Sales (in Rs mn) 11,230

33,015

71,836

142,865

164,633

157,146

149,658

Cost of Goods Sold (Coal)

(2,480)

(7,590)

(17,196)

(36,401)

(44,732)

(45,627)

(46,539)

Gross Profit 8,749

25,425

54,640

106,464

119,901

111,519

103,119

Depreciation (689)

(2,067)

(5,431)

(12,267)

(14,979)

(13,481)

(10,785)

SGA (412)

(1,285)

(2,857)

(5,642)

(7,045)

(7,186)

(7,330)

EBIT 7,648

22,073

46,352

88,555

97,877

90,852

85,005


Interest 444

(828)

(6,353)

(12,105)

(16,287)

(16,287)

(16,287)

Profit before taxes 8,092

21,245

39,999

76,450

81,590

74,565

68,718

Taxes -

-

(343)

(2,730)

(3,442)

(3,442)

(3,442)

Profit after taxes 8,092

21,245

39,656

73,720

78,148

71,123

65,276

Minorities -

-

(441)

(3,507)

(4,423)

(4,423)

(4,423)

Net Income 8,092

21,245

39,215

70,213

73,725

66,700

60,853

PROJECTED BALANCE SHEET Amount Rs in millions

Actuals Expected Expected Expected Expected Expected Expected Expected 31.03.2009 31.03.2010 31.03.2011 31.03.2012 31.03.2013 31.03.2014 31.03.2015 31.03.2016

Net Tangible Fixed Assets 69,213 95,712 147,479 202,514 263,139 253,834 240,353 229,568

Net Working Capital 4,129 1,310 3,899 8,590 17,427 20,517 20,041 19,568

Total Capital Employed 73,343 97,022 151,378 211,104 280,566 274,351 260,394 249,136

Net Debt (net of cash) 49,897 34,426 69,840 105,263 116,217 49,202 -

-

Shareholders Funds 23,446 62,632 80,875 105,735 160,881 224,736 224,736 224,736

Total Capital Employed 73,343 97,058 150,715 210,998 277,098 273,938 224,736 224,736

Total Increase in Capex 27,188 53,834 60,466 72,892 5,674 -

-

Increase in Debt (15,471) 35,414 35,423 10,954

(67,015)

(49,202)

-

Alpha Power's Net Working Capital Days of receivables 30 30 30 30 30 30 30

Days of inventory 75 75 75 75 75 75 75

Days of payables 18 18 18 18 18 18 18

Days of NWC 87 87 87 87 87 87 87

Accounts Receivable (on Days Sales) 923.00 2,713.60 5,904.34 11,742.31 13,531.47 12,916.08 12,300.69 Inventory (on Cost of Goods Sold) 509.68 1,559.63 3,533.51 7,479.63 9,191.51 9,375.34 9,562.84 Accounts Payables (on Cost of Goods Sold)

(122.32)

(374.31)

(848.04)

(1,795.11)

(2,205.96)

(2,250.08)

(2,295.08)

Net Working Capital 4,129.39 1,310.36 3,898.92 8,589.81 17,426.83 20,517.01 20,041.34 19,568.45


CASH FLOW ESTIMATES AND CALCULATION OF PRESENT VALUE OF CASH FLOWS TO EQUITY

(Rs in Million)

EBIT 7,648

22,073

46,352

88,555

97,877

90,852

85,005

Depreciation 689

2,067

5,431

12,267

14,979

13,481

10,785

Change in working capital

2,819

(2,589)

(4,691)

(8,837)

(3,090)

476

473

Taxes -

-

(343)

(2,730)

(3,442)

(3,442)

(3,442)

Operating Cash Flows 11,156

21,552

46,749

89,255

106,324

101,367

92,821

Interest 444

(828)

(6,353)

(12,105)

(16,287)

(16,287)

(16,287)

Capex (27,188)

(53,834)

(60,466)

(72,892)

(5,674) - -

Free Cash Flows (15,587)

(33,110)

(20,070)

4,258

84,363

85,080

76,534

Share Issues 33,935

- -

- - - -

Others (Minority Interest) -

-

(441)

(3,507)

(4,423)

(4,423)

(4,423)

Cash flow from Debt (15,471)

35,414

35,423

10,954

(67,015)

(49,202) -

Cash flows to Equity 2,877

2,304

14,912

11,705

12,925

31,455

72,111

PV of Cash flows to equity

2,558 1,821

10,481 7,315

7,182

15,541

31,677

1.1247 1.1247 1.1247 1.1247 1.1247 1.1247 1.1247 1 2 3 4 5 6 7

DCF VALUE PER EQUITY SHARE Present Value of Free Cash Flows to Equity for years 1 to 7 76,575 Present Value of Terminal Value from year 8 97,076 Total EQUITY VALUE (Rs in millions) 173,651 Total Shares outstanding (in millions) 2,180 Value per equity share Rs 80


Comparative Company Method Under this method, value of the shares of a company is arrived at by using multiples derived from valuations of comparable company, as manifest through stock market valuations of listed company. This valuation is based on the principal that market valuations, taking place between informed buyers and informed sellers, incorporate all factors relevant to valuation. Relevant multiples need to be chosen carefully and adjusted for differences between the circumstances. Value of business is determined by applying appropriate multiple obtained by analyzing information related to various comparable companies. Comparable companies are obtained by applying logical judgments keeping factors such as Turnover, Products, Services, Business environment, Profit margins, Scale of operations etc, in mind. Outlier multiples e.g. negative multiple or very high/low multiple as compared to the industry average multiples are ignored. We have used EV/MW multiple (Enterprise Value per Mega Watt) for comparative company valuation method which in our view is the most appropriate multiple for comparison in power sector. At CMP (as on 30th September 2009) of Rs96, Adani Power’s market cap would be Rs210bn. If we compare Adani Power on EV/MW with NTPC , NTPC looks more reasonably valued. However, there are reasons for this: a) NTPC’s capacity is largely regul ated and this limits project profitability; and b) NTPC has significant operating capacity and this makes comparison with Greenfield expansion (Adani Power) less relevant. But even at DCF price of Rs 80 APL is around 10% more richly valued. CMP as on 30.09.2009

NTPC Alpha

Power Alpha Power

CMP Rs

214 CMP Rs 96 At DCF Price of Rs

80 1 Market Cap (Rs mn) 1,764,430 209,280 174400 2 Add: Net Debt 143,258 49,897 49,897 3 EV (Rs mn) 1,907,688 259,177 224,297 4 Existing Capacity (MW) 30,000 0 0 5 Addition till 2015E (MW) 30,000 6,600 6,600 6 Debt required for new capacity 787,500 229,935 229,935 7 Cash generated in next 5 years (PAT+Dep) 1,187,578 295,092 295,092 8 Equity required for funding of new capacity 337,500 57,500 57,500 9 Value EV/ MW (for 2015 capacity) (Rs mn) 30.75 38.11 32.82 (3+6+8-7)/(3+4)


Market Approach (Market Value Method) Quoted prices are considered indicative of the perception of investors operating under free market conditions. Under this method, the valuation is done on the basis of share prices of a company quoted on the stock exchange. The Equity Shares of APL are listed on stock Exchange at –

? National Stock Exchange of India Ltd. NSE symbol for APL is ALPHAPOWER ? Bombay Stock Exchange- BSE Code for APL is 500000

The daily average price of APL from the date of listing i.e. 04th August 2009 to 30th September 2009 is Rs 101.45 with high price of Rs 111.00 and low price of Rs 88.00. As the shares of APL have been listed recently, market price of the stock does not lead us to the correct business enterprise value as on 30th September 2009.


Business Value of ALPHA POWER LIMITED For the reasons set out earlier in this report, the valuation cannot proceed solely on the basis of what is known as historical profits or profits of past years. The present valuation exercise would have to proceed on a going concern basis and hence has to lay emphasis on cash generation capacity of the company. We used projected DCF as our valuation methodology. In our view, DCF is the most appropriate method to value Greenfield expansions of generation capacity. We also highlighted the alternate valuations.

CONCLUSION OF VALUE

Value as per DCF Method is Rs 80 per Share. Average Market price of APL from the date of listing till 30th Sep 2009 is Rs 101.45 Enterprise Value per Mega Watt (EV/MW) multiple of APL is also higher as compared to other listed companies having same business model. As the shares of APL are publicly traded, there is no need for adjustment for discount for lack of marketability. The promoters M/s Alpha Enterprises Limited hold 70% stake in the company and they want to sell 10% stake. So, no adjustment for lack of control is required. In the ultimate analysis, valuation will have to be adjusted by the exercise of judicious discretion and judgment taking into account all the relevant factors. There will always be several factors, e.g. quality and integrity of the management, present and prospective competition, marketability or lack of marketability and market sentiment etc. which are not evident from the face of the balance sheets but which will strongly influence the worth of a share. Based upon the analysis of the business of the company, in our assessment, the fair value per equity share of Alpha Power Limited is Rs80.00 as at 30th September 2009

Documents

19615Alpha Power