Initiating Coverage

Sailing on synergies

Adani Power

Nalin Bhatt ([email protected]) +91 22 3982 5429 / Satyam Agarwal ([email protected]); Tel: +91 22 3982 5410

Vishal Periwal ([email protected]) +91 22 3982 5417

Base Report | April 2011

Sector: Utilities

Adani Power

211 April 2011

Adani Power: Sailing on synergies

Page No.

Summary .......................................................................................................... 3-4

Accelerated project execution; comfortably positioned on

several parameters .......................................................................................... 5-7

Well placed to fund 6.6GW of initial projects pipeline ................................... 8-9

PPA structure exposes to fuel price/availability risks .................................10-11

Merchant contribution to profitability sizable, exposes to

near term earnings volatility ....................................................................... 12-13

Multi-fold earnings growth; initiate coverage with Neutral ...................... 14-15

Annexure 1: APL's project portfolio .................................................................16

Financials and valuation .............................................................................. 17-18

Adani PowerTarget price: Rs113 NeutralBSE SENSEX S&P CNX

19,263 5,786

Sailing on synergiesAccelerated project execution, leveraging on group synergies

Adani Power (APL) is in an accelerated execution phase with expected capacity of 4.6GW

by end FY12 (largest private IPP) and capex spending of Rs129b in FY11 (amongst the

largest capex spenders in the economy). Mundra (4.6GW) is the most profitable project in

the portfolio, contributing 67% to SOTP and 90%+ of FY12/FY13 consolidated earnings. At

Mundra, as large parts of the capacity have fuel tied-up under long-term contracts and

power sales under PPA, 'coal earnings' have been successfully converted into 'annuity

streams'. Consolidated DER in FY11/12 is high at 3.3x; funding is however comfortable as

82% of the capex on an initial 6.6GW pipeline, to be commissioned by FY13, has been

incurred. Fuel availability is a challenge in the interim for Tiroda (3.3GW) and Kawai (1.3GW),

given constraints of coal linkages.

Accelerated project execution, comfortably positioned on several

parameters: APL's generation capacity is expected to increase to 4.6GW by

FY12 / 6.6GW by FY13, and will be the largest private sector IPP in the country.

Capex incurred in FY10 / FY11 stands at Rs200b - amongst the highest spenders

in the economy (and compares with ~Rs230b by NTPC). In addition, 2.6GW

capacity is under construction (to be commissioned by FY14-15) and project

pipeline stands at 7.2GW. Given the strong parent advantage, APL is comfortably

positioned on several key parameters including land availability, fuel security, etc.

Of the 16.5GW of project portfolio, 10.6GW are being commissioned at Mundra

and Dahej, where Adani Enterprises (AEL, 70.3% stake) has access to vast tracks

of land. On the fuel front, AEL has access to 8b tons of reserves in Indonesia and

Australia and also controls ~50%+ market share in overall coal trading/imports

into India. The group strengths are an advantage, given the recent issues in terms

of acquiring land and fuel security.

Mundra project contributes 67% to SOTP, 90%+ of FY12/13 earnings as 'coal

earnings' converted into 'annuity streams': Mundra (4.6GW) is the most

profitable project for APL, given contracted fuel supplies from AEL's captive mine

in Indonesia at CIF of USD36/t, entailing competitive fuel cost of Rs1.1-1.2/unit.

While the imported coal requirement stands at 7m tons, we understand that part

of the shortfall in terms of domestic linkages (10m tons requirement) will also be

met by AEL on similar terms. Peak capacity of Bunyu mines stands at 11m tons,

and can support 3.1GW of operational capacity. Further, as 80% of the 4.6GW

capacity has been tied up under long term PPAs at levelized tariffs of Rs2.8/unit,

the Mundra project largely has an annuity earnings stream.

Merchant profitability to contribute 75% to FY12/13 earnings, various moving

parts exposes to near term earnings volatility: Merchant profitability will be

the key near term earnings driver, as the trigger point in terms of PPAs for large

part of the capacities commissioned is in phases from mid FY13 onwards; leading

to increased merchant sales in the interim period. The key risks are delays in

terms of project commissioning (as the merchant sales have a limited window

opportunity), volatility in merchant prices and fuel availability / pricing. Use of e-

auction coal for Mundra project / imported coal on spot purchases (given shortages

in domestic linkages) would impact profitability.

Stock performance (1 year)

Shareholding pattern % (Mar-11)

Bloomberg ADANI IN

CMP (Rs) 117

Equity Shares (m) 2,180.0

52-Week Range (Rs) 145/108

1,6,12 Rel. Perf. (%) -1/-9/-7

M.Cap. (Rs b) 256.0

M.Cap. (US$ b) 5.8

Y/E March 2011E 2012E 2013E

Sales (Rs b) 21.2 76.5 133.0

EBITDA (Rs b) 12.5 46.4 72.4

NP (Rs b) 7.2 24.7 30.2

EPS (Rs) 3.3 11.3 13.9

EPS Gr. (%) 323.5 242.5 22.5

BV/Share (Rs) 29.3 38.7 50.2

P/E (x) 35.5 10.4 8.5

P/BV (x) 4.0 3.0 2.3

EV/EBITDA (x) 37.1 11.3 7.4

EV/ Sales (x) 21.9 6.9 4.0

RoE (%) 11.9 33.3 31.2

RoCE (%) 5.1 12.9 15.6

Domestic

Inst, 1.3

Others,

6.4

Foreign,

18.9

Promoter, 73.5

Initiating Coverage

SECTOR: UTILITIES

38 April 2011

90

105

120

135

150

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Adani Pow erSensex - Rebased

Adani Power

411 April 2011

Multi-fold earnings growth; initiate with Neutral: APL's net profit is expected to

increase from Rs1.7b in FY10 to Rs30b in FY13 given increase in operational capacity

from 990MW as at March 2010 to 6.6GW by FY13E. Consolidated DER in FY11/12 is

high at 3.3x; funding is comfortable as 82% of the capex on 6.6GW to be commissioned

by FY13 has been incurred. Fuel availability is a risk for Tiroda (3.3GW) and Kawai

(1.3GW) given constraints in terms of coal linkages. We have valued APL on SOTP

methodology for 9.2GW of projects portfolio and arrive at a valuation of Rs113/sh,

including Rs9/sh towards growth option for an additional 7.3GW of projects in the initial

pipeline stages. We initiate coverage with a Neutral rating.

Operational matrixFY10 FY11E FY12E FY13E

Operational Capacity (MW) 660 1,980 4,620 6,600

Net Generation (BUs) 1.2 6.5 21.9 43.4

- Case 1 0.9 5.5 8.9 23.8

- Merchant 0.4 1.0 12.9 19.7

Average Realization (Rs/unit) 3.6 3.1 3.5 3.0

Generation Cost (Rs/unit) 2.2 1.9 2.1 2.1

Net Profit (Rs b) 1.7 7.2 24.7 30.2

Net Profit (Rs/unit) 1.4 1.1 1.1 0.7

Source: MOSL

Comparative valuationCompany Rating M.cap EPS (Rs) RoE (%) P/BV (x) P/E (x)

(Rs b) FY11E FY12E FY13E FY11E FY12E FY13E FY11E FY12E FY13E FY11E FY12E FY13E

NTPC Buy 1,516 10.1 12.0 14.0 12.8 14.0 15.1 2.2 2.1 1.9 18.2 15.3 13.1

PGCIL Buy 483 5.6 6.8 7.8 13.8 13.9 14.4 2.2 2.0 1.8 18.7 15.3 13.3

Tata Power Neutral 313 76.3 111.2 98.3 7.3 9.7 6.7 2.7 2.5 2.4 17.3 11.8 13.4

Reliance Infra Buy 182 34.8 53.8 60.8 5.6 8.2 8.6 1.1 1.0 0.9 19.5 12.6 11.2

CESC Buy 39 37.8 38.8 39.6 13.3 12.2 11.2 1.1 1.0 0.9 8.3 8.1 7.9

PTC India Buy 26 5.4 10.2 13.9 6.2 7.1 9.4 1.2 1.2 1.1 16.3 8.6 6.4

Adani Power Neutral 256 3.3 11.3 13.9 11.9 33.3 31.2 4.0 3.0 2.3 35.5 10.4 8.5

CIL * Buy 2,255 16.2 20.9 26.8 31.6 24.7 25.8 6.9 5.4 4.3 22.9 22.0 17.1

* Adjusted for OB reserves provisions Source: MOSL

Adani Power

511 April 2011

Accelerated project execution; comfortably positioned onseveral parameters

APL's generation capacity is expected to increase to 4.6GW by FY12 / 6.6GW by FY13, and will

be the largest private sector IPP in India. Capex incurred in FY10 / FY11 stands at Rs200b -

amongst the highest spenders in the economy (and compares with ~Rs230b by NTPC). In

addition, 2.6GW capacity is under construction (to be commissioned by FY14-15) and project

pipeline stands at 7.3GW. Given the strong parent advantage, APL is comfortably positioned

on several key parameters including land availability, fuel security, etc. Of the 16.5GW of

project portfolio, 10.6GW are being commissioned at Mundra and Dahej, where Adani

Enterprises (AEL, 70.3% stake) has access to vast tracks of land. On the fuel front, AEL has

access to 8b tons of reserves in Indonesia and Australia and controls ~50%+ market share

in overall coal trading/imports into India. The group strengths are an advantage, given the

recent issues in terms of acquiring land and fuel security.

Capacity addition of 6.6GW by FY13E, 9.2GW by FY15E

APL currently has a project pipeline of 16.5GW in various stages of construction,development and planning. Operational capacity stands at 2GW, and projects underconstruction at ~7.2GW (of which ~4.7GW will be commissioned by FY13). Severalissues including restrictions on Chinese worker visas, have led to initial delays in capacitycommissioning. Under the Eleventh Plan (FY08-12), APL is likely to commission 4.6GWof capacity. This will be the highest capacity addition amongst private players and contribute7.4% of the capacity addition in the country.

Capacity commissioning set to accelerate (GW)

Initial phase of 6.6GW

capacity will be operational

by FY13E

Source: Company/MOSL

0

2

4

6

8

10

FY10 FY11E FY12E FY13E FY14E FY15E

Mundra Phase 1&2 Mundra Phase 3

Mundra Phase 4 Maharashtra (Tiroda)

Rajasthan (Kaw ai) Maharashtra Exp (Tiroda)

0.66

9.24

7.92

6.60

4.60

1.98

In FY12, APL will be the

largest private sector IPP

Adani Power

611 April 2011

APL will have the highest capacity addition amongst IPPs in the Eleventh Plan

APL will have a

market share of 7.4% in

terms of capacity additions

in the country


Projects of 7.2GW in the planning stage: large part of land already acquiredDahej Chhindwara Bhadreshwar

Gujarat MP Gujarat

Capacity (MW) 2,640 1,320 3,300

Configuration (MW, Units) 660x4 660x2 660x5

Stake (%) 100 100 100

Project Clearances

Land 100% land 100% land Land is available

available available

Water Sea Water Water reserved from Sea Water

Pench River

Environ TOR approved, TOR approved, TOR approved,

EIA study commenced EIA study commenced EIA study commenced

BTG NIT issued NIT issued NIT issued

Fuel Requirement (m ton) 11.7 5.85 14.63

Fuel Agreement Linkages applied Linkages applied Linkages applied

Offtake Not tied-up 10% of capacity on variable rates Not tied-up

and 40% capacity on first right of

refusal to state on CERC norms


Strong parent advantage = well covered on key aspects

Key issues facing players in the Indian power sector include: (1) land availability, (2) fuelsecurity, (3) funding. APL is comfortably positioned on several of these key aspects givenits strong parent advantage. Of the 16.5GW portfolio, projects of 10.6GW are beingcommissioned at Mundra and Dahej, where Adani Enterprises (AEL, 70.3% stake) hasaccess to vast tracts of land, given SEZ development plans. On the fuel front, AEL hasaccess to 8b tonnes of coal reserves in Indonesia and Australia and it controls ~50%+market share in overall coal trading/imports into India. This, coupled with control of thelogistics chain, including shipping, ports (Mundra, Dahej), entails that APL is comfortablypositioned on several parameters.

Project pipeline of 7.2GW is

in initial stages and fuel

linkages have been applied

for. These projects could

enter the construction phase

over the next 12-18 months,

based on the progress of fuel

tie ups, environment

clearances, etc

13.0

4.63.3 2.6 2.4 2.1 2.0 1.8 1.5 1.2 1.0

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Adani Power

711 April 2011

Strong parent advantage could enable accelerated execution for sizable part of the project portfolio

AEL controls 8b tonnes of coal reserves in Australia and IndonesiaMines Country Reserves CoD Remarks

(m tons)

East Kalimantan block Indonesia 150 FY11 140m tons minable reserves, 300m resources

Production of 5m tons in FY11

Peak production of 11mtpa

Linc Energy Australia 7,800 FY15 Possible peak production of 60m tons

MPSEZ to develop coal terminal at Dudgeon

in Macay, Queensland to export 30-60mtpa

Total 7,950

Note: In addition, Adani Enterprise has “Coal purchase rights” for 60% of coal through a rail/port project

development for PT Bukit Asam, Indonesia. It will develop rail/port under “Take or Pay” mechanism and initial

capacity is 35mtpa, extendable upto 60mtpa of coal handling. This, would be however subject to Indonesia

Reference Price Index.

AEL accounts for 50% of total coal imported to India (m tonnes)

AEL has access 8b tonnes of

coal reserves in Indonesia

and partly controls the

logistics channel through

port/shipping operations

AEL is the largest coal

importer/aggregator in

India. The Adani group has

significant advantage over

other players, given captive

shipping/port and mining

operations


7.7 8.1 10.2

18.725.0

19.7

38.2

50.0

28.325.3

39%32%

36%

49% 50%

FY06 FY07 FY08 FY09 FY10

AEL India thermal coal import Market share (%)

SEZ at Mundra (32,355 acres) and Dahej (GIDC SEZ 4,300 hectares).

Access to Sea water

AEL has access to 8b tons of coal reserves at Indonesia (150m tons) and Australia (7.8b tons)

Mundra port would have 100m tons of capacity (50m tons of coal handling terminal) and Dahej would have 15-20m tons of coal hanlding (mix of

solid+liquid cargo)

Land

Water

Fuel

Port

Adani Enterprises(70.3% stake in APL) Beneficial for

10.6GW of total 16.5GW capacity


Adani Power

811 April 2011

Well placed to fund 6.6GW of initial projects pipeline

Funding requirement towards the initial 6.6GW of the project portfolio has been largely

met through funds raised from an IPO (Rs30.2b), PE investments (Rs8.3b) and internal

accruals. Given the accelerated pace of project commissioning and increased internal

cash generation, APL is comfortably positioned in terms of funding the development

pipeline. For the initial 6.6GW capacity, APL has incurred 82%+ of the total project cost and

invested ~100% of the total equity requirement. Outstanding equity requirement as at

December 2010 stands at ~Rs16.2b - Rs0.9b towards the initial 6.6GW and Rs15.4b towards

an incremental 2.6GW. Debt equity ratio at 3.3x for FY11/12 is high and exposes it to cash

flow volatility risks. Operating cashflows are likely to improve from Rs18.6b in FY11 to

Rs31b in FY12 and Rs60b in FY13.

Equity funding requirement for 9.9GW projects has already peaked (Rs m)

For the initial 6.6GW

capacity, APL has already

incurred 82%+ of the total

project cost and invested

~100% of the total equity

requirement

APL: CF from operations to remain strong (Rs b), consolidated DER(x) to peak in FY11/12

Given robust internal

accruals from FY12, we

believe the growth option

will not be equity dilutive;

however consolidated DER

at 3.3x is high


Amongst the largest capex spenders in the Indian power sector

On the initial 6.6GW of capacity (comprising Mundra's 4.6GW and Tiroda's 2GW), APLhas incurred 82% of the total project cost. Over FY10 and FY11, the capex incurred byAPL was Rs200b, making it one of the highest spenders in the economy (NTPC’scumulative capex over FY10-11E is Rs230b). Timely project commissioning will enableAPL to retain part of the capacity on a merchant basis upfront - we estimate that APL'sproportionate operational merchant capacity will increase from 189MW in FY10 to 3.3GWby FY12 and 3.1GW by FY13. Upfront merchant capacity not only improves projectIRRs, but also cash flows, providing growth capital.

8,117

12,014

26,399 26,068

6,892 6,500

544

FY08 FY09 FY10 FY11E FY12E FY13E FY14E

3.5

31.0

60.1

18.6

FY10 FY11E FY12E FY13E

1.8

3.2

2.7

3.3


Adani Power

911 April 2011

Capex incurred on its 6.6GW

capacity project is 80%+ of

total project cost (as at

December 2010); Tiroda

expansion and Kawai

(1.3GW each) are in initial

ramp-up phase

Over FY10-11E, the capex

incurred by APL was

Rs216b, which makes it

among the highest spenders

in the economy (NTPC’s

cumulative capex over

FY10-11E is Rs230b)

260.0

224.9

61.6 51.2 41.8 36.2 31.8

216.1

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Significant capex incurred on projects under construction (Rs b)Projects Total Incurred* Outstanding

Debt Equity Debt Equity Debt Equity

Mundra Phase-I & II (1,320MW) 36,440 7,060 36,440 7,060 0 0

Mundra Phase-III (1,320MW) 44,540 13,420 43,720 13,420 820 0

Mundra Phase-IV (1,980MW) 84,288 21,072 69,118 21,072 15,170 0

Tiroda Project (1,980MW) 74,104 18,526 37,010 17,660 37,094 866

Tiroda Exp. Project (1,320MW) 50,336 12,584 4,680 4,660 45,656 7,924

Kawai project (1,320MW) 56,240 14,060 2,063 6,610 54,177 7,450

Total 345,948 86,722 193,031 70,482 152,917 16,240

*As at Dec-10 Source: Company/MOSL

FY10/11 capex incurred by APL is the highest amongst IPPs (Rs b)

Capex incurred by APL is equivalent to

that of combined for other five IPPs


Adani Power

1011 April 2011

PPA structure exposes APL to fuel price/availability risks

The PPA structure exposes APL to risks of fuel pricing and availability. Of the 9.2GW capacity,

long-term PPAs have been contracted for 7.8GW and 1.4GW will be available on a merchant

basis. Of the long-term PPAs, 4.7GW (3.4GW from Mundra and 1.3GW from Tiroda) have fixed

energy charges. Thus, variations in fuel costs will have a direct impact on project profitability.

6.8GW of capacity are based on coal linkages and thus exposed to fuel availability risks in the

interim. For the Tiroda expansion and Kawai project (2,640MW), fuel and freight charges can

be escalated. Lower operating rates will impact recovery of capacity charges and use of E-

auction coal will impact profitability. Re-allocation of coal blocks at Tiroda could be a key

value driver.

We have assumed linkages from CIL at 50% (increasing upto 65%), and 20% couldwould be available through E-auctions. Thus, the operating factor for Tiroda and Kawaiprojects are lower in the initial years. We believe the economics of imported coal may notbe favourable given the location of projects in Central India.

Evaluation of 9.2GW of project portfolio on the fuel/offtake front

Fuel availability (linkage)

and costs are the key aspects

to monitor, given higher

proportion of fixed energy

charges out of the initial

6.6GW (4.7GW) and the

balance being merchant

The Tiroda (3.3GW) and

Kawai (1.3GW) projects

depend on coal linkages and

are exposed to availability

risks in the interim

For Tiroda Expansion and

Kawai project (2.6GW), fuel

and freight charges can be

escalated, guarding against

a fuel cost increase under

PPA


9,240MW Capacity

Fuel portfolio

2,442 MW on imported coal

Offtake mix

6,798MW on Domestic linkage

Imports from AEL are at f ixed CIF price of USD36/t for 5 years. Price

increase 10% every 5 years

7,144 MW tie-up under

LTPPA

2,096MW (gross) on merchant

basis

2,400MW capacity w ith escalation on fuel/freight cost

4,744MW capacity w ith f ixed fuel cost

Key takeaways:

1. 4,620MW Mundra project: 53% of the fuel requirement (for 2,442MW) will be met through imports

by AEL at fixed prices for 15 years. A shortfall in terms of linkages for 2,178MW can also be met

through imports in the interim. Parent advantages including access to coal reserves of 8b tons

abroad, control of port infrastructure, dominant market share in coal imports into India (~50%) etc

provide comfort. AS PER PPA, ENERGY CHARGES ARE FIXED AND THUS ANY INCREASE IN PRICES

/ MIX CHANGE WILL IMPACT PROFITABILITY.

2. Tiroda 3,300MW and Kawai 1,320MW: The projects are dependant on coal linkages and thus

there are risks in terms of availability in the interim. Large distance from coast (located in Central

India) will entail that economics of imported coal will be challenging. As per PPA, energy and freight

charges are escalable for Tiroda Expansion (1,320MW) and Kawai (1,320MW). LOWER OPERATING

RATES WILL IMPACT RECOVERY OF CAPACITY CHARGES AND USE OF E-AUCTION COAL

WILL IMPACT PROFITABILITY. Merchant capacity is limited at ~550MW. RE-ALLOCATION of coal

block at Tiroda CAN LEAD TO IMPROVED PROFITABILITY.

Adani Power

1111 April 2011

Fuel supply status for 9.2GW capacity; 6.8GW based on domestic linkagesProjects Capacity Requirement Remarks

(MW) Coal GCV

(m tons) (Kcal/kg)

Mundra 1,320 3.68 5,200 Agreement with AEL to supply 4.60mtpa for 15 years

Phase 1 & 2 CIF cost at US$36/ton for five years from CoD of last unit.

Escalation of 10% in every block of five years.

Received linkages from Mahanadi Coal Fields in Jan 2010

for 30% of capacity (396MW)

Mundra Phase 3 1,320 4.06 5,200 Agreement with AEL for supply of 4.04mtpa for 15 years.

CIF cost at US$36/ton for five years from CoD of last unit.

Escalation of 10% in every block of five years.

Received linkages from Mahanadi Coal Fields in Jan 2010

for 30% of capacity (396MW)

Mundra Phase 4 1,980 6.09 5,200 Linkages from Mahanadi Coalfields for supply of ~6.4mtpa

of Grade F coal. Domestic coal will cater to 70% of

requirements.

Balance 30% to be supplied by AEL on similar contract

terms (as per Phase 1 and 2)

Tiroda 1,980 6.18 4,895 Obtained linkages of 1,180MW from South Eastern

Coalfields and Western Coalfields.

In Jan 2010, received tapering linkages for 660MW.

Kawai 1,320 6.04 3,500 Linkages to be obtained from SECL mine for Grade F

(Rajasthan) coal.

Tiroda Power 1,320 5.87 3,600 Applied for coal linkages.

(Expansion)

Total 9,240 20.01


PPA signed for 7.1GWProjects Capacity Capacity (MW) Remarks

(MW) Contracted Balance

Mundra Phase 1 & 2 1,320 1,000 205 1,000MW at a tariff of Rs2.81/unit going up to

Rs3.42/unit in the 25th year

Mundra Phase 3 1,320 1,000 205 1,000MW at tariff of Rs2.35/unit, plus incentives

linked to availability

Mundra Phase 4 1,980 1,424 351 1,424MW of power from MPP-IV to Uttar Haryana

Bijli Vikas Nigam (UHBVNL) and Dakshin Haryana

Bijli Vikas Nigam (UHBVNL) for 712MW each at a

levelized tariff of Rs2.94/unit

Tiroda Power Project 1,980 1,320 512 1,320MW tied up with MSEDCL, effective from

CoD of third unit. Tariff is estimated at Rs2.55/

unit, going up to Rs3.47/unit in the 25th year

Rajasthan (Kawai) 1,320 1,200 21 1,200MW tied up with Rajasthan state utilities

distributor at a levelized tariff of Rs3.24/ unit.

Tiroda Expansion 1,320 1,200 21 1,200MW to MSEDCL at tariff of Rs3.28/unit


6.8GW is based on domestic

linkages, which exposes APL

to availability risks in the

interim. For coal imports

from Indonesia through AEL,

we understand the

regulatory and related risks

in Indonesia are being borne

by AEL; thus, APL is

protected to

that extent

PPA structure for Tiroda

Expansion and Kawai has

fuel/freight escalation, while

lower availability can lead

to under-recoveries of

capacity charges

For Mundra (4.6MW), the

PPA structure has a fixed

energy charge; any fuel cost

increase will impact

profitability

Adani Power

1211 April 2011

Merchant contribution to profitability sizable, exposes tonear term earnings volatility

Merchant profitability will be the key near-term earnings driver, contributing 84% to the

profits in FY12 and 68% in FY13. We expect capacity commissioning of 4.6GW over the next

18-20 months. The trigger point for PPAs for a large part of these capacities is in phases

from mid-FY13, leading to increased merchant sales in the interim at 12.9BUs in FY12 and

19.7BUs in FY13 - up from 991MUs in FY11. The key risks are delays in terms of project

commissioning (as merchant sales have a limited window of opportunity), volatility in

merchant prices and fuel availability/pricing. Shortfall in terms of domestic linkage availability

would necessitate use of e-auction/imported coal, increasing earnings volatility.

Merchant earnings to contribute a meaningful part of profitability in FY12 and FY13 (Rs b)…

During FY12 and FY13, the

contribution of merchant

earnings would be higher, as

PPAs for Mundra Phase-IV

and Tiroda are triggered in

phases from mid-FY13; APL

would enjoy merchant sales

in the interim

…driven by capacity ramp-up in the interim and merchant sales (BUs)

During FY12 and FY13,

we expect APL to

commission 4.6GW of

incremental capacity

1 3

21 21

12

2

7

25

31

35

12

28

36

43

6884

43

68


Merchant Profit Consolidated PAT Contribution from Merchant Pow er (%)



2,640MW Mundra 1,980MW Mundra 1,980MW Tiroda1,980MW Tiroda Exp 1,320MW Kaw ai

0.4 1.0

12.9

19.7

9.7 10.2

Adani Power

1311 April 2011

CEA estimates 4GW capacity commissioning by FY12 (including 2.64GW on best effort basis)v/s our estimate of 4.6GWProjects Cap (MW) CoD FY10 FY11E FY12E FY13E

- Mundra Phase 1 660 2009-10 660 - - -

- Mundra Phase 2 660 2009-11 - 660 - -

- Mundra Phase 3 1,320 2011-12 - - 1,320 -

- Mundra Phase 4 1,980 2012-13 - - 660 1,320

- Maharashtra (Tiroda) 1,980 2012-13 - - 660 1,320

Total (As per CEA) 6,600 660 660 2,640 2,640

Capacity (As per CEA) 660 1,320 3,960 6,600

Capacity (As per MOSL) 660 1,980 4,620 6,600

Source: Company / MOSL; shaded projects indicate capacities on best effort basis assumed by CEA

…Execution delays has led to loss of merchant opportunity for Mundra phase 1 & 2 (MW)Merchant capacity estimates earlier Merchant capacity actual

Delays in terms of capacity

commissioning is a key risk

to merchant profitability;

our assumptions reflect

management's guidance,

higher capex spending on

projects, etc

Merchant capacity for APL

would have been higher

given earlier commissioning

time frames

ST realization for APL has

been higher than average

rates, which could be

attributable to 100% of

operations in the western

region

446

287

FY10 FY11E

43

126

FY10 FY11E

6.35

5.56

4.42

1QFY11 2QFY11 3QFY11

7.8

8.0

7.9

7.2

6.6

7.4

7.2

6.8

4.8

4.8

4.6

4.7

5.1

5.3

5.0

5.3

5.1

4.9

5.7

6.2

5.6

5.0

4.9

4.7

4.0

4.0

4.0

3.9

0.0

3.0

6.0

9.0

12.0

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Bi-lateral prices UI prices Exchange price

Sensitivity of earnings to changes in merchant tariffs (Rs b)

A Rs0.5/unit decline in

realization results in ~20%

downgrade in APL's

FY12/13E net profit6.8

28.2

6.4

22.8

28.0

34.5

-18.8%-19.0%

-6.1%

FY11E FY12E FY13E

Current Rs0.5/unit decline in realization Dow ngrade (%)

Trend in short-term prices and bilateral rates ST realization for APL (Rs/unit)


Adani Power

1411 April 2011

Multi-fold earnings growth; initiate coverage with Neutral

APL's net profit is expected to increase from Rs1.7b in FY10 to Rs30b in FY13E given increased

operational capacity from 990MW as at March 2010 to 6.6GW by FY13E. Consolidated DER in

FY11/12 is high at 3.3x; funding is comfortable as 82% of the capex on 6.6GW to be commissioned

by FY13 has been incurred. Fuel availability is a risk for Tiroda (3.3GW) and Kawai (1.3GW)

given constraints in coal linkages. We have valued APL on SOTP methodology for 9.2GW of

projects portfolio and arrive at a valuation of Rs113/sh, including Rs9/sh towards growth

option for additional 7GW of projects in initial pipeline stages. We initiate coverage with a

Neutral rating.

Multi-fold earnings growth (net profit, Rs b) driven by capacity addition (GW)

Increase in operating

capacity from 990MW

currently to 6.6GW by FY13,

and higher contribution

from merchant power would

drive profitability


Trend in levelized profitability for projects (Equity IRR @ 20-40%)Project Realization Cost (Rs/unit) PAT Equity IRR

(Rs/unit) Fixed Variable (Rs/unit) (%)

Mundra Phase 1&2 2.99 0.83 1.40 0.77 40.5

Mundra Phase 3 2.99 0.83 1.40 0.77 40.5

Mundra Phase 4 3.32 1.00 1.62 0.70 26.8

Maharashtra (Tiroda) 3.19 1.20 1.74 0.25 20.4


Return ratios suppressed due to CWIP (Rs b); to improve going forward

APL's net profit margin

ranges from Rs0.20-0.70/

unit. Key risks are:

increased fuel costs, fuel

availability and lower

merchant realizations

In FY10, APL's reported RoE

was 3.1% and RoCE was

1.5%. Lower return ratios

were due to higher CWIP,

given 6GW of projects under

construction.

Superior RoE going forward

would be a function of

aggressive DER of 80:20 for

all its projects

24.7

30.2

7.2

1.7


-8

6

20

34

48


Mundra Phase 1 & 2 Mundra Phase 3Mundra Phase 4 Maharashtra (Tiroda)Rajasthan (Kaw ai) Maharashtra Expn (Tiroda)Other income

127.

7

202.

3

154.

9

102.

4

43.3

73.8

25.3

77.6


CWIP (Rs b)As % of CE

2.9

11.9

31.233.3

1.5

15.612.9

5.1


RoE (%) RoCE (%)


Adani Power

1511 April 2011

APL: SOTP valuationValue Value % to Rationale

(Rs m) (Rs/sh) NPV

Projects under construction and Operation

- Mundra Power project (Phase 1-3) 108,945 50 44 DCF

- Maharashtra Power project 35,008 16 14 DCF

- Mundra Project (Phase 4) 62,729 29 25 DCF

Cash / Investments / Advances 2,018 1 1 FY11E book value

Projects under development * 17,198 8 7

Investment in Shipping Business 2,893 1 1 BV of Investment

Growth Option 20,492 9 8 7.2GW of projects under

development

Total 246,389 # 113 100

* includes Tiroda expansion and Kawai project; # We have not considered possible upside from CER credits

Source: MOSL

We have valued APL on

SOTP methodology for

9.2GW of project portfolio

and arrive at a valuation of

Rs113/share, including

growth option for additional

7GW of projects in initial

pipeline stages

Adani Power

1611 April 2011

Annexure 1: APL's project portfolio

Project portfolio enhanced to 16.5GW v/s 6.6GW earlier; operational capacity of 1,980MW

Operational Projects (1,980MW)

Under Construction (7,260MW)

Under development (7,260MW)

Mundra Phase I &II 1,320MWMundra Phase III 660MWMundra Phase III 660MWMundra Phase IV 1,980MWBhadreshwar 3,300MW

Kawai 1,320MW

Dahej 2,640MW

Tiroda 1,980MWTiroda Exp 1,320MW

Chhindwara 1,320MW

Adani Power

1711 April 2011

Financials and valuation

Income Statement (Rs Million)

Y/E March 2010 2011E 2012E 2013E

Net Sales 4,349 21,190 76,476 132,999

Change (%) - 387.3 260.9 73.9

Operating Expenses 1,910 8,671 30,055 60,594

EBITDA 2,438 12,519 46,421 72,405

% of Net Sales 56.1 59.1 60.7 54.4

Depreciation 353 1,581 5,813 12,996

Interest 377 2,249 9,616 20,228

Other Income 319 282 75 82

PBT 2,027 8,971 31,068 39,263

Tax 327 1,767 6,430 8,363

Rate (%) 16.1 19.7 20.7 21.3

PAT before Min. Int. 1,700 7,204 24,638 30,901

Minority Interest -1 0 -33 679

Reported PAT 1,701 7,204 24,671 30,222

Change (%) - 323.5 242.5 22.5

Adjusted PAT 1,701 7,204 24,671 30,222

Change (%) - 323.5 242.5 22.5

Balance Sheet (Rs Million)

Y/E March 2010 2011E 2012E 2013E

Share Capital 21,800 21,800 21,800 21,800

Reserves 35,980 41,968 62,476 87,598

Net Worth 57,780 63,769 84,276 109,398

Minority Interest 1,023 1,023 990 1,669

Loans 105,705 209,200 272,073 293,468

Capital Employed 164,509 273,992 357,340 404,536

Gross Fixed Assets 28,549 83,228 209,710 306,583

Less: Depreciation 678 2,410 8,223 21,220

Net Fixed Assets 27,871 80,818 201,486 285,364

Capital Work in Progress 127,691 202,259 154,893 102,395

Inventory 95 202 700 1,417

Debtors 2,563 4,354 3,143 5,466

Loans and Advances 9,406 1,000 1,000 1,000

Cash 11,654 1,018 1,963 13,740

Current Liabilities 14,617 15,660 5,846 4,846

Provisions 35 0 0 0

Net Curr. Assets 9,066 -9,085 960 16,777

Application of Funds 164,628 273,992 357,340 404,536

E: MOSL Estimates

Adani Power

1811 April 2011

Financials and valuation

Ratios

Y/E March 2010 2011E 2012E 2013E

Basic (Rs)

Adjusted EPS 0.8 3.3 11.3 13.9

Growth (%) -2,985.0 323.5 242.5 22.5

Cash EPS 0.9 4.0 14.0 19.8

Book Value 26.5 29.3 38.7 50.2

DPS 0.1 0.5 1.7 2.1

Payout (incl. Div. Tax.) 15.0 15.0 15.0 15.0

Valuation (x)

P/E 150.5 35.5 10.4 8.5

Cash P/E 124.6 29.1 8.4 5.9

EV/EBITDA 143.6 37.1 11.3 7.4

EV/Sales 80.5 21.9 6.9 4.0

Price/Book Value 4.4 4.0 3.0 2.3

Dividend Yield (%) 0.1 0.4 1.4 1.8

Profitability Ratios (%)

RoE 2.9 11.9 33.3 31.2

RoCE 1.5 5.1 12.9 15.6

Leverage Ratio

Debt/Equity (x) 1.8 3.3 3.2 2.7

Cash Flow Statement (Rs Million)

Y/E March 2010 2011E 2012E 2013E

PBT before Extraordinary Items 2,027 8,971 31,068 39,263

Add : Depreciation 353 1,581 5,813 12,996

Interest 377 2,249 9,616 20,228

Less : Direct Taxes Paid -327 -1,767 -6,430 -8,363

(Inc)/Dec in WC 1,097 7,516 -9,100 -4,040

CF from Operations 3,527 18,550 30,966 60,085

(Inc)/Dec in FA -86,879 -129,248 -79,116 -44,375

CF from Investments -86,879 -129,248 -79,116 -44,375

(Inc)/Dec in Networth -33,479 0 0 0

(Inc)/Dec in Debt -55,808 -103,495 -62,874 -21,395

Less : Interest Paid -377 -2,249 -9,616 -20,228

Dividend Paid 510 -1,660 -4,163 -5,100

CF from Fin. Activity 89,420 99,586 49,095 -3,933

Inc/Dec of Cash 6,068 -11,111 946 11,776

Add: Beginning Balance 5,585 11,654 1,018 1,963

Closing Balance 11,654 543 1,963 13,740

E: MOSL Estimates

Adani Power

1911 April 2011

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Disclosure of Interest Statement Adani Power1. Analyst ownership of the stock No2. Group/Directors ownership of the stock No3. Broking relationship with company covered No4. Investment Banking relationship with company covered No

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