Power Transmission and Trading

Corporate Office:Reliance Money House, Plot No - 250 - A - 1, Baburao Pendharkar Marg,

Off Annie Besant Road, Behind Doordarshan Tower, Worli, Mumbai - 400025

2rd June 2008

Vulnerably Comfortable....

Rabindra Nath [email protected]

Anwit [email protected]

2nd June 2008

Sector Report - Power Transmission and Trading 2

INDEX

Particulars Page No.

Sector Summary ------------------------------------------------------------------ 03

Stock Coverage ------------------------------------------------------------------- 04

Industry Overview ---------------------------------------------------------------- 06

Competitive Analysis of the T&D Market --------------------------------------- 08

Major Demand Drivers ----------------------------------------------------------- 11

Transmission Services ----------------------------------------------------------- 22

Power Trading Market ------------------------------------------------------------ 25

Sector Outlook and Valuation ---------------------------------------------------- 26

Companies Covered

Jyoti Structures Ltd ------------------------------------------------------ 30

KEC International Ltd ---------------------------------------------------- 37

Kalpataru Power Transmission Ltd ------------------------------------ 44

Power Grid Corporation of India Ltd ----------------------------------- 50

PTC India Ltd -------------------------------------------------------------- 59

Sector Report - Power Transmission and Trading

2nd June 2008

3

POWER TRANSMISSION & DISTRIBUTION SECTOR

In a comfortable positionIndia has one of the lowest electricity consumption levels in Asia, at roughly 600 units ofthe region’s per capita average. Low power consumption has been partly due to severeand widespread electricity shortages throughout the country. The supply deficit is of theorder of 9% of total demand and 12% of peak demand. Apart from inadequate investmentin power generation, high T&D losses incurred due to under metering, under-collectionhave also resulted in demand outpacing supply.

However, sector fundamentals have improved over the last few years aided by theGovernment of India’s (GoI) intervention during 2001-02 to settle the SEBs’ outstandingdebts. Alternatively considering the fact that the proposed generation capacity additionplans and desired interregional grid connectivity levels entail a substantial increase inthe regional grid capacity from 14,100 MW as on FY07 to around 37,700 MW by FY12E,this is bound to provide a significant boost to investments in the transmission anddistribution space as well. The government estimates the total fund requirement fortransmission projects over FY07-12 at Rs1,400 bn. Total capex spend estimated for thedistribution segment during the Eleventh Plan is much larger, at Rs2,870 bn. Distributioncapex includes the Rs400 bn estimated to be spent on rural electrification under RGGVY.

Key sector positives

Massive power generation capacity buildup of the order of 200 GW by 2012 shouldresult in a significant ramp up in the domestic T&D sector.

Investment in augmentation of transmission capacity targeted by PGCIL is to the orderof Rs 55 bn over 2008-12.

Clearly Investment in upgradation of power distribution infrastructure would be drivenby the need to reduce T&D losses.

Order book pipeline for most T & D players presently continues to be robust and ispresently around 2.3x FY08A revenues.

Strong demand conditions in the T&D sector notwithstanding, significant capacityexpansions by leading players here would cap profitability levels going ahead butimprovement in profitability levels would be driven more by efficiency gains coming infrom larger ticket size projects and scope of projects herein, rather than from priceincreases alone.

Highlights

We believe the growth of order book forthe transmission EPC players will grow inthe range of 20% to 30% range for thenext three years time. Further the ordersfrom the developing countries will add tothe growth of the integrated TransmissionEPC companies in the country.

Companies Covered

Jyoti Structures Ltd

KEC International Ltd

Kalpataru Power Transmission Ltd

Power Grid Corporation of India Ltd

PTC India Ltd

EPS PE(x) EV/EBITDA CMP Target Comments(Rs.) Price

FY08E FY09E FY10E FY08E FY09E FY10E FY08E FY09E FY10E (Rs.) (Rs.)Jyoti Structures 9.0 10.5 14.0 13.9 11.9 8.9 7.1 6.3 5.1 124.5 195 BUYKEC International 34.9 41.2 51.2 14.8 12.5 10.1 8.7 7.7 6.3 517.0 683 BUYKalpataru Power 62.2 84.1 107.4 16.0 11.8 9.2 9.6 7.9 6.2 993.0 1146 HOLDPower Grid Corp 3.4 3.8 4.3 29.0 25.9 22.9 17.3 14.0 12.8 98.5 93 REDUCEPTC India 2.1 2.0 2.0 42.1 44.2 44.2 45.0 30.5 24.0 88.5 82 REDUCE

Valuation Matrix

Source: Reliance Money Research

2nd June 2008


STOCK COVERAGE

We have initiated coverage on three transmission EPC players Jyoti StructuresLimited (JSL), KEC International Limited (KEC), Kalpataru Power Transmission Limited(KPTL); and Power Trading player PTC India (PTC) and the Central TransmissionUtility, Power Grid Corporation of India (PGCIL).

We rate JSL, KEC and KPTL as top picks at current prices as all the players enjoystrong order book, excellent project execution capabilities and have the requisiteskill sets to capture the huge spending lined up in the power T&D sector in thecountry and in some of the leading developing countries of the world.

As far as PTC and Power Grid are concerned, we believe that although long termprospects looks attractive, at the current prices both PTC and Power Grid reflect thenear term prospects adequately in their respective valuations and hence we suggesta REDUCE RATING for both PTC and Power Grid.

Jyoti Structures (JSL)JSL is more focused in the domestic transmission Sector and should emerge as theleading beneficiary in executing orders, not only from the public sector utilities, but alsofrom the upcoming private sector T&D utilities. The overseas initiatives of JSL will alsocontribute appreciably during the next two years time. The stock has witnessed severebeating following its withdrawal decision in raising money from the market. We don’tsee any problem for the company in financing its growth due to its decision.We expectCAGR of 36% in consolidated revenue and a CAGR of 25% in consolidated net profit forJSL during FY08-FY10E. Based on the sum of parts valuation we initiate coverage onJSL with 12 month price target of Rs 195. At our Target price the stock would trade,respectively at 18.6x and 13.9x FY09E and FY10E EPS.

KEC International (KEC)We believe, with the merger of the RPG Transmission and NITL with the KEC wouldremain the key revenue driver and perfectly balance its domestic and overseas marketoperations going ahead. The merged entity will have greater efficiency both financiallyand operationally.We expect the Telecom Tower EPC revenue of KEC to grow at a CAGRof 35% and the Transmission and Distribution EPC revenue to grow at a CAGR of 23%over FY08-FY10E. Therefore on a consolidated basis we estimate a 25% CAGR inrevenue and 21% CAGR in net profit for KEC over FY08-FY10E. We recommend a BUYon KEC based on 8x EV/EBIDTA for FY10E with a 12 month price target of Rs 683. At ourTarget price the stock would trade, respectively at 17x and 13.4x to our FY09E and FY10EEPS.

Kalpataru Power Transmission (KPTL)Consistent entry in to the diverse business is one of the positive for KPTL. The 52%construction subsidiary JMC Projects (JMC) will remain the great business driver for thecompany for the next two years. In FY08 the topline growth of JMC remained at 80% ascompared to 12% for KPTL on a stand alone basis. We expect with the Rs. 2400 crorerobust order book in hand and with the entry into diverse EPC business in variousinfrastructure sector the topline growth of JMC would be at least 60% for the next twoyears. The investment in the logistic service subsidiary would start contributing to theconsolidated turnover by FY10E. With a robust business growth opportunity expected forall business verticals, we expect the consolidated net sales of KPTL would grow at aCAGR of 37% during FY08-FY10E. The net profit would grow at a CAGR of 36% duringthe same period. Based on the EV/EBITDA multiple valuation method we initiate coverageon KPTL with a buy rating with a 12 month target price of Rs1146. At our Target price thestock would trade, respectively at 13.6x and 10.7x FY09E and FY10E EPS.

JSL is more focused in the domestictransmission Sector and shouldemerge as the leading beneficiary inexecuting orders, not only from thepublic sector utilities, but also from theupcoming private sector T&D utilities.

We believe, with the merger of the RPGTransmission and NITL with the KECwould remain the key revenue driverand perfectly balance its domestic andoverseas market operations goingahead.

Consistent entry in to the diversebusiness is one of the positive for KPTL.


2nd June 2008

5

PTC India (PTC)We initiate coverage on PTC India Limited with a REDUCE rating. We believe theleadership of PTC in short term power trading would continue. With a strong parentageand a first mover advantage in power trading in India we believe that PTC has a brightfuture ahead considering the fact that Power Trading market in India is still a evolvingmarket.We have valued PTC based on the sum of parts valuation method, wherein werecommend a REDUCE rating with a one year price target of Rs 82. At our target pricethe stock would trade, respectively at 1.19x and 1.17x to our FY09E and FY10E BVPS.

Power Grid Corporation of India (PGCIL)We initiate coverage on PowerGrid Corporation of India Limited (PGCIL) with a REDUCERating. We believe the Indian power sector is at the crossroads with huge capacityaddition planned in the power generation and transmission space. Hence we expectPGCIL, the principal power transmission utility in India, to be a major beneficiary of thechanging dynamics in the domestic power sector. We expect PowerGrid to record a26% CAGR in revenue and 19% CAGR in net profit during FY08-FY10E. Based on theDCF approach and a comparative EV/EBITDA multiple valuation method we initiatecoverage on PGCIL with a REDUCE rating with a 12 month price target of 93.

We believe the leadership of PTC inshort term power trading wouldcontinue.

We expect PGCIL, the principal powertransmission utility in India, to be amajor beneficiary of the changingdynamics in the domestic power sector.

2nd June 2008


INDUSTRY OVERVIEW

A robust and efficient transmission and distribution (T&D) system is critical for thetransfer of power from generating stations to load centres. A T&D system comprisestransmission lines, substations, switching stations, transformers and distribution lines.In order to ensure the reliable supply of power and the optimal utilisation of generatingcapacity, a T&D system is organized in a grid, which interconnects various generatingstations and load centres.

In India, the T&D system is a 3-tier structure comprising distribution networks, stategrids and regional grids. These distribution networks and state grids are primarilyowned and operated by respective SEBs or state governments (through state electricitydepartments).

Most inter-state transmission links are owned and operated by the Power GridCorporation of India Limited (PGCIL); some are jointly owned by the SEBs concerned. Inaddition, PGCIL also owns and operates many inter-regional transmission lines (forminga part of the national grid) to facilitate the transfer of power from a surplus region to adeficit one.

The transmission system in India operates at several voltage levels, namely; Extra highvoltage: High voltage direct current (HVDC), 765 kv, 400 kv, 220 kv and 132 kv; Hightension: 66 kv, 33 kv, 11 kv; Low tension: 6.6 kV, 3.3 kv, 1.1kv, 22 kv. After the enactment ofnew Electricity Act, transmission networks are now being developed through privateparticipation, with either Power Grid or STUs being one of the equity partners. Currentlythrough regulation, Power Grid enjoys a complete monopoly in managing the inter-statenetworks.

Over the next five years, the demand for transmission capacity is expected to increasedramatically, driven by the substantially bigger increase in generation capacity as wellas the new emerging requirements of open access, trading and inter regional transfersof power. The Power system within the country will also need to be more flexible toenable the integration of power sources like merchant plants, captive plants and windpower plants. On the top of this the unbundling of the state utilities, entry of privateplayers for the transmission projects gives an urgent necessity for investment in thesector.

Need for a strong investment push in the T & D spaceThe investment is Transmission and Distribution (T&D) in our country has so far notbeen given that much importance as is being given to the generation segment. Normallythe investment in power sector should remain in equity between Generation and T&D.However after the de-licensing of the generation sector, much of the investment hascurrently been concentrated in this segment. Now to align the growth of investment intandem with that of the investment in generation the country has to speed up itsinvestment in transmission (Possibly in a ratio of more than 1:1 in favor of T&D), so asto maintain the viability of the power system of the country, from a longer term perspective.So we believe the investment in T&D should swiftly catch up during the next two to threeyears time. On the other hand to alleviate the prospective risk envisioned by thegenerators, merchant or otherwise, the trading of power will shortly become one themajor business activity in the sector.

In India, the T&D system is a 3-tierstructure comprising distributionnetworks, state grids and regionalgrids.

After the enactment of new ElectricityAct, transmission networks are nowbeing developed through privateparticipation, with either Power Grid orSTUs being one of the equity partners.

The Power system within the countrywill also need to be more flexible toenable the integration of power sourceslike merchant plants, captive plantsand wind power plants.

We believe the investment in T&Dshould swiftly catch up during the nexttwo to three years time.


2nd June 2008

7

Transmission EPC Business SegmentThe transmission networks are largely executed by the classified EPC executors whohave a established project execution track record and excellent skillsets. These projectexecutors get orders from the central and state transmission utilities and execute theprojects with a strictly stipulated time frame. Currently around 5 to 6 integrated playersdominate this space and enjoy a total market share of 70% in the country. These playersalso undertake power distribution projects (below 132 KV) and telecom tower projects,due to the natural business complicity. Further players like KEC International (KEC),Jyoti Structures (JSL) and Kalpataru Power Transmission (KPTL) also derive a significantchunk of their turnover from the other developing markets, based on their track record ofbusiness relationships in these markets.

Currently around 5 to 6 integratedplayers dominate this space and enjoya total market share of 70% in thecountry.

Power Trading is an essentialintermediation for efficient and effectiveutilization of the generation units of thecountry.

Power Trading Business SegmentPower Trading is an essential intermediation for efficient and effective utilization of thegeneration units of the country. Power Trading essentially means the meeting of the veryshort term power demand of the customers through a structured evacuation from atargeted generator through an economically structured transmission network. Thereforea well developed transmission network with adequate redundancy plays an importantrole in developing a voluminous power trading market in the country.

Currently power trading is strictly regulated through the central power regulator, CERCand trading volumes are limited, on the one hand due to the dominance of bilateralpower contracts (90% of total power generated) with the generators and the users, andon the other hand due to lack of availability of surplus power. Around 3% of the totalpower generated comes for trading.

Presently PTC holds the largest chunk of power trading volume in the country with amarket share of 50% but due to low entry barriers for the utilities the company is loosingits market share.

Competitive Landscape

Source: CEA, Power Grid and Reliance Money Research* To increase to 108000mt by end of next quarter

Company Range Capacity Tonnes (MT)KEC Up to 765 kv 103000JSL Up to 765 kv 96000KPTL Up to 765 kv 84000*Associated Transrail Up to 400 kv 45000L & T Up to 400 kv 40000Total Industry Capacity 8,20,000

2nd June 2008


Competitive Analysis of the T & D MarketWe have used the Porter’s five point method to put a value perspective to each of thedifferent sub segments within the T & D and Trading segments. Our analysis shows thatthe Power transmission services will remain a monopoly for the CTUs (CentralTransmission Utilities) and STUs(State Transmission Utilities) However, going aheadin future PGCIL is definitely going to witness more competition from the private sectorplayers, so far as the wheeling services for the power sector is concerned.

Past Execution experience and execution of considerable volume in the past remain a critical factor for getting the projectsRequirement of good capital base to support significant working capital requirement during project execution

Overall Observation: Moderate

Outcome : 5 to 6 integrated players dominate 70% of the MarketEntry Barriers

Popularity of near load center generation modes like Wind power and solar or biomass power plants

Popularity of the underground transmission systems.

Overall Observation: Less intense in the near term

Outcome :The investment in Distributed Generation is growing at a very slow pace

Substitution

Around 18 to 20 players are present in the industry and 6 to 7 players have complete project execution capability.

Competition is severe in the 33KV to 132 KV transmission projects categories. However in projects beyond 132 KV categories thecompetition is less severe.

Overall Observation: Moderately intense in the near term, but may intensify

Outcome : Margin hovers around 10% to 15% in the industry

Internal Rivalry

Power Grid and state Transcos are the major buyers of the transmission projects. Recently some merchant power generators haveundertaken trans mission projects either independently or through the association of PGCIL.

These buyers can not backward integrate and therefore the order flow consistency will remain with key players

Due to Buyers concentration the scope of improvement in margin is limited so far as the transmission projects are concerned. Also anydelays in giving work execution orders by the project owners will show up in the volume off take for the industry. Private ownership ofthe transmission projects will continue to grow at slower pace.

Overall Observation: Intense due to limited number of buyers.

Outcome : Revenue always depend on the investment spending by the stae and central transmission and distribution utilities

BargainingPower Of

Buyers

Management of costs of Subcontractors, Steel Structure outsourcing service providers and employees will remain a challenge for theindustry.

The threat of forward integration by the subcontractors and outsourcing service providers is quite obvious

Overall Observation: Intense due to limited entry barriers for the suppliers.

Outcome : EMCO,Sujana Towers, Ramsarup Industries, Bajaja Electricals, IVRCL Infrastructures and Diamond Cables are the main newentrants among the suppliers

BargainingPower ofSuppliers

Transmission Tower EPC



2nd June 2008

9

Adequate understanding of the power flow in the different parts of the country is a must for generating a critical volume of business astrading margins are strictly capped by the regulator.


Outcome : Except PTC, Only Power Generators or Power Utilities have their presence

Entry Barriers

Substitution

Internal Rivalry

Power Trading Segment -

Consistent growth of bilateral contracts for power off take will remain a threat to the industry.

Overall Observation: Intense

Outcome : Bilateral Contract dominate with 90% of the generated Power

The availability of tradable power in the country is 2% of the total generation. Due to limited industry scope the internal competition issevere for the existing players.

Overall Observation: Intense

Outcome : Operating margin remain at 2% to 3%

BargainingPower Of

Buyers


Largely the state/private sector distribution utilities remain the largest buyers of the traded power. The entry barriers are grossly less forthese utilities. So they pose a serious threat to the stand alone trading utilities by integrating backward.

Overall Observation: High

Outcome : Groups like Lanco, Adani, ADAG and Tata have entered the business

Although the large power generators can integrate forward for this business, but the small captive generators will remain the greatestcontributors for the growth of the stand alone trading utilities.


Outcome : NTPC, Tata Power, Reliance Energy are successfully running their power trading business.

Capital Intensiveness, Strict regulatory environment, High gestation Period and Slower than expected progress of generation capacitiesare among the significant entry barriers for the Industry

Overall Observation: Stiff due to regulation

Outcome : Only Players with necessity has entered. PGCIL and STUs own a significant transmision capacity in the countryEntry Barriers

Substitution

Internal Rivalry

Wheeling Services

Wider and improved application of non conventional mode or near-load center generation capacity will pose a serious threat to theindustry.

Overall Observation: Looks remote

Outcome : The investment in Distributed Generation is growing at a very slow pace

Transmission redundancy is almost absent in our country and also has not been incorporated in the long term plans of the country. Socompetition for the existing players is absent completely.

Overall Observation: Completely Absent

Outcome : PGCIL and STUs dominate the Transmission Backbone service

BargainingPower Of

Buyers

Due to limited redundancy in transmission backbone of the country the buyers like distribution utilities. Power Traders and powerproducers remain completely dependent on the services of the backbone service providers. However the large private power producershave undertaken owned transmission projects for proper evacuation of their prospective generated power.

Overall Observation: Moderately Intense

Outcome : Adani, ADAG,JP group floated transmission companies for proper evacuation of power from their power Plants.


Suppliers of transmission towers or executor have not taken the initiative for owning transmission capacity, largely due to strictregulatory environment as capital intensiveness of the business

Overall Observation: Stiff

Outcome : No Tower Supplier has so far entered the market.



2nd June 2008


Scheduling and DispatchingAs per the current regulation only a government company will provide the transmission service in the country. Therefore the entry barriersare quite stiff as per regulatory guidelines.

Overall Observation: Stiff by regulation

Outcome: PGCIL along with STUs will continue to dominate with the scheduling and despatching service, both at the national and state level

Entry Barriers

Substitution

Internal Rivalry

No substitution is possible.

Overall Observation: Service is unique for power sector


The statute has specified the areas of operation for the State and Central Sector Transmission Utilities. So internal rivalry is almostabsent.

Overall Observation: Almost absent


BargainingPower Of

Buyers

Transmission service is a licensed service. By the statute only a governemnt company only can be a transmission line operator. Sothe statute has restricted the buyers to enter this service, although developping a capability is not difficult.

Overall Observation: Insignificant

Outcome : PGCIL along with STUs will continue to dominate with the scheduling and despatching service, both at the national and state level


In actual terms there is no supplier for this service as the entire service in driven by already developped robust IT network.

Overall Observation: Insignificant

Outcome : PGCIL along with STUs will continue to dominate with the scheduling and despatching service, both at the national and state level



2nd June 2008

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Power Generation –The proposed generation capacity addition plans and desired interregional gridconnectivity levels entail a substantial increase in the regional grid capacity from 14,100MW as on FY07 to around 37,700 MW by FY12E. The government estimates the totalfund requirement for transmission projects over FY07-12 at Rs1,400 bn. Total capexspend estimated for the distribution segment during the Eleventh Plan is much larger,at Rs2,870 bn. Distribution capex includes the Rs400 bn estimated to be spent on ruralelectrification under RGGVY

11th plan spending target is not ambitious but a necessityDuring the 11th plan a total investment of Rs.1400 billion has been planned only in thetransmission sector (that includes inter-state and intra-state transmission) as comparedto just Rs.447 billion spent during the 10th plan. Although this looks ambitious, but fromthe point of view of the initiatives that has already been taken in the generation side thisquantum of investment is becoming an imperative for ensuring viability of the powersystem of the country.

MAJOR DEMAND DRIVERS FOR THE T & D MARKET

Plan wise achievement of Targeted Generation Capacities

Source: CEA

Cumlative Growth In Transmission Lines (Plan Wise)

Source: CEA

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th(P)

Target Achievement

0

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M

7 6 5 k V H V D C + /- 5 0 0 k V 4 0 0 k V 2 3 0 k V /2 2 0 k V

V III P la n IX P la n X P la n X I P la n(P )

From the point of view of the initiativesthat has already been taken in thegeneration side this quantum ofinvestment is becoming an imperativefor ensuring viability of the powersystem of the country.

2nd June 2008


PGCIL leads the way in power transmissionPGCIL has been entrusted with the task of building of the national transmission grid.PGCIL is investing in creating a grid, which is expected to take the inter-regionaltransmission capacity to 30,000 MW by 2012 from 9,500 MW currently. The national gridhas been divided in three phases. The first phase of the project has been completed in2002 and has established a transmission capacity of 5,000 MW. In the third phase, thetransmission capacity would be enhanced to 30,000 MW.

By and large, investment in transmission and distribution has always lagged behind thegeneration sector. This is underscored from the fact that while the CAGR in powercapacity addition during 1990-99 was 4.2%, the CAGR in transmission capacity hasbeen 3.6% during the same period. But in terms of % of achievement transmissionsector has always scored over the generation sector.

Inter-regional Transmission – Existing And Planned For 11th Plan: (200kv And Above)

Source: CEA & Reliance Money Research

0

2 0 0 0

4 0 0 0

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-WR

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/ER

-N

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R

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E n d o f 1 0 th p la n 1 1 th P la n (P )

% of Actual vs Targeted Achievement in Generation and Transmission


0

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4060

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160

FY03 FY04 FY05 FY06 FY07Year

% o

f Ach

ieve

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Transmiss ion Length (CKM) Substation capac ity (MW) Generation Capac ity (MW)

PGCIL has been entrusted with the taskof building of the national transmissiongrid.

Investment in transmission anddistribution has always lagged behindthe generation sector.


2nd June 2008

13

Growth opportunity in Transmission Sector


0

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2007-08 2008-09 2009-10 2010-11 2011-12-20

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Planned Investments in Transmission (Rs mn) Growth(%)

Further the states have planned to spend Rs 2100 bn in the distribution projects duringthe 11th plan. So the 11th plan provides Rs 3.5 trillion business opportunity for thetransmission EPC players. Therefore 11th plan spending envisages 30% CAGRopportunity for the players in the sector by FY10E in the transmission project sales. Moreover some equipment manufacturers have also incorporated more than 30% growth inturnover in their strategic vision.

Growth envisioned by companies in the T&D sectorCompanies Strategic Comment Envisaged growthSiemens, ABB, Areva T&D To double turnover in three years time 33%


Recently the Power Grid has cut its planned spending by 27% for FY09E. Further thedelay in getting loans from the multilateral loan agencies has slowed down the orderflow for the sector till the last quarter. However the recent sanction of loans by ADB toPower Grid and setting up of fund by the Government for the T&D sector coupled withhigher budgetary allocation in the RGGVY scheme, has brightened the prospects of theTransmission EPC players. Based on the above facts we believe the growth of domesticrevenue of Transmission EPC players will remain at least 25% during FY09E and 30%for FY10E.

Transmission sector Investment scenario


0

10000

20000

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70000

Total Spending inState Sector

Total Spending byCentral Sector

Total Spending byPrivate Sector

10th plan spending Envisaged in the 11th plan

11th plan provides Rs 3.5 tri l l ionbusiness opportunity for thetransmission EPC players.

We believe the growth of domesticrevenue of Transmission EPC playerswill remain at least 25% during FY09Eand 30% for FY10E.

2nd June 2008


SEBs are investing in upgrading T&D infrastructureIn the distribution sector, the SEBs are the major investors and investment in this sectorhas been driven by the need to reduce its transmission and distribution losses. Thegovernment has launched the Accelerated Power Development and RestructuringProgramme (APDRP) wherein it provides financial assistance for projects identified forloss reduction. As per this scheme, 50% of the project would be funded by the governmentand the balance cost has to be borne by the SEBs. The investment in distribution sectorinvolves:

a) Commercial action includes tamper proof metering at all levels of transformation andfor all the consumers.

(b) Technical action largely involves conversion of the existing distribution network into ahigh voltage distribution system (HVDS) which covers reduction of LT lines; taking highvoltage line up to the load centre and supplying power through smaller capacity energyefficient distribution transformation.

T&D losses - a key area of concernEnergy losses occur in the process of supplying electricity to consumers due to technicaland commercial losses. The technical losses are due to energy dissipating in theconductors and equipment used for transmission, transformation, sub - transmissionand distribution of power. These technical losses are inherent in a system and can bereduced to an optimum level.

Major reasons for high T&D losses in IndiaInadequate investment in transmission and distribution, particularly in sub-transmissionand distribution. While the desired investment ratio for generation andtransmission & distribution is 1:1, the same in India has been as low as 1:0.45. Lowinvestment in the T&D segment has resulted in overloading of the grid network, withoutfurther investment in strengthening of T&D network.Large-scale rural electrification through long 11 KV and LT lines.Improper load management.Poor quality of equipment used in agricultural pumping in rural areas, coolerairconditioners and industrial loads in urban areas.

Going ahead EPC players will get a lead focusThe tariffs for transmission in the country are strictly regulated through the CERC (CentralElectricity Regulatory Commission) regulation (For Inter-state Power transmission) andthrough the respective state regulatory commissions (For intra-state transmission). Thetransmission tariff on the other hand depends on the cost involved in the concernedtransmission projects. Therefore the transmission project costs and duration remainperfectly under tab by the state and central sector utilities. Thus the transmission EPCcontractors enjoy limited leeway in getting flexibility in execution cost and time. Thepower transmission cost and the availability of transmission corridor remain among themajor factors for the scope and opportunity for the trading of surplus power generatedelsewhere in the country.

The government has launched theAccelerated Power Development andRestructuring Programme (APDRP)wherein it provides financial assistancefor projects identified for lossreduction.

The technical losses are due to energydissipating in the conductors andequipment used for transmission,transformation, sub - transmission anddistribution of power.

While the desired investment ratio forgeneration and transmission &distribution is 1:1, the same in Indiahas been as low as 1:0.45.

The power transmission cost and theavailability of transmission corridorremain among the major factors for thescope and opportunity for the tradingof surplus power generated elsewherein the country.

Capacity addition at various voltage levels in T&D ('000 CKM)

2002 2012E CAGR (%)Up to 132 kV 160 272 5220 kV 88 144 5400 kV 44 101 9765 kV 3 10 13HVDC 1 8 23



2nd June 2008

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Broad Project Chain of Transmission Capex

Transmission Projectconceptualization by CTU,STUs and other privatetransmission companies.Project execution by EPCcontractors.

Regulated transmission ser-vices and Open Accessservices by CTUs and otherstate and private sectortransmission utilities.

Transmission service forPower Trading

Transmission Service forlonger and medium termPPAs

{Source: Reliance Money Research

2nd June 2008


Mild Competition is expectedRecently Power Grid has relaxed its qualification requirements for the projects forenhancing the scope for the new players. Although it is a positive sign for the industry,but looking at the broad industry structure we believe the group backing and past executionskill will play a major role in getting and executing the projects. Smaller players willunder take projects through joint venture or partnership route. Thus we see mildcompetition in the near term going forward.

Among our universe of transmission EPC companies, KEC and JSL has a broader workexposure in the transmission projects as compared to other players in the industry.

Group Association of TurnkeyTransmission EPC Players

Jyoti Structures Valecha

KEC International RPG

Kalpataru Power Transmission Kalpataru

Associated Transrail Gammon

Unitech Unitech

L&T L&T

IVRCL Infrastructures IVRCLSource: CEA

Snapshot of Capability of the companies in transmission sector

* The company will increase its capacity to 10800 MT within Q2FY09Source: Reliance Money Research

Company Location Tower Exposure in Testing Tower Tower Basic AuxiliaryCapacity Telecom Supply Project Substation Substation

(MT) Tower Execution Projects Projects

Turnkey EPC Contractors with tower Fabrication

Jyoti Structures Nasik and Raipur 96000

KEC International Butobori and Jaipur 103000

Kalpataru Power Transmission Gandhinagar 84000*

Associated Transrail Baroda and Butibori 45000

Unitech Butibori 30000

L&T Pondicheri 40000

IVRCL Infrastructures Nagpur NA

Pure EPC Contractors

Bajaj Electricals NA NA

Releance Infrastructure NA NA

Tata Projects NA NA

SPIC SMO NA NA

Best and Crompton NA NA

Steel Structure Suppliers

Ram Sarup Industry Khadagpur 48000

Sujana Towers Hyderabad 128000

Amitasha Enterprises Nagpur 32000

Karamtara Tarapur 30000

Man Structures Jaipur 40000

ICOMM Hyderabad 200000

Maharashtra Steel Mumbai 30000

Equipment Suppliers and Project Integrators

EMCO Baroda 20000

Areva T&D NA NA

ABB NA NA

Siemens NA NA

BHEL NA NA


2nd June 2008

17

Order Book of Transmission EPC companiesWe believe the growth of order book for the transmission EPC players will grow in therange of 20% to 30% range for the next three years time. Further the orders from thedeveloping countries will add to the growth of the integrated Transmission EPCcompanies in the country. Almost all the leading players have developed good trackrecords in implementing orders in many developing regions of the world. Currentlyorders from different geographies constitute a significant part of the total order book ofthe companies.

Snapshot of Foreign orders of all the companies

Source: Company and Reliance Money Research

We believe the growth of order bookfor the transmission EPC players willgrow in the range of 20% to 30% rangefor the next three years time.

33%

55%

16%

67%

45%

84%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

KPL KEC JSL

Foreign Orders Domes tic Orders

Snap Shot of Order Book of our universe of companies

Source: Company and Reliance Money ResearchOnly Standalone

1674020000

31200

2000023000

2830025000

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0

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FY06 FY07 FY08

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2nd June 2008


Order Book to Turnover Ratio


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JSL KPTL KEC

Our discussions with the managements of the companies make us believe that therevenue from the foreign markets would grow in the range of 20% to 25% range. After themerger of RPG Transmission, overseas orders constitute 45% of total order book ofKEC and the company maintains that this kind of exposure will continue in the future aswell. KPTL expects to maintain a foreign revenue contribution at 32% to 35%. But recentlyJyoti has become very aggressive in adding orders from the overseas markets. Its gulfjoint venture will start contributing to the profitability of the company from FY09E and alsothe recently formed subsidiary in South Africa has got two big orders from that region.Therefore we expect the growth of profitability through overseas orders will remain thehighest with Jyoti (due to lower base) in our universe of Transmission EPC companies.

EBITDA Margins to remain between 10% to 11%The operating margins of the tower EPC business would remain in the range of 10% to11% range. We don't see any severe competition which will have an impact on themargin as optimum scale of operations will continue to remain with five to six players ofthe industry and they will continue to get orders from the transmission utilities due totheir past project execution track record and skill sets. However the quality of orders willimpact the margin going forward.

Generally the Price Variation (PV) formula of IEEMA effectively covers around 80% to 90%of the project cost of the transmission projects. This is applicable only for the domestictransmission projects. However the PV formula is occasionally applied in the domesticdistribution projects. More over the foreign projects are largely not covered under anysuch price escalation formula. Therefore the rise in prices of commodity and labor costdirectly hit the margins of the distribution and foreign project revenues of EPC companies.

Cost Analysis of Transmission EPC CompaniesCost Analysis JSL KEC KPTLCost of Materials as a % of Sales 66 51 49Personnel Exp as a % of Sales 3 4 5Sub cont Exp as a % of Sales 12 22 19Other operating exp as a % of Sales 7 11 11


We expect the growth of profitabilitythrough overseas orders will remain thehighest with Jyoti (due to lower base) inour universe of Transmission EPCcompanies.

The rise in prices of commodity andlabor cost directly hit the margins of thedistribution and foreign projectrevenues of EPC companies.


2nd June 2008

19

Transmission Project break-up (For Normal Transmission Projects)

Source: Industry Reports and Reliance Money Research

Sub segment % in Segment % of Total sub segments as % of TotalTransmission Line Foundation 20 65 13 Tower Supply and Erection 30 19.5 Conductor 40 26 Insulators 5 3.25 Stringing with Insulators 5 3.25Total 100 65Substation Foundation and Civil Works 10 25 2.5 Transformers 30 7.5 Other Electrical Equipments 10 2.5 Switchgear Control Panel and Monitoring system 50 12.5Total 100 25Overall Testing Services 100 10 10Total 100 100

Order Quality Analysis: KEC is the most vulnerableIn our universe of transmission EPC companies JSL and KPTL will remain more se-cure from the adverse swing in commodity prices.

Work Scope for the Transmission companiesWork % of total Transmission project costFoundation Work of Transmission and Substation 14%-15%Tower and Substation Bay Supply and Erection 20%-25%Conductor and Insulator Procurement and Stringing 28%-30%Overall Testing Services 9%-10%Total 70%-80%


Order QualityAccording to the company around 25% to 30% ofits total order book is vulnerable to adverse swingin commodity and labour cost swings.

Domestic Transmission order has a proportion of65% in total order book. Thus along with the orderexposure to the private transmission utilities JSL iscompletely protected for margin from the swing inprices up to 65% order.

Domestic order constitutes 50% of the total orderbook. Around 85% of the total order bookconstitutes orders for transmission projects.Therefore around 45% of the total order isprotected from margin erosion in the event of spikein commodity prices.

Effect in the Estimates100 basis points rise instand alone raw materialcost has been estimated. 20bps and 50 bps decline inEBITDA margin has beenincorporated in FY09 andFY10 Stand Alone Financialestimates.

130 basis points of declinein EBITDA margin have beenincorporated in Stand aloneEstimates.

Considering the mergerefficiency 100 basis pointsin decline in EBITDA marginhas been incorporated inFY09 and FY10 estimates.

CompanyKPTL

JSL

KEC

Order Quality Analysis


2nd June 2008


Subcontractors, Steel manufacturers and other electrical equipment makers are the keysuppliers of the Industry. The transmission EPC players do not get good credit periodsfrom the players and with respect to sales the credit period lasts up to 90 to 100 days.Thus the players in the industry need augmentation of working capital margin to sustaintheir growth based on the envisaged revenue potential. Sometime in anticipation of alarge order the players have to maintain a satisfactory level of liquid resources to getqualify for the contract. This has necessitated companies to augment the working capi-tal need by taking the equity route. Often good group support helps companies meettheir working capital needs

The transmission EPC players do notget good credit periods from the playersand with respect to sales the creditperiod lasts up to 90 to 100 days.

Working Capital: KEC will remain the leaderThe Transmission EPC industry is quite working capital intensive. The projects areexecuted largely through well documented design specified by the transmission utilities.Transmission projects are executed at places which are far away from the manufacturingbases of the companies. So to bring economy in logistic the companies maintain lot ofinventory at the execution places. Moreover in the distribution projects the debtor periodsare higher as compared to the transmission projects. So inventory and debtor period intotal get extended up to 180 days for the players.

Working Capital Cycle of Turnkey Transmission EPC companiesPart and Sub Parts ofTransmission ProjectsSupply Portion of the Project

Advance Payment*

Receipt on DispatchReceipt on the receipt at Site

Erection Protion of the Project

Payment on completion ofSpecif ied and Certif iedProject Components

Payment on Completion ofMajor Milestone

Payment on Commissioning

% ofTotal

15%

75%10%

80%

10%

10%

Time for theReceipt

0 Days

120 Days130 Days

150 Days

180 Days

200 Days

Impact onCreditors

Orders placed with Suppliers**

Payment Made to Workers orSubcontractors

% ofpayment

90%-100%

90% to 100%

Period ofPayments

After 30 to 70 daysof the work order

After 120 days till180 days

Days ofDisadvantage$

50 days to 70days

60 days to 70days

Source: Industry Reports and Reliance Money Research* Bank Guarantee of 10-15% has to be given on the receipt of the order** In case of Big Orders Payment is provided through opening a Letter of Credit with the bank$ Indicates the overall difference between the Receivable and payment period

Execution parts of TowerParticulars Time in DaysDesign and Listing out of the Project Components 30Sourcing of Steel and Zink 30Fabrication 30Inspection and Dispatch 30Project Execution 60Total Days 180


Working Capital Periods of Turnkey EPC companies and Tower Suppliers (FY08)

Company Inventory Days Debtor Days Creditors DaysJSL 25 131 85KPTL $ 44 131 46KEC 44 164 71Sujana Towers* $ 41 67 30

Source: Industry Reports and Reliance Money Research *Considered to be Supplier of Tower$ Reliance Money Research Estimate


2nd June 2008

21

Industry Concerns

Normally the EPC industry is working capital intensive. So at the time of suddengrowth in orders normally companies try to augment their respective long term workingcapital requirement through debt to finance the growth. So in the event of rise ininterest cost and in the situation of financing the growth through debt would put adverseimpact on the bottom line and cash flow of the companies. We have not factored in theinterest cost in our valuation methodology. However we have factored in 100 basispoint rise in interest cost in our financial estimates for FY09 and FY10.

Steel and other bought out components constitute 50% to 60% of the total cost of thecompanies. Fixed price orders normally ranges from 30% to 60% of the total orderbook of the companies. Therefore any further adverse swing in the basic commodityprices and inflation will lead to pressure on margins and hence valuation of thecompanies. We have incorporated rise in raw material cost in our estimates based onthe order exposure of the companies. However any further adverse swing from thatlevel may impact the overall margin and our valuation.

Till the Q3 of FY07 the flow of order to the sector was slow, although the overallinvestment necessity was very much there. Therefore slow progress of tendering putadverse impact on the growth of the sector. We believe with the kind of requirement inT&D the sector in the country more than 70% of the targeted investments would beexecuted during the current plan. However any further slippages from this level willimpact the growth outlook for the sector and also the valuation of the companies.

Price of Steel Angle

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2nd June 2008


TRANSMISSION SERVICES

Transmission Services: Return Growth will not becommensurate with capex growth

High Leverage will contain profitabilityOur assumption and estimates in the transmission service are restricted to Power GridCorporation, as it is the only listed entity in this business. It provides both the wheelingand scheduling services to the power utilities and Generation Companies. Although thegovernment has opened the transmission services for the private participation in 1998,but the pace of private initiative has been slow so far. It is expected to take pace duringthe current five year plan. Almost Rs 190 bn has been planned during the current plan bythe private sector in transmission. However services of the private transmission utilitieswill remain restricted to wheeling services only during the near and medium term.Power grid and STUs will continue to provide the scheduling services for the sector.

Owner ship service(Wheeling Service)

TransmissionService

Operating Service(Scheduling and

Despatching)

Assets owned byPublicly Held or JointlyHeld company, getting

market based return onTransmission wheeling

Service

Assets owned by aPublicly held or a jointly

held Company(Regulated Tariff Structure)

Done by PGCILor By STUs

A non ProfitActivity

Break-up of Transmission Services


Power Grid is executing projects worth Rs. 55 billion during the 11th plan. However ithas cut its planned investment by more than 27% for FY09E. Therefore going ahead wehave incorporated 73% of the total planned capex for the current plan for PGCIL in ourestimates.

Broad project Chain of Transmission Utilities


Construction Storesand Advances

(Materials that has beenprocured or the advancesmade for the same for the

prospective projects)

Capital Work inProgress

(The part of work of thetransmission projects that

has been partiallycompleted)

CommissionedProjects

(The part of work of thetransmission projects that

has been completed)

Almost Rs 190 bn has been plannedduring the current plan by the privatesector in transmission.


2nd June 2008

23

Typical Transmission Project Execution SchedulesTime Activity Year 1 Year 2 Year 3

Primary Project Work

Tower Execution

Work Packaging

Tower Supply and Erection

Line Material supply and implementation(Excluding Conductors and Insulators)

Conductor Package

Insulator Package

Substation Execution

Primary Work

Engineering and Civil Work

Execution of Primary Structures

Bus Bar Materials

Execution of Bay Equipments andOther Electrical Auxiliaries

Execution of Control and otherCritical Power Substation Equipment

Transformers and Reactor

Project CompleteSource: CEA and Reliance Money Research

We have assumed the following capital expenditure for Power Grid over the next fouryears.

RoE will remain below 14% in the short termBroadly speaking transmission tariff is nothing but a provision of return for the equityinvestments made by the utilities plus the compensation made for the maintenance forthe invested assets. So the regulators and authorities of a country will not allow theutilities to set tariff according to market demand and therefore the tariff will remain stifflyregulated. It is evident from the following table, which depict the RoE of some bigtransmission utilities globally.

Projections for Investment and Financing (in Rs Mn)

Source: MoP, Power Grid and Reliance Money Research

Year FY08 FY09E FY10E FY11E FY12E FY13E FY14ETotal Investment Made/Envisaged 64,650 80,400 95,511 94,963 80,145 87,598 94,897Addition to Debt 38,790 48,240 57,306 56,978 48,087 52,559 56,938Total Assets In Transmission 393,592 459,663 535,161 609,160 672,404 749,654 834,038Addition to total Commissioned Projects 80,876 92,398 87,835 91,284 86,906 87,594 90,054Addition to total Capital Work in Progress 65,248 50,100 54,753 58,542 54,744 53,257 56,640Addition to Construction and Stores 12,930 16,080 19,102 18,993 16,029 17,520 18,979

2nd June 2008


Snapshot of RoE's of some Transmission Utilities GloballyUtility Country RoE % Financial YearState Grid Corporation of China China 3.8 2006ITC Holding USA 11.5 2007Power Link Australia 7 2007Power Grid India 11.3 2007


Therefore utilities may try generating return from other business sources to raise theircompany wide RoE, despite making investments in the transmission sector. In theshorter to medium term we don't see any significant let up in the RoE of PGCIL. RoE willremain below the Regulated RoE due to significant investment in CWIP (Capital Work InProgress) and Construction and Stores (C&S). We estimate that the RoE will top theregulated RoE only by FY14E (For Details please refer to our PGCIL Report enclosedherewith)

Utilities may try generating return fromother business sources to raise theircompany wide RoE, despite makinginvestments in the transmission sector.


2nd June 2008

25

POWER TRADING: COMPETITION WILL INTENSIFY

Assumption of Power Trading and Market share of PTC

Source: CERC and Reliance Money Research

Year FY04 FY05 FY06 FY07 FY08E FY09E FY10E FY11E FY12E FY13E FY14ETotal Power generated (In BU) 519.4 548.1 578.8 624.5 704.5 744.3 789.0 836.3 886.5 939.7 996.1Total short term Traded Power (In BU) 11.0 11.9 14.2 15.0 17.6 18.6 19.7 20.9 22.2 23.5 24.9% of generated Power 2.1 2.2 2.5 2.4 2.5 2.5 2.5 2.5 2.5 2.5 2.5Market Share of PTC (in %) 100 71 59 44 55 53 51 49 47 45 44Total Short term Power Traded by PTC (In BU) 11.03 8.36 8.36 6.6 9.7 9.9 10.1 10.3 10.5 10.7 10.9

We believe with the kind of initiatives the company has already taken in partnering withprospective generators, the long term and short term power mix would be 50:50 in thetotal portfolio of the company by FY14E. The company targets a mix further to 70:30 in thelong run. We have assumed 5 paisa margin per unit for the long term power and main-tained 4 paisa margin per unit for the short term traded power. Accordingly we estimatea blended trading margin of 4.7 paisa per unit by FY14E.

Assumption

Source: MoP, Power Grid and Reliance Money Research

Year FY08E FY09E FY10E FY11E FY12E FY13E FY14EShort Term Power (in MU) 9889 10087 10289 10494 10704 10918 11137Long Term Power (in MU) 0 2500 3750 4895 6389 8340 10887Total Traded Power (in MU) 9889 12587 14039 15389 17094 19259 22023Short Term as a % of Long Term 100 80 73 68 63 57 51Overall Trading Margin in Paise 3.5 3.8 4.0 4.1 4.2 4.3 4.4

PTC will maintain its leadership statusin the short term traded power.

Power TradingPower Trading is essential for meeting peak demand and for overall resourceoptimization. Recognition of trading as a separate activity is in sync with the overallframework of encouraging competition in all segments of the electricity industry.

Power trading contract broadly exists in three different types offormats such asBilateral: mutual contracts between buyer and sellerTrilateral: Through a trading intermediaryExchange: Equitable auction based trading

India has the 5th largest power system in the world. SEBs / Discoms are the bulkpurchasers of power. Most of the bulk supplies are in the form of PPAs having stationwide tariffs and are essentially long term. Power markets generally operate with PPAsfor long term trading and bilateral for the short term trading. For very short term there isUI power. Currently short term trading constitutes 3% of total energy market.

PTC will remain the leader in short Term Power Trade market -We estimate that the generated power in the country will grow at 6% over the next fiveyears time. PTC will maintain its leadership status in the short term traded power.However with the transparent mechanisms for trading PTC will lose its market share inthe long run. We assume the company's market share will hover around 44% by the endof FY14E.

2nd June 2008


SECTOR OUTLOOK AND VALUATION

Transmission EPC: Bench Mark EV/EBITDA of 8 on FY10E Estimates

We have used a comparative valuation method to value the transmission EPCcompanies. The industry is quite similar to other industry EPC companies. We base ourassumption based on the following facts,

Sector is order book driven: The growth is completely order book driven and pastexecution capability and good capital back up weighs up much in getting the prospectiveorders. Like other EPC industries this industry is also working capital intensive asdebtor and inventory days have 50 to 60 days margin over the creditor days.Revenue recognition: The revenues are recognized based on mile stone completionof the projects.Profitability: Like other EPC companies, raw materials, bought out items andsubcontracting expenses constitute 72% to 80% of the total revenue of the companies.Thus the operating margins remains in the range of 11% to 14%.Risks: Slow work orders from the main executors may show up in slower growth inrevenue, despite satisfactory order book in hand.Capital Expenditure and Risk: In general, like other EPC companies, majority of equityinvestment of the companies goes for the augmentation of the working capital. Sometime companies do capex to improve future capability based on their respective futuregrowth potential. On the flip side if there is a significant slow down of the orders thencapacity cost eats significantly to the profitability of the companies.

Looking at the vertical sectoral exposure of the Transmission EPC companies, on theone hand and observing at the comparative growth of power sector among the entireinfrastructure sector we have assumed a bench mark EV/EBITDA of 8x for on FY10Eestimates, for valuing the Transmission EPC Companies. However the total valuationapproach will differ, considering varying business model of the companies (See valuationof the respective companies).

Transmission Services: DCF and Comparative EV/EBITDAMethodologyWe have used both comparative and DCF valuation model to value Power Grid.

For comparison we have taken the EV/EBITDA multiple of ITC Holdings limited, a holdingcompany of one of the largest transmission assets in US. The basis of comparison isbased on the following facts.

Snap Shot of EV/EBITDA of selected EPC companiesYear FY08 FY09E FY10EIVRCL Infra & Projects Ltd 16.1 11.4 8.8BGR Energy Systems Ltd 22.5 13.9 9.1Patel Engineering Co 15.9 12.3 9.0Nagarjuna Constructions 13.4 9.8 7.3Simplex Infrastructures Ltd 12.8 8.4 6.1GMR Infrastructure Ltd 48.0 24.2 16.4GVK Power and Infrastructure Ltd 16.0 10.5 6.2LANCO Infratech Ltd 18.6 7.5 4.7Average 20.4 12.3 8.5

Source: Consensus Estimates

The revenues are recognized based onmile stone completion of the projects.

We have assumed a bench mark EV/EBITDA of 8 for on FY10E estimates,for valuing the Transmission EPCCompanies.


2nd June 2008

27

Consolidated Operating assets: Like PGCIL, majority of the assets are inTransmission ProjectsRevenue Characteristics: Revenue is regulated through FERC (Federal ElectricityRegulatory Commission the counter body of CERC) regulationOperating Margin: Operating Margin is 68% as compared to 83% for Power GridBalance Sheet structure: The net current assets has remained negative over theyears and RoE almost same as that of Power Grid

We use a higher multiple of 13 for power grid as compared to the ITC, because of themonopoly status maintained by power grid in the transmission business in the country.We believe it would be very difficult for any promoter to set up such a parallel transmissionnetwork in the country, over the next one and half decade.

Power Trading: DCF and Book Value of Cash and InvestmentsLooking at the business consistency of the power trading business we have used aDCF model for valuing the core trading business of PTC.

Recently the company has raised Rs 1.2 bn from the market to increase its businessintermediation activity in other segment of the power sector. Besides the businessintermediation this resources will also augment its long term working capital requirementof the company, looking at the prospective augmentation the long term power in to itstotal trading portfolio. The company has already set up a finance subsidiary for undertakingviable business intermediation activity. Looking at the future potential of the power sectorin the country and observing the market led return opportunities from this sector in thefuture, we believe the company would look for more than 20% return on its investmentsafter three years time. However we have taken the book value of the cash and investmentbalance of the company in our valuation.

Looking at the business consistencyof the power trading business we haveemployed DCF model for valuing thecore trading business of PTC.

2nd June 2008


Companies JSL KEC KPTL PGCIL PTCRM Rating BUY BUY HOLD REDUCE REDUCE

CMP (Rs) 125 520 993 98.5 88.5Target Price (Rs) 195 687 1146 93.2 82.3

Revenues FY09 (Rs in Mn) 19820 35503 36333 56480 54628.5Revenue FY10 (Rs in Mn) 25524 44044 50336 67474 66989.0

EBITDA FY09 (Rs in Mn) 2173 4116.5 3860.7 47578 299.6EBITDA FY10 (Rs in Mn) 2802 4886.5 4999.4 56659 370.0

EBITDA Margins FY09 (%) 11.0 11.6 10.6 84.2 0.5EBITDA Margins FY10 (%) 11.0 11.1 9.9 84.0 0.6

Net Profit FY09 (Rs in Mn) 849.6 2033 2229 15811 454.2Net Profit FY10 (Rs in Mn) 1136.1 2528 2847 18115 455.9

EPS FY09 (Rs) 10.5 41.2 84.1 3.8 2.0EPS FY10 (Rs) 14.0 51.2 107.4 4.3 2.0

PE FY09 (x) 11.9 12.6 11.8 26.2 44.3PE FY10 (x) 8.9 10.1 9.2 22.9 44.1

EV/EBITDA FY09 (x) 6.3 7.7 7.9 14.0 30.5EV/EBITDA FY10 (x) 5.1 6.3 6.2 12.8 24.0

Market Caps/ Revenues FY09 0.5 0.7 0.7 7.3 0.4Market Cap/Revenues FY10E 0.4 0.6 0.5 6.1 0.3

RoE FY09 (%) 20.6 33.5 22.7 10.8 3.0RoE FY10E (%) 22.0 30.7 23.1 11.6 2.9

ROCE FY09 (%) 27.7 31.2 24.6 9.5 4.1ROCE FY10 (%) 28.7 31.7 26.7 9.6 4.1

Price/BV FY09 (x) 2.5 4.2 2.7 2.8 1.3Price/BV FY10 (x) 2.0 3.1 2.1 2.7 1.3

Valuation Matrix

Source:Company Reliance Money Research


2nd June 2008

29

Companies

2nd June 2008


Jyoti Structures RECOMMENDATION :BUY

Shareholding pattern (31st March 08)

Source:Reliance Money Research

Source: Capitaline

BSE

JSL

Stock Performance (Rel to sensex)


BSE Code 513250NSE Code JYOTISTRUCReuters Code JYTS.BOBloomberg Code JYS INMarket Cap (Rs Mn) 10,146.5Free Float (%) 73.152-wk Hi/Lo (Rs) 328/141Avg weekly Vol (BSE) 23765Avg weekly Vol (NSE) 81660Shares o/s (mn) FV Rs 2 81.2

Stock details

Summary tableYear to March FY07 FY08E FY09E FY10ETotal Revenue 9723.8 13719.5 19820.3 25524.1Growth % 39 41 44 29EBITDA 1263.0 1725.1 2173.4 2801.7EBITDA margin % 13.0 12.6 11.0 11.0Net Profit 549.9 727.0 849.6 1136.1EPS (Rs) 6.8 9.0 10.5 14.0CEPS (Rs) 7.5 9.8 11.8 15.3EV/EBITDA 9.2 7.1 6.3 5.1EV/Sales 1.2 0.9 0.7 0.6ROE % 20.3 21.7 20.6 22.0ROCE % 28.4 29.5 27.7 28.7P/E (x) 18.5 14.0 11.9 8.9P/CEPS (x) 16.7 12.8 10.6 8.1

Source:Company Reliance Money Research

Price: Rs. 125 Target Price: Rs.195We initiate coverage on Jyoti Structures (JSL), one of the key players in theTransmission & Distribution space project with a BUY, which we believe is wellpositioned to take advantage of the strong growth driven by the hugeinvestments lined in the Power sector. JSL enjoys an experienced managementteam, which has a strong grip on execution deadlines in this business andhence it is ideally placed to capitalise on this huge business opportunity leadingto substantial growth both in terms of revenue and profits.

We expect CAGR of 36% in consolidated revenue and a CAGR of 25% inconsolidated net profit for JSL during FY08-FY10E. Based on the sum of partsvaluation we initiate coverage on JSL with 12 month price target of Rs 195. Atour Target price the stock would trade, respectively at 18.6x and 13.9x to ourFY09E and FY10E EPS.

Key Positives

Strong Order Book Pipeline would drive revenue growthThe current total domestic order book of JSL stands at Rs 2652 crore with aroundRs 1800 crore orders from the transmission line towers projects. Around 2/3rd ofthe transmission line tower projects orders are in the 400 KV lines and around40% of the rest in the 765 range KV lines. Due to its considerable expertise intransmission projects and good association with private transmission utilities,we believe that JSL will be the largest beneficiary from the Rs 900 bn businessopportunity in the private sector. We therefore, estimate that the revenue for JSLfrom the domestic market would grow at more than 30% over the next 2 years time.

Growing Business Opportunities in Middle East & AfricaThe 70% South African subsidiary of JSL has also witnessed a good move inwinning substantial orders in a short time span. Currently this subsidiary has atotal orders to the tune of USD 110 mn which are to be executed in the next oneand half year's time. Both these business would further boost JSL's domesticpush and contribute to the overall topline and bottomline growth of JSL in the next2 years.

Competition in the T & D segment unlikely to intensifyWithin the T & D business segment, apart from project execution capabilities andenjoying a track record, new entrants need to invest in tower manufacturingcapacities and require strong pre qualifications norms before they get eligible forlarge orders from Power Grid and other large customers. Hence entry barrierswithin the T&D sector demands long term commitment from players making it astronghold for existing players. JSL is amongst the top three T&D players in India,and with strong execution and product capabilities is likely to benefit significantly.

We Recommend a Buy with a target price of Rs. 195Based on the sum of parts valuation we initiate coverage on JSL with a 12 monthtarget price of Rs 195. At our Target price the stock would trade, respectively at18.6x and 13.9x to our FY09E and FY10E EPS.

Promoters27%

Foreign Institutions

31%

Financial Institutions

30%

Public & Others12%

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JSL

Subsidary Joint Venture

*Shree ChhatrapatiShahu Power

Company (100%)

*JSL CorporateServices Ltd (100%)

South AfricanSubsidary (70%)

Gulf JyotiInternational

LLC(26%)*JSL Structures Ltd

(98.5%)

Organisation Structure

JSL is one of the leading players inproviding turnkey solutions in the fieldof high voltage power transmissionlines, substations and ruralelectrification.

JSL’s current total domestic order bookstands at Rs 2652 crore with aroundRs 1800 crore orders coming fromtransmission towers.

Company BackgroundJSL was established in 1974. JSL is one of the leading players in providing turnkeysolutions in the field of high voltage power transmission lines, substations and ruralelectrification. It undertakes turnkey projects, offering a complete range of services fromdesign, engineering consulting, tower testing, manufacturing, construction and projectmanagement.

JSL has supplied over 650,000 MT of transmission line towers, structures to variousutilities in India and abroad. It has tested more than 200 types of transmission linetowers for various clients worldwide. The company operates with the capacity of up to800kv transmission lines and 400kv substations. It has expanded its operations to over39 countries as of today.

Investment Drivers

Growing Business Opportunities in Middle East & Africa –The business initiatives of JSL in foreign projects would start getting good substantialbenefits during the current financial year. Further the 70% South African subsidiary ofJSL has witnessed a good growth in winning substantial order in a shorter time period.Currently this subsidiary has a total order book of Rs $110 mn. This subsidiary will yieldtotal revenue of Rs 2.53 bn during FY09E. On the top of this, the total export orders of thecompany currently stand at 15% of the total Stand alone order of Rs 3120 crore.

Robust Order Book Pipeline to drive 28% revenue CAGR over FY08-FY10 –JSL’s current total domestic order book stands at Rs 2652 crore with around Rs 1800crore orders coming from transmission towers. Around 2/3rd of the transmission towerorders are in the 400 KV lines and around 40% of the rest in the 765 range KV lines. Infact it is one of the largest project executors of Power Grid. Also the company getsconsistent orders from the private transmission utilities in the country. Currently JSL isexecuting orders for Reliance Energy, Adani Power and some other private transmissionutilities. During the current five year plan around Rs 900 bn has been targeted to bespent by the transmission utilities. Based on the robust order book and positive industryoutlook, we believe the revenue for JSL stand alone grow at more than 28% duringFY08-FY10E.

Source:Company , Reliance Money Research,* Passive Subsidiaries

2nd June 2008


Q4FY08 Performance (Standalone) (Rs.Mn)

Rs Mn Q4FY08 Q4FY07 Grth (%) FY08 FY07 Grth (%)Net Sales 4,100.6 2,871.8 42.8 13,704.0 9,708.4 41.2Other Income 6.3 1.0 537.4 15.2 8.2 85.3Total Income 4,106.9 2,872.8 43.0 13,719.2 9,716.6 41.2Total Expenditure 3,585.2 2,482.7 44.4 11,985.3 8,454.5 41.8EBITDA 515.4 389.1 32.5 1,718.7 1,253.9 37.1EBITDA (%) 12.6 13.5 (7.2) 12.5 12.9 (2.9)Interest 157.4 100.3 57.0 464.3 328.9 41.2Depreciation 18.2 16.1 13.1 67.0 58.2 15.2PBT 346.2 273.8 26.5 1,202.6 875.1 37.4Provision for tax 153.6 109.6 40.1 478.5 324.9 47.3PAT 192.6 164.2 17.3 724.1 550.2 31.6EPS (Rs) 2.4 2.0 17.3 8.9 6.8 31.6


Jyoti Structures Ltd witnessed a top line growth of 43% YoY to Rs.4100.6 mn in Q4FY08as against Rs.2871.8 mn in the same period last year. Similarly the topline for the FY08grew at 41% YoY. JSL’s operating margins dipped by 90 bps to 12.6% during the Q4FY08due to higher raw material. Raw material cost as percentage of net sales stood at 68.4%in Q4FY08 as against 50.7% in Q4FY07, while the erection and subcontracting expensesto sales decline by 900 bps to 8.7% as against 17.7%.Higher working capital need ledto a 57% rise in interest cost during the Q4FY08. Thus it registered a growth of 17% YoYin net profits during the quarter to Rs.192.6 mn.

The PAT for the FY08(12 months) has shown a spurt of 31.6% YoY to Rs.724.1mn asagainst Rs.550.2 mn, while the margins showed a marginal decline of 40 bps to 15.2%.

Aggresive bidding for undertakingforeign projects may worsen theoverall financial of JSL

Strengths

Opportunity

Weakness

Threats


SWOT profile

Strong and Extended ProjectExecuting Capability inTransmission Projects as comparedto the peers

Weak working capital margin support

Good scope in diversification into theother sector to improve economy inoperation of the capacity in hand

Jyoti Structures Ltd witnessed a top linegrowth of 43% YoY to Rs.4100.6 mn inQ4FY08 as against Rs.2871.8 mn inthe same period last year.


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Financial Outlook

37% CAGR in consolidated Revenue over FY08-10As compared to the other transmission companies covered in our universe JSL is morefocused in the domestic transmission sector. So the company will remain as the leadingbeneficiary in executing orders, not only from the public sector utilities, but also withinthe emerging private sector T&D utilities. JSL is currently executing orders for groupslike R-ADAG and Adani in their respective forays in the transmission sector. We believethis association will go a long way in maintaining business consistency and we expecta 27% CAGR in turnover for the stand alone JSL for FY08-FY10E.

Currently the South African JV of the company has a total order of USD 110 mn. Based onthe kind of projects in hand, we expect Rs 2.53 bn contribution to the consolidated JSLfor FY09E. JSL is giving significant strategic focus to this subsidiary. In order to capitalizeon the growth opportunity in this part of the world JSL has planned to purchase,approximately, equipments worth Rs 350 mn (that is optimally required) for this subsidiaryand would lease these equipments to this subsidiary. Based on the robust businessguidance for this subsidiary we expect a 20% growth in revenue by FY10E. Thus weexpect a 37% CAGR in consolidated revenues of JSL over FY08-FY10E.

11% EBITDA margins from Stand Alone business of JSL -JSL has 85% of its total order book from the transmission projects, where the IEEMAprice variable clause protects the margin up to 90%. Nevertheless we have taken a 130basis point decline in the stand alone EBITDA margin in our estimates for FY09E andFY10E. We expect a 9% EBITDA margin for the South African Subsidiary. Further we haveestimated the commission from Gulf Jyoti and Equipment Hire receipt from the SouthAfrican subsidiary in our estimates based on the revenue and estimated capex for therespected entities.

JSL is more focused in the domestictransmission sector.

We expect a 37% CAGR inconsolidated revenues of JSL overFY08-FY10E.

We expect a 9% EBITDA margin forthe South African Subsidiary.

2nd June 2008


Valuation: Buy with a target price of Rs 195To bring at par the financials of all other transmission companies we have taken theincidental financial costs, other than pure interest cost of JSL, in to the operational cost.We have placed our valuation based on our revised EBITDA estimates.

Thus we value consolidated JSL with out its Joint Ventures and outside interest in SouthAfrican subsidiary, at Rs 197 based on our benchmark of 8x EV/EBITDA multiple FY10E.After giving effect to the value of the JV and outside interest in the subsidiary we arrive ata target price of Rs 195 for the company.

Dilution of Equity: A mild concernRecently JSL has postponed its decision on dilution of equity looking at the unfavorablemarket conditions. Earlier the company was planning to raise approximately Rs 3936mn from the market, for investing in its joint venture in South Africa, for modernizing itsplants at its existing facility at Nashik and at Raipur and for meeting the working capitalmargin of the company.

Du Pont AnalysisWe estimate that due to significant capex the consolidated RoCE of JSL will decline to27% from the expected FY08 estimated level of 30%. However with the rise in assetturnover and controlled working capital position the company would improve its RoCE to28% by FY10E.

RoCE movement of JSL (Consolidated) (Rs.Mn)

Year FY07 FY08E FY09E FY10ESales 9724 13719 19820 25524EBIT 1204 1657 2067 2692Net Current Assets 3618 4889 6446 8446Net Fixed Assets 605 666 1160 1082EBIT Margin 12% 12% 10% 11%Assets Turnover 2.30 2.47 2.61 2.68RoCE 29% 30% 27% 28%


Incorporated Equity Dilution in the recently Scrapped Fund raising Plan

Type of Dilution No in Mn Total in Rs Mn#Equity Issue 7.6 1901Issue of Warrants 4.2 1050FCCB 3.94 985Total 15.7 3936

Source: Reliance Money Research#6 month average price of 250 as on 19th January 2008, has been considered

Valuation of Consolidated JSL

Value of JSL With out Gulf Jyoti 197.9

Value of Gulf Jyoti 3.2

Total Value of Consolidated JSL 201

Less: 30% outside Interest in South Africa

subsidiary 5.8

Value of JSL 195Source: Reliance Money Research

We estimate that due to significantcapex the consolidated RoCE of JSLwill decline to 27% from the expectedFY08 estimated level of 30%.

EBITDA Break up and Contribution from Subsidiaries and Joint Ventures

Year (Rs.Mn) FY06 FY07 FY08E FY09E FY10EEBITDA of JSL 747.9 1253.9 1718.7 1934.0 2514.2EBITDA from the Subsidiaries from South Africa 228.0 274.9EBITDA from Indian Subsidiaries -13.7 9.1 6.4 11.4 12.5Total Consolidated EBITDA 734.1 1263.0 1725.1 2173.4 2801.7Equipment Hire Income from South Africa Subsidiary 52.5 52.5



2nd June 2008

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The company has gone ahead with its investments in its targeted projects throughhigher recourse to the structured supplier credit. Now the company is planning to addaround Rs 600 mn of additional debt during FY09E. It has guided a total capex of Rs 600mn for FY09. This includes the capex for the Subsidiary in South Africa. For supportingthe subsidiary in South Africa JSL has currently planned to do the capex and providethese equipments on lease to the Subsidiary.

Currently the company has done no significant investment in South Africa. But we believethe equity investment of JSL in this subsidiary would be Rs 10 mn by the end of FY09.We have analyzed the valuation taking into consideration of the following assumptions.

We assume that on the raising of the equity during FY10E the company would repay Rs600 mn of term loan first and rest would go in meeting the working capital margin forJSL.

Capex Assumption for JSL andIts Subsidiary for FY09

Capex for SA Subsidiary done by JSL 350

Stand alone Capex 250

Total Capex 600


Valuation comparison based on Financing Option during FY10EFinancing Option by FY10E With Dilution Without DilutionTotal Money Raised by JSL (in Rs Mn) 800 -@ Price (in Rs) 160 -Equity Capital in (Rs Mn) 172 162.3Total Debt Stand Alone JSL (in Rs Mn) 3472 4272Total Debt Consolidated JSL (in Rs Mn) 3561 4361Impact on Target Price (in Rs) 194 195


Sensitivity of Value of Consolidated JSL on dilution of Equity at different Price band

Price in Rs/ Money Raised in Rs mn 800 1200 1600140 192 191 191150 193 192 192160 194 193 193170 194 194 194


We have done the following sensitivity analysis for equity dilution and arrived at theconclusion that, keeping everything same, the dilution would have little material impacton the valuation of the company, on our assumed dilution of equity.

JSL has gone ahead with itsinvestments in its targeted projectsthrough higher recourse to thestructured supplier credit.

2nd June 2008


Profit & loss statement (Rs mn) Balance sheet (Rs mn)

Ratio Analysis Cash Flow Statement (Rs mn)

Y/E March FY07 FY08E FY09E FY10EEquity Cap 161.4 162.3 162.3 162.3Reserves 2,543.7 3,194.7 3,958.8 4,999.9Networth 2,705.1 3,357.0 4,121.1 5,162.3Total Debt 1,607.5 2,287.8 3,531.9 4,361.1Net Deffered Tax Liability 55.1 55.1 55.1 55.1Minority Interest - - 42.6 94.2Total Liability 4,367.8 5,700.0 7,750.7 9,672.8Net Block 605.3 665.9 1,159.5 1,082.0Investments 121.0 121.0 121.0 121.0CA Loans/Adv 6,499.2 8,530.4 11,493.8 14,956.6Inventory 818.4 809.6 1,127.4 1,454.8Debtors 3,639.0 4,905.5 6,631.7 8,573.3Cash & Bank 93.3 153.8 82.4 211.5Loans & Advances 1,948.5 2,661.4 3,652.3 4,717.0CL & Provisions 2,881.7 3,641.0 5,047.5 6,510.7Current Liabilities 2,685.0 3,335.9 4,719.3 6,088.4Provisions 196.7 305.1 328.1 422.4NCA 3,617.6 4,889.3 6,446.3 8,445.9Mis exp 23.9 23.9 23.9 23.9Total Assets 4,367.8 5,700.0 7,750.7 9,672.8

Y/E March FY07 FY08E FY09E FY10EOPM(%) 13.0 12.6 11.0 11.0NPM(%) 5.7 5.3 4.3 4.4ROE(%) 20.3 21.7 20.6 22.0ROCE(%) 28.4 29.5 27.7 28.7Int cover(X) 3.9 3.7 3.2 3.4Debt/Equity(X) 0.59 0.68 0.86 0.84Gross FA turnover (x) 9.92 12.48 11.66 14.59Debtors Days 136.6 130.5 - -Inventory Days 35.3 24.6 24.1 24.1Valuation Ratios (x)P/E 18 14.0 11.9 8.9P/CF per share 16.7 12.8 10.6 8.1EV/EBDITA 9.2 7.1 6.3 5.1EV/Sales 1.2 0.9 0.7 0.6Mkt cap/Sales 1.0 0.7 0.5 0.4CEPS(Rs) 7.5 9.8 11.8 15.3P/BV 3.8 3.0 2.5 2.0

Y/E March FY07 FY08E FY09E FY10EPBT 882.5 1,207.3 1,449.3 1,933.8

Depreciation 59.4 68.3 106.3 109.5

Interest 329.3 464.7 707.5 858.2

Others 83.1 - - -

Operating CF 1,354.3 1,740.3 2,263.1 2,901.5

Change in WC (1,398.9) (1,211.2) (1,628.5) (1,870.4)

Gross Operating CF (44.6) 529.1 634.6 1,031.1

Direct taxes paid (334.8) (480.3) (557.1) (746.0)

Other adjusment (4.7) - - -

Net operating CF (384.1) 48.8 77.5 285.0

Investing CF (173.0) (128.8) (600.0) (32.0)

Free Cash Flow (557.1) (80.0) (522.5) 253.0

Financing CF 611.1 140.6 451.1 (123.9)

Net Change 54.0 60.6 (71.5) 129.2

Opening Cash 39.3 93.3 153.8 82.4

Closing Cash 93.3 153.8 82.4 211.5


Y/E March FY07 FY08E FY09E FY10ENet sales 9,723.8 13,719.5 19,820.3 25,524.1% Growth 39.0 41.1 44.5 28.8EBIDTA 1,263.0 1,725.1 2,173.4 2,801.7% growth 72.0 36.6 26.0 28.9Other Income 8.2 15.2 71.7 77.4Depreciation 59.4 68.3 106.3 109.5Interest 329.3 464.7 707.5 858.2EBIT 1,211.8 1,672.0 2,138.8 2,769.6EBIT margin 12.5 12.2 10.8 10.8Contribution from JVs 18 22.4PBT 882.5 1,207.3 1,449.3 1,933.8% Growth 100.5 36.8 20.0 33.4Tax provision 327.9 480.3 557.1 746.0PAT 554.7 727.0 892.2 1,187.7% growth 114.5 31.1 22.7 33.1EO items (4.7) - - -Minotity Interest - - 42.6 51.6Adj PAT 549.9 727.0 849.6 1,136.1Dividend (%) 35% 40% 45% 50%EPS (Rs) 6.8 9.0 10.5 14.0BVPS (Rs) 33.3 41.4 50.8 63.6


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KEC International RECOMMENDATION : BUY



Source: Capitaline

BSE

KEC



BSE Code 532714NSE Code KECReuters Code KECL.BOBloomberg Code KECI INMarket Cap (Rs Mn) 25,508Free Float (%) 58.552-wk Hi/Lo (Rs) 922/501Avg weekly Vol (BSE) 2566Avg weekly Vol (NSE) 42145Shares o/s (mn) FV Rs 10 49.3

Stock details

Summary tableYear to March FY07 FY08E FY09E FY10ETotal Revenue 20406.3 28144.8 35503.4 44043.9

Growth % 18 38 26 24

EBITDA 2518.5 3543.2 4116.5 4886.5

EBITDA margin % 12.3 12.6 11.6 11.1

Net Profit 1046.5 1721.6 2032.6 2528.0

EPS (Rs) 21.2 34.9 41.2 51.2

CEPS (Rs) 28.0 40.0 47.4 57.8

EV/EBITDA 11.6 8.7 7.6 6.3

EV/Sales 1.4 1.1 0.9 0.7

ROE % 38.5 39.6 33.5 30.7

ROCE % 32.0 31.4 31.2 31.7

P/E (x) 24.4 14.8 12.5 10.1

P/CEPS (x) 18.5 12.9 10.9 8.9

Source:Company Reliance Money Research,

Price: Rs.517 Target Price: Rs.687

We initiate coverage on KEC, with a BUY after the recent merger of RPGTransmission and NITL leading to greater operational efficiency and improvedfinancial strength for the merged entity.

We expect the Telecom Tower EPC revenue of KEC to grow at a CAGR of 35%and the Transmission and Distribution EPC revenue to grow at a CAGR of 23%over FY08-FY10E. Therefore on a consolidated basis we estimate a 25% CAGRin revenue and 21% CAGR in net profit for KEC over FY08-FY10E. We recommenda BUY on KEC based on 8x EV/EBIDTA for FY10E with a 12 month price target ofRs 687. At our Target price the stock would trade, respectively at 17x and 13.4xto our FY09E and FY10E EPS.

Key Positives –

Higher capital efficiency through MergerThe merger of RPG Transmission and NITL will lead to higher efficiency and willenhance operational and financial capability of KEC. The recent quarterlyperformance of KEC clearly demonstrates this fact. Further the reduction of subcontracting expenditure with respect to net sales has reduced the overall businessrisk of the company.

Robust Order Book Pipeline to drive 28% revenue CAGR overFY08-FY10Current order book of KEC stands at Rs 50 bn, which is 1.75 times of the FY08turnover. We believe the domestic transmission revenue would grow at 30% CAGRand the foreign revenue would grow at 20% CAGR for FY08-FY10E. Thus the totalturnover would grow at a CAGR of 28% for FY08-FY10E.

Telecom Tower business to provide further revenue tractionThe government is planning to go for tendering of 40000 telecom towers underUSO fund to role out telecom network in the rural areas. With KEC planning tomake a big entry here we expect the growth in revenue in Telecom Towers for thecompany would remain at 40% CAGR during FY08-FY10E.

Vast geographical exposure: CAGR of 20% in revenue isexpected from foreign marketsAfter the merger the domestic and overseas exposure of the company would getperfectly balanced. We expect a 20% CAGR in revenue from the foreign projectsover the next three years as compared to 30% growth in the domestic revenue.

Return Ratios to improve significantly post mergerWe believe the merger will augment the working capital margin of KEC appreciably.Thus the company would add no or very marginal debt to finance its future growth.Thus even after spending Rs 100 crore during FY09, the company would see nodecline in its RoCE for FY09 and with maintained growth momentum the RoCEwill improve by 200 basis points by FY10.

Buy with a target price of Rs 687We initiate coverage on KEC with a buy recommendation with a 12 month targetprice of Rs 687 based a 8x EV/EBITDA multiple based on FY10E. We rate KEC asthe second top pick in our universe of transmission EPC companies.

Promoters, 41.5

Foreign Institutions, 13.2

Financial Institutions, 34.6

Public & Others, 10.7

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Company DescriptionKEC International Ltd (KIL), a group company of RPG Enterprises, is engaged in thepower transmission and distribution business. The Company has presence in over 40countries. The Company has gained a position of leadership in the areas of quality,technology, capacity and capability. KEC has supplied more than two million metric tonsof towers and has constructed over 58,000 kilometers of transmission lines. Thecompany also involves in the execution of Railway Electrification projects, setting upSub-stations and power Distribution Networks, Optical Fibre Cable (OPGW) installations,Turnkey Telecom Infrastructure Services and maintenance of Power Transmission Lines.

Investment Drivers

Higher efficiency through MergerRPG transmission, a group transmission EPC company along with NITL, a groupTelecom Tower EPC Company got merged with KEC last year. With this the total towercapacity of the company is increased to 103000 MT, which is the largest tower capacityamong all the integrated Transmission EPC companies in the country. We expect witha stronger merged balance sheet the company would go for bigger order with greaterefficiency.

Telecom Tower: Immediate traction expected from USO fundmobilizationNITL, the group company which got merged into the company last year is dedicatedlyengaged in the erection of telecom towers for the telecom operators in the country. Theaggressive rolling out of networks by the telecom operators and dedicated telecomtower companies will have good growth of EPC revenue of KEC. Further looking at theexpected elections in the country the government is planning to go for tendering of40000 telecom towers under USO fund to role out telecom network in the rural areas. Soin the whole we expect the growth in revenue in Telecom Towers would remain at 40%CAGR during the next 3 years.

Vast geographical exposure: CAGR of 20% in revenue is expectedfrom foreign marketsThe pre merged KEC had a vast exposure in the overseas markets. During FY07 therevenue contribution from the foreign projects remained at 70% of the total revenue.Currently after the merger the orders mix of the company has reduced to 50:50 (Foreign:Domestic). We expect 20% CAGR in revenue from the foreign projects over the nextthree years.

KECInternational Ltd

Shareholders

Promoters

NationalInformation

TechnologiesLtd(NITEL)

RPGTransmission

OctavInvestments

Ltd(New Co tobe listed)

Issue ofsharesIssue of

shares

Merger

Demerger

Issue ofshares

10.30%

KEC International Ltd (KIL), a groupcompany of RPG Enterprises, isengaged in the power transmission anddistribution business.

We expect 20% CAGR in revenue fromthe foreign projects over the next threeyears.

Corporate restructring at KEC International

Source: Company


2nd June 2008

39

Moving up in the value Chain: from Executor to ownerThis year KEC has under taken a BOO project under the USO fund. Under this thecompany will execute 400 towers in the rural and class C telecom areas with a subsidizedcost of Rs 100 crore. These towers will be owned by the company and will be rented outto the telecom operators in those areas. Till FY13E the company cannot go forcommercialization these towers and the expenses made for the operation of thesetowers will be reimbursed by the operators.

From FY14E the company can rent out these towers at market rates. The companyexpects 4 operators each for each tower with a monthly rental of Rs 40000 per operators.As we don't see any visible business from this operation in the near future so we havenot factored in this development, in arriving at our target price.

KEC is also interested in undertaking transmission BOOT projects with partner shipbasis. It has already participated in the bidding of the western grid strengthening scheme.Like KPTL it is also looking for the opportunities in this business, for the long termbusiness consistency.

KEC has under taken a BOO projectunder the USO fund.

KEC is also interested in undertakingtransmission BOOT projects withpartner ship basis.

BOO telecom Project under USO fund (Rs. Mn)Total Project Cost (Spending in FY09) 1000Equity % 30%Equity (In Rs Mn) 300Debt 700Interest Rate 8%Number of Towers 400Cost per Tower in Mn 2.5Revenue Per tower per month (Accrue in FY14E) 0.16Per year Revenue per tower 768Operating Cost (55% of Revenue) 422Operating Profit 346Depreciation 66.7Interest 56PBT 222.9Tax @ 35% 78.0PAT 144.9RoE % 48.3 Cash FlowNet Profit 144.9Depreciation 66.7Investment In WC 115.2Operating Investment 28Net Cash Flow 68.4


2nd June 2008


Significant dependency from thesupply side may invite contingencyliability

Strengths

Opportunity

Weakness

Threats


SWOT profile

Significant exposure in the Overseasmarket that perfectly insulate thefinancials from regional slow down.

Profitability depends on commodityprice due to significant exposure tothe foreign markets

Strong Forward integration andbusiness diversification scopethrough group company support.

During the quarter ended March 31, 2008, net sales grew by 60.2% YoY to Rs 10310.3million. The operating expenditure stood at Rs 9177 million a jump of 60% YoY giving anEBITDA margin of 11%. The PAT had also shown an impressive growth of 101% YoY toRs. 606.6 mn. During entire FY08, KEC reported top line growth of 38% with revenuesclocking Rs. 28144.8 million. The EBITDA for FY08 jumped by 40.7% YoY to Rs.3543.2mn from Rs.2518.5 mn in FY07.The EBITDA margin had also shown a growth of 30 bpsYoY to 12.6% in FY08. Its net profit jumped by 64.5% over the previous year to Rs.1721.6Mn for the FY08. The Company has a healthy order book position of Rs 50400 mn ofwhich Rs 8400 mn are L1 positions as on 31st March 2008. The breakup of KEC’s orderbook position is as below:

Q4FY08 Performance(SA) (Rs. Mn)

Rs Mn Q4FY08 Q4FY07 Grth (%) FY08 FY07 Grth (%)Net Sales 10,310.3 6,437.0 60.2 28,144.8 20,406.3 37.9Other Income 2.4 3.2 (25.0) 2.5 6.9 (63.8)Total Income 10,312.7 6,440.2 60.1 28,147.3 20,413.2 37.9Total Expenditure 9,177.1 5,724.5 60.3 24,601.6 17,887.8 37.5EBITDA 1,133.2 712.5 59.0 3,543.2 2,518.5 40.7EBITDA (%) 11.0 11.1 (0.7) 12.6 12.3 2.0Interest 179.2 168.0 6.7 676.5 592.5 14.2Depreciation 48.5 80.4 (39.7) 250.7 334.3 (25.0)PBT 907.9 467.3 94.3 2,618.5 1,598.6 63.8Provision for tax 301.3 165.4 82.2 896.9 552.2 62.4PAT 606.6 301.9 100.9 1,721.6 1,046.4 64.5Adj PAT 606.6 301.9 100.9 1,721.6 1,046.4 64.5Equity Capital 493.4 493.4 - 493.4 493.4 -EPS (Rs) 12.3 6.1 100.9 34.9 21.2 64.5


During the quarter ended March 31,2008, net sales grew by 60.2% YoY toRs 10310.3 million.

Africa Rs. 9740 mn Middle East Rs. 11550 mn

Central Asia Rs. 8710 mn India Rs. 19020 mn

North America Rs.1380 mn.


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Financial Outlook

Revenue estimated to grow by 25% CAGR during FY008-FY10EWe believe with merger of the RPG Transmission and NITL with the company the revenuedriver will be perfectly balanced between the domestic and overseas market. Around80% of its total order book constitutes transmission projects from the domestic andforeign markets. The order from Power Grid constitutes around 75% of the total domesticorder book of the company. We expect 30% CAGR in turnover for the domesticTransmission Revenue and 20% CAGR in the overall foreign transmission revenue ofKEC. In our estimates we have incorporated 25% growth in turnover for the TelecomTower revenue during FY10E over the merged telecom tower revenue of Rs 1.43 bn forFY09E. Thus we expect the gross revenue of the company would grow at a CAGR of 25%during FY08-FY10E.

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40

45

(%)

Transmission Revenue Telecom Projects and Services Revenue Total Revenue Growth (%)

Post Merger Revenue Model of KEC

Decline in EBITDA margin in FY09E & FY10EIn our universe of Transmission EPC companies, the business revenue of KEC is 50%-60% protected from the risk in decline in margin. That is due to the significant businessexposure to foreign projects, where the price escalation clause is almost absent.Therefore we have taken 100 basis points and 50 basis points in decline in EBITDAmargin for FY09E and FY10E, respectively due to the rise in the raw material andsubcontracting costs.

No significant addition of Debt is expectedWe estimate the merged entity would be having a total debt of Rs 6000 mn during theFY08E. We expect appreciable improvement in operating cash flow due to efficiencygained through merger would improvise the company to not to take additional debt tofinance its envisaged growth. Thus we hope there would be appreciable improvementin RoCE for the company (See Du Pont Analysis).

Estimation for Debt of merged KECDebt Component Debt in Rs Mn Basis of CalculationExpected Debt of KEC 5352 20% of Sales of KEC against 19% of Last yearExpected Debt of RPG 635 Last year Debt on books assuming little growth in

RPG FY08 TurnoverExpected Debt of NITL 13 1.2% of Sales of NITL as against 1.2% of sales of

Last yearTotal Debt 6000

Source: CEA

We believe with merger of the RPGTransmission and NITL with thecompany the revenue driver will beperfectly balanced between thedomestic and overseas market.

We estimate the merged entity wouldbe having a total debt of Rs 6000 mnduring the FY08E.

2nd June 2008


Du Pont Analysis: Rise in RoCE despite the Rs 100 crore capex duringFY09 -We have incorporated no addition to the over all debt for the merged entity for the nextyear. Thus we have estimated that despite Rs 100 crore of capex for owning the telecomtower under USO fund during FY09. The RoCE of the company would see a rise due tosustained growth momentum in the transmission business both from the domesticand international markets.

Du Pont Analysis (Rs. Mn)

Year FY06 FY07 FY08E FY09ESales 20406 28145 35503 44044EBIT 2184 3293 3809 4562Net Current Assets 2569 6221 7044 9200Net Fixed Assets 4099 4323 5215 5240EBIT Margin 11% 12% 11% 10%Assets Turnover 3.06 2.67 2.90 3.05RoCE 33% 31% 31% 32%


Valuation: Buy with a target price of Rs 687We have valued the merged KEC at Rs 687 based on a 8x EV/EBITDA multiple based onFY10E. We rate KEC as our second best pick in our universe of transmission EPCcompanies.

We have valued the merged KEC at Rs687 based on a 8x EV/EBITDA multiplebased on FY10E.


2nd June 2008

43



Y/E March FY07 FY08E FY09E FY10EEquity Cap 376.9 493.4 493.4 493.4Preference Capital 130.0 - - -Reserves 2,213.1 3,852.0 5,567.1 7,748.7Networth 2,719.9 4,345.4 6,060.5 8,242.1Total Debt 3,864.2 6,000.0 6,000.0 6,000.0Net Deff Tax Lia 290.3 200.0 200.0 200.0Total Liability 6,874.5 10,545.4 12,260.5 14,442.1Net Block 4,099.2 4,322.8 5,215.0 5,240.4Investments 205.9 1.1 1.1 1.1CA Loans/Adv 12,477.9 19,102.4 23,315.2 29,496.7Inventory 1,505.7 2,952.2 3,766.4 4,698.9Debtors 9,040.9 12,665.2 15,976.6 19,819.8Cash & Bank 213.9 670.6 21.9 793.9Loans & Advances 1,717.3 2,814.5 3,550.3 4,184.2CL & Provisions 9,908.5 12,881.0 16,271.0 20,296.3Current Liabilities 9,538.8 12,278.7 15,559.9 19,411.9Provisions 369.6 602.3 711.0 884.3NCA 2,569.4 6,221.4 7,044.3 9,200.5Total Assets 6,874.5 10,545.4 12,260.4 14,442.1

Y/E March FY07 FY08E FY09E FY10EOPM(%) 12.3 12.6 11.6 11.1NPM(%) 5.1 6.1 5.7 5.7ROE(%) 38.5 39.6 33.5 30.7ROCE(%) 32.0 31.4 31.2 31.7Int cover(X) 4.3 5.2 5.7 6.8Debt/Equity(X) 1.42 1.38 0.99 0.73Gross FA turnover (x) 4.36 5.40 5.54 6.51Debtors Days 161.7 164.3 164.3 164.3Inventory Days 30.7 43.8 43.8 43.8Valuation Ratios (x)P/E 24 15 13 10P/CF per share 18.5 12.9 10.9 8.9EV/EBDITA 11.6 8.7 7.6 6.3EV/Sales 1.4 1.1 0.9 0.7Mkt cap/Sales 1.0 0.9 0.7 0.6CEPS(Rs) 28.0 40.0 47.4 57.8P/BV 7.2 5.9 4.2 3.1

Y/E March FY07 FY08E FY09E FY10EPBT 1,598.6 2,618.5 3,091.5 3,845.0

Depreciation 334.4 250.7 307.8 324.6

Interest 592.5 676.5 720.0 720.0

Others (136.0) - - -

Operating CF 2,389.5 3,545.7 4,119.2 4,889.5

Change in WC (2,213.4) (3,195.4) (1,471.5) (1,384.2)

Gross Operating CF 176.1 350.3 2,647.7 3,505.4

Direct taxes paid (394.6) (896.9) (1,058.9) (1,317.0)

Other adjusment

Net operating CF (218.5) (546.6) 1,588.8 2,188.4

Investing CF (98.2) (154.0) (1,200.0) (350.0)

Free Cash Flow (316.7) (700.6) 388.8 1,838.4

Financing CF (99.2) 1,157.2 (1,037.5) (1,066.3)

Net Change (415.9) 456.6 (648.7) 772.0

Opening Cash 629.8 214.0 670.6 21.9

Closing Cash 213.9 670.6 21.9 793.9


Y/E March FY07 FY08E FY09E FY10E

Net sales 20,406.3 28,144.8 35,503.4 44,043.9% Growth 18.1 37.9 26.1 24.1EBIDTA 2,518.5 3,543.2 4,375.7 5,330.6% growth 55.2 40.7 23.5 21.8Other Income 6.9 2.5 2.8 3.0Depreciation 334.4 250.7 307.8 324.6Interest 592.5 676.5 720.0 720.0EBIT 2,191.1 3,295.0 4,070.7 5,009.1EBIT margin 10.7 11.7 11.5 11.4PBT 1,598.6 2,618.5 3,350.7 4,289.1% Growth 109.1 63.8 28.0 28.0Tax provision 552.2 896.9 1,147.7 1,469.1PAT 1,046.5 1,721.6 2,203.0 2,820.0% growth 112.3 64.5 28.0 28.0Adj PAT 1,046.5 1,721.6 2,203.0 2,820.0Dividend (%) 45 50 55 60EPS (Rs) 21.2 34.9 44.7 57.2BVPS (Rs) 72.2 88.1 125.1 172.9

2nd June 2008


Kalpataru Power Transmission RECOMMENDATION : HOLD



Source: Capitaline

BSE

KPTL



BSE Code 522287NSE Code KALPATPOWRReuters Code KAPT.BOBloomberg Code KPP INMarket Cap (Rs Mn) 26,314.5Free Float (%) 36.352-wk Hi/Lo (Rs) 2040/968Avg weekly Vol (BSE) 27327Avg weekly Vol (NSE) 19247Shares o/s (mn) FV Rs 10 26.5

Stock details


Growth % 90 67 36 39

EBITDA 2563.2 3105.9 3860.7 4999.4

EBITDA margin % 16.0 11.6 10.6 9.9

Net Profit 1627.2 1647.8 2228.8 2847.0

EPS (Rs) 61.4 62.2 84.1 107.4

CEPS (Rs) 68.3 76.8 102.3 129.2

EV/EBITDA 11.3 9.6 7.9 6.2

EV/Sales 1.8 1.1 0.8 0.6

ROE % 25.3 21.0 22.7 23.1

ROCE % 22.4 22.9 24.6 26.7

P/E (x) 16.2 16.0 11.8 9.2

P/CEPS (x) 14.5 12.9 9.7 7.7


Price: Rs. 993 Target Price: Rs.1146

Consistent entry in to the diverse business is one of the grate positive for KPTL.The 52% construction subsidiary JMC Projects (JMC) will remain the greatbusiness driver for the company for the next two years. In FY08 the toplinegrowth of JMC remained at 80% as compared to 12% for KPTL on a stand alonebasis. We expect with the Rs. 2400 crore robust order book in hand and withthe entry into diverse EPC business in various infrastructure sector the toplinegrowth of JMC would be at least 60% for the next two years. The investment inthe logistic service subsidiary would start contributing to the consolidatedturnover by FY10. With a robust business growth opportunity expected for allbusiness verticals, we expect the consolidated net sales of KPTL would growat a CAGR of 37% during FY08-FY10E. The net profit would grow at a CAGR of 36%during the same period. Based on the EV/EBITDA multiple valuation method weinitiate coverage on KPTL with a buy rating with a 12 month target price ofRs1146. At our Target price the stock would trade, respectively at 13.6x and10.7x to our FY09E and FY10E EPS.

Key Positives

KPTL's consolidated business entity will have a complete secured businessmodel as compared to other focused transmission EPC companies in ouruniverse. Roughly T&D revenue constitute 60% of the total consolidated turnoverof KPTL and rest 40% is derived from its 52% subsidiary JMC and Pipe linebusiness.

KPTL also provides the labor related works in the Gas pipe line business.Company believes that going forward complete EPC work will be awarded to it,which will add significantly add to its top and bottom line, with of course somesacrifice in margins

The company has committed investment of Rs. 1000 mn in the losgistic venture.The company will mainly invest in the warehouse with world class facility. Therevenue reorganization from this logistics business is expected to be bookedfully from FY11. We have taken Rs 80 crore of revenue from the Subham Logisticfor FY10E estimates.

KPTL has already participated along with Tata Power in the bidding of the WesternGrid Strengthening scheme. We expect with the sooner formalization of RFPguidelines the company would go for bidding for such projects. However thecompany may have to dilute the equity to strengthen its balance sheet to undertakesuch projects.

Based on the EV/EBITDA multiple valuation method we initiate coverage on KPTLwith a hold rating and a 12 month target price of Rs. 1146. At our Target price thestock would trade, at 13.6x and 10.7x FY09E and FY10E EPS.

Promoters64%


7%


24%

Public & Others5%

500

1000

1500

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10000

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2nd June 2008

45

Company BackgroundKalpataru Power Transmission Limited (KPTL) is one of the leading companies in thefield of turnkey projects for extra high voltage transmission lines (up to 800 KV) acrossIndia and overseas. It is also in the business of EPC services for distribution projects of11/33 kv lines & substation, construction of cross country pipelines and telecom towers.KPTL has two fabrication plants with an annual installed capacity of 84,000 MTs one ofthe largest in the world and is equipped with modern machineries and automatedtemperature controlled galvanizing baths, besides its own state-of-the-art testing stationand R & D Centre.

Investment Drivers

Diversified Business Exposure: Higher Domestic FocusAmong our universe of transmission companies KPL has a diversified business portfolioon a consolidated basis. Thus the consolidated entity will have a complete securedbusiness model as compared to other transmission EPC companies in our universe.

Expected growth of JMC will be more than 60%The acquisition of JMC projects has given KPTL strong presence in factories, industrialstructures, buildings, software parks and roads & bridges. KPTL sees better growth forJMC as it plans to put around Rs 80 crore to 100 crore each to improve the capability ofJMC going forward.

Oil and Gas pipeline BusinessHuge opportunity in the oil and gas pipeline business as the industry expects around18,000 km of pipeline to be built in the next five-six years to meet the growing crude oiland natural gas demand. The company plans to invest more in this business to becomea leading player in this business. Currently the company provides only the labor relatedworks in this segment. Company believes that going forward complete EPC work will beawarded to it, which will add significantly add to its top and bottom line, with of coursesome sacrifice in margin.

Venturing in to Logistics: Big opportunityAfter acquiring Shubham Logistics, the company is seriously thinking logistics as amajor avenue of investment. The company has committed investment of Rs. 1000 mn inthis venture. The company will mainly invest in the warehouse with world class facility.The revenue reorganization from this logistics business is expected to be booked fullyfrom FY11. The company is planning to offer other value added service such as testing,shorting, grading, processing, packaging, cold storage, delivery etc along with the rentingout of warehouses. The company has tied up with both the commodity exchanges andnumber of banks for commodity financing for which it will enjoy commission. We havetaken Rs 80 crore of revenue from the Subham Logistic for FY10E estimates.

BOOT projects in Power Transmission: Want to be a leading playerCurrently the government has formalized Request for qualification (Rfq) for facilitatingthe private investment for the transmission sector. Soon it is expected that the Requestfor proposals (RFP) guidelines would be formalized. KPL wants to become a leadinginvestor in this business. KPL has already participated along with Tata Power in thebidding of the Western Grid Strengthening scheme. We expect with the soonerformalization of RFP guidelines the company would go for bidding for such projects.However the company may have to dilute the equity to strengthen its balance sheet toundertake such projects. We have not factored in any such projects in our estimates.

Kalpataru Power Transmission Limited(KPTL) is one of the leadingcompanies in the field of turnkeyprojects for extra high voltagetransmission lines (up to 800 KV)across India and overseas

The acquisition of JMC projects hasgiven KPTL strong presence infactories, industrial structures,buildings, software parks and roads &bridges.

KPL wants to become a leadinginvestor in BOOT projects in PowerTransmission

2nd June 2008


High commoditity price may dent theconsolidated margin.

Strengths

Opportunity

Weakness

Threats


SWOT profile

Diversified Business Exposureprovide economy of scale inoperation

Growth of subsidairy is more thanthe standalone KPTL itself.

Forward integration by undertakingtransmission BOOT projects in thecountry

KPTL

JMC Projects(India) Ltd

(52%)


*Energylink (India)Pvt. Ltd (100%)

Shree ShubhamLogistics Ltd.

(75%)

Source: Reliance Money Research* Passive subsidiary

During Q4FY08, the topline of KPTL had grown by 20.7% YoY to Rs. 6295.4 mn. TheEBITDA margin declined by 620 bps YoY to 12% mainly due to higher raw material andcomponents cost. As a result profit after tax recorded a downside of 22% YoY to Rs. 503mn. On a yearly basis, the standalone net sales for the FY08 had shown a growth of 14%YoY but the margins declined by 240 bps YoY to 13.9%. As a result the net profit slippedmarginally by 5.2% YoY to Rs. 1498.8 mn.

Q4FY08 Performance(SA) (Rs. Mn)

Rs Mn Q4FY08 Q4FY07 Grth (%) FY08 FY07 Grth (%) Net Sales 6,295.4 5,217.7 20.7 17,375.8 15,243.6 14.0 Other Income 65.5 63.8 2.7 214.7 124.6 72.3 Total Income 6,360.9 5,281.5 20.4 17,590.5 15,368.2 14.5 Total Exp 5,537.9 4,270.3 29.7 14,959.8 12,754.5 17.3 EBITDA 757.5 947.4 (20.0) 2,416.0 2,489.1 (2.9) EBITDA (%) 12.0 18.2 13.9 16.3 Interest 113.3 90.7 24.9 397.2 279.6 42.1 Depreciation 70.0 53.6 30.6 218.0 167.6 30.1 PBT 639.7 866.9 (26.2) 2,015.5 2,166.5 (7.0) Prov for tax 136.0 222.3 (38.8) 516.0 571.6 (9.7) PAT 503.7 644.6 (21.9) 1,499.5 1,594.9 (6.0) EO Items (0.7) (0.7) - (0.7) (14.0) (95.0) Adj PAT 503.0 643.9 (21.9) 1,498.8 1,580.9 (5.2) EPS (Rs) 19.0 24.3 56.6 59.7



2nd June 2008

47

Consolidated Revenue Stream (Rs. Mn)

Year FY06 FY07 FY08E FY09E FY10E T&D 7,849.9 13,665.5 15,387.5 19,017.3 23,757.3 % Change 74.1 12.6 23.6 24.9 Energy Division 180.6 275.4 396.3 435.9 479.5 % Change 52.5 43.9 10.0 10.0 Infrastructure 370.7 1,465.4 1,832.9 2,016.2 2,217.8 % Change 295.3 25.1 10.0 10.0 JMC Revenue - 976.7 9,244.7 14,695.5 23,512.8 % Change 846.5 59.0 60.0 Ware Housing Revenue - 0.3 94.1 500.0 800.0 % Change 431.6 60.0 Others 311.0 24.6 99.2 99.2 99.2 % Change (92.1) 304.2 0.0 0.0 Total Revenue 8,712.3 16,407.9 27,054.7 36,764.2 50,866.7 % Change 88.3 64.9 35.9 38.4

Source: Company, Reliance Money Research

Financial Outlook

Consolidation of full year financials of JMC with KPTLTill the Q3 of FY07 the KPTL was holding less than 50% share of JMC project. So theconsolidated accounts of KPTL reflect only 2 month's financials of JMC Projects of FY07.However after acquiring more than 50% of JMC, KPTL is now consolidating the accountsof JMC with itself from FY08 onwards. Thus the full year financials of JMC projects isreflected in the consolidated financials of KPTL in FY08. Our estimates and valuationare based on the consolidated financials of KPTL.

37% CAGR in consolidated revenues during FY07-FY10EKPTL is putting more emphasis on the growth of JMC projects, the 52% listed subsidiaryof the company. The company is planning to invest Rs 80 to Rs 100 crs annually in JMCprojects as compared to Rs 25 to 30 crs in the stand alone entity. More over the investmentin the stand alone entity will remain tilted in acquiring material handling equipments forthe Gas Pipeline (Infrastructure Division) business of the company. According to thecompany management, due to some client specific reasons the T&D businessperformance of the company remained unimpressive during FY08. We believe this willget reversed and the T&D revenue of the company would grow at 25% during FY09E andby 28% by FY10E.

At the same time with good bout of strategic focus the growth of JMC will remain good.This will drive the consolidated financials and so the valuation of the company. We haveassumed 60% growth of Turnover of JMC during FY09E and FY10E.

27% CAGR in EBITDA during FY08-FY10EBased on the order quality of the company (As discussed above) we have reduced 20basis points in stand alone EBITDA margin for FY09E and then reduced the same by 50basis points during FY10E. We believe the margin reduction would largely be due torelatively higher raw material cost as a % of total sales of the stand alone KPTL. Howeverwe have incorporated little less than 8% of EBITDA margin in our estimates, for JMCduring the next three years. We estimate the consolidated EBITDA of JMC will grow at aCAGR of 49% during FY08-FY10E.

The company is planning to invest Rs80 to Rs 100 crs annually in JMCprojects as compared to Rs 25 to 30crs in the stand alone entity.

We estimate the consolidated EBITDAof JMC will grow at a CAGR of 49%during FY08-FY10E.

2nd June 2008


Valuation: Consolidated Entity Valued at Rs 1146Based on our bench mark EV/EBITDA multiple of 8x based on FY10E financials we valueKPTL along with JMC Projects at Rs 1342. The company holds 52% stake in JMCproject and 75% stake in Subham Logistics. Therefore after deducting the proportionatevalue of outsider's interest in JMC and Subham Logistics we arrived at a consolidatedvalue of Rs 1146 for the equity shareholders of KPTL.

Du Pont AnalysisFY07 RoCE of JMC Projects stands at 17% as against 31% for the stand alone KPTL forthe same period. However with a higher growth in turnover and with a relatively lessercapex spend the RoCE of the JMC would have improved to 23%. Thus with theconsolidation the consolidated RoCE of KPTL will remained maintained at 30% duringFY09. Again with the significant rise in turnover of JMC the consolidated RoCE willimprove to 32%.

Reconciliation of EBITDA (Rs. Mn)

Year FY06 FY07 FY08E FY09E FY10EStand Alone EBITDA 1,144.1 2,489.1 2,416.0 2,895.0 3,434.1% Change 117.6 (2.9) 19.8 18.6EBITDA of JMC Projects 77.5 667.7 921.4 1,474.2% Change 761.8 38.0 60.0EBITDA of Other Subsidiaries - (3.4) 22.2 44.3 91.2% change 105.9Total Consolidated EBITDA 1,144.1 2,563.2 3,105.9 3,860.7 4,999.4


RoCE of KPTL (Consolidated without investment) (Rs. Mn)

Year FY07 FY08E FY09E FY10ESales 15987 26749 36333 50336EBIT 2382 2719 3377 4423Net Current Assets 4840 5018 6201 8348Net Fixed Assets 3232 4195 4962 5635EBIT Margin 15% 10% 9% 9%Assets Turnover 1.98 2.90 3.25 3.60RoCE 30% 30% 30% 32%


RoCE of JMC Projects (Rs. Mn)Year FY06 FY07 FY08E FY09E FY10ESales 1444 5022 9185 14696 23513EBIT 64 327 561 816 1408Net Current Assets 347.7 966.9 837.9 1658.7 3048.6Net Fixed Assets 594.2 989.8 1622.1 2219.8 2798.4EBIT Margin 4% 7% 6% 6% 6%Assets Turnover 1.5 2.6 3.7 3.8 4.0RoCE 7% 17% 23% 21% 24%


Value of KPTL (In Rs.)


Recommended value of KPTL and its subsidiaries 1342Less: Value attributable to Outside Shareholders 195Value Attributable to Exclusive shareholders of KPTL 1146

With a higher growth in turnover andwith a relatively lesser capex spend theRoCE of the JMC would have improvedto 23%.

Based on our bench mark EV/EBITDAmultiple of 8x based on FY10Efinancials we value KPTL along with JMCProjects at Rs 1342.


2nd June 2008

49



Y/E March FY07 FY08E FY09E FY10EEquity Cap 265.0 265.0 265.0 265.0Reserves 6,177.6 7,593.1 9,542.9 12,079.8Networth 6,442.6 7,858.1 9,807.9 12,344.8Total Debt 3,986.1 4,210.3 4,490.0 5,039.9Net Deff Tax Liability 158.3 158.3 158.3 158.3Minority Interest 624.7 772.4 1,018.5 1,447.7Total Liability 11,211.8 12,999.2 15,474.7 18,990.7Net Block 3,231.9 4,195.4 4,962.2 5,635.4Investments 1,392.1 1,392.2 1,392.2 1,392.2CA Loans/Adv 13,462.7 16,303.5 21,137.9 28,489.8Inventory 1,890.5 2,359.6 3,114.0 4,189.2Debtors 6,999.4 9,199.3 12,382.4 17,005.0Cash & Bank 1,367.5 601.0 434.1 596.6Loans & Advances 1,458.0 1,750.0 2,288.6 3,084.8CL & Provisions 6,875.5 8,892.3 12,018.0 16,527.1Current Liabilities 6,095.8 7,987.6 10,862.7 15,046.1Provisions 779.7 904.7 1,155.3 1,481.1NCA 6,587.3 7,411.1 9,119.9 11,962.7Mis exp 0.5 0.5 0.5 0.5Total Assets 11,211.8 12,999.2 15,474.7 18,990.7

Y/E March FY07 FY08E FY09E FY10EOPM(%) 16.0 11.6 10.6 9.9NPM(%) 10.1 6.1 6.1 5.6ROE(%) 25.3 21.0 22.7 23.1ROCE(%) 22.4 22.9 24.6 26.7Int cover(X) 9.5 6.9 9.6 12.8Debt/Equity(X) 0.62 0.54 0.46 0.41Gross FA turnover (x) 4.08 5.08 5.58 6.48Debtors Days 128.6 131.4 131.4 131.4Inventory Days 45.3 43.8 43.8 43.8Valuation Ratios (x)P/E 16 16 12 9P/CF per share 14.5 12.9 9.7 7.7EV/EBDITA 11.3 9.6 7.9 6.2EV/Sales 1.8 1.1 0.8 0.6Mkt cap/Sales 1.6 1.0 0.7 0.5CEPS(Rs) 68.3 76.8 102.3 129.2P/BV 4.1 3.3 2.7 2.1

Y/E March FY07 FY08E FY09E FY10EPBT 2,220.5 2,485.0 3,351.4 4,620.6

Depreciation 181.6 386.5 483.2 576.8

Interest 253.2 485.4 444.9 440.0

Others (58.6) - - -

Operating CF 2,596.7 3,356.9 4,279.5 5,637.4

Change in WC (2,308.3) (1,590.3) (1,875.7) (2,680.3)

Gross Operating CF 288.4 1,766.6 2,403.8 2,957.1

Direct taxes paid (555.6) (688.5) (876.6) (1,344.5)

Other adjusment (14.0) - - -

Net operating CF (281.2) 1,078.1 1,527.3 1,612.6

Investing CF (3,780.8) (640.2) (1,100.5) (1,179.9)

Free Cash Flow (4,062.0) 437.9 426.8 432.7

Financing CF 4,014.1 (493.8) (444.2) (200.1)

Net Change (47.9) (55.9) (17.4) 232.6

Opening Cash 411.0 363.1 307.3 289.9

Closing Cash 363.1 307.3 289.9 522.4Source: Reliance Money Research

Y/E March FY07 FY08E FY09E FY10ENet sales 15,986.8 26,748.5 36,332.8 50,335.7% Growth 90.2 67.3 35.8 38.5EBIDTA 2,563.2 3,105.9 3,860.7 4,999.4% growth 124.0 21.2 24.3 29.5Other Income 123.1 251.0 418.9 638.0Depreciation 181.6 386.5 483.2 576.8Interest 284.2 485.4 444.9 440.0EBIT 2,504.7 2,970.4 3,796.3 5,060.6EBIT margin 15.5 11.0 10.3 9.9PBT 2,220.5 2,485.0 3,351.4 4,620.6% Growth 135.2 11.9 34.9 37.9Tax provision 590.2 688.5 876.6 1,344.5PAT 1,630.3 1,796.5 2,474.9 3,276.1% growth 145.0 10.2 37.8 32.4EO After Tax (14.0) (1.0) - -Minority Interest (17.1) (147.7) (246.1) (429.2)Adj PAT 1,627.2 1,647.8 2,228.8 2,847.0Dividend (%) 75 75 90 100EPS (Rs) 61.4 62.2 84.1 107.4BVPS (Rs) 243.1 296.5 370.1 465.8

2nd June 2008


POWER GRID CORP. RECOMMENDATION:REDUCE



Source: Capitaline

BSE

PGCIL



BSE Code 532898NSE Code POWERGRIDReuters Code PGRD.BOBloomberg Code PWGR INMarket Cap (Rs Mn) 414,571Free Float (%) 13.652-wk Hi/Lo (Rs) 80/167Avg weekly Vol (BSE) 675056Avg weekly Vol (NSE) 2169149Shares o/s (mn) FV Rs 10 4,208.8

Stock details


Growth % 14 22 29 19

EBITDA 29564.5 35785.4 47577.7 56658.5

EBITDA margin % 82.4 81.9 84.2 84.0

Net Profit 12386.5 14200.0 15811.1 18115.0

EPS (Rs) 2.9 3.4 3.8 4.3

CEPS (Rs) 4.9 5.8 7.1 8.2

EV/EBITDA 20.2 17.3 14.0 12.8

EV/Sales 16.6 14.2 11.8 10.7

ROE % 11.3 10.3 10.8 11.6

ROCE % 10.8 9.3 9.5 9.6

P/E (x) 33.5 29.2 26.2 22.9

P/CEPS (x) 20.1 17.0 14.0 12.0


Price: Rs. 98 Target Price: Rs. 93

We initiate coverage on Power Grid Corporation of India Limited (PGCIL) with aREDUCE Rating. We believe the Indian power sector is at the crossroads withhuge capacity addition planned in the power generation and transmission space.Hence we expect PGCIL, the principal power transmission utility in India, to bea major beneficiary of the changing dynamics in the domestic power sector.We expect PowerGrid to record a 26% CAGR in revenue and 19% CAGR in netprofit during FY08-FY10E. Based on the DCF approach and a comparative EV/EBITDA multiple valuation method we initiate coverage on PGCIL with a REDUCErating and a 12 month price target of 93.

Key PositivesPGCIL enjoys a sound business model with virtually nocompetitionPGCIL’s core transmission business has low levels of risks with stable returns.Currently, CERC regulates the returns of PGCIL, providing a 14% return on equity.We see marginal improvement in returns over the long term as customerrequirements and investor expectations are balanced.

Driven by the industrial and services sectors, the Indian economy is growing at afast pace of 8-9% annually. As compared to this the power crisis has long been thebane of the country with a power deficit of ~10% and peak power deficit of ~14%.Consequently, we believe the lack of growth in generation and transmissioncapacities in previous plan periods is likely to result in higher growth in capacitiesin the future. According to the Central Electricity Authority (CEA) estimates India islikely to add ~78,577 MW in generation capacity in the Eleventh Plan.

Similarly, India’s inter-regional transmission capacity is likely to increase from14,100 MW in June 2007 to 37,150 MW by the end of the Eleventh Plan. We believePGCIL occupies a key position in the development of Indian power sector since itis a primary power transmission provider a pure play on the growth in the powersector.

Telecom and Entertainment business initiative to drive revenuegrowthThe company targets total revenue of Rs 3 bn by FY10E from the telecom business.We expect with the increased band with renting to the entertainment and datacenter business the telecom revenue of the company would grow at a CAGR of30% over FY08-FY14E.

Growth in power sector inevitable PowerGrid plans to add 60000 ckt KM to the inter-state transmission network byFY12, with total additional capacity of 23100 MW. The company has mandated tocontribute 73% of the total transmission capex of the country in the 11th plan withtotal capex of Rs 550 bn. We expect with higher operational efficiency the over allRoE of the company would reach 16% as against the 14% regulated RoE returnon the commissioned projects. Thus we estimate the Transmission revenue ofthe company would grow at a CAGR of 18% over FY08-FY14E.

We Recommend a REDUCE Rating with a target price of 93We value PowerGrid based on a DCF approach and a comparative EV/EBITDAmultiple valuation method and assign a REDUCE rating and with a 12 month pricetarget of 93. At our Target price the stock would trade, at 23x and 20x our FY09Eand FY10E EPS.

Promoters, 86.4

Foreign, 3.0

Financial Institutions, 3.9

Public & Others, 6.7

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51

PGCIL

*Subsidary *Joint Venture

ByrnihatTransmission

Company Ltd(100%)

Parbati KoldamTransmission

Company Ltd(100%)

Byrnihat Transmis-sion Company

Ltd(100%)


Company Ltd(100%)

Byrnihat Transmis-sion Company

Ltd(100%)


Company Ltd(100%)


Company BackgroundPowergrid is one of the largest transmission utilities in the world with its hugetransmission network spread over the entire length and breadth of the country. Powergridconsistently has been maintaining the availability of its transmission system above99% levels through deployment of latest Operation and Maintenance techniques at parwith global standards.

The company commenced operations in 1992 as all inter-state and inter-regional powertransmission assets of the country were consolidated in a single entity. Currently PGCILowns and operates 64,700 circuit kms of electrical transmission lines and110 electricalsubstations with a 66,650 MVA Transformation Capacity. Further PGCIL has diversifiedinto consultancy business for transmission and distribution related projects in Indiaand abroad. The company also entered in to telecommunication network business bylaying overhead Optic Fibre Network of 20,000 Kms for telecom connectivity to majorcities and towns.

Investment Drivers

Telecom and Entertainment initiative business initiative to driverevenue growthPowerGrid provides bandwidth services to the telecom operators through its nationwide20,000 km optical fiber cable (OFC) links along with its transmission lines. Currentlypart of the western region has not been properly connected through this network. By theend of this financial year the company would be connecting this region. PowerGrid istargeting total revenues of Rs 3 bn by FY10E from the telecom business. We expect withthe increased band with renting to the entertainment and data center business thetelecom revenue of the company would grow at a CAGR of 30% over FY08-FY14E.

Growth in power sector inevitable – Consequently PGCIL’s powertransmission business stands to benefit significantlyAll the transmission projects of the company are progressing as per schedule. Webelieve the company would expedite its investment towards the transmission segmentand around 90% of the total assets of the company remain deployed in the transmissionbusiness. The company plans to add 60000 CKM to the inter-state transmission networkby FY12, with total additional capacity of 23100 MW. The company has mandated tocontribute 73% of the total transmission capex of the country in the 11th plan with totalcapex of Rs 550 bn. This capex will be funded with a debt equity ratio of 70:30.

Powergrid is one of the largesttransmission utilities in the world withits huge transmission network spreadover the entire length and breadth ofthe country.

We believe the company wouldexpedite its investment towards thetransmission segment and around90% of the total assets of the companyremain deployed in the transmissionbusiness.

Source:Reliance Money Research* Financials has not been considered in valuation

2nd June 2008


Change In technology in the nearload-center technologies and failureof timely commissioning of the linkedgeneration capacity or the projectsof the company

Strengths

Opportunity

Weakness

Threats


SWOT profile

Continue to dominate in both thesegment of the transmissionservices, thanks to regulation

Returns are strictly regulated andscope of efficiency gain is less

Enter in to wireless telecom networksharing and better consultingopportunity in the foreign markets

Consultancy business to grow at a steady pace –On an average the company charges 10% to 11% of the total project cost as consultancyfees. The company is very active in the RGGVY projects in the northern part of thecountry. Based on the guidance given and with the increased competition from otherplayers in the country we believe this segment would grow at a flatter pace over the nextsix years.

Financial Outlook

Investments will be 73% of the projected investment by MoPLooking at the cut in the investment target for Power Grid for the FY09, we have accordinglyreduced the investment target for the coming year. We believe 73% of the targetedinvestment will be done by power grid during the current financials year.

Out of the total investments a significant chunk of investment is expected to be spent inthe Transmission segment. On the other hand there will also be a good growth ininvestment in Telecom business of the company.

Year FY08E FY09E FY10E FY11E FY12E FY13E FY14ETotal Investment Made/Envisaged 64,650 80,400 95,511 94,963 80,145 87,598 94,897Addition to Debt 38,790 48,240 57,306 56,978 48,087 52,559 56,938Total Assets In Transmission 393,592 459,663 535,161 609,160 672,404 749,654 834,038Addition to total Commissioned Projects 80,876 92,398 87,835 91,284 86,906 87,594 90,054Addition to total Capital Work in Progress 65,248 50,100 54,753 58,542 54,744 53,257 56,640Addition to Construction and Stores 12,930 16,080 19,102 18,993 16,029 17,520 18,979

Projected Investments of Power Grid (Rs. Mn)


On an average the company charges10% to 11% of the total project cost asconsultancy fees.


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53

Revenue Model (Rs in Mn)

Year FY08E FY09E FY10E FY11E FY12E FY13E FY14ETransmission 40087 52106 62077 72934 83663 93874 104001

Consultancy and 2350 2374 2397 2421 2445 2470 2495

Project Management Fees

Telecommunication 1250 2000 3000 4200 5460 6825 8531

Other Income 3,313 2,624 2,439 2,197 2,106 2,027 1,956

Total Income 47000.0 59103.9 69913.1 81752.2 93674.8 105195.4 116983.1Source: Reliance Money Research

Revenue to grow at a 24% CAGR during FY08-FY10EWe believe in the current financial year the company will focus more on adding thetransmission assets. Thus the topline and equity resources will largely driven by thegrowth of the transmission assets by the company. However in any case the governmentroutes the defense network through the OFC network of the company then we can expectsome business momentum for the telecom assets of the company. We believe if in anycase it does happen then the business momentum would be gradual. Further looking atthe potential of the telecom asset of the company and the recent regulation of CERC (Forusing transmission towers for telecommunication) we think we have fairly factored inthe potential revenue in this segment.

PowerGrid will earn a 14.6% RoE return by FY14EPowergrid has a secure business model. In India, CERC determines the transmissiontariffs, guided by the tariff policy and the provisions of the Electricity Act. PGCIL is permittedto charge 14% return on equity for its transmission services after considering interestexpenses, depreciation, and advance against depreciation, operation and maintenanceexpenditure. Due to the Tripartite Agreement, the company’s outstanding from the SEBsare fully guaranteed.

The company also charges short term open access at 25% of its applicable regularfixed charges for regional access and 50% of its applicable regular fixed charges forinter-regional access. Power Grid retain 25% of the short term open access charge andpass on 75% of the charge to its regular customers in the form of rebate adjustments intheir monthly bills.

Powergrid also enjoy incentives based on the availability of its transmission lines beyondthe target availability prescribed for such lines. The target availability prescribed for anAC system is 98% and for an HVDC system is 95%. The incentive is provided at 1% ofequity for each percentage point of increase in annual availability beyond the targetavailability. {Incentive = Equity (Annual availability - Target availability)/ 100}.

For early repayment of dues Power Grid grant rebate to the utilities. Thus considering allwe believe PGCIL would earn a RoE of 14.5% on its equity investments in thetransmission assets. Thus we estimate that the company would achieve a RoE of14.6% by FY14E.

Year FY06 FY07 FY08E FY09E FY10E FY11E FY12E FY13E FY14ETransmission 261,085 326,518 393,592 457,664 531,273 603,079 663,849 738,337 819,660

Consultancy 622 600 606 612 619 625 631 637 644

RLDC/ULDC 16012 15483 15638 15795 15952 16112 16273 16436 16600

Telecom and Others 8324 8088 9706 11647 13976 16771 20126 24151 28981

Others 11763 16642 17782 22798 28483 33501 36731 40814 44849

Total Assets Employed 297805.9 367332 437324 508516 590303 670087 737610 820374 910733

Add: Liab and pro less Misc Assets 36,207 48,223 48,893 60,431 72,096 79,418 80,021 88,932 98,359

Balance Sheet Total 261,599 319,109 388,431 448,084 518,207 590,669 657,589 731,442 812,374

Segment Assets Composition of Power Grid (Rs. Mn)

Source: Power Grid and Reliance Money Research

We believe in the current financial yearthe company will focus more on addingthe transmission assets.

PGCIL is permitted to charge 14%return on equity for its transmissionservices after considering interestexpenses, depreciation, and advanceagainst depreciation, operation andmaintenance expenditure.

2nd June 2008


ConcernsFurther slow down in capex addition will drive down our valuation and estimates.

The transmission tariff structure will go for review after FY09. So any change in theregulation would definitely affect our earning estimates and hence the valuation.

Du Pont AnalysisThe EBIT margin of the PGCIL would improve largely due to improved growth in theTelecom business and maintenance of efficiency in the transmission operation. Fastercommissioning of the ongoing projects by FY10E will lead to rise in RoCE to 8%.

Year FY06 FY07 FY08E FY09E FY10E FY11E FY12E FY13E FY14ERegulated Equity Estimated 79201 85660 109922 137642 163992 191378 217449 243728 270744Total Pass through cost estimated 18,500 22,564 26,585 34,718 41,431 48,931 56,486 63,463 70,243RoE Return @ 14.5% from FY09E 12,672 13,706 15,389 19,958 23,779 27,750 31,530 35,340 39,258Average Transmission Revenue 31,172 36,269 41,975 54,676 65,210 76,681 88,016 98,803 109,501PAT 10089.3 12293.7 14200.0 15811.1 18115.0 21141.7 24854.8 28204.2 31303.5Net Worth 100,020 109,649 137,886 146,311 155,562 166,855 180,876 196,770 214,777RoE 10.1% 11.2% 10.3% 10.8% 11.6% 12.7% 13.7% 14.3% 14.6%

Estimation of Transmission Revenue and Company wide RoE (Rs. Mn)


RoE movement of PGCIL (Rs. Mn)


Year FY07 FY08E FY09E FY10ESales 35899 43687 56480 67474Net Profit 12386 14200 15811 18115Networth 109649 137886 146311 155562NpM 35% 33% 28% 27%Sales per NW 0.3 0.3 0.4 0.4RoE 11.3% 10.3% 10.8% 11.6%

RoCE movement of PGCIL (Rs. Mn)

Year FY07 FY08E FY09E FY10ESales 35899 43687 56480 67474EBIT 21289 25633 33675 40121Net Current Assets -14725 1298 -5014 -13249Net Fixed Assets 312565 367062 433559 512532EBIT Margin 59% 59% 60% 59%Assets Turnover 0.12 0.12 0.13 0.14RoCE 7% 7% 8% 8%


Business Segment of PGCILTransmission Services

Scheduling and Despatching Services

Cunsultancy Services

Open Access Service

Telecom Services

Overall ViewOur prespective for GrowthCompletely Regulated so during the investment phase the regulated return willgreately offset by the cost associated with the non commissioned projects

Will remain a non profit making activity, thanks to regulation

Enjoy Limited Competitiveness with respect to the other players involved in projectcunsultancy business in the power industry

Sharing of revenue for reducing the long term Transmission tariff greatly offsetthe available opurtunity

Provides good oppurtunity to use the existing bandwidth and backbone for varioustelecom application, but being a public sector, the sanction process for this businesmay be slower, as this activity strictly differs from the flagship activity.

Growth prespective of different segments of PGCIL



2nd June 2008

55


RF 7Beta 1.16RM 13Cost of Equity 14.0Terminal Growth 5%

DCF Assumptions and Value

Valuation:We have used a FCFE based DCF valuation approach to value Power Grid. Ourrecommendation has incorporated 14.5% RoE return on our estimated regulated Equityof the company with leverage on new investment at 60%. We have assumed 73% of thetotal planned investment of the company will be implemented during the current planperiod and rest would be spill over to the next five year plan.


Year FY09E FY10E FY11E FY12E FY13E FY14ENet Profit 15,811.1 18,115.0 21,141.7 24,854.8 28,204.2 31,303.5

Depreciation 13,902.6 16,537.7 19,276.2 21,883.4 24,511.2 27,212.8

Capital Expenditure (79,604.1) (94,754.5) (94,244.8) (79,462.1) (86,949.3) (94,281.5)

Investment in Working Cap 10,177.4 12,333.3 8,569.0 3,227.7 12,638.2 13,925.2

Increase in Debt 48,240.0 57,306.4 56,977.9 48,086.7 52,558.6 56,938.4

FCFE 8,527.0 9,537.8 11,719.9 18,590.5 30,962.8 35,098.4

Discounted FCFE 7,482.5 7,344.2 7,918.9 11,022.5 16,109.4 16,024.1

Discounted Terminal Value 187,782.0

Total DCF Equity Value of Core operation 253,683.5

Treasury Investments 15,918.3

Current Cash Balance 27,253.4

Value Per Share 70.5

One year Forward Value 80.4

DCF of core business of Power Grid (Rs. Mn)

Sensitivity of DCF Value of PGCIL on RoE and LNI (€)

Source: Reliance Money research / LNI: Leverage on new investment

0

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14 15 16 17 18

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F V

alue

of o

f PG

CIL

(Rs.

)

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Source: Reliance Money Research /* Terminal Growth, ̂ Cost of Equity

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Val

ue o

f PG

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TG @ 1% TG @ 2% TG @ 3% TG @ 4% TG @ 5%

Sensitivity of DCF value to CoE^ and TG*

2nd June 2008


Valuation Sensitivity Analysis for New projects and financingPower Grid gets regulated return for its implemented transmission assets. But it doesnot get any returns on its investments in Capital Work in Progress and Construction andstores. However the company takes additional leverage to finance these investments.Therefore the composition of these assets in the balance sheet has got a considerablebearing on the financials of the company. We have employed a sensitivity analysis forvaluing PGCIL for the new investment, additional leverage for the new investment andasset composition for future. Nevertheless, putting everything same we have assumedthe above asset composition for the future investment and arrived at the target price ofRs 93.

DCF Value Sensitivity with LNI (€) and % of NICP (^)

Source: Reliance Money Research(€) Leverage on New Investments (ALNI)(^) New Investment in Commissioned projects

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Lev erage on N ew Inv estments (LN I)

DC

F Va

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GC

IL

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Power Grid gets regulated return for itsimplemented transmission assets.

Valuation summery of Power Grid


Valuation Mode Value Weight Weighted ValueValue through EV/EBITDA 102 60% 61.0DCF Value based on Assumptions 80 40% 32.2Target Price 93


Comparable Price (Rs.) 71 100 102 115 120EV/EBITDA on FY10E 10.7 12.9 13.0 14.0 14.4

Valuation of PGCIL based EV/EBITDA multiple


2nd June 2008

57

DCF value sensitivity with % of New investment in CWIP and that in CS


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2nd June 2008




Y/E March FY07 FY08E FY09E FY10EEquity Cap 38,262.2 42,088.4 42,088.4 42,088.4Reserves 71,386.6 95,797.9 104,222.5 113,473.6Networth 109,648.8 137,886.3 146,310.9 155,562.0Total Debt 193,255.0 232,045.0 280,285.0 337,591.4Net Deff Tax Lia 4,193.3 4,193.3 4,193.3 4,193.3Total Liability 319,108.8 388,430.9 448,084.4 518,206.7Net Block 312,564.6 367,061.7 433,559.1 512,532.0Investments 19,670.0 18,332.7 17,536.8 16,780.7CA Loans/Adv 35,097.2 51,929.5 57,419.8 60,990.1Inventory 1,841.3 1,927.0 1,934.9 2,052.0Debtors 4,904.8 4,805.6 6,212.8 7,422.1Cash & Bank 11,968.2 27,253.4 28,393.9 29,067.9Loans & Advances 14,912.6 16,333.2 19,004.4 20,433.4CL & Provisions 48,351.6 49,021.6 60,559.9 72,224.8Current Liabilities 40,017.9 40,144.7 50,361.5 60,025.9Provisions 8,333.7 8,876.9 10,198.3 12,198.9NCA (13,254.4) 2,907.9 (3,140.1) (11,234.6)Mis exp 128.6 128.6 128.6 128.6Total Assets 319,108.8 388,430.9 448,084.4 518,206.7

Y/E March FY07 FY08E FY09E FY10EOPM(%) 82.4 81.9 84.2 84.0

NPM(%) 31.9 30.2 26.8 25.9

ROE(%) 11.3 10.3 10.8 11.6

ROCE(%) 10.8 9.3 9.5 9.6

Int cover(X) 2.9 3.7 3.0 3.0

Debt/Equity(X) 1.76 1.68 1.92 2.17

Gross FA turnover (x) 0.12 0.12 0.12 0.12

Debtors Days 49.9 40.2 40.2 40.2

Valuation Ratios (x)

P/E 33 29 26 23

P/CF per share 20.1 17.0 14.0 12.0

EV/EBDITA 20.2 17.3 14.0 12.8

EV/Sales 16.6 14.2 11.8 10.7

Mkt cap/Sales 10.5 9.5 7.3 6.1

CEPS(Rs) 4.9 5.8 7.1 8.2

P/BV 3.4 3.0 2.8 2.7


PPBT 14,820.0 18,503.6 19,763.8 22,643.7

Depreciation 8,227.1 10,152.9 13,902.6 16,537.7

Interest 9,671.8 10,442.0 16,535.4 19,916.2

Others (469.4) - - -

Operating CF 32,249.5 39,098.5 50,201.9 59,097.6

Change in WC 12,451.2 1,417.5 10,177.4 12,333.3

Gross Operating CF 44,700.7 40,516.0 60,379.3 71,430.9

Direct taxes paid (1,245.4) (4,303.6) (3,952.8) (4,528.7)

Net operating CF 43,455.3 36,212.4 56,426.5 66,902.1

Investing CF (67,357.6) (63,312.7) (79,604.1) (94,754.5)

Free Cash Flow (23,902.3) (27,100.3) (23,177.6) (27,852.3)

Financing CF 29,980.0 42,385.6 24,318.1 28,526.3

Net Change 6,077.7 15,285.3 1,140.5 674.0

Opening Cash 5,890.5 11,968.2 27,253.4 28,393.9

Closing Cash 11,968.2 27,253.5 28,393.9 29,067.9



Net sales 35,898.5 43,686.9 56,479.7 67,474.0% Growth 14.1 21.7 29.3 19.5EBIDTA 29,564.5 35,785.4 47,577.7 56,658.5% growth 16.7 21.0 33.0 19.1Other Income 2,979.4 3,313.1 2,624.2 2,439.0Depreciation 8,275.8 10,152.9 13,902.6 16,537.7Interest 11,404.2 10,442.0 16,535.4 19,916.2EBIT 24,268.1 28,945.6 36,299.2 42,559.9EBIT margin 62.4 61.6 61.4 60.9PBT 12,874.8 18,503.6 19,763.8 22,643.7% Growth 16.9 43.7 6.8 14.6Tax provision 2,526.3 4,303.6 3,952.8 4,528.7PAT 10,348.4 14,200.0 15,811.1 18,115.0% growth 10.0 37.2 11.3 14.6EO items 2,038.0 - - -Adj PAT 12,386.5 14,200.0 15,811.1 18,115.0Dividend (%) 9.6 12.0 15.0 18.0EPS (Rs) 2.9 3.4 3.8 4.3BVPS (Rs) 28.7 32.8 34.8 37.0


2nd June 2008

59

PTC India RECOMMENDATION : REDUCE



Source: Capitaline

BSE

PTC



BSE Code 532524NSE Code PTCReuters Code PTCI.BOBloomberg Code PTCIN INMarket Cap (Rs Mn) 20115.2Free Float (%) 78.952-wk Hi/Lo (Rs) 202/56Avg weekly Vol (BSE) 333898Avg weekly Vol (NSE) 650453Shares o/s (mn) FV Rs 10 227.4

Stock details


Growth % 21 4 40 23

EBITDA 324.8 208.1 299.6 370.0

EBITDA margin % 0.9 0.5 0.5 0.6

Net Profit 350.9 486.7 454.2 455.9

EPS (Rs) 1.5 2.1 2.0 2.0

CEPS (Rs) 2.4 3.3 3.1 3.1

EV/EBITDA 60.4 45.0 30.5 24.0

EV/Sales 0.5 0.2 0.2 0.1

ROE % 13.2 3.3 3.0 2.9

ROCE % 19.1 4.2 4.1 4.1

P/E (x) 57.3 41.3 44.3 44.1

P/CEPS (x) 36.5 26.6 28.4 28.3


Price: Rs.88 Target Price: Rs. 82

We initiate coverage on PTC India Limited with a REDUCE rating. We believe the

leadership of PTC in short term power trading would continue. With a strong

parentage and a first mover advantage in power trading in India we believe that

PTC has a bright future ahead considering the fact that Power Trading market

in India is still a evolving market. We have valued PTC based on the sum of parts

valuation method, wherein we recommend a REDUCE Rating with a one year

price target of Rs 82. At our target price the stock would trade, respectively at

1.19x and 1.17x to our FY09E and FY10E BVPS.

Key Positives

Power Trading Business : PTC’s Leadership to continueWe believe with the additional generation capacity the volume of generated power

would grow at a CAGR of 6%. PTC is expected to maintain its market share at 50%

till FY14E. However by having good volume of Long term PPAs and PSAs in hand

and with already booked transmission corridors the company would increase its

long term power in its trading portfolio. We believe the ratio of long term to Short

term power would become 70:30 by the year FY14E.

Fuel Intermediation Segment : A large potential businessopportunityRecently PTC has entered into a long term contract for coal of 1.5 million ton per

annum with an Indonesian company for 20 years. We expect the envisaged 400

MW of tooling capacity would get commissioned by FY12E and the fuel supply

from the SPV, formed for mining, would start by FY11E. Thus the company will get

an opportunity for trading of this coal to the prospective coal users in the country by

FY11E. We have incorporated 8% rise in volume of coal and 8% increase in trading

margin after FY11E, in our estimates.

PFS: The investment Routers for long term valueDuring FY08 the company raised Rs 12 bn through a follow on public offer. The

main objectives of the issue were, to deploy the raised resources in various power

and mining assets in the country and abroad and to augment the working capital

need of the stand alone entity. We believe that the company would gradually spend

the cash resources over a period of three years, which would yield a return up to

30% in FY13E and further this return would grow at 6% beyond FY13E.

Valuation : Reduce with one year price target at Rs. 82Applying DCF on the core trading business of PTC and adding the cash in books

we value PTC at Rs. 82 with a one year time horizon.

Promoters21%


36%


24%

Public & Others19%

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PTC India FinancialServices Ltd (60%)

Athena EnergyVentures Private Ltd

(Associate)( 20%)

PTC

Company BackgroundPTC India Ltd is the leading power trader in India with a diversified role of a CompleteEnergy Solutions Provider. It is a Government of India initiated Public-Private Partnership,whose primary focus is to develop a commercially vibrant power market in the country.PTC is the pioneer in developing and implementing the concept of power trading in Indiaand has successfully demonstrated its efficacy in optimally utilizing the existinginfrastructure within the country to the benefit of all.

Since its inception in 1999, PTC has sought to provide holistic services that address thesustainability of a power market model, including intermediation for long-term supply ofpower from identified domestic and cross-border power projects, financial services likeproviding equity support to projects in the energy value chain, advisory services andforay into providing fuel linkages to power plants of various utilities / generatorsparticipating in the power market.

PTC India Ltd is the leading powertrader in India with a diversified role ofa Complete Energy Solutions Provider.



2nd June 2008

61

Assumption for the Tooling Project in AP


Capacity 400Units Generated in MU 2628Per Units Coal Required 0.4Per Units Coal Required in Ton 0.0004Total Coal Required in Ton 1.1

Investment Drivers

Power Trading Business – PTC’s Leadership to continuePTC has initialed/signed approx 10500 MW of PPAs and subsequently about 6500 MWof PSA/MOU for sale of power. The PPAs and the PSAs include 1400 MW of powercontracted with Bhutan from the three hydro projects viz Tala, Chukha & Kurichu. DuringFY 09, PTC expects about 500-600 MW of long term power (from IPPs, apart from CrossBorder) to come in to total portfolio. The volume of the short term traded power constitutesaround 2% of the total generated power in the country. PTC, due to its past associationwith power utilities holds 50% of the total market share in this total traded power.

We believe with the additional generation capacity the volume of generated power wouldgrow at a CAGR of 6%. PTC will try maintaining its market share at 50% till FY14E.However by having good volume of Long term PPAs and PSAs in hand and with alreadybooked transmission corridors the company would increase its long term power portfolio.We believe the ratio of long term to Short term power would become 70:30 by the yearFY14E and the current cap on the short term trading margin will remain capped at 40paise per unit. The company will enjoy 50 paise margin for the long term power tillFY14E.


Fuel Intermediation Segment : A large potential business opportunityRecently PTC has entered into a long term contract for coal of 1.5 million ton per annumwith an Indonesian company for 20 years. Out of this around 1.2 million ton would beused for its tooling project in Andhra Pradesh. The mining will be done through an SPV(Special Purpose Vehicle) formed by the company. This SPV will deal with the minedcoal.

The Tooling contract will last for 25 years. Under this the company will provide fuel to thepower generator in return will take the full ownership of the generated power by payingthe necessary capacity charges to the power generators. So far the proper MoU has notbeen signed for the tooling projects. The company maintains that this will be decidedsoon. We have therefore, not considered the impact of this in our estimates. Howeverwe have considered the increased fuel intermediation activity in our estimate beyondFY11E.

We expect the envisaged 400 MW of tooling capacity would get commissioned by FY12Eand the fuel supply from the SPV would start by FY11E. Thus the company will get anopportunity for trading of this coal to the prospective coal users in the country by FY11E.We have incorporated 8% rise in volume of coal and 8% increase in trading margin afterFY11E, in our estimates.

Tentative commissioning schedule of capacities where PTC has long term PPAs

Projects in (MW) Hydro Thermal Gas TotalTotal FY 08-09 90 300 100 490Total FY 09-10 170 300 0 470Total FY 10-11 0 3731.5 0 3732Total FY 11-12 2654 1580 0 4234

PTC has initialed/signed approx 10500MW of PPAs and subsequently about6500 MW of PSA/MOU for sale of power.

PTC has entered into a long termcontract for coal of 1.5 million ton perannum with an Indonesian companyfor 20 years..

2nd June 2008


PFS: The investment Routers for long term valueDuring FY08 the company raised Rs 12 bn through a follow on public offer. The mainobjectives of the issue were, to deploy the raised resources in various power andmining assets in the country and abroad and to augment the working capital need of thestand alone entity. To route the investment properly the company has floated a financesubsidiary PTC Financial Services. This subsidiary has so far invested in various powerassets in the country.

Recently this subsidiary has raised resources on its own to augment its asset base.Thus the holding in the subsidiary has come down. The management wants to retainnot less than 26% stake in PFS in the long run. We believe this will raise the long termholding value for the company.

PFS has so far invested in variouspower assets in the country.

Prospective Business linkages of PTC

PowerPowerPowerPowerPowerMarMarMarMarMarkkkkketetetetet

PTC

(PowerGeneration

fromWind Mill

Plants)

MoU for Tradingthe Out Put

MoU for owningthe entire out putfor trading after

paying the capacityand capital cost.

MoU for AvailingSurplus power for

trading in shortand long term

MoU for AvailingSurplus power for

trading in shortand long term

Wind Mill andOther RenewablePower Projects

ToolingProjects

Captive PowerProducers

IndependentPower Producers

PTC FinancialServices,(Financial

Intermediation)

Sale of Fuelto PTC

SPV for Fuel(Fuel Intermediation)

Investment inMarket MakingActivities andVentures(e.g

Investment in IEX)

Trading ofPower

NewSubsidiary

(To sellpower)

Equity Interest Business Intermediation



2nd June 2008

63

Q4FY08 Performance (Rs. Mn)

Rs Mn Q4FY08 Q4FY07 Grth (%) FY08 FY07 Grth (%)Net Sales 5,466.0 6,024.8 (9.3) 39,061.5 37,666.6 3.7Other Income 193.5 29.2 562.7 428.7 190.6 124.9Total Income 5,659.5 6,054.0 (6.5) 39,490.2 37,857.2 4.3Total Expenditure 5,438.3 5,972.1 (8.9) 38,856.3 37,348.3 4.0EBITDA 27.7 52.7 (47.4) 205.2 318.3 (35.5)EBITDA (%) 0.5 0.9 (42.1) 0.5 0.8 (37.8)Interest 1.3 2.3 (43.5) 16.5 19.6 (15.8)Depreciation 7.4 8.5 (12.9) 29.5 32.9 (10.3)PBT 212.5 71.1 198.9 587.9 456.4 28.8Provision for tax 22.8 15.0 52.0 102.3 106.3 (3.8)PAT 189.7 56.1 238.1 485.6 350.1 38.7Extraordinary Items 2.4 1.9 26.3 1.4 0.8 75.0Adj PAT 192.1 58.0 231.2 487.0 350.9 38.8Equity Capital 2,274.2 2,274.2 - 2,274.2 2,274.2 -EPS (Rs) 0.8 0.3 2.1 1.5


Q4FY08 performance of PTC showed a decrease in net sales by 9.3% YoY to Rs.5466mn mainly due to the fell in volume of unit traded. The volumes during the quartershowed a dip of 15.4%, decreasing to 1223 MUs as against 1445 MUs. The operatingmargin declined by 40 basis points to 0.5% on a YoY basis and as a result the EBITDAalso slump by 47.4% to Rs. 27.7 mn from Rs. 52.7 mn as compared to the correspondingquarter last year. The other income recorded a growth of 562.7% to Rs 193.5 mn, mainlydriven by interest income on surplus cash from QIP issue. As a result the PAT for theQ4FY08 recorded a growth of 231% YoY to Rs. 192 mn.

For the FY08, the topline of PTC Ltd increased by 3.7% to Rs. 39061.5 mn. The tradedvolumes during this period showed a growth of 3.6% YoY increasing to 9889 MUs asagainst 9549 MUs. The PAT had shown a growth of 39% YoY to Rs. 487 mn from Rs.350.9 mn.

Q4FY08 performance of PTC showeda decrease in net sales by 9.3% YoY toRs.5466 mn mainly due to the fell involume of unit traded.

Technological development andavailability of better online exchangeled platform may lead the generatorsand utilities to set up their ownpower trading arms. This in turn leadto lesser intermediation opportunityfor the company

Strengths

Opportunity

Weakness

Threats


SWOT profile

Focused business approach andgood understanding of the Powersector dynamics of the country

Strict regulation of the trading margin

Intermediation in several valuechains of the power Sector

2nd June 2008


Du Pont AnalysisRegulatory cap on the trading margin coupled with slow traction in the long term tradingportfolio will lead to a thinner 0.5% at EBITDA level of PTC. The asset turnover willimprove due to marginal capex required for the trading business of the company. Thusthe RoCE will go up to 3% from the expected 2% during FY08E.

Year FY07 FY08E FY09E FY10ESales 37667 39062 54629 66989EBIT 292 179 264 329Net Current Assets 358 10671 10959 11248Net Fixed Assets 175 169 162 155EBIT Margin 0.8% 0.5% 0.5% 0.5%Assets Turnover 70.7 3.60 4.91 5.88RoCE 55% 2% 2% 3%


Movement of RoCE of PTC (Stand Alone) (Rs. Mn)

Trading margin/unit would improve from 3.8 paisa to 4.7 paisa by FY14EFrom the following price data it is inferred that on an average basis the price of tradedpower has risen by 40% during FY07 over FY06. During the same period PTC haswitnessed 29% rise in its price of the traded power. We have factored in a 10% rise intraded power price by PTC in our estimates.

Sale Price (Rs) FY06 FY07Vol (MU) % of Total Vol (MU) % of Total

0.00 -1.00 0.0 0.0 252.2 1.71.00 -2.00 0.0 0.0 0.02.00 -3.00 5103.3 36.0 1387.7 9.23.00 -4.00 8437.1 59.5 1781.0 11.94.00 -5.00 647.9 4.6 7203.3 47.95.00 -6.00 0.0 0.0 3936.8 26.26.00 -7.00 0.0 0.0 461.7 3.1Total 14188.3 100.0 15022.8 100.0


Price Movement of Traded Power

On an average basis the price of tradedpower has risen by 40% during FY07over FY06.

Regulatory cap on the trading margincoupled with slow traction in the longterm trading portfolio will lead to athinner 0.5% at EBITDA level of PTC.

Revenue Model of PTC Stand Alone (Rs. Mn)

Segment FY06 FY07 FY08E FY09E FY10ESales of Electricity 30379 36914 40266 56658 69633% of growth 22 9 41 23Sales of Imported Coal 179 135 146 162 180% of growth (25) 8 11 11Surcharge and rebate 527 617 666 919 1115in Power Trading% of growth 17 8 38 21Total Sales 31086 37667 41077 57739 70928% of growth 21 9 41 23


Financials and ProjectionsBased on the assumptions made above we estimate following revenue stream for thePTC Stand Alone till FY10E.


2nd June 2008

65

ValuationWe have used the DCF valuation method to value the PTC. We have valued the coretrading business of the company at Rs 16.8, with a terminal growth of 5%. Further wehave valued the investments of the company at their respective book values. Themanagement along with its new equity partners is looking for suitable businessintermediation opportunities in the power sector in the country.

Therefore the Rs 10 bn of cash that is currently in the books of the company should geta higher value as compared to its book value. However, from a conservative point of viewwe have valued the current cash balance of the company at its book value. In this way wevalue the present value of the cash balance of the company at Rs 45 per share. Alongwith the treasury investments we value the company at 82 per share.

Core Business Value of Trading Business 19.1

Cash Balance per Share 45.1

Book Value of Investment Per share 18

Value of Share 82Source: Reliance Money Research

Valuation Summery of PTC

RF 8%

RM 14%

Beta 1.02

CoE 0.14

Terminal Growth Rate 5%


DCF Assumptions

DCF Value Sansitivity to CoE^ and TG*

Source: Reliance Money Research* Terminal Growth, ̂ Cost of Equity

DCF of core trading business of PTC (Rs. Mn)


Year FY09 FY10 FY11 FY12 FY13 FY14 EBIT without Other Income 286.7 356.8 408.6 480.1 570.5 685.4 EBIT(1-Tax Rate) 215.0 267.6 306.5 360.1 427.9 514.0 Depreciation 12.9 13.2 13.5 13.9 14.2 14.5 Inv in Working Capital (77.6) (32.6) (9.1) 3.5 25.8 64.1 Investment in Fixed Assets (29.1) (34.3) (40.1) (47.7) (57.7) (71.0) FCFF 121.3 213.9 270.8 329.8 410.2 521.7 Discounted FCFF 106.3 164.2 182.2 194.5 211.9 236.2 Discounted Terminal Value 2,719.1 Total Value of the Firm 3,814.4 Less: Debt - Core Business Value 3,814.4 Core Business Value per Share 16.8 One Year Forward Value 19.1

6 8

7 0

7 2

7 4

7 6

7 8

8 0

8 2

8 4

8 6

1 3 1 4 1 5 1 6 1 7

C o E

DC

F va

lue

of P

TC

1 2 3 4 5

Along with the treasury investments wevalue the company at 82 per share.

Year FY07 FY08E FY09E FY10ESales 37667 39062 54629 66989Net Profit 351 487 454 456Networth 2656 14967 15246 15526NpM 1% 1% 1% 1%Sales per NW 14.2 2.6 3.6 4.3RoE 13.2% 3.3% 3.0% 2.9%

Movement of RoE of PTC (Stand Alone) (Rs. Mn)


2nd June 2008





Equity Cap 1,500.0 2,274.2 2,274.2 2,274.2Reserves 1,155.7 12,692.9 12,971.6 13,252.0Networth 2,655.7 14,967.1 15,245.8 15,526.2Net Deff Tax Lia 9.4 9.4 9.4 9.4Total Liability 2,665.1 14,976.5 15,255.2 15,535.7Net Block 175.4 168.8 161.8 154.6Investments 2,111.2 4,111.2 4,111.2 4,111.2CA Loans/Adv 2,634.5 12,951.1 13,921.4 14,769.7Debtors 1,625.4 1,651.9 2,218.8 2,666.4Cash & Bank 481.8 10,759.3 10,967.4 11,222.4Loans & Advances 523.1 531.7 728.7 875.7CL & Provisions 2,272.9 2,271.5 2,956.1 3,516.8Current Liabilities 1,658.0 1,654.1 2,337.8 2,897.4Provisions 614.9 617.4 618.4 619.4NCA 361.6 10,679.6 10,965.2 11,252.9Mis exp 16.9 16.9 16.9 16.9Total Assets 2,665.1 14,976.5 15,255.2 15,535.7

Y/E March FY07 FY08E FY09E FY10EOPM(%) 0.9 0.5 0.5 0.6

NPM(%) 0.9 1.2 0.8 0.7

ROE(%) 13.2 3.3 3.0 2.9

ROCE(%) 19.1 4.2 4.1 4.1

Int cover(X) 26.5 38.6 27.8 23.0

Gross FA turnover (x) 160.3 162.1 221.1 264.7

Debtors Days 15.8 15.4 14.8 14.5

Creditors Days Days 16.5 15.9 16.0 16.2

Valuation Ratios (x)

P/E 57 41 44 44

P/CF per share 36.5 26.6 28.4 28.3

EV/EBDITA 60.4 45.0 30.5 24.0

EV/Sales 0.5 0.2 0.2 0.1

Mkt cap/Sales 0.4 0.5 0.4 0.3

CEPS(Rs) 2.4 3.3 3.1 3.1

P/BV 5.0 1.3 1.3 1.3

Y/E March FY07 FY08E FY09E FY10EPBT 457.2 591.0 605.7 607.9

Depreciation 13.0 12.6 12.9 13.2

Interest 19.6 16.5 23.1 28.3

Others (158.3) - - -

Operating CF 331.4 620.1 641.7 649.4

Change in WC (111.7) (41.4) (77.6) (32.6)

Gross Operating CF 219.7 578.7 564.1 616.8

Direct taxes paid (116.9) (103.2) (151.4) (152.0)

Other adjusment

Net operating CF 102.9 475.5 412.7 464.8

Investing CF (43.6) (2,022.5) (29.1) (34.3)

Free Cash Flow 59.3 (1,547.0) 383.6 430.5

Financing CF (171.0) 11,824.4 (175.5) (175.5)

Net Change (111.8) 10,277.4 208.1 255.0

Opening Cash 593.6 481.8 10,759.3 10,967.4

Closing Cash 481.8 10,759.3 10,967.4 11,222.4


Y/E March FY07 FY08E FY09E FY10ENet sales 37,666.6 39,061.5 54,628.5 66,989.0% Growth 21.2 3.7 39.9 22.6EBIDTA 324.8 208.1 299.6 370.0% growth -35.7 -35.9 44.0 23.5Other Income 192.9 428.7 342.0 279.4Depreciation 13.0 12.6 12.9 13.2Interest 19.6 16.5 23.1 28.3EBIT 504.8 624.2 628.7 636.2EBIT margin 1.3 1.6 1.1 0.9PBT 457.2 590.8 605.7 607.9% Growth -19.8 29.2 2.5 0.4Tax provision 105.3 103.2 151.4 152.0PAT 351.9 487.6 454.2 455.9% growth -13.3 38.6 -6.8 0.4EO items (1.0) (0.9) - -Adj PAT 350.9 486.7 454.2 455.9Dividend (%) 10.0 7.0 7.0 7.0EPS (Rs) 1.5 2.1 2.0 2.0BVPS (Rs) 17.7 65.8 67.0 68.3


2nd June 2008

67

DISCLAIMER: This document has been prepared by Reliance Money Limited, Mumbai and is to be used by the recipient and not to be circulated. Theinformation provided should not be reproduced, distributed or published, in whole or in part without prior permission from the company. The information and theopinions contained in the document have been compiled from source believed to be reliable. The company does not warrant its accuracy, completeness andcorrectness. This document is not and should not be construed as an offer to sell or solicitation to buy any securities.

Equities: Trading through Reliance Securities Limited | NSE SEBI Registration Number Capital Market :- INB 231234833 |BSE SEBI Registration Number Capital Market :- INB 011234839 | NSE SEBI Registration Number Derivatives :- INF 231234833

Commodities : Trading through Reliance Commodities Limited | MCX member code: 29030 | NCDEX member code: NCDEX-CO-05-00647|NMCE member code: CL0120 Mutual Funds : Reliance Securities Limited | AMFI ARN No.29889

Corporate Office:Reliance Money House, Plot No - 250 - A - 1, Baburao Pendharkar Marg,

Off Annie Besant Road, Behind Doordarshan Tower, Worli, Mumbai - 400025Tel.: 91-22-30443301, Fax No.: 30443306

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Power Transmission and Trading