potential leader of the pack – initiate at overweight …...february 25, 2010 adani power...

February 25, 2010

Adani Power Potential Leader of the Pack – Initiate at Overweight

We initiate coverage of Adani Power with an OW rating and price target of Rs136: We believe Adani Power is one of the best ways to play the growth in the Indian power industry given its rapid capacity build-out and our expectations of a healthy return profile from a strong mix of PPA and merchant capacity. We expect Adani Power to be the second-largest private power generating company in India in F2013, and one of the most profitable. The visibility on commissioning of Adani Power’s projects under construction is high relative to that of peers’ projects, in our view.

What’s in the price: We believe market concerns about the operational performance of Adani Power’s Chinese equipment and dependence on imported coal are overdone. The company’s first 330 MW unit has been performing well and has achieved a PLF of >90%, which is better than the industry average. Also, we estimate the proportion of coal Adani Power sources domestically will exceed that sourced overseas after F2012. The company has coal supply agreements and letters of assurance in place, so the fuel supply risk is low, in our view. The stock is trading at 5.6x F2012 P/E, on our estimates, below the valuations of peers.

What’s next: We expect the share price to react positively to the commissioning of plants under construction, any announcements regarding new projects, clarity on environmental clearances and equipment supply contracts for the Tiroda III and Kawai projects, and further domestic fuel supply agreements.

Where we could be wrong: Adani Power is a new entrant in the power business and has a limited operating history. Any inefficiency in managing the planned growth could lead to project delays and cancellations, hurting cash flows. Also, it depends on the Adani Group for coal sourcing, power trading, and related activities. The Indian power industry is vulnerable to any changes in regulations, which might delay projects or affect the viability of future projects.

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Morgan Stanley India Company Private Limited+

Parag Gupta [email protected] +91 22 2209 7915

Saumya Srivastav [email protected] +91 22 2209 7084

M O R G A N S T A N L E Y R E S E A R C H A S I A / P A C I F I C

Stock Rating Overweight

Industry View In-Line Key Ratios and Statistics

Reuters: ADAN.BO Bloomberg: ADANI IN India Utilities

Price target Rs136.00Upside to price target (%) 28Shr price, close (Feb 23, 2010) Rs105.85Sh out, dil, curr (mn) 2,180Mkt cap, curr (mn) US$4,989EV, curr (mn) US$5,963Avg daily trading value (mn)§ US$5.3mn§ = 3 months average traded value

Fiscal Year ending 03/09 03/10e 03/11e 03/12e

ModelWare EPS (Rs) (0.01) 0.79 4.92 18.86Revenue, net (Rs mn) 0 4,628 31,816 97,839EBITDA (Rs mn) (28) 2,556 19,582 70,402ModelWare net inc (Rs mn) (26) 1,641 10,718 41,122P/E NM 133.3 21.5 5.6P/BV 8.1 4.0 3.3 2.1EV/EBITDA NM 129.1 21.8 6.9Return on avg eqty (%)** (0.1) 4.0 16.8 45.8Div yld (%) - - - -Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare framework (please see explanation later in this note). ** = Based on consensus methodology e = Morgan Stanley Research estimates

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M O R G A N S T A N L E Y R E S E A R C H

February 25, 2010 Adani Power

Financial Summary Profit and loss statement Balance SheetRs Mn (Year-end March 31) F2009 F2010e F2011e F2012e F2013e Rs Mn (Year-end March 31) F2009 F2010e F2011e F2012e F2013eRevenue - 4,628 31,816 97,839 143,414 LiabilitiesLong Term Revenue - 2,947 20,472 23,274 60,647 Share Capital 18,420 21,800 21,800 21,800 21,800 Merchant Revenue - 1,681 11,343 74,566 82,766 Share Premium - 30,554 30,554 30,554 30,554

Reserves and Others 4,420 6,061 16,779 57,901 100,915 Expenses 28 2,072 12,234 27,437 48,457 Miscellaneous Expenditure (97) - - - - Coal Charges - 1,895 10,947 24,356 42,466 Shareholders funds 22,743 58,415 69,133 110,255 153,269 O&M Expenses - 177 1,287 3,081 5,991 Total Debt 49,897 112,292 207,781 283,299 300,230 Rebate - - - - - General expenses 28 - - - - Minority Interest 703 3,815 5,155 8,786 14,239

Total Liabilities 73,343 174,523 282,069 402,341 467,738 EBITDA (28) 2,556 19,582 70,402 94,957

AssetsDepreciation - 307 2,279 6,524 13,317 Gross Block 3,472 21,750 79,806 230,273 291,016 EBIT (28) 2,249 17,302 63,879 81,640 Acc Dep 104 411 2,690 9,214 22,531

Net Block 3,368 21,339 77,116 221,059 268,485 Interest on Principal Loan - 532 4,527 12,579 23,795 Interest on Working Capital - 6 256 799 1,921 CWIP 65,845 136,036 186,257 136,370 116,247 Other Income - 336 494 777 1,538

Investments 0 0 0 0 0 PBT (28) 2,046 13,013 51,278 57,462

Cash and bank 5,585 16,790 16,124 35,687 66,863 Income Tax Payable - 405 2,295 8,847 10,027

Tax rate (%) 0.0% 19.8% 17.6% 17.3% 17.4% Working Capital (1,456) 357 2,572 9,224 16,142 PAT (28) 1,641 10,718 42,432 47,435 Total assets 73,343 174,523 282,069 402,341 467,738

Check - - - - - Minority Interest (2) - - 1,309 4,422 Check - - - - -

Ratio AnalysisPAT after Minority Interest (26) 1,641 10,718 41,122 43,014 (Year-end March) F2009 F2010e F2011e F2012e F2013e

Growth (%)EPS (Rs) -0.01 0.79 4.92 18.86 19.73 Revenues NM NM 587% 208% 47%DPS (Rs) - - - - - EBITDA NM NM 666% 260% 35%Check - - - - - EBIT NM NM 669% 269% 28%Cash flow statement Net Profit NM NM 553% 284% 5%Rs Mn (Year-end March 31) F2009 F2010e F2011e F2012e F2013e EPS NM NM 519% 284% 5%PAT (28) 1,641 10,718 42,432 47,435 Margins (%)Depreciation - 307 2,279 6,524 13,317 EBITDA NA 55% 62% 72% 66%Change in working capital (1,142) (1,813) (2,215) (6,653) (6,918) EBIT NA 49% 54% 65% 57%Cash flow from operating activities (1,170) 135 10,782 42,302 53,834 EBT NA 44% 41% 52% 40%

Net Profit NA 35% 34% 42% 30%Capex (44,709) (88,470) (108,276) (100,580) (40,620) Return (%)Investments 532 - - - - ROE NM 4% 17% 46% 33%Cash flow from investing activities (44,176) (88,470) (108,276) (100,580) (40,620) ROCE NM 1% 5% 12% 10%

ROA NM 1% 5% 12% 10%Equity issuance 10,988 33,935 - - - GearingDebt proceeds/repayment 39,785 62,395 95,489 75,518 16,931 Debt/Equity 2.19 1.92 3.01 2.57 1.96 Minority Interest 705 3,112 1,340 2,322 1,031 Net Debt/Equity 1.95 1.63 2.77 2.25 1.52 Miscellaneous (2,468) 97 - - - ValuationsCash flow from financing activities 49,011 99,539 96,828 77,840 17,962 EV/EBITDA NM 127.6 21.6 6.8 4.9

P/E NM 133.3 21.5 5.6 5.4 Change in cash 3,665 11,205 (666) 19,563 31,176 P/BV 8.6 4.0 3.3 2.1 1.5 Opening Cash 1,921 5,585 16,790 16,124 35,687 Dividend Yield (%) 0% 0% 0% 0% 0%

Closing Cash 5,585 16,790 16,124 35,687 66,863

e= Morgan Stanley Research Estimates; Source: Company data, Morgan Stanley Research

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Risk-Reward Snapshot: Adani Power (ADANI.BO, Rs105.85, OW, PT Rs136) Risk-Reward View: Strong Earnings Potential to Drive the Stock

WARNINGDONOTEDIT_RRS4RL~ADAN.BO~

Rs.136.00 (+28%)

Rs. 105.85

Rs.92 (-13%)

Rs.188 (+78%)

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Price Target (Feb-11) Historical Stock Performance Current Stock Price

Price target Rs136 Probability weighted: 70% base case, 20% bull case, and 10% bear case.

Bull Case Rs188

Implies 3.1x bull-case F12E BV

Tax exemptions, higher capacity, and higher merchant tariffs:The 4,620 MW Mundra plants are exempt from tax, as they are in an SEZ. This scenario values the 2,640 MW Dahej plant and 1,320 MW of the Chhindwara plant, and assumes 10% higher spot tariff.

Base Case Rs128

Implies 2.5x base-case F12E BV

Capacity of 9,240 MW by F2014: Healthy mix of PPA and short-term sales. Generation business valued at Rs120/share. 15.4% COE and 2% terminal growth. Cash at end-F2010 at Rs8/share.

Bear Case Rs92

Implies 2.7x bear-case F12E BV

Only PPA rates and higher coal cost: Adani Power sells electricity at PPA rates even if it commissions plants ahead of schedule. Domestic coal costs are 10% higher than in base case.

Bear to Bull

all values in Rs

92128

18821 3 3 9 4 8

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Investment Thesis

• Poised to be one of India’s largest private sector power generators.

• Advanced progress on power portfolio and rapid near-term addition of capacity increase earnings visibility.

• Healthy mix of PPA and merchant (spot market) power sales as well as a considerable spread between tariffs and cost of generation can boost IRR for the power portfolio.

• Strong vertical integration of the Adani group (with presence in coal trading, coal mining, power trading, and shipping) is likely to provide synergies to the power business.

• Government impetus to improve private sector participation in the industry.

• Regulatory regime improving in India.

Key Value Drivers

• Capacity and commissioning timelines.

• PPA sales and merchant tariffs. • Coal costs. • Tax exemptions.

Potential Catalysts

• Equipment ordering for the Kawai, Tiroda III, Dahej, and Chhindwara projects.

• Securing of financing for the Tiroda III and Kawai projects.

• Possible resolution on allocation of coal mines for the Tiroda power plant.

Key Risks

• Lower coal supply than that committed to by suppliers.

• Lower calorific value coal from Adani Enterprises Limited (AEL).

• Commissioning delays. • Changes in Indian/Indonesian

regulations.

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Contents Financial Summary ......................................................................................................................................................... 2 Risk-Reward Snapshot ................................................................................................................................................... 3 Investment Case.............................................................................................................................................................. 5

Investment Themes 6 Investment Positives 7 Investment Concerns 8 Key Debates 9 Sensitivity to Key Variables 10 Valuations 11 Scenario Analysis 12 India Utilities – Valuation Comparison; Adani Power at Lower P/E 16 Global Valuation Comparison 17 What to Look Out For 18 Holding Structure 19 Key Topics of Discussion 20

Rapid Capacity Build-Out 21 Bulk of Requirements in Place 22 Activities at Mundra Site Moving at a Steady Pace 23 Construction Activities Underway at Tiroda I and II 24 Coal Agreements Provide Fuel Security 25

Details on Indonesian Coal Operations 26 Fuel Risks 28 High Visibility on Off-take 29 Merchant Capacity to Boost Earnings 30 Vertical Integration of the Adani Group to Lend Operational Synergy 31 Ordering Equipment Primarily from Chinese Vendors 32 We Do Not Expect Funding to Be a Constraint 33 Financial Statements 34 Company Background 38 Project Details 41 Planned Projects 44 Industry Overview 45

Glossary ......................................................................................................................................................................... 52

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Investment Case

We expect Adani Power to be one of the most profitable utility companies in India in F2012.

Market concerns about equipment performance, reliance on fuel imports, and restrictions on Chinese workers are already in the price, in our view.

We think key potential catalysts for the stock include near-term commissioning of units, the announcement of additional capacity, evidence of strong operational performance, and increasing investor awareness of the company.

Potential leader of India’s power industry profitability: After rapid, extensive capacity roll out, we expect Adani Power to be one of the most profitable private power generating companies in India in terms of earnings and ROE in F2012. It is set to benefit from a healthy mix of merchant and PPA sales. High merchant rates are likely to persist in F2011-12, in our view, because of the power supply deficit in India.

Market worries overdone: We think market concerns about the operational performance of Chinese-bought equipment and Adani Power’s reliance on coal imports from Indonesia have been weighing on the stock price. However, the above-average performance of the first power unit and progress on sourcing domestic fuel could allay these concerns. Of note, Chinese manufacturers guarantee significantly shorter commissioning timelines than peers do. Possible delays because of visa restrictions on Chinese workers have also been a subject of investor concern. Although we expect short-term delays, we expect the company to hire and train more local talent. The delay in the commissioning of Mundra I and II to June 2010 is already in the share price, in our view.

Various potential stock catalysts: Since the IPO in August 2009, the stock has underperformed the Sensex by about 2%. However, its performance has been more resilient than that of some other recently listed power stocks in India. We believe key catalysts for the stock price could include the following:

• Commissioning of units under construction, especially the Mundra I, II, and III plants.

• Progress made on new capacity, eg equipment ordering for the Dahej and Chhindwara plants.

• Evidence of strong operational performance variables such as PLF, merchant tariffs, and coal costs, which could drive profit.

• Increased visibility in the investor community because of additional analyst coverage.

Exhibit 1 Second Largest Private Sector Player in F2013e

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Planned capacity (MW)

Current Capacity (MW)

e = Morgan Stanley Research estimates for Adani Power, Reliance Power, Lanco Infratech, GMR Power, JPVL, and GVK Power; company estimates for the remaining companies. JPVL = Jaiprakash Power Ventures Ltd. Source: Company data, Morgan Stanley Research. Exhibit 2 More Resilient Stock than Other Recent Power IPOs

Company NameDate of listing

IPO Price (Rs/share)

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(Rs/share)

Relative Performance Since Listing

Adani Power 20-Aug-09 100 106 -2%Indiabulls Power 03-Nov-09 45 30 -17%NHPC 01-Sep-09 36 32 -17%JSW Energy 04-Jan-10 100 105 12%

Source: Factset, Morgan Stanley Research. Performance as of February 23, 2010

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February 25, 2010Adani Power Ltd

Investment Themes

Advanced Stage of Readiness

The company has achieved financial closure for 6,600 MW, environmental clearance for 3,960 MW, and awarded EPC and BTG contracts for 6,600 MW of capacity. For the Tiroda III and Kawai capacity aggregating 2,640 MW, the company has sufficient land and has invited bids for EPC contracts.

Rapid Capacity Build-Out

Adani Power commissioned 330 MW capacity of the Mundra I and II projects in October 2009. The company will have 660 MW of capacity by F2010, 1,980 MW by F2011, 5,280 MW by F2012, 6,600 MW by F2013, and 9,240 MW by F2014, according to the scheduled commissioning.

Healthy Return Profile

Near-term commissioning of projects, a healthy mix of PPA and merchant capacity, and considerable spread between tariffs and the cost of generation because of controls on fuel costs will boost IRR for the portfolio, in our view. We estimate an IRR of over 30%.

Vertically Integrated

The Adani Group trades coal and has coal mining rights internationally and in India. It is also involved in power trading and shipping. Group company Mundra Port and SEZ Limited owns and operates one of the largest private sector commercial ports in India. The vertical integration provides synergies to the power business.

Adani Power

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Investment Positives

Advanced stages of implementation lend greater visibility: The company has achieved the following key milestones:

• Financial closure for 6,600 MW (71% of planned capacity)

• Environmental clearance for 3,960 MW (43% of planned capacity)

• EPC and BTG contracts awarded for 6,600 MW (71% of planned capacity)

Fuel security: Adani Power has entered into coal supply agreements with AEL for the Mundra I, II, and III projects (2,640 MW) for a period of 15 years. The coal agreement specifies a CIF price of US$36/ton (for an average GCV of 5,200 Kcal/kg) with a 10% escalation every five years. For the Mundra IV project (1,980 MW), the company has a provisional coal linkage from Mahanadi Coalfields with any remaining requirements to be met by AEL. For the Tiroda I and II projects (1,980 MW), the company has received provisional letters from South Eastern Coalfields and Western Coalfields for 4.7mtpa of coal linkage.

Off-take signed for 64% of capacity: Adani Power has signed PPAs for 4,744 MW with various state government entities at tariffs ranging between Rs2.35/unit and Rs3.47/unit (of this the company is currently in discussion with GUVNL regarding the off-take agreement for 1,000 MW from Mundra III at a levelized tariff of Rs 2.35/unit). The company has signed a letter of intent with RRVPNL for 1,200 MW at a tariff of Rs3.24/unit from the Kawai plant and hopes to sign a letter of intent soon with MSEDCL for 1,200 MW from Tiroda III. For the remaining capacity of 1,569 MW (net of auxiliary consumption), we believe the company will sell power on a merchant basis as per the current industry practice.

Group presence in the entire value chain to benefit Adani Power: AEL, the promoter of Adani Power, is the flagship company of the AdaniGroup. We believe the vertical integration of the Adani Group will lend synergies to the operations of Adani Power.

Revenue and earnings CAGRs of 214% and 197% in F2010-13, we estimate: We believe the return profile of Adani Power’s power portfolio will be superior to that of peers because of:

• Near-term visibility on commissioning timelines and rapid expansion

• Healthy mix of PPA and merchant capacity

• Considerable spread between tariff and cost of generation because of control on coal costs

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Investment ConcernsExecution delays could affect cash flows: Adani Power has six power projects under development with a total installed capacity of 9,240 MW, which the company expects to commission by F2014. We see the following risks:

• Financing risk – Adani Power still needs to finalize financing for the Tiroda III and Kawai projects (total debt requirement of Rs108bn).Although it has received underwriting commitments in principle from a domestic bank, any delay in obtaining the funding could delay construction. Further, any increase in project cost may need to be financed through alternative means.

• Execution risk – Other than dependence on the construction contractor, projects also depend on the timely supply and operational efficiency of equipment. Any delay in construction or in the supply of equipment could delay cash flows from projects. Any variation from guaranteed heat rate or auxiliary consumption of equipment could reduce output and increase costs. Also, the absence of a track record in power generation increases risk, in our view.

• Primary exposure to two states – Of the 9,240 MW, 4,620 MW (50%) will be in Gujarat and 3,300 MW (36%) in Maharashtra. The balance of 1,320 MW (14%) will be in Rajasthan. Although this is a positive for manpower and management focus, it also exposes the company to changes in regulation, political intervention, labor issues, and other state-specific risks that could hinder execution and make the projects less viable.

Fuel risk: Although the company has agreements for coal with AEL, subsidiaries of Coal India Limited, and through captive coal mines, we see the following risks:• Any deviation in the calorific value could change the annual requirement of coal.• The provisional agreements with the subsidiaries of Coal India Limited are conditional on the company achieving certain milestones over 24

months and signing fuel supply agreements.• Coal from AEL is only for 15 years from the date of commissioning of the units. The life of power plants is about 25 years, so there could be a

substantial increase in coal costs beyond the 15th year of operation. Also, any issues with respect to obtaining exploitation licenses, changes in regulations in Indonesia, from where the company sources a significant amount of coal, or in the calorific value of coal could hamper regular coal supplies.

• The Lohara captive coal blocks allotted to the company for the Tiroda I and II projects are subject to litigation. Also, the company is still awaiting environmental clearance for these blocks. It has applied for a tapering linkage and alternative captive blocks. Any delays on account of these factors could delay the project commissioning.

Earnings depend on effective cost management and merchant rates: The tariffs for 5,944 MW of capacity are fixed for 25 years, so any significant increase in costs could affect earnings. Also, 1,569 MW (net of auxiliary consumption) of capacity exposed to the merchant market is vulnerable to volatility in the spot market and off-take risk.

Related-party transactions: The company depends on the Adani Group for coal sourcing, power trading, shipping, and other services. Any transfer pricing issues could expose the company to legal and regulatory risks.

Industry risk: The Indian power industry is vulnerable to changes in regulations, which might either delay projects or affect the viability of future projects. Some state electricity boards have accumulated large losses, increasing the level of risk in the industry, in our view.

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Key Debates

Source: Morgan Stanley Research

Debate Market View Our ViewHow will restrictions on Chinese workers imposed by the Indian government affect the commissioning of units?

The market believes the non-availability of Chinese workers will delay the commissioning of units.

Although we think the visa restriction will result in delays in the short term, we think the company could resolve the issue by adjusting its labor sourcing. The restriction has been imposed on semi-skilled and unskilled work, which Indian labourers are able to undertake. Adani Power has already started to engage Indian labourers. The commissioning of Mundra I and II has been delayed from February 2010 to June 2010 and we believe the current share price already reflects the delay.Where we could be wrong: 1) Further project delays are possible if labor sourcing adjustments take longer than expected; and 2) Indian labourers may not be sufficiently skilled to do the work their Chinese counterparts have been doing.Impact: We believe an additional 3-6 month delay in the commissioning of projects could adversely impact our fair value by Rs 3/share.

How would a change in merchant prices impact Adani Power's financial performance?

The impact is likely to be negative. With capacity increasing, short-term rates may decline more quickly than expected. About 17% of Adani Power's capacity under construction will be exposed to the short-term market.

Although we concede that exposure to the spot market is likely to increase volatility, we believe returns will be attractive. The short-term market in India is represented by bilateral contracts, unscheduled interchange, and power exchanges. Transactions in the bilateral and unscheduled interchange markets constitute about 91% of sales. Bilateral contractual rates have been in excess of Rs4/unit and we expect them to remain healthy (at a premium to PPA rates) in the longer term given the power deficit. In our estimates we build in spot rates of Rs5/unit in F2011-12, Rs4/unit in F2013-18, and Rs3.8/unit thereafter.Where we could be wrong: A significant decline in spot rates because of lower demand or higher capacity could affect cash flows and valuations.

Impact: We estimate a 10% change in merchant tariffs would affect profits by 15% in F2013. Our bull- and bear-case scenario values also show the impact on fair value because of a change in merchant rate assumptions. Also, if we assume that electricity generated before the PPA start date is sold at PPA rates then we estimate the effect on fair value would be Rs21/share.

Is the agreement with AEL to supply Indonesian coal at US$36/ton CIF at risk of non-fulfillment?

The price appears to be low and hence the agreement is at risk of non-fulfillment by AEL. The price could also be revised because of changes in Indonesian regulations.

We think AEL will be able to honor the coal supply agreement with Adani Power. We estimate the stipulated selling price of coal by the Indonesian regulatory authorities is US$17-19/ton (including royalty and other taxes), leaving a healthy net margin for AEL even after transportation costs. Where we could be wrong: Any increases in mining costs or changes in Indonesian regulations could result in delays in the delivery of coal or increases in raw material costs for Adani Power.Impact: We estimate a 10% increase in imported coal cost would lower profitability by 3.7% in F2013.

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Sensitivity to Key Variables

• Adani Power's EBITDA and PAT are sensitive to merchant tariffs as we assume capacity such as MundraIII and IV and Tiroda I and II will be commissioned ahead of the PPA date and hence the company would sell power from these plants in the merchant market.

• We believe EBITDA and PAT are more sensitive to a change in imported coal prices than to a change in domestic coal prices. This is largely because Mundra I, II, and III will derive 70% of their fuel requirements from imported coal, according to the company’s plans.

• A change in operating and maintenance costs does not have a material impact on EBITDA and PAT, in our estimate.

• An increase in capex mainly increases depreciation and interest expense. Hence, while there would be no impact on EBITDA, the impact on PAT would be quite significant and particularly heavy in F2011 and F2013 because of more operational capacity coming on line.

• A change in interest rates impacts PAT. We assume an interest rate of 11.5% for all project debt, which is the

case for other plants being set up in India.

Sensitivity EBITDA PAT

10% change in merchant tariff

F2011e 5.8% 8.8%F2012e 10.7% 14.8%F2013e 8.8% 15.2%

10% change in domestic coal cost

F2011e 0.2% 0.2%F2012e 1.7% 2.4%F2013e 2.7% 4.7%

10% change in imported coal cost

F2011e 5.5% 8.3%F2012e 1.9% 2.8%F2013e 1.9% 3.7%

10% change in O&M cost

F2011e 0.7% 1.0%F2012e 0.4% 0.7%F2013e 0.6% 1.2%

10% change in capex

F2011e - 6.3%F2012e - 2.6%F2013e - 5.0%

1 ppt change in interest rate

F2011e - 3.1%F2012e - 2.2%F2013e - 3.8%

e = Morgan Stanley Research Estimates. Source: Company data, Morgan Stanley Research

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Valuations• We use an FCFe model to determine the

scenario values. In our view, the FCFe model is a good measure of the intrinsic value of the company’s generation business, as it takes into account long-term free cash flows after factoring in capex phasing, debt build-up/repayment, and working capital requirements.

• Our assumption for cost of equity is 15.4% and terminal growth rate is 2%.

• Our price target of Rs136 is probability weighted – 70% for the base case, 20% for the bull case, and 10% for the bear case.

• We assign a higher probability to the bull case (relative to the bear case) because:

• For Dahej and Chhindwara projects, the company has achieved several key milestones in relation to securing land, water and off-take (for example, 50% of the power from Chhindwara is to be supplied to MPSEB).

• The Mundra projects may be 100% exempt from tax for 10 of the first 15 years of operation because of the company’s status as a co-developer of an SEZ.

• Merchant tariffs could be higher than our base-case estimates, in line with current rates that are above Rs5.5/unit

• We assign a lower probability to the bear case only to factor in a potential risk if electricity generated ahead of PPA start dates cannot be sold in the merchant market. We believe the probability is low because, according to a PPA, a generating company is bound to supply electricity at PPA determined tariffs only from the PPA start date.

Bear Case Base Case Bull Case

Same as Base Case We assume a PLF of 85% for all plants in the longer term

We assume a PLF of 90% for all plants in the longer term

We assume the Company sells electricity under the PPA even if it is commissioned

ahead of the PPA start date

We assume the Company sells electricity in the merchant market for the period ahead

of the PPA start date

Same as Base Case

Same as Base Case We assume 4,200 GCV coal from AEL is supplied at US$ 36/t CIF

We assume pricing of coal from AEL is adjusted for lower GCV - hence CIF value is

US$ 29/t CIF

Same as Base Case We assume the Mundra plants pay tax at the MAT rate for 10 years out of the first 15 years and are then subject to the statutory

tax rate

We assume the Mundra plants enjoy complete tax exemption for 10 years out of

the first 15 years since they are co-developers of a SEZ. They pay statutory tax

rate thereafterWe assume merchant tariff of Rs 4.5/unit

for F2011 and F2012 and Rs 3.8/unit thereafter

We assume merchant tariff of Rs 5/unit for F2011 and F2012, Rs 4/unit between F2013-18 and Rs 3.8/unit thereafter

We assume merchant tariffs are 10% higher than our Base Case assumptions

We assume a 3 to 6 month delay in the execution of projects (except Mundra I & II)

from our Base Case estimates

We assume project implementation as per our estimates

Same as Base Case

Same as Base Case We value 9,240 MW of capacity comprising of Mundra I to IV, Tiroda I to III and Kawai

We include 2,640 MW from the Dahej plant and 1,320 MW from the Chhindwara plant

We assume a 10% higher coal cost on domestic linkages

We assume a levelized coal cost of Rs1.14/unit

Same as Base Case

Same as Base Case We do not assume any upside from CER sales

We assume CER sales of 1.84 mn units pa @ Euro 8.23/unit - pertaining to Mundra III

Bear Case Fair Value: Rs 92/sh Base Case Fair Value: Rs 128/sh Bull Case Fair Value: Rs 188/sh

12





Scenario AnalysisBase Case:

• We assume a long-term PLF in line with that at which power plants have consistently operated in India.

• We model in coal costs in line with agreements or notified prices from Coal India Limited, and our estimates for the merchant power market.

• We factor in cost of debt 25bp lower than the prime lending rate of most Indian banks, as is the case for other power plants being set up in India.

Bull Case:

• This scenario factors in the value of the Dahej and Chhindwara projects, given the milestones reached so far on these projects.

• It assumes a lower imported coal price from AEL because of an adjustment to the price because of lower calorific value.

• It factors in 100% tax exemption for the Mundra plants for 10 years, as this is subject to interpretation of tax laws.

• In this scenario, merchant tariffs are higher than in the base case, driven up further because of the prevalent power deficit. Also, rates in the bilateral market over the past few months have been above Rs5.5/unit, supporting the assumption here.

Bear Case:

• This scenario assumes plants commissioned ahead of the PPA start date sell electricity in the merchant market because of changes in the regulatory environment, given that various government entities determine the regulations in the Indian electricity market.

• It factors in a delay in the commissioning of power plants, which are capital intensive projects with large capex and long gestation period. Accordingly, the industry dynamics mean there is a possibility of delay in commissioning of plants because of fuel, equipment or financing issues.

13





Valuations – Base Case – FCFe

FCFe - Rs mn F2011e F2012e F2013e F2014e F2015e F2016e F2017e F2018e F2019e F2020e F2021e F2022e F2023e F2024e F2025e F2026eMundra I and II 4435 8247 7562 7666 7387 7660 7959 8310 8367 5418 5601 9546 9169 9252 4902 4489Mundra III -770 15313 3982 3119 3422 3186 3454 3747 3779 4036 2652 2842 6861 7122 7006 6378Mundra IV -28 2004 14371 10888 10846 11107 11031 11240 9577 9578 9795 7061 14269 14067 13877 13362Tiroda -4595 -697 8734 8660 8699 9027 9350 9770 9803 10118 10532 8249 11249 14031 13180 12959Tiroda Expansion 783 -2935 -2935 -171 3660 6087 6313 6548 6768 7017 7283 7562 7854 6977 9398 9529Kawai -825 -3465 -4158 271 4275 5153 5393 5642 5864 6131 6416 6713 7026 8204 9814 9901Total -1001 18468 27556 30433 38289 42220 43499 45256 44158 42298 42280 41973 56429 59652 58177 56618

Years 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0Discounting factor 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1Discounted FCFe -1001 16010 20710 19829 21628 20674 18466 16655 14089 11699 10138 8725 10169 9320 7880 6648

Sum of forecast horizon (Rs mn) - F2011e-F2026e 211639Terminal Value (Rs mn) 50793Total Equity Value (Rs mn) 262433Value per share (Power Business) - a 120Cash balance (F2010e) - Rs mn 16790Cash per share - F2010e - b 8Total value/share (a+b) 128

Source: Morgan Stanley Research; e= Morgan Stanley Research estimates

(Year-end March) F2010e F2011e F2012e F2013eValuations

EV/EBITDA 146.6 24.0 7.5 5.4 P/E 161.3 26.1 6.9 6.6 P/BV 4.8 4.0 2.5 1.8

Valuations at base case

COE and terminal growth rate assumptionsBeta 1.1Risk free rate 7.75%Expected risk premium 6.00%Private project risk premium 1.00%Cost of equity 15.4%Terminal growth rate 2.0%

14





Valuations – Bull Case – FCFe

FCFe - Rs mn F2011e F2012e F2013e F2014e F2015e F2016e F2017e F2018e F2019e F2020e F2021e F2022e F2023e F2024e F2025e F2026eMundra I and II 7921 12940 11901 12038 11788 12135 12503 12937 12955 11493 7408 11358 10988 11076 5563 5067Mundra III 190 23923 7506 6464 6821 6601 6925 7270 7242 7544 4261 4448 8461 8715 8592 3005Mundra IV -28 5928 22222 17076 16986 17309 17216 17478 15246 15280 15551 9097 16288 16090 15911 11762Tiroda -4595 -227 11056 10632 10472 10789 11100 11514 11478 11771 12179 9553 12572 15357 14457 14222Tiroda Expansion 783 -2935 -2935 -12 4014 6549 6772 7005 7219 7466 7732 8011 8304 7337 9760 9893Kawai -2911 -3465 -4158 -347 4624 5609 5839 6080 6288 6548 6826 7118 7426 8518 10127 10213Total 1359 36165 45592 45850 54706 58992 60355 62283 60429 60101 53957 49586 64038 67093 64409 54161

Years 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0Discounting factor 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1Discounted FCFe 1359 31352 34265 29874 30900 28887 25622 22922 19280 16624 12938 10308 11541 10482 8724 6360

Sum of forecast horizon (Rs mn) - F2010e-F2026e 301436Terminal Value (Rs mn) 48590Total Equity Value (Rs mn) 350026Value per share (Power Business) - a 161Value per share for Dahej plant - b 14Value per share for Chhindwara plant - c 5Value per share for CER from Mundra III plant - d 1Cash balance (F2010e) - Rs mn 14794Cash per share - F2010e - e 7Total value/share (a+b+c+d+e) 188

Valuations at bull case (Year-end March) F2010e F2011e F2012e F2013eValuations

EV/EBITDA 190.4 29.5 9.1 7.0 P/E 236.6 26.8 6.9 6.7 P/BV 7.0 5.6 3.1 2.1



15





Valuations – Bear Case – FCFe

FCFe - Rs mn F2011e F2012e F2013e F2014e F2015e F2016e F2017e F2018e F2019e F2020e F2021e F2022e F2023e F2024e F2025e F2026eMundra I and II 2200 7158 7016 7152 6865 7126 7414 7754 8048 5179 5351 9285 8897 8968 4634 4212Mundra III -2684 -409 1187 2595 2887 2643 2899 3180 3457 3730 3413 2580 6588 6836 6708 6070Mundra IV -28 -6993 -2406 7406 9368 9588 9472 9637 8366 8369 8537 6021 13188 12942 12706 12144Tiroda -4595 -3675 532 5057 7693 8005 8311 8714 9109 9504 9900 10299 10715 13481 12614 12376Tiroda Expansion 783 -2935 -2935 -1050 2243 5587 5802 6025 6257 6500 6754 7019 7298 5596 9007 9126Kawai -825 -3465 -4158 -2101 2602 4163 4378 4602 4836 5081 5337 5607 5890 5940 8968 9030Total -5150 -10319 -764 19058 31658 37113 38276 39912 40073 38362 39292 40811 52576 53762 54638 52957

Years 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0Discounting factor 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1Discounted FCFe -5150 -8946 -574 12417 17882 18173 16249 14688 12785 10611 9422 8484 9475 8399 7400 6218

Sum of forecast horizon (Rs mn) - F2010e-F2026e 137534Terminal Value (Rs mn) 47509Total Equity Value (Rs mn) 185043Value per share (Power Business) - a 85Cash balance (F2010e) - Rs mn 16181Cash per share - F2010e - b 7Total value/share (a+b) 92

Valuations at bear case (Year-end March) F2010e F2011e F2012e F2013eValuations

EV/EBITDA 172.1 30.5 21.9 9.6 P/E 212.1 32.3 20.3 12.4 P/BV 3.5 3.1 2.7 2.2



16





India Utilities – Valuation Comparison; Adani Power at Lower P/E

Note: Stock prices are as of February 23, 2010; Tata Power price is adjusted for its investment in Indonesian coal assets (Rs245/share) and investments in group companies (Rs161/share), we use the adjusted price to calculate EV/MW and Mkt cap/MW, for the other metrics, we use consolidated earnings and the current market price; Jindal Steel and Power is adjusted for steel business at Rs214/share; Exchange rate of INR/USD = 46.25

NA = Not Available, NM = Not Meaningful. Note that ROE calculation is based on year end book value, we use consolidated numbers for Reliance Infrastructure valuationsSource: Company data, Factset, Morgan Stanley Research. e= Morgan Stanley Research estimates, except for KSK Energy, Indiabulls Power, NHPC, and JSW Energy, for which numbers are Factset consensus averages.

Company NameMarket Price

Adjusted Price

Implied Mkt Cap (US$ mn) EV/MW - US$ mn Mkt Cap/MW - US$ mn EV/EBITDA (x)

(Rs/Share) (Rs/Share) F2010e F2011e F2012e F2013e F2010e F2011e F2012e F2013e F2010e F2011e F2012e F2013eReliance Power 139 139 7,199 15.79 11.20 8.37 5.08 12.00 6.00 3.33 1.50 955.23 60.62 48.60 44.51NTPC 202 202 35,945 1.31 1.22 1.04 0.97 1.12 1.02 0.85 0.78 15.08 12.24 10.61 9.82Lanco Infratech 47 47 2,429 3.13 2.11 1.52 1.63 1.63 0.94 0.64 0.64 13.16 7.41 5.70 6.42Tata Power 1,250 844 4,330 2.41 2.34 2.21 1.13 1.40 1.20 1.05 0.53 11.35 10.33 9.74 7.89KSK Energy Ventures 181 181 1,455 3.68 3.30 1.33 NA 2.65 1.69 0.55 0.32 38.67 13.76 12.37 NAReliance Infrastructure 975 975 4,768 NA NA NA NA NA NA NA NA 31.24 16.06 12.57 11.44Adani Power 106 106 4,990 10.69 4.61 1.96 1.52 7.17 2.52 0.95 0.76 127.64 21.57 6.79 4.89NHPC 32 32 8,498 2.05 1.67 1.63 1.14 1.60 1.31 1.27 0.90 14.50 13.51 11.12 9.03Jindal Steel and Power 617 403 8,116 7.05 4.46 4.43 2.42 6.39 3.90 3.45 1.71 11.08 9.69 8.72 8.33JSW Energy 105 105 3,716 NA NA NA NA 2.37 1.18 1.18 1.09 NA NA NA NA

Company NameMarket Price

Adjusted Price

Implied Mkt Cap (US$ mn) P/B (x) ROE (%) P/E (x)

(Rs/Share) (Rs/Share) F2010e F2011e F2012e F2013e F2010e F2011e F2012e F2013e F2010e F2011e F2012e F2013eReliance Power 139 139 7,199 2.46 2.39 2.29 2.33 0.1% 2.6% 4.3% NM 4,107.03 92.27 52.67 NMNTPC 202 202 35,945 2.65 2.40 2.16 1.97 14.6% 16.1% 16.8% 16.8% 18.11 14.93 12.89 11.71Lanco Infratech 47 47 2,429 3.20 2.31 1.74 1.38 20.1% 26.1% 25.8% 17.4% 15.88 8.84 6.74 7.95Tata Power 1,250 844 4,330 2.58 2.29 2.05 1.82 12.9% 13.3% 12.2% 13.2% 20.02 17.26 16.74 13.77KSK Energy Ventures 181 181 1,455 2.76 2.31 1.84 NA 5.4% 16.3% 19.2% 0.0% 50.86 14.19 9.57 NAReliance Infrastructure 975 975 4,768 1.24 1.16 1.07 1.01 5.0% 6.3% 7.5% 6.3% 24.95 18.60 14.24 15.95Adani Power 106 106 4,990 3.75 3.34 2.09 1.51 2.8% 15.5% 37.3% 28.1% 133.32 21.53 5.61 5.36NHPC 32 32 8,498 1.85 1.52 1.44 1.34 6.9% 6.4% 6.9% 9.4% 26.90 23.59 20.84 14.21Jindal Steel and Power 617 403 8,116 7.77 4.89 3.35 2.54 49.3% 37.0% 31.5% 24.3% 15.75 13.23 10.64 10.44JSW Energy 105 105 3,716 4.43 3.81 2.54 2.14 21.0% 17.2% 20.2% 22.4% 21.11 22.11 12.55 9.55

17





Global Valuation Comparison

Company NameMS Rating Currency

Stock Price

52 Week Range* PT

Mkt Cap (US$mn) F10e/C09e F11e/C10e F12e/C11e F10e/C09e F11e/C10e F12e/C11e F10e/C09e F11e/C10e F12e/C11e F10e/C09e F11e/C10e F12e/C11e

European CompaniesDrax EW GBp 411 391-560 430 2149 57.2 61.9 51.5 7.2 6.6 8.0 4.8 3.9 4.4 1.7 1.5 1.4EDF OW EUR 37 27-43 50 92134 2.4 2.6 3.2 17.7 14.4 11.8 9.1 7.8 7.1 2.8 2.5 2.3Endesa EW EUR 22 14-24 22 30856 2.4 1.8 1.8 9.9 12.1 12.1 6.2 6.5 6.8 1.6 1.4 1.3ENEL EW EUR 4 3-4 4 50114 0.5 0.4 0.4 8.8 9.4 10.8 6.8 6.8 7.0 1.2 1.1 1.0Iberdrola UW EUR 6 4-7 6 39790 0.5 0.5 0.5 13.3 12.7 12.5 9.2 8.4 8.5 1.3 1.1 1.1Scottish & Southern EW GBp 1126 1024-1206 1300 15710 108.9 113.5 127.4 10.3 9.9 8.8 8.9 8.6 NA 2.9 2.7 2.4

Average 11.2 x 10.9 x 10.7 x 7.5 x 7.0 x 6.7 x 1.9 x 1.7 x 1.6 x

Asia-Pacific CompaniesCheung Kong Infra. EW HKD 30 27-32 29 8727 1.9 2.0 2.0 15.7 14.9 14.8 14.2 14.2 14.1 1.8 1.7 1.6China Resources Power OW HKD 15 13-20 23 8347 1.0 1.3 1.6 15.3 11.7 9.4 10.7 9.0 7.5 1.9 1.7 1.5CLP Holdings EW HKD 54 51-58 55 16584 3.3 3.8 4.0 16.0 14.2 13.4 13.0 13.9 13.1 1.9 1.9 1.8Hongkong Electric EW HKD 44 41-50 45 12002 3.2 3.4 3.4 13.0 13.0 12.9 10.5 10.8 10.6 1.8 1.8 1.7Huadian Power Int'l OW HKD 2 2-3 3 1652 0.2 0.2 0.3 10.2 7.8 6.2 9.4 8.2 7.2 0.8 0.8 0.7Huaneng Power EW HKD 5 4-7 6 7175 0.5 0.4 0.5 8.6 9.4 8.7 9.0 9.2 8.2 1.1 1.1 1.1Korea Electric Power EW KRW 38000 22100-42250 35220 21708 -121.6 2852.5 2918.6 NM 13.3 13.0 9.1 7.9 7.6 0.5 0.6 0.6Yangtze Power EW CNY 13 13-16 15 17896 0.5 0.6 0.6 25.6 22.3 20.1 15.7 13.8 12.9 2.8 2.6 2.5Tokyo Electric Power OW JPY 2460 2085-2775 2800 36789 181.6 176.1 191.0 13.5 14.0 12.9 8.3 8.6 NA 1.3 1.2 1.1Tenaga Nasional Bhd EW MYR 8 6-9 9 10159 0.2 0.9 0.8 38.0 8.9 10.2 8.0 7.0 6.6 1.3 1.2 1.1


India CompaniesLANCO Infratech Ltd EW INR 47 11-61 44 2243 2.9 5.3 6.9 15.9 8.8 6.7 13.0 7.4 5.8 3.1 2.2 1.7NTPC EW INR 202 167-242 211 35941 11.1 13.5 15.6 18.1 14.9 12.9 15.1 12.3 10.6 2.6 2.4 2.2Reliance Infrastructure Limited OW INR 975 428-1404 1360 4768 34.4 50.6 52.5 28.4 19.3 18.6 26.2 16.6 15.6 1.6 1.5 1.4Tata Power Co EW INR 1250 602-1519 1348 6012 31.6 40.4 37.5 39.5 30.9 33.3 21.7 18.4 18.6 2.8 2.6 2.4Adani Power OW INR 106 NA 136 4989 0.8 4.9 18.9 133.3 21.5 5.6 129.1 21.8 6.9 4.0 3.3 2.1


EPS P/E EV/EBITDA P/B

Note: Data for Indian companies is for fiscal year ending March 31; Stock prices are as of February 23, 2010 for Indian and European companies and as of February 24, 2010 for Asia Pacific companiesNM= Not Meaningful, NA= Not Available, UW= Underweight, EW= Equal-weight, OW= OverweightSource: Morgan Stanley Research; e= Morgan Stanley Research estimates

18





What to Look Out For

Source: Company data, Morgan Stanley Research

2010

• Synchronization of three units of Mundra I and II – 330 MW in February, 330 MW by April, and 330 MW by June.

• Synchronization of first unit of Mundra III in December 2010/January 2011.

• Possible resolution on allocation of captive coal mines for Tiroda I and II (1,980 MW).

• Equipment tendering for Kawai (1,320 MW) and Tiroda III (1,320 MW).

• PPA for Kawai to be signed with Rajasthan Rajya Vidhyut Utpadan Nigam Limited. LoI has already been awarded.

• LoI for Tiroda III and PPA subsequent to that.

• Financial closure of the Tiroda III and the Kawai projects.

• Environment and forest clearance for Tiroda III and Kawai.

Based on the company’s progress so far, we see the following potential key developments in 2010:

19





Holding StructureProject Ownership• Adani Power is developing the Mundra power projects

while the Tiroda project is in a SPV – Adani Power Maharashtra Limited – in which Adani Power will eventually hold a 74% equity stake.

• The company has expanded the Tiroda project by another 1,320 MW. The planned capacity at Tiroda is 3,300 MW.

• The Dahej and Kawai projects are in separate SPVs fully owned by Adani Power. The Dahej project has been expanded to 2,640 MW while Kawai remains at 1,320 MW.

• The company was awarded a LoI in February 2010 for a 1,320 MW plant at Chhindwara in Madhya Pradesh.

• Adani Shipping (a 100% subsidiary of Adani Power) has two capesize ships on order. These vessels are due for delivery by December 2010 and will enable the transportation of 4mtpa of coal to the Mundra power plants.

Adani Power Limited

- Mundra I and II (1,320 MW) - Mundra III (1,320 MW)- Mundra IV (1,980 MW)

Adani Power Maharashtra Limited- Tiroda Power Project (3,300 MW)

Adani Power Dahej Limited- Dahej Power Project (2,640 MW)

Adani Power Rajasthan Limited- Kawai Power Project (1,320 MW)

74%

100.0%

100.0%

Adani Shipping- 2 capesize vessels with delivery by

December 2010100.0%

Chhindwara Power Project(1,320 MW)

100.0%


20





Key Topics of Discussion

21





0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

F2011e F2012e F2013e

Reliance Power Tata Power Adani Power Ibull Power KSK

Lanco JSW Energy Jindal Power GMR

24% 36%

8%

Rapid Capacity Build-Out

Source: Company Data, Morgan Stanley Research; e = Morgan Stanley Research estimates for Adani Power, Reliance Power, Lanco Infratech, GMR Power, JPVL, and GVK Power; company estimates for the remaining companies; JPVL = Jaiprakash Power Ventures Limited

• Among private generation companies in India, we expect AdaniPower to trail only Tata Power in terms of installed capacity inF2013. Tata Power had an existing base of 2,785 MW in F2009.

• We estimate Adani Power will contribute 32% of the incremental capacity added by the nine key private power generating companies in India in F2010-12.

• We think rapid, significant capacity additions will enable the company to take advantage of the current power deficit.

Name of Project FuelCapacity

(MW)

Comm Date - MS Estimates

Fiscal Year

Total Cost (Rs

mn)Mundra I and II - unit 1 330 Oct-09 F2010Mundra I and II - unit 2 330 Feb-10 F2010Mundra I and II - unit 3 330 Apr-10 F2011Mundra I and II - unit 4 330 Jun-10 F2011Mundra III - unit 1 660 Jan-11 F2011Mundra III - unit 2 660 Jun-11 F2012Mundra IV - unit 1 660 Aug-11 F2012Mundra IV - unit 2 660 Dec-11 F2012Mundra IV - unit 3 660 Apr-12 F2013Tiroda I - unit 1 660 Nov-11 F2012Tiroda I - unit 2 660 Mar-12 F2012Tiroda II - unit 1 660 Jun-12 F2013Tiroda III - unit 1 660 Oct-13 F2014Tiroda III - unit 2 660 Dec-13 F2014Kawai - unit 1 660 Jun-13 F2014Kawai - unit 2 660 Aug-13 F2014Total 9,240 419,090

Coal

Coal

43,500

57,960

Coal

Coal

89,600

92,630

Coal

Coal

66,100

69,300

Figures in brackets indicate % of total incremental capacity addition

Commissioning of 9,240 MW By December 2013e

Adani to Contribute a Significant Share of Incremental Capacity Addition

Adani Second Only to Tata in Terms of Capacity by F2013e

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Tata

Pow

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Adan

i Pow

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Rel

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ePo

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Indi

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ower

KSK

Ene

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Lanc

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JSW

Ene

rgy

Jind

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ower

GM

R P

ower

GVK

Pow

er

JPV

L

Planned capacity (MW)

Current Capacity (MW)

22





Bulk of Requirements in Place

: In Place: In Progress

X: Not yet in placeSource: Company data, Morgan Stanley Research

Project Name Mundra I & II Mundra III Mundra IV Tiroda I & II Tiroda III KawaiCapacity (MW) 1,320 1,320 1,980 1,980 1,320 1,320Ownership 100% 100% 100% 74% 74% 100%Location (State) Gujarat Gujarat Gujarat Maharashtra Maharashtra RajasthanFuel Type Coal Coal Coal Coal Coal CoalCost (Rs mn) 43,500 57,960 89,600 92,630 66,100 69,300Debt (Rs mn) 36,440 44,540 71,680 74,104 52,880 55,440Equity (Rs mn) 7,060 13,420 17,920 18,526 13,220 13,860Financial Closure company has received

approval in principle for 100% of debt requirement

company has received approval in principle for

100% of debt requirementOff-take Agreement 82% (1,000 MW) tied up 81% (1,000 MW) tied up 78% (1,424 MW) tied up 71% (1,320 MW) tied up Company expects to

receive a LoI from MSEDCL for 97% (1,200

MW) of total capacity

97% (1,200 MW) tied up

Fuel Supply , from AEL (company has also applied to the Ministry of Coal for a

domestic coal linkage to meet 30% of its total coal requirement). The SLC

has recently approved an allotment of 3.6 mtpa for

Mundra I, II and III projects

, from AEL (company has also applied to the Ministry of Coal for a

domestic coal linkage to meet 30% of its total coal requirement). The SLC

has recently approved an allotment of 3.6 mtpa for

Mundra I, II and III projects

, partly from AEL (30%); 70% linkage for which the company has received a

LoA for 6.4 mtpa

, company has a long-term linkage for 4.7 mtpa;

it has also applied for a tapering linkage and

requested the government to allot a new captive block

or re-allot the Lohara blocks after stripping out

the disputed portion

, applied for a coal linkage for 7-8 mt pa

, applied for a coal linkage for 5-6 mt pa

EPC , bids invited through International Competitive

Bidding process in September 2009

, bids invited through International Competitive

Bidding process in November 2009

Equipment , with the Chinese , with the Chinese , with the Chinese , with the Chinese Bids invited for EPC; winning bidder will in turn place equipment orders

Bids invited for EPC; winning bidder will in turn place equipment orders

TransmissionEnvironment Clearance

, received letter from MoEF to conduct

environmental impact study

, clearance received for 2x660 MW, approval

received for the balance of 1x660 MW to conduct environmental impact

study

, Environmental Impact Assessment (EIA) study

under progress

, EIA study under progress

WaterLand , partially allotted and

allocation in principle for the balance. Allotted land is sufficient for the main

plant

, partially allotted and allocation in principle for the balance. Allotted land is sufficient for the main

plant

23





Activities at Mundra Site Moving At a Steady Pace


Mundra I and II – Unit 1 – 330 MW

Chimney #2 – 220 metres

Mundra I and II – Unit 2 – 330 MW

Mundra I and II

Unit 3 & 4

660 MW


Mundra III – Unit 1 & 2

1320 MW


(Under construction)Mundra IV – Unit 1 & 2

1320 MW

Mundra IV – Unit 3660 MW

Chimney #1

Unit 1 Running at > 100% PLF Coal Unloaders at West Port (Mundra)

24





Construction Activities Underway at Tiroda I and II


Plant Overview Boiler Erection U 1 Boiler Erection U 2 and 3

Cooling Tower U 1 Cooling Tower U 2 Cooling Tower U 3

TG Foundation U 1 TG Foundation U 2 TG Foundation U 3

25





Coal Agreements Provide Fuel Security • Adani Power has an agreement with AEL to

source coal from Bunyu mines in East Kalimantan.

• The company aims to minimize transportation costs. An 8km conveyor belt is due to be commissioned at the Mundraport by October 2010 to carry coal to the Mundra plant.

• It is exploring more options in Australia, South Africa, and other countries for coal mines.

• Mundra I, II, and III were initially planned to run fully on Indonesian coal, but AdaniPower has applied for a domestic coal linkage to meet 30% of the requirements. The Standing Linkage Committee (SLC) has recently approved the allotment of 3.6 mtpaof coal.

• Adani Power had been allotted the LoharaWest and Lohara Extension coal blocks for Tiroda I and II, however, the Terms of Reference were withdrawn because the coal reserves are in a tiger reserve. Adani Power has applied for a tapering linkage and is requesting the government to either allot a new block or re-allot the Lohara mines after stripping out the portion that falls in the restricted zone.

Note: NA= Not Available, Source: Company Data, Morgan Stanley Research

Mundra I and II Mundra III Mundra IVCapacity (MW) 1320 1320 1980Heat rate (kCal/kWh) 2,250 2,115 2,115GCV (kCal/kg) 3800-4200 3800-4200 3800-4200Annual coal requirement @ 85% PLF (mtpa) - Mse 5.43 5.21 8.38Domestic/Imported Domestic and Imported Domestic and Imported Domestic and ImportedSource - Imported Bunyu, Indonesia Bunyu, Indonesia Bunyu, IndonesiaSource - Domestic Applied for coal linkage - SLC

has approved allotment of 3.6 mtpa of coal for Mundra I, II

and III projects

Applied for coal linkage - SLC has approved allotment of 3.6 mtpa of coal for Mundra I, II

and III projects

LoA received from Mahanadi Coalfields

Annual coal supply as per agreement 4.6 mtpa of imported coal from AEL @ a GCV of 5,200 Kcal

4.04 mtpa of imported coal from AEL @ a GCV of 5,200

Kcal

- 6.4 mtpa of Grade F coal from MCL

- 6.5 mtpa of imported coal from AEL @ a GCV of 5,200

KcalTenure 15 years 15 years 15 yearsRate/ton US$ 36/t (CIF) - Imported coal US$ 36/t (CIF) - Imported coal US$ 36/t (CIF) - Imported coal

Escalation 10% every 5 years 10% every 5 years 10% every 5 years

Tiroda I and II Tiroda III KawaiCapacity (MW) 1980 1320 1320Heat rate (kCal/kWh) 2,160 2,160 2,160GCV (kCal/kg) 4,250 4,100 4,100Annual coal requirement @ 85% PLF (mtpa) - Mse 7.49 5.18 5.18Domestic/Imported Domestic Domestic DomesticSource - Imported - - -Source - Domestic - LoA received from SECL and

WCL- Applied to SECL in Jan 2010

for tapering linkage- Pursuing allotment of new

captive block- Pursuing re-allotment of

Lohara blocks

Applied for coal linkage Applied for coal linkage

Annual coal supply as per agreement - 2.5 mtpa of Grade F coal from SECL

- 2.2 mtpa of Grade E coal from WCL

- -

Tenure NA NA NARate/ton At CIL notified prices At CIL notified prices At CIL notified pricesEscalation As decided by CIL As decided by CIL As decided by CIL

26





Details on Indonesian Coal Operations

• The mining rights for the Bunyu mines in Indonesia are

entirely held by AEL. AEL has surveyed about 54% of the

area, and, based on exploration records, has confirmed

140-150mt of coal reserves. AEL estimates probable

reserves at over 200mt.

• The concession agreement is for 30 years.

• There are over 800 mining-related employees.

• The mine produced 1mt in F2009 and 1.64mt between

April 2009 and January 2010. The company expects to

mine 3.0mt in F2010.

• With the addition of two miners, we believe the mining

capacity will increase by 8.5mtpa, taking annual output to

9.5mtpa by F2013.

• The strip ratio is currently 2.2:1 but the company expects it

to deteriorate to 3:1 over the next 4-5 years. Acess to 1,000 hectares in Central and Northern part of the Island

Access to 1,000 hectares in Northern and central part of

island

9.5

7.9

5.4

3.0

1.00.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

F2009 F2010e F2011e F2012e F2013e

In Mn Metric Tonnes

9.3x

Source: Company Data, Open Street Maps, Morgan Stanley Research; e = company estimates

Coal Production in Bunyu Set to Increase Rapidly

Location of Bunyu islands

Note: Coal production estimates are as per the company

27





Infrastructure Facilities In Place at Bunyu Mines


28





Fuel Risks• Fuel cost per unit may increase, resulting in

lower profitability. We estimate a negligible impact in fuel cost because of blending of Indian coal.

• Fuel supply for all plants will be a risk in the longer term, given the reduced reliability of coal from Coal India Limited and the fact that Adani Power will source 65-70% of its fuel requirement in F2013 from domestic linkages.

• The agreement with AEL is for 5,200 GCV @ US$36 CIF. We expect Adani Power to pay a lower price if the GCV is lower. We have built in a Rs0.15/unit increase in fuel cost because of lower calorific value while maintaining the landed cost at US$36/t.

• The Lohara mines for Tiroda I and II may not be available because of environmental issues and hence the company has applied for a tapering linkage and also sought the allocation of a new block. Any delays in fuel supplies may hinder plant performance.

1.00

1.14

+0.15+0.00

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Indonesia GCV = 5200 @US$ 36/ton (HR of 2250 forMundra I and II and of 2115

for Mundra III and IV)

Indonesia GCV = 4200 @US$ 36/ton

Blending with Indian coal(GCV = 3800 @ Rs

1500/ton)

Estimated fuel cost

(Rs/unit)

Source: Company Data, Morgan Stanley Research e = Morgan Stanley Research estimates

Domestic Coal Proportion to Increase

Impact on Fuel Cost Due to Coal Quality and Blending with Domestic Coal

0

5

10

15

20

25

30

35

40

F2010e F2011e F2012e F2013e F2014e F2015e

Domestic (mtpa)

Total Imported(mtpa)

29





High Visibility on Off-take • Of the 4,620 MW of capacity at Mundra, a long-term PPA for 3,424 MW has already been signed under the competitive bidding route (Case I

bidding). As per industry practice, we believe the remaining capacity will be sold in the short-term market.

• The company is currently in discussion with GUVNL regarding the off-take agreement for 1,000 MW from Mundra III at a levelized tariff of Rs2.35/unit.

• For the Tiroda I and II projects, the company has a PPA for 1,320 MW with MSEDCL, with the remaining capacity sold in the short-term market.

• For Kawai, RRVPNL has signed a LoI for 1,200 MW. The tariff under Case I is Rs3.24/unit.

• For Tiroda III, the company expects to receive an LoI from MSEDCL in 2010.

• We expect pricing to be at a premium in the short-term market because of the deficit in the country. We factor in Rs5/unit between F2011 and F2012, Rs4/unit from F2013-18, and Rs3.8/unit thereafter.

Note: NA = Not available. Source: Company Data, Morgan Stanley Research

Mundra I and II Mundra III Mundra IV Tiroda I and II Tiroda III KawaiCapacity (MW) 1320 1320 1980 1980 1320 1320PPA with GUVNL GUVNL UHBVNL and DHBVNL MSEDCL MSEDCL RRVPNLState Gujarat Gujarat Haryana Maharashtra Maharashtra RajasthanPPA (MW) 1000 1000 1424 1320 1200 1200PPA % 81% 81% 78% 71% 97% 97%Short term market (MW) 320 320 556 660 120 120Short term market % 19% 19% 22% 29% 3% 3%Tariff (Rs/kWh) Rs 2.81 in 1st year to

Rs 3.42 in 25th yearRs 2.35 Rs 2.35 to Rs 3.26 Rs 2.55 in 1st year to

Rs 3.47 in 25th yearNA Rs 3.24

Scheduled commercial operation date

Date of commercial operation of last of the

four units

Date of commercial operation of the second

unit

Date of commercial operation of the project

Date of commercial operation of the third

unit

NA NA

Tenure of PPA 25 years 25 years 25 years 25 years 25 years 25 years

Note: The company is currently in discussion with GUVNL regarding the off-take agreement for 1,000 MW from Mundra III at a levelized tariff of Rs 2.35/unit

30





Merchant Capacity to Boost Earnings

149

1,058 1,245

3,505

324

2,143

2,981

43

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

F2010e F2011e F2012e F2013e

Short Term (MW)PPA (MW)

2.3 2.42.0 2.0

2.3

0.9 0.81.0

1.3 1.20.9

2.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Mundra I & II Mundra III Mundra IV Tiroda I & II Tiroda III Kawai0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total cost (Rs/unit) Spread (Rs/unit) Equity IRR (RS)

3.13.1

3.43.3

3.2 3.1

• We believe the early commissioning of plants (ie, before the commencement of the PPA date) will allow the company to maximize earnings by selling power in the short-term market. We expect short-term capacity in F2012 to be significant, as we expect Mundra III and IV and Tiroda I and II to be commissioned ahead of the PPA start date. However, our base-case fair value would be lowered by Rs21/share if Adani Power were to sell all of the electricity it generates ahead of the PPA date at PPA rates.

• The spread between tariffs and cost of generation is likely to be healthy across plants because of merchant capacity. We estimate a spread of Rs0.80-1.30/unit.

• We estimate the average ROE for Mundra III is lower than for the others primarily because of a lower tariff. The tariff is Rs2.35/unit while that for the other Mundra plants is between Rs2.35 and Rs3.42/unit.

• Although the Tiroda III and Kawai projects will sell the entire output on a long-term PPA, we believe the bid tariffs are considerably higher than the cost of generation. We expect an IRR of 38% for Tiroda III and 26.7% for Kawai.

• The availability of transmission capacity is an important differentiator for the company. For example, the 500 KV HVDC line from Mundra to Haryana has a planned transmission capacity of 2,500 MW against the current requirement of 1,424 MW, leaving a large part of unused capacity for merchant sale in northern India.

Mix of PPA and Merchant Capacity (Proportionate to Period of Operation)

Levelized Spread of Rs0.80 to Rs1.3/unit Across Plants

Source: Company Data, Morgan Stanley Research; e = Morgan Stanley Research estimatesNote: The company is currently in discussion with GUVNL regarding the off-take agreement for 1,000 MW from Mundra III at a levelized tariff of Rs 2.35/unit.

31





Vertical Integration of the Adani Group To Lend Operational Synergy

Source: Company Data, Morgan Stanley Research

Adani Group

Coal Mining

Coal Trading

Shipping Power Generation

Power Trasnmission

Power Trading

- Exclusive mining - One of the largest - 2 capesize vessels - 9,240 MW under - Transmission lines - One of the largest power - Owners of Mundra Port contracts in Indonesia coal traders in India ordered - will be delivered development & an additional being constructed to traders in India - Mining blocks in India - The company imported by 2010 3,960 MW that is planned evacuate power from

18.67 MMT in F2009 owned power plants

Coal Mining Shipping Power Generation Power Transmission Power TradingCoal Trading Port

32





Ordering Equipment Primarily from Chinese Vendors

Mundra I and II Mundra III Mundra IV Tiroda I and IICapacity (MW) 1320 1320 1980 1980Equipment supply contract SCMEC - 2x330 MW

Kowa Company Ltd - 2x330 MW

SEPCO III Electric Power Construction

Corporation Shandong

SEPCO III Electric Power Construction

Corporation Shandong

SCMEC

Boiler Babcock & Wilcox Beijing Company Ltd

Harbin Boiler Company Ltd

Harbin Boiler Company Ltd

Shanghai Electric Group

Turbine Generator Beijing Beizhong Steam Generator

Dongfang Machinery Company Ltd

Dongfang Machinery Company Ltd

Shanghai Electric Group

Heat rate 2280 kcal/kWh 2115 kcal/kWh 2115 kcal/kWh 2160 kcal/kWhService contract - construction

Sichuan Fortune Project Management Ltd

Shandong Tiejun Electric Power Engg Co

Ltd

Shandong Tiejun Electric Power Engg Co

Ltd

Sichuan Fortune Project Management Ltd

• Adani Power has ordered equipment for the 6,600 MW capacity primarily from Chinese vendors.

• We believe the existing 330 MW unit of Mundra I and II has been performing well – the PLF increased to about 95% in December 2009 from 70% in September 2009 and the auxiliary consumption has improved to about 7-8% now from 9% during commissioning.

• The company benefits from early commissioning and below average capex because Chinese manufacturers guarantee significantly shorter commissioning timelines than their peers do.

• Although visa issues with respect to Chinese workers have affected commissioning timelines by a couple of months, the company has been training Indian workers to perform semi-skilled and unskilled work.

• Equipment has not yet been ordered for Tiroda III, Kawai, Dahej and Chhindwara.

SCMEC = Sichuan Machinery and Equipment Import and Export Company Limited


33





We Do Not Expect Funding to be a Constraint

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

F2010e F2011e F2012e F2013e5,000

15,000

25,000

35,000

45,000

55,000

65,000

Mundra I & II Mundra III Mundra IV Tiroda I and II

Tiroda III Kawai Total cash (RS)

Rs mn

Source: Company Data, Morgan Stanley Research; e = Morgan Stanley Research estimates

• We think Adani Power will be one of the few power generating companies that will not need any additional equity to fund capex in the near term. We believe the recent IPO proceeds and internal accruals will ensure a positive cash balance at least until F2013.

• A large part of the capex on the Mundra I, II, and III projects has already been incurred. We expect these projects to start generating meaningful cash flow and support capex.

• We expect a large part of the capex to be incurred in F2011-12. Also, as we expect 5,280 MW of capacity to be operational during F2012, the company’s cash balance is likely to increase substantially, unless construction on additional projects commences.

• Financing is in place for the Mundra I, II, III, IV, and Tiroda I and II projects. For Tiroda III and Kawai, the company has received underwriting commitments from SBI.

• The debt/equity mix is 80/20 for most of the plants.

Capex Phasing and Cash Balance

34





Financial Statements

35





Income Statement

Source: Company data, Morgan Stanley Research; e = Morgan Stanley Research estimates

Income Statement (Rs mn) F2009 F2010e F2011e F2012e F2013eProportionate Capacity (MW) 192 1,381 3,389 6,486 Year End Capacity (MW) 660 1,980 5,280 6,600 Proportionate PPA Capacity (MW) 149 1,058 1,245 3,505 Proportionate Merchant Capacity (MW) 43 324 2,143 2,981

Total No of Salable Units (Mn Kwh) 1,374 9,715 23,542 45,040 Total PPA tied up (Mn Kwh) 1,068 7,446 8,629 24,348 Total Merchant (Mn Kwh) 306 2,269 14,913 20,692 Tariff (Rs/unit) 3.37 3.28 4.16 3.18 Fuel cost - coal (Rs/unit) 1.38 1.13 1.03 0.94

Revenue - 4,628 31,816 97,839 143,414Long Term Revenue 2,947 20,472 23,274 60,647 Merchant Revenue 1,681 11,343 74,566 82,766

Expenses 28 2,072 12,234 27,437 48,457Coal Charges - Imported 1,895 10,661 13,394 17,988 Coal Charges - Domestic - 286 10,962 24,478 O&M Expenses 177 1,287 3,081 5,991 Rebate - - - - General expenses 28

EBITDA (28) 2,556 19,582 70,402 94,957

Depreciation 307 2,279 6,524 13,317 EBIT (28) 2,249 17,302 63,879 81,640

Interest on Principal Loan 532 4,527 12,579 23,795 Interest on Working Capital 6 256 799 1,921 Other Income 336 494 777 1,538

PBT -28 2,046 13,013 51,278 57,462

Income Tax Payable - 405 2,295 8,847 10,027 Tax Rate 0.00% 19.78% 17.64% 17.25% 17.45%

PAT (28) 1,641 10,718 42,432 47,435Minority Interest (2) - - 1,309 4,422

Consolidated PAT (26) 1,641 10,718 41,122 43,014 EPS (0.01) 0.79 4.92 18.86 19.73 BVPS 12.3 26.8 31.7 50.6 70.3

While merchant units increase, we assume a merchant tariff of Rs4/unit, against Rs5/unit in F2012.

Domestic coal consumed by Mundra IV and Tiroda I and II.

Full year impact because of commissioning of Mundra IV and Tiroda I and II.

Full year impact because of commissioning of Mundra IV and Tiroda I and II.

Pertaining to 26% equity held by other shareholders in Tiroda I and II.

36





Balance Sheet

Balance Sheet (Rs mn) F2009 F2010e F2011e F2012e F2013eShare Capital 18,420 21,800 21,800 21,800 21,800Share Premium 30,554 30,554 30,554 30,554Reserves and Others 4,420 6,061 16,779 57,901 100,915Miscellaneous Expenditure -97 0 0 0 0Net Worth 22,743 58,415 69,133 110,255 153,269

Total Debt 49,897 112,292 207,781 283,299 300,230Minority Interest 703 3,815 5,155 8,786 14,239

Total liabilities 73,343 174,523 282,069 402,341 467,738

Gross Block 3,472 21,750 79,806 230,273 291,016Acc Dep 104 411 2,690 9,214 22,531Net Block 3,368 21,339 77,116 221,059 268,485

CWIP 65,845 136,036 186,257 136,370 116,247

Investments 0 0 0 0 0

Cash and bank 5,585 16,790 16,124 35,687 66,863Working Capital -1,456 357 2,572 9,224 16,142

Coal inventory 0 237 1,333 1,813 3,214Receivables 0 386 2,651 8,956 15,516Payables 5,620 316 1,777 2,417 4,285Other CA 4,163 50 365 873 1,697

Total assets 73,343 174,523 282,069 402,341 467,738

Premium received during Pre-IPO and IPO placement.

Tiroda III and Kawai.


37





Cash Flow Statement

Cash Flow (Rs mn) F2009 F2010e F2011e F2012e F2013ePAT (28) 1,641 10,718 42,432 47,435 Depreciation - 307 2,279 6,524 13,317 Change in working capital (1,142) (1,813) (2,215) (6,653) (6,918)

(Inc)/dec in inventory - (237) (1,096) (480) (1,401) (Inc)/dec in receivables - (386) (2,266) (6,305) (6,560) Inc/(dec) in payables 1,259 (5,304) 1,461 641 1,868 Inc/(dec) in other current assets (2,401) 4,113 (314) (508) (825)

Cash flow from operating activities (1,170) 135 10,782 42,302 53,834

Capex (44,709) (88,470) (108,276) (100,580) (40,620) Investments 532 - - - - Cash flow from investing activities (44,176) (88,470) (108,276) (100,580) (40,620)

Equity issuance 10,988 33,935 - - - Debt proceeds/repayment 39,785 62,395 95,489 75,518 16,931 Minority Interest 705 3,112 1,340 2,322 1,031 Miscellaneous (2,468) 97 - - - Cash flow from financing activities 49,011 99,539 96,828 77,840 17,962

Change in cash 3,665 11,205 (666) 19,563 31,176 Opening Cash 1,921 5,585 16,790 16,124 35,687

Closing Cash 5,585 16,790 16,124 35,687 66,863

Pre-IPO and IPO proceeds.


38





Company Background

39





Shareholding Structure

Promoters73.5%

FIIs7.7%

MF & UTI1.0%

Banks,FI,Insurance Co0.9%

Indian Public & Others7.8%

Trusts +NRI+ OCB9.1%

Company Name

No of shares

purchased (mn)

Issue price (Rs/share)

Date of purchase

3i Power investments A1 Limited 94 80 1-Oct-073i Power investments A1 Limited (conversion of Preference shares) 58 26 25-Apr-083i Power investments A1 Limited 9 81 25-Jun-09Total - 3i Power investments A1 Limited with weighted average price 161 61Ventura Power 71 70 31-Mar-09Ventura Power 0.36 70 3-Apr-09Total Ventura Power with weighted average price 71 70Capital Trade & Investment Private Ltd 27 112 25-Jun-09Total Capital Trade & Investment Private Ltd with weighted average price 27 112Total with weighted average price 258 69

Anchor Investors

Amount Invested (Rs

mn) % HoldingT Rowe Price 2317 1.06%Sundaram Mutual Fund 853 0.39%Credit Suisse Singapore 842 0.39%CLSA Mauritius 762 0.35%AIC 255 0.12%Ecofin 257 0.12%Total 5286 2.42%

Source: Company Data, NSE, Morgan Stanley Research

Shareholding Structure Anchor Investors During the IPO

Key Share Transactions Before the IPO

40





Key Management

Managing Director and CEO

Director - Mundra Projects

Head - Tiroda Project Head - Kawai Project Head - Dahej Project CFO HR

Project Heads - Mechanical - Electrical - Civil

Design and Engineering Project Planning and Co-ordination

Corporate Level

Name Designation Age QualificationGautam Adani Chairman 47 MatriculationRajesh Adani Managing Director 44 B.ComAmeet Desai Director and CFO 45 BBA and MBAKey Management Designation Age Qualification Prior ExperienceSubrato Trivedi President (projects) 59 BE (Mechanical) NTPCOm Prakash Kalia Sr Vice President (Engineering) 60 Masters (Mechanical) Reliance Energy, NTPC, BHELVineet Jain Sr Vice President (Techno Commercial & Business Development) 38 BE (Mechanical) JSPLK Venugopal Sr Vice President (Finance) 43 B.Com and MBA Mundra Port and SEZ, AEL, sanghi group etcOmprakash BhardwHead of Civil Dept 61 Diploma in Civil Engineering Hindustan Prefab Ltd, Punj Loyd etcV.N. Bhamidipati Sr Vice President (Operations Service) 60 BE (Mechanical), ME (Mechanical), MBA Progress Energy, Atlantic Energy etcAjay Kumar Gupta Sr Vice President (HVDC and Substation) 46 Masters from IIT SiemensDeepak Bhargava Sr Vice President (Construction - Transmission Lines) 53 BE (Electrical) KEC International LimitedRahul C Shah Co secretary, Compliance Officer 31 Bcom Mundra Port and SEZ, Vivro Financial Services

Source: Company Data, Morgan Stanley Research; Note: The key management details are as of the time of the IPO

41





Project Details

Off take

Off take

78%85% 81% 81%

22%15% 19% 19%

0%

20%

40%

60%

80%

100%

F2010e F2011e F2012e F2013ePPA Merchant

0% 0%

14%

81%

0%

100%

86%

19%

0%

20%

40%

60%

80%

100%


: In PlaceX: Not yet in placeSource: Company data, Morgan Stanley Research, e= Morgan Stanley Research estimates

Mundra Phase I & IIUnit Size 1,320 MW (4x330MW)Location Mundra Village in Kutch, GujaratProject Cost (Rs mn) 43,500 - Debt funding of 83.8% (debt tied up) and Equity funding of 16.2%Likely commissioning (Morgan Stanley estimate) Unit I by October 2009 Last unit likely by June 2010

Fuel Supply

Imported coal (70%) - As per the agreement AEL will supply coal with a GCV of 5,200 kcal/kg @ US$36/ton CIF from the date of commissioning with a price escalation of 10% every five years; Domestic coal (30%) - Company has applied for coal linkage for 30% of total fuel requirement

EPC/Equipment Sichuan Machinery and Equipment Import and Export Company Limited and Kowa Company Limiteda) Regulated: b) PPA: - 1,000 MW with GUVNL. Tariff @ Rs 2.81/unit in year 1 to Rs 3.42/unit in year 25c) Merchant: - balance of capacity

Water Will be supplied by Gujarat Water Infrastructure LimitedLand Availability In SEZ area, MPSEZL has provided the land

Off take and tariff

Mundra Phase IIIUnit Size 1,320 MW (2x660MW)Location Mundra Village in Kutch, GujaratProject Cost (Rs mn) 57,960 - Debt funding of 76.8% (debt tied up) and Equity funding of 23.2%Likely commissioning (Morgan Stanley estimate) Unit I by January 2011 Last unit by June 2011

Fuel Supply

Imported coal (70%) - As per the agreement AEL will supply coal with a GCV of 5,200 kcal/kg @ US$36/ton CIF from the date of commissioning with a price escalation of 10% every five years; Domestic coal (30%) - Company has applied for coal linkage for 30% of total fuel requirement

EPC/Equipment SEPCO - III Electric Power Construction Corporation; Shandong Tiejun Electric Power Companya) Regulated: b) PPA: - 1,000 MW with GUVNL. Tariff @ Rs 2.35/unit c) Merchant: - 221 MW through AEL and balance through Adani Power

Water Will be supplied by the desalination plants that the company is developingLand Availability In SEZ area, MPSEZL has provided the land

Off take and tariff

42





Project Details

Off take

Off take

0% 0% 0%

24%

0% 0%

100%

76%

0%

20%

40%

60%

80%

100%


0% 0% 0%

47%

0% 0%

100%

53%

0%

20%

40%

60%

80%

100%


: In PlaceX: Not yet in placeSource: Company data, Morgan Stanley Research, e= Morgan Stanley Research estimates

Mundra Phase IVUnit Size 1,980 MW (3x660MW)Location Mundra Village in Kutch, GujaratProject Cost (Rs mn) 89,600 - Debt funding of 80% (debt tied up) and Equity funding of 20%Likely commissioning (Morgan Stanley estimate) Unit I by August 2011 Last unit by April 2012

Fuel Supply

Imported coal (30%) - As per the agreement AEL will supply coal with a GCV of 5,200 kcal/kg @ US$36/ton CIF from the date of commissioning with a price escalation of 10% every five years; Domestic coal - Company has received letter from Mahanadi Coalfields Limited for supply of 6.4 mtpa of grade F coal

EPC/Equipment SEPCO - III Electric Power Construction Corporation; Shandong Tiejun Electric Power Companya) Regulated: b) PPA: - 1,424 MW with Haryana. Tariff of Rs 2.35/unit - 3.26/unit c) Merchant: - balance of capacity

Water Will be supplied by the desalination plants that the company is developingLand Availability In SEZ area, MPSEZL has provided the land

Off take and tariff

Tiroda (Phase I & II)Unit Size 1,980 MW (3x660MW)Location Tiroda Village in Gondia, MaharashtraProject Cost (Rs mn) 92,630 - Debt funding of 80% (debt tied up) and Equity funding of 20%Likely commissioning (Morgan Stanley estimate) Unit I by November 2011 Last unit by June 2012

Fuel Supply

Captive coal + linkage from CIL - From captive mines allotted which are currently subject to litigation; the company has now applied for a tapering linkage and has also requested the government to either allot a new block or re-allot the Lohara mines after stripping out the portion which is under contention

EPC/Equipment Sichuan Machinery and Equipment Import and Export Company Limited and Sichuan Fortune Project Managema) Regulated: b) PPA: P - 1,320 MW with MSEDCL. Tariff @ Rs 2.55/unit in year 1 to Rs 3.47/unit in year 25c) Merchant: - balance of capacity

Water The company has received a LOI from the Water Resource Department to supply water from Wainganga riverLand Availability Land available for main plant area (210 hectares) and in principle allocation for the balance

Off take and tariff

43





Project Details

: In PlaceX: Not yet in placeSource: Company data, Morgan Stanley Research

Tiroda IIIUnit Size 1,320 MW (2x660MW)Location Tiroda Village in Gondia, MaharashtraProject Cost (Rs mn) 66,100 - Debt funding of 80% (in principle sanction for 100% underwriting) and Equity funding of 20%Likely commissioning (Morgan Stanley estimate) Unit I by October 2013 Last unit by December 2013Fuel Supply Applied for coal linkageEPC/Equipment Tenders invited and received; currently evaluating the bids

a) Regulated: b) PPA: - Expects to receive LoI soon for 1,200 MW with MSEDCLc) Merchant: Any surplus capacity

Water The company has received LoI from the WRD to supply water from Wainganga riverLand Availability Land available for main plant area (210 hectares) and in principle allocation for the balance

Off take and tariff

KawaiUnit Size 1,320 MW (2x660MW)Location Kawai, Village, District Baran, RajasthanProject Cost (Rs mn) 69,300 - Debt funding of 80% (in principle sanction for 100% underwriting) and Equity funding of 20%Likely commissioning (Morgan Stanley estimate) Unit I by June 2013 Last unit by August 2013Fuel Supply Applied for coal linkageEPC/Equipment Tenders invited; likely to close the process in the next 2-3 months

a) Regulated: b) PPA: - 1,200 MW with RRVPNL. Tariff @ Rs 3.24/unit, LoI awardedc) Merchant: Any surplus capacity

Water Water will be supplied from state water resource department (approval has been received)Land Availability In possession of land; lease deed with the government

Off take and tariff

44





Planned Projects

: In PlaceX: Not yet in placeSource: Company data, Morgan Stanley Research

DahejUnit Size 2,640 MW (4x660MW)Location Dahej, Taluka vagra, district Bharuch, GujaratProject Cost (Rs mn) Yet to be decided Likely commissioning Yet to be decidedFuel Supply The company is mainly looking for linkage coalEPC/Equipment Process will begin once the offtake is in place

a) Regulated: b) PPA: - The company has applied to supply 2,000 MW to GUVNL on a competitive bid basisc) Merchant: - Not available; the company could bid for more on a competitive bid basis or the balance could be sold as merchant power

Water Water is availableLand Availability GIDC has allocated 211 hectares

Off take and tariff

ChhindwaraUnit Size 1,320 MW (2x660MW)Location Chhindwara, Madhya PradeshProject Cost (Rs mn) Yet to be decided Likely commissioning (Company estimate) First unit of 660 MW will be commissioned 42 months from February 15, 2010Fuel Supply The Energy Department of Madhya Pradesh Government will support Adani Power and make

recommendations to the Government of India to obtain coal linkage/captive coal blockEPC/Equipment Yet to be decided

a) Regulated: 10% at variable cost and 40% as per appropriate commissionb) PPA: c) Merchant: - Not available; the company could bid on a competitive bid basis or the balance could be sold as merchant power

Water Water reserved by the Madhya Pradesh Government from the Pench RiverLand Availability MPSEB will transfer 300 hectares of land along with infrastructure facilities

Off take and tariff

45





Industry Overview

46





Peak Electricity Shortfall in India is About 13.6 GW

• India has always had a power deficit – the current shortfall is 10%, and the peak shortfall is 15%

• 16% of villages have no electricity

• Demand for electricity is set to grow, given the pace of growth in the economy

Source: CEA, Morgan Stanley Research

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

F199

3

F199

4

F199

5

F199

6

F199

7

F199

8

F199

9

F200

0

F200

1

F200

2

F200

3

F200

4

F200

5

F200

6

F200

7

F200

8

F200

9

F201

0

5

7

9

11

13

Requirement in MU (LHS) Available in MU (LHS) % Shortage (RHS)

%

47





China’s Generation Capacity is 5x India’s

151 167 183 200 217 237 254 277 299 319 339 357391

442

517

624

713

793

931481431321241181121081051029889868381777269

0

100

200

300

400

500

600

700

800

900

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

GW

China: Installed Capacity India: Installed Capacity

• Installed capacity in India was 148 GW at the end of March 2009, while it was 793 GW in China at the end of 2008

• In F2009, electricity spend as a percentage of GDP was 3.1% for China and 2.4% for India

• From F2007 to F2012, China plans to add 259 GW of capacity, whereas India plans to add 85.5 GW (the CEA raised this from 78.5 GW in March 2009)

Note: While China data is for December year-end, India data is for fiscal year-end March 31 Source: CEA, NDRC, Morgan Stanley Research

48





Per Capita Consumption of Electricity is Among the Lowest Globally

Source: NTPC Limited, Morgan Stanley ResearchSource: CSO, CEIC, CEA, Morgan Stanley Research. F2010 and F2011 GDP growth rates are Morgan Stanley research estimates

• India’s per capita consumption of electricity is significantly below the global average of 2,701 kWh

• The Government of India expects per capita consumption to increase to 1,000 kWh in India by F2012

• A supply-demand mismatch remains because installed capacity expansion of about 4.6% lagged behind GDP growth of

about 6.4% per year on average in F1991 to F2009

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

F199

0F1

991

F199

2F1

993

F199

4F1

995

F199

6F1

997

F199

8F1

999

F200

0F2

001

F200

2F2

003

F200

4F2

005

F200

6F2

007

F200

8F2

009

F201

0eF2

011e

% GDP Growth

% Growth of InstalledCapacity

14240

84597442

6425

23401465

7041684

0

2000

4000

6000

8000

10000

12000

14000

16000

US

A

Japa

n

Ger

man

y

Rus

sia

Bra

zil

Chi

na

Egy

pt

Indi

a

World Average - 2701

49





Coal Set to Remain the Primary Source of Fuel

Note: * At the beginning of India’s XIth five-year plan# The government earlier targeted to add 78.5 GW between F2007 and F2012, but revised this to 85.5 GW in March 2009 Source: Ministry of Power, India, CEA, Morgan Stanley Research

India’s Installed Capacity by Fuel Type

• India has 96bn tons of proven coal reserves, sufficient to meet 100-150 years of requirement based on our estimate of

annual consumption in F2012

• India imported 18mn tons of coal in F2009, largely from Indonesia, Australia, and South Africa; we expect this to increase

to over 50mn tons by F2012 as domestic coal supply falls short of increasing demand derived from new power capacity

• Gas supplies are set to increase in F2010-11; however, not too many gas plants are being set up, given the erratic supply

• The supply of renewable energy (especially hydro and wind) will grow, in our view, albeit at a slower pace than the growth

in supply of thermal plant energy

Gas10.3%

Hydro26.2%

RES5.9%

Coal53.7%

Nuclear2.9%

Diesel0.9%

132,329 MW

March 2007

Gas10.9%

Hydro23.6%

RES9.8%

Diesel0.8%

Nuclear2.6%

Coal52.3%

156, 092 MW

Dec 2009

Proposed Capacity in F2012#Current Installed CapacityInstalled Capacity in F2007*

Gas9.6%

Hydro22.8%

RES6.9%

Coal56.8%

Nuclear3.3%

Diesel0.5%

219,802 MW

March 2012

50





Emerging Industry Trends

Source: Infraline, CERC, Indian Energy Exchange, Morgan Stanley ResearchIEX = India Energy Exchange; NVVNL = NTPC Vidyut Vyapar Nigam LimitedNote: We do not have short-term price data for NVVNL and PTC for November 2009. IEX prices are a simple averagePrices for PTC exclude the contracts signed between CHPC and Bhutan and THEP and Bhutan, as these were signed at predetermined rates.

• Until recently, all power projects earned regulated returns specified by the CERC (assured ROE of 15.5%).

• The need to increase generation capacity, promote efficiency, and reduce tariffs caused the government to open up the sector through the Ultra Mega Power Project initiative, wherein land, environmental clearances, and domestic fuel linkages were made available by the government.

• Merchant power is increasing in importance; under such a scenario, demand-supply dynamics decide pricing and the off-take risk lies with the generation company.

(ROE = Cost + 15.5%) (ROE = 14% to 20%)

MPPs supply peak power demand at negotiated prices

UMPPs awarded on this Bidding Process

(ROE = 30% to 50%)

Regulated Returns

Earnings/Tariffs based on ROE

Tariff Based Bidding

Tariff Based on Competitive Bids

Merchant Power Plants

Tariff negotiated based on Demand

Progressing towards a Free Pricing Regime

Regulated by CERC Return Norms

Short-term prices in IndiaBreak-Up of Unit Sales in Long-Term and Short-Term Markets

51





Privatization of Transmission and Distribution Projects Could Be the Next Big Thing

Source: CEA, Company Data, Morgan Stanley Research

Transmission projects identified for the private sector on a competitive bidding basis

• The government now allows private participation in transmission and distribution.

Transmission

• Power Grid Corporation is the sole central transmission provider in India.

• Tala transmission line was the first privatized project in this segment. It is a JV of Tata Power and Power Grid.

Distribution

• Distribution of power takes place at the state level.

• The Maharashtra State Electricity Board was the first to award the distribution franchisee model to Torrent Power; others are following suit.

• With the emergence of power exchanges, generation companies now have the option to sell power to a willing buyer at spot prices.

Central Government owned License

State Government owned License

Private License

Dedicated Lines

Transmission Distribution

SEB owned distribution

Private Licenses

Distribution Franchisee Consumers

Trading

Existing distribution franchisees and their projects

1 Evacuation System for North Karanpura (1,980 MW)2 Talcher Augmentation System3 Evacuation System for Maithon RB (1,000 MW)4 Scheme for enabling the import of NER/ER surplus by NR5 SR-WR Synchronous Inter-Connector6 Kawas-Navsari 400 kV D/C

Torrent Power Bhiwandi Circle, Maharashtra, Agra and Kanpur in Uttar PradeshCrompton Greaves Three divisions in Nagpur, MaharashtraIndo Asian Fusegear Two contracts in Jabalpur, Madhya Pradesh

52



Glossary EPC: Engineering, Procurement, and Construction

BTG: Boiler Turbine Generator

CEA: Central Electricity Authority

CEIC: CEIC Data Base

CERC: Central Electricity Regulatory Commission

CSO: Central Statistical Organization

MoEF: Ministry of Environment and Forests

PPA: Power Purchase Agreement

CIF: Cost, Insurance, and Freight

GCV: Gross Calorific value

GIDC: Gujarat Industrial Development Corporation

IPO: Initial Public Offering

RRVPNL: Rajasthan Rajya Vidyut Prasaran Nigam Limited

MPSEB: Madhya Pradesh State Electricity Board

MSEDCL: Maharashtra State Electricity Distribution Co. Ltd.

NDRC: National Development and Reform Commission

NSE: National Stock Exchange

SEZ: Special Economic Zone

SPV: Special Purpose Vehicle

HVDC: High Voltage Direct Current

PLF: Plant Load Factor

LoA: Letter of Assurance

LoI: Letter of Intent

SLC: Standing Linkage Committee

Company Description Adani Power is a power generation company with an installed capacity of 330 MW, 6,270 MW under construction, and another 6,600 MW under development and planning. Adani Enterprises Ltd is the main promoter company. Promoters have a 73.5% equity stake in the company.

India Utilities Industry View: In-Line Government plans to increase generation capacity should benefit companies in the industry. However, the slow pace of industry reform continues to dampen sentiment.

53



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54



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Stock Rating Category Count % of Total Count

% of Total IBC

% of Rating Category

Overweight/Buy 999 40% 296 41% 30%Equal-weight/Hold 1088 43% 333 46% 31%Not-Rated/Hold 21 1% 4 1% 19%Underweight/Sell 396 16% 90 12% 23%Total 2,504 723 Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O or Over) - The stock's total return is expected to exceed the total return of the relevant country MSCI Index, on a risk-adjusted basis over the next 12-18 months. Equal-weight (E or Equal) - The stock's total return is expected to be in line with the total return of the relevant country MSCI Index, on a risk-adjusted basis over the next 12-18 months. 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Industry Coverage:India Utilities

Company (Ticker) Rating (as of)Price* (02/23/2010)

Parag Gupta Adani Power (ADAN.BO) O (02/25/2010) Rs105.85LANCO Infratech Ltd (LAIN.BO) E (04/23/2007) Rs46.65NTPC (NTPC.BO) E (04/23/2007) Rs201.6Reliance Infrastructure Limited (RLIN.BO)

O (01/23/2008) Rs975.45

Tata Power Co (TTPW.BO) E (11/30/2009) Rs1,249.75

Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted.

The Americas 1585 Broadway New York, NY 10036-8293 United States Tel: +1 (1) 212 761 4000

Europe 20 Bank Street, Canary Wharf London E14 4AD United Kingdom Tel: +44 (0) 20 7 425 8000

Japan 4-20-3 Ebisu, Shibuya-ku Tokyo 150-6008 Japan Tel: +81 (0) 3 5424 5000

Asia/Pacific 1 Austin Road West Kowloon Hong Kong Tel: +852 2848 5200

potential leader of the pack – initiate at overweight …...february 25, 2010 adani power...

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