v s lignite

8/8/2019 V S Lignite

1/20Initiatin

Covera e

yFinancial

E(RsMn) Sales YoY(%) EBITDA YoY(%) AdjPAT YoY(%) EPS(Rs) P/BV(Rs) P/E ROE EV/E

2008* 239 157 97 85 102 443 5.73 4.55 33.2 16%

2009 381 59 218 125 136 33 4.06 2.96 46.9 7%

2010 502 32 306 40 177 30 4.97 2.29 37.0 7%

2011E 2017 301 1208 295 373 111 10 2.43 21.6 12%

2012E 3147 56 1870 55 853 129 22.9 1.86 9.4 22%

ecompanycameupwithitsIPOinJune2008rce:Company,NetworthResearch

nalyst:

al

Salva

[email protected]

2230641600

ate:06th

September,2010

Capacityincreasefromcurrent144MWto4462MWoverFY

11FY15E

period

56%of718MWcapacityadditionforthecurrentyearalready

onstream

RevenuestogrowataCAGRof150%andEPStogrowby

115%overFY10FY12Eperiod

50%ofpowertiedinshorttermcontractsatapriceofRs.

5/kwhovernextthreeyears

WeinitiatecoveragewithaBUYandSOTPbasedtargetprice

ofRs.214/share

AtAnInflexionPoint:

Withmorethan700MWofcapacitytostartoperationinFY11,KSK,

we believe is at an inflexion point. The company's operating

capacity

will

grow

from

current

144MW

to

862MW

in

FY11.

Further, thecompany's first independent powerplant (IPP) of3.6

GWatChhattisgarhwillpropelthecompany'scapacityto4462MW

by FY15. The company has a good mix of medium term and long

termcontractswith industrialcustomers,providinggoodearnings

visibilityandstrongreturns.WeestimateKSKtoearnasteadyROE

of22%inFY12EandFY13E.

Uniquebusinessmodel:

KSKbuildsand operatespowerplants on 'groupcaptiveprinciple'

wherein itssuppliespowertoindustrialconsumers.Theplantsare

set up under project specific SPV's where the company's bulk

consumersalsoinvest(theonlyexitroutebeingtoselltoasimilar

bulk consumer), thus reducing KSK's equity investment in each

projectand

also

provides

an

assured

power

off

take.

KSK

earns

an

attractiveRoIE(~3540%)ontheseprojects.

Valuations:

WehavevaluedKSKonSOTPbasisforitsprojectdevelopmentand

power generation segment. We have estimated free cash flow to

equity for both the segments for the next 10 years and then

consolidatedittodeterminefreecashflowtothefirm.Assuminga

cost of equityof15.3% and terminalgrowth rateof5%,we have

derived our target price of Rs. 214/share. At CMP of Rs.162, the

company is trading at a P/E of 7.1x FY12E EPS of Rs. 23 and at a

P/BVof1.4xFY12EBV.Atourtargetprice,KSKwilltradeataP/Eof

9.4xFY12EEPSwhiletheP/BVwillstandat1.85xFY12EBV.

Rating

TargetPrice

Rs

CMP Rs

Upside

Sensex 18

KeyData

BloombergCode KS

ReutersCode KSKE

NSECode

CurrentShareo/s (mn) 3

DilutedShareo/s (mn) 3

MktCap(Rsbn/USDmn) 60/12

52WKH/L(Rs) 225/1

DailyVol.(3MNSEAvg) 250

FaceValue(Rs)

Beta

1USD/INR

ShareholdingPattern

Promoters

FII

Others

PricePerformance(%)

1M 6M

KSK 0.3 1.9

NIFTY 1.7 7.7 Source:Bloomberg;*Ason6thSept.201

NDIA

nstitutionalResearch

Power

InitiatingCovera

KSKEnergyVenturesLtd.

Poweringitswayup.

NetworthResearchisalsoavailableonBloombergandThomsonReuters.


2/20

Initiatin

Covera e

InvestmentRationale

Projectsinadvancedstageofexecution

KSKcurrentlyhasaportfolioof3projectsaggregatingto144MWinoperationviz,Arasmeta(43MW

Regency(58MW)andSitapuram(43MW).FY11islikelytobeawatershedyearforthecompanyasfu

3

projects

aggregating

to

718MW

will

become

operational

taking

the

total

capacity

to

862MW.

Of

thLignite(135MW)andunitIandII(135MWeach)ofWardhaWaroraplanthavealreadycomeonstr

ArasmetaexpansionandthethirdandfourthunitfromWardhaWarorashallbecomeoperationalby

ofthisfiscalyear.Thecompanywillalsomoveawayfromitstraditionalmodel(captivepowerplants

set up its first independentpower project withacapacity of3.6GW byFY15.Phase I of the proje

estimatedtobecomeoperationalbyFY14E.

Ofthetotalcapacities,VSLignite,Rajasthan(135MW)isalignitebasedplantandSaiRegency,Tamil

(58MW)isagasbasedplant,andtherestarecoalbased.

xhibit1:CapacityAdditions Exhibit2:FuelMix

144

862

2662

4462

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2010 2011E 2012E 2013E 2014E 2015E

Capacity MW

Year

CapacityAdditions

96%

3% 1%

FuelMix(4462MW)

Coal L ignite Gas

urce:Company,NetworthResearch Source:Company,NetworthResearch

ble3:Projectcompletionschedule

oject Fuel FY11E(MW) FY12E(MW) FY13E(MW) FY14E(MW) FY15E(MW) Total(

Lignite Lignite 135 13

asmetaExpansion Coal 43 43

ardhaWarora Coal 540 54

ardha,ChhattisgarhPhaseIandII Coal 1800 1800 360

talCapacityunderexecution 718 0 0 1800 1800 431

mulativecapacity 718 718 718 2518 4318 431

rce:Company,NetworthResearchPower

purchase

agreement

(PPA)

has

been

signed

for

all

but

1.8GW

of

capacity

of

the

Chhatt

plant(inprocess).Thecompanyhastiedupitscapacitiesunderlongandmediumtermcontracts

withfuelescalationclausethusprotectingitfromfuelpricevolatility.Theremainderwillbesold

shorttermcontracts.Ithasfuelsupplyagreement(FSA)foralltheprojectswithaccesstofuelth

captivemines,longtermfuelsupplyagreementsandmemorandumofunderstanding(MoU)with

mineral development corporations (SMDC). Thus, unlike others KSK does not have to depende

imported coal to meet its requirement. These capacity additions augur well for the revenue

earningsofthecompany.Financialclosureaswellasalltheclearancesareinplaceforalltheproj


3/20

Initiatin

Covera e

ble4:Statusofprojects

atusofpowerprojects

oject MW Land Water Fuel Offtake

Government

approvals

EPC

awarded

Financial

closure Construc

Lignite* 135

asmetaExpansion

43

ardhaWarora# 540

ardha,ChhattisgarhPhaseI 1800

ardha,ChhattisgarhPhaseII 1800 x rce:Company,NetworthResearch

Strongrevenuesandearningsvisibility

Outsourced'captivepowerproducer

KSKhasaveryuniquebusinessmodelwhereinitsetsuppowerplantsforvariousindustrialcusto

likeLafargeIndiaPvtLtd,ZuariCementLtdandVirajProfilesLtd. (Theonlyotherplayerinthisseg

isOPGdevelopers).KSKsetsuptheplants incollaborationwiththeuser(s).Itsmajorclients inve

least26%intheequityoftheplantspecificSPVthoughKSKretains100%economicinterest.TheforsuchprojectsisoutofregulatorypurviewenablingKSKtoearngoodreturns(RoIE3540%)and

resultsinassuredpowerofftake.Also,thecredibilityoftheindustrialcustomersisbetterthanthe

electricityboards.Besides,ifthecaptivecustomerdefersthepowerpurchaseKSKhastherightt

thesame in theshort term markets.Thecapacity in thissegment isestimated to increase from

current144MWto882MWinFY11itself.

Astheplantsaresetupspecifically forcaptiveconsumers,bulkofthepower isalreadytiedup

themunder longtermPPA's.Longtermtoshorttermmix isat95:5withtheexceptionofFY11

wherethemix is50:50.Defermentofpowerofftakebythebulkcustomer from itsWardhaWa

planthas ledtoavailabilityof250MW(FY11E)to300MW(FY12FY14E)ofpowertobesoldon

term basis. The company has entered into short term contract with Maharashtra State Distrib

Company(MSDC)(FY11E)aswellasReliancePower(FY1214E)forthesupplyofpoweratanattra

rateof

Rs.

5/kwh,

thus

providing

significant

boost

to

its

revenues.

Fuelarrangement is inplacewithcoal linkagesfromCoal IndiaLtdforcoalbasedplants.SaiReg

has fuelsupplyarrangementwithGAILwhileVSLignitewillsource fuel fromcaptivemineatG

Rajasthan.Alltheprojectsareinapositiontomeettheirfuelrequirementsthusreducingdepend

onanyotherexternalsourceoffuel.


4/20

Initiatin

Covera e

ble5:ProjectProfile:Captiveplants

oject Arasmeta SaiRegency Sitapuram VSLigniteArsmetaexpansion

WardhaWa

pacityMW 43 58 43 135 43 (135*4)

cation Chhattisgarh TamilNadu AndhraPradesh Rajasthan Chhattisgarh Maharasht

OC

Nov06

Sep

07

Mar

08

Mar

10

Jul

10

Unit

IApril

2UnitIIJuly2

UnitIIIOct2UnitIVJan2

urceoffuelSouthEasterncoal

fields+openmarket

GAILSingareni

Collieries+openmarket

GurhaLignite,captive

SouthEasterncoalfields

Westerncoal

elsupplygreement

0.24milliontonne 268000scm 0.27milliontonne

elrequired@PLFmntonnespa)

0.26@85%PLF259000scm@85%

PLF0.32@90%PLF 1@80%PLF 0.26@85%PLF 2.7@80%

CV 2834Kcal/Kg 8796Kcal/SCM 3229Kcal/Kg 2800Kcal/kg 2834Kcal/Kg 4725Kcal/

R 3432Kcal/Kwh 2186Kcal/Kwh 2135Kcal/Kwh 2677Kcal/Kwh 3432Kcal/Kwh 2335Kcal/K

A/ShorttermLafarge(CaptiveCustomer)/CSEB

MultipleCaptiveCustomers,Third

PartySaleTNEB

ZuariCement,ShriVishnuCements,ThirdPartySale

MultipleCaptiveCustomers,Third

PartySaleRDPPC

Lafarge(CaptiveCustomer)17

MW/thirdpartysale

MultipleCapCustomers,T

PartySale MS

Atariff

ForLafargeFixedCost+VC(FuelCost

escalationispassthru),

ForcaptiveconsumersFixed

Cost+VC(FuelCostescalationispass

thru),

ForcaptiveconsumersFixed

Cost+VC(FuelCostescalationispass

thru),

MultipleCapConsumersFixedTariffofRs.2.85;

ForLafargeFixedCost+VC(Fuel

Costescalationispassthru),

MultipleCConsumers(

MW)Rs.3.2

AvgTariff:Rs.3.33 AvgTariff:Rs.3.93 AvgTariff:Rs.4.46ThirdPartySaletoRDPCCRs

6.5;

AvgTariff:Rs.3.62BalThirdParty

Rs.5/kWh

ebt:Equity 70.30 75.25 70.30 75.25 80.20 80.20

oIE(%)FY10 36 372 46 42# 28# 322#

*SaletoMSDCLinFY11,ReliancepowerfromFY12FY14

#FY12Projected

erationalon31March2010

nitIandUnitIIof135MWeachalreadyonstream

IE,Returnoninvestedequity(returnon projectequity)

IPP:TheInflexionPoint

With largecement, steeland othercaptiveplayers increasinglymoving intopowergenerationsegmenton

own,KSKwebelievecouldpossiblysee lesserdemand in itscorebusinesssegment.Thusthecompany'smo

setupitsownpowerplantispositiveforthecompany.

Thesinglelarge3.6GWprojectatChhattisgarhwillbeKSK'sfirstIPPasthecompanymovesawayfromitstradit

model.Phase I (1800MW)of theproject is estimated tostartproduction inFY14,whilePhase IIwillcomm

production in the following year. With this the total capacity of KSK will move from 862MW to 4.4GW la

foundationforitssignificantgrowth.Theprojecthasbeenfundedwithadebt:equityof75:25withthedebtpo

being completely tied up and the equity portion to be funded with the IPO proceeds (Rs 8978 millions)

proceeds(Rs5159millions)andinternalaccruals.


5/20


6/20

Initiatin

Covera e

RevenueandPATGrowthinPowergeneration

Exhibit7:RevenueGrowth

0

500

1000

1500

2000

2500

3000

2008 2009 2010 2011E 2012E

(Rs.inCr) Revenues

Source:Company,NetworthResearch

Exhibit8:PATGrowth

0

100

200

300

400

500

600

700

2008 2009 2010 2011E 2012E

(RsinCr) PAT

Source:Company,NetworthResearchWithfuelarrangementsatcompetitiveratesandpowerpurchaseagreementsinplaceforallprojectsKSKh

verystrongrevenueandearningsvisibilityfromthepowergenerationsegment.Revenuesandearningsbot

estimatedtogrowataCAGRofmorethan190%intheFY10FY12period.ROEfromthesegmentisestimat

beat18% inFY12EwhilethecompanyROE isprojectedat22%.With thecommissioningofthe3.6GW I

FY15E,KSKisprojectedtoearnaROEinexcessof30%.


7/20

Initiatin

Covera e

Table9:ProjectEconomics

Projectprofile

VSLignite Arasmetaexpansion WardhaWarora WardhaChhattisg

Yearoffullproduction FY11 FY12 FY12 FY16

PLF(%) 75 85 85 85

Blendedtariff(Rs/kwh) 4.1 4.02 4.88 2.9

PPA 2.85 3.06 3.4 2.5

Merchant 6.5* 4.5 5.5* 3.5

Totalsalesmillionunits 789 288 3639 24929

PPA 518 96 1011 24636

Merchant 272 192 2628 293

All incostofgeneration(Rs/kwh) 1.7 2.4 1.9 2.5

Netmargin(Rs/kwh) 2.4 1.7 3.0 0.4

NetProfit(Rscr) 54 3.6 523 1176

RoIE(%) 146 28 322

*Tiedupinmediumtermcontract

Source:Company,NetworthResearchKeyassumptions:

Steadyutilizationratehasbeenassumedforeachproject

Merchant rates have been projected at 3.5/kwh with the 10 year median at 4.2/kwh for all the projects u

otherwisestated

Fuelcosthasbeenescalatedat5%p.a

TaxhasbeentakenatMATrateof20%foralltheprojects

Project

development

segment

to

lend

support

to

bottom

line

KSKearnsconsultationfeesforsettinguppowerplantswhichisshownasprojectdevelopmentfees(PDF).Thi

is2%oftheprojectcostand ispaidastheprojectattainsvariousmilestones.InFY10,PDFcomprised42%o

revenues but 65 % of the PAT. It earned EBIDTA margins of 87% and PAT margins of 60%. Thus, this seg

providessignificantboosttotheearningsofthecompany.

RevenuefromthissegmentisestimatedtogrowataCAGRof76%whiletheearningsareestimatedtogrow

CAGRof80%intheFY10FY12Eperiod.EBIDTAaswellasPATmarginsareprojectedtoremainfirmatthecu

levels.


8/20

Initiatin

Covera e

RevenueandPATGrowthinPDF

Exhibit10:Revenue

0

100

200

300

400

500

600

700

2008 2009 2010 2011E 2012E

(RsinCr.)


Exhibit11:PATGrowth

0

50

100

150

200

250

300

350

400

450

2008 2009 2010 2011E 2012E

(RsinCr)

Source:Company,NetworthResearchHowever,

going

forward

the

revenues

from

this

segment

is

estimated

to

taper

down.

As

all

the

power

pro

are near to their completion revenue accretion from this segment is likely to come down (as witnesse

Q1FY11).WiththeexceptionofArasmetaexpansionandtheChhattisgarhplant,KSKhasbookedPDFfora

otherprojects.AsChhattisgarhplantbeginsoperationsinFY14E,revenuesfromthissegmentwillcomedow

onlycorporatesupportfees.Nonethelessthissegment isprojectedtocontinueto lendsupporttothebot

line.InFY12E,PDFisestimatedtocontribute21%oftherevenuesbut40%ofPAT.

Giventhevisibilityoflowercashflowfromthissegmentgoingforward,wehavevaluedthissegmentusing

rather thananyothermetric.Wehaveprojected free cash flow toequity from thissegment for thenex

yearsandthenconsolidateditwiththefreecashflowsfrompowergenerationtoarriveatFCFEforthefirm.


9/20

Initiatin

Covera e

Exhibit12:RevenueMixPDFandPowerGeneration

0

10

20

30

40

50

60

7080

90

100

2008 2009 2010 2011E 2012E

%

PDF Powergeneration


Exhibit13:PATMix

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 2011E 2012E

%

PDF Powergeneration


Valuations

WehavevaluedKSKonSOTPbasisvaluingitsprojectdevelopmentandpowergenerationbusiness.Wehave

FCFE model by estimating project free cash flow to equity for project development segment and all the p

projectsforthenext10yearsassumingacostofequityof15.3%andterminalgrowthrateof5%.Thesame

beenconsolidatedtoarriveatthefreecashflowtothefirm.Afteradjustingforworkingcapitalchangesand

currentcashbalanceandinvestments,thevalueforthecompanyhasbeenderived.Basedonthevaluations,t

priceforKSKstandsat214/share.


10/20

Initiatin

Covera e

Table14:Valuation

SOTPValuations

FY11E FY12E FY13E FY14E FY15ETermin

Value

FCFE(Rscr)*

PowerGeneration

Arasmeta 4 6 4 13 13

SaiRegency 33 37 41 43 45

Sitapuram 5 2 1 2 23

VSLignite 39 0 11 20 31

Arasmetaexp 0 3 5 9 11

WardhaWarora 217 457 353 169 145

WardhaChhattisgarh 2799 2261 2353 1079 2160

Projectdevelopment 168 105 586 700 45

Total

2910

2849

3334

141

1869

Workingcapitalchanges 341 338 210 311 907

Total 2569 2510 3124 452 2776 1771

DCF 67887

noofshares 373

Price/Share 182

Add:Cash/investments 11975

Price/share

214

*Afteradjustingnetchangesindebtfromthefreecashflow(PAT+Dep)

PotentialUpside

Windenergyinitiative

InFY10,thecompanyforayed intotherenewableenergysegmentwiththeacquisitionofBahurPowerCom

PrivateLtd.having52MWofwindenergycapacity.Ourcurrentvaluedoesnotreflecttheearningspotential

thisplant.Besides,thecompanyproposestoaugmentitscapacityinthissegmentthroughacquisitionofaddit

GreenfieldandBrownfieldopportunities.

Hydropowerproject

KSK Dibbin Power project is a 130 MW Run of River hydro power project on the Kameng basin in Arun

Pradesh. Land acquisition deposit has been paid and the environment clearance process is currently unde

thereafterbidmechanismforselectionofEPCcontractorwillbeundertaken.AftersubmissionofaDetailedPr

Report,clearancehasbeenobtainedtosetup120MWplantatthelocation.


11/20

Initiatin

Covera e

Devil'sadvocate:FallinPLFrate

Thekeyrisktovaluationstemsfromfall inPLFrates.Asthecompanyhasa lowershareofshorttermcontr

changesinmerchantratesdonotinfluencethevaluationsmuch.Alsocoalcostbeingapassthroughthecomp

valuationisprotectedagainstitsvolatility.HoweverthecompanyismostsensitivetochangesinthePLFrate.

dipinPLFbringsthecompany'svaluedowntoRs.177/share.(MedianPLFhasbeenassumedat85%)

Relativevaluation

CompanyShare

Price

Market

cap(Rs

cr)

2year

EBIDTA

growth

*(%)

2Year

PAT

growth*

(%)

P/BV ROE

FY10 FY11E FY12E FY10 FY11E FY

KSK 162 5999 511 382 2.3 2.4 1.8 7.0 12.0 2

NTPC 196 1,61,817 40.6 37 2.6 2.3 2.1 14.9 14.3 1

NHPC 31 38,378 25.3 16.5 1.5 1.4 1.4 7.6 6.6 7

TataPower 1269 30,114 31 30.97 2.7 2.4 2.1 15.1 15.0 1

Reliance

Power

158

37,845

0

0

2.7

2.5

2.4

3.9

3.8

3AdaniPower 135 29,386 1512 1389 5.0 4.5 3.2 5.9 14.4 3

TorrentPower 333 15,753 53 37 4.4 3.3 2.7 21.0 23.5 2

LancoInfratech 71 17,131 231 117 4.9 3.6 2.8 17.4 22.0 2

*FY12EoverFY10Source:Bloomberg

CompanyBackground:

KSK Energy Ventures Ltd. (KSKEVL) is a power project development company that caters primarily to

requirements of captive consumers. The promoter company is KSK Energy Ltd. (incorporated and registere

Mauritius)whichinturnisawhollyownedsubsidiaryofKSKPowerVentureplc(anIsleofManincorporatede

listed

on

the

London

Stock

Exchange).

KSK

is

into

developing

and

operating

power

plants

for

industrial

and

sownedconsumers.Itthusearnsprojectdevelopmentfeesaswellasrevenuesfromsaleofpowertotheindu

consumers.Thecompanywasestablishedin2001tocapitalizeontheemergingopportunitiesintheIndianp

sector and focus on developing, operating and maintaining power projects. KSKEVL supplies power throu

combination of long term and short term Power Purchase Agreements (PPAs) to industrial and stateow

procurersandconsumersinIndia.Itcurrentlyhasthreeprojectsoperationalwithatotalcapacityof144MW.


12/20

Initiatin

Covera e

CorporateStructure

Companyevolution

2001 KSKEVLisincorporated

2004 MemorandumofunderstandingwithLafargeforsettingup43MWofpowercapacity

2005 SecuresallocationoftheGurhaEastLigniteblocktoVSLignitefromGovernmentofIndia

ShareholdersAgreementwithZuaricementsforsetupof 43MWcaptivepowerplant

Entiredebttieupof 3powerprojectsofArasmeta,SaiRegency&Sitapuramachieve

2006 Arasmetaplantsynchronizedwiththegrid

CollaborativeMOUswithSMDCs(GMDC,MPSMCandPIPDIC)forlongtermcoalsupplyarrangementssign

KSKPromoterGroupCompanyKSKPowerVenturplclistsonAIMMarketofLondonStockExchange

Execution of a coal supply and investment agreement with GMDC for supplies to proposed 1800

Chattisgarhproject

Lafargeconfirmsrequestforsetupofadditional43MW powerplantexpansionunit

EffortonWardhaWarora540MWpowerplantcommences

2007 Sairegencypowerplantsynchronizedwiththegrid

Sitapurampowerplantsynchronizedwiththegrid

2008 EffortonWardhaChattisgarh1800MWpowerplantcommenceswithsignificantdebttieup

KSKEnergyVenturescompleteitsPreIPOplacementaswellasInitialpublicofferingofShares,raisingap

US$300mn

KSKoffered346millionsharesatapriceofRs.240/shareraisingRs.830cr.

ItraisedRs415crbyplacingsharespreIPOwhichweresubscribedbyMacquarieBank,TreeLineAsiaMa

Fund(Singapore)PteLtd,GECapitalInternational(Mauritius)AxisBank,IDFCandUniversitiesSuperannua

SchemeLtd

KSKPower

Venture

plc

stake

dilutes

down

to

55.25%.

KSK

Energy

stock

starts

trading

on

NSE/BSE

2009Coal supply agreement entered with GIDC for 1800 MW Power project in Chattisgarh, Wardha Chattis

capacityenhancedto3600MWinsamelocation

GroupachievesproductionoftheGurhaEastligniteblockofVSLignitepowerplant

KSKEVLraisesRs.515crthroughQIPissueatRs.194/share

2010 VSLignitestartsproductionfrom31March2010

UnitIandIIfromtheWardhaWaroraplatcommenceoperation


13/20

Initiatin

Covera e

BusinessModel

Thecompanysetsupplantunderthe(group)captiveprinciple incollaborationwiththecaptivecustomers.

planttobequalifiedascaptiveplant,theElectricityAct2003requirestheusersto

contribute26%oftheequity

offtakeatleast51%ofthepower

ThepropositionworksbothforthecaptiveuseraswellasKSK.

Fortheindustrialconsumers,

Ithasreliablesupplyofpowerasthepowersupplyfromgridiserratic

Freedomtofocusonitscorebusinessactivity

Significantloweringofinvestmentsinsettinguppowergenerationcapacity

ForKSK,

EarnsreturnshigherthantraditionalROEprojects

Assuredofftake

Bettercreditworthinessgiventhebettercredibilityoftheindustrialconsumer

KSKsetsupprojectspecificSPV'swhereboth KSKand the industrial customercontribute towardstheeq

thusreducingKSK'sequityinvestment.Besidesthecontributionofindustrialcustomersistypicallythrough

A shares or preference shares which have a dividend cap (0.01%0.1% of face value). KSK thus retains 1

economicinterest

ProjectProfile

43MWArasmetapowerplant

Arasmetapowerplant issetuptomeetthecaptiverequirementofLafarge India ltdand issetup intheLa

complexatArasmeta,Chhattisgarh. It issetupas51:49JVwithKSKholding51%.KSKcommissionedthepla

November 2006,20months after receiving themandate from Lafarge. It has fuel supply agreement withS

EasterncoalfieldsofgradeFcoal.Theplanthasbeenoperatingat85%PLF.~245unitsaresoldtoLafarge.InF

theplantsold290MUatanaveragetariffofRs.3.29/unit

58MWSaiRegencypowerplant

SaiRegencyisagroupcaptivepowerplant(74%ownedbyKSK)cateringtomultipleindustrialclients.SaiReg

CeramicswasallocatedgaslinkagefromGAILforitsceramicsdivision.However,whenthecompanywasnotab

usethisgas,KSKapproachedSaiwithaproposaltosetupapowerplantfuelledbythisgas.Accordingly,itobta

funding from multiple industrial consumers in the form of equity and preference capital (with KSK holding

equity stake) to develop a 58MW power plant at Kalugurani, Tamil Nadu. Natural gas for the plant is sou

throughGAILunderafuelsupplyagreement.

Asthisisa'groupcaptive'capacity,almostallofthepowerproducedissoldtoindustrialcustomers.Thesurp

sold to the TamilNaduStateElectricity Board (TNEB)under the shortterm PPA route. Theplant uses the

transmissionnetworkundertheopenaccessregimefortransmittingpowertothemultiplecustomers.Thep

O&MhasbeenoutsourcedtoOperationalEnergyGroup.Powerissoldtocaptivecustomersonasinglepart

withfuelcostbeingapassthrough.

InFY10,theplantrecordeda70%PLF.Itsold337MUatanaveragetariffofRs.3.9/unit.


14/20

Initiatin

Covera e

Keyofftakers

ChemplastSanmar 22MW

PrecotMeridian 3MW

BrakesIndia 10MW

OrchidChemicals 6MW

LakshmiMills 7MW

JagannathTextiles 6MW

ElForge 2MW

Harshini 1MW

LightAlloysProductsLimites 1MW

RegencyCeramics 0.1MW


43MWSitapuramPowerplant

ZuariCements(ZCL)setupa51:49JVwithKSK(KSKholding49%stake)todevelopa43MWpowerplantto

the power requirements of its cement plants. Additionally, the power plant is responsible for acting as a

managerfor

ZCL.

Please

note

that

ZCL

retains

acall

option

on

buying

out

KSK's

49%

stake

at

book

value

in

FY18

yearsafterplantcommissioning. (Inourvaluationswehaveassumedthe JVuntilFY18).Thecoal linkagefo

plantisfromSingareniCollieriescoalfields.

Beingcaptiveinnature,~260MUissoldtoZCLonatakeorpaybasis,whilethesurplusissoldtoAndhraPra

Power Procurement Centre (APPC) under the short term PPA route. The plant utilizes the state transmi

networkundertheopenaccessregimefortransmittingpower.Also,theentirewaterrequirementforthepla

sourcedfromtheKrishnaRiver located4kmaway.PlantO&MhasbeenoutsourcedtoEnmasO&MServices.

InFY10,theplantachieved86%PLF,sold290MUatanaveragetariffofRs.4.28/unit

135MWVSLignitepowerplant

KSKset

up

a135MW

lignite

based

group

captive

power

plant

in

Bikaner,

Rajasthan,

to

cater

to

power

requirem

ofmultipleindustrialcustomers.KSKholds74%equityintheSPV,withtherestsubscribedbyindustrialcustom

KSKhasbeenallotted ligniteblocksatGurha inJuly2005andLunsara inFebruary2007.Thecompany inten

uselignitefromtheseminestorunthepowerplant.Intheinitialyears,thecompanyintendstosourcelignite

theGurhaminesonly.

Asthecapacityisa'groupcaptive'plant,almostallofitspowerproductionwouldbesoldtoindustrialcustom

Thesurplus isexpectedtobesoldtotheRajasthanPowerProcurementCentre(RPPC)undertheshortterm

route. The plant would be connected to the state transmission network under the openaccess regime

transmittingpowertomultiplecustomers.Theentirewaterrequirementfortheplant issourcedfromthe I

GandhiNaharCanal.


15/20

Initiatin

Covera e

LafargeIndiaisLargestOfftaker

RelianceChemotex 8MW

JKTyre 6MW

JKCement 15MW

JKLakshmi 21MW

Suzuki 20MW

Nahar 17MW

MaharajaSriUmaidMills 6MW

ModernInsulator 4MW

LafargeIndia 26MW

BalkrishnaTyres 6MW

APMIndustries 6MW


540MWWardhaWaroraPlant

The power plant is located at Warora Growth Centre in Chandrapur District of Maharashtra. The plant

aggregatecapacityof540MW,comprisingfourunitsof135MWeachandisbeingsetupthroughanSPV,Wa

PowerCompanyLimited.Theplantismakinggoodprogresswithtwounitsalreadyoperational.

Theplantwouldsupplyto10captiveusers,amongwhichVirajProfile(steelcompany)wouldofftake~50%o

poweratapriceofRs2.58/unit.Thebalance9wouldcollectivelyofftake200MWatvaryingprices.Coalfo

plant is tobesourced fromWesternCoalfieldLimited (WCL).ThePPAalsoallows thirdpartysales, inca

surpluspower(lowerofftake).

Viraj thekeyofftakerhasindicateditsinabilitytoofftakepower.KSKhascontractedthesametoMahara

StateDistributioncompanyforFY11andtoReliancepowerforFY12FY14period.

VirajProfiles

is

the

largest

offtaker

Viraj 270

Spentex 35

SonaAlloys 15

RLSteels 15

Graphite 14

MUSCO 35

MahindraForgings 5

AirLiquide 6

FacorSteels 11

MahindraHoliday 10

Source:Company,NetworthResearch43MWArasmetaExpansionPowerPlant

It is captive plant to cater to additional demand from Lafarge's Sonadih and upcoming Chhattisgarh units

plannedexpansionofcementunitsatChhattisgarhisexpectedtobecompletedbyFY1315.TheCompanyint

tousetheexistinglinkagefromSouthEasternCoalFieldsLimited(CoalIndia)tomeetthefuelrequirementsfo

expansionproject.Lafargehascontractedtopurchase17MWofpower;therestisavailableforshorttermsale.


16/20

Initiatin

Covera e

3600MWWardhaChhattisgarh

The3600MWpowerplantatChhattisgarhwillbeKSKEVL'sfirstIPP.ItshowcasesKSK'sabilitytosourcelowcos

onasustainedbasis.IthassignedadefinitiveagreementwithGujaratMineralDevelopmentCorporation(Mor

andGIDC(GoaIndustrialDevelopmentCorporation,GarePalmaIII)whohavebeenawardedcoalminesadjace

theplantsite.Aspertheagreement,thesetwocoalmines,wouldsupplycoaltotheprojectonacostplusb

andin

return

buy

part

of

the

power

generation

at

apredetermined

price.

Total cost of this project is Rs161bn, and is proposed to be financed through a D/E mix of 75:25. The Wa

Chhattisgarh theprojectSPV(100%ownedbyKSK)hasachievedfinancialclosure.Thefuelagreementgives

tobothGMDCandGIDCto investupto26%equity inthepowerplant. Ifexercised, itwould lowerKSK'se

contribution in theproject.KSKhasawardedtheEPCcontractofentireplant toSEPCO, the largestChinese

contractor.Asper theexecution schedule, unit Iof the plant is scheduled tocommissionby4QFY12with e

subsequentunitat4monthsintervalandtheentireplantby3QFY14(Wehaveassumedadelayofoneyeari

valuation). To counter any delays in mine development by the government mining companies, KSK has sec

taperingcoallinkages.GMDCisthelargestofftakerinPhaseIwith1010MW.


17/20

Initiatin

Covera e

FinancialInformation

P&Lconsolidated(Rscr) 2008 2009 2010 2011E 20

Incomefromoperations

ProjectDevelopment 50 137 212 308

Powergeneration

190

245

293

1709

2

less:Intersegment 1 1 3 0

TotalIncome 239 381 502 2017 3

Growth(%) 59 32 301

Expenditure

ProjectDevelopment 26 19 28 39

Powergeneration 118 145 171 770 1

less:Intersegment 1 1 2 0

TotalExpenditure 142 163 197 809 1

PBDIT

97

218

306

1208

1Growth(%) 125 40 295

OtherIncome 119 112 66 5

Depreciation 22 25 26 200

PBIT 193 306 345 1013 1

Interest 63 122 125 445

PBT 131 184 221 568 1

Exceptionalitems 0 6 0 0

PBT 131 190 221 568 1

Taxexpense 22 44 28 119

PAT 109 145 193 449 1

MinorityInterest 6 10 16 76

Net

profit

after

taxation

and

minority

interest

102

136

177

373

Growth(%) 33 30 111


18/20

Initiatin

Covera e

BalanceSheet

SOURCESOFFUND (Rscr) 2008 2009 2010 2011E 201

Shareholder'sFunds

a)ShareCapital 294 346 373 373 3

b)ReservesandSurplus 343 1636 2289 2664 35

Totalnetworth

637

1982

2662

3037

38

Minorityinterest 107 165 195 271 4

Loans 1252 2239 5339 8011 104

DeferredTaxLiability 4 6 12 0

2000 4392 8208 11319 147

APPLICATIONOFFUNDS

FixedAssets

a)GrossBlock 514 614 1660 3942 40

Less:AccumulatedDepreciation 24 51 82 282 4

NetBlock 491 563 1579 3660 36

b)CapitalWorkinprogress 943 2496 5121 6388 97

Total 1434 3059 6700 10048 133

Goodwill 198 198 198 198 1

Total 1632 3257 6898 10246 135

Investments 85 76 3 0

CurrentAssets,

Loans

and

Advances

a)Inventories 8 15 49 221 3

b)SundryDebtors 32 41 45 221 3

c)Cashandbalances 416 1107 1194 1299 11

d)othercurrentassets 0 49 53 233 3

e)Loansandadvances 239 410 413 404 6

695 1622 1755 2379 28

Less:CurrentLiabilitiesandProvisions

a)CurrentLiabilities 410 548 441 1278 15

c)Provisions 2 15 7 28

412

563

448

1305

16

NetCurrentAssets 283 1059 1306 1073 12

2000 4392 8208 11319 147


19/20

Initiatin

Covera e

CashFlow

CashFlowStatement(Rscr) 2008 2009 2010 2011E 20

Y/E

CashandCashEquivalents(OpeningBal.) 253 416 1107 1196 1

NetCashfromOperatingActivities 221 147 118 1427 1

NetCash

(used

in)/from

Investing

Activities

(1824)

(1444)

(3230)

(3544)

(34

NetCash(Usedin)/fromFinancingActivities 1765 1945 3200 2228 2

NetchangesinCashandCashEquivalents 162 649 89 111 (

CashandCashEquivalents(ClosingBal.) 416 1064 1196 1299 1

Ratios

P&LRatios(%) 2008 2009 2010 2011E 201

EBITDAmargins 90.3 86.7 73.9 60.1 59

PBTmargins 54.7 48.2 44.0 28.2 40

Adj.

PAT

margins

42.9

35.6

35.2

18.5

27Interestcoverage 1.5 1.8 2.5 2.7 4

BalanceSheetRatios

LT.Debt/Equity 2.0 1.1 2.0 2.6 2

TotalDebt/Equity 2.4 0.5 0.9 0.8 0

CrossRatios

AssetTurnover 0.12 0.09 0.06 0.18 0.

InentoryPayable(Days) 11.6 14.3 35.7 40.0 40

DebtorsReceivable(Days) 49.5 39.3 32.6 40.0 40

Payables(Days) 1054.7 1227.6 819.3 576.6 448

ROE 16% 7% 7% 12% 2

ROCE 10% 7% 4% 9% 1

Pershare

EPS 5.7 4.1 5.0 10.0 22

BV/PS 41.8 64.4 80.6 88.8 115

Cash/PS 23.2 33.1 33.6 34.8 30


20/20

NetworthResearch:Email [email protected]

AdeshDoifode Telecom&Metals [email protected] 02230641903

DimpleKhetan Banking&Midcaps [email protected] 02230641764

JinalSavla Power [email protected] 02230641600

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Derivatives&TechnicalResearch

AkshataDeshmukh Sr.Technical&DerivativesAnalyst [email protected] 02230641600

KekinMaru DerivativesAnalyst [email protected] 02230641600

InstitutionSales [email protected]

PrakashDiwan Head InstitutionalBusiness [email protected] 02230641600

ViralMalia AVPInstitutionalSales [email protected] 02230641761

KeytoNETWORTHInvestmentRankings

Buy:Upsideby>15,Accumulate:Upsideby+5to15,Hold:Upside/Downsideby 5to+5,Reduce:Downsideby5to15,Sell:Downsideby>15

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