Travelog
the analyst’s diary
INFRASTRUCTURE 2010
Building a new landscape
Andhra Pradesh
Hyderabad Airport
GVK
IVRCL
AP Irrigation
BSCPL Infra
Coastal Projects
Ramky Infra
Rithwik Projects
Ind Barath Power
Nagarjuna Cons.
Madhucon Projects
Vijai Electricals
Gayatri Projects
Site Visits:
1. Emaar - Boulder Hills
2. Veligonda Irrigation Project
Satyam Agarwal
(AgarwalS@MotilalOswal.com; +91 22 39825410)
Nalin Bhatt
(NalinBhatt@MotilalOswal.com; Tel: +91 22 39825429)

Infrastructure 2010
Travelog
Building a new landscape
H
YDERABAD. India’s most populated southern city,
has been called the City of Pearls and the City of
Nizams. It is the capital of India’s south eastern
state of Andhra Pradesh and boasts of the Charminar and
many other tourist delights,
which are testimony to its
erstwhile rulers’ dreams for it.
But now it has been transformed
into a city of modern day dreams.
Not only has it developed as an
IT hub, but we found that
technocrats have ambitious plans
for it as well.
As we approach this sprawling city
of 8.8m people, the flavor of
Hyderabad fills the senses, quite
like the biryani it is so famous
for. But take a closer look: plans
are afoot to change the very
landscape into a city of dreams.
We spoke with the managements of 15 companies and
discovered the brilliance that is yet to come. From an
June 2010
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Building a new landscape
Travelog
airport that will match the best in the world to waterworks
and energy that will elevate the lifestyles of millions,
it’s all happening here in Andhra Pradesh.
Our three-day journey in the sweltering heat of June
uncovered a passion to excel across the board. Although
some projects might not have progressed as quickly as
planned, the vision remains.
June 2010
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Building a new landscape
Travelog
Infrastructure 2010: Travel Itinerary
1
10 June 2010
We met the managements of
Hyderabad Airports
(pg 12),
GVK Power
(pg 20),
IVRCL
(pg 31),
the
Andhra Pradesh Irrigation Department
(pg 38),
and
rounded off the day with a visit to Boulder Hills,
a township by
Emaar,
and with discussions with
emerging leaders like
BSCPL, Coastal Projects,
Rithwik
and
Ramky.
2
3
11 June 2010
We met the managements of
Ind Barath,
Nagarjuna
Constructions
(pg 49),
Madhucon
(pg 56),
Vijai
Electricals
(pg 61),
Gayatri Projects
(pg 65),
and
also discussed issues such as setting up power
projects in Andhra Pradesh, real estate and coal
mining in Indonesia.
12 June 2010
We visited the
Veligonda Irrigation project
(pg 68)
in Srisailam district, where two 18.8km
tunnels are being bored. The project has Tunnel
Boring Machines (TBM) which are among the most
expensive engineering tools. The journey has its
own story to tell. Read on to discover ...
June 2010
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Building a new landscape
Travelog
Key takeaways from our tour
T
HE Indian infrastructure sector offers significant
growth opportunities, given the targeted spend of
US$1 trillion in the Twelfth Five Year Plan and increased
private sector participation. Against this opportune
backdrop, we embarked on Construction Travel 2010 to
Andhra Pradesh, where we interacted with various
infrastructure / construction companies, government /
bureaucrats, and visited large projects.
Power: ambitious expansion plans
We were amazed to note the huge capacity addition
plans by a few companies in Hyderabad. None of the
company managements we met is recognized in capital
markets as frontline power utilities. Despite this,
these companies cumulatively have operational power
capacity of 1.2GW, intend to commission 6GW by FY14/
15 and have 9.5GW in the planning stages.
These companies contribute 0.8% of India’s installed
capacity and would have market share of 8-10% in
terms of capacity commissioning in FY14/15.
Among the major companies are Ind Barath, GVK, Nagarjuna
and Gayatri. In fact, Ind Barath, will have a large
portfolio of capacity on merchant basis in FY13/
FY14.
June 2010
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Building a new landscape
Travelog
With gas availability and allocation round the corner
in Andhra Pradesh, we expect this number to increase.
We have not considered GVK’s gas-based expansion
plans for addition by FY14/15 pending gas allocations,
but this scenario could change for the better.
AMBITIOUS POWER CAPACITY ADDITION PLANS (MW)
Operational
GVK
Ind Barath
Gayatri
Madhucon
Nagarjuna
Coastal Projects
Total
911
291
0
0
0
0
1,202
Addition by
FY14/15
870
1,728
1,320
600
1,320
171
6,009
Capacity under
Planning Stage
3,090
1,338
1,320
2,395
1,320
0
9,463
Total
Portfolio
4,871
3,357
2,640
2,995
2,640
171
16,674
Several BOT projects to become operational in FY11
Several infrastructure projects, on an ownership basis,
are expected to become operational in FY11. The
companies we met during our trip to Hyderabad will
commission 16 NHAI road projects, one thermal power
project, one hydro power project and one desalination
project, largely in FY11.
The cumulative project cost of these infrastructure
assets is Rs114b and proportionate equity invested
is Rs18b. As these projects become operational,
operating cash flows will improve. This will also
June 2010
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Building a new landscape
Travelog
provide financing opportunities through stake sales
in these project SPVs, and other means.
PROJECTS
OPERATIONAL
SIZEABLE PORTFOLIO OF PROJECTS TO BECOME OPERATIONAL IN FY11
(Rs m)
Gayatri
Madhucon
Nagarjuna
IVRCL
B Sreenaiah
Total
Total Project
Cost
23,345
36,000
32,321
18,350
4,081
114,097
Proportionate
Equity
2,047
7,830
4,545
3,390
521
18,333
Remarks
5 NHAI road projects
4
4
2
1
NHAI
NHAI
NHAI
NHAI
road
road
road
road
project, 1 thermal power project
project, 1 hydro power project
project, 1 desalination project
project
Funding a key growth constraint
Most companies that we met in the course of our
travels plan to raise equity funding. This could be
a combination of equity dilution in the parent company,
equity dilution in the infrastructure holding company
and equity dilution in project SPVs. The companies
also intend to monetize a part of the operational
asset portfolio.
Thus, funding and fund raising is becoming critical
for growth, for many of the companies.
June 2010
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Building a new landscape
Travelog
Infrastructure assets: incremental revenue largely
flows to bottom-line, operating leverage meaningful
For operational infrastructure projects, operating
parameters have started improving. During April–May
2010, Hyderabad Airport (HIAL) traffic grew 20% YoY.
This compares with FY10 traffic growth of 5.4% YoY.
Existing capacity can cater to ~2x passenger traffic
and with brownfield expansion, it could cater to 3x
current traffic. Given the current under absorption
of interest and depreciation costs, HIAL will enjoy
superior leverage with pick up in operating factors
and increased spend per passenger. [In FY10, interest
and depreciation costs for HIAL were Rs530/passenger
v/s revenue of Rs673/passenger and EBITDA of Rs351/
passenger.]
Similarly, for the Jaipur Kishangarh road project
(owned by GVK), FY11 toll revenue is expected at Rs2b
(up 17.6% YoY). Project revenue increased by 14.8%
CAGR over FY06-10 through 8.6% traffic CAGR and 6.2%
toll increase.
June 2010
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Building a new landscape
Travelog
Founders, senior management of unlisted companies
show entrepreneurial spirit
As part of our travels, we met several interesting
bureaucrats and personalities, who exhibited the
entrepreneurial spirit of Andhra Pradesh. At one of
the meetings we learned that for Powergrid’s BOOT
tenders for power transmission lines, out of 30-33
bids submitted, about half were from Andhra Pradesh.
Despite a setback in FY10, Andhra Pradesh Irrigation
Department is attempting to put in place a structured
mechanism for project implementation. This is
commendable, given the current limitations. Cumulative
spend over the past five years on irrigation projects
in Andhra Pradesh has been Rs530b and projects worth
Rs1,220b were contractually awarded in this period.
This is one of the largest infrastructure initiatives
in India under implementation.
Vijai Electricals’ success story is inspiring. Over
the years, the company has achieved leadership in
India in the distribution transformer segment and is
the only organized player in the market. The company
is entering the “big boys’ league” and recently added
capacities in EHV transformers [current capacity is
~10%]. Very soon, ABB, Siemens, Areva, BHEL and Crompton
June 2010
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Travelog
will also have to compete with the entrepreneurial
spirit of Andhra Pradesh.
Site visit: Veligonda irrigation project
We visited Veligonda Tunnel project, executed by Coastal
Projects Limited. This project entails drilling two
tunnels through mountains, with a length of 18.8km each
and diameters of eight and 10 meters. The tunnels are
being drilled by Tunnel Boring Machines and the contract
value is Rs14b-15b. The project is among the largest
ongoing irrigation projects in Andhra Pradesh.
An exciting journey to the project site:
The 300km
journey from Hyderabad to Veligonda took us though i)
Rajiv Gandhi Tiger Reserve, ii) Srisailam Dam across
the Krishna River, which
submerged more than 100
villages when it was built,
iii) the famous Mallikarjuna
Temple, one of the 12
jyotirlings of Lord Shiva,
and iv) the world’s longest
bored tunnel, being drilled
by Jaiprakash, with a length
of ~45km and diameter of
The Srisailam Dam across the Krishna River
nine meters.
June 2010
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Travelog
Giant drills:
Tunnel Boring Machines (TBMs) are giant
drills that bore through imposing mountains. Each TBM
is about 150 meters long and weighs 1,450 tons. Each
TBM costs Rs1.2b-1.3b, making it one of the most expensive
engineering tools. A railway
coach transported us 2.5km
into the tunnel to a TBM.
Here,
at
120
meters
underground fresh air must
be pumped in. A TBM encases
~150 people working in close
coordination with each other,
and can move 1.65 meters an
hour, leaving a concretized
tunnel in its wake.
Miniature model of a TBM
June 2010
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Building a new landscape
Travelog
Hyderabad International Airport
Preparing for take-off
1
W
E met GRK Babu, Chief Financial Officer, Adavi
Joshi, Head, Retail-Commercial and members of the
senior management of the airport. Their story of the
progress of the airport on its journey to a world-class
facility was impressive.
Hyderabad International Airport (HIAL) is developed as
a greenfield airport by a consortium led by GMR
Infrastructure (63% stake), Airport Authority of India
(13%), the government of Andhra Pradesh (13%) and Malaysia
Airports Holdings (11%). HIAL commenced commercial
operations on 23 March 2008.
AERIAL VIEW OF HYDERABAD AIRPORT
June 2010
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Hyderabad International Airport
FRONT VIEW OF HYDERABAD AIRPORT
Travelog
Operating factors improve, HIAL has large operating
leverage
During April-May 2010, passenger traffic at HIAL was
1.2m, up 20% YoY indicating a strong recovery. This
compares with traffic growth of 4.3% in FY10.
FY10 passenger traffic was 6.49m passengers and current
capacity is 12m passengers, indicating significant
under utilization. Given the operating cost leverage,
EBITDA margins are expected to increase to ~65% at
passenger traffic of 10m against 55% currently.
In FY10, HIAL's interest and depreciation costs were
Rs530/passenger against revenue of Rs673/passenger
and EBITDA of Rs351/passenger. Given the current
under-absorption of interest and depreciation costs,
HIAL will enjoy superior leverage with a pick-up in
operating factors and increased spend per passenger.
June 2010
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Hyderabad International Airport
PASSENGER TRAFFIC (M)
Travelog
CAGR of
33%
2.9
4.0
6.9
5.7
5% YoY
6.2
6.5
21% YoY
1.0
1.2
Apr-
May
2010
2.2
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Apr-
May
2009
Existing capacity to cater to 2x passenger traffic;
brownfield expansion to cater to 3x current traffic
Phase 1 of HIAL was developed at a capital cost of
Rs29.2b (v/s Rs23b for Bangalore airport with passenger
handling capacity of 12m). Increased cost for HIAL
factors in capex for a 305-room hotel Rs2.5b, a fuel
farm Rs1.2b (pipelines with pumping points) and other
infrastructure Rs1.1b. Higher capex led to increased
variable share in revenue streams from concessionaires.
The current passenger handling capacity is 12m a year
against FY10 passenger traffic of 6.5m. Besides,
expansion of passenger handling until 20m a year will
be modular and capex limited at Rs8b, providing
superior leverage with increased passenger spending.
The eventual handling capacity of the airport is envisaged
at 40m passengers, which will entail replicating almost
the entire infrastructure, including runways.
June 2010
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Hyderabad International Airport
HIAL MASTER DEVELOPMENT PLAN
Travelog
HIAL subsidiary to manage duty free; HIAL to divest
hotel business into subsidiary
HIAL has awarded major contracts for non-aero revenue
on a revenue sharing and minimum guaranteed revenue
basis. Thus, improved passenger spends will lead to a
higher share of non-aero revenues for HIAL.
For duty free, the initial concessionaire, Nuance
Group, has discontinued operations and HIAL will
undertake the operations through a 100% subsidiary.
HIAL will thus directly control one of the key sources
of non-aero revenue at the airport. The new company
will take over the operations from 21 June 2010.
HIAL will divest its 305 room hotel (currently operated
June 2010
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Hyderabad International Airport
Travelog
by Novotel) into a wholly owned subsidiary. This
transfer will lower the project cost by Rs2.5b [equity
Rs1.1b and debt Rs1.4b]. This will also enable the
company to induct a financial/strategic partner in
the business going forward.
In FY10, a large part of the non-aero revenue was
derived from the fuel farm (Rs600m-620m), rentals
(Rs300m), advertising (Rs140m-150m), duty free shopping
(Rs100m), cargo (Rs140m) and the car park (Rs100m).
Higher operating factors for airlines and improved
passenger traffic will give rise to an increased
number of ATMs, which will lead to a higher increase
in aero-related (fuel farm, in-flight kitchen) and
non-aero revenue (duty free, advertisement and F&B).
PARTNERS/TIE-UPS FOR NON-AERO REVENUE STREAMS
Area
Cargo operation
In-flight kitchens
Fuel farm
Business hotel
(305 rooms)
Ground handling
Duty-free retail
(2,525sm)
MRO
Partner
Menzies plc, UK
LSG Sky Chefs &
Sky Gourmet
Reliance industries
Ltd (925 Kl/day )
Accor with Novotel
brand (COD Oct 2008)
Menzies Aviation &
Bobba, Air India & SATs
Through 100%
subsidiary (from June 2010)
Indian Airlines,
Malaysia Airlines
Area
Airport advertising
F&B
Lounge management
Hospitals
Car parking
Telecom services
Book stores
Forex counters
Partner
Laqshya
HMS Host
Plaza Premium Lounge
(3 nos)
Apollo Hospitals (17 beds)
Tenaga Car Parking
of Malaysia
Tata Teleservices
Landmark, Odyssey
Weizmann, Travelex
June 2010
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Hyderabad International Airport
Travelog
Initial progress on real estate development
Out of 1,500 acres of land available at Hyderabad
airport, 250 acres each are earmarked for development
of aero and logistics SEZs, respectively.
Aero SEZ (250 acres):
In the Aero SEZ, HIAL entered
into contracts with CFM International to set up an
engine training center and with Malaysian Aerospace
Engineering to set up a JV for the MRO business. The
project cost for the MRO operations is US$65m and the
companies invested seed capital of US$2m each. Staff
has been selected and is undergoing training in
Malaysia. HIAL plans to develop four hangars for MRO
checks including a D check, which can accommodate
three narrow-bodied and one wide-bodied aircraft or
five narrow-bodied aircraft simultaneously.
Logistics SEZ (250 acres):
HIAL plans to develop a
logistics SEZ with amenities to assemble and export,
largely as a transshipment hub.
Balance development (1,000 acres):
Real estate
development on 1,000 acres is likely to be centered
round three major themes: 1) medical tourism, 2)
entertainment, and 3) leisure. HIAL has tied up with
Apollo Hospitals to develop a 250-bed hospital on 30
acres of land. Development could include a golf course,
convention centre, shopping malls, and gaming and
entertainment zones.
June 2010
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Hyderabad International Airport
ESTA
REAL ESTATE DEVELOPMENT PLAN
Acres
250
Travelog
Usage
Aviation SEZ: Aircraft maintenance and manufacturing, assembling or repairing of avionic
components, etc. SEZ notification received in October 2009 and subsequently was
transferred to 100% subsidiary company, GMR Hyderabad Aviation SEZ Ltd. Tie-up with
Malaysian Aerospace Engineering for JV for MRO business, CFM International for engine
training centre and other facilities
Logistics SEZ: Largely to be developed as a transshipment hub
Medical, entertainment, leisure
250
1,000
CONNECTIVITY
ADVANT
ANTAGE
BETTER CONNECTIVITY IS A KEY ADVANTAGE
June 2010
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Hyderabad International Airport
Travelog
GMR's stake in HIAL valued at Rs33b, Rs9/share
We expect HIAL to post FY11 net loss of Rs251m, and net
profit of Rs513m in FY12 (including profit from RE
monetization). We value HIAL at Rs33b (for GMR's stake
of 63%), comprising
airport operations at Rs15b and
real estate at Rs18b. We have considered a 40% discount
to the real estate NAV for our SOTP valuations.
VALUA
ALUATION
STAKE)
HYDERABAD AIRPORT VALUATION (FOR GMR'S 63% STAKE)
Particulars
Core Business
Real Estate
Total NPV
Value (Rs m)
15,315
18,120
33,434
Rs/sh
4
5
9
HIAL: SIGNIFICANT OPERATING/FINANCIAL LEVERAGE LIKELY (Rs m)
OPERATING/FINANCIAL
LIKELY
Passenger (m)
Net revenue
Staff, admin cost
EBIDTA*
Margin (%)
Interest
Depreciation
PAT
Cash Profit
FY09
6.2
3,982
2,388
1,431
35.9
1,592
1,122
(1,211)
(89)
641
384
230
256
180
(195)
FY10
6.5
4,211
1,923
2,288
54.3
2,079
1,370
(1,103)
267
646
295
351
319
210
(169)
FY11E
7.7
5,516
2,021
3,274
59.4
2,145
1,444
(251)
1,193
719
264
427
280
188
(33)
FY12E
8.7
6,494
2,124
4,109
63.3
2,145
1,487
513
2,000
748
245
473
247
171
59
Summary (Rs/passenger)
Net revenue
Staff, admin cost
EBITDA
Interest
Depreciation
PAT
June 2010
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Building a new landscape
Travelog
GVK Power & Infrastructure
Powering ahead
1
W
E met business heads and members of senior management
from various divisions at GVK Power and
Infrastructure and were told about the progress the
company is making in various sectors including roads,
power and oil and gas.
Road business
1. The Jaipur-Kishangarh Expressway
The Jaipur-Kishangarh Expressway (JKEL) toll
collections increased to Rs4.7m a day in FY10 from
Rs2.2m a day in FY06, its first year of operations.
Traffic, measured in terms of passenger car units
(PCUs) increased from 45,000 to 62,500 in this period
and project revenue increased from Rs980m in FY06 to
Rs1.7b in FY10, a robust 14.8% CAGR over FY06-10.
This was achieved through 8.6% traffic CAGR and 6.2%
toll increase CAGR.
70% of the JKEL traffic comprise commercial vehicles
(trucks, multi-axle vehicles), which are dependant
on industrial activity. The GVK management stated
that in the best year, commercial vehicle traffic
grew 18% YoY and in the worst year, it de-grew 0.4%.
June 2010
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GVK Power & Infrastructure
COLLECTION
AT
TOLL COLLECTION BOOTH AT JKEL
Travelog
In FY11, toll revenue of Rs2b is expected (up 17.6%
YoY). Toll increase from July 2010 is expected at
9.54%, based on the WPI index as at March 2010.
Revenue growth going forward is expected at 18-20% a
year.
The capacity of the road is 140,000 PCUs and thus at
~8.6% traffic growth (historical average), the road
will reach peak capacity in FY19 or FY20. The concession
period expires on 17 March 2023. Outstanding debt in
the project was Rs2,250m as at March 2010 and will be
completely repaid by 2017.
June 2010
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GVK Power & Infrastructure
Travelog
PAT
JKEL: REVENUE, PAT (RS M)
2,100
1,575
1,050
525
0
Net profit for FY10 was impacted due to periodic maintence capex of
~Rs900m; partly offset by revision in depreciation policy. For FY11,
the maintenance capex is Rs100m
Revenues
PAT
FY06
FY07
FY08
FY09
FY10
FY11
FY12
2. Kota-Deoli road project
GVK recently bagged the four-laning of the Kota-
Deoli road project covering 88km. The project cost is
estimated at Rs8b-8.5b.
Equity return is expected at 18%. The project is
expected to achieve financial closure in 2HFY11.
After JKEL (which was among the earliest projects
awarded by NHAI), this is only the second project win
by GVK in the roads sector.
June 2010
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GVK Power & Infrastructure
Travelog
Power business
1. Gas based expansion of 2.4GW
GVK said it would expand its gas-based capacity by
2.4GW, including 1.2GW expansion each at Gautami and
JPII. The configuration at Gautami will be three
turbines of 400MW each and at JPII will be three
turbines of 408MW each.
The EPC contract for the Gautami expansion is expected
to be signed in June 2010, and EPC contractors are a
consortium of Hyundai (Korea) and L&T Chennai. For
the JPII expansion, Alstom is the expected EPC
contractor.
For both project expansion plans the land is in
possession and a large part of the water availability
has also been tied up. Environment clearance has also
been obtained. The company has applied to Powergrid
for power evacuation. 35-40% of the capacity will be
sold to AP discoms.
Financial closure of the initial few sets is targeted
by October 2010, after gas allocation by the
government. The construction period is 31 months
after financial closure, given the shorter gestation
period for gas-based power projects.
June 2010
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GVK Power & Infrastructure
Travelog
2. Goindwal Sahib (540MW)
Goindwal Sahib achieved financial closure on 2 February
2010 and construction has commenced. Piling foundation
for boiler 1 is almost complete and the site will
soon be handed over to BHEL for installations. Punj
Lloyd has also been mobilized for the BOP work. BHEL
has started sending foundation equipment to the site.
The project is expected to be completed in 36 months.
In Tokisud mines, the company acquired 60% of the
land required. Environment clearance and stage 1
forest clearance is also available and the company is
expected to sign the mining lease in two months.
3. Alaknanda Hydro Power Project (330MW)
Work on Alaknanda Power Project is progressing per
schedule and overall physical progress is 50%. The
revised project cost is Rs27b (v/s an initial target
of Rs20b) due to reclassification of the seismic
zone.
Project commissioning is expected by December 2011.
Design energy for the project is 1,309MUs, translating
into PLF of 55%. GVK will get returns based on prior
CERC norms of 14% ROE, plus incentives.
June 2010
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GVK Power & Infrastructure
D T I T AKE A N D C O FFE R D A M
N
D I E R SI N D A M
V
O
Tr a ve l
og
G ANT R Y E R E CT I N AT H E A D R A C E
O
T UNNEL
PO W E R CH A N N E L
June 2010
?
?
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GVK Power & Infrastructure
Travelog
4. Wins Rattle Hydro Power Project in J&K [690MW, 6 X
115MW]
GVK recently won 90MW Rattle Hydro Power Project in
J&K. This is first hydro power project to be awarded
on a competitive based bidding mechanism in India.
Other bidders included Tata Power, Lanco and L&T.
Scheduled commissioning for the project is 81 months
from the date of LoI (received in May 2010) and the
concession period is 35 years. In 24 months, the
project is expected to receive all approvals. The
project DPR was prepared by NHPC in 2007. The GVK
management believes there is a fair possibility of
completing the project ahead of schedule. Access to
the project is easy as it is located near the national
highway in Jammu.
Free power is 16% comprising of 1% towards local area
development and 15% to the state government. Terminal
value after 35 years is Rs3.8b, which will be paid by
the J&K government for transfer of the project. GVK
has quoted a tariff of Rs1.44/unit for 55% of the
power to discoms and 45% will be available for sale
on a merchant basis.
The internal estimate of the project cost is Rs50b
and upfront payment in FY10 is expected at Rs350m.
Rehabilitation is restricted to only one village,
involving less than 50 people.
June 2010
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GVK Power & Infrastructure
CAPACITY ADDITION BY GVK (MW)
Travelog
Existing
Alakananda HEP
Goindwal Sahib
Rattle HEP
2,471*
690
540
911
330
FY10
FY12E
FY13E
FY16E
FY17E
* Excluding 2400MW Gas-based power project expansion at JP-II and Gautami projects, pending gas allocation
Oil and gas
GVK bid for seven deep-sea blocks, including six in
Mumbai High and one in the Kerala-Konkan region. This
was through a JV with BHP-Billiton, with GVK having
a 74% share. These are largely frontier blocks, on
which not much data were available.
The commitment was to spend US$60m for exploratory
data, which would cover 2D seismic study, and other
elements.
GVK has spent US$17m so far on oil and gas and the
cumulative spend until December 2010 for data
acquisition will be US$26m-27m. After that, data
processing will commence, which will require US$36m-
June 2010
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GVK Power & Infrastructure
Travelog
39m. The next stage will be drilling exploratory
wells, depending on the data analysis.
Equity investment of Rs5.4b in FY11, plus Rs2b-3b
if gas based project expansion/NHAI project achieves
financial closure
For FY11, GVK's equity commitment will be Rs5.4b,
largely towards initial contribution for gas based
power project expansion (Rs1b), Alaknanda/Goindwal
Sahib (Rs3b), oil and gas (Rs300m-400m), Mumbai airport
(Rs740m), upfront payment for Rattle Hydro Power
(Rs350m).
Successful financial closure of 800-1,200MW gas-based
project expansion will entail incremental equity
investment of Rs1.2b-2.5b; plus Rs700m towards Kota-
Deoli NHAI road project. Bangalore airport debt of
Rs6.8b (interest rate 9%) needs to be refinanced in
January 2011, entailing refinancing requirements of
~Rs7.5b.
Part of the fund requirement is intended to be met
through private equity in the power business (~US$200m-
250m, in advanced stages) and internal accruals.
Private equity funding in the airport business looks
challenging due to regulatory uncertainty. GVK also
has options to securitize cash flows in operational
projects.
June 2010
Page 28

GVK Power & Infrastructure
Travelog
Valuations and view
We expect GVKPIL to post consolidated net profit of
Rs3.2b in FY11 (up 100% YoY) and Rs5b in FY12 (up 56%
YoY). At a CMP of Rs45, the stock trades at a PER of 21x
FY11E and 14x FY12E. We arrive at an SOTP based target
price of Rs54/share, comprising the airports (including
Bangalore airport at book value) at Rs25/share, roads
at Rs7/share, power portfolio at Rs17/share and investment
in other projects, cash at Rs3/share. Maintain
Buy.
NET PROFIT (RS M)
Summary of SPV wise profitability
Mumbai International Airport Limited
Jaipur Kishangarh Expressway
Jegurupadu Phase I
Jegurupadu Phase II
Alakananda Hydro Project
Gautami Power Project
Other Business (Mining, O&M)
Reported PAT
FY09
316
534
72
-
-
-
-
1,076
FY10
517
591
10
263
-
232
-
1,559
FY11
694
863
256
752
-
676
3,240
FY12
927
1,089
212
1,083
423
979
331
5,044
June 2010
Page 29

GVK Power & Infrastructure
INFRASTRUCTURE:
VALUA
ALUATIONS
GVK POWER AND INFRASTRUCTURE: SOTP VALUATIONS (RS M)
Project
% Holding
Mumbai Airport
Core business operations
37.0
Real Estate
Bangalore Airport
Roads
Jaipur Kishangarh Exp
Power
Jegurupadu Phase I
Jegurupadu Phase II
Alakananda Hydro project
Gautami Power Project
Goindwal Sahib Project
Coal Mining
Goriganga Hydro power project
Others
Oil & Gas Exploration
O&M Business
Investment in SEZ
Cash
Grand Total
37.0
Basis
DCF
DCF, At NAV
BV of investment
100.0
100.0
100.0
100.0
64.0
100.0
74.0
DCF
DCF
DCF
DCF
DCF
DCF
DCF
BV of investment
BV of investment
DCF
Book Value
FY10 Book
9.6
9.4
9.5
10.0
9.4
11.1
9.4
WACC %
8.7
12.0
Travelog
Equity ValueIn %
38,836
45
13,966
16
24,870
4,850
10,603
10,603
27,219
4,359
5,416
4,211
5,574
5,460
2,170
28
300
1,243
1,060
1,500
85,612
29
6
12
12
32
5
6
5
7
6
3
0
0
1
1
2
100
Rs/sh
25
9
16
3
7
7
17
3
3
3
4
3
1
0
0
1
1
1
54
100.0
10.5
June 2010
Page 30

Building a new landscape
Travelog
IVRCL
One for the road
1
O
UR meeting with senior management of IVRCL revealed
that the company had ambitious plans of diversifying
both geographically and segment-wise. The company's
share of water projects in its order book has declined
while that of road projects has increased. BTB has
increased from 3x in FY09 to 3.9x currently and the
target is to increase it to 4.6x by FY11, providing
robust growth visibilities.
Attempts at segmental, geographical order book
diversification; expect higher BTB ratio
IVRCL is in a transition phase, with attempts to
diversify its order book, in terms of new verticals
and geographies. The share of water projects declined
from 70% of the order book at the end of FY09 to 46%
at the end of FY10; but the share of roads increased
from 5% of the order book to 32%, largely due to
group BOT project wins.
IVRCL has also identified new business verticals
such as: i) marine, including piling and dredging,
and ii) mining contracts. IVRCL has also set up
initial presence in certain overseas markets, submitted
June 2010
Page 31

IVRCL
Travelog
bids for electrical tower projects in Africa, and is
planning acquisition of manufacturing units abroad
(to complement its strengths in Hindustan Dorr Oliver).
The book-to-bill (BTB) ratio increased to 3.9x at the
end of FY10, up from 3x at the end of FY09. The
increased order intake is driven by projects that
entail a longer gestation period [~50% of the intake
in FY10 is being driven by in-house road BOT projects].
For FY11 the management has guided for closing its
order book at Rs320b and revenues of ~Rs70b; thus
implied BTB stands at 4.6x. This will be a meaningful
increase.
ATTEMPTS TO DIVERSIFY ORDER BOOK COMPOSITION (%)
Water
10
33
12
18
3
20
20
Roads
8
17
19
7
16
26
Building
11
11
22
Power
8
23
8
5
20
5
6
15
32
57
70
58
56
51
56
61
70
48
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
June 2010
Page 32

IVRCL
Travelog
RATIO AT
TARGET
BOOK-TO-BILL RATIO AT 3.9X TTM REVENUE, TARGET 4.6x BY FY11
Order Book (Rs b)
Book to Bill (ttm x)
IVR Assets to book 35-40% EPC/construction profits
on BOT projects
For the order book from IVRCL Assets, IVRCL will get
EBITDA margins of ~9% for project construction and
IVRCL Assets will retain 3-4% margins on project
management and design improvements.
Given that a construction contract will cover 65-70%
and project management 85-95% of project costs, we
understand 60-65% of combined EPC/construction profits
will be accounted in IVRCL and 35-40% in IVRCL Assets.
June 2010
Page 33

IVRCL
Travelog
Net working capital cycle improves; debtor days
deteriorate to 115 in FY10
For IVRCL, net working capital in FY10, excluding
advances to subsidiary companies was Rs18.4b. This
was largely similar to that in FY09, despite 12.5%
revenue growth in FY10.
We understand that a large part of this improvement
is driven by increased current liabilities (up 46%
YoY) driven by higher mobilization advances, which
are largely interest bearing. Debtor days have
deteriorated from 65 days in FY08 to 84 in FY09 and
115 days in FY10.
Thus, increased interest bearing advances led to
higher interest costs in 4QFY10 at Rs525m against
Rs368m in 3QFY10; despite debt in absolute levels
declining to Rs16b from Rs19.4b.
BALANCE SHEET: IMPROVEMENT IN NWC DRIVEN BY INCREASED CURRENT
LIABILITIES
US$m
Debt
Current Assets
Current Liabilities
Net Working Capital
FY09
270
791
314
477
FY10
302
936
460
476
June 2010
Page 34

IVRCL
DAYS DETERIORATED
DEBTOR DAYS DETERIORATED IN FY10
Travelog
106
114
99
84
65
115
FY05
FY06
FY07
FY08
FY09
FY10
IVRCL Assets and Holdings: equity investment
contingent on fund raising
IVRCL Assets and Holdings has a portfolio of 10
projects comprising eight roads, one desalination
plant and one tankage facility. Total project cost
stands at Rs125b and over one year, the asset size is
targeted at Rs220b-230b. We believe this increase is
challenging given the funding constraints.
Equity investments on the existing portfolio is Rs22b,
of which IVRCL's share is Rs19b. Outstanding equity
investments by IVRCL stands at Rs15b-16b. While the
company has achieved financial sanctions for many
projects, financial closure will entail that 25-35%
of the equity will have to be invested upfront.
June 2010
Page 35

IVRCL
Travelog
The management stated that funding needs would be
largely met through: private equity investment in
project SPVs at Rs4b-4.5b, structured finance/QIP in
IVR Assets Rs5b and real estate monetization Rs4b-5b
(over three years). Thus a large part of the equity
requirement is contingent on fund raising/asset sale.
For IVRCL Assets, revenue in FY11 is expected at
Rs10b, including Rs3.5b from toll/annuity revenue.
FY12 revenue is expected to be Rs20b, including Rs6b
from toll/annuity revenue.
Successful fund raising in IVRCL Assets is also
important for IVRCL's execution as 15-18% of FY11
revenue are expected to be contributed by in-house
projects.
PROJECT DETAILS
IVRCL ASSETS: BOT PROJECT DETAILS
Project name
Length
Concession Project
(kms)
cost
Jalandhar - Amritsar Road Project
Salem to Kumarapalayam
Kumarapalayam - Chenagmpalli
Chennai Desalination
Sion - Panvel
Baramati - Phaltan
IOCL Tankage
Chengapalli - Walayar
Indore - Gujarat
Goa - Maharashtra
Aggregate
49
53.53
48.51
100MLD
25
77.9
12 tanks
42
155
122.06
20 years
20 years
20 years
25 years
18.9 years
25 years
15 years
27 years
27 years
23 years
3,436
5,020
4,215
5,679
14,500
3,820
30,000
11,250
15,237
30,000
123,157
Equity
641
800
651
1,730
3,500
690
2,250
4,250
3,809
4,000
22,321
IVRCL
Expected
Share (%) Completion
100
100
100
75
51
75
38
100
100
100
FY11
FY11
FY10
FY11
FY14
FY14
FY14
FY14
FY14
June 2010
Page 36

IVRCL
Travelog
Maintain Neutral
We expect IVRCL to report net profit of Rs2.6b in FY11
(up 21.9% YoY) and Rs3.4b in FY12 (up 31.5% YoY).
Maintain
Neutral,
with a price target of Rs184. At a
CMP of Rs181, the stock quotes at reported PER of 19.4x
FY11E and 14.8x FY12E and adjusted PER of 13.2x FY11E
and 10.1x FY12E.
June 2010
Page 37

Building a new landscape
Travelog
A P Irrigation Department
Wealth from water
1
O
UR discussions with Shailendra Kumar Joshi, IAS,
Principal Secretary to Government (Projects),
Irrigation and Command Area Development Department,
revealed the enormity of the Jalayagnam project. The
project has hit a few roadblocks but the A P Irrigation
Department seems to be doing its best to get things
moving. It is, after all, a project that can help to
change for the better, the lives of millions.
Jalayagnam: an ambitious project
The government of Andhra Pradesh’s ambitious irrigation
infrastructure project, Jalayagnam, comprises major,
medium and minor ventures. Jalayagnam includes 44
major irrigation projects, 30 medium irrigation
projects, eight modernization projects and four flood-
bank strengthening projects.
Jalayagnam is expected to irrigate 10m acres and was
scheduled to be completed by FY14. Since 2004, 12
projects have been completed and 2.2m acres have been
irrigated. The project entails land acquisition (0.8m
acres), resettlement and rehabilitation (0.13m
families).
June 2010
Page 38

A P Irrigation Department
Travelog
June 2010
Page 39

A P Irrigation Department
Travelog
Project implementation: priority to complete
projects with 75%+ physical progress
Jalayagnam's 86 projects were approved at a project
cost of Rs1,790b. Of this, projects costing Rs1,220b
were awarded to contractors. The remaining projects
worth ~Rs550b are awaiting clearances of issues such
as land acquisition, rehabilitation of families and
environment and forest department clearances.
Since 2004, Rs530b has been spent on irrigation
projects, of which Rs430b has been towards Jalayagnam,
and Rs100b on modernization/upgrading of existing
projects and on minor irrigation projects.
Out of the 86 projects, only 12 were complete by
March 2010 and partial benefits have been given on 20
projects. The target is to complete 39 projects by
mid-FY12 (including 20 projects for which partial
benefits have been given), which would take the number
of completed projects to 51. The 39 projects have
achieved over 75% physical progress and are on the
government's priority list for completion. The
estimated remaining cost for completion of the 39
projects is Rs68b.
June 2010
Page 40

A P Irrigation Department
Travelog
Funding a constraint, but scenario has improved
since 2QFY10
Budgetary allocation for the Jalayagnam projects
accounted for 40-42% of the government of Andhra
Pradesh's Plan Budget, and is thus its flagship
project.
In FY10, budgeted allocation to the Jalayagnam project
was Rs170b and actual spend was Rs120b. In FY11 the
budget allocation is Rs150b but actual spending is
estimated at Rs120b. Real estate comprises less than
1% of government revenues and is not impacting project
execution.
As at March 2010, the outstanding liability towards
contractors was ~Rs40b. As of date, bill payments
have been made for work done until November 2009. For
AIBP projects, funding has been cleared until February
2010.
Spend in FY11 will include payments of outstanding
dues of ~Rs40b to contractors, Rs68b towards 39
projects which are more than 75% completed and balance
amount will be used for other projects. Since a large
part of the allocation is for clearance of past dues,
the allocation to spending on work on the projects
will be curtailed.
June 2010
Page 41

A P Irrigation Department
Travelog
The government has also revised milestones for project
execution/completion from 36/42 months to ~60 months.
This will slow execution.
The Jalayagnam project was targeted to be completed
by FY14 but is expected to take 2-3 years more due to
delays.
Escrow mechanism for contractors
To partly address funding constraints for contractors,
the government has provided comfort to financial
institutions and banks through an escrow account.
Contractors can take advances against outstanding
receivables. The interest cost on the advances must
be borne by contractors. The mechanism is largely to
address the funding requirements.
Execution challenges
The Jalayagnam project entails execution challenges
because of its large size, land acquisition issues,
resettlement and rehabilitation of families on the
land for the project, and delays in obtaining
clearances from the environment and forest departments.
Irrigation projects also involve inter-state issues
because of the use of water from sources that run
through other states. Funding is also a constraint.
June 2010
Page 42

A P Irrigation Department
Travelog
Central government funding
The central government is weighing the possibility
of declaring the Polavaram (Rs63b) project a national
project. The central government bears 90% of the cost
of a national project.
A project can be declared a national project if it i)
has an ayacut of 250,000 hectares, ii) leads to
inter-linking rivers, iii) involves inter-state issues,
or iv) involves international border issues.
Initial contracts on the Polavaram project were pre-
closed and the project tender is expected to be re-
awarded soon. The project will be implemented if it
receives central government funding.
Huge opportunity cost of scarce water
The opportunity cost of scarce water is huge as it
leads to losses in industrial development and
agricultural production.
For instance, the Polavaram project's opportunity
loss is Rs20b a year, because it can irrigate 725,000
acres of agricultural land and expedite expansion
plans of companies like SAIL and NTPC, which have
been impacted by a water shortage.
June 2010
Page 43

A P Irrigation Department
Travelog
Andhra Pradesh irrigation projects: Among the
largest infrastructure initiatives in India
AMRP INCLUDING SLBC TUNNEL
Cost: Rs56b
Irrigation potential (acres):
370,000
Power requirement: 116MW
CoD: 2013-14
PROJECT
STAGE
SRIRAM SAGAR PROJECT (SRSP, STAGE II)
Cost: Rs8.3b
Irrigation potential (acres):
440,000
CoD: 2011-12
June 2010
Page 44

A P Irrigation Department
PROJECT
FLOOD FLOW CANAL FROM SRSP PROJECT
Travelog
Cost: Rs47b
Irrigation potential (acres):
220,000
Power requirement: 48MW
CoD: 2012-13
INDIRA SAGAR RUDRAM KOTA LIFT IRRIGATION (LIS)
KOTA
IRRIGATION
Cost: Rs18b
Irrigation potential (acres):
200,929
Power requirement: 229MW
CoD: 2012-13
June 2010
Page 45

A P Irrigation Department
DEVADULA
J. CHOKKA RAO - DEVADULA LIS
Travelog
Cost: Rs92b
Irrigation potential (acres):
621,000
Power requirement: 384MW
CoD: 2013-14
(POLAV
PROJECT
INDIRA SAGAR (POLAVARAM) PROJECT
Cost: Rs103b
Irrigation potential (acres):
721,000
Power requirement: 960MW
CoD: 2012-13
June 2010
Page 46

A P Irrigation Department
PROJECT
POOLA SUBBAIAH VELIGONDA PROJECT
Travelog
Cost: Rs52b
Irrigation potential (acres):
447,300
Power requirement: 15MW
CoD: 2013-14
PROJECT
TELUGU GANGA PROJECT
Cost: Rs44b
Irrigation potential (acres):
522,539
CoD: 2010-11
June 2010
Page 47

A P Irrigation Department
SRAV
GALERU - NAGARI SUJALA SRAVANTHI
Travelog
Cost: Rs72b
Irrigation potential (acres):
255,000
CoD: 2010-12
June 2010
Page 48

Building a new landscape
Travelog
Nagarjuna Construction
Consolidation on the cards
2
O
UR interaction with the management of Nagarjuna
Construction revealed that the company would
consolidate its global business in FY11 and EBITDA
margins would be sustained. Most of the BOT projects
under construction will be commissioned in FY11,
improving operational cash flows. The company also
plans to acquire coal mines in Indonesia.
International business: FY11 to be a consolidation
year, increased competition
During FY11, the management intends to consolidate
its international business. According to its FY11
business plan, approved by the board, international
operations will contribute revenue of Rs13b, and
order intake is expected to be Rs7b. This compares
with gross intake of Rs20b in FY10. Over the past
four years, the business has grown meaningfully,
from revenue of Rs1b in FY07 to Rs11.2b in FY10. The
international business order book as at March 2010
was Rs33b (contribution of 21%).
June 2010
Page 49

Nagarjuna Construction
Travelog
Competition is now increasing with various Chinese/
Turkish companies entering the market. A slowdown in
Dubai has also led to increased competition for projects
in places like Abu Dhabi and Muscat. Nagarjuna also
intends to enter countries like Kuwait and Qatar.
In the international business, Nagarjuna is focused
on the transport, water and buildings segments. Since
the orders are from government agencies, payment
risks are mitigated.
EBITDA margins in international projects at the bid
level are similar to those of domestic projects. As
tax rates in Muscat and Dubai are low (nil in Dubai,
12% in Muscat), PAT margins are better. All
international orders are on a fixed-price contract
basis and the company benefited from a decline in
commodity prices in FY10. The management believes
EBITDA margins will be sustained as operational
efficiencies have crept in.
INTERNATIONAL
CONSOLIDATION
INTERNATIONAL BUSINESS: FY11 TO BE A YEAR OF CONSOLIDATION (Rs M)
Order Book
Revenues
Net Profit
In %
FY08
24,240
1,466
63
4.3
FY09
33,030
5,753
260
4.5
FY10E
32,920
9,342
448
4.8
FY11E
25,750
13,450
673
5.0
June 2010
Page 50

Nagarjuna Construction
Travelog
Investments in RE/BOT projects of Rs11.8b, new BOT
road project win after 3-4 years
Nagarjuna has so far invested Rs11.8b in real estate
and on road BOT projects (including advances of Rs2.4b).
The outstanding equity commitment is Rs600m-700m,
including cost overruns, of which a large part will
be invested in 1QFY11. Most of the BOT projects under
construction are expected to be operational by end
FY11, which should improve the operational cash flows.
Nagarjuna was recently awarded an NHAI road project,
at a cost of Rs15b in West Bengal. This win is the
first of its kind after 3-4 years.
Nagarjuna has capped further equity investment on
real estate. It plans to recover investments through
project launches as the real estate market improves.
The company has commenced apartment sales in the
National Games Village in Ranchi: 250 apartments of
the 1,000 apartments constructed and attributable to
Nagarjuna have been sold.
Nagarjuna Urban will have revenue of Rs2.7b in FY11,
up from Rs1.1b in FY10.
June 2010
Page 51

Nagarjuna Construction
PROJECTS
OPERATIONAL
SIX BOT PROJECTS TO BE OPERATIONAL BY END FY11
Type
Transport
Bangalore-Maddur (Brindavan)
Orai-Bhognipur, UP
Bangalore-Hosur Elevated Road
Merrut-Muzzafarnagar, UP
Pondicherry Road
Power
Himachal Sorang (100MW)
Total
* Nagarjuna share
Project
Cost
(Rs m)
2,475
5,840
8,520
6,349
3,150
5,987
32,321
Equity
Invested
(Rs m)*
150
936
1,149
1,170
330
810
4,545
NCC
Stake
(%)
33
68
40
43
48
67
Travelog
Status
Annuity
Annuity
Toll based
Toll based
Operational
July 2010
Jan 2010
July 2010
Sept 2010
Mar 2011
Hydropower
Thermal power: case 1 bids of 400MW signed, plans
to acquire coal mines in Indonesia
Nagarjuna plans to set up a 1,320MW thermal power
plant in Andhra Pradesh, for which most of the
clearances and coal linkages have been received and
land acquisition (1,800 acres) completed. Project
EPC will be executed by Nagarjuna, and BTG will be
awarded to Chinese companies. Nagarjuna is expected
to make EBITDA margins of 11-12% and PBT margins of
7-8%.
The company has participated in a case 1 bid and
signed PPA with Karnataka to supply 400MW at Rs3.89/
unit for 25 years. Nagarjuna intends to have 80% on
long term PPAs and 20% on a merchant basis.
June 2010
Page 52

Nagarjuna Construction
Travelog
The project is expected to achieve financial closure
by the end of June 2010. Nagarjuna has 100% stake in
the project and plans to induct a financial investor
(maximum 49% dilution). The project cost is Rs65.7b,
which will be financed as debt of Rs51.6b and equity
of Rs17.2b. The company has spent Rs650m-700m on the
project so far. Financial closure will entail upfront
equity investment of Rs5.8b.
70% linkage has been obtained from Mahanadi coal
fields and landed cost is expected at Rs1300/ton. 30%
of the coal will be met through imports. Nagarjuna
intends to acquire coal mines in Indonesia with
reserves of ~30mt reserves and negotiations are
underway. FOB price is expected at US$35/t and CIF
including local transport will be US$55/ton. Generation
cost is expected at Rs2.4/unit.
The project also entails phase-2 expansion of 1,320MW
for which most clearances are in place.
Dubai real estate: trigger point for customer payment
should indicate cancellations
So far, Nagarjuna Urban Infra has invested Rs3.4b in
the project including through client advances,
borrowings and equity investment. Nagarjuna plans to
complete construction of Tower 1 up to the tenth
floor (cost Rs500m), which will be the next trigger
June 2010
Page 53

Nagarjuna Construction
Travelog
point for further payment by customers and should
indicate the quantum of cancellations. We believe
there is a fair possibility of cancellations in the
project, which will entail blockage of funds by
Nagarjuna until economic conditions improve in Dubai.
The sale value of Tower 1 is Rs5.5b and the construction
cost is Rs4b (excluding land cost). Thus, after
factoring in the proportional cost of land and interest
during construction, Tower 1 is expected to only
break even.
NAGARJUNA: BUSINESS PLAN FY11 (RS M)
Build Trans- Water
ings
Op. O/ Book
(Mar-10)
port
36,890 11,790 24,250
Elec-
Irri- Metals Power Others Inter-
national
4,940 10,650
9,460 32,950 153,780
Total
trical gation
7,100 15,750
6,000
6,000
4,230
3,600
8,870 18,150
Order Intake 32,000 20,000 15,000
Revenue
18,150
5,060 14,000
Cl. O/ Book 50,740 26,730 25,250
(Mar-11)
5,900 50,000
9,000
6,250 150,150
4,170
3,510
3,520 13,450 69,690
6,670 57,140 14,940 25,750 234,240
June 2010
Page 54

Nagarjuna Construction
RATIO AT
BOOK-TO-BILL RATIO AT 2.7X TTM REVENUE
Travelog
Order Book (Rs b)
Book to Bill - x (ttm)
Maintain Buy
We expect Nagarjuna to post net profit (from the
construction business, including overseas companies)
of Rs3b in FY11 (up 26.7% YoY) and Rs3.7b in FY12 (up
22.5% YoY). Maintain
Buy,
with a price target of Rs204/
sh. At a CMP of Rs190, the stock quotes at a reported
PER of 16.2x FY11E and 13.3x FY12E, and adjusted PER of
13.1x FY11E and 10.7x FY12E.
June 2010
Page 55

Building a new landscape
Travelog
Madhucon Projects
SPVs commence operations
2
W
E met S Vaikuntanathan, Director Finance, and S
Jagannadham, Executive Director, of Madhucon
Projects. By end FY11, the company will have an
operational portfolio of four NHAI projects (317km),
Thermal Power (300 MW) and coal mining in Indonesia
(250mt). Funding is a challenge.
Contracting order book Rs57b, in-house orders 60%
Madhucon Project's current order book is Rs57b and
its book-to-bill ratio is 4.4x FY10 revenue. Order
composition is: power (42%), irrigation (24%), roads
(24%), buildings (7%).
The share of in-house projects in the order book is
Rs36b, comprising roads (Rs7.5b), power (Rs24b) &
buildings (Rs4b). In-house orders contribute 60% to
the order book.
Within irrigation, a large number of the projects is
from Andhra Pradesh, which entails that the execution
on this order book will be limited in FY11.
The management has guided for FY11 revenue of Rs20b
(v/s Rs13.1b in FY10) and PAT margins of 4.8% (v/s
3.3% in FY10). We believe that given the order book
composition, the guidance is challenging.
June 2010
Page 56

Madhucon Projects
Travelog
CONTRACTING
CONTRACTING BUSINESS: FINANCIAL (RS M)
FY05
Revenues
EBIDTA %
PAT %
PAT
3,106
14.4
5.2
162
FY06
3,495
20.1
9.5
333
FY07
5,315
18.4
7.8
416
FY08
7,506
16.0
6.3
473
FY09
10,445
13.7
4.5
469
FY10
13,076
10.6
3.3
432
Four operational road BOT projects by end-FY11
Madhucon is executing four road BOT projects with a
total length of 320km (project cost Rs20b and equity
of Rs3.8b). A large part of the equity has already
been invested.
Currently two road projects are operational and the
remaining two projects will start partial tolling in
July 2010. These four projects will generate toll
revenue of Rs1.7b a year.
Recently Madhucon was awarded the Chhapra-Hajipur
four-laning road project by NHAI in Bihar on an
annuity basis. The project size is 64km and project
cost is Rs8.2b. Target DER is 75:25 and annuity
payments are Rs634m payable semi-annually. The
concession period is 15 years, including 2.5 years of
construction.
June 2010
Page 57

Madhucon Projects
Travelog
OPERATIONAL PROJECTS
BOT PORTFOLIO: FOUR OPERATIONAL PROJECTS BY END AUG 2010 (RS M)
Bharatpur - Mahwa
Karur - Dindigul
Trichy - Thanjavur
Madurai - Tuticorin
Chhapra - Hajipur
Total
Equity (%)
85
98
100
85
100
Length (km)
58
73
57
129
64
COD
May-09
Nov-09
July / Aug 2010
July / Aug 2010
2014
Project Cost
3,380
3,730
3,900
9,200
8,200
28,410
Grant
960
860
780
1,440
-
4,040
Power: 300MW to start operations end-FY11, 3.7GW
in various stages of completion
Krishnapatnam Phase 1 project capacity has been
increased to 300MW (2 units of 150MW each), v/s
initially 270MW (2 units of 135MW each). Project
capex is Rs16b, which will be funded on a DER of
75:25. As at March 2010, the company incurred capex
of Rs7b and the rest will be spent in FY11. Equity
invested is Rs2.2b.
During the first phase, 200MW capacity was tied up
with PTC, which will supply the coal, and the rest of
the power will be sold on a merchant basis.
Phase 2 will comprise two units of 150MW each to be
set up at a project cost of Rs16b. Financial sanctions
have been received and the project is expected to
achieve financial closure shortly. Equity investment
expected in FY11 for Phase 2 is Rs2b.
June 2010
Page 58

Madhucon Projects
Travelog
The company plans to set up 1,320MW at Krishnapatnam
in Phase 3, it has signed an MOU with the government
of Jharkhand to set up a 1GW thermal project and was
awarded hydro power projects of 75MW by the Uttarakhand
govewrnment. Construction for the hydro power projects
is expected to commence by the end of FY11.
Indonesian coal mines to start production in FY11
Madhucon's 95% subsidiary, PT Madhucon, Indonesia
has started excavation at the East Kalimantan mines
in Indonesia, which as per a geological survey, has
reserves of 250mt spread over 3,188 hectares. The
jetty to export the coal from this mine is expected
to be completed by the end of August 2010. Production
is expected as follows: 0.5m-0.6mt in FY11, 1.5mt in
FY12 and 2.5mt in FY13. For production beyond 1.5mt,
incremental capex will be required for the mining
infrastructure.
The company also received another license to prospect
coal from 10,000 hectares of land in and around
Sumatra, Indonesia and the expected mineable reserves
are 900mt. Geological studies are being conducted.
The management says it takes 6-7 years to start
mining in Indonesia, which is a long gestation period.
June 2010
Page 59

Madhucon Projects
Travelog
Real estate
Madhucon has nine acres of land in Kukatpally,
Hyderabad, which it acquired at an auction from the
Hyderabad Urban Development Authority (HUDA) for Rs45m
an acre in 2005.
The company plans to develop about 2.1msf for mixed
use development, including a four-star hotel,
commercial complex and retail mall.
June 2010
Page 60

Building a new landscape
Travelog
Vijai Electricals
Powering ahead
2
W
E met D Jai Ramesh, chairman and managing director
of Vijai Electricals and discovered a fascinating
corporate journey.
An inspiring story
Vijai Electricals was promoted as a proprietary concern
by DJ Ramesh, in 1973, incorporated as a private
limited company in 1980 and converted into a public
limited company in 1992.
Over the years, the company has achieved a leadership
position in India in the distribution transformer
segment, and is the only organized player in the
market. The company has diversified into other segments
such as power transformers, switchgear products and
projects. Vijai now has five business units.
The company has also diversified geographically through
setting up manufacturing plants in countries like
Mexico and Brazil.
Many of the business segments are in the initial
stages of a production ramp-up and present a meaningful
growth opportunity in the future.
June 2010
Page 61

Vijai Electricals
Travelog
Revenue growth over the six years to 2008 was ~50%
CAGR. FY10 revenue was Rs16b-18b, and in FY11, the
company expects revenue growth of ~50%.
Between 2004 and 2008 Vijai incurred capex of Rs6b to
set up manufacturing facilities. Now, the company
has capability to generate revenues of 3x current
size without a meaningful incremental capex.
Only organized player in distribution transformers
In distribution transformers, Vijai has a market
share of 25% and capacity share is 30%. The distribution
market (33kV) is dominated by small unorganized players
and there is no other large organized player.
The company's backward integration and investment in
technology, which helped it to compete with the
unorganized sector, is the main reason for its success.
Vijai makes its own conductors, insulators, lamination
and tank fabrication, which provides cost benefits.
The company developed amorphous metal transformer
technology, which leads to power saving. While the
domestic market for this product is improving,
countries like Brazil and the
US offer good
opportunities.
June 2010
Page 62

Vijai Electricals
Travelog
Entering the big boys’ league
Vijai entered the design, manufacture, testing and
supply of EHV power transformers up to 500MVA, 500kV
in technical collaboration with Daihen Corporation,
Japan. The company has a capacity of ~12,000MVA for
EHV transformers, which is in a similar range as many
MNCs like ABB, Areva and Siemens. Vijai is also
preparing to supply 1,200kV transformers, as the
market for them opens in India. Vijai's capacity
share in EHV transformers is ~10%.
Vijai will gain from backward integration into
conductors, lamination, tank fabrication, radiators
and insulators even in making power transformers,
providing it with cost benefits.
Vijai is scheduling the manufacture of gas-insulated
switchgears of up to 420kV in India and will perhaps
be the only company to do so.
Chinese/Koreans competition not structural, pricing
pressure probably reaching trough
Chinese and Korean competition in 765kV products was
given stringent pre-qualification norms by Powergrid.
The products were required to be supplied from a
plant with a two-year track record of manufacturing
765kV transformers.
June 2010
Page 63

Vijai Electricals
Travelog
Over the past 18 months the pre-qualification norms
have been eased, which has helped some companies in
India to gain pre-qualification for their Indian
manufacturing units.
Prices two years ago were better than what they are
today. Today's prices are 7-8% lower than prices a
year earlier. Prices are probably touching the lowest
point.
Vijai is focusing on efficiency improvement and
increased capacity utilization for power transformers,
switchgears and other products, which are new product
segments. Its plants in Mexico and Brazil can contribute
meaningfully to revenues going forward.
June 2010
Page 64

Building a new landscape
Travelog
Gayatri Projects
Steady progress
2
A
T Gayatri Projects, we met KG Naidu, VP Finance,
who gave us a fair idea of the company's road,
irrigation and power projects.
Order book of Rs71b, irrigation projects contribute
52% to order book
Gayatri Projects' order book is Rs71b (5.6x FY10
revenue). Order book composition is as follows:
transport (34%), irrigation (52%) and others, including
industrials (14%).
The management expects FY11 revenue contribution from
irrigation projects of Rs2b against an initial estimate
of Rs10b. This slowdown will also impact margins on
irrigation projects due to poor cost absorption.
Gayatri Infra Ventures (70% stake)
Gayatri Infra Ventures has a portfolio of seven BOT
projects, comprising four annuity and three tolls
with a project cost of Rs23b.
Of these, four annuity and one toll project are
expected to become operational in FY11. The projects
were expected to become operational between September
June 2010
Page 65

Gayatri Projects
Travelog
2008 and December 2009. Equity invested so far by
Gayatri Infra Ventures in BOT projects is Rs2.1b,
including Rs1b received from AMP Capital.
The two toll projects were recently awarded and will
achieve financial closure in the next few months. The
share of equity investment in the projects by Gayatri
Infra Ventures is Rs3b.
In March 2008, AMP Capital infused Rs1b in Gayatri
Infra Ventures for a 29.4% stake, valuing the company
at Rs3.4b. AMP also has the option to invest Rs1b
more in the company as equity commitment towards
future BOT projects.
PROJECTS
OPERATIONAL
FIVE BOT PROJECTS TO BECOME OPERATIONAL IN FY11
Type
Gayatri Lalitpur
Gayatri Jhansi
Merrut-Muzzafarnagar, UP
Hyderdabad outer ring road 1
Hyderdabad outer ring road 2
Hyderabad Karimnagar Ramagundam
Indore Dewas
Total
Annuity
Annuity
Toll
Annuity
Annuity
Toll
Toll
Cost
(Rs m)
3,126
4,210
6,681
4,310
5,018
22000
6,016
Gayatri Infra Equity
( stake, %)
51
51
49
50
50
50
100
(Rs m)
306
408
768
341
224
1,480
1,504
5,030
Equity infusion
(FY10, Rs m)
306
408
768
341
224
-
-
2,046
June 2010
Page 66

Gayatri Projects
Travelog
Gayatri Energy Ventures
Gayatri Energy Ventures, a subsidiary of Gayatri
Projects, is developing a 1,320MW (2*660MW) thermal
power plant under Phase-I at Krishnapatnam, Andhra
Pradesh through its subsidiary, Thermal Powertech
Corporation India Limited (TPCIL). The company plans
to expand its capacity in the same location by 1,320MW
in Phase-II, thus taking the total capacity to 2,640MW.
Land has been acquired (1408 acres), environment
clearance received, coal linkage from Mahanadi
Coalfields for 70% of requirements has been obtained..
Land for Phase-II of the 1,320MW project is also in
its possession. The Phase-I project cost is Rs68.7b,
which will be funded as debt of Rs51.5b and equity of
Rs17.2b. Financial closure for Phase-I is targeted
by the end of June 2010.
In May 2010, the company entered into a JV agreement
with Sembcorp Utilities to invest Rs11b in TPCIL for
49.7% stake. Gayatri Energy Ventures has so far
invested equity of Rs2b and will invest the remaining
Rs4.2b going forward.
June 2010
Page 67

Building a new landscape
Travelog
Irrigation project at Veligonda
An engineering marvel
3
W
E visited Veligonda Tunnel project, about 300km
from Hyderabad, executed by Coastal Projects Ltd.
This project entails the drilling of two tunnels through
mountains with a length of 18.8km each and diameters of
eight and 10 meters. The tunnels are being drilled by
Tunnel Boring Machines, which bore through the mountains
like
earthworms. With a contract value of Rs14b-15b,
these are easily among the largest ongoing irrigation
projects in Andhra Pradesh.
An exciting journey
The journey from Hyderabad to the Veligonda site took
us through (i) Rajiv Gandhi Tiger Reserve, (ii) Srisailam
Dam across the Krishna River, which submerged more than
100 villages when it was constructed, (iii) the
Mallikarjuna Temple, which is one of the 12 jyotirlingas
of Lord Shiva, (iv) the world's longest bored tunnel
being drilled by Jaiprakash with a length of ~45km and
diameter of over nine meters.
June 2010
Page 68

Irrigation project at Veligonda
Travelog
Hyderabad
Veligonda Site
June 2010
Page 69

Irrigation project at Veligonda
Travelog
Rajiv Gandhi Tiger Reserve is
spread over 3,568sq km and has
75 tigers
The Srisailam Dam across the
Krishna River had resulted in the
submerging of over 100 villages
when it was built
June 2010
Page 70

Irrigation project at Veligonda
Travelog
The left bank hydro electric power
station generates 6 × 150MW of
power and the right bank
generates 7 × 110MW of power
Jaiprakash Associates is drilling
what is probably the world's
longest bored tunnel, the
Srisailam Left Bank Canal. The
project contract value was about
Rs20b
June 2010
Page 71

Irrigation project at Veligonda
Travelog
Project site an engineering marvel
Tunnel Boring Machines (TBMs) are giant drills that
bore through imposing mountains. Each TBM is about 150
meters long and weighs 1,450 tons. Each TBM costs
Rs1.2b-1.3b, making it one of the most expensive
engineering tools. A railway coach transported us 2.5km
into the tunnel to a TBM. Here, at 120 meters underground
fresh air must be pumped in. A TBM encases ~150 people
working in close coordination with each other. At optimum
rates, a TBM can move 1.65 meters an hour, leaving a
concretized tunnel in its wake.
Miniature model of a TBM
June 2010
Page 72

Irrigation project at Veligonda
Travelog
Entering the mouth of the tunnel
in a railway coach [notice that
fresh air is being pumped in]
Heavy duty cranes to load
concrete liners on railway wagons;
conveyor belts transporting cut
rocks from inside the tunnel
June 2010
Page 73

Irrigation project at Veligonda
Travelog
Entering the tunnel: soon it will
become completely dark as we
move deeper inside
Railway carriage inside the TBM,
where we get down
June 2010
Page 74

Irrigation project at Veligonda
Travelog
Cement being pumped inside the
liners (across the tunnel), to close
any gaps
Concrete liners being affixed on
the tunnel. As the TBM moves
ahead, a concretized tunnel is left
behind
June 2010
Page 75

Irrigation project at Veligonda
Travelog
Concrete liners on the top of the
tunnel. Seven liners are required
to complete a ring
Workshop to manufacture
concrete liners... the workshop
consumes ~10 tons of steel and
50-70 tons of cement a day
June 2010
Page 76

Irrigation project at Veligonda
Travelog
The first stage in making concrete
liners for the tunnel is cutting and
fabrication of steel...
Concrete is then poured into a
structure to make concrete liners
June 2010
Page 77

Building a new landscape
Travelog
NOTES
June 2010
Page 78

Building a new landscape
Travelog
NOTES
June 2010
Page 79

Travelog
the analyst’s diary
INFRASTRUCTURE 2010
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