Thematic | December 2014
Utilities / Metals
A new beginning
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412 /
Nalin Bhatt
(NalinBhatt@MotilalOswal.com); +9122 3982 5429
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +9122 3027 8033

Thematic | Sector Update
Utilities / Metals: A new beginning
Page No.
Summary
........................................................................................................
3-5
Demand outweighs resources in round-1
..................................................
6-10
Qualification-based auction for Power
....................................................
11-14
Price and eligibility framework: Key monitorables
.................................
15-17
Analyzing relative positioning of players in clusters
...............................
18-27
Sound framework; execution holds key................................................... 28-30
Utilities: Long-term positive, tariffs to trend down
................................
31-32
Non-Power: Revenue maximization is key
.....................................................
33
Metals: Scenario fluid
................................................................................
34-35
Investors are advised to refer through disclosures made at the end of the Research Report.
11
2014
2

Thematic | Sector Update
Utilities / Metals
Coal auction: A new beginning
Qualification key for Power sector, pricing for other sectors
Please also refer to our
Utilities sector report dated
24 September 2014
Coal block auction is set to take off, with 74 blocks in round-1. These have production
potential of 216m tons. Of this, 70% is for the Power sector.
Our analysis of mines/end-use projects highlights that demand is far higher than the
resources being offered in round-1. Sponge Iron units are better placed than IPPs on
coal demand-supply. However, the additional 130 blocks to be auctioned later on hold
promise, with 4x resource.
Evaluation of bidders under the auction route would hinge on technical qualifications
for the Power sector and on bid price for other sectors. For the Power sector, it would
be more akin to “allotment” of blocks through a scientific method.
More clarity is required on key variables like pre-requisite of PPA, end-use price cap
(for Power sector), ownership rights, and “optimum” resource utilization. Also, the
process may lead to higher legal complications/re-opening of PPAs. However, we
believe coal block auction bodes well for the Power sector in the long term.
Production scanty versus potential demand, resource holds promise
The coal block auction process is likely to kick-start, with offering of 74 blocks,
comprising 42 operational (schedule II) blocks and 32 near-completion (schedule III)
blocks. These blocks have cumulative reserves of 8.4b tons and production potential
of 216m tons. Of these, 26 blocks with production potential of 104m tons would be
allotted to central/state undertakings; 48 blocks with 112m tons would be put up
for auction. Our analysis based on end-use linked projects highlights potential
demand for 324m tons, ~3x the auction pool. Our analysis assumes status quo on
end-use classification.
We also note that current production from schedule II blocks is just 30m tons and
relevant capacity-linked demand (fulfilling end-use completion criterion of 80%) is
300m tons. There is sizable end-use capacity chasing too few resources. However,
the additional 130 blocks (total 204) identified for auction/allotment have reserves
of 35b tons against 8b tons for the current 74 blocks. Thus, faster ramp-up of
domestic production through coal block development holds key.
Please also refer to our Metals
sector report dated
26 August 2014
Bid evaluation: Qualification-based for Power, price-based for others
The draft rules to effect the ordinance highlight weightage-based two-stage bid
evaluation on technical and financial parameters for the Power sector. Given the
intention of ‘not maximizing revenue’ and passing on the benefit of low cost of
captive coal to the Power sector, steep bidding may be discouraged. While there are
proposals to keep the base price (floor price) low, there is likely to be enabling
legislation to cap bid price/end power realization. Bid evaluation for the Power
sector would focus on technical qualification more than price, in our view. A point-
based evaluation for key technical parameters has been specified in the past and we
foresee more inclusions/exclusions to fine tune the auction (read ‘allocation’) for
the Power sector. The auction process may be a more scientific way of
disseminating blocks.
11 December 2014
3

Thematic | Sector Update
Please also refer to our
Utilities sector report dated
21 October 2014
For other sectors, including captive power projects (CPPs), there is free pricing for
coal blocks. The floor price for such blocks is likely to be import parity price less a
marginal discount. We believe there will be stiff competition among CPPs and other
sector players for coal blocks. Logistics (distance and cost) would be a key success
factor. While bidding is likely to be relatively aggressive, bid prices would also be
influenced by the global meltdown in commodity/coal prices.
Sponge Iron units better placed
Among the coal blocks on offer under the auction route, we note that 25 blocks with
production potential of 47m tons (15m tons in schedule II) are earmarked for
Sponge Iron projects. Our cluster-based analysis indicates that 12.2m tons of Sponge
Iron projects close to these blocks could require 42m tons of coal, leading to better
demand-supply match.
Demand-supply gap glaring for IPPs
The scenario is, however, bleak for independent power projects (IPPs). Our analysis
indicates that 57GW of projects are in close proximity to these blocks. Of these,
(a) 41GW of projects are either commissioned or are complete up to 80%+, being
eligible to bid for schedule II blocks. Schedule II blocks for Power sector could
produce 14m tons against demand of 200m tons.
(b) An additional 6GW of projects are complete to the extent of 60% and are
eligible to bid for schedule III blocks, which have the potential to produce 49m
tons.
(c) Moreover, there are ~10GW of CPPs, which also qualify for bidding on end-use
completion criterion.
Aggregate power capacity of 57GW, with potential coal demand of ~280m tons
would have to contend for 64m tons of supply – an availability of less than 25%.
Fine print on important variables is key; complexity on PPAs may rise
While the bidding framework on key issues like price and eligibility conditions over
end-use readiness is still being worked out, clarity on the need for PPA,
transferability/rights of the developer, policy on ‘optimum’ utilization of coal, cap on
end-use prices are critical. Further rounds of bidding would see sustained interest
only if there is high visibility on environment/forest clearances, R&R issues, land
acquisition, state government support, and evacuation infrastructure.
In our discussions, developers have indicated that re-distribution of coal blocks
across projects may jeopardize existing PPAs. Projects with no PPAs, but relying on
linked coal blocks, would also be impacted if such linkages are lost. There would be
increased complexity in the sector. Existing bilateral contracts with third-
party/related contractors in mining may also face legal complications.
Long-term tariff may trend downwards; efficiencies will drive returns
The pass-through of low cost of captive coal is likely to keep long-term PPA bids at
lower levels than the current INR4.00-4.50/unit. Also, the capacity charge based
bidding would entail that developer returns are linked to efficiency. Developers
would have to re-align their return expectations to reasonable levels; the days of
windfall gains are over.
Focus on clean play in the interim
The Power sector has been seeing intense push from the government in the last 12-
18 months by way of FRP (Financial Restructuring Plan) for DISCOMs, change in PPA
11 December 2014
4

Thematic | Sector Update
for usage of imported coal, and now resource allocation through auction. Recovery
at the macro level may take a while, and even longer at the developer level, given
project/tariff level issues and stretched financials. We prefer players that are
relatively better placed in the current environment.
NTPC, Powergrid, CESC, and
Rattan India are our top Power sector picks.
In the Non-Power space, we like Hindalco,
given its close proximity to coalfields,
benefits from capacity ramp-up, improving aluminum demand, strong TC/RC, and
tailwinds from Novelis.
Jindal Steel and Power (JSPL) too is well placed, with all its projects complete and
coal mines in proximity. However, JSPL will face tough competition from other IPPs
in bidding for coal blocks. It needs to regain all lost coal blocks to achieve our
earnings estimates. This might be difficult, given likely cap on the number of blocks
that one corporate entity may bid for. Further, JSPL does not have long-term PPA,
which may push it down the list on technical qualification.
Sesa-Sterlite (SSLT) too is well positioned, with its power projects in proximity to
mines. However, falling commodity (especially oil) prices will adversely impact its
earnings and valuations.
Exhibit 1: Power sector valuation table
Company
Recom
EPS (INR/sh)
FY15E FY16E FY17E
CPSUs
NTPC
PGCIL
Coal India *
NHPC
Private Sector
CESC
Tata Power
JSW Energy
Reliance Infra
PTC
RattanIndia
Power
Buy
Buy
Neutral
Neutral
Buy
Neutral
Neutral
Buy
Buy
Buy
10.0
9.7
25.5
2.1
56.5
4.0
8.2
51.2
14.6
0.2
12.3 14.7
11.5 13.7
28.6 31.5
2.4 2.4
59.5 64.1
4.9 5.6
7.6 7.3
61.6 61.2
14.1 16.0
1.9
3.0
RoE (%)
FY15E FY16E FY17E
9.3
14.1
23.5
8.3
11.3
7.9
19.1
6.4
12.7
0.8
10.8 12.2
15.2 16.3
23.3 22.5
8.1
7.9
10.4 10.2
8.4
9.0
15.5 13.5
7.3
6.8
10.9 11.5
9.0
13.0
P/BV (x)
FY15E FY16E FY17E
1.3
1.9
4.7
0.7
1.2
1.5
2.0
0.7
1.0
0.6
1.2
1.7
4.1
0.7
1.1
1.5
1.8
0.6
1.0
0.5
1.1
1.5
3.6
0.7
1.0
1.4
1.7
0.6
0.9
0.5
P/E (x)
FY15E FY16E FY17E
14.3
14.1
14.1
9.0
11.6
18.6
11.4
11.0
6.5
-
11.7
11.9
12.6
8.2
11.0
13.0
12.4
9.1
6.7
6.0
9.7
10.0
11.4
8.1
10.2
11.0
12.8
9.2
6.0
EV/EBITDA (x)
FY15E FY16E FY17E
11.2 10.2
10.6 9.7
9.5 7.9
7.3 6.8
8.6
8.8
6.7
6.5
7.3 6.8 6.0
16.3 12.5 11.8
6.6 6.9 6.9
5.0 3.3 3.1
4.6 4.7 3.6
3.8
11.8 5.0 4.3
Source: Company, MOSL
Exhibit 2: Metal sector valuations table
Rating
Steel
Tata Steel
SAIL
JSW Steel
JSPL
NMDC
Non-Ferrous
Hindalco
SSLT
Hindustan Zinc
Nalco
MCAP
(INR) (USD M)
462
85
1169
152
140
166
237
171
58
7,241
4,130
4,559
2,244
8,956
5,530
11,337
11,658
2,412
CMP
FY14
35.5
4.6
34.4
20.9
16.1
12.5
17.2
16.3
2.6
EPS
FY15E
33.3
8.2
133.6
20.1
17.1
13.3
24.0
19.8
5.4
FY16E
58.9
7.7
136.2
19.4
14.5
13.0
24.3
18.8
6.1
P/E (x)
FY15E FY16E
13.9
10.4
9.4
7.6
8.2
12.5
9.9
8.6
10.8
7.8
11.1
9.3
7.9
9.6
12.7
9.8
9.1
9.5
EV/EBITDA (x)
FY15E FY16E
7.0
8.4
6.4
7.7
4.4
8.3
6.4
5.1
4.6
6.2
7.5
6.2
7.3
5.5
7.3
5.8
4.2
3.5
P/B(x)
FY14E
FY15E
1.8
0.8
1.2
0.6
1.8
1.4
0.8
1.1
0.7
1.7
Buy
Neutral
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
CMP=current market price
1.4
1.3
1.0
0.9
1.6
1.4
1.1
1.1
Source: Company, MOSL
11 December 2014
5

Thematic | Sector Update
Demand outweighs resources in round-1
Subsequent coal auctions can bridge supply gap
The coal block auction is likely to kick-start with 74 blocks, representing 216m tons of
production capacity and 8.4b tons of reserves. Of these, 104m tons (26 blocks) would
be directly allocated to government/state entities while remaining 112m tons (48
blocks) will be put up for bidding.
Based on earlier end-use classification of the 112m tons, only 64m tons of coal
capacity is available for the Power sector. The remaining 48m ton is between Sponge
Iron and Cement.
Future rounds of auction (remaining 130 blocks of the 204 blocks cancelled) hold
additional reserves of 35b tons, ~4x the 8.4b tons in round-1 auction.
We assess total coal demand of 324m tons from IPPs and other end-use sectors
around the coal block regions. The Power sector includes 57GW (of which 10GW is
captive power) with potential demand of ~280m tons. Sponge Iron includes 12m tons
capacity, with potential coal demand of 42m tons.
74 blocks with production potential of 216m tons in round-1 of bidding
The Supreme Court (SC) judgment, de-allocating 204 coal blocks, specified a time
limit till March 2015 to transfer/auction operating/near-commissioning coal blocks.
Further, the Ministry of Coal (MoC) has published an
ordinance
to facilitate land
transfer from the existing allottee and draft rules for carrying out the auction
process smoothly. Bidding is set to kick-start with 74 coal blocks having geological
resources of 8.4b tons in round-1.
The ordinance has classified the 42 operating coal blocks (geological resources of
3.7b tons) under schedule II, while 32 blocks at advanced stage of commissioning
(geological resources of 4.7b tons) are grouped under schedule III. The
comprehensive list of 204 coal blocks is the schedule I list. The Ministry of Coal
(MoC) may offer more coal blocks from the schedule I to schedule III category.
Round-1 bidding for 74 blocks is slated to be over by mid-March 2015.
Based on the clearance granted for schedule II and III blocks, the total production
potential stands at 216m tons – 80m tons from 42 operating coal blocks and 136m
tons from 32 near-commissioning blocks. Of these, the end-use based classification
is highly skewed in favor of the Power sector at ~70% (151m tons production) and
Sponge Iron at 22% (47m tons). The allocation for the Power sector also includes
coal blocks earmarked for allocation to central and state government undertakings.
11 December 2014
6

Thematic | Sector Update
Exhibit 3: Summary of coal mine producing capacity (mtpa)
in round-1 auction
Schedule II (no.of blocks)
Schedule III (no. of blocks)
151 (40)
93
47 (25)
32
15
2 (4)
4 (1)
12 (4)
6
6
58
80
216 (74)
136
Exhibit 4: Share of coal mining capacity under round-1
by previous end-use classification (mtpa)
Cement
1%
Sponge
22%
Steel
2%
Commercial
5%
Power
70%
Source: MOSL, Ministry of Coal
Source: MOSL, Ministry of Coal
Our review of all coal blocks allotted to central/state sector undertakings highlights
at least four blocks that do not have any dedicated end-use projects and were
routed through JV/other route to the private sector. Based on the allotment criteria,
we believe these blocks could be put under open auction.
Exhibit 5: Potential list of blocks previously allocated to state entities but can be shifted to auction route
Coal block
Prior
allotte
Mining Geological
capacity (mt) res. (mt) Prior end-use Status
6.0
5.0
2.8
2.9
259
210
101
175
Commercial
Power
Commercial
Power
Reason for re-classification
Tara
CMDC
Gare Pelma Sector III GIDC
Amelia (North)
MPSMC
Dongeri Tal-II
MPSMC
The block was allocated to IIFCO for its 1,320MW power
Schedule III plant. Plant completeness is less than 60%
Schedule III Coal supplied to KSK i.e. supplies to private entity
Schedule II Coal supplied to JPVL i.e. supplies to private entity
Schedule III Coal supplied to JPVL i.e. supplies to private entity
Source: MOSL, Ministry of Coal
Of the total 74 blocks, 26 are likely to be allotted, while 48 may be offered under
auction. Coal blocks allotted to central/state projects could have production
potential of 104m, while 112m tons would be available for the private sector under
auction route. Break-up of the total 163m tons of production with Power sector
end-use (including blocks classified as “commercial”) is as follows: 99m tons to
central/state sector and 64m tons under auction to private sector.
11 December 2014
7

Thematic | Sector Update
Exhibit 6: Assessment of coal mines (m tons) available to private power producers based on earlier end-use classification
Schedule II
216
46
43
136
3
Allocation
58
11
47
64mtpa
47
32
15
80
Coal availability
104 mtpa
Central PSU
State co.
Sponge
2
1
Cement
25
21
3
CPP
39
28
11
Remaining
Schedule III
Remaining for Power sector
Exhibit 7: Assessment of coal blocks available to private power producers based on earlier end-use classification
Schedule II (no of blocks)
74
32
6
5
1
Allocation
20
2
18
19 blocks
25
13
12
26 blocks
Central PSU
State co.
Sponge
4
3
Cement
7
4
3
CPP
Schedule III (no of blocks)
Remaining for Power sector
42
Coal availability
12
7
5
Remaining
Source: MOSL, Ministry of Coal, Company
Cluster-wise analysis: Demand outweighs resources, at least for round-1
We have segregated the pool of coal blocks available for bidding in round-1 into key
clusters, based on the location of the end-use plants and concentration of coalfields.
These clusters are:
Cluster A:
Chattisgarh/Odisha adjoining border
Cluster B:
Madhya Pradesh, Uttar Pradesh, Jharkhand, and Chattisgarh
Cluster C:
Odisha Central
Cluster D:
Madhya Pradesh and Maharashtra
Cluster E:
Others
The segregation would help gauge the distance advantage available to end-use
projects in the vicinity of the blocks, and thus, the economic advantage in bidding
for a block. The classification also provides a good sense of likely demand vis-a-vis
resource availability for major categories of end-use sectors like Power and Sponge
Iron. Our analysis indicates that demand significantly outweighs available resources,
more so for independent power projects (IPPs).
11 December 2014
8

Thematic | Sector Update
Exhibit 8: Segregation of coal blocks and private sector power plants in clusters
Coal demand-supply
(mtpa)
Cl us ter A
Cl us ter B
Cl us ter C
Cl us ter D
Demand Availability*
142
50
56
66
40
38
19
15
Availability as
% of demand
28%
76%
33%
23%
Cluster B
* Coal availability only from auction blocks
Cluster D
Cluster A
Cluster C
Pointers: IPPs are red; CPPs are green and coal blocks are black
Source: MOSL, Ministry of Coal
We note that the total private sector IPP capacity satisfying the end-use completion
criteria highlighted in draft rules is 47GW, entailing potential demand of 230m tons.
In addition, captive power projects (CPPs) of 10GW are lined up, taking total
demand for Power sector at 280m tons. Against this, availability under auction is
just 64m tons, including 25m tons of coal producing capacities earlier allotted to
CPPs. Sponge Iron projects are, however, relatively better placed, with potential coal
demand of 42m tons (capacity of 12.2m tons) against resource availability of 47m
tons under auction. Our analysis assumes status quo on end-use classification.
This, along with other eligibility criteria, logistics advantages, bid pricing framework
(for Power and Non-Power sectors), alternate sources/costs, PPA status, etc, would
determine competitive intensity. For the Power sector though, the MoC has been
stating that revenue maximization is not the intention; thus, bid price may be
capped. However, bidding for other sectors could be stiff.
11 December 2014
9

Thematic | Sector Update
35b tons of incremental
reserves to weigh on
round-I bids
Subsequent coal auctions can bridge the supply gap
Round-I of the auction includes only 74 of the 204-odd coal blocks de-allocated as
per the Supreme Court order. The remaining blocks represent ~35b tons of
incremental geological reserves, ~4x the 8.4b tons of reserves in round-1 auction.
While our cluster-based analysis suggests huge demand-supply gap, and in turn, the
possibility of aggressive bidding in round-1, clarity on future coal block auctions and
timelines would help alleviate concerns relating to shortage. We believe the
potential from future coal block auctions would sufficiently meet demand by Power
and other end-use sectors.
Exhibit 9: Subsequent coal block auctions hold significant potential
Phase-I
12,247
6,787
(1.9 x)
3,561
- 83 mtpa
(1.9 x)
1,159
2,943
1,594
Others
(6.8 x)
Subsequent auctions (x times phase-I reserves)
11,824
(14.2 x)
1,792
- 51 mtpa
834 - 19 mtpa
Cluster A (ODCH)
Cluster B (MUJC)
Cluster C (OD)
606
Cluster D (MM)
Source: MOSL, Ministry of Coal
11 December 2014
10

Thematic | Sector Update
Qualification-based auction for Power
Pricing-based for others
A two-stage technical and financial bid based evaluation is proposed, but weightage to
the factors is yet to be decided. Only plants that are more than 60% complete would
be eligible for bidding.
Affordable electricity to consumers is a key objective in Power sector bidding. This
would put focus on technical factors like proximity to coal block and demand-supply
gap in selection.
Revenue maximization would be the objective in the Non-Power sector (including
CPPs). The landed cost of imported coal is likely to set the cap on bids. Floor price is
likely to be based on international coal prices.
Non-Power sector auctioning would ensure dissipation of the advantage of low cost
captive coal sourcing; the final coal price is likely to be around the imported/e-auction
coal price.
Bid evaluation for Power sector may hinge more on technical qualifications
The Ministry of Coal (MoC) issued draft rules dated 19 November 2014 to effect the
provisions of the ordinance. The draft rules highlighted the process for allotment
(central/state undertakings) and auction (private sector). According to the rules, the
nominated agency for bidding would publish a tender document for each block. This
document would include the ‘floor price’ and eligibility conditions, besides other
relevant information about the block. While the framework for price determination
is under formulation, bid evaluation would be a two-stage process – technical and
financial. Importantly, the tender document would specify weightage to be assigned
for technical criteria and financial bid for determination of the successful bidder.
The draft rules highlight the end-use readiness criterion. A developer with an end-
use project (Power, Cement, Sponge Iron, etc) would be eligible to bid for schedule
II (operational) coal blocks only if the work completion/cost incurred on project is
above 80% and for schedule III blocks (near commissioning) if the ratio exceeds 60%
.
While financial bids would play a pivotal role in bid results, we believe this may be
more pronounced in the Non-Power segment. This emanates from the Attorney
General’s (AG) view in the Supreme Court’s de-allocation order, suggesting that the
benefit of low cost coal should be passed on to the consumer for the Power sector.
Similar views are aired in ‘Auction by Competitive Bidding of Coal Mines Rules, 2012’
approved in February 2012. The pricing framework highlighted by Central Mine
Planning and Design Institute Limited (CMPDIL) in November 2013 as part of the
said rules suggested bid price be kept low for the Power sector
.
The MoC has also cited that ‘revenue maximization’ is not the intention for the
Power sector in various forums. Given this, the price bids for coal blocks may not
hold much relevance and there may be an indirect regulation to keep the bid price
under check. This would mean that developers/projects scoring on the merit of
technical qualifications could get preference, rather than bid price.
For other sectors (Sponge Iron, Cement, Steel, Captive Power), however, bid price
would be the key success factor.
11 December 2014
11

Thematic | Sector Update
Sizable end-use projects meet end-use completion criteria
Based on the cluster-wise bifurcation and projects nearby, we identify 57GW of IPPs
(excluding CPPs) and 12.2m tons of Sponge Iron capacity (potential coal
consumption of 42m tons). Of the total Power projects, 44% are commissioned
(25GW), while an additional 28% (16GW) would be complete to the extent of 80%+.
Thus, 41GW of projects, representing nearly 2/3
rd
of total Power projects would be
eligible for schedule II blocks. In addition, 6GW of projects are more than 60% (but
less than 80%) complete, taking the total eligible projects to 47GW. Similarly, we
note that a large part of Sponge Iron projects in the vicinity is either commissioned
or is in final stages of commissioning, with demand potential of 42m tons.
Additionally, there is 10GW of captive power capacity in the region.
Exhibit 10: Of the 57GW of private Power capacities in the coal block regions,
over 41GW are more than 80% complete
Plant completeness :
Less than 60%
Greater than 60%
32
16
25
6
10
Capacity
eligible
to bid -
47 GW
41
Greater than 80%
57
6
10
Total IPP capacity
Operational
Under-development
Source: MOSL, Company Data, CEC
Exhibit 11: Major Sponge Iron capacities around the coal block regions
Capacity
Coal required
Sponge CPP
Sponge
CPP Total
(mtpa) (MW)
(mtpa) (mtpa) (mtpa)
Large producers
8.0 2,641
27.4 13.2 40.6
1 JSPL
Raigarh
CHH
1.40 740
5.0
3.7
8.7
Angul
ODISHA
2.00 810
6.0
4.1 10.1
2 Bhushan
Angul
ODISHA
1.80 300
6.4
1.5
7.9
3 Bhushan
Jharsuguda
ODISHA
1.20 236
4.3
1.2
5.5
4 Monnet
Raigarh
CHH
0.80 230
2.9
1.2
4.0
5 Prakash
Champa
CHH
0.80 325
2.9
1.6
4.5
Mid size producers
4.2 1,238
14.9
6.2 21.1
1 Adhunik
sundergarh
Odisha
0.27 574
1.0
2.9
3.8
2 Usha Martin Jamshedpur
Jharkhand
0.50 155
1.8
0.8
2.6
3 Jai Balaji
Raniganj
WB
0.50 111
1.8
0.6
2.3
4 Godawari
Raipur
CHH
0.50
73
1.8
0.4
2.1
5 Sarda
Raipur
CHH
0.36
82
1.3
0.4
1.7
6 Tata Sponge Joda
ODISHA
0.39
23
1.4
0.1
1.5
7 VISA
Kalinganagar
ODISHA
0.30
75
1.1
0.4
1.4
8 SKS Ispat
Raipur
CHH
0.27
85
1.0
0.4
1.4
9 jayaswal Neco Raipur
CHH
0.25
60
0.9
0.3
1.2
10 Odisha spongePalaspanga
ODISHA
0.25
0.9
0.0
0.9
11 Bajrang
Raipur
CHH
0.21
0.8
0.0
0.8
12 Sova Ispat
Jemua Mouza
WB
0.18
0.6
0.0
0.6
13 Nalwa
Raigarh
CHH
0.20
0.7
0.0
0.7
12.2 3,879
42.3 19.4 61.7
Note: coal consumption is calculated assuming low GCV and high ash F/G grade
Source: MOSL, Company Data
11 December 2014
12
S.N. Company
Location
State

Thematic | Sector Update
Auction for CPPs/other sectors may see steep bids
The bidding rules highlight that ‘reserve price’ for allotment and ‘floor price’ for
auction will be as specified by the central government. The floor price for the Power
sector would be linked to Coal India notified prices (media articles highlight discount
of 20%). The price for CPPs/other sectors would be import parity price less some
discount. It is also highlighted that CPPs, whose end product prices are market
driven, would be classified separately.
As highlighted earlier, Sponge Iron projects fare relatively well on the demand
versus resource availability matrix. However, this is not so for Power projects. CPPs
with total capacity of 10GW and potential demand of 50m tons of coal are
operational/near commissioning. Given the precarious coal demand-supply situation
in the Power sector, the offer to CPPs may be limited. We believe this would lead to
stiff competition and higher bid prices
.
Global coal meltdown will have an impact
External factors like softening global coal prices too would have a bearing on bid
pricing. The Richard Bay’s index has declined from highs of USD120/ton in 4QFY11
to USD66/ton in November 2014. The outlook remains weak and this would impact
aggressiveness in bidding.
Exhibit 12: RB Index has been on downward trend (USD/ton)
Source: Company, MOSL
While the floor price would form a base for bids, the source of alternate coal and its
cost would provide a benchmark for maximum bid price. For CPPs, the maximum
landed cost of coal in the auction process should not exceed INR2,900/ton. For
Sponge Iron, we estimate maximum landed cost of coal in the auction process at
INR2,000/ton.
11 December 2014
13

Thematic | Sector Update
Exhibit 13: Implied ex-mine price of coal for Sponge Iron units based on alternate imported
coal costing
Unit
Domestic
Calorific value
(A) Ex-mine price (Maximum based on imported coal)
(B) transportion
(C)Washing cost
(D) Washing yield
(E) Washed coal {(A+B+C)/D%}
(F) Consumption rate in DRI mfg.
cost of coal per ton of DRI (ExF)
Imports
Calorific value
(A) RB Index
(B) Sea Freight
(C)Import duty@2.5%
(D) Sub total (A+B+C)
(E) USD/INR rate
(F) DxE
(G) Port handling
(H) Inland transportion
(J) Landed cost at DRI-Kiln
Consumption rate in DRI mfg.
cost of coal per ton of DRI
Kcal/T
INR/T
INR/T
INR/T
(%)
INR/T
(x)
INR/T
Kcal/T
USD/T
USD/T
USD/T
USD/T
(x)
INR/T
INR/T
INR/T
INR/T
(x)
INR/T
Raipur
3,600
2,000
400
50
60
4,083
1.5
6,125
6,400
66
15
1.2
82
62.0
5,097
250
739
6,087
1.0
6,087
Barbil
3,600
2,000
300
50
60
3,917
1.5
5,875
6,400
66
15
1.2
82
62.0
5,097
250
424
5,772
1.0
5,772
Source: MOSL
Exhibit 14: Implied ex-mine price of coal for CPPs based on alternate imported coal costing
Unit
Domestic
Calorific value
(A) Ex-mine price (Maximum based on imported coal)
(B) transportion
(D) total landed cost
(J) Landed cost at CPP (D/1000)
(K) station heat rate
(L) consumption rate (Kx CV)
Fuel cost (JxL)
Imports
(CV) Calorific value
(A) RB Index
(B) Sea Freight
(C)Import duty@2.5%
(D) Sub total (A+B+C)
(E) USD/INR rate
(F) DxE
(G) Port handling
(H) Inland transportion
(J) Landed cost at CPP {(F+G+H)/1000}
(K) station heat rate
(L) consumption rate (Kx CV)
Fuel cost (JxL)
Kcal/T
INR/T
INR/T
INR/T
INR/kg
kcal/kwh
(kg/kwh)
(INR/kwh)
Kcal/T
USD/T
USD/T
USD/T
USD/T
(x)
INR/T
INR/T
INR/T
INR/kg
kcal/kwh
(kg/kwh)
(INR/kwh)
Hirakud
3,200
2,500
400
2,900
2.9
2400
0.75
2.2
6,400
66
15
1.2
82
62.0
5,097
250
560
5.9
2400
0.38
2.2
Mahan
3,200
2,900
400
3,300
3.3
2400
0.75
2.5
6,400
66
15
1.2
82
62.0
5,097
250
1,260
6.6
2400
0.38
2.5
Source: MOSL
11 December 2014
14

Thematic | Sector Update
Price and eligibility framework: Key monitorables
Drawing inference from earlier bid proposals
Ordinance and draft rules are silent on bidding methodology. Inference from earlier
bidding proposals suggests points-based selection.
Technical bid criteria were assigned 20% weightage while financial criteria were
assigned the remaining 80% in the earlier draft coal block auction process.
Technical criteria would include factors like proximity to coal block, company
financials, demand-supply gap and prior coal block development experience.
Prior proposals favored a production-linked payment bid structure, with upfront
payment at 10% of government-determined NPV. A similar structure is now likely.
Ordinance/rules silent on bid eligibility conditions, price
The ordinance and draft rules for implementation of the ordinance remain silent on
eligibility conditions, except that the bidding for round-1 would be linked to end-use
project readiness. The draft rules, however, highlight that the tender document
prepared by the nominated agency would have bid eligibility criteria, while the price
framework would be separately worked out and incorporated as part of the tender
document. A cap on the number of blocks is also proposed, but clarity on the
number is not available. The subset of Power projects that can qualify for bidding
hinges on the eligibility criteria. The same applies to other sectors. Also, clarity is
needed on arrangement towards usage of coal for other end-use projects.
As far as the process of allotment is concerned, the draft rules broadly highlight
norms such as progress on coal blocks allotted in the past, financial details,
technological edge, end-use, readiness and proximity, etc.
On the pricing front, for the Power sector, it would be based on or linked to Coal
India notified prices. For other sectors, it would be based on import parity. The MoC
has highlighted that the framework for price calculation (reserve and floor) would
be finalized by 22 December 2014. Clarity on the same, along with compensation,
view on long-term coal price/end-use product price, would determine the extent of
bidding aggressiveness
.
Drawing inference from existing/earlier framework
A] Points-based technical qualification
An inter-ministerial group constituted under the ‘Auction by Competitive Bidding of
Coal Mines Rules, 2012’ prescribed a framework for selection of bidders on score-
based technical qualifications for various norms/milestones in December 2012.
While the current qualification criteria/scores could be different, we note that some
of the norms highlighted in the draft rules for either auction/allotment resemble the
points-based framework highlighted earlier. The earlier framework highlighted
scores for end-use projects and mining activity, separately. While the possible
criteria in the tender document may have lots of inclusions (end-use percentage, LT
PPA, etc) as well as exclusions, the earlier framework helps gauge the framework on
technical evaluation
.
11 December 2014
15

Thematic | Sector Update
The framework evaluates IPPs/utilities with end-use projects out of 30 points (27
points if no mine was allotted earlier) and specifies points for each specific
milestone. To illustrate, the end-use projects near to blocks get higher scores than
those in far off areas. Similarly, the score-based system evaluates developers that
seek a block for mining purpose.
Exhibit 15: Scoring matrix for Power and Steel
Parameter
Development of block allocated in past
Total points
3
Remarks
Mile stone considered
Clearances
land acquisition
commencement of block
Company financial
Preparedness of the plant
6
9
Net worth -4
Turnover - 2
Mile stone considered
In principle approval of project
approval for land acquisition
Principle approval of TOR by MOEF
Demand Supply gap
Plant location near pit head
9
3
To be procured from planning commission
Mile stone considered
100 KM - 3
100KM to 500KM -2
500KM and above - 1
Total
30
Source: MOSL, Ministry of Coal
Exhibit 16: Scoring matrix for evaluation of mining proposals by government/state companies
Evaluation for government companies for mining
1) Progress on development of block allocated in the past
Points
5*
Milestones considered
a. Approval of mine plan
b. Forestry clearance
c. Environment clearance
d. Land acquisition (incl. R&R)
e. Commencement of Production
3
5
7
20 (15*)
* States/companies that have no previously allocated coal blocks/mines will be evaluated on the basis of 15 points
Source: MOSL, Ministry of Coal
2) Capability of mining
3) Company's financials / Net worth
4) Demand supply gap
B] Pricing framework favors NPV approach with production-linked payments
In continuation of the Auction by Competitive Bidding of Coal Mines Rules, 2012 and
advised by CMPDIL, the MoC had finalized royalty/ton as a bid parameter in its
November 2013 guidelines. These highlighted that bids would have to be above the
floor price decided by the government. The amount so quoted would be escalated
by WPI and multiplied by production over the life of the block to arrive at DCF/NPV
of the block. 10% of such NPV would be taken as upfront payment, while the
balance would be recovered as annuity over the life of the block.
11 December 2014
16

Thematic | Sector Update
Also, the methodology so prescribed suggested floor price derivation linked to the
benchmark less discount offered by the government. For the allocation quota,
calculation of reserve price was on the same lines as floor price. However, the
guidelines suggested that intrinsic value of the block to be offered under tariff-
based bidding for the Power sector be restricted to 10% of such NPV to enable the
benefit of low cost being passed on to the consumer.
C] Weightage and bid evaluation framework hold key
The bidding methodology of production-linked payment and upfront payment was
enunciated in the draft notice inviting offer (NIO) published in April 2011, suggested
by CMPDIL. The draft NIO recommended four options for bid evaluation, where
option-4 favored production-linked payment plus an upfront payment.
The key reason to dwell into the four options is that options 3 and 4 had bid
evaluation criteria linked to a two-stage process – technical and price. In both
options, technical qualification had 20% weightage, while price bid had 80%
weightage. Within the technical parameters, the project’s capacity and readiness
had 10% weightage each
.
We are looking at the NIO to get a sense on weightage. Technical qualification/bid
eligibility criteria may see a lot of fine tuning on both norms and points for such
norms and may have either equal/higher weightage. This is because price bids may
become less relevant for the Power sector in case floor price is kept low to keep
final bid prices low and may further dilute if a cap is proposed to avoid steep bids
.
Exhibit 17: Framework of NIOs: Option-4 suggested weightage-based evaluation and production-linked payment
Option 1
Option 2
Option 3
Option 4
Upfront payment and
extractable reserves
Upfront payment (80%
linked payment (80%
weightage) and capacity weightage) and capacity
and status of end use
and status of end use
plant (20% weightage) plant (20% weightage)
Based on Bidding
Fixed by MoC
To be paid in 5 equal
installments with first
installment @ 20% of
extractable reserves
linked payment to be
paid within 8 years
Capacity of end use plant
and status of end use
plant
Bid evaluation
Upfront payment
Based on bidding
Upfront payment terms
Extractable reserves linked payment
terms
NA
Technical considerations
NA
Scoring structure for end use plants
evaluation
Upfront payment and
extractable reserves
linked payment
Fixed by MoC
To be paid in 5 equal
installments with first
installment @ 20% of
extractable reserves
linked payment to be
paid within 8 years
Capacity of end use plant
and status of end use
plant
NA
- End use plant running : 10 marks
- End use plant under construction : 5 marks
- Only construction work of end use plant awarded : 2 marks
- Only land acquisition complete : 1
- No action for approved end use plant : 0 marks
Source: MOSL, Ministry of Coal
11 December 2014
17

Thematic | Sector Update
Analyzing relative positioning of players in clusters
Logistics and PPA will provide an edge
Logistics and evacuation infrastructure are crucial. Projects closer to coal blocks will be
better placed. Existing long-term PPAs, with exposure to power deficit states are likely
to get higher weightage.
Our cluster-based analysis suggests heavy concentration of end-use plants in Korba-
Raigarh-Jharsuguda and Singrauli. These areas could be hotly contested.
The Chhattisgarh-Odisha adjoining border cluster has coal production capacity of 40m
tons under the auction route as against total demand of 142m tons.
Logistics cost, operational difficulty key constraints
The ordinance and draft rules for implementation of the ordinance remain silent on
eligibility conditions, but the earlier framework proposed higher points to projects
closer to mines. In fact, option-4 specified in the NIO suggests preference to H2
bidder if its bid is within 5% range of H1, if its end-use project and mine are located
in the same region/state. This is, however, subject to H2 matching H1 price bid.
Logistics distance and cost would play a crucial role in bidding. Transmission of
power is more economical and less strenuous than transportation of coal. This may
make end-use projects in far-off areas less attractive. Also, there is ample capacity in
the region/cluster and cap on coal blocks too may not be a constraining factor. The
probability of far-off projects being successful in bidding is low. This is particularly
true for CPPs. While cost is one factor, putting up evacuation infrastructure is
another key criterion
.
Cap on coal block entitlement – fine print holds the key
Another factor that may have a bearing on the auction process in the longer run is
possible cap on the number of blocks that a developer can take. The proposed cap
could be driven by the idea of wider participation of developers/end-use projects
and group exposure norms by lenders not impacting project progress. Clarity on the
matter is a key factor to watch for and could be an important driver of bid prices
and pace of awards in the long run.
The National Highway Authority of India (NHAI) restricts a developer from bidding
for a new project if it has three projects pending financial closure. While this may
have boosted the pace of awards and encouraged wider participation in the past,
lack of financial capability and stiff project viability have led to scanty interest in
recent projects. The fine print on the cap on coal blocks is a key monitorable.
Cluster-wise analysis – gauging relative positioning
To gauge the logistics advantage, we divide the coal blocks and end-use power
plants into clusters. We identify four key clusters – Cluster A: Chattisgarh/Odisha
adjoining border, Cluster B: MP, UP, Jharkhand and Chattisgarh, Cluster C: Odisha
Central, Cluster D: MP and Maharashtra.
11 December 2014
18

Thematic | Sector Update
Cluster A: Chhattisgarh and Odisha adjoining borders
This cluster covers the adjoining border areas of Chhattisgarh and Odisha. It
spans over large coalfields like Hasdeo-Arand, IB Valley and Mand-Raigarh.
There are 19 blocks, with reserves of 3.6b tons and production potential of 83m
tons. This is the largest cluster, with 40m tons of capacity under auction.
Sponge Iron units better placed, demand-supply gap glaring for IPPs
Of the 26GW of IPPs and CPPs, 23GW is already commissioned or 80%+
complete, 2GW is 60%+ complete, and 1GW of IPP project is <60% complete.
Considering the Power project blocks under auction, possible supply is of 25m
tons against demand of 125m tons. Moreover, schedule II blocks have
production of 8m tons and the balance is from schedule III blocks.
Sponge Iron projects with 17m tons demand are better placed, with supply of
14m tons.
Exhibit 18: Cluster A – Mapping of power plants and coal blocks
Coal mining capacity (mtpa)
Coa l mi ni ng ca pa ci ty
Di rect Al l oca ti on to PSU/Sta te
Coal capacity available for auction
Power s ector
Sponge i ron
Plant readiness / Coal demand (mtpa)
IPPs (i n GW)
CPPs (i n GW)
Tota l power (i n GW)
Coa l dema nd
Coal availability
Dema nd
Coal availability
Schedule II Schedule III
29
55
10
34
19
21
8
17
10
4
> 80%
17
6
23
113
8
17
10
130
<80% and
>60%
2
0
2
12
17
4
12
<60%
1
0
1
Total
83
44
40
25
14
Total
Power sector
125
25
17
14
142
Sponge iron
Total coal requirement
Pointers: IPPs are red; CPPs are green and coal blocks are black
Source: MOSL, Ministry of Coal
Developer/block-specific observation: Gare-Plama block to see stiff competition
There are only three producing blocks – Gare-Palma 2&3 and Talabira-1 with
8.4m tons capacity for power generation. Talabira-1 was allotted as ‘captive
block’ to Hindalco. Large developers in the cluster include JSPL (4.3GW), Sterlite
(3.6GW) and KSK (3GW).
Gare-Palma power blocks (10.4m tons; producing: 5.4m tons Gare-Palma IV/2
and IV/3; non-producing: 5m tons Gare-Palma Sector III) are likely to see stiff
competition, given 6.8GW of IPP capacity within a 100km radius, excluding its
own 3.4GW at Tanmar.
11 December 2014
19

Thematic | Sector Update
Talabira-I (3m tons capacity), if kept for CPPs (as different pricing), then IPPs are
left with only Gare-Palma power blocks (10.4m tons). SSLT (22km) and Ind
Barath (51km) have an edge over others (100+kms), given lower lead distance.
If Talabira project is kept captive, SSLT (1.2GW CPP at a distance of 22km) and
Bhushan Power & Steel would pose serious competition for Hindalco, more so
given that the next preferred blocks for both are at least 150km away.
Amongst the schedule III blocks, Durgapur block (6m tons; of which 4m tons was
allotted as captive earlier) will have the highest competitive intensity, as it is
among the top-3 blocks based on distance for 25GW capacity (IPP and CPP).
JSPL’s Raigarh CPP is within 100km of both the captive power-linked blocks in
the cluster, namely, Talabira and Durgapur/Taraimar.
Exhibit 19: Cluster A - Distance between power projects and major power sector coal blocks
Company
Region
Capacity
Schedule II
%
completion Talabira (1) Gare-Palma (2)
(km)
(km)
3.0
5.4
3.0
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>60%
>60%
>60%
<60%
>80%
>80%
>80%
>80%
>80%
140
258
22
138
319
207
129
51
120
244
133
154
119
133
224
22
7
96
41
17
160
143
81
250
132
72
132
70
139
76
41
56
70
120
143
153
60
181
Coal blocks
Durgapur (2)
(km)
6.0
12.9
63
81
179
81
244
76
78
168
105
91
77
61
91
74
71
179
189
97
216
Schedule III
Gare-Palma (1)
(km)
5.0
2.8
17
160
143
81
250
132
72
132
70
139
76
41
56
70
Tara (1)
(km)
6.0
7.4
240
208
300
188
225
120
193
308
223
83
185
187
213
201
(MW)
Coal producing capacity (mtpa)
Strip ratio (x)
Independent power projects
JSPL
Tamnar
KSK
Akaltara
Sterlite
Jharsuguda
RKM
Uchpinda
GMR
Raikheda
Lanco
Amarkantak
DB Power
Baradarha
Ind Bharat
Jharsuguda
Avantha
Raigarh
Vandana Vid.
Korba
Athena
Champa
ACB (TRN)
Korba
Visa
Raigarh
SKS
Binjkote
Captive power projects
Balco
Korba
Sterlite
Jharsuguda
Hindalco
Sambalpur
JSPL
Raigarh
Hindalco
Hirakud
1st preference
2nd preference
3,400
3,000
2,400
1,440
1,370
1,320
1,200
700
600
405
1,200
600
600
1,200
2,010
1,215
900
851
467
3rd preference
120
104
143
300
153
316
60
237
181
360
Source: MOSL, Company
11 December 2014
20

Thematic | Sector Update
Exhibit 20: Cluster A - Major power plants in the cluster and PPA exposure (%)
% of capacity under PPA
IBPIL- Jharsuguda: 700 MW
SKS- Binjkote: 1200 MW
Athena- Singhitarai: 1200 MW
GMR- Raikheda: 1370 MW
JSPL- Tamnar: 3400 MW
Sterlite- Jharsuguda: 2400 MW
Avantha- Raigarh: 600 MW
RKM- Uchpinda: 1440 MW
Lanco- Amarkantak: 1980 MW
DB Power- Baradarha: 1200 MW
Visa- Raigarh: 600 MW
KSK- Akaltara: 3000 MW
0%
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: MOSL, Company
Cluster B: MP, UP, Jharkhand and Chhattisgarh
This cluster covers the intersection of MP, UP, Jharkhand and Chhattisgarh. It
encompasses major coalfields like Singrauli, Karanpura, Jharia, etc.
It has 18 coal blocks, with reserves of 1.8b tons and production potential of 47m
tons. It is the second-largest cluster, with 38m tons available for auction
.
Lower proportion of producing blocks for Power sector
Of the total coal availability of 38m tons, mine availability for the Power sector is
25m tons. The remaining 13m tons mine capacity is for Sponge Iron, etc.
Only 7m tons of mine capacity is under production (2m tons for Sponge Iron and
5m tons for Power).
10.4GW of IPPs and 1.6GW of CPPs are in the vicinity of the mines, which will
consume ~50m tons of coal, while availability is only 25m tons.
There are a large number of small Sponge Iron units in the region that will be
competing for the coal blocks, with total mine capacity of 14m tons.
11 December 2014
21

Thematic | Sector Update
Exhibit 21: Cluster B – Mapping of power plants and coal blocks
Coal mining capacity (mtpa)
Coa l mi ni ng ca pa ci ty
Di rect Al l oca ti on to PSU/Sta te
Coal capacity available for auction
Power s ector
Sponge i ron
Plant readiness / Coal demand (mtpa)
IPPs (i n GW)
CPPs (i n GW)
Tota l power (i n GW)
Coa l dema nd
Coal availability
Dema nd
Coal availability
Schedule II Schedule III
7
40
0
9
7
31
5
19
2
11
> 80%
9
2
10
50
5
2
50
<80% and
>60%
0
0
0
0
19
11
0
<60%
2
0
2
Total
47
9
38
25
14
Total
Power sector
50
25
0
14
50
Sponge iron
Total coal requirement
Pointers: IPPs are red; CPPs are green and coal blocks are black
Source: MOSL, Ministry of Coal
Developer/block-specific observation: Mahan coal block crucial for Hindalco; few
IPPs relatively better placed
We note that Singrauli Coalfield is likely to be the most attractive for power
plants in this cluster.
Also, Singrauli Coalfield (14m tons) includes the Mahan coal block with
production potential of 8.5m tons. Mahan was allotted jointly to Essar and
Hindalco. If the block is classified for captive usage, available resource for IPPs
will further reduce.
Among IPPs, DB Power (MP), Essar (Singrauli), JPVL (Nigrie) and Lanco (Anpara)
are better placed, while other developers have huge lead distance.
If Hindalco is not able to secure the Mahan coal block or if the block is not made
eligible for CPP, it has no other coal block in and around 300km from its smelter.
Further, if it has to rely on imported coal, we note that the distance for Paradip
port is more than 800km.
11 December 2014
22

Thematic | Sector Update
Exhibit 22: Cluster B - Distance between power projects and major power sector coal blocks
Group
Region
Capacity
Schedule II
% completion
(MW)
Coal producing capacity (mtpa)
Strip ratio (x)
Independent power projects
Jai Prakash
Bara
Jai Prakash
Nigrei
Essar
Singrauli
Essar
Tori
Lanco
Anpara
MB Power
Anuppur
Corporate Pow.
Maitrishi
Avantha
Jhabua
DB Power
Gorgi, MP
Captive power projects
Mahan
Bargawam
Hindalco
Renukoot
1st preference
2nd preference
Coal blocks
Schedule III
Ganeshpur (1)
(km)
5.5
1.3
550
578
472
199
415
616
197
894
533
471
380
Mahan (2)
(km)
11.4
4.9
212
91
50
276
20
333
281
447
90
Jitpur (1)
(km)
2.5
3.7
580
647
502
230
445
646
228
925
564
Tokisud (1)
(km)
2.3
Amelia (1)
(km)
2.8
1,980
1,320
1,200
1,200
1,200
1,200
1,080
600
660
900
742
3rd preference
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
<60%
>80%
>80%
553
477
414
111
357
559
109
825
476
413
332
212
91
50
276
20
333
281
447
90
24
51
24
501
51
410
Source: MOSL, Company
Exhibit 23: Cluster B - Major power plants in the cluster and their PPA exposure (%)
% of capacity under PPA
DB Power- Gorgi, MP: 660 MW
JP- Nigrei: 1320 MW
Corporate Power- Maitrishi: 1080 MW
Avantha- Jhabua: 600 MW
Essar- Singrauli: 1200 MW
MB Power- Anuppur: 1200 MW
Essar- Tori: 1200 MW
JP- Bara: 1980 MW
Lanco- Anpara: 1200 MW
0%
20%
40%
60%
80%
100%
Source: MOSL, Company
Cluster C: Central Odisha
This cluster covers the central region of Odisha surrounding the Talcher field.
It has 4 blocks with reserves of 834m tons and production potential of 18.6m
tons. Of this, 6m tons is for Sponge Iron and 13m tons for Power.
Favorable strip ratio may draw developers from Cluster A, largely schedule III blocks
though
None of the blocks in the cluster are currently producing.
The cluster houses only one Sponge Iron coal block – Uktal B1, with a mining
capacity of 5.5m tons. Against this, demand is estimated at 21m tons.
For the Power sector, 7GW of eligible capacity requires 35m tons of coal against
production potential of just 13m tons. If Utkal C, with production potential of
23
11 December 2014

Thematic | Sector Update
3m tons is retained for captive use, availability for IPPs will be further reduced
to ~10m tons.
Total potential demand for the cluster stands at 56m tons versus capacity of
19m tons.
The key positive is that all blocks in the cluster have attractive strip ratio of less
than 2x. This would mean that attractiveness for bidders would be higher. Also,
a developer from Cluster A, which has similar distance to these blocks as Cluster
A block, may also pitch in for bidding.
Exhibit 24: Cluster C – Power plant and coal block location
Coal mining capacity (mtpa)
Coa l mi ni ng ca pa ci ty
Di re ct Al l oca ti on to PSU/Sta te
Coal capacity available for auction
Powe r s e ctor
Sponge i ron
Plant readiness / Coal demand (mtpa)
I PPs (i n GW)
CPPs (i n GW)
Tota l powe r (i n GW)
Coa l de ma nd
Coal availability
De ma nd
Coal availability
Schedule II Schedule III
0
19
0
0
0
19
0
13
0
6
> 80%
2
3
5
23
0
21
0
44
<80% and
>60%
2
0
2
12
13
6
12
<60%
1
0
1
Total
19
0
19
13
6
Total
Power sector
35
13
21
6
56
Sponge iron
Total coal requirement
Pointers: IPPs are red; CPPs are green and coal blocks are black
Source: MOSL, Ministry of Coal
Developer/block-specific observation: Jindal India and Monnet have edge
The Ukal B1 block is the only Sponge Iron end-use plant in the cluster. Given its
capacity and logistics considerations, JSPL and Bhushan Steel are likely to be the
only contenders.
For Mandakini (7.5m tons) and Utkal B2 & C, Jindal India (Angul) and Monnet
(Angul) will be the key competitors.
GMR (Kamlanga) and Lanco (Babandh) too could be in the fray for Mandakini
and Utkal blocks, with distance of less than 100km.
Other IPPs like KVK (100km+), Ind Barath (200km+) and Avantaha (250km+)
could lag.
11 December 2014
24

Thematic | Sector Update
Exhibit 25: Cluster C - Distance between power projects and major power coal blocks
Company
Region
Capacity
(MW)
% completion
Coal blocks
Mandakini (1)
(km)
7.5
0.4
10
76
76
34
110
60
40
Utkal (2)
(km)
5.6
1.5
37
50
49
7
100
34
13
Coal producing capacity (mtpa)
Strip ratio (x)
Independent power projects
Jindal India
Angul
1,200
GMR
Kamalanga
1,050
Lanco
Babandh
1,320
Monnet
Angul
1,050
KVK
Cuttack
1,050
Captive power projects
Nalco
Angul
1,200
JSPL
Angul
810
Distance v/s Independent power projects in Cluster A
JSPL
Tamnar
3,400
Sterlite
Jharsuguda
2,400
Sterlite
Jharsuguda
1,215
Hindalco
Sambalpur
900
Ind Bharat
Jharsuguda
700
Avantha
Raigarh
600
1st preference
2nd preference
>80%
>80%
>60%
>60%
<60%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
288
312
160
185
160
185
181
219
200
224
268
293
Source: MOSL, Company
Exhibit 26: Cluster C - Major power plants in the cluster and PPA exposure (%)
% of capacity under PPA
Monnet- Angul: 1050 MW
Jindal India- Angul: 1200 MW
KVK- Cuttack: 1050 MW
Lanco (Babandh)- Dhenkanal: 1320 MW
GMR- Kamalanga: 1050 MW
0%
20%
40%
60%
80%
100%
Source: MOSL, Company
Cluster D: MP and Maharashtra
This cluster covers the coalfields adjoining MP-Maharashtra like Wardha, Pench
Kannan, etc.
There are 19 coal blocks with reserves of 570m tons and production potential of
18m tons.
Higher allocation towards Cement, Sponge Iron; supply scanty for IPPs
Total available coal mining capacity in the cluster is 18.3m tons, of which 3m
tons is through allotment.
Of the balance 15.3m tons production potential, 13.5m tons is for Sponge Iron
projects and 1.5m tons for Cement units. This leaves 0.3mtpa of supply for IPPs.
We assess IPP capacity of 13GW in the cluster, which would require ~65m tons.
25
11 December 2014

Thematic | Sector Update
Moreover, the only Power end-use block in the cluster, Gotitoria is at least
350km from most power plants in the region.
Exhibit 28: Cluster D - Power projects and coal block location
Total
18
3
15
0.3
15
<60%
0
0
0
Total
Exhibit 27: Cluster D demand-supply situation
Coal mining capacity (mtpa)
Coa l mi ni ng ca pa ci ty
Di rect Al l oca ti on to PSU/Sta te
Coal capacity available for auction
Power s ector
Sponge i ron
Coal demand / plant readiness (mtpa)
IPPs (i n GW)
CPPs (i n GW)
Tota l power (i n GW)
Coa l dema nd
Coal availability
Schedule II Schedule III
7
12
3
0
4
12
0.3
0
3
12
> 80%
13
0
13
63
0.3
<80% and
>60%
0
0
0
0
0.0
Power sector
63
0
Sponge
iron/Cement
Coal availability
3
63
12
0
15
63
Total coal requirement
Source: MOSL, Company
Source: MOSL, Company
Exhibit 29: Cluster D - Distance between power projects and major power sector coal
blocks
Coal blocks
Schedule II
Group
Region
Capacity
(MW)
% completion
Gotitoria (1)
(km)
0.3
917
745
1113
440
407
332
414
354
329
339
321
745
321
360
Source: MOSL, Company
Coal producing capacity (mtpa)
Independent power projects
Trombay
Tata Power
Indiabulls
Nashik
Ratnagiri
JSW Energy
Chandrapur
CESC
Warora
GMR
Nagpur
Reliance
KSK
Chandrapur
Bela
Ideal Energy
Nagpur
Abhijeet
Adani
Tiroda
India Bulls
Amravati
Indiabulls
Nashik
India Bulls
Amravati
Lanco
Wardha
1,400
1,350
1,200
600
600
600
540
270
246
3,300
1,350
1,350
1,350
1,320
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>80%
>60%
>60%
<60%
<60%
<60%
11 December 2014
26

Thematic | Sector Update
Exhibit 30: Cluster D - Major power plants in the cluster and their PPA exposure (%)
% of capacity under PPA
CESC- Chandrapur: 600 MW
Indiabulls- Amravati: 2700 MW
JSW Energy- Ratnagiri: 1200 MW
Lanco- Wardha: 1320 MW
Adani- Tiroda: 3300 MW
GMR- Warora: 600 MW
Reliance- Nagpur: 600 MW
Tata- Trombay: 1400 MW
0%
20%
40%
60%
80%
100%
Source: MOSL, Company
Cluster E: Others
This cluster includes primarily West Bengal and Eastern Jharkhand coal blocks.
Coal production capacity in the block is 44m tons (14 blocks), but we estimate
that only 3.4m tons (2 blocks) is available for auctioning. Rest of the coal blocks
were previously allocated to either central or state government companies and
are unlikely to come under the auction route.
Of the 3.4m tons of coal mine capacity under auction, we note that 0.4m tons
was earlier for Sponge Iron and the remaining 3.1m tons was allocated to CESC.
11 December 2014
27

Thematic | Sector Update
Sound framework; execution holds key
Complexity from PPA and bilateral contracts
Existing PPAs, with linked coal blocks now cancelled, would face complexity on issues
like pass-through and alternate fuel sourcing, based on results of the auction.
Participation/methodology for projects with no PPA also remains in question.
The timeline for completion by 15 March 2015 is challenging.
Complexity at project level may increase
The Indian Power sector has been facing a myriad of issues, partly led by contractual
obligations. The process of cancellation of operating coal blocks and being offered
under auction has put several existing projects in limbo – those with and without
PPAs. For those that have PPAs, the possible complexity may arise from de-
allocation of coal block allotted earlier and the probability of not winning any block
or winning one with different cost. This would trigger a PPA rejig.
No success in coal block auction/bidding would lead to dependence on linkages and
imported coal. Change in fuel source and approval of higher cost under PPA would
remain the key contentious point. While the degree of conflict will depend on the
nature of PPA (cost plus, competitive bid with quoted variable, etc), there is a fair
possibility of a higher number of projects facing contractual issues, if not otherwise
dealt with by enabling resolution/ordinance as part of the process.
Similarly, end-use Power projects with no long-term PPAs, which were selling
through ST/MT contracts, given fuel supply assurance of captive coal may also face
issues. If the coal block is won in auction, the condition of fuel cost pass-through,
and thus, the need for PPA may disrupt operations in the interim. If otherwise, the
project will be stranded without fuel and PPA.
Following our discussions with few developers and a consultant, we note that there
exists fair possibility of reopening of PPAs, which may further increase complexity.
This is in addition to existing bilateral contracts with third-party/related contractors
in mining, which may also face legal complications.
Exhibit 31: Existing private sector coal block allottees and their PPA exposure
Company
GIDC
MPSMC
DB Power
Essar Power / Hindalco
Jindal Photo
JSPL
GVK Power
Coal block
Gare Pelma Sector III
Dongeri Tal-II
DurgapurII/ Sarya
Mahan
Mandakini
Gare-Palma- IV/2 & 3
Tokisud North
Power project
KSK's Akaltara
JP's Nigrei
Baradarha
Singrauli
Angul
Tamnar
Goindwal Sahib
Capacity (MW) PPA (MW) Remark
3,000
3,125 Coal supplied to KSK power plant
1,320
248
Coal supplied to JP's Nigrei power plant
1,200
618
1,200
450
1,200
250
1,000
0
Merchant sale of power
540
540
Source: MOSL, Company
11 December 2014
28

Thematic | Sector Update
Key issues that need more clarity
While the current framework disclosed through ordinance and draft rules give broad
contours of the auction process, the fine print on several points holds key. Below
are few such points that emerged in our discussions.
Optimum utilization:
The current framework provides successful bidder to enter
into an agreement with other end-use projects for optimum utilization of
surplus coal (read if any), and promote cost efficiency. More clarity is needed on
the pre-conditions allowing such an arrangement for a successful and seamless
bidding process.
Cap on prices:
The possibility of cap on bid/end-use prices to keep cost of power
low would be clear through request for proposal (RFP). This may not be
applicable for other sectors, and thus, classification of blocks beforehand
assumes importance.
Transferability, ownership:
While the ordinance and draft rules have laid down
broad principles of auction, there remains lack of clarity on transfer of
ownership/rights post mine allocation to a successful bidder.
Completion:
The draft rules highlighted that the end-use project will be
considered eligible for bidding for schedule II and schedule III blocks, provided
completion is to the extent of 80% or 60%, respectively. Clarity is needed on
which costs are considered to calculate percentage completion and whether this
is unit-specific or on full capacity basis.
PPAs and production linked to PPAs:
The ordinance and draft rules have not
highlighted the need for PPA or it being a pre-condition/eligibility for biding.
However, the Auction by Competitive Bidding of Coal Mines Rules, 2012
suggested that coal will be supplied to power projects with long-term PPAs. It
also highlights that middlings generated from ‘washing’ captive coal so allocated
should be utilized for captive power generation only. This remains a key
monitorable, given that a sizable part of capacity that may satisfy end-use
readiness criterion may not fare well on this front.
Exhibit 32: PPA exposure of private power generation capacity with >60% completeness
PPA status of private power generation capacity with >60% readiness (47GW)
without PPAs
41%
with PPAs
59%
Source: MOSL, Company
Stiff timeline for round-1 bidding calls for swift execution on key issues
Post the Supreme Court decision allowing timeline till March 2015 for auction of
operational blocks, the MoC has worked swiftly to announce the ordinance on 21
October 2014 and draft rules by 19 November 2014. It plans to release the RFP by
22 December 2014 and conclude round-1 bidding by 15 March 2015. While the MoC
11 December 2014
29

Thematic | Sector Update
has worked consciously on the agenda, the review petition by existing allottee and
finalization of compensation to existing allottee could dampen the pace of bidding.
The MoC also has to conduct consultations with all stakeholders and take on board
suggestions, if any. Few developers expressed doubts about adhering to timeline,
but remained confident that any delay, if at all, would not be material.
Exhibit 33: Timeline for bidding
Release of coal
auction
ordinance
Comments on
draft rules
Due date for
technical bids
Financial
bidding
21-Oct-14
19-Nov-14
24-Nov-14
22-Dec-14
11-Feb-15
3-Mar-15
6-Mar-15
16-Mar-15
Release of
draft rules
Request for
proposal
Opening of
technical bids
Allocation
of mines
Sound framework key for sustained interest in bidding
Round-1 of coal auction focuses on operational blocks or blocks that are very near
to commissioning. These projects have the requisite environment and forest
clearances, and clarity on operational parameters (strip ratio, GCV of coal, ash
content, etc) and land availability. However, the new blocks may not offer similar
comfort on operational/base-line data, as few blocks may not be fully explored, may
vary in degree of completion, and may be facing issues on R&R, evacuation, etc.
In the past, a large part of coal blocks were not developed due to issues pertaining
to obtaining clearances, handling R&R issues, and continued lack of administrative
support from the state government. Further, establishing a robust framework on
evacuation infrastructure is equally important. In our discussions, developers
indicated that while the initial round of bidding may see good interest, sustained
interest would be a function of sound framework, support from state governments,
and clarity on issues pertaining to clearance, land acquisition, and evacuation
infrastructure.
11 December 2014
30

Thematic | Sector Update
Utilities: Long-term positive, tariffs to trend down
Efficiencies will drive returns
Realizing full captive production is key
Over FY02-07, India’s thermal coal imports grew from 2m tons to 25m tons, a CAGR
of 70%. However, the persistent fall out in ramping domestic production and sizable
increase in generation capacity (particularly coast-based) led to thermal coal
imports growing from 28m tons in FY08 to ~160m tons in FY15 – a CAGR of 28%.
This was expected to be arrested by awarding captive coal blocks, where initial
estimates pegged output at ~200m tons by FY17. However, environmental issues
like CEPI, Go/No-Go, rifts in land acquisition, and challenging times for the Power
sector led to slower than expected ramp-up in captive coal production.
We note that the 74 blocks put up under round-1 of coal block auction have
production potential of 216m tons, of which 151m tons are for the Power sector.
However, these coal blocks have cumulative reserves of 8.4b tons versus total
resources of 35b tons, with 130 additional blocks (total 204). Captive coal
production can help address demand shortfall, and also act as a catalyst to power
demand growth, being the lowest in the cost curve as against coal imports or gas.
Exhibit 34: Geological coal reserves up for bidding in round-1 and from remaining
blocks of the total 204 odd blocks cancelled as per Supreme Court order (m tons)
Phase-I
12,247
6,787
(1.9 x)
3,561
- 83 mtpa
(1.9 x)
1,159
2,943
1,594
Others
(6.8 x)
Subsequent auctions (x times phase-I reserves)
11,824
(14.2 x)
1,792
- 51 mtpa
834 - 19 mtpa
Cluster A (ODCH)
Cluster B (MUJC)
Cluster C (OD)
606
Cluster D (MM)
Source: MOSL, Ministry of Coal
Fuel cost pass-through would mean lower tariff, efficiency-based gains
The new standard bidding document has shifted fuel cost risk from developers to
consumers, while retaining efficiency (normative or actual, whichever is lower). The
cost of domestic coal being pass-through would mean that fuel cost would become
very competitive. Bidding would have to be capacity charge based and total LT PPA
tariff would trend down from current levels of INR4-4.50/unit.
Since capacity charge linked bidding would offer limited leeway for differentiation,
the return would be a function of efficiency in project cost, execution and
operations. In our discussions, few developers indicated that the days of windfall
gains are over and that the business model will have to be re-aligned to reasonable
rate of return.
11 December 2014
31

Thematic | Sector Update
Consolidation to continue; capacity addition robust
India’s thermal installed capacity as at November 2014 stood at 178GW, while
additional ~88GW are under construction. The capacity addition for 12th plan is
estimated at 75GW and there exists fair visibility of robust capacity addition of 18-
20GW till FY20.
We assume demand growth would rebound to 8% CAGR over FY15-20 as against
5.3% CAGR over the last five years and 6.7% over the last 10 years. Incremental
supply is likely to outpace capacity addition. In addition, existing projects are
operating at 65% PLF and gas projects are operating at ~35% PLF. This, in our view,
would limit the investment in new capacity addition. Developers with specific
project issues, stretched financial position, and relatively low presence (1-2
projects) may be acquisition targets. We have already seen some M&A activity
amongst IPPs in recent times and the pace may only pick up in the medium term.
Valuation and view
The coal block auction will bring transparency into the process, and is thus, a
welcome step. It is positive for NTPC, as it would allow a higher proportion of
captive coal in the fuel mix and assure dedicated supply. From Coal India’s
perspective, recent lack of commercial mining will not dilute its monopoly status,
but enabling resolution could pose a threat in future. IPPs with PPAs may get
assured coal supply while the cost may be largely pass-through. However, the
requirement of LT PPA to participate in auction/production from mine would mean
projects with no LT PPA may face issues in the interim. The bid criteria also highlight
low reserve price for the Power sector to minimize power generation costs. We
reiterate that
NTPC, Powergrid, CESC
and
RattanIndia Power
are our top picks,
being insulated from the prevailing uncertainties in the sector.
Exhibit 35: Power sector valuation table
Company
Recom
EPS (INR/sh)
FY15E FY16E FY17E
CPSUs
NTPC
PGCIL
Coal India *
NHPC
Private Sector
CESC
Tata Power
JSW Energy
Reliance Infra
PTC
RattanIndia
Power
Buy
Neutral
Neutral
Buy
Buy
Buy
56.5
4.0
8.2
51.2
14.6
0.2
59.5
4.9
7.6
61.6
14.1
1.9
64.1
5.6
7.3
61.2
16.0
3.0
11.3
7.9
19.1
6.4
12.7
0.8
10.4
8.4
15.5
7.3
10.9
9.0
10.2
9.0
13.5
6.8
11.5
13.0
1.2
1.5
2.0
0.7
1.0
0.6
1.1
1.5
1.8
0.6
1.0
0.5
1.0
1.4
1.7
0.6
0.9
0.5
11.6
18.6
11.4
11.0
6.5
-
11.0
13.0
12.4
9.1
6.7
6.0
10.2
11.0
12.8
9.2
6.0
3.8
7.3
6.6
5.0
4.6
11.8
6.8
6.9
3.3
4.7
5.0
6.0
6.9
3.1
3.6
4.3
16.3 12.5 11.8
RoE (%)
FY15E FY16E FY17E
9.3
14.1
23.5
8.3
P/BV (x)
FY15E FY16E FY17E
1.3
1.9
4.7
0.7
P/E (x)
FY15E FY16E FY17E
14.3
14.1
14.1
9.0
EV/EBITDA (x)
FY15E FY16E FY17E
11.2 10.2
10.6 9.7
9.5 7.9
7.3
6.8
Buy
Buy
Neutral
Neutral
10.0
9.7
25.5
2.1
12.3 14.7
11.5 13.7
28.6 31.5
2.4
2.4
10.8 12.2
15.2 16.3
23.3 22.5
8.1
7.9
1.2
1.7
4.1
0.7
1.1
1.5
3.6
0.7
11.7
11.9
12.6
8.2
9.7
10.0
11.4
8.1
8.6
8.8
6.7
6.5
Source: Company, MOSL
11 December 2014
32

Thematic | Sector Update
Non-Power: Revenue maximization is key
Import parity likely to be the cap
The Non-Power sector includes CPPs, Sponge Iron and Cement companies. These
players may have to readjust their business models, given the de-allocation and
subsequent auctioning of coal blocks. As against a cost advantage standpoint, focus
would now shift to operating efficiency. Key drivers of relative outperformance
between companies would be end-product positioning and ability to optimize on
other costs, in our view.
Coal auction – revenue maximization objective
The government would aim for revenue maximization in auctioning coal blocks to
the Non-Power sector. This is in contrast to the ‘low cost electricity consumer
centric bidding’ approach likely to be adopted for the Power sector. Irrespective of
the intensity and demand-supply equation, a higher floor price and upfront payment
would mean unavailability of gains from low cost captive sourcing of coal.
Imported coal prices likely to be bid cap; larger blocks to see less aggressive
bids
Media reports suggest that the government is likely to fix ‘floor price’ as a function
of either international coal mine-head price or the price of coal supplied by Coal
India to such industries. To incentivize bidding, a nominal discount to such prices is
likely.
Imported coal, being the final avenue for alternate coal sourcing for any end-use
plant, would set a theoretical cap in Non-Power sector bids. While captive coal
sourcing provides the advantage of assured coal supplies and could command a
premium, we believe this is unlikely in the current environment, as (a) outlook for
international coal prices is weak amid global oversupply, (b) declining crude oil (and
in effect fuel oil) prices could lead to further pressure on coal prices, and (c) weak
domestic demand is coupled with competition from low cost imports.
While we view imported coal price as the likely cap, few coal blocks – particularly
producing and feeding operational end-use plants – could see high competitive
intensity. We believe Hindalco’s Talabira-I could be one such block.
The bid methodology is also likely to require paying 10% of the NPV of the block
upfront. Our back-of-the-envelope calculation of imported coal NPV suggests that
10% of NPV to be paid upfront would amount to about INR2b for a 1m ton coal mine
producing for 30 years at a discount rate of 10%. Given the precarious financial
position of many players and non-viability of end-use plants (which were earlier
based on low cost coal availability), aggressive bids over the import parity price are
unlikely. Potential from future coal block auctions (of the remaining blocks from the
204 blocks cancelled) would also weigh on the auction bids. A higher upfront
payment could lead to a more balanced bidding for the larger blocks like Uktal B1 in
Cluster C.
11 December 2014
33

Thematic | Sector Update
Metals: Scenario fluid
Hindalco is our preferred bet
Jindal Steel and Power
JSPL requires ~19m tons of coal for its Sponge Iron and CPP capacities, and 17m tons
of coal for its Tamnar IPP.
For its Angul Sponge Iron facility, the probability of its re-securing its earlier Utkal B-
1 block is high. Our cluster analysis indicates that JSPL is the only major Sponge Iron
player in the vicinity other than Bhushan Steel (10m tons requirement), which is
facing debt repayment issues.
For its other projects – Raigarh and Tamnar – we note that getting its earlier Gare-
Palma blocks could be competitive. There is more than 6.8GW of IPP capacity
(excluding JSPL’s 3.4GW IPP) within a 100km radius of these coal blocks.
Hindalco
For Hindalco, re-securing the Talabira-I block would be competitive, given that Sesa
Sterlite’s Jharsuguda plant is about 20km from the block and JSPL’s Raigarh plant is
less than 100km away. Besides Talabira-I, the next closest block is Gare-Palma
(about 150km). However, this was earlier tagged for the regulated Power sector and
if this classification remains, the only available option would be the Durgapur block
(about 190km), which was earlier allocated to Balco (for its CPP).
For its Mahan facility, Hindalco was allocated the Mahan coal block in JV with Essar
Power. If it is not allowed to bid for the block for its CPP (Essar is a regulated Power
sector entity), there are no other CPP blocks in a 100km radius, based on the
previous end-use classification.
Sesa Sterlite
SSLT requires about 6m tons for its 1,215MW CPP and 11.7m tons for its 2,400MW
IPP. The management had earlier indicated that it was looking for converting the IPP
to captive use for its Jharsuguda smelter. It is unclear if it would bid in the Power
sector category for its IPP project. For the 1,215MW CPP, we note that it is favorably
positioned for Talabira-I and Gare-Palme blocks (both less than 150km away).
Balco was earlier allocated the Durgapur II coal block for its CPP. It is situated within
120km of the Tara, Durgapur II and Gare-Palma coal blocks. However, if CPPs are not
allowed to bid for blocks earlier with IPPs, Balco is left with just its earlier Durgapur
II block in close vicinity. The next closest CPP block is Talabira-I (220km far).
11 December 2014
34

Thematic | Sector Update
NOTES
11 December 2014
35

Disclosures
This research report has been prepared by MOSt to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This
Thematic | Sector Update
report is for personal information of the select recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to
invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been
furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into
account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable
for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and
investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
We are under the process of seeking registration under SEBI (Research Analyst) Regulations, 2014. There are no disciplinary action that have been taken by any regulatory authority impacting equity
research analysis activities.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business
relationships with a significant percentage of the companies covered by our Research Department Our research professionals provide important input into our investment banking and other business selection
processes. Investors should assume that MOSt and/or its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that
the research professionals who were involved in preparing this material may participate in the solicitation of such business. The research professionals responsible for the preparation of this document may
interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information. Our research professionals are paid in part based on the
profitability of MOSt which include earnings from investment banking and other business. MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from
maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an
officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates may provide oral or written market commentary or trading
strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with
the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest . MOSt and
its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to
hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The
information contained herein is based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the
data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not
intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt
and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its
affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of
its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its
contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of
Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
Analyst ownership of the stock
Companies where there is interest
Sesa Sterlite
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or
will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible
for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to
law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity to
which this document relates is only available to investment professionals and will be engaged in only with such persons.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States.
In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state
laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein
are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as
amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has
entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be
executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer,
MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research
analyst account.
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore
to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email : anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65)68189232
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
Regional Disclosures (outside India)
For U.K.
For U.S.
For Singapore
Motilal Oswal Securities Ltd
11 December 2014
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
36