Sector Report 051009 Religare

SECTOR OUTLOOK
POSITIVE
Infrastructure: Sector Report

The time is right!
October 2009
Nimit Shah Hardik Shah
(91-22) 6766 3464 (91-22) 6766 3465
nimit.shah@religare.in hardik.shah@religare.in
Contents
Section Page No.
Sector snapshot 1
Valuations still offer room for upside 2
Infrastructure investments in India 5
- Short-term hiccups, long-term intact 5
- Opportunities across segments 8
- Funding a key challenge 10
- PPP – the way forward 13
- Opportunities abound for EPC players 14
- Key risks to our estimates 21
- RHH infrastructure universe: Valuation matrix 22
Sector-wise investment allocation 24
- Roads & Bridges 24
- Electricity 30
- Railways 33
- Irrigation 36
- Water supply and Sanitation 39
- Airports 41
- Ports 44
Companies
- Hindustan Construction Co 46
- IRB Infrastructure 53
- IVRCL Infrastructure 64
- Jaiprakash Associates 70
- Larsen & Toubro 77
- Nagarjuna Construction 84
- Patel Engineering 90
- Punj Lloyd 96
- Simplex Infrastructure 102
- Voltas 108
- Ahluwalia Contracts 113
- Gayatri Projects 118
- Madhucon Projects 120
RHH: Winner of LIPPER-STARMINE broker award for “Earnings Estimates in Midcap Research 2008” 1
“Honourable Mention” in Institutional Investor 2009
RHH Research is also available on Bloomberg FTIS <GO> and Thomson First Call
Infrastructure Sector Report 05 October 2009
Infrastructure
The time is right! Recommendation snapshot
Company CMP Target Rating
Run-up in valuations but still room for further upside: Over the last six months,
Ahluwalia Cont 169 190 Buy
our universe of infrastructure and construction stocks has run up by a massive
HCC 130 141 Hold
200% as against returns of 73% from the Sensex and 112% from the Capital
IRB Infra* 209 224 Buy
Goods Index. The sharp rally has been spurred by hopes that the recently
elected, pro-reform government will boost spending on infrastructure, eliminate IVRCL 388 434 Buy
policy bottlenecks, and simplify procedures for project approvals. The surge in JP Associates 239 237 Hold
stock prices is also a function of a re-rating in the broader market multiple, led by L&T 1,665 1,781 Buy
the restoration of liquidity flows. NCC 153 166 Hold
Patel Engg. 484 532 Buy
Last year, the construction & infrastructure sector suffered a major blow as India’s
Punj Lloyd* 262 306 Buy
economic growth slowed from 9% in 2007–08 to below 7% and the global credit
Simplex Infra 510 577 Buy
crunch starved infrastructure firms of funds. Now, with healthy liquidity conditions,
strong project execution, softening commodity prices, lower interest rates, and a Voltas* 145 160 Hold
healthy political climate, we expect upgrades to consensus earnings estimates in * Consolidated
H2FY10, leading to a further re-rating of the sector. High-growth mid cap

Profitability and return ratios
construction stocks look set to take the lead.
FY09-11 FY11E P/E (x) ROE (%)
Company PAT Ex-
Government spends to invigorate sector: Infrastructure spending of ~US$ 500bn CAGR (%) P/E
sub#
FY10E FY11E
in the 11th Five Year Plan and additional spending through government stimulus Sensex 13.0 16.1 16.1 17.3 18.2
packages provide strong revenue visibility for infrastructure players over the next L&T
4–5 years. At the same time, a rebound in economic growth and corporate capex
Standalone 22.1 24.1 21.3 23.8 24.6
along with improved availability of funds augur well for the sector. Public sector
Consolidated 22.8 21.5
investments will be crucial going forward, with roads, irrigation, power and
urban infrastructure likely to attract a bulk of the development funds. Ahluwalia Cont 38.8 9.6 9.6 37.2 36.2
HCC 37.8 29.0 11.7 8.4 9.0
Mid caps at attractive valuations: Mid cap companies with strong revenue IVRCL 27.3 17.2 14.0 13.8 15.0
visibility are currently trading at a discount of ~40% to L&T and at par to the NCC 25.2 16.2 12.6 10.0 10.6
Sensex. Our mid cap construction universe traded at 18–20x one-year forward Patel Engg. 23.7 17.9 12.2 12.3 13.8
earnings during FY04-FY09, which was a period of buoyant growth. The topline
Punj Lloyd* 60.4 14.7 13.5 16.4 15.8
of the RHH construction universe increased at ~34% CAGR and bottomline at
Simplex Infra 28.5 12.4 12.4 16.3 18.0
~36% over this period.
* Consolidated #Excluding subsidiaries
Although we expect lower revenue growth at ~20% CAGR over the next two Stock performance
years on account of the higher base, we anticipate a healthy bottomline ramp-up
Company CMP 1mth 3mth 6mth YTD
of ~26% led by rationalisation of interest costs. With strong earnings growth, we
firmly believe that valuations of our mid cap construction universe remain Sensex 17,135 10.2 17.0 73.0 77.6
attractive at a P/E of 15.9x FY11E earnings and 12.7x excluding subsidiaries. Cap Goods Index 13,731 6.1 6.4 112.4 98.7
Ahluwalia Cont 169 13.0 94.4 406.6 478.6
Long-term growth drivers: While we expect stock performance to be volatile in
HCC 130 22.9 25.1 223.4 156.2
the short term, we see opportunities for above-average returns in companies that
IRB Infra* 209 (0.8) 28.1 138.2 61.5
have a strong track record, a sturdy financial backbone, and robust risk-
management systems with the ability to scale up. As mentioned, softening IVRCL 388 7.5 10.3 202.2 169.9
commodity prices and lower interest costs offer potential for earnings upgrades. JP Associates 239 7.8 15.1 180.3 188.6
We remain positive on L&T and Punj Lloyd in the large cap space, IVRCL L&T 1,665 7.4 5.8 147.6 115.2
Infrastructures and Simplex Infrastructure in the mid cap space, and IRB NCC 153 13.4 11.1 143.3 112.5
Infrastructure in the developer segment. Patel Engg* 484 10.5 12.9 244.3 177.0
Punj Lloyd* 262 1.6 22.6 184.5 78.1
Simplex Infra 510 18.6 30.7 213.0 195.6
Voltas 145 (4.0) 17.7 192.0 140.0
* Consolidated
RHH: Winner of LIPPER-STARMINE broker award for “Earnings Estimates in Midcap Research 2008”
“Honourable Mention” in Institutional Investor 2009 1
RHH Research is also available on Bloomberg FTIS <GO> and Thomson First Call
Valuations still offer room for upside

Expect above-average returns in select Over the last six months, infrastructure and construction stocks have witnessed a
stocks despite sharp run-up re-rating and rallied sharply by ~200% on the back of an improving global economic
environment and political stability in the country. With significant order inflows,
easing fund flows and a stronger government focus on infrastructure, we see
opportunities for above-average returns in companies that have a strong track record,
a sturdy financial backbone, and robust risk-management systems with the ability to
scale up. Softening commodity prices and lower interest costs offer potential for
earnings upgrades.
Fig 1 - RHH Construction sector growth trend

Particulars CAGR CAGR
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E
(Rs mn) FY09-11E (%) FY04-09 (%)
Sales 117,508 148,520 202,289 239,214 330,731 471,113 646,588 763,366 932,522 20.1 34.2
EBITDA 9,828 11,825 14,776 19,685 32,081 52,038 65,765 80,607 98,528 22.4 40.9
Interest cost 3,302 2,574 3,373 3,933 5,092 8,495 14,811 16,249 17,880 9.9 41.9
PAT 5,238 7,838 9,229 12,209 20,740 31,200 35,915 46,018 56,965 25.9 35.6
Source: Company, RHH
Fig 2 - RHH Construction sector growth trend excluding L&T and Punj Lloyd
Particulars CAGR CAGR
(Rs mn) FY09-11E (%) FY04-09 (%)
Sales 23,907 52,020 70,437 91,583 154,589 221,019 307,325 361,480 430,443 18.3 42.7
EBITDA 2,704 6,426 6,691 9,027 14,296 22,459 27,423 35,117 41,968 23.7 33.7
Interest cost 1,050 1,653 2,533 2,627 4,162 7,269 11,309 12,237 13,493 9.2 46.9
PAT 891 1,293 2,400 3,786 4,759 6,207 6,470 8,436 10,548 27.7 38.0
Mid caps trading at attractive valuations (ex-subsidiary valuations)

Our mid cap universe is trading at L&T, the infrastructure bellwether, is trading at a premium of 35–40% to the Sensex.
attractive valuations of12.7x FY11E EPS Mid cap companies with strong revenue visibility are currently quoting at a discount of
(ex-subsidiaries) ~40% to L&T and at par to the Sensex. Our construction universe is trading at a P/E of
21x FY11E earnings. Excluding subsidiaries, the multiple stands at 17.6x on FY11E
which looks fairly valued. However, our mid cap construction universe (excluding L&T
and Jaiprakash Associates) is trading at attractive valuations of 15.9x FY11E earnings and
12.7x excluding subsidiaries.
Historically, our mid cap construction universe has traded at 18–20x one-year forward
earnings during FY04-FY09, which was a period of buoyant growth. The topline of the
RHH construction universe increased at ~34% CAGR and bottomline at ~36% over this
period. Although we expect lower revenue growth at ~20% CAGR over the next two
years on account of the higher base, we anticipate a healthy bottomline ramp-up of
~26% led by rationalisation of interest costs and operational efficiency.
We remain bullish on the sector due to strong earnings visibility and healthy order
flows. We have valued L&T based on its average P/E of the last four years and other
companies in our universe at 30–45% discount to L&T depending upon balance sheet
strength and future business outlook.
Stocks to buy: L&T, Punj Lloyd, IVRCL, We remain positive on L&T and Punj Lloyd in the large cap space, IVRCL Infrastructures
Simplex and IRB and Simplex Infrastructure in the mid cap space, and IRB Infrastructure in the developer
segment.
2
Fig 3 - Sector valuation matrix

OB /
Order CAGR over P/E ex- sub
CMP Target FY10E P/E (x) ROE (%)
Company Reco book FY09-11E (%) valuation (x)
Sales
(Rs) (Rs) (Rs bn) Revenue Earnings FY10E FY11E FY10E FY11E FY09E FY10E FY11E
Ahluwalia
169 190 Buy 28.0 1.9 27.6 38.8 13.3 9.6 13.3 9.6 37.9 37.2 36.2
Cont
HCC 130 141 Hold 134.7 3.3 22.0 37.8 37.5 29.0 15.1 11.7 7.6 8.4 9.0
IRB Infra* 209 224 Buy NA NA 93.1 94.0 20.2 15.4 20.2 15.4 7.1 18.1 19.7
IVRCL 388 434 Buy 149.0 2.3 24.9 27.3 20.4 17.2 16.6 14.0 11.0 13.8 15.0
JP
239 237 Hold NA NA 35.2 33.5 25.5 22.1 17.4 15.1 17.2 21.5 20.5
Associates*
L&T 1665 1,781 Buy 716.5 1.8 21.7 22.1 29.8 24.1 26.4 21.3 24.6 23.8 24.6
NCC 153 166 Hold 139.0 2.9 17.0 25.2 19.3 16.2 15.0 12.6 9.4 10.0 10.6
Patel Engg 484 532 Buy 73.5 3.3 23.7 23.7 22.7 17.9 15.5 12.2 11.5 12.3 13.8
Punj Lloyd* 262 306 Buy 278.9 2.1 13.9 60.4 17.4 14.7 16.0 13.5 9.0 16.4 15.8
Simplex Infra 510 577 Buy 100.1 1.8 19.0 28.5 15.9 12.4 15.9 12.4 14.9 16.3 18.0
Voltas* 145 160 Hold NA NA 17.2 21.1 17.9 14.5 17.9 14.5 32.9 29.9 29.2
Aggregate 1,619.8 2.1 22.3 29.4 25.7 21.0 21.6 17.6
Source: RHH, Company * Consolidated
Fig 4 - L&T* – Premium/discount to BSE 30 P/E Fig 5 - HCC – Premium/discount to L&T P/E
(%) (%)
120 250
100
200
80
150
60
100
40
20 50
0 0
(20) (50)
Aug-06 Aug-07 Sep-08 Sep-09 Aug-06 Jun-07 Mar-08 Dec-08 Sep-09
Source: RHH * Consolidated Source: RHH
Fig 6 - IVRCL – Premium/discount to L&T P/E Fig 7 - NCC – Premium/discount to L&T P/E
(%) (%)
100 80
80 60
60
40
40
20 20
0 0
(20) (20)
(40)
(60) (40)
(80) (60)
Aug-06 Jun-07 Mar-08 Dec-08 Sep-09 Aug-06 Jun-07 Mar-08 Dec-08 Sep-09
Source: RHH Source: RHH
3
Fig 8 - Patel Engg – Premium/discount to L&T P/E Fig 9 - Punj Lloyd– Premium/discount to L&T P/E
(%) (%)
60 60
40 40
20 20
0 0
(20) (20)
(40) (40)
(60) (60)
Fig 10 - Simplex Infra – Premium/discount to L&T P/E Fig 11 - Price discount from peak
Ahluwalia
(%)
Simplex
(%)
Semsex
JP Asso
40
IVRCL
Voltas
Patel
HCC
NCC
Punj
L&T
IRB
20
0
0 (10)
(8)
(20)
(20) (18)
(30) (25) (26)
(40) (40) (32)
(50) (43)
(60)
(60) (52) (49) (51) (53) (55)
(80) (58)
(70)
Aug-06 Jun-07 Mar-08 Dec-08 Sep-09
4
Infrastructure investments in India

The formation of a stable government by the incumbent UPA party is a key positive for
the infrastructure sector in the long term. Infrastructure investments in the 11th Five
Year Plan are expected to more than double to ~US$ 500bn over FY08-FY12 with an
emphasis on areas like roads, power, irrigation and water supply. Approximately 70%
of this investment would come from government spending, with the Centre
contributing ~37% and state governments ~33%. With the slowdown in private capex
in the wake of global economic turmoil, government spends would be the key growth
driver for the infrastructure sector going forward.
Short-term hiccups, long-term intact

Contract awarding to scale up Execution of planned project expenditure in India has proved laggardly so far due to
substantially across segments various regulatory and policy issues. The last six months in particular have been a
challenging period as decisions on project awards were repeatedly deferred on account
of the economic slowdown and the code of conduct applicable to public sector bodies
prior to the elections in May ’09.
With a stable government now in place and priority being accorded to infrastructure
development, it is expected that government-led capex will increase and new business
prospects will fructify in the latter half of this fiscal year. The government aims to
increase infrastructure spending in India to over 9% of GDP by 2014 from the current
5.8%. With the private sector expected to invest ~30% of the projected expenditure, the
public-private-partnership (PPP) model will gain traction. The recently announced
stimulus packages also have the potential to fuel order book growth of EPC players.
Fig 12 - Infrastructure investments Fig 13 - Infrastructure investment as a % of GDP

(Rs bn)
3000 2,700 7
2,350 6.0
2500 5.7
2,040 6
5.3
2000 1,610 5.1
1,450 1,450 1,440 4.8 4.9
4.7
1500 1,230 1,280 5 4.5
4.0
1000
4
500
0 3
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08
Source: Planning Commission, RHH Source: Planning Commission, RHH
Fig 14 - Segment-wise infrastructure spending during 10th and 11th Plans

(Rs bn) 10th Plan 11th Plan
6,665
7,000
6,000
5,000
4,000 3,142
2,919
3,000 2,584 2,618 2,533
2,000 1,449 1,197 1,437

1,034 1,115 880
1,000 648
141 68 310 48 224 97 169
0
Elect. Roads and Telecom. Railways Irrigation Water Ports Airports Storage Gas
bridges (incl. (incl. WD) Supply and
MRTS) Sanitation
Source: Plan Document, Planning Commission
5
Fig 15 - Infrastructure – 11th Plan physical targets

Sector 11th Plan targets
6-laning of 6,500km in Golden Quadrilateral (GQ); 4-laning of 6,736km in North South-East West (NS-EW)
Roads/Highways
corridor; 4-laning of 20,000km; 2-laning of 20,000km; building 1,000km of Expressways
Ports New capacity: 485mmt in major ports; 345mmt in minor ports
Airports Modernise 4 metro and 35 non-metro airports; 3 Greenfield in NER; 7 other Greenfield airports
Railways 8,132km of new railway track; 7,148km gauge conversion; modernise 22 stations; dedicated freight corridors
Power Add 78,577MW; access to all rural households
Irrigation Develop 16mha major and minor works; 10.25mha command area development (CAD); 2.18mha flood control
Telecom/IT Reach 600mn subscribers – 200mn in rural areas; 20mn broadband; 40mn Internet
Source: Plan document
Fig 16 - Breakdown of 11th Plan spending in infrastructure

Total 10th Total 11th
Sectors (Rs bn) Share (%) 2007-08 2008-09 2009-10 2010-11 2011-12 Share (%)
Plan Plan
Electricity (incl. NCE) 2,919 33.5 820 1,016 1,264 1,580 1,986 6,665 32.4
Roads and bridges 1,449 16.6 518 548 592 684 800 3,142 15.3
Telecommunications 1,034 11.9 314 381 486 616 787 2,584 12.6
Railways (incl. MRTS) 1,197 13.7 342 410 495 604 767 2,618 12.7
Irrigation (incl. WD) 1,115 12.8 275 359 472 623 804 2,533 12.3
Water Supply and
648 7.4 193 228 273 333 411 1,437 7.0
Sanitation
Ports 141 1.6 124 148 174 200 234 880 4.3
Airports 68 0.8 52 55 59 66 77 310 1.5
Storage 48 0.6 38 41 44 48 52 224 1.1
Gas 97 1.1 27 30 33 37 41 169 0.8
Total Investment (Rs bn) 8,714 100.0 2,703 3,216 3,893 4,791 5,959 20,562 100.0
Total Investment (US $ bn) 217.9 67.6 80.4 97.3 119.8 149.0 514.0
As % of GDP 5.4 6.0 6.5 7.3 8.2 9.3 7.6
Source: Plan document, Planning Commission
China to be a key motivator for India

In CY08, China spent US$ 101bn on While the infrastructure sector is regarded as one of the major opportunities for the
road infrastructure while India spent a medium to long term in India, the country’s progress pales in comparison to China. In
paltry US$ 11.5bn CY08, China spent US$ 101bn on road infrastructure while India spent a paltry
US$ 11.5bn. With the most recent RMB 4tn stimulus package in China much of the new
focus on infrastructure will be in rural and interior areas.
Over the next few years China’s spending on infrastructure could be exponentially larger
than that of India. China has the capital and execution capability to deliver infrastructure
spending on a rapid and massive scale. In addition, the Chinese government has been
edging towards a fiscal surplus over the last few years, although the deficit will likely
reemerge in 2009 with the additional stimulus package.
In China, capital for infrastructure spending is provided by the government and through
the banking system, which witnessed strong loan growth in Q1CY09. The combined
fiscal deficit at 11–12% of GDP severely impacts the ability of the Indian government to
roll out a Chinese-style infrastructure-heavy stimulus package. The Indian government
instead focuses on aggressively easing monetary policy and loosening liquidity
conditions by providing windows for refinancing debt such as IIFCL.
6
India’s infrastructure spend in 11th plan estimated at US$ 382bn

We estimate infrastructure spending of From past experience, we know that government investment targets are usually overly
US$ 382bn by FY12 vs. US$ 503bn optimistic. We estimate spending of US$ 382bn over the 11th plan period (FY08–FY12)
planned as against US$ 503bn planned. Our estimate stems from challenges being encountered
by the private sector in obtaining finance and also from the deceleration in India’s
GDP growth.
Fig 17 - Gross capital formation (GCF) in infrastructure based on growth targets (Top-down estimates)
Base Year 11th Plan
(Rs bn at 2006-07 prices)
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
GDP (market prices) 41,458 45,189 49,256 53,689 58,521 63,788
Rate of growth of GDP (%) 9.0 9.0 9.0 9.0 9.0 9.0
GCF in infrastructure as % of GDP 5.0 5.8 6.5 7.3 8.0 9.0
GCF in infrastructure (Rs bn) 2,073 2,598 3,202 3,892 4,682 5,741
GCF in Infrastructure (US$ bn) 52 65 80 97 117 144
th
11 plan GCF in infrastructure Rs 20,115bn or US$ 502.9bn
Our estimates of investments in infrastructure have been derived using the top-down
approach, based on the government’s GDP growth targets and estimates of the likely
evolution of the share of gross capital formation in infrastructure as a proportion of GDP
consistent with those targets.
Fig 18 - RHH estimates – GCF in infrastructure based on growth targets (Top-down estimates)
Base Year 11th Plan
(Rs bn at 2006-07 prices)
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Total
RHH assumptions
GDP at market prices 41,458 45,231 47,990 50,629 54,173 58,507 256,530
GDP growth rate 9.1% 6.1% 5.5% 7.0% 8.0%
GCF in Infrastructure (As a % of GDP) 5.7% 6.0% 5.8% 6.3% 6.7% 7.0%
GCF in Infrastructure (Rs bn) 2,363 2,714 2,783 3,190 3,630 4,095 16,412
GCF in Infrastructure (US$ bn) (Assumed ex. rate of 43$) 55 63 65 74 84 95 382
Source: RHH
Fig 19 - Projected investment in infrastructure as percentage of GDP (Bottom-up estimates)

Base Year 11th Plan
Years (Rs bn at 2006-07 prices) 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Total
GDP 41,458 45,189 49,256 53,689 58,521 63,788 270,445
Public Investment 1,754 1,921 2,273 2,735 3,324 4,112 14,366
Private Investment 499 782 943 1,157 1,468 1,847 6,196
Total investment 2,252 2,703 3,216 3,893 4,791 5,959 20,562
Infrastructure investment as percentage of GDP (%)
Public 4.2 4.3 4.6 5.1 5.7 6.5 5.3
Private 1.2 1.7 1.9 2.2 2.5 2.9 2.3
Total 5.4 6.0 6.5 7.3 8.2 9.3 7.6
7
Opportunities across segments

Roads, power, irrigation and railways to Infrastructure development in India is expected to garner a total investment of
absorb 91% of planned investment Rs 20,562bn over the 11th plan. We expect roads, power, irrigation and railways to
absorb 91.2% of the planned investment and represent 92.8% of the construction
opportunity generated by this plan.
Fig 20 - Construction opportunities and key beneficiaries

11th Construction Value of const. opportunity Growth over
Particulars (Rs bn) Key beneficiaries
plan intensity (%) 11th plan 10th plan 10th plan (%)
Electricity (incl. NCE) 6,665 31 2,066 905 128.3 L&T, HCC, Patel Engg, NCC
Roads and Bridges 3,142 95 2,984 1,449 106.0 IRB Infra, IVRCL, JP Associates, L&T
Railways (incl. MRTS) 2,618 42 1,100 503 118.6 L&T, Simplex Infra
Irrigation (incl. Watershed) 2,533 65 1,647 669 146.1

IVRCL, NCC, Patel Engg, HCC
Water Supply and Sanitation 1,437 60 862 388 122.3
Total 16,395 8,659 3,914 121.2

Source: Crisil, RHH
Fig 21 - Key opportunities
Sector Key opportunities
Power NTPC to award bulk tenders for super-critical equipment (660MWx11) in the near future
Roads NHAI to invite tenders / award projects worth Rs 600bn–700bn over the next one year
Dedicated Rail Freight Corridor (DRFC) the biggest opportunity in rail; also railway station privatisation, metro rail, signalling,
Railways
technical upgrades
Irrigation Increased government spending in Andhra Pradesh, Gujarat, Maharashtra, Karnataka, Uttar Pradesh and Madhya Pradesh
Urban infra Higher budgetary allocation for JNNURM and Bharat Nirman programmes
Source: RHH
Fig 22 - Higher budgetary allocations to various infrastructure schemes

Budget allocations (Rs bn)
Particulars
FY08 FY09 FY10
Bharat Nirman 246 312 452
JNNURM (Jawaharlal Nehru National Urban Renewal Mission) 55 69 129
NREGS (National Rural Employment Guarantee Scheme ) 120 160 391
NRHM (National Rural Health Mission) 99 121 139
NHDP (National Highway Development Programme) 109 129 159
RGGVY (Rajiv Gandhi Grameen Vidyutikaran Yojana) 39 55 70
APDRP (Accelerated Power Development and Reform Programme) – 8 21
AIPB (Accelerated Irrigation Benefit Programme) 110 200 350
Source: RHH
8
Fig 23 - Thrust areas under 11th Plan
ELECTRICITY ROADS AND BRIDGES

Lion’s share of planned investment at Rs 6,665bn Investment of Rs 3,142bn – 15.3% of 11th plan
– 32.4% of 11th plan spend and ~2.3x 10th spend and ~2.2x 10th plan amount
plan amount Centre and states to contribute ~66% and private
Private investment to make up ~28% players 34% (vs 5% private sector share in
10th plan)
Targets – Power capacity addition of 78.7GW; we
expect additions 60GW. Power minister Sushil 2009–10 allocation to National Highway Authority
Kumar Shinde pegs capacity addition at ~65GW of India (NHAI) increased 23% to Rs 159bn
Demand-supply gap and government thrust to Targets – Addition of 6-lane stretches covering
drive growth 6,500km in the GQ; 4-laning of the NS–EW corridor
across 6,736km; 4-laning of 20,000km; 2-laning of
Bulk tenders from NTPC a key trigger 20,000km; building expressways covering 1,000km
Major thrust areas in

11th Five Year Plan
IRRIGATION
RAILWAYS
Investment of Rs 2,533bn – 12.7% of 11th plan
Investment of Rs 2,618bn – 12.7% of 11th plan
spend and 2.3x 10th plan amount
spend and ~2.2x 10th plan amount
2009–10 allocation for Accelerated Irrigation
Private investment at ~20% as against nil in Benefit Programme (AIBP) hiked 75% from Rs
10th plan 200bn to Rs 350bn
2009–10 budgetary allocation to sector Allocation for JNNURM upped 90% to Rs 129bn
increased by 46% to Rs 158bn Government spending to continue in this segment
Targets – Construction of Dedicated Rail Freight mainly in Andhra Pradesh, Gujarat, Maharashtra,
Corridor – the biggest opportunity in the sector Karnataka, Uttar Pradesh and Madhya Pradesh
Targets – Develop 16mha major and minor works;
Also, railway station privatisation, metro rail
10.25mha command area development (CAD);
creation, signalling, technical upgrades
2.18mha flood control
Source: RHH
9
Funding a key challenge

Debt financing totals Rs 9,880bn in 11th Infrastructure investments are closely linked to the ability to raise debt to finance projects.
plan; 16% shortfall in corresponding The 11th plan investment of Rs 20,562bn is to be shared between the Centre, states and
resources private sector in the proportion of 37.2%, 32.6% and 30.1%. Projects to be awarded on
PPP basis would have a debt/equity ratio of 70:30 as against earlier levels of 85:15. The
required debt financing has accordingly been estimated at Rs 9,880bn. The Planning
Commission estimates the gap between the availability of debt resources and the debt
requirement at Rs 1,625bn. This is sought to be bridged through enhanced credit, external
commercial borrowings (ECB), pension and insurance funds, and other debt funds.
Fig 24 - Likely sources of debt financing for the 11th Plan

(Rs bn at 2006-07 prices) 2007-08 2008-09 2009-10 2010-11 2011-12 Total 11th Plan
Domestic bank credit 498 632 801 1,016 1,289 4,237
Non-Banking Finance Companies (NBFCs) 239 315 416 549 724 2,242
Pension/Insurance companies 91 100 110 121 133 554
External Commercial Borrowings (ECB) 196 218 242 269 299 1,223
Likely Total Debt Resources 1,024 1,264 1,569 1,954 2,444 8,255
Estimated Debt Requirement 1,317 1,557 1,873 2,296 2,837 9,880
– In US$ bn 32.9 38.9 46.8 57.4 70.9 247.0
Gap b/w estimated debt requirement & likely debt resources 293 293 305 341 393 1,625
– In US$ bn 7.3 7.3 7.6 8.5 9.8 40.6
Fig 25 - Deployment of gross bank credit (GBC)

Industry (Rs bn) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Total GBC 1,610 1,790 2,001 2,188 2,295 2,956 3,131 4,231 5,504 6,973 8,719 10,398
Construction 26 26 27 32 40 49 60 83 133 200 283 382
Infrastructure 32 59 72 113 148 263 372 790 1,129 1,430 2,023 2,569
i) Power 7 21 33 52 74 150 197 382 602 728 939 NA
ii) Telecom 20 23 20 36 40 58 84 157 185 194 371 NA
iii) Roads and ports 4 16 20 25 35 55 92 145 197 249 330 NA
Total Infrastructure 58 85 100 145 188 312 432 873 1,262 1,629 2,306 2,951
% of GBC 3.6 4.8 5.0 6.6 8.2 10.6 13.8 20.6 22.9 23.4 26.4 28.4
Source: RBI
Fig 26 - Total infrastructure outstanding as a % of gross bank credit

(%)
28.4
30 26.4
22.9 23.4
25 20.6
20
13.8
15 10.6
8.2
10 6.6
4.8 5.0
3.6
5
0
FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09
Source: RBI
10
Fig 27 - Projected investment in infrastructure: Source-wise financing

(Rs bn at 2006-07 prices) 2007-08 2008-09 2009-10 2010-11 2011-12 Total 11th Plan
Centre 1,126 1,283 1,485 1,721 2,040 7,656
Central Budget 294 335 388 450 533 2,000
Internal Generation (IEBR) 250 284 329 381 452 1,697
Borrowings (IEBR) 582 664 768 890 1,055 3,959
States 795 990 1,250 1,602 2,072 6,709
States Budgets 527 656 828 1,062 1,373 4,447
Internal Generation (IEBR) 80 100 126 162 210 679
Borrowings (IEBR) 188 234 295 378 489 1,584
Private 782 943 1,157 1,468 1,847 6,196
Internal Accruals/Equity 235 283 347 440 554 1,859
Borrowings 547 660 810 1,027 1,293 4,337
Total Projected Investment 2,703 3,216 3,893 4,791 5,959 20,562
Non-Debt 1,386 1,659 2,019 2,495 3,122 10,681
Debt 1,317 1,557 1,873 2,296 2,837 9,880
Liquidity drought in FY09

Paucity of funds in FY09 dented project In FY09, the paucity of funds along with an increased cost of debt (up 300–400bps YoY)
returns and viability hit infrastructure projects hard, affecting project returns and viability. A sharp fall in the
global equity markets along with a drop in appetite for Indian papers in the overseas
market further exacerbated the funding issue. At the same time, domestic interest rates
spiraled as high as 14–15%. At such high rates, infrastructure projects turned unviable
and hence private sector participation fell dramatically. Even as policy rates were eased
thereafter to sustain growth, the risk perception amongst banks was heightened. Hence,
the development of new projects has been subdued.
However, the government stimulus packages announced early this year coupled with
RBI monetary measures has alleviated liquidity concerns to a great extent. On the flip
side, a ballooning fiscal deficit (6.8% of GDP in FY10) will limit the government’s ability
to spend on infrastructure projects in the short term, though disinvestment would help
bridge the funding gap.
IIFCL refinance scheme a key positive

At present, public sector banks are the main providers of finance to infrastructure
projects. Typically, infrastructure loans are for 10 years and above. However, 81% of
bank deposits fall in the sub-5-year category. This implies an asset-liability mismatch for
banks as they run the risk of financing long-term assets with short-term liabilities.
IIFCL refinance facility opens up a fresh To mitigate the situation, a scheme of refinance by India Infrastructure Finance
avenue for infra project funding Company (IIFCL) has been evolved. Under the scheme, refinance would be provided to
banks for new commercially viable projects in the roads and port sector where bids
have been submitted on or after 31 January 2009. IIFCL will provide refinance up to
60% of the loans provided by banks to these infrastructure projects at an interest rate of
7.85%. Banks will not charge more than 2.5% over and above the rate of refinance.
IIFCL has already raised Rs 100bn till 31 March 2009 by way of tax-free bonds to
provide this facility to banks, thereby supplementing resources to finance infrastructure
projects. Further, with bank lending rates easing, the interest of private sector players in
bidding for new projects has begun to revive.
11
Stimulus/budgetary measures eased access to funds

Apart from a two-part stimulus package, the newly formed government has announced
the following measures to boost the infrastructure sector in the recent budget:
IIFCL authorised to raise Rs 400bn, thus IIFCL has been authorised to raise Rs 400bn in two tranches, thereby supporting
supporting projects worth Rs 1,000bn projects worth Rs 1,000bn.
Approvals accorded for several projects from August ’08 to January ’09, as follows:
o 37 infrastructure projects worth Rs 700bn

o 54 central infrastructure projects with a cost of Rs 677bn under PPP
o 29 projects amounting to Rs 279bn for viability gap funding (VGF).
NBFCs, which are expected to provide 27% of the total debt financing in the 11th
plan, have been permitted to access ECBs from multilateral or bilateral institutions
under the approval route of the RBI. The government also plans to launch an SPV
aimed at providing liquidity support against investment-grade paper to NBFCs
fulfilling certain conditions.
Monetary measures injected liquidity into the banking system

Since October ’08, RBI has reduced the cash reserve ratio (CRR) for banks by 400bps to
5% and statutory liquidity ratio (SLR) by 100bps to 24%, thereby injecting liquidity of
more than Rs 1,500bn into the system. It also reduced repo rates by 425bps to 4.75%.
These aggressive measures led to a significant improvement in the liquidity situation
with wholesale rates declining sharply in the last nine months.
World Bank lending plan of ~US$ 14bn

In December ’08, the World Bank introduced a lending plan of ~US$ 14bn over three
years for India. Of this, US$ 3bn will focus on areas most affected by the global financial
crisis, including state-owned and housing banks, small and medium-sized enterprises
and infrastructure.
World Bank providing US$ 4.3bn to Of the proposed funds, US$ 330mn has been disbursed in August ’09 while four
support India’s economic stimulus, projects worth US$ 4.3bn were recently approved. These projects are designed to
infrastructure investments support the government’s infrastructure agenda and bolster its economic stimulus
programme. The loans (to the banking sector and PowerGrid) from the International
Bank for Reconstruction and Development (IBRD) have a 30-year maturity, including a
5-year grace period. The IBRD loan to IIFCL (US$ 1.2bn) has a 28-year maturity
including a 7.5-year grace period.
Fig 28 - Summary of the proposed disbursement of US$ 4.3bn

Amount
Loan to Scope / Purpose
(US$ bn)
To provide budgetary support to the government of India, helping it maintain its broad economic stimulus
Banking Sector
2 programme by enhancing the capital of select public sector banks. Will help maintain credit growth levels,
Support Loan
support social banking and employment growth, and strengthen economic recovery.
India Infrastructure
To support its role to catalyse private financing for PPPs in infrastructure – mainly roads, powers, ports &
Finance Company 1.2
airports – and stimulate the development of a long-term local currency debt financing market.
(IIFCL)
To help address India’s acute deficit of power. The loan will help PowerGrid to strengthen five
Power Grid (Power
transmission systems in the northern, western and southern regions of the country. This will facilitate the
System Development 1
transfer of power from energy surplus regions to towns and villages in the country’s under-served regions.
Project)
It will enable PowerGrid to strengthen the existing transmission system and expand the National Grid.
Andhra Pradesh Rural
To improve water supply and sanitation services in 2,600 villages across six districts of the state. Aims to
Water Supply and 0.15
provide piped water to 2.1mn people and extend sanitation services to 1mn people.
Sanitation Project
Total 4.3
Source: World Bank press release
12
PPP – the way forward

The government plans to raise total investment in infrastructure from an estimated 5.4%
of GDP in 2006–07 to over 9% by the 2014. An increase of this magnitude cannot be
achieved through public investment alone. The 11th plan therefore proposes a strategy
which involves a combined response – an increase in public sector investment in
infrastructure as a percentage of GDP along with higher private sector investment
through some form of PPP or directly, where feasible.
One-third of planned investment to come from private sector

Private sector share at ~30% of planned Of the 11th plan investment of Rs 20,562bn, ~30% is expected from private participation
investments as against 20% in the 10th plan. The role of private players is much more prominent in
central sector projects. As mentioned, in FY09, the severe liquidity crisis hampered the
ability of private players to generate funds required for investments. The power and road
segments in particular witnessed a sharp slowdown as a mix of macro and sector-
specific constraints induced a sharp deceleration in private participation for new project
tenders. Now, however, we expect the process of project awards to be expedited given
the following:
A marked improvement in the Indian economy along with reviving global cues
Incentives introduced for the PPP model
A softer interest rate regime leading to easier access to liquidity and a lower cost of
debt (a key concern since projects are funded by debt to the extent of 75–80%)
Policy measures initiated to unplug the bottlenecks to project execution (mainly in

the roads segment), which have been a principle cause of delays in project awards
Measures to unlock liquidity introduced in the two stimulus packages
Softening of commodity prices.
13
Opportunities abound for EPC players

Construction opportunity up to FY12 Opportunities in the construction space are estimated at 25–95% of infrastructure
estimated at Rs 9,484bn spending in each segment. With a total planned outlay of ~US$ 500bn charted out in
the 11th plan, investments in construction are set to double over the next five years. The
construction business opportunity up to FY12 is estimated at Rs 9,484bn with roads,
power, railways and irrigation being the primary growth drivers.
Fig 29 - Construction intensity during 10th and 11th Plans

Construction Value of construction Value of construction Growth over 10th
Particulars (Rs bn) 11th Plan
intensity (%) opportunity in 11th Plan opportunity in 10th Plan Plan (%)
Electricity (incl. NCE) 6,665 31 2,066.2 905 128.3
Roads and Bridges 3,142 95 2,984.5 1,449 116.8
Railways (incl. MRTS) 2,618 42 1,099.6 503 118.6
Irrigation (incl. Watershed) 2,533 65 1,646.5 669 146.1
Water Supply and Sanitation 1,437 60 862.4 388 122.3
Ports 880 50 440.0 70 528.5
Airports 310 42 130.1 28 364.5
Storage 224 25 55.9 12 366.2
Gas 169 25 42.1 25 68.6
Total excluding Telecom 17,977 9,484 4,049 134.2
Source: Plan document, Planning Commission, Crisil Research, RHH
Fig 30 - Year-wise construction intensity during 11th Plan

Const Const Const Const Const Const Total Value of
2007- 2008- 2009- 2010- 2011-
Sectors (Rs bn) intensity intensity intensity intensity intensity intensity 11th constr
08 09 10 11 12
(%) (%) (%) (%) (%) (%) Plan opportunity
Electricity (incl.
31 820 254 1,016 315 1,264 392 1,580 490 1,986 616 6,665 2,066
NCE)
Roads and bridges 95 518 492 548 520 592 562 684 650 800 760 3,142 2,984
Railways (incl.
42 342 144 410 172 495 208 604 254 767 322 2,618 1,100
MRTS)
Irrigation (incl.
65 275 179 359 233 472 307 623 405 804 523 2,533 1,646
WD)
Water Supply and
60 193 116 228 137 273 164 333 200 411 246 1,437 862
Sanitation
Ports 50 124 62 148 74 174 87 200 100 234 117 880 440
Airports 42 52 22 55 23 59 25 66 28 77 32 310 130
Storage 25 38 9 41 10 44 11 48 12 52 13 224 56
Gas 25 27 7 30 8 33 8 37 9 41 10 169 42
Total Investment
2,389 1,285 2,834 1,493 3,407 1,764 4,175 2,146 5,172 2,639 17,977 9,327
(Rs bn)
Source: Plan document, Planning Commission, Crisil Research, RHH
Construction contractors, equipment suppliers, lenders, consultants as well as owners of

infrastructure assets would benefit from the large opportunity. With increasing project
size and complexity, established and large construction contractors would continue to
draw market share away from smaller contractors. We expect the government’s
spending to hasten capacity expansion by contractors and developers.
Corporate capex – improving trend

Upturn in industrial activity to buoy Construction companies have derived strong order book growth from exposure to
corporate capex corporate capex in the oil & gas, steel and cement industries over the past 2–3 years.
However, investments across the board have taken a backseat after the economic
downturn and rise in commodity prices. While projects which are under
implementation or have achieved financial closure are at low risk, nascent works are
likely to witness delays.
14
We expect continued capex in the hydrocarbon space and fertilisers (mainly due to
availability of natural gas) in the near term. Also, corporate capex trends in the steel, and
cement sectors suggest an improvement as demand picks up. July IIP data clearly reflects
the upturn in industrial activity in India. We expect the recovery to accelerate on
account of a favorable base effect and renewed consumption demand.
Fig 31 - IIP (YoY change) Fig 32 - IIP – Manufacturing (YoY change)

(%) (%)
13.8
12.2
14 16
11.3
12.4
10.9
10.6
14
11.3
12
10.8
9.5
12
8.9
9.7
9.6
10
8.3
8.2
8.0
8.8
8.6
10
7.8
7.0
6.8
7.4
8
6.4
6.2
6.2
6.9
6.8
6.0
6.7
6.7
8
6.1
6.2
5.5
5.4
5.7
4.9
6
4.4
4.7
4.5
6
2.5
2.7
2.2 4
2.1
1.7
1.7
1.1
1.0
1.0
(0.6)
(0.6)
2
(0.3)
Apr-09 0.4
(0.3)
0.3
2
0.2
0.2
0.1
0 0
Apr-07
Jul-07
Oct-07
Jul-08
Oct-08
Jul-09
Jan-08
Apr-08
Jan-09
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
(2) (2)
Fig 33 - IIP – Electricity (YoY change) Fig 34 - IIP – Capital Goods (YoY change)
(%) (%)
12 35
31
9.8
9.4
30
9.2
8.7
24
10
23
22
8.0
25
21
21
21
20
7.5
7.1
18
18
6.8
16
20
6.3
13
5.8
12
12
12
15
11
11
6
4.5
4.5
4.4
4.4
4.2
4.2
10
3.8
8
3.7
3.7
7
3.3
4
4 5
2.6
2.6
2
(3)
2.0
(6)
(6)
0
1.8
1.6
1.4
0
0.8
0.7
2
(5)
0 (10)
Apr-07
Jul-07
Oct-07
Jul-08
Oct-08
Jul-07
Oct-07
Jan-08
Apr-08
Jan-09
Apr-09
Jul-09
Apr-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Source: RHH Source: RHH Jul-09
Sector order book robust, back-ended growth in FY10

Order flows of Rs 1,136bn expected for The order book of the infrastructure sector remains robust, providing strong revenue
the RHH construction sector in FY10 growth visibility. Order inflows for Q1FY10 were muted mainly due to the election
period. With a new stable alliance in power, government spending would be a key
growth driver for the sector. We expect Rs 1,136bn worth of new orders for companies
under RHH construction sector in FY10, which would build up towards the latter part of
the year and thereafter witness sustained momentum.
15
Fig 35 - RHH construction universe: Order book to sales analysis

OB / FY10E FY10E sales
(x) Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY10 Q4FY09 Q1FY10
Sales (Rs mn)
Ahluwalia Cont - - - - - - 1.9 2.1 2.2 1.9 14,444
HCC 3.0 2.9 2.5 2.7 2.6 2.7 3.0 4.4 4.1 3.3 41,091
IVRCL 3.2 3.3 3.3 3.5 3.2 3.2 3.1 3.0 1.4 2.3 63,465
L&T 2.2 2.2 2.2 2.1 2.1 2.1 2.2 2.1 2.1 1.8 401,887
NCC 2.6 3.0 3.2 3.3 3.3 3.1 2.9 2.9 3.2 2.9 47,326
Patel Engg 4.4 4.6 4.5 4.5 4.3 4.1 4.7 4.0 3.9 3.3 21,951
Punj Lloyd* 2.8 2.3 2.3 2.5 2.2 2.2 2.0 1.7 2.3 2.1 132,234
Simplex Infra 3.6 3.2 3.3 3.2 3.1 2.9 2.4 2.2 2.1 1.8 55,414
Total (Ex-
2.5 2.4 2.4 2.5 2.4 2.3 2.3 2.3 2.2 2.1 777,811
Ahluwalia Cont)
Source: Company, RHH *Consolidated
Fig 36 - Order book position at the end of Q1FY10 Fig 37 - Order book to sales trend
(Rs bn) (x)
717 2.5
800 2.6 2.5
2.4 2.4
700 2.5 2.4
600 2.3 2.3
2.4
500 2.3
400 279 2.3 2.2
300 2.2
135 149 139
200 74 100
28 2.1
100
0 2.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
HCC
NCC
L&T
Patel
Punj
Ahluwalia
IVRCL
Simplex
FY08 FY09 FY10
Fig 38 - Order intake trend

(Rs mn) FY05 FY06 FY07 FY08 FY09 FY10 FY11
Ahluwalia
25,324 18,669 26,393
Cont
HCC 28,933 62,780 19,976 22,800 91,520 59,488 71,386
IVRCL 33,400 36,227 46,300 94,477 86,705 86,705 91,040

Roads, power, urban infrastructure and 307,22 420,19 517,90
647,375 744,481
irrigation to contribute to order books L&T 0 0 0
in the near term NCC 32,250 36,226 47,109 74,860 54,250 75,950 83,545
Patel Engg 18,064 20,247 14,994 19,000 30,000 34,500 39,675

102,10 105,34 116,13
44,791 158,567 181,743
Punj Lloyd* 7 9 7
Simplex Infra 17,990 20,940 25,550 66,940 57,680 54,796 60,276
130,63 221,21 563,25 803,61 979,51 1,136,05 1,298,53
Total
7 1 6 6 6 0 9
Source: Company, RHH * Consolidated
16
Fig 39 - Order intake growth* Fig 40 - Sales growth of RHH construction universe
(%)
(%)
50 42.2 42.5
50 42.7
37.2 39.0
40
40
30 22.4
30 18.1 19.7
18.7 17.7
17.1 20
20 13.9
10
10
0
0 FY08 FY09 FY10E FY11E FY08 FY09 FY10E FY11E
FY08 FY09 FY10E FY11E
TOTAL EX L&T
Source: RHH, Company * Ex Ahluwalia Contracts Source: RHH
Softer commodity prices to support stable EBITDA margin

Lower commodity prices to aid slight The increase in commodity prices at the beginning of FY09 had a significant adverse
margin improvement impact on margins for companies owing to a higher proportion of fixed price contracts.
However, with prices cooling off we expect a 50bps improvement in margins for our
construction universe in FY10 and a flattish trend thereafter. In our view, margins are at
a peak and offer little scope for improvement.
Fig 41 - EBITDA margin trend

(%) FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E
Ahluwalia Contracts 9.4 10.4 12.1 11.8 12.5 12.4
HCC 17.5 13.7 10.5 9.2 9.2 11.9 13.0 12.5 12.5
IVRCL 9.8 8.1 8.3 9.0 10.1 9.9 8.6 9.3 9.3
L&T 7.6 5.6 6.1 7.2 10.1 11.8 11.3 11.3 11.3
NCC 8.4 7.8 7.8 9.0 9.4 10.4 9.0 9.5 9.5
Patel Engg. 13.7 10.9 10.7 13.9 13.0 15.3 14.5 14.6 14.7
Punj Lloyd 18.3 11.5 11.3 8.0 8.9 7.3 8.5 8.5
Simplex Infra 6.1 6.8 7.0 8.7 9.3 9.4 8.2 9.3 9.3
Average EBITDA margin 8.4 8.0 7.3 8.2 9.7 11.1 10.2 10.6 10.6
Fig 42 - Average EBITDA margin trend

EBITDA margins have peaked and (%)
would sustain at current levels 12
11.1
10.6 10.6
11 10.2
9.7
10
9 8.4 8.2
8.0
8 7.3
6
Source: RHH
17
Fig 43 - Cement prices remain firm… Fig 44 - …but steel prices have corrected 35–40% in six months
(Rs/Bag) All India Avg (Rs/tonne) Indian HRC price Landed HRC price (CIS)
260 70,000
240 60,000
220
50,000
200
180 40,000
160
30,000
140
120 20,000
Apr-04 Feb-05 Jan-06 Nov-06 Oct-07 Sep-08 Jul-09 Mar-04 Feb-05 Jan-06 Dec-06 Nov-07 Oct-08 Sep-09
Source: RHH Source: Crisil
Fig 45 - Order book covered by escalation clauses and fixed price contracts
Fixed price contracts WPI Linked Star rated/Free issue of
Company
(%) (%) materials (%)
L&T ~25-30 ~75-70
Punj Lloyd* ~70-75 ~25-30
HCC 4 86 10
IVRCL 7 33 60
NCC 38 15 47
Patel Engg 5-10 ~90-95
Simplex Infra 15 85
Source: RHH *Consolidated
Interest expenses set to come down

In FY09, construction companies witnessed spiralling interest costs mainly due to a
heated interest rate environment and higher debt requirements (to support working
capital needs and investments in subsidiaries). We expect interest cost to settle at
manageable levels in FY10 on account of a more benign interest rate regime, lower
investments in subsidiaries, resurgence of QIP funds and stable working capital
requirements.
Interest cost down 200bps from its peak Drop in interest rates: Interest cost has declined by 200bps from the peak in October
in October ’08 – a key positive ’08. For most construction companies, this cost constitutes roughly 3–5% of turnover
and hence movement in interest rates has a significant impact on earnings. The 10-year
benchmark interest rate has declined from 9–9.5% in Q2FY09 to 7% at present. With
increased aversion to riskier assets in Q3FY09, the spread on AA rated corporate bonds
had increased to 4.5–5%. But an improving macro-economic climate and restoration of
liquidity in the banking system helped lower the spread to 2.5%.
18
Fig 46 - 10-year government bonds

(%)
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Source: Bloomberg
Fig 47 - Interest cost as a percentage of sales

Companies (%) FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10E FY11E
Ahluwalia Cont 1.0 1.0 1.3 1.3 1.7 1.7
HCC 6.4 3.8 2.8 2.4 3.5 5.1 6.8 5.8 5.2
IVRCL 3.7 2.8 2.7 2.4 2.4 3.2 4.1 3.5 3.5
L&T 2.4 1.0 0.6 0.9 0.5 0.5 1.0 1.0 0.9
NCC 2.5 1.8 1.2 1.7 2.2 3.2 3.9 3.6 3.2
Patel Engg 4.7 2.0 1.4 3.1 2.7 3.9 5.0 4.7 4.4
Punj Lloyd* 3.7 7.4 4.7 2.3 2.3 2.6 2.5 2.3
Simplex Infra 3.9 3.7 2.8 3.2 3.8 3.9 3.2 2.9 2.6
Total 2.8 1.7 1.7 1.6 1.5 1.8 2.3 2.1 1.9
Lower capital infusion into subsidiaries Lower investments in subsidiaries or joint ventures: Most construction companies have
would help contain interest cost diversified from pure EPC to BOT (build, operate, transfer) projects and real estate.
Exposure to BOT projects weighs down the balance sheet and return ratios when such
works are in the investment phase. From our coverage universe, Nagarjuna Construction
(NCC) has the maximum exposure to BOT projects which will lead to pressure on its
balance sheet in the near term.
Fig 48 - Investments in subsidiary companies and JVs

(Rs mn) FY08 FY09 FY10E FY11E
HCC 2,832 3,656 4,656 5,856
NCC 5,648 7,403 8,803 9,803
Patel Engg 1,103 2,558 3,557 4,557
IVRCL 3,409 3,893 4,095 4,295
Punj Lloyd* 5,458 6,609 6,609 6,609
L&T 26,396 33,841 44,041 54,041
Source: Company, RHH *Consolidated
QIPs being used to replace high-cost QIPs back in action: Given the improved liquidity conditions, qualified institutional
debt and fund working capital placements (QIP) have made a strong comeback. These issues are being used to replace
high-cost debt and fund working capital requirements.
19
Fig 49 - Fund raising from capital markets

Particulars (Rs mn)
QIP raised
HCC 4,800
Punj Lloyd 6,800
NCC 3,670
GVK Power & Infra 7,169
Lanco Infratech 7,274
QIP to be raised
Era Infra 10,000
Unity Infra 2,500
Gammon India 10,000
IPO raised
Adani Power 29,400
NHPC 60,400
Pipavav Shipyard 5100
Source: RHH
Earnings CAGR of 25.9% over FY09-FY11

We expect an earnings CAGR of 25.9% from our construction universe over FY09-FY11.
Higher earnings growth as against our moderate margin estimates would arise from
improved execution based on a strong order backlog and softening interest rate
scenario.
Fig 50 - Earnings growth

(%)
Earnings to log CAGR of 25.9% over
60
FY09-FY11 (27.7% ex-L&T & Punj) 50.7
50
40 32.6 31.1
28.3 26.2
30 24.0
20 15.0
10 4.7
0
FY08 FY09 FY10E FY11E FY08 FY09 FY10E FY11E
TOTAL
TOTAL EX L&T & Punj Lloyd
Source: RHH
20
Key risks to our estimates

Near-term macro concerns
We note that a ballooning fiscal deficit (6.8% of GDP in FY10) will limit the
government’s ability to spend on infrastructure projects in the short term.
EPC players
A slower-than-anticipated economic Slow growth in order inflows if economic revival takes longer than anticipated
revival would impede order flows
Rising working capital levels
Challenges to raising capital
Infrastructure developers
Hurdles related to land acquisition, shifting of utilities, right of way, environmental
and other clearances, and contractor capacity
Inability to achieve financial closure
Execution delays
Risk on IRRs on account of rise in interest rate and, in case of road projects, lower
traffic growth
21
RHH infrastructure universe: Valuation matrix

Fig 51 - Infrastructure sector valuation matrix
CMP Target MCap Sales (Rs mn) Sales Growth (%) EBITDA (Rs mn) PAT (Rs mn) FDEPS (Rs) FDEPS Growth (%)
Company Reco
(Rs) (Rs) (Rs mn) FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E
Ahluwalia Cont 169 190 Buy 10,604 12,087 14,444 19,673 37.3 19.5 36.2 1,429 1,808 2,439 572 796 1,102 9.1 12.7 17.6 10.8 39.2 38.4
HCC 130 141 Hold 39,468 33,137 41,091 49,309 7.5 24.0 20.0 4,314 5,154 6,163 760 1,074 1,443 2.8 3.5 4.5 5.0 25.2 29.4
IRB Infra* 209 224 Buy 69,464 8,834 18,693 32,940 20.6 111.6 76.2 3,289 8,564 11,610 1,197 3,432 4,504 3.6 10.3 13.6 (13.8) 186.7 31.2
IVRCL 388 434 Buy 51,804 48,819 63,465 76,157 33.4 30.0 20.0 4,218 5,873 7,099 1,880 2,564 3,044 13.9 19.0 22.6 0.6 36.4 18.7
JP Associates 239 237 Hold 335,651 57,750 91,167 105,623 44.9 57.9 15.9 16,200 24,804 27,482 8,891 13,746 15,840 7.1 9.4 10.8 45.4 31.6 15.2
L&T 1665 1,781 Buy 978,520 339,264 401,887 502,079 35.7 18.5 24.9 38,342 45,490 56,559 27,097 32,610 40,373 46.4 55.9 69.2 24.1 20.4 23.8
NCC 153 166 Hold 39,206 41,514 47,326 56,791 19.5 14.0 20.0 3,733 4,492 5,391 1,538 1,942 2,412 6.7 7.9 9.4 (10.1) 17.9 18.6
Patel Engg 484 532 Buy 28,860 17,774 21,951 27,220 34.2 23.5 24.0 2,576 3,205 4,001 1,053 1,271 1,612 17.6 21.3 27.0 (2.2) 20.8 26.8
Punj Lloyd* 262 306 Buy 86,927 119,120 132,234 154,470 53.6 11.0 16.8 8,710 11,240 13,130 2,348 4,972 6,044 7.5 15.1 17.8 (33.2) 99.8 18.2
Simplex Infra 510 577 Buy 25,248 46,961 55,414 66,496 67.2 18.0 20.0 3,873 5,153 6,184 1,242 1,585 2,038 25.1 32.0 41.2 23.9 27.7 28.6
Voltas* 145 160 Hold 47,929 43,259 51,289 59,372 35.1 18.6 15.8 2,831 3,642 4,510 2,254 2,677 3,304 6.8 8.1 10.0 28.0 18.8 23.4
Aggregate - - - 1,713,681 768,519 938,960 1,150,130 37 22 22 89,515 119,424 144,569 48,830 66,669 81,714
Fig 52 - Infrastructure sector profitability and return ratios

EBITDA Margin (%) PAT Margin (%) ROE (%) ROCE (%) P/E (x) EV/EBITDA (x) P/BV (x)
Company
FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E
Ahluwalia Cont 11.8 12.5 12.4 4.7 5.5 5.6 37.9 37.2 36.2 31.4 30.8 29.4 18.5 13.3 9.6 7.0 5.5 4.1 6.0 4.2 3.0
HCC 13.0 12.5 12.5 2.3 2.6 2.9 7.6 8.4 9.0 7.0 7.3 7.6 47.0 37.5 29.0 14.2 11.9 9.9 3.9 2.5 2.4
IRB Infra* 37.2 45.8 35.2 13.5 18.4 13.7 7.1 18.1 19.7 5.9 11.6 11.9 58.0 20.2 15.4 27.4 10.5 7.8 4.0 3.4 2.8
IVRCL 8.6 9.3 9.3 3.9 4.0 4.0 11.0 13.8 15.0 12.0 11.8 12.3 27.9 20.4 17.2 15.4 11.0 9.1 2.9 2.7 2.4
JP Associates 28.1 27.2 26.0 15.4 15.1 15.0 17.2 21.5 20.5 9.0 11.2 11.2 33.5 25.5 22.1 25.4 16.6 15.0 5.8 4.8 4.0
L&T 11.3 11.3 11.3 8.0 8.1 8.0 24.6 23.8 24.6 18.5 17.2 18.2 35.9 29.8 24.1 27.0 22.8 18.3 7.9 6.6 5.5
NCC 9.0 9.5 9.5 3.7 4.1 4.2 9.4 10.0 10.6 9.8 9.9 9.7 22.7 19.3 16.2 13.5 11.2 9.3 2.3 1.8 1.7
Patel Engg 14.5 14.6 14.7 5.9 5.8 5.9 11.5 12.3 13.8 10.3 9.2 9.8 27.4 22.7 17.9 14.6 11.7 9.4 2.9 2.6 2.3
Punj Lloyd* 7.3 8.5 8.5 2.0 3.8 3.9 9.0 16.4 15.8 10.8 11.6 12.2 34.7 17.4 14.7 13.1 10.2 8.7 3.5 2.4 2.1
Simplex Infra 8.2 9.3 9.3 2.6 2.9 3.1 14.9 16.3 18.0 13.9 12.0 8.5 20.3 15.9 12.4 9.4 7.0 5.9 2.8 2.4 2.1
Voltas 6.5 7.1 7.6 5.2 5.2 5.6 32.9 29.9 29.2 28.6 26.3 26.9 21.3 17.9 14.5 16.0 12.4 10.0 6.1 4.8 3.8
Aggregate 11.6 12.7 12.6 6.4 7.1 7.1 35.1 25.7 21.0 21.9 16.4 13.5 5.8 4.7 4.0
Source: RHH, Company
22
Fig 53 - Infrastructure sector valuation matrix (excluding subsidiaries)

CMP Sub. MCap (Ex
Sales (Rs mn) Sales Growth (%) EBITDA (Rs mn) PAT (Rs mn) FDEPS (Rs) FDEPS Growth (%)
(Ex- Val (Rs) Target Sub)
Company Reco
sub) (Rs)
(Rs mn) FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E
(Rs)
Ahluwalia
169 - 190 Buy 10604.2 12,087 14,444 19,673 37.3 19.5 36.2 1,429 1,808 2,439 572 796 1,102 9.1 12.7 17.6 10.8 39.2 38.4
Cont
HCC 52 78 141 Hold 15906.1 33,137 41,091 49,309 7.5 24.0 20.0 4,314 5,154 6,163 760 1,074 1,443 2.8 3.5 4.5 5.0 25.2 29.4
IRB Infra* 209 - 224 Buy 69464.1 8,834 18,693 32,940 20.6 111.6 76.2 3,289 8,564 11,610 1,197 3,432 4,504 3.6 10.3 13.6 (13.8) 186.7 31.2
IVRCL 315 73 434 Buy 42029.5 48,819 63,465 76,157 33.4 30.0 20.0 4,218 5,873 7,099 1,880 2,564 3,044 13.9 19.0 22.6 0.6 36.4 18.7
JP
163 76 237 Hold 229095.1 57,750 91,167 105,623 44.9 57.9 15.9 16,200 24,804 27,482 8,891 13,746 15,840 7.1 9.4 10.8 45.4 31.6 15.2
Associates
L&T 1475 190 1,781 Buy 866722.5 339,264 401,887 502,079 35.7 18.5 24.9 38,342 45,490 56,559 27,097 32,610 40,373 46.4 55.9 69.2 24.1 20.4 23.8
NCC 119 34 166 Hold 30461.9 41,514 47,326 56,791 19.5 14.0 20.0 3,733 4,492 5,391 1,538 1,942 2,412 6.7 7.9 9.4 (10.1) 17.9 18.6
Patel Engg 330 154 532 Buy 19694.7 17,774 21,951 27,220 34.2 23.5 24.0 2,576 3,205 4,001 1,053 1,271 1,612 17.6 21.3 27.0 (2.2) 20.8 26.8
Punj Lloyd* 241 21 306 Buy 80027.2 119,120 132,234 154,470 53.6 11.0 16.8 8,710 11,240 13,130 2,348 4,972 6,044 7.5 15.1 17.8 (33.2) 99.8 18.2
Simplex
510 - 577 Buy 25248.0 46,961 55,414 66,496 67.2 18.0 20.0 3,873 5,153 6,184 1,242 1,585 2,038 25.1 32.0 41.2 23.9 27.7 28.6
Infra
Voltas 145 - 160 Hold 47928.7 43,259 51,289 59,372 35.1 18.6 15.8 2,831 3,642 4,510 2,254 2,677 3,304 6.8 8.1 10.0 28.0 18.8 23.4
Aggregate - - - 1,437,182 768,519 938,960 1,150,130 37 22 22 89,515 119,424 144,569 48,830 66,669 81,714
Fig 54 - Infrastructure sector profitability and return ratios (excluding subsidiaries)

EBITDA Margin (%) PAT Margin (%) ROE (%) ROCE (%) P/E (x) EV/EBITDA (x) P/BV (x)
Company
FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E
Ahluwalia Cont 11.8 12.5 12.4 4.7 5.5 5.6 37.9 37.2 36.2 31.4 30.8 29.4 18.5 13.3 9.6 7.0 5.5 4.1 6.0 4.2 3.0
HCC 13.0 12.5 12.5 2.3 2.6 2.9 7.6 8.4 9.0 7.0 7.3 7.6 18.9 15.1 11.7 8.7 7.3 6.1 1.6 1.0 1.0
IRB Infra* 37.2 45.8 35.2 13.5 18.4 13.7 7.1 18.1 19.7 5.9 11.6 11.9 58.0 20.2 15.4 27.4 10.5 7.8 4.0 3.4 2.8
IVRCL 8.6 9.3 9.3 3.9 4.0 4.0 11.0 13.8 15.0 12.0 11.8 12.3 22.6 16.6 14.0 13.0 9.4 7.7 2.3 2.2 1.9
JP Associates 28.1 27.2 26.0 15.4 15.1 15.0 17.2 21.5 20.5 9.0 11.2 11.2 22.9 17.4 15.1 18.8 12.3 11.1 4.0 3.3 2.7
L&T 11.3 11.3 11.3 8.0 8.1 8.0 24.6 23.8 24.6 18.5 17.2 18.2 31.8 26.4 21.3 24.1 20.3 16.3 7.0 5.8 4.8
NCC 9.0 9.5 9.5 3.7 4.1 4.2 9.4 10.0 10.6 9.8 9.9 9.7 17.7 15.0 12.6 11.1 9.2 7.7 1.8 1.4 1.3
Patel Engg 14.5 14.6 14.7 5.9 5.8 5.9 11.5 12.3 13.8 10.3 9.2 9.8 18.7 15.5 12.2 11.0 8.8 7.1 2.0 1.8 1.6
Punj Lloyd* 7.3 8.5 8.5 2.0 3.8 3.9 9.0 16.4 15.8 10.8 11.6 12.2 32.0 16.0 13.5 12.3 9.6 8.2 3.2 2.2 2.0
Simplex Infra 8.2 9.3 9.3 2.6 2.9 3.1 14.9 16.3 18.0 13.9 12.0 8.5 20.3 15.9 12.4 9.4 7.0 5.9 2.8 2.4 2.1
Voltas* 6.5 7.1 7.6 5.2 5.2 5.6 32.9 29.9 29.2 28.6 26.3 26.9 21.3 17.9 14.5 16.0 12.4 10.0 6.1 4.8 3.8
Aggregate 11.6 12.7 12.6 6.4 7.1 7.1 29.4 21.6 17.6 18.8 14.1 11.6 4.8 3.9 3.3
Source: RHH, Company *Consolidated
23
Sector-wise investment allocation

Infrastructure development is expected to garner a total investment of Rs 20,562bn over
the 11th Plan, of which ~30% is likely to come from private participation. The sector-
wise investment allocation is outlined below.
Roads & Bridges

Road contract awards under NHDP As per the Economic Survey report 2008–09, out of the total length of national
picking up pace highways, ~30% are single-lane/intermediate-lane, 53% are two-lane and the remaining
17% are four-lanes or more. Though national highways comprise only ~2% of the total
length of roads in India, they account for 40% of the aggregate traffic. As of 31 March
2009, work on 11,037km of national highways under the government-led National
Highway Development Programme (NHDP) has been completed – a bulk of this
comprises the Golden Quadrilateral (GQ) which connects the four metros.
Fig 55 - Status of NHDP phases as on 31 March 2009

Under Balance for award of
Phase NHDP component (km) Total length Completed 4-lane
implementation civil works
I GQ Phase 5,846 5,721 125 -
I Port connectivity 380 206 168 6
I Other NHs 962 781 161 20
II NS-EW 7,142 3,436 2,915 791
III NHDP –III 12,109 787 1,878 9,444
V NHDP 6,500 106 928 5,470
VII NHDP 700 0 19 681
Total 33,639 11,037 6,194 16,412
Source: Economic Survey Report 2008-09
We recently held a conference call with Dr. Didar Singh, IAS, Member (Finance) –
NHAI, to discuss the road sector in India. Outlined below are the key takeaways:
Project awards for 32,000km over next 3–4 years

Started in 2001, the government’s NHDP aims to complete 53,000km of road
development in India by 2017; of this, 20,000km is being implemented by the
Ministry of Road Transport and Highways (MORTH). So far, work on ~11,000km
has been completed, while ~7,000km is under implementation. The government
aims to put the balance 32,000km of projects out for bidding over the next four
years. The overall project cost has been revised from ~Rs 2,200bn estimated in the
first financing plan in 2005 to ~Rs 3,300bn; of this, ~Rs 2,000bn worth of
investment is expected from the private sector.
Bid placement for 80–100 projects targeted in FY10

The NHAI plans to invite bids for 80–100 projects in FY10 and a similar number of
works in FY11. The authority has awarded 13 projects (~1,200km) worth
Rs 143.5bn so far in FY10, and has received bids for a further 11 works; these are
currently under examination and will be awarded shortly. At present, the Request
for Qualification (RFQ) procedure for an additional 50 projects (~4,600km) worth
Rs 205bn is underway.
24
Fig 56 - Projected investment in roads and bridges during the 11th Plan
Particulars (Rs bn at 2006-07 prices) 2007-08 2008-09 2009-10 2010-11 2011-12 Total 11th Plan
National Highways 233 247 271 325 383 1,459
NHDP Public 101 105 110 123 152 591
Other NH (Public) 12 13 14 15 16 69
NHDP Private 120 129 147 188 215 798
State Roads (Highways, major District
215 224 238 270 322 1,270
Roads, Others)
Public 175 182 189 206 248 1,000
Private 40 43 49 64 74 270
Rural Roads: Bharat Nirman 63 69 73 78 83 366
North East Roads: SARDP 7 8 10 11 12 48
Total (Rs bn) 518 548 592 684 800 3,142
Total (US$ bn) 13.0 13.7 14.8 17.1 20.0 78.5
Source: Planning commission
Fig 57 - Comparative investment projections

Roads 10th Plan Log-linear Working group
11th Plan
(Rs bn) (anticipated) projection estimates
Centre 715 1,074 NA NA
State 664 1,000 NA NA
Public 1,379 2,074 2,502 1,218
Private 70 1,068 63 877
Total 1,449 3,142 2,565 2,095
Source: Plan document, Planning Commissio, RHH
Road sector investment pegged at Rs 3,142bn – private share at 34%

Planned investment of Rs 3,142bn in The investment in roads during the 11th Plan is projected at Rs 3,142bn, which is 2.2
roads times the targeted 10th Plan investment. Of this, ~66% will be contributed by the Centre
and state governments, while 34% is expected from the private sector (as against 5% in
the 10th Plan, depicting immense opportunities for private developers).
Approximately Rs 1,459bn (46.4%) would be invested in national highways, Rs 1,270bn

(40.4%) in state roads, Rs 366bn (11.6%) in rural roads, and Rs 48bn (1.5%) in roads in
the northeast states. For the year 2009–10, allocation to the National Highway Authority
of India (NHAI) has been increased by 23% from Rs 129bn to Rs 159bn.
Fig 58 - Financial structure of NHAI

Cess External Budgetary Toll
(Rs bn) Loans Borrowings Total
funds assistance support collection
1999-00 10 4 - - - - 14
2000-01 18 5 1 6 - - 30
2001-02 21 8 1 8 - - 38
2002-03 20 12 3 56 - 3 94
2003-04 20 12 3 - - 4 38
2004-05 18 12 4 13 - 5 52
2005-06 33 24 6 15 14 8 100
2006-07 64 16 4 15 1 11 111
2007-08 65 18 4 20 2 14 123
2008-09 70 15 4 11 2 18* 119
Total 339 126 29 144 19 62 719
Source: Crisil Research *Crisil Estimates
25
FY09 – a slump year

Slump in FY09 with bids received for The NHAI had planned to allot 60 projects worth Rs 700bn, largely belonging to NHDP
only 22 of 60 projects; of these just 7 phase-III, in FY09. It called bids for ~50 projects, but received a positive response for
awarded only 22 works valued at ~Rs 220bn. Of these 22 projects, 7 contracts worth Rs 80bn
have been awarded so far. The remaining 15 projects has been referred back to the
government for approval since 7 of them are single-company bids, 4 are annuity bids as
against the toll bid stipulation, and 4 pertain to phase V of the NHDP where the VGF is
higher than 10%.
The balance 38 projects failed to attract any bids since developers perceived the
investment as being incommensurate with the expected returns. The NHAI has thus
failed to award even a single contract to private players in FY09 for widening of
highway stretches on Phase V of the Golden Quadrilateral project. In Q1FY10, the pace
of project awards slowed due to the pre-poll embargo, but post the election outcome,
the process of project bidding and awards has begun in full earnest.
Slowdown in tenders due to multiple reasons

Since January ’08, the pace of contract tenders under the government’s NHDP has
slowed considerably. The key reasons behind the delays are as follows:
Financial crisis and heavy interest costs Meltdown in the financial market and the credit crisis.
led to waning interest among private
High interest costs (increased to ~15% in the third quarter of FY09); projects are
sector developers
funded with debt to the extent of 70–75%.
Disputes relating to finalisation of the new MCA and issues with RFP and RFQ
procedures.
Overly high risk perception leading to higher VGF demands by private players.
Delays in terms of land acquisition and environmental clearances. Project cost has
increased by 40% from Rs 900bn to Rs 1,300bn due to delays for some projects.
Poor project preparation (including inaccurate assessment of demand), leading to

frequent scope for changes.
Absence of a long-term bond market, which hinders financing. Currently 97% of

the bond market is through G-secs.
Policy measures to revitalise developer interest

In a bid to encourage developer interest in road projects, the NHAI and the government
have recently introduced a host of facilitating measures as follows:
NHAI to restructure future road The NHAI has decided to restructure future projects (including the 38 remaining
projects to make them viable works) by reducing ‘capital cost’ and by eliminating ‘over-engineering cost’ in order
to make them viable, and then offering the same under the BOT toll model.
According to media reports, it has also proposed to reduce the design period from
20 years to 10 or 15 years. Also, some projects will be awarded under the annuity
mode if the BOT toll mode fails to generate interest.
Cost escalation of 20% will now be permitted for projects with DPRs (detailed
project report) prepared before 2007 and 10% for those based on 2007 prices.
VGF has been raised to 40% of the project cost during the construction period as
against the earlier distribution of 20% during the construction period and 20% post
the commercial operation date (COD).
The clause limiting the number of bidders to 6 has been deleted for all future NHAI
projects. Hence, all future projects except the above 60 would be under the open
bidding system.
26
Under the government stimulus package, IIFCL has been authorised to raise
Rs 400bn (Rs 100bn by FY09 and Rs 300bn in FY10) to finance infrastructure
projects. It has successfully raised Rs 100bn through the issue of bonds which will
be used to finance projects at an interest of ~10.35%. This will substantially reduce
borrowing costs.
The NHAI has launched tax-free bonds on 11 May 2009 to raise up to Rs 40bn in
the current fiscal to fund its road projects.
The government has implemented a new toll policy in December ’08 for future
projects. It stipulates that the upward revision of annual toll rates would be 3% in
addition to 40% of the change in the wholesale price index (WPI). As per the old
policy (1997), the revision of toll rates was fixed at 100% of the change in WPI, and
as per MCA-2006, applicable in 2008, the percentage was 40%. This policy change
will generate greater interest from developers for future projects as it will increase
the equity IRR.
The NHAI has recently amended the land acquisition norms for road projects – a
key contributor to execution delays in the past. As per the new guidelines, the
authority will now issue letters of award to highway developers only after acquiring
80% of the land required for the project (50% previously). The balance 20% would
be handed over within 90 days of the project award. If the stipulated timeline is not
adhered to, the NHAI will pay damages to the concessionaire.
Government sets aggressive development targets…

Road development in terms of Road transport and highways minister, Kamal Nath, has stated that the government aims to
kilometres added per day build at least 20km of highways per day and is also mulling the set up of an Indian Road
Finance Corp to mobilise funds for the highways sector. In order to generate easier access
(Km)
to liquidity, Mr Kamal Nath has hosted road-shows to attract the interest of financial
6 4.9
4.6 institutions. These measures together with the softening interest rate regime should induce
5 4.3
a more positive response towards projects that will be placed for bids in the near term.
4
The government has approved 1,000km of expressways to be developed on BOT basis,
3 2.0
at an indicative cost of Rs 166.8bn, scheduled to complete by December ’15. These
2 1.0 expressways would be constructed on new alignments. A feasibility study for the
0.4
1 Vadodara-Mumbai (400km) expressway has already been awarded and the process of
0 alignment study and award of feasibility studies for another 600km of expressways
(Kolkata-Dhanbad, Bangalore-Chennai and Delhi-Meerut) has also been initiated.
1962
1997
1992
2007
2008
2009
Recently, Mr Kamal Nath said that the Ministry is examining the possibility of setting up
an expressway authority on the lines of the NHAI.
…with steps to bolster liquidity

Refinance option may be extended for The government’s first stimulus package in December ’08 authorised IIFCL to raise
projects bid in 2008 as well Rs 100bn through tax-free bonds to refinance projects bid on or after 31 January 2009 in
the road and port sectors. But IIFCL has been unable to disburse most of the funds as
projects take a long time to bid out. For instance, although bids have been invited for
nearly 40 highway projects post January ’09, none of these have been awarded so far.
The finance ministry is thus considering a proposal to remove the cut-off date criteria,
which may bring in the refinance option for projects bid in 2008 as well. IIFCL has
disbursed Rs 32bn till March ’09 and has plans to disburse Rs 60bn in this fiscal
(excluding disbursement under the refinance scheme).
27
Take-out financing shores up banking The 2009–10 Budget authorises IIFCL to participate in take-out financing and to
sector resources to fund infra refinance 60% of bank loans given to projects developed via PPP. Under take-out
development financing, an institution buys out long-term project loans after a few years of disbursal of
such loans. Under the existing refinance scheme, IIFCL can refinance up to 60% of
loans provided by banks to infrastructure projects in the roads and port sectors at 7.85%.
Banks can then charge a spread of up to 250bps above this, i.e., the bank’s lending rate
to the developer will not exceed 10.35%. The refinance tenor is 10 years with a reset
after 5 years, though this can be extended to 15 years with government approval. The
takeout financing scheme, which is also a form of refinance, will draw upon the
structure of the existing scheme.
IRB, L&T, IVRCL and HCC to be the key Significant project awards likely in H2FY10
beneficiaries of new contract awards At present, there are 38 projects worth Rs 423.3bn which will be up for bidding in FY10
(ref Fig 60). The tempo of project awards is set to gather speed in H2FY10 as developer
interest revives on the back of an improving economic environment, stable governance,
softening interest rates and commodity prices, and positive policy shifts as outlined
earlier. We believe that IRB Infrastructure, L&T, IVRCL and Hindustan Construction Co
would be among the key beneficiaries in the near future.
Fig 59 - PPP projects awarded during FY09 & FY10; bids under process for FY10
No. of
Length TPC NHDP Name of Awardees / L1
SN Name State bids Status
(km) (Rs bn) Phase bidder
received
1 Pimpalgaon-Nasik-Gonde Maharashtra 60 9.4 III 3 Awarded L&T-ABL consortium
HCC-John Laing-Sadbhav
2 MP/Maharashtraborder-Dhule Maharashtra 97 8.4 III 4 Awarded
consortium
Awarded Navinya-Buildcon-Atlantia
3 Pune-Sholapur (pkg-1) Maharashtra 110 11.1 III 2
Spa consortium
Gujarat/ MH Border-Surat- Awarded
4 Gujarat 133 15.1 III 2 Isolusx-SOMA consortium
Hazira
5 Cuddapah-Mydukur-Kumool AP 188 15.9 III 2 Awarded KMC-IVRCL consortium
6 Vadakkancherry-Thrissur Kerala 30 6.2 II 2 Awarded KMC-CR18 consortium
Elevated Road from Chennai Awarded
7 Tamil Nadu 19 13.5 VII 2 SOMA Enterprises
Port to Muduravoyal
8 Kishangarh-Beawar Rajasthan 94 8.0 III 4 Awarded Isolusx-SOMA consortium
9 Hyderabad-Vijaywada AP 181 17.4 III 5 Awarded GMR-Punj Lloyd consortium
10 Armur-Adloor Yellareddy AP 60 4.9 II 2 Awarded Navyuga-KPCL consortium
Bids under
11 Hazaribagh-Ranchi* Jharkhand 71 6.3 III 2
process
Bids under
12 Kannur-Kuttipuram -Pkg 1 Kerala 83 13.7 III 2
process
Bids under
13 Kannur-Kuttipuram -Pkg 2 Kerala 82 13.1 III 2
process
Bids under
14 Amritsar-Pathankot Punjab 102 7.1 III 2 IRB Infra
evaluation
Bids under
16 Goa/KNT Border-Panji Goa 65 4.7 III 2 L1 - IRB Infra
evaluation
Bids under
17 Jaipur-Tonk-Deoli Rajasthan 149 11.8 III 2 L1 - IRB Infra
evaluation
Bids under
19 Talegaon-Amravati Maharashtra 67 5.7 III 2 L1 - IRB Infra
evaluation
Bids under
18 Pune-Sholapur -Pkg 2 Maharashtra 110 8.4 III 3
evaluation
Bids under
15 Ghaziabad-Aligarh Uttar Pradesh 126 11.4 III 2
evaluation
Total 1,827 192
Source: NHAI, RHH * Annuity project
28
Fig 60 - PPP projects for which bidding process will be initiated during FY10
Sr. No. Section State NH. No. Length (km) TPC (Rs bn)
1 Hyderabad-Yadgiri Andhra Pradesh 202 36 5.2
2 Parwanoo-Solan Himachal Pradesh 22 41 5.4
3 Bijapur-Hundud Karnataka 13 97 9.1
4 Hungud – Hospet Karnataka 13 98 12.3
5 Muradabad – Bareilly Uttar Pradesh 24 121 14.9
6 Maharashtra/Goa border-Panaji Goa/KNT Border Goa 17 123 20.8
7 Rohtak-Panipat Haryana 71A 81 8.1
8 Bareilly-Sitapur Uttar Pradesh 24 152 10.5
9 Rohtak-Bawal Haryana 71 83 6.7
10 Ahmedabad-Godhra Gujarat 59 118 10.3
11 Godhra-Gujarat/MP Border Gujarat 59 84 7.5
12 Kandla-Mundra Port Gujarat 8A Ext. 71 10.3
13 Muzaffarnagar-Haridwar* Uttar Pradesh/Uttarakhand 58 80 8.0
14 Haridwar-Dehradun Uttarakhand 58/72 37 4.9
15 Barasat-Krishnagar West Bengal 34 84 8.9
16 Krishnagar-Bahrampore West Bengal 34 78 6.9
17 Bahrampore-Farakka West Bengal 34 101 10.0
18 Farakka-Raiganj West Bengal 34 103 11.4
19 Raiganj-Dalkhola West Bengal 34 50 5.6
20 Indore-Gujarat/MP Border Madhya Pradesh 59 155 13.0
21 Belgaum-Goa/KNT Border Karnataka 4A 82 6.6
22 Karnataka/AP Border-Mulgabal Karnataka 4 22 2.6
23 Ranchi-Jamshedpur Jharkhand 33 164 14.4
24 Kishangarh-Udaiapur Rajasthan 76, 79 & 79A 315 25.3
25 Krishnagiri-Walajahpet Tamil Nadu 46 148 12.5
26 Udaipur-Ahmedabad Rajasthan 8 235 17.5
27 Pune-Satara Maharashtra 4 145 17.3
28 Samakhiyali-Gandhidham Gujarat 8A 56 8.1
29 Tumkur-Chitradurga Karnataka 4 114 8.4
30 Satara-Kagal Maharashtra 4 133 11.0
31 Srinagar to Banihal Section Jammu & Kashmir 1A 99 12.0
32 Quazigund – Banihal Jammu & Kashmir 1A 15 19.9
33 Ramban-Banihal Jammu & Kashmir 1A 36 9.9
34 Udhampur-Ramban Jammu & Kashmir 1A 43 9.7
35 Chenani-Nashri Jammu & Kashmir 1A 12 25.8
36 Jammu-Udhampur Jammu & Kashmir 1A 65 17.7
37 Chengapalli-Walayar Tamil Nadu 47 55 8.5
38 Hyderabad-Bangalore (Km 534.72-Km 556.84) Tamil Nadu 7 22 6.8
Total 3,554 423.3
Source: NHAI, RHH *Proposed annuity project
29
Electricity
India’s total power generation capacity India is among the world’s largest power producing and consuming nations, with a total
at 150,323MW generation capacity of 150,323MW as on June ’09. The Ministry of Power has projected
an annual growth of 9% in electricity demand over the 11th plan period and has thus set
itself a target of augmenting India’s capacity by 78,700MW. Barring the first few five
year plans, the actual capacity addition has been dismal – during the 10th plan, only
52% of the targeted additions were met. We anticipate significant incremental demand
from the manufacturing sector and from rural electrification, as per the government’s
mission of “Power for all” by 2012.
Fig 61 - Cumulative capacity over 6th to 11th plans Fig 62 - Target and achievements over last 10 five year plans
(GW) Capacity Growth (R) (%) (GW) Target Achieved Achieved (R) (%)
250 70 45 100
60 40
90
200 35
50
30 80
150 40 25
70
30 20
100
15 60
20
50 10
10 50
5
0 0 0 40
6th 7th 8th 9th 10th 11th 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Source: CEA Source: CEA
Severe demand–supply mismatch

India has been facing a demand–supply mismatch not just at peak demand level but also
at the base level. With healthy economic growth expected to continue over the next few
years, infrastructure augmentation especially in the power sector is imperative.
Fig 63 - Historical energy demand-supply position in India Fig 64 - Historical peak demand-supply position in India
(BUs) Energy Demand Energy Met (%) (GW) Peak Demand Peak Met (%)
800 Energy Deficit 12.0 120 Peak Deficit (R) 18
700 17
11.0 100
600 16
500 10.0 80 15
400 9.0 60 14
300 8.0 40 13
200 12
7.0 20
100 11
0 6.0 0 10
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY03 FY04 FY05 FY06 FY07 FY08 FY09
Source: CEA Source: CEA
India has one of the lowest per At 704.2kWh, India has one of the lowest per capita consumption rates of electricity.
The government has a target of achieving per capita consumption of 1,000Kwh by 2012.
capita consumption rates of power
Within the country itself, there is a huge disparity with respect to per capita
consumption of power. According to the 2005–06 data, in states like Goa and Delhi, per
capita consumption is as high as 1,970.1kWh and 1,766.9kWh respectively while in
states like Bihar and Assam this drops to 85.9kWh and 170.7kWh respectively.
30
32% of infra spending earmarked for power sector

Power accounts for ~32% of budgeted Power is clearly the focus area of the government with ~32% of budgeted infrastructure
infrastructure spending spending being earmarked for the sector. The planned outlay for power has been
doubled in the 11th plan period to Rs 6,665bn, with the Centre expected to contribute
38.3% and states 33.9%.
Fig 65 - Anticipated public and private investment in electricity (incl. NCE) during the 10th and 11th Plans
Total 10th
Share Total 11th
Year (Rs bn) Plan 2007-08 2008-09 2009-10 2010-11 2011-12 Share (%)
(%) Plan
(Anticipated)
Centre 1,025 35.1 378 435 500 576 664 2,553 38.3
States 976 33.4 210 297 414 567 770 2,257 33.9
Private 918 31.5 232 284 350 437 552 1,855 27.8
Total 2919 100.0 820 1,016 1,264 1,580 1,986 6,665 100.0
Source: Planning Commission

th
11 plan spend on power sector to be Electricity 10th Plan Log-linear Working group
11th Plan
2.3x 10th plan spending
Centre 1,025 2,553 NA 2,994
State 976 2,257 NA 5,142
Public 2,001 4,810 2,876 8,136
Private 918 1,855 1,729 2,180
Total 2,919 6,665 4,605 10,316
Source: Plan Document, Planning Commission, RHH
Capacity addition rate to outpace past plans

Summary of capacity addition in 11th Plan India has been slow to augment generation capacity with an average addition rate of
Particulars MW 5.6% per year during the past three plan periods. Further, only 51% of the targeted
Generation capacity additions have been made during these plans, at 56,618MW against the goal of
132,329
at end of 10th Plan 111,893MW. The current plan envisages fresh capacity of 78.7GW. We expect the
Capacity added in FY08 9,263 achievement run rate to be higher this time around given that over 80GW of power
projects are already under implementation. We peg additions at 60–65GW, which
Capacity added in FY09 3,454
would be the highest during any plan period. The ambitious Ultra Mega Power Projects
Capacity added till (UMPP) will mainly contribute towards capacity addition in the 12th plan.
3,108
July ’09 in FY10
Capacity addition
15,825 Progress visible in FY10
in 11th Plan (till July ’09)
Total capacity at end of Power generation capacity at the end of 10th plan stood at 132,329MW. Thereafter,
151,073*
July ’09 9,263MW and 3,454MW were added in FY08 and FY09 respectively (57% and 31% of
Source: CEA, RHH * Includes captive power projects targets). However, during the first four months of FY10, net fresh capacity has been
higher at 3,108MW.
T&D to get a concurrent boost

To support the increasing generation capacity, the government is also looking to
supplement the country’s transmission network from ~20GW to ~38GW. It aims to curb
T&D losses across the country and has adopted a revised APDRP to aid this effort.
Fig 67 - Activity-wise investment in electricity during the 11th Plan

Activity (Rs bn) Generation Transmission Distribution Total 11th Plan
Centre 1,440 616 497 2,553
States 915 448 893 2,257
Private 1,418 340 97 1,855
Total 3,773 1,404 1,488 6,665
31
Bulk tenders worth Rs 210bn being

NTPC to award bulk tenders for supercritical equipment (660MWx11)
placed by the government
Thermal power capacity addition is set to witness a structural shift from subcritical to
supercritical technology. The government is leading this shift with bulk order tenders for
7,260MW (11x660MW) of supercritical sets for NTPC and DVC. In all, this clutch of
orders would be worth ~Rs 210bn. Chinese companies have secured 60% of the
supercritical unit orders placed so far. In order to reverse this trend, the government has
made domestic manufacturing a mandatory qualification for participation in bulk
tenders of NTPC. Accordingly, a number of foreign entities have tied up with domestic
partners to become eligible for bulk tenders.
Fig 68 - Capacity augmentation in supercritical BTG space

Company / JV Boiler (MW) Turbine (MW)
BHEL 10,000 10,000
L&T / Mitsubishi Heavy Industries 4,000 4,000
Bharat Forge–Alstom - 5,000
JSW – Toshiba - 3,000
GB Engineering – Ansaldo 2,000 -
Total 16,000 22,000
Source: Infraline, RHH
32
Railways
Planned investment of Rs 2,618bn in The Indian Railways (IR) holds the distinction of being the world’s second largest rail
th
railways – 2x 10 plan expenditure network under a single management and the principal mode of transportation for bulk
freight and long distance passenger traffic, with a total route length of 63,221km. Public
investment in the IR is projected at Rs 2,346bn during the 11th Plan. An additional
Rs 272bn is likely to be invested in a Mass Rapid Transport System (MRTS – metro rail),
of which Rs 72bn would be contributed by the Centre and Rs 100bn each by the states
and private sector. The total investment of Rs 2,618bn is twice the anticipated 10th plan
expenditure.
Fig 69 - Projected investment in railways during the 11th Plan

Particulars (Rs bn at 2006-07 Total 11th Share
2007-08 2008-09 2009-10 2010-11 2011-12
prices) Plan (%)
Rolling stock* 68 78 90 103 119 457 17.5
Capacity augmentation 66 85 110 143 185 589 22.5
and development - - - - - - -
Safety and other works 139 161 186 216 250 951 36.3
Investment in PSUs 16 17 19 20 22 94 3.6
Dedicated freight corridors 11 20 37 63 123 255 9.7
Metro Rail Projects 43 48 54 59 68 272 10.4
Total 342 410 495 604 767 2,618 100.0
Source: Planning commission * CSO and Ministry of Railways both account for rolling stock in infrastructure

Railways (Including MRTS) 10th Plan Log-linear Working group
11th Plan
Centre 1,090 2,015 NA NA
State 104 100 NA NA
Public 1,194 2,115 2,367 2,540
Private 3 504 5 660
Total 1,197 2,619 2,372 3,200
Source: Plan Document, RHH
Private investment in railway sector It is assumed that ~17.2% of railway investment will come through PPPs. Thus, of the
pegged at Rs 504bn (20%) total investment of Rs 2,346bn in the IR, ~Rs 1,933bn will be invested by the public
sector and Rs 504bn by private players. Including the projected investment of
Rs 100bn in metro rail projects, the overall private investment in the sector comes to
Rs 504bn (i.e. ~20% of the total).
Fig 71 - Railway opportunities

Railway development opportunities
Particulars Construction Project
(Rs bn) contracting development
Indian railways 1,600 600
RVNL 70 35
DRFC 250 120
Metro 303 120
Private rail 60 60
Source: Working group report on Eleventh five year
plan, Metro Authorities, DMRC, RVNL, DFCCIL, RHH
Source: Working Group Report on Eleventh Five Year Plan (2007-12)
33
Key opportunities for private players

Rs 500bn Dedicated Rail Freight Freight corridor: The Dedicated Rail Freight Corridor (DRFC) is the biggest
Corridor to generate large order flows opportunity in the sector. The cost for the 1,279km eastern corridor (Ludhiana–
Sonnagar) and 1,483km western corridor (Dadri–JNPT) put together is estimated at
Rs 500bn. Financing arrangements for the project currently envisage external
assistance of Rs 170bn from Japan Bank of International Cooperation (JBIC) and
Rs 110bn from World Bank. These would cover about half of the capital cost. The
rail ministry is exploring the possibility of attracting private investment in some
segments of the project.
Civil engineering works are expected to account for a bulk of the cost (65–70%),
while signaling & communications (15–20%) and electrification (10–15%) would
comprise the balance. Both corridors are proposed to have double lines and will be
based on electric traction. Work on the eastern dedicated freight corridor has
already started from February ’09 while construction work on the western corridor
will begin later.
Privatisation / modernisation: Railway station privatisation, along the lines of

airport privatisation, is another large opportunity. The government has identified 26
stations in metropolitan cities and major tourist centres for development as world
class stations through the PPP route. Part of the real estate potential of these stations
would be exploited for financing these projects. Preparatory work for the New
Delhi and Patna stations is already in the advanced stage.
Logistic parks: Multi-modal logistic parks (MMLPs) are proposed to be built

independently at strategic locations or in SEZs, particularly along the DRFC.
Metro projects worth Rs 380bn likely to Metro projects: Mumbai Metro phases II and III and metro-rail projects in non-
be awarded under PPP metro towns are other PPP opportunities. Construction companies will also vie for
the Chennai Metro that is to be undertaken by the government. The Cabinet has
cleared this project and funding is in place as follows: 60% loan under the Japanese
Cooperation Agreement; 20% state government equity, 15% central government
equity, and 5% central government debt.
In a recent development, award of the Hyderabad metro rail project to the Maytas-
led consortium has been cancelled due to the latter’s failure to achieve financial
closure. Bids for the project will be re-invited from 15 July to 15 November.
Surveys for construction of new lines from Jhargram to Purulia and the new line for
extension of the Kolkata Metro, from Dum Dum to Dakshineshwar, have been
completed. The West Bengal government has also given its consent to contribute 50%
of the cost for extension. Further action is being taken to obtain necessary approvals
for these projects. The ministry of railways has also commissioned a feasibility study
for introduction of a 60km elevated, fully air-conditioned rail system between
Churchgate and Virar stations in Mumbai. The project is proposed to be implemented
through PPP on a design, build, finance, operate and transfer basis.
Fig 72 - Key upcoming metro rail projects likely to be awarded under PPP
City/Project Project cost (Rs bn) Status
Mumbai Phase II (Charkop-Mankhurd) 110 Awarded to Reliance Infra-led consortium
Mumbai Phase III (Colaba-Bandra) 120 Project being finalised
Ahmedabad 32 DPR to be resubmitted
Kochi 30 First shortlist of bidders
Awarded to Maytas-led consortium but contract withdrawn; will
Hyderabad 121
reopen for bids from 15 July to 15 November
Total 380
Source: News reports, RHH
34
Heavy investments anticipated for rail Expansion and technical upgrades: Heavy investments will be required for
expansion and technical upgrades enhancing the capacity of rolling stock, technical upgrades and technological
advancements necessary to achieve the ambitious targets set for the passenger and
freight business segments, in the 11th plan. The railways aim to complete gauge
conversion across 4,900km, doubling across 1,800km and laying of 1,100km of
new lines, over five years.
Bullet trains: The government has announced plans to conduct feasibility studies
for bullet trains on a number of routes: Delhi – Amritsar, Ahmedabad – Mumbai –
Pune, Hyderabad – Vijaywada – Chennai, Chennai – Bangalore – Ernakulam, and
Howrah – Haldia.
Fig 73 - Indian railways - Financial performance summary

(Rs bn) Gross traffic receipts Net revenues
900 819 800
800 717
700 627
600 545
474
500 411 429
400
300
183 164 174
200 121 145
101
100 26 38 45 53
11
1
0
FY81 FY91 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY09A
(BE)
Source: Indian railways
35
Irrigation
India has 2.4% of the world’s total area but 16% of the population and only 4% of the
available fresh water. This clearly indicates the need for water resource development,
Overall outlay for the 11th plan
conservation, and optimum use. The gross irrigated area in the country is only 87.2mn
Particulars (Rs bn) hectares (mha).
State plan 1,821
State sector schemes, i.e., 11th plan irrigation targets
470
AIBP and others The Indian government has taken up irrigation potential creation through public funding
Central plan 242 and assistance to farmers to create potential on their own farms. Substantial irrigation
Total 2,533 potential has been created through major and medium irrigation (MMI) schemes. India’s
estimated irrigation potential is ~139.9mha. Of the total potential created (102.8mha),
Source: Plan Document
however, only 87.2mha is actually utilised at the end of the 10th plan.
Fig 74 - Ultimate irrigation potential, potential created and potential utilised

Potential created Potential utilised
Sector (mha) Ultimate irrigation
potential Till end of 9th Anticipated in Till end of 9th Anticipated in
Plan 10th Plan Plan 10th Plan
Major & Medium irrigation 58.5 37.1 5.3 31.0 3.4
Minor Irrigation
Surface water 17.4 13.6 0.7 11.4 0.6
Groundwater 64.1 43.3 2.8 38.6 2.3
Subtotal 81.4 56.9 3.5 50.0 2.8
Total 139.9 94.0 8.8 81.0 6.2
The Working Group on water resources for the 11th plan has proposed the creation of
irrigation potential of 16mha (9mha from major & medium irrigation – MMI, and 7mha
from minor irrigation – MI) during the plan period.
MMI accounts for bulk of planned investment

Rs 1,740bn to be invested in major & Of the overall 11th plan irrigation investment of Rs 2,533bn, ~Rs 1,740bn is to be
medium irrigation invested in MMI, Rs 334bn in minor irrigation (MI), Rs 108bn in command area
development (CAD), Rs 82bn in flood control, and Rs 270bn in watershed development.
Fig 75 - Projected investment for the 11th Plan in irrigation (including Watershed)
Total 11th
Year (Rs bn at 2006-07 prices) 2007-08 2008-09 2009-10 2010-11 2011-12
Plan
Centre 34 40 48 57 69 248
Major and Medium 1 1 1 1 1 6
Irrigation 0 0 0 0 0 0
Minor Irrigation 1 1 1 1 1 4
Command Area Development 2 2 2 2 2 10
Flood Control 2 2 2 2 2 9
Watershed Development 28 35 42 51 63 219
States 241 319 424 565 736 2,285
Major and Medium Irrigation 170 232 318 436 577 1,733
Minor Irrigation 39 49 62 79 100 329
Command Area 13 16 19 23 28 98
Development 0 0 0 0 0 0
Flood Control 11 13 14 17 19 73
Watershed Development 9 9 10 11 12 51
Total 275 359 472 623 804 2,533
36
With substantial investments planned for the Accelerated Irrigation Benefits and Bharat
Nirman programmes, state spending has been assumed to grow annually at ~37% on
MMI, at 27% on minor irrigation, at 21% on CAD, and at 15% on flood control. States’
investment in watershed development (WD) programmes is envisaged to grow at the
rate of 24% per annum during the plan period.

Irrigation incl Watershed 10th Plan Log-linear Working group
11th Plan
Centre 136 248 NA 498
State 979 2,285 NA 1,821
Public 1,115 2,533 1,869 2,318
Private - - - -
Total 1,115 2,533 1,869 2,318
AIBP a key thrust to the sector

AIBP allocation hiked 75% to The central government initiated the Accelerated Irrigation Benefits Programme (AIBP)
Rs 350bn for 2009–10 from 1996–97 to extend assistance for completion of unfinished irrigation schemes.
Allocation for AIBP was raised 75% from Rs 200bn for 2008–09 to Rs 350bn for 2009–10.
Under this programme, all projects which have investment approval from the Planning
Commission are eligible for assistance. From being entirely funded by the Centre, the AIBP
was modified to have a grant-cum-loan component from 2004–05. Reform measures such
as revision of water rates to cover operation and maintenance (O&M) charges have been
introduced, but the results were not satisfactory because of the sluggish efforts of state
11th Plan irrigation outlay in key states
governments to comply with the reform measures. Moreover, the incentive to state
State State outlay (Rs bn)
governments, that is a 70% loan, was not attractive enough to carry out the reforms.
Andhra Pradesh 343
Gujarat 292 In 2005–06, the government launched a second irrigation initiative entitled Bharat Nirman
Maharashtra 268 where 10mha of additional irrigational potential creation was targeted in a period of four
Karnataka 260 years. To achieve this target, the AIBP guidelines were further modified in December ’06
wherein Central assistance was set as follows: a 25% grant for project cost for non-special
Uttar Pradesh 163
category states and 90% for special category states & projects benefiting drought-prone
Madhya Pradesh 149
and tribal areas. It was also decided to treat projects in the undivided Koraput, Bolangir,
Bihar 79
and Kalahandi (KBK) districts of Orissa at par with special category states.
Rajasthan 77
Orissa 65 State governments to play a major role
Chhattisgarh 56 As per the Constitution, irrigation is a state subject; hence, a bulk of the investment into
the sector will be contributed by state governments with little central allocation. State
Tamil Nadu 33
outlay for the sector is estimated at ~Rs 2,285bn (including state sector schemes) in the
Uttarakhand 27
11th Five Year Plan, of which ~70% will come from only six states, i.e., Andhra Pradesh
West Bengal 26 (AP), Gujarat, Maharashtra, Karnataka, Uttar Pradesh and Madhya Pradesh.
Punjab 14
Total 1,852 Fig 77 - State irrigation outlay for FY09
Source: Planning Commission (Rs bn)
132.5
140
120
100
80 59.5
60 47.5
34.7
40 21.8
20
0
AP Gujarat Karnataka Maharashtra MP
Source: RHH * AP – Andhra Pradesh, MP – Madhya Pradesh
37
AP irrigation spend to touch Rs 178bn in FY10

AP to spend Rs 178bn for irrigation The AP government has successfully implemented irrigation projects in the state, as
works in FY10, 34% higher than FY09 evidenced by a 50% budgetary allocation to these works. The state government’s spend
on irrigation has increased at a CAGR of ~40% over FY05-FY09. For FY10, AP plans to
expend Rs 178bn for major, medium and minor irrigation works, which is ~34% higher
than the FY09 budget. Of the total outflow of Rs 178bn, Rs 50bn will be utilised for
ongoing works and the balance for new works.
Jalayagnam programme will play a key role

Jalayagnam will continue to be the AP government’s flagship programme for the irrigation
sector. Under Jalayagnam, 86 projects have been approved since 2004 with a total cost of
Rs 1,760bn, of which Rs 450bn has been spent in the last five years. The programme
includes projects such as construction of reservoirs and lift irrigation systems for lifting
water from major rivers, particularly from the Godavari, to provide immediate benefits.
Fig 78 - Andhra Pradesh: Summary of annual plans

Sector (Rs bn) A/C 2007-08 RE 2008-09 BE 2009-10
Agriculture & Allied Activities & Rural Development 24.4 56.8 41.1
Irrigation 122.4 132.5 178.0
Power 28 0.02 1.7
Social Services 81.6 141.5 109.1
Transport 16.9 17.1 22.0
Others (Industries, General Economic Services etc) 26.2 14 14.3
Total 275.1 361.9 366.4
Source: Andhra Pradesh Budget document
IVRCL, HCC, NCC and Patel Engg will AP to remain the irrigation hub of India
benefit from AP irrigation contracts We expect the AP government to continue with its massive irrigation development drive
going forward. Accordingly, we anticipate significant contract awards in this segment in
the near future, which will benefit players like IVRCL, Hindustan Construction Co,
Nagarjuna Construction Co and Patel Engineering.
Fig 79 - Andhra Pradesh: Annual plan 2009–10 Fig 80 - Andhra Pradesh: Fiscal deficit as a % of GSDP
(%)
6 4.9 5.1
Transport Others Power 4.0 4.3 4.5
3.9 3.9
3.9% 5
6.0% Irrigation 3.5 3.2 3.0
Agri & Rural 0.5% 4
48.6% 2.5
3 2.1
devp.
11.2% 2
1
0
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08 (RE)
2008-09 (BE)
Social
services
29.8%
Source: Andhra Pradesh Budget document Source: Planning commission
38
Water supply and Sanitation

Increasing urbanisation of the country has led to a renewed focus on addressing the
investment backlog in urban water and sanitation infrastructure through the JNNURM.
Under the JNNURM, major contributions would be made by the central government in
urban water and sanitation through ULBs. In addition, counterpart funding from state
governments would result in a significant increase in states’ expenditure.
Investment projected at Rs 1,437bn

Water supply and sanitation to attract In view of the low levels of capital formation in the sector in the past and the need to
investments of Rs 1,437bn urgently increase coverage in both rural and urban areas, total investment during the
11th plan is projected at Rs 1,437bn, of which Rs 420bn or ~29.2% would be Central
spending with Rs 963bn or 67% of total spending by States. The private sector is
expected to invest Rs 54bn or 3.8%. Of the total public sector spending in the sector,
~70% is allocated to water supply and 30% to sanitation. The private sector is projected
to invest 80% in water supply and 20% in sanitation. Of the total investment, 63% is
allocated to rural water supply and sanitation and 37% to urban projects.
Fig 81 - Projected investment in the 11th Plan in water supply and sanitation
Year (Rs bn at 2006-07 prices) 2007-08 2008-09 2009-10 2010-11 2011-12 Total 11th Plan
Centre 52 64 80 100 125 420
Water supply 36 45 56 70 87 294
Sanitation 15 19 24 30 37 126
States 135 156 183 220 269 963
Water supply 95 109 128 154 189 674
Sanitation 41 47 55 66 81 289
Private 6 8 10 13 16 54
Water supply 5 6 8 10 13 43
Sanitation 1 2 2 3 3 11
Total 193 228 273 333 411 1,437
Water supply 136 160 192 234 289 1,012
Sanitation 57 68 81 99 122 426
Fig 82 - Projected investment in the 11th Plan in rural and urban water supply and sanitation
Total 11th
Year (Rs bn at 2006-07 prices) 2007-08 2008-09 2009-10 2010-11 2011-12
Plan
Rural 126 146 172 208 255 907
Urban* 67 82 101 125 155 530
Total 193 228 273 333 411 1,437
Source: Planning Commission * Including investment through ULBs
Fig 83 - Comparative investment projections Fig 84 - Comparative investment in Irrigation and Water supply
Water supply and 10th Plan 11th Log-linear Wrk group (Rs bn) Irrigation Water supply and sanitation
Sanitation (Rs bn) (anticipated) Plan projection estimates
3,000 2,533
Centre 423 420 NA NA 2,500
2,000 1,437
State 215 963 NA NA
1,500
804
Public 638 1,383 1,341 1,270 1,000 623
275 359 228 472 273 333 411
500 193
Private 10 54 2 NA
0
2007-08 2008-09 2009-10 2010-11 2011-12 To tal 11th
Total 648 1,437 1,343 1,270 P lan
Source: Plan Document, RHH Source: Planning document
39
JNNURM
JNNURM aims to improve economic Under JNNURM, the government intends to transform 65 cities in India in seven years
and social infrastructure in 65 cities by improving economic and social infrastructure. Currently, there are ~463 projects
sanctioned with cost estimates of Rs 497bn. The projects include investments in roads,
flyovers and urban transport systems, which would translate to increased order flows for
infrastructure players. JNNURM, which was launched in 2005–06, provides for
additional central assistance (ACA) of Rs 500bn for the 7-year period and an equal
amount from state governments and urban local bodies (ULB). Allocation to JNNURM
has been hiked by 90% to Rs 129bn for 2009–10 as compared to Rs 68bn for 2008–09.
The scheme covers the following project types:
Urban renewal, i.e., redevelopment of inner city areas
Water supply (including desalination plants) and sanitation
Sewerage and solid waste management
JNNURM allocation hiked by 90% Construction and improvement of drains/storm water drains
to Rs 129bn for 2009–10
Urban transport, including roads, highways, expressways, MRTS, metro projects
Parking lots/spaces on PPP basis
Development of heritage areas
Prevention and handling of soil erosion/landslides only in case of special category

states where such problems are common
Preservation of water bodies
Power, telecom, health, education and wage employment are excluded from the
purview of this scheme.
Fig 85 - Financing of projects under JNNURM

ULB or Para- State Share/Loan from
Grant
Category of Cities/Towns/UAs Financial Institutions (%)
Centre (%) State (%)
Cities/UAs with 4mn+ population as per 2001 census 35 15 50
Cities/UAs with1mn+ but less than 4mn population as per 2001 census 50 20 30
Cities/towns/UAs in North Eastern States and Jammu & Kashmir 90 10 -
Cities/UAs other than those mentioned above 80 10 10
For setting up desalination plants within 20km from seashore and other
80 10 10
urban areas facing water scarcity
Source: JNNURM amended guidelines
40
Airports
Air passenger growth in India has been one of the highest in the world and is expected
to surpass countries like China, France and Australia in the years to come. India’s civil
aviation market has logged a CAGR of 18% and was worth US$ 5.6bn in 2008. The
Centre for Asia Pacific Aviation (CAPA) has forecast a market of more than 100mn
passengers by 2010. In addition, ~3.4mt of cargo per annum is expected to be handled
by 2010.
Investment of Rs 310bn in 11th plan period

Air passenger growth in India is one of The government’s strategy for the airport sector, supported by the development of a
the highest in the world detailed financing plan, is expected to lead to a quantum jump in capital formation in
the sector in the 11th plan. The Financing Plan for Airports has estimated an investment
of ~Rs 400bn at 2006–07 prices over 2005–14.
Taking into account an anticipated investment of Rs 48.9bn in 2005–07 and the

spillover of ~Rs 38.8bn to the 12th plan, and with suitable re-phasing in light of the
government’s subsequent decision to implement modernisation of the Kolkata and
Chennai airports mainly through the public sector, an investment of Rs 310bn is
projected for the 11th plan period.
Fig 86 - Projected investment in airports during the 11th Plan

Metro airports 28 28 27 25 24 131
Non-metro airports 7 7 8 9 10 42
Greenfield airports (including
14 15 18 25 33 106
Bangalore & Hyderabad)
NE airports 1 1 1 1 1 5
CNS-ATM and equipment 3 4 5 6 8 26
Total 52 55 59 66 77 310
Fig 87 - Projected public-private investment in airports during the 11th Plan

Total 10th Plan Total 11th
2007-08 2008-09 2009-10 2010-11 2011-12
(Anticipated) Plan
Public 38.4 12 14 19 22 27 93
Private 29.4* 40 42 40 44 50 216
Total 67.7 52 55 59 66 77 310
Source: Planning commission * Provisional expenditure

Airports 10th Plan Log-linear Working group
11th Plan
Centre 38 93 NA NA
State - 1 NA NA
Public 38 94 90 92
Private 29 216 151 NA
Total 67 310 241 92
41
Mega development targets

35 non-metro airports and 13 others to During the 11th plan, the Airports Authority of India (AAI) will undertake the
be developed in 11th plan development of 35 non-metro airports and 13 other airports; development of Chennai
and Kolkata airports; construction of new greenfield airports, including three in the NER;
expansion of five airports in NER and other crucial areas; upgrades of technology from
ground-based communication, navigation, and surveillance-air traffic management
(CNS-ATM) to satellite-based CNS-ATM facilities; installation of new facilities including
security equipment at various airports; installation of safety and facilitation equipment;
development of airspace capacity enhancement; and development of IT.
New Delhi and Mumbai airport revamp underway: The international airports at New
Delhi and Mumbai are being restructured with modernisation and upgradation works
being carried out through private participation. According to the Economic Survey
report 2008–09, the construction of first phase development works in Delhi started in
early 2007 and is likely to be completed by March ’10 at a cost of ~Rs 89.8bn.
Construction works for the Mumbai airport started in January ’07. The development
works for this project are to cost ~Rs 98bn and are expected to be completed by 2012.
Development of 35 non-metro airports: AAI is upgrading and modernising 35 non-

metro airports in the county in a time bound manner. Development of airports in the
north-eastern region is being taken up on a priority basis. Architectural design
competitions have been held for terminal buildings at 18 airports. These buildings will
be modular in design for easy expansion. At Nagpur and Srinagar, the terminals have
already been expanded and modified for integrated operations. Terminal building works
have been completed in Ahmedabad (domestic), Kullu, Kangra, Porbandar, Udaipur,
Gaya, Nagpur, Belgaum, Akola, Calicut, Hubli, Surat, Aurangabad and Trichy airports.
City side development of 24 airports Development works on the airside and city side are likely to be completed by
will be undertaken via PPP March ’10. The city side development of 24 airports will be undertaken with private
sector participation under PPP mode and will cover commercial development of
property, car parking and cargo operations.
Fig 89 - City side development via PPP

Airports
Agatti Guwahati Rajkot
Ahmedabad Indore Ranchi
Amritsar Jaipur Thiruvanthapurum
Aurangabad Khajuraho Trichy
Bhopal Lucknow Udaipur
Bhubaneswar Madurai Vadodara
Dehradun Mangalore Varanasi
Dimapur Raipur Vizag
Request for Qualification (RFQ) for Amritsar and Udaipur has already been issued and
five interested parties have been short-listed for each of them. An MCA for development
of non-metro airports has also been prepared and published.
13 more projects on the cards: Development works at an additional 13 non-metro

airports are being undertaken for completion in a similar time frame.
42
Fig 90 - Non-metro airport development

Airports
Akola Dibrugarh (Mohanbari) Rajahmundry
Behar Gondia Srinagar
Belgaum Hubli Surat
Calicut Kullu (Bhuntar) Vijayawada
Cooch Mysore
10 greenfield airports being set up on 10 greenfield airports approved: The policy for greenfield airports was approved by the
PPP basis government in April ’08 to enable their set-up on a PPP basis, with an MCA also put into
place. FDI up to 100% is permitted through the automatic approval route. Until
December ’08, the central government had approved 10 greenfield airports, i.e., Goa,
Navi Mumbai, Kannur, Bijapur, Simoga, Hassan, Gulbarga, Sindhudurg, Dabra and
Durgapur.
Fig 91 - Status of greenfield projects up to December ’08

Sr.
Name of airport State Status
No.
A Project commissioned
1 Banglore International airport Karnataka Commissioned in May 2008
2 Hydrabad International airport Andhra Pradesh Commissioned in March 2008
B Approval granted by Central Government
3 Mopa airport Goa Planning stage
4 Navi Mumbai International Airport Maharashtra Planning stage
5 Kannur airport Kerala Planning stage
6 Bijapur airport Karnataka Awarded
7 Simoga airport Karnataka Awarded
8 Hassan airport Karnataka Awarded
9 Gulbarga airport Karnataka Awarded
10 Sindhudurg airport Maharashtra In-principle approval awarded
11 Dabra airport, Gwalior Madhya Pradesh In-principle approval awarded
12 Durgapur airport West Bengal In-principle approval awarded
C Proposal under consideration with the Government
13 Greater Noida International airport Uttar Pradesh Under consideration
14 Chakan International airport Maharashtra Under consideration
15 Karaikal airport Pondicherry Under consideration
16 Airport at Jhajjar Haryana Under consideration
17 Airport at Jludhina Punjab Under consideration
18 Airport at Paladi-Ramsinghpur Rajasthan Under consideration
19 Airport at Ankleshwar, Bharuch Gujarat Under consideration
20 Airport at Ramnad, Rameshwaram Tamil Nadu Under consideration
43
Ports
Close to 95% of the volume and 70% by value of the country’s international trade is
conducted through its 12 major and 187 minor/intermediate (non-major) ports.
Collectively, the major ports handle ~75% of India’s maritime cargo.
Investment of Rs 880bn over 11th plan

Rs 610bn to be invested in major ports Anticipated investment in the 10th plan was Rs 141bn comprising Rs 37bn from public
and Rs 270bn in smaller ports sources and Rs 104bn from the private sector. With the expected higher public
investment in major ports, a total investment of Rs 880bn is projected for the 11th plan
with Rs 610bn being invested in major ports and Rs 270bn in non-major ports.
Fig 92 - Projected investment in ports during the 11th Plan

Major Ports 88 105 122 137 158 610
Non-Major Ports 36 43 52 63 76 270
All Ports 124 148 174 200 234 880
Fig 93 - Projected investment in ports during the 11th Plan by category

Major Ports 88 105 122 137 158 610
Public 49 57 62 64 67 299
Private 39 48 59 73 91 311
Non-Major Ports 36 43 52 63 76 270
Public 6 7 7 8 9 36
Private 30 36 45 55 68 234
All Ports 124 148 174 200 234 880
Public 55 64 70 71 76 335
Private 69 85 104 128 159 545

10th Plan Log-linear Working group
Ports (Rs bn) 11th Plan
(anticipated) projection estimates
Centre 22 299 NA NA
State 15 36 NA NA
Public 37 335 40 185
Private 104 545 474 369
Total 141 880 514 554
The projections assume that ~49% of total investment in major ports and 13% of total
investment in non-major ports would come from the public sector. The phasing of
investment reflects a CAGR of ~8% in public investment in major ports and ~9% in
non-major ports. Private investment in major and non-major ports is assumed to grow at
a CAGR of ~23%. Thus, total public investment in ports is projected at Rs 335bn and
private investment at Rs 545bn during the 11th plan. The overall ratio of public to private
spending on investment in the sector is 38:62.
44
Companies
45
HCC Sector Report 05 October 2009
HCC
Growth across segments
What’s New? Target Rating Estimates
Strong order book of Rs 135bn: At the end of Q1FY10, HCC had an outstanding
order book of Rs 134.6bn (excluding Rs 19.4bn under dispute), which is 3.3x
FY10E revenues. This apart, the company has L1 orders worth Rs 8bn.
CMP TARGET RATING RISK
BOT portfolio to expand four-fold to Rs 100bn: Currently, HCC Infrastructure (a
Rs 130 Rs 141 HOLD MEDIUM
100% subsidiary) has three BOT projects under various stages of construction:
Nirmal BOT, Andhra Pradesh – This is an annuity project (semi-annual

instalments of Rs 230mn) that has been completed three months ahead of
schedule. HCC is thus eligible for an early-completion bonus and can BSE NSE BLOOMBERG
begin to recognise revenue in the current fiscal, once NHAI awards a 500185 HCC HCC IN
completion certificate.
Badarpur Elevated Expressway connecting Delhi and Haryana –
Company data
Construction work on this project commenced in January. It is 15–20%
Market cap (Rs mn / US$ mn) 39,422 / 826
complete and scheduled to be fully ready by December ’10.
Outstanding equity shares (mn) 303
BOT road project on Dhule–Maharashtra/Madhya Pradesh border (37%
Free float (%) 52.8
stake) – Financial closure is scheduled for December ’09.
Dividend yield (%) 0.6
Over the next four years, the management expects to expand its BOT portfolio 52-week high/low (Rs) 137 / 29
four-fold, from Rs 25bn to Rs 100bn. It also intends to bid for six projects in the 2-month average daily volume 5,359,981
near future and pegs the equity IRR from the same at 16–17%.
Lavasa Phase I revenue pegged at Rs 36bn: Lavasa, near Pune, is an all-new city
Stock performance
in the making with a master plan of 12,500 acres. Dasve, the first town, is slated
Returns (%) CMP 1-mth 3-mth 6-mth
for completion in FY11. The management estimates revenues of Rs 36bn from
HCC 130 22.9 25.1 223.4
Lavasa Phase I as follows: residential sales Rs 21bn, commercial and retail mall
sales Rs 8bn, institutional sales Rs 4.5bn, and hospitality Rs 2.5bn. The company Sensex 17,135 10.2 17.0 73.0
has received Rs 2.5bn out of the total pre-sales of Rs 9.4bn in Lavasa. At present,
units at Dasve are being sold at an average rate of Rs 3,800psf for villas and
P/E comparison
Rs 3,200psf for other units.
(X) HCC Indust ry
55% of 247 Park project leased out: HCC has leased out 55% of the total 1.1mn 50
46.9
37.5
sq ft of its commercial project, christened 247 Park, at an average lease rent of 40 29.6
24.9
28.9
30 21.1
Rs 60–65psf. 20
10
Rs 4.8bn via QIP raised: HCC has raised ~Rs 4.8bn via a QIP, by placing 47mn 0
shares at Rs 102.15/share in June ’09. A majority of the funds will be utilised for FY09A FY10E FY11E
loan repayment and to meet working capital needs, whereas the balance will be
deployed towards infrastructure projects. With this QIP, we expect the
company’s debt/equity ratio to decline from 2.5x to 1.5x. Valuation matrix
(x) FY08 FY09 FY10E FY11E
Target of Rs 141 – Hold: We have an SOTP target price of Rs 141 based on a
core business P/E multiple of 14x on FY11E earnings. Hold. P/E @ CMP 49.3 46.9 37.5 28.9
P/E @ Target 53.3 50.7 40.5 31.3
EV/EBITDA @ CMP 16.0 13.6 11.3 9.5
Financial highlights Profitability and return ratios

(Rs mn) FY08 FY09 FY10E FY11E (%) FY08 FY09 FY10E FY11E
Revenue 30,827 33,137 41,091 49,309 EBITDA margin 11.9 13.0 12.5 12.5
Growth (%) 30.8 7.5 24.0 20.0 EBIT margin 8.8 9.5 9.2 9.3
Adj net income 724 760 1,074 1,443 Adj PAT margin 2.3 2.3 2.6 2.9
Growth (%) 17.4 5.0 41.3 34.3 ROE 7.6 7.6 8.4 9.0
FDEPS (Rs) 2.6 2.8 3.5 4.5 ROIC 6.6 7.0 7.3 7.6
Growth (%) 17.4 5.0 25.2 29.4 ROCE 7.8 9.7 7.6 8.0
46
Revenue and order book trend

Fig 95 - Order book at Rs 134.6bn (excluding Rs 19.4bn under dispute)
(Rs bn) Order book Order received
160 145
135
140
120 102
100 82 83 88
74 77 71
Strong order book ensures high revenue 80
visibility over the medium term 60 47
40 27
20 8 10 6 8 10
4 0
0
Q1 Q2 Q3 Q4 Q1A Q2A Q3A Q4A Q1A
FY08 FY09 FY10
Fig 96 - Order break-up segment-wise

(%) Power Transportation Water & environment Others
60
50 51
46 47 47
Since Q1FY08, power segment orders 50 44 44 43
39 40
have increased, whereas transportation 40 36 37
34 32 31 32
orders have steadily declined 30
30 27 27
21 22
21 19 19
20 15 16 14
10 3 4 3 3 3
0 0 0 2
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY09 Q1
FY08 FY09 FY10
Fig 97 - Revenue break-up segment-wise
(%) Power Transportation Water & envuiorenment Others

60
48 46
Power (40% of revenues) remains the 50 44 45
41 39 40 40
key revenue driver 38 38
40 36 34 34
33 34
28 28
30 26 25 26 27
22 24 25
18 20
20 15
8
10 4 5 3 2 1 0 1 2
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY09 Q1
FY08 FY09 FY10
47
Fig 98 - Summary of BOT projects

HCC’s Equity to be
Total HCC’s equity
Project (Rs mn) stake Equity Debt invested till Comments
cost commitment
(%) FY10
Project completed 3 months ahead of
schedule
Nirmal BOT 100 3,200 300 2,900 300 300 Completion certificate awaited from NHAI;
then becomes eligible for Bonus and can
start recognising revenues in FY10
Achieved financial closure in FY09

Construction commenced in Jan ’09 and
Badarpur Elevated ~15% progress already achieved
100 5,700 1,700 4,000 1,700 500
Expressway
15–20% complete and scheduled to be
fully ready by December ’10
Concession agreement signed on 24 June

Dhule - Maharashtra/ 2009
MP border Road 37 14,000 4,000 10,000 1,480 400
project Financial closure scheduled by the end of
December ’09
Total 22,900 6,000 16,900 3,480 1,200

Valuation
Fig 99 - SOTP valuation summary
Particulars Business Method Multiple(x) Value(Rs mn) Per share value (Rs)
HCC standalone Construction P/E FY11 14x 17,229 63
Lavasa Real estate NPV (25% discount To NAV) 17,555 64
Vikhroli IT park Real estate Capitalisation method @11% 2,199 8
BOT project Road - annuity Book value FY10E 1.5x 1,800 6
Total 38,782 141
Source: RHH
48
Stock performance
Fig 100 - Absolute performance from April ’04 Fig 101 - Relative performance from April ’04
Sensex HCC BSE CG Index Sensex HCC BSE CG Index
300 940
250 840
740
200 640
540
150
440
100 340
240
50
140
0 40
Apr-04 May-05 Jun-06 Jul-07 Aug-08 Sep-09 Apr-04 May-05 Jun-06 Jul-07 Aug-08 Sep-09
Source: Bloomberg, RHH Source: Bloomberg, RHH
Fig 102 - Relative performance from April ’06 to March ’07 Fig 103 - Relative performance from April ’07 to March ’08
110 200
100
175
90
80 150
70 125
60
100
50
40 75
Apr-06 Jul-06 Sep-06 Dec-06 Mar-07 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08
Fig 104 - Relative performance from April ’08 to March ’09 Fig 105 - Relative performance from April ’09
225
120
200
100
175
80 150
125
60
100
40
75
20 50
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
49
12-month forward rolling band

Fig 106 - P/E band Fig 107 - P/BV band
(Rs) (Rs)
300 400
250 350 6.5x

300
200
250
40x
150 200
150 3x
100
20x
100 1.5x
50 10x 50 0.5x
4x
0 0
Fig 108 - EV/EBITDA band Fig 109 - EV/Sales band

(Rs mn) (Rs mn)
140,000 100,000
21x 2x
120,000
80,000
100,000
15x 60,000 1.4x
80,000
60,000 10x 40,000 0.8x
40,000
5x 20,000
20,000
0.2x
0 0
Fig 110 - Premium/Discount to BSE 30 P/E Fig 111 - Market Cap/Sales band
(%) (Rs mn)

300 100,000
2x
250
80,000
200
1.4x
150 60,000
100 40,000 0.8x

50
20,000
0 0.2x
(50) 0
Aug-06 May-07 Feb-08 Nov-08 Sep-09 Aug-06 Jun-07 Mar-08 Dec-08 Sep-09
50
Standalone financials
Profit and Loss statement Balance sheet
Y/E March (Rs mn) FY08 FY09 FY10E FY11E Y/E March (Rs mn) FY08 FY09 FY10E FY11E
Revenues 30,827 33,137 41,091 49,309 Cash and cash eq 2,648 1,537 2,296 656
Growth (%) 30.8 7.5 24.0 20.0 Accounts receivable 45 47 113 135
EBITDA 3,666 4,314 5,154 6,163 Inventories 21,660 27,766 30,396 37,826
Growth (%) 69.7 17.7 19.5 19.6 Other current assets 2,753 5,322 5,687 6,833
Depreciation & amortisation 962 1,152 1,380 1,569 Investments 2,956 3,656 4,656 5,856
EBIT 2,704 3,162 3,774 4,594 Gross fixed assets 14,097 16,829 19,204 21,579
Growth (%) 98.2 16.9 19.4 21.7 Net fixed assets 9,536 11,287 12,282 13,088
Interest 1,575 2,244 2,383 2,567 CWIP 675 464 464 464
Other income 74 233 120 110 Intangible assets - - - -
EBT 1,203 1,151 1,511 2,137 Deferred tax assets, net (1,133) (1,132) (1,132) (1,132)
Income taxes 472 392 512 724 Other assets - - - -
Effective tax rate (%) 39.3 34.1 33.9 33.9 Total assets 39,139 48,949 54,762 63,727
Extraordinary items - - - - Accounts payable 7,655 10,321 11,719 14,692
Min into / inc from associates (7) 1 75 30 Other current liabilities 2,519 3,705 4,054 4,834
Reported net income 1,088 1,245 1,074 1,443 Provisions 466 1,651 2,062 2,062
Adjustments (364) (485) - - Debt funds 18,449 23,218 21,368 25,368
Adjusted net income 724 760 1,074 1,443 Other liabilities 10 8 76 129
Growth (%) 17.4 5.0 41.3 34.3 Equity capital 256 256 303 303
Shares outstanding (mn) 256.2 256.2 291.5 303.2 Reserves & surplus 9,784 9,789 15,181 16,340
FDEPS (Rs) (adj) 2.6 2.8 3.5 4.5 Shareholder's funds 10,041 10,045 15,484 16,643
Growth (%) 17.4 5.0 25.2 29.4 Total liabilities 39,139 48,949 54,762 63,727
DPS (Rs) 0.8 0.8 0.8 0.8 BVPS (Rs) 39.2 39.2 53.1 54.9
Cash flow statement Financial ratios

Y/E March (Rs mn) FY08 FY09 FY10E FY11E Y/E March FY08 FY09 FY10E FY11E
Net income + Depreciation 2,050 2,397 2,454 3,011 Profitability & Return ratios (%)
Non-cash adjustments (227) (388) 34 27 EBITDA margin 11.9 13.0 12.5 12.5
Changes in working capital (1,580) (3,070) (931) (4,845) EBIT margin 8.8 9.5 9.2 9.3
Cash flow from operations 243 (1,060) 1,556 (1,807) Net profit margin 2.3 2.3 2.6 2.9
Capital expenditure (2,247) (2,521) (2,375) (2,375) ROE 7.6 7.6 8.4 9.0
Change in investments (669) (700) (1,000) (1,200) ROCE 7.8 9.7 7.6 8.0
Other investing cash flow - - - - Working Capital & Liquidity ratios
Cash flow from investing (2,917) (3,221) (3,375) (3,575) Receivables (days) 0 1 1 1
Issue of equity 202 (300) 4,649 - Inventory (days) 309 377 347 348
Issue/repay debt 3,225 4,769 (1,851) 4,000 Payables (days) 114 137 132 135
Dividends paid (192) (205) (205) (243) Current ratio (x) 2.7 2.5 2.4 2.3
Other financing cash flow 4 (1,094) (16) (16) Quick ratio (x) 0.0 0.0 0.0 0.0
Change in cash & cash eq 564 (1,111) 759 (1,640) Turnover & Leverage ratios (x)
Closing cash & cash eq 2,648 1,537 2,296 656 Gross asset turnover 2.5 2.1 2.3 2.4
Economic Value Added (EVA) analysis Total asset turnover 0.8 0.8 0.8 0.8
Interest coverage ratio 1.7 1.4 1.6 1.8
Y/E March FY08 FY09 FY10E FY11E
Adjusted debt/equity 1.8 2.3 1.4 1.5
WACC (%) 11.5 12.1 12.1 12.1
Valuation ratios (x)
ROIC (%) 6.6 7.0 7.3 7.6
EV/Sales 1.9 1.8 1.4 1.2
Invested capital (Rs mn) 26,317 33,384 36,692 43,544
EV/EBITDA 16.0 13.6 11.3 9.5
EVA (Rs mn) (1,276) (1,708) (1,766) (1,974) P/E 49.3 46.9 37.5 28.9
EVA spread (%) (4.8) (5.1) (4.8) (4.5) P/BV 3.3 3.3 2.4 2.4
51
Quarterly trend
Particulars Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10
Revenue (Rs mn) 8,659 6,489 8,194 9,795 8,725
YoY growth (%) 18.8 18.3 9.3 (7.2) 0.8
QoQ growth (%) (17.9) (25.1) 26.3 19.5 (10.9)
EBITDA (Rs mn) 911 834 1,060 1,504 1,115
EBITDA margin (%) 10.5 12.9 12.9 15.4 12.8
Adj net income (Rs mn) 195 (48) 290 308 208
YoY growth (%) 38 (463) 47 (11) 7
QoQ growth (%) (44) (124) (710) 6 (32)
DuPont analysis
(%) FY07 FY08 FY09 FY10E FY11E
Tax burden (Net income/PBT) 81.2 60.2 66.0 71.1 67.5
Interest burden (PBT/EBIT) 55.6 44.5 36.4 40.0 46.5
EBIT margin (EBIT/Revenues) 5.8 8.8 9.5 9.2 9.3
Asset turnover (Revenues/Avg TA) 75.5 84.9 75.2 79.2 83.2
Leverage (Avg TA/Avg equtiy) 348.1 380.5 438.6 406.2 368.8
Return on equity 6.9 7.6 7.6 8.4 9.0
Company profile Shareholding pattern
Hindustan Construction Co (HCC) is an integrated group with a (%) Dec-08 Mar-09 Jun-09
focus on construction, real estate, and infrastructure development. Promoters 47.2 47.2 47.2
The HCC group comprises HCC Construction, HCC Infrastructure,
FIIs 6.7 8.8 8.7
HCC Real Estate, and Lavasa Corporation. The group specialises in
technically complex, new-age construction for infrastructure Banks & FIs 20.4 18.6 16.9
projects, as well as EPC, BOT, integrated projects, and townships. Public 25.7 25.4 27.2
Recommendation history Stock performance

Date Event Reco price Tgt price Reco
● Hold
125 ● Buy ● Sell
21-Aug-08 RHH Compendium 97 158 Buy
105
8-Sep-08 Company Update 97 157 Buy 85
6-Oct-08 Quarterly Preview 71 125 Buy 65
27-Oct-08 Results Review 37 52 Hold 45
25
19-Jan-09 Results Review 44 47 Sell
Jul-08
Nov-08
Sep-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
6-Apr-09 Quarterly Preview 38 47 Hold

25-Apr-09 Results Review 57 55 Hold
24-Jul-09 Results Review 111 120 Hold
05-Oct-09 Sector Report 130 141 Hold
52
IRB Infrastructure Sector Report 05 October 2009
IRB Infrastructure
Ramp up in road contracts What’s New? Target Rating Estimates
Portfolio of 12 road projects: IRB Infrastructure (IRB) has a portfolio of 12 BOT

road projects, of which 11 are contributing revenues, two are under construction,
and one has recently achieved financial closure. These projects, entailing a
capitalised cost of Rs 60.7bn, have been funded through a mix of equity Rs 209 Rs 224 BUY MEDIUM
(Rs 14.5bn) and debt (Rs 46.2bn).
L1 for four projects worth Rs 43bn; secured one worth Rs 12bn: IRB has emerged
BSE NSE BLOOMBERG
as the lowest bidder for four BOT road projects; of these, one
Rs 12.5bn contract, for four to six-laning of the 102km-long Pathankot to Amritsar 532947 IRB IRB IN
section of NH-15 in Punjab, has been awarded to the company. The remaining
three L1 projects are: 1) four-laning of a 65km stretch on NH-4A in Goa (estimated Company data
cost Rs 8.3bn), 2) the 148.7km Jaipur to Deoli section in Rajasthan Market cap (Rs mn / US$ mn) 69,464 / 1,455
(Rs 15bn), and 3) four-laning of the 67km-long Talegaon to Amravati section in Outstanding equity shares (mn) 332
Maharashtra (Rs 8bn). Contract awards may materialise in October ‘09, fuelling the Free float (%) 25.6
company’s EPC order book from current Rs 56.6bn to Rs 99.6bn. This apart, IRB
has recently won a project for development of a Greenfield airport in Sindhudurg,
52-week high/low (Rs) 227 / 64
Maharashtra, on a DBFO basis.
2-month average daily volume 2,093,089
Strong in-house construction order book of Rs 56.6bn: IRB’s order book of
Rs 56.6bn is bifurcated as follows: a) EPC (Rs 30.9bn) to be executed within three Stock performance
years, and b) O&M (Rs 25.7bn) to be executed within 10–12 years. IRB’s Returns (%) CMP 1-mth 3-mth 6-mth
construction arm reports margins of ~18% vis-à-vis the industry average of 10%.
IRB 209 (0.8) 28.1 138.2
This outperformance can be attributed to lower subcontracting expenses, a large
Sensex 17,135 10.2 17.0 73.0
fleet of equipment, ownership of aggregate mines, and higher cost assumptions
while pricing project bids.
P/E comparison
Target price of Rs 224 – Buy: Over FY09-FY11, we anticipate a significant 93.1% (x) IRB Cap. Go o ds
CAGR in IRB’s revenues and a 94.0% CAGR in earnings led by its strong BOT road 80
58.0
and construction portfolio. At present, the stock is trading at 20.2x FY10E and 60
15.4x FY11E earnings. We have a revised SOTP target of Rs 224 for IRB as follows: 40 29.6
20.2 24.9 15.4
21.1
BOT road projects valued at Rs 119 based on FY11E NPV. This implies a 20
P/BV of 2.6x and 2.2x on FY10E and FY11E respectively. 0

FY09 FY10E FY11E
Core construction business valued at Rs 79 or 12x FY11E earnings. We have
increased our target multiple from 11x earlier due increase in broader
market multiples. Valuation matrix
Real estate valued at Rs 3 (book value). (x) FY08 FY09 FY10E FY11E
P/E @ CMP 50.0 58.0 20.2 15.4
Provisional NPV valuation of the four new BOT projects at Rs 23.
P/E @ Target 53.6 62.1 21.7 16.5
Key triggers: A softening interest rate scenario and improved traffic growth as EV/EBITDA @ CMP 23.9 30.0 11.5 8.5
economic revival gains momentum would be key triggers for the stock.

(Rs mn) FY08 FY09 FY10E FY11E (%) FY08 FY09E FY10E FY11E
Adj net income 1,139 1,197 3,432 4,504 Adj PAT margin 15.5 13.5 18.4 13.7
Growth (%) 405.1 5.1 186.7 31.2 ROE 11.4 7.1 18.1 19.7
FDEPS (Rs) 4.2 3.6 10.3 13.6 ROIC 8.2 4.5 12.1 11.4
Growth (%) 357.9 (13.8) 186.7 31.2 ROCE 8.2 5.9 11.6 11.9
53

Fig 112 - Comparative BOT toll revenue for last three years
YoY YoY
FY07 FY08 FY09
Sr. no. Toll Plaza Growth Growth
(Rs mn) (Rs mn) (Rs mn)
(%) (%)
1 Thane Bhivandi Bypass 244 335 36.9 403 20.6
2 Bhiwandi Wada * 25 30 19.5 16 (48.5)
3 Kaman Paygaon 34 36 7.6 36 (0.1)
4 Khambatki Ghat** 110 128 16.2 131 2.2
5 Kharpada Bridge 87 75 (13.7) 71 (5.9)
6 Nagar-Karmala-Tembhurni 89 110 23.5 113 3.1
7 Mohol-Kurul-Mandrup 37 61 62.8 65 7.4
8 Pune-Solapur 120 136 14 127 (6.9)
9 Pune-Nasik 154 160 3.6 164 2.5
10 Mumbai - Pune# 1,725 2,352 36.4 2,880 22.4
11 Thane Ghodbunder 213 270 26.7 265 (1.8)
12 Surat-Dahisar## - - NA 336 NA
Total 2,839 3,693 30.1 4,607 15.6
Source: RHH, Company
* Concession period ended on 22 September 2008. ** Concession period expired during this month. #In FY07 revenue from NH-4
phase is from the date of project commission i.e. from September’’06 to March ’07. ## Revenue from Surat- Dahisar commissioned
on 20 February 2009. # Growth calculated without considering revenue from Surat-Dahisar as this project was commissioned on 20
February 2009.
Fig 113 - Order book break-up – Q1FY10

Order book composition Rs mn % of Total
EPC in ongoing BOT projects 28,661 50.6
Funded projects 2,275 4.0
BOT projects in O&M phase 25,670 45.3
Total 56,606 100.0
Source: Company
Fig 114 - Summary of L-1 projects / projects recently awarded

Project Positive % of
Sr. NHDP Length Concession NPV
Road (Rs mn) cost grant Total Equity Debt
No. Phase (Km) period (yrs) FY11E
Cost
Goa / Karnataka Border to
1 III 65.1 8,360 1,860 22.2 2,600 3,900 30 3.0
Panaji - Goa
2 Pathankot to Amritsar* III 102 12,500 1,270 10.2 3,930 7,300 20 1.2
3 Jaipur to Deoli Section III 148.8 15,000 3,060 20.4 3,582 8,358 25 10.7
4 Talegaon - Amravati III 66.7 8,000 2,160 27.0 1,752 4,088 25 7.8
Total 382.6 43,860 8,350 19.0 11,864 23,646 22.7
Source: Company, RHH *Awarded
54
Valuation
NPV per
Project Subsidiary
share (Rs)
Thane Bhivandi Bypass IRB
Bhiwandi Wada IRB
14
Kaman Paygaon IRB
Khambatki Ghat IRB
Kharpada Bridge IRB Infrastructure Pvt Ltd 2
Nagar-Karmala-
NKT Road & Toll 2
Tembhurni
Mohol-Kurul-Mandrup MMK Toll Road 1
Pune-Solapur Aryan Toll Road 3
Pune-Nasik ATR Infrastructure 5
Mumbai-Pune Mhaiskar Infrastructure 42
Thane Ghodbunder Thane Ghodbunder Toll Road 4
Bharuch-Surat IDAA Infrastructure 23
Surat-Dahisar IRB Surat Dahisar Tollway 3
IRDP-Kolhapur IRB Kolhapur Integrated Road Development Co 5
Total FY09E NPV 105
FY10E NPV 119
Construction business Modern Road Makers 79
Real Estate Aryan Infrastructure Investments 3
NPV of Four L1 projects 23
Total value 224
Source: RHH
Note:
We have revised the cost of equity to 12% from 13% earlier only for operational
projects.
For the projects referred to in Fig 114, we have considered EPC revenue in our
model. However, we await finalisation of the project awarding before considering
balance sheet implications.
55
Stock performance
Fig 116 - Absolute performance from Feb ’08 Fig 117 - Relative performance from Feb ’08
Sensex IRB BSE CG Index Sensex IRB BSE CG Index

250
140
210
120
170
100
130 80
90 60
50 40
Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Sep-09 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Sep-09
Fig 118 - Relative performance from February ’08 to March ’08 Fig 119 - Relative performance from April ’08 to March ’09
Sensex IRB BSE CG Index Sensex IRB BSE CG Index

120 140
115 120
110
100
105
80
100
95 60
90 40
Feb-08 Mar-08 Mar-08 Apr-08 Jun-08 Sep-08 Dec-08 Mar-09
Fig 120 - Relative performance from April ’09

Sensex IRB BSE CG Index
180
160
140
120
100
80
60
40
Apr-09 Jun-09 Sep-09
Source: Bloomberg, RHH
56

(Rs) (Rs)
300 250
24x 3.5x
250
18x 200
200
2.5x
150 12x 150
100
100 1.5x
6x
50
1x
0 50
Aug-08 Nov-08 Feb-09 May-09 Aug-09 Aug-08 Nov-08 Feb-09 May-09 Aug-09

(Rs mn) (Rs mn)
120,000 12x 140,000
5x
120,000
10x 100,000 4x
90,000
8x 80,000
60,000 2.5x
60,000 6x 40,000
1x
20,000
30,000 0
Fig 125 - Premium / Discount to BSE 30 P/E Fig 126 - Market Cap/Sales band
(%) (Rs mn)

200 100,000
90,000 3.5x
150 80,000
70,000
100 60,000 2.5x
50,000
50
40,000 1.5x
30,000
0 1x
20,000
(50) 10,000
57
FCFE valuation for L1 projects / works recently awarded

Fig 127 - FCFE – Goa / Karnataka Border to Panaji - Goa
FCFE (Rs mn) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25
Revenue - - - 245 546 608 677 753 838 933 1,038 1,156 1,286 1,432 1,593 1,773
EBITDA - - - 147 441 494 554 139 695 778 872 320 1,092 1,221 1,366 1,528
Tax - - - - - (1) (13) - (40) (56) (73) - (112) (134) (159) (186)
Interest - - - (229) (442) (425) (407) (390) (373) (355) (338) (321) (303) (286) (269) (251)
Working capital - 12 13 8 8 13 14 14 15 16 16 17 32 23 20 21
Capex (2,090) (3,344) (2,926) - - - - - - - - - - - - -
Change in debt 975 1,560 1,365 (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) (144)
NHAI Grant 465 744 651 - - - - - - - - - - - - -
FCFE (650) (1,028) (897) (218) (138) (63) 3 (381) 153 239 333 (128) 564 680 814 967
NPV (Rs) 984
Value per share (Rs) 3.0
FCFE (Rs mn) FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35 FY36 FY37 FY38 FY39 FY40
Revenue 1,974 2,197 2,445 2,721 3,029 3,371 3,752 4,176 4,648 5,173 5,758 6,409 7,133 7,939 8,836
EBITDA 746 1,911 2,136 2,388 2,669 1,567 3,332 3,723 4,158 4,644 3,107 5,791 6,466 7,219 8,058
Tax (53) (250) (287) (328) (747) (366) (959) (1,083) (1,221) (1,374) (837) (1,733) (1,943) (2,177) (2,434)
Interest (234) (217) (199) (182) (165) (147) (130) (113) (95) (78) (61) (43) (26) (9) (0)
Working capital 22 23 23 24 25 26 27 28 29 29 30 31 32 32 217
Capex - - - - - - - - - - - - - - -
Change in debt (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) (144) -
NHAI Grant - - - - - - - - - - - - - - -
FCFE 336 1,322 1,529 1,758 1,638 935 2,125 2,410 2,726 3,077 2,095 3,902 4,384 4,921 5,841
Source: RHH
58
Fig 128 - FCFE – Pathankot to Amritsar (recently awarded)

FCFE (Rs mn) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30
Revenue - - - 580 1,288 1,427 1,581 1,751 1,940 2,149 2,380 2,637 2,921 3,236 3,585 3,971 4,399 4,873 5,398 5,979 6,623
EBIDTA - - - 376 1,069 1,190 1,325 719 1,641 1,826 2,032 1,233 2,514 2,797 3,110 3,458 2,336 4,275 4,752 5,282 3,817
Tax - - - - - (19) (44) - (101) (133) (168) (31) (246) (290) (338) (391) (192) (1,023) (1,161) (1,313) (773)
Interest - - - (424) (799) (747) (696) (644) (593) (541) (490) (438) (386) (335) (283) (232) (180) (129) (77) (26) (0)
Working capital 240 12 13 1 (1) 12 12 13 13 13 14 14 15 15 15 16 16 16 17 17 (620)
Capex (3,304) (5,287) (4,626) - - - - - - - - - - - - - - - - - -
Change in debt 1,825 2,920 2,555 (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) (429) -
NHAI Grant 318 508 445 - - - - - - - - - - - - - - - - - -
FCFE (922) (1,847) (1,614) (476) (160) 6 167 (342) 531 736 959 349 1,467 1,757 2,074 2,422 1,550 2,710 3,101 3,531 2,424
NPV (Rs) 409
Source: RHH
59
Fig 129 - FCFE – Jaipur to Deoli

FCFE (Rs mn) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
Revenue - - - 576 1,285 1,431 1,592 1,772 1,972 2,195 2,443 2,720 3,027
EBIDTA - - - 483 1,085 1,214 1,359 694 1,700 1,901 2,126 1,252 2,656
Tax - - - - - (22) (50) - (115) (152) (192) (45) (284)
Interest - - - (489) (935) (889) (843) (798) (752) (707) (661) (615) (570)
Working capital 240 12 13 1 (1) 12 12 12 13 13 13 14 29
Capex (3,179) (6,000) (5,821) - - - - - - - - - -
Change in debt 1,672 3,343 3,343 (380) (380) (380) (380) (380) (380) (380) (380) (380) (380)
NHAI Grant 612 1,224 1,224 - - - - - - - - - -
FCFE (655) (1,421) (1,241) (384) (230) (65) 97 (472) 466 676 906 226 1,451
NPV (Rs) 3,545
Revenue 3,369 3,750 4,173 4,645 5,170 5,754 6,404 7,128 7,933 8,830 9,827 10,938 12,174
EBIDTA 2,968 3,317 3,706 2,489 4,625 5,166 5,769 6,442 4,766 8,029 8,963 10,004 11,166
Tax (337) (395) (459) (249) (607) (693) (788) (893) (597) (1,139) (1,282) (1,441) (1,613)
Interest (524) (479) (433) (388) (342) (296) (251) (205) (160) (114) (68) (23) 0
Working capital 19 16 16 16 16 16 17 17 16 16 16 15 15
Capex - - - - - - - - - - - - -
Change in debt (380) (380) (380) (380) (380) (380) (380) (380) (380) (380) (380) (380) -
NHAI Grant - - - - - - - - - - - - -
FCFE 1,746 2,079 2,450 1,489 3,312 3,813 4,366 4,980 3,645 6,413 7,248 8,176 9,567
Source: RHH
60
Fig 130 - FCFE – Talegaon to Amravati

Revenue - - - 323 721 803 894 995 1,107 1,232 1,371 1,526 1,699
EBIDTA - - - 277 621 694 776 497 970 1,084 1,212 850 1,512
Tax - - - - (12) (26) (41) - (77) (97) (119) (58) (170)
Interest - - - (239) (459) (437) (416) (395) (373) (352) (331) (309) (288)
Working capital 240 12 13 6 6 13 13 14 15 15 16 16 31
Capex (2,000) (3,200) (2,800) - - - - - - - - - -
Change in debt 1,022 1,635 1,431 (178) (178) (178) (178) (178) (178) (178) (178) (178) (178)
NHAI Grant 540 864 756 - - - - - - - - - -
FCFE (198) (689) (601) (134) (22) 66 155 (61) 357 473 600 321 908
NPV (Rs) 2,591
Revenue 1,891 2,104 2,342 2,607 2,901 3,229 3,594 4,000 4,452 4,955 5,515 6,138 6,832
EBIDTA 1,689 1,887 2,107 1,612 2,627 2,933 3,275 3,655 2,991 4,553 5,081 5,669 6,325
Tax (200) (232) (268) (182) (351) (400) (453) (1,025) (786) (1,302) (1,464) (1,643) (1,843)
Interest (267) (245) (224) (203) (181) (160) (139) (117) (96) (75) (53) (32) (11)
Working capital 22 19 20 20 21 22 22 23 24 (604) - - -
Capex - - - - - - - - - - - - -
Change in debt (178) (178) (178) (178) (178) (178) (178) (178) (178) (178) (178) (178) (178)
NHAI Grant - - - - - - - - - - - - -
FCFE 1,067 1,251 1,457 1,071 1,938 2,218 2,528 2,358 1,955 2,395 3,386 3,816 4,294
Source: RHH
61
Consolidated financials
Y/E March (Rs mn) FY08 FY09 FY10E FY11E Y/E March (Rs mn) FY08 FY09E FY10E FY11E
Revenues 7,327 8,834 18,693 32,940 Cash and cash eq 5,222 4,148 5,517 5,231
Growth (%) 139.7 20.6 111.6 76.2 Accounts receivable 118 130 183 484
EBITDA 4,119 3,289 8,564 11,610 Inventories 502 2,054 2,492 3,904
Growth (%) 149.0 (20.1) 160.4 35.6 Other current assets 3,748 3,995 5,160 10,852
Depreciation & amortisation 1,016 1,143 1,938 3,241 Investments 1,985 1,108 - -
Growth (%) 175.0 (30.8) 208.7 26.3 Net fixed assets 18,848 20,161 48,627 57,842
Interest 1,958 1,304 2,777 3,622 CWIP 8,889 14,545 - -
Other income 520 585 521 1,099 Intangible assets - - - -
EBT 1,666 1,427 4,371 5,846 Deferred tax assets, net (26) (182) - -
Income taxes 400 217 839 1,313 Other assets 16 9 8 -
Extraordinary items - - - - Accounts payable 426 1,303 4,947 8,777
Min into / inc from associates - - - - Other current liabilities 623 - - -
Reported net income 1,266 1,210 3,532 4,533 Provisions 1,551 1,908 1,589 1,795
Adjustments - - - - Debt funds 20,212 24,859 34,690 42,587
Adjusted net income 1,139 1,197 3,432 4,504 Other liabilities 281 599 100 29
Growth (%) 405.1 5.1 186.7 31.2 Equity capital 3,324 3,324 3,324 3,324
Growth (%) 357.9 (13.8) 186.7 31.2 Total liabilities 39,300 45,968 61,986 78,313
DPS (Rs) 0.0 1.7 1.0 1.0 BVPS (Rs) 48.8 52.1 62.2 75.6

Y/E March (Rs mn) FY08 FY09E FY10E FY11E Y/E March FY08 FY09E FY10E FY11E
Non-cash adjustments (35) 707 49 40 EBITDA margin 56.2 37.2 45.8 35.2
Changes in working capital (1,586) (1,420) 1,669 (3,370) EBIT margin 42.3 24.3 35.4 25.4
Cash flow from operations 662 1,640 7,190 4,444 Net profit margin 15.5 13.5 18.4 13.7
Change in investments (610) 930 1,108 - ROCE 8.2 5.9 11.6 11.9
Other investing cash flow 1,802 2 - - Working Capital & Liquidity ratios
Issue of equity 8,358 208 - - Inventory (days) 34 84 87 55
Issue/repay debt (2,324) 4,581 9,831 7,897 Payables (days) 55 57 113 117
Dividends paid (15) (223) 652 372 Current ratio (x) 9.1 7.9 2.7 2.3
Other financing cash flow - - - - Quick ratio (x) 0.1 0.1 0.0 0.1
Change in cash & cash eq 908 (146) 2,922 265 Turnover & Leverage ratios (x)
Closing cash & cash eq 5,222 4,148 5,517 5,231 Gross asset turnover 0.3 0.4 0.5 0.5
Y/E March FY08 FY09E FY10E FY11E
WACC (%) 11.5 11.9 11.9 11.9
ROIC (%) 8.2 4.5 12.1 11.4
EV/Sales 13.5 11.2 5.3 3.0
EV/EBITDA 23.9 30.0 11.5 8.5
EVA (Rs mn) (1,045) (2,846) 110 (331) P/E 50.0 58.0 20.2 15.4
EVA spread (%) (3.3) (7.4) 0.2 (0.5) P/BV 4.3 4.0 3.4 2.8
62
Quarterly trend
Revenue (Rs mn) 2,301 2,016 2,391 3,211 4,141
YoY growth (%) NA NA NA NA 80.0
QoQ growth (%) NA (12.4) 18.6 34.3 29.0
EBITDA (Rs mn) 1,174 985 1,015 1,205 1,662
EBITDA margin (%) 51.0 48.9 42.5 37.5 40.1
Adj net income (Rs mn) 542 412 382 422 888
YoY growth (%) NA NA NA NA 64
QoQ growth (%) NA (24) (7) 10 110
DuPont analysis
Percentage FY07 FY08 FY09E FY10E FY11E
Return on equity 11.9 11.4 7.1 18.1 19.7
IRB Infrastructure is one of India’s leading private road infrastructure (%) Dec-08 Mar-09 Jun-09
companies operating primarily in two segments, i.e., road BOT and Promoters 74.4 74.4 73.9
construction projects. The company has a portfolio of 12 BOT road
FIIs 16.5 13.0 11.2
projects, of which 10 are operational, one is under construction,
and one is yet to achieve financial closure. Its construction order Banks & FIs 3.8 4.1 4.6
book totals Rs 63bn and is bifurcated between EPC (Rs 35bn) Public 5.3 8.5 10.3
executable within three years, and O&M contracts (Rs 28bn)
executable within 10–12 years.

225
● Hold ● Buy
14-Jan-09 Initiating Coverage 112 130 Hold
180
30-Jan-09 Results Review 112 126 Hold
135
27-Mar-09 Company Update 79 122 Buy
90
25-May-09 Results Review 136 125 Hold
45
22-Jun-09 Company Update 135 165 Buy
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
May-09
Jun-09
Sep-09
Apr-09
Jul-09
Aug-09
30-Jul-09 Results Review 188 208 Buy

05-Oct-09 Sector Report 209 224 Buy
63
IVRCL Infrastructure Sector Report 05 October 2009
IVRCL Infrastructure
On a firm footing What’s New? Target Rating Estimates
Healthy order book with plans to diversify globally: IVRCL has an order book of
Rs 149bn (including L1 orders of Rs. 10bn) at the end of June ’09, wherein water
and environment projects account for the lion’s share of 65%, buildings 20%, CMP TARGET RATING RISK
power and transmission 10%, and transportation 5%. Post June, the company has Rs 388 Rs 434 BUY HIGH
bagged orders worth Rs 16.3bn. It is also the lowest bidder (L1) in one road
project Sion-Panvel, valued at Rs 15bn respectively.
BSE NSE BLOOMBERG
IVRCL is looking to diversify geographically by entering into the Middle East,
mainly in the water and power divisions. It expects to close FY10 with an order 530773 IVRCLINFRA IVRC IN
book of Rs 170bn–180bn, implying fresh inflows of Rs 90bn–100bn in FY10.
About 90–95% of the order book consists of government projects. In terms of Company data
geography, Andhra Pradesh contributes 30% to the total book. IVRCL has Market cap (Rs mn / US$ mn) 51,682 / 1,082
maintained its topline growth guidance of 30–35% for FY10 with margins Outstanding equity shares (mn) 133
at ~9.5%.
Free float (%) 90.4
Matured BOT portfolio: The company plans to treble its road portfolio from the Dividend yield (%) 0.4
current Rs 18bn to Rs 60bn over the next 12 months with an average equity IRR 52-week high/low (Rs) 402 / 57
of 16%. It expects three ongoing BOT projects to start contributing to revenue 2-month average daily volume 3,229,064
over the next 12 months with a daily toll collection of Rs 5mn. It intends to rope
in some private equity players for funding or opt for a stake sale. The average Stock performance
cost of debt for BOT projects is ~10–11%.
Jalandhar–Amritsar project cost revised upwards: The Jalandhar–Amritsar IVRCL Infra 388 7.5 10.3 202.2
Tollways project cost has been revised from Rs 2.4bn to Rs 3.4bn due to a change Sensex 17,135 10.2 17.0 73.0
in scope of work. IVRCL has obtained a loan sanction for Rs 795mn to meet the
increase in project cost; the balance will be funded through an equity infusion. P/E comparison
Chennai desalination plant to be completed in Oct: IVRCL holds a 75% stake in (x) IVRCL Cap. Go o ds
the Chennai water desalination project. Owing to the impact of forex fluctuations 40
27.9 29.6
24.9
on imported capital goods and delays in commissioning due to force majeure 30
20.4 17.2 21.1
conditions, the project cost has escalated from Rs 4.9bn to Rs 5.7bn. The 20
completion timeline has been extended from August ’08 to October ’09, mainly 10
0
on account of consecutive cyclones, abnormal climatic conditions at the site and
FY09 FY10E FY11E
other unforeseen circumstances.
Target raised to Rs 434: The stock is currently trading at 17.2x FY11E earnings
and adjusting the subsidiary value, it trades at 14.0x FY11E earnings. We are Valuation matrix
revising our target price upward to Rs. 434 from 412 earlier. We maintain our (x) FY08 FY09 FY10E FY11E
Buy rating on the stock. P/E @ CMP 28.0 27.9 20.4 17.2
P/E @ Target 31.4 31.2 22.8 19.2
EV/EBITDA @ CMP 19.1 16.3 11.7 9.7

Growth (%) 28.4 0.8 36.4 18.7 ROE 12.7 11.0 13.8 15.0
FDEPS (Rs) 13.8 13.9 19.0 22.6 ROIC 11.6 10.9 10.4 10.9
Growth (%) 13.3 0.6 36.4 18.7 ROCE 12.1 12.0 11.8 12.3
64
Order book trend

Fig 131 - Q1FY10 order book at Rs 149bn (incl L1 of Rs 10bn) Fig 132 - Order book position segment-wise – Q1FY10
(Rs bn) Order book Order Received
149 Power &
160 138 143 145
140 128 124 Transmission Transportation
110 5%
120 96 10%
Bldg &
100 83
Industrial
80
structure
60
40 24 31 29 22 24 20%
19 20 12 11
20
0 Water and
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Environment
65%
FY08 FY09 FY10
Source: Company, RHH Source: Company, RHH
Valuation
Sum-of-the-parts Business Method Multiple Value (Rs mn) Per share value (Rs)
IVRCL standalone Construction FY11E earnings 16x 48,709 361

IVR Prime Real estate Market capitalization (20% discount) 3,584 27
Hind Dorr Oliver Market capitalization (20% discount) 2,052 15
BOT Project Road/Water P/BV 1.5x 4,249 31
Total 58,593 434
Source: RHH
65
Stock performance
Sensex IVRCL BSE CG Index Sensex IVRCL BSE CG Index

600
490
500 440
390
400 340
300 290
240
200 190
140
100
90
0 40
140 185
130 165
120 145
110 125
100 105
90 85
80 65
70 45
120 220
100
170
80
120
60
70
40
20 20
66

(Rs) (Rs)
900 1,200
40x
800
1,000 6.5x
700
600 800
500
20x 600
400
300 400 3x
200 10x 1.5x
200
100 4x
0.5x
0 0

(Rs mn) (Rs mn)
140,000 140,000 2x
21x
120,000 120,000
100,000 15x 100,000 1.4x
80,000 80,000
10x
60,000 60,000 0.8x
40,000 5x 40,000
20,000 20,000 0.2x
0 0
(%) (Rs mn)

200
160,000
150 140,000 2x
120,000
100
100,000 1.4x
50 80,000
0 60,000
0.8x
40,000
(50) 20,000 0.2x
(100) 0
67
Revenues 36,606 48,819 63,465 76,157 Cash and cash eq 1,772 1,009 715 516
Growth (%) 58.8 33.4 30.0 20.0 Accounts receivable 6,585 11,430 13,910 16,692
Depreciation & amortisation 328 473 588 681 Investments 3,409 3,893 4,095 4,295
Interest 1,165 1,980 2,207 2,674 CWIP 541 196 400 400
EBT 2,853 2,738 3,827 4,544 Deferred tax assets, net (103) (117) (148) (184)
Income taxes 749 478 1,263 1,499 Other assets (110) (188) (190) (190)
Min into / inc from associates - - - - Other current liabilities 2,888 4,381 5,757 6,801
Reported net income 2,105 2,260 2,564 3,044 Provisions 238 247 612 612
Adjusted net income 1,865 1,880 2,564 3,044 Other liabilities - - - -
DPS (Rs) 1.4 1.4 2.0 2.0 BVPS (Rs) 120.6 135.7 142.0 162.4

Non-cash adjustments (313) (439) 31 36 EBITDA margin 9.9 8.6 9.3 9.3
Changes in working capital (6,283) (2,880) (4,173) (4,478) EBIT margin 9.0 7.7 8.3 8.4
Cash flow from operations (4,163) (586) (990) (717) Net profit margin 5.1 3.9 4.0 4.0
Change in investments (399) (1,057) (450) (550) ROCE 12.1 12.0 11.8 12.3
Issue of equity 8 - (1,411) - Inventory (days) 17 18 18 20
Issue/repay debt 5,929 3,222 4,000 2,500 Payables (days) 72 73 81 84
Other financing cash flow (63) - - - Quick ratio (x) 1.0 0.8 0.8 0.7
Change in cash & cash eq (466) (763) (294) (199) Turnover & Leverage ratios (x)
Closing cash & cash eq 1,772 1,009 715 516 Gross asset turnover 10.8 9.0 8.9 9.3
WACC (%) 12.5 13.1 13.1 13.1
ROIC (%) 11.6 10.9 10.4 10.9
EV/Sales 1.9 1.4 1.1 0.9
EV/EBITDA 19.1 16.3 11.7 9.7
EVA (Rs mn) (221) (664) (981) (921) P/E 28.0 27.9 20.4 17.2
EVA spread (%) (0.9) (2.1) (2.7) (2.2) P/BV 3.2 2.9 2.7 2.4
68
Quarterly trend
Revenue (Rs mn) 9,285 11,366 11,896 16,272 10,807
YoY growth (%) 37.1 65.1 22.0 23.1 16.4
QoQ growth (%) (29.7) 22.4 4.7 36.8 (33.6)
EBITDA (Rs mn) 820 913 1,085 1,419 943
EBITDA margin (%) 8.8 8.0 9.1 8.7 8.7
YoY growth (%) 14.9 62.0 (27.4) 8.8 (19.5)
QoQ growth (%) (40.6) 31.0 (18.5) 71.6 (56.0)
DuPont analysis
Return on equity 16.1 12.7 11.0 13.8 15.0
IVRCL Infrastructure (IVRCL) is a leading Hyderabad-based civil (%) Dec-08 Mar-09 Jun-09
construction company promoted by Mr E Sudhir Reddy. Established Promoters 9.7 9.7 9.7
in 1987, the company has created a niche for itself in the water
FIIs 43.0 48.6 48.4
segment and is one of the largest players with strong pre-
qualifications. It has executed a variety of projects from irrigation to Banks & FIs 23.1 19.2 19.1
desalination works. Today, IVRCL has a well-diversified, derisked Public 24.2 22.5 22.8
business mix with a presence across various sectors – buildings and
industrial structures, transportation, water and environment.

400 ● Buy
300
06-Oct-08 Quarterly Preview 225 336 Buy
06-Nov-08 Results Review 105 176 Buy 200
31-Jan-09 Results Review 110 146 Buy 100
02-Jun-09 Results Review 332 370 Buy 0

Aug-08
Sep-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
May-09
Apr-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-08

10-Sep-09 Company Update 346 412 Buy
69
Jaiprakash Associates Sector Report 05 October 2009
Jaiprakash Associates
On an expansion spree What’s New? Target Rating Estimates
Aggressive plans across segments: Jaiprakash Associates (JP Associates) intends to

embark on an ambitious plan in pursuit of becoming one of India’s largest
cement manufacturers with a capacity of 32mn tonnes (mt) by FY12. It also
intends to attain leadership in BOT operations and evolve as a key player in Rs 239 Rs 237 HOLD HIGH
power (10-fold capacity ramp up by 2017) and real estate sectors.
We expect JP Associates to add 3.1mt of cement capacity this year to its existing
BSE NSE BLOOMBERG
capacity of 17mt. The company has a power portfolio of 13,470MW with 60%
thermal-hydro mix and 40% merchant power. It also has India’s two largest 532532 JPASSOCIAT JPA IN
expressway projects: (a) Ganga Expressway – 1,047 km (with real estate
development rights of 3.3bn sq ft), and (b) Yamuna Expressway – 165km (with Company data
real estate development rights over 6,250 acres). This provides strong revenue Market cap (Rs mn / US$ mn) 335,489 / 7,025
visibility, going forward. Outstanding equity shares (mn) 1,404
Raised Rs 15bn through sale of treasury stock: Recently, JP Associates raised Free float (%) 55
Rs 15bn in two tranches: 1) Rs 11.9bn through sale of treasury shares of 50mn at Dividend yield (%) 0.4
Rs 238/share, 2) ~Rs 5bn through sale of treasury shares of 25mn at 52-week high/low (Rs) 259 / 47
~Rs 200/share. These funds will be used to repay debt and finance expansions of 2-month average daily volume 19,178,910
various businesses. JP Associates plans to invest Rs 15bn in the cement division,
Rs 5bn in the power division, and Rs 4bn in the E&C division. Stock performance
Securitisation of power assets to ease funding concerns: JP Associates has recently Returns (%) CMP 1-mth 3-mth 6-mth
mobilised resources through the securitisation of its 400MW Vishnuprayag Hydro JP Associates 239 7.8 15.1 180.3
Project, resulting in an inflow of Rs 16.5bn. Securitisation of receivables on JHPL- Sensex 17,135 10.2 17.0 73.0
BASPA is also anticipated; the management foresees a net realisation of Rs 11bn
from this transaction. In addition, the company has acquired two power generation P/E comparison
companies for setting up a 3,300MW plant on BOO basis and is likely to raise
(x) JP A sso ciates Industry
funds for these ventures in three tranches this fiscal.
40 33.5
29.6
3,300 flats of Jaypee Green sold in 24 hrs: JP Associates has received an 30 25.5 24.9
22.1 21.1
overwhelming response for Jaypee Greens Aman, its newly launched residential 20
project, with 3,300 flats sold within 24 hours. 10
0
Earnings to grow at 33.5% over FY09-FY11: We expect the company’s revenues FY09 FY10E FY11E
and earnings to grow at a CAGR of 35.2% and 33.5% respectively over FY09-
FY11, primarily driven by incremental contribution from enhanced cement
capacities and strong execution of construction projects. Valuation matrix
Maintain Hold: Currently, the stock trades at 22.1x FY11E earnings. We have a
P/E @ CMP 48.7 33.5 25.5 22.1
revised SOTP target price of Rs 237 from Rs 220 earlier and maintain a Hold
P/E @ Target 48.4 33.3 25.3 21.9
rating on the stock. However, we believe the stock has significant embedded
value in the long term based on a revival of residential real estate and faster EV/EBITDA @ CMP 39.4 26.7 17.4 15.7
execution of power projects.

Growth (%) 16.4 47.7 53.1 10.8 ROE 16.3 17.2 21.5 20.5
FDEPS (Rs) 4.9 7.1 9.4 10.8 ROIC 6.9 7.5 9.5 8.7
Growth (%) 39.2 45.4 31.6 15.2 ROCE 8.3 9.0 11.2 11.2
70
Key developments
Acquires two power companies
3,300MW capacity to be set up through On 3 July, 2009, Jaiprakash Power Ventures, a subsidiary of JP Associates, acquired
newly acquired power companies Sangam Power Generation Company (2x660MW) and Prayagraj Power Generation
Company (3x660 MW) from UP Power Corporation. Through these acquisitions, JP
Associates plans to set up 3,300MW of generation capacity on BOO basis. The
management is likely to raise funds for the power venture business in 2–3 tranches
this year.
Fig 146 - Power portfolio

Capacity Regulated Merchant
S.N. Project Fuel VERs/CERs COD
(MW) Tariff (MW) Power (MW)
1 Baspa-II Hydro 300 300 - 1.00 Mn VERs 2003
2 Vishnuprayag Hydro 400 400 - 1.32 Mn.VERs 2006
3 Karcham Wangtoo Hydro 1,000 800 200 3.35mn CERs* 2011*
4 Bina Power Thermal 1,250 625* 625* - 2011^
5 Jaypee Nigrie Thermal 1,320 660* 660* CERs expected 2012*
6 Karchana Thermal 1,980 1,320* 660* 1.5mn CERs 2014*
7 Bara Thermal 3,300 1,980* 1,320* 2.5mn CERs 2014*
8 Lower Siang Hydro 2,700 1,350* 1,350* TBD 2015#
9 Hirong Hydro 500 250* 250* TBD 2015*
10 Kynshi Stage -II Hydro 450 225* 225* TBD 2016*
11 Umngot Stage -I Hydro 270 135* 135* TBD 2016*
Total 13,470 8,045 5,425
Source: RHH, Company * Expected ^500MW Phase-I by 2011, # 900MW Phase-I by 2015
Residential business – Jaypee Greens Aman generates overwhelming response

JP Associates has received an overwhelming response for Jaypee Greens Aman, its
newly launched residential project. The company sold 3,300 flats sold in 24 hours and
301,000 sq ft of residential space under this project in April’09.
Fig 147 - Real estate development plans

3,300 flats booked in Jaypee Green Sr. No. Project Proposed Development (mn sq ft)
Aman within 24 hours 1 Jaypee Greens 8
2 Yamuna Expressway 400
3 Ganga Expressway 3300
Source: Company
Fig 148 - Real estate realisations

Project Sold till Apr ’09 (mn sq ft) Collections (Rs mn) Avg realisation (Rs/sq ft)
Jaypee Greens 2.9 9,930 5,500
Yamuna Expressway 5.45 10,670 5,024
Source: Company
71
Valuation
We have valued the stock on SOTP basis and revised our target price upwards to Rs 237
from Rs 220 earlier.

No of
Value per
Particulars Method Holding Multiple Rs mn Shares
share (Rs)
(mn)
Construction EV/EBITDA 9x 105,710 1,464 72
Cement Ev/tonne $ 95 115,425 1,464 79
Real estate including
66,833 1,464 46
Yamuna
BV of
Ganga Expressway investments in 915 1,464 1
FY09
Jaypee Greens 6,951 1,464 5
Jaypee hydro M cap (20%
76.55% 104,825 1,464 72
(merged entity) holding)
Jaypee hotels P/E 74.78% 6x 1,007 1,464 1
M cap (30%
Treasury shares 34,560 1,464 24
holding)
Total 436,226 1,464 298
Less Net debt 88,751 1,464 61

Total 347,475 1,464 237
Source: RHH
72
Stock performance
Fig 150 - Absolute performance from June ’04 Fig 151 - Relative performance from June ’04
Sensex JP Associates BSE CG Index Sensex JP Associates BSE CG Index

500
540
400
440
300
340
200 240
100 140
0 40
Jun-04 Jul-05 Jul-06 Aug-07 Sep-08 Sep-09 Jun-04 Jul-05 Jul-06 Aug-07 Sep-08 Sep-09

135
315
125
265
115
215
105
165
95
85 115
75 65
Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Apr-07 Jul-07 Sep-07 Dec-07 Mar-08
120 200
110
180
100
160
90
80 140
70
120
60
100
50
40 80
73

(Rs) (Rs)
800 600
10x
700 70x
500
600
500 50x 400
6x
400 300
300
25x 200
200 3x
10x 100
100 1x
0 0
Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09

(Rs mn) (Rs mn)
1,400,000 1,400,000
1,200,000 45x 1,200,000 12x
1,000,000 1,000,000
800,000 30x 800,000 8x
600,000 600,000
400,000 15x 4x
400,000
200,000 200,000
5x 1.5x
0 0
(%) (Rs mn)

200 1,200,000
11.5x
1,000,000
150
800,000 8x
100
600,000
50
400,000 4x
0 200,000
0.5x
(50) 0
74
Depreciation & amortisation 2,033 2,957 3,931 4,798 Investments 32,248 40,448 47,948 54,948
Interest 3,391 5,023 6,528 7,240 CWIP 42,190 25,000 25,000 20,000
Other income 2,888 4,147 5,014 6,866 Intangible assets - - - -
EBT 8,434 12,367 19,360 22,309 Deferred tax assets, net (5,597) (5,663) (5,723) (5,760)
Income taxes 2,337 3,477 5,614 6,470 Other assets 1 1 1 1
Adjustments - - - - Debt funds 83,056 95,431 103,931 113,931
Growth (%) 46.9 45.8 54.6 15.2 Equity capital 2,343 2,368 2,372 2,372
Shares outstanding (mn) 1,171.5 1,183.8 1,403.7 1,403.7 Reserves & surplus 43,637 55,306 67,750 82,203
DPS (Rs) 1.0 1.0 0.8 0.8 BVPS (Rs) 41.2 50.7 51.6 61.9

Non-cash adjustments 3,818 (724) 1,748 737 EBITDA margin 27.5 28.1 27.2 26.0
Changes in working capital 332 (5,115) (11,569) (4,955) EBIT margin 22.4 22.9 22.9 21.5
Cash flow from operations 12,319 6,009 7,855 16,421 Net profit margin 15.3 15.4 15.1 15.0
Change in investments (14,461) (8,200) (7,500) (7,000) ROCE 8.3 9.0 11.2 11.2
Other investing cash flow 1,035 - - - Working Capital & Liquidity ratios
Issue of equity 8,517 3,950 90 - Inventory (days) 120 125 125 130
Dividends paid (1,204) (1,341) (1,385) (1,387) Current ratio (x) 1.8 1.9 1.6 1.7
Change in cash & cash eq 3,856 754 (12,440) 3,533 Turnover & Leverage ratios (x)
WACC (%) 12.1 12.6 12.7 12.9
ROIC (%) 6.9 7.5 9.5 8.7
EV/Sales 10.9 7.5 4.7 4.1
EV/EBITDA 39.4 26.7 17.4 15.7
EVA (Rs mn) (5,997) (7,027) (5,701) (8,206) P/E 48.7 33.5 25.5 22.1
EVA spread (%) (5.2) (5.1) (3.3) (4.2) P/BV 5.8 4.7 4.6 3.9
75
Quarterly trend
Revenue (Rs mn) 11,591 11,826 13,217 20,846 20,671
YoY growth (%) 23.0 37.1 46.9 62.8 78.3
QoQ growth (%) (9.5) 2.0 11.8 57.7 (0.8)
EBITDA (Rs mn) 3,200 3,478 2,473 7,050 5,417
EBITDA margin (%) 27.6 29.4 18.7 33.8 26.2
Adj net income (Rs mn) 1,252 2,031 1,655 3,853 2,181
YoY growth (%) (10) 96 6 83 74
QoQ growth (%) (41) 62 (19) 133 (43)
DuPont analysis
(%) FY07 FY08 FY09E FY10E FY11E
Return on equity 14.9 16.3 17.2 21.5 20.5
The Jaiprakash group is a well-diversified infrastructure-oriented (%) Dec-08 Mar-09 Jul-09

conglomerate with a formidable presence in engineering & Promoters 45.3 45.2 50.1
construction and cement. The group also has interests in the power
FIIs 23.8 25.0 24.5
and hospitality sectors and has recently entered real estate and
expressway businesses. The group has a total cement capacity of Banks & FIs 12.7 11.8 10.4
9mn tonnes and intends to expand this to 32mn tonnes by FY12. Public 18.2 18.0 15.0

Date Event Reco price Tgt price Reco 300 ● Sell ● Hold
25-Mar-09 Initiating Coverage 84 69 Sell 250
29-Apr-09 Results Review 130 120 Hold 200
8-Jul-09 Company Update 194 193 Hold 150
27-Jul-09 Results Review 240 220 Hold 100
50
Feb-09
Mar-09
Apr-09
May-09
Jul-09
Aug-09
Jun-09
Sep-09
76
Larsen & Toubro Sector Report 05 October 2009
Larsen & Toubro

Going strong! What’s New? Target Rating Estimates
Concerns on order inflows alleviated: Although Larsen & Toubro (L&T)

registered a 21.5% YoY decline in order booking in Q1FY10 (Rs 96bn), the pace CMP TARGET RATING RISK
has picked up substantially since then with order wins worth Rs 140bn post Q1.
Rs 1,665 Rs 1,781 BUY MEDIUM
We expect order inflows to reach Rs 650bn in FY10 (25% growth: lower end of
the management guidance) which will provide strong revenue visibility.
BSE NSE BLOOMBERG

Power business gains traction: L&T intends to aggressively enter the power
business in order to tap the sector’s immense potential and capitalise on the 500510 LT LT IN
limited competition in this space (BHEL enjoys a monopoly at present). The
company has already made a headway in the power equipment market by Company data
securing orders from APGENCO (Rs 15.5bn), JP Group (Rs 40bn) and GMR Market cap (Rs mn / US$ mn) 978,403 / 20,488
Infrastructure (Rs 20bn). It is also amongst the strongest contenders for securing Outstanding equity shares (mn) 586
orders worth Rs 350bn–400bn from NTPC’s bulk tenders by Q1FY11 and orders Free float (%) 86
of Rs 90bn from the JP Group. Dividend yield (%) 0.9
52-week high/low (Rs) 1,800 / 556
Earnings to grow by 22.1% over FY09-FY11: We expect L&T’s standalone and
2-month average daily volume 2,077,750
consolidated earnings to increase at a 22.1% CAGR and 22.8% CAGR
respectively over FY09-FY11, led by strong execution and order booking. Stock performance
Maintain Buy: The stock is currently trading at 24.1x on FY11E standalone
L&T 1,665 7.4 5.8 147.6
earnings and 21.5x on FY11E consolidated earnings. It has traded at an average
BSE Sector 13,731 6.1 6.4 112.4
premium of 35% to the Sensex over the last three years. We expect the stock to
Sensex 17,135 10.2 17.0 73.0
maintain this premium over the next few years, given the robust outlook for the
sector and L&T’s strong positioning.
P/E comparison
We have valued L&T’s core business at 23x FY11E earnings and subsidiaries at (X) L&T* Industry
40 35.9
Rs 190 (11% of SOTP target). We reiterate a Buy on the stock; our 29.6
30 26.6 24.9
recommendation is based on the expected earnings growth over FY09-FY11 and 21.5 21.1
strong incremental contribution from new business verticals like power, nuclear 20
and defence projects. 10

0
FY09 FY10E FY11E
* Consolidated
Valuation matrix
P/E @ CMP 44.5 35.9 29.8 24.1
P/E @ Target 47.6 38.4 31.9 25.8
EV/EBITDA @ CMP 35.2 27.2 22.9 18.4

Growth (%) 54.9 24.8 20.3 24.3 ROE 28.3 24.6 23.8 24.6
FDEPS (Rs) 37.4 46.4 55.9 69.2 ROIC 22.9 20.1 16.7 17.5
Growth (%) 54.4 24.1 20.4 23.8 ROCE 21.5 18.5 17.2 18.2
77

Fig 162 - Trend in order book & order inflows
(Rs bn) Order Book Order Booking
800 688 703 717
700 630
582
600 496 527
500 416 440
357 369
400 287 307
300
200 130 116 122 125 146 125 96
75 61 95 77 99 71
100
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
FY07 FY08 FY09 FY10
Fig 163 - Sector wise break-up of order book – Q1FY10 Fig 164 - Geographical break-up – Q1FY10
Process Hydrocarbons Power Infrastructure others Domestic Middle East Other exports
Net sales 79 15 6
Order book 16 12 24 39 9
Order inflow 94 33
Order inflows 9 12 30 38 11
Order book 86 8 6
(%) 0 20 40 60 80 100
(%) 0 20 40 60 80 100 120
Fig 165 - Order book (customer-wise) Fig 166 - Order inflows (customer-wise)
(%) Q1FY09 Q1FY10 (%) Q1FY09 Q1FY10
60 55 70
51 59
50 43 60 51
36 50 43
40
40
30 28
30
20 13 20 13
10 6
2 10
0 0
Public Private Development Public Private Development
projects (L&T) projects (L&T)
78
Fig 167 - E&C segment: Sales and order book trend

E&C (Rs bn) Q1FY08 Q2FY08 Q3FY08 Q4FY08 FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 FY09 Q1FY10
Order book 396.9 420.3 476.1 509.3 509.3 563.4 609.3 670.3 687.5 687.5 699.5
order inflow 82.2 59.1 114.6 98.1 353.9 105.2 104.3 133.8 112.9 456.2 83.7
YoY (%) 30.4 27.5 40.3 60.2 40.3 28.0 76.7 16.7 15.1 28.9 (20.4)
Sales 33.2 41.1 48.9 66.2 189.5 55.8 59.4 73.4 91.7 279.8 65.7
YoY (%) 28.7 59.1 89.5 156.5 44.4 67.8 44.6 50.0 38.5 47.7 17.9
EBIT Margins (%) 9.6 11.7 12.1 15.7 12.8 9.7 11.5 11.4 16.5 12.9 10.6
Fig 168 - E&E segment: Sales and margin trend

E&E (Rs bn) Q1FY08 Q2FY08 Q3FY08 Q4FY08 FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 FY09 Q1FY10
Sales 5.0 6.2 5.7 7.2 24.2 5.8 7.0 5.9 6.9 25.1 5.8
YoY (%) 31.7 43.4 29.5 23.8 31.8 14.9 12.2 3.2 (3.3) 3.6 (0.3)
EBIT Margins (%) 16.7 18.4 17.5 15.7 15.7 11.8 12.9 12.2 14.1 13.2 11.8
Fig 169 - MIP segment: Sales and margin trend

MIP (Rs bn) Q1FY08 Q2FY08 Q3FY08 Q4FY08 FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 FY09 Q1FY10
Sales 4.1 5.6 5.7 7.8 23.3 6.4 6.6 5.1 6.1 24.0 4.4
YoY (%) 28.1 33.3 41.8 21.9 30.8 55.1 18.2 (9.3) (22.2) 3.0 (31.3)
EBIT Margins (%) 22.4 15.9 21.0 18.2 18.9 23.2 21.1 13.6 19.9 20.1 21.8
Valuation
Particulars Basis Per share value (Rs)
L&T Standalone 23x FY11 EPS 1,591.0

L&T Infotech 12x FY11 EPS 66.7
L&T IDPL Based on PE deal 44.5
L&T Finance 1.1x FY11 book value 14.9
L&TIFC 1.1x FY11 book value 21.8
Manufacturing JVs 10x FY11 EPS 16.6
International Subsidiaries 10x FY11 EPS 25.7
Total 1,781
Source: RHH
79
Stock performance
Sensex L&T BSE CG Index Sensex L&T BSE CG Index

2,500
390
2,000 340
290
1,500
240
1,000 190
140
500
90
0 40
120 205
110 185
100 165
90 145
80 125
70 105
60 85
120 180
110 160
100
140
90
120
80
100
70
60 80
50 60
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Mar-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
80

(Rs) (Rs)
3,000 2,500
2,500 8x
40x 2,000
2,000 6x
1,500
1,500
1,000 4x
1,000 20x
10x 500 2x
500
4x
0 0

(Rs mn) (Rs mn)
1,600,000 1,800,000
3.5x
1,400,000 1,600,000
1,200,000 25x 1,400,000
1,000,000 1,200,000 2.5x
20x
800,000 1,000,000
15x 800,000
600,000 1.5x
10x 600,000
400,000 400,000 0.8x
200,000 200,000
0 0
(%) (Rs mn)

200 1,800,000 3.5x
1,600,000
150 1,400,000
1,200,000 2.5x
1,000,000
100
800,000 1.5x
600,000
50 400,000 0.8x
200,000
0 0
81
Interest 1,227 3,502 4,013 4,387 CWIP 7,293 10,803 12,000 11,000
Other income 5,203 15,122 8,403 9,299 Intangible assets - - - -
Income taxes 9,821 12,312 13,976 17,303 Other assets - (28) 923 3,645
Adjustments - (7,725) - - Debt funds 35,840 65,560 72,960 76,968
Growth (%) 54.9 24.8 20.3 23.8 Equity capital 585 1,171 1,171 1,171
DPS (Rs) 9.8 15.5 14.5 18.0 BVPS (Rs) 163.7 213.4 255.7 306.9
Consol FDEPS (Rs) 42.1 51.1 62.6 77.1

Non-cash adjustments (389) (22,314) - - EBITDA margin 11.8 11.3 11.3 11.3
Cash flow from operations 21,056 (2,565) 25,346 24,796 Net profit margin 8.7 8.0 8.1 8.0
Change in investments (37,886) 5,930 (10,200) (10,000) ROCE 21.5 18.5 17.2 18.2
Other investing cash flow (664) (6,236) - - Working Capital & Liquidity ratios
Issue of equity 17,016 230 - - Inventory (days) 70 70 75 72
Dividends paid (1,335) (4,388) (9,054) (8,478) Current ratio (x) 1.4 1.6 1.6 1.6
Other financing cash flow (5) (667) - - Quick ratio (x) 0.7 0.7 0.8 0.8
Change in cash & cash eq (1,300) (1,917) 2,295 1,325 Turnover & Leverage ratios (x)
WACC (%) 14.3 14.2 14.2 13.8
ROIC (%) 22.9 20.1 16.7 17.5
EV/Sales 4.2 3.1 2.6 2.1
Invested capital (Rs mn) 98,515 162,967 190,850 230,654 EV/EBITDA 35.2 27.2 22.9 18.4
EVA (Rs mn) 8,485 9,606 4,814 8,500 P/E 44.5 35.9 29.8 24.1
EVA spread (%) 8.6 5.9 2.5 3.7 P/BV 10.2 7.8 6.5 5.4
82
Quarterly trend
Revenue (Rs mn) 69,014 76,822 86,156 104,690 73,627
YoY growth (%) 53.1 39.7 34.9 23.6 6.7
QoQ growth (%) (18.5) 11.3 12.1 21.5 (29.7)
EBITDA (Rs mn) 6,695 7,317 7,799 14,509 7,863
EBITDA margin (%) 9.7 9.5 9.1 13.9 10.7
Adj net income (Rs mn) 5,024 4,603 6,041 11,424 5,783
YoY growth (%) 33 32 25.4 17.6 15.1
QoQ growth (%) (48) (8) 31.2 89.1 (49.4)
DuPont analysis
Percentage FY07 FY08 FY09 FY10E FY11E
Return on equity 26.9 28.3 24.6 23.8 24.6
L&T is one of the largest technology, engineering, construction and (%) Sep-08 Dec-08 Mar-09
manufacturing companies in India. Seven decades of a strong, Promoters - - -
customer-focused approach and the continuous quest for world-
FIIs 19.3 18.1 15.8
class quality have enabled it to attain and sustain leadership in all
its major lines of business. Banks & FIs 37.5 37.4 38.4
Public 43.2 44.5 45.8

Date Event Reco price Tgt price Reco 1,900 ● Hold ● Buy
6-Oct-08 Quarterly Preview 1,158 1,398 Hold 1,700
1,500
17-Oct-08 Results Review 823 977 Hold 1,300
10-Dec-08 Company Update 730 790 Hold 1,100
900
31-Jan-09 Results Review 690 770 Hold 700
500
30-Mar-09 Company Update 680 770 Hold
Nov-08
Sep-08
Oct-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jul-09
Aug-09
Jun-09
Sep-09
Oct-09
29-May-09 Results Review 1,341 1,498 Buy

2-Jul-09 Quarterly Preview 1,591 1,498 Hold
16-Jul-09 Results Review 1,378 1,527 Buy
5-Oct-09 Sector Report 1,665 1,781 Buy
83
Nagarjuna Construction Sector Report 05 October 2009
Nagarjuna Construction
Buoyant order traction What’s New? Target Rating Estimates
Strong order wins to boost revenue growth in FY11: Nagarjuna Construction Co

(NCC) has bagged orders worth Rs 43bn to date, which is roughly 65% of the
full-year management guidance of Rs 65bn in new orders for FY10. We expect
order flows to total Rs 76bn for FY10 which will provide strong revenue visibility Rs 153 Rs 166 HOLD HIGH
for subsequent years. The company ended the first quarter with an order book of
Rs 139bn, which is 2.9x FY10E revenues. International business contributes
roughly 22% to the current order book. BSE NSE BLOOMBERG
500294 NAGARCONST NJCC IN
Raised Rs 4.8bn through QIP and stake sale: NCC raised Rs 3.7bn via a QIP at a
price of Rs 133/share which has led to a dilution of 12%. The funds raised would
Company data
be utilised for investments in various BOT projects and to meet working capital
requirements. Following the QIP, NCC’s debt/equity ratio has reduced from 0.8x Market cap (Rs mn / US$ mn) 35,000 / 733
to 0.5x in FY10. In a bid to raise further funds, the company recently sold a 9.5% Outstanding equity shares (mn) 229
stake in Gautami Power to the GVK group for a consideration of Rs 1.1bn. It Free float (%) 75.6
anticipates a capital gain of Rs 500mn from this sale. Dividend yield (%) 1.0
Building its BOT portfolio: NCC has a portfolio of five road BOT projects (one 2-month average daily volume 2,212,339
operational), three power projects apart from Gautami Power and two airport
works. The total equity commitment for the above portfolio is Rs 4.8bn Stock performance
(excluding power projects worth Rs 10.5bn which are long term in nature and
currently at a nascent stage). Of this sum, the company has already invested
Nagarjuna 153 13.4 11.1 143.3
Rs 2.9bn till FY09.
Sensex 17,135 10.2 17.0 73.0
Target price raised, maintain Hold: The stock is currently trading at a P/E of
16.3x on FY11E earnings. Excluding subsidiaries, it trades at 12.7x FY11E P/E comparison
earnings. We are increasing our earnings estimates for FY11 by 12% mainly due (x) Nagarjuna Co nst. Cap Go o ds
to upward revision in our sales and margin estimates based on strong order 40
29.6
inflows. We are also increasing our target multiple from 12x to 14x and BOT 30 22.8 24.9
21.1
19.3
valuation to 1.5x FY10E BV as against 1x FY10 BV. Our target price thus rises 20 16.3
from Rs 138 to Rs 166 – we maintain our Hold rating on the stock. 10
0
FY09 FY10E FY11E
Valuation matrix
P/E @ CMP 20.5 22.8 19.3 16.3
P/E @ Target 22.2 24.6 20.9 17.6
EV/EBITDA @ CMP 12.4 11.9 9.9 8.3

Growth (%) 33.1 3.7 20.3 20.0 ROE 12.5 9.4 10.0 10.6
FDEPS (Rs) 7.5 6.7 7.9 9.4 ROIC 11.4 8.6 8.8 8.7
Growth (%) 14.7 (10.1) 17.9 18.6 ROCE 11.7 9.8 9.9 9.7
84
Order book trend

Fig 183 - Quarterly order book and order inflows
(Rs bn) Order book Order received
160 139
140 122 124 124 122
114
120
98
100 90
78
80
60
40 29 29
19 15 17 14
12 12 10
20
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
FY08 FY09 FY10
Valuation
Sum-of-the-parts Business Method Multiple (x) Value (Rs mn) Per share value (Rs)
NCC standalone Construction P/E 1 year forward 14 33,768 132
NCC Urban Infra (80% stake) Real estate NAV 1 1,497 6
Jubliee Hills Real estate BV 1 453 2
HUDA Real estate BV 1 825 3
NCC Vizag Urban Real estate BV 1 499 2
Gautami Power Power P/BV 1 522 2
BOT Project Road/Power/ Port P/BV 1.5 4,946 19
Total 42,509 166
Source: RHH
85
Stock performance
Sensex NCC BSE CG Index Sensex NCC BSE CG Index
400 740
350 640
300 540
250
440
200
340
150
240
100
50 140
0 40

105 165
155
95
145
85 135
125
75 115
105
65
95
55 85
120 160
100 140
80 120
60 100
40 80
20 60
86

(Rs) (Rs)
450 500
5x
400 45x 400
350
300
30x 300
250 3x
200 200
150 16x
1.5x
100 100
8x
50 0.5x
0 0

(Rs mn) (Rs mn)
120,000 120,000
100,000 2x
100,000 21x
80,000 80,000
15x 1.4x
60,000 60,000
10x 0.8x
40,000 40,000
20,000 5x
20,000
0.2x
0 0
(%) (Rs mn)

200
120,000
150 100,000 2x
100 80,000
1.4x
50 60,000
0 40,000 0.8x
(50) 20,000
0.2x
(100) 0
87
Revenues 34,729 41,514 47,326 56,791 Cash and cash eq 2,329 1,346 1,365 722
Interest 1,116 1,621 1,686 1,844 CWIP 143 281 100 100
Other income 444 697 680 750 Intangible assets 13 - - -
Income taxes 811 743 956 1,188 Other assets (2) (27) 203 201
Extraordinary items (8) (3) - - Accounts payable 6,025 6,360 7,746 9,349
Reported net income 1,619 1,532 1,942 2,412 Provisions 880 867 1,377 1,818
Adjustments 16 (3) - - Debt funds 8,938 12,439 10,939 13,439
Growth (%) 21.2 (6.0) 26.3 24.2 Equity capital 458 458 513 513
DPS (Rs) 1.3 1.4 1.4 2.1 BVPS (Rs) 68.7 73.7 85.5 92.5

Non-cash adjustments (212) (592) (686) 232 EBITDA margin 10.4 9.0 9.5 9.5
Cash flow from operations (2,803) (2,482) 637 (160) Net profit margin 4.7 3.7 4.1 4.2
Capital expenditure (1,588) (75) (1,099) (1,565) ROE 12.5 9.4 10.0 10.6
Change in investments (2,104) (1,290) (1,398) (998) ROCE 11.7 9.8 9.9 9.7
Other investing cash flow 1 (819) - - Working Capital & Liquidity ratios
Issue of equity 4,049 - 3,673 - Inventory (days) 65 73 77 74
Issue/repay debt 2,569 4,025 (1,500) 2,500 Payables (days) 69 69 69 69
Change in cash & cash eq (105) (989) 19 (643) Turnover & Leverage ratios (x)
Closing cash & cash eq 2,329 1,346 1,365 722 Gross asset turnover 6.0 6.5 6.9 6.8
WACC (%) 11.9 11.8 11.8 11.8
ROIC (%) 11.4 8.6 8.8 8.7
EV/Sales 1.3 1.1 0.9 0.8
EV/EBITDA 12.4 11.9 9.9 8.3
EVA (Rs mn) (118) (904) (948) (1,266) P/E 20.5 22.8 19.3 16.3
EVA spread (%) (0.5) (3.2) (3.0) (3.1) P/BV 2.2 2.1 1.8 1.7
88
Quarterly trend
Revenue (Rs mn) 9,709 10,558 10,266 10,981 10,004
YoY growth (%) 27.4 55.9 31.7 (12.4) 3.0
QoQ growth (%) (22.6) 8.7 (2.8) 7.0 (8.9)
EBITDA (Rs mn) 774 935 780 715 905
EBITDA margin (%) 8.0 8.9 7.6 6.5 9.0
YoY growth (%) 3 26 (9) (27) 3
QoQ growth (%) 9,709 10,558 10,266 10,981 10,004
DuPont analysis
Return on equity 13.6 12.5 9.4 10.0 10.6
Nagarjuna Construction (NCC) is a leading Hyderabad-based civil (%) Dec-08 Mar-09 Jun-09
construction company promoted by Mr A V S Raju. Established in Promoters 24.4 24.4 24.4
1980, the company has transformed itself from a subcontractor in
FIIs 27.4 28.0 24.9
residential and industrial construction to a diversified infrastructure
conglomerate with BOT and real estate projects. Today, it has a Banks & FIs 25.2 22.3 26.0
well-diversified, de-risked business mix with a presence across Public 23.1 25.3 24.7
various sectors – buildings and housing, transportation, water and
environment, electrical, irrigation, hydropower, oil & gas pipelines
and EPC capabilities in metals and power sector.

Date Event Reco price Tgt price Reco 170
21-Aug-08 RHH Compendium 125 175 Buy 150 ● Hold ● Buy
130
18-Sep-08 Company Update 112 173 Buy 110
70
29-Oct-08 Results Review 52 90 Hold 50
30
28-Jan-09 Results Review 50 78 Hold
Jul-08
Nov-08
Sep-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09

3-Aug-09 Results Review 143 138 Hold
89
Patel Engineering Sector Report 05 October 2009
Patel Engineering
Power, real estate to drive value What’s New? Target Rating Estimates
Order book at Rs 73.5bn: As on 30 June 2009, Patel Engineering’s (PEL) order

book stood at Rs 73.5bn, 2.6x its FY10E consolidated revenues. The order book
is split between the standalone entity (Rs 65.7bn), US operations (Rs 3.8bn) and
Michigan operations (Rs 4bn). The company has secured orders worth Rs 484 Rs 532 BUY HIGH
Rs 7bn in Q1FY10, which include a Rs 5.5bn order from Vidarbha Irrigation
Development and a Rs 1.5bn contract from the Himachal Pradesh Power
Corporation. In addition, PEL has L1 orders worth Rs 30bn. Hydro and irrigation BSE NSE BLOOMBERG
projects contribute ~44% each to the order book, while urban infrastructure
531120 PATELENG PEC IN
accounts for the balance 12%.
Gradually building its power portfolio: PEL plans to develop a 1,200MW Company data
thermal power plant in four phases of 300MW each. Land for the same has been Market cap (Rs mn / US$ mn) 28,875 / 605
acquired in Tamil Nadu. The company has an equity commitment of Rs 1.8bn Outstanding equity shares (mn) 60
over the next four years for its power portfolio for Phase 1. To ease the pressure Free float (%)
on its balance sheet, PEL plans to dilute a 49% stake in its power assets to the Dividend yield (%) 0.4
equipment supplier or opt for private equity funding. Apart from the thermal 52-week high/low (Rs) 526 / 103
plant, the company also intends to develop a 120MW hydro-based plant in
2-month average daily volume 283,322
Arunachal Pradesh for which a DPR is under preparation.
Real estate back in the limelight: PEL’s land bank of 1,027 acres is spread across Stock performance
India’s four major cities: Hyderabad, Chennai, Bangalore, and Mumbai. This Returns (%) CMP 1-mth 3-mth 6-mth
features in PEL’s books and the company has given development rights to its Patel Engg. 484 10.5 12.9 244.3
subsidiary, Patel Realty India. In this manner, the potential upside from this Sensex 17,135 10.2 17.0 73.0
business has been retained with PEL, thereby benefiting its existing shareholders.
P/E comparison
S80IA benefits dropped; normal tax rate to be effective: In view of the proposed
retrospective change in S80IA, PEL has not claimed any tax benefit this quarter. (x) P atel Engg. Cap. Go o ds
40
Deductions claimed under the said section in earlier years would impact the 27.4 29.6
company’s net worth by ~Rs 1.6bn and result in cash outflows of ~Rs 400mn. 30 22.7 24.9 21.1
17.9
20
Maintain Buy: We anticipate an earnings growth at a CAGR of 23.7% over FY09- 10
FY11. The stock currently trades at a P/E of 17.9x FY11E earnings and adjusting 0
subsidiary value, it trades at 12.2x FY11E earnings. Valuing the stock on an SOTP FY09 FY10E FY11E
basis, we arrive at a target price of Rs 532 from Rs 460 earlier. We maintain our
Buy rating on the stock.
Valuation matrix
P/E @ CMP 26.8 27.4 22.7 17.9
P/E @ Target 29.5 30.1 25.0 19.7
EV/EBITDA @ CMP 19.7 15.5 12.4 10.0

Growth (%) 28.6 (2.2) 20.8 26.8 ROE 13.9 11.5 12.3 13.8
FDEPS (Rs) 18.0 17.6 21.3 27.0 ROIC 12.2 9.6 7.3 7.8
Growth (%) 28.6 (2.2) 20.8 26.8 ROCE 12.3 10.3 9.2 9.8
90
Order book trend

Fig 197 - Order book trend
(Rs bn) Closng order book Hydro Irrigartion Transport
80 71 72 74
70 60 60 60
60 54 55
50
50
35 35 31 32 32
40 30 31 31 32
28 28 29
30
14 15 15 17
20 11 12 11 13 10 10 12 11 11
9 9
10
0
Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10
Fig 198 - Order book break-up – Q1FY10
Transport
12%
Hydro
44%
Irrigartion
44%
Valuation
Particulars Business Multiple Value (Rs mn) Per share value (Rs)
PEL Standalone Core construction business 14x 22,565 378
Real estate Real estate NAV 3,496 58
Land bank value (Hyd+Bangalore) Real estate BV 2,000 34
BOT Projects Roads NAV 1,100 18
Value of Subsidiares Core construction business 8x 1,790 30
Power projects Power BV 800 13
Total 31,751 532
Source: RHH
91
Stock performance
Sensex Patel Engg. BSE CG Index Sensex Patel Engg. BSE CG Index
1,000 1,440
900
800 1,240
700 1,040
600
840
500
400 640
300 440
200
240
100
0 40
130 205
120 185
110
165
100
145
90
125
80
70 105
60 85
120 320
100 270
220
80
170
60
120
40 70
20 20
Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09
92

(Rs) (Rs)
1,200 1,400
6.5x
1,000 40x 1,200
800 1,000
800
600
20x 600 3x
400
400
10x 1.5x
200 200
4x 0.5x
0 0

(Rs mn) (Rs mn)
80,000 21x 80,000
70,000 70,000
60,000 60,000
15x
50,000 50,000 2x
40,000 10x 40,000
1.4x
30,000 30,000
20,000 5x 20,000 0.8x
10,000 10,000
0.2x
0 0
(%) (Rs mn)

150 70,000
60,000
100 50,000 2x
40,000
50 1.4x
30,000
20,000 0.8x
0
10,000
0.2x
(50) 0
93
Revenues 13,245 17,774 21,951 27,220 Cash and cash eq 1,912 1,553 702 253
Interest 519 886 1,038 1,204 CWIP 94 231 100 100
Income taxes 106 233 626 794 Other assets - (1) 19 39
Extraordinary items - 330 - - Accounts payable 3,447 4,964 6,315 7,830
Min into / inc from associates 56 66 45 45 Other current liabilities 636 - - -
Reported net income 1,476 1,743 1,271 1,612 Provisions 23 78 45 45
Adjusted net income 1,076 1,053 1,271 1,612 Other liabilities 2,274 4,328 3,732 4,627
DPS (Rs) 1.5 1.8 1.5 1.5 BVPS (Rs) 141.5 164.1 183.6 208.9

Non-cash adjustments (34) (1,440) (0) (0) EBITDA margin 15.3 14.5 14.6 14.7
Cash flow from operations (1,701) (3,693) (219) (644) Net profit margin 8.1 5.9 5.8 5.9
Capital expenditure (1,284) (790) (1,069) (1,200) ROE 13.9 11.5 12.3 13.8
Change in investments (1,137) (1,436) (960) (1,000) ROCE 12.3 10.3 9.2 9.8
Issue of equity (534) - - - Inventory (days) 196 220 232 227
Change in cash & cash eq (502) (359) (852) (448) Turnover & Leverage ratios (x)
Closing cash & cash eq 1,912 1,553 702 253 Gross asset turnover 3.7 3.9 4.0 4.1
WACC (%) 12.7 13.8 13.8 13.8
ROIC (%) 12.2 9.6 7.3 7.8
EV/Sales 3.0 2.2 1.8 1.5
EV/EBITDA 19.7 15.5 12.4 10.0
EVA (Rs mn) (78) (961) (1,683) (1,874) P/E 26.8 27.4 22.7 17.9
EVA spread (%) (0.5) (4.2) (6.6) (6.0) P/BV 3.4 2.9 2.6 2.3
94
Quarterly trend
Revenue (Rs mn) 3,962 3,092 3,171 7,615 4,763
YoY growth (%) 20.0 31.1 21.0 51.7 20.2
QoQ growth (%) (21.1) (22.0) 2.6 140.1 (37.5)
EBITDA (Rs mn) 475 479 567 679 602
EBITDA margin (%) 12.0 15.5 17.9 8.9 12.6
YoY growth (%) (11.3) 3.2 0.2 (15.4) 7.0
QoQ growth (%) (56.5) 43.2 4.8 29.7 (45.0)
DuPont analysis
Return on equity 18.6 13.9 11.5 12.3 13.8
Patel Engineering (PEL) is one of India’s oldest and largest (%) Dec-08 Mar-09 Jun-09
construction companies, with a strong presence in the hydropower Promoters 53.4 53.8 53.2
sector. It is one of the few players with pre-qualifications in hydro,
FIIs 7.4 7.1 7.7
irrigation, and other projects. PEL possesses niche technologies (via
subsidiaries) such as RCC dam construction, micro tunnelling, and Banks & FIs 12.3 11.1 11.1
lake water tapping. It has also ventured into the real estate business Public 26.9 28.1 28.0
and has a developable land bank of ~100mn sq ft in four Indian
cities, including Mumbai.

Date Event Reco price Tgt price Reco 600 ● Sell ● Buy
● Hold
18-Nov-08 Initiating Coverage 139 148 Sell 500
400
2-Feb-09 Results Review 147 155 Sell
300
6-Apr-09 Quarterly Preview 136 155 Hold 200
25-May-09 Company Update 353 309 Hold 100
0
1-Jul-09 Results Review 429 406 Hold
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jul-09
Aug-09
Jun-09
Sep-09
Oct-09
3-Aug-09 Results Review 413 460 Buy

95
Punj Lloyd Sector Report 05 October 2009
Punj Lloyd
Soaring orders to drive a turnaround What’s New? Target Rating Estimates
Orders worth Rs 99bn booked in Q1FY10: As on 30 June 2009, Punj Lloyd’s

(PLL) order book stood at Rs 278bn, 2.1x its FY10E revenues. The company has
booked orders worth Rs 99bn in Q1FY10, which is nearly equivalent to its full-
year inflow of Rs 117bn for FY09. We expect PLL to end the year with Rs 262 Rs 306 BUY HIGH
Rs 170bn of order inflows. An improved macro scenario and a strong Q1 order
book could provide further upsides.
BSE NSE BLOOMBERG
Set to stage a turnaround: In FY09, PLL reported a loss of Rs 2.3bn on account of
532693 PUNJLLOYD PUNJ IN
forex headwinds and a provision of Rs 4.3bn towards the disputed SABIC project.
We expect the company to report an EPS of Rs 15.1 in FY10 and Rs 17.8 in FY11
(23% earnings growth) due to improved revenue visibility and a 120bps Company data
expansion in EBITDA margin to 8.5% in FY10. Market cap (Rs mn / US$ mn) 79,512 / 1,665
Raised Rs 6.7bn via QIP: PLL raised US$ 140mn (Rs 6.7bn) in a share sale to
Free float (%) 58.5
institutions at a price of Rs 241/share. These funds will be utilised for the
repayment of existing loans and to finance working capital requirements.
Lucrative stake in Pipavav Shipyard: Pipavav Shipyard has successfully raised 2-month average daily volume 7,258,253
Rs 5.1bn through an initial public offering of 85.5mn shares, taking the
company’s value to ~Rs 41bn. In 2007, PLL had bought a 22.3% stake in Stock performance
Pipavav Shipyard for Rs 3.5bn, now valued at Rs 8bn. Adjusting for a 20% Returns (%) CMP 1-mth 3-mth 6-mth
holding company discount, the investment is valued at Rs 21/share (Rs 11 Punj Lloyd 262 1.6 22.6 184.5
assigned in our SOTP target price). Sensex 17,135 10.2 17.0 73.0
Variation claims of US$ 117mn on ONGC Heera project: Cost overruns from
the ONGC Heera development project have already been provided for in FY09. P/E comparison
PLL has filed variation claims amounting to US$ 117mn which would be settled (x) P unj Llo yd Industry
post completion of the contract, if successfully contested. 40 34.7
29.6
30 24.9
21.1
Maintain Buy: The stock has been re-rated on the strength of record order inflows 20
17.4 14.7
in Q1FY10 and the improved macro climate. Currently, it trades at a P/E of 17.4x 10
on FY10E earnings and 14.7x FY11E earnings. Excluding its stake in Pipavav 0
Shipyard, PLL trades at 13.9x on FY11E. We value the core construction business FY09E FY10E FY11E
at 16x FY11E earnings (discount of 32% to L&T) and maintain our Buy rating on
the stock with a target price of Rs 306.
Valuation matrix
Key risks: PLL is exposed to the currency risk as ~75% of its revenues and order (x) FY08 FY09 FY10E FY11E
book are derived from the international markets. This apart, execution delays P/E @ CMP 23.2 34.7 17.4 14.7
could hinder profitability. P/E @ Target 27.1 40.5 20.3 17.2
EV/EBITDA @ CMP 15.1 12.0 9.3 7.9

Growth (%) 66.9 (28.4) 111.8 21.5 ROE 16.4 9.0 16.4 15.8
FDEPS (Rs) 11.3 7.5 15.1 17.8 ROIC 13.6 10.4 11.1 11.3
Growth (%) 59.0 (33.2) 99.8 18.2 ROCE 12.9 8.3 11.6 12.2
96
Order book trend
Fig 211 - Order book break-up by vertical – Q1FY10 Fig 212 - Order book break-up by geography – Q1FY10
Europe /
Tankages
Africa
Pipelines 1.9% South asia
4%
20.3% 17% Caspian
36%
Middle East
Process 17%
Infrastructure
palnts,others SE asia &
55.9%
22.0% asia pacific
26%
Valuation
Sum of the parts Business Method Multiple (x) Value (Rs mn) Per share value (Rs)
P/E on FY11E
PLL Consolidated Construction 16 96,698 285
earnings
Pipavav Shipyard Shipbuilding BV 1.5 5,250 15
Real estate ventures Real estate BV 1 1800 5
Total 103,748 306
Source: RHH
97
Stock performance
Fig 214 - Absolute performance from Jan ’06 Fig 215 - Relative performance from Jan ’06
Sensex Punj Lloyd BSE CG Index Sensex Punj Lloyd BSE CG Index
700 220
600 200
180
500
160
400 140
300 120
100
200
80
100 60
0 40
Jan-06 Mar-07 Jun-08 Sep-09 Jan-06 Mar-07 Jun-08 Sep-09
110 250
230
100
210
90 190
170
80
150
70 130
110
60
90
50 70
Apr-06 Jun-06 Sep-06 Dec-06 Mar-07 Apr-07 Jul-07 Sep-07 Dec-07 Mar-08
115 200
105 180
95
160
85
75 140
65 120
55
100
45
35 80
Apr-08 Jun-08 Sep-08 Dec-08 Mar-09 Apr-09 May-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
98

(Rs) (Rs)
700 700
600 600
32x
500 500
4x
400 400
300 300
16x
200 2x
200
8x 1x
100 4x 100
0.5x
0 0

(Rs mn) (Rs mn)
300,000 250,000
1.5x
250,000 20x 200,000
200,000
150,000
150,000 12x
0.75x
100,000
100,000
6x 0.5x
50,000 50,000
4x 0.25x
0 0
(%) (Rs mn)

200 250,000
1.5x
150 200,000
100
150,000
50 0.75x
100,000
0 0.5x
50,000
(50) 0.25x
(100) 0
99
Interest 1,806 3,070 3,316 3,476 CWIP 2,124 2,973 2,899 2,900
Other income 811 5,347 1,190 1,390 Intangible assets - - - -
EBT 4,836 13 7,003 8,512 Deferred tax assets, net (748) (1,482) (1,549) (1,549)
Income taxes 1,235 2,260 2,031 2,469 Other assets - - (608) (983)
Effective tax rate (%) 25.5 17,960.3 29.0 29.0 Total assets 76,765 109,810 116,685 133,795
Min into / inc from associates (18) (130) - - Other current liabilities 12,195 18,263 16,919 19,764
Reported net income 3,585 (2,254) 4,972 6,044 Provisions 1,558 1,853 1,953 1,966
Adjustments (304) 4,602 - - Debt funds 16,072 35,592 29,737 33,237
DPS (Rs) 0.4 0.3 0.7 0.8 BVPS (Rs) 89.7 82.0 107.7 123.9

Net income + Depreciation 5,418 (5,085) 7,083 8,576 Profitability & Return ratios (%)
Non-cash adjustments (450) 4,932 (0) - EBITDA margin 8.9 7.3 8.5 8.5
Cash flow from operations (6,164) (9,792) (913) 2,563 Net profit margin 4.2 2.0 3.8 3.9
Change in investments (3,429) (1,296) - - ROCE 12.9 8.3 11.6 12.2
Other investing cash flow - (151) - - Working Capital & Liquidity ratios
Issue of equity 11,300 (365) 6,752 - Inventory (days) 242 279 296 273
Issue/repay debt (920) 19,520 (5,855) 3,500 Payables (days) 213 234 247 241
Other financing cash flow - 392 - - Quick ratio (x) 0.9 0.7 0.9 0.8
Change in cash & cash eq (3,512) 1,838 (3,055) 1,175 Turnover & Leverage ratios (x)
WACC (%) 14.8 14.9 14.9 14.9
ROIC (%) 13.6 10.4 11.1 11.3
EV/Sales 1.3 0.9 0.8 0.7
EV/EBITDA 15.1 12.0 9.3 7.9
EVA (Rs mn) (477) (2,426) (2,405) (2,521) P/E 23.2 34.7 17.4 14.7
EVA spread (%) (1.2) (4.4) (3.8) (3.6) P/BV 2.9 3.2 2.4 2.1
100
Quarterly trend
Revenue (Rs mn) 26,488 29,261 31,200 32,173 29,551
YoY growth (%) 89.9 54.5 47.4 37.1 11.6
QoQ growth (%) 12.9 10.5 6.6 3.1 (8.1)
EBITDA (Rs mn) 2,596 3,124 2,389 1,450 2,918
EBITDA margin (%) 9.8 10.7 7.7 4.5 9.9
Adj net income (Rs mn) 1,336 1,741 830 (343) 1,272
YoY growth (%) 125 95 35 (129) (5)
QoQ growth (%) 13 30 (52) (141) (471)
DuPont analysis
Tax burden (Net income/PBT) 67.8 18,656.5 71.0 71.0 67.8
Return on equity 16.3 9.0 16.4 15.8 16.3
Punj Lloyd (PLL), a US$ 2bn conglomerate, comprises Punj Lloyd in (%) Dec-08 Mar-09 Jul-09
India, Sembawang E&C in Singapore, and Simon Carves in the U.K. Promoters 44.3 41.5 41.3
Besides these, various subsidiaries of the group spread across the
FIIs 18.0 19.0 19.3
world further strengthen its rich international presence, making it a
strong service provider in the oil & gas, infrastructure, and Banks & FIs 16.2 12.5 17.7
petrochemical domains. Public 21.5 27.0 21.7

Date Event Reco price Tgt price Reco 350 ● Sell ● Hold ● Buy
21-Aug-08 RHH Compendium 272 320 Hold 300
250
29-Oct-08 Results Review 165 208 Hold
200
11-Dec-08 Company Update 156 166 Sell 150
25-Jan-09 Results Review 92 93 Sell 100
50
6-Apr-09 Quarterly Preview 87 93 Hold
Jul-08
Nov-08
Sep-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09

101
Simplex Infrastructure Sector Report 05 October 2009
Simplex Infrastructure
Healthy prospects What’s New? Target Rating Estimates
Robust order book of Rs 100bn: Simplex Infrastructure currently holds an order

book of Rs 100.1bn (1.8x FY10E revenue), composed largely of domestic (77.4%)
and international contracts (22.6%). The order intake was Rs 10.8bn for Q1FY10. CMP TARGET RATING RISK
This apart, the company is the lowest bidder (L1) for projects worth Rs 18.6bn. Rs 510 Rs 577 BUY HIGH
Simplex’s Q1FY10 revenue grew by 9% YoY to Rs 11.1bn, lower than our

estimate by 9%. The muted growth was on account of the elections which led to
an exodus of project labourers to their home states for voting purposes – this had BSE NSE BLOOMBERG
a negative impact on the company’s turnover to the extent of Rs 2.5bn. For the 523838 SIMPLEXINF SINF IN
quarter, the industrial segment contributed 22%, piling 13%, roads, railways &
bridges 19%, power 16%, urban utilities 10%, building & housing 12% and Company data
marine projects 9%.
Earnings CAGR of 29% expected through FY11: We expect Simplex to register Outstanding equity shares (mn) 49
strong revenue and earnings growth at a CAGR of 19% and 29% respectively Free float (%) 45.9
over FY09-FY11 on account of its strong order book, improving margins (by an Dividend yield (%) 0.4
estimated 100bps) and lower debt levels. The reduction in debt will be led by 52-week high/low (Rs) 530 / 102
stable working capital requirements and reduced capex. 2-month average daily volume 57,993
Superior return ratios vis-à-vis peers: The company has better return ratios than
Stock performance
its peers due to lower dilution in the past, a focus on the core EPC business and
better working capital management. However, FY08 and FY09 ratios are
Simplex 510 18.6 30.7 213.0
depressed due to the dilution of ~13% following its QIP. Going forward, we
expect Simplex to earn an ROE of ~18%. Sensex 17,135 10.2 17.0 73.0
S80IA benefits dropped, return to normal tax: In view of the proposed P/E comparison
retrospective change in S80IA, Simplex has not claimed any tax deduction in this
(x) Simplex Cap. Go o ds
quarter. Further, in respect of deductions claimed in earlier years aggregating to
40
Rs 300mn, the company has set aside an equivalent amount to a contingency 29.6
30 24.9
reserve. This would result in a reduction in net worth but have no impact on 20.3
15.9
21.1
20 12.4
cash flows.
10
0
Maintain Buy: The stock is currently trading at 15.9x FY10E earnings and 12.4x FY09 FY10E FY11E
FY11E earnings. We are revising our target P/E multiple to 14x (from 12x earlier)
on FY11E earnings. Our target price thus has been revised from Rs 462 to Rs 577.
Considering the company’s robust order book and the improving demand Valuation matrix
environment, we maintain our Buy rating on the stock. (x) FY08 FY09 FY10E FY11E
P/E @ CMP 25.2 20.3 15.9 12.4
P/E @ Target 28.5 23.0 18.0 14.0
EV/EBITDA @ CMP 14.1 9.6 7.2 6.0

Adj net income 901 1,242 1,585 2,038 Adj PAT margin 3.2 2.6 2.9 3.1
Growth (%) 65.6 47.0 33.1 20.0 ROE 17.5 14.9 16.3 18.0
FDEPS (Rs) 20.3 25.1 32.0 41.2 ROIC 12.1 10.8 11.3 9.6
Growth (%) 61.7 23.9 27.7 28.6 ROCE 14.2 13.9 12.0 8.5
102
Order book trend

Fig 226 - Order book mix – Q1FY10
Segments (%) Domestic Foreign Total
Piling & Ground Engg 3.4 0.5 3.9
Power (Thermal, Hydel & Nuclear) 20.3 3.7 24
Marine 5.3 0.7 6
Industrial 9 8.5 17.5
Roads,, Railways & Bridges 14.9 2.1 17
Urban Utilities 18.2 0 18.2
Building & Housing 6.2 7.2 13.4
Total 77.3 22.7 100
Fig 227 - Order book position Fig 228 - Order book by segment – Q1FY10
(Rs bn) Order received Closing order book Building. & Piling &
Housing Ground
120 100 107 102 101100 Power
90 13% Engg (Thermal,
100 79 Urban
69 69 4% Hydel &
80 Utilities
51 Nuclear)
60 44 45 43 18%
24%
40 24 17 21 20 16 14 11 11
14
20 5 4 3 6
0 Roads,Railw Marine
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 ays & Industrial 6%
Bridges 18%
FY07 FY08 FY09 FY10
17%
Fig 229 - Domestic order book break-up – Q1FY10 Fig 230 - Foreign order book break-up – Q1FY10
Piling & Piling & Power

Building. &
Ground Ground (Thermal,
Housing
Urban Engg Power Engg Hydel &
8% Building. &
Utilities 4% (Thermal, 2% Nuclear)
Housing
24% Hydel & 16%
32%
Nuclear) Marine
26% 3%
Roads,Railw
Roads,Railw ays &
ays & Industrial Marine Bridges
12% 7% 9% Industrial
Bridges
38%
19%
103
Stock performance
Sensex Simplex BSE CG Index Sensex Simplex BSE CG Index

800 1640
700 1440
600 1240
500 1040
400 840
300 640
200 440
100 240
0 40
130 185
120 165
110 145
100 125
90 105
80 85
70 65
60 45
120 200
180
100 160
140
80
120
100
60
80
40 60
40
20 20
104

(Rs) (Rs)
1,000 1,000
24x 4x
800 800
18x
600 600 2.5x
400 12x 400 1.5x
200 6x 200
0.5x
0 0

(Rs mn) (Rs mn)
80,000 70,000
70,000 1x
12x 60,000
60,000 50,000
50,000 9x
40,000 0.7x
40,000
6x 30,000
30,000 0.4x
20,000 20,000
3x
0.2x
10,000 10,000
0 0
(%) (Rs mn)

80 70,000
60 60,000 1x
40 50,000
20 0.7x
40,000
0
30,000
(20) 0.4x
20,000
(40)
0.2x
(60) 10,000
(80) 0
105
Depreciation & amortisation 642 1,320 1,571 1,785 Investments 99 21 21 21
Interest 1,088 1,512 1,607 1,728 CWIP 243 139 200 200
Income taxes 370 490 781 1,004 Other assets 2 (7) 1 11
Extraordinary items - - - - Accounts payable - - - -
Min into / inc from associates 40 - - - Other current liabilities 12,267 17,721 21,450 25,704
Reported net income 902 1,242 1,585 2,038 Provisions 116 119 116 116
Adjusted net income 901 1,242 1,585 2,038 Other liabilities - 6 5 -
DPS (Rs) 2.0 2.0 2.0 2.0 BVPS (Rs) 151.6 183.7 209.0 247.9

Non-cash adjustments 262 1,144 30 30 EBITDA margin 9.4 8.2 9.3 9.3
Cash flow from operations (228) (405) 714 1,213 Net profit margin 3.2 2.6 2.9 3.1
Change in investments (40) 2 - - ROCE 14.2 13.9 12.0 8.5
Other investing cash flow (465) (55) - - Working Capital & Liquidity ratios
Issue of equity 4,161 6 (213) - Inventory (days) 57 51 59 60
Issue/repay debt 621 4,438 900 1,000 Payables (days) 76 67 79 -
Change in cash & cash eq 812 (199) (91) 578 Turnover & Leverage ratios (x)
WACC (%) 12.7 12.8 12.8 12.8
ROIC (%) 12.1 10.8 11.3 9.6
EV/Sales 1.3 0.8 0.7 0.6
EV/EBITDA 14.1 9.6 7.2 6.0
EVA (Rs mn) (80) (408) (341) (1,260) P/E 25.2 20.3 15.9 12.4
EVA spread (%) (0.6) (2.0) (1.5) (3.2) P/BV 3.4 2.8 2.4 2.1
106
Quarterly trend
Revenue (Rs mn) 10,181 10,081 12,703 13,876 11,082
YoY growth (%) 71.3 76.5 80.4 44.6 8.9
QoQ growth (%) 6.1 (1.0) 26.0 9.2 (20.1)
EBITDA (Rs mn) 1,115 1,019 1,156 1,123 1,103
EBITDA margin (%) 11.0 10.1 9.1 8.1 9.9
YoY growth (%) 113.7 58.8 14.6 3.1 (39.0)
QoQ growth (%) 45.3 (27.9) (16.8) 18.3 (14.1)
DuPont analysis
Return on equity 21.1 17.5 14.9 16.3 18.0
Simplex Infrastructure is a large, well-established construction (%) Dec-08 Mar-09 Jun-09

company with experience in civil and structural construction since Promoters 49.4 54.1 54.1
1924. The company’s service offerings include design, engineering
FIIs 17.1 13.7 13.2
and construction, fittings and finishing work on structures, piling
foundations, ground engineering and earth works. Simplex has a Banks & FIs 13.4 14.6 17.3
presence across various construction verticals – piling, industrial, Public 20.1 17.6 15.4
power, urban infrastructure, buildings and housing, marine and
roads, railways and bridges.

550 ● Hold ● Buy
21-Aug-08 RHH Compendium 479 644 Buy 450
5-Nov-08 Results Review 225 326 Buy 250
2-Dec-08 Company Update 137 186 Buy 150
50
31-Jan-09 Results Review 137 178 Buy
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
6-Apr-09 Company Update 169 178 Hold

107
Voltas Sector Report 05 October 2009
Voltas
Limited upside What’s New? Target Rating Estimates
MEP order book at Rs 47bn: Order inflows for electro-mechanical projects (MEP)
totalled Rs 5.8bn during Q1FY10, taking the outstanding order book for the
division to Rs 46.7bn. This is 1.4x FY10E MEP sales. The orders comprise
domestic projects worth Rs 12.5bn (~27%) and international orders worth Rs 145 Rs 160 HOLD MEDIUM
Rs 34.1bn (~73%). All of Voltas’ contracts are on a fixed price basis and the
company enters into back-to-back arrangements with vendors to protect margins.
BSE NSE BLOOMBERG
The management is confident of reasonable growth in MEP, both in the domestic
500575 VOLTAS VOLT IN
and international arenas, on the back of its healthy, well-diversified order profile.
It has received a number of new business inquiries and anticipates a pick-up in
order booking in the near future. Voltas pegs potential order flows from the Company data
international division at Rs 10bn in H2FY10. In the domestic market, the Market cap (Rs mn / US$ mn) 47,952 / 1,004
company is looking at opportunities in the infrastructure space, which include Outstanding equity shares (mn) 331
airports, hotels, hospitals, and electrical works for power plants. Free float (%) 62.3
Earnings CAGR of 21% over FY09-FY11: We expect Voltas to record a healthy Dividend yield (%) 1.1
earnings CAGR of 21% over FY09-FY11. While the MEP and unitary cooling 52-week high/low (Rs) 165 / 31
product (UCP) divisions would lead growth in the near term, engineering 2-month average daily volume 2,364,858
products & services (EPS) is set to witness a moderate uptick as demand for
material handling and construction equipment revives. Stock performance
Acquired a further 16% stake in Rohini Electricals: During the quarter, Voltas Returns (%) CMP 1-mth 3-mth 6-mth
acquired an additional 16% stake in Rohini Electricals, a turnkey electrical and Voltas 145 (4.0) 17.7 192.0
instrumentation project provider, for a consideration of Rs 230mn. This takes its Cap. Goods 13,731 6.1 6.4 112.4
total stake in the company to 67%. This acquisition will enable it to prequalify Sensex 17,135 10.2 17.0 73.0
for electrical and instrumental works of power plants.
Superior return ratios, cash-rich position: At the end of FY09, Voltas had a P/E comparison
consolidated cash balance of Rs 4.6bn as against debt of Rs 1.8bn. We expect an (x) Vo ltas Industry
ROE of 30% over the next two years. 40
29.6
30 24.9
21.3 21.1
Target price of Rs 160 – Hold: The stock is currently trading at 17.9x FY10E and 20
17.9
14.5
14.5x FY11E earnings. We have valued Voltas at 16x FY11E earnings based on 10
its superior ROE, strong earnings outlook and relatively modest capex plans (Rs 0
1bn in FY10-FY11). However, due to the limited upside from current levels, we FY09 FY10E FY11E
are changing our rating from Buy to Hold, while maintaining our target at Rs 160.
Key risks: The MEP division, which contributed over 60% to the company’s Valuation matrix
topline in FY09, derives 80% of its order backlog from the Middle East. A
reduction in oil prices would lead to lower spending in the Middle East and
P/E @ CMP 27.2 21.3 17.9 14.5
hence lower order flows. Also, a sharp appreciation of the rupee against the US
P/E @ Target 30.0 23.5 19.8 16.0
dollar would affect profitability. However, a majority of the exchange risk is
mitigated by the import of materials in the company’s EPS and UCP divisions. EV/EBITDA @ CMP 18.1 16.2 12.6 10.2

Growth (%) 33.5 28.0 18.8 23.4 ROE 35.2 32.9 29.9 29.2
FDEPS (Rs) 5.3 6.8 8.1 10.0 ROIC 29.3 25.9 24.8 24.1
Growth (%) 33.5 28.0 18.8 23.4 ROCE 30.7 28.6 26.3 26.9
108
Order book trend

Fig 243 - MEP order book
YoY QoQ
Particulars (Rs mn) Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1 FY10 growth growth
(%) (%)
Opening order book 21,852 20,000 27,000 35,000 45,952 56,703 55,703 53,293 47,133 2.6 (11.6)
Order inflows 1,883 11,208 11,737 15,683 15,382 4,874 3,848 2,541 5,805 (62.3) 128.5
Sales 3,735 4,208 3,737 4,731 4,632 5,874 6,258 8,701 6,272 35.4 (27.9)
Closing order book 20,000 27,000 35,000 45,952 56,703 55,703 53,293 47,133 46,666 (17.7) (1.0)
Stock performance
Sensex VOLTAS BSE CG Index Sensex VOLTAS BSE CG Index
300 740
250 640
540
200
440
150
340
100
240
50 140
0 40
115 225
105 200
175
95
150
85
125
75 100
65 75
120 220
100
170
80
120
60
70
40
20 20
109

(Rs) (Rs)
400 300
350 40x 250
300 6.5x
200
250
200 150 4.5x
20x
150 100 2.5x
100 10x
50 1x
50
4x
0 0
Aug-06 Aug-07 Aug-08 Aug-09 Aug-06 Aug-07 Aug-08 Aug-09

(Rs mn) (Rs mn)
90,000 120,000
21x
80,000 2x
100,000
70,000
60,000 15x 80,000 1.4x
50,000
10x 60,000
40,000
30,000 40,000 0.8x
20,000 5x
20,000 0.2x
10,000
0 0
Aug-06 Aug-07 Aug-08 Aug-09 Aug-06 Aug-07 Aug-08 Aug-09
(%) (Rs mn)

200 120,000
2x
150 100,000
100 80,000 1.4x

50 60,000
0 40,000 0.8x
(50) 20,000
0.2x
(100) 0
Aug-06 Aug-07 Aug-08 Aug-09 Jan-06 Oct-06 Jun-07 Mar-08 Dec-08 Sep-09
110
Interest 90 110 166 130 CWIP 197 132 120 140
EBT 2,753 3,254 4,010 4,935 Deferred tax assets, net 189 224 (20) (40)
Income taxes 997 1,172 1,303 1,599 Other assets 8 684 484 734
Extraordinary items (316) (261) - - Accounts payable 6,397 11,754 12,225 12,955
Min into / inc from associates 3 26 30 32 Other current liabilities 6,222 7,961 8,196 9,485
Adjustments (316) (261) - - Debt funds 737 1,814 1,514 1,088
DPS (Rs) 1.4 1.6 1.6 1.6 BVPS (Rs) 17.5 23.9 30.2 38.3

Non-cash adjustments 110 162 (40) (22) EBITDA margin 7.9 6.5 7.1 7.6
Changes in working capital 1,279 (1,760) (1,459) (1,967) EBIT margin 7.4 6.1 6.6 7.1
Cash flow from operations 3,632 1,126 1,443 1,628 Net profit margin 5.5 5.2 5.2 5.6
Capital expenditure (287) (367) (588) (620) ROE 35.2 32.9 29.9 29.2
Change in investments (1,311) 1,076 (924) (210) ROCE 30.7 28.6 26.3 26.9
Other investing cash flow 73 (314) - - Working Capital & Liquidity ratios
Cash flow from investing (1,525) 395 (1,512) (830) Receivables (days) 60 64 71 70
Issue of equity 0 0 - - Inventory (days) 90 101 114 109
Issue/repay debt (378) 577 (300) (427) Payables (days) 92 105 118 107
Other financing cash flow (1) (11) - - Quick ratio (x) 0.7 0.7 0.7 0.7
Change in cash & cash eq 1,340 1,569 (898) (158) Turnover & Leverage ratios (x)
WACC (%) 14.5 12.1 12.1 12.1
ROIC (%) 29.3 25.9 24.8 24.1
EV/Sales 1.4 1.1 0.9 0.8
Invested capital (Rs mn) 5,550 7,955 10,426 13,141 EV/EBITDA 18.1 16.2 12.6 10.2
EVA (Rs mn) 822 1,096 1,324 1,574 P/E 27.2 21.3 17.9 14.5
EVA spread (%) 14.8 13.8 12.7 12.0 P/BV 8.3 6.1 4.8 3.8
111
Quarterly trend*
Revenue (Rs mn) 10,163 9,285 8,660 12,531 11,789
YoY growth (%) 21.9 29.7 30.0 49.1 16.0
QoQ growth (%) 20.9 (8.6) (6.7) 44.7 (5.9)
EBITDA (Rs mn) 872 808 495 774 1,007
EBITDA margin (%) 8.6 8.7 5.7 6.2 8.5
YoY growth (%) 20.5 38.2 11.0 (19.6) 14.5
QoQ growth (%) 34.7 (4.5) (28.0) (13.2) 91.8
* Standalone
DuPont analysis
Return on equity 38.0 35.2 32.9 29.9 29.2
Voltas offers engineering solutions for a wide spectrum of industries (%) Dec-08 Mar-09 Jun-09
in areas such as heating, ventilation and air conditioning (HVAC), Promoters 27.6 27.7 27.7
refrigeration, electro-mechanical projects, textile machinery,
FIIs 16.4 12.7 11.7
machine tools, mining and construction equipment, material
handling, water management, building management systems, Banks & FIs 26.5 27.2 29.9
indoor air quality and chemicals. Public 29.5 32.4 30.7

Date Event Reco price Tgt price Reco 170
3-Jul-09 Initiating Coverage 125 160 Buy 150
31-Jul-09 Results Review 137 160 Buy 130
5-Oct-09 Sector Report 145 160 Hold 110
90
● Buy ● Hold
70
50
Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
112
Ahluwalia Contracts Sector Report 05 October 2009
Ahluwalia Contracts
Strong revenue visibility What’s New? Target Rating Estimates
Healthy order book: ACL currently has a gross order book of Rs 45bn, with
unbilled orders worth Rs 28bn which are to be executed over a period of 24
months. The orders are well diversified geographically, covering 14 states and CMP TARGET RATING RISK
split between government and private clients in a ratio of 33:67. About 85% of Rs 169 Rs 190 BUY HIGH
the projects are covered by cost escalation clauses. The company’s real estate
exposure stands at 60% including orders for the 2010 Commonwealth Games in
New Delhi (45% excluding these contracts).
BSE NSE BLOOMBERG
Management sees order inflows of Rs 25bn in FY10: Order inflows totalled
532811 - AHLU IN
Rs 20bn in FY09 and the management expects a 25% incremental intake during
FY10. The company has already bagged Rs 4bn of orders in Q1FY10. In addition,
Company data
ACL is the lowest bidder (L1) for projects worth Rs 3bn and has placed further
bids worth Rs 12bn.
Emaar receivables under control: With the Delhi Development Authority (DDA) Free float (%) 25.5
bailing out the Emaar MGF project, the company’s outstanding debtor position Dividend yield (%) 0.4
on this deal has reduced from Rs 750mn as on 31 March 2009 to Rs 350mn.
Work on the project is 45–50% complete and payments are being received on
time. To date, Rs 3bn has been billed, with Rs 4bn to be billed in FY10.
Tighter working capital cycle: ACL’s working capital cycle peaked at 120 days in Stock performance
March ’09, but has now tapered down to 60–75 days. The company has Returns (%) CMP 1-mth 3-mth 6-mth
witnessed the cancellation of orders for SEZ projects and a retail outlet for Ahluwalia Cont. 169 13.0 94.4 406.6
Reliance, but there have been no bad debts on these accounts.
Sensex 17,135 10.2 17.0 73.0
Capex of Rs 750mn over the next two years: ACL has incurred capex of
Rs 750mn in FY09 and is likely expend a similar sum for each of the next two P/E comparison
years. The cost of scaffolding which constituted Rs 350mn of the Rs 750mn
(x) A hluwalia co ntracts Industry
capex in FY09 has been fully written-off during the year. The life of scaffolding
40
items is close to five years. Since the write-off led to high depreciation, the 29.6
30 24.9 21.1
company has deferred tax assets on its books. 20
18.5
13.3
9.6
No dilution on the cards: The management is not looking to raise equity in the 10
0
near term, though this possibility may arise in future if it opts to undertake BOT
FY09 FY10E FY11E
projects or achieve inorganic growth. We anticipate EPS of Rs 12.7 and Rs 17.6
in FY10 and in FY11 respectively.
Valuation matrix
Upgrade target, maintain Buy: With the improving economic environment, the
construction industry has witnessed a re-rating. Accordingly, we have revised our
P/E @ CMP 20.5 18.5 13.3 9.6
target P/E multiple for ACL from 12x to 15x on FY10E, giving us a price target of
P/E @ Target 23.1 20.9 15.0 10.8
Rs 190 from Rs 152 earlier. We maintain our Buy rating on the stock.
EV/EBITDA @ CMP 9.1 6.8 5.4 4.0

Adj net income 516 572 796 1,102 Adj PAT margin 5.9 5.9 4.7 5.5
Growth (%) 65.6 10.8 39.2 38.4 ROE 50.5 50.5 37.9 37.2
FDEPS (Rs) 8.2 9.1 12.7 17.6 ROIC 75.8 75.8 58.2 48.9
Growth (%) 65.6 10.8 39.2 38.4 ROCE 36.8 36.8 31.4 30.8
113
Stock performance
Fig 256 - Absolute performance from Feb ’07 Fig 257 - Relative performance from Feb ’07
Sensex Ahluwalia BSE CG Index Sensex Ahluwalia BSE CG Index

400 220
350 200
180
300
160
250 140
200 120
150 100
80
100
60
50 40
0 20
Feb-07 Aug-07 Mar-08 Sep-08 Mar-09 Sep-09 Feb-07 Aug-07 Mar-08 Sep-08 Mar-09 Sep-09
Fig 258 - Relative performance from Feb ’07 to March ’07 Fig 259 - Relative performance from April ’07 to March ’08

105 260
100 220
95
180
90
140
85
80 100
75 60
Feb-07 Mar-07 Mar-07 Mar-07 Apr-07 Jul-07 Sep-07 Dec-07 Mar-08

110 320
100
270
90
80 220
70
170
60
50 120
40
70
30
20 20
Apr-08 Jun-08 Sep-08 Dec-08 Mar-09 Apr-09 May-09 Jun-09 Aug-09 Sep-09
114

(Rs)
700 (Rs)
450
600 40x 8x
400
500 350
300
400
250
300 4x
200
15x 150
200
10x 100 2x
100 5x 1x
50
0 0
Feb-07 Oct-07 Jun-08 Jan-09 Sep-09 Feb-07 Oct-07 Jun-08 Jan-09 Sep-09

(Rs mn) (Rs mn)
50,000 35,000
21x
30,000 1.8x
40,000
25,000
15x
30,000 20,000 1.2x
20,000 10x 15,000 0.8x

10,000
10,000 5x 0.4x
5,000
0 0
Feb-07 Oct-07 Jun-08 Jan-09 Sep-09 Feb-07 Oct-07 Jun-08 Jan-09 Sep-09
(%) (Rs mn)

100 35,000
30,000 1.8x
50
25,000
0 20,000 1.2x
(50) 15,000
0.8x
10,000
(100) 0.4x
5,000
(150) 0
Feb-07 Sep-07 May-08 Jan-09 Sep-09 Feb-07 Oct-07 Jun-08 Jan-09 Sep-09
115
EBITDA 1,063 1,429 1,808 2,439 Inventories 755 907 1,300 1,620
Growth (%) 52.8 34.5 26.5 35.0 Other current assets 330 773 887 1,018
Depreciation & amortisation 228 479 540 650 Investments 42 42 42 42
EBIT 835 950 1,268 1,789 Gross fixed assets 1,808 2,112 2,862 3,612
Growth (%) 68.1 13.8 33.4 41.2 Net fixed assets 1,102 927 1,137 1,237
Interest 118 159 250 330 CWIP 104 400 400 400
Other income 65 88 150 160 Intangible assets 2 1 1 0
EBT 781 880 1,168 1,619 Deferred tax assets, net 38 32 35 35
Income taxes 265 308 371 518 Other assets - - - -
Reported net income 516 572 796 1,102 Provisions 113 355 443 594
Adjustments - - - - Debt funds 565 721 1,251 1,651
Adjusted net income 516 572 796 1,102 Other liabilities - - - -
DPS (Rs) 0.7 0.7 0.7 0.7 BVPS (Rs) 21.9 30.2 42.1 58.8

Net income + Depreciation 744 1,051 1,336 1,752 Profitability & Return ratios (%)
Non-cash adjustments (32) 270 85 151 EBITDA margin 12.1 11.8 12.5 12.4
Changes in working capital 447 (627) (361) (397) EBIT margin 9.5 7.9 8.8 9.1
Cash flow from operations 1,159 694 1,060 1,506 Net profit margin 5.9 4.7 5.5 5.6
Capital expenditure (668) (599) (749) (750) ROE 50.5 37.9 37.2 36.2
Change in investments 0 - - - ROCE 36.8 31.4 30.8 29.4
Other investing cash flow 7 - - - Working Capital & Liquidity ratios
Cash flow from investing (662) (599) (749) (750) Receivables (days) 74 82 86 74
Issue of equity - 0 0 0 Inventory (days) 32 34 34 33
Issue/repay debt (27) 156 530 385 Payables (days) 51 50 43 35
Change in cash & cash eq 448 200 789 1,105 Turnover & Leverage ratios (x)
WACC (%) 13.9 16.3 16.3 16.3
ROIC (%) 75.8 58.2 48.9 52.8
EV/Sales 1.1 0.8 0.7 0.5
Invested capital (Rs mn) 736 1,482 2,056 2,553
EV/EBITDA 9.1 6.8 5.4 4.0
EVA (Rs mn) 456 622 670 933 P/E 20.5 18.5 13.3 9.6
EVA spread (%) 61.9 42.0 32.6 36.6 P/BV 7.7 5.6 4.0 2.9
116
Quarterly trend
Revenue (Rs mn) 2,540 3,017 2,963 3,567 3,046
YoY growth (%) 48.9 60.5 33.3 19.2 19.9
QoQ growth (%) (15.1) 18.8 (1.8) 20.4 (14.6)
EBITDA (Rs mn) 199 235 228 289 304
EBITDA margin (%) 7.8 7.8 7.7 8.1 10.0
YoY growth (%) 52.2 18.9 16.7 (15.0) 43.3
QoQ growth (%) (35.7) 12.8 (11.8) 33.0 8.3
DuPont analysis
Return on equity 47.3 50.5 37.9 37.2 36.2
Set up in 1979, Ahluwalia Contracts India (ACL) is an engineering- (%) Dec-08 Mar-09 Jun-09
procurement-construction (EPC) company engaged in the civil Promoters 74.5 74.5 74.5
construction business, which includes retail malls, residential
FIIs 5.6 5.0 2.9
complexes, offices, hotels, IT parks and hospitals.
Banks & FIs 16.3 16.0 17.1
Public 3.6 4.5 5.5

200 ● Hold ● Buy
150
100
2-Jan-09 Quarterly Preview 31 42 Hold
31-Jan-09 Results Review 37 42 Hold 50
16-Feb-09 Company Update 32 42 Hold 0

Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
20-Jul-09 Company Update 97 127 Buy

117
Gayatri Projects Sector Report 05 October 2009
Gayatri Projects
Robust BOT portfolio What’s New? Target Rating Estimates
Gayatri Projects (GPL) has two business verticals, i.e., construction and BOT
roads. The BOT projects are being executed by Gayatri Infra Ventures (GIVL), its
70% subsidiary.
Construction order book of Rs 58bn: GPL’s outstanding order book in the Rs 305 NA NA NA
construction segment stands at Rs 57.7bn (~5.7x FY09 revenue), to be executed
over 3–4 years. Of this, contracts worth Rs 4.2bn are in-house BOT road
construction works. The irrigation segment, which derives ~90% of its orders
from the Andhra Pradesh government, contributes 66% to the order book, while
BSE NSE BLOOMBERG
the road and industrial building segments contribute 30% and 4% respectively.
For FY10 (standalone), the management expects a topline growth of 25–30% to 531497 NA GAYP IN
Rs 12.5bn–13bn with an EBITDA margin of 11–11.5% and earnings growth of
20–25% to Rs 50/share.
Large BOT portfolio: Subsidiary company GIVL has a portfolio of five BOT Company data
projects comprising one toll contract and four annuity-based works. All the Market cap (Rs mn / US$ mn) 3,081 / 65
projects are under construction, and entail a cumulative equity commitment of Outstanding equity shares (mn) 10.1
~Rs 1.7bn from the company. Of this, GIVL has invested Rs 1.3bn so far and Free float (%) 39.8
expects to bring in the balance by the end of this fiscal. Apart from its ongoing Dividend yield (%) -
works, GIVL has emerged as the lowest bidder for Karim Nagar – a Hyderabad 52-week high/low (Rs) 318 / 42
BOT toll project that has an estimated cost of Rs 22bn with a positive grant of
Rs 5.3bn. The company holds a 26% stake in the SPV.
Dilution in GIVL, stake placement by GPL: In August ’08, GIVL diluted 30%
equity to AMP Capital Finance Mauritius for a consideration of Rs 1bn. This Stock performance
values GIVL at Rs 3.4bn. This apart, GPL recently placed a 9.9% stake (1mn
equity shares) with Reliance Capital Trustee Co – Reliance Infrastructure Fund –
Gayatri 305 3.8 57.5 347.8
at Rs 185/share. The board is also considering the allotment of 1mn warrants
Sensex 17,135 10.8 16.9 65.6
convertible into equity shares of Rs 10 each at a premium of Rs 132.5/share on
preferential basis to the promoters.
Valuation: The company is trading at 7.5x FY09 reported earnings, which looks
attractive considering its healthy BOT portfolio. We do not have a rating on the
stock.

(Rs mn) FY06 FY07 FY08 FY09 (%) FY06 FY07 FY08 FY09
Growth (%) 23 35 50 34
EBIT margin 17.6 12.5 11.9 9.3
Adj net income 177 236 393 413
Adj PAT margin 4.8 4.7 5.2 4.1
Growth (%) 102 33 67 5
FDEPS (Rs) 19.65 24.7 39.1 40.9 ROE 19.7 21.7 24.6 20.9
Growth (%) 19.7 24.8 34.0 32.6 ROCE 19.2 11.7 13.5 12.3
118
Gayatri Projects Sector Report 05 October 2009
Fig 268 - GIVL – BOT project portfolio

Total NHAI Semi-
Length Concession Holding Equity Debt
SN Name Status Cost grant Annuity
(km) period (yrs) (%) (Rs mn) (Rs mn)
(Rs mn) (Rs mn) (Rs mn)
Western UP
1 78.5 20 Under construction 49% 5,340 940 3,850 560 NA*
Tollway
Gayatri Lalitpur
2 50 20 Under construction 51% 3,126 600 2.526 0 239.5
Roadways
Gayatri Jhansi
3 50 20 Under construction 51% 4,210 800 3,420 0 299.5
Roadways
Hyderabad
4 13 15 Under construction 50% 4,310 682 2.900 719 304.9
Expressways
Cyberabad
5 11.7 15 Under construction 50% 5,018 447 3,763 810 395
Expressways
Total 22,004 3,469 16,459 2,089
Source: Company *BOT Toll project
119
Madhucon Projects Sector Report 05 October 2009
Madhucon Projects
Listing of infra subsidiary a potential trigger What’s New? Target Rating Estimates
Strong order book of Rs 46bn: MPL has a current order backlog of ~Rs 46bn
which is 4.6x FY09 revenues. The order book is composed of in-house contracts
worth Rs 16bn (roads Rs 2.5bn, power Rs 9.6bn and hotels & office complexes
Rs 3.9bn) and external projects worth Rs 30bn. Margins for in-house works are in CMP TARGET RATING RISK
the range of 9–10% except for power projects where a higher subcontracting Rs 262 NA NA NA
component caps margins at ~5%. For FY10, MPL pegs topline growth at 30% with
a margin of 11% and bottomline growth of 20%, translating to an EPS of ~Rs 16.
BOT portfolio of four projects: The company’s 100% subsidiary, Madhucon

Infrastructure, has a portfolio of four toll roads. Toll collections have begun on one BSE NSE BLOOMBERG
stretch, while another project will deliver from the end of September. The company 531497 MADHUCON MDHPJ IN
will commence operations on the remaining two toll roads by end-FY10. It expects
toll revenue of Rs 5mn–5.5mn per day once all its BOT projects are commissioned.
Power portfolio totals 540MW: MPL is executing power projects in two phases Company data
of 270MW each, besides signing an MOU with the Jharkhand government for a
1,000MW thermal plant. Phase I of its power project entails a cost of Rs 13.4bn
Outstanding equity shares (mn) 36.9
and has achieved financial closure with an equity component of Rs 3.3bn and
Free float (%) 42.2
debt of Rs 10bn. The company has invested Rs 1.2bn and will invest the balance
equity before FY11. It holds a 76% stake in the project while the promoters hold Dividend yield (%) -
the balance. MPL has signed a 25-year MOU with PTC for sale of 70% of the 52-week high/low (Rs) 275 / 41
power generated at Rs 1.25/unit. PTC will supply coal for power generation. The 2-month average daily volume 312,131
balance 30% will be sold to Reliance at Rs 4.5/unit for three years.
For the second phase, the company has already acquired 700 acres of land at a
cost of Rs 400,000/acre and applied for another 220 acres. This phase is Stock performance
proposed to be expanded from 270MW to 1,330MW. Returns (%) CMP 1-mth 3-mth 6-mth
Indonesian coal mines: MPL has invested Rs 1.2bn in coal mines in Indonesia, of Madhucon 262 10.5 52.5 322.9
which equity investments total Rs 200mn. It plans to invest further Rs 2.5bn in Sensex 17,135 10.8 16.9 65.6
FY11. The management expects to sell 0.5mt of coal in FY10 and 1.5mt in FY11.
Subsidiary listing a potential trigger for the stock: So far, MPL has infused equity
of Rs 4.6bn in roads (Rs 3.2bn), power (Rs 1.2bn) and coal mines (Rs 200mn). It
intends to invest a further Rs 3.9bn by FY11 (phase I power and coal mines). The
management is targeting an EPS of Rs 16 for FY10. The stock is currently trading
at a P/E of 15.7x FY10E consensus earnings. Excluding the book value of
investments in roads, power and coal mining, the stock trades at 9.8x FY10E
consensus earnings. MPL plans to transfer all its infrastructure assets to its
subsidiary, Madhucon Infrastructure, and may list the same by January ’10 to
raise ~Rs 5bn. This would be a key trigger for the stock. We do not have a rating
on MPL at present.

(Rs mn) FY06 FY07 FY08 FY09 (%) FY06 FY07 FY08 FY09
Growth (%) 12 49 45 32
EBIT margin 12.7 10.0 9.9 7.7
Adj net income 333 416 472 493
Adj PAT margin 9.7 8.1 6.4 5.1
Growth (%) 105 25 14 4
ROE 13.0 9.7 10.0 9.5
FDEPS (Rs) 11.8 11.3 12.8 13.4
Growth (%) (60.6) (4.6) 13.7 4.4 ROCE 13.7 8.9 8.7 7.6
120
Madhucon Projects Sector Report 05 October 2009
Fig 269 - Road BOT business summary

Avg. toll NHAI
Concession Total Equity P/BV - 1x
(Rs mn) Length Status collection Equity Debt positive
years Cost invested (Rs/share)
per day grant
Madhucon Agra– Toll collection
Jaipur 57 25 started in May 0.7 3,554 610 1,984 960 460 12.5
Expressways ’09
Expects
TN (DK) completion
68 20 1.15 3,847 747 2,240 860 747 20.2
Expressways certificate by
Sept ’09 end
Trichy – Tanjavur Completion in

56 20 1.4 4,041 647 2,610 784 647 17.5
Expressways Jan ’10
Madurai –
Completion in
Tuticorin 128 20 2.4 9,204 1,780 5,980 1,444 1350 36.6
Feb ’10
Expressways
Total 309 5.7 20,646 3,784 12,814 4,048 3,204 86.8
121
Coverage Profile
By recommendation By market cap (US$)
(%) (%)
59 57
60 60
50 50
40 31 40 33
30 30
20 10 20 10
10 10
0 0
Buy Hold Sell > $1bn $200mn - $1bn < $200mn
Recommendation interpretation
Recommendation Expected absolute returns (%) over 12 months
Buy More than 15%
Hold Between 15% and –5%
Sell Less than –5%
Recommendation structure changed with effect from March 1, 2009
Expected absolute returns are based on share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside) and have a
12-month horizon. Our target price represents the fair value of the stock based upon the analyst’s discretion. We note that future price fluctuations could lead to a temporary
mismatch between upside/downside for a stock and our recommendation.
Religare Capital Markets Ltd

th
4 Floor, GYS Infinity, Paranjpe ‘B’ Scheme, Subhash Road, Vile Parle (E), Mumbai 400 057.
Disclaimer
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SECTOR OUTLOOK

Infrastructure: Sector Report

healthy political climate, we expect upgrades to consensus earnings estimates in * Consolidated

H2FY10, leading to a further re-rating of the sector. High-growth mid cap

Valuations still offer room for upside

Fig 1 - RHH Construction sector growth trend

Mid caps trading at attractive valuations (ex-subsidiary valuations)

Fig 3 - Sector valuation matrix

Source: RHH * Consolidated Source: RHH

Source: RHH Source: RHH

Source: RHH Source: RHH

Source: RHH Source: RHH

Infrastructure investments in India

Short-term hiccups, long-term intact

Fig 12 - Infrastructure investments Fig 13 - Infrastructure investment as a % of GDP

Fig 14 - Segment-wise infrastructure spending during 10th and 11th Plans

2,000 1,449 1,197 1,437

Fig 15 - Infrastructure – 11th Plan physical targets

Ports New capacity: 485mmt in major ports; 345mmt in minor ports

Power Add 78,577MW; access to all rural households

Fig 16 - Breakdown of 11th Plan spending in infrastructure

China to be a key motivator for India

India’s infrastructure spend in 11th plan estimated at US$ 382bn

Fig 19 - Projected investment in infrastructure as percentage of GDP (Bottom-up estimates)

Opportunities across segments

Fig 20 - Construction opportunities and key beneficiaries

Irrigation (incl. Watershed) 2,533 65 1,647 669 146.1

Total 16,395 8,659 3,914 121.2

Fig 21 - Key opportunities

Sector Key opportunities

Fig 22 - Higher budgetary allocations to various infrastructure schemes

Fig 23 - Thrust areas under 11th Plan

ELECTRICITY ROADS AND BRIDGES

Major thrust areas in

Funding a key challenge

Fig 24 - Likely sources of debt financing for the 11th Plan

Fig 25 - Deployment of gross bank credit (GBC)

Fig 26 - Total infrastructure outstanding as a % of gross bank credit

Fig 27 - Projected investment in infrastructure: Source-wise financing

Liquidity drought in FY09

IIFCL refinance scheme a key positive

Stimulus/budgetary measures eased access to funds

o 37 infrastructure projects worth Rs 700bn

Monetary measures injected liquidity into the banking system

World Bank lending plan of ~US$ 14bn

Fig 28 - Summary of the proposed disbursement of US$ 4.3bn

PPP – the way forward

One-third of planned investment to come from private sector

 Incentives introduced for the PPP model

 Policy measures initiated to unplug the bottlenecks to project execution (mainly in

 Measures to unlock liquidity introduced in the two stimulus packages

 Softening of commodity prices.

Opportunities abound for EPC players

Fig 29 - Construction intensity during 10th and 11th Plans

Fig 30 - Year-wise construction intensity during 11th Plan

Construction contractors, equipment suppliers, lenders, consultants as well as owners of

Corporate capex – improving trend

Fig 31 - IIP (YoY change) Fig 32 - IIP – Manufacturing (YoY change)

Source: RHH Source: RHH

Source: RHH Source: RHH Jul-09

Sector order book robust, back-ended growth in FY10

Fig 35 - RHH construction universe: Order book to sales analysis

FY08 FY09 FY10

Incentives introduced for the PPP model

Policy measures initiated to unplug the bottlenecks to project execution (mainly in

Measures to unlock liquidity introduced in the two stimulus packages

Softening of commodity prices.

Challenges to raising capital

Inability to achieve financial closure

Project awards for 32,000km over next 3–4 years

Bid placement for 80–100 projects targeted in FY10

Poor project preparation (including inaccurate assessment of demand), leading to

Absence of a long-term bond market, which hinders financing. Currently 97% of

Privatisation / modernisation: Railway station privatisation, along the lines of

Logistic parks: Multi-modal logistic parks (MMLPs) are proposed to be built