Equity Research

March 31, 2008 BSE Sensex: 15644

INDIA

Adani Enterprises
Morphing to excel
Reason for report: Initiating coverage

BUY
Rs601

Diversified
Shareholding pattern
Promoters Institutional investors MFs and UTI Insurance Cos. FIIs Others Source: NSE Jun Sep Dec '07 '07 '07 66.9 75.0 75.0 16.6 1.8 14.7 16.5 11.9 1.8 10.1 13.1 14.9 1.9 0.0 12.9 10.2

Price chart
1400 1200 1000 800 600 400 200 0 Jun-07 Nov-07 Jan-08 Jul-07 Sep-07 Mar-08 Apr-07 (Rs)

Adani Enterprises (AEL) is set to ride the Indian Infrastructure growth wave by transitioning from being a leading trading house to a diversified infrastructure player. Aggressive plans in power generation and real estate (supported by other expanding businesses) would result in 26% revenue CAGR and ~900bps EBITDA margin expansion, implying 92% earnings CAGR over FY08E-11E. Huge capex outlay of ~Rs510bn in the next four years would entail ~28% equity dilution. Our sum-of-the-parts (SOTP) based valuation suggests 12-month target price of Rs908/share. Material upside could accrue from better yields and new projects in power/real-estate, coal mining & oil exploration. Initiate coverage with BUY. Riding the infrastructure growth wave. AEL is undergoing a transition from being a pure trading house to diversified infrastructure play, focussing on fast growing segments such as power & real estate. In the next 4-5 years, it plans to set up 9,900MW power generation capacity, develop ~105mn sqft residential/commercial property and townships, engage in coal mining with 440MMT available reserves, set up oil & gas exploration units and introduce new agri storage & transportation options apart from expanding its existing trading business. 9,900MW capacity valued at Rs256bn, aided by access to low cost fuel. 80% of the 9,900MW capacity is likely to be sold on merchant basis as of now. Access to low cost coal from owned mines in Indonesia and Maharashtra would aid the power business equity value at Rs256bn translating into Rs623/share for AEL’s stake. Real estate development of 105mn sqft to add Rs79bn. AEL is developing two integrated townships in Gujarat (Ahmedabad and Mundra) spanning ~96mn sqft combined. Balance is split across three projects in prime locations at Mumbai, Kochi and Surat with residential, commercial and retail spaces. We estimate an equity value of Rs79bn (Rs191/share for AEL stake) for this segment. Existing trading and other businesses valued at Rs75bn. AEL’s existing trading business is expected to post 18% CAGR over FY08E-11E, led by robust growth in agri and coal trading. We have valued this segment at Rs43bn. Coal mining for Rajasthan state electricity board, stake in the JV with the Wilmar Group, city gas distribution and other agri-related businesses are valued at Rs32bn. SOTP valuation suggests Rs908 fair value post 10% corporate discount and 28% dilution (without any contribution from the oil & gas business). Upside to emerge from: i) higher yields in power tariffs or property prices, ii) acquisition of more mining assets, iii) successful venture in oil exploration and iv) lower equity dilution through funding at subsidiary level. Initiate coverage with a BUY.
Market Cap Reuters/Bloomberg Shares Outstanding (mn) 52-week Range (Rs) Free Float (%) FII (%) Daily Volume (US$'000) Absolute Return 3m (%) Rs148bn/US$3.7bn ADEL.BO/ADE IN 246.5 1,274/205 25.0 12.9 11,000 (50.2) 193.4 (22.9) 25.6 Year to March Revenue (Rs mn) Net Income (Rs mn) EPS (Rs) % Chg YoY P/E (x) CEPS (Rs) EV/E (x) Dividend Yield RoCE (%) RoE (%) FY08E 197,444 3,141 12.0 66.3 50.0 16.2 29.9 0.1 7.6 20.9 FY09E 247,687 3,042 9.1 (24.4) 66.2 18.2 21.3 0.1 5.1 5.9 FY10E 323,268 9,952 29.7 227.1 20.2 49.9 12.0 0.1 6.6 10.0 FY11E 397,934 23,826 71.0 139.4 8.5 107.4 9.0 0.1 8.1 18.2

Poonam Nishal
poonam_nishal@isecltd.com +91 22 6637 7443

Absolute Return 12m (%) Sensex Return 3m (%) Sensex Return 12m (%)

Please refer to important disclosures at the end of this report

Adani Enterprises, March 31, 2008

ICICI Securities

TABLE OF CONTENTS
SOTP valuation suggests 51% upside...........................................................................3 Power generation, largest asset creator forming 62% of value ......................................3 Real estate – Creating real value with 19% contribution ................................................4 Trading & others – constituting 16% of the total value ...................................................5 AEL valued at Rs304bn post 10% corporate discount ...................................................6 Upside to our fair value could emerge from:...................................................................6 Expanding horizons.........................................................................................................7 Pipeline of 9,900MW capacity, valued at Rs256bn, aided by access to low cost fuel ...8 Real estate – Blend of residential & commercial projects, valued at Rs79bn ..............14 Trading – Providing the necessary initial capital, valued at Rs127/share ....................19 Other segments adding another Rs18bn ......................................................................24 Key risks .........................................................................................................................27 Changing face of AEL’s financials ...............................................................................28 Shift from trading to infra = move from current to fixed assets… .................................28 … supported by increasing financial leverage ..............................................................28 Equity dilution of 28% expected to bridge funding gap.................................................29 Expected earnings CAGR of >96% over FY08E-11E...................................................29 Financials........................................................................................................................31 Annexure 1: Power sector – Economic growth to lead demand...............................35 Power demand to continue outstripping supply ............................................................35 Continued investment required even beyond XI Plan… ...............................................36 …but power deficit may still continue… ........................................................................36 …and per capita consumption may increase................................................................37 Opportunity for the private sector..................................................................................38 Few concerns remain… ................................................................................................38 Annexure 2: Indian real estate – proxy on growing economy ..................................40 Foundations still good ...................................................................................................41 Annexure 3: Company background .............................................................................48 Key management profile ...............................................................................................49 Annexure 4: Index of Tables and Charts .....................................................................52

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Adani Enterprises, March 31, 2008

ICICI Securities

SOTP valuation suggests 51% upside
AEL’s traditional business of trading would act as a cash cow and provide necessary equity for new projects in the beginning; however, to fully fund the capex for all projects across business segments (power, real estate, oil & gas, trading etc), AEL requires Rs510bn over the next 4-5 years, of which 59% is expected to be raised as debt. Of the balance 41% (Rs210bn), we believe Rs60bn is the funding gap which would need to be bridged with additional equity. We have assumed the equity infusion at a price of Rs815 (average of past six months), implying a dilution of 28% (excluding that on account of FCCB conversion). We have used the SOTP methodology for valuing the company owing to various earnings streams and each stream being valued differently. We present below key assumptions and valuation methodology used for valuing each business segment and sensitivity to key variables.

Power generation, largest asset creator forming 62% of value
All power projects are being developed under APL, which is 86% owned by AEL. We have valued the projects on FCFE basis with conservative assumptions (Table 1). Table 1: Valuation for power projects
Projects Under construction Mundra Maharashtra Recent Projects Mundra Rajasthan Dahej Total Source: I-Sec Research, Company AEL Stake (%) 86 64 Equity value (Rs mn) 110,097 52,247 162,344 38,770 21,692 33,476 93,938 256,282 Capacity (MW) 2,640 1,980 4,620 1,980 1,320 1,980 5,280 9,900 Rs mn/MW 41.70 26.39

86 86 86

19.58 16.43 16.91 25.9

Almost two quarters back, 3i Group plc had picked minority stake in APL valuing it at Rs100bn (the Group’s largest investment in India) for two projects announced till then – Mundra (2,640MW) and Maharashtra (1,980MW). We have further included the value of other projects announced by the company over subsequent period. We estimate the power business value to be ~Rs256bn, i.e. Rs25.9/MW (FY11E P/BV of 4x), higher than the implied valuation for peers owing to higher expected returns in the range of 15-35% over next 3-4 years (Table 2). Table 2: Relative valuations for power companies
CMP Mkt. cap Company name (Rs) (Rs bn) NTPC 197 1,624 Reliance Energy 1,251 296 Reliance Power* 318 476 Tata Power 1,172 258 CESC 412 51 * Adjusted for the bonus announced Source: I-Sec Research, Bloomberg RoE (%) 15.0 10.2 0.8 11.4 12.9 EPS (Rs) FY08E FY09E 9.4 10.3 40.4 46.5 0.2 (1.7) 32.6 33.5 28.0 30.1 P/E (x) FY08E FY09E 21.0 19.1 31.0 26.9 NM NM 35.9 35.0 14.7 13.7 P/BV (x) FY08E FY09E 3.1 2.8 2.8 2.6 3.4 3.4 3.5 3.1 1.5 1.4

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Adani Enterprises, March 31, 2008

ICICI Securities

We have been conservative in terms of key assumptions such as tariffs, project execution, fuel prices and discount rates. We present below the sensitivity of power business value to variation in discount rates and tariffs (Table 3). Table 3: Power generation valuation sensitivity to tariffs and discount rates
(Rs bn) Cost of equity (%) Source: I-Sec Research 14.0 13.5 13.0 -5.0 213 224 236 Tariff variation (%) 0.0 244 256 269 5.0 275 288 302

We have not factored in potential upside (in the form of terminal value) from new projects APL might bag in the future and valued only the present pipeline. APL has been participating and focussing on multiple new projects, success in which would provide scope for further upside.

Real estate – Creating real value with 19% contribution
Each real estate project is owned by a separate SPV/subsidiary of AIDPL in collaboration with local real estate developers. AIDPL in turn is 95% owned by AEL; though retains the liberty for making critical business decisions. We have used FCFE method for valuing these projects and taken a high discount rate to reflect the level of uncertainty associated with respective projects. Our key assumptions for all the projects are tabulated (Table 4). Table 4: Valuation summary of real estate
Projects Holding (%) BKC 85 Khatau 57 Shantigram 71 Surat 95 Cochin 95 Mundra 95 Weighted sum Source: I-Sec Research, Company Equity 37,306 8,312 18,180 4,614 1,490 9,338 79,240 mn sqft 2.18 1.90 41.50 5.65 3.24 49.99 104.46 Rs/sqft 17,113 4,375 438 817 459 187 725

Based on these assumptions, we have valued the existing projects at Rs79bn. Importantly, yields assumed for respective projects are conservative considering present market rates and that property sale would happen over subsequent quarters. Also, we have not taken any upside from projects that AIDPL would take up beyond the announced projects. Sensitivity to yields assumed is high and every 5% change in yields changes the value 9-10% (Table 5). Table 5: Real estate valuation sensitivity to property prices and discount rates
(Rs bn) Cost of equity variation (%) Source: I-Sec Research 0.5 0.0 -0.5 Property prices variation (%) -5.0 0.0 71.1 78.1 72.2 79.2 73.2 80.4 5.0 85.1 86.3 87.5

This valuation translates into equity value/sq ft of Rs725, which fares at a premium to the average of current valuations of peers (Table 6), primarily due to the sharp correction in the real estate sector since February and ownership of prime properties like BKC and Khatau.
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Adani Enterprises, March 31, 2008 Table 6: Relative valuation of real-estate companies
Companies Unitech Purvankara Omaxe Sobha Parsvnath Source: I-Sec Research FY09E P/E (x) 12.6 11.4 6.4 12.9 8.2 Market cap (Rs bn) 448.3 51.4 36.1 43.9 38.8

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Land bank (mn sqft) 689 110 170 225 125 Value (Rs/sqft) 651 468 213 195 310

Trading & others – constituting 16% of the total value
As mentioned earlier, AEL has a diversified portfolio of products for trading and enjoys leadership in most segments of its presence. We have valued this segment on the basis of FY10E P/E multiple, with multiples in 6-9x range, depending on the traded product (Table 7), suggesting a value of Rs127/share for AEL. Table 7: Valuation of trading businesses
Projects Agro Commodities Coal Trading Power Trading POL Iron Ore Precious Metals Dubai Scrap Belekeri Port Freight Brokerage Holding (%) 100 100 100 100 100 100 100 100 100 FY10E P/E (x) 9 9 9 8 7 8 7 8 6 Equity value (Rs mn) 10,369 15,533 339 636 1,744 8,713 2,137 1,919 1,203 42,595 Remarks High growth, increasing market share High growth, increasing market share High growth, increasing market share Moderate growth, high market share Decreasing market share Moderate growth, high market share Decreasing market share Moderate growth, high market share Decreasing market share, shrinking margins

Total Source: I-Sec Research, Company

Apart from trading, AEL is also involved in coal mining, oil refining, agri-logistics, fruits and vegetables storage and handling, city gas distribution and oil exploration. We are assigning zero value to oil exploration as the business involves high uncertainity, long gestation and the company lacks proven track record. We have arrived at a equity value of Rs32.5bn for the rest of the businesses (including coal mining) based on FCFE/relative valuation, depending on the type of the segment (Table 8), implying a value of Rs22.7bn or Rs68/share for AEL’s share. Table 8: Valuation of other businesses (including brief remarks)
Projects Coal mining deal with RRVUNL Holding (%) 76 Basis FCFE Equity 14,784 Remarks Volume build-up to maximum capacity over five years, 3% escalation in service charges and opex Volume led growth, operating margins to shrink to 2%, earnings to report over 15% CAGR Cost of equity 18%, terminal growth 3% Cost of equity 18%, terminal growth 3% Cost of equity 15%, terminal growth 3%, with cues from financials for GAIL and IGL

Adani Wilmar

50

13x FY10E P/E

6,322

Agri-logistics Agri-fresh Adani Energy

100 100 65

FCFE FCFE FCFE

410 2,239 5,676

32,488 Source: I-Sec Research, Company

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Adani Enterprises, March 31, 2008

ICICI Securities

AEL valued at Rs304bn post 10% corporate discount
SOTP suggests a total value of Rs338bn for AEL, which we have adjusted further to the extent of 10% for corporate discount to arrive at Rs304bn as the fair value, translating into Rs908/share as the target price post the required equity infusion. Table 9: SOTP valuation for AEL
Particulars Power Generation Coal Mining Real Estate Trading Other Ventures Total Post 10% corporate discount Source: I-Sec Research Equity Value of AEL’s stake 208,908 11,236 64,025 42,595 11,486 338,250 304,425

Table 10: Fair value of Rs926/share post dilution
Per Share Value Current Post dilution + FCCB Source: I-Sec Research Shares 261.8 335.4 Equity Value 1,163 908 Remarks Post FCCB conversion Post Rs60bn equity infusion

Upside to our fair value could emerge from:
• • • • • • Equity infusion at a price higher than Rs815 or equity raised at business subsidiary level, which would limit the extent of dilution, thus increasing per share fair value Access to more mining assets Higher yields realised in terms of power tariffs or property prices Earlier-than-expected execution of power/real estate projects Additional projects (in power and real estate) bagged by AEL Any success achieved in oil exploration

Considering the upside to our fair value of ~51% and potential for further upsides, we initiate coverage on AEL with BUY rating.

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Adani Enterprises, March 31, 2008

ICICI Securities

Expanding horizons
AEL has till date been a trading/export house (five star status), dealing in commodities, coal, iron ore, power, agri produce etc, with leadership across trading segments. Leveraging its presence in port development and power related (power & coal) trading, the company has decided to spread its wings to other high-growth potential business segments (Chart 1) such as power generation (Chart 2), real-estate development (Table 11), coal mining (Chart 3), oil & gas exploration etc. Chart 1: AEL in transition mode Evolving business model, focused on high growth segments like…
From trading house to an asset intensive infrastructure play

Trading Business
• AEL is a leading commodity trader in India • AEL has trading capability in more than 70 commodities and products including power, coal, metals, minerals, agro based commodities etc across 60 countries

Power Generation
• Plans to set up capacity to generate ~10GW power by ’12

Real Estate
• Plans to develop ~105mn sqft area in Mumbai (commercial), Ahmedabad (integrated township), Surat (commercial & residential), Cochin (commercial & retail), Mundra (mass housing project)

Oil & Gas
• City Gas Distribution network, oil exploration business – JV with Welsupun, Ship Fuelling

Coal Mining
• Access to coal mining via mines in India and Indonesia

Food & Vegetable Processing Logistics
• Developed ultra modern controlled atmosphere storage facilities for processing of agri products • Shipping business aims to capitalise on the Group’s trading business

Source: Company

Chart 2: Power generation to grow at 10% CAGR … Power: Greater contribution expected from private players to achieve this target…
1,200 1,000 800 600 400 200 0 FY08 FY09 FY10 FY11 FY12 CAGR 10%

Source: I-Sec Research; Report of the Working Group on Power for XI Plan

Table 11: Investments in Real estate expected to report 12.8% CAGR … Real-estate: presents compelling investment opportunities…
(US$ bn) Demand in FY07 51.7 3.0 2.7 57.3 6.2 Demand in FY12E 90.6 7.7 6.5 104.9 7.1 Average demand in next five years 74.1 5.7 4.8 84.7 6.8 CAGR (%) 11.9 20.9 19.5 12.8

Residential Office Retail Total Investments as a % of GDP Source: I-Sec Research

Energy supply (bn Kwh)

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Adani Enterprises, March 31, 2008

ICICI Securities

Chart 3: Coal demand (from power and steel sectors) to grow at robust rates … Coal mining/trading: Fuel supply remains one of the key hurdles for various power and steel projects
900 800 700 600 (mn MT) 500 400 300 200 100 0 FY07 FY08E FY09E FY10E FY11E FY12E FY17E 13.4% CAGR 7% CAGR

Source: CEA, I-Sec Research

To realise this target, AEL has instituted various subsidiaries and formed JVs with renowned players in each of the business segments. This completes the required skillset for new business lines, which the company intends to start.

Pipeline of 9,900MW capacity, valued at Rs256bn, aided by access to low cost fuel
AEL has been trading in coal and power for over four years with leading market share among private players and plans to enhance presence across the value chain by venturing into coal mining and thermal power generation. AEL has lined up thermal power generation projects totalling up to 9,900MW capacity in Gujarat (6,600MW), Maharashtra (1,980MW) and Rajasthan (1,320 MW), to be setup over the next 4-5 years (Chart 4) through its 86% owned subsidiary Adani Power (APL). Of this, the largest project at Mundra with 2,640MW capacity is already under construction and the first phase with 1,320MW capacity will be operational by FY09E end. Chart 4: Planned projects with total of 9.9GW capacity

Rajasthan (1.3 GW)

Mundra (4.6GW) Gujarat Dahej (2GW) Tiroda (2GW)

Maharashtra

Source: Company

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Adani Enterprises, March 31, 2008

ICICI Securities

Mundra (2,640MW, extendable by 1,980MW)
Advanced stage of implementation… APL’s largest project is coming up in the Mundra special economic zone with initial capacity of 2,640MW (two phases of 2x330MW sub-critical + one phase of 2x660MW super-critical); the first unit is scheduled to be commissioned by March ’09. Financial closure for this project is already achieved and EPC has been given to Chinese companies - Sichuan Machinery and Equipment Corporation (SCMEC) for sub-critical phase and SEPCO III Electric Power Construction Corporation for super-critical phase. AEL already controls coal block in the Bunyu Island with 140MMT estimated reserves in the central & northern part of the island covering 3,000 hectares of land. Coal mined from here would be used for the Mundra project. The arrangement gives access to coal at a price below US$25/te at the origin, much lower than the prevailing market price in US$35-40/te range. This would support high returns for the Mundra project, especially with merchant tariffs. APL has entered into a 25-year power purchase agreement (PPA) for 2,000MW capacity at Mundra with Gujarat Urja Vikas Nigam (GUVNL) at an average tariff of Rs2.62/unit (higher than the level 2 bid at Rs2.26/unit won by Tata Power in Mundra ultra mega power project). Rest of the planned capacity is kept as merchant, though the company plans to enter into short- and long-term PPAs with state utilities and other Discoms to maintain the balance between assured and merchant off-take of the power generated. Table 12: Mundra project details …would boost returns
Generation capacity (MW) Composition Expected CoD Land and water linkage Fuel linkage Financial closure Project cost (Rs bn) Implied per MW cost (Rs mn/MW) Funding (D:E) PPA PPA tariff (Rs/Kwh) Merchant sales Merchant tariff (Rs/Kwh) Fuel cost (Rs/Kwh) AEL stake (%) IRR (%) Source: company, I-Sec Research 2640 (2x330) + (2x330) + (2x660) Jul-11 Achieved Achieved – from coal block in Bunyu Island, Indonesia Achieved 101.5 38.4 80:20 with GUVNL for 2000MW average Rs2.62 640MW Rs2.75/unit Rs0.67/unit 86.0 62.0

… coupled with access to low cost fuel…

… and high tariffs through 77% PPA (which is reasonably high) and 23% merchant sales…

APL has received approval from the State government to extend the capacity further by 1,980MW (3x660MW), which is expected to be operational by FY13E. APL is also setting up 400kv 425km transmission line – the largest being set up by any power player – to connect the plant with the western grid.

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Adani Enterprises, March 31, 2008

ICICI Securities

Tiroda (1,980MW)
Higher tariffs owing to power supplied to high power deficit western and northern regions… APL has taken up this project keeping in view the acute power shortage faced by the state of Maharashtra. The project is split into two phases (2x660MW + 1x660MW) based on super critical technology and has made decent progress till now. APL has already secured 200 hectares land in Gondia district, near the eastern border of Maharashtra and water linkage from the water resources department. Power off-take would be secured by setting up 400KV 365km transmission line connecting it to western grid. Fuel linkage is being provided from the coal mines allotted in Lohara West & Lohara (Ext) with reserves of ~100MMT. APL intends to place 26% stake in this project with strategic investors, restricting exposure in the project to 74%. Table 13: Tiroda project details … would boost returns
Generation capacity (MW) Composition Expected CoD Land and water linkage Fuel linkage Financial closure Project cost (Rs bn) Implied per MW cost (Rs mn/MW) Funding (D:E) PPA PPA tariff (Rs/Kwh) Merchant sales Merchant tariff (Rs/Kwh) Fuel cost/unit (Rs/Kwh) AEL stake (%) IRR (%) Source: Company, I-Sec Research 1980 (3x660) April-12 Achieved Achieved Yet to be achieved 92.47 46.7 80:20 Nil NA 1980 MW 2.75 0.57 64.0 50.7

… coupled with low cost of fuel…

Dahej (1,980MW) and Rajasthan (1,320MW)
APL has announced two more projects – one each in Dahej (1,980MW) and Rajasthan (1,320MW). Both the projects would be based on super-critical technology with composition of 3x660MW and 2x660MW respectively. Dahej would likely be based on imported coal, while Rajasthan would be indigenous coal based, though the fuel linkage is yet to be established. Since these are new projects, APL has not made any significant progress. The company expects the projects to be on-stream by FY12, though we are factoring in operational benefits FY13 onwards.

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Adani Enterprises, March 31, 2008 Table 14: Dahej and Rajasthan projects In the pipeline, fuel linkage likely to be provided from mining assets sought in Sumatra
Generation capacity (MW) Composition Expected CoD Land and water linkage Fuel linkage Financial closure Project cost (Rs bn) Implied per MW cost (Rs mn/MW) Funding (D:E) PPA PPA tariff (Rs/Kwh) Merchant sales Merchant tariff (Rs/Kwh) Fuel cost/unit (Rs/Kwh) AEL stake (%) IRR (%) Source: Company, I-Sec Research Dahej 1980 (3x660) September-12 Yet to be achieved Yet to be achieved Yet to be achieved 89.1 45.0 80:20 Nil NA 1980 MW 2.75 0.81 86.0 38.6

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Rajasthan 1320 (2x660) July-12 Yet to be achieved Yet to be achieved Yet to be achieved 59.4 45.0 0 Nil NA 1320 MW 2.75 0.88 86.0 30.9

Factoring in the above mentioned assumptions, free cashflow-to-equity (FCFE)-based valuation of these projects suggests a value of Rs256bn, translating into Rs623/share value for AEL’s stake. Table 15: FCFE based valuation of power projects
Projects Mundra Maharashtra Under Planning Mundra Rajasthan Dahej Holding (%) 86 64 Equity value (Rs mn) 110,097 52,247 162,344 38,770 21,692 33,476 93,938 256,282 Capacity (MW) 2,640 1,980 4,620 1,980 1,320 1,980 5,280 9,900 Rs mn/MW 41.70 26.39

86 86 86

19.58 16.43 16.91 25.9

Total Source: Company, I-Sec Research

Coal mining, providing the necessary access to fuel and boosting value
AEL has bagged mining rights for two coal mines – one as a part of the 74:26 JV with Rajasthan Rajya Vidyut Utpadan Nigam (RRVUNL) and other for mining a large block in Bunyu Island, Indonesia. RRUVNL – High pricing to provide impressive returns The deal with RRVUNL involves mining 200MMT coal over ~30 years (starting FY11) and selling it to Rajasthan state electricity board (RSEB) at a predetermined price (Rs958/MT) agreed upon by the concerned parties. The work is under progress and the mining is expected to start in FY11E with annual volumes reaching 8MMT after it becomes fully operational. Based on FCFE, we have valued the deal at Rs33/share (Table 16). AEL is also pursuing such deals further with other states.

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Adani Enterprises, March 31, 2008

ICICI Securities
200 FY11 starting with 2MMT, going up to 8MMT over next 4-5 years Rs 958/MT 3% 4,834 15% 14,784

Table 16: Key assumptions and valuation of mining deal with RRVUNL
Total mineable reserves (MMT) Mining starts Annual volumes Services charges levied on RRUVNL Escalation assumed in service charges and operating expenses Capex involved (Rs mn) Cost of equity FCFE value Source: Company, I-Sec Research

Indonesian mine – Access to good quality fuel at low cost Coal availability at very attractive prices has been the key value creator for AEL. As regards the Indonesian mine, the coal block is situated in the island of Bunyu (in E. Kalimantan near the border of Malaysia to the North and 33kms off the island of Tarakan). The reserve size is expected to be ~140MMT with favourable strip ratio of 1:3.5 located in Central and Northern part of island covering 3,000 hectares land. Commercial operations have already started for phase I (Chart 5) of the project (of the total four phases). The coal produce would be used for captive requirement arising from Mundra project and thus we have not valued this asset separately. The cost at the Indian port works out to be ~US$22-25/te (mining cost ~US$12-15 and balance shipping cost), which is quite low as compared to the prevailing market rate of US$3035/te. We have taken the cost at US$28/te in our estimates to keep cushion for any cost overruns or re-negotiations.

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Adani Enterprises, March 31, 2008 Chart 5: Progress made in Bunyu Island for coal mining Mining at work coal stacks

ICICI Securities

Coal loading on the ship

Source: Company

Any new mining asset to be a bonanza We have not taken into account the value of any other mining asset for AEL despite the company processing other deals at different stages at various locations in Sumatra Kalimantan. The company has received the preliminary survey licence and is preparing the exploration & exploitation report for the allotted ~250,000 hectares land in Sumatra and Kalimantan regions (believed to be having mineable reserves of over 300MMT).
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Adani Enterprises, March 31, 2008

ICICI Securities

It has also bid for some coal mines in India and could emerge as the winner. We have assumed that the company would have access to adequate coal reserves by FY12 to serve the requirement of its planned thermal plants, though at prevailing market prices (to maintain our conservative approach).

Real estate – Blend of residential & commercial projects, valued at Rs79bn
Size remains the key for AEL in all business segments. It is a leading name in commodities trading registering the highest (and increasing) volumes. The ~10GW planned power capacity puts it in the league of Tata Power, JP Power Ventures etc. And, so are its real estate plans. With a total saleable area of ~105mn sqft, AEL compares with established players such as Purvankara, Parsvnath, Omaxe and Marg. AEL operates real estate development business via its 95% owned subsidiary Adani Infrastructure Developers Private (AIDPL), which in turn has varying stake in each of the real estate projects. AIDPL has raked in renowned local real estate players as partners to lend experience and to gain visibility among potential buyers. The company is developing three properties – two in Mumbai and the third in Ahmadabad – totalling 46mn sqft of commercial, retail and residential space. It is also developing three more properties in Surat, Cochin and Mundra – totalling 59mn sqft of space which are at nascent stages of development. Table 17: Real estate space – Break-up
Project Shantigram City Ahmedabad Partner Saumya Construction (25%) Mayfair housing (11%) AIDPL Stake (%) 75 Saleable Area (mn sqft) 41.6 Commercial (%) 55 Residential (%) 37

BKC Khatau

Mumbai

89

2.2 1.2

100 80 100 65 15 35 85 100 20

MumbaiMarathon Group Borivali (40%) MumbaiByculla Surat Surat NA Cochin Cochin NA Mundra Mundra NA Source: Company, I-Sec Research

60 100 100 100

0.8 5.6 3.2 50.0

The real estate portfolio is well diversified in terms of the type of construction – residential, retail and commercial, and geography – Mumbai, Ahmadabad, Surat, Mundra and Cochin. The first three projects are joint ventures with local developers, which allows AEL to leverage local expertise and knowledge of the real estate market. The company is further planning to sell 5% stake in AIDPL to part fund the planned capex. The portfolio of real estate consists of properties such as Bandra-Kurla Complex (BKC) and Khatau in Mumbai on one hand (which are relatively smaller in size but offer high value) and Shantigram and Mundra in Gujarat on the other (which are large scale projects but offer low returns due to high risk). Thus, we have used lower discount rate for the former but higher for larger projects.

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Adani Enterprises, March 31, 2008 Chart 6: Prime location properties fetch higher value
25 BKC 20 NAV/sq ft (Rs '000) 15 10 5 Cochin (5) (5) 5 15 25 Saleable area (mn sq ft)
Size of bubble represents contribution to total real estate valuation Source: I-Sec Research, Company

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Khatau Surat

Shantigram

Mundra

35

45

55

Bandra-Kurla Complex – forming largest chunk of value for AIDPL
Adani is developing 2.2mn sqft office and retail space in Bandra-Kurla Complex – one of the first planned commercial hubs in Mumbai, opposite the already existing offices of ICICI Bank and IL&FS. It is a slum rehabilitation project, wherein AIDPL is buying land and development rights in phases from Housing Development & Infrastructure Ltd at pre-negotiated rates. Hafeez contractor has been roped in as the architect and Sterling Engineering is providing the structural design consultancy for the project. Thus, the execution risk for this project is low and so far the progress is going as per schedule. The first phase of the land transfer is through and AIDPL has taken charge of ~0.5mn sqft of land, which is being developed. Prime location and attractive cost proposition would aid value BKC is emerging as a strong commercial hub and as an alternative to Nariman Point (the biggest commercial area housing headquarters of many companies); especially with the apparent supply constraints and as property prices have sky rocketed for commercial property in South Bombay (Chart 7). The area has strong growth potential because of its central location between South Mumbai and Mumbai suburbs, and proximity to Santa Cruz Export Zone and the domestic airport (Chart 8). It already houses offices of Wockhardt, the National Stock Exchange, Citibank and Reliance Telecom.

15

Adani Enterprises, March 31, 2008 Chart 7: Commercial property prices in South Bombay Rising commercial property prices and supply constraints in South Mumbai have led to suburbs emerging as strong alternatives for office spaces
30 25 (Rs '000/sq ft) 20 15 10 5 0 Mar-04 Mar-05 Mar-06 Mar-07 Jun-04 Jun-05 Jun-06 Dec-04 Dec-05 Dec-06 Sep-04 Sep-05 Sep-06 Nariman Point - comm sale Nariman Point - comm rental (RHS)

ICICI Securities
450 400 350 300 250 200 150 100 50 0 Jun-07 Sep-07 (Rs/sq ft/month)

Source: Bloomberg, Cushman & Wakefield

Chart 8: Location map of BKC

Borivali

North Mumbai

Khar Bandra

Bandra-Kurla Complex

Cental Mumbai
Worli Mahalaxmi Byculla

South Mumbai
P D’Mello Colaba Nariman Point Source: I-Sec Research, Maps of India

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Adani Enterprises, March 31, 2008

ICICI Securities

Khatau – robust returns expected from properties in Byculla and Borivali
AEL is also building a residential complex in Borivali (over 1.2mn sqft area) and a commercial complex in Byculla (~0.7mn sqft area), both of which are part of the Mill Land Development programme (MLDP). AEL has partnered with Marathon Group in a 60:40 JV to develop this land, thus bringing local expertise and knowledge of MLDP. The land has been acquired through BIFR process, ensuring clean title and no legal issues. Factory closure permission & environment clearances have also been received. Borivali, a Mumbai suburb is facing increasing demand as a residential area because of supply constraints in the southern suburbs of Mumbai. AIDPL plans to set up a high-end residential complex with five towers of 20 storeys each. Property in Byculla is being developed as a complete commercial space. Byculla is very close to the commercial hub of Mumbai and would provide good alternative to companies seeking office space in Southern Mumbai. While property prices across the region have been soaring, we have been conservative on property yield assumptions on account of upcoming projects over the next 3-5 years.

Shantigram – integrated township project spanning over 578 acres
Shantigram is an integrated township project being developed by AEL spanning an area of over 578 acres (over 41mn sqft saleable area at 1.65x FSI). Located on the Sarkhej-Gandhinagar Highway, very close to Ahmedabad, the township is being developed at a cost of Rs46.5bn and will include residential and retail property along with commercial space (Chart 9).

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Adani Enterprises, March 31, 2008 Chart 9: Shantigram – proposed plan

ICICI Securities

Source: Company

Ahmedabad is the third most prosperous city with the third highest per capita income in India and receives interest from players involved in trading and infrastructure development, being close to the west coast – predominantly used for trading purposes relating to capital & engineering goods, coal, oil & gas etc.

Others – Mundra (township project), Surat and Kochi
Apart from the projects mentioned above, AIDPL is also developing a township at Mundra, Mundra Ports and SEZ (MPSEZ) spanning over 600 acres of land for the group company. The work for this project has already started, which would primarily be a mass housing project, building initial infrastructure support for families involved in developing MPSEZ over the next 5-10 years. Total saleable area is expected to be ~50mn sqft, providing low income housing to start with. AIDPL is also working on developing 5.6mn sqft of commercial and residential property in Surat. Land acquisition of 57 acres is going on and sale is expected to start from FY10. AIDPL has tapped the southern region with a project spanning 27 acres of land in the prime location in Kochi. The plan involves developing 3.2mn sqft of saleable area with 85% high-end residential and 15% commercial/retail space.
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Adani Enterprises, March 31, 2008

ICICI Securities

Real estate valuation
We have valued these projects on FCFE basis with varying cost of equity to reflect suitable risk involved. Table 18: Real estate: assumptions and valuation details
Project Assumptions AEL stake (%) Saleable area (mn sqft) Plotted:residential:commercial Project completion Land cost (Rs mn) Sale rates (Rs/sqft) Base Sale Rate Residential Max Sale Rate Residential Base Sale Rate Commercial Max Sale Rate Commercial Base Lease Rate Max Lease Rate Avg. Lease Rate Base Construction Rate - Residential Base Construction Rate - Commercial Max Construction Rate - Residential Max Construction Rate - Commercial FCFE based valuation Cost of Equity (%) Capital yield for commercial lease properties (%) Total value (Rs mn) Implied NAV/sq ft Value of AEL's stake Source: Company, I-Sec Research BKC 85 2.18 0:0:100 Dec-11 25,202 NA NA NA NA 300 350 345 NA 3,930 NA 4,520 18 10 37,306 17,113 31,710 Khatau Borivali Byculla 57 1.15 0:100:0 Mar-10 Shantigram 71 41.50 8:37:55 Jun-12 7,440 1,500 2,083 NA NA 15 21 18 650 800 800 925 19 10 18,180 438 12,908 Surat 95 5.65 0:35:65 Dec-13 2,200 2,200 3,100 3,400 3,400 NA NA NA 1,600 1,600 1,600 1,600 19 NA 4,614 817 4,384 Kochi 95 49.99 0:100:0 Dec-16 891 1,600 2,606 NA NA NA NA NA 1,000 NA 1,000 NA 19 NA 1,490 459 1,415 Mundra 95 49.99 0:100:0 Dec-16 4,999 1,600 2,606 NA NA NA NA NA 1,000 NA 1,000 NA 17 NA 9,338 187 8,871

0.75 0:0:100 Mar-10 2,325 NA NA NA NA 200 231 226 NA 3,200 NA 3,200 18 10

4,000 4,840 NA NA NA NA NA 1,800 NA 1,800 NA

NA 8,312 4,375 4,738

Trading – Providing the necessary initial capital, valued at Rs127/share
Adani started as a trading house and now plans to diversify into power and real estate over the next few years. We believe that trading will continue to be the major cash cow for AEL, especially in the short-to-medium term because of its experience and expansion plans in this area. The company is currently trading in agri-commodities such as maize, wheat, de-oiled cakes (DOC) and non-agri commodities such as coal, iron ore, precious metals and power. While agri-commodities will continue to yield stable cashflows, the growth is likely to be driven by coal and power in the long run. As such we have valued both these businesses separately, while other trading desks, including high growth areas such as iron ore, precious metals etc have been clubbed together. Table 19: Assumptions and valuation for trading
Current volumes (mnte) Volume CAGR over FY08-FY11E (%) Yields CAGR over FY08-FY11E (%) Revenue CAGR over FY08-FY11E (%) Current operating margins (%) Earnings CAGR over FY08-FY11E FY10E P/E multiple assumed (x) Implied value of business (Rs mn) AEL's stake (%) Value of AEL's stake (Rs mn) Source: Company, I-Sec Research Coal trading 11.1 23.6 7.9 33.4 4.0 26.3 9.0 15,533 100.0 15,533 Agri-trading 2.2 17.6 7.0 25.9 2.8 38.4 9.0 10,369 100.0 10,369 Others NM NM NM 8.7 2.7 5.8 7.6 16,692 100.0 16,692

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Adani Enterprises, March 31, 2008

ICICI Securities

Coal to drive growth in trading segment
Demand for coal set to rise In India, coal is the primary source of energy and is used mainly for power production and making steel. Chart 10: Key uses of coal
Others 11% Steel & Coke Ovens 9%

Cement 5% Fertilizer 1%

Pow er 74%
Source: Ministry of Coal Report for Coal Sector Reforms

At the end of the X five year plan, India’s coal-based power generation capacity was 71,121MW of the total capacity of 132,329MW. The XI five year plan targets a further addition of 54,355MW in coal, of the total addition of 78,577MW.

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Adani Enterprises, March 31, 2008

ICICI Securities

Chart 11: Region-wise coal based power generation capacity and planned addition

Jammu & Kashmir

Total Capacity: MW 18194 Capacity Addition in XIth Plan: MW 12930 Punjab

Himachal Pradesh

Haryana

Uttranchal Sikkim Arunachal Pradesh Total Capacity: MW 385 Capacity Addition in XIth Plan: MW 750 Assam Bihar Meghalaya Manipur Tripura Nagaland

Rajasthan

Uttar Pradesh

Gujarat

Madhya Pradesh Chhattisgarh

Jharkhand

West Bengal

Mizoram

Orissa Maharashtra

Total Capacity: MW 13996 Capacity Addition in XIth Plan: MW 15190

Total Capacity: MW 22574 Capacity Addition in XIth Plan: MW 16125 Andhra Pradesh Very high power deficit Goa Karnataka High power deficit Medium power deficit Low power deficit Tamil Nadu Kerala Total Capacity: MW 15973 Capacity Addition in XIth Plan: MW 9360

Source: Ministry of Power, CEA, I-Sec Research

While in the past, plan targets have usually not been met but we believe that this five year plan may be able to meet its target as more than 76% of coal-based power plants are already in different stages of construction. Considering that most of the coal in India is consumed by the power sector (nearly 75%), we foresee strong growth in coal consumption. Increased opportunity for coal trading… While coal consumption is expected to rise significantly, we do not see coal production to rise proportionally. Thus, we believe India’s dependence on imported coal is likely to increase in the future, especially because many private power producers entering the industry are setting up plants on imported coal. These plants are likely to source fuel either directly from mines in Indonesia and South Africa or buy fuel from coal traders who import it for them (Chart 12).
21

Adani Enterprises, March 31, 2008 Chart 12: Major seaborne coal trade routes

ICICI Securities

Source: World Coal Institute, I-Sec Research

We believe that coal demand may increase to 509 MT by ’11-12, which will require import of more than 159 MT, most of which will be for power plants and is likely to be imported by them via direct linkages with coal mines outside India (Chart 13). Nevertheless, this represents a huge opportunity for coal trading companies to supply coal on a short-term basis to Indian power plants, while entering into long-term contracts at the same time. Chart 13: Coal – Demand-supply gap
550 500 450 (mn te) 400 350 300 250 200 FY07 Demand for Coal Supply of Domestic Coal

FY08E

FY09E

FY10E

FY11E

FY12E

Source: Committee on Infrastructure, CEA, I-Sec Research

In fact, because of imported coal’s high calorific value and low ash content, it is more efficient for power production than domestic coal and thus we believe that India will continue to import coal even if domestic production rises significantly.

22

Adani Enterprises, March 31, 2008 …implies increasing opportunity for AEL

ICICI Securities

AEL ventured into coal trading in 1998 and today imports coal from China, South Africa and Australia. It is a full service provider, responsible for sourcing, importing, managing logistics and supplying coal directly to the customer. Thus, it can not only meet short-term demand supply gaps for power producer, but also get into long-term contracts to supply thermal coal to them. While its current list of customers includes captive power producers such as Birla Corporation, ACC etc, the future growth is likely to come from utilities that will import coal to produce power. AEL imported ~8mnte non-coking coal of the total imports of 25mnte in ’06-07. We believe that coal trading will grow at 32%+ CAGR till FY12E aided by robust demand growth in the sector and captive mining undertaken by the company. We have valued the coal trading segment at Rs15.5bn using FY10E P/E of 9x.

Agri-trading to provide stability
Indian agri-GDP growth declined from 3.2% in the ’80s to 1.5% in the ’90s. Despite this, the XI Five Year Plan ’07-12, targets a growth of 4.1% per annum, based on the investment rate of 35.1% of the GDP. Table 20: Plan growth rates versus investment ratio
Average Growth Rate (%) IX Five Year Plan 2.1 X Five Year Plan 2.3 XI Five Year Plan 4.1 Source: Report of the Working Group for XI Five Year Plan, CSO Investment Ratio (%) 23.8 27.5 35.1

This increase in investment is not possible without the involvement of private sector and accordingly, nearly 25% of the GDP is expected to come via private and publicprivate partnerships. This focus of the Government coupled with an expected demandsupply gap in food grains has increased opportunities for private sector players in trading. Table 21: Supply to remain under constraint even in best-case scenario…
(mnte) Demand Min Production Max Production Current Production Ten Year CAGR (%) Source: CSO, I-Sec Research, Ministry of Agriculture 2011-12 244 214 240 212 <1%

This opportunity is higher in view of the regional disparities, which have always existed in India between consumption and production of agricultural commodities. The country’s food grain production has grown by less than 1% per annum and it is likely to be between 214 MT and 240 MT by ’11-12. The demand on the other hand has been projected to be 244 MT in ’11-12. Strong potential in agri-trading AEL’s agri division trades (in maize, DOC, pulses, wheat etc), procures commodities and sells them domestically and internationally. It traded 1.5MT of commodities, generating revenue of Rs20bn in FY07.

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Adani Enterprises, March 31, 2008

ICICI Securities

The portfolio is well balanced between regulated but stable commodities such as wheat, and un-regulated, export oriented commodities such as DOCs. Thus, we believe that agri-trading division will grow 15% per annum in volume terms in the immediate few years backed by increasing exports of de-oiled cakes and 4-6% growth in Indian agriculture. Accordingly, we have valued the equity for this division at Rs10.4bn. The company now plans to foray into oil & gas exploration through two blocks (of 75sqkm in Cambay, Gujarat and another of 95sqkm in Assam) awarded by the Government in NELP VI, in collaboration with Wels pun and two blocks in Thailand. AEL also plans to participate in NELP VII and has been actively looking at Indonesia, Australia, Egypt and Yemen for more gas blocks.

Other trading divisions boosting value
AEL also trades in iron ore, petroleum products, precious metals, power and ship scrap. The equity value of these divisions put together is estimated at Rs16.7bn, of which we believe iron ore, valued at Rs1.7bn, will generate maximum growth in the immediate future as the company exploits the rising demand for steel in China, where Indian iron ore is trading at a spot price of US$200. We believe that in the long term, however, this demand for iron ore will slow down as Chinese steel production declines and the Indian Government takes measures to reduce ore exports. The equity of power trading business along with precious metals, currently valued at Rs0.3bn and Rs8.7bn respectively, is likely to drive growth in the long term as reforms in the sector take off. Further, we have valued the equity of non-trading businesses of port and freight brokerage at Rs1.9bn and Rs1.2bn respectively.

Other segments adding another Rs18bn
Apart from the above mentioned business segments, AEL also has presence in citygas distribution, agri-logistics, oil refinery (50:50 JV with Wilmar Group) and cold storage of fresh fruits (through Adani Agri-Fresh). These segments are not very large at present, with the company having started operations in the past 18 months (except for Adani-Wilmar), but have good growth potential (Table 22). We have been conservative while valuing these segments due to their nascent stage and these too could provide upside depending on the success of the segments.

24

Adani Enterprises, March 31, 2008 Table 22: Brief overview of distribution-related business segments
Business segment Gas distribution (Adani Energy) AEL stake 65% Brief overview

ICICI Securities

City gas distribution of compressed & piped natural gas in Ahmedabad & Vadodara to: i) industries, commercial outfits, domestic users through a pipeline network, ii) vehicles through a CNG station network Current status: Operating 45 CNG stations and 8,000 domestic, 245 industrial & 95 commercial connections with daily contracted quantity of 0.43MMSCMD (expected to reach 2.4MMSCMD in the next two years). Steel ring network of over 230kms and PE network of over 500kms across six cities already completed Expansion plans: Proposes to set up facilities in Faridabad (Haryana), Noida (UP), Khurja (UP), Lucknow (UP), Jaipur (Rajasthan) and Udaipur (Rajasthan) Planned steel ring network of 493kms and 104 CNG stations across six cities, while facility plans for Jaipur and Udaipur are being developed Proposed expansion would likely result in 45%+ revenue CAGR and 120%+ earnings CAGR for AAFL in the next two years

Adani Wilmar (AWL)

50%

Oil refining and distribution business under the brand, Fortune. AWL has the largest refining capacity in India (3,200TPD) with a network of 80 branches, 5,000 distributors, 1mn outlets & 20mn households. Exports to more than 19 countries in the Middle-East, South East Asia & East Africa As per AC Neilsen data, AWL has leadership in edible oil (Fortune, India’s largest edible oil brand commanding 17% share), soya (34 % domestic market share) and groundnut oil (20% domestic market share) Other growing brands include Naturalle, Raag, Kachi Ghani. While the proposed expansion plans and leadership would help maintain high revenue growth (over 30% CAGR), earnings growth would be muted due to surging raw material prices

Adani Agri Fresh

100%

AAFL is into developing integrated controlled atmosphere storage facility (CASF), handling and transportation infrastructure for fruits & vegetables Currently operational at three locations in Rohru, Theog & Rampur in Himachal Pradesh with a total storage capacity of 18,000MT Has already been dealing with leading fresh fruit/vegetable retail chains, Food Bazar, Reliance Fresh, ITC’s Choupal Fresh, Metro, Trinetra, Fab Mall, Mother Dairy, Big Apple, Heritage(AP/Karnataka) and owns a strong marketing network in 30 major towns across India for wholesaling, cash & carry and organised retail, including Delhi, Ahmedabad, Coimbatore, Lucknow, Chennai, Mumbai, Surat, Nasik, Kolkata etc Plans to roll out pack house facilities in Maharashtra, Gujarat, Andhra Pradesh and Karnataka and expand universe to procure grapes, orange, pomegranate and other fruits in the medium term. AAFL has launched its wholesale brand, Farm Pik and plans to grow it sizeably

Adani Agri-Logistics (AALL)

100%

AALL is pioneering the concept of developing vertical silos to store grains & bulk movement in top loading/bottom discharge wagons in India with the project being developed for Food Corporation of India (FCI) on BOO basis over a long-term contract for 20 years. It involves storage of 0.55mnte per month with guaranteed annual tonnage of 400,000MT at base depots (in states of Punjab & Haryana) and another 150,000MT at distribution depots (in Tamil Nadu, Karnataka, Maharashtra and West Bengal, expected to be operational by FY08 end) 207 special wagons for bulk grain transportation are being procured (orders already placed) Being a pioneer concept, the project has been given 100% income tax deduction for the first five years and 30% for the next five years

Source: I-Sec Research, Company

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Adani Enterprises, March 31, 2008

ICICI Securities

The equity value of all these segments combined is estimated at Rs17.7bn (Table 23) and AEL’s stake at Rs11.5bn (Rs34/share), though there could be significant upside depending on growth in these relatively nascent businesses. Table 23: Assumptions and valuation of other businesses
(%) Revenue CAGR over FY08-FY11E Current operating margins (%) Earnings CAGR over FY08-FY11E FY10E P/E multiple assumed (x) Implied value of business (Rs mn) FCFE based valuation AEL's stake (%) Value of AEL's stake (Rs mn) Source: I-Sec Research, Company Adani Wilmar 29.9 2.7 15.4 13.0 6,322 50.0 3,161 Agri-logistics 2.8 74.1 NM NA NA 410 100.0 410 Adani Agri Fresh 84.6 0.4 NM NA NA 2,239 100.0 2,239 Adani Energy 32.9 16.0 208.1 NA NA 8,733 65.0 5,676

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Adani Enterprises, March 31, 2008

ICICI Securities

Key risks
We perceive the following as key challenges for AEL in the present scenario: • Execution risk. AEL is on an aggressive expansion spree, that too in related and unrelated business domains. From being a leading trading house, the company is moving to an infrastructure play, which is highly capital intensive in nature. AEL does not have any prior experience in many of the segments it is venturing into – primarily power generation and real estate development, which exposes it to considerable execution risk. However, the Group has a decade long experience in handling large scale projects such as Mundra Port and Wilmar Refinery. To mitigate such challenges, the company has been proactive in appointing, as business heads, some of the most renowned talents from industry for respective businesses. Yet timely execution of projects within the set budget would be very crucial to achieve appropriate returns. Arranging funds for planned projects. With the present balance sheet size of ~Rs90bn, primarily locked up as inventory and debtors, funding capital intensive projects requiring close to Rs510bn over the next 4-5 years appears challenging. A large proportion (59%) of this sum would be funded via debt. However, arranging for such sizeable debt with minimal experience in planned projects would be difficult task for AEL. Also, there would be ~Rs60bn gap between required equity funding and internal accruals, which would lead to equity dilution High Government intervention in agri-trading restricts volumes and scope for players. While AEL is diversifying its revenue streams significantly, any adverse Government policy in highly regulated sectors such as power generation, coal mining and export-import of agricultural produce could deter financials.

27

Adani Enterprises, March 31, 2008

ICICI Securities

Changing face of AEL’s financials
Shift from trading to infra = move from current to fixed assets…
AEL, till now, has been primarily associated with trading business as is reflected in thin operating margins and high working capital with net current assets constituting over 70% of the total assets. However, with changing business composition, operating margins would get a boost and the proportion of net current assets would likely start declining in favour of fixed assets on the back of increasing proportion of power and real estate businesses (Chart 14). Chart 14: Changing asset composition and improving operating margins
Net Current assets 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY05 FY06 FY07 FY08E FY09E FY10E FY11E 6 4 2 0 Net Fixed assets Operating margin (RHS) 14 12 10 (%) (Rs bn) 8

Source: I-Sec Research, Company

… supported by increasing financial leverage
Huge planned capex required to build these fixed assets would FY08-12E would be funded largely through debt implying higher leverage and dampened cashflows over the medium term (Chart 15). Chart 15: Aggressive expansion impacting cashflows, largely funded by debt
Debt 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY05 FY06 FY07 FY08E FY09E FY10E FY11E Equity FCF (RHS) 40 30 20 10 0 (10) (20) (30) (40)

Source: I-Sec Research, Company

28

Adani Enterprises, March 31, 2008

ICICI Securities

Equity dilution of 28% expected to bridge funding gap
To fund its expansion plans, AEL requires close to Rs510bn (Table 24) over FY0712E, ~59% of which would likely be funded via debt, 18% from internal accruals, 9% as minority share, 2% from FCCB conversion and the balance 12% from fresh equity infusion (Chart 16). Alternatively, AEL is also considering raising money at the subsidiary level (APL, AIDPL) to fund the gap. Table 24: Funding requirement by various business segments
Rs mn Power Real-Estate* Trading Mining & Others * Net of investment and sales Source: I-Sec Research FY07-FY12E 424,749 78,601 3,607 10,908

Chart 16: Sources of funding
600 500 (Rs bn) 400 95 300 200 293 100 0 Debt
Source: I-Sec Research

47

10

60

Internal accruals

Minority share

FCCB conversion

Funding gap

The FCCB conversion price has been fixed at Rs645, which will likely fetch Rs9.8bn to AEL. The dilution on account of fresh equity issue is expected to be ~28%, assuming issue price of Rs815 (based on the average of past six months).

Expected earnings CAGR of >96% over FY08E-11E
Till FY08, AEL’s P&L primarily reflects the numbers for trading businesses; however, the new business units would start shaping up in the next couple of years. By FY11E, we expect 1,980MW of capacity to be on-stream at Mundra, all the real estate projects to start booking sales and other businesses (such as AEL) to assume significant size (by expanding to over eight cities). Increasing proportion and size of non-trading businesses would result in robust revenue growth of close to 26% CAGR over FY08E-11E. This would also result in margin expansion of 8.8pps leading to EBITDA CAGR of ~95% (Chart 17).

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Adani Enterprises, March 31, 2008 Table 25: Financials – Various business segments
(Rs mn, year ending March 31) FY08E Revenues Power Real-Estate Trading Mining & others Total Revenues EBITDA Power Real-Estate Trading Mining & others Total EBITDA EBITDA margin (%) Power Real-Estate Trading Mining & others Total EBITDA margin PAT Power Real-Estate Trading Mining & others Total PAT PAT margin (%) Power Real-Estate Trading Mining & others Total PAT margin Source: I-Sec Research 1,077 166,517 29,850 197,444 FY09E 20 5,685 197,739 44,243 247,687

ICICI Securities

FY10E 14,373 17,762 235,256 55,877 323,268

FY11E 27,526 25,633 274,575 70,199 397,934

4,961 1,534 6,495

15 426 6,320 3,369 10,130

10,242 8,450 7,306 3,994 29,992

19,343 15,136 8,231 5,509 48,218

3.0 5.1 3.3

73.6 7.5 3.2 7.6 4.1

71.3 47.6 3.1 7.1 9.3

70.3 59.0 3.0 7.8 12.1

(538) 3,470 209 3,141

(89) (2,578) 5,478 231 3,042

4,554 118 4,724 556 9,952

10,829 6,225 5,154 1,617 23,826

(49.9) 2.1 0.7 1.6

(446.1) (45.3) 2.8 0.5 1.2

31.7 0.7 2.0 1.0 3.1

39.3 24.3 1.9 2.3 6.0

Chart 17: Robust growth expected supported by evolving business model
450 400 350 300 (Rs bn) 250 200 150 100 50 0 FY08E
Source: I-Sec Research

Coal-mining Others Real-estate Pow er generation Trading EBITDA margin (%)

14 12.1 69 9.3 56 18 14 26 28 12 10 8 6 (%)

44 30 3.3 4.1

4 2

167

198 FY09E

235 FY10E

275 0 FY11E

While AEL would have ~Rs290bn debt by FY11E, interest outgo would be limited to only 4% on account of lower interest incidence for power projects. The interest payment in these cases starts only post project commissioning and most of the projects would likely be commissioned in FY12 and FY13. Effectively, net earnings (post minority interest payment) are expected to report 96% CAGR over FY08E-11E.

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Adani Enterprises, March 31, 2008

ICICI Securities

Financials
Table 26: Profit & Loss statement
(Rs mn, year ending March 31) Total Revenues Less: Cost of material used Other Manufacturing Expenses Power and Fuel Total Operating Expenses EBITDA Depreciation & Amortisation Other Income EBIT Less: Net Interest Recurring Pre-tax Income Add: Extraordinary Income Less: Extraordinary Expenses Less: Taxation Net Income (Reported) Less: Minority Interest Recurring Net Income Source: Company data, I-Sec Research 1,202 1,778 FY06 123,415 FY07 169,491 FY08E 197,444 FY09E 247,687 FY10E 323,268 FY11E 397,934

115,576 4,677 120,253 3,162 50 14 3,125 1,533 1,592 148 (4) 390 1,355

158,733 6,055 164,788 4,702 163 42 4,581 2,286 2,295 2 (7) 516 1,787

184,764 2,591 3,594 190,949 6,495 855 444 6,084 2,068 4,016 1 (7) 623 3,401 252 3,141

225,894 2,836 8,827 237,557 10,130 1,435 900 9,594 5,090 4,505 1,063 3,441 399 3,042

277,561 4,496 11,220 293,277 29,992 3,104 884 27,772 9,811 17,961 4,826 13,135 3,183 9,952

331,883 6,567 11,266 349,716 48,218 4,288 406 44,335 9,110 35,226 7,211 28,015 4,189 23,826

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Adani Enterprises, March 31, 2008 Table 27: Balance Sheet
(Rs mn, year ending March 31) FY06 ASSETS Current Assets, Loans & Advances Cash & Bank balance Inventory Sundry Debtors Loans and Advances Total Current Assets Current Liabilities & Provisions Current Liabilities Sundry Creditors Other Current Liabilities Others Provisions Total Current Liabilities and Provisions Net Current Assets Total Investments Fixed Assets Gross Block Less Accumulated Depreciation Net Block Add: Capital Work in Progress Total Fixed Assets Total Assets FY07 FY08E

ICICI Securities

FY09E

FY10E

FY11E

7,150 4,597 23,988 5,683 41,417 20,499 19,835 665 2,394 854 23,747 17,670 665 1,612 211 1,401 429 1,830 20,165

16,316 17,991 24,184 6,636 65,128 22,464 18,900 3,564 3,122 1,304 26,890 38,238 128 4,654 513 4,141 9,669 13,810 52,175

11,441 19,955 33,055 7,964 72,414 25,139 20,790 4,349 4,500 1,565 31,204 41,210 236 16,227 1,369 14,859 20,000 34,859 76,305

39,976 22,475 42,948 9,556 114,955 30,506 22,869 7,637 5,400 1,878 37,784 77,171 236 59,578 2,804 56,774 59,138 115,912 193,318

10,550 27,552 51,287 11,468 100,857 40,347 25,156 15,191 6,480 2,254 49,081 51,776 236 119,784 5,908 113,876 161,288 275,164 327,176

12,636 30,250 62,393 13,761 119,040 42,510 27,671 14,839 7,776 2,705 52,991 66,049 236 200,447 10,196 190,251 181,857 372,107 438,392

LIABILITIES AND SHAREHOLDERS' EQUITY Borrowings Short Term Debt 3,155 FCCBs 1,323 Long Term Debt 7,166 Total Borrowings 11,644 Share Capital Paid up Equity Share Capital No. of Shares outstanding (mn) Face Value per share (Rs) Preference Share Capital (convertible) Reserves & Surplus Share Premium Others General & Other Reserve Less: Misc. Exp. not written off Minority Interest Net Worth Total Liabilities & Shareholders' Equity Source: Company data, I-Sec Research

11,362 11,063 18,240 40,664

22,448 11,063 24,201 57,712

72,820 11,063 24,201 108,084

189,281 24,201 213,482

266,001 24,201 290,202

226 226 1 -

247 247 1 3

247 247 1 -

247 247 1 -

262 262 1 -

262 262 1 -

8,299 4 8,521 20,165

11,257 36 42 11,511 52,175

14,268 9 4,087 18,593 76,305

60,000 17,142 9 7,855 85,234 193,318

9,789 60,000 26,917 9 16,735 113,693 327,176

9,789 60,000 50,567 9 27,582 148,190 438,392

32

Adani Enterprises, March 31, 2008 Table 28: Cashflow statement
(Rs mn, year ending March 31) FY06 Cash Flow from Operating Activities Reported Net Income Add: Depreciation & Amortisation Provisions Less: Other Income Net Extra-ordinary income Operating Cash Flow before Working Capital change (a) Changes in Working Capital (Increase) / Decrease in Inventories (Increase) / Decrease in Sundry Debtors (Increase) / Decrease in Operational Loans & Adv. (Increase) / Decrease in Other Current Assets Increase / (Decrease) in Sundry Creditors Increase / (Decrease) in Other Current Liabilities Working Capital Inflow / (Outflow) (b) Net Cash flow from Operating Activities (a) + (b) Cash Flow from Capital commitments Purchase of Fixed Assets Purchase of Investments Cash Inflow/(outflow) from capital commitments (c) Free Cash flow after capital commitments (a) + (b) + (c) Cash Flow from Investing Activities Purchase of Marketable Investments (Increase) / Decrease in Other Loans & Advances Sale of Fixed Assets Sale of Investments Consideration received for sale of undertaking/division Other Income Net Cash flow from Investing Activates (d) Cash Flow from Financing Activities Issue of Share Capital during the year Proceeds from fresh borrowings Repayment of Borrowings Buyback of Shares Dividend paid including tax Others Net Cash flow from Financing Activates (e) Net Extra-ordinary Income (f) Total Increase / (Decrease) in Cash (a) + (b) + (c) + (d)+ (e) + (f) Source: Company data, I-Sec Research 1,355 67 406 14 153 1,661 FY07 1,787 303 450 42 8 2,489

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FY08E 3,401 855 261 444 8 4,065

FY09E 3,441 1,435 313 900 4,290

FY10E 13,135 3,104 376 884 15,731

FY11E 28,015 4,288 451 406 32,348

(1,299) 35 (2,241) 1,161 (561) (2,906) (1,244)

(13,395) (197) (953) (935) 3,627 (11,851) (9,362)

(1,964) (8,871) (1,327) 1,890 2,163 (8,109) (4,044)

(2,520) (9,893) (1,593) 2,079 4,189 (7,738) (3,448)

(5,077) (8,340) (1,911) 2,287 8,634 (4,407) 11,324

(2,698) (11,106) (2,294) 2,516 943 (12,638) 19,710

(1,330) (565) (1,895) (3,139)

(12,283) (21,904) (82,488) (162,357) (101,231) 537 (108) (11,745) (22,012) (82,488) (162,357) (101,231) (21,107) (26,056) (85,937) (151,032) (81,521)

14 14

42 42

444 444

900 900

884 884

406 406

1 5,105 (117) (119) 4,870 153 1,897

20 29,021 (129) 1,312 30,224 8 9,167

17,047 (129) 3,810 20,728 8 (4,876)

60,000 50,372 (168) 3,368 113,572 28,535

9,804 105,398 (176) 5,696 120,722 (29,426)

76,720 (176) 6,658 83,201 2,086

33

Adani Enterprises, March 31, 2008 Table 29: Key ratios
(Year ending March 31) FY06 Per Share Data (Rs) EPS(Basic Recurring) Diluted Recurring EPS Recurring Cash Earnings per share (CEPS) Free Cashflow per share (FCPS-post capex) Reported Book Value (BV) Dividend per share Valuation Ratios (x) Basic Price Earning Ratio Diluted Price Earning Ratio Price to Recurring Cash Earnings per share Price to Book Value EV / EBITDA EV / Total Operating Income EV / Operating Free Cash Flow (Pre-Capex) EV / Net Operating Free Cash Flow (Post-Capex) Dividend Yield (%) Growth Ratios (% YoY) Basic Recurring EPS growth Diluted Recurring EPS Growth Diluted Recurring CEPS Growth Total Operating Income Growth EBITDA Growth Recurring Net Income Growth Operating Ratios (%) EBITDA Margins EBIT Margins Recurring Pre-tax Income Margins Recurring Net Income Margins Raw Material Consumed / Sales SGA Expenses / Sales Other Income / Pre-tax Income Other Operating Income / EBITDA Effective Tax Rate Return / Profitability Ratios (%) Return on Capital Employed (RoCE)-Overall Return on Invested Capital (RoIC) Return on Net Worth (RoNW) Dividend Payout Ratio Solvency Ratios / Liquidity Ratios (%) Debt Equity Ratio (D:E) Net Working Capital / Total Assets Interest Coverage Ratio-based on EBIT Cash and cash equivalents / Total Assets Turnover Ratios Inventory Turnover Ratio (x) Assets Turnover Ratio (x) Working Capital Cycle (days) Average Collection Period (days) Average Payment Period (days) Source: Company data, I-Sec Research 5.3 5.3 5.5 (13.9) 37.7 0.5 FY07 7.2 7.2 7.9 (85.6) 46.5 0.5 FY08E 12.7 12.0 16.2 (105.7) 58.8 0.5

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FY09E 12.3 9.1 18.2 (348.6) 313.9 0.5

FY10E 38.0 29.7 49.9 (577.1) 370.5 0.5

FY11E 91.0 71.0 107.4 (311.5) 460.9 0.5

113.0 113.0 108.4 15.9 44.2 1.1 (112.3) (44.5) 0.1

83.2 83.2 76.2 12.9 36.6 1.0 (18.4) (8.2) 0.1

47.1 50.0 37.0 10.2 29.9 1.0 (48.0) (7.4) 0.1

48.7 66.2 33.1 1.9 21.3 0.9 (62.6) (2.5) 0.1

15.8 20.2 12.0 1.6 12.0 1.1 31.8 (2.4) 0.1

6.6 8.5 5.6 1.3 9.0 1.1 22.0 (5.3) 0.1

NA NA NA NA NA NA

35.7 35.7 42.3 37.3 48.7 47.9

76.6 66.3 105.8 16.5 38.1 76.6

(3.1) (24.4) 12.0 25.4 56.0 (3.1)

208.1 227.1 174.7 30.5 196.1 227.1

139.4 139.4 115.3 23.1 60.8 139.4

2.6 2.5 1.3 1.0 93.6 3.6 0.8 0.4 24.5

2.8 2.7 1.4 1.0 93.7 3.2 1.8 0.9 22.5

3.3 3.1 2.0 1.6 93.6 3.1 11.1 6.8 15.5

4.1 3.9 1.8 1.2 91.2 4.7 20.0 8.9 23.6

9.3 8.6 5.6 3.1 85.9 4.8 4.9 2.9 26.9

12.1 11.1 8.9 6.0 83.4 4.4 1.2 0.8 20.5

13.8 29.1 15.1 9.7

9.8 19.2 17.8 7.3

7.6 12.9 20.9 4.1

5.1 9.3 5.9 4.3

6.6 12.8 10.0 1.4

8.1 13.0 18.2 0.6

57.7 87.6 49.0 38.8

77.9 73.3 49.9 31.5

75.6 54.0 34.0 15.3

55.9 39.9 53.0 20.8

65.3 15.8 35.3 3.3

66.2 15.1 20.5 2.9

31.3 7.2 45.8 71.0 56.9

15.0 4.7 60.2 51.9 41.7

10.4 3.1 73.4 52.9 36.7

11.7 1.8 87.2 56.0 32.2

12.9 1.2 72.8 53.2 27.1

13.8 1.0 54.0 52.1 24.2

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Adani Enterprises, March 31, 2008

ICICI Securities

Annexure 1: Power sector – Economic growth to lead demand
The XI Five Year Plan targets GDP growth of 9 per annum from ’07 to ’12. With the Indian GDP already growing at 9.4 in ’06-07 and expected to grow at 9+ in the current financial year, energy consumption in the country (at 15.4 quadrillion BTUs in ’04) is expected to explode in the coming years. The challenge for the Indian energy sector – constituting both public and private players – is thus to meet this energy demand and reduce shortages. This has created opportunities, especially for players in the power sector as demand in this sector cannot be met by imports (which can be done in case of oil).

Power demand to continue outstripping supply
The Indian economy, till now has been able to grow despite power shortages (Chart 18). But with India experiencing 8-9 growth in the past three years, we believe this shortage will not only increase but also slow down growth. Chart 18: Power shortage versus GDP
17 15 Peak Shortage Energy Shortage GDP Grow th

Chart 19: Power supply – Demand gap remains
700 Energy Demand Energy Supply

650
13 11 (%) 9 7

(bn Kwh)
FY04 FY05 FY06 FY07

600

550

500
5 3 FY03

450 FY03

FY04

FY05

FY06

FY07

Source: Economic Survey 2006-07; Report of the Working Group on Power for 11th Plan

Source: Central Electricity Authority

Thus, the XI Five Year Plan envisages not only GDP growth of 9 per annum but also ‘Power for all by 2012’ by increasing per capita consumption to 1,000KWh from the current 600KWh. These twin objectives require power generation to grow by nearly 10 per annum on a CAGR basis till ’12 (Chart 20).

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Adani Enterprises, March 31, 2008 Chart 20: Power generation to grow at 10 CAGR
1,200 1,000 800 600 400 200 0 FY08 FY09 FY10 FY11 CAGR 10%

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Energy supply (bn Kwh)

FY12

Source: I-Sec Research; Report of the Working Group on Power for 11th Plan

India’s current capacity of ~135,000MW is obviously inadequate to meet this growth requirement and thus the XI Five Year Plan has targeted a capacity addition of 78,577MW (over 132,329MW installed at the end of X Plan), requiring an investment of Rs4,109bn in power generation sector.

Continued investment required even beyond XI Plan…
With economic growth of 8-10 per annum, additional capacity of 71,000-108,000MW will be required in the XII Five Year Plan as well. Table 30: Looking beyond the XI Plan
Electricity Peak Requirement Demand (bn KwH) (MW) 0.8 1,415 215,700 0.9 1,470 224,600 9 0.8 1,470 224,600 0.9 1,532 233,300 10 0.8 1,525 232,300 0.9 1,597 244,000 Source: Report of the Working Group on Power for 11th Plan GDP Growth (%) 8 GDP/Electricity Elasticity Installed Capacity (MW) 280,300 291,700 291,700 303,800 302,800 317,000 Capacity Addition During XII Plan (MW) 70,800 82,200 82,200 94,300 92,800 107,500

Even assuming a conservative estimate, by the end of XII Five Year Plan, India must have added 70,800MW capacity, apart from 78,577MW in the XI Five Year Plan. In the next 10 years, India will have to add at least as much capacity as it has added in the past 60 years!!!

…but power deficit may still continue…
Previous Five Year Plans have not been successful in meeting capacity addition targets (Chart 21).

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Adani Enterprises, March 31, 2008

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Target (MW) Achivement (MW) Success Rate

Chart 21: Achievement of planned targets in previous plans
45,000 40,000 35,000 30,000 (MW) 25,000 20,000 15,000 10,000 5,000 0 5th (1974-79) 6th (1980-85) 7th (1985-90) 8th (1992-97) 9th (1997-02) 10th (2002-07) 120 100 80 60 40 20 0 (%)

Source: White paper on Strategy for XI Plan

While the XI Five Year plan appears to do better as 62 of the planned capacity expansion is already under implementation, nevertheless most of these projects will be commissioned post ’10 (Chart 22) and this increases the chance of delays and hold-ups in commissioning. Chart 22: Commissioning of power projects
120 100 80 (%) 60 40 20 20.8 0 FY08 FY09 FY10 FY11 FY12 8.6 17.9 23.9 28.8

Source: White paper on Strategy for XI Plan

In fact, we believe, 75 of the capacity may actually be operational by ’17, which means power supply is not going to increase dramatically any time soon.

…and per capita consumption may increase
While there may not be a dramatic change in the power supply situation, we believe power demand will increase both on account of increased economic growth and rising per capita consumption. At 600KwH per capita consumption of power, India is still among the lowest power consumers globally. However, as GDP grows at 8+, we believe demand per capita may be higher than 1,000Kwh as envisaged by ‘Power for All by ’12’. This is because the current economic growth will put India into a high growth trajectory and per capita power consumption will become comparable to global peers (Chart 23).
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Adani Enterprises, March 31, 2008

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Chart 23: Economic growth to lead to increased power consumption
16,000 Per Capita Power Consumption (Kwh, 2003) USA 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 India China 0 6,000 12,000 18,000 24,000 30,000 36,000 42,000 Italy Brazil Mexico Czech Rep. Israel Spain UK

Per Capita GDP (2004) US$
Source: UNDP Human Development Report 2006

Hence, power deficit may not decrease in the near future, even when more capacity is added in the XI and XII plans.

Opportunity for the private sector
With the Government not having enough financial resources to create adequate capacity and demand outstripping supply, we believe private sector has a huge opportunity to exploit and supply competitively priced power. In fact, in terms of investment, private companies have 7,528MW of projects under construction as part of the XI Plan. Overall, the planned target of 13 capacity addition from private sector requires an investment of more than Rs410bn. More importantly, power demand is likely to continue outstripping supply. Thus, we believe that power tariffs will keep on offering attractive returns to the private sector, especially through the merchant power route, wherein short-term contracts offer an upside based on demand-supply scenario.

Few concerns remain…
While opening of the power sector augurs well for private players in particular and the whole sector in general, most private and Government investment up till now and in the future is in coal-based thermal power projects (Chart 24).

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Adani Enterprises, March 31, 2008 Chart 24: Sector-wise distribution of power projects
Hydro 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Central Government
Source: Central Electricity Authority

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Coal 1,490 1,000 Lignite Gas&Liquid Fuel 762 450 Nuclear 2,037

3,380

24,310

23,135

5,460

9,685

3,263 3,605 State Government Private

This raises fuel supply concerns in the future. While India does have abundant coal reserves (253.2bnte); the mineable electricity generating coal may be much lesser. In fact, CEA estimates that by ’11-12, 40mnte of imported coal, which is equivalent to 68mnte of Indian coal, will have to be imported to meet power sector requirements (Chart 25). Currently, coal is already being imported from Australia, Indonesia and South Africa. Chart 25: Estimated coal requirement and availability for power generation
600 500 400 (mn te) 300 200 100 0 FY08 FY09 FY10 FY11 FY12 Total Coal Requirement Total Availability

Source: Central Electricity Authority

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Adani Enterprises, March 31, 2008

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Annexure 2: Indian real estate – proxy on growing economy
We estimate the size of Indian real estate market at FY07 end to be US$57bn or 6.2% of the Indian GDP. In value terms, we expect the real estate market to grow at 12.8 CAGR in the next five years to US$105bn or 7.1 GDP by FY12E. In the next five years, the average annual investments required in the real estate sector are at ~US$85bn, of which the residential segment constitutes 88 at US$74bn. We estimate annual investments for the office space to be US$5.7bn and retail segment at US$4.8bn. These estimates are based on requirements of investment in land and the construction cost of developments to meet the intrinsic real estate demand in India. These estimates are not based on sales as they would present a distorted picture since the mark up on costs could vary with market conditions. Table 31: Investments required in Indian real estate sector
(US$ bn) Demand in FY07 51.7 3.0 2.7 57.3 6.2 Demand in FY12E 90.6 7.7 6.5 104.9 7.1 Average demand in next five years 74.1 5.7 4.8 84.7 6.8 CAGR (%) 11.9 20.9 19.5 12.8

Residential Office Retail Total Investments as a of GDP Source: I-Sec Research

We estimate that as of end-FY07, the stock (in terms of constructed area) was at ~38bn sqft for residential units, ~135mn sqft for office space and ~90mn sqft for retail. In FY07, ~1.8bn sqft residential space, 35mn sqft office space and 24mn sqft retail space was added to the stock. We estimate the market to grow at 4.6% CAGR with residential, commercial and retail segments growing at 4.2%, 15.2% and 14.3% CAGR respectively. Also, we expect the next five-year average annual demand for residential, office and retail space at 2bn sqft, 65mn sqft and 37mn sqft respectively. Table 32: Real estate – Segment-wise demand forecast
(mn sqft) Current stock 37,822.5 135.0 89.8 38,047.3 99.4 Development in FY07 1,763.4 39.8 23.9 1,827.1 96.5 Demand in FY12E 2,165.7 80.6 46.6 2,292.9 94.4 Average demand for next five years 1,998.2 64.8 36.5 2,099.5 95.2 CAGR (%) 4.2 15.2 14.3 4.6

Residential Office Retail Total Share of residential Source: I-Sec Research

Going forward, hotels, logistics and warehousing would create significant real estate demand. As per industry estimates, next five years would see additions of 100,000125,000 hotel rooms in India. There is tremendous opportunity for developers to capture the burgeoning real estate market. However, developers need to re-invent themselves to meet changing customer needs and offer differentiated, quality products at the right price.

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Adani Enterprises, March 31, 2008

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Foundations still good
Real estate growth in Indian is based on strong economic growth, improving demographics, rise of the services sector and the upcoming organised retail hospitality & logistics industry. This growth is further fuelled by increasing money flow in the sector and Government initiatives such as SEZs to generate additional demand. These drivers are expected to remain strong in the visible future, lending credence to long-term growth in the real estate industry.

Strong and sustainable economic growth
The critical driver of real estate growth in a country is its overall economic health; the upswing or downswing in economic activity is a leading indicator of demand and prices in the sector. Economic growth provides impetus to commercial real estate by improving rentals, reducing vacancy rates and increasing demand for further office space. On the other hand, rising income levels fuel demand for residential and retail real estate. In India, real estate and economy are deeply interlinked and interdependent for growth. The real estate industry has linkages with various sectors of the economy, being associated with 250 industries. Investment in real estate results in 78% addition to the GDP (Source: Report of International Union for Housing Finance). A unit increase in expenditure in this sector has a multiplier effect, generating 5x income growth. As per industry estimates, real estate could generate 3.2mn jobs over a decade, thus adding ~10mn to the current employment base. This makes the realty sector the second-largest employer after agriculture. The overall employment generation on the back of additional investment in housing/construction is 8x direct employment (Source: IIM-Ahmedabad Study in ’00). Chart 26: Quarterly growth in construction versus the GDP
23 21 19 17 (% chg YoY) 15 13 11 9 7 5 Q1FY04 Q2FY04 Q3FY04 Q4FY04 Q1FY05 Q2FY05 Q3FY05 Q4FY05 Q1FY06 Q2FY06 Q3FY06 Q4FY06 Q1FY07 Q2FY07 Q3FY07 GDP Construction

Source: CSO

Strong growth in the Indian economy has been mainly on account of the rise of the services sector, which has grown annually at 12.8% for the past five years. The services sector now contributes 60% to the GDP and is still showing unrelenting growth.

41

Adani Enterprises, March 31, 2008 Chart 27: Growth in Indian GDP and services sector
50 45 40 35 (Rs trn) 30 25 20 15 10 5 0 GDP, current prices (INRbn) YoY grow th in Services YoY grow th in GDP

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25% 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% FY07E FY08E 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

Source: MOSPI, I-Sec Research

The Indian economy has grown at 11% CAGR for the past five years and is expected to deliver 8%+ real growth in the visible future. India is the tenth largest economy in the world and fourth largest based on purchasing power parity. Also, India is the second fastest growing economy, well poised to become the third largest economy in the world by ’50 (source: PwC). This lends strong base for robust growth in the real estate market.

Favourable demographics
Rising income levels India’s per capita disposable income growth has been 2.6x in the past 10 years and 1.6x in the past five years. From the current levels of Rs29,800, we expect the per capita disposable income to grow 8-13% in the next five years. Chart 28: Rising disposable Income
30 25 (INR thousand) 20 15 10 5 0 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06
Source: MOSPI, I-Sec Research

Per Capita Net disposable Income

Grow th rate (RHS)

For the residential real estate market, the key impact of rising income levels has been improving affordability of homes.

42

FY06

Adani Enterprises, March 31, 2008

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Affordability, which measures the number of annual incomes required to buy a house, has come down from 20 years in 1995 to as low as 4.3 years in ’04. However, the affordability index has started rising, reaching 5.1 years by ’07; we expect sharper rise in realty prices that would increase the affordability index even further. Chart 29: Affordability – Within comfort zone
40 35 Property Value (Rs Lac) 30 25 20 15 10 5 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Property Cost (Lac) Annual Income (RHS) Affordability (years) 8 7 6 5 4 3 2 1 0 Annual Income (Rs Lac)

Source: HDFC, I-Sec Research

Affordability, in terms of years of annual income, is still not the key concern; the affordability index was >10 years before 1997-98. However, rising financing cost and the impact of increasing mortgage payments are the growing concerns. Growing urban population India’s urban population has grown ~3% annually to 285mn in ’01 from 109mn in 1971; the growth trend would continue, with urban population at ~370mn by ’11E. Indian cities with >1mn population grew from 12 in 1981 to 35 in ’01 and are expected to reach 70 by ’25. In ’01, 27.8% urban population living in these cities is likely to grow to 41% by ’25, implying migration from smaller to larger cities. Table 33: Urban population
1971 1981 Urban population (mn) 109 159 Urban population growth (%) 2.7 3.9 urban population (% of total) 20.0 23.3 Contribution to national income (%) 35.0 47.0 Cities – population >1mn 8 12 Source: National institute of Urban, UNDP, CPHEEO, I-Sec Research 1991 218 3.2 25.7 55.0 23 2001 285 2.7 27.8 60.0 35 2006 325 2.6 29.1 63.0 45 2011E 370 2.7 31.2 66.0 53

43

Adani Enterprises, March 31, 2008 Chart 30: Urban and rural growth rates
4.5% 4.0% 3.5% 3.0% 2.5% (%) 2.0% 1.5% 1.0% Urban population Rural population Urban households Rural households India population 0.5% India households 50.0 40.0 1971-1981 1981-1991 1991-2001 70.0 60.0

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Chart 31: Urban growth
% urban population Contribution to national income (%) Cities - population more than 1 mn (RHS)

60 50 40 30 Cities

30.0 20.0 10.0 0.0 1971 1981 1991 2001 2006 2011 20 10 0

Source: Census India

Source: National institute of Urban Affairs, UNDP, CPHEEO, I-Sec Research

Burgeoning Indian middle-class The number of Indian middle-class households with annual income between Rs0.2mn and Rs2mn has quadrupled in the past 10 years from 4.7mn households in 1996 to 17.5mn in ’06. The number of upper-class households with annual income >Rs2mn has grown 6x from 0.08mn households in 1996 to 0.6mn in ’06. Indian middle & upper-class together stand at ~100mn, expected to grow 15-16% annually for the next five years. The growth of middle and upper classes is one of the key driver for further housing demand. Table 34: Population profile
(Households ’000s) FY06 Income (mn) FY96 FY02 (approx) >10 5 20 52 10 to 5 11 40 103 5 to 2 63 201 454 2 to 1 189 546 1,122 1 to 0.5 651 1,712 3,212 0.5 to 0.2 3,881 9,034 13,188 0.2 to .009 28,901 41,262 53,276 <0.009 131,176 135,378 132,249 Total 164,877 188,193 203,656 Source: NCAER (‘The Great Indian Middle Class’, ’04), I-Sec Research FY10 (estimate) 141 255 1,037 2,373 6,173 22,268 75,304 114,394 221,945 CAGR (FY06-FY10) (%) 28.3 25.4 22.9 20.6 17.7 14.0 9.0 (3.6)

Young India India’s median age was 24 in ’05 as compared with 33 years for China and 43 years for Japan. As per industry estimates, average age of a home buyer has decreased from 42 years to 31 years. The younger generation is creating demand for further residential units and the trend should continue as the income generation capability of the Indian youth remains strong. Nuclearisation Reduction in household size has created additional demand in residential units. The size of an average urban household decreased from 6.06 people in ’01 to 5.5 people at present. Average household size in European countries varies from 2.3 to 2.8 persons. Rising income, greater number of income generators per household,
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Adani Enterprises, March 31, 2008

ICICI Securities

especially working women and the younger generation, and changing mindset are the primary reasons for reduction in the household size. We expect the household size to continue to dip 0.5-0.3 annually, reaching ~5.14 people in the 10 ten years. Increasing funding options In India, home loan as a percentage of GDP is ~6% as of FY07 as compared with ~4% in FY06. The ratio is still considerably low in comparison with developed countries such as the US (71%), the UK (80%), Denmark (94%) and other Asian countries. We believe that a sizeable opportunity exists for funding residential units in India, which in turn would propel further residential demand. However, rising interest rates have reduced the attractiveness of home loans. Chart 32: Home loan as a percentage of GDP
Denmark UK USA Hongkong Germany Taiw an Singapore Malaysia Korea Thailand India 0%
Source: HDFC

2007 2006

20%

40%

60%

80%

100%

Growth in IT/ITES sector and other businesses
India has the largest skilled labour pool in the world, with 2.5mn new graduates added each year. Most new entrants have good communication, technical and quantitative skills. India has a total graduate population of ~50mn, which is 1.5x China's and ~2x USA’s. A recent AT Kearney report rated India as the second-best destination for FDI investments after China and the #1 off-shoring location in the world. The IT/ITES sector grew at a phenomenal pace in the past decade, significantly impacting office real estate in India; the sector comprises ~75-80% of the current commercial demand. In FY06, the industry exports grew 33% to US$23.6bn; the sector is expected to grow 25-30% annually in the next few years. At present, the IT/ITES sector has ~1.3mn employees, with more than 350,000 employee addition expected next year. We estimate the number of employees in the IT/ITES sector at ~4.5mn by FY12E and ~8mn by FY17E. As per industry estimates, ~ 3.5mn jobs will be outsourced to India by FY17E. Bangalore is the traditional hub for IT/ITES space in India. In the South, Hyderabad, Pune and Chennai are developing as key hubs of commercial development. In the North, Delhi, Noida and Gurgaon are the preferred destinations. The West has witnessed Mumbai, the commercial capital of India, grappling with the upcoming demand that is pushing prices in the commercial business district (CBD) and peripheral areas to new highs. At present, Tier II cities offer more advantages to
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Adani Enterprises, March 31, 2008

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IT/ITES companies, considering the lower real estate prices. Cities such as Coimbatore, Mangalore, Chandigarh, Vishakhapatnam, Madurai, Mangalore, Kochi, Jaipur, Gurgaon, and Nagpur are also in the midst of IT/ITES-led real estate boom. Apart from the IT/ITES sector, biosciences, insurance, banking and consulting sectors also contribute to office space demand. Further, India has emerged as the global manufacturing base, especially for textiles, auto & auto components and light engineering industries. Office space in India currently stands at 135mn sqft, which is low compared to international peers. Hong Kong alone has more office space than India; Manhattan, US has > 430mn sqft.

Growth in organised retail
At present, India’s retail market is ~US$270bn and growing ~7-9% annually. We estimate the retail market at US$600bn by FY17E. Given that retail is globally the largest industry at ~US$7.2trn, we expect significant action in retail space. A number of international retailers and brands are entering the Indian retail market. AT Kearney’s recent retail report, Global Retail Development Index, ’06, rated India as the most attractive place for the retail industry. The size of the organised retail market, as a component of total retail, increased from 2% in FY03 to ~6% in FY07. However, the share of organised retail in India is very low when compared with >15% in China and >40% in other Asian countries. We expect organised retail to grow at 21% CAGR to US$109bn in FY17E. Improving demographics, increasing urbanisation and cultural shift are key reasons for growth in organised retail. Chart 33: Retail growth
700 600 500 (US$ bn) 400 300 200 100 0 FY08E FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY04 FY05 FY06 FY07 Total Retail Market ($ bn) Organised Retail ($ bn)

Source: Industry, I-Sec Research

In the next three years, ~220 malls are expected to emerge in India, including specialised malls such as auto, jewellery, furniture and electronic malls. Further, many upcoming malls would offer hotel and amusement facilities.

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Adani Enterprises, March 31, 2008 Table 35: Upcoming malls (three years)
City Delhi Mumbai Bangalore Chennai Kolkata Hyderabad Pune Ahmedabad Tier III cities Total Source: Business Standard

ICICI Securities
Number of malls 60 30 10 5 10 15 11 4 75 220

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ICICI Securities

Annexure 3: Company background
AEL is the flagship company of the Adani Group and is one of the leading trading houses in India, being the first company to be accorded the status of Five Star Trading House by the Directorate General of Foreign Trade, New Delhi. The Adani Group, founded in 1988, is one of the fastest growing business houses in India. With its head office in Ahmedabad, India, AEL has extended its activities across the globe. AEL has over the years transformed itself into a multiple asset backed commodities trader, sourcing, producing, marketing and transporting nearly 70 commodities across more than 60 countries. The company operates through 30 offices including eight overseas offices in the US, the UAE, China, Singapore, Indonesia, Mauritius and Myanmar. The Adani Group is now witnessing a transition from primarily being a trusted trading house to a diversified conglomerate. Its business canvass includes edible oil, logistics, power generation, coal, oil & gas exploration, gas distribution, real estate, ports, special economic zones and IT-enabled services, largely held within AEL. Its growth has been organic, which led to a synergy among business units making them more productive and competitive together. Chart 34: Company evolution
2007 2nd FCCB US$250mn

2006

Agri Fresh, Agri Logistics, 660 MW Power Proj–Work Commence

2005

T/O US$3bn+

Market Cap USD 327mn

2004

T/O : US$2bn+

FCCB USD38mn

Five Star Export House

2002

Subsidiary in Singapore

2001

Edible Oil Refinery

Golden Superstar Trading House

1999

Subsidiary in UAE

1998

Mundra Port Operational

Coal Business Commenced

1994

IPO @ Rs.150/share. Over subscribed 25 times

Super Star Trading House

1993

Public Ltd Company

Star Trading House

1988

Started as Partnership Firm

Source: Company

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Adani Enterprises, March 31, 2008

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Key management profile
Gautam S. Adani – Group Chairman. Mr. Gautam S. Adani, aged 44 years, is the

Company's Chairman and has over 20 years of varied experience in manufacturing and trading. His unparalleled expertise in international trade, new problem solving approaches, innovation and endurance in an increasingly competitive and rapidly expanding trading market has seen the Adani group metamorphose itself from a trading house to an infrastructure builder and basic utility provider. Rajesh S. Adani – Managing Director. Mr. Rajesh S. Adani, aged 42 years, is the Managing Director of the Company and holds a degree in commerce. He is responsible for the operations of the Issuer. His proactive and personalized approach to business and a competitive spirit has been instrumental in AEL establishing business relationships and a wide network of contacts with traders across the globe.

Energy
R.K. Gupta – President (Power Generation). Mr Raj Kumar Gupta, aged 62 years, holds a degree in B.E. (Electrical Engineering) and has a rich experience of more than 4 decades in the field of hydro/diesel/coal/gas power generation and distribution. His achievements include commissioning of various power plants across India in a record time and within the given cost budgets. He has earlier worked with RRVUNL as CMD and UPRVUNL as Director (Technical). R.K. Madan – President (Power Trading). Mr. Madan, an Electrical Engineering Graduate with 64 years old possess a total experience of more than 41 years in all the facets-engineering, contracting, execution, operation and maintenance of power / transmission works of Indian Power Sector. Prior to joining Adani Group, he was Chairman & Managing Director of Power Trading Corporation of India Rajiv Sharma – CEO (Adani Energy). Mr. Rajeev Sharma has been associated with Adani Group since last 4 years and has been responsible for Group’s initiatives in gas business and development of city gas distribution projects across the country. Prior to joining Adani Group, he was associated with GAIL (India) Limited for 19 years in various capacities. As the founding Managing Director of Indraprastha Gas, he has the distinction of implementing successfully the prestigious CNG Program in Delhi. He has been responsible for formation of a professional forum - “Natural Gas Vehicles Association of India (NGVAI)” for discussing and highlighting developments in technology, codes & standards and policy issues. Pradeep Mittal – Director & CEO (Energy & Minerals). Mr. Pradeep Mittal, aged 52 years, is an Executive Director of the Company. He is the Chief Executive Officer of the Company's energy and minerals divisions and has more than 28 years experience in international coal trading. He has been instrumental in several new business initiatives which have now been turned into successful ventures like trading in power, coal etc. Harsh V. Mishra – President (Overseas Business Development). Mr. Harsh Mishra is a Post Graduate in Physics from IIT Delhi and an MBA from FMS, Delhi. He has worked with ONGC, Times of India and other big corporate groups including Jindal Strips, his last employment for 9 years as Director/Executive Vice President
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Adani Enterprises, March 31, 2008

ICICI Securities

(Corporate Planning). In Adani he is heading the coal mining operations in Indonesia. He is also responsible for new business development abroad. Mr M.K. Thapar (President Coal Mining). Shri Thapar has had a very illustrious career in the Coal Industry last assignment being that of CMD of South Eastern Coal Fields. Prior to his assignment in South Eastern Coal Fields Shri Thapar has worked in different capacities such as Director in the Ministry of Coal, initially as Tech Director & later as CMD OF Central Coal Fields Limited. He has been a turnaround specialist and is known to drive growth from primarily optimizing utilization of resources. T L Jain – President (POL). Mr. Jain, a Fellow Member of the Institute of Chartered Accountants of India (FCA). He brings with him a very rich experience and accomplished track record of more than 30 years in Downstream Oil Industries. He has served with Indian Oil Corporation Ltd. (IOCL) in different capacities across the functions such as Finance, Marketing, Corporate Planning. He held last position as Executive Director (Corporate Planning & Economic Studies). Mr Mathur – CEO (Adani Welspun Exploration). Mr. Mathur has a very rich background in the petroleum & oil sector, having spent 35 years in various positions in Shell in the US, the Hague and in London.

Real Estate
Mr Tarwinder Singh – CEO (Adani Developers Pvt). Mr. Tarwinder Singh, CEO, has done his Bachelor of Engineering (Civil) and Masters in Technology in Construction Management from IIT, Delhi. He joined the Adani Group in March 2006 as the CEO of the Group’s realty business. Before joining the Adani Group, he was a Director on board of Punj Lloyd, looking after the Infrastructure SBU of the company.

Agro
Pranav Adani – Director (Adani Wilmar). Mr. Pranav Adani graduated in Business Management from Boston University, US and immediately got involved in newly formed Joint Venture between Adani Group and Wilmar Group of Singapore. He possesses a rich & varied management experience of more than 8 years in the FMCG sector & under his able guidance, the Adani Wilmar Limited has been transformed into a formidable player with a leading market share of more than 20. Under his management, the Adani Group is also making an ambitious foray into development of integrated Agri Infrastructure from Farm to Retail for Fresh Fruits and Vegetable sector. Atul Chaturvedi – President (Agro). Mr. Atul Chaturvedi, Post Graduate in ExportImport Management, has more than 26 years of varied general and strategic management experience in the field of Manufacturing and Trading. He has played a key role in the development of Agro Division within a span of 4 years of his association with Adani Enterprises Ltd.

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Adani Enterprises, March 31, 2008

ICICI Securities

Ravindra Jain – CEO (Agrifresh). Mr Ravindra Jain is a gold medalist in his B.E. (Elect) from the M. Regional Engineering College, Jaipur and has thereafter done his Post Graduation from the IIM, Ahmedabad in 1980. He has worked in Companies like Crompton Greaves, Bakelite Hylam, Titan Industries, Hitachi Amtrex Appliances in senior positions of sales and marketing. Mr. Jain is heading the Agrifresh business of Adani’s and his background in marketing and strategic planning with the exposure to the food industry would go a long way in development of the Agrifresh business which the group is embarking upon.

Services
Devang Desai – Chief Financial Officer. Mr. Devang Desai is a Chartered Accountant and has 26 years of corporate experience in reputed Indian companies. His exposure to “new ventures” and “start-ups” in industries ranging from Petrochemicals, Cement, Textiles, Infrastructure and retailing, has provided him with a wealth of business perspectives and developmental issues. He has been extensively involved in conceptualizing ventures, managing large resource mobilization programmes and initiating & nurturing alliances in Adani for more than a decade. He is part of the core team which has large interests in global commodity business and infrastructure. Chart 35: Shareholding pattern
Existing
Public 25%
Public 24%

Post FCCB conversion
FCCB 6%

Promoters 75%
Source: Company, I-Sec Research

Promoters 70%

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Annexure 4: Index of Tables and Charts
Tables
Table 1: Valuation for power projects ................................................................................... 3 Table 2: Relative valuations for power companies ............................................................... 3 Table 3: Power generation valuation sensitivity to tariffs and discount rates ....................... 4 Table 4: Valuation summary of real estate ........................................................................... 4 Table 5: Real estate valuation sensitivity to property prices and discount rates .................. 4 Table 6: Relative valuation of real-estate companies ........................................................... 5 Table 7: Valuation of trading businesses.............................................................................. 5 Table 8: Valuation of other businesses (including brief remarks)......................................... 5 Table 9: SOTP valuation for AEL.......................................................................................... 6 Table 10: Fair value of Rs926/share post dilution ................................................................ 6 Table 11: Investments in Real estate expected to report 12.8% CAGR............................... 7 Table 12: Mundra project details .......................................................................................... 9 Table 13: Tiroda project details........................................................................................... 10 Table 14: Dahej and Rajasthan projects............................................................................. 11 Table 15: FCFE based valuation of power projects............................................................ 11 Table 16: Key assumptions and valuation of mining deal with RRVUNL ........................... 12 Table 17: Real estate space – Break-up ............................................................................ 14 Table 18: Real estate: assumptions and valuation details ................................................. 19 Table 19: Assumptions and valuation for trading................................................................ 19 Table 20: Plan growth rates versus investment ratio.......................................................... 23 Table 21: Supply to remain under constraint even in best-case scenario… ...................... 23 Table 22: Brief overview of distribution-related business segments................................... 25 Table 23: Assumptions and valuation of other businesses ................................................ 26 Table 24: Funding requirement by various business segments ......................................... 29 Table 25: Financials – Various business segments ........................................................... 30 Table 26: Profit & Loss statement....................................................................................... 31 Table 27: Balance Sheet..................................................................................................... 32 Table 28: Cashflow statement ............................................................................................ 33 Table 29: Key ratios ............................................................................................................ 34 Table 30: Looking beyond the XI Plan................................................................................ 36 Table 31: Investments required in Indian real estate sector............................................... 40 Table 32: Real estate – Segment-wise demand forecast................................................... 40 Table 33: Urban population................................................................................................. 43 Table 34: Population profile ................................................................................................ 44 Table 35: Upcoming malls (three years) ............................................................................. 47

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Charts
Chart 1: AEL in transition mode ............................................................................................ 7 Chart 2: Power generation to grow at 10% CAGR ............................................................... 7 Chart 3: Coal demand (from power and steel sectors) to grow at robust rates .................... 8 Chart 4: Planned projects with total of 9.9GW capacity ....................................................... 8 Chart 5: Progress made in Bunyu Island for coal mining ................................................... 13 Chart 6: Prime location properties fetch higher value......................................................... 15 Chart 7: Commercial property prices in South Bombay ..................................................... 16 Chart 8: Location map of BKC ............................................................................................ 16 Chart 9: Shantigram – proposed plan ................................................................................. 18 Chart 10: Key uses of coal.................................................................................................. 20 Chart 11: Region-wise coal based power generation capacity and planned addition ........ 21 Chart 12: Major seaborne coal trade routes ....................................................................... 22 Chart 13: Coal – Demand-supply gap ................................................................................ 22 Chart 14: Changing asset composition and improving operating margins ......................... 28 Chart 15: Aggressive expansion impacting cashflows, largely funded by debt.................. 28 Chart 16: Sources of funding .............................................................................................. 29 Chart 17: Robust growth expected supported by evolving business model ....................... 30 Chart 18: Power shortage versus GDP .............................................................................. 35 Chart 19: Power supply – Demand gap remains ................................................................ 35 Chart 20: Power generation to grow at 10 CAGR............................................................... 36 Chart 21: Achievement of planned targets in previous plans ............................................. 37 Chart 22: Commissioning of power projects ....................................................................... 37 Chart 23: Economic growth to lead to increased power consumption ............................... 38 Chart 24: Sector-wise distribution of power projects .......................................................... 39 Chart 25: Estimated coal requirement and availability for power generation ..................... 39 Chart 26: Quarterly growth in construction versus the GDP............................................... 41 Chart 27: Growth in Indian GDP and services sector ......................................................... 42 Chart 28: Rising disposable Income ................................................................................... 42 Chart 29: Affordability – Within comfort zone ..................................................................... 43 Chart 30: Urban and rural growth rates .............................................................................. 44 Chart 31: Urban growth....................................................................................................... 44 Chart 32: Home loan as a percentage of GDP ................................................................... 45 Chart 33: Retail growth ....................................................................................................... 46 Chart 34: Company evolution ............................................................................................. 48 Chart 35: Shareholding pattern........................................................................................... 51

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ICICI Securities Limited has been mandated for rendering advisory services to Adani Enterprises Limited. This report is prepared on the basis of publicly available information

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