Adani Power

ADANI IN

INDIA / INDEPENDENT POWER PRODUCERS

TARGET PRIOR TP CLOSE UP/DOWNSIDE

INR160.00 INR135.00 INR139.15 +15.0%

BUY
UNCHANGED

HOW WE DIFFER FROM THE STREET

BNP Consensus Target Price (INR) EPS 2011 (INR) EPS 2012 (INR) 160.00 4.54 13.98 Positive Market Recs. 11 138.00 4.06 13.58 Neutral 2 % Diff 15.9 11.8 2.9 Negative 3

INDUSTRY OUTLOOK

CHANGE IN NUMBERS

Plug in; More upside left

Reducing estimates to factor in delays and risk of higher taxes. Yet we expect 4.6x net profit growth over FY11-13. Raising DCF-based TP by 18.5% on roll-over of TP; Retain BUY. Coal-mine acquisition by parent company a positive, in our view.

KEY STOCK DATA

YE Mar (INR m) Revenue Rec. net profit Recurring EPS (INR) Prior rec. EPS (INR) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) EV/EBITDA (x) Price/book (x) Net debt/Equity ROE (%) 2011E 25,507 9,907 4.54 4.48 1.5 317.1 30.6 0.0 28.5 4.4 258.8 15.5 2012E 83,153 30,470 13.98 16.63 (15.9) 207.5 10.0 0.0 9.4 3.1 181.5 36.2 2013E 133,122 36,902 16.93 20.12 (15.9) 21.1 8.2 0.0 6.0 2.2 104.9 31.3

(INR) 140 120 100 80 Aug-09 Nov-09

Adani Power Rel to MSCI India

(%) 15 5 (5) (15) (25)

Still more upside despite run-up Adani Power (APL) shares have outperformed the MSCI India by 10.6% in the past three months and have surpassed our previous target price of INR135. We retain our BUY rating, as our new TP suggests another 16% upside from current levels despite factoring in the risk of higher tax incidence and a slight delay in capacity addition. We now Girish Nair estimate the company will achieve 4.6x +91 22 6628 2449 net profit growth over FY11-13, on the girish.nair@asia.bnpparibas.com back of a 10-fold growth in power generation capacity to 6.6 GW by FY13. APL currently has 990 MW of capacity under operation and it will be Indias first power generator to complete a super-critical power plant, when it starts its Mundra III power plant early next year. Modelling in risk of possible rise in tax incidence Despite a delay in capacity addition, our FY11E EBITDA goes up by about 9% on higher merchant tariffs and more power available for spot sales. However, our FY11E EPS goes up only by 1.5% as we assume a 20% income tax rate versus 0% earlier to factor in the risk from the governments proposals to levy an export duty or to withdraw tax exemptions to units situated in Special Economic Zones (SEZs). Our FY12E EBITDA goes down by 2.7% as we assume lower capacity utilization as new plants ramp-up. We cut our FY12E EPS by 15.9% as we assume a 20% income tax rate versus nil earlier. Ceteris Paribus, our valuation is not impacted by a higher tax incidence as we were valuing APL on a fully taxed basis. Raising TP to INR160 BUY We raise our DCF-based TP by 18.5% from INR135.00 to INR160.00 , primarily on a roll-over to FY12. We continue to like APL as we believe it will be the fastest growing IPP on the back of solid execution. We value APLs 6.6GW of projects by estimating project free cash flows for the next 15 years and then discounting it using project-specific WACCs. We consolidate the project discounted cash flows and assume a 3% terminal growth rate. For our WACC calculation, we continue to assume a cost of equity of 15% and a cost of debt of 11.5%. APL trades at our FY13E EV/EBITDA of 6.0x vs the global peers at 7.4x. At our TP, the stock would trade at an FY13E EV/EBITDA of 6.5x. Key risks stem from execution delays, higher-than-expected coal costs, lower utilization and lower-than-expected merchant tariffs.

Feb-10
1 Month 11.2 4.6

May-10
3 Month 9.1 10.6 12 Month August 2010 6,503 3.2 30 Adani Enterprises (70%) 141.40/90.80 28.1 -

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)

3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (INR) 3m historic vol. (%) ADR ticker ADR closing price (USD)
Sources : Bloomberg consensus; BNP Paribas estimates

RECENT COMPANY & SECTOR RESEARCH

The live wire ...........................................................1 Mar 2010 Growth further slows down............................... 17 Aug 2010 Divergent 1H10 results ahead............................. 5 Aug 2010

BNP Paribas Securities Asia research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://equities.bnpparibas.com. Please contact your salesperson for authorisation. Please see the important notice on the back page.

PREPARED BY BNP PARIBAS SECURITIES ASIA

19 August 2010

THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. IMPORTANT DISCLOSURES CAN BE FOUND IN THE DISCLOSURES APPENDIX.

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

Factoring in the risk of higher taxes

The government in its budget in February 2010 proposed imposing an export duty of 16% on sale of power from a power plant situated within a special economic zone (SEZ) to an area outside the SEZ. This affects the sale of power from the 4.6GW capacity being built at the Mundra SEZ. The government is yet to implement this proposal. In addition, the government in its proposed Direct Tax Code seeks to discontinue tax exemption for SEZs from next year. However, SEZ developers have requested the finance ministry to review this proposal. We do not know whether any of these proposals will actually come through. However, we conservatively factor in the downside stemming from these proposals. We continue to believe that Adani can pass on the export duty or an increase in tax incidence to its PPA customers as per the change in the law provision in the PPA. (based on a perusal of PPAs of Mundra and Sasan UMPPs which are available in the public domain) The export duty or tax incidence would hit merchant-power sales. From a profitability perspective, our analysis suggests that rather than paying the export duty of 16%, it would be better for Adani Power to let go of the SEZ status for Mundra and claim Sec 80IA benefits. This would mean that Mundra power plants, which would have paid no income tax during the first 10 years of operation would now have to pay a 20% Minimum Alternate Tax (MAT) for the first 10 years and 34% subsequently. This would also mean that APL is compliant with the governments proposed Direct Tax Code, which seeks to do away with tax exemptions for SEZ In light of these proposals, we now assume a 20% MAT for APL's Mundra power plants for the first 10 years and 34% subsequently. Ceteris Paribus, this does not affect our valuation as we had valued the company earlier on a fully taxed basis. However, we reduce our FY12 PAT estimates by 15.9% on account of the higher tax incidence.

Factoring in slight delays in capacity additions

APL currently has 990MW of capacity under operation. The 330MW Unit 1 of Mundra Phase II started operations on 30 July 2010 after a three-month delay. Unit 4 (330MW) is delayed until November 2010. We believe the delay in Mundra Phase 2 was on account of a temporary shortage of workers at the site as the Indian government did not extend visas of the Chinese personnel. Management continues to expect U-1 (660MW) of Mundra III to be completed by January 2011 (4QFY11) about six months ahead of schedule. We are assuming completion of the project in line with management guidance. However, we conservatively reduce our utilization rate assumptions for U-1 to 40% for 1QFY11. Our revised timelines are listed in Exhibit 1 below. Exhibit 1: Changes to Our Capacity Addition Estimates
Plant Capacity (MW) Mundra Ph I U-1 Mundra Ph I U-2 Mundra PH II U-1 Mundra PH II U-3 Mundra Ph III U-1 Tiroda U-I Mundra-IV Unit-1 Mundra Ph III U-2 Mundra-IV Unit-2 Tiroda U-II Mundra-IV Unit-3 Tiroda U-III Total 330 330 330 330 660 660 660 660 660 660 660 660 6,600 na na 1-Sep-10 1-Nov-10 1-Jan-11 1-Jul-11 1-Aug-11 1-Jun-11 1-Jan-12 1-Jan-12 1-Apr-12 1-Apr-12 na na 1-May-10 1-Aug-10 1-Jan-11 1-Jul-11 1-Aug-11 1-Jun-11 1-Jan-12 1-Jan-12 1-Apr-12 1-Apr-12 COD on 1 October 2009 COD on 17 March 2010 Project synchronized on 30 July 2010 3-month delay No change No change No change No change No change No change No change No change New Previous Comments

Sources: Company data, BNP Paribas estimates

BNP PARIBAS

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

Acquisition of coal mines by parent a positive

Adani Enterprises (AEL; ADE IN, Not rated), the parent company of Adani Power, recently acquired Australia based Linc Energys coal assets for about AUD3b in a cash and royalty deal. AEL will pay AUD500m in cash and AUD2/tonne in royalty for the first 20 years of production from the mine in Galilee Basin of Queensland state. The mines have total resources of 7.8b tonnes and AEL estimates an annual production of 50m tonnes per annum from the mines. The timeline for start of production is not yet available. AEL also successfully raised USD1.2b in equity through a QIP to fund the acquisition. The consummation of the deal is a testimony to the execution capability of ADLs management, which we think was recognized by investors who lapped up AELs recent QIP issue. We view this acquisition as a positive for Adani Power as the entire coal mined will be imported into India to fuel the power plants that Adani Power plans to build over and above the 6.6 GW it is currently constructing.

Change in Estimates
The changes in our estimates for FY11 and FY12 are shown in Exhibit 2 and the reasons for the changes are as follows: Steady state utilization rate cut from 90% to 85%. Change in sales mix in favour of merchant sale of power vis--vis contracted sales. Mundra II (2x330 MW) commissioning delayed by three months. Utilization rate assumptions for Mundra III U-1 and U-2 reduced to 50% in the quarter when each unit starts operations FY11 merchant tariff assumptions increased from INR4.00/kWh to INR 4.5/kwh, based on higher prices earned in 1QFY11. Continue to assume merchant tariffs at INR3.50/kWh for FY12 and FY13 and escalated at 6% pa thereafter Assume a 20% income tax rate (0% earlier) for the first 10 years of the Mundra project (4,620 MW) and 34% thereafter. Exhibit 2: Changes To Our Estimates
FY11E Financials figures New (INR m) Power sold (b kwh) PPA (b kwh) Merchant (b kwh) Av tariffs (INR/kwh) Revenue Fuel costs Operating expenses EBITDA EBITDA margin % Depreciation EBIT EBIT margin % Interest expenditure Other income PBT - recurring PBT- recurring margin % Total tax Effective tax rate % Minority interest PAT EPS (INR)
Source: BNP Paribas estimates

FY12E Change (%) (26.9) (39.7) 66.6 26.6 (7.5) (28.9) (8.5) 9.3 18.2 (15.9) 13.0 22.2 (10.3) 5.6 20.3 30.0 875.5 710.9 New (INR m) 26.6 9.1 17.4 3.1 83,153 27,171 3,266 52,716 63.4 5,816 46,901 56.4 7,542 891 40,249 48.4 7,916 19.7 1,864 1.5 1.5 30,470 13.98 Previous (INR m) 28.1 10.2 18.0 3.2 88,996 29,614 5,223 54,160 60.9 6,386 47,773 53.7 7,929 881 40,725 45.8 2,491 6.0 1,983 36,250 16.63 Change (%) (5.5) (10.0) (3.0) 0.0 (6.6) (8.2) (37.5) (2.7) 4.2 (8.9) (1.8) 5.1 (4.9) 1.2 (1.2) 5.8 217.8 221.5 (6.0) (15.9) (15.9)

FY13E New (INR m) 46.2 24.6 21.5 2.9 133,122 45,335 7,147 80,639 60.6 10,804 69,835 52.5 22,429 2,345 49,751 37.4 9,855 20.0 2,994 36,902 16.93

Previous (INR m) 10.0 8.8 1.2 2.8 27,571 11,313 1,747 14,512 52.6 1,862 12,651 45.9 3,307 630 9,974 36.2 214 2.1 9,760 4.48

7.3 5.3 2.0 3.5 25,507 8,045 1,597 15,865 62.2 1,565 14,300 56.1 2,968 666 11,998 47.0 2,090 17.4 9,907 4.54

BNP PARIBAS

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

Change in valuation and TP

We raise our TP by 18.5%, from INR135.00 to INR160.00, as we roll-over our valuation year to FY12. We value APLs 6,600MW of projects at Mundra and Tiroda using a DCF model. We estimate project free cash flows for the next 15 years and discount it using the applicable WACC based on each projects capital structure and applicable tax rates. We assume APL will pay 20% income tax during the first 10 years of the each of its projects and 34% subsequently. Accordingly, our WACC rates for discounting free cash flows for the first 10 years of a project are higher than those used for subsequent years. We add up the discounted free cash flows of each project to arrive at the discounted free cash flows to the firm. We continue to assume a 3% terminal growth rate. For our WACC calculation, we have assumed a cost of equity of 15% and a cost of debt of 11.5% We havent factored in about 4,620MW of projects under development, namely, Kawai (1,320MW), Dahej (1,980MW) and Chhindwara (1,320MW). On a relative basis, Adani Power trades at 6.0x our FY13E EV/EBITDA vs global peers 7.4x on Bloomberg consensus estimates. Potential catalysts for share performance are an increase in merchant tariffs, higher utilization rates for power plants and a significant reduction in the cost of debt because of interest rate resets on completion of power plants or if management is able to refinance domestic debt with cheaper foreign debt. Exhibit 3: Relative Valuations
Company BBG code Share price (LC) Adani Power^ NTPC^ NHPC^ Power Grid^ Tata Power Reliance Power^ JSW Energy Jindal Steel & Pwr Torrent Power CESC Lanco Infratech ADANI IN NATP IN NHPC IN PWGR IN TPWR IN RPWR IN JSW IN JSP IN TPW IN CESC IN LANCI IN 137.45 194.9 30.55 105 1,311 153.85 124.85 660.85 337.95 393.8 71.05 Market EV-EBITDA 2-Yr EBITDA P/E P/BV ROE

cap FY11E FY12E FY13E (USD m) 6,424 34,452 8,056 9,474 6,670 7,905 4,390 13,231 3,423 1,055 3,667 (x) 34.6 13.8 12.7 11.2 11.8 65.3 10.1 9.5 8.7 7.5 7.1 10.6 (x) 9.0 11.3 9.2 9.0 9.5 26.0 6.5 7.8 8.0 7.0 5.4 8.5 (x) 5.9 9.9 8.0 7.0 7.0 11.7 7.4 7.0 na 5.9 4.3 7.0

growth FY11E FY12E FY13E FY11E FY12E FY13E FY11E FY12E FY13E (%) 141.0 18.3 26.1 26.1 30.0 136.1 16.8 16.5 na 12.3 28.7 26.1 (x) 37.9 18.2 21.2 20.5 17.2 57.4 14.9 13.5 12.0 10.5 16.9 17.0 (x) 10.0 15.2 15.3 17.6 14.8 48.7 9.4 11.2 11.4 10.0 15.3 15.0 (x) 8.3 13.4 12.4 13.6 12.7 29.4 10.9 10.4 na 9.2 10.8 12.4 (x) 4.5 2.6 1.4 2.7 2.5 2.6 3.6 4.3 3.3 1.1 3.8 2.6 (x) 3.1 2.3 1.3 2.2 2.2 2.5 2.7 3.2 2.8 1.0 3.0 2.4 (x) 2.2 2.1 1.2 2.0 2.0 2.4 2.4 2.5 nm 1.0 1.9 2.0 (%) 12.6 15.6 8.1 13.8 14.9 3.8 26.1 36.5 25.2 10.6 25.4 15.3 (%) 36.7 16.1 8.3 14.3 15.9 3.7 30.7 31.9 23.6 10.7 23.1 16.0 (%) 31.5 16.2 9.2 15.2 16.8 2.8 21.8 26.5 NA 10.2 31.3 16.2

India Power Utilities Median (ex Adani Power)

Southern Co Nextera Energy Duke Energy Dominion Res FirstEnergy Corp CR Power Huadian Power SDIC Huajing Pwr Datang Intl

SO US NEE US DUK US D US FE US 836 HK 1071 HK 600886 CH 991 HK

34.78 52.78 16.89 40.99 37.26 16.98 1.86 7.09 3.33

28,677 21,948 22,179 24,432 11,358 10,269 342 2,089 1,420

9.4 8.4 8.0 8.4 6.9 10.8 11.7 23.3 16.4 9.4 10.1

8.7 8.2 7.5 8.3 6.8 8.6 9.6 47.6 13.8 8.6 8.6

8.1 7.2 7.0 7.9 7.0 7.4 8.2 47.9 11.7 7.9 7.4

8.0 8.0 6.7 2.7 (0.8) 20.6 19.6 (30.2) 18.5

15.1 12.1 13.1 13.4 10.2 14.0 20.9 31.6 23.0 14.0 15.1

14.3 11.8 13.0 13.7 9.9 12.2 13.0 25.5 16.5 13.0 13.7

13.4 11.0 12.4 13.6 10.6 10.7 10.2 22.2 13.3 12.4 12.4

1.8 1.6 1.0 2.2 1.2 1.9 0.8 1.9 1.3 1.6 1.9

1.7 1.5 1.0 2.0 1.2 1.7 0.7 1.9 1.2 1.5 1.9

1.6 1.5 1.0 1.9 1.2 1.6 0.7 1.8 1.1 1.5 1.7

12.4 13.3 8.0 16.0 12.7 13.8 3.2 4.9 5.7 12.4 13.3

12.5 12.7 7.8 14.9 12.5 14.6 5.0 5.9 7.6 12.5 12.7

12.6 12.6 7.8 14.2 11.5 14.8 6.6 7.1 8.9 11.5 12.6

Global power utilities - Median (Ex Adani Power) Overall median (ex Adani Power)

Note: * Year ending March for India. For China and North America estimates are for immediate previous year ending December Prices as at close on 17 August 2010 Sources: * BNP Paribas estimates, all others (Not rated) are Bloomberg consensus estimates

BNP PARIBAS

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

Exhibit 4: Key Assumptions

Key assumptions State Stake (%) Technology Mundra Ph I & II Gujarat 100 Sub-critical Mundra Ph III Gujarat 100 Supercritical Mundra Ph IV Gujarat 100 Supercritical Tiroda Maharashtra 77.4 Supercritical

Capacity (MW) Investment (INR m)

1,320 43,500

1,320 57,960

1,980 89,600

1,980 92,630

Operating assumptions Heat Rate (kcal/kwh) Auxiliary Consumption (%) 2,350 6.0 2,100 6.0 2,100 6.0 2,100 6.0

Imported Coal - GCV (kcal/kg) Landed cost of imported coal (USD/tonne) Exchange Rate (USD/INR) Landed cost of coal (INR/tonne)

5,200 50 46.5 2,335 50.21

5,200 50 46.5 2,335

5,200 50 46.5 2,335

4,300 31 46.5 1,430

Domestic Coal - GCV (kcal/kg) Landed cost of domestic coal (USD/tonne)

4,000 1,800

4,000 1,800

4,000 1,800

4,300 1,430

O&M Cost INR m/MW OM escalation (%) Maintenance Spares (% of cap costs)

0.35 6 1

1.3 6 1

1.3 6 1

1.3 6 1

Financial assumptions (%) Debt Equity Interest rate on loan (%) Interest rate on working capital Cost of equity Tax rate first 10 years Tax rate after first 10 years WACC after 10 years WACC - 1st 10 years Equity Investment (INR m) Debt (INR m) Depreciation rate
Sources: Company data, BNP Paribas estimates

84 16 11.50 7.00 15.0 20.0 34.0 8.8 10.1 7,060 36,440 4.0

77 23 9.67 7.00 15.0 20.0 34.0 8.4 9.4 13,420 44,540 4.0

80 20 11.50 7.00 15.0 20.0 34.0 9.07 10.4 17,920 71,680 4.0

80 20 11.50 7.00 15.0 20.0 34.0 9.1 10.4 18,530 74,100 4.0

BNP PARIBAS

GIRISH NAIR

ADANI POWER

ERROR! REFERENCE SOURCE NOT FOUND.

Base FY11 E Merchant tariff (INR/kWh) EPS (INR) Change (%) 4.50 4.54 FY12 E 3.50 13.98

Best FY11 E 5.00 4.90 7.9 FY12 E 4.00 16.83 20.4

Worst FY11 E 4.00 4.16 (8.4) FY12 E 3.00 11.12 (20.5)

Key Earnings Drivers & Sensitivity

Merchant tariffs A 10% change in merchant tariffs would impact our FY12E EPS by 14.4%. Utilization A 5% change in utilization rates would impact our FY12E EPS by 6.6%. Coal costs A 10% increase in fuel costs would impact our FY12E EPS by 3.6%.

Source: BNP Paribas estimates

Adani Power And MSCI India (3M And 6M Realised-Vol)

(%) 70

Regression Adani Power Rel to Lanco Infratech

137 127 117 107 97 87

50 40 30 20 10 0 Aug-09

Adani Power

60

19

29

39

49 Lanco Infratech

59

69

79

Adani Power - 3M Realised - Vol MSCI India - 3M Realised Sources: Bloomberg; BNP Paribas - Vol

Adani Power - 6M Realised - Vol MSCI India - 6M Realised - Vol

Adani Power = 19 + 2.49 * LANCI IN Equity R Square = 0.5313 Regression based on 52 observations of 5 years weekly data. Please refer to Appendix 1 for the explanation of R-square Sources: Bloomberg; BNP Paribas

India Sector Correlation Matrix at 15 July 2010

India Autos India Autos India Banks India Engineering & Construct India Software & Services India Metals & Mining India Oil & Gas India Property India Telcos India Utilities
Source: BNP Paribas Sector Strategy

India Banks 0.688 1.000

India Engineering & Construct 0.701 0.838 1.000

India Software & Services 0.569 0.582 0.593 1.000

India Metals & Mining 0.724 0.713 0.739 0.555 1.000

India Oil & Gas 0.672 0.733 0.756 0.584 0.768 1.000

India Property 0.630 0.747 0.785 0.452 0.716 0.656 1.000

India Telcos 0.599 0.683 0.711 0.500 0.642 0.671 0.672 1.000

India Utilities 0.688 0.781 0.792 0.563 0.744 0.787 0.733 0.733 1.000

1.000

Long/Short Chart
(x) 0.70 0.50 0.30 Mean 0.10 Aug-09 -0.10 -0.30
Adani Power - NTPC

The Risk Experts

The Risk Experts

-2s

-1s

Our starting point for this page is a recognition of the macro factors that can have a significant impact on stockprice performance, sometimes independently of bottom-up factors. With our Risk Expert page, we identify the key macro risks that can impact stock performance. This analysis enhances the fundamental work laid out in the rest of this report, giving investors yet another resource to use in their decision-making process.

Feb-10

-1s

Source: BNP Paribas estimates

BNP PARIBAS

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

FINANCIAL

STATEMENTS

Adani Power
Profit and Loss (INR m) Year Ending Mar
Revenue Cost of sales ex depreciation Gross profit ex depreciation Other operating income Operating costs Operating EBITDA Depreciation Goodwill amortisation Operating EBIT Net financing costs Associates Recurring non operating income Non recurring items Profit before tax Tax Profit after tax Minority interests Preferred dividends Other items Reported net profit Non recurring items & goodwill (net) Recurring net profit
Per share (INR) Recurring EPS * Reported EPS DPS Growth Revenue (%) Operating EBITDA (%) Operating EBIT (%) Recurring EPS (%) Reported EPS (%)

2009A
0 0 0 0 (28) (28) 0 0 (28) 0 0 0 0 (28) 0 (28) 0 0 0 (28) 0 (28) (0.02) (0.02) 0.00

2010A
4,349 (1,667) 2,682 0 (236) 2,446 (374) 0 2,072 425 0 0 0 2,497 (260) 2,237 0 0 0 2,237 0 2,237 1.09 1.09 0.00

2011E
25,507 (8,045) 17,462 0 (1,597) 15,865 (1,565) 0 14,300 (2,302) 0 0 0 11,998 (2,090) 9,907 0 0 0 9,907 0 9,907 4.54 4.54 0.00 486.6 548.6 590.0 317.1 317.1 62.3 62.2 56.1 38.8 17.4 0.0 6.2 35.7 90.0 30.4 5.5 (9.6) 5.5 (9.6) 15.5 5.3

2012E
83,153 (27,171) 55,982 0 (3,266) 52,716 (5,816) 0 46,901 (6,651) 0 0 0 40,249 (7,916) 32,333 (1,864) 0 0 30,470 0 30,470 13.98 13.98 0.00 226.0 232.3 228.0 207.5 207.5 60.3 63.4 56.4 36.6 19.7 0.0 7.1 44.2 58.0 39.4 13.7 (1.4) 13.7 (1.4) 36.2 12.9

2013E
133,122 (45,335) 87,786 0 (7,147) 80,639 (10,804) 0 69,835 (20,084) 0 0 0 49,751 (9,855) 39,896 (2,994) 0 0 36,902 0 36,902 16.93 16.93 0.00 60.1 53.0 48.9 21.1 21.1 57.8 60.6 52.5 27.7 19.8 0.0 3.5 53.2 60.8 48.6 19.0 3.9 19.0 3.9 31.3 16.7

Exponential top-line growth as power generation capacity goes up from 0 to 6.6GW between FY10-FY3

0.0 43,486,310. (61.3) (8,914.3) (61.3) (7,568.2) (75.9) (6,864.4) (75.9) (6,864.4) 53.1 56.2 47.7 51.4 10.4 0.0 0.0 349.5 613.9 1.6 (13.7) 1.6 (13.8) 5.5 1.4

Operating performance Gross margin inc depreciation (%) Operating EBITDA margin (%) (277,500.0) Operating EBIT margin (%) (277,500.0) Net margin (%) (279,520.0) Effective tax rate (%) Dividend payout on recurring profit (%) Interest cover (x) Inventory days Debtor days 108,148,22 Creditor days Operating ROIC (%) (0.1) Operating ROIC WACC (%) (15.7) ROIC (%) (0.1) ROIC WACC (%) (15.7) ROE (%) (0.2) ROA (%) (0.1) * Pre exceptional, pre-goodwill and fully diluted

Revenue By Division (INR m)

Contracted sale of Power Spot sale of Power
Sources: Adani Power; BNP Paribas estimates

2009A
0 -

2010A
4,349 -

2011E
16,496 9,012 -

2012E
25,732 57,421 -

2013E
60,199 72,923 -

Projects start before PPA starts allowing Adani to capture higher prices through spot sale of power

BNP PARIBAS

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

Adani Power
Cash Flow (INR m) Year Ending Mar
Recurring net profit Depreciation Associates & minorities Other non-cash items Recurring cash flow Change in working capital Capex - maintenance Capex new investment Free cash flow to equity Net acquisitions & disposals Dividends paid Non recurring cash flows Net cash flow Equity finance Debt finance Movement in cash
Per share (INR) Recurring cash flow per share FCF to equity per share

2009A
(28) 0 0 0 (28) 0 0 (45,746) (45,773) 0 0 532 (45,241) 9,231 39,785 3,776 (0.02) (26.38)

2010A
2,237 374 0 0 2,610 (5,608) 0 (95,862) (98,860) 0 0 0 (98,860) 34,853 75,732 11,725 1.27 (48.15)

2011E
9,907 1,565 0 0 11,472 (4,485) 0 (85,264) (78,278) 0 0 0 (78,278) 1,135 64,709 (12,433) 5.26 (35.91)

2012E
30,470 5,816 1,864 0 38,149 (9,848) 0 (32,990) (4,689) 0 0 0 (4,689) 487 19,903 15,701 17.50 (2.15)

2013E
36,902 10,804 2,994 0 50,700 (8,505) 0 (4,000) 38,195 0 0 0 38,195 0 (12,348) 25,847 23.26 17.52

Balance Sheet (INR m) Year Ending Mar

2009A

2010A

2011E

2012E
23,025 (4,540) 18,485 275,577 294,062 0 97 0 0 294,159 (20,578) 0 210,241 189,663 0 0 99,387 5,108 294,159

2013E
34,558 (7,567) 26,990 268,772 295,763 0 97 0 0 295,859 (46,425) 0 197,893 151,468 0 0 136,290 8,102 295,859

Working capital assets 4,163 4,163 9,990 Working capital liabilities (5,620) (11) (1,352) Net working capital (1,456) 4,152 8,638 Tangible fixed assets 69,213 164,702 248,402 Operating invested capital 67,757 168,854 257,040 Goodwill 0 0 0 Other intangible assets 97 97 97 Investments 0 0 0 Other assets 0 0 0 Invested capital 67,854 168,951 257,136 Cash & equivalents (5,585) (17,310) (4,877) Short term debt 0 0 0 Long term debt * 49,897 125,629 190,338 Net debt 44,311 108,318 185,461 Deferred tax 0 0 0 Other liabilities 0 0 0 Total equity 22,839 59,010 68,918 Minority interests 703 1,622 2,758 Invested capital 67,854 168,951 257,136 * includes convertibles and preferred stock which is being treated as debt
Per share (INR) Book value per share Tangible book value per share Financial strength Net debt/equity (%) Net debt/total assets (%) Current ratio (x) CF interest cover (x)

12.40 12.35 188.2 56.0 1.7 -

27.07 27.02 178.6 58.2 1,902.0 -

31.61 31.57 258.8 70.4 11.0 4.0

45.59 45.55 181.5 59.4 9.6 5.3

62.52 62.47 104.9 43.3 10.7 3.1

Valuation

2009A

2010A

2011E

2012E
10.0 11.4 10.0 0.0 8.0 (64.7) 3.1 3.1 9.4 10.2 1.7

2013E
8.2 9.5 8.2 0.0 6.0 7.9 2.2 2.2 6.0 6.5 1.6

Recurring P/E (x) * neg 127.7 30.6 Recurring P/E @ target price (x) * neg 146.9 35.2 Reported P/E (x) neg 127.7 30.6 Dividend yield (%) 0.0 0.0 0.0 P/CF (x) (8,702.3) 109.4 26.4 P/FCF (x) (5.3) (2.9) (3.9) Price/book (x) 11.2 5.1 4.4 Price/tangible book (x) 11.3 5.1 4.4 EV/EBITDA (x) ** (6,961.1) 146.1 28.5 EV/EBITDA @ target price (x) ** (7,860.4) 163.2 31.4 EV/invested capital (x) 4.4 2.4 1.9 * Pre exceptional, pre-goodwill and fully diluted ** EBITDA includes associate income and recurring non-operating income
Sources: Adani Power; BNP Paribas estimates

BNP PARIBAS

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

HISTORY

OF CHANGE

IN

INVESTMENT

RATING

AND/OR

TARGET

PRICE

Adani Power (ADANI IN)

(INR) 151.00 141.00 131.00 121.00 111.00 101.00 91.00 81.00 A ug-09

Adani Power

Target Price

Date 27-Feb-10

Reco BUY

TP 135.00

Oct-09

Dec-09

Feb-10

A pr-10

Jun-10

Girish Nair started covering this stock from 1 March 2010 Price and TP are in local currency Valuation and risks: Key risks to our DCF_based TP are execution delays, higher-than-expected coal costs, lower utilization and lower-than-expected merchant tariffs Sources: Bloomberg, BNP Paribas

BNP PARIBAS

GIRISH NAIR

ADANI POWER

19 AUGUST 2010

DISCLAIMERS

&

DISCLOSURES

ANALYST(S) Girish Nair, BNP Paribas Securities India Pvt Ltd, +91 22 6628 2449, girish.nair@asia.bnpparibas.com.

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Disclosure and Analyst Certification For a complete set of required disclosures relating to the companies that are the subject of this report, please mail a request to BNP Paribas Compliance Department, 787 Seventh Avenue, New York, NY 10019. BNP Paribas represents that: Within the next three months, BNPP or its affiliates may receive or seek compensation in connection with an investment banking relationship with one or more of the companies referenced herein. The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities and companies mentioned in this report; (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, relate to the specific recommendation or views expressed herein; and (iii) BNPP is not aware of any other actual or material conflicts of interest concerning any of the subject securities and companies referenced herein as of the time of publication of the research report. A detailed discussion of the valuation methodologies used to derive our target prices and the risks that could impede their achievement for stocks recommended in the report is available on request from the analyst(s) named in this report. Recommendation structure All share prices are as at market close on 18 August 2010 unless otherwise stated. Stock recommendations are based on absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. In addition, we have key buy and key sell lists in each market, which are our most commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at any point in time. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. *In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. Rating distribution (as at 17 August 2010) Out of 499 rated stocks in the BNP Paribas coverage universe, 323 have BUY ratings, 124 are rated HOLD and 52 are rated REDUCE. Within these rating categories, 2.48% of the BUY-rated companies either currently are or have been BNP Paribas clients in the past 12 months, 3.23% of the HOLD-rated companies are or have been clients in the past 12 months, and 7.69% of the REDUCE-rated companies are or have been clients in the past 12 months. Should you require additional information please contact the relevant BNP Paribas research team or the author(s) of this report. 2010 BNP Paribas Group

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BNP PARIBAS