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DIVERSIFICATION, RESTRUCTURING, CSR AND STRATEGIC DIRECTION OF GVK


MURALI KRISHNA NISTALA SASWATI ROY CHOWDARY GAURAV PAL PANKAJ KUMAR RATHI
2/13/2012

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INTRODUCTION
The GVK is a diversified business house with interests in a range of businesses including power, roads, urban infrastructure, bio-science, hotels and manufacturing. GVK has promoted or has equity investments in TAJGVK Hotels and Resorts Limited, Novopan Indistries Limited, GVK Biosciences Private Limited, GVK Jaipur-Kishangarh Expressway Private Limited. In recent years the Promoters through their Promoter Group Companies have increasingly focused on the power and infrastructure sector. G.V. Krishna Reddy, the Chairman & Managing Director of GVKPIL, is a first generation entrepreneur who established the business four decades ago. The Company was incorporated in the National Capital Territory of Delhi on December 2, 1994 as Jegurupadu Operating & Maintenance Company, a private company with unlimited liability, under the Companies Act, 1956. The Company was converted from a company with unlimited liability to a company with limited liability and consequently the name was changed to Jegurupadu Operating & Maintenance Company Private Limited on April 20, 2005. Subsequently, our Company was converted from a private limited company to a public limited company on May 19, 2005 and the name was changed to Jegurupadu Operating & Maintenance Company Limited. Thereafter, the name of the Company was changed to GVK Power & Infrastructure Limited on July 13, 2005. The Company is the holding company of the power businesses of the GVK and provides operations and maintenance services to its power assets. It has an equity stake in GVK companies engaged in the generation of electricity in the State of Andhra Pradesh, namely GIL, the company's Subsidiary, and GPL, Associate Company. It also the O&M Contractor for the power plants of GIL and GPL. GVKPIL was originally promoted by our Promoters and CMS Energy, USA. CMS Energy, USA contributed 60% of the equity capital through JOMC, Mauritius and the balance was contributed by the Promoters through Triumph International.. In February 2005, GVK Reddy and his family bought the entire stake of Triumph International and JOMC, Mauritius.

GIL was originally promoted in 1992 by the GVK and CMS (USA). The Asian Infrastructure Fund (through Golden Palm Limited and Vintage Investments Limited) subscribed to 29.75% of the equity share capital of GIL in 1993. In September 1995, pursuant to an equity investment of 10%, as well as a loan to GIL, by IFC, the then shareholders of GIL executed a shareholders agreement to set out their inter-se rights and duties as regards GIL. GPL was originally incorporated by Satyam Constructions Private Limited (name subsequently changed to Maytas Infra Private Limited) in 1996. Subsequently, IJM Corporation Berhard (Malayasia) joined as strategic equity partner. In 2000 NCC Power Corporation Limited, another IPP based in Andhra Pradesh, merged with Gautami Power Private Limited through a Scheme of Amalgamation. As a result of the merger the shareholders of GPL were Maytas Infra Private Limited along with their affiliates, IJM Corporation Berhard (Malayasia) through its subsidiary and NCC Power Corporation Limited. In July 2003, the Promoters through GVK Energy Holdings Private Limited (originally GVK Power Private Limited) took over the Company as a strategic equity partner and assumed the responsibility of implementing the power project and also contributed to the equity of the project, and executed an agreement in July 2003. Currently, equity contribution to the extent of 38.38% to the paid up equity of GPL has been made by GVKPIL, which is proposed to be increased to 51% through the infusion of part of the IPO proceeds. The other equity share holdings of Maytas, IJM and NCC are 17.71%, 25.09% and 18.82%, respectively. See "History and Certain Corporate MattersGautami Power Limited- Agreement among the shareholders of the GPL" on page [*] of this Draft Red Herring Prospectus for further details. The Company has tied up the entire financial assistance of Rs.10, 150 million (constituting 70% of the project cost of Rs 14,500 million) from various lenders, lead by Power Finance Corporation Limited (PFC). As a part of the security mechanism Maytas, IJM, NCC and GVKPPL and their respective affiliates were required to pledge 51% of their respective shareholding on the current paid up capital of the GPL with PFC. Accordingly, GVK Energy Holdings Private Limited

and Transoceanic Projects Limited, Mauritius (affiliates of GVKPPL) have pledged 51% of their holding in GPL with PFC. In October 2005 GVKPIL acquired GVKPPL and Transoceanic Projects Limiteds equity stake in GPL. Accordingly, 51% of the equity shares in GPL now held by GVKPIL continue to remain pledged with PFC.

PROGRESS SO FAR:
2006 -GVK to join hands for ultra mega projects

2007 - GVK Power & Infrastructure Ltd has appointed Mr. Sanjay Narayen (IAS) as an Additional Director. -GVK Power signs MoU with Govt of Tamil Nadu to set up SEZ -GVK Power & Infrastructure Ltd has informed that Mumbai International Airport Pvt Ltd an associate Company of GVK Power & Infrastructure Ltd, has signed EPC Agreement on November 01, 2007 with L&T. 2008 -GVK Power & Infrastructure Ltd has informed that name of the Company's wholly owned subsidiary i.e. GVK Energy Ltd has been changed to GVK Oil & Gas Ltd. -GVK Power & Infrastructure Ltd has appointed Mr. A Issac George, Chief Financial Officer as Additional Director of the Company and also subject to approval of the shareholders and the Central Government, if any, as Director (Finance) for a period of 3 years with effect from April 01, 2008. - GVK Power & Infrastructure Ltd has purchased the full equity share capital of GVK Energy Pvt Ltd and GVK Developmental Projects Pvt Ltd on May 9. As a result, these two companies have become wholly owned subsidiaries of the company.

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2009 - GVK Power & Infrastructure Ltd has appointed Mr. Krishna Ram Bhupal as an Alternate Director to Mr. Somanadri Bhupal at the Board Meeting of the Company held on April 29, 2009. -GVK Power - Acquisition of Shares in Bangalore International Airport Ltd. (BIAL) 2010 - GVK Power and Infrastructure Ltd. has said that it has awarded Rs. 3,200 crore construction contract. The project was for its 800 Mw of gas-based power project to a consortium of South Korea's Hyundai Engineering and Larsen & Toubro (L&T).

BUSINESSES OF GVK
ENERGY Considering India's diverse energy needs and anticipating the high demand of the future, GVK has established a significant presence in the energy sector. The diverse portfolio in the energy sector covers conventional and non-conventional energy resources. The current portfolio has gas, hydro and thermal energy projects. Recognizing Oil and Gas as potential growth segment, GVK is also creating presence in this area. GVK's energy portfolio currently features six power projects which are being developed across several states in the country. Currently power projects are present in the states of Andhra Pradesh, Jammu Kashmir, Punjab and Uttarakhand. Together, these power projects are set to exceed over 5,000 MW capacities. GVK is proud of establishing India's first independent power plant at Jegurupadu, Andhra Pradesh. This extraordinary project has won many accolades for its environmental initiatives. It uses state of the art technology that minimizes impact on the environment. Leveraging the company's skills and extensive experience, GVK addresses the consistently growing energy requirements of the country.

GAS A 235 MW plant built at a cost of USD 346 million, the Jegurupadu CCPP, Phase I has become a benchmark among private power plants in the country. Being Indias first private power plant, it displays farsighted design features that enhance operational efficiencies and minimize environmental impact. It has been described as horticulture project that also generates electricity and a metaphor of industrial ecology.

JEGURUPADU CCPP PHASE II: The Phase II expansion of the Jegurupadu CCPP was completed with clockwork precision. Implemented at a cost of Rs. 7,780 million, Jegurupadu CCPP Phase II has been commissioned to generate an additional 244 MW of power. With the Power Purchase Agreement (PPA) signed with AP Transco, Jergurupadu CCOOs plants total installed capacity amounts to 479 MW of power for the state. The plant is currently running at full capacity.

Further, as part of its expansion plans, GVK has proposed an expansion project (Phase III) of 800 MW capacity plan. GAUTAMI POWER: Creating yet another milestone with its focus on power generation, GVK initiated the 464 MW Gautami Power Project at Peddapuram, Andhra Pradesh with a project cost of Rs. 19350 million. This dual fuel power project has a PPA with the APDISCOM for fifteen years and also has a Ground Support Agreement with GAIL for the life term of the PPA.

HYDRO ALAKNANDA HYDRO POWER PLANT: A 330 MW hydro project is underway in Uttarakhand. With most construction work in progress, the plant is expected to commence operations in 2012. GORIGANGA HYDRO POWER PLANT This cutting-edge 370 MW power plant is being developed in Pittorgarh, Uttarkhand at an estimated project cost of USD 650 million. It is expected to be commissioned by 2012. This will be a merchant power plant for GVK. The Government of Uttarkhand has granted its approval for the preparation of a Detailed Project Report for a single integrated project, combining both the projects for 370 MW merchant power plants in Uttarakhand. RATLE HYDROELECTRIC PROJECT: The state-of-the-art 690 MW power plant will commence operations in the year 2017. Situated on the river Chenab, it will provide 16% of its output to the state of Jammu and Kashmir free of any charge.

THERMAL GVK has begun work on a 540 MW thermal power plant in Tarn Taran, Punjab at a project cost of Rs. 29638.1 million. 1,067 acres of land has been acquired for the project to be commissioned in 2 phases of 300 MW each. The coal will be drawn from the companys own coal mines at Tokisud and Seregarha, Jharkand.

GVK has integrated captive coal mining with its other operations. Jharkhands Tokisud and Sereghara mine blocks have mine-able reserves of 52 million tonnes and 100 million tonnes respectively. These reserves will be used to address the fuel needs at the coal-fired Goindwal Sahib Power Plant and other plants in North India.

To support coal requirements of the Goindwal Sahib power plant and other future projects in northern part of India, GVK has ventured into Captive Coal Mining. The Tokisud Open Cast mining block, located 50 kms north-west of Ranchi City in the State of Jharkhand, is being developed into a captive coal mine.

OIL AND GAS EXPLORATION GVK has partnered with BHP Billiton, one of the worlds largest diversified resources companies, for exploring seven deepwater oil and gas blocks off the west coast of India. GVK has carried out an extensive study and obtained necessary approvals for the commencement and execution of these projects. Identifying Oil & Gas as a high potential growth segment, GVK is mapping new points, finding qualified technical personnel etc. to ensure growth and progress in this segment. The major work has been planned over the next two years, which

include mapping area to gather new seismic data acquisition in relation to all the seven blocks that are being explored. GVK has estimated a capital outlay of Rs. 2200 million over the next 3 years.

AIRPORTS As the country progresses, upgrading its transport infrastructure has become a necessity. Competent infrastructure supplements the countrys growth. Being a global destination for trade and tourism, Indias airports have become the new gateways to the country.

Anticipating the need for world class airport infrastructure, GVK has ventured into this sector by undertaking management and operational control of two major airports of India. These modern airports are the face of Indias development. They are the visible evidence of the countrys rapid progress. GVK began the journey in this sector by acquiring the management and operational authority of Chattrapati Shivaji International Airport (CSIA) in May 2006. The GVK led consortium partnered with Airports Authority of India to form Mumbai International Airport Pvt. Ltd (MIAL). Subsequently, GVK also acquired the management and operational control of Bengaluru International Airport. Since the first steps in 2006, GVK has modernized these airports and has turned them into world class structures. It has led the massive facelift and redevelopment of the CSIA. While, Bengaluru International Airport was the first greenfield airport

to be developed under the Public Private Partnership framework. Both of these airports delight the visitors with best-in-class amenities and services. GVK assures quick deliveries and impacting outcomes. In the future, the company plans to strengthen this portfolio by leveraging the experience and expertise that have been garnered through these projects.

TRANSPORTATION Understanding Indias need for better road connectivity and transport infrastructure, GVK has entered this sector to provide world-class solutions. In this segment, GVK is focused on undertaking and executing projects which support the growing economy and make a difference to the lives of the common people. The mammoth Jaipur Kishangarh BOT project, a 90 km segment of the Golden Quadrilateral National Highways Development Project of the Government of India, is yet another instance where GVK has won a concession amidst a highly competitive atmosphere. The project involved the conversion of a two-lane track to a world-class six-lane highway and cost USD 154 million. Completed in a record time, the project is a testimony to GVKs superior capabilities in project management and execution. This expressway handles approximately 19,000 vehicles per day and its daily collections are close to Rs. 40 lakh. GVK is presently operating the highway and has installed cutting-edge technology for tolling operations. GVK continues to focus on building a strong portfolio of road assets which offer superior returns. It has also been evaluating various road projects in the country and has submitted RFQs for eight projects announced by the NHAI. GVK has been awarded the four laning of the Deoli-Kota Section of National Highway No.12. Starting from Km.165 to Junction of NH-76 on Kota bypass, this expressway approximately covers 83.04Km. Located in the state of Rajasthan, Deoli-Kota Expressway was sanctioned to GVK on BOT basis under National Highway Development Programme Phase III. In order to execute this project, GVK Deoli- Kota Expressway Private Limited has been formed as a SPV and a concession agreement with the NHAI has been signed.

URBAN INFRASTRUCTURE Indias modern metropolitan cities are home to the countrys youthful population and corporate sector. The consistent growth of this area has brought forward the need for high quality urban infrastructure. These contemporary cities deserve world-class facilities and infrastructure as a foundation to grow and develop further. GVK is focusing on large-scale integrated developments to fulfill the demands of these urban cities. REALTY The fast paced growth of the Indian economy and industries demands an enabling environment where this growth can be sustained successfully. As a pioneer in the Indian infrastructure sector, GVK is committed to building infrastructure that aids this growth. Special Economic Zones (SEZs) serve as a viable solution to problems Indian industries and companies often face. Over the years, the potential of SEZs to attract foreign investments and help India overcome the economic issues has been established. SEZs create an enabling environment for companies by providing various incentives, special facilities and tax holidays. Along with providing an impetus to investment, exports and employments, SEZ accelerate growth and progress.

HOSPITALITY Bearing proof to India's reputation of playing host to its guests is Taj GVK. Venturing with just a single property, Taj GVK, the hotels and resorts division of GVK has established its presence as an industry stalwart in just over 5 years. With 3 world-class properties and another coming up in Begumpet, Taj GVK now has a total room base of over 525. This constitutes a powerful base to address the growing opportunities offered by the emergence of India as a major business destination.

LIFE SCIENCES GVK Biosciences (GVK BIO) is Asias leading Discovery Research and Development organization. GVK BIO provides a broad spectrum of services, stand-alone and integrated, across the R&D value chain. GVK BIOs discovery services consist of Chemistry, Biology and Informatics; the development services include Clinical research, Clinical pharmacology and Process R&D. GVK BIOs diverse portfolio of more than 150 customers includes big pharma, leading biotech, agro, life-sciences companies and top-notch academic institutions. GVK BIO has built a team of over 2000 employees handpicked from the best universities and organizations globally. The scientists possess outstanding academic credentials, immense capabilities and problem solving skills backed by years of global and industry experience. With infrastructure in the genes, GVK BIO has built world-class labs and facilities. A match for the best globally, it houses the most advanced and sophisticated equipment and automation, supported by highly-qualified scientists. Spread across five locations in India and head-quartered in Hyderabad, GVK BIO provides customers with a flexible range of services and business models. GVK BIOs avant-garde facilities built to international standards, with about 2,50,000 sq. ft. of built-up lab-space house chemistry labs, AAALAC accredited animal house, kilo labs, pilot plants and clinics. GVK BIO has been inspected by all the leading regulatory agencies of the world including US FDA, ANVISA, AFSSAPS, WHO, MoH Turkey and DCGI, India. With a compelling value proposition, GVK BIO continues to be the partner of choice for its loyal and increasing client base.

NAVOPAN GVK introduced the concept of ready to use pre-laminated particle boards in India. A pioneer in this sector, GVK has founded Novopan which is a manufacturer and marketer of pre-laminated particle boards.

Known for quality, Novopan pre-laminated particle boards are reliable, economical and elegant. Novopan is recognized for its operation strategies that involve forward and backward integrations.

RESOURCES GVK Coal Developers (Singapore) Pvt Limited (GVKCDPL) and GVK Power and Infrastructure Limited (GVKPIL) have acquired a 79% interest in each of the Alpha Coal Project and the Alpha West Project and 100% interest in Kevin's Corner Coal Project and 100% of the Infrastructure Projects. The Alpha Coal Project and Kevin's Corner Coal Projects are well-known thermal coal deposits within the Galilee Basin in Central Queensland, Australia. Described as the jewel in the crown of the Galilee, the Alpha Coal Project will be a 30 Mtpa open-cut coal mine, with the potential for the future development of significant underground reserves. The open-cut operation has an expected mine life of 30 plus years, with sufficient Joint Ore Resources Committee (JORC) compliant resources to extend the project life well beyond 30 years. The Kevin's Corner Coal Project is adjacent to Hancock's Alpha Coal Project and both Projects will utilize the proposed multi-user rail and port facilities. This is designed so that at a future point, it will have the potential to transport, load and ship capacity greater than the combined production level of both the Kevin's Corner and Alpha Coal Projects. The Kevin's Corner Coal Project will have a capacity of 30 Mtpa via open-cut and underground long wall operations. The operation has a scheduled mine life of approximately 30 plus years. The Alpha Coal and Kevin's Corner combined resource is 7.9 billion tones of JORC compliant thermal coal.

BRIEF LOOK AT POWER AND INFRASTRUCTURE


GVK Power and Infrastructure Limited (GVKPIL) has initiated power projects that will cross over 2000MW capacity once operational. While Jegurupadu Combined Cycle Power Plant is operational, several ambitious power projects are under development. GVK is developing power projects that are based on coal, gas and hydel resources. The projects are being developed across several States in the country including Andhra Pradesh, Punjab and Uttarakhand GVK ONE What makes 'GVK One' the most alluring business destination is its location. Builders would reckon with pride that the location of GVK One is a winner forever. The multitude of attributes of GVK One promise vast potential for brands and retailers to thrive, while metamorphosing the shopping experience in the city.GVK One - Hyderabad's world-class retail scheme - will make the city proud and give shoppers and retailers alike more reasons to smile. The many location attributes of GVK One indicates the vast potential it holds for brands to thrive. Every little detail at GVK One has been planned keeping in mind the dynamic needs of retailers and shoppers. The trade mix is perfect, offering products and services ranging from fashion and food to home needs, leisure and entertainment. Matching international standards for the discerning customer and retailer, it is convenience unlimited, and pleasure multifold, making the venture a sure shot onestop destination for all. In short, GVK One is a complete mall in every sense of the term, which would make even a New Yorker wince with envy. POSITION INVESTORS GVK has consolidated its infrastructure assets under one company making it an integrated infrastructure player. As part of the consolidation, all the infrastructure assets in Power, Airport, Road, and Mining will now come under one umbrella of GVK Power & Infrastructure Limited (GVKPIL).As a result of this consolidation, Mumbai International Airport Pvt. Ltd. (MIAL) which operates Indias busiest airport, the Chhatrapati Shivaji International Airport in Mumbai and GVK Jaipur Expressway Pvt.Ltd. Which operates the six-lane toll road project on the Golden Quadrilateral will come under GVKPIL.The Board of Directors of GVKPIL and the Board of Directors of Bowstring Projects & Investments

Private Limited (Bowstring) & the Board of Directors Green Garden Horticulture Private Limited (Green Garden) have approved a proposal for the amalgamation of Bowstring & Green Garden with GVKPIL. Bowstring and Green Garden, both closely held unlisted companies, hold equity stakes in various power and infrastructure projects of GVK. The consolidation will align all GVK infrastructure companies under one roof thereby enabling GVK to position itself as an integrated infrastructure company to leverage emerging opportunities in this sector. It will also provide better realization of value for our investors" said Mr G. V. Krishna Reddy, Chairman, GVK. The Scheme of Amalgamation approved by the respective Boards envisages a share exchange ratio of 133(One hundred thirty three) equity shares of the face value of Rs 10/- each of GVKPIL , for every 4 (Four)equity shares of the face value of Rs 10/- each of Bowstring. The Scheme also envisages a share exchange ratio of 153 (One hundred fifty three) equity shares of the face value of Rs 10/- each of GVKPIL, for every 4 (Four) equity shares of the face value of Rs 10/- each of Green Garden. In the aforesaid meeting of the Board of Directors of GVKPIL, the proposal to issue and allot equity shares in GVKPIL to members of GVK Industries Limited (GVKIL), other than GVKPIL itself, in consideration for the transfer of and vesting in GVKPIL of the equity shares held by such members in GVKIL in terms of Scheme of Arrangement under section 391 of the Companies Act was also considered.The proposed Scheme of Arrangement (Scheme) envisages a share exchange ratio of 3 (Three) equityshares of the face value of Rs 10/- each of GVKPIL, for every 40 (Forty) equity shares of the face value of Rs 10/- each of GVKIL. The share exchange ratio approved by the Boards of the respective entities was based on a valuation process incorporating international best practices. The entities had appointed leading accounting firms, Deloitte, Haskins & Sells, and Dalal & Shah to recommend the final share exchange ratio to the Boards of the entities. Amarchand & Mangaldas & Suresh A. Shroff & Co. are the legal counsel for the entire process.The Scheme of amalgamation and arrangement will be subject to various approvals including those of Stockexchanges, shareholders of respective companies, any regulatory authorities. The Scheme of amalgamation will have to be approved by the High Court of Delhi and Scheme of Arrangement will have to be approved bythe High Court in Delhi and High Court in Andhra Pradesh. The Appointed Date of merger is proposed to beApril 1, 2006. The benefits of the proposed Scheme of Amalgamation and Arrangement are: Create an integrated, comprehensive infrastructure company that can cater to all segments of infrastructure and consolidate its position as a leading company in the infrastructure sectorthereby creating substantial shareholder value

Re-organization of the infrastructure companies within GVK will enable better utilisation of resources and capital and would create a stronger base for future growth of the infrastructurebusiness in general Create large balance sheet size to participate in upcoming infrastructure projects Align interest of all shareholders in a single listed entity and eliminate areas potential conflict of interest and concerns of related party transactions Enable investors, existing shareholders to participate in diverse infrastructure assets Unlock value in operating assets and eliminate the need for multiple listing by group companies GVK Power & Infrastructure Limited is a listed public company belonging to GVK, engaged in the business of owning, operating and maintaining power plants by itself and through its subsidiary/ associate companies. GVKPIL presently owns 53.96% in GVK Industries Limited which operates the 216 MW Jegurupadu PhaseI gas based power plant and the 220 MW Jegurupadu Phase II gas based project which is ready for commercial operations. GVKPIL also owns 44.97% (to be increased to 51% in due course) in Gautami Power (464 MW Gas based power plant) which is ready for commissioning.

THE NEW STRUCTURE POST RE-ORGANIZATION


The proposed Scheme envisages consolidation of holdings of Bowstring and Green Garden, direct and indirect, in various operating companies into GVKPIL, the flagship company of GVK. Specifically, the following interests are proposed to be consolidated as part of the Scheme of Amalgamation.

GVK Airport Developers Pvt. Ltd. GVK Airport Developers is the holding company of GVK Airport Holding which holds equity stake in Mumbai International Airport Pvt. Limited. MIAL has entered into Operating Maintaining and Development Agreement with Airport Authority of India in April 2006 for developing operating and maintaining the Mumbai airport.MIAL has been operating the Mumbai airport with effect from 3rd May 2006. Alaknanda Hydro Power Company Limited Alakananda is developing a 330 MW Hydropower Project in the State of Uttaranchal. Currently, the project isunder the construction phase and the company has signed a PPA with the Uttar Pradesh Power CorporationLimited.

GVK Power (Goindwal Sahib) Limited Goindwal Sahib is developing a 600 MW coal based Thermal Power Plant at Goindwal Sahib, in Punjab. TheCompany has initialed the draft Power Purchase Agreement with Punjab State ElectricityBoard ("PSEB") in December 2006.

Goriganga Hydro Power Private Limited Government of Uttaranchal has awarded 200 MW Mapang Bogudiyar and 170 MW Bogudiyar Sirkari BhyolHydroelectric Projects on River Goriganga in Pithoragarh District in the State of Uttaranchal. Government of Uttaranchal has agreed for implementation of Single Integrated Project i.e. combining both the aboveprojects as 370 MW Mapang-Sirkari Hydroelectric Project.

GVK Jaipur Expressway Private Limited (GJEL) A segment of the Golden Quadrilateral National Highway Development Project of Government of India. GJELwas incorporated for designing, engineering, financing, constructing, operating, maintaining and wideningthe 90.385 km existing 2 lane project highway to 6 lanes on the Jaipur - Kishangarh section of the NationalHighway No. 8 in the State of Rajasthan by entering into a concession agreement with NHAI for a period of 20 years including construction period. GVK Coal (Tokisud) Company Private Limited Tokisud was incorporated to undertake coal mining activity. Tokisud will supply its entire output to GVKPower (Goindwal Sahib) Limited for its exclusive consumption.

PORTERS FIVE FORCES


SUPPLY: Many projects have been planned but due to slow regulatory environment, the supply is far lesser than demand. Currently, India needs to double its generation capacity to meet the potential demand. DEMAND: There is always a growing demand for power in India due to its growing economy and infrastructure. BARRIERS TO ENTRY: Barriers to entry are high, as entering this business requires heavy investment initially. The other barriers are fuel linkages, payment guarantees from State Governments, Retail distribution licensed, etc. BARGAINING POWER OF SUPPLIERS: Not very high as Government controls tariff structure. However, this may change in the future. COMPETITION: Few large players, most of them being public sector enterprises.

ANALYSIS There is a huge potential for GVK to enter in to many other projects such as wind power generation which has a huge potential and a growing sector. As GVK is already in power sector this will prove to be a strategic fit and ensure further growth for the company.

SWOT ANAYSIS
STRENGHTS: y y y y Highly diversified company Have the competence and resources to enter potential sectors Established brand name Successfully completed many Government projects.

WEAKNESS: y Managing such a highly diversified company y Ensuring there is a strategic fit among the businesses they undertake y Managing talented labor pool and diverting them for essential projects OPPOURTUNITIES: y As they are already in to Infrastructure and Realty, they can use their expertise in these fields to enter new sectors such as Education(B-schools), Wind Power Generation, Accessories etc y Growing infrastructure needs will provide ample opportunities to grow y Pharmaceutical industry is witnessing a growth, which is an opportunity for GVK BIO y Same with the hospitality industry. TAJGVK has a huge growth potential THREATS: y If there is no strategic congruence among various businesses that they manage, being such a highly diversified company may pose serious issues. y Management control might be an issue

Road Segment is the star performer in case of margins for GVK group. India has the second largest road network stretching 3.3 million km spread under several categories. However, the effectiveness is weighed down due to several deficiencies. Roads continue to form the most common mode of transportation carrying nearly 65% of the freight and 80% of the passenger traffic. The national highway, which accounts for only 2% of the total road network in India, carries nearly 40% of the road traffic. NHDP involves a total of seven phases entailing development and up gradation of approximately 48,000 km. This is expected to offer immense opportunities to GVK. Airport Segment has high opportunity. The aviation sector infrastructure is all set for a revamp with major airports under development based on the public private partnership model. Although de-growth of overall passengers has raised several questions on the outlook of the entire aviation sector, we believe the concerns are being overplayed and the sector is expected to be back on the growth trajectory in the years to come.

Key drivers that lead us to believe in the overall growth story are (i) The development of regulatory framework, (ii) Infrastructural changes at major airports, (iii) Declining ATF prices compared to last year will improve the operating profile of the airline carriers and reduce the cost of travel for passengers (iv) Allaying funding concerns after improvement in the credit markets and capital markets (v) Levy of development fees by major airports will help fund the infrastructure apex partly Power Segments - Energy sector reforms have evolved over time and created an environment for private players to capture significant value from the huge demand of power in India. Since the private players have huge opportunity to play in this field with an expectation of rise in installed capacity so for GVK it is one type of boon. A continuous increase in mismatch of demand-supply in gas is rendering support to the merchant power market. Erratic rainfall in several parts of the country is also supporting favorable merchant rates in the near term. The merchant market is still in a nascent stage in India and is likely to behave in a volatile matter in the initial stages. With a view to curb volatility in the short-term market, CERC has capped the rates at Rs 8. Then players are expected to enjoy a premium to players operating under the regulated regime which will be an added benefit to GVK. Recently GVK is mulling the acquisition of two under-construction thermal power plants in Andhra Pradesh as the private developers executing these projects are facing a resource crunch and have offered to quit. GVK Power, which aims to become a 5,000-MW company in the next five years, is presently engaged in the construction of four projects, including hydro and thermal projects. The company's under-construction projects include the 330-MW Alaknanda hydro project in Uttarakhand. Eighty per cent of construction work on the project is complete and the company has invested Rs 3,000 crore on the project so far. It is likely to be commissioned in 2013.GVK Power is also executing an 850-MW hydro power

project in Jammu, which will be commissioned in the next five years. Another under-construction project is the 370-MW Goriganga hydro project in Pittorgarh, Uttarakhand. The project is likely to commence power generation by 2013.The company is also executing the 540-MW Goindwal Sahib thermal power project at Tarn Taran, in Punjab. Thus through this acquisition there will be many advantages faced by GVK which are as follows:1) Economies of Scale - It will rise as there is an increase in the volume of

production which will lead to a reduction in the cost of production per unit. This is because, with merger, fixed costs are distributed over a large volume of production causing the unit cost of production to decline. 2) Operating economies - It will arise because a combination of two or more firms will result in cost reduction due to operating economies. In other words, a combined firm will be able to avoid or reduce over-lapping functions and consolidate its management functions such as manufacturing, marketing, R&D and thus reduce operating costs. 3) Synergy Here the combined firm will be more valuable than the sum of the individual combining firms. It refers to benefits other than those related to economies of scale. But apart from operating economies, synergy may also arise from enhanced managerial capabilities, creativity, innovativeness, R&D and market coverage capacity due to the complementarities of resources and skills and a widened horizon of opportunities. Also there will be substantial improvement in return ratios ensuring a near five fold growth in revenues from the segment. To fulfill the coal requirement of the Goindwal Sahib power plant and other future projects in northern India, GVK has ventured into captive coal mining. The Tokisud mining block, near Ranchi, in Jharkhand, is being developed into a captive coal mine. The coal for the Punjab plant will be drawn from this mine. Thus venturing into coal mine business will help it to reduce the cost for carrying out the power plants.

RESTRUCTURING
GVK Power & Infrastructure plans to restructure operations, particularly in power vertical, bringing all divisions into one sub-holding company GVK Power & Infrastructure Ltd, the listed entity and holding company of the Hyderabad-based diversified GVK Group, has sewn up plans to restructure operations, particularly in the power vertical, bringing all divisions into one sub-holding company. According to the proposal, the company will transfer investments made in power assets to a wholly-owned subsidiary GVK Energy Limited. This is part of the restructuring of the assets in the energy business. After approval, the company will transfer power assets worth Rs 1,170 crore made into GVK Industries Ltd, GVK Gautami Power Ltd, GVK Power (Goindwal Sahib) Ltd, and Alakanada Hydro Power Company Ltd into GVK Energy Ltd. With the recast, GVK Power & Infrastructure (GVKPIL) will become the flagship company commanding an asset base of Rs 18,000-20,000 crore with all the infrastructure assets in power, airport, road, and mining under its umbrella. Its current asset base is about Rs 3,500 crore. Key assets like the Mumbai International Airport and GVK Jaipur Expressway will come under GVKPIL after the restructuring. GVK Group chairman GV Krishna Reddy told ET that the move will enable the group to grow faster. Mr Reddy said the promoter group's stake in the combined entity will rise to 80-85%. It is now at about 64%. The recast is also expected to better resource utilisation, create larger balance sheet to bid for upcoming projects, align shareholder interest in a single listed entity, unlock value in operating assets and eliminate need for multiple listing by group companies. The city-based GVK Power and Infrastructure Ltd, which is modernizing the Mumbai international airport, is restructuring its businesses to raise more money, said its top official. We are planning to restructure all our infrastructure businesses and form a few intermediate holding companies, which in turn will have subsidiaries, so that we can raise funds in an efficient manner whenever required, GVK group chairman G.V. Krishna Reddy told Mint.

The strategies behind restructuring are:  Increasing Value of Parts - One of the main reasons that businesses use corporate restructuring is to divide the business up for sale. If a company is trying to sell as a conglomerate, it will likely get lower offers from investors. When the company is split up into separate parts, it can often get better offers for those individual parts. This can increase the value of the company as a whole and help get a higher sales price for the business.  Reduce Costs - Another benefit of restructuring a company is to reduce business costs. It could cut back on employees and equipment to streamline business operations. In this way, the company can expand its reach without adding too much to the overhead of the business. If handled correctly, the company can add significant value for its shareholders.  Strategic Fit - The decision to merge with or acquire another firm is a capital budgeting decision much like any other. But mergers differ from ordinary investment decisions in at least five ways. First, the value of a merger may depend on such things as strategic fits that are difficult to measure.  Increasing Market Power Restructuring through merger may reduce competition, thereby increasing market power. But due to this restructuring by mergers here basic competitive problems can be raised. The first is the elimination of competition between the merging firms, which, depending on their size, may be significant. The second is that the unification of the merging firms' operations may create substantial market power and could enable the merged entity to raise prices by reducing output unilaterally. The third problem is that, by increasing concentration in the relevant market, the transaction may strengthen the ability of the market's remaining participants to coordinate their pricing and output decisions. The fear is not that the entities will engage in secret collaboration but that the reduction in the number of industry members will enhance tacit coordination of behavior.

Strategies for the Future - The emerging contender is already on its way to unchallengeable dominance. The success and range of its journey would depend on the strategic initiatives it takes. We propose the following strategies for the contender to grow and prosper globally:  The Focused Approach -The liberalization of the economy saw a period of unhindered diversification and growth, particularly in non-core areas, which adversely affected the corporate sector. The process of restructuring has seen companies hiving off operations in a bid to refocus on core competencies and become leaner to face competition. We are seeing the beginning of possibly a large movement of Indian companies re-engineering their businesses to be web-compatible and entering into the world of e-commerce either directly or as part of a portal.  Building on Core Competencies Outsourcing Secondary Activities: The contender is most comfortable in building on its core abilities and competes in proven grounds. Hence many emerging Indian companies have decided to refocus on core competencies, while outsourcing or shedding off secondary operations.  Mergers & Acquisitions and Consolidation - This is the inorganic mode of the focused approach. Companies consolidate and grow largest to gain larger and diverse markets shares and build a global brand. The profits and economies of scale help them ward off tough competition.  Investments in Innovation and Research - After TRIPS, many Indian companies realize the need to focus on innovating new products and services. This requires allocating a major chunk for R&D activities. As a result, Patents granted to India have been rising, an outcome of both Indian and foreign companies that have set up operations here.  A New Productivity Drive - To increase the productivity and have competitive costs. To minimize overhead charges.  Brand Building and Service - The major thrust should be on building global brands for both products and services.

CSR INITIATIVES AND ACTIVITIES CONDUCTED BY GVK:


Corporate Social Responsibility initiatives are implemented through GVK Foundation, the CSR arm of the GVK Group. The Foundation is involved mainly in the areas of education, health and hygiene; community-based programs; empowerment and entrepreneurship development, arts, music, sports and various social economical and cultural activities. It reaches out with the objective of improving the quality of life of the economically deprived people in the places where the Group has a presence. To further the CSR objective, GVK has taken over the management of Emergency Management and Research Institute (EMRI), a non-profit organization during May, 2009 to provide integrated emergency response service across the Country under public private partnership mode. Since then, the Foundation has been funding GVK EMRI. One of the most successful initiatives is the GVK Emergency Management and Research Institute (EMRI). Based on the on Public Private Partnership Model, this non profit organization has helped thousands of people. GVK EMRI is the largest professional emergency service provider in India. Through a single number (108), it attends to medical, police and fire emergencies. For the states where EMRI present, the number 108 is synonymous with the premier emergency services. Currently operational in the states of Andhra Pradesh, Gujarat, Uttarakhand, Goa, Tamil Nadu, Karnataka, Assam, Meghalaya, Madhya Pradesh, Himachal Pradesh and Chhattisgarh. The service would shortly be operational in Uttar Pradesh, Dadra Nagar Haveli and Daman & Diu. GVK has vision of extending this service to other parts of the country also. With a backbone of modern technology, state-of-the-art ambulances and highly trained professionals, EMRI is extremely proficient service. This service has been a boon for the common man ever since its inception. The future plans for this unique institution go beyond extending this service in other states. EMRI will evolve into a research and training institute. The aim is to provide world-class professional emergency services throughout the country. No. of partnering States: 12 States and 2 Union Territories No. of ambulances: 3,023

No of emergencies handled till date: 16244137(Inception to Till 21st Nov11) No of emergencies handled per day: 10222 No of lives saved per day: 300 As of now, one emergency dispatch is made by GVK EMRI every 8 seconds on an average to provide assistance in emergency.

HOUSING:

Under the government scheme, GVK foundation has provided housing for 1000 underprivileged people in Kothur village of Nellore in Andhra Pradesh.

SPORTS TENNIS ACADEMY:

GVK strongly endorses and supports sport as an expression of excellence among budding youth. Deriving inspiration from young sports greats like Sania Mirza and Rohan Bopanna, GVK has instituted a Tennis Academy, to promote future tennis champions.

EDUCATION:

GVK Foundation manages a degree college at Indukurupet village, Nellore District. This college offers quality education to students from surrounding areas. The GVK Foundation also sponsors and provides scholarships for students, across disciplines. SUSTAINABILITY:

Sustainability remains a constant through all of GVKs projects and initiatives. One of the highest priorities during project implementation and planning is safeguarding the nature. Instead of being an add-on, sustainability has always been a starting point at GVK. All projects under the GVK portfolio conform to the international norms of sustainable development.

Along with reducing carbon footprints, GVK collaborates with local communities to educate and inform the people about environment and sustainability. GVK believes that guidance and education are essential while including people in the sustainability initiatives. A remarkable example of GVKs dedication to conserving the environment is the Jegurupadu Combined Cycle Power Plant in Andhra Pradesh. This plant has won many accolades for its environmental initiatives. It has been awarded a Gold Star

Eco-Rating by The Tata Energy Research Institute (TERI).The International Finance Corporation (IFC), Washington has called it a Model Power Plant for its adherence to high standards of environment, health and safety. The Andhra Pradesh Pollution Control Board has given this plant a special award for outstanding contribution to the development of Eco-Park. Taking another step ahead in this arena, the company is also in the process of acquiring LEEDS certification for all GVK managed airport infrastructure. The mission is to make sustainability a highlight in all the projects.

GVK PERFORMANCE AND ITS STRATEGIC DIRECTION


Being a holding company of different vertical business operations, Company does not have independent operating revenues other than O&M fee, incentives and dividends, if any, from its subsidiaries, interest and other treasury income earned on surplus funds. GVK total income increased by 7% to Rs.1,943.19 Crores from Rs.1,815.82 Crores in the previous year. The Power assets contributed an income of Rs.1,712.93 Crores (88.15% of total income) compared to Rs.1,603.28 Crores in the previous year. This increase is mainly attributable to full year operation of Jegurupadu Phase II and Gautami Power Plants in the current year. The Transportation asset contributed an income of Rs.189.16 Crores (9.73% of total income) compared to Rs.170.75 Crores in the previous year. The other segment contributed Rs.41.10 Crores (2.12% of total income) compared to Rs.41.79 Crores in the previous year. The Airport assets (Mumbai and Bangalore Airports) as the associates of the company have contributed to net profit of Rs.110.93 Crores as compared to Rs.51.68 Crores in the previous year. The consolidated net profit after tax was Rs.154.91 Crores as against Rs.155.87 Crores in the previous year. Dividend: Apart from implementing the existing or new projects and / their expansions under different vertical businesses, through its subsidiaries and associate companies, your company is also exploring various business opportunities. In this endeavour, it is necessary to conserve the funds to meet the investment opportunities, which your board believes would enhance the shareholders value in the long term. Therefore, your Board has not recommended any dividend for the financial year 2010-2011. Performance of the existing assets: i) Energy: Currently GVK operate 900 MW gas based power plants through step down subsidiaries i.e. GVK Industries Limited Jegurupadu Phase-I (216 MW), Phase-II (220 MW) and GVK Gautami Power Limited (464 MW). Following is the gist of performance of these assets.

GVK Industries Limited: Phase-I During the year Jegurupadu Phase I was operated at a Plant Availability Factor (PAF) and Plant Load Factor (PLF) of 95.94% and 76.62% respectively (PY 98.58 % and 89.56%) and reported a loss of Rs.29.03 Crores (PY Rs.0.15 Crores). The decline in PAF, PLF and profits are mainly attributable to non availability of natural gas. The energy generated during the year was 1455.32 Million kWh (PY 1685.82 Million kWh) out of which 1422.74 Million kWh was exported and 32.58 MUs were for Auxiliary Consumption. The Station Heat Rate during the year was 2007 kcal/kWh as against 1968 kcal/kWh in the previous year. Phase-II During the year Jegurupadu Phase II was operated at a PAF and PLF of 89.17% and 81.75% respectively (PY 95.29% and 90.35%) and reported a profit after tax of Rs.20.74 Crores (PY Rs.25.26 Crores). The decline in PAF, PLF and profits are mainly attributable to non availability of natural gas. The energy generated during the year was 1638.85 Million kWh (PY 1742.47 Million kWh) out of which 1606.96 Million kWh was exported and 31.89 MUs were for Auxiliary Consumption. The Station Heat Rate during the year was 1824 kcal/kWh as against 1808 kcal/kWh in the previous year. GVK Gautami Power Limited Phase-I During the year Gautami Phase I was operated at a PAF and PLF of 88.64% and 83.39% respectively (PY 91.47% and 88.20%) and reported a profit after tax of Rs.76.58 Crores (PY Rs.28.14 Crores) showing a growth of 272.14%. The energy generated during the year was 3422.90 Million kWh (PY 2937.98 Million kWh) out of which 3346.76 Million kWh was exported and 76.14 MUs were for Auxiliary Consumption. The Station Heat Rate during the year was 1825.60 kcal/kWh as against 1798.98 kcal/ kWh in the previous year.

ii) Airport: Under Airport asset, currently we operate Chhatrapati Shivaji International Airport (CSIA), Mumbai (a brown field project) and Bengaluru International Airport, Bengaluru (a green field project). Following is the gist of performance of these assets. Mumbai International Airport Pvt. Ltd (MIAL) During the year MIAL handled 29.07 Mio (PY 25.61 Mio) passenger traffic, handled 242,659 ATMs (PY 229,799 ATMs) and 340,260 MT (PY 250,237 MT) of Cargo reflecting a growth of 14%, 5.6% and 36% respectively. MIAL reported a profit after tax of Rs.197.04 Crores for the financial year 2010-2011 (PY Rs.132.80 Crores) showing a growth of 48%. MIAL had completed 31 of the 32 mandatory projects under OMDA as of December 2010. The only mandatory project remaining to be completed is the S.09 International Terminal Expansion South West Pier which is pending due to the delay in handing over of Chhatrapati Shivaji Maharaj statue area. During the year Terminal 1C was inaugurated with a lot of retail offerings. CSIA has become the first Indian airport website, to offer mobile airport portal. Bangalore International Airport Ltd. (BIAL) During the year BIAL handled 11.63 Mio (PY 9.92 Mio) passenger traffic, handled 111,787 ATMs (PY 104,653 ATMs) and 222,783 MT (PY 174,648 MT) of Cargo reflecting a growth of 17%, 7% and 28% respectively. BIAL reported a profit after tax of Rs.132.10 Crores for the financial year 2010-2011 (PY Rs.77.70 Crores) showing a growth of 70%. A new and spacious VIP lounge at the Airport has been opened in January 2011. The expansion of the existing terminal 1 has been designed to enhance the operational performance in order to handle, inter-alia, the increase of passenger traffic from the current 11.2 million passengers to approximately 17.2 million passengers annually up to the year 2015. The Project is scheduled to be completed within a period of 18 months from the commencement of its construction.

iii) Transportation: A 90.4 Km Jaipur - Kishangarh Expressway on NH-8 connecting Mumbai and New Delhi is a BOT project and is a part the prestigious Golden Quadrilateral Project undertaken by the Central Government of India through National Highways Authority of India (NHAI) connecting all four major metro cities i.e. New Delhi, Mumbai, Chennai and Kolkata. Following is the gist of performance of this asset. GVK Jaipur Expressway Pvt Ltd. Toll collected by the Company during the year was Rs.189.16 Crores (PY Rs.170.75 Crores) registering a growth of 11%. The profit after tax is at Rs.80.02 Crores for the year (PY Rs.58.96 Crores) showing a growth of 35.73%. Multi Axis vehicles alone have contributed 73% of the toll revenue collections during the year. This is the first road project in India to have shared certain agreed percentage of excess toll revenue over the projected toll fee with NHAI.

OTHER DEVELOPMENTS
i) Energy During the year your Company has transferred its entire shareholding in the power assets viz GVK Industries Limited, GVK Gautami Power Limited, GVK Power (Goindwal Sahib) Limited, Alaknanda Hydro Power Company Limited, GVK Coal (Tokisud) Company Private Limited, to GVK Energy Limited, a wholly owned subsidiary of the Company for a consideration of Rs.1333.17 Crores. With this, the creation of energy vertical has been completed in all respects. During November 2010, your Company through its subsidiary GVK Energy Limited has entered into an Investment Agreement with M/s. 3i India Infrastructure Fund, Actis Infrastructure India PCC Limited and an affiliate of the Government of Singapore Investment Corporation (GIC) for a total Private Equity investment of Rs.1498 Crores for an ultimate equity dilution of 24.97% in GVK Energy Limited. ii) Airport During the year your Company has signed an agreement to acquire 13.5% additional equity stake in Mumbai International Airport Limited (MIAL), from Bid Services Division (Mauritius) Limited, through a step down subsidiary, subject to regulatory approvals. On completion of this acquisition, equity shareholding of the GVK Group stands at 50.5% from the existing 37% of the total paid-up share capital in MIAL. iii) Transportation During the year, your Company has formed two SPVs as subsidiaries of GVK Transportation Private Limited, a wholly owned subsidiary of the Company. Further, your Company on April 6, 2011, as a concluding transaction, has transferred its entire shareholding held in the GVK Jaipur Expressway Private Limited to GVK Transportation Private Limited, a wholly owned subsidiary of the Company for a consideration of Rs.274.01 Crores. With this, the creation of transportation vertical has been completed in all respects.12 GVK Power & Infrastructure Limited

PERFORMANCE OF EXISTING ASSESTS: i) Energy Currently we operate 900 MW gas based power plants through step down subsidiaries i.e. GVK Industries Limited Jegurupadu Phase-I (216 MW), Phase-II (220 MW) and GVK Gautami Power Limited (464 MW). ii) Airport Under Airport asset, currently we operate Chhatrapati Shivaji International Airport (CSIA), Mumbai (a brown field project) and Bengaluru International Airport, Bengaluru (a green field project). iii) Transportation A 90.4 Km Jaipur - Kishangarh Expressway on NH-8 connecting Mumbai and New Delhi is a BOT project and is a part the prestigious Golden Quadrilateral Project undertaken by the Central Government of India through National Highways Authority of India (NHAI) connecting all four major metro cities i.e. New Delhi, Mumbai, Chennai and Kolkata.

NEW OPPOURTUNITIES:
i) Energy During June 2010, your Company through a step down subsidiary, GVK Ratle Hydro Electric Project Private Limited (SPV), has signed the Power Purchase Agreement, with Power Development Department, Govt. of Jammu & Kashmir for implementing the 810MW Ratle Hydro Electric Project on the river Chenab, Kishtwar District, in the State of Jammu & Kashmir. The cost of the project is estimated at Rs.5368 Crores and expected to be operational by March 2017. During February 2011 your Company has executed a Memorandum of Understanding (MOU) with the Punjab State Power Corporation Limited for implementation of 1320 MW Power Project (Phase-II), in the State of Punjab. For this purpose GVK Power (Khadur Sahib) Private Limited, a SPV has been incorporated as a step down subsidiary through GVK Energy Limited to implement the Coal based thermal power project with super critical technology, proposed to be developed in the additional land at the existing Goindwal Sahib site in Tarn Taran District, Punjab. ii) Airport Your Company's capabilities, expertise and strong track record in the airports sector helped getting two international airports to its portfolio. Your Company has signed two MoUs with Indonesian Government during its President's State visit to India in January 2011 to develop green field international airports in North Bali and Yogyakarta (Java), Indonesia. Bali and Java are the prime destinations for tourist traffic from both Europe and Asia. The signing of these MoUs marks a very significant milestone for GVK and your Company is confident that these agreements will yield significant synergies.

SOURCES:        http://www.gvk.com/gvkfoundation/csrinitiatives.aspx 17th Annual Report of GVK www.gvk.com www.moneycontrol.com www.thehindu.com www.businessline.com www.economictimes.com