Monthly Update July 2012

July 20, 2012

Finally hydel PLFs improve as cyclicality kicks in, All India PLFs fall a tad
In June 2012, all-India generation was up by a 8.1% YoY to 76.3bn units, due to the addition of 2,042 MW of monitored capacity. Thermal generation grew strongly by 11.4% YoY in June 2012. The hydel sector finally improved its generation as cyclicality kicks in. Despite a lower 5.5% YoY growth in the hydel sector, generation was up sequentially by 12.1%. NTPC reported 9.1% YoY growth in generation in June 2012 against a negative growth of 4% in June 2011. Nuclear generation grew by 8.8% and have been operating at a higher PLFs of 80-82% in the past three months. NHPCs generation was up 1.9% YoY and 16% MoM, but was 3.3% lower YTD. NHPCs & SJVNs PLFs improved substantially for the second consecutive month jumping from 74% & 61% recorded in May 2012 to 84% & 93%respectively.

Power deficit at 8.6% in June 2012

In June 2012, power deficit in India rose to 8.6% from 5.4% YoY. The power deficit contracted (MoM) for the fourth consecutive month. Power generation grew by a strong 8.1% YoY compared to power availability which grew faster at 11.4%. Power requirement grew at a faster pace by 15.3% YoY and 1.3% MoM in June 2012.

Indonesian governments coal reference price down by 5.4% in July 2012

Prices of major coal grades fell again in July 2012. The Newcastle coal index fell for the eighth consecutive month to US$85.3 per tonne, down 28.5% YoY and 1.7% MoM. The Richards bay index fell by 27.2% YoY to US$85.5 per tonne. The Indonesian government has set a coal reference price of US$87.56 per tonne (9.4% below Junes reference price of US$96.7) for July 2012. The slowing demand for thermal coal from China is expected to continue.

Discom Restructuring Broad framework

In the restructuring plan, about half of the short term loans outstanding on March 31, 2012 will be taken over by the state government after discoms issue bonds to lenders. The maturity of these bonds will be 15 years and the issuance calendar will be based on the fiscal space available with states. The remaining 50% of the liabilities will be rescheduled and serviced by discoms with a three-year moratorium. On their part, state governments will have to ensure that electricity tariffs are revised; release subsidy in advance, metering and audit are undertaken. (See Flowchart on Page 5).

2,376MW commissioned in June12

According to the CEA, the country has commissioned 2,376MW in June 2012. Till June12, the country witnessed a capacity th addition to the tune of 5,266MW. In the 11 plan, the country added 50,805MW (thermal, hydro and nuclear). This significant rise in project commissioning is expected to continue going forward in F13e as well. The Planning commission has set a power capacity addition target of 88,425MW for the 12th plan. As per the draft note, out of the projected capacity addition, thermal sources - coal, lignite and gas -- would make up for 71,228 MW while hydro would account for 11,897 MW. Nuclear power is estimated to be contributing 5,300 MW.

Valuation
Key Indicators Net Sales (Rs mn) % growth EBITDA (Rs mn) % growth PAT (Rs mn) EPS (Rs / share) EPS Growth (%) P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales RoNW (%) RoCE (%) Rating Target NTPC F 13e 696,438 13.9 162,366 23.5 106,439 12.9 15.4 12.2 1.6 8.4 2.4 12.7 16.2 ADD 165 F 14e 788,401 13.2 195,854 20.6 121,203 14.7 13.9 10.7 1.4 7.9 2.3 13.2 15.7 PGCIL F 13e 126,521 26.1 107,450 28.2 39,055 8.4 20.7 13.2 2.0 10.2 8.7 15.0 13.0 BUY 125 F 14e 153,682 21.5 131,849 22.7 46,974 10.1 20.3 13.0 1.7 9.3 8.0 16.0 10.8 NHPC F 13e 61,619 19.3 38,101 18.0 26,021 2.1 23.4 8.6 0.9 10.4 6.4 9.9 5.9 ADD 20 F 14e 80,417 30.5 52,694 38.3 36,799 3.0 41.4 6.1 0.8 7.5 4.9 13.2 7.8 Neyveli Lignite F 13e 57,489 18.1 21,725 25.06 15,223 9.1 7.9 9.0 1.1 6.1 2.3 11.7 8.7 BUY 122 F 14e 60,384 5.0 21,782 0.26 15,914 9.5 4.5 8.6 1.0 6.4 2.3 11.4 8.4 Torrent Power F 13e 73,085 (1.8) 15,297 (14.2) 9,469 20.0 (22.3) 9.0 1.3 8.6 1.8 14.7 8.0 ADD 195 F 14e 82,672 13.1 13,938 (8.9) 6,973 14.8 (26.4) 12.3 1.3 9.8 1.7 10.2 5.4 CESC F 13e 52,666 14.4 13,375.0 23.64 6,439 51.3 16.2 0.4 5.9 3.6 0.9 5.4 9.6 BUY 381 F 14e 56,416 7.1 13,395.8 0.16 6,982 55.6 8.4 0.4 5.4 3.4 0.8 5.6 9.5

Source: SSLe

Analyst: Rabindra Nath Nayak Alok Ramachandran

Tel: 42273310 42273478

E-mail: rabindra.nayak@sbicapsec.com alok.ramachandran@sbicapsec.com

Please refer to our disclaimer given at the last page.

Power Sector Monthly Update June 2012

SBICAP Securities Ltd

Power Sector Update

Finally hydel PLFs improve as cyclicality kicks in, All India PLFs fall a tad
NHPCs & SJVNs PLFs improved substantially for the second consecutive month jumping from 74% & 61% recorded in May 2012 to 84% & 93%respectively.

In June 2012, all-India generation was up by a 8.1% YoY to 76.3bn units, due to the addition of 2,042 MW of monitored capacity. Thermal generation grew strongly by 11.4% YoY in June 2012. The hydel sector finally improved its generation as cyclicality kicks in. Despite a lower 5.5% YoY growth in the hydel sector, generation was up sequentially by 12.1%. NTPC reported 9.1% YoY growth in generation in June 2012 against a negative growth of 4% in June 2011. Nuclear generation grew by 8.8% and have been operating at a higher PLFs of 80-82% in the past three months. NHPCs generation was up 1.9% YoY and 16% MoM, but was 3.3% lower YTD. NHPCs & SJVNs PLFs improved substantially for the second consecutive month jumping from 74% & 61% recorded in May 2012 to 84% & 93%respectively.

Coal-based generation grows by 16.75% in June 2012

30,000 22,500 (MW) 15,000 7,500 Nov-11 Jan-12 Jun-11 May-11 May-12 Feb-12 Mar-12 Aug-11 Sep-11 Dec-11 Jun-12 Jul-11 0 Oct-11 Apr-12 100 75 (%) (MW) 50 25 0 4,800 4,700 4,600 4,500 Oct-11 Nov-11 Dec-11 Aug-11 Sep-11 Jun-11 Jan-12 Apr-12 May-11 May-12 Feb-12 Mar-12 Jun-12 4,400 Jul-11 100 80 (%) (%) 60 40 20 0

Central Hydel Capacity Central Hydel PLF

State Hydel Capacity State Hydel PLF

Nuclear Capacity

Nuclear PLF

60,000 45,000
(MW)

100 75
(MW) (%)

32,500 26,000 19,500 13,000 6,500

Nov-11 Jun-11 Jan-12 May-11 May-12 Feb-12 Mar-12 Dec-11 Aug-11 Sep-11 Jun-12 Jul-11 Oct-11 Apr-12

100 75 50 25 0

30,000 15,000
Nov-11 Jun-11 Jan-12 May-11 May-12 Mar-12 Feb-12 Dec-11 Aug-11 Sep-11 Jun-12 Jul-11

50 25 0
Oct-11 Apr-12

Central Thermal capacity Central Thermal PLF

State Thermal c apac ity State Thermal PLF

IPP Thermal capacity IPP TH PLF

Pvt. Utl. Thermal capacity Pvt. Utl. TH PLF

100,000 80,000

70 65

(MU's)

60,000 40,000 20,000 55

Nov-11

Jun-11

Jan-12

May-11

All India units gen.

All India PLF

Source: CEA, SSL

May-12

Feb-12

Mar-12

Aug-11

Sep-11

Dec-11

Jun-12

Jul-11

Oct-11

Apr-12

50

(%)

60

July 20, 2012 | 2

Power Sector Monthly Update June 2012 Power deficit at 8.6% in June 2012

SBICAP Securities Ltd

Forward curve prices from July 2012 to June 2013 will be generally flat in the range of Rs3.75-4.41 per unit.

In June 2012, power deficit in India rose to 8.6% from 5.4% YoY. The power deficit contracted (MoM) for the fourth consecutive month. Power generation grew by a strong 8.1% YoY compared to power availability which grew faster at 11.4%. Power requirement grew at a faster pace by 15.3% YoY and 1.3% MoM in June 2012. According to the CERC, the forward curve prices from July 2012 to June 2013 will be generally flat in the range of Rs3.75-4.41 per unit. The forward curve on 9th July 2012 which depicts reported contracts due to delivery over the next one year, shows that, the numbers of contracts (due for delivery) reported for the initial months (July and August 2012) were higher (30 to 8 contracts) than those of later months i.e. October 2012 to June 2013. Also, prices for these reported contracts due to delivery in July & August 2012 have increased from Rs3.85 to Rs4.41 per unit. It shows an alignment in the market that liquidity is higher for the near term. (Analysis of Weekly Reporting by Licensed Traders for May 2012). Average Deficit
70 65 (16.0) (12.0)

All India PLF and average deficit

184,000 176,000 168,000

(MW)

160,000 152,000

60 55

(%)

(%)

(8.0) (4.0) 0.0

144,000

May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12

136,000

50

Oct

Apr

Nov

Dec

Aug

Sep

Feb
Jun-12

Jun

Jul

Jan

May

All India Capacity

All India PLF (%)

2010

2011

2012

Source: CEA, SSLe

Average merchant tariffs fall back to Rs3.5per unit in July 2012

18 14

Average merchant prices correct to sub-4 levels in July 2012 after the initial spurt in June 2012

9 5 0

Nov-11

Jun-11

Jan-12

Jul-11

Average

Daily max

Daily min

Source: IEX, SSLe

May 2012 witnessed a 64% YoY increase in merchant demand in buyers but a 11.1% de-growth in sellers
4,000 3,000
(MU's)

2.5 2.0 1.5

10 8 6
(x)

2,000 1.0 1,000 0 0.5 0.0

May-12

4 2
Jun-11 Feb-11 Feb-12 Dec-10 Aug-11 Dec-11 Jun-12

0
Oct-11 Aug-11 Sep-11 Nov-11 Dec-11 Jun-11 Jan-12 Mar-12 Feb-12 Apr-12 Jul-11

Oct-11

Apr-11

May-12

Mar-12

Feb-12

Oct-11

Aug-11

Sep-11

Dec-11

Apr-12

No Buy bids

No of Sell offers

Buyers/Salers

IEX Bi-Lat Max

Bi-Lat Wt Avg Bi-Lat Min

NEW Grid

Source: CERC

July 20, 2012 | 3

Apr-12

Jul-12

Mar

Power Sector Monthly Update June 2012

SBICAP Securities Ltd Indonesian governments coal reference price down by 5.4% in July 2012 Prices of major coal grades fell again in July 2012. The Newcastle coal index fell for the eighth consecutive month to US$85.3 per tonne, down 28.5% YoY and 1.7% MoM. The Richards bay index fell by 27.2% YoY to US$85.5 per tonne. The Indonesian government has set a coal reference price of US$87.56 per tonne (9.4% below Junes reference price of US$96.7) for July 2012. The slowing demand for thermal coal from China is expected to continue.

Coal prices continue to fall

Newcastle Coal Index

200 180 150

Richards Bay Coal Index

(US$/metric tonne)

(USD$/metric tonne)

150 100 50 0 `

120 90 60 30

Jun-09

Jun-10

Jun-11

Jun-08

Mar-09

Mar-10

Mar-11

Sep-08

Sep-09

Sep-10

Sep-11

Dec-08

Dec-09

Dec-10

Jun-09

Jun-10

Jun-11

Mar-09

Mar-10

Mar-11

Dec-08

Dec-09

Dec-10

Sep-08

Sep-09

Sep-10

Indonesian Coal Reference Price Index

135 115 60 55 50

Sep-11

Dec-11

Mar-12

Jun-12

USD INR

USD/tonne

95 75 55

Rs

45 40

Jun-10

Jun-11

Jun-12

Nov-09

Nov-10

May-09

May-10

May-11

Nov-11

Feb-10

Feb-11

Feb-12

Oct-10

Oct-11

Apr-10

Apr-11

Apr-12

Source: Bloomberg, SSL

Gas prices continue to remain firm

10.5 9.0 7.5

US $

6.0 4.5 3.0 1.5

Oct-08

Oct-09

Oct-10

Apr-08

Oct-11

Apr-10

Apr-11

Jan-09

Jan-10

Jan-11

Jan-12

Apr-12

Apr-09

Jul-08

Jul-09

Jul-10

Jul-11

Monthly FOB Gas Prices

Source: Bloomberg, SSL

July 20, 2012 | 4

Jul-12

May-12

35

Aug-10

Aug-11

Feb-09

Feb-10

Feb-11

Dec-10

Dec-11

Aug-09

Aug-10

Aug-11

Feb-12

35

Dec-11

Mar-12

Jun-12

Power Sector Monthly Update June 2012

SBICAP Securities Ltd

Mandatory Conditions Preparation of Financial Restructuring Plan for the state Discoms and approval from the principal lenders. State government shall convert all its loans to equity or defer the recovery of such loans along with interest till the loans rescheduled by banks/ FIs are fully repaid. The state government shall pay all its outstanding energy bills as of March 31,2012 by August 31, 2012 and the utilities shall furnish a certificate to this effect by September 30, 2012 to CLMC through SLMC. FRP of Discoms of respective states is to be filed with SERCs for in-principle approval. The state government would ensure that Discoms eliminate the gap between ACS and ARR within the period of moratorium of the bonds issued by the state government. State government and Discoms not to resort short term loans from banks/ FIs to fund operational losses except as provided in the scheme.

July 20, 2012 | 5

Power Sector Monthly Update June 2012 2,376MW commissioned in June12

SBICAP Securities Ltd

According to the CEA, the country has commissioned 2,376MW in June 2012. Till June12, the country witnessed a capacity addition to the tune of 5,266MW. In the 11th plan, the country added 50,805MW (thermal, hydro and nuclear). This significant rise in project commissioning is expected to continue going forward in F13e as well. The Planning commission has set a power capacity addition target of 88,425MW for the 12th plan. As per the draft note, out of the projected capacity addition, thermal sources - coal, lignite and gas -- would make up for 71,228 MW while hydro would account for 11,897 MW. Nuclear power is estimated to be contributing 5,300 MW. Projects commissioned in F13till date

Plan-wise Achievement Capacity Addition Apr'12-June'13 301

(MW)

108,000 90,000

120%

90% 72,000 54,000 36,000 30% 18,000 60%

(%)

4,965
Thermal (MW) Hydro (MW)

0
2nd 1st 10th 11th
Target Achievement

0%
% of Achievement

Source: CEA, SSL

New project announcements picks up a bit; projects under implementation still robust

Projects Announcements
3,000 2,250 750 600

Project Shelved
80 70 60 50 40 30 20 10 0 -10

(Rs Bn)

(Rs Bn)

1,500 750 0

300 150

Jun-10

Jun-11

Mar-10

Mar-11

Sep-10

Dec-10

Sep-11

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

All India Abandoned

% of Electricity projects abandoned

50,000 40,000

Announced & Under Implementation

(Rs Bn)

30,000 20,000 10,000

Dec-11

0.6

0.4

0.2

Sep-09

Dec-09

Sep-10

Dec-10

Sep-11

Dec-11

Jun-09

Jun-10

Jun-11

Mar-09

Mar-10

Mar-11

Investments at the end of quarter (A - B + C)

Announced

Under Implementation/Announced

Source: CMIE, SSL

Mar-12

Jun-12

0.0

July 20, 2012 | 6

(x)

Mar-12

Jun-12

(%)

450

12th

4th

5th

6th

7th

8th

3rd

9th

Power Sector Monthly Update June 2012

SBICAP Securities Ltd

News during the month Power ministry agrees for coal price pooling model. Click here 12th Plan power capacity target cut to 88,000 MW. Click here India Plans to Aid Power Distributors. Click here Call on Tata Power and Adani's rate hike plea deferred. Click here Power capacity target hinges on coal, land links: Shinde Click here India wont have much coal by 13th Plan: Sushil Kumar Shinde. Click here Link power reform funds to milestones that show deployment of political will. Click here

July 20, 2012 | 7