CS House of Debt 13 Aug 2013.pdf

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CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATIONClient-Driven Solutions, Insights, and Access

Equity Research/ Asia Pacific / IndiaFinancials

13 August 2013

India Financial SectorSECTOR REVIEW

The Ideas Engineseries showcasesCredit Suisses mostunique insights and

investment ideas.

House of debtrevisitedDebt levels up 15% over FY12: We revisit the ten corporate groups featured inour 2012 House of Debt report (link), and find their debt levels are up another 15%even as profitability continues to be under pressure. For most of them the debtincrease has outpaced capex and asset sales are yet to take off. The rising stress isvisible with some loans of Lanco, JPA, and Reliance ADA already being restructured.Debt servicing ratios under pressure: Debt coverage ratios have furtherdeteriorated with P&L interest cover at groups such as Essar, GMR, GVK andLanco already under 1. Interest cover at Adani and Jaypee have also fallen to


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IDEAS ENGINE 2India Financial Sector

Leverage continues to riseFigure 1: Debt at following ten groups up 15% YoY, interest cover drops further

Rs mn, unless stated otherwise Gross debt EBITDA EBIT PAT Interest coverage (x) Debt/EBITDA (x) Debt/equity (x)

FY12 FY13 FY13 FY13 FY12 FY13 FY12 FY13 FY12 FY13

Adani Group 692,011 811,220 60,085 37,106 16,130 2.1 1.1 12.5 10.3 3.2 2.9

Essar Group 852,244 984,128 117,523 79,129 (34,676) 0.6 0.9 11.7 7.3 2.0 2.4GMR Group 360,289 408,249 24,772 14,374 881 0.4 0.7 18.8 14.3 4.1 4.9GVK Group 209,574 252,640 6,451 2,939 (3,360) 1.0 0.4 18.0 25.1 3.5 5.1

Jaypee Group 535,878 636,541 69,222 54,862 4,618 1.5 1.2 8.8 8.7 4.4 4.8JSW Group* 374,636 415,750 26,958 18,511 (1,676) 1.7 2.0 3.9 14.7 1.4 1.5Lanco Group 313,934 390,340 25,820 14,562 (10,733) 1.2 0.6 16.3 13.4 6.4 9.4

Reliance ADA Group 914,967 1,135,439 138,495 91,123 47,423 1.3 1.3 6.3 6.9 0.8 1.1

Vedanta Group 947,244 996,108 421,116 262,592 220,512 4.0 3.6 1.8 0.8 0.7 0.5Videocon Group# 272,834 272,834 - - - 0.2 N/A 20.0 N/A 3.6 N/A

5,473,611 6,310,247 890,440 575,198 239,119 1.6 1.4 6.3 5.6 1.6 1.8

* Data for Jun-13 # Data not available for FY13, debt levels assumed to be constant. Source: Company data, Credit Suisse research,

Figure 2: Debt increase in FY13 has outpaced capex Figure 3: P&L interest cover (x) has dropped YoY Figure 4: Capitalised interest is another 30-250% of P&L int.

0%

30%

60%

90%

120%

150%

180%

RelianceComm

ReliancePower

RelianceInfra

GVK Power JPAssociates

JP PowerVenture

Net debt increase as a % of Capex

-

0.5

1.0

1.5

2.0

2.5

Adani Ent Jaypee Associates Lanco Infra GVK Infra

FY12 FY13

0%

50%

100%

150%

200%

250%

300%

Reliance Power GVK Power &

Infra

JP Power

Venture

JP Associates Adani Power

Capitalised int as a % of PnL interest

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research

Figure 5: High %of forex loans in FY13 adding to debt burden Figure 6: Large share of capacity adds in FY14 Figure 7: Significant debt repayments coming up in FY14

0%

20%

40%

60%

80%

RelianceComm

AdaniEnterprise

ReliancePower

JSW Steel Adani Power RelianceInfra

Foreign currency loans as a % of total loans

0%

20%

40%

60%

80%

100%

120%

140%

ReliancePower

GVKPower

AdaniPower

GMRInfra

J ayp ee Veda nta Lanc o Es sa r Power

Capacity coming up in FY14 as a % of FY13 capacity

0%

50%

100%

150%

200%

250%

300%

GVKPower

JP Power Adani Ent GMR Infra AdaniPower

R Comm JSWEnergy

Increase in Debt repayments (YoY %)

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research


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House of debt

Debt levels up another 15% YoY

A year after our 2012 House of Debt report, we revisit the ten corporate groups featured inour earlier report. Over the past year, debt levels at these groups have risen by 15% YoYeven as profitability continues to be under pressure. The largest increases have been at

groups such as GVK, Lanco and ADA where the gross debt levels are up 24% YoY. Formost of these corporate groups, the debt increase even outpaced capex. Asset sales keyfor de-leveraging for most of thesehave still not taken-off; only GMR and Videocon havehad some success on that front. However, despite asset sales, GMR's debt is up 15% YoY.The increasing stress is visible with some loans of Lanco, JPA and Reliance ADA havingalready come up for restructuring.

Debt servicing ratios under pressure

Debt servicing ratios for most of the firms have deteriorated YoY. Interest cover ratios atgroups such as Essar, GMR, GVK and Lanco are already under 1. Interest cover ratios atAdani and Jaypee have also fallen to


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Top ten firms' debts continue to rise

Loans to these firms up 15% YoY

A year after our 2012 House of Debt report, we revisit the ten corporate groups that featuredin our earlier report. Over the past year, profitability at most of these groups has continued tobe under pressure and their aggregate debt levels have increased by a further 15% in FY13.

Among the largest increases have been at GVK, Lanco and ADA where the gross debt levelsare up another 24%.

Figure 10: Average loan growth in FY13 has been at 15% YoY

24% 24% 24%

19%17%

15%

13%

11%

5%

0%

5%

10%

15%

20%

25%

30%

Lanco Group RelianceADA Group

GVK Group JaypeeGroup

AdaniEnterprise

Essar Group GMR Group JSW Group VedantaGroup

YoY Loan growth %

Source: Company data, Credit Suisse research

Figure 11: Share of banking system loans at 13%

6%

7%

8%9%

10%

13% 13%

0%

2%

4%

6%

8%

10%

12%

14%

FY07 FY08 FY09 FY10 FY11 FY12 FY13

Share in system loans (%)


While many of these groups have projects under construction, the net debt increase has beenlarger than capex spend during the year.

Figure 12: Debt increase in FY13 has outpaced capex

0%

30%

60%

90%

120%

150%

180%

Reliance

Comm

Reliance

Power

Reliance

Infra

GVK Power JP

Associates

JP Power

Venture

Net debt increase as a % of Capex



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Figure 13: Net debt increase sharper than capex (as per cash flow statement)

Company name(Rs mn)

Capex Increase in net debt Net debt increase as

a % of capex

Reliance Comm 21,140 36,190 171%

Reliance Power 89,130 103,866 117%

Reliance Infra 40,476 46,905 116%

GVK Power & Infra 33,559 38,811 116%

JP Associates 123,055 101,433 82%

JP Power Venture 83,555 65,167 78%Source: Company data

Projects already undergoing restructuring

Lanco Infratech has already begun talks with banks for the restructuring of Rs75 bn of debt inthe standalone business. Banks have also restructured part of the debt for Reliance Powers3,960 MW Sasan UMPP that is expected to commission most units in FY14. JaiprakashAssociates Rs32 bn 500 MW Bina-I has undergone restructuring during the quarter, withPNB restructuring Rs11 bn of the loan during 1Q FY14.

Asset sales yet to take off

Asset sales will likely be key to deleveraging

While several groups have been looking to deleverage, only a couple of asset sales weresuccessfully concluded over the past year. Even after an asset sale, GMR Infras debt levelshave increased by 13% from Rs360 bn to Rs408 bn. While Adani Ports has sold AbbottPoint asset to the promoters, it still has an outstanding corporate guarantee for US$800 mn,as a result of which its liability hasnt reduced significantly. Videocon has been successful inselling a large asset, which should result in debt levels reducing for the fi rm.

Figure 14: Asset sales have not yet been strong enough to drive deleveraging

Asset sold Particulars Date Amount

(Rs mn)

Adani

Abbott Point Terminal in Australia, acquired two years ago forUS$235 mn along with debt of US$2 bn, sold to the

promoters. Believed to be sold back at the acquisition

price.

Jan-13 Undisclosed

GMRGMR Energy

(Singapore) Pte Ltd

800 MW of natural gas power plants in Singapore.

Asset is 96% complete.

Mar-13 16,160

Tshedza MiningResource (Pty) Ltd

Sale of 50% stake in the company. The companyholds the licence for the development of Eloff mines

in South Africa. Estimated to receive ~US$100 mn

Mar-13 Undisclosed

GMR JadcherlaExpressways Ltd

Sale of 74% stake in the company which operates theFarukhnagar-Jadcherla highway in Andhra Pradesh

Mar-13 2,060

Videocon

Mozambique Sold 10% stake in Mozambiques Rovuma-1 area forUS$3 bn

Jun-13 148,500



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Debt servicing ratios under pressureWith rising debt levels, interest cover for most of the groups has declined further. Aggregateinterest cover for these top ten groups has dropped from 1.6x to 1.4x. Interest cover ratios atgroups such as Essar, GMR, GVK and Lanco are already under 1. Interest cover at Adani andJaypee have also fallen to


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Currency depreciation adding to the debt burden

Many corporates' loans are 40-70% foreign currency denominated; therefore, the sharpdepreciation in the rupee is adding to their debt burden. Adani Enterprise and Reliance Commhave the largest percentage of borrowings through forex loans.

Figure 18: High share of forex loans adding to the debt burden

0%

20%

40%

60%

80%

Reliance Comm Adani Ente rpri se Reliance Po we r JSW Steel Adani Power Re liance Infra

Foreign currency loans as a % of total loans


Weakening rupee could cause further pain in FY14

With the 6.7% currency depreciation in FY13, corporates such as Reliance Comm, AdaniEnterprise and JP Associates, have seen a forex hit equivalent to their FY13 PAT. With theINR down 12% since Mar-13, the liabilities on account of this must have increased further.

Figure 19: Forex impact likely to be larger in FY14 with 12% INR dep in since 31 Mar

Rs mn FY13 rise in

liabilities due toforex

FY13 PAT Forex impact as a

% of FY13 PAT

Adani Enterprise 24,755 16,130 153%

JP Associates 4,554 4,618 99%

Reliance Communications 6,380 6,720 95

Reliance Power 5,874 10,115 58%JSW Steel 3,398 9,631 35%

GVK Power & Infra 802 (3,360) N/A



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FY14: The year of reckoning?These ten groups have 13,242 MW of power capacity (project cost of over Rs791 bn) due forcommissioning in FY14. Companies such as Adani Power, Reliance Power and GMR Infrawould see their operating capacities almost double if the projects were to come on stream asexpected.

The timely commissioning of the same would be important for the companies ability to service

the debt taken for the projects. With capitalised interest currently 30-250% higher, the P&Linterest burden may also sharply rise as the project starts.

Figure 20: A large share of capacity adds in FY14E

0%

20%

40%

60%

80%

100%

120%

140%

Reliance

Power

GVK Power Adani Power GMR Infra Jaypee Vedanta Lanco Essar Power



Figure 21: Significant share of capacity expected to come on-stream in FY14

Company Particulars Project capex

(Rs bn)

Capacity(MW)

Adani Power Operating capacity 5,280

Expected commissioning in FY14 225 3,960

Total 9,240

Essar Power Operating capacity 3,910

Expected commissioning in FY14 25 390Total 4,300

GMR Infra Operating capacity 2,083


Total 3,433

GVK Power Operating capacity 900

Expected commissioning in FY14 74 870

Total 1,770

Jaypee Operating capacity 2,200


Total 3,520

JSW Energy Operating capacity 3,140

Expected commissioning in FY14 - -

Total 3,140

Lanco Operating capacity 4,000

Expected commissioning in FY14 33 732

Total 4,732

Reliance Power Operating capacity 2,460


Total 5,845

Vedanta Operating capacity 2,400


Total 3,720



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Debt repayments are 30-150% higher YoY

Debt repayment commitments are also higher in FY14. FY13 annual reports of many of thegroups (Essar, Lanco, GMR, Videocon, Vedanta) are still to be published. The annual reportsthat have been already published reveal a sharp 30-150% rise in debt repayment liabilities inFY14, for companies such as Adani Enterprises, GMR Infra and JP Power. Debt repaymentsin FY14 for GVK power are up ~300% to Rs15 bn while it made a loss after tax of Rs3.4 bnin FY13.

With debt repayments for most of the companies 3-5x their FY13 annual profits and FCF formost groups still negative, banks wi ll likely need to refinance/restructure most of these loans.Many of the groups (Essar Oil US$200 mn, Essar Steel US$260 mn, Reliance CommUS$500 mn, Reliance Infra US$250 mn and Vedanta Aluminium US$407 mn) also haveECBs maturing in FY14.

Figure 22: Significant debt repayments coming up in FY14

0%

50%

100%

150%

200%

250%

300%

GVKPower

JP Power Adani Ent GMR Infra AdaniPower

R Comm JSWEnergy

Increase in Debt repayments (YoY %)


Figure 23: Refinancing needs are large in FY14 given inadequate profitability

Debt repayments due in

FY13 FY14 % YoY FY13 PAT FY14 repayments as a % of

FY13 PAT

GMR Infrastructure 33,467 55,144 65% 881 6.258%

JP Associates 82,174 82,762 1% 4,618 1.792%

Reliance Comm 31,180 40,690 31% 6,720 606%

JP Power Venture 8,378 20,266 142% 3,512 577%

Adani Enterprise 39,702 73,597 85% 16,130 456%JSW Steel 64,178 25,999 -59% 9,631 270%

GVK Power & Infra 3,729 14,788 297% (3,360) N/A

JSW Energy 7,050 8,771 24% 9,037 97%

Reliance Power 8,023 7,588 -5% 10,115 75%


Large corporates still not forming part of banking system NPAs

While Indian bank NPAs have already moved up from 2.5% to 4% of loans, most of thesehas been on account of rising delinquencies in agri, SME and mid-corporates. Largecorporate NPLs are still low; for example, 1.7% at SBI, where 5.6% of total loans are nowNPLs. As a study of these ten groups reveals, the overleverage in the large corporatesegment is high and is a potential source of additional asset quality stress for banks. As alsohighlighted in our recent reports,Restructuring: A panacea or postponementandA growingproblemcorporate asset quality are likely to persist and we continue to remain Underweighton Indian Banks despite the recent stock price fall and cautious on corporate lenders like SBI,ICICI Bank, Yes Bank, Union Bank, PNB, and Bank of India.
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Summary of analysis

In the section below, we look at each of the ten groups in detail, analysing thethe group structure, and the changes in the interest cover, Debt/EBITDA andDebt/Equity ratios for each of the companies within the group.

We also highlight the key projects for each of the groups, both for their operatingas well as their upcoming projectsAs mentioned earlier, expansions in FY14

expected to add 50-130% of FY13 operating capacity.Also while we have seen expensed interest costs rising, we have also looked atthe increases in overall interest cost (including capitalised interest) which wouldstart flowing through into the Pnl on the commissioing of new capacities, causinginterest coverage ratios to detiororate further.

We also look at the asset sales and the assets on the block, which could helpthese companies, to service the debt repayments likely to be due in FY14, withdebt repayments up 30-150% compared to FY13.

Figure 24: A large share of capacity adds in FY14

0%

20%

40%

60%

80%

100%

120%

140%

ReliancePower

GVK Power Adani Power GMR Infra Jaypee Vedanta Lanco Essar Power



Figure 25: Debt at following ten groups up 15% YoY, interest cover drops further

Rs mn, unless stated otherwise Gross debt EBITDA EBIT PAT Interest coverage (x) Debt/EBITDA (x) Debt/equity (x)

FY12 FY13 FY13 FY13 FY12 FY13 FY12 FY13 FY12 FY13

Adani Group 692,011 811,220 60,085 37,106 16,130 2.1 1.1 12.5 10.3 3.2 2.9

Essar Group 852,244 984,128 117,523 79,129 (34,676) 0.6 0.9 11.7 7.3 2.0 2.4

GMR Group 360,289 408,249 24,772 14,374 881 0.4 0.7 18.8 14.3 4.1 4.9GVK Group 209,574 252,640 6,451 2,939 (3,360) 1.0 0.4 18.0 25.1 3.5 5.1

Jaypee Group 535,878 636,541 69,222 54,862 4,618 1.5 1.2 8.8 8.7 4.4 4.8JSW Group* 374,636 415,750 26,958 18,511 (1,676) 1.7 2.0 3.9 14.7 1.4 1.5Lanco Group 313,934 390,340 25,820 14,562 (10,733) 1.2 0.6 16.3 13.4 6.4 9.4

Reliance ADA Group 914,967 1,135,439 138,495 91,123 47,423 1.3 1.3 6.3 6.9 0.8 1.1Vedanta Group 947,244 996,108 421,116 262,592 220,512 4.0 3.6 1.8 0.8 0.7 0.5

Videocon Group# 272,834 272,834 - - - 0.2 N/A 20.0 N/A 3.6 N/A5,473,611 6,310,247 890,440 575,198 239,119 1.6 1.4 6.3 5.6 1.6 1.8

* Data for Jun-13 # Data not available for FY13, debt levels assumed to be constant. Source: Company data, Credit Suisse research,


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Adani GroupFigure 26: Adani group structure and debt

ADANI GROUP

Gautam Adani &promoter groups

Adani Enterprises Ltd691 bn (692 bn)

Adani MiningPty, Australia

100%

75%(80%)

Adani Power418 bn (386 bn)

Adani Port & SEZ116 bn (176 bn)

69%75%

(70.25%)

75%(77.5%)

Adani Global PteLtd Singapore

100%

Estimated Group Debt

Rs. 810 bn (Rs. 690 bn)

Bold % indicate total promoter group holding

(xx%) indicate previous year holding %

Abbott Point,Australia120 bn

100%

CorporateGuarantee

USD 800 mn

Source: BSE, company data, Credit Suisse research

Adani is a diversified business conglomerate in the infrastructure and commodities space withinterest in power, trading, energy, ports, mining and oil & gas, among others. Adani Powerhad 5,280 MW of operating power capacity at the end of FY13, 1,980 MW has beencommissioned so far in FY14, while 1,980 MW is currently under construction and is

expected to be commissioned during the year. The projects could face problems due to fuelsupply issues, lack of LoAs and pressure on profitability. Adani Ports Mundra port is thelargest port in India, in terms of cargo handled and it is in the process of building ports in otherparts of India.


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A sharp decline in interest coverage

While debt levels have remained flat for Adani Enterprise, which is the holding company forthe group, it has witnessed deterioration in its interest cover over the last year to 1.1x (2.1x inFY12) on account of a 91% rise in interest costs to Rs35 bn even as profitability stagnated.Moreover, with the currency depreciation, liabilities for the group increased Rs24.7 bn, 153%of FY13 PAT, with forex loans accounting for 65% of total loans outstanding.

During 1Q FY14, the company had forex loss of Rs4.2 bn in the P&L, while it was Rs3 bn in

FY13. Also interest costs for the quarter were up 74% YoY. On a consolidated basis, AdaniEnterprises has Rs74 bn of debt repayments in FY14.

Figure 27: Trend in gross borrowings

Gross debt (Rs mn) FY07 FY08 FY09 FY10 FY11 FY12 FY13

Adani Enterprise 43,529 61,041 120,842 174,389 331,013 692,011 691,220

Adani Ports 12,822 20,655 28,957 37,062 35,953 175,650 115,858

Adani Power - 10,112 49,897 105,855 245,027 386,003 417,954


Problems for the group have largely been on account of issues faced at Adani Power, wherethe company had an EBIT loss of Rs3.3 bn in FY13 (against a profit of Rs7.3 bn in FY12). Atthe PAT level, its loss widened from Rs3 bn to Rs23 bn and FCF stood at negative Rs45 bn,

which is of concern given the Rs42 bn of debt repayments coming up for Adani Power inFY14. With 3,960 MW of capacity due for commissioning in FY14, the currently capitalisedinterest (32% of FY13 P&L interest) burden will also weigh on the companies profitability.

In the first quarter, Adani Power commissioned 1,980 MW of capacity, and is expected tocommence operations in two of its under-construction plants (1,320 MW Tiroda Phase II andthe 660MW 2nd unit of Kawai), both of which have fuel supply issues as they lack LOAs andare likely to remain under-utilised. Notably, loans for these projects have been securedagainst the entire balance sheet of Adani Power.

Adani Ports has strong cash flows from its operating business, but was burdened with thedebt on acquisition of Abbott Point asset in Australia for US$2 bn (AU$1.8 bn) in May-11.Over the past year, the company sold the Australian asset (Abbott Point) to the promoter(Gautam Adani) for the same value at which it was acquired two years ago. This has helpedreduce the debt at Adani Port & SEZ. Adani Ports has given a corporate guaranteeamounting to Rs45.6 bn (US$800 mn). It has also been looking to acquire Dharma port fromL&T and the Tata group for Rs55 bn and is looking to invest Rs300 bn during the year in newport assets, to continue its expansion.

Figure 28: Adani Power continues to face issues in operational assets, as well as

upcoming projects

Project Capacity

(MW)

Est cost

(Rs bn)

Est. CoD Power

Source

Remarks/ issues

Mundra

Phase I

660 22 Operational Imported Profit squeeze on use of expensive spot

coal as Indonesian mines output notramping up

Mundra

Phase II

660 22 Operational Imported Profit squeeze on use of expensive spot

coal as Indonesian mines output notramping up

MundraPhase III

1,320 59 Operational Imported Committed tariff is unviable. Applied forPPA renegotiation, case pending in

Supreme Court

MundraPhase IV

1,980 106 Operational Linkage Likely to face profitability pressures due todomestic fuel deficits

Tiroda I 1,320 93 Operational Captive Captive coal mine for 800 MW awaiting

environmental clearances; however,

apering linkage available. Could faceissues later.

Tiroda II 1,320 62 FY14 Linkage Lacks LoA, commissioned in FY14, willremain under-utilised

Kawai 660

660

70 Operational

FY14

Linkage Lacks LoA but likely to commission in

FY14, will remain under-utilisedTotal 9,240 434


Figure 29: Key financials, changes from FY12 to FY13

Rs mn, unless stated otherwise Gross debt Equity EBITDA EBIT PAT Interest coverage (x) Debt/EBITDA (x) Debt/equity (x)

FY12 FY13 FY12 FY13 FY12 FY13

Adani Enterprise 691,220 214,586 60,085 37,106 16,130 2.1 1.1 12.5 10.3 3.2 2.9

Adani Ports 115,858 63,963 23,760 19,540 16,232 5.1 3.6 9.4 4.5 3.4 1.7

Adani Power 417,954 42,934 9,596 (3,301) (22,950) 0.8 (0.2) 26.7 41.8 5.9 9.3



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Essar GroupFigure 30: Essar group structure and debt

ESSAR GROUP

Essar Global Ltd,

Essar Shipping &Logistics Ltd, Cyprus

Essar Energy Plc, UK524 bn (421 bn)

Essar Shipping Ltd53 bn (56 bn)

Essar Steel HoldingsLtd

Essar Ports Ltd56 bn (55 bn)

Essar Oil260 bn (177 bn)

Essar Steel Ltd351 bn (320 bn)

Essar Power Ltd180 bn (154 bn)

51.29%

76.74%

Essar Projects Ltd

Estimated Group DebtRs. 985 bn (Rs. 850 bn)

13.2% 61.2%(69.3%)

89.5%



98.3%

71.03%75%

(79.7%)


Essar Group is involved in a large number of businesses, including power, steel, ports and oil.Essar Power has 3,910 MW of operating capacity, 2,790 MW of which is currently underconstruction. Essar Ports currently has 104 mn tpa operational capacity, while another 54 mn

tpa is expected to be ready by FY15. Essar Oil has 20 mn t operational capacity and does nothave any immediate plans of expansion. Essar Steel has increased its capacity from 4.6 mn tto 10 mn t and is in the process of integrating the same.


14/33


Interest coverage remains below 1, debt-to-equity increasing

Group debt is estimated (annual reports are still to be published) to have increased 15% YoYto Rs985 bn. Interest coverage for Essar Group improved marginally from 0.6x to 0.9x, onaccount of improving profitability at Essar Energy Plc, where losses decreased from US$764mn to US$175 mn. Interest cost for the group increased from Rs58.5 bn to Rs92.8 bn overthe past year.

The group has reduced its stake in Essar Ports and Essar Shipping to 75% in order to comply

with SEBI guidelines. The group has also pledged 100% of its stake in these two companies.Essar Oils EBITDA improved from Rs21 bn in FY12 to Rs36 bn in FY13, on account of a50% increase in production volumes; however, the increased interest burden, resulted inlosses after tax remaining flat YoY, at Rs12 bn. The P&L interest went up from Rs13.7 bn inFY12 to Rs34.2 bn in FY13; this was also driven by the interest component of the Rs60 bnsales tax claim received by the company during the year. Essar Oil currently does not haveany capex plans. Essar Oil and Essar Steel have US$200 mn and US$260 mn of ECBsmaturing in FY14.

Last year the group sold a minority stake in Equinox Realty for ~Rs10 bn, and was alsolooking to sell a stake in its outsourcing company Aegis Ltd.


Gross debt (Rs mn) FY07 FY08 FY09 FY10 FY11 FY12 FY13

Essar Energy Plc 140,668 170,374 134,613 170,995 247,368 420,558 523,974

Essar Steel (Consol) 72,206 62,581 74,764 184,014 266,695 320,259 351,050

Essar Oil 85,714 98,153 100,317 103,537 145,469 177,244 259,862

Essar Ports 32,976 41,701 67,389 75,075 44,815 55,051 55,809

Essar Shipping# 49,891 56,376 53,295

Total 245,850 274,655 276,765 430,084 608,769 852,244 984,128

# Demerged in 2010. Source: Company data, Credit Suisse research

However, Essar Steel continues to face increasing challenges as steel production has still notramped up. Production in FY13 was at 5.5 MT vs 4.6 MT in FY12. With debt levels rising,interest expense was up 40%, interest coverage has dropped to 0.1x and PAT loss haswidened to Rs27.9 bn in FY13 from Rs12.5 bn.

Essar Power has 3,910 MW of operating capacity and has ~2,790 MW of capacity underconstruction. The company has issues with the upcoming projects, mainly on account ofenvironmental and mining clearances. The company has debt (excluding working capitalloans) of ~Rs180 bn with ~Rs21 bn due in FY14.

Essar Ports is in the process of expanding its capacity, and its 20 MTPA at Salaya isexpected to commence in Mar-14, while it will commence construction on its 14 MTPA coalterminal at Paradip shortly. The company will be putting in capex over the next few years anddebt levels should rise.

Figure 32: 65% of upcoming capacity expansions facing issues

Project Capacity

(MW)

Est cost

(Rs bn)

Est. CoD Power

source

Remarks/ issues

Salaya I 1,200 48 Operational Imported Committed tariff is unviable. Trying forPPA renegotiation

Mahan I 1,200 65 Operational Captive Captive coal mine awaiting environmentalclearances

Tori I 1,200 60 FY15 Captive Captive coal mine awaiting environmental

clearancesTori II 600 30 FY15 Captive Captive coal mine awaiting environmental

clearancesTotal 4,200 203





Essar Energy Plc 523,974 197,412 80,130 63,492 (10,500) 0.5 1.2 13.4 5.9 1.8 2.4Essar Steel (standalone) 291,050 71,035 18,223 2,601 (27,849) 0.4 0.1 13.3 15.6 2.8 4.0

Essar Oil 259,862 11,070 36,507 23,547 (11,800) 1.0 0.7 7 .5 6.5 7.2 21.3

Essar Ports 57,370 27,270 11,408 8,968 3,316 1.6 1.8 6.1 5.0 2.5 2.1

Essar Shipping 53,295 67,681 7,762 4,069 358 1.0 1.1 7.7 6.8 1.0 0.8

Total 925,689 363,399 117,523 79,129 (34,676) 0.6 0.9 11.7 7.3 2.0 2.4

# Demerged in 2010.Source: Company data, Credit Suisse research


15/33


GMR GroupFigure 34: GMR group structure and debt

GMR GROUP

GMR Holdings PrivateLimited

GMR InfrastructureLtd

408 bn (360 bn)

GMR AirportsHolding Limited

GMR EnergyLimited

70.30%71.64%

97.9%

GMR HyderabadInternational Airport

Limited

GMR HighwaysLtd.

Delhi InternationalAirport Private

Limited

61.2%(63%)

52.8%(53.5%)

100% 98%

GMR ChattisgarhEnergy

GMR PowerCorporation

51%100%

GMR UlundurpetGMR Hyderabad

Vijayawada

74%100%


Rs. 410 bn (Rs. 360 bn)




GMR is an infrastructure-focussed group with interests in airports, energy and roads. Thecompany has developed and operates airports at Delhi, Hyderabad and Turkey. GMR has2,100 MW of power capacity operational and another 3,300 MW under construction, for

which Rs185 bn has been spent and another Rs64 bn is required to be spent. The companyhas eight operational highway projects and another three are under way with a project cost ofRs157 bn, of which Rs30 bn is yet to be spent.


16/33


Interest coverage improves, while debt-to-equity rises

Debt levels for the company were up 13% YoY to Rs408 bn. Interest cover and debt-to-EBITDA improved, with higher profitability; however, debt-to-equity deteriorated from 4.1x to4.9x over the year. Interest cost was up 27% YoY to Rs21 bn.

The company has been focusing on asset sales in order to reduce debt levels. In FY13, thecompany sold its 800 MW natural gas power plant in Singapore for Rs16 bn and its roadproject for Rs2 bn. The company also sold its 50% stake in Eloff mines in South Africa which

is estimated to bring in US$100 mn. They are also looking to sell its road assets for~Rs11 bn. GMR was one of the more successful groups in terms of progress on asset salesin FY13, despite which the debt for the company increased by ~Rs48 bn to Rs408 bn duringthe year.

The company has Rs55 bn of debt repayments due in FY14 (Rs33 bn in FY13) and EBITDAof Rs25 bn in FY13. PAT of Rs881 mn for the year was on account of exceptional gains ofRs7.8 bn.


Rs mn FY08 FY09 FY10 FY11 FY12 FY13

GMR Infrastructure 79,769 125,004 211,713 244,296 360,289 408,249


The company has gas projects (67% of operating power capacity), which are facing issues onaccount of limited gas supply; however, the company has now shifted focus and is not lookingto start new projects but complete the ongoing projects. It plans to commission 1,350 MW ofpower projects during the current year, and the 1,320 MW Chattisgarh project in FY15.

Already banks have extended the tenor of loans at their Vemagiri-II project and funded theincreased interest during the construction period with additional loans of Rs8 bn.

Figure 36: Key assets to watch

Project Capacity

(MW)

Est cost

(Rs bn)

Est. CoD Power

source

Remarks/ issues

EmcoEnergy

600 40 Unit IOperational,

Unit II Jul-13

Linkage FSA signed for 200 MW, LoA exists foranother 370 MW. FSA likely to be

signed for another 200 MW (rest 200MW is merchant, so no FSA).

Chattisgarh 1,320 83 FY15 Linkage Lacks LoA, faces fuel risk

Kamalanga 1,050

350

63 FY13/14

FY17

Captive Firm linkage for 500 MW & tapering

linkage for 550 MW. FSA signed for 500MW, there could be delays in captive

coal production.

Kakinada 235 6 Operational Gas based Operating at low PLF due to lower gassupplies. Rs6 bn spent on relocating

plant from Mangalore to Kakinada.

Vemagiri I 388 12 Operational Gas based Operating at low PLF due to lower gassupplies.

Vemagiri

Phase II

768 41 Ready Gas based Applied for debt restructuring, project

commissioning pushed back by two

years, banks have funded an additionalRs6 bn as project cost has gone up

from Rs32 bn to Rs40 bn.Total 4,711 245

Kishangarh-Ahmedabad

555 km Underconstruction

6 lanehighway

The company has terminated theproject.



Rs mn, unless stated otherwise Gross debt Equity EBITDA EBIT PAT Interest coverage (x) Debt/EBITDA (x) Debt/quity (x)


GMR Infrast ructure 408,249 72,782 24,772 14,374 881 0.4 0.7 18.8 14.3 4.1 4.9



17/33


GVK GroupFigure 38: GVK group structure and debt

Indira Krishna Reddy& Family

GVK Power &Infrastructure Ltd186 bn (143 bn)

GVK AirportDevelopers PrivateLtd 28 bn (26 bn)

GVK Coal Developers

(Singapore) Pte Ltd62 bn (55 bn)

10%

100%

54.25%

Bangalore Airport &Infra Dev Pvt Ltd

GVK Energy Ltd9 bn (9 bn)

74%

Bangalore International

Airport Limited12 bn (12 bn)

43%

100%

Mumbai IntlAirport Pvt Ltd52 bn (38 bn)

51%

Estimated Group DebtRs. 260 bn (Rs. 210 bn)


28bncorporateguarantee


GVK is a diversified conglomerate with interests across energy, airports, transportation andhospitality. The group owns 900 MW operational power plants and has around ~3,000 MWprojects under various stages of construction and development. GVK acquired 79% in Alphacoal mines and 100% in Kevin coal mines from Hancock in Australia with 8 bn t reserves and

capacity of 60 mn t per year, for US$1.26 bn, with further planned investment of US$10 bn,of which 10% is owned by GVK and the balance is owned by the promoters. GVK has alsodeveloped and operates the Bangalore Airport and the Mumbai International Airport, while itsalso constructing airports in Bali and Java.


18/33


Increasing debt levels result in a fall in interest coverage

Debt levels have increased by ~Rs50 bn (24% YoY), while EBIT has declined, leading to afall in interest coverage from 1.0x to 0.4x and increase in debt/EBITDA from 18x to 25x.While debt has increased by 24%, total interest cost (including capitalised interest) is up 64%to Rs17.8 bn in FY13, with capitalised interest at Rs10.6 bn compared with P&L interest ofRs7.1 bn.

The company has been looking to sell a 26% stake in its Mumbai and Bangalore airports for

~Rs34 bn, in order to reduce debt levels and bring down gearing for the company.The company invested US$1.26 bn for the Hancock coal mines in Australia, which wasentirely debt funded. In FY14, debt repayments are 297% higher and amount to Rs14.8 bnwhile the company made loss after tax of Rs3.4 bn in FY13. The company has also provideda corporate guarantee for Rs28 bn for securing the loans taken by GVK Coal Developers(Singapore) Pte Limited.


Rs mn FY07 FY08 FY09 FY10 FY11 FY12 FY13

GVK Power & Infra 17,321 12,910 29,798 50,577 62,458 209,574 259,640


All operational power plants for the company are gas based and have been under-utilised due

to issues with gas supplies. PLF for JP-II and Gautami fell sharply in 4Q FY13 and were at4% and 8%, respectively, on account of limited gas supply from KG-D6. PLF for gas-basedpower plants fell from 66% in FY12 to 40% in FY13, while PLF of coal-based power plantshas also declined from 73% in FY12 to 60% i n FY13.

The groups operating capacity will nearly double in FY14. The 540 MW Goindwal Sahibthermal plant is under construction and expected to be commissioned towards the end ofCY13, while the 330 MW Alkananda project is also close to completion.

The company also reportedly entered into a deal with Aurizon to sell a 51% stake in theAustralian coal mines for an undisclosed sum. The company has recently receivedenvironmental clearance for the US$4.2 bn Kevin Corner mine.

Figure 40: Gas-based projects continue to face issues on account of low supply

Project Capacity Est cost

(Rs bn)

Est. CoD Power source Remarks/ issues

JP I 217 MW 8 Operational Gas based Operating at low PLF due to lowergas supplies

JP II 220 MW 9 Operational Gas based Operating at low PLF due to lowergas supplies

Gautami

Power

464 MW 18 Operational Gas based Operating at low PLF due to lower

gas suppliesTotal 901 MW 35

Shivpuri

Dewas

332 kms Under

Construction

4 lane highway Delayed due to delays in land

acquisition



Rs mn, unless stated otherwise Gross debt Equity EBITDA EBIT PAT Interest coverage (x) Debt/EBITDA (x) Debt-equity (x)


GVK Power & Infra 185,440 31,453 6,451 2,939 (3,360) 1.0 0.4 18.0 25.0 3.5 5.1



19/33


Jaypee GroupFigure 42: Jaypee group structure and debt

JAYPEE GROUP

JP InfraventuresPrivate Limited

Jaiprakash Associates

Ltd637 bn (536 bn)

Jaiprakash PowerVentures Ltd

230 bn (166 bn)

Jaypee CementCorp Ltd

100%

32.34%44.7%

(33.75%)

60.7%65%

(67.93%)

Jaypee Sports IntlLtd

90.5%

Jaypee GangaInfrastructure

Corporation Ltd

100%


Rs 640 bn (Rs. 535 bn)

Total Promoter stake has reducedfrom 46.76% to 44.74%

4.28%(8.18%)




Jaypee Group is an integrated infrastructure (expressways, hotels) conglomerate in India withexposure to power generation, cement, construction and the real estate sector. It is thelargest hydropower player with 1.7 GW operational capacity. It has 500 MW of operational

coal based capacity and another 3 GW of coal capacity under construction. The group is oneof the largest cement producers in India with 32.6 mn tpa of operational capacity. The Grouphas also undertaken real estate projects and expressway projects.


20/33


Interest costs rise, coverage ratios decline

In FY13, debt levels for the group went up another 19% with continued capex at JPVL.Therefore, despite JPVL raising Rs35 bn of equity, JPA raising Rs5.3 bn from its QIP andRs5.6 bn from the OFS of its real estate subsidiary, the debt levels have risen by Rs100 bn.

Expensed interest costs were up 45% to Rs46 bn during the year, resulting in a decline ininterest coverage to 1.2x. Moreover, capitalised interest is another 70% of expensed interestfor JPA now and the total interest (including capitalised interest) has increased from Rs52 bn

to Rs79 bn.Jaiprakash Associates has pledged 78% of its holding in its real estate subsidiary and 73% ofits holding in Jaiprakash Power, and it has reduced its stake from 83.2% to 71.6% and67.9% to 60.7%, respectively.



JP Associates 80,952 115,832 194,788 352,711 444,450 535,878 636,541

JP Power Venture 10,698 9,001 9,889 68,660 133,459 165,173 230,149


The company is looking to sell 9.8 mn tonnes of its cement plants in Andhra Pradesh andGujarat for ~Rs90 bn; however, it hasnt been able to close the deal in over a year, on

account of valuation differences.

The company has repayments of the Rs83 bn coming up in FY14, while the company hadnegative FCF of Rs69 bn in FY13, on account of capex of Rs123 bn.

Jaiprakash Power is expected to commence operations on its 1,320 MW Nigire project inFY14, which would increase capacity by 60%, and help improve cash flows. Also its 1,980MW Bara-I project is likely to get 80% FSA, which would be positive for the company versusthe earlier 660 MW of FSA.

Figure 44: Projects under construction, facing issues likely to be delayed

Project Capacity

(MW)

Est cost

(Rs bn)

Est. CoD Power

source

Remarks/ issues

KarchanaPhase I

1,320 69 FY17 Linkagecoal

Project stalled due to land acquisitionissues, however limited capex implemented

so farBara

Phase I

1,980 108 FY15/16 Linkage

coal

Could face issues on procuring FSA for

entire 1.98 GW if project is not

commissioned by Mar-15.Total 3,300 177


Figure 45: Key financials, changes from FY12 to FY13Rs mn, unless stated otherwise Gross debt Equity EBITDA EBIT PAT Interest coverage (x) Debt/EBITDA (x) Debt/equity (x)


JP Associates 636,541 125,530 69,222 54,862 4,618 1.5 1.2 8.8 8.7 4.4 4.8

JP Power Venture 230,149 64,602 19,968 16,203 3,512 1.5 1.3 10.1 11.1 2.9 3.4



21/33


JSW GroupFigure 46: JSW group structure and debt

JSW GROUP

JSW Investments PvtLtd

JSW Steel(post Ispat merger)310 bn (207 bn)

JSW Energy106 bn (100 bn)

32.4%

4.8%


Rs 415 bn (Rs 375 bn)



Sun Investments PvtLtd

16.5%3%

Jindal South WestHoldings Ltd

7.2%

35.8%

JSW SteelNetherlands(Holding co)

OverseasSubs

JSW NaturalResources Ltd

OverseasSubs

JSW Group(Sajjan Jindal)

JSW Cement


JSW is a diversified conglomerate with interests in steel, energy, minerals & mining,infrastructure and logistics. JSW Steel acquired a controlling interest in Ispat Industries at anenterprise value of US$3 bn in 2010 to become the largest steel producer in India. It currentlyhas 14.3 mn tpa of steel capacity. The company has plans of expanding capacity by 10 mn

tpa in the next 3-4 years. JSW Energy has an operational capacity of 3,140 MW, with atarget of increasing the installed capacity to 11,770MW by 2016. The group has also set upa 5.2 mn t cement plant, and plans to set up cement plants adjacent to all steel plants toutilise the slag and increase its presence in the cement industry.


22/33


Steel drags profitability, energy improves

JSW Steel merged with JSW Ispat during 1Q FY14, and now the debt levels for the mergedentity are up to Rs310 bn in Jun-13 compared to Rs280 bn in Mar-13. Moreover, 40% ofJSW Steel debt is foreign currency denominated; during 1Q FY14, the company had forexloss of Rs8.6 bn against a loss of Rs3.7 bn in FY13.

Interest cost for the group has remained largely flat YoY. However, the falling profitability atJSW Steel has lowered its interest cover to 2.2x in FY13 and this dropped further to 1.8x in1Q FY14 post-merger. Profitability at JSW Energy has improved, however, and so have itsdebt servicing ratios.

JSW Steel has debt repayments of Rs26 bn in FY14, whereas JSW Energy's debtrepayments are 24% YoY higher at Rs9 bn. JSW Steel also has US$185 mn of ECBsmaturing in FY14.


Rs mn FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14*

JSW Steel 41,730 121,362 165,502 161,730 186,000 206,826 216,461309,500

JSW Ispat 83,155 72,250 73,558 71,859 69,341 67,878 63,295

JSW Energy 7,071 22,727 59,272 78,701 96,380 99,933 103,766 106,250

Total 131,956 216,339 298,332 312,291 351,721 374,636 383,521 415.750

* Jun-13, JSW Steel and JSW Ispat were merged. Source: Company data, Credit Suisse research.

JSW Energy has 3,140 MW of operating capacity and aims to increase the capacity to11,770 MW by FY16. EBITDA and PAT increased sharply from FY12 to FY13, with PATincreasing from Rs1.7 bn to Rs9 bn.



(Rs bn)

Est. CoD Power

Source

Remarks/ issues

Ratnagiri 1,200 MW 50 Operational Imported Committed tariff is unviable. Trying for

PPA renegotiation for 300 MWTotal 1,200 MW

Salboni,

West

Bengal

10 MT Steel plant Land acquisition problems in West

Bengal


Figure 49: Key financials, changes from FY12 to 1QFY14



JSW Steel* 309,500 207,682 17,730 11,291 (3,818) 3.0 1 .8 2.8 4 .1 1.0 1.4

JSW Energy* 106,250 64,320 9,228 7,220 2,143 1.5 2.6 5.7 2.9 1.6 1.7

Total 415,750 272,002 26,958 18,511 (1,676) 1.7 2.0 3.9 3.7 1.4 1.5

* 1Q FY14 annualised. Source: Company data, Credit Suisse research,


23/33


Lanco GroupFigure 50: Lanco group structure and debt

Lanco Group

Lanco Infratech Ltd351 bn (313 bn)

Naturalresources

Cos

Lanco SolarPvt Ltd (LSPL)

Real EstateCompanies

Lanco InternationalPte Ltd (EPC)

Lanco ThermalPower Ltd

(LTPL)

InfrastructureCompanies

Subs

Subs

Subs

Subs

Lanco Group Ltd

Amarkantak

(LPL) Anpara Udupi(imported coal)

Kondapalli

(LKPL)(KG D6 gas)

3 Highwayprojects in UP& Karnataka

Griffin Coal MiningCo (Australia)

39 bn

LancoResource Int

SubsSubs

LM Rao, GB Rao, LSridhar, L Rajagopal

12.3%

Subs

Lanco HydroPower Ltd

(LHPL)

Subs

Subs

Subs


Rs. 390 bn (Rs. 315 bn)

Lanco PowerPvt Ltd (LPPL)

Subs



56.2%70.8%

Subs


Lanco is a diversified business group with balance sheet size of US$6.9 bn, and operates inthe construction (EPC), power, solar, natural resources and infrastructure sectors. Lanco hasemerged as one of the largest IPPs (Independent Power Project) in India with 4,732 MW ofoperating capacity and 4,636 MW of capacity under construction, expected to be completed

by FY16. It had an EPC order book of US$5.3 bn as of Mar-13. Lancos road portfolioconsists of three highway projects of total length of about 443 km, of which two projects of81 and 82 km have been completed, while the 280 km project has achieved financial closure.


24/33


Rising debt levels and interest burden necessitate restructuring

Lanco debt levels have gone up 12% in FY13 to Rs351 bn. P&L interest costs for the grouphave gone up 130%, resulting in losses of Rs10.7 bn for the company and debt-to-equity isnow 9.4x (up from 6.4x in FY12). The results for the Jun-13 quarter saw interest costsincrease by 36% to Rs6.7 bn and reported losses at Rs5.8 bn.

As the P&L interest cost increased from Rs10.5 bn in FY12 to Rs24.2 bn in FY13, interestcover declined from 1.2x to 0.6x. Moreover, capitalised interest in FY12 was Rs9.6 bn (92%

of P&L interest); however, the FY13 annual report is still awaited.We estimate the group has debt repayments of ~Rs18 bn due in FY14. The company hasbeen looking to sell a number of assets (power plants and exit the road business) to helpdeleverage; however, it has not yet been able to close a deal. It has now approached thebankers for restructuring the holding company debt of Rs75 bn.



Lanco Infratech 17,099 31,650 55,970 83,614 166,517 313,934 351,340


Most of Lancos projects are currently loss making. The Kondapalli II & III projects are lyingidle on account of low gas supplies from KG-D6, and could also require restructuring.

Lanco had accquired the Griffin coal mines for A$760 mn in Mar-11. The company now plansto spend A$1 bn to increase the production capacity from 4 mn tpa o 16 mn tpa by FY17. InApr-13, the company agreed to pay a A$7.5 mn fine to settle a A$3.5 bn lawsuit filed againstthe company.

Figure 52: Many projects facing fuel supply issues

Project Capacity

(MW)

Est cost

(Rs bn)

Est. CoD Power

Source

Remarks/ issues

Amarkanatak II 300 15 Operational Linkage Amarkantak-II has applied for PPArenegotiation, is under litigation.

Anpara 1,200 56 Operational Linkage Project's tariff aggressively bid, coalhandling logistics at the plant yet to be

implemented, likely to incur losses.

Vidarbha 1,320 66 FY16 Linkage LoA present but project might slipbeyond FY15 and thus faces risk ofdenial for FSA.

Babandh 1,320 75 FY16 Captive Captive coal mine for 1 GW, risk of

deallocation exists as progress on themine has been weak. Mine has 5 Joint

owners.

KondapalliPhase II

366 12 Operational Gas based Almost dormant on account of the fallin KG-D6 gas supplies.

KondapalliPhase III

732 33 Operational Gas based Awaiting gas supplies.

Total 5,238 257





Lanco Infratech 351,340 36,725 25,820 14,562 (10,733) 1.2 0.6 16.3 13.4 6.4 9.4



25/33


Reliance ADA GroupFigure 54: Reliance ADA group structure and debt

e ance

Reliance LandPvt Ltd

Reliance InnoventuresPrivate Limited

AAACommunication Pvt

LtdAAA Project Ventures

Reliance

Mediaworks

Reliance Power

275 bn (147 bn)

Reliance Comm

408 bn (383 bn)

Reliance Infra

226 bn (181 bn)

Reliance Cap

230 bn (198 bn)

19.16%75%

(22.08%)

36.5%

(38.41%)

40.4%48.5%

(47.8%)

35.03%67.86%

AAA Enterprises PvtLtd

40.07%54.14%

44.66%

100%

65%

ADA Group

Holding Cos


Rs 1,140 bn (Rs 915 bn)

18.5%




Reliance ADAG is a diversified conglomerate with presence in many sectors includingtelecom, financial services, power, infrastructure and entertainment. RelianceCommunications is an integrated telecom player with a retail customer base of about 2.5 mn.Reliance Power, the power generation arm, currently has a generation capacity of 2,460 MWand has 5,700 MW under construction. Reliance Infrastructure has 11 road projects totalling

970 km of which eight are operational and three are under construction and worth aboutRs83 bn. The metro system in Delhi has commenced operations, while the Mumbai metro isexpected by 3Q FY14. The group is also setting up two cement plants of 5 mn t each at acost of Rs66 bn. It also has an EPC order book of Rs102 bn.


26/33


Debt-to-equity increases to 1.1x and debt-to-EBITDA to 7x

The groups debt has increased by Rs225 bn (24%) leading to an increase in debt-to-equityto 1.1x and debt-to-EBITDA increased from 6.3x to 7x over the past year. Increased profitsfrom Reliance Power have helped maintain interest cover at 1.3x.

A large part of the debt increase is on account of the continuing capex at Reliance Power andReliance Infra. Notably though the debt increase in both these companies has been in excessof the capex during the year.

RComm, RPower and RInfra have forex debt of 70%, 52% and 28% respectively. In FY13,RComm had Rs6.4 bn of forex losses (95% of FY13 PAT) which were adjusted from thegeneral reserve, while R Power had capitalised forex losses of Rs5.8 bn (58% of FY13 PAT).RComm and RInfra have US$500 mn and US$250 mn respectively of ECBs maturing inFY14.

Reliance Communication which has Rs40 bn of debt due in FY14, is enter into an agreementwith Reliance Jio Infocomm to lease out telecom towers for ~Rs30 bn. It is also looking to sellthe international cable business for Rs70 bn and the DTH business for Rs25 bn and plans tospin off its real estate business in the hopes of raising ~Rs120 bn, and reduce its leverage.Reliance Communication has entered into a tower sharing deal which would result in inflowsof Rs120 bn over the tenure of the agreement (time frame not specified) and RCom has alsoentered into an agreement for sharing its optic fibres for a one-time payment of Rs12 bn.

As per the company press release, RComm has repaid two ECB loans of US$ 500 mn eachand made scheduled repayments for another US$207 mn loan during 1Q FY14.



Reliance Infra 66,502 59,036 101,054 85,839 123,052 182,897 219,762

Reliance Power - 4,483 13,325 22,406 73,348 150,650 275,107

Reliance Comm 174,383 258,217 391,623 297,154 390,714 383,030 415,470

Reliance Capital 14,030 93,262 141,071 145,193 201,536 198,390 225,100

Total 254,915 414,998 647,072 550,592 788,650 914,967 1,135,439


Reliance Powers phase-I of the Samalkot plant (1,000 MW) has been commissioned;however, due to low supply of gas from KG-D6, the plant is operating at low PLF and isexpected to incur losses of Rs4.0-7.7 bn from FY15 to FY17. The company hascommissioned the 1st phase (660 MW) of the Sasan project, and the balance 3,300 MW isexpected to be commissioned during FY14. It has already restructured Rs145 bn of loantaken for the Sasan project. The company had capitalised interest of Rs14.7 bn as againstexpensed interest of Rs5.8 bn, which would start shifting to the P&L with the commissioningof projects. Total interest costs (including capitalised interest) are up 70% YoY.

Reliance Infra is also entering the cement business and plans to spend Rs66 bn in setting up10 mn t of cement capacity, with 5 mn t in Madhya Pradesh and 5 mn t in Maharashtraexpected to come up in FY14 and FY15 respectively. They also have 11 road projects, eightof which are operational and the remaining are expected to be operational in FY14.

Figure 56: Reliance Power projects have fuel supply risk

Project Capacity

(MW)

Est cost

(Rs bn)

Est. CoD Power

source

Remarks/ issues

Krishnapatnam 4,000 240 FY17 Imported Project stalled, only Rs1.5bn capexincurred till date.

SamalkotExpansion

1,0001,400

100 ReadyFY15

Gas based 1,000MW has been commissioned,however is not operational, since it is

awaiting gas supplies.Total 6,400 340


Figure 57: Key financials, changes from FY12 to FY13Rs mn, unless stated otherwise Gross debt Equity EBITDA EBIT PAT Interest coverage (x) Debt/EBITDA (x) Debt/equity (x)


Reliance Infra 219,762 261,210 29,656 24,145 22,468 1.8 1.4 5.0 6.5 0.6 0.7

Reliance Power 275,107 185,811 17,129 14,278 10,115 1.7 2.4 19.6 13.2 0.7 1.2

Reliance Comm 415,470 338,500 59,420 20,970 6,720 1 .1 0.8 5.7 6.0 0.9 1.1

Reliance Capital 225,100 119,710 32,290 31,730 8,120 1 .2 1.4 6.1 6.2 1.4 1.7

Total 1,135,439 905,231 138,495 91,123 47,423 1.3 1.3 6.3 7.0 0.8 1.1



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Vedanta GroupFigure 58: Vedanta group structure and debt

VEDANTA GROUP (post restructuring)

Vedanta Resources Plc996 bn (935 bn)

Sterlite Industries202 bn (157 bn)Konkola CopperMines

79.4%53.1%

(54.6%)

Sterlite Energy

74%

Hind ZincNil

BharatAluminium

Skorpionand Lisheen

BlackMountain

AustralianCopper Mines

51% 64.9% 100%100%

Volcan, Bahamas

100%

Cairn India Ltd0 bn (13 bn)

38.7%

Estimated Group DebtRs 995 bn (Rs 950 bn)

100%



20.1%

Sesa Goa45 bn (37 bn)

55.1%(54.6%)

Liberia IronOre Assets

VedantaAluminum

70.5%

29.5%


Vedanta Resources is a global diversified resources company headquartered in London. It isthe largest mining and non-ferrous metals company in India, with mining operations inAustralia and Zambia. Copper, zinc, aluminium, lead and iron ore are its main products.Vedanta entered the power generation space by developing power stations in Orissa (2,400

MW) which has been completed and Punjab (1,980 MW), which is expected to be completedby 2Q FY14. The Group has a capex plan of US$21 bn over a period of 3-4 years. Thecompany has spent US$14.5 bn up to Mar-13, including US$1.67 bn in FY13.


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Interest cover declines, led largely by Sesa Goa

The group debt levels were relatively stable in FY13. However, interest cover declined from4.0x to 3.6x mainly on account of decline in profitability of Sesa Goa due to the mining ban.Sesa Goas interest cover reduced from 7.8x to 0.6x in FY13, and debt-to-EBITDA hasincreased from 0.9x to 9.2x.

Sesa Goa has short-term debt amounting to Rs33 bn as of Mar-13, while it had negative FCFfor FY13 of Rs6 bn and OCF of Rs222 mn.

Cairn India is looking to spend ~US$3 bn on capex between FY14 and FY16 with ~80%expected to be spent towards the Rajasthan asset. The company has cash of US$2.6 bn onits balance sheet and is unlikely to require any debt for its capex.



Vedanta Resources 94,974 163,576 281,320 449,548 536,388 934,725 996,108

Cairn 5,179 3,124 43,564 34,007 26,782 12,518 -

Total 100,153 166,700 324,883 483,555 563,170 947,243 996,108


Vedanta Aluminium has a 1MT refinery in Orissa, which has been idle since Dec-12 onaccount of issues with bauxite mining.

The company has invested ~US$6.7 bn in capex at the Orissa plant and has ~US$4 bn ofdebt. However, due to lack of clearances, 1.25 ktpa of the 1.75 ktpa smelter capacity is idle.EBITDA for FY13 was Rs9.7 bn, while loss after tax was Rs2.2 bn. EBITDA for 1Q FY14was Rs2.6 bn while interest costs were Rs7.65 bn and loss after tax was Rs8.8 bn.

As the repayments of the US$4 bn loans at Vedanta Aluminium are likely to commence (US$407mn ECB maturing in FY14), the group has initiated efforts for refinancing the same and taking iton Sterlite Industries (post-merger) balance sheet.



(US$ bn)

Est. CoD Remarks/ issues

Lanjigarh I Refinery 1 mt 1 Completed Plant has been shut since Dec-12due to unavailability of Bauxite.

Lanjigarh II Refinery 3 mt 1.6 On hold

Jharsuguda Smelter II 1.25 mt 2.9 FY14 US$2.5 bn of the est capex of

US$2.9 bn has been spent. Issuewith bauxite mining.

BALCO Al Korba IIIsmelter

0.375 mt 0.8 FY14 Metal tapping delayed.

BALCO Korba CPP 1,200 MW 1.1 Awaiting

approvalsTalwandi Sabo power

plant

1,320 MW

660 MW

2.1 FY14

FY15

Little clarity on coal linkage for the

upcoming units.Total 11.9




FY12 FY13 FY12 FY13 FY12 FY13Vedanta Resources Plc 996,108 263,904 290,784 150,720 99,948 2.5 2.1 2.8 1.8 2.3 2.0

Sterlite 201,847 509,552 104,689 84,371 60,603 9.4 9.1 (0.7) (0.4) (0.2) (0.1)

Sesa Goa 45,092 174,754 4,655 2,680 22,803 7.8 0.6 0.9 9.2 0.2 0.2

Hind Zinc 4 322,757 64,816 58,346 68,995 391.3 200.5 (3.0) (3.3) (0.7) (0.7)

Cairn 0 476,994 130,332 111,872 120,564 34.2 162.9 (0.8) (1.2) (0.2) (0.3)

Total 996,108 740,898 421,116 262,592 220,512 4.0 3.6 1.6 0.8 0.6 0.5



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Videocon GroupFigure 62: Videocon group structure and debt

Videocon Group

Videocon Ind Ltd273 bn (273 bn)

Videocon EnergyVentures

Pipavav EnergyPrivate Ltd

VideoconInternationalElectronics

100%

100%

Videocon(Promoter

Holding cos)

69.38%(68.24%)

VideoconTelecommunications

Block 56 OmanJoint Venture

Value Industries

RavvaOil & GasField JointVenture

25%

100%

IBV BrasilPetroleo Private

Ltd

50%(JV)

50%(JV)

Videocon Infinityinfra

(JV 50%)

Trend Electronics18.8% 5.0%

100%

1.0% 0.14%


Rs. 280bn



Source: BSE, Company data, Credit Suisse research

Videocon is an industrial conglomerate with an annual turnover of US$4 bn, making it thelargest consumer electronic and home appliance company in India. The group has diversifiedinterest in mobile phones, oil & gas, telecommunications and DTH services. It has expanded

its footprints globally with manufacturing facilities in China, Poland and Turkey. An importantasset for the group is its Ravva oil field, in which Videocon holds 25%. The oil field canproduce around 50,000 barrels of oil per day at peak production; however, production in Sep-12 had fallen to 23,000 barrels per day.

Debt likely to come down on account of asset sale

The company has sold its 10% stake in the Mozambique block to Oil India and OVL forUS$2.5 bn in Jun-13, which would help reduce debt by Rs100 bn.

The company has changed its year ending from December to June; hence, the latestconsolidated financials available are for Dec-11, while we await the annual report for Jun-13.

Figure 63: Key financialsFY12

Rs mn Debt Cash Equity EBITDA Interest PAT Net debt Intcover Debt/EBITDA D/E

Videocon Ind 272,916 12,226 77,929 15,420 15,564 (13,585) 260,690 1.0 16.9 3.3




Videocon Ind 62,832 69,988 113,852 121,136 144,199 272,834 N/A



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Companies Mentioned (Price as of 12-Aug-2013)

Adani Ports (APSE.NS, Rs144.35)Adani Power Ltd (ADAN.BO, Rs36.2)Cairn India Ltd (CAIL.BO, Rs301.2)Essar Energy Plc (ESSR.L, 131.0p)Essar Oil (ESRO.BO, Rs54.8)Essar Ports Ltd (ESRS.NS, Rs65.0)Essar Shipping (ESPL.BO, Rs15.0)GMR Infrastructure Ltd (GMRI.BO, Rs12.86)GVK Power & Infrastructure (GVKP.BO, Rs7.23)

JSW Energy(JSWE.BO, Rs38.2)

JSW Steel Ltd (JSTL.BO, Rs518.45)Jaiprakash Associates Ltd. (JAIA.BO, Rs31.45)Jaiprakash Power Ventures Ltd (JAPR.BO, Rs10.95)Lanco Infratech (LAIN.NS, Rs5.5)Reliance Capital Ltd (RLCP.BO, Rs335.05)Reliance Communication Ltd (RLCM.BO, Rs126.3)Reliance Infrast (RLIN.BO, Rs350.5)Reliance Power Ltd (RPOL.BO, Rs73.0)Vedanta Resources PLC (VED.L, 1266.0p)Videocon (VEDI.BO, Rs171.95)

Disclosure Appendix

Important Global Disclosures

I, Ashish Gupta, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly orindirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investmentbanking activities

As of December 10, 2012 Analysts stock rating are defined as follows:

Outperform (O) : The stocks total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over t he next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stocks total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, withOutperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stocks total returnrelative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, w ith Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractiveinvestment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stocks total return relative to the average total return of the relevant country o r regional benchmark; Australia, New Zealand are, and prior to 2nd

October 2012 U.S. and Canadian ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative a ttractiveness of a stocks total return potential within an analysts coverage universe. For Australianand New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10 -15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stocks total return relative to the average total return of the relevantcountry or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse'sengagement in an investment banking transaction and in certain other circumstances.


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Volatility Indicator [V] :A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or valuation of the sector* relative to the groups historic fundamentals and/orvaluation:

Overweight : The analysts expectation for the sectors fundamentals and/or valuat ion is favorable over the next 12 m onths.

Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.

*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 42% (53% banking clients)

Neutral/Hold* 40% (50% banking clients)Underperform/Sell* 15% (39% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same,as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy o r sell a security should be based on investment objectives, current holdings, and other individual factors.

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See the Companies Mentioned section for full company names

The subject company (VED.L, CAIL.BO, ESRO.BO, ADAN.BO, RPOL.BO, JAPR.BO, JAIA.BO, RLCM.BO) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of CreditSuisse.

Credit Suisse provided investment banking services to the subject company (JAPR.BO, JAIA.BO) within the past 12 months.

Credit Suisse provided non-investment banking services to the subject company (VED.L, ESRO.BO) within the past 12 months

Credit Suisse has managed or co- managed a public offering of securities for the subject company (JAPR.BO, JAIA.BO) within the past 12 months.Credit Suisse has received investment banking related compensation from the subject company (JAPR.BO, JAIA.BO) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CAIL.BO, ESRO.BO, ADAN.BO, RPOL.BO, JAPR.BO, JAIA.BO, RLCM.BO) within the next 3 months.

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Important Regional Disclosures

Singapore recipients should contact Cred it Suisse AG, Singapore Branch for any matters arising from this researc h report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (VED.L, CAIL.BO, ADAN.BO, RPOL.BO, JAPR.BO, JAIA.BO, RLCM.BO) within the past 12 months


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An analyst involved in the preparation of this report has visited certain material operations of the subject company (ESRO.BO, JSTL.BO) within the past 12 months

The travel expenses of the analyst in connection with such visits were paid or reimbursed by the subject company

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The following disclosed European company/ies have estimates that comply with IFRS: (VED.L).

An analyst involved in the preparation of this report received third party benefits in connection with this research report from the subject company (JSTL.BO)As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. researchanalysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD

Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (India) Private Limited ................................................................................................................................. Ashish Gupta

Important Credit Suisse HOLT Disclosures

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IDEAS ENGINE 33

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